Hamilton Southeastern Utilities v. Indiana Utility Regulatory Commission Indiana Office of Utility Consumer Counselor and Apartment Association of Indiana, Inc.

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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