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Hamilton Southeastern Utilities, Inc. v. Indiana Utility Regulatory Commission

Court of Appeals of Indiana

October 15, 2019


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          Appeal from the Indiana Utility Regulatory Commission, The Honorable James F. Huston, Chairman, The Honorable David E. Ziegner, Sarah E. Freeman, Stefanie Krevda, and David L. Ober, Commissioners, The Honorable Carol Sparks Drake, Senior Administrative Law Judge, IURC Cause No. 44683

         Attorneys for Appellant: Randolph L. Seger, Brian W. Welch, Michael T. Griffiths, Bingham Greenebaum Doll LLP, Indianapolis, Indiana

         Attorneys for Appellee Indiana Utility Regulatory Commission: Curtis T. Hill, Jr., Attorney General of Indiana, Aaron T. Craft, Deputy Attorney General, Indianapolis, Indiana Beth E. Heline, General Counsel, Jeremy R. Comeau, Assistant General Counsel, Indiana Utility Regulatory Commission, Indianapolis, Indiana

         Attorneys for Appellee Indiana Office of Utility Consumer Counselor: William I. Fine, Daniel M. Le Vay, Scott C. Franson, Indianapolis, Indiana

         Bailey, Judge.

          Case Summary

          [¶ 1] Following a previous order of this Court remanding this case to the Indiana Utility Regulatory Commission ("Commission"), Hamilton Southeastern Utilities, Inc. ("HSE") appeals the February 20, 2019, Commission’s order on remand in which the Commission disallowed both HSE’s requested 3% increase in the hourly billing rate for its affiliate, Sanitary Management & Engineering Company, Inc. ("SAMCO"), and a 10% management fee for SAMCO.

          [¶ 2] We affirm.


          [¶ 3] HSE raises five issues which we consolidate and restate as follows:

1. Whether the Commission’s order on remand satisfies the Court of Appeals instructions to support its order with substantial evidence by either making additional findings

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supporting the Commission’s decision to disallow HSE’s requested 3% rate increase for SAMCO billing charges and 10% SAMCO management fee (collectively, "SAMCO-related expenses") or recalculating HSE’s rate.
2. Whether the Commission exceeded its statutory authority when it ordered HSE to provide evidence of its affiliate’s costs.
3. Whether the Commission improperly promulgated a rule in its order on remand.

          Facts and Procedural History

          [¶ 4] HSE is a for-profit public utility that provides sewage collection and treatment services to customers in Hamilton County, Indiana. HSE relies upon its affiliate, SAMCO, to carry out all operation, maintenance, and engineering functions of HSE’s sewage operations. SAMCO charges HSE pursuant to a utility services agreement ("affiliate contract"). HSE’s officers and directors all own shares of SAMCO.

         [¶ 5] As a public utility, HSE is subject to regulation by the Commission. In 2009, HSE sought approval from the Commission for a base rate increase. The Indiana Office of Utility Consumer Counselor ("OUCC"), a state agency tasked with representing the interests of consumers in utility matters,[1] argued against HSE’s proposed rate increase based in part on the National Association of Regulatory Utility Commissioners ("NARUC") guidelines. In its 2010 order ("2010 Order"), the Commission approved an increase to HSE’s revenues of 3.22% and a rate of return of 9.8%. The 2010 Order— which approved SAMCO-related expenses— was based on HSE’s market study evidence indicating that SAMCO charged rates and markups that were at or below the regional market, and it did not rely upon the NARUC guidelines. The Commission found that SAMCO’s total contract charge to HSE for the test year 2009 was $3,280,990.

         [¶ 6] Due largely to aging equipment, HSE began to experience operational issues that resulted in spills and overflow. In 2013, a sewage overflow led the Indiana Department of Environmental Management ("IDEM") to issue a Notice of Violation to HSE. HSE and IDEM subsequently entered into an Agreed Order under which HSE was required to develop and implement additional maintenance and operations programs. The requirements of the Agreed Order significantly increased HSE’s maintenance and operating costs and will continue to do so for the foreseeable future. SAMCO is carrying out the actions required in the Agreed Order, and SAMCO’s resulting total contract charge to HSE in test year 2014 was over $5 million.[2]

         [¶ 7] Because of the added expenses, HSE achieved an average rate of return of 1.9% between 2009 and 2015, even though the Commission had approved a 9.8% rate of return in the 2009-10 rate case. Therefore, on September 24, 2015, HSE filed a petition seeking authority from the Commission to increase its rates and charges. Specifically, HSE sought an ...

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