Articles Posted in Utility Law

The Indiana General Assembly recently made changes to the Indiana Underground Plant Protection statute (Indiana Code § 8-1-26) which will take effect July 1, 2017. S.B. 472, 120th Gen. Assem., Reg. Sess. (Ind. 2017). The main change in this chapter is the creation of a new voluntary “design information notice” which applies to advance planning efforts relating to a demolition or excavation project. The amendments also establish procedures for Indiana 811 and operators once a design information notice is received.

A design engineer, consultant, or architect may voluntarily submit a design information notice to Indiana 811, which must include contact information for the person serving the notice, the person responsible for project planning activities, and the person planning to perform the excavation or demolition, if known. The notice must also include the scope and location of the proposed project and whether white lining will be performed. The person responsible for the project may not serve more than two design information notices for the same project within any 180-day period. Additionally, if the person serving the design information notice is unable to provide the physical location of the proposed excavation or demolition project with the location’s address or legal description, the person must perform white lining in the area affected by the proposed project. Indiana 811 must receive the notice at least ten working days, but not more than twenty calendar days before preliminary planning activities commence. Indiana 811 is required to adopt policies for processing design information notices, including alerting the operators of underground facilities that will be affected by the proposed project and providing this list of operators to the party serving the design information notice.

Once an operator or utility receives a design information notice, it must, within ten working days, contact the person serving the notice and inform them whether the operator has underground facilities located in the project area. If the operator does have underground facilities in the area, it must provide either a description of the location and type of facility affected by the proposed project, allow an inspection of the operator’s drawings or records for all of the operator’s underground facilities within the project area, or mark the location of the operator’s underground facilities within the project area with temporary markers. The operator must also, where applicable, provide the person serving the notice with the necessary maps or information to describe the location of all facility markers marking the underground utility. An operator may reject a design information notice where there are security considerations or the operator would be placed at a competitive disadvantage by producing the information. An operator who rejects a design information notice must provide notice to the person serving the design information notice and may request additional information.

On February 15, 2017, the Indiana Court of Appeals issued a published opinion affirming a municipality’s ability to charge a Stormwater Fee to all property owners within the boundaries of the city. Mint Management, LLC v. City of Richmond (No. 89a01-1603-PL-496, decided February 15, 2017). The Court of Appeals found the definition of “user” under the statute included all property owners within the boundaries of the city, regardless of whether a particular property owner contributed to the city’s storm water runoff.

The City of Richmond adopted an ordinance in 2007 which created a Stormwater Management District in Richmond, which was financed by imposing a Stormwater Fee on all property within the city that directly or indirectly contributed to Richmond’s stormwater system. Four property owners whose stormwater runoff did not directly or indirectly drain into the city’s stormwater system sued, requesting a declaratory judgment that they were not required to pay the fee and a reimbursement of the fees already paid. The trial court granted summary judgment to the city, finding that the definition of “user” under the ordinance included the property owners.

The Court of Appeals agreed, finding that there would be “an irrational and disharmonizing interpretation” of the ordinance if the definition of “user” and statutory language was not taken into account. Specifically, the Stormwater Act under the Indiana Code (section 8-1.5-5-7) allows a stormwater management district to collect user fees “from all of the property of the storm water district” without exceptions. The Court found the ordinance also used language which encompassed all property owners within the city’s boundaries. Further, the court noted that the stormwater system benefitted everyone who uses any sewer infrastructure, so the property owners did directly or indirectly contribute to the stormwater system.

