Articles Posted in Utility Law

On December 28, 2021, the Indiana Utility Regulatory Commission (“Commission”) approved a Transmission, Distribution and Storage System Improvement Charge (“TDSIC”) plan submitted by Northern Indiana Public Service Company (“NIPSCO”). Part of NIPSCO’s TDSIC plan included certain system deliverability projects, specifically NIPCO’s need to upgrade its Marktown substation and improve the distribution and transmission related system deliverability in the Nappanee area. The NIPSCO Industrial Group and the Office of the Utility Consumer Counselor (collectively “Appellants”) appealed the Commission’s approval of the TDSIC plan, arguing that the Commission misinterpreted the statute governing TDSIC plans – I.C. 8-1-39 – because it did not conduct a cost-benefit analysis for each individual project in the TDSIC plan.

The Indiana Court of Appeals disagreed with Appellants’ interpretation that I.C. 8-1-39 required the Commission to conduct a cost-benefit analysis on an individual project basis. In its September 29, 2022, opinion, the Court focused on the statutory language of I.C. 8-1-39-10, finding that subsection 10(1) required the Commission to include a best estimate of cost “of the eligible improvements included in the plan” rather than a best estimate of cost for each individual improvement. Second, the Court noted that subsection 10(3), requiring the Commission to determine “whether the estimated costs of the eligible improvements included in the plan are justified by incremental benefits attributable to the plan,” is satisfied when the eligible improvements collectively are justified by the proffered benefits as applied to TDSIC plan in its entirety as opposed to individually, noting that “[h]ad the General Assembly wished to require more detailed findings, it could have easily required them but did not do so.” In a similar vein, the Court concluded that Appellants’ policy arguments regarding the purposes of subsection 10(3) were “best addressed to the General Assembly, not this court.”

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.

On March 10, 2022, the Indiana Supreme Court concluded that a utility cannot be reimbursed for a deferred asset, even if it is properly accounted for, without violating Ind. Code § 8-1-2-68 bar against retroactive ratemaking. The case involved the utility regulation commission’s approval of Duke Energy Indiana’s (“Duke”) 2019 request to increase its rates for retail consumers in order to recover about $212 million for coal-ash site closures, coal-ash site remediation, and other financing costs associated with the 2015 Environmental Protection Agency’s new rules for treating coal ash and remediating ash ponds. Duke accounted for these compliance efforts using asset retirement obligation accounting, which represents a legal obligation associated with the retirement of a tangible long-lived asset that must be settled under a newly enacted statute.

The issue before the Court was whether the utility regulation commission had the authority to approve the reimbursement sought by Duke without violating the statutory ban on retroactive ratemaking. Finding that the commission had established Duke’s rate and adjudicated depreciation rates for the cost of decommissioning its plant assets, including coal-ash costs, in its 2004 rate order, the Court concluded that the utility regulation commission exceeded its statutory authority by granting Duke’s request to re-adjudicate its coal-ash costs that were already governed by the commission’s 2004 rate order.

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.

Indiana Code §8-1-8.5-3.1(b) in 2019 ordered the Indiana Utility Regulatory Utility Commission (IURC) to conduct a study of statewide impacts of:

  • Transitions in the fuel sources and other resources used to generate electricity by electric utilities; and
  • New and emerging technologies on local grids or distribution infrastructure; on electric generation capacity, system reliability, system resilience, and cost of electric service for consumers. The IURC shall consider timelines for transitions in fuel sources and other resources and for implementation of new and emerging technologies.

On August 5, 2020, the Indiana Utility Regulatory Commission (IURC) approved $1,110,000 in civil penalties for pipeline safety violations in 2018 for Northern Indiana Public Service Company, LLC (NIPSCO).  NIPSCO failed to locate or mark its pipelines in the two days required by safety procedures.  Mr. Boyd, the Division’s Director, claimed NIPSCO committed 230 violations in 2018.

In 2017, the IURC approved a settlement agreement that outlined the cost of each violation NIPSCO commits in 2017, 2018 and 2019 with respect to locating underground gas pipelines and facilities subject to approval.  Each side recommended the Commission approved $1,110,000 in damages.  The Division’s deadline to file the petition for approval of 2019 penalties is December 31, 2020.

To access the order, visit this website: https://www.in.gov/iurc/files/44970%20S2%20PSD%20NIPSCO%20Order.pdf.

On February 5, 2020, the Indiana Court of Appeals handed down an opinion that will have landowners thinking twice before interfering with easement owners’ rights. In Duke Energy Indiana v. J & J Development Company, J & J bought a piece of land with the intent of developing a residential subdivision. Duke Energy Indiana v. J & J Development Company, 19A-PL-735, 1 (Ind. Ct. App. 2020). Moving forward with their intent, J & J Development Company (“J & J”) constructed improvements within an electric-transmission line easement owned by Duke Energy (“Duke”). Id. at 1-2.

