Sixteen retirees of Indianapolis Power & Light are pursuing a rehearing of a case before the Indiana Court of Appeals
that seeks to have the utility back-fund their post-retirement benefits plan. If they succeed, it could cost IPL $100 million.
The retirees and the International Brotherhood of Electrical Workers contend IPL continues to collect tens of millions of dollars from ratepayers to fund the Voluntary Employees’ Beneficiary Association trust, or VEBA, despite spinning it off in 2001 when the utility was purchased by Virginia-based AES Corp.
The trust was set up in 1995 and was part of a rate case before the Indiana Utility Regulatory Commission. Utility officials said then that benefits could be removed by IPL only “if it were to go back on a solemn promise to its employees.”
In late 2007, the retirees and IBEW brought a complaint before the commission, seeking to enforce the 1995 rate agreement by requiring IPL to continue to fund the retirement trust. The trust weakened financially following the spinoff and began to cut benefits to conserve cash.
The commission later granted summary judgment in favor of IPL, which has long insisted the rate settlement did not define an agreed upon level of expenses for VEBA contribution.
Retirees and the union appealed to the court. In January, while essentially agreeing with many of the retirees’ assertions, the court sided with the IURC’s ruling, saying the matter “involves a subject within the commission’s special competence.” But attorneys for IBEW and retirees argue in the March 1 request for rehearing that the appeals court gave too much deference to the commission.
The appeals court cited in its opinion a ruling last year by the Indiana Supreme Court involving Northern Indiana Public Service Co. Essentially the Supreme Court said too little deference was given to the commission’s finding in a case involving that utility.
But attorneys for IPL retirees and IBEW argue in their petition for rehearing that the NIPSCO case involved different circumstances. They also argue that the commission failed to consider key matters in its order.
“In our view, the courts are supposed to take a vigilant eye to the task of reviewing commission orders,” said Todd Richardson, a Lewis & Kappes attorney representing the retirees and the union.
“The court is not obligated, out of deference, to stand by while a utility secures rate revenue from the public based on express assurances and then decides, incident to a corporate acquisition, to increase net profit by reneging on those representations,” says the rehearing request drafted by Richardson’s team.
IPL in 1995 sought to recover about $290 million from ratepayers in part to cover the cost of certain non-pension retiree benefits through the trust, according to court records.
IPL funded the trust for six years, at $12 million to $19 million a year, before spinning it off after AES bought IPL. Many other companies, including Caterpillar and Detroit Diesel, had also offloaded portions of their post-retirement benefit obligations to VEBAs during the 1990s.
But IPL continued charging its customers "pursuant to the rate increase settlement,” the Court of Appeals said
in its opinion last January.
The commission, as part of its order, stated the 1995 case related only to the accounting treatment of costs and that the commission had made “no specific finding related to the actual dollar numbers associated with that accounting treatment.”
Though the appeals court last January deferred to the commission's earlier order, justices stated in their opinion that “we do not condone the actions of IPL and its parent company in this proceeding.”
The court cited evidence presented by IBEW lawyers noting IPL presented schedules during the 1995 rate case showing 20 years of projected retirement plan contributions sought by IPL.
“It appears IPL obtained a substantial rate increase based in large part on its promises to continue funding the VEBA trust for its retirees’ benefit,” the court said in January.
IPL has 18 days to file a response to the rehearing request. The appeals court could take “a couple weeks to a few months” to either pass on rehearing or to issue a new opinion, Richardson said.