COA affirms Duke Energy must follow Noblesville’s ordinances

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The Court of Appeals of Indiana unplugged Duke Energy’s battle with the city of Noblesville, rejecting the power company’s arguments that only the Indiana Utility Regulatory Commission has authority over utility matters and finding the electric provider has to comply with the municipality’s ordinances for a demolition and two building projects.

The dispute began when the power company started two construction projects in Noblesville. The “substation project” required the demolition of a residential home and garage to make way for a new utility substation. The “garage/office project” involved the construction of a seven-bay heavy equipment storage garage with attached offices.

Duke informed Noblesville of its plans but rebuffed the city’s demand that it comply with the Unified Development Ordinances for the demolition and that it obtain location improvement and building permits for the garage/office project.

Noblesville responded by filing a complaint in Hamilton Superior Court. In a counterclaim, Duke sought declaratory and injunctive relief, arguing the city lacked jurisdiction and authority to regulate the activities of a power company.

The trial court granted Noblesville’s motion for summary judgment and Duke appealed.

Before the Court of Appeals, the utility made two arguments.

First, the company claimed the trial court erred in enforcing the UDO because only the IURC can enforce such local ordinances. Second, Duke contended the trial court erroneously ordered it to pay the penalties and Noblesville’s defense costs.

The Court of Appeals affirmed the Hamilton Superior Court’s ruling that the power company must follow Noblesville’s ordinances in Duke Energy Indiana, LLC v. City of Noblesville, Indiana, 21A-PL-1563.

The appellate court rejected Duke’s argument that the IURC has virtually unlimited authority over utility matters. It also rejected Duke’s challenge to the financial penalties imposed by the trial court. In addition, the appellate court remanded for further proceedings concerning what, if any, appellate fees Duke owes to Noblesville.

In determining whether the dispute between Duke and Noblesville fell within the IURC’s purview, the Court of Appeals looked at the IURC statutes related to ordinance enforcement, the meaning of “location and use of utility facilities” and definition of utility “service.”

The opposing parties agreed that Noblesville could not enforce its ordinances against Duke without IURC involvement if the dispute involves “the location and use of utility facilities” and that disputes that relate to the utility’s service were within the IURC’s exclusive jurisdiction.

However, the parties did not agree on the precise definitions.

On the meaning of “location and use of utility facilities,” Duke argued that the demolition for the substation project involved the location and use of a utility facility because the removal of the existing structures was the first stage in building a transmission substation there. Also, Duke contended the construction of the garage/office project was linked to the location and use of a utility facility because the new structure will be used to improve the company’s response to necessary utility maintenance and repairs throughout the region.

Noblesville countered that the demolition did not fit the definition of a “utility facility” as being “a structure specific and unique to a utility.” To support its argument, the municipality pointed to U.S. Gypsum, Inc. v. Ind. Gas Co., 735 N.E.2d 790, 802 (Ind. 2000) and Indiana Code §§ 8-10-1-8, -15-2-6(e) and -21-9-18.

The Court of Appeals found Noblesville was not interfering with the construction of the substation. Rather, the city was requiring Duke to adhere to local demolition rules and regulations when razing the residential structure.

Noting the garage/office construction offered a closer question, the Court of Appeals again sided with Noblesville.

“We conclude, as the trial court did, that the garage/office building to be constructed is not a ‘utility facility,’” Judge Leanna Weismann wrote. “The structure, as planned, easily could be occupied by any number of businesses. No utility power will be generated there. Duke’s assertion that it need not seek approval from the IURC before building the garage/office also suggests that the structure is not a utility facility, given the breadth of IURC supervision of public utilities.”

In regard to the meaning of “service,” Duke argued both projects related to utility “services.” The utility asserted the maintenance of the transmission lines is critical to providing “service” and the garage/office project is an essential part of timely maintenance. Consequently, the demolition of the existing structures for the substation project are equivalent to constructing a transmission substation, which is a facility directly related to utility service.

Noblesville countered that Duke was viewing “service” too broadly, and the Court of Appeals agreed.

The appellate panel held the residential structures’ only link to the substation project was that they sat on the land Duke wanted to use. That connection was “too tangential” to establish the demolition of the structure related to utility “service.”

Likewise, ensuring the garage/office project met certain local standards aimed at preserving public safety and welfare did not impact utility “service.”

“Considering Duke’s position that IURC has exclusive control over utility ‘service,’ Duke’s contention that it will not, and need not, seek IURC approval of the garage/office construction supports our conclusion that this project does not directly or indirectly relate to utility ‘service,’” Weismann wrote.

Duke’s challenge to the trial court’s order requiring payment of $150,000 in penalties and $115,679.10 to cover the costs of enforcing compliance to the UDO was also unsuccessful.

The power company highlighted the word “conviction” in the UDO. It then asserted it could only be “convicted of violating” the ordinance if Noblesville had filed a local ordinance violation under Indiana Administrative Rule 8(B)(3).

In response, the Court of Appeals found Duke was trying to “elevate form over substance.” The appellate panel agreed with Noblesville that the Legislature has provided specific means for municipalities to enforce local ordinances and the courts have ruled that ordinance enforcement is a civil action.

To support its conclusion, the panel pointed to I.C. 36-1-4-11, -6-3 and -6-4, and Boss v. State, 944 N.E.2d 16, 21-23 (Ind. Ct. App. 2011).

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