ILNews

Ethics scandal costs Duke Energy in 2 rulings

Chris O'Malley
October 20, 2011
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A 2010 ethics scandal involving the chief legal counsel for the state’s utility regulatory agency, who presided over cases favorable to Duke Energy Corp. in the months prior to taking a job at the utility, has come back to bite the state’s biggest electric utility.

The Indiana Utility Regulatory Commission on Wednesday reversed a ruling made by former chief counsel and administrative law judge Scott Storms. It would have allowed Duke at its next rate case to seek to recover from ratepayers $12 million in costs the utility incurred during a 2009 ice storm.

Also on Wednesday, the commission dismissed a case handled by Storms in which Duke sought permission to tap ratepayers to install "smart" electric meters in central Indiana to help better regulate loads. That project was estimated to cost $22 million.

The case in which Duke sought to collect storm damage costs is most notable. It was the only Scott Storms case the commission decided to reopen for further review after the ethics scandal came to light last year.

It was the also the only proceeding involving Storms in which one of the parties — the Indiana Office of Utility Consumer Counselor — had appealed to the state Court of Appeals.

The OUCC argued that Duke’s attempts to recover the ice storm damages during a future rate case amounted to retroactive ratemaking, which is only permitted in the case of extraordinary financial events. Charlotte-based Duke reported 2010 operating earnings of $14.2 billion.

“We are pleased with the outcome. ... We think that it’s commendable that the commission reconsidered,” Anthony Swinger, spokesman for the OUCC, said of Wednesday’s IURC ruling on the storm cost case.

“It’s been our position all along that we did not believe the facts supported Duke’s request.”

Swinger said Duke is already authorized to collect $2.6 million a year from ratepayers for storm damage costs.

Two IURC commissioners, Kari Bennett and David Ziegner, dissented from the decision to reverse the storm damage case handled by Storms.

They wrote that, “upon reopening this cause, no evidence was offered concerning allegations of [Storms having] undue influence associated with the original proceeding.”

Bennett and Ziegner said the majority views the decision to reopen the case to mean that it is authorized “to reconsider and reweigh” all the evidence and reach a different outcome despite the fact that none of the resubmitted evidence is materially different than the original.

“We do not agree that such an expansive reconsideration is appropriate.”

Duke officials said late Wednesday they continue to believe that its storm damage costs were “prudently incurred” and will address the issue in its next rate case.
Although it now cannot seek to recover the $12 million in 2009 storm damage in a lump sump, per se, it is possible Duke could instead seek to increase the current $2.6 million a year it’s permitted to collect for general storm costs.

As for the other ruling Wednesday — the dismissal of Duke’s request to invest in smart grid features such as advanced metering — the spectre of the Scott Storms scandal loomed large.

The commission said Storms presided over the 2010 evidentiary hearing in the case after he accepted a job offer from Duke as an attorney for its Indiana operations.

The Indiana Ethics Commission in May said the move was in violation of state ethics laws, although Storms has appealed the ethics board’s final report in Marion County Circuit Court.

“The ethics case  … which relates directly to this cause, has resulted in and continues to cause, substantial delay in the commission’s ability to review and decide the merits of this case,” the IURC said Wednesday.

The delay means that cost estimates presented in Duke’s smart grid case may havebecome outdated.

“In addition, the commission has concerns about rendering an opinion on the current record in light of the Indiana Ethics Commission’s factual finding in its final report,” the  IURC said, adding that it is thus “not in the public interest” to decide the merits of Duke’s smart grid deployment.

Duke Energy spokesman Lew Middleton said the utility respects the commission’s decision given the passage of time. He noted that the IURC did not dismiss the case based on the merits in the smart grid proposal.

 “We will evaluate our next steps,” he said.

Kerwin Olson, interim executive director of utility watchdog group Citizens Action Coalition, said he was still trying to make sense of the IURC rulings late Wednesday.

Olson noted that the commission in these two cases made decisions that centered on orders involving Storms. Yet the commission isn’t taking into consideration Storms’ rulings involving Duke’s controversial Edwardsport coal-gasification plant, which has $530 million in cost overruns.

“I fail to understand the difference,” Olson said.

The Storms scandal proved an embarrassment for both Duke and the IURC.

Duke later fired Storms, along with Michael Reed, the head of Duke’s Plainfield-based Indiana operations.

Another casualty was IURC chief David Hardy, who Gov. Daniels fired last fall. Emails revealed Hardy knew Storms was handling Duke cases even after immersed in job discussions with the utility. They also showed Hardy making light of a routine state ethics panel hearing triggered after Storms announced his intention to seek work at Duke.

Emails also show that Hardy was chummy with Duke Energy executives to the point it may have tainted commission decisions involving Duke, including those of the controversial Edwardsport project.

This story originally ran on IBJ.com Oct. 19, 2011. The Indianapolis Business Journal is a sister publication of Indiana Lawyer.

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  1. CCHP's real accomplishment is the 2015 law signed by Gov Pence that basically outlaws any annexation that is forced where a 65% majority of landowners in the affected area disagree. Regardless of whether HP wins or loses, the citizens of Indiana will not have another fiasco like this. The law Gov Pence signed is a direct result of this malgovernance.

  2. I gave tempparry guardship to a friend of my granddaughter in 2012. I went to prison. I had custody. My daughter went to prison to. We are out. My daughter gave me custody but can get her back. She was not order to give me custody . but now we want granddaughter back from friend. She's 14 now. What rights do we have

  3. This sure is not what most who value good governance consider the Rule of Law to entail: "In a letter dated March 2, which Brizzi forwarded to IBJ, the commission dismissed the grievance “on grounds that there is not reasonable cause to believe that you are guilty of misconduct.”" Yet two month later reasonable cause does exist? (Or is the commission forging ahead, the need for reasonable belief be damned? -- A seeming violation of the Rules of Profession Ethics on the part of the commission) Could the rule of law theory cause one to believe that an explanation is in order? Could it be that Hoosier attorneys live under Imperial Law (which is also a t-word that rhymes with infamy) in which the Platonic guardians can do no wrong and never owe the plebeian class any explanation for their powerful actions. (Might makes it right?) Could this be a case of politics directing the commission, as celebrated IU Mauer Professor (the late) Patrick Baude warned was happening 20 years ago in his controversial (whisteblowing) ethics lecture on a quite similar topic: http://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1498&context=ilj

  4. I have a case presently pending cert review before the SCOTUS that reveals just how Indiana regulates the bar. I have been denied licensure for life for holding the wrong views and questioning the grand inquisitors as to their duties as to state and federal constitutional due process. True story: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS Shorter, Amici brief serving to frame issue as misuse of govt licensure: https://www.scribd.com/doc/312841269/Thomas-More-Society-Amicus-Brown-v-Ind-Bd-of-Law-Examiners

  5. Here's an idea...how about we MORE heavily regulate the law schools to reduce the surplus of graduates, driving starting salaries up for those new grads, so that we can all pay our insane amount of student loans off in a reasonable amount of time and then be able to afford to do pro bono & low-fee work? I've got friends in other industries, radiology for example, and their schools accept a very limited number of students so there will never be a glut of new grads and everyone's pay stays high. For example, my radiologist friend's school accepted just six new students per year.

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