Argued: November 21, 2017
from the Indiana Utility Regulatory Commission No.
Petition to Transfer from the Indiana Court of Appeals No.
ATTORNEYS FOR APPELLANT Todd A. Richardson Joseph P. Rompala
Lewis Kappes, P.C. Indianapolis, Indiana.
ATTORNEYS FOR APPELLEE Brian J. Paul Daniel E. Pulliam Faegre
Baker Daniels LLP Indianapolis, Indiana Claudia J. Earls
Christopher C. Earle NiSource Corporate Services - Legal
traditional rate regulation, an energy utility must first
make improvements to its infrastructure before it can recover
their cost through regulator-approved rate increases to
customers. The process for recouping these costs, sometimes
not until years after they were incurred, is an expensive,
onerous ratemaking case, which involves a comprehensive
review of the utility's entire business operations.
the legislature authorized utilities to obtain regulatory
preapproval for "designated"
improvements to their infrastructure. Under the so-called
"TDSIC" Statute-which provides for more prompt
reimbursement of specified transmission, distribution and
storage system improvements-a utility can seek regulatory
approval of a seven-year plan that designates eligible
improvements, followed by periodic petitions to adjust rates
automatically as approved investments are completed.
issue here is the Indiana Utility Regulatory Commission's
preapproval of approximately $20 million in infrastructure
investments for which the Commission authorized increases to
NIPSCO's natural-gas rates under the TDSIC mechanism.
NIPSCO is an energy utility with more than 800, 000 customers
in northern Indiana. Some of NIPSCO's largest industrial
customers-represented here by the NIPSCO Industrial
Group-oppose NIPSCO's entitlement to favorable rate
treatment under the TDSIC Statute, contending the disputed
projects do not comply with the Statute's requirements.
Commission's holding below, which divided our Court of
Appeals, approved various categories of
improvements-referred to variously as "project
categories", and "multiple-unit projects"-that
describe broad parameters for identifying future improvements
but do not designate those improvements with specificity.
NIPSCO defends these categorical designations by arguing it
does not, and cannot, know in advance which specific segments
of natural-gas pipes throughout its system will fail each
year. But it does know, based on historical performance, that
a certain percentage of its system will need to be replaced
annually. NIPSCO contends the TDSIC Statute permits the
Commission to approve a seven-year plan that describes future
investments in terms of ascertainable planning criteria,
although when its plan was approved, NIPSCO did not know
which specific segments of its system would need to be
Industrial Group, in contrast, interprets the TDSIC Statute
more narrowly. It argues the Statute requires the utility and
the Commission to designate specific projects upfront, rather
than to rely on categories of projects not identified with
specificity until later years. For the Industrial Group, the
traditional ratemaking case is still the primary process for
seeking reimbursement, subject to occasional use of the TDSIC
procedure in the limited band of investments to which it
stakes are much larger than just the roughly $20 million at
issue between NIPSCO and the Industrial Group. The
Commission, we are told, has approved billions of dollars of
utility-infrastructure investments through the TDSIC process.
Given the favorable regulatory treatment, utilities are
likely to funnel increasing amounts of infrastructure
investments through this reimbursement mechanism. How we
resolve these competing visions of the TDSIC Statute will
likely have enormous financial consequences for utilities and
conclude the TDSIC Statute permits periodic rate increases
only for specific projects a utility designates, and the
Commission approves, in the threshold proceeding and not for
multiple-unit projects using ascertainable planning criteria.
In other words, a utility must specifically identify the
projects or improvements at the outset in its seven-year plan
and not in later proceedings involving periodic updates.
There is an appreciable difference between designating
specific "projects" and "improvements" up
front, which the Statute requires, and describing the
criteria for selecting them later, which the Commission
approved. We agree with the Court of Appeals' dissenting
opinion that Commission approval of "broad categories of
unspecified projects defeats the purpose of having a
'plan'." NIPSCO Indus. Grp. v. N. Ind. Pub.
Serv. Co., 78 N.E.3d 730, 740 (Ind.Ct.App. 2017)
(Barnes, J., dissenting).
we find that preclusion principles do not bar our
consideration of this important legal issue of first
impression, we grant transfer, reverse the Commission's
order in part, and remand.
and Procedural History
Traditional utility regulation
regulation is premised on a "regulatory compact" in
which the State sanctions a utility's monopoly within a
defined service area and subjects the utility to various
regulatory restrictions and responsibilities.
As a quid pro quo for being granted a monopoly in a
geographical area for the provision of a particular good or
service, the utility is subject to regulation by the state to
ensure that it is prudently investing its revenues in order
to provide the best and most efficient service possible to
United States Gypsum, Inc. v. Ind. Gas Co., 735
N.E.2d 790, 797 (Ind. 2000) (quotation and citations
State regulates utilities through the Commission, which is
authorized by statute to act with "technical expertise
to administer the regulatory scheme designed by the
legislature … to insure that public utilities provide
constant, reliable, and efficient service to the citizens of
Indiana." N. Ind. Pub. Serv. Co. v. United States
Steel Corp., 907 N.E.2d 1012, 1015 (Ind. 2009) (citation
omitted). See Ind. Code §§ 8-1-1-1 to 8-1-1-15.
When exercising this authority, the Commission balances the
public's need for adequate, efficient, and reasonable
service with the public utility's need for sufficient
revenue to meet the cost of furnishing service and to earn a
reasonable profit. United States Gypsum, 735 N.E.2d
at 797-98. "Proper rates are those which produce a fair
and nonconfiscatory return, and such as will enable the
company, under efficient management, to maintain its utility
property and ...