On December 16, 2016, the Court of Appeals found that “the reasonable necessity of an intersection expansion outweighed whatever injurious effect that expansion would have on an electric utility’s enjoyment of its easement.” Duke Energy Indiana, LLC v. City of Franklin, 41A01-1607-CT-1549, at 23. Duke Energy Indiana, LLC (“Duke”) had an easement for the transmission of electrical energy in the area of the City of Franklin’s proposed traffic plan, which would connect a four-lane state road to two city streets. Duke, believing that the plan would unreasonably interfere with its easement rights, filed for a preliminary injunction. The trial court denied the request, finding that Duke failed to establish unreasonable interference, and therefore, failed to show a reasonable likelihood of success at trial. Duke asserted that the increased volume and speed of traffic proceeding past the utility pole, located adjacent to and just northwest of the proposed intersection, would increase the hazard to maintenance and repair crews. The trial court found that Duke did not show material impairment, unreasonable interference, or irreconcilable conflict. Instead, the trial court found that Duke essentially argued that to repair and maintain the utility pole and transmission lines, Duke’s crews would interfere with the public’s use of the road. While the court found this concern valid, it did not address the issue of Duke’s use, and the need for additional traffic measures was not found to equate unreasonable interference with Duke’s easement. Duke appealed.

The Court of Appeals addressed Duke’s two claims related to its contention of a reasonable likelihood of success on the merits at trial: (1) the City should not be able to expand the intersection because it does not have adequate property interests in portions of the land and (2) the proposed expansion of the intersection unreasonably burdens its rights pursuant to the easement. The Court of Appeals found that the first claim was essentially a trespass action. However, as an easement holder, Duke lacked standing to maintain an action for trespass for invasion of a right of way or easement. As for the second claim, the Court found that the proposed intersection was a reasonably necessary use of the City’s right-of-way, as it will beautify the corridor, enhance safety, and spur growth. Duke would still be able to repair and maintain the transmission lines and utility poles by simply using additional traffic measures. Ultimately, the Court of Appeals affirmed the trial court’s decision, finding that the reasonable necessity of the expansion outweighed the injury to Duke’s enjoyment of its easement.

Jeremy Fetty is a partner in the law firm of Parr Richey Frandsen Patterson Kruse with offices in Lebanon and Indianapolis. He often advises businesses and utilities (for profit, non-profit and cooperative) on organizational, human resources, and transactional matters and drafts and reviews commercial contracts.

In 2015, the Tax Court of Indiana ruled that sewer system development charges and connection fees that are paid by a developer or builder and not by the retail customer are not gross receipts subject to the utility receipts tax (URT). Hamilton Southeastern Utils., Inc. v. Indiana Dept. of State Revenue, 40 N.E.3d 1284 (Ind. Tax 2015). The Indiana Department of State Revenue completed an audit of Hamilton Southeastern Utilities, Inc. proposing URT assessments on receipts from sewer system development charges and connection fees. Hamilton Southeastern protested, and after an administrative hearing denied the protest, Hamilton Southeastern appealed.

In determining that the sewer system development charges and connection fees paid by a developer or builder and not by the retail customer were not subject to the URT, the court examined I.C. 6-2.3-1-4 and I.C. 6-2.3-3-10. Under I.C. 6-2.3-1-4, the court determined that ‘utility services for consumption’ simply refers to the removal of sewage and does not give indication of a broader definition. The Department of State Revenue argued that because the fees are necessary, they should be included in the URT; however, the court found that was not grounded in the words of the statute. Under I.C. 6-2.3-1-10, gross receipts “are: 1) received for an enumerated service, 2) the enumerated service is provided to a consumer, and 3) the enumerated service is directly related to the delivery of utility services to the (same) consumer.” At 1288 (emphasis in original). In the case of system development and connection fees, the charges are not paid by the retail consumer, but by the developer and builder.

The court granted summary judgment to Hamilton Southeastern under I.C. 6-2.3-1-4 and I.C. 6-2.3-1-10, but decided the issue of needing to separate receipts on records and returns of the taxpayer under I.C. 6-2.3-3-2 separately. Later, the court determined that the system development and connection fees were separated from the taxable receipts in accordance with the statute. Hamilton Southeastern Utils., Inc. v. Indiana Dept. of State Revenue, Cause No. 49T10-1210-TA-00068 (Ind. Tax April 29, 2016). Although Hamilton Southeastern did not report the amount of fees that was not required – simply separating the fees from the taxable receipts was sufficient. This was accomplished by only reporting the taxable receipts.

Whether telecommunications providers have a private right of action under Section 253 of the Telecommunications Act of 1996 is an issue that will only be resolved in time. In November 2015, the Eighth Circuit joined the Second, Fifth, Ninth, and Tenth in holding that they do not. This decision split from the Sixth and Eleventh circuits holding they do.

