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On June 20, 2018, the Indiana Supreme Court upheld a narrow interpretation of the Transmission, Distribution and Storage System Improvement Charge (“TDSIC”) statute in NIPSCO Industrial Group v. Northern Indiana Public Service Co., 100 N.E.3d 234 (Ind. 2018). A summary of that case can be found here: https://www.indianabusinesslawyerblog.com/nipsco-industrial-group-v-northern-indiana-public-service-co-100-n-e-3d-234-ind-2018/.

On September 25, 2018, the Indiana Supreme Court reissued their opinion in response to a rehearing on the issue. The modified opinion is largely identical to the opinion issued in June. The TDSIC statute allows for periodic rate increases to cover 80 percent of the approved cost estimates for an improvement project without going through the traditional ratemaking process. The remaining 20 percent of improvement costs are recovered through the next general rate case filed by the utility with the Indiana Utility Regulatory Commission (“Commission”). The Supreme Court modified the June opinion to add a clause clarifying that any cost overruns incurred during a TDSIC improvement project that are “specifically justified by the utility and specifically approved by the Commission” are also recoverable during the next general rate case filed with the Commission in addition to the remaining 20 percent of improvement costs. 100 N.E. 3d at 244.

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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The success of litigation depends not only on the facts of a case, but also how a case is pleaded. A seemingly meritorious claim can be dismissed where the claim is not carefully and deliberately plead to the court. This is especially true where a plaintiff’s claim involves an element of intent or fraud. The 7th Circuit reinforced the importance of meeting Federal pleading standards when it dismissed a recent Illinois case for failure to properly allege intent and fraud.

Jefferies LLC is a securities and investment banking firm that was looking to get into the trading of precious metals futures. Webb v. Frawley, No. 18-1607 (7th Cir. 2018) at 2.  In 2010, Defendant Frawley left his job as a precious metal trader at Newedge USA, LLC, to become the global head of metals trading at Jefferies. Id. Frawley convinced two other Newedge employees, Beversdorf and Webb, to leave and join him at Jefferies. Id. After they did so, Newedge sued Jefferies for poaching its employees. Id. at 3. Soon after receiving notice of the suit, Jefferies issued a policy stating that no precious metal futures would be traded while Newedge’s lawsuit was pending. Id. Frawley knew of this policy, but nevertheless he instructed Webb and Beversdorf to continue trading iron ore futures without informing them that Jefferies would not fulfill their trades under to its new policy. Id. at 4. Webb and Beversdorf eventually found out that none of their trades for iron ore futures were being fulfilled by Jefferies. Id. But it was too late, and both Beversdorf and Webb were fired due to their “poor performance and lack of production.” Id. at 5.

Both Beversdorf and Webb brought claims for tortious interference with contract and common-law fraud claims against Frawley. Frawley removed both suits from Illinois state court to the Northern District of Illinois. Id. at 6. The court eventually dismissed Beversdorf’s claim, finding that he had signed a form which compelled arbitration. Id. at 7. However, Webb did not sign an equivalent form, and thus his claim was allowed to proceed. Id. Frawley then moved to dismiss Webb’s claims. Id. The district court granted Frawley’s motion to dismiss, finding that Webb failed to state a claim for tortious interference with contract under Rule 12(b)(6), and that Webb’s common-law-fraud claims did not meet the heightened pleading standards for fraud under Rule 9(b). Id. Plaintiff appealed on both claims.

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On August 16, 2018, the U.S. Court of Appeals for the Seventh Circuit issued an opinion holding that the use of digital “smart meters” by a public utility constitutes a reasonable search under the Fourth Amendment of the U.S. Constitution as well as the Illinois Constitution.

