Indiana Utility Law – NIPSCO Industrial Group v. Northern Indiana Public Service Co., 18S-EX-475 (Ind. 2019)

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]

Ultimately, the Indiana Supreme Court concluded that the Industrial Group was estopped from challenging the use of the customer class revenue allocation factors from the Base Rate Case Settlement and related order.[13] Specifically, the Court noted that the Industrial Group supported the use of the allocation factors from the Base Rate Case Settlement and related order earlier in both the base rate case and in the TDSIC multi-year plan proceeding.[14] Moreover, the Industrial Group did not object when NIPSCO used the allocation factors from the Base Rate Case Settlement to file the first Section 9 petition; only when NIPSCO filed the second Section 9 petition—using the same allocation factors as the first Section 9 petition used—did the Industrial Group voice concern.[15] Therefore, up until the second Section 9 petition, the Industrial Group essentially approved the use of the Base Rate Case Settlement’s allocation factors. This consequently resulted in NIPSCO’s reliance on the allocation factors in moving forward with the multi-year plan.[16] And, according to the Court, allowing such a delayed dispute to proceed now would only harm NIPSCO and the larger systems used to regulate utilities and to provide services to the public.[17]

The Court then went on to address the findings of the IURC’s second Section 9 petition order, holding that the IURC sufficiently and reasonably supported its final conclusion to approve the petition.[18] In discussing this finding, the Court highlighted the various evidence the IURC relied on in making its decision. First, the Court emphasized how the IURC began its discussion of the allocation factors by summarizing the conflicting testimony presented to it in the second Section 9 petition.[19] The Court also noted that the IURC considered the fact that the allocation factors in NIPSCO’s second Section 9 petition arose from the Base Rate Case Settlement and were approved in the Base Rate Case Order.[20] Moreover, the Court acknowledged that the IURC noted in its decision that the parties to the TDSIC Plan Settlement did not just provide that the allocation factors from the Base Rate Case Settlement should be used in TDSIC proceedings based on the multi-year TDSIC plan; they also explicitly “agreed that using such factors complies with the TDSIC Statute.”[21]

It is necessary for Indiana utilities to keep the NIPSCO Industrial Group decision in mind when entering into complex, administrative agreements that deal with rates and infrastructure investments under the TDISC Statute, as their failure to do so puts them at great risk of losing their ability to raise challenges to specific parts of their agreements in later proceedings. Utilities can avoid such forfeiture by addressing any concerns they have regarding the terms of their agreements at the time they first arise.

Read the full NIPSCO Industrial Group decision here: https://law.justia.com/cases/indiana/supreme-court/2019/18s-ex-475.html.

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[1] Ind. Code. ch. 8-1-39 (2019).
[2] NIPSCO Indus. Group v. N. Ind. Pub. Serv. Co., 100 N.E.3d 234, 238 (Ind. 2018).
[3] NIPSCO Indus. Group v. N. Ind. Pub. Serv. Co., 18S-EX-475 at 3 (Ind. 2019).
[4] U.S. Gypsum, Inc. v. Ind. Gas Co., 735 N.E.2d 790, 798 (Ind. 2000).
[5] NIPSCO Industrial Group, 18S-EX-475 at 3.
[6] Id.
[7] Ind. Code § 8-1-39-10(a) (2019).
[8] Ind. Code § 8-1-39-9 (2019).
[9] Ind. Code § 8-1-39-9(a)(1) (2019).
[10] NIPSCO Indus. Group, 18S-EX-475 at 11.
[11] Id.
[12] Id. at 5.
[13] Id. at 14.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id. at 17.
[19] Id.
[20] Id.
[21] Id.

Jeremy Fetty is a partner in the law firm of Parr Richey with offices in Indianapolis and Lebanon. Mr. Fetty is current Chair of the Firm Utility and Business Section and often advises businesses and utilities (for profit, non-profit and cooperative) on regulatory, compliance, and transactional matters.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.