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Citizens Action Coalition of Indiana, Inc. v. Indianapolis Power & Light Co.

Court of Appeals of Indiana

April 5, 2017

Citizens Action Coalition of Indiana, Inc., Indiana Association for Community and Economic Development, Indiana Coalition for Human Services, Indiana Community Action Association, Indiana State Conference of the National Association for the Advancement of Colored People, Inc., and National Association of Social Workers Indiana Chapter, Appellants (Intervenors Below),
v.
Indianapolis Power & Light Company, et al., Appellee (Petitioner and Parties Below).

         Appeal from the Indiana Utility Regulatory Commission Cause Nos. 44576 44602 The Hon. Carol Stephan, Chair The Hon. James Huston The Hon. Carolene Mays-Medley The Hon. Angela Weber The Hon. David E. Ziegner Commissioners The Hon. Aaron Schmoll, Administrative Law Judge

          ATTORNEY FOR APPELLANTS Jennifer A. Washburn Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE - INDIANAPOLIS POWER & LIGHT COMPANY Peter J. Rusthoven Teresa Morton Nyhart Jeffrey M. Peabody Barnes & Thornburg LLP Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE - INDIANAPOLIS POWER & LIGHT INDUSTRIAL GROUP Bette J. Dodd Joseph P. Rompala Lewis & Kappes, P.C. Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE - INDIANA UTILITY REGULATORY COMMISSION Curtis T. Hill, Jr. Attorney General of Indiana David Lee Steiner Deputy Attorney General Indianapolis, Indiana Beth Krogel Roads General Counsel Indiana Utility Regulatory Commission Indianapolis, Indiana

          Bailey, Judge.

         Case Summary

         [¶1] Indianapolis Power & Light Company ("IPL") petitioned the Indiana Utility Regulatory Commission ("the Commission") for approval of an increase to its base rates for provision of electricity, which had been in effect since 1995. The Commission granted requests for intervention by Citizens Action Coalition, Indiana Community Action Association, Indiana Coalition for Human Services, Indiana Association for Community Economic Development, National Association of Social Workers Indiana Chapter, and Indiana State Conference of the National Association for the Advancement of Colored People (collectively, "Joint Intervenors"), and by IPL Industrial Group ("IPL Group"), The Kroger Company, and the City of Indianapolis.[1] The proposed rate increase was approved by the Commission. After the denial of various petitions for reconsideration, Joint Intervenors appealed. We affirm. [2]

         Issue

         [¶2] Joint Intervenors articulate four issues claiming that the order lacks adequate support, particularly challenging (1) the lack of findings specifically addressing the impact of a particular rate component, a declining block rate ("DBR"), upon energy conservation, (2) the lack of findings specifically addressing the effect of DBR on elderly and African-American customers, (3) the rejection of a proposal for 25% low-income customer subsidies, and (4) the rejection of mandatory reporting by IPL of interruption-in-service data. We consolidate and restate the issues to conform to our standard of review, that is, a Commission order will stand unless no substantial evidence supports it or it is contrary to law, [3] and address the following issue: Whether the Commission's rate approval order is not conclusive and binding due to a lack of specific findings on factual determinations material to its ultimate conclusions.

         Facts and Procedural History

         [¶3] On December 29, 2014, IPL, an investor-owned public utility providing electrical service to approximately 470, 000 ratepayers in and around Indianapolis, filed a base-rate-increase petition with the Commission. IPL proposed that the fixed customer charge, a flat fee for access to the electrical grid, would rise from $6.70 per month to $11.25 per month for customers using 0 to 325 kilowatt hours and from $11.00 to $17.00 for customers using over 325 kilowatt hours. The energy charge, a volumetric charge equal to the approved rate multiplied by the number of kilowatt hours consumed, would rise from $0.093346 to $0.093935 for the first 500 kilowatt hours and from $0.070346 to $0.073000 thereafter.[4] Because customers consuming greater than 500 kilowatt hours incrementally pay less than the lower-usage customers for the energy charge portion of the bill, the rate scheme incorporates a DBR.

         [¶4] The Commission consolidated the base rate case with a facilities investigation case and conducted nine days of evidentiary hearings. At the hearing, Joint Intervenors opposed the increase to the monthly fixed customer charge and presented testimony opposing the DBR on grounds that charging less at higher usage rates penalizes low volume customers and does not promote energy conservation. Also, Joint Intervenors urged adoption of a 25% subsidy for certain customers, to be funded by an incremental usage increase on other customers, and requested an order that IPL provide Joint Intervenors with data on service interruption events pertaining to low-income customers.

