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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]

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The United States Court of Appeals for the Fifth Circuit recently allowed a “patronage capital” lawsuit to continue in federal court after deciding federal loan conditions and requirements may preempt state laws.[1]

One of the agencies within the United States Department of Agriculture is the Rural Utilities Service (RUS). Among its other responsibilities, a primary role of the RUS is to provide loans to electric power cooperatives needing financial assistance.[2]  Like all loans, RUS’s loans contain significant restrictions and approval requirements that bind the actions of electric cooperatives. One such restriction controls the disbursement of “patronage capital,” or excess revenue not used by the electric cooperatives that is distributed to its members.[3]  The loans require electric cooperatives to obtain written approval from the agency before distributing patronage capital; however, the loans grant automatic approval of distribution if “[a]fter giving effect to the Distribution, the Equity of the Borrower shall be greater than or equal to 30% of its Total Assets.”[4]

The present case arose when members of three rural power cooperatives in Mississippi alleged the cooperatives violated state law in refusing to refund excess patronage capital to their members. The members cited to relevant Mississippi law, which requires cooperatives to return excess revenues to its members, beyond what is needed for “operating and maintenance expenses and to the payment of such principal and interest and . . . to such reserves for improvement, new construction, depreciation and contingencies as the board may . . . prescribe.”[5]  Once filed, the cooperatives removed the cases to federal court, asserting federal officer removal jurisdiction under 28 U.S.C. § 1442. After the district court remanded the cases back to state court, the cooperatives appealed to the United States Court of Appeals for the Fifth Circuit, who consolidated the three cases.

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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]

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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.

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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.

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The Seventh Circuit recently reaffirmed the standard required to hold an employer liable for retaliation under Title VII. In Mollet v. City of Greenfield, the court held that “Title VII claims require proof that the desire to retaliate was the but-for cause of the challenged employment action.”[1] This ruling establishes the requirement for an employee to bring a successful retaliation claim and helps protect an employer if it can demonstrate it terminated the employee for a lawful reason.

In August 2016, James Mollet filed a Title VII claim against the City of Greenfield, Wisconsin. Mollet’s complaint alleged that he was constructively discharged from the city’s fire department as retaliation for reporting a racist incident in the firehouse. The incident occurred in February 2012, and Mollet’s report led to the fire department management disciplining four individuals. However, in the year following the incident, Mollet’s superiors became increasingly critical of his performance. Facing demotion or reassignment, Mollet resigned and found new employment in March 2013.

Title VII of the Civil Rights Act of 1964 prevents retaliation against employees for complaining about discrimination in the workplace.[2] A successful claim under Title VII requires an employee to show: “(1) he engaged in a statutorily protected activity, (2) his employer took a materially adverse action against him, and (3) there is a causal link between the protected activity and the adverse action.”[3]

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For the first time, the 7th Circuit has directly addressed the question of whether obesity is a “physical impairment” that qualifies as a disability under the ADA. Consistent with the Second, Sixth, and Eighth circuit courts’ holdings, the 7th Circuit held in Richardson v. Chicago Transit Authority that “obesity is an ADA impairment only if it is the result of an underlying physiological disorder or condition.”[1] Although this ruling clarifies that not every obese person is being protected under the ADA, it does leave the waters muddy for employers who must consider whether an employee’s obesity is caused by an underlying physiological disorder or condition before making employment decisions.

Mark Richardson worked as a full-time bus driver for Chicago Transit Authority (“CTA”) from August 1999 until February 2012. In February 2010, Richardson was absent from work due to the flu. Upon his return, CTA’s third-party medical provider documented that Richardson suffered from a variety of conditions, in addition to weighing more than the CTA bus seat limit of 400 pounds.[2] In April, CTA transferred Richardson to its Temporary Medical Disability-Area 605 (“605”), an area described as a budgetary assignment for employees found medically unfit for their job classification due to illness or injury. Although Richardson was given two years in 605 to prove his ability to operate the busses and to comply with the seat’s weight accommodation, he failed to do both. CTA offered to extend his time in 605 if Richardson submitted medical documentation. When he did not, CTA terminated his employment.

