Pursuant to Ind.Appellate Rule 65(D),
this Memorandum Decision shall not be
regarded as precedent or cited before
any court except for the purpose of
establishing the defense of res judicata,
collateral estoppel, or the law of the case.
ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE
INDIANA OFFICE OF UTILITY
NICHOLAS K. KILE CONSUMER COUNSELOR:
MARK J. CRANDLEY
Barnes & Thornburg LLP A. DAVID STIPPLER
Indianapolis, Indiana DANIEL M. LE VAY
SCOTT C. FRANSON
Indianapolis, Indiana
Aug 06 2013, 8:43 am
IN THE
COURT OF APPEALS OF INDIANA
INDIANA-AMERICAN WATER )
COMPANY, INC., )
)
Appellant-Intervenor )
)
vs. ) No. 93A02-1301-EX-17
)
INDIANA OFFICE OF UTILITY )
CONSUMER COUNSELOR, )
)
Appellee-Statutory Party )
)
CITY OF CROWN POINT, INDIANA, )
)
Appellee-Intervenor. )
APPEAL FROM THE INDIANA UTILITY REGULATORY COMMISSION
Cause No. 42351 DSIC 7
August 6, 2013
MEMORANDUM DECISION - NOT FOR PUBLICATION
ROBB, Chief Judge
Case Summary and Issue
Indiana-American Water Company, Inc., filed a petition with the Indiana Utility
Regulatory Commission (“the Commission”) for approval of a new distribution system
improvement charge (“DSIC”) pursuant to Indiana Code chapter 8-1-31. The Commission
approved the DSIC but denied Indiana-American’s request to include $18 million of costs
associated with its accelerated automated meter reading (“AMR”) replacement program in
the DSIC. Indiana-American now appeals, raising several issues, but we find the following
consolidated and restated issue dispositive: whether the Commission erred when it denied
including the costs of the accelerated AMR replacement program in the DSIC. Concluding
the Commission did not err, we affirm.
Facts and Procedural History
Indiana-American renders water utility service to customers in numerous
municipalities and counties throughout the State of Indiana. On October 1, 2012, Indiana-
American filed a petition with the Commission for approval of: a new DSIC, a proposed
new rate schedule reflecting the new DSIC, and the cost of its eligible distribution system
improvements in the new DSIC. After the City of Crown Point filed a petition to intervene
and the Commission granted that petition, both Crown Point and the Indiana Office of Utility
Consumer Counselor (“OUCC”) filed their cases-in-chief and Indiana-American filed its
rebuttal. On November 15 and 20, 2012, a public evidentiary hearing on the petition was
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held. On December 27, 2012, the Commission issued a detailed order, approving the DSIC
but denying the request to include the costs associated with Indiana-American’s accelerated
AMR replacement program in the DSIC. The Commission’s order stated, in relevant part,
the following:
Indiana-American included in its DSIC the cost of approximately 90,000 meters
to put into place AMR technology by replacing meters without regard to their
condition. [Indiana-American] replaced meters with no less than five to ten
years of expected remaining useful life. [Indiana-American] replaced meter
registers on meters placed in service less than five years ago. In addition to
new AMR meters and meter registers, the proposed $18 million DSIC costs
include AMR meter reading equipment and meters not yet placed in service.
The OUCC questioned whether a project that involved replacing plant [sic] that
did not otherwise need to be replaced merely to institute automatic meter
reading qualified as “eligible distribution system improvements.” The OUCC
asserted that the definition of “distribution system” in our rule, which we must
consider to be within the definition of “eligible distribution system
improvements,” indicates that to be included in a DSIC, a project must be
necessary for the transportation of water. The OUCC based its position in part
on the fact that the definition of “distribution system” includes the provision
that the addition must be “necessary to transport treated water . . . to the
customer.” The OUCC maintained that institution of an AMR program, while
it could be prudent and includable in rate base, does not qualify for special
ratemaking treatment through a DSIC since retiring equipment early to improve
billing and other operational functions does not promote the transportation of
water. Ultimately, the OUCC considers such projects not to be within the
evident intent of DSICs in Indiana. We agree.
***
. . . Although uninstalled meters may be considered “in service” for accounting
purposes, we do not find such meters to be “in service” for ratemaking
purposes, and specifically, for inclusion in a DSIC. . . . Meters on shelves do
not provide utility service, even if they are “in service” for accounting purposes.
Accordingly, uninstalled meters may not be included in a DSIC.
Further, recovery of the replacement cost of newer traditional meters
with AMR meters does not fit within the context of the DSIC, in that the
Commission stated in DSIC 1 that the purpose of DSIC recovery is to replace
aged infrastructure. We agree . . . that the replacement of meters older than 10
years could be recoverable in a DSIC. . . .
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Appellant’s Appendix at 15-16 (citation omitted). Indiana-American now appeals.
Additional facts will be provided as necessary.
Discussion and Decision
I. Standard of Review
When reviewing an order issued by the Commission, we employ a two-tiered standard
of review. LaGrange Cnty. Reg’l Util. Dist. v. Bubb, 914 N.E.2d 807, 810 (Ind. Ct. App.
2009). First, we determine whether the decision is supported by specific findings of fact and
sufficient evidence. Id. Second, we consider whether the decision is contrary to law. Id.
Moreover, Indiana-American now challenges the Commission’s interpretation of a
statute, which is an issue of law we review de novo. Ind. Ass’n of Beverage Retailers, Inc. v.
Ind. Alcohol & Tobacco Comm’n, 945 N.E.2d 187, 197 (Ind. Ct. App. 2011), trans. denied.
