On June 20, 2018, the Indiana Supreme Court upheld a narrow interpretation of the Transmission, Distribution and Storage System Improvement Charge (“TDSIC”) statute, which allows utility companies to seek approval from the Indiana Utilities Regulatory Commission (“IURC”) for specific transmission, distribution and storage system improvements and to raise rates periodically to recover the costs of the improvements as they are completed. The TDSIC statute was enacted in 2013 to encourage utilities to replace aging infrastructure without having to undergo the full ratemaking process and to recover the costs of the improvements as they were completed.
There are two types of proceedings under the TDSIC statute—Section 9 and Section 10. The Section 10 proceeding is the initial proceedings where a seven-year plan for eligible improvements, including cost estimates, is submitted and reviewed by the Indiana Utility Regulatory Commission (“IURC”). Once the plan is approved by the IURC, the utility may petition under Section 9 for periodic rate adjustments to recover 80 percent of capital expenditures for eligible, completed improvements. As a part of the Section 9 proceedings, the utility must also update the seven-year plan with the IURC. Furthermore, if the utility seeks to recover additional costs above the initially approved cost estimates, the utility must provide justification for the increase, and the IURC must approve the additional cost recovery.
At issue in this case was a seven-year plan filed by the Northern Indiana Public Service Company (“NIPSCO”) seeking approval for an improvement to its gas system under the TDSIC statute from the IURC. The Section 10 petition identified specific improvement projects for the first year, but for the remaining six years, the plan described “project categories” rather than identifying specific projects, because NIPSCO knows from historical data that a certain percentage of its systems will fail annually and need replacing (referred to as “ascertainable criteria”), but it cannot identify exactly which parts of its system will fail. The IURC approved the Section 10 petition and subsequent Section 9 petitions. The NIPSCO Industrial Group (“Industrial Group”) intervened to oppose NIPCOS’s fourth Section 9 petition because it updated the gas plan with an increased cost of $20 million, but the IURC approved it because the petition further identified specific projects and asset replacements within the project categories approved in the Section 10 petition.
The Indiana Supreme Court granted transfer from the Court of Appeals and held that periodic rate increases to cover the costs of improvements are available “only for specific projects a utility designates in the threshold TDSIC proceeding” and that the IURC erred by approving initially unspecified improvements grouped into project categories that NIPSCO only specifically identified in later Section 9 petitions. The Court emphasized that Section 9 petitions are only intended to track the progress of approved, identified projects, to “authorize the timely recovery” of 80 percent of approved costs, and to prepare for the eventual ratemaking case at the conclusion of the improvements to recover the remaining costs. Section 9 petitions “do not authorize the [IURC] to designate or approve new projects.” The Court reversed the portions of the IURC’s orders that approved previously unspecified projects and disallowed cost recovery under TDSIC for those improperly approved projects.
The Court also briefly addressed a question of claim preclusion, deciding that even though the Industrial Group did not appeal NIPSCO’s third Section 9 petition and was precluded from challenging any part of the third petition, the Industrial Group could still appeal NIPSCO’s fourth Section 9 petition.
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.