Richardson filed a lawsuit against CTA, alleging that it violated the Americans with Disabilities Act (“ADA”) by firing him for being too obese to operate a bus. The district court granted summary judgment for CTA, agreeing with its argument that Richardson had failed to show his obesity qualified as a protected physical impairment under the ADA. Richardson appealed the decision to the United States Court of Appeals for the Seventh Circuit.[3]

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Signed into law on May 2, 2019, SEA 460 enhances the state’s ability to develop high speed internet access in rural communities. The act does this in two ways: (1) by creating a rural broadband fund used to award grants to certain broadband service providers operating in rural areas, and (2) by issuing new guidelines to the Indiana Department of Transportation (INDOT) regarding communications infrastructure used for broadband services.

First, the act expands I.C. § 4-4-38 “Broadband Grants for Unserved Areas” by adding a new Chapter: I.C. § 4-4-38.5. Entitled “Broadband Grants for Rural Areas”, the Chapter creates a rural broadband fund (“fund”) administered by the Office of Community and Rural Affairs (“Office”) for the purpose of awarding grants to broadband service providers. The Chapter states that before July 21, 2019, the Office must establish procedures for awarding the grants, and that those procedures must prioritize certain broadband service projects over others. I.C. 4-4-38.5-9. Projects that extend broadband service to rural areas where internet connections are unavailable or where connection speeds are less than ten megabits per second will be prioritized over areas with higher connection speeds. However, the Office cannot award grants to projects already receiving federal funding or in areas where broadband service is already available. Finally, the Office must publish all grant application to its website and cannot discriminate awards based on the technology used to provide broadband service.

The act also amends I.C. § 8-23-5 “State Highways” by adding an additional section. I.C. 8-23-5-10 allows INDOT to create a broadband corridor program (“program”) to manage the installation and maintenance of communications infrastructure used for broadband services. The program only applies to infrastructure along or within a limited-access highway (interstate, toll road, U.S. 30, or U.S. 31). INDOT may impose a one-time permit fee for installing the infrastructure and routine permit fees for maintenance, but cannot impose additional fees for access to state roads or U.S. routes. Similar to I.C. § 4-4-38.5, INDOT cannot discriminate among entities requesting access to broadband corridors based on the type of broadband technology used. In tandem, these amendments encourage broadband providers to expand into underserved parts of Indiana while limiting potential obstacles.

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In 1990, the State of Pennsylvania enacted a statutory scheme for regulating 911 emergency calls throughout the State. Most notably, counties were responsible for maintaining 911 systems and were obliged to make arrangements with local exchange carriers (“LECs”) operating within the county to provide 911 service. Service providers would impose a charge on its customers to pay for the 911 service. Funds collected via this new charge would be reimbursed to the counties. In April of 2016, the County of Butler filed a complaint against CenturyLink, and other LECs (collectively “Providers”) operating within the county, alleging that they have failed to assess the proper charges to reimburse Butler County for its expenses related to setting up a 911 emergency call system. The County couched its claims based on various common law theories. Providers respond that Butler County is barred from bringing any claims against them, as the 911 Emergency Call Act explicitly gave enforcement authority to the Pennsylvania Emergency Management Agency (“PEMA”), and that the statute’s explicit grant of enforcement authority precludes any other party from enforcing the statute.

Ultimately, the Supreme Court of Pennsylvania ruled in favor of Providers. As an initial note, The Court found that its decision did not implicate any party’s due process rights. A county’s right to reimbursement for setting up a 911 system was granted purely by statute, and thus the enforcement of such rights could be limited by statute. While the Court found the statute to be ambiguous, it ultimately agreed with the Providers’ interpretation. The Court held that any action to enforce the 911 Act’s requirement that LECs charge customers for 911 services may only be brought by PEMA. Thus, Butler County’s various common law claims were properly dismissed. However, this does not mean that Pennsylvania counties are without a remedy. In his concurring opinion, Justice Todd noted that, should the current state of affair continue, Butler County would be entitled to bring a mandamus action against PEMA for its failure to enforce the 911 Act.

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.

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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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