FILED
Feb 19 2019, 8:38 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Jennifer A. Washburn Robert E. Heidorn
Margo Tucker P. Jason Stephenson
Citizens Action Coalition of Indiana, Vectren Corporation
Inc. Evansville, Indiana
Indianapolis, Indiana Wayne C. Turner
Patrick A. Ziepolt
Hoover Hull Turner LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Citizens Action Coalition of February 19, 2019
Indiana, Inc., Court of Appeals Case No.
Appellant-Intervenor, 18A-EX-140
Appeal from the Indiana Utility
v. Regulatory Commission
The Honorable David E. Ziegner,
Southern Indiana Gas & Electric Commissioner
Company d/b/a Vectren Energy The Honorable Loraine L.
Delivery of Indiana, Inc., Seyfried, Chief Administrative
Appellee-Petitioner. Law Judge
IURC Cause No.
44927
Brown, Judge.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 1 of 25
[1] Southern Indiana Gas & Electric Company d/b/a Vectren Energy Delivery of
Indiana, Inc. (“Vectren South” or “Petitioner”) filed a petition with the Indiana
Utility Regulatory Commission (“Commission”) seeking approval of its energy-
1
efficiency Electric Demand Side Management (“DSM”) Plan for 2018-2020
(“Plan”). Citizens Action Coalition of Indiana, Inc. (“CAC”) intervened in the
proceeding. Following an evidentiary hearing, the Commission issued its
decision (“Order”) that approved the Plan in its entirety, including a revised lost
revenue recovery proposal that Vectren South had presented. CAC now
appeals from the Commission’s Order, raising the following issues which we
restate as follows:
I. Whether the Commission’s Order is contrary to law;
II. Whether the Commission’s Order impermissibly deviates
from precedent;
III. Whether the Commission’s Order is supported by substantial
evidence; and
IV. Whether the Commission’s approval of Vectren South’s
energy efficiency goals is improper.
We affirm.
1
According to Vectren South, Demand Side Management programs “are designed to reduce electricity
consumption at a certain time – typically the time when customers are collectively maximizing demand on
the electric system.” Appellee’s Brief at 10 n.2.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 2 of 25
Facts and Procedural History
[2] Vectren South is a public utility based in Evansville that provides electric utility
service to approximately 140,000 customers in six counties in southwestern
Indiana. In 2015, the General Assembly passed a statute, Indiana Code § 8-1-
2
8.5-10 (2015) (“Section 10”), requiring electricity suppliers to (among other
things) periodically present to the Commission energy efficiency (“EE”) plans,
3
goals, and programs for approval by the Commission beginning no later than
2017. See Ind. Code § 8-1-8.5-10(h). The statute specifically provides as
follows:
(h) Beginning not later than calendar year 2017, and not less than
one (1) time every three (3) years, an electricity supplier shall
petition the commission for approval of a plan that includes:
(1) energy efficiency goals;
2
“Electricity supplier” means a public utility “that furnishes retail electric service to customers in Indiana.”
Ind. Code § 8-1-8.5-10(a). The term does not include a municipally owned utility and certain other
corporations. Id.
3
“Energy efficiency” means “a reduction in electricity use for a comparable level of electricity service.” Ind.
Code § 8-1-8.5-10(b). “Energy efficiency goals” means “all energy efficiency produced by cost effective plans
that are: (1) reasonably achievable; (2) consistent with an electricity supplier’s integrated resource plan; and
(3) designed to achieve an optimal balance of energy resources in an electricity supplier’s service territory.”
Ind. Code § 8-1-8.5-10(c). “Energy efficiency program” or “program” means “a program that is: (1)
sponsored by an electricity supplier; and (2) designed to implement energy efficiency improvements. The
term does not include a program designed primarily to reduce demand for limited intervals of time, such as
during peak electricity usage or emergency conditions.” Ind. Code § 8-1-8.5-10(d). According to Vectren
South, energy efficiency (“EE”) programs “are sometimes called demand side management, or DSM,
programs.” Appellee’s Brief at 10 n.2.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 3 of 25
(2) energy efficiency programs to achieve the energy
efficiency goals;
(3) program budgets and program costs; and
(4) evaluation, measurement, and verification
4
[(“EM&V”) ] procedures that must include independent
evaluation, measurement, and verification.
An electricity supplier may submit a plan required under this
subsection to the commission for a determination of the overall
[5]
reasonableness of the plan either as part of a general basic rate
proceeding or as an independent proceeding. . . .
Id.
[3] As an incentive for participation, the General Assembly included provisions
within the statute allowing electricity suppliers, such as Vectren South, to
6
recover certain costs associated with their EE plans, including lost revenues.