After receiving a grant from the U.S. Department of Energy to modernize its electrical grid, the City of Naperville replaced analog residential energy meters with digital “smart meters.” Unlike analog meters, which typically provide a single lump figure of electricity usage once per month, smart meters record consumption information much more frequently, so the data shows the amount of electricity used in a home at the time it is used. A group of concerned citizens sued, arguing that the smart meters reveal intimate personal details of customers, such as when the customers are home, their sleeping routines, and so on, and that the city’s collection of such data constitutes an unreasonable search under the Fourth Amendment and the Illinois Constitution. The district court denied two of the group’s complaints, and the group requested leave to file a third complaint, but the district court denied the request because it found that the complaint would be futile because it could not plausibly allege a violation of either the Fourth Amendment or the Illinois Constitution. The Seventh Circuit Court of Appeals affirmed the district court’s denial of the leave to file a third complaint, holding that while the use of smart meters by Naperville constitutes a search, the search is reasonable and therefore permitted under the Fourth Amendment.

Upon appeal, the Court applied the Kyllo test, which dictates that when the government uses technology not in general public use to explore details of the home that would have been otherwise unknowable, that surveillance constitutes a search. The Court found that the use of smart meters constitutes a search under the Kyllo test because the smart meters yield sufficient data to draw inferences about the activities taking place within the home. Furthermore, the Court said that smart meters are only used by part of a highly specialized industry, and such technology is neither widely available nor routinely used by the public.

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On June 1, 2018, the U.S. Court of Appeals for the D.C. Circuit declined to review an order issued by the Federal Energy Regulatory Commission (“FERC”) holding that an operating company that withdrew from a “multi-state energy system” had to continue sharing benefits from a settlement with the other system members, even after it withdrew from the system.

In 1951, six companies from Arkansas, Louisiana, Texas, and Mississippi formed the Entergy Corporation, a publicly held utility company intended to share the costs and benefits of generating and transmitting power. The system agreement provided members the option to withdraw so long as the member gave an eight-year notice. Entergy Arkansas announced on December 19, 2005 that it intended to withdraw on December 18, 2013. In 2008, Entergy Arkansas settled state litigation against Union Pacific, which included a below-market rate for coal delivery as part of the settlement. Under the system agreement, all members realized some of the increased costs as a result of Union Pacific’s breach of contract, and they also realized the benefits of the reduced rate following the settlement.

In 2009, FERC approved both withdrawal notices, and held that neither Entergy Arkansas nor Entergy Mississippi should have to pay an exit fee to the other members. FERC held in subsequent proceedings that the settlement benefits should be allocated among the members and adopted a methodology for doing so.

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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.

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On June 27, 2018, the Indiana Supreme Court issued an opinion establishing that the Indiana Utility Regulatory Commission (“Commission”) is a proper party to an appeal of a Commission order. Hamilton Se. Utils., Inc. v. Indiana Util. Reg. Comm’n, No. 93A02-1612-EX-2742, 2018 Ind. LEXIS 496, at *1-12 (Ind. June 27, 2018).  Interestingly, the Commission had participated as a party in appeals of its orders without controversy until relatively recently, when parties began to challenge its standing to be a party in several appellate proceedings

This matter began in September 2015 when Hamilton Southeastern Utilities, Inc. (“HSE”) requested a rate increase from the Commission. HSE sought an 8.42% increase in rates, but the Commission only authorized a rate increase of 1.17%, partially because the Commission said that HSE should eliminate outsourcing expenses. Id. at *3-4. HSE appealed the order, initially naming the Commission as a party. HSE then moved to dismiss the Commission, claiming “it had mistakenly identified the Commission as a party” and that the Commission should not be a party because it had “acted as a fact-finding administrative tribunal.” Hamilton Se. Utils., Inc. v. Indiana Util. Reg. Comm’n., 85 N.E.3d 612, 617 (Ind. Ct. App. 2017).  The Court of Appeals granted the motion, reasoning that the Commission had adjudicated a rate case where the parties appearing before the Commission advocated for competing interests, and the Commission’s order “should speak for itself, without the need to further rationalize its decision.” Id. at 619. The Court of Appeals went on to affirm a number of the Commission’s decisions in calculating the 1.17% increase, but it held that the Commission arbitrarily excluded outsourcing expenses from that rate calculation. Id. at 626.

