Rate Case Roundup: Indiana

Reviewing a rate application filed by a natural gas local distribution company (LDC), the Indiana Utility Regulatory Commission determined that while the LDC, Midwest Natural Gas Corporation, had not demonstrated a need for the entirety of its request, it had proven a need for more than 70% of its proposal. Thus, out of the company's $1.2 million rate increase recommendation, the commission awarded $873,503 in rate relief. 

In seeking additional revenues, Midwest noted that it had invested in several large capital projects since its last rate case in 2012 and that it is planning further significant plant expansions in the future. Emphasizing the very small size of its operations and customer base, it claimed that it also is facing increasing competition from propane suppliers, thus raising its business risk. That risk profile explained in part the 11% rate of return on common equity (ROE) it was seeking, the LDC said. But, the company asserted, a higher ROE also is necessary to enable it to attract capital at a reasonable rate in order to fund the upcoming infrastructure projects. 

The issue of ROE generated substantial debate, with the Office of Utility Consumer Counselor (OUCC) taking on the role of chief challenger. According to the OUCC, Midwest's operating characteristics did not place it in a higher-risk tier. In fact, the OUCC pointed out that because it is a regulated utility, the LDC is actually protected from some of the risks that nonregulated companies face. Moreover, given stable interest rates, low inflation, and a growing economy, the OUCC contended that a ROE no greater than 8.8% could be supported. 

After considering the parties' respective positions, the commission staked out a middle-of-the-road approach, authorizing a 10.1% ROE for Midwest, the same ROE that had been adopted in the 2012 proceeding. The commission explained that it was persuaded that the LDC's small size and lack of liquidity, coupled with its capital investment needs, justified a risk premium adder to ROE. 

Refuting the OUCC, the commission also found that interest rates finally appear to be inching up and that there seems to be a rising inflation environment as well. Moreover, the commission acknowledged that since 2013, it has approved ROEs ranging from 9.9% to 10.2% for LDCs. 

Thus, upon weighing those current market factors, the commission ruled that an 8.8% ROE was obviously too low while an 11% ROE was just as clearly excessive. Instead, the commission concluded that the company's existing ROE of 10.1% remained appropriate. Re Midwest Natural Gas Corp., Cause No. 44880, Aug. 16, 2017 (Ind.U.R.C.).