4
“Evaluation, measurement, and verification (EM&V) is the collection of methods and processes used to
assess the performance of energy efficiency activities so planned results can be achieved with greater certainty
and future activities can be more effective.” DEPT. OF ENERGY, EVALUATION, MEASUREMENT, AND
VERIFICATION OF ENERGY DATA, https://www.energy.gov/eere/slsc/evaluation-measurement-and-
verification-energy-data (last visited Jan. 15, 2019).
5
In determining the overall reasonableness of the plan, the Commission is required to consider ten factors.
See Ind. Code § 8-1-8.5-10(j).
6
Lost revenues can be described as: “the fixed costs previously approved by the Commission and included in
rates that are not recovered as a result of the implementation of EE programs.” Exhibits Volume 2 at 102.
According to Vectren South, “the purpose of recovery of lost [revenue] on verified energy savings from DSM
programs is to return the utility to the position it would have been in absent implementation of a DSM
measure.” Id. (internal quotations and emphasis omitted).
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 4 of 25
See Ind. Code § 8-1-8.5-10(o) (“If the commission finds a plan submitted by an
electricity supplier under subsection (h) to be reasonable, the commission shall
allow the electricity supplier to recover or receive the following: . . . (2)
Reasonable lost revenues.”). As explained by Vectren South: “When
ratepayers use less electricity, because of energy efficiency programs, they are
saving money. The utility is similarly losing revenue due to decreased sales of
electricity.” Appellee’s Brief at 11. The instant case stems from the
Commission’s approval of Vectren South’s Plan in its entirety, including
Vectren South’s revised proposal to recover lost revenue.
[4] On April 10, 2017, Vectren South filed a petition with the Commission seeking
approval of its Plan, which outlined Vectren South’s EE programs and their
budgets and costs. The Plan had an estimated cost of $28.6 million, with $9.5
million in 2018, $9.6 million in 2019, and $9.5 million in 2020. The Plan
included a portfolio of programs designed to achieve 111 million kilowatt hours
(“kWh”) in energy savings and 26 thousand kilowatts (“kW”) in demand
reduction during the three-year period. The Plan also included a request for
7
approval to recover, over the life of the measure, lost revenues resulting from
7
“Measure” is defined in pertinent part as “[s]pecific energy efficiency activities or equipment.” DEPT. OF
ENERGY, ENERGY EFFICIENCY & RENEWABLE ENERGY 1, https://www.energy.gov/sites/prod/files/2014/
05/f16/what_is_emv.pdf (last visited Jan. 15, 2019).
“Measure life” is widely defined as “the average/median life over many data points, or customer
experiences, of a particular EE program. It takes into consideration variations in the useful life of an EE
measure among different types of customers by developing an average. [For example, a]n LED could last 5
years in one home, 11 years in another and 30 years in another – with an average of 15 years.” Exhibits
Volume 7 at 13.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 5 of 25
reduced demand for electricity (“Original Lost Revenue Proposal”). On April
10, 2017, CAC filed a petition to intervene, which was granted on May 2, 2017.
[5] At some point during the proceedings, Vectren South withdrew its Original
Lost Revenue Proposal and submitted a revised proposal for the recovery of lost
revenue (“Revised Lost Revenue Proposal”) that would allow recovery of lost
revenues over twelve years. The Revised Lost Revenue Proposal was described
as follows in the Commission’s Order through testimony provided by Rina H.
Harris (“Ms. Harris”), Director of Energy Efficiency for Vectren Utility
Holdings, Inc., at an evidentiary hearing held by the Commission on September
8
6, 2017:
Petitioner seeks authority to implement lost revenue recovery
based upon the WAML[, the weighted averaged measure life,] of
all programs included in the 2018-2020 Plan, with a 10%
reduction in annual savings. Under this method, Vectren South
would recover the amount of lost revenues associated with the
WAML of its EE programs or the measure life, whichever is less.
The WAML is the average life, weighted by savings in years, of
all the various measures installed or actions taken in a portfolio
of programs. [Ms. Harris] said that capping recovery of lost
revenues based upon WAML is reasonable because it limits lost
revenue recovery based on the average equipment life and
measure persistence of the entire Plan. In addition, only 90% of
annual savings would be recovered, reflecting the statistical
certainty EM&V providers can obtain for lost revenues. She said
that . . . the EM&V process utilizes at minimum a 90%
8
During this proceeding, the Commission heard evidence from Vectren South, from statutory party Indiana
Office of Utility Consumer Counselor (“OUCC”), and from CAC.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 6 of 25
confidence interval (an industry accepted standard). She testified
that all inputs in the WAML (less 10% for statistical certainty)
[9]
are grounded on evaluation and Technical Re[source] Manuals
and provide a methodical cap to lost revenue recovery.
