Court Opinion

ID: 4280099
Source: CourtListenerOpinion
Date Created: 2018-05-31 16:05:33.991295+00
Date Added: 2024-06-11T07:49:25.555064
License: Public Domain

FILED
                                                                          May 31 2018, 11:15 am

                                                                               CLERK
                                                                           Indiana Supreme Court
                                                                              Court of Appeals
                                                                                and Tax Court

ATTORNEYS FOR APPELLANT                                   ATTORNEYS FOR APPELLEES
Todd A. Richardson                                        Brian J. Paul
Bette J. Dodd                                             Daniel E. Pulliam
Joseph P. Rompala                                         Faegre Baker Daniels LLP
Lewis & Kappes, PC                                        Indianapolis, Indiana
Indianapolis, Indiana                                     Claudia J. Earls
                                                          M. Bryan Little
                                                          Nisource Corporate Services
                                                          Indianapolis, Indiana
                                                          William I. Fine
                                                          Randall C. Helmen
                                                          Tiffany T. Murray
                                                          Office of Utility Consumer
                                                          Counselor
                                                          Indianapolis, Indiana

                                           IN THE
    COURT OF APPEALS OF INDIANA

NIPSCO Industrial Group,                                  May 31, 2018
Appellant-Intervenor,                                     Court of Appeals Case No.
                                                          93A02-1711-EX-2735
        v.                                                Appeal from the Indiana Utility
                                                          Regulatory Commission
Northern Indiana Public Service                           The Honorable David Veleta,
Company and Office of the                                 Senior Administrative Law Judge
Utility Consumer Counselor,                               Cause No. 44733-TDSIC-2
Appellees-Petitioner.

Riley, Judge.

Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018                            Page 1 of 15
                                STATEMENT OF THE CASE
[1]   Appellant-Intervenor, NIPSCO Industrial Group, appeals the Order of the

      Indiana Regulatory Commission (Commission) in which the Commission

      authorized Appellee-Petitioner, Northern Indiana Public Service Company

      (NIPSCO), to impose a statutory regulated rate adjustment based on total load

      on its utility customers.

[2]   We reverse.

                                                     ISSUE
[3]   NIPSCO Industrial Group presents us with two issues on appeal, one of which

      we find dispositive and which we restate as: Whether the Commission failed to

      comply with Indiana Code section 8-1-39-9(a)(1), which requires the allocation

      of a rate adjustment to be based on firm load, by approving NIPSCO’s

      computation which utilized an allocation based on total load.

                      FACTS AND PROCEDURAL HISTORY
[4]   NIPSCO is a public electric and gas utility that services over 461,000

      residential, commercial, industrial, wholesale, and other customers in Indiana.

      The NIPSCO Industrial Group represents a group of five of NIPSCO’s largest

      industrial customers.

[5]   As with other utilities, NIPSCO recovers its costs for providing electric service

      through rates approved by the Commission. Traditionally, a utility’s rates

      charged to customers are adjusted through periodic rate cases, which are

      Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 2 of 15
      expensive, time consuming, and sometimes result in large, sudden rate hikes for

      customers. Another method to set rates is through ‘tracker’ proceedings, which

      allow incremental increases for specific projects and costs between general rate

      case proceedings. In 2013, the General Assembly enacted Indiana Code

      Chapter 8-1-39, which allows a utility to petition for a tracker for certain

      proposed new or replacement Transmission, Distribution, and Storage System

      Improvement Charge or TDSIC (TDSIC Statute). Thus, in contrast to

      traditional regulation in which utility rates are determined through general rate

      cases based on comprehensive review of the utility’s finances and operations,

      the TDSIC permits incremental rate adjustments at six-month intervals to

      reflect specific costs associated with defined infrastructure projects. Pursuant to

      section 10 of the TDSIC Statute, an energy utility must first secure regulatory

      approval for a 7-year plan designating an eligible project that the utility

      proposes to construct. See Ind. Code § 8-1-39-10. Once a 7-year plan is

      approved, the utility may then file petitions every six months under Section 9,

      seeking rate adjustments that reflect costs as they are incurred on approved

      projects. See I.C.§ 8-1-39-9. Specifically, section 9 mandates that a periodic

      adjustment of the basic rate must, among others, “use the customer class

      revenue allocation factor based on firm load approved in the utility’s most

      recent retail base rate case order[.]” I.C. § 8-1-39-9(a)(1).

