NOW!, Inc. v. Indiana-American Water Co., (sale of municipal utility) – Indiana Utility Lawyer

In an opinion issued on December 31, 2018, the Indiana Court of Appeals upheld Charlestown’s sale of its water utility to the Indiana-American Water Company. See Now!, Inc. v. Indiana-American Water Company, Inc., Case No. 18A-EX-844 (Ind. Ct. App. Dec. 31, 2018). The City of Charlestown owned and operated its water utility for over fifty years. Id. at 3. At the time of the sale, the water utility system served 2,898 metered accounts. Id. Due to the City’s failure to maintain its water distribution system properly, minerals began to build up in the system, causing some customers to see “brown water” flow from their taps. Id. at 4. The estimated cost to remedy Charlestown’s water system was $7.2 million. Id. Concluding that this repair cost was too burdensome for the City to take on, City officials met with Indiana-American in the Spring of 2016 to discuss the sale of Charlestown’s water utility. Id. Appraisers valued the utility’s assets at just under $13.5 million. Id. at 5. Charlestown and Indiana American agreed on a sale price of $13,403,711. Id. This price reflected the appraised value of the water utility minus the value of a few wells/well pumps which Charlestown would retain and lease to Indiana-American. Id. The City held a public meeting to discuss the sale on May 11, 2017. Id. On July 6, 2017, the City adopted an ordinance to sell the utility. Id. A day later, NOW filed a complaint with the IURC asking it to reject the sale. Id. at 6. NOW eventually filed a motion for summary judgment, and the IURC held a three-day evidentiary hearing on the motion. Id. After the hearing, the IURC denied NOW’s motion and approved the sale. Id. at 7.

On appeal, the Court addressed three issues: (i) whether the sales price was reasonable as required by statute, (ii) whether information relating to the sale was properly made available to the public, and (iii) whether the statute requiring a public hearing on the sale was satisfied. Id. at 3. The “reasonableness” of a municipal utility’s sale price is defined by two statutes: Ind. Code § 8-1.5-2-6.1 (applying to the sale of “non-surplus utility property”) and IC §8-1-30.3-5 (applying to the sale of property by “distressed utilities”). Id. at 12. NOW argued that these two statutes present two distinct reasonableness standards and that the IURC applied the wrong standard in its order approving the sale. Id. The Court of Appeals rejected this argument; finding that the two statutes govern similar situations must be read harmoniously. Id. at 20. It determined that, since Charlestown sold its water utility to Indiana-American for its appraised value, the sales price was reasonable under both statutes. Id. at 21.

As to the second issue, NOW argued that Charlestown failed to comply with IC § 8-1.5-2-4 which requires that certain information about the sale be made available to the public “in a written document.” Id. at 21-22. Charlestown made the required information available, but failed to compile it into a single document. Id. at 22. Acknowledging this failure, the Court nonetheless held that Charlestown made the required information available in substantial compliance with § 8-1.5-2-4. Id. at 23. Finally, the Court of Appeals held that the timing of Charlestown’ public hearing to discuss the sale was proper. Id. at 26.

 

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.