Duke and its predecessors have owned the electric-transmission line easement in question since 1956 through an instrument that granted Duke, among other rights, the right to “erect, construct, and maintain the necessary substructures for said towers and poles.” Id. at 3. Without contacting Duke, J & J went ahead and had a surveyor prepare a plat for the subdivision, received plat approval, and then purchased the land. Id. at 5. J & J then began to construct the “improvements” to the easement, or in other words, they started to build the subdivision which fell within the easement. Id. at 5. The improvements J & J constructed within the easement included: an entrance, a road running through much of the easement, detention basins, a fire hydrant, and buried utility lines. Id. at 5.

Duke was not contacted by J & J until they wanted to discuss the sewer work they wanted done. Id. at 8. This led to Duke inspecting the improvements made by J & J and concluding that J & J impermissibly encroached upon the easement. Id. at 8. As a result, J & J filed suit against Duke, seeking a declaration that the improvements did not unreasonably interfere with Duke’s use of the easement. Id. at 8. Duke counterclaimed, requesting a declaration that J & J’s improvements were impermissible and asked for an injunction to have J & J remove the improvements. Id. at 8. The trial court ruled that the improvements were permissible, which resulted in an appeal by Duke. Id. at 8.

A California court of appeals recently held that utility companies operating in rural areas of the state do not collect a higher cost of capital, also referred to as a rate of return, than other utility companies.

In Ponderosa Telephone Co. v. California Public Utilities Commission, several small, rural, privately-owned telephone companies asked the California court of appeals to review a decision of the California Public Utilities Commission (“PUC”).[1]  The PUC’s ruling related to the companies’ cost of capital, “a measurement of the cost of obtaining debt and equity financing, and it reflects the amount investors would demand to compensate them for the risks of investing capital in the company.”[2]  This is also referred to as the rate of return, as it provides the target return on the utility’s capital.[3]  The number is a factor in determining a company’s rate base and is calculated by examining (1) the cost of debt, (2) the cost of equity, and (3) the capital structure.[4]

The companies filed a petition to the PUC proposing that their rates of return be reviewed and altered to approximately 14.6%. The proposed amount represented a significant increase from the previous figure of 10% and reflected special risk factors the companies faced, including their small size, industry risks, and regulatory risks.[5]  However, following its review, the PUC denied the companies’ requests and lowered their rates of return to approximately 9%. The companies sought a review of the ruling, arguing that the PUC’s conclusion was arbitrary and capricious, and was unsupported by substantial evidence.[6]

On June 27, 2019, the Indiana Supreme Court concluded that Indiana utility companies may be estopped from challenging the use of customer class revenue allocation factors under Indiana’s Transmission, Distribution, and Storage System Improvement Charge statute (the “TDSIC Statute”)[1] if such companies demonstrate uncontested support of the factors’ use in prior proceedings and the challenge would cause injury to an opposing party. The TDSIC Statute was enacted in 2013 and encourages energy utilities to replace their aging infrastructures by allowing them (1) to seek IURC pre-approval for certain gas or electric infrastructure projects and (2) to recoup the costs by submitting rate-increase petitions.[2]

Typically, base utility rates are set through a general ratemaking case before the IURC.[3] This type of review allows the IURC to ensure that utility rates are fair to both the utility company and to its customers.[4] However, rates can also be adjusted to reflect certain infrastructure projects and costs through the Commission in what is known as “tracker” or “rider” proceedings.[5]  Specifically, the TDSIC Statute provides two such proceedings under Section 9 and Section 10, both of which are distinct yet still related.[6] Under Section 10, utilities may seek approval of a multi-year plan from the IURC “for eligible transmission, distribution, and storage improvements.”[7]  Based on this multi-year plan, Section 9 subsequently permits utilities to petition the IURC for periodic rate adjustments to recover 80% of approved capital expenditures and TDSIC costs.[8] Section 9 petitions further require that customers use “the customer class revenue allocation factors based on firm load approved in the pubic utility’s most recent retail base rate case order.”[9]

At issue in NIPSCO Industrial Group v. Northern Indiana Public Service Co. was whether the IURC improperly approved of the use of customer class revenue allocation factors based on total load rather than firm load as required by the TDSIC Statute.[10] Initially, NIPSCO Industrial Group (the “Industrial Group”) and the Northern Indiana Public Service Company (“NIPSCO”) agreed to two expansive, multi-year settlements, which specified how rate increases should be calculated and allocated among the utility company’s various rate classes under the TDSIC Statute.[11] Ultimately, the IURC approved the agreements. However, despite being a party and approving the first Section 9 petition, the Industrial Group opposed NIPSCO’s second Section 9 petition. Specifically, the Industrial Group argued that the customer class revenue allocation factors included in NIPSCO’s second Section 9 petition were based not on firm load, but on total load. The IURC rejected the Industrial Group’s argument, leading the Industrial Group to seek judicial review.[12]

In July 2018, the town of Brownsburg passed an ordinance introducing a new fee to certain water customers outside the town limits. The fee, pursuant to I.C. § 8-1-2-103(d), helped fund the town’s fire hydrants and had been imposed on all Brownsburg residents since 2010. Shortly after the ordinance’s enactment, Sabrina Graham and Kurt Disser (“Graham/Disser”), who live outside the town’s limits, filed a suit in Hendricks Circuit Court. Their complaint alleged that, among other things, the new ordinance charged for a service they were already paying and was implemented to harass those who recently protested an on-going annexation action. In an amended complaint, Graham/Disser also alleged that I.C. § 8-1-2-103(d) was unconstitutional as applied, based on its unequal applicability to individuals living outside of town.