*****
Ms. Harris testified that for the Plan, the WAML approach
would reduce lost revenue recovery by approximately $18.8
million over the life of the programs included in the Plan as
compared to recovery using full measure life [under the Original
Lost Revenue Proposal]. [Under the Revised Lost Revenue
Proposal, l]ost revenues would be reduced by 26% with a 12-year
weighted average cap plus 10% savings reduction.
Appellant’s Appendix Volume 2 at 13. Vectren South predicted that “its lost
revenue due to measures implemented in the 2018-2020 energy efficiency plan
will be $73.6 million.” Appellee’s Brief at 21. However, it maintained that,
under the Revised Lost Revenue Proposal, it was not seeking to recover its
estimate of $73.6 million, but rather “only about $54.8 million, or $18.8
[million] less . . . .” Id. at 22.
[6] CAC argued for Vectren South’s lost revenue collection to be capped at the
lesser of four years or the Plan’s measure life. A witness for CAC, Karl R.
Rábago (“Mr. Rábago”), the principal of Rábago Energy, LLC, testified that
9
Per testimony provided at the evidentiary hearing, the Indiana Technical Resource Manual (“TRM”) is an
essential document “for EM&V activities and for the calculation of lost revenues.” Exhibits Volume 8 at
139.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 7 of 25
“[b]y capping the lost revenue recovery at the lesser of [four] years or the life of
the measure, this mitigates the Pancake Effect [(the cumulative effect of lost
revenues over time on rates)].” Exhibits Volume 8 at 128. He explained that
“the problems of ‘pancaking’ and ‘piece-meal’ or ‘single-issue’ ratemaking
create serious problems of fairness and reasonableness if a [lost rate adjustment
10
mechanism (“LRAM”) ] is used for the entire useful life of the energy
efficiency measures.” Id. at 132. He further explained that “although
pancaking and piece-meal rate making problems can arise over any term
between rate cases, the amount of pancaking that will occur with a four-year
cap is reasonable because: A term greater than four years will create
unreasonable difficulty in tracking the pancake effect over time.” Id. at 130.
He urged the Commission to find that four years is the maximum reasonable
term for an LRAM “before the utility must present any remaining claimed lost
revenues in a base rate case . . . .” Id. He maintained that beyond four years,
the LRAM “would be subject to some volatility, as measures exited due to end
of useful life, and as new lost revenue collections were added due to subsequent
[p]lan approvals.” Id. at 132. He disagreed with Vectren South’s claim that a
four-year cap would create a perverse incentive for the utility to favor programs
10
“Lost Revenue Adjustment Mechanism (LRAM) is a rate adjustment mechanism that allows the utility to
recover revenues that are ‘lost’ due to energy savings from approved efficiency programs.” Sara Hayes et al.,
Balancing Interests: A Review of Lost Revenue Adjustment Mechanisms for Utility Energy Efficiency Programs, 1
(September 2011) American Counsel for an Energy-Efficient Economy, https://aceee.org/sites/
default/files/publications/researchreports/u114.pdf (last visited Jan. 15, 2019).
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 8 of 25
with shorter-term useful lives to avoid the risk of under-recovery of lost
revenues.
[7] Mr. Rábago maintained that Vectren South’s WAML approach to the recovery
of lost revenues comes with its own set of problems. He explained:
The weighted average measure life is a mathematical solution to
the rate volatility that results from long-term pancaking of an
[LRAM], but potentially creates greater problems in terms of rate
fairness. That is, the method would “smooth out” year to year
volatility in the later years of the portfolio useful life by use of an
averaging calculation. But without much more analysis and
modeling, there is no way to tell if the proposed method limits
recovery of lost revenues to reasonable and fair levels.
Id. at 137.
[8] He compared the dollar amounts between Vectren South’s Original Lost
Revenue Proposal, the Revised Lost Revenue Proposal, and CAC’s proposal to
cap lost revenue recovery at four years or the life of the measure, whichever is
shorter. He determined that, under Vectren South’s Original Lost Revenue
Proposal, ratepayers would pay $73.6 million in lost revenues for a program
that costs $28.6 million to implement, and that although the total amount of
lost revenues under the Revised Lost Revenue Proposal would be less, $54.8
million, “[t]he pancake effect still exits, and the sheer total of lost revenues
presented here at $54 million for just $28 million of actual program delivery is
unreasonable.” Id. at 127. Mr. Rábago further testified that under CAC’s four-
year-cap proposal, total lost revenues would amount to $21.8 million. He
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 9 of 25
disagreed with Vectren South’s position that the role of lost revenue recovery is
to put a utility in the same revenue position it would have been in but for the
implementation of EE measures. He testified that “the purpose of lost revenue
recovery is to provide reasonable mitigation of the direct and causally-
connected revenue losses resulting from utility sponsored [EE] programs and
measures.” Id. at 121.