[6]   The statutory phrase “based on firm load” refers to a distinction between utility

      services rendered on a firm as opposed to an interruptible basis. See I.C. § 8-1-

      39-9(a)(1). For customers electing firm service, the utility is required to provide

      Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018       Page 3 of 15
      service with a high degree of reliability, whereas interruptible service is subject

      to interruption as needed to meet the needs of customers, and is thus less

      reliable. Because the utility does not have to build capacity and maintain

      resources to meet interruptible demand, the service promotes efficiency and

      reduces the level of needed investment, to the benefit of the interruptible load

      ratepayers. Accordingly, NIPSCO serves distinct customer classes under

      different rate schedules that reflect the service each class elects. NIPSCO’s tariff

      includes seventeen different rate classes and large volume customers, like the

      NIPSCO Industrial Group, who receive firm services under three different

      industrial rate schedules. Within the limits defined in the three industrial rate

      schedules, the customers may designate a portion of their load as interruptible,

      with the rest of their demand falling within the firm load service.

[7]   The aggregate TDSIC costs recoverable in a given six-month period are used to

      compute revenue requirements, which is the amount of additional dollars that

      NIPSCO seeks to collect from its customers collectively. Those revenue

      requirements are then divided among the different customer classes based on

      allocation factors derived from the most recent general rate case. See I.C. § 8-1-

      39-9(a)(1). Once the dollar amount to be recovered from each customer class is

      determined, specific rate factors are computed by dividing the revenue total for

      the given class by the total projected class consumption for the upcoming six-

      month period.

[8]   In July 2016, the parties entered into the TDSIC Settlement, in which NIPSCO

      sought the Commission’s approval of its 7-year electric plan. Among others,

      Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018    Page 4 of 15
      the parties stipulated in the TDSIC Settlement to a defined structure for TDSIC

      proceedings, including compromises on the implementation of allocation

      factors. The TDSIC Settlement noted that “[t]o the extent that terms of this

      Settlement refer to issues currently pending in Cause No. 44688, the terms

      approved by the Commission in Cause No. 44688 shall apply to the TDSIC []

      proceedings filed in accordance with the 7-Year Electric Plan.” (Appellant’s

      App. Vol. III, p. 62). Joint Exhibit D to Cause No. 44688 recognized “class

      allocation factor percentages [that] shall be applied to the respective distribution

      – or transmission – related revenue requirement and then the resulting TDSIC

      charge factor (per kWh) applied to each customer’s firm (or non-interruptible)

      load within that class.” (Appellant’s App. Vol. II, p. 246).

[9]   Six days later, the Commission approved the Settlement Agreement which

      further specified the allocation factors referenced in the TDSIC Settlement. In

      approving the Settlement Agreement, the Commission found:

              For purposes of establishing any rate schedules allowing for the
              recovery of 80% of NIPSCO’s approved capital TDSIC
              expenditures and costs pursuant to Indiana Code § 8-1-39-9(a),
              the Settling Parties agree that Joint Exhibit D to the Settlement
              Agreement reflects, pursuant to Indiana Code § 8-1-39-9(a), the
              customer class revenue allocation facts that should be applied to
              firm load.

