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Now!, Inc. v. Indiana-American Water Co., Inc.

Court of Appeals of Indiana

December 31, 2018

NOW!, Inc., Appellant-Intervenor,
v.
Indiana-American Water Company, Inc., and the City of Charlestown, Indiana, Appellees-Petitioners, and Indiana Office of Utility Consumer Counselor, Appellee-Respondent.

          Appeal from the Indiana Utility Regulatory Commission Hon. James F. Huston, Interim Chairman Hon. Sarah E. Freeman, Commissioner Hon. Angela Rapp Weber, Commissioner Hon. David E. Ziegner, Commissioner Hon. Carol Sparks Drake, Administrative Law Judge Cause No. 44976

          Attorney for Appellant J. David Agnew Lorch Naville Ward LLC New Albany, Indiana

          Attorneys for Appellee Indiana-American Water Company David L. Pippen General Counsel Indiana-American Water Company Greenwood, Indiana Peter J. Rusthoven Nicholas K. Kile Hillary J. Close Barnes & Thornburg LLP Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE CITY OF CHARLESTOWN Karl L. Mulvaney Alex E. Gude Bingham Greenebaum Doll LLP Indianapolis, Indiana David T. McGimpsey Bingham Greenebaum Doll LLP Jasper, Indiana

          Sharpnack, Senior Judge.

         Statement of the Case

         [¶1] The City of Charlestown, Indiana, executed an agreement to sell its water utility to Indiana-American Water Company, Inc., subject to approval by the Indiana Utility Regulatory Commission. NOW!, Inc., a not-for-profit entity opposed to the sale, filed a petition asking the IURC to reject the agreement. Charlestown and Indiana-American filed a separate petition asking the IURC to approve the sale.

         [¶2] The IURC consolidated the petitions, determined that the sale of the water utility was in the public interest, and issued an order approving the transaction. NOW appeals. We conclude the IURC's order is supported by the facts and fulfills statutory requirements. We affirm.

         Issues

         [¶3] NOW raises three issues, which we restate as:

I. Whether the IURC erred in determining that the purchase price for the utility was reasonable.
II. Whether the IURC erred in determining that Charlestown substantially complied with the statute requiring that information related to utility appraisals be made available to the public.
III. Whether the IURC erred in determining that Charlestown complied with the statute governing public hearings to discuss sales of municipal utilities.

         Facts and Procedural History

         [¶4] Charlestown is a community of approximately 8, 000 people in Clark County, Indiana. The city has owned and operated a water utility for over fifty years. The utility's equipment consists of a well field, four raw water wells, 15, 000 feet of raw water transmission main, a 1.5 million gallon ground storage tank, a pump station and treatment facility, a 250, 000 gallon stand pipe, a 500, 000 gallon elevated tank, approximately 290, 000 feet of water mains, 488 valves, and 296 hydrants. The system serves 2, 898 metered accounts.

         [¶5] Over the years, Charlestown neglected to maintain its water distribution system, and as a result manganese and other minerals have built up in storage tanks and water mains, causing some utility customers to see "brown water" in their taps. Appellant's App. Vol. 3, p. 6. The city also experienced water main leaks. The problem was exacerbated by Charlestown's failure to maintain adequate records, such as a map of the water system, prior to 2000.

         [¶6] Charlestown officials, including Mayor G. Robert Hall, attempted to correct the problems, but as of 2017 they still encountered two to three water main leaks per month and eight to ten complaints of brown water per month. The mayor consulted with an engineer, who estimated that eliminating the brown water problem and addressing other defects would cost $7.2 million. City officials ultimately concluded that Charlestown could not fix the water utility's failing infrastructure without a large increase in customer rates.

         [¶7] Indiana-American is an Indiana corporation based in Greenwood, Indiana, that provides water utility services to approximately 300, 000 customers across Indiana, including in Clark County. In the spring of 2016, Mayor Hall met with Indiana-American to discuss the sale of Charlestown's water utility. City officials concluded Indiana-American could fix the utility infrastructure problems with fewer increases in customer rates because the company could spread improvement costs across its entire customer base.

         [¶8] While discussions were ongoing, Charlestown's engineering contractor, Saegesser Engineering, obtained appraisals of the water utility. The appraisers' reports were provided to Charlestown in November 2016. The appraisers "recertified" their reports and returned them to Charlestown on April 1, 2017. Appellant's App. Vol. 3, p. 18. The appraisers valued the utility's property at $13, 449, 711. Id. at 158.

         [¶9] Charlestown and Indiana-American negotiated a purchase agreement, subject to the IURC's approval of the transaction and the IURC's recognition of the full purchase price in Indiana-American's net original cost rate base. Charlestown agreed to turn over all the utility's assets, except the well fields, which Charlestown would lease to Indiana-American by separate agreement. Indiana-American agreed to pay $13, 403, 711 for Charlestown's water system, an amount equal to the total appraised value minus the appraised value of the wells and well pumps that Charlestown would retain and lease to Indiana-American. Appellant's App. Vol. 2, pp. 16-17.

         [¶10] The Charlestown City Council held a meeting on April 3, 2017, during which they scheduled a public meeting for May 11, 2017, to discuss the sale. Notice of the meeting was published in the local newspaper on April, 11, 2017. The notice stated that a copy of "the appraisal" was available for review in the Charlestown Clerk-Treasurer's office. Appellee Charlestown's App. Vol. 2, p. 125.

