Indiana Gas Co., Inc. v. Office Utility Consumer Counselor, 93A02-9505-EX-288

Docket NºNo. 93A02-9505-EX-288
Citation675 N.E.2d 739
Case DateJanuary 21, 1997
CourtCourt of Appeals of Indiana

Page 739

675 N.E.2d 739
Util. L. Rep. P 26,591
INDIANA GAS COMPANY, INC., Including Richmond Gas Corp., and
Terre Haute Gas Corp. Appellants-Petitioners,
Regulatory Commission, Indiana Gas-Industrial
Group, and The Panhandle Eastern Pipe
Line Co., Appellees-Respondents.
No. 93A02-9505-EX-288.
Court of Appeals of Indiana.
Jan. 21, 1997.

Page 741

Ronald E. Christian, Indiana Gas Company, Inc., Indianapolis, Daniel W. McGill, Barnes & Thornburg, Indianapolis, for Appellants.

Kay E. Pashos, PSI Energy, Inc., Plainfield, Duejean C. Garrett, Baker & Daniels Indianapolis, Peter L. Hatton, Schiff Hardin & Waite, Merrillville, Fred E. Schlegel, Baker & Daniels, Indianapolis, for Amici Curiae PSI, Energy Inc., Northern Indiana Public Service Co. and Indianapolis Water Co. in support of Appellant.

Anne E. Becker, Robert M. Glennon, Rita J. Baldwin, Christopher C. Earle, Timothy L. Stewart, Office of Utility Consumer Counselor, Indianapolis, for Appellees.

John F. Wickes, Jr., Todd A. Richardson, Pamela H. Sherwood, Lewis & Kappes, Indianapolis, for Amicus Curiae Central Soya Company, Inc., Hayes International, Inc., National Starch & Chemical Company, Slater Steels Corporation, And USX Corporation.



This is an appeal and cross-appeal from a decision of the Indiana Utility Regulatory Commission (Commission). Indiana Gas Company (Indiana Gas) appeals the Commission's denial of Indiana Gas's request to be permitted to recover the costs associated with the environmental cleanup of numerous manufactured gas plants. The Office of the Utility Consumer Counselor cross-appeals the Commission's decision to allow Indiana Gas to recover the costs of a change in accounting methods for retirement benefits other than pensions. We affirm the Commission on both issues.


Indiana Gas seeks to recover environmental cleanup costs it has incurred and believes it will incur in the future with respect to twenty-six manufactured gas plant sites located in Indiana and currently owned by Indiana Gas. Manufactured gas plants (MGPs) were once quite prevalent in Indiana and throughout the country. Beginning in the early 1800's, gas manufactured from coal and other fossil fuels was used by residential, municipal and industrial customers for various purposes, particularly lighting. Electric lights eventually displaced the manufactured gas lighting market, but manufactured gas was still used for other purposes, particularly heating, cooking and industrial applications. In the late 1930's, natural gas piped into Indiana replaced manufactured gas for most

Page 742

purposes and many MGP's were decommissioned.

The process of manufacturing gas produced certain residual byproducts, most notably tar and benzene. Some of the byproducts, such as tar, were sold for various purposes. During decommissioning most salable materials were removed from the MGP sites, aboveground structures were left in place or dismantled, and below-ground structures were typically filled with the remaining unsalable and unusable materials.

Beginning with the adoption of the federal Resource Conservation and Recovery Act ("RCRA") of 1976, and continuing with the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") of 1980 and the adoption of state environmental laws, owners and operators of MGP sites were made legally responsible for investigating and if necessary remediating MGP sites to protect the soil and groundwater from contamination by residuals of the gas manufacturing process, particularly benzene. Under CERCLA, all Potentially Responsible Parties ("PRPs") may be held jointly and severally liable for the investigation and remediation of sites at which hazardous wastes have been disposed. Liability is generally apportioned between PRPs based on certain criteria. 1 Those criteria include the ability of the parties to demonstrate that their contribution to the hazardous waste can be distinguished, the amount of hazardous waste involved, the degree of toxicity of the hazardous waste involved, the degree of involvement by the parties in the generation, transportation, treatment, storage, or disposal of the hazardous waste, the degree of care exercised by the parties with respect to the hazardous waste concerned, taking into consideration the characteristics of such hazardous waste, and the degree of cooperation by the parties with federal, state, or local officials to prevent any harm to the public health or the environment. United States v. A & F Materials, 578 F.Supp. at 1256.