[9] CAC also argued that testimony from a Vectren South witness, Dr. M. Sami
Khawaja (“Dr. Khawaja”), Chief Economist at The Cadmus Group (an energy
efficiency evaluation firm), created a conflict of interest and should be
disregarded because The Cadmus Group had been retained by Vectren South to
perform evaluation services for the past eight years. According to CAC,
Section 10 requires that the EM&V procedures be independent, and that Dr.
Khawaja’s advocacy position “in this proceeding . . . casts doubt on the
integrity of the firm’s work as an independent evaluator.” Id. at 139.
[10] On December 28, 2017, the Commission issued its twenty-eight-page Order,
concluding in relevant part that “[b]ecause we approve Vectren South’s 2018-
2020 Plan, we find that Vectren South shall be authorized to recover its
associated program costs, including . . . lost revenues based upon the WAML
less 10% reduction in savings . . . .” Appellant’s Appendix Volume 2 at 35.
The Order reads in pertinent part:
Historically, lost revenues in Indiana (and across the country)
have been recovered based on a measure’s [effective useful life
(“EUL”)] and the energy savings confirmed by EM&V. The
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 10 of 25
purpose of allowing lost revenue recovery is to assist in removing
any disincentive a utility may have in promoting DSM, as
opposed to pursuing a supply-side resource. See, Indianapolis
Power & Light Co., Cause No. 43911 (IURC Nov. 4, 2010); 170
IAC 4-8-3.
Vectren South initially requested approval to recover lost revenue
for the life of each EE measure implemented pursuant to the
2018-2020 Plan. However, Petitioner subsequently modified its
request and now seeks approval to recover lost revenues based
upon the WAML of the Plan programs with a 10% reduction in
savings to account for measure persistence. The effect of this
change is to reduce lost revenue recovery based strictly on
measure lives by 26% or $18.8 million. Thus, under the modified
approach, Vectren South would recover approximately $54.8
million of lost revenues over the 12-year WAML of the Plan.
Both the OUCC and CAC encouraged the Commission to reject
Vectren South’s WAML proposal. CAC recommended the use
of a four-year cap on lost revenue recovery. CAC argues this
recovery is reasonable because a term greater than four years
creates unreasonable difficulties in tracking the accuracy of lost
revenues, the pancaking or cumulative effect of lost revenues
over time on rates, and lost revenue policies were created at a
time when the period between rate cases was shorter. . . .
Under the modified proposal, Vectren South would recover the
amount of lost revenues associated with the WAML of the Plan
portfolio of programs or the measure life of the EE program,
whichever is shorter. Dr. Khawaja explained that it was
appropriate to cap lost revenue based on the WAML because lost
revenue will take place for the duration of the measure life. The
WAML is based on the EUL, which is the median of a measure’s
life. Dr. Khawaja testified that the EUL values used by
Petitioner are conservative for an overall WAML of 12 years.
Further, the proposed 10% reduction in annual energy savings
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 11 of 25
reflects the use of the lower end 90% confidence level estimate of
savings and equates to an even more conservative [10.7-year]
measure life cap.
In addition to the use of the 12-year WAML, Vectren South
proposes to recover only 90% of the annual energy savings. CAC
and other parties, in their post-hearing filing, argue that because
EM&V is only conducted once for each Plan year, the initial
determination of energy savings and lost revenue becomes
progressively less reliable and more uncertain in successive years
and therefore should not be relied upon. Further, they argue that
the proposed 10% reduction in energy savings only addresses the
degree of confidence in the threshold EM&V determination, not
the eroding reliability of assumed savings.
EM&V is the most established approach to reasonably estimating
energy savings and lost revenues associated with EE programs.
Vectren South’s approach appears reasonably designed to ensure
it recovers only the lost revenues that EM&V can establish, with
a high degree of confidence, will result from savings driven by
EE measures. Recognizing that estimates are more certain in the
immediate (as opposed to the distant) future, Vectren South’s
evaluation process for estimating net energy savings utilizes at
minimum a 90% confidence interval and supports a 10%
degradation of annual savings within its lost revenue calculation,
which results in a statistically conservative estimate. While we
recognize that EM&V degrades over time based on accumulating
changes, this degradation is built into the EM&V process. We
further find that the approximate 26% reduction in recovered lost
revenues compared to Petitioner’s initial proposal is intended to
strike a reasonable balance in terms of offsetting the inherent
financial harm to a utility caused by EE sales reductions, while
also ensuring the recoveries are fully supported by conservative
EM&V estimates that safeguard the cost and benefit analysis
relied upon to determine that the EE Plan provides short- and
long-term benefits to customers.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 12 of 25
As indicated above, CAC offered no basis on which we could
make factual findings that a four-year cap would allow Vectren
South to recover reasonable lost revenues. In fact, Ms. Harris
testified that implementing a four-year cap on the Plan would
cause approximately $52 million of financial harm to Vectren
South in lost revenues over the life of the programs, which
equates to approximately 70% of lost revenues. Rather than
providing a reasoned explanation or analysis to support ending
lost revenue recovery after four years regardless of measure life or
evidence related to the financial effects of such a proposal on
Petitioner, CAC instead offers a conclusory opinion that the
magnitude of lost revenues exceeds the program costs and
therefore this must result in it being an unreasonable proposal.