         [¶11] The public meeting was held as scheduled. On July 3, 2017, the city council introduced an ordinance to sell the utility and then adopted the ordinance on July 6, 2017.

         [¶12] On July 7, 2017, NOW filed a complaint against Charlestown and Indiana- American under IURC cause number 44964, asking the IURC to reject the utility sale. On August 17, 2017, Charlestown and Indiana-American filed a joint petition and case-in-chief under IURC cause number 44976. Charlestown and Indiana-American asked the IURC to approve their transaction and to include the purchase price and related costs in Indiana-American's rate base for ratemaking purposes. The IURC consolidated the cases under cause number 44976, granting NOW permission to intervene.

         [¶13] Next, NOW moved to strike or dismiss Charlestown and Indiana-American's case-in-chief. The Indiana Office of the Utility Consumer Counselor (OUCC), an entity that represents the public in IURC proceedings, appeared in the case and moved to dismiss Charlestown and Indiana-American's joint petition. The IURC denied the motions of NOW and the OUCC. NOW next filed a motion for summary judgment.

         [¶14] The IURC presided over a three-day evidentiary hearing, during which Charlestown, Indiana-American, NOW, and the OUCC presented evidence. After the hearing, the parties submitted proposed orders. The IURC issued an order concluding, in relevant part:

1. Joint Petitioners are authorized to consummate the acquisition of the Charlestown Water System by Indiana-American on the terms described in the Asset Purchase Agreement and as discussed herein.
2. The acquisition of the Charlestown Water System by Indiana-American on the terms and conditions described in the Asset Purchase Agreement and in the evidence is in the public interest as defined in Ind. Code § 8-1.5-2-6.1(d) and (e), and the same is approved.
3. Indiana-American is authorized to record for ratemaking purposes as net original cost rate base of the assets being acquired an amount equal to the full purchase price, actual incidental expenses, and other actual costs of acquisition reasonably incurred, allocated among utility plant in service accounts as Indiana-American proposed.
4. Indiana-American is authorized to charge customers currently served by the Charlestown Water System the current rates and charges and apply the same rules and regulations for water service and private and public fire service applicable in Indiana-American's Area One rate group on file with and approved by the Commission, as the same are in effect from time to time.
5. Indiana-American is authorized to reflect the acquisition of the Charlestown Water System on its books and records as of the closing by making the accounting and journal entries described in Attachment GMV-R1, as adjusted to actual, reasonable incidental expenses and other actual costs of the acquisition.
6. The net original cost, as defined herein, of the acquired property shall be used for accounting, depreciation, and rate base valuation purposes after closing.
7. Indiana-American is authorized to apply its depreciation accrual rates on and after the closing date of the acquisition to depreciable property purchased from Charlestown pursuant to the Asset Purchase Agreement.
8. Indiana-American is authorized to encumber the properties comprising the Charlestown Water System with the lien of Indiana-American's mortgage indenture.
9. The relief sought in NOW's Amended Complaint is denied.
10. NOW's Motion for Summary Judgment is denied. Appellant's App. Vol. 2, pp. 51-52. This appeal followed.[1]

         Discussion and Decision

         I. Standard of Review

         [¶15] The General Assembly created the IURC primarily as a fact-finding body with the technical expertise to administer the regulatory scheme devised by the legislature. N. Ind. Pub. Serv. Co. v. U.S. Steel Corp., 907 N.E.2d 1012, 1015 (Ind. 2009). The IURC's assignment is to ensure that public utilities provide constant, reliable, and efficient service to the citizens of Indiana. Id.

         [¶16] When reviewing an IURC order, we must first determine whether the order contains "specific findings on all the factual determinations material to its ultimate conclusions." Ind. Gas Co. v. Ind. Fin. Auth., 999 N.E.2d 63, 66 (Ind. 2013) (quotation omitted). We then determine whether the findings of fact are supported by substantial evidence in the record. Id. We neither reweigh the evidence nor assess the credibility of witnesses, and we consider only the evidence most favorable to the IURC's findings. Id. Factual findings will stand unless no substantial evidence supports them. U.S. Steel, 907 N.E.2d at 1016.

         [¶17] Both Charlestown and Indiana-American claim that we should defer to the IURC's interpretations of statutes that it is charged with enforcing. To the contrary, the Indiana Supreme Court recently held that appellate courts review questions of law de novo, with "no deference" to an administrative tribunal. NIPSCO Indus. Group v. N. Ind. Pub. Serv. Co., 100 N.E.3d 234, 241 (Ind. 2018), on reh'g. "Separation-of-powers principles do not contemplate a 'tie-goes-to-the-agency' standard for reviewing administrative decisions on questions of law." Id.

         II. Reasonableness of Sale Price

         [¶18] NOW argues that the IURC misapplied the statutes that govern the sale of utilities. Specifically, NOW claims that the IURC erred in determining that the sale price of Charlestown's water utility was reasonable, as that term is defined by statute, and further claims that the proposed sale cannot move forward unless Charlestown residents approve the transaction in a referendum.

         [¶19] The parties agree that Charlestown's proposed sale of its water utility is governed by Indiana Code section 8-1.5-2-1 et seq., which governs the sale of utilities by municipalities. In particular, Indiana Code section 8-1.5-2-6.1 (2016) governs the sale of "nonsurplus utility property." It provides:

(a) This section applies to a municipality that adopts an ordinance under section 5(d) of this chapter ...

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