The Supreme Court granted transfer to review the question of whether the Commission was a proper party to the appeal of its order. The Court held that it was a proper party because it is a “long-standing custom and practice” to treat the Commission as a proper party to appeals of its orders, and the legislature had acquiesced to that practice. Hamilton Se. Utils., Inc, 2018 Ind. LEXIS 496, at *6.The Court noted that other “similarly situated executive branch agencies enjoy the ability to defend their decisions on appeal, both through explicit legislative directive” and through “legislative acquiescence to custom and practice.” Id. at *8. Furthermore, the Court said that public policy supports allowing the Commission to defend its orders on appeal in the interests of not disturbing a long-standing custom, promoting efficiency in the appeals process, and allowing the Commission to adequately represent its interests since opposing parties in a ratemaking case do not necessarily represent all of the Commission’s interests in defending its order. Id. at *10. Finally, the Court noted that the Commission’s role in the ratemaking case is administrative, not adjudicative, and therefore HSE’s argument that the Commission could not be a party because it adjudicated the proceedings failed. Id. at *11.

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In June 2017, Florida Power and Light (“FPL”), a rate-regulated electric utility, filed an application with FERC requesting authorization to transfer its ownership interests in substation equipment and other assets to JEA, the largest community-owned electric utility in Florida. FERC dismissed FPL’s application for lack of jurisdiction. The net book value of the retained assets to be given to JEA was $3 million, including a $1.1 million value for the substation equipment.

FERC determined that FPL’s application was unnecessary and that FERC lacked jurisdiction to review the application. Under section 203(a)(1) of the FPA, FERC only has jurisdiction to review applications where a public utility seeks to: (A) sell, lease, or dispose of the whole of its facilities which are valued above $10 million; (B) merge or consolidate facilities with another person; (C) purchase , acquire, or take a security of another public utility in excess of $10 million; or (D) purchase, lease, or otherwise acquire an existing generation facility valued over $10 million that is used for interstate wholesale sales over which FERC has jurisdiction for ratemaking. 16 U.S.C. § 824b(a)(1) (2017). Subsection (A) did not apply because the value of the assets to be transferred was under $10 million. Subsections (C) and (D) likewise did not apply.

FPL stated in its application that subsection (B) applied to transactions involving the acquisition of transmission facilities from non-jurisdictional municipal entities and that FERC had not yet addressed whether subsection (B) applied to the disposition of transmission facilities from a jurisdictional public utility to a non-jurisdictional municipal entity. FERC determined that subsection (B) did not apply to the sale or other disposition of jurisdictional facilities. Additionally, subsection (B) did not apply because the party acquiring the facilities is a municipal entity.

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On February 20, 2018, the U.S. Supreme Court in CNH Industrial v. Reese rejected the Sixth Circuit’s approach to interpreting collective bargaining agreements (“CBA”), instead affirming that courts must interpret such agreements in accordance with ordinary principles of contract law.  The Court held the only reasonable interpretation of the CBA was that post-retirement health care benefits offered under the CBA did not vest for life but rather expired when the CBA expired.

In 1998, CNH agreed to a CBA that provided health care benefits to certain employees who retired under the company’s pension plan. The CBA specified that all other coverages outside of health care benefits, such as life insurance, ceased upon retirement. It also contained a clause stating that the agreement would expire in May 2004 and that the CBA “dispose[d] of any and all bargaining issues, whether or not presented during negotiations.”

