Court Opinion

ID: 4276984
Source: CourtListenerOpinion
Date Created: 2018-05-21 16:03:40.112041+00
Date Added: 2024-06-11T14:34:06.810956
License: Public Domain

FILED
                                                                         May 21 2018, 5:33 am

                                                                              CLERK
                                                                          Indiana Supreme Court
                                                                             Court of Appeals
                                                                               and Tax Court

ATTORNEY FOR APPELLANTS                                   ATTORNEYS FOR APPELLEES
Russell Ellis                                             Robert L. Hartley
Indianapolis, Indiana                                     Maggie L. Smith
                                                          Frost Brown Todd LLC
                                                          Indianapolis, Indiana

                                           IN THE
    COURT OF APPEALS OF INDIANA

Michael A. Mullett and Patricia                           May 21, 2018
N. March,                                                 Court of Appeals Case No.
Appellants-Intervenors,                                   93A02- 1710-EX-2468
                                                          Appeal from the Indiana Utility
        v.                                                Regulatory Commission
                                                          The Honorable James Atterholt,
Duke Energy Indiana, LLC,                                 Commission Chair
Nucor Steel-Indiana, Indiana                              Honorable Sarah Freeman
Office of Utility Consumer                                Honorable James Huston
Counselor,                                                Honorable Angela Weber
                                                          Honorable David Ziegner
Appellees (Applicant/Petitioner,
                                                          Commissioners
Intervenor, Statutory Party).
                                                          Honorable David Veleta
                                                          Senior Administrative Law Judge
                                                          IURC Case No. 38707 FAC-113

Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018                            Page 1 of 11
      Bradford, Judge.

                                           Case Summary
[1]   Appellee Duke Energy Indiana, LLC (“Duke”) and Benton County Wind Farm

      (the “Wind Farm”) entered into a contract under which Duke agreed to buy

      power from the Wind Farm. In 2013, a dispute arose after Duke failed to buy

      energy from the Wind Farm. The Wind Farm filed suit claiming that Duke

      owed it money for lost production under the parties’ contract. The parties

      eventually settled and Duke went to the Indiana Utility Regulatory

      Commission (the “Commission”) seeking to recover its costs from ratepayers.

      Appellants Michael A. Mullett and Patricia N. March (the “Appellants”)

      intervened in the proceeding and objected to Duke’s request. After a hearing on

      the matter, the Commission approved Duke’s request to recover the costs from

      its ratepayers over a twelve-month period.

[2]   Appellants now appeal arguing that the Commission’s order is contrary to law

      because the damages are “liquidated” and “hypothetical” and it amounts to

      impermissible retroactive ratemaking. Finding that substantial evidence

      supports the Commission’s order and no other error, we affirm.

                            Facts and Procedural History
[3]   In 2006, Duke and the Wind Farm entered into a Renewable Wind Energy

      Power Purchase Agreement (“PPA”) in which Duke agreed to purchase a

      portion of the energy generated by the Wind Farm. After purchasing the
      Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018   Page 2 of 11
      energy from the Wind Farm, Duke would immediately sell it into the

      Midcontinent Independent System Operator (“MISO”) wholesale energy

      market. The Indiana Utility Regulatory Commission (“the Commission”)

      approved the PPA in its entirety in 2006, concluding that “the terms of the

      Wind [PPA were] reasonable.” Duke App. Vol. II, p. 17.

[4]   The Commission also recognized that Duke would be incurring significant costs

      in connection with the PPA. Consequently, in order to further the

      Commission’s policy of encouraging the development of renewable resources,

      the Commission authorized Duke to recover all of its PPA costs from

      ratepayers for the entire twenty-year term:

              [T]he Commission finds that Duke Energy Indiana should be
              authorized to recover the Wind [PPA] costs provided for in the
              contract for the full 20 year term of that contract[.]

      Duke App. Vol. II, p. 19.