CAC provided no factual basis to support its contention that lost
revenues should not exceed program costs. It is inherent that
energy savings validated by EM&V will create lost revenues.
Consequently, cost-effective EE programs should have lower
programs costs with larger energy savings, which does result in
higher lost revenues relative to program costs.
*****
Accordingly, we find that Vectren South’s modified lost revenue
recovery proposal, which has a strong nexus to the EM&V
process, will allow the recovery of reasonable lost revenues. Our
conclusion is consistent with the Commission’s DSM rules at 170
IAC 4-8 and Section 10’s requirement that EM&V are included
in any EE plan. Section 10(o) similarly recognizes the
importance of subjecting lost revenues to EM&V in its
reconciliation requirements when using forecasted data. Vectren
South’s proposal recognizes that the EM&V process is not an
exact science [] and employs limitations on EM&V
quantification of savings (and thus lost revenues) that assures
customers are billed for lost revenues based on a conservative
determination of achieved savings to ensure the highest level of
confidence in the energy savings that are attributed to EE
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 13 of 25
measures. Neither CAC nor the OUCC provided us with
sufficient evidence demonstrating that Vectren South’s proposal
is unreasonable. Nor did they provide us with sufficient facts
from which we could determine that either of their alternative
proposals for caps on lost revenue recovery would allow Vectren
South to recover reasonable lost revenues. Therefore, we find
Vectren South’s modified proposal for lost revenue recovery is
reasonable.
Appellant’s Appendix Volume 2 at 31-33 (footnote omitted).
[11] Regarding whether testimony from Dr. Khawaja should have been disregarded,
the Commission determined that:
Dr. Khawaja’s testimony was largely limited to addressing the
reasonableness of EM&V results over time and how the issues of
uncertainty and persistence are accounted for in the EM&V
process and methodology. While it may have been more prudent
for Petitioner to retain an EM&V witness not associated with
Cadmus, we lack sufficient evidence to find that EM&V
independence has been undermined – particularly given another
request for proposals is planned to select an EM&V vendor to
evaluate the 2018-2020 Plan and the ongoing participation by
11
members of the [Vectren Oversight Board ] in the review of the
EM&V analysis and reports.
Id. at 28. CAC now appeals the Commission’s Order.
11
The Vectren Oversight Board is Vectren South’s EE program governance body. Both CAC and OUCC are
voting members of the Board.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 14 of 25
Discussion
Standard of Review
[12] The General Assembly created the Commission primarily as a factfinding body
with the technical expertise to administer the regulatory scheme devised by the
legislature. N. Ind. Pub. Serv. Co. v. U.S. Steel Corp., 907 N.E.2d 1012, 1015 (Ind.
2009). The Commission’s assignment is to insure that public utilities provide
constant, reliable, and efficient service to the citizens of Indiana. Id. “The
Commission can exercise only power conferred upon it by statute.” Id.
“Because the complicated process of ratemaking is a legislative rather than
judicial function, it is more properly left to the experienced and expert opinion
present in the Commission.” Citizens Action Coal. of Ind., Inc. v. N. Ind. Pub. Serv.
Co., 76 N.E.3d 144, 151 (Ind. Ct. App. 2017) (internal quotations omitted).
[13] Indiana Code § 8-1-3-1 (1993) authorizes judicial review of Commission orders
by this Court. The review involves multiple tiers. U.S. Steel, 907 N.E.2d at
1016. “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.” Id. (citation and footnote omitted). We neither reweigh evidence
nor assess witness credibility, and we consider only the evidence favorable to
the Commission’s findings. Id. The Commission’s order is not binding if it
lacks substantial evidence supporting the findings of the Commission or is
unreasonable or arbitrary. Id.
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 15 of 25
[14] “At the second level, the order must contain specific findings on all the factual
determinations material to its ultimate conclusions.” Id. We review the
Commission’s conclusions of ultimate facts for reasonableness, the deference of
which is based on the amount of expertise exercised by the agency. Id. If the
order involves a subject within the Commission’s special competence, we
should give it greater deference; if the subject is outside the Commission’s
expertise, we give it less deference. Id. “More specifically, on matters within its
jurisdiction, [the Commission] enjoys wide discretion and its findings and
decision will not be lightly overridden simply because we might reach a
different decision on the same evidence.” Citizens Action Coal. of Ind., Inc., 76
N.E.3d at 151 (brackets and internal quotation omitted). “Essentially, so long
as there is any substantial evidence to support the rates as fixed by the
Commission as reasonable, the judicial branch of the government will not
interfere with such legislative functions and has no power or authority to
substitute its personal judgment for what it might think is fair or reasonable in
lieu of [the Commission’s] administrative judgment.” Id. (brackets, emphasis,
and internal quotations omitted).