Although the town was late in serving its discovery answers and its answers to the amended complaint, the trial court granted its motion for summary judgment. The town argued Graham/Disser had not exhausted their administrative remedies before filing the complaint with the court. Specifically, I.C. § 8-1.5-3.8.2 states home owners objecting to the operation of municipally-owned utilities may file a written petition with the county clerk’s office and give the municipality an opportunity to modify the ordinance. The trial court agreed, and Graham/Disser appealed.

The Indiana Court of Appeals affirmed the lower court’s decision. In its opinion, the court states the well-established rule that claimants with administrative remedies must exhaust the available remedies before accessing the courts. This rule remains even if the statute or agency rule lacks specific language requiring the remedy’s exhaustion. Graham/Disser argued one of the exceptions to the exhaustion requirement: futility. They contended that exhausting the available administrative remedies would have been futile because the town of Brownsburg could not declare I.C. § 8-1-2-103(d) unconstitutional. The court disagreed and held “established administrative procedures may not be bypassed simply because a party raises a constitutional issue; otherwise they could be circumvented by the mere allegation of a constitutional deprivation.” Barnette v. U.S. Architects, LLP, 15 N.E.3d 1, 10 (Ind. Ct. App. 2014). The administrative remedy would have also afforded Brownsburg an opportunity to alter the law in a way that avoided the constitutionality question entirely. Because Graham/Disser were required to exhaust the available administrative remedies before filing a complaint and failed to do so, the case was correctly decided in favor of the town.

The United States Supreme Court recently issued its decision in a case that, on the surface, appears to impact the wine and liquor industry. However, the ruling is promising for out-of-state companies wishing to operate as public utilities in Indiana, as such entities currently face a comparable citizenship hurdle under Indiana law. [1]

In Tennessee Wine and Spirits Retailers Association v. Thomas, the Court held that a Tennessee law, which required a minimum of two years of Tennessee residency for entities wishing to operate retail liquor stores, was an unconstitutional limitation of interstate commerce. Tennessee Wine and Spirits Retailers Association v. Thomas, No. 18-96, slip op. at 36 (2019). Though admittedly deemed “less extreme” than other Sixth Circuit attempts to limit interstate commerce, the law was ultimately found to violate the Commerce Clause due to its express discrimination against nonresidents and its “highly attenuated relationship” to public health or safety. Id. at Syllabus 4.

Under the law at issue in Tennessee Wine, a person and/or company attempting to obtain proper licensure for the first time to operate a retail liquor store must have resided in Tennessee for two or more years at the time of application. Id. at 3. Despite not having been citizens for at least two years, two liquor businesses applied for such licenses in 2016. Id. at Syllabus 4. The Tennessee Alcoholic Beverage Commission recommended that the two applications receive approval; however, the Tennessee Wine and Spirits Retailers Association threatened to sue the Commission if the applications were granted. Id. at 4. The Commissions’ executive director then filed a declaratory judgement action in State court to settle the question of the residency requirements’ constitutionality. Id. The case was removed to federal court, where the district court found the Tennessee law to be unconstitutional. Id. The Sixth Circuit Court of Appeals affirmed the decision of the district court. Id. at 6.

Great River Energy (“GRE”) is a G&T cooperative that services 28 members. Crow Wing Coop. Power & Light (“Crow Wing”) is one of GRE’s 28 members. In 2004, Crow Wing entered into a power purchase contract with GRE. The pertinent parts of power purchase contract are (i) the section which provides the rate making formula and governs GRE’s charges to members for generated electricity, and (ii) the sections governing GRE’s amendment of its rate formula.

The contract obligated Crow Wing to acquire a fixed portion of the total power it purchases from GRE. For members obligated to purchase fixed- portion of power, the member’s rate is calculated in part by accounting for the various power plants (“resources”) that serve that particular member. Thus, each fixed-portion member may be charged a different rate based on the resources associated with that member. In the event that GRE chooses to retire a resource, a fixed-portion member is entitled to reduce the amount of energy it is required to purchase. The contract also provides that when GRE retires a resource, it is entitled to pass on certain costs associated with the retirement.

As to the amendment of rates and charges, the contract allows GRE to amend its rates so long as it obtains sufficient member approval. Specifically, GRE may amend its rates by obtaining approval of (i) 55% of its members, and (ii) members representing 45% of its load. GRE has amended its rate formula twice since 2004, most recently in 2009. Even though Crow Wing voted against the 2009 amendment, GRE obtained sufficient approval for the amendment.

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