      (Appellant’s App. Vol. II, p. 152). Likewise, Joint Exhibit D to the Settlement

      Agreement acknowledged

      Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018     Page 5 of 15
               pursuant to Indiana Code § 8-1-39-9(a), the customer class
               revenue allocation factors that should be applied to firm load.
               The Settling Parties agree that allocation factors shown on Joint
               Exhibit D to the Settlement Agreement should be applied for the
               periodic recovery of any approved capital TDSIC expenditures
               and costs to properly account for difference between transmission
               and distribution customers.

       (Appellant’s App. Vol. II, p. 152). It is undisputed by the parties that the

       revenue allocation factors of Joint Exhibit D “are based on total load, including

       firm and non-firm load.” (Non-Conf. Exh. Vol. II, p. 136).

[10]   Subsequently to entering into both agreements, NIPSCO filed a first petition,

       seeking a rate adjustment in accordance with section 9 of the TDSIC Statute

       (TDSIC-1). In its petition, NIPSCO adopted a new method to determine the

       allocation and calculate the newly proposed rates. Specifically, NIPSCO: (1)

       allocated the revenue requirements using the Settlement Agreement’s Joint

       Exhibit D factors based on total load (firm plus interruptible); (2) computed the

       rate adjustment by dividing the class revenue portion by the total projected load

       (firm plus interruptible); and (3) then applied the adjustment only to firm sales

       and not to interruptible sales. This calculation and application limited the rate

       increase for firm service to the same adjustment that would have been

       determined if interruptible load had been removed in the first step of the

       calculation. The parties did not object to this method of rate adjustment

       computation and the TDSIC-1 was approved by the Commission.

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 6 of 15
[11]   NIPSCO filed its second petition for a rate increase (TDSIC-2) under the

       Settlement Agreement on June 30, 2017. In the TDSIC-2 proceeding before the

       Commission, NIPSCO proposed an allocation that reflected the distinct

       transmission and distribution facts, but did not separate out interruptible load.

       Instead, NIPSCO based its cost allocation (1) on total load, including both firm

       and interruptible load, and (2) computed the rate adjustment for the different

       classes based on firm load only, resulting in higher charges to customers in rate

       classes with substantial interruptible load. The Commission issued its final

       Order on October 31, 2017, approving NIPSCO’s proposed allocation.

       Specifically, the Commission found:

               Indiana Code [s]ection 8-1-39-9(a)(1) states that the [p]etition
               must use the customer class revenue allocation factor based on
               firm load approved in the public utility’s most recent retail base
               rate case order. Specific to the evidence of this proceeding, the
               [p]arties explicitly agreed to and the Commission approved the
               allocation factors established in the Rate Case Settlement and the
               Settlement. Those agreements leave no question as to what
               factors should be applied and no allowance for subsequent
               migrations. Thus, we find that the allocation factors reflected in
               Joint Exhibit D to the Rate Case Settlement are to be used to
               calculate NIPSCO’s TDSIC-2 customer class specific revenue
               requirement. Further, we find that the derivation of the customer
               class specific rate factors to collect the class allocated revenue
               should use the firm load within that class[.]

       (Appellant’s App. Vol. II, p. 15) (footnote omitted).

[12]   The NIPSCO Industrial Group now appeals. Additional facts will be provided

       if necessary.

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 7 of 15
                               DISCUSSION AND DECISION
                                              I. Standard of Review

[13]   Judicial review of the Commission’s decision is governed by Indiana Code

       section 8-1-3-1, which provides that

               [a]ny person, firm, association, corporation, limited liability
               company, city, town or public utility adversely affected by any
               final decision, ruling, or order of the [C]omission may, within
               thirty (30) days from the date of entry of such decision, ruling, or
               order, appeal to the court of appeals of Indiana for errors of law
               under the same terms and conditions as govern appeals in
               ordinary civil actions, except as otherwise provided in this
               chapter and with the right in the losing party or parties in the
               court of appeals to apply to the supreme court for a petition to
               transfer the cause to said supreme court as in other cases. An
               assignment of errors that the decision, ruling, or order of the
               [C]omission is contrary to law shall be sufficient to present both
               the sufficiency of the facts found to sustain the decision, ruling,
               or order, and the sufficiency of the evidence to sustain the finding
               of facts upon which it was ordered.