[15] Findings of fact are important because they help us understand the
Commission’s reasoning and policy judgments and allow for a reasoned and
informed basis of review, which decreases the likelihood that we will substitute
our judgment on complex evidentiary issues and policy determinations best left
to an agency with technical expertise. N. Ind. Pub. Serv. Co. v. LaPorte, 791
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 16 of 25
N.E.2d 271, 278 (Ind. Ct. App. 2003). Further, requiring findings of fact helps
the Commission avoid arbitrary and capricious action. Id.
[16] “Additionally, an agency action is always subject to review as contrary to law,
but this constitutionally preserved review is limited to whether the Commission
stayed within its jurisdiction and conformed to the statutory standards and legal
principles involved in producing its decision, ruling, or order.” U.S. Steel, 907
N.E.2d at 1016.
I. Whether the Commission’s Order is Contrary to Law
[17] CAC’s first argument is twofold. It contends that the Commission’s Order is
contrary to law because the approval of Vectren South’s Revised Lost Revenue
Proposal is unreasonable, and that it is inconsistent with Section 10. We
address each argument in turn.
A. Whether the Approval of the Revised Lost Revenue Proposal is
Unreasonable
[18] CAC maintains that the Commission should have reviewed Vectren South’s
overall financial condition when it determined whether the Revised Lost
Revenue Proposal was reasonable and just. The crux of CAC’s argument is
that:
[b]ecause the Commission[, in approving the Revised Lost
Revenue Proposal,] has ignored the requirement that each
utility’s rates must be set on the utility’s overall financial
condition including total revenue and expense, the approval of
Vectren [South]’s lost revenue rate recovery in the Order is not
Court of Appeals of Indiana | Opinion 18A-EX-140 | February 19, 2019 Page 17 of 25
just and reasonable, and should be declared unlawful by this
Court.
Appellant’s Brief at 29. According to CAC:
The lost revenue rate approved in the Order [] was set merely on
a forecasted estimation of the amount of lost sales attributable to
the energy efficiency programs from an evaluation vendor with
no cogent reference to the utility’s overall financial condition.
The approved lost revenue rate in the Order just guarantees rate
recovery based on projected savings without any consideration
for other ratemaking principles. It also disregards the distinction
between a utility who comes in for regular rate cases, regularly
zeroing out lost revenue totals when resetting rates, versus a
utility who does not reset rates but for once every 10, 15, 20
years, resulting in exorbitant lost revenue rate recovery and
millions of dollars in difference in terms of what the ratepayers is
[sic] required to pay.
Id. at 28. CAC also argues that to allow Vectren South to recover the requested
12
amount dissuades Vectren South from filing general rate cases.
[19] CAC further argues that the Revised Lost Revenue Proposal is unreasonable
because it allows Vectren South to recover $54.8 million in lost revenue for EE
12
CAC posits that the approval of lost revenues is subject to a “just and reasonable” rates standard under
Indiana Code § 8-1-2-4 (1984), the general rate statute, which provides in relevant part that “[t]he charge
made by any public utility for any service rendered or to be rendered either directly or in connection
therewith shall be reasonable and just, and every unjust or unreasonable charge for such service is prohibited
and declared unlawful.” However, in its Surreply Brief, CAC clarifies that in referencing the statute, it was
not raising a new argument. It acknowledges that it should have been more careful with its phrasing, but that
“the point . . . is this: by failing to consider its precedent of capping the time a lost revenue rate adjustment
mechanism may be used due to Indiana’s environment of infrequent rate cases, the Commission brings the
just and reasonable rates requirement from I.C. § 8-1-2-4 and the examination of the utility’s overall financial
condition to the forefront . . . .” Appellant’s Surreply Brief at 6.
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programs projected to cost $28.6 million to administer. It states that “lost
revenue rates at 1.9 times greater than the cost to actually run the programs is
far in excess of what is necessary to satisfy a monopoly utility’s shareholders’
legitimate expectations.” Id. at 26. CAC claims that “[t]his lost revenue
guaranteed rate is outside the zone of reasonableness in light of the legal
framework, ratemaking policy, regulatory history, objective of the required cost-
effectiveness in the statute, and the appropriate degree of reliability in
forecasting estimated savings out beyond a few immediate years.” Id. CAC
contends that “[i]t is particularly wasteful and results in artificially high prices
to award a utility 1.9 times more in revenue than costs to run the energy
efficiency programs with no shown correlation that this extra revenue will
equate to more energy efficiency services or savings.” Id. at 27.