         [¶5] IPL presented testimony acknowledging that, in the absence of demand meters and/or time-of-use meters, the most cost-justified rate design would be a straight fixed-rate/variable rate. In this design, fixed rates are entirely recovered from the fixed charges and variable costs are entirely recovered from variable charges. However, IPL proposed gradualism as opposed to a total conversion to straight fixed-rate/variable rate methodology within one rate proceeding. Additionally, there was testimony that economically efficient pricing is achieved when a price is set equal to the marginal cost of production, and that flat energy charges (eliminating DBR) do not mirror costs in that it does not cost twice as much to produce twice as much electricity.

         [¶6] Economist Glenn Watkins ("Watkins"), who testified for the OUCC after conducting an evaluation of IPL's proposal, opined that "the current level of customer charges is appropriate." (Tr. at 8208.) According to Watkins, the proposed increases to the fixed monthly customer charge "violate the regulatory principle of gradualism, violate the economic theory of efficient competitive pricing, and are contrary to effective conservation efforts." (Tr. at 8200.) With regard to DBR, Watkins recommended: "[DBR rates] be eliminated gradually to a flat rate structure. However, this restructuring of residential and small commercial rates should be done in a gradual and systematic manner to avoid rate shock to large volume heating customers." (Tr. at 8212.) He recommended a phase out in three rate cases, with equal increments.

         [¶7] On March 16, 2016, the Commission issued its final order approving IPL's proposed rate increase and rejecting the proposals for a low-income customer subsidy and service interruption reporting requirements. We do not re-produce the eighty-three-page opinion here, but recite portions relevant to Joint Intervenor's positions:

         Comprehensive Low Income Bill Payment Assistance Program

Evidence. Joint Intervenors witness Howat recommended implementation of a low income rate that would be paid for by all classes of customers through a volumetric charge and that the low income rate be available to all residential customers at or below 150% of the poverty level. His recommendation was a 25% discounted rate. He also recommended a plan to implement a low-income arrearage write-down program by retiring preprogram arrearages through 12 timely payments of discounted bills. He conducted and submitted analysis for the Commission's consideration of the account activity among Low Income Home Energy Assistance program ("LIHEAP") customers - number of overdue accounts, disconnect notices, and disconnection for nonpayment. Joint Intervenor witness Fraser presented demographic data concerning income levels and poverty rates in Indiana and Marion County.
Industrial Group witness Phillips contended that recovery of social program costs is divorced from any cost causation principles and distorts electric price signals. He testified that the proposed program is best addressed by the Indiana state legislature.
In rebuttal, IPL witness Gaske testified that the Joint Intervenors' proposal raises significant policy issues for the Commission to address and that perhaps the manner and amount of low income assistance would be more appropriately addressed in a generic proceeding involving all regulated electric utilities or by the legislature.
Discussion and Findings. We recognize the importance of the issues raised by Joint Intervenors, but find that there are numerous implementation and policy related concerns. The timing of the introduction of the proposal in this proceeding has not provided an opportunity for sufficient consideration of the complexities involved. As pointed out by Mr. Phillips, the application of costs that could be considered beyond the cost of electric service distorts electric service price signals. A well-designed proposal would include a thorough understanding of how it would create or alleviate any costs of providing electric service. Further, access to key demographic and billing information the affected utility or utilities collect and hold is integral to evaluating any specific program design. Absent this information, we decline to adopt Mr. Howat's recommendations in this proceeding.
Joint Intervenors also have proposed that IPL be ordered to collect and report trend data on arrearages, disconnections, and related data points. While a properly designed program of the type suggested by Joint Intervenors would benefit from this information, and we encourage IPL to consider working with the Joint Intervenors and other interested stakeholders in further identifying beneficial information, we decline to order such collection and reporting solely on the basis of the evidence before us. We believe that any such effort is best pursued by the utility and interested stakeholders outside the regulatory constraints of a specific Commission directive.
Rate Design.
Evidence. Dr. Gaske explained that the rate design objective was guided by two goals: (1) the residential increase would remain less than 10%; and (2) no rate schedule would receive a rate decrease. The rate design proposed for residential and commercial rate classes by Dr. Gaske included moving additional fixed costs into the customer charge component of the bill. The result is a customer charge that increases by a greater percentage than the overall rate increase. He explained that the proposed level does not include all the fixed costs. In conducting the revenue proof, Dr. Gaske gave effect to the movement of customers who are eligible to migrate to a different rate schedule that would be more financially advantageous to them. He testified that after this case is concluded, IPL will notify those customers who would achieve lower bills ...

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