[14]   More specifically, our review is two-tiered:

               On the first level, it requires a review of whether there is
               substantial evidence in light of the whole record to support the
               Commission’s findings of basic fact. Such determinations of
               basic fact are reviewed under a substantial evidence standard,
               meaning the order will stand unless no substantial evidence
               supports it. In substantial evidence review, “the appellate court
               neither reweights the evidence nor assesses the credibility to the
               [Commission’s] findings.” The Commission’s order is
               conclusive and binding unless (1) the evidence on which the
               Commission based its findings was devoid of probative value; (2)

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018    Page 8 of 15
        the quantum of legitimate evidence was so proportionately
        meager as to lead to the conviction that the finding does not rest
        upon a rational basis; (3) the result of the hearing before the
        Commission was substantially influenced by improper
        considerations; (4) there was no substantial evidence supporting
        the findings of the Commission; (5) the order of the Commission
        is fraudulent, unreasonable, or arbitrary. This list of exceptions is
        not exclusive.

        At the second level, the order must contain specific findings on
        all the factual determinations material to its ultimate conclusions.
        McClain v. Review Bd. of Ind. Dep’t of Workforce Dev., 693 N.E.2d
        1314, 1317-18 (Ind. 1998), described the judicial task on this
        score as reviewing conclusions of ultimate facts for
        reasonableness, the deference of which is based on the amount of
        expertise exercised by the agency. Insofar as the order involves a
        subject within the Commission’s special competence, courts
        should give it greater deference. If the subject is outside the
        Commission’s expertise, courts give it less deference. In either
        case[,] courts may examine the logic of inferences drawn and any
        rule of law that may drive the result. Additionally, an agency
        action is always subject to review as contrary to law, but this
        constitutionally preserved review is limited to whether the
        Commission stayed within its jurisdiction and conformed to the
        statutory standard and legal principles involved in producing its
        decision, ruling, or order.

Citizens Action Coalition of Ind., Inc. v. Indianapolis Power & Light Co., 74 N.E.3d

554, 562-63 (Ind. Ct. App. 2017) (internal citations omitted) (quoting N. Ind.

Pub. Serv. v. U.S. Steel, 907 N.E.2d 1012, 1016 (Ind. 2009)). However, where

the facts are undisputed and the issues involve the Commission’s interpretation

of the statutory language, we review such interpretation de novo. BP Products

North America, Inc. v. Officer of Utility Consumer Counselor, 947 N.E.2d 471, 476

Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018      Page 9 of 15
       (Ind. Ct. App. 2011), mod’d on reh’g on different grounds, 964 N.E.2d 234 (Ind. Ct.

       App. 2011).

[15]   The Commission’s “authority ‘includes implicit powers necessary to effectuate

       the statutory regulatory scheme.’” United States Gypsum, Inc. v. Ind. Gas Co., 735

       N.E.2d 790, 795 (Ind. 2000) (quoting Office of Util. Consumer Counselor v. Pub.

       Serv. Co., 608 N.E.2d 1362, 1363-64 (Ind. 1993)). As a legislative creation, the

       Commission is limited to exercising “that power which has been conferred

       upon it by statute.” Citizens Action Coal. Of Ind., Inc., 74 N.E.3d at 562. With

       respect to matters within its jurisdiction, it is accepted that the Commission

       “enjoys wide discretion.” Id. at 565. We will not override the Commission’s

       findings and decision simply “because we might reach a contrary opinion on

       the same evidence.” Id. The party challenging the Commission’s decision

       bears the burden of showing there is insufficient evidence in the record to

       support the Commission’s findings; it is not enough to “merely cite to other

       evidence of record which would support a determination more favorable to

       their position.” Id. at 565-66.