[20] We are not persuaded by CAC’s arguments. Section 10(j)(8) provides that
when the Commission makes a determination of the overall reasonableness of a
plan, it must consider the lost revenues and financial incentives associated with
the plan and sought to be recovered or received by the utility. Section 10(o)
provides that if the Commission finds a plan submitted by a utility to be
reasonable then the Commission must allow the utility to recover or receive
reasonable lost revenues. Here, the Commission considered the lost revenues
sought to be recovered and determined that CAC “provided no factual basis to
support its contention that lost revenues should not exceed program costs.”
Appellant’s Appendix Volume 2 at 33. Furthermore, Section 10 does not
require the Commission to consider a utility’s overall financial condition in
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determining whether lost revenues sought to be recovered are reasonable or
whether recovery of the requested lost revenue dissuades Vectren South from
13
filing general rate cases. As such, the Commission did not act contrary to law
in determining that Vectren South’s Plan was reasonable.
B. Whether the Approval of the Revised Lost Revenue Proposal is Inconsistent
with Section 10
[21] CAC also argues that the Commission’s approval of the Revised Lost Revenue
Proposal is inconsistent with Section 10. It contends that the Commission’s
Order “misinterprets and misconstrues” that section “establishing rates under
Section 10 without any reference or consideration of ratemaking practices and
the requirements of Indiana’s Public Service Commission Act (‘PSCA’).”
Appellant’s Brief at 36. CAC specifically argues that “the most basic error is
the Commission’s failure to reconcile its approval of [the Revised Lost Revenue
Proposal] without any reference or application of ratemaking practices” and the
Commission’s failure to “consider ratepayers in making a determination as to
the reasonableness of this rate.” Id.
[22] We observe that the requirement under Section 10 that electricity suppliers file a
three-year EE plan was adopted by our General Assembly in 2015 as a separate
13
Cf. NIPSCO Indus. Grp. v. N. Ind. Pub. Serv. Co., 100 N.E.3d 234, 238 (Ind. 2018) (“General ratemaking is a
‘comprehensive’ process, requiring the Commission to ‘examine every aspect of the utility’s operations and
the economic environment in which the utility functions to ensure that the data [the Commission] has
received are representative of operating conditions that will, or should, prevail in future years.’” (emphasis
added and citation omitted)), modified on reh’g.
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requirement that is in addition to long-standing requirements regarding general
ratemaking. CAC points to no relevant authority indicating that the
Commission was required to consider or apply procedures adopted in
connection with general ratemaking cases when considering a petition filed in
accordance with Section 10. CAC has failed to establish that the Commission’s
approval of Vectren South’s Revised Lost Revenue Proposal is inconsistent
with Section 10. We therefore find that the Commission’s approval of the
Revised Lost Revenue Proposal was not inconsistent with Section 10 and was
not contrary to law.
II. Whether the Commission’s Order Impermissibly Deviates from Precedent
[23] We next address whether the Commission impermissibly deviated from
precedent. CAC maintains that the Commission’s Order “ignores available
precedent related to the relationship between lost revenues and general rate
cases that articulated principles by which to ascertain the reasonableness of lost
revenue recovery proposals.” Id. at 29. According to CAC, “the relationship
between rate cases and lost revenues, as articulated in the available precedent,
was a material issue raised and put in dispute by the parties before the
Commission in this proceeding, but it went unaddressed.” Id.
[24] In support of its argument, CAC cites to four Commission decisions. See In re
Ind. Power & Light Co., Cause No. 43911, 2010 WL 4499412, at *9 (November
4, 2010) (denied lost revenue recovery “in the absence of a base rate case to
ensure that class specific investment and investment recovery is properly
aligned”); In re N. Ind. Pub. Serv. Co., Cause No. 43912, 2011 WL 3346770, at
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*22 (July 27, 2011) (denied request to recover lost margins but remained
“willing to consider a request for lost margins provided NIPSCO can
demonstrate the revenue margin rates are reasonably reflective of today’s
operations”); In re N. Ind. Pub. Serv. Co., Cause No. 44634, 2015 WL 9605053,
at *42, 43 (December 30, 2015) (Commission acknowledged that it had
“previously approved lost revenues over a measure’s life or until a utility’s next
base rate case, whichever is shorter,” but due to “concerns with pancaking and
the increased length of time between base rate cases for utilities in Indiana,”
ultimately found NIPSCO’s lost revenue recovery should be limited to “(1) four
years or the life of the measure, whichever is less, or (2) until rates are
implemented pursuant to a final order in NIPSCO’s next base rate case,
whichever occurs earlier.”); In re Duke Energy Ind., Inc., Cause No. 43955, 2016
WL 1118794 (March 16, 2016) (denied approval of Duke’s EE plan, finding, in
part, that recovery of lost revenues should be limited to a four-year term).
