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NIPSCO Industrial Group v. Northern Indiana Public Service Co.

Supreme Court of Indiana

June 27, 2019

NIPSCO Industrial Group, Appellant (Intervenor below),
v.
Northern Indiana Public Service Company, Appellee (Petitioner below), and Office of the Utility Consumer Counselor, Appellee (Statutory Party below).

          Argued: November 1, 2018

          Appeal from the Indiana Utility Regulatory Commission No. 44733-TDSIC-2

          On Petition to Transfer from the Indiana Court of Appeals No. 93A02-1711-EX-2735

          ATTORNEYS FOR APPELLANT Todd A. Richardson Bette J. Dodd Joseph P. Rompala Lewis & Kappes, P.C. Indianapolis, Indiana.

          ATTORNEYS FOR APPELLEE NORTHERN INDIANA PUBLIC SERVICE COMPANY Brian J. Paul Daniel E. Pulliam Faegre Baker Daniels LLP Indianapolis, Indiana Claudia J. Earls M. Bryan Little NiSource Corporate Services - Legal Indianapolis, Indiana.

          ATTORNEYS FOR APPELLEE OFFICE OF THE UTILITY CONSUMER COUNSELOR Jeffrey M. Reed William I. Fine Randall C. Helmen Tiffany T. Murray Office of the Utility Consumer Counselor Indianapolis, Indiana

          OPINION.

          Goff, Justice.

         Everyone reaps a benefit when utilities are allowed to plan for investments in necessary and reasonable infrastructure projects. The "TDSIC Statute" at issue in this appeal promotes this beneficial behavior through a complex, integrated process that aims to protect all sides involved. On the utilities' side, the statute allows utilities to seek pre-approval from the Indiana Utility Regulatory Commission for certain electric or gas infrastructure projects and to recoup the costs of those projects through periodic petitions to the Commission for increases to its rates. On the consumers' side, the statute requires the Commission to make determinations regarding the public convenience, necessity, and reasonableness of planned projects before approving a plan to complete them. This process protects both suppliers and consumers of electric and gas services, improves the stability of the provision of these services, and increases the predictability of costs associated with providing and using these services.

         Here, the process started off well but eventually broke down. The parties to this appeal agreed to two expansive, multi-year settlements regarding rates and infrastructure investments under the TDSIC Statute, and they asked the Commission to approve the agreements, which it did. These agreements specified how, in the utility's periodic petitions to the Commission, rate increases should be calculated and allocated among the utility's various rate classes. Despite being a party to the underlying agreements, a group of some of the utility's largest industrial customers opposed the utility's second periodic petition, arguing that the utility's rate calculation and allocation based on the underlying agreements was contrary to the TDSIC Statute. The Commission rejected this argument, and the customer group sought judicial review.

         This case, at its core, involves a party to and proponent of two complex administrative settlement agreements raising a challenge to specific parts of those settlements in a later proceeding. Concluding that the customer group is estopped from raising this delayed challenge and further concluding that the Commission's order contains sufficient findings, we affirm the Commission.

         Factual and Procedural History

         Given the lengthy and interwoven background of this appeal, our discussion of the factual and procedural history proceeds in three parts. We begin with a summary of some of the ways in which the Indiana Utility Regulatory Commission regulates utility rates and an overview of the specific challenge to the regulatory activity raised here. Then, we discuss two large-scale regulatory proceedings that provide the basis for the proceeding below. We conclude with a summary of the proceedings before the Commission and the Court of Appeals below.

         I. Regulation of utility rates generally and the specific challenge to the rate regulation here

         Last year, in litigation between some of the same parties involved in this appeal, we discussed the general processes by which utility rates are set and adjusted. See NIPSCO Indus. Grp. v. N. Ind. Pub. Serv. Co. (NIPSCO 2018), 100 N.E.3d 234, 238-39 (Ind. 2018), modified on reh'g. We find a brief summary of these processes helpful in placing this appeal in the proper context.

         Base utility rates are traditionally set or adjusted through a general ratemaking case (variously referred to as a general rate case or base rate case) before the Commission. This is a comprehensive process in which the Commission "examine[s] every aspect of the utility's operations and the economic environment in which the utility functions . . . ." Id. at 238 (quoting U.S. Gypsum, Inc. v. Ind. Gas Co., 735 N.E.2d 790, 798 (Ind. 2000)). Such a detailed review allows the Commission to ensure that utility rates are fair to both the utility and its customers. Id.

         In addition to the comprehensive process of a base rate case, utility rates can be adjusted to reflect specific projects and costs through a "tracker" or "rider" procedure before the Commission. The TDSIC Statute, at issue in this appeal, provides one such proceeding related to electric or gas transmission, distribution, and storage system improvement charges a public utility imposes for certain improvement projects. See generally Ind. Code ch. 8-1-39 (2016 Repl.).[1] This statute provides two distinct, yet related, types of proceedings. First, under Section 10, a utility can seek approval from the Commission of a multi-year plan "for eligible transmission, distribution, and storage improvements." I.C. § 8-1-39-10(a). See also NIPSCO 2018, 100 N.E.3d at 239. Second, under Section 9 and based on the multi-year plan, the utility can periodically petition the Commission for "adjustment of [its] basic rates and charges to provide for timely recovery of eighty percent (80%) of approved capital expenditures and TDSIC costs." I.C. § 8-1-39-9(a). See also NIPSCO 2018, 100 N.E.3d at 239. The utility calculates these rate adjustments through a multi-step process, and one of the steps in this process involves allocating eligible TDSIC costs among the utility's various rate classes.

         One requirement of Section 9 of the TDSIC Statute speaks specifically to the allocation step of the rate adjustment calculation, and this requirement lies at the center of this appeal. A Section 9 petition, among other things, 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." I.C. § 8-1-39-9(a)(1). The parties agree as to which order from the Commission qualifies as Northern Indiana Public Service Company's ("NIPSCO")[2] most recent retail base rate case order. Further, the parties do not dispute the meaning of the term "firm load" in the context of this proceeding.[3] However, the NIPSCO Industrial Group (the "Industrial Group")[4] argues that the customer class revenue allocation factors included in NIPSCO's second Section 9 petition were not based on firm load, as required by Section 9, but rather on total load.

         II. NIPSCO's most recent base rate case and its Section 10 proceeding for approval of its multi-year TDSIC plan

         Because the Section 9 proceeding that spawned this appeal drew from the parties' settlements and the Commission's orders resolving NIPSCO's most recent base rate case and approving NIPSCO's multi-year TDSIC plan, we begin our discussion of the particular facts and history of this appeal with a discussion of the underlying proceedings.

         A. The base rate case

         In October 2015, NIPSCO petitioned the Commission to begin a base rate case to increase its base electric service rates, and it submitted testimony and exhibits to the Commission.[5] Nine entities intervened and participated in the case, including the Industrial Group. The Indiana Office of Utility Consumer Counselor (the "OUCC"), a statutory representative of "ratepayers, consumers, and the public," I.C. § 8-1-1.1-4.1(a), also participated in the case.

         In February 2016, NIPSCO, the OUCC, and most of the intervenors- including the Industrial Group-submitted a settlement agreement (the "Base Rate Case Settlement") to the Commission, along with supporting testimony. As relevant here, the settling parties stated, "For purposes of establishing any rate schedules allowing for the recovery of 80% of NIPSCO's approved capital TDSIC expenditures and costs pursuant to I.C. 8-1-39-9(a), the parties agree that Joint Exhibit D reflects the customer class revenue allocation factors that should be applied to firm load." Appellant's ...


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