[16]   It is a well-established “basic legislative policy that questions of rate-making

       methodology are best consigned to the Commission’s expertise.” Id. at 562. In

       rate cases, “the Commission’s primary objective is to establish a level of rates

       and charges that will permit the utility to meet its operating expenses plus a

       return on investment which will compensate its investors.” Id. “In determining

       fair rates, the Commission considers a representative level of anticipated

       revenues and expenses and the property employed by the utility to provide

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 10 of 15
       services to its customers.” United States Gypsum, Inc., 735 N.E.2d at 798. When

       the Commission “determines that a utility’s rates have become unjust and

       unreasonable, it may modify them by ordering just and reasonable rates to be

       charged prospectively.” Id. Because the “rate-setting procedure is

       comprehensive[,] the Commission must examine every aspect of the utility’s

       operations and economic environment in which the utility functions to ensure

       that the data it has received are representative of operating conditions that will,

       or should, prevail in future years.” Id. (internal quotation marks omitted).

                                                    II. Analysis

[17]   The rate-making methodology in this cause is controlled by the TDSIC Statute

       and two interrelated settlements reached by multiple parties—including the

       parties on appeal—and formalized by the Commission in two Orders. The

       parties do not contest the content of the settlements, nor is there a dispute

       surrounding the meaning of the statutory language; rather the disagreement

       before us focuses on the application of the agreements and the TDSIC statute in

       calculating the most recent rate adjustment.

[18]   Pointing to the unambiguous language of the TDSIC Statute which requires the

       customer class revenue allocation factor to be based on firm load, the NIPSCO

       Industrial Group contends that in its calculation of the proposed rate

       adjustment in the TDSIC-2, NIPSCO allocated the revenue requirements based

       on total load, and then, in the second step, switched to firm load when

       computing the rate adjustment. The NIPSCO Industrial Group maintains that

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 11 of 15
       “[t]he governing statute requires use of firm load for the first step, allocation,

       but NIPSCO used total load for that step and did not shift to firm load until the

       second step.” (Appellant’s Br. p. 20). By allocating on a wider base and the

       adjusting rates on the smaller subset of firm load customers only, NIPSCO

       introduced a mismatch that overcharged firm load sales in rate classes with a

       combined interruptible load. In response, NISPCO and the Officer of the

       Utility Consumer Counselor (OUCC) appear to concede in their joint appellate

       brief that “under the TDSIC-2 calculation, the TDSIC adjustment is collected

       from all ratepayers, including those who take interruptible load.” (Appellees’

       Br. p. 19). They posit that an allocation based on total load rather than firm

       load is “fair to all ratepayers” and “fairly spread costs across all customer

       classes.” (Appellees’ Br. pp. 28, 30).

[19]   In support of its argument, the NIPSCO Industrial Group points to this court’s

       decision in NIPSCO Indus. Group v. Northern Indiana Public Serv. Co., 31 N.E.3d 1

       (Ind. Ct. App. 2015), which it claims mirrors the instant situation. In NIPSCO

       Indus. Group, the most recent rate case had been resolved with a settlement

       featuring an allocation exhibit that did not separate out firm from interruptible

       load. Id. at 13-15. In setting a rate adjustment, NIPSCO proposed an

       adjustment to the exhibit factors to remove interruptible load in order to comply

       with the statutory “based on firm load” requirement, which was approved by

       the Commission over the OUCC’s objection. Id. at 5. The OUCC contended

       that the allocation exhibit from the rate case settlement must be utilized without

       any modification. Id. Upon review, we concluded that “the allocation facts

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018    Page 12 of 15
       from the [] settlement agreement were based on both firm and non-firm load.

       Consequently, the adjustment to remove the non-firm load portion was within

       the Commission’s discretion and expertise.” Id. at 17.