In 1945, Indiana Gas, at the time known as Indiana Gas and Water Company, acquired nineteen former MGP sites from Public Service Company of Indiana, Inc. (now known as PSI Energy, Inc. (PSI)). Of those nineteen MGPs, all but one had ceased operation and been at least partially decommissioned at the time of Indiana Gas's acquisition. The seven other MGP sites owned by Indiana Gas were acquired after 1965 in a transaction with Terre Haute Gas Corporation and Richmond Gas Corporation and were never operated by Indiana Gas. The Commission denied Indiana Gas's request to recover the MGP costs in its rates.

Indiana Gas raises several issues with respect to the denial of its request to recover the environmental cleanup and remediation costs associated with its ownership of twenty-six sites formerly operated as manufactured gas plants. However, because we find one issue dispositive, we need address only it:

Whether Citizens Action Coalition v. Northern Indiana Public Service Company, 485 N.E.2d 610 (Ind.1985), cert. denied, 476 U.S. 1137, 106 S.Ct. 2239, 90 L.Ed.2d 687 (1986) ("Nipsco" ) precludes recovery by Indiana Gas of its manufactured gas plant environmental costs as a matter of law?

The Commission concluded that the Nipsco decision precluded recovery of the environmental cleanup costs associated with the manufactured gas plants currently owned by Indiana Gas. While courts must grant deference to an agency's fact finding, a court owes no deference to an agency's conclusions of law because the law is the province of the judiciary. Yater v. Hancock County Planning Commission, 614 N.E.2d 568, 570 (Ind.Ct.App.1993), trans. denied, cert. denied, 511 U.S. 1019, 114 S.Ct. 1401, 128 L.Ed.2d 73 (1994); County Dep't of Pub. Welfare of Vanderburgh County v. Deaconess Hosp., Inc., 588 N.E.2d 1322, 1327 (Ind.Ct.App.1992), trans. denied; Board of Trustees of Public Employees' Retirement Fund of Indiana v. Miller, 519 N.E.2d 732, 733 (Ind.1988).

Page 743

Thus, we address this issue without regard to the Commission's determination.

In Nipsco, our supreme court reversed the Commission's decision permitting Northern Indiana Public Service Commission ("NIPSCO") to amortize through retail rates the sunk costs of the Bailly N-1 nuclear power plant project. NIPSCO embarked upon the Bailly N-1 project in 1970, but due to numerous delays and opposition, the Bailly N-1 project was canceled in 1981 without ever being placed in service. Our supreme court determined that because Bailly N-1 was never operational, the costs were not recoverable.

The Nipsco opinion noted that utility charges are based upon service. 485 N.E.2d at 613. Indiana Code section 8-1-2-1(e) (West 1996) defines service as:

(e) "Service" is used in this chapter in its broadest and most inclusive sense and includes not only the use or accommodation afforded consumers or patrons but also any product or commodity furnished by any public or other utility and the plant, equipment, apparatus, appliances, property, and facility employed by any public or other utility in performing any service or in furnishing any product or commodity and devoted to the purposes in which such public or other utility is engaged and to the use and accommodation of the public.

Noting that this definition of service is "no model of statutory draftsmanship," Justice DeBruler, writing for the majority in Nipsco, "dissected" the statutory definition of service, and in doing so discovered three categories of service included therein:

(1) The use or accommodation afforded consumers or patrons;

(2) Any product or commodity furnished by the utility; or

(3) The plant, equipment, apparatus, appliances, property, and facility employed by the utility

(a) in performing any service, or

(b) in furnishing any product or commodity and devoted

(a) to the purposes in which such utility is engaged and

(b) to the use and accommodation of the public.

Id. at 613-14 (citing Illinois-Indiana Cable Television Ass'n, Inc. v. Public Service Commission, 427 N.E.2d 1100, 1108-09 (Ind.Ct.App.1981)). In further defining the concept of service, Justice DeBruler went on to note:

The ratemaking process has by statute and long-standing practice included the valuation of that property described in category (3) above which is "used and useful" in order to establish a rate base. The rate base consists of that utility property employed in providing the public with the service for which rates are charged and constitutes the investment upon which the return is to be earned. Any allowable operating expense must have a connection to the service rendered before it can be recovered through retail rates. This connection is established when the operating expense is incurred as a result of the process whereby existing "used and useful" property, category (3) above, is employed to produce the product or commodity, category (2) above, or accommodation, category (1) above, rate payers receive. For example, wages, salaries, fuel, maintenance plus annual charges for depreciation and operating taxes. Here, the canceled Bailly N-1 project is not an operating expense because it was not a result of this process which establishes the requisite connection to service rendered. In fact, the Bailly N-1 project could never be an operating expense. At best, it could have become "used and...

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