Rate Case Roundup: Indiana

The Indiana Utility Regulatory Commission confronted a somewhat unusual situation whereby the parties to a natural gas rate case were able to reach consensus on all matters except one, leading them to file a partial settlement with the commission that failed to identify a bottom-line rate adjustment for the subject local distribution company (LDC), Ohio Valley Gas. It thus was left to the commission to resolve that last issue and then calculate the final rate increase due the LDC.

The issue upon which the parties could not agree pertained to the treatment of costs incurred by the company in transitioning from a defined benefit retirement plan to a contributionbased 401(k) plan. In seeking higher rates, the company attested that in the six years since the LDC’s last base rate case in 2011, it had invested nearly $19 million in its plant and infrastructure, most of which involved projects to significantly expand or upgrade its facilities.

Ohio Valley Gas asserted that the impact of such plant additions not yet being recognized in rate base accounted for a revenue shortfall of at least $1.07 million by itself. However, the company said, it also was experiencing a revenue deficit because of its recent decision to cease administering a traditional defined benefits pension program in favor of a 401(k) model, which most utilities and other businesses now use. According to the LDC, the company had to pay more than $1.18 million in the test year to terminate the old pension plan. Such expenditures included slightly more than $1 million as a final payment into the old plan plus various consulting, legal, and filing fees associated with setting up the new retirement system. While the company wanted to include the entirety of the claimed expense in its new revenue requirement, other parties objected, arguing that although the expense might have been incurred during the test year, it was not a recurring cost and therefore should be excluded from rates.

After weighing the party positions, the commission struck a middle ground, finding that because there was no dispute that it was reasonable and appropriate to move to a 401(k) plan and because there would be ongoing costs even with a 401(k) system, it would be proper to reflect in rates some element for employee retirement benefits. At the same time, though, the commission concurred with opponents that it would be improper to treat the entire $1.18 million expenditure as a normal cost of doing business.

It therefore ruled that the LDC could include in rates no more than one-fifth of its claimed pension plan termination costs. That proportion would coincide with the expected five-year period of the new rate schedules, the commission said. The commission took a couple of other deductions as well, noting that some of the costs put forth by the company actually had been incurred on behalf of the LDC’s parent company.

In the end, the commission held that Ohio Valley Gas was entitled to $2.41 million in additional revenues. The commission adopted as its own the return values stated in the proposed stipulation, which indicated a 10.00% rate of return on equity (ROE) and a 7.99% overall return. Re Ohio Valley Gas Corp. and Ohio Valley Gas, Inc., Cause No. 44891, Oct. 17, 2017 (Ind.U.R.C.).