[20]   Turning to the cause before us, we reiterate that the TDSIC statute mandates

       that a periodic adjustment of a utility’s basic rate must, among others, “use the

       customer class revenue allocation factor based on firm load approved in the

       utility’s most recent retail base rate case order[.]” I.C. § 8-1-39-9(a)(1)

       (emphasis added). The most recent base rate case order applicable to TDSIC-2,

       as referenced in the Statute, is the “Commission’s July 18, 2016, Order in

       Cause No, 44688.” (Appellant’s App. Vol. II, p. 13). Joint Exhibit D to Cause

       no. 44688, as incorporated in the TDSIC Settlement, recognized the customer

       class revenue allocation factors to be applied to firm load. Again, this same

       requirement of firm load was approved in the Settlement Agreement by

       incorporating Joint Exhibit D, which should be applied “for the periodic

       recovery of any approved capital TDSIC expenditures[.]” (Appellant’s App.

       Vol. II, p. 152). However, as acknowledged by all parties, the factors of Joint

       Exhibit D themselves were determined based on total load.

[21]   The contention before us revolves around NIPSCO’s proposed calculation of

       the rate adjustment in TDSIC-2. In TDSIC-2, NIPSCO continued to base the

       initial allocation step on the Joint Exhibit D factors, without adjustment, as it

       had done in TDSIC-1. However, instead of continuing to use the total load, as

       in TDSIC-1, NIPSCO then switched to firm load when computing the unit rate

       adjustment. Thus, instead of spreading the costs of the adjustment over firm

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018       Page 13 of 15
       load and interruptible load and then applying the cost adjustment to firm load

       only, in TDSIC-2 NIPSCO burdened the cost increase on the firm load

       percentage only, thereby resulting in a higher price adjustment than when the

       calculation is computed over a larger customer base (firm plus interruptible

       load).

[22]   The record reflects that at the time Joint Exhibit D was negotiated, the final

       percentage of interruptible load within each rate class was not yet known and as

       such, the parties reiterated on the face of the Exhibit that the allocation facts

       should be applied to firm load. In NIPSCO Indus. Group, we approved the

       removal of the interruptible portion from the allocation factors in computing the

       rate adjustment. We reach a similar decision here. The TDSIC Statute speaks

       to the first step—the customer class revenue allocation factor—which it bases

       on firm load only; the statute does not include any requirements as to the

       second step—computing unit charges to recover the allocated amount from

       customers within a given rate class. Therefore, it is not sufficient to merely

       APPLY the rate adjustment to firm load customers as was done in TDSIC-2,

       the CALCULATION itself must reflect the firm load basis, as we approved in

       NIPSO Indus. Group. In other words, merely applying the computed rate

       adjustment on firm load fails to comply with the TDSIC Statute which

       mandates that the adjustment itself uses the allocation factor based on firm

       load.

[23]   We recognize that the Commission has “the technical expertise to administer

       regulatory schemes devised by the legislature.” Indiana Office of Util. Consumer

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 14 of 15
       Counselor v. Lincoln Utilities, Inc., 834 N.E.2d 137, 145 (Ind. Ct. App. 2005),

       trans. denied. “We also give great deference to the [Commission’s] rate-making

       methodology.” Id. However, the Commission’s “authority is limited to that

       which is granted to it by statute.” Id. at 142. We conclude that the

       Commission exceeded its statutory authority by allowing a rate adjustment

       based on allocation factors computed on total load.

                                              CONCLUSION
[24]   Based on the foregoing, we hold that the Commission failed to comply with

       Indiana Code section 8-1-39-9(a)(1), which requires allocation of rate

       adjustment to be based on firm load, by approving NIPSCO’s computation

       which utilized an allocation based on total load.

[25]   Reversed.

[26]   May, J. and Mathias, J. concur

       Court of Appeals of Indiana | Opinion 93A02-1711-EX-2735 | May 31, 2018   Page 15 of 15