However, nothing in our review of these decisions leads us to the conclusion
that reversal is required in this case.
[25] By its own acknowledgement, the Commission has previously approved the
recovery of lost revenues over a measure’s life or until the utility’s next base rate
case, whichever is shorter. The Commission has also previously approved a
four-year cap on a utility’s lost revenue recovery. An agency may change its
course and is not forever bound by prior policy or precedent as long as it
explains its reasons for doing so. See Ind. Bell Tel. Co. v. Ind. Util. Reg. Comm’n,
810 N.E.2d 1179, 1186 (Ind. Ct. App. 2004), trans. denied. In its Order, the
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Commission found Vectren South’s Plan to be reasonable in its entirety, found
Vectren South’s Revised Lost Revenue Proposal to be reasonable, and
explained its reasons for doing so. The Commission did not impermissibly
deviate from precedent.
III. Whether Substantial Evidence Supports the Commission’s
Order
[26] CAC’s next argument is that the Commission’s Order “lacks a reasonably
sound basis of evidentiary support.” Appellant’s Brief at 34. Specifically, CAC
maintains that “[t]he most fundamental problem with the evidentiary support
for the approved lost revenue rate is the fact that there is no credible evidence
that the investor owned electric utility experienced its claimed level of lost
revenues or that the rate was established based on other financial aspects of the
utility.” Id. CAC also argues that the Commission failed to consider the
“relationship of the lost revenue rate with the resetting of rates in general rate
cases”; the Order failed to “mention or weigh any of the critical cross-
examination that was conducted by the other consumer parties”; and in
reaching its determination, the Commission failed to consider the complete
record. Id. at 34, 35. In addition, CAC claims that “[t]he reliance upon EM&V
as a basis for approving lost revenue rates is nonsensical and not cost- or rates-
based.” Id. at 34. CAC argues that the Order “mischaracterizes the role of
[EM&V] and what EM&V has done, does and does not do for lost revenue rate
recovery.” Appellant’s Reply Brief at 13. We disagree.
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[27] It is expected that Vectren South would not present actual lost revenue
amounts, as it was seeking pre-approval of the Plan and a request to recover
proposed lost revenues. The evidence indicated that the lost revenues detailed at
length by Vectren South were forecasted losses that would later be reconciled
through EM&V. The Commission’s Order accurately reflects this point and the
required reconciliation. Furthermore, Section 10 does not require the
Commission to consider the relationship between lost revenue rates and the
filing of general rate cases.
[28] We find that CAC’s other arguments are an invitation for this Court to reweigh
the evidence. The Commission reviewed the evidence of record and found the
evidence presented by Vectren South to be more persuasive. We will not
reweigh the evidence or reassess witness credibility on appeal. See U.S. Steel,
907 N.E.2d at 1016.
IV. Whether the Commission’s Approval of Vectren South’s EE Goals is
Improper
[29] CAC’s last argument concerns whether the Commission’s approval of Vectren
South’s EE goals is improper because, according to CAC, the Commission
failed to consider certain “[m]aterial [i]mpeaching [e]vidence” that was
contained in the “Commission’s Director’s Draft Report.” Appellant’s Brief at
38, 39. CAC specifically maintains that:
[T]he Commission cherry-picked certain parts from its relevant
Director’s Report but completely ignored the pertinent parts
which impeached the very evidence upon which the Commission
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relied to approve Vectren’s level of energy efficiency investment
in this case.
At a minimum, the Commission should have addressed its own
Director’s concern as to whether Vectren’s “adjustments made to
correct for admitted serious data limitations is sufficient to
overcome the problems being addressed” and the Director’s
ultimate conclusion that “[d]rawing strong policy
recommendations in such circumstances is probably not
warranted.” (Tr., [V]ol. 9, at 43). Instead, the Commission
ignored these conclusions from its own Director, ignored the
process it created to deal with most of the disputes over resource
planning outside litigated cases (Appellant’s-Br. at 10), and gave
the investor-owned utility carte blanche for this important
resource decision to the detriment of ratepayers and those parties
who invested substantial time and resources in the Commission
created process. (Order at 15-17).
Appellant’s Reply Brief at 23.
[30] CAC’s argument, essentially, is an invitation to reweigh the evidence, which we
cannot do. The record contains substantial evidence supporting the
Commission’s determination that Vectren South’s EE goals are reasonable.
[31] For the foregoing reasons, the Commission’s Order is affirmed.
[32] Affirmed.
Najam, J., and Altice, J., concur.
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