We will read a statute which is clear and unambiguous to mean what it plainly expresses. Id.
Moreover, a statute is to be construed so as not to bring about an absurd result. Citizens
Action Coal. of Ind., Inc. v. N. Ind. Pub. Serv. Co., 796 N.E.2d 1264, 1269 (Ind. Ct. App.
2003), trans. denied. We give great weight to an interpretation of a statute by an
administrative agency charged with the duty of enforcing the statute, unless the interpretation
would be inconsistent with the statute itself. Ind. Ass’n of Beverage Retailers, Inc., 945
N.E.2d at 198 (quotation and citations omitted). If we determine that the agency’s
interpretation is reasonable, we should terminate our analysis and not address the
reasonableness of the other party’s proposed interpretation. Id. This recognizes the expertise
of agencies empowered to interpret and enforce statutes. Id.
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II. DSIC
The purpose of the Commission is to ensure that public utilities provide constant,
reliable, and efficient service to the citizens of this State. Ind. Bell Tel. Co., Inc. v. Ind. Util.
Regulatory Comm’n, 715 N.E.2d 351, 354 n.3 (Ind. 1999). The Commission is the “fact-
finding body with the technical expertise to administer the regulatory scheme devised by the
legislature.” United States Gypsum, Inc. v. Ind. Gas Co., Inc., 735 N.E.2d 790, 795 (Ind.
2000) (quotations and citation omitted). Indiana Code chapter 8-1-31 allows a public utility
providing water service to file with the Commission “rate schedules establishing a DSIC that
will allow the automatic adjustment of the public utility’s basic rates and charges to provide
for recovery of DSIC costs.” Ind. Code § 8-1-31-8(a). The Commission has stated in the
past that “the purpose of a DSIC proceeding is to encourage, through an expedited and
automatic rate increase, repair or replacement of a distribution system’s aging and failing
infrastructure.” In re Indiana-American Water Co., Inc., Cause No. 42351 DSIC 1, 2003 WL
21048649 at *19 (Ind. Util. Regulatory Comm’n, Feb. 27, 2003) (finding, in part, certain
improvements not to be the type of infrastructure improvements contemplated by DSIC
statutes).
DSIC costs are those associated with “eligible distribution system improvements.”
Ind. Code § 8-1-31-3. “[E]ligible distribution system improvements” are: “new used and
useful water utility plant projects that: (1) do not increase revenues by connecting the
distribution system to new customers; (2) are in service; and (3) were not included in the
public utility’s rate base in its most recent general rate case.” Ind. Code § 8-1-31-5. Here,
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the Commission denied the request to include the costs of the accelerated AMR replacement
program, in large part, because Indiana-American replaced meters “without regard to their
condition.” Appellant’s App. at 15. Many of the replaced meters had five to ten years of
expected remaining useful life. The Commission stated that it could not include these costs
in the DSIC because the purpose of DSIC recovery is to replace aged infrastructure. Indiana-
American argues that the Commission erred by reading an age requirement into the statute.
We disagree.
It was within the province of the Commission to determine what improvements
satisfied the definition of “eligible distribution system improvements” under the statute. We
agree that replacing equipment prematurely is inconsistent with the overall purpose of the
statute. The president of Indiana-American himself had testified in another case that the
“overall need to attract financing to replace aging distribution system infrastructure” is what
“led Indiana and other states to adopt a DSIC mechanism.” Appellee’s Appendix at 4
(emphasis added). The Commission relied, in part, upon its definition of a distribution
system as an addition that is “necessary to transport treated water from the point it exits the
treatment facility to the point at which it is delivered to the customer.” 170 I.A.C. 6-1.1-1(c).
Replacing functional equipment is not necessary to transport water to customers. While
upgrading meters and meter registers to the new technology may lead to more efficient
operations for the water utility companies, it does not follow that the new technology was
contemplated by—or must be included in—DSIC recovery under the statute. A water
company is required to disclose “the age of the plant that was retired” in its petition with the
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Commission. 170 I.A.C. 6-1.1-5(a)(1). To require the Commission to disregard this
information in making its decision could lead to the absurd result of including the costs of
replacing the same equipment every few years in DSIC recovery.
And while it appears that a relatively small percentage of the meters replaced were
older than ten years and thus satisfied the Commission’s age requirement, the Commission
denied including those costs in the DSIC because Indiana-American failed to provide
sufficient evidence regarding the retirement costs of the older meters that were replaced or
the installation costs and costs relating to the AMR meters used to replace the older meters.
See Appellant’s App. at 16. Indiana-American does not contend that this evidence is in the
record, and we therefore affirm the Commission’s decision with regard to the older meters.
Moreover, the Commission denied including some of the costs of the accelerated
AMR program in the DSIC, in part, due to the fact that many of the meters were not installed.
Again, we agree with the Commission’s interpretation that while uninstalled meters may be
“in service” for accounting purposes, they are not “in service” for ratemaking purposes. This
reflects the statutory requirement that the eligible distribution system improvements be “new
used and useful water utility plant projects.” Ind. Code § 8-1-31-5. In sum, the
Commission’s interpretation of Indiana Code chapter 8-1-31 to provide DSIC recovery only
for the replacement of aged infrastructure is reasonable and it is therefore affirmed.
Conclusion
The Commission properly interpreted Indiana Code chapter 8-1-31 to provide DSIC
recovery only for the replacement of aged infrastructure. Thus, it did not err when it denied
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Indiana-American’s request to include $18 million of costs associated with its accelerated
AMR replacement program in the most recent DSIC. We therefore affirm the Commission’s
order.
Affirmed.
FRIEDLANDER, J., and CRONE, J., concur.
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