COA affirms IURC’s order in Hamilton Southeastern rate case

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An order from the Indiana Utility Regulatory Commission requiring a Hamilton County utility to comply with national guidelines to support a rate hike was upheld Tuesday by the Indiana Court of Appeals.

Hamilton Southeastern Utilities uses its operations contractor, Sanitary Management & Engineering Co., to carry out all operation, maintenance and engineering functions of HSE’s sewage operations. HSE brought a rate case to the Indiana Utility Regularity Commission in 2015 petitioning for an 8.42% rate increase, claiming the expenses it owed to SAMCO were the reason behind its request.

The IURC approved a 1.17% rate increase, ruling in part that HSE failed to demonstrate SAMCO’s fully allocated costs. On a first appeal to the COA, the court held that the IURC acted arbitrarily in excluding SAMCO-related expenses from the rate calculation and dismissed the commission as a party to the case.

But Indiana Supreme Court justices reversed, sending the case back to the lower appellate court and finding the IURC was a proper party.

Back at the COA, the court again reversed the case after hearing it anew on remand. The panel said the IURC “implicitly found” that guidelines from the National Association of Regulatory Utility Commissioners were reasonable and applicable, but it did not enter any specific findings on that issue. Thus, according to the COA, the commission’s lack of findings was unreasonable given that the effect of its future application of the NARUC guidelines to HSE and SAMCO would have the effect of SAMCO no longer operating as an entity which could charge HSE a profit.

The COA thus remanded the case back to the IURC to make additional findings. Thereafter, the commission entered numerous additional findings based on the same evidence submitted at the original February 2016 hearing regarding the SAMCO-related expenses and again concluded HSE failed to demonstrate that those expenses were “reasonable, merited, or in the public interest.” It likewise ordered HSE to again “offer evidence in its next rate case demonstrating the fully allocated cost of billings to HSE by an affiliate that HSE seeks to recover in its rates.”

The COA affirmed this most recent ruling in a Tuesday decision, finding the IURC had sufficiently explained and supported its decision that HSE must comply with the NARUC guidelines by providing evidence that its requested SAMCO-related expenses were based on the lower of prevailing market prices or fully allocated cost, and that HSE failed to do so.

“HSE’s contentions to the contrary are requests that we reweigh the evidence, which we cannot do,” Judge L. Mark Bailey wrote for the appellate panel. “…Furthermore, because the Commission explained why it decided that the NARUC guidelines apply to the SAMCO-related expenses and made specific findings pointing to evidence supporting that decision, it complied with our remand order … .”

Additionally, the appellate panel concluded the IURC acted within its statutory authority when it ordered HSE to provide evidence of SAMCO’s fully allocated cost. The commission’s 2019 order, it added, was not an improper attempt to create an administrative agency rule regarding the application of NARUC guidelines.

The case is Hamilton Southeastern Utilities, Inc. v. Indiana Utility Regulatory Commission, et al., 19A-EX-632.

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