Hamilton Southeastern Utilities, Inc. Appellant (Petitioner below),
Indiana Utility Regulatory Commission, et al. Appellees (Respondents below).
Argued: March 15, 2018
from the Indiana Utility Regulatory Commission, No. 44683 The
Honorable Aaron A. Schmoll, Senior Administrative Law Judge
Petition to Transfer from the Indiana Court of Appeals, No.
ATTORNEYS FOR APPELLANT Randolph L. Seger Brian W. Welch
Michael T. Griffiths Bingham Greenebaum Doll, LLP
ATTORNEYS FOR APPELLEES Curtis T. Hill, Jr. Attorney General
of Indiana Thomas M. Fisher Solicitor General Patricia C.
McMath Lara Langeneckert Julia C. Payne Deputy Attorneys
General Beth E. Heline Jeremy Comeau Indiana Utility
Regulatory Commission Indianapolis, Indiana William Fine
Daniel M. Le Vay Scott C. Franson Abby R. Gray Indiana Office
of Utility Consumer Counselor Indianapolis, Indiana
response to a low rate of return over a six-year period,
Hamilton Southeastern Utilities, Inc. ("HSE")
petitioned the Indiana Utility and Regulatory Commission
("the Commission") to approve an 8.42% increase in
its rates. The Commission, in several findings of fact,
authorized a rate and charges increase much lower than HSE
requested. HSE appealed the Commission's decision and
named the Commission as a respondent. Upon HSE's motion,
and over the Commission's objection, the Court of Appeals
dismissed the Commission, concluding that it was not a proper
party to the appeal. We now address whether the Commission
was a proper party on appeal. As for the issue raised in the
Indiana Office of Utility Consumer Counselor's ("the
OUCC") petition-whether the Commission may include in
HSE's revenue requirement the state and federal income
taxes paid by HSE's individual shareholders-we summarily
affirm the Court of Appeals.
and Procedural History
a for-profit public utility that provides sewage collection
and treatment services to customers in Hamilton County,
Indiana. HSE relies on an affiliate company, Sanitary
Management & Engineering Company, Inc.
("SAMCO"), to carry out the operation, maintenance,
and engineering functions of HSE's sewage operations. As
a public utility, HSE is subject to regulation by the
2010 order, the Commission approved HSE to charge a flat
monthly rate of $34.63 per single family unit and, in
establishing that rate, it authorized a 9.8% rate of return.
Since then, largely due to an aging system and sewage
overflows, HSE incurred significant maintenance and operating
costs, totaling over $11 million. These increased costs
affected HSE's profitability; HSE averaged a 1.9% rate of
return between 2009 and 2015-much lower than the
September 24, 2015, HSE filed a rate case with the Commission
requesting, in relevant part, approval of an 8.42% increase
to its rates. The increase would produce just under $1
million of additional yearly revenue. The Commission
conducted a hearing to consider HSE's petition. The OUCC,
a state agency tasked with representing the interests of
consumers in utility matters, advocated for a 14.01% rate
reduction. The OUCC argued that HSE could operate more
efficiently by ending its relationship with SAMCO and
performing those tasks outsourced to SAMCO with in-house
employees. After reaching certain agreements with the OUCC,
HSE reduced its rate increase request to 6.27%.
Commission ultimately approved an increase much lower than
HSE had hoped for; it issued an order authorizing only a
1.17% increase in HSE's rates and charges. The Commission
reasoned, in part, that expenses related to SAMCO should be
eliminated from HSE's working capital allowance. The
Commission did, however, authorize HSE to include in its
rates the state and federal income tax liability that is
passed through to, and paid by, HSE's shareholders.
appealed, arguing that the Commission erred in excluding some
expenses from its rates. The OUCC cross-appealed, arguing
that HSE should not be permitted to recover income tax
liability in its utility rate because, as an S Corporation,
HSE has no tax liability of its own as a matter of law.
Hamilton Southeastern Utils., Inc. v. Ind. Util.
Regulatory Comm'n, 85 N.E.3d 612, 617, 625
(Ind.Ct.App. 2017). HSE initially named the Commission as an
appellee-respondent, but then moved to dismiss the
Commission, claiming that it had mistakenly identified the
Commission as a party. Id. Over the Commission's
objection, the Court of Appeals granted HSE's motion to
dismiss the Commission. Id. at 626.
Court of Appeals then made the following determinations: (1)
the Commission acted arbitrarily in excluding SAMCO-related
expenses (the 3% contract increase and 10% management fee)
from HSE's rate calculation; (2) the Commission was
within its discretion to exclude the paid-in-arrears SAMCO
expenses from HSE's calculation of working capital; (3)
the Commission did not err in its conclusion regarding
HSE's system development charge based on the evidence