                                                                          FILED
                                                                     Dec 05 2018, 9:57 am

                                                                          CLERK
                                                                      Indiana Supreme Court
                                                                         Court of Appeals
                                                                           and Tax Court




ATTORNEYS FOR APPELLANT                           ATTORNEYS FOR APPELLEES
Brian W. Welch                                    Curtis T. Hill, Jr.
Randolph L. Seger                                 Attorney General of Indiana
Michael T. Griffiths                              Patricia C. McMath
Bingham Greenebaum Doll, LLP                      Deputy Attorney General
Indianapolis, Indiana                             Indianapolis, Indiana
                                                  Beth E. Heline
                                                  Jeremy R. Comeau
                                                  Thomas M. Fisher
                                                  Lara K. Langeneckert
                                                  Julia C. Payne
                                                  Indiana Utility Regulatory Commission
                                                  Indianapolis, Indiana
                                                  Daniel M. Le Vay
                                                  William I. Fine
                                                  Scott C. Franson
                                                  Abby R. Gray
                                                  Daniel M. Le Vay
                                                  Indiana Office of Utility Consumer
                                                  Counselor
                                                  Indianapolis, Indiana




                                           IN THE
   COURT OF APPEALS OF INDIANA




Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018                   Page 1 of 6
      Hamilton Southeastern Utilities,                    December 5, 2018
      Inc.,                                               Court of Appeals Case No.
      Appellant-Petitioner,                               93A02-1612-EX-2742
                                                          Appeal from the Indiana Utility
              v.                                          Regulatory Commission
                                                          The Honorable Aaron A. Schmoll,
      Indiana Utility Regulatory                          Senior Administrative Law Judge
      Commission; Indiana Office of                       Cause No. 44683
      Utility Consumer Counselor;
      and Apartment Association of
      Indiana, Inc.,
      Appellees-Respondents.



      Riley, Judge.


                                    OPINION ON REMAND
[1]   Appellee-Respondent, Indiana Utility Regulatory Commission (the

      Commission), sought transfer to our supreme court on the issue of whether this

      court properly dismissed it from the instant appeal. On June 27, 2018, the

      supreme court issued its decision holding that the Commission was a proper

      party, reversing our holding on the SAMCO-related expenses issue, and

      directing us to permit the Commission an opportunity to brief the SAMCO

      issue. Hamilton Southeastern Utils., Inc. v. Ind. Util. Regulatory Comm’n, 101

      N.E.3d 229, 234 (Ind. 2018). On October 10, 2018, the Commission filed what

      was its second Appellee’s Brief in this matter. After considering the Brief of

      Appellant-Petitioner, Hamilton Southeastern Utilities (HSE), and the

      Commission’s second Brief of Appellee, we conclude that the Commission’s


      Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018           Page 2 of 6
      Order disallowing HSE’s requested 3% SAMCO hourly billing rate increase

      and 10% management fee was unsupported by substantial evidence,

      unreasonable, and arbitrary.


                              DISCUSSION AND DECISION
[2]   As we noted in our previous decision, our review of the Commission’s Order

      involves multiple levels. “On the first level, it requires a review of whether

      there is substantial evidence in light of the whole record to support the

      Commission’s findings of basic fact. Such determinations of basic fact are

      reviewed under a substantial evidence standard, meaning the order will stand

      unless no substantial evidence supports it.” North Ind. Pub. Serv. Co. v. U.S. Steel

      Corp., 907 N.E.2d 1012, 1015 (Ind. 2009) (citation and footnote omitted). When

      reviewing an order issued by the Commission, we neither reweigh evidence nor

      assess witness credibility, and we consider only the evidence favorable to the

      Commission’s findings. Id. However, the Commission’s order is not binding if

      it is unreasonable or arbitrary. Id.


