Indiana Utility Regulatory Commission and Duke Energy and Energy & Environment and Utility rates and Appeal and Law

Court revisits IURC ruling after agency lawyer jumps to utility

October 16, 2010

A Duke Energy case handled by an Indiana Utility Regulatory Commission lawyer—while he jockeyed for a job with the utility—is headed to the Indiana Court of Appeals.

The Indiana Office of Utility Consumer Counselor is appealing the commission’s July 14 ruling that allows Duke to propose assessing ratepayers in a future rate case $11.6 million related to a 2009 ice storm.

Hardy Hardy

Such “retroactive” ratemaking to recover past rather than future costs is forbidden except under extraordinary circumstances.

The OUCC, which had argued before IURC chief counsel Scott Storms that the ice storm was not so extraordinary as to justify ratepayer relief for Duke, filed its notice of appeal Aug. 12.

That was about a month before Storms left the commission for a job with Duke.

Storms’ departure triggered an ethics scandal raising questions about the integrity of the commission. Gov. Mitch Daniels fired David Lott Hardy as IURC chairman on Oct. 5 for failing to remove Storms from presiding over Duke cases even though the lawyer appears to have been talking with Duke Energy Indiana CEO Mike Reed at least as far back as June about joining the utility.

The OUCC said its appeal is based solely on facts of the case and precedent in similar cost-recovery requests. But might it now also argue in the appeals court that Storms’ involvement tainted the outcome of the storm damage case?

“It would be premature to speculate” about the OUCC’s strategy, said agency spokesman Anthony Swinger.

Some of that may depend on the results of the Indiana Inspector General’s office review of the Storms matter, which is now under way.

Daniels ordered that all of Storms’ administrative opinions involving Duke be reopened and reviewed “to ensure that no undue influence was exerted in the decisions,” the governor’s general counsel, David Pippen, told agency heads this month.

Storms was the IURC’s administrative law judge presiding over the storm-damage case.

Timeline of the conflict of interest case involving Duke Energy and Scott StormsOn Jan. 27 of last year, an ice storm knocked out power to 116,000 Duke customers in Clarksville, Corydon, Jeffersonville, Madison and New Albany.

While it was not the worst storm Duke encountered over the years, the utility said the strain was compounded by a storm three months earlier caused by remnants of Hurricane Ike. The storm struck the region with high winds and caused $19 million in damage to Duke’s system.

Jim Stanley, who was Duke’s Indiana president at the time, testified that the utility had no allowance for extraordinary storms in its base rates. Stanley proposed that Duke bear the cost of the wind storm while seeking IURC approval to tap ratepayers for the cost of the ice storm.

But the OUCC, the state agency that represents ratepayers in utility cases, argued that the ice storm for which Duke sought relief did not qualify as an extraordinary event. It cited a previous commission ruling that denied Duke’s Indiana predecessor, PSI Energy, rate relief from a 1991 storm that caused far more damage to Duke’s transmission system.

“In our view, [the 2009 storm] did not rise to the level of being so extraordinary that it required the kind of ratemaking treatment outside of a base rate case,” Swinger said.

Yet, even though Duke was not formally seeking relief for the wind storm damages, the order carrying Storms’ name said the commission should take into consideration financial damage of the wind storm as well.

“Based on the evidence presented in this matter we find that the facts presented regarding the ice storm, in the context of a utility faced with two major storm events in a four-month period at a collective cost of $32 million, rises to the level of extraordinary,” said the IURC order, approved by the agency’s commissioners.

As such, the July 14 order states, it “justified an exception to the general prohibition against retroactive and single-issue ratemaking.”

Jerry Polk, an attorney representing Citizens Action Coalition in the storm damage case, said the order amounted to the commission “coming up with its own excuse to ignore” what Duke was seeking, which was to tap customers only for the ice storm costs.

“It was retroactive ratemaking—an illegitimate rate increase,” said Kerwin Olson, policy director at CAC.

Olson said, based on information the CAC heard, even Duke was surprised to get the approval.

“We continue to believe the storm restoration repair costs were prudently incurred for the benefit of our customers,” said Angeline Protogere, Duke spokeswoman.

Whether Storms had any influence isn’t apparent from reading records of the case.

Administrative law judges conduct the hearings and can control such matters as deciding whether evidence can be introduced. While the judges write the opinions, the IURC’s commissioners make the ultimate decision.

Polk said he’s not necessarily convinced that Storms himself exerted influence.

“The chairman is the captain,” he said of former chairman Hardy. Hardy himself was once a lawyer for PSI Energy, Duke’s predecessor.

The CAC points to at least four other cases Storms handled that are now suspect. One involved a July 28 commission decision involving Duke’s ongoing expenses for its Edwardsport generating plant, which has soared in cost to $2.9 billion versus the initial estimate of $1.7 billion. The CAC said the decision authored by Storms involving deferred income taxes netted Duke an additional $5.9 million.

Storms and Duke Indiana CEO Reed have been placed on administrative leave pending an internal Duke investigation. Reed was former executive director of the IURC.

An e-mail Reed sent to Storms on June 27 suggested the two were discussing Storms’ joining Duke. It said, “I am still working the ‘you’ issue with Duke mgt. Don’t sense a concern about making this happen, rather more of an issue of when and how.”

Duke says Storms removed himself from Duke cases at the commission in early August. In September, he obtained an Indiana Ethics Commission ruling clearing his post-IURC employment with Duke.•

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