[5]   Following changes to certain rules and regulations in 2013, a dispute arose

      regarding the extent of Duke’s contractual obligations to the Wind Farm. Duke

      believed that based upon the parties’ contract, it was only required to accept

      and pay for energy that the Wind Farm generated and delivered to Duke. The

      Wind Farm, however, interpreted the contract to mean that Duke had to pay

      for lost production in addition to the power it delivered to Duke.

[6]   The Wind Farm sued Duke in federal court to resolve the disputed contract

      interpretation. The federal district court agreed with Duke’s interpretation and

      Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018   Page 3 of 11
      granted Duke’s motion for summary judgement in 2015. The Wind Farm

      appealed to the Seventh Circuit, which agreed with the Wind Farm’s

      interpretation, reversed the district court’s ruling, and remanded with

      instructions for a determination of damages, i.e. how much Duke owed the

      Wind Farm for lost production.

[7]       The Wind Farm and Duke entered into settlement negotiations. At the

      conclusion of the settlement negotiations, the parties agreed on $29 million,

      which Duke believed was approximately equal to what it would have cost Duke

      and its ratepayers had the parties agreed with the Wind Farm’s contact

      interpretation at the outset.

[8]   Duke reported to the Commission in its Fuel Cost Adjustment (“FAC”) filing

      on July 27, 2017, that the dispute between Duke and the Wind Farm had

      settled.1 In its report, Duke also indicated its intention to recover the lost

      production costs from ratepayers over a six-month period.2 The Office of

      Utility Consumer Counselor (the “OUCC”) had no objection to Duke’s

      recovery of the $29 million as costs Duke incurred under the PPA, but

      requested that the recovery be spread over a twelve-month period rather than

      the six-month period Duke had proposed. Duke agreed to spreading the

      recovery out over a twelve-month period. On September 21, 2017, Duke filed

      1
       Duke kept the Commission updated on the status of the dispute throughout the litigation and settlement
      process with quarterly FAC filings.
      2
          Duke had repeatedly indicated that this was a possibility in its previous sixteen filings with the Commission.

      Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018                               Page 4 of 11
       its Proposed Form of Order in which it proposed to recover the $29 million

       through rates over a twelve-month period.

[9]    Meanwhile, Appellants intervened in this proceeding as ratepayers and filed a

       Brief in Opposition to Approval of Liquidated Damages Payment as an

       Expense Recoverable through Rates as their legal objection to Duke’s Proposed

       Order. Thereafter, Duke filed its Response to Appellant’s Brief in Opposition.

       On September 27, 2017, the Commission entered its final order approving

       proposed Duke’s rate recovery over a twelve-month period.

                                  Discussion and Decision
[10]   The Indiana Utility Regulatory Commission was created by the General

       Assembly “primarily as a fact-finding body with the technical expertise to

       administer the regulatory scheme devised by the legislature.” Ind. Gas Co. v.

       Ind. Fin. Auth., 999 N.E.2d 63, 65 (Ind. 2013) (internal quotation removed).

       The Commission’s “goal is to ensure that public utilities provide constant,

       reliable, and efficient service to the citizens of Indiana.” Citizens Action Coalition

       of Ind., Inc. V. S. Ind. Gas and Elec. Co., 70 N.E.3d 429, 438 (Ind. Ct. App. 2017).

       An order issued by the Commission is presumed valid unless the contrary is

       clearly apparent. Id.

[11]   The standard for our review of decisions of the Commission is governed by

       Indiana Code section 8-1-3-1, which the Indiana Supreme Court has interpreted

       as providing a tiered standard of review.

       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018      Page 5 of 11
               A multiple-tier standard of review is applicable to the IURC’s
               orders. A court on review must inquire whether specific findings
               exist as to all factual determinations material to the ultimate
               conclusions; whether substantial evidence within the record as a
               whole supports the findings of fact; and whether the decision,
               ruling, or order is contrary to law.

       Citizens Action Coal. of Ind., Inc. v. Pub. Serv. Co. of Ind., 612 N.E.2d 199, 201 (Ind.

