Citizens Action Coalition of Indiana, Inc. v. Northern Indiana Public Service Co.

• Citation: 485 N.E.2d 610
• Decision Date: 19 November 1985
• Docket Number: No. 1185S470,1185S470
• Parties: CITIZENS ACTION COALITION OF INDIANA, INC.; City of Gary, Indiana; Bailly Alliance, Appellants, v. NORTHERN INDIANA PUBLIC SERVICE COMPANY; United States Steel Corporation; Bethlehem Steel Corporation; Inland Steel Company; National Steel Corporation, Midwest Steel Division; Union Carbide Incorporated, Jones & Laughlin Steel Incorporated, Jones & Laughlin Steel Corporation Division, Office of Utility Consumer Counsel, Appellees.
• Court: Supreme Court of Indiana

Page 610

485 N.E.2d 610

54 USLW 2310

CITIZENS ACTION COALITION OF INDIANA, INC.; City of Gary Indiana; Bailly Alliance, Appellants, v. NORTHERN INDIANA PUBLIC SERVICE COMPANY; United States Steel Corporation; Bethlehem Steel Corporation; Inland Steel Company; National Steel Corporation, Midwest Steel Division; Union Carbide Incorporated, Jones & Laughlin Steel Incorporated, Jones & Laughlin Steel Corporation Division, Office of Utility Consumer Counsel, Appellees.

No. 1185S470.

Supreme Court of Indiana.

Nov. 19, 1985.

William Julian, II, Michael A. Mullet, Indianapolis, for Citizens Action Coalition of Indiana, Inc. Arthur A. Daronatsy, City of Gary Law Dept., Gary, for City of Gary, ind.

William Drozda, Gary, for Bailly Alliance.

Frank E. Spencer, Indianapolis, for City of Gary, Ind. and Citizens Action Coalition of Ind., Inc.

Robert L. Thompson, Fort Wayne, for appellants.

Frederick F. Eichhorn, Jr., William H. Eichhorn, Charles W. Webster, Eichhorn, Eichhorn & Link, Hammond, for Northern Indiana Public Service Co.

Fred E. Schlegel, Michael J. Huston, Mary M. Stanley, Baker & Daniels, Indianapolis, for intervenors Inland Steel Co., Union Carbide Corp., and the Dalton Foundries, Ind. in Support of Northern Indiana Public Service Co.

Michael D. Alexander, U.S. Steel Corp., Pittsburgh, Pa., Robert L. Hartley, Martin & Hartley, Alki Scopelitis, Scopelitis & Garvin, Indianapolis, for appellees.

L. Parvin Price, John Q. Herrin, Office of Utility Consumer Counsel, Indianapolis.

Linley E. Pearson, Atty. Gen. of Ind., Robert K. Johnson, Deputy Atty. Gen., for Public Service Com'n of Ind.

Robert F. Hellmann, Max E. Goodwin, Mann, Chaney, Johnson, Goodwin & Williams, Terre Haute, for City of Terre Haute as amicus curiae.

Jerry P. Belknap, Richard E. Deer, James A. Strain, Barnes & Thornburg, Indianapolis, for American Fletcher Nat. Bank and Trust Co., Fort Wayne Nat. Bank, The Indiana Nat. Bank and Merchants Nat. Bank & Trust Co. of Indianapolis as amici curiae.

DeBRULER, Justice.

This case comes to this Court on petition to transfer from the Second District of the Court of Appeals. Citizens Action Coalition of Indiana Inc., et al. v. Northern Indiana Public Service Company Inc., et al. (1984), Ind.App., 472 N.E.2d 938. The Court of Appeals considered the issue of whether or not the Public Service Commission of Indiana (PSCI) acted contrary to law in permitting the Northern Indiana Public Service Company (NIPSCO) to amortize the sunk costs of the cancelled Bailly N-1 project through retail rates. The Court of Appeals reversed the cause and ordered the PSCI to vacate any rate increase occasioned by Bailly N-1. We grant transfer in order to resolve the question presented and other issues raised.

These are the facts pertinent to the issue. In 1970, NIPSCO embarked upon a project to construct a nuclear generating plant designated as Bailly N-1. Because of delays due to litigation, to opposition to licensing provisions involving safety, and to escalating costs, NIPSCO cancelled the project on August 21, 1981, after expending $205, 724, 170. NIPSCO never completed the Bailly N-1 project, nor did NIPSCO place it into service. The PSCI permitted NIPSCO to amortize $190, 746, 580.00 through retail rates over a fifteen year period. The pertinent part of the PSCI's order is set forth here:

