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Justices reverse NIPSCO rate increase, limit hikes for nonspecific projects

June 20, 2018

A utility rate increase to fund nearly $20 million of improvements for a northern Indiana power utility was struck down by the Indiana Supreme Court on Wednesday in a ruling the court said “will likely have enormous financial consequences for utilities and their customers.”

The ruling struck down a natural gas rate increase for Northern Indiana Public Service Co. that was challenged by some of the utility’s largest industrial consumers, known as NIPSCO Industrial Group. The Indiana Utility Regulatory Commission had approved NIPSCO’s rate increase under the 2013 TDSIC Statute, which enables utilities to obtain regulatory preapproval for infrastructure improvements.

But NIPSCO Industrial Group challenged the rate increase, arguing that the statute allows for increases to pay for specific preapproved projects, rather than categories of projects, as the utility argued. The utility’s increase included costs such as estimates of a certain percentage of pipes needing repair within a seven-year period.

“We conclude the TDSIC Statute permits periodic rate increases only for specific projects a utility designates, and the Commission approves, in the threshold proceeding and not for multiple-unit projects using ascertainable planning criteria,” Justice Geoffrey Slaughter wrote for the unanimous court in NIPSCO Industrial Group v. Northern Public Service Company, 18S-EX-334. “In other words, a utility must specifically identify the projects or improvements at the outset in its seven-year plan and not in later proceedings involving periodic updates. There is an appreciable difference between designating specific ‘projects’ and ‘improvements’ up front, which the Statute requires, and describing the criteria for selecting them later, which the Commission approved.”

The legislature enacted the TDSIC statute as a means to enable utilities to fund some costly capital improvements in advance, but Wednesday’s ruling limits the extent to which utilities may do so. A divided panel of the Indiana Court of Appeals previously affirmed the rate increase, but the justices’ adopted the dissenting opinion of recently retired COA Judge Michael Barnes.

In doing so, the court noted its ruling will have broad impact beyond the NIPSCO rate case.

“The stakes are much larger than just the roughly $20 million at issue between NIPSCO and the Industrial Group. The Commission, we are told, has approved billions of dollars of utility-infrastructure investments through the TDSIC process,” Slaughter wrote. “Given the favorable regulatory treatment, utilities are likely to funnel increasing amounts of infrastructure investments through this reimbursement mechanism. How we resolve these competing visions of the TDSIC Statute will likely have enormous financial consequences for utilities and their customers.”

The court ruled the TDSIC Statute requires utilities to designate, rather than describe, eligible projects in a seven-year plan. Further, the court held Section 9 update petitions cannot add new projects beyond those initially approved under Section 10 and cannot revise the seven-year plan’s budget. Finally, the court ruled NIPSCO Industrial Group was not precluded from challenging the commission’s order.

The rate case was remanded to the IURC.

 

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