       Ct. App. 1993) (citations omitted). In applying this standard, “[w]e review the

       conclusions of ultimate facts, or mixed questions of fact and law, for their

       reasonableness, with greater deference to matters within the [Commission’s]

       expertise and jurisdiction.” Citizens Action Coal. of Ind., Inc. v. Duke Energy Ind.,

       Inc., 16 N.E.3d 449, 457 (Ind. Ct. App. 2014). Additionally, “[w]e neither

       reweigh the evidence nor asses the credibility of witnesses and consider only the

       evidence most favorable to the [Commission’s] findings.” Ind. Gas Co., Inc. v.

       Ind. Fin. Auth., 999 N.E.2d 63, 66 (Ind. 2013). “On matters within its

       jurisdiction, the [Commission] enjoys wide discretion and its findings and

       decision will not be lightly overridden simply because we might reach a

       different decision on the same evidence.” Citizens Action Coal. of Ind., Inc. v. S.

       Ind. Gas & Elec. Co., 70 N.E.3d 429, 439 (Ind. Ct. App. 2017).

                             I. Recovery from Ratepayers
[12]   Appellants make several arguments as to why the Commission’s order is

       contrary to law which we have consolidated and restated. First, Appellants

       argue that the Commission’s order was contrary to law because the damages

       were “liquidated” and “hypothetical.” Appellants also argue that the
       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018        Page 6 of 11
       Commission acted contrary to law when it approved Duke’s recovery from

       ratepayers because it amounts to impermissible retroactive ratemaking.

                     A. Liquidated “Hypothetical” Damages
[13]   The Commission approved the PPA between Duke and the Wind Farm in its

       entirety in 2006. The PPA detailed, among other things, procedures for the sale

       and purchase of energy and a calculation of damages if Duke failed to purchase

       energy from the Wind Farm. The Commission also approved full recovery

       from ratepayers of all costs that Duke incurred from the PPA over its entire

       twenty-year term.

[14]   In early 2013, after Duke failed to purchase energy from the Wind Farm, it

       became apparent that the two parties differed on their interpretations of the

       contract. This disagreement over whether Duke owed the Wind Farm for lost

       production led to the Wind Farm filing suit in federal court. During the course

       of the litigation, Duke kept the Commission updated in each of its quarterly

       FAC filings. Duke also was clear that when the dispute was resolved, it would

       seek to recover from ratepayers any amount that Duke eventually paid to the

       Wind Farm.

[15]   Once the dispute settled, Duke reported in a FAC filing on July 27, 2017, that

       the dispute had been resolved and it now sought to recover the costs it incurred

       under the PPA. The Commission was presented with evidence that the

       “settlement amount is no more than customers would have paid had a different

       offer been submitted to MISO from March 2013 through June 2017, and is less

       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018   Page 7 of 11
       than what potentially could have been awarded has a settlement not been

       reached.” Appellants’ App. Vol. II, p. 13. The Commission subsequently

       found that “[t]he evidence of record demonstrates that the [Wind Farm]

       settlement is in the best interest of customers and the costs are reasonable for

       what is owed to [the Wind Farm] under the Commission-approved [PPA]”.

       Appellants’ App. Vol. II, p. 13. Due to the fact that the lost production costs

       arose from the PPA, the Commission found that Duke was permitted to recover

       the $29 million from its ratepayers.

[16]   As for the term “liquidated damages,” Appellants have not cited to any cases to

       support the proposition that the term “liquidated damages” in a contract

       precludes Duke’s recovery from ratepayers. Furthermore, there is no authority

       to support Appellants’ claim that the damages amount is purely hypothetical

       and therefore unrecoverable from ratepayers.

[17]   The Seventh Circuit found that Duke was obligated under the PPA to “pay for

       power not taken.” Benton Cty. Wind Farm LLC v. Duke Energy Ind., Inc., 843
F.3d 298, 303 (7th Cir. 2016). The parties reached a “settlement amount [that]

       is no more than customers would have had had a different offer been submitted

       to MISO from March 2013 through June 2017, and is less than what potentially

       could have been awarded had a settlement not been reached.” Appellants’

       App. Vol. II, p. 13. The Commission subsequently found that the “7th Circuit

       decision interpreting the terms of the contract does not affect our previous

       approval of this contract.” Appellants’ App. Vol. II, p. 13.