When the CBA expired in 2004, a group of CNH retirees and spouses sued CNH, seeking a declaration that their health care benefits vested for life and an injunction to prevent CNH from revoking them. After the district court granted summary judgment to the retirees, CNH appealed. Relying on principles of contract interpretation established in an earlier Sixth Circuit decision, known as Yard-Man inferences, the Sixth Circuit affirmed the district court’s decision. The Sixth Circuit concluded that, since the CBA was silent on whether health care benefits vested for life, and since it tied health care benefits to pension eligibility, the CBA was ambiguous as a matter of law. Because it was ambiguous, the Sixth Circuit held, extrinsic evidence could be considered in interpreting the CBA. Upon considering extrinsic evidence, the Sixth Circuit ruled that the evidence supported lifetime vesting.

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The First Circuit Court of Appeals recently issued an opinion finding that the Public Utility Regulatory Policies Act (“PURPA”) does not authorize lawsuits between cogeneration facilities and electric utilities because there is no express or implied private right of action in the statutory language. Allco Renewable Energy, Ltd. V. Mass. Elec. Co., 875 F.3d 64 (1st Cir. 2017). PURPA was enacted to encourage the development of energy-efficient cogeneration and small power production facilities, requiring electric utilities to purchase energy from “qualifying facilities” at a regulation-specified cost rate. Under FERC regulations, the cost rate is the rate equal to the utility’s full avoided cost. A qualifying facility under PURPA is a “nontraditional” facility which produces energy from sources such as biomass, waste, renewable resources, or geothermal resources.

In Allco, the plaintiff was a qualifying facility that wanted to negotiate a purchase agreement with defendant National Grid, an electric utility. Instead of negotiating a purchase agreement, National Grid offered to purchase Allco’s energy under its standard power purchase contract. Allco petitioned the Massachusetts Department of Public Utilities (“MDPU”) to investigate the reasonableness of National Grid’s offer, which the MDPU denied. FERC subsequently denied Allco’s petition asking FERC to bring an enforcement action against MDPU, and Allco sued National Grid and other state defendants.

The court analyzed section 210 of PURPA to determine whether it created an express or implied private right of action allowing a qualifying facility to sue an electric utility. PURPA expressly authorizes FERC to bring enforcement actions against a state in federal court and allows a qualifying facility to sue the state utility regulatory agency in state court for PURPA violations—it does not authorize suits between  qualifying facilities and electric utilities. The court also held that Congress did not implicitly authorize this kind of lawsuit because of the aforementioned express enforcement provisions. Additionally, the court invalidated MDPU regulations relating to calculating a utility’s avoided costs, but left the proper calculation to the MDPU since state utility regulatory agencies are responsible for implementing FERC’s regulations for rate determinations.

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The FCC recently adopted broadband privacy rules which will be implemented on a staggered schedule. The FCC did not provide calendar dates for implementing the rules and some of the dates are based on pending PRA approvals. The following is a summary of the new privacy rules and the dates they are scheduled to take effect.

On January 3, 2017, sections 64.2010 and 64.2011(a) became effective. Section 64.2010 pertains to the Business Customer Exemption for Provision of Telecommunications Services other than BIAS, and states that Telecommunication carriers can utilize other contractual privacy and data security regimes for services other than BIAS as long as the issues of transparency, choice, data security, and data breach are addressed. There must also be a mechanism for the customer to communicate concerns to the carrier. Section 64.2011(a) pertains to BIAS Offers Conditioned on Waiver of Privacy Rights and states that a BIAS provider cannot condition providing BIAS on a customer’s agreement to waive privacy rights, nor may a BIAS provider terminate or refuse to provide service based on a customer’s refusal to waive their privacy rights. Section 64.2011(b) is not effective until on or after December 4, 2017, as discussed below.

On March 2, 2017, new section 64.2005 replaced old sections 64.2009 (Safeguards required for use of customer proprietary network information) and 64.2010 (Safeguards on the disclosure of customer proprietary network information). Section 64.2005 covers data security, states a carrier must take reasonable measures to protect customers’ proprietary information, and lists four  factors for determining reasonableness—the nature and scope of the carrier’s activities, the sensitivity of the data, the size of the carrier, and technical feasibility.

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