[3]   “At the second level, the order must contain specific findings on all the factual

      determinations material to its ultimate conclusions.” Id. The Commission is

      required to enter findings of fact pursuant to Indiana Code sections 8-1-1-5 and

      8-1-3-1. The Commission’s findings of fact are important because they assist in

      the understanding of the Commission’s reasoning and policy judgments, they

      allow for a reasoned and informed basis of review, and they decrease the

      likelihood that we will substitute our judgment on complex evidentiary issues


      Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018   Page 3 of 6
      and policy determinations best left to an agency with technical expertise. North

      Ind. Pub. Serv. Co. v. LaPorte, 791 N.E.2d 271, 278 (Ind. Ct. App. 2003).

      Further, requiring findings of fact assists the Commission in avoiding arbitrary

      and capricious action. Id.


[4]   HSE has contracted with SAMCO to perform its operations since HSE’s

      inception approximately twenty-five years ago. SAMCO’s billing rates were

      based on an affiliate contract that was routinely filed with the Commission. In

      HSE’s last rate case in 2010, the OUCC had offered similar arguments as it did

      here against SAMCO’s billing rates and management fee based on the NARUC

      guidelines. The Commission had rejected those arguments in 2010 based on

      HSE’s market study evidence showing SAMCO’s billing rates were at or below

      market rates and evidence of the standard industry practice of affiliates charging

      comparable management fees.


[5]   In the present rate case, although HSE presented the same type of evidence it

      had in its last rate case, the Commission this time applied the NARUC

      guidelines as urged by the UOCC and found HSE’s evidentiary support for the

      SAMCO expense related portion of HSE’s rate increase request to be

      inadequate because it had not supplied information regarding SAMCO’s fully

      allocated costs. The Commission implicitly found that the NARUC guidelines

      were reasonable and applicable to HSE in this rate case, but it did not enter any

      specific findings regarding why it had reached this conclusion, and, thus, the

      Commission’s order on this issue was not supported by substantial evidence,

      was not reasonable, and was arbitrary. North Ind. Pub. Serv. Co., 907 N.E.2d at

      Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018   Page 4 of 6
      1015. The Commission’s lack of findings was particularly unreasonable given

      that the effect of the Commission’s future application of the NARUC guidelines

      to HSE and SAMCO will apparently have the effect that SAMCO will no

      longer operate as an entity which can charge HSE a profit, which represents a

      dramatic change in its business model. In addition, the Commission’s findings

      shed no light on why it chose to apply the portion of the NARUC guidelines

      pertaining to fully allocated costs when the NARUC guidelines themselves

      provide that “[u]nder appropriate circumstances, prices could be based on

      incremental cost, or other pricing mechanisms as determined by the regulator.”

      (Non-confidential Exhs. Vol. III, p. 174).


[6]   The Commission argues that the NARUC guidelines were simply “another

      piece of substantial evidence in the record” it considered in reaching its

      decision. (Appellee’s Br. p. 16). However, the Commission used the NARUC

      guidelines as a standard for assessing the sufficiency of the evidence supporting

      the reasonableness of HSE’s rate increase request. Although, as before, we

      need not address whether the Commission engaged in impermissible rule-

      making by applying the NARUC guidelines, we reject the Commission’s

      characterization of those guidelines as just another type of evidence it

      considered. Furthermore, contrary to the Commission’s argument on appeal,

      the fact that OUCC urged the Commission to apply the NARUC guidelines to

      the SAMCO-related expenses in its pre-filed testimony did not put HSE on

      notice that the Commission would apply those guidelines to the evidence HSE

      submitted in this rate action, particularly since it had rejected those guidelines


      Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018   Page 5 of 6
      in HSE’s last rate case. We again reverse the Commission on the SAMCO

      expenses issue and remand for it to make additional findings to support its

      decision or for a recalculation of HSE’s rate.


[7]   Reversed and remanded.


[8]   Robb, J. and Pyle, J. concur




      Court of Appeals of Indiana | Opinion 93A02-1612-EX-2742 | December 5, 2018   Page 6 of 6