       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018    Page 8 of 11
[18]   The evidence of record demonstrates that the “[Wind Farm] settlement is in the

       best interest of customers and the costs are reasonable for what is owed to [the

       Wind Farm] under the Commission-approved [PPA].” Appellants’ App. Vol.

       II, p. 13. There is also evidence in the record that the OUCC—which

       represents ratepayers, consumers, and members of the general public—

       appeared and had no objection to the proposed recovery except that it be spread

       out over a twelve-month period. Specifically, the representative for the OUCC

       testified that “the Commission has approved longer recovery times for similar

       settlements as an acceptable way to recover these costs while mitigating the

       impact on ratepayers.” Appellants’ App. Vol. II, p. 121. The Commission was

       also presented with evidence from Duke’s Director of Fuels & Systems

       Optimization that the amount paid in the settlement is materially equivalent to

       what the ratepayers would have paid had Duke agreed with the Wind Farm’s

       interpretation of the PPA at the outset. The evidence in the record readily

       supports the Commission’s decision to authorize Duke’s recovery from

       ratepayers.

                                 B.      Retroactive Ratemaking
[19]   Appellants also argue that the Commission’s order is contrary to law because

       allowing Duke to recover the costs amounts to impermissible retroactive

       ratemaking. The fact that the damages arose from a past dispute regarding a

       contract interpretation does not automatically make the Commission’s order

       contrary to law. This appeal arose out of an FAC proceeding, not a rate case.

       Similar to a Gas Cost Adjustment proceeding, the prohibition against

       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018   Page 9 of 11
       retroactive ratemaking does not apply because, in both, the rates that are set are

       subject to subsequent reconciliation after historical costs have become known.

       See Ind. Gas Co., Inc. v. Office of Utility Consumer Counselor, 575 N.E.2d 1044 (Ind.

       Ct. App. 1991).

[20]   Moreover, the Commission’s decision is consistent with its decisions in similar

       disputes involving Indianapolis Power and Light (“IPL”) and Northern Indiana

       Public Service Company (“NIPSCO”). In both proceedings, IPL and NIPSCO

       were involved in disputes regarding their wind farm power purchase agreements

       and were seeking to recover lost production costs from ratepayers. Based on

       how these proceedings were handled by the Commission, it appears that the

       Commission prefers that utilities defer seeking recovery from their ratepayers

       until the dispute is resolved and the full amount is known.

[21]   In accordance with the Commission’s clear preference to defer payment until a

       dispute is settled, Duke kept the Commission updated throughout the course of

       the litigation. Specifically, Duke consistently advised the Commission and the

       parties throughout the litigation and settlement process that future

       reconciliation by Duke to recover the costs may be necessary.3 When the cost

       incurred became known and the dispute was resolved, Duke provided the

       Commission with the new information in an FAC filing.

       3
        Duke repeatedly indicated in sixteen filings (FAC-97–FAC-112) that it would seek to recover costs under
       the PPA.

       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018                        Page 10 of 11
[22]   After reviewing the record, there is no indication that any of the parties or the

       Commission thought Duke would be forfeiting its right to recover the deferred

       costs in a future FAC proceeding nor is there any evidence that this deferral was

       improper. In fact, based on proceedings with other utilities, it appears that

       Duke acted in accordance with the Commission’s preferences for such matters.

       The Commission has the expertise to analyze and weigh the evidence in this

       case, and, after our review of the record, we conclude that there is substantial

       evidence support its decision to approve Duke’s recovery from ratepayers.

[23]   The judgment of the Commission is affirmed.

       Baker, J., and Kirsch, J., concur.

       Court of Appeals of Indiana | Opinion 93A02-1710-EX-2468| May 21, 2018   Page 11 of 11