We resolve the issue as to whether amortization will be allowed affirmatively. Indiana utilities are under statutory mandate to serve; "every public utility is required to provide reasonable, adequate service and facilities" (I.C. 8-1-2-4 and 8-1-2-69). The record in this cause established that in order for a utility to meet its mandate to serve, it must begin construction of coal-fired generating facilities 8 to 10 years in advance of the need therefor with longer periods for nuclear powered facilities. If, in order to comply with the law, a utility must begin construction of generating projects many years in advance of the need for the power, it is the Commission's responsibility to assure that the risk in doing so is not so great as to discourage the endeavor. In 1971 when Petitioner began its effort to construct Bailly, N-1, nuclear power held great promise for efficient and economic power supply. Over the course of the years, the economic advantages of nuclear generation over other forms of generation The allowance of amortization of the Bailly, N-1 costs should not be confused with an allowance of a return on the value of a utility plant which is not used and useful in the utility's service. The Petitioner did not seek to earn a return on its investment in Bailly, N-1 during the period of amortization and no return on the investment will be provided in this order. The authorized amortization is to permit the Petitioner to recover the sunk costs put forth in a reasonable effort to meet the mandate to serve, which unfortunately failed.

                began to deteriorate and ultimately the delays resulting from regulatory indecision on the federal level and the changing economics forced the cancellation of Bailly, N-1 in August of 1981.  This Commission has previously allowed amortization of costs incurred in abandoned and cancelled projects (Cause No. 32079 Dec. 12, 1979);  Cause No. 36318 June 10, 1981).  The amount of the amortization in prior proceedings was not as great as here, but the principle is the same.  We find that the Petitioner prudently began construction of Bailly, N-1 and that upon its cancellation, it became an extraordinary cost of service loss incurred in an effort to provide energy for the consumers of Petitioner's system.  The loss occurred with the cancellation.  The Bailly, N-1 project was a reasonable undertaking by Petitioner to meet its duty to serve.   The fact that the project was opposed by some for safety and environmental reasons cannot be given weight in this decision.  The site locations, safety, environmental and many other issues were litigated in the Construction Permit proceedings, decided in Petitioner's favor by the agency with the jurisdiction to do so, the Nuclear Regulatory Commission (NRC), and reviewed and ultimately approved by the United States Court of Appeals for the Seventh Circuit and the United States Supreme Court
                

STANDARD OF REVIEW

The resolution of the issues in this case depends upon the definition of service in I.C. Sec. 8-1-2-1 and the construction of the other statutes in Title 8 which confer upon the PSCI its rate making authority and power. The construction of Indiana law is particularly the province of this Court.

The Public Service commission derives its power and authority solely from the statute, and unless a grant of power and authority can be found in the statute it must be concluded that there is none. Chicago & E.I.R. Co. v. Public Service Commission et al. (1943), 221 Ind. 592, 49 N.E.2d. 341. An order is presumed valid unless the contrary is clearly apparent. Such presumption vanishes if the Commission fails to conform "to all relevant statutes, standards, and legal principles." Illinois-Indiana Cable T.V. Inc. v. Public Service Commission (1981), Ind.App., 427 N.E.2d 1100, 1105. The standard of review is governed by statute. I.C. Sec. 8-1-3-1 states in pertinent portion.

"An assignment of errors that the decision, ruling or order of the commission is contrary to law shall be sufficient to present both the sufficiency of the facts found to sustain the decision, ruling or order, and the sufficiency of the evidence to sustain the finding of facts upon which it was rendered."

This statute provides a multiple-tier standard of review. At the first level, the statutory standard requires that the Commission's decision contain specific findings on all the factual determinations material to its ultimate conclusions. L.S. Ayres & Co. v. Indianapolis Power & Light Co. (1976), 169 Ind.App. 652, 351 N.E.2d 814, 822. At the second level, the statutory standard requires a reviewing court to inquire whether there is substantial evidence in light of the whole record to support the Commission's findings of basic fact. L.S. Ayres & Co. supra, 351 N.E.2d at 822. In addition to determining whether or not the decision, ruling or order of the Commission is supported by specific findings of fact and by sufficient evidence, there is another matter in which this Court may always properly inquire, and that is the question of whether or not the decision, ruling or order is contrary to law. See Public Service Commission v. City of Indianapolis (1956), 235 Ind. 70, 131 N.E.2d 308, 312. In other words, did the Commission stay within its jurisdiction and conform to the statutory standards and legal principles involved in producing its decision, ruling or order. See Public Service Commission v. City of Indianapolis, supra, 131 N.E.2d at 313.

I

NIPSCO contends that the amortization of sunk costs of the cancelled Bailly N-1 project is an allowable operating expense. NIPSCO relies on City of Evansville v. Southern Indiana Gas and Electric Company (1975), 167 Ind.App. 472, 339 N.E.2d 562 to support this proposition.

The Commission's primary objective in every rate proceedings is to establish a level of rates and charges sufficient to permit the utility to meet its operating expenses plus a return on investment which will compensate its investors.... I.C. 1971, 8-1-2-4 (Burns Code Ed.): Federal Power Comm'n v. Hope Natural Gas Co. (1944), 320 U.S. 591, 605, 64 S.Ct. 281 , 88 L.Ed. 333. The utility's revenues minus its expenses, exclusive of interest, constitute the earnings or the "return" that is available to be distributed to the utility's investors. Allowable operating costs include all types of operating expenses (e.g. wages, salaries, fuel, maintenance) plus annual charges for depreciation and operating taxes. While the utility may incur any amount of operating expenses it chooses, the Commission is invested with broad discretion to disallow for rate-making purposes any excessive or...