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Court splits over whether approval of entire contract must be voided

October 30, 2012

Chief Judge Margret Robb dissented from her colleagues on the Court of Appeals Tuesday as to whether approval of a contract for the purchase and sale of substitute natural gas must be voided in its entirety because the contract definition of “retail end use customer” differs from the statutory definition.

The Indiana Finance Authority and Indiana Gasification LLC executed a contract in January 2011 that details the sale and purchase of substitute natural gas that IG plans to produce at a $2.7 billion Rockport plant, with delivery set to begin in the first quarter of 2016.

The IFA and IG sought approval of the contract by the Indiana Utility Regulatory Commission and requested that the commission order Indiana regulated gas utilities to enter into utility management agreements with IFA so that IFA could pass proceeds and costs to retail end use customers through the utilities, if necessary. Several utilities, industrial companies and citizens groups intervened.

After several public hearings, the commission approved the contract in November 2011. The commission didn’t address the scope of the term “retail end use customer” and found that it could be addressed at a future time. The industrial group filed a petition for reconsideration, arguing that industrial transportation customers were exempt from being classified as retail end use customers under statute and did not have to pay the pass-through costs of the substitute natural gas under the contract. The utilities and citizens groups also appealed.

The appellate judges agreed in Indiana Gas Company, Inc. and Southern Indiana Gas and Electric Company, et al. v. Indiana Finance Authority and Indiana Gasification, LLC, 93A02-1112-EX-1141, that the utilities’ and industrial group’s claims are justiciable and the industrial group has standing to sue. The court also unanimously found the commission did not exceed its jurisdiction under the Substitute Natural Gas Act when it approved the contract as a final purchase contract.

But Judges Patricia Riley and Senior Judge Carr Darden reversed the commission order approving the contract because the contract’s definition of retail end use customer did not conform to what the Legislature intended under the SNG Act. The majority found industrial transportation customers are not subject to the SNG Act as retail end use customers.

Robb believed that reversal of the commission’s approval of the contract in its entirety isn't necessary and that the court could “merely exclude the part of the contract which includes transportation customers in the definition of retail end use customers without frustrating the primary purpose of the contract.”
 

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