Ind. Gas Co. v. Ind. Fin. Auth.

• Decision Date: 30 October 2012
• Docket Number: No. 93A02–1112–EX–1141.,93A02–1112–EX–1141.
• Citation: 977 N.E.2d 981
• Parties: INDIANA GAS COMPANY, INC. and Southern Indiana Gas and Electric Company, et al., Appellants–Respondents, v. INDIANA FINANCE AUTHORITY and Indiana Gasification, LLC, Appellees–Petitioners.
• Court: Indiana Appellate Court

977 N.E.2d 981

INDIANA GAS COMPANY, INC. and Southern Indiana Gas and Electric Company, et al., Appellants–Respondents,

v.INDIANA FINANCE AUTHORITY and Indiana Gasification, LLC, Appellees–Petitioners.

No. 93A02–1112–EX–1141.

Court of Appeals of Indiana.

Oct. 30, 2012.

Robert E. Heidorn, Joshua A. Claybourn, Vectren Corporation, Evansville, Norman T. Funk, Libby Goodknight, Krieg DeVault, LLP, Clayton C. Miller, Bamberger Foreman Oswald & Hahn, LLP, Jerome Polk, Polk & Associates, LLP, Todd A. Richardson, Joseph P. Rompala, Lewis & Kappes, P.C., Indianapolis, Attorneys for Appellants.

A. David Stippler, Randall C. Helmen, Indiana Office of Utility Consumer Counselor, Larry J. Wallace, James A.L. Buddenbaum, Travis W. Montgomery, Parr Richey Obremskey Frandsen & Patterson, Karl L. Mulvaney, Michael R. Limrick, David T. McGimpsey, Bingham Greenebaum Doll, LLP, Mark W. Cooper, Indianapolis, Jefferson A. Lindsey, Rockport, Attorneys for Appellees.

OPINION

RILEY, Judge.

STATEMENT OF THE CASE

Appellants–Respondents, Indiana Gas Company, Inc. and Southern Indiana Gas and Electric Company, both d/b/a Vectren Energy Delivery of Indiana, Inc. (collectively, Vectren); Ohio Valley Gas Corporation; Ohio Valley Gas, Inc.; Sycamore Gas Company; Arcelor Millal USA; Haynes International, Inc.; Rochester Metal Products Corporation; Vertellus Specialties, Inc.; Countrymark Refining & Logistics, LLC; Corn Products International, Inc.; Citizens Action Coalition; Spencer County Citizens for Quality of Life; Valley Watch, Inc., and the Sierra Club appeal the Indiana Utility Regulatory Commission's (the Commission) judgment in favor of Appellees–Petitioners, the Indiana Finance Authority (IFA); Indiana Gasification, LLC (IG); Lincolnland Economic Development Corp. (Lincolnland), and the Indiana Office of Utility Consumer Counselor (OUCC) with respect to the Commission's approval of a Substitute Natural Gas Purchase and Sale Agreement (Contract) between the IFA and IG.¹

We reverse.

ISSUES

Arcelor Millal USA; Haynes International, Inc.; Rochester Metal Products Corporation; Vertellus Specialties, Inc.; Countrymark Refining & Logistics, LLC; and Corn Products International, Inc. (collectively, the Industrial Group) ² raise two issues on appeal, which we consolidate and restate as the following single issue: Whether the Commission erred in approving the Contract when the Contract defined “retail end use customer” in a manner contrary to the statutory definition of the same term.

Vectren; Ohio Valley Gas Corporation; Ohio Valley Gas, Inc.; and Sycamore Gas Company (collectively, the Utilities); and Citizens Action Coalition of Indiana, Inc.; Spencer County Citizens for Quality of Life; Valley Watch, Inc.; and the Sierra Club (collectively, the Citizens Groups) raise two additional issues on appeal, which we consolidate and restate as the following single issue: Whether the Commission exceeded its jurisdiction when it approved the Contract.

As a separate issue, the IFA, IG, and Lincolnland present us with the following issue, which we restate: Whether the Utilities and the Industrial Group have standing to appeal the Commission's approval of the Contract.

FACTS AND PROCEDURAL HISTORY

Substitute natural gas (SNG) is a pipeline quality gas produced from coal through a manufacturing process called coal gasification. It serves as an alternative to natural gas and is used to fuel gas appliances in many Indiana homes and businesses. In 2009, the Indiana General Assembly expressed approval of SNG production in Public Law 2–2009, which has since been codified as the Substitute Natural Gas Act (the SNG Act) in Ind.Code § 4–4–11.6. In the SNG Act, the General Assembly included its findings that: “[t]he furnishing of reliable supplies of reasonably priced natural gas for sales to retail customers is essential for the well being of the people of Indiana;” and “[o]btaining low cost financing for the construction of new coal gasification facilities is necessary to allow retail end use customers to enjoy the benefits of a reliable, reasonably priced, and long term energy supply.” I.C. § 4–4–11.6–12. In accordance with these findings, the SNG Act outlines procedures governing the production, purchase, and sale of SNG. It authorizes the IFA to enter into contracts for the purchase,transportation, and delivery of SNG, and allows the IFA to establish rates and charges to retail end use customers for the SNG.

