Hamilton Southeastern Utilities v. Indiana Utility Regulatory Commission Indiana Office of Utility Consumer Counselor and Apartment Association of Indiana, Inc. , 115 N.E.3d 512 ( 2018 )

FILED
Dec 05 2018, 9:57 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES
Brian W. Welch Curtis T. Hill, Jr.
Randolph L. Seger Attorney General of Indiana
Michael T. Griffiths Patricia C. McMath
Bingham Greenebaum Doll, LLP Deputy Attorney General
Indianapolis, Indiana Indianapolis, Indiana
Beth E. Heline
Jeremy R. Comeau
Thomas M. Fisher
Lara K. Langeneckert
Julia C. Payne
Indiana Utility Regulatory Commission
Indianapolis, Indiana
Daniel M. Le Vay
William I. Fine
Scott C. Franson
Abby R. Gray
Daniel M. Le Vay
Indiana Office of Utility Consumer
Counselor
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018 Page 1 of 6
Hamilton Southeastern Utilities, December 5, 2018
Inc., Court of Appeals Case No.
Appellant-Petitioner, 93A02-1612-EX-2742
Appeal from the Indiana Utility
v. Regulatory Commission
The Honorable Aaron A. Schmoll,
Indiana Utility Regulatory Senior Administrative Law Judge
Commission; Indiana Office of Cause No. 44683
Utility Consumer Counselor;
and Apartment Association of
Indiana, Inc.,
Appellees-Respondents.
Riley, Judge.
OPINION ON REMAND
[1] Appellee-Respondent, Indiana Utility Regulatory Commission (the
Commission), sought transfer to our supreme court on the issue of whether this
court properly dismissed it from the instant appeal. On June 27, 2018, the
supreme court issued its decision holding that the Commission was a proper
party, reversing our holding on the SAMCO-related expenses issue, and
directing us to permit the Commission an opportunity to brief the SAMCO
issue. Hamilton Southeastern Utils., Inc. v. Ind. Util. Regulatory Comm’n, 101
N.E.3d 229, 234 (Ind. 2018). On October 10, 2018, the Commission filed what
was its second Appellee’s Brief in this matter. After considering the Brief of
Appellant-Petitioner, Hamilton Southeastern Utilities (HSE), and the
Commission’s second Brief of Appellee, we conclude that the Commission’s
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Order disallowing HSE’s requested 3% SAMCO hourly billing rate increase
and 10% management fee was unsupported by substantial evidence,
unreasonable, and arbitrary.
DISCUSSION AND DECISION
[2] As we noted in our previous decision, our review of the Commission’s Order
involves multiple levels. “On the first level, it requires a review of whether
there is substantial evidence in light of the whole record to support the
Commission’s findings of basic fact. Such determinations of basic fact are
reviewed under a substantial evidence standard, meaning the order will stand
unless no substantial evidence supports it.” North Ind. Pub. Serv. Co. v. U.S. Steel
Corp., 907 N.E.2d 1012, 1015 (Ind. 2009) (citation and footnote omitted). When
reviewing an order issued by the Commission, we neither reweigh evidence nor
assess witness credibility, and we consider only the evidence favorable to the
Commission’s findings. Id. However, the Commission’s order is not binding if
it is unreasonable or arbitrary. Id.[3] “At the second level, the order must contain specific findings on all the factual
determinations material to its ultimate conclusions.” Id. The Commission is
required to enter findings of fact pursuant to Indiana Code sections 8-1-1-5 and
8-1-3-1. The Commission’s findings of fact are important because they assist in
the understanding of the Commission’s reasoning and policy judgments, they
allow for a reasoned and informed basis of review, and they decrease the
likelihood that we will substitute our judgment on complex evidentiary issues
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and policy determinations best left to an agency with technical expertise. North
Ind. Pub. Serv. Co. v. LaPorte, 791 N.E.2d 271, 278 (Ind. Ct. App. 2003).
Further, requiring findings of fact assists the Commission in avoiding arbitrary
and capricious action. Id.[4] HSE has contracted with SAMCO to perform its operations since HSE’s
inception approximately twenty-five years ago. SAMCO’s billing rates were
based on an affiliate contract that was routinely filed with the Commission. In
HSE’s last rate case in 2010, the OUCC had offered similar arguments as it did
here against SAMCO’s billing rates and management fee based on the NARUC
guidelines. The Commission had rejected those arguments in 2010 based on
HSE’s market study evidence showing SAMCO’s billing rates were at or below
market rates and evidence of the standard industry practice of affiliates charging
comparable management fees.
[5] In the present rate case, although HSE presented the same type of evidence it
had in its last rate case, the Commission this time applied the NARUC
guidelines as urged by the UOCC and found HSE’s evidentiary support for the
SAMCO expense related portion of HSE’s rate increase request to be
inadequate because it had not supplied information regarding SAMCO’s fully
allocated costs. The Commission implicitly found that the NARUC guidelines
were reasonable and applicable to HSE in this rate case, but it did not enter any
specific findings regarding why it had reached this conclusion, and, thus, the
Commission’s order on this issue was not supported by substantial evidence,
was not reasonable, and was arbitrary. North Ind. Pub. Serv. Co., 907 N.E.2d at
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1015. The Commission’s lack of findings was particularly unreasonable given
that the effect of the Commission’s future application of the NARUC guidelines
to HSE and SAMCO will apparently have the effect that SAMCO will no
longer operate as an entity which can charge HSE a profit, which represents a
dramatic change in its business model. In addition, the Commission’s findings
shed no light on why it chose to apply the portion of the NARUC guidelines
pertaining to fully allocated costs when the NARUC guidelines themselves
provide that “[u]nder appropriate circumstances, prices could be based on
incremental cost, or other pricing mechanisms as determined by the regulator.”
(Non-confidential Exhs. Vol. III, p. 174).
[6] The Commission argues that the NARUC guidelines were simply “another
piece of substantial evidence in the record” it considered in reaching its
decision. (Appellee’s Br. p. 16). However, the Commission used the NARUC
guidelines as a standard for assessing the sufficiency of the evidence supporting
the reasonableness of HSE’s rate increase request. Although, as before, we
need not address whether the Commission engaged in impermissible rule-
making by applying the NARUC guidelines, we reject the Commission’s
characterization of those guidelines as just another type of evidence it
considered. Furthermore, contrary to the Commission’s argument on appeal,
the fact that OUCC urged the Commission to apply the NARUC guidelines to
the SAMCO-related expenses in its pre-filed testimony did not put HSE on
notice that the Commission would apply those guidelines to the evidence HSE
submitted in this rate action, particularly since it had rejected those guidelines
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in HSE’s last rate case. We again reverse the Commission on the SAMCO
expenses issue and remand for it to make additional findings to support its
decision or for a recalculation of HSE’s rate.
[7] Reversed and remanded.
[8] Robb, J. and Pyle, J. concur
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