NIPSCO v. INDIANA OUCC
| Decision Date | 27 April 2005 |
| Docket Number | No. 93A02-0408-EX-693.,93A02-0408-EX-693. |
| Citation | 826 N.E.2d 112 |
| Parties | NORTHERN INDIANA PUBLIC SERVICE COMPANY, Appellant-Petitioner, v. INDIANA OFFICE OF UTILITY CONSUMER COUNSELOR and NIPSCO Industrial Group, Appellees-Statutory party and Intervenor. |
| Court | Indiana Appellate Court |
Stanley C. Fickle, P. Jason Stephenson, Barnes & Thornburg LLP, Indianapolis, IN, Attorneys for Appellant.
John F. Wickes, Jr., Todd A. Richardson, Brian A. Statz, Lewis & Kappes, Indianapolis, IN, Attorneys for Appellees.
Appellant-petitioner Northern Indiana Public Service Company (NIPSCO) appeals a ruling from the Indiana Utility Regulatory Commission (Commission) claiming that an order issued by that agency disallowing NIPSCO's proposed use of a deferred accounting method for new costs it will incur to deliver electricity to retail customers was not supported by the evidence and is contrary to law. Specifically, NIPSCO claims that the Commission erred in determining that the proposed accounting method violated a settlement agreement that NIPSCO had negotiated with several of the parties to this appeal, including the Office of Utility Consumer Counselor (OUCC), and the NIPSCO Industrial Group.1 Concluding that the Commission properly denied NIPSCO's request to use a deferred accounting method with respect to its new costs, we affirm.
Throughout the past decade, the Federal Energy Regulatory Commission (FERC) has undertaken many changes in the manner in which it regulates the transmission of electric power. The primary reasons for the changes have been to create competitive markets for wholesale electric power, and to create the conditions for States to provide for competition at the retail level.
NIPSCO initiated this proceeding before the Commission, requesting authority to use a deferred accounting treatment for certain costs that it pays to Midwest Independent Transmission System Operator (MISO). These charges recover costs that are associated with MISO's security center, which is the building that houses the computers and personnel that are necessary to monitor the transmission grid operated by MISO. The various amounts include capital costs and expenses as well as the costs of administering MISO's open access transmission tariff. As the result of numerous regulatory changes, NIPSCO is required to pay these charges in order to obtain transmission service to provide electricity to its retail customers. The proposed accounting treatment suggested by NIPSCO would permit it to seek to recover these costs in a future proceeding establishing new basic rates and charges after the end of a certain rate moratorium period. The Commission denied this deferred accounting treatment to NIPSCO on the ground that it would constitute a de facto modification of a settlement agreement that had previously been approved by the Commission that settled NIPSCO's rate charges.
The proceeding that led to the settlement was a Commission-initiated investigation that commenced in January 2001, concurrent with the submission of a report where the Commission staff recommended an 11.46% reduction in NIPSCO's retail electric rates. This investigation superseded a complaint that had been initiated by Citizens Action Coalition of Indiana, Inc. (CAC) and individual ratepayers, alleging that NIPSCO was charging excessive rates.
The base rates in effect at that time had been established by a Commission rate order in 1987. By 1999, NIPSCO was earning approximately $23 million annually in excess of the level found reasonable in the 1987 order. Twelve days of contested evidentiary hearings were conducted during the investigation, along with a field hearing. Before the Commission issued a final order, the settlement agreement was tendered for Commission approval.
The agreement provided for NIPSCO's existing rates to remain in place, subject to certain revenue reductions providing credits to customers. The agreement also indicated that NIPSCO and the other settling parties would not bring a proceeding seeking to change NIPSCO's rates before the end of a forty-nine-month period that was set to expire on July 31, 2006. More specifically, the agreement provided that during the forty-nine month term — and any subsequent period until new base rates were established — the base rates established in 1987 would remain in place unchanged, but NIPSCO would provide credits to customers totaling $55 million annually and $225 million by the end of the forty-nine month term. Finally, this agreement stated: "Except by agreement of the Parties, NIPSCO's Basic Rates and all tariffs, terms and conditions as of the date of the Settlement Agreement shall remain unchanged during the term." Appellant's App. p. 86.
This agreement was opposed by CAC and fourteen individual intervenors who contended that greater ratepayer relief was appropriate. In response, the Commission held a two-day evidentiary hearing with regard to the settlement agreement. During that hearing, NIPSCO's witness acknowledged that "during the 49-month term, NIPSCO must also absorb many cost increases, such as increases in inflation, taxes and operation and maintenance expense such as the cost of gasoline for operating the service fleet, to mention a few." Appellant's App. p. 116. The settlement provided for recovery of specified expenses, but did not include any provision addressing expenses directly related to MISO.
In an order that was issued in September 2002, the Commission approved the settlement agreement, with recommended modifications over the protest of CAC and the fourteen individual intervenors. However, once the modifications were finally agreed upon, the Commission denied a petition for rehearing by the fourteen individual intervenors. On appeal to this court, we affirmed the Commission's order approving the settlement. See Citizens Action Coalition v. NIPSCO, 796 N.E.2d 1264 (Ind.Ct.App.2003),
trans. denied.
As noted above, NIPSCO eventually petitioned the Commission for authority to defer certain expenses associated with services received by NIPSCO as a member of MISO. This proposed deferral would permit the relevant expenses to be booked as a "regulatory asset," and they would be recoverable through rates subsequent to the end of the rate moratorium established by the settlement agreement. Appellant's App. p. 25-26. One of NIPSCO's witnesses explained that "NIPSCO committed to base rate freeze until at least August 1, 2006," and the deferred accounting would allow NIPSCO to "postpone recognition" of the specified expenses until that rate freeze was over. Appellant's App. p. 26.
The Industrial Group and the OUCC opposed the request for the deferred accounting method. At a hearing, an expert witness testified for the Industrial Group who explained that the requested relief was contrary to the rate settlement agreement. He explained that it would be inappropriate to provide special treatment for one category of expense in isolation without regard to the overall sufficiency of NIPSCO's rates, particularly where a different expense category had declined by nearly $93.3 million annually since NIPSCO's base rates were set in 1987. That witness also offered policy considerations against the requested deferral, which would charge customers in later years for costs associated with service provided in a previous period. In his opinion, the use of such a deferred method would send distorted price signals to both current and future customers.
The Commission ultimately denied the deferred accounting authority that NIPSCO had sought, finding that the rate freeze contemplated by the settlement agreement would have a direct impact on the accounting principles underlying NIPSCO's request. The Commission went on to determine that a requested deferral, such as the one here, must be predicated on a "reasonable belief" that the costs will eventually be recovered through rates. Appellant's App. p. 10. The Commission emphasized that the settlement agreement did not limit the freeze to base rates, but also required that all "tariffs, terms and conditions: remain unchanged during the settlement term." Id. In essence, it was determined that the effect of the proposed deferral would constitute a de facto modification of the settlement and would erode benefits to the ratepayers. NIPSCO would effectively shift expenses incurred during the freeze to the end of the term in order to permit future recovery of current costs. Also, the Commission found that NIPSCO's involvement with MISO was anticipated in the settlement, which did not provide for special treatment of any associated costs. In the end, the Commission declined to modify the settlement agreement, and construed it as requiring NIPSCO to absorb costs during the moratorium period. In part, the Commission's order provided as follows:
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