Spectra Communications Group, LLC (“Spectra”) provided telecommunications services in the City of Cameron (“the City”) for several years. Spectra also maintained facilities in the City’s rights of way (“ROW”). The City enacted a ROW and Communications ordinance that required communications providers, like Spectra, to pay user fees and obtain use permits in order to maintain facilities in the City’s ROW.

The City sued Spectra for failure to pay municipal license taxes and user fees and failure to obtain use permits. After this suit, Spectra sought a construction permit. The City denied Spectra’s request for failing to comply with the City’s ROW code. Spectra then sued the City.

The Indiana Tax Court recently examined in Aztec Partners, LLC v. Ind. Dep’t of State Revenue, No. 49T10-1210-SC-00067, 2015 Ind. Tax LEXIS 29 (Ind. Tax Ct. June 23, 2015), whether electricity that Aztec Partners, LLC (“Aztec”), who operates nineteen Qdoba Mexican Restaurants in Indiana, used to power electrical equipment was subject to Indiana sales tax. The Court found it was not and reversed the Department of State Revenue’s (the “Department”) final determination and remanded the case.

At Aztec’s Qdoba Restaurants, employees prepare food items that are ultimately combined and served as entrées. Those food items are held and preserved in electrical equipment, such as food warmers and cooling systems, until they are combined into entrées and sold. The electrical equipment is not used to cook the food. In June 2011, Aztec filed twelve refund claims with the Department for the refund of sales tax paid on the electricity used to power electrical equipment. The Department denied the refunds finding that the electricity was taxable. Aztec protested the refund denial. Thereafter, the Department held a hearing and issued a Memorandum of Decision on August 24, 2012 denying that protest. Aztec initiated an original tax appeal.
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The Indiana Court of Appeals recently interpreted a land developer’s contract with an Indiana town in Carroll Creek Development Company Inc. v. Town of Huntertown, 9 N.E.3d 702 (Ind. Ct. App 2014). The contract provided that the developers could recoup nearly five-hundred thousand dollars of their water main construction costs through connection charges levied against land owners in a defined “excess area” if the land owners chose to directly or indirectly connect to the water main within the subsequent fifteen years.
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OSHA’s final rule revised or implemented eleven provisions in the Construction of Electrical Power Transmission Standard, 29 CFR 1926, subpart V, including provisions regarding: (1) host employers and contractors; (2) training; (3) job briefings; (4) fall protection; (5) insulation and working on or near live parts; (6) minimum approach distances; (7) protection from electric arcs; (8) deenergizing transmission and distribution lines and equipment; (9) protective grounding; (10) operating mechanical equipment near overhead power lines; and (11) working in manholes and vaults. OSHA also adopted a new construction standard on electrical protective equipment, 29 CFR 1926.97, and revised general industry and construction sections 29 CFR 1910.137 and 1910.269 mostly to incorporate the changed standards.

The host employers and contractors provision includes requirements for host employers and contract employers to exchange information on hazards and on the conditions, characteristics, design, and operation of the host employer’s installation. It also includes a requirement for host employers and contract employers to coordinate their work rules and procedures to protect all employees.
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The Indiana Court of Appeals recently interpreted a land developer’s contract with an Indiana town in Carroll Creek Development Company Inc. v. Town of Huntertown, 9 N.E.3d 702 (Ind. Ct. App 2014). The contract provided that the developers could recoup nearly five-hundred thousand dollars of their water main construction costs through connection charges levied against land owners in a defined “excess area” if the land owners chose to directly or indirectly connect to the water main within the subsequent fifteen years.
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The Indiana Court of Appeals recently issued an opinion explaining the difference between two common types of termination clauses in oils and gas leases. The first, known as a “drill or pay” clause, obliges the lessee to either commence production within a certain timeframe or pay advance royalties, but does not operate to automatically terminate the lease in the event of a breach. The second, called an “unless” clause, provides that the lease will automatically terminate if the conditions are not met.
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