On March 26, 2009, two days after the Governor signed Public Law 2–2009, the IFA issued a request for proposals (RFP) in which it solicited coal gasification project proposals from suppliers of SNG. IG sent its response to the RFP on April 9, 2009 and was the only entity that responded. Leucadia National Corporation (Leucadia), a New York-based developer in the coal gasification business, incorporated IG as a limited liability, special purpose entity for the sole purpose of developing a coal gasification facility (the Plant) near Rockport, Indiana.

IG's proposed plan was to build, own, and operate the Plant, which it estimated would cost $2.7 billion to develop. IG expected to receive $800 million of the amount needed, which was equivalent to 30% of the total estimated cost, in the form of private capital from Leucadia. IG also expected to receive a federal loan guarantee from the United States Department of Energy (DOE) for the remaining $1.875 billion. Depending upon its financing, legal proceedings, and environmental permitting requirements, IG planned to commence construction of the Plant in the third quarter of 2012 and to begin delivering SNG in the first quarter of 2016.

On January 14, 2011, the IFA and IG executed the Contract, which details the sale and purchase of the SNG that IG plans to produce at the Plant. The Contract provides that the IFA will buy up to a fixed annual amount of 38 million MMBTUs ³ of SNG from IG for a period of 30 years, to be measured from the day SNG production at the Plant begins. In exchange, the IFA will pay IG a base amount, adjusted to account for new taxes, changes in governmental requirements, net incremental revenues, and net CO2 revenues. The base amount will be calculated by adding: (1) the sum of a fixed capital cost of $3.50 per MMBTU; (2) certain operation and maintenance expenses; (3) the actual cost of fuel used by IG, adjusted for various factors; and (4) the cost of transporting the SNG to the IFA.

The Contract also specifies that once the IFA has bought the SNG from IG, it will sell the SNG on the open natural gas market for either a profit or loss, which will then be passed along to the ratepayers of Indiana regulated gas utilities who are classified by I.C. § 4–4–11.6–10 as “retail end use customers.” If the price of the SNG exceeds the market price of natural gas, the IFA will sell the SNG at a loss and will pass 100% of the difference to the retail end use customers in the form of charges on their monthly gas bills. If the price of SNG is lower than the market price of natural gas, IG and the retail end use customers will each receive 50% of the profits.

In order to mitigate the charges to the retail end use customers, IG specified in the Contract that it will set up a $150 million “Consumer Protection Reserve Account.” When the IFA sells SNG at a loss, it will first take the difference from this Reserve Account rather than pass along the cost to the retail end use customers. The IFA will only pass along charges to the retail end use customers once the Reserve has been depleted. Likewise, when the IFA sells the SNG for a profit, it will replenish the Reserve before it passes along any net savings to retail end use customers.

As required by I.C. § 4–4–11.6–7, which specifies that a contract for the purchase of SNG must provide a guarantee of savings for retail end use customers, IG guarantees $100 million of savings to retail end use customers, measured in 2008 dollars. Under the Contract, there are three ways in which retail end use customers may realize these savings other than through the sale of the SNG on the natural gas market. First, if customers have not realized the savings by the end of the 30–year term, IG may cover the shortfall in cash. Second, the IFA may extend the Contract by up to an additional twenty years. During this extension, the IFA may purchase the SNG from IG at lower prices in the hopes of making up the shortfall. Third, the IFA may force a sale of the Plant in order to make up for the difference. If it appears in year twenty-five of the Contract that the Plant will not be worth $100 million at the end of the thirty years, the IFA may receive a reduction in the price of SNG beginning in year twenty-six.

On December 16, 2010, the IFA and IG filed a joint petition with the Commission seeking approval of the Contract and requesting that the Commission order Indiana regulated gas utilities to enter into utility management agreements (UMAs) with the IFA so that the IFA could pass proceeds and costs to retail end use customers through the utilities, if necessary. Pursuant to I.C. § 8–1–1.1–4.1 and the SNG Act, the OUCC appeared as a party in this proceeding on behalf of ratepayers, consumers, and the public.⁴ On January 3, 2011, Vectren filed a petition to become either a named respondent or an intervenor in the proceedings. On January 24, 2011, the Commission entered a docket entry naming Vectren as a respondent. That same day, the IFA and IG filed an amended petition identifying all of the Indiana regulated gas utilities as respondents.

On January 26, 2011, Lincolnland and the Industrial Group, then comprised of Arcelor Mittal USA, Eli Lilly & Company, and the United States Steel Corporation, filed petitions to intervene. On January 27, 2011, Citizens Gas & Coke Utility, Citizens Gas of Westfield, and six regulated local distribution companies ⁵—Community Natural Gas Company, Inc.; Midwest Natural Gas Corporation; Indiana Natural Gas Corporation; Ohio Valley...