Northern Ind. Public Serv. V. U.S. Steel

• Decision Date: 07 March 2008
• Docket Number: No. 93A02-0706-EX-467.,93A02-0706-EX-467.
• Parties: NORTHERN INDIANA PUBLIC SERVICE COMPANY, Appellant, v. UNITED STATES STEEL CORPORATION, Appellee.
• Court: Indiana Appellate Court

881 N.E.2d 1065

NORTHERN INDIANA PUBLIC SERVICE COMPANY, Appellant, v. UNITED STATES STEEL CORPORATION, Appellee.

No. 93A02-0706-EX-467.

Court of Appeals of Indiana.

March 7, 2008.

Peter L. Hatton, Jon B. Laramore, Elizabeth A. Herriman, Baker & Daniels LLP, Indianapolis, Gregory S. Colton, Nisource Corporate Services. Co., Merrillville, IN, Attorneys for Appellant.

John F. Wickes, Jr., Todd A. Richardson, Bette J. Dodd, Steven W. Griesemer, Lewis & Kappes, Indianapolis, IN, Attorneys for Appellee.

OPINION

BAILEY, Judge.

Case Summary

Northern Indiana Public Service Company ("NIPSCO") appeals the Indiana Utility Regulatory Commission's ("IURC" or "Commission") grant of United States Steel, Corporation's ("U.S.Steel") Motion for Summary Judgment.¹ We reverse and remand.

Issues

The parties each raise two issues on appeal, which we consolidate and re-state as:

I. Whether this Court should review de novo an agency's grant of summary judgment based entirely upon principles of contract interpretation; and

II. Whether the IURC erred in interpreting the documents executed by the parties.

Facts and Procedural History

This appeal concerns a contract for NISCO's sale of electricity to U.S. Steel, relating in particular to U.S. Steel's facilities in Gary ("Gary Works"), its electric generating facilities in Chicago ("South Works") and a transmission line connecting them. The facts are not disputed.

In 1998, U.S. Steel filed a complaint with the IURC regarding a dispute with NISCO.² In May and June of 1999, the parties executed seven documents to resolve the litigation and continue their relationship. On May 12, the parties executed a Term Sheet which specified the duration of the agreement, the "price for power to Gary Works on an annual average per kwh basis," and a series of other provisions. Appendix at 121. The Term Sheet established five different time periods and the price in mills-per-kilowatt-hour for each time period.³ The price for the last of those time periods, October 1, 2005 through the end of the contract, was subject to a market based price adjustment factor. Under the heading "Contract Determinants," the parties noted that "[t]he prices ... are based upon [Q] KW of demand and energy usage of [P] Kwh."⁴ Id. at 121. Finally, in the Term Sheet, the parties agreed to "use their best efforts to develop mutually satisfactory contractual documents to implement the provisions of this term sheet and to obtain necessary corporate and IURC approvals thereof." Id. at 123.

Over the course of June 16 and 17, the parties executed six other documents: the Contract for Electric Industrial Power Service ("Contract for Power"), the Settlement Agreement, the Letter Agreement, the Operation and Control Agreement ("Operation Agreement"), the Facility/Property Lease ("Lease"), and the Access/Use License Agreement ("License"). The latter two were, in fact, agreements between U.S. Steel and South Works Power Company ("SWPC"), whereby SWPC would operate South Works and the transmission line. The Letter Agreement incorporated by reference the Term Sheet executed a month earlier.

Article 5.2 of the Contract for Power established a Demand Charge and an Energy Charge. The Demand Charge provision contained precisely the same five time periods as those designated in the Term Sheet. As in the Term Sheet, the Demand Charge was reduced marginally for each successive time period. Unlike the Term Sheet, with prices measured in mills-per-kilowatt-hour, the Demand Charge was measured in dollars-per-kilowatt. Though identified in different measures, the prices in the Term Sheet and those in the Contract for Power's Demand Charge were identical for each of the five time periods, as described infra.

The Energy Charge applied to energy used in excess of a particular amount per month. For the entire contract term, the Energy Charge was U mills-per-kilowatt-hour. The Term Sheet had not contained a similar provision.

Article 5.1 of the Contract for Power addressed the market based price adjustment factor.

[NIPSCO] will bear the fuel price risk during the term of this contract; however, effective October 1, 2005 through the end of the Contract term; a market based price adjustment factor will be used to adjust the kilowatt-hour prices set forth in Article 5.2.

Appendix at 32 (emphasis added).

The parties submitted for the IURC's approval the Contract for Power and the Settlement Agreement, but none of the other five documents. The IURC conducted an evidentiary hearing during which the parties presented testimony. In addition, the Office of Utility Consumer Counselor ("OUCC") participated and cross-examined one of the witnesses. The IURC found as follows:

[T]he Settlement [Agreement] and accompanying [Contract for Power] resolve all of the outstanding issues ... in a manner that is reasonable, in the public interest, and adequately supported by substantial evidence of record, practicable and advantageous to the parties, not inconsistent with the Act, and in compliance with the provisions of [I.C. §§ 8-1-2-24 and -25].

The Settlement [Agreement] and [Contract for Power] should promote stabilization and expansion of industrial growth in [NIPSCO's] territory and contribute to U.S. Steel's Gary Works' competitiveness. U.S. Steel should receive an immediate and significant reduction in its electricity costs for its Gary Works facility. [NIPSCO] receives assurance that it will retain the business of U.S. Steel, one of its largest customers, on a long-term basis. [NIPSCO's] other customers should benefit from U.S. Steel's continued contribution to [NIPSCO's] fixed costs, and should not be adversely affected by the Settlement [Agreement] and [Contract for Power]. The Settlement [Agreement] and [Contract for Power] should not alter any other existing rates or contracts, nor should they adversely impact [NIPSCO's] generation, transmission, or distribution capabilities and facilities.

There is substantial evidence of record to support the conclusion that the Settlement [Agreement] and [Contract for Power] are in the public interest and comply with applicable statutory provisions. Based on the foregoing, the Commission finds that the Settlement [Agreement] and [Contract for Power] are reasonable and just and in the public interest, and should be approved in their entirety and without change.

Appendix at 54.

For several years, the parties did business within the context of the documents executed in mid-1999. On October 1, 2005, the price adjustment factor took effect. It became apparent, however, that the parties disagreed about its application. Specifically, they disagreed whether the market based price adjustment factor applied to the Demand Charge. Indeed, since the time the price adjustment factor took effect, U.S. Steel has paid only the undisputed charge, including application of the price adjustment factor to the Energy Charge.

On November 17, 2006, U.S. Steel filed a Complaint with the IURC. Two months later, it moved for summary judgment. NIPSCO responded by asking the IURC to "deny summary judgment for [U.S. Steel], and instead, grant summary judgment for NIPSCO." Appendix at 100. The IURC held a hearing to consider the parties' arguments, but it did not take any evidence. On May 9, 2007, the IURC granted U.S. Steel's Motion for Summary Judgment.

NIPSCO now appeals, asking this Court to reverse and remand with instructions to grant summary judgment in favor of NISCO.

Discussion and Decision

I. Standard of Review—Agency Interpretation of Regulatory Settlement Agreement as a Matter of Law

The parties advocate different standards for our review of the IURC's decision. In light of the absence of any genuine issues of material fact, the IURC's granting of summary judgment, and the IURC's reliance on principles of contract interpretation to resolve the dispute, NIPSCO seeks de novo review. In contrast, U.S. Steel asks that we give deference to the IURC, as the agreement required regulatory approval and set the price of electricity, "an issue at the core of the Commission's regulatory expertise." Appellee's Brief at 9.

"Generally, construction of the terms of a written contract is a question of law and reviewed de novo." Berkel & Co. Contractors, Inc. v. Palm & Assoc., 814 N.E.2d 649, 657 (Ind.Ct.App.2004). Also, we review de novo the grant or denial of summary judgment. Univ. of S. Ind. Found. v. Baker, 843 N.E.2d 528, 531 (Ind. 2006).

Indiana Code Chapter 8-1-2 (Utility Regulation) requires IURC approval of an agreement between a utility and its customer.

Ind.Code § 8-1-2-24 (Surplus profits; division or distribution; sliding scale of charges).

Nothing in this chapter shall be taken to prohibit a public utility from entering into any reasonable arrangement with its customers or consumers, or with its employees, or with any municipality in which any of its property is located, for the division or distribution of its surplus profits, or providing for a sliding scale of charges or other financial device that may be practicable and advantageous to the parties interested. No such arrangement or device shall be lawful until it shall be found by the commission, after investigation, to be reasonable and just and not inconsistent with the purpose of this chapter. Such arrangement shall be under the supervision and regulation of the commission.

Ind.Code § 8-1-2-25 (Rates and charges; rules and regulations involving changes).

The commission shall ascertain, determine and order such rates, charges and regulations as may be necessary to give effect to such arrangement, but the right and power to make such other and further changes in rates, charges and regulations as the commission may ascertain and determine to be necessary and reasonable, and the right to revoke its approval and amend or rescind all orders relative thereto, is reserved and vested in the commission, notwithstanding any such arrangement and mutual agreement.

Ind.Code...