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IURC Order Provides Guidance on Utility Relocation Costs

A recent order of the Indiana Utility Regulatory Commission (“IURC”) sheds lights on the validity of municipal ordinances purporting to require utilities to pay the costs of utility relocations. The IURC voided a municipal ordinance that attempted to require utilities to pay relocation costs as being unreasonable and inconsistent with Ind. Code 8-1-2. In the Matter of the Complaint of Duke Energy, Cause No. 44804 (Ind.U.R.C. Jan. 23, 2019) (“Decision”).

Utility relocations commonly occur during municipal improvement projects, such as widening a road or creating a trail for recreational use. Some cities and towns, including the Town of Avon, Indiana (“Avon”), have enacted ordinances requiring the utility company to pay for all of the costs of utility relocation.

Duke Energy Indiana, LLC (“Duke”) filed a verified complaint with the IURC in 2016 seeking an IURC determination that Avon’s utility relocation ordinance was void. After significant procedural twists and turns, including a dismissal and a reversal and remand on appeal, the IURC voided Avon’s ordinance.

The Decision merits study for municipalities and utilities alike to help determine the contours of municipal powers to require utilities to pay for relocated utility facilities.

The Avon Ordinance

Avon was working on a trail project and asked Duke to relocate several of its utility poles in 2012 to proceed with construction of the trail. Avon wanted Duke to pay the relocation costs and refused to agree to reimburse them. In 2015, Avon passed an ordinance, Avon Town Code § 4-122(E) (“Ordinance”), which gave Avon the power to order a utility to move its facilities as determined by Avon.

The Ordinance required Avon to provide written notice, at least 60 days prior to when the relocation must be completed, of the new location of the utility facilities and the time for completion. Under the Ordinance, the utility would be responsible for the relocation costs and would face a $500 a day fine for non-compliance.

Avon sued Duke in Hendricks Circuit Court seeking a declaratory judgment determining the rights and obligations of Duke and Avon. In 2016, the court accepted the parties’ Agreed Order, in which Avon agreed to execute Duke’s Utility Reimbursement Agreement, Duke agreed to relocate its poles by the end of 2016, and Avon deposited approximately $103,000 in an escrow account with the court for the court to determine whether the money will reimburse Duke or remain with Avon. The final cost of the relocation totaled $134,918.62.

IURC Decision

Duke filed its verified complaint with the IURC in June 2016 while Avon’s declaratory judgment action was still pending before Hendricks Circuit Court. Duke asked the IURC to find the Ordinance unreasonable and void, and to order Avon to reimburse Duke for the cost of relocating the utility poles.

The IURC dismissed the cause without prejudice due to inactivity and the pending case in state court.

The Indiana Court of Appeals reversed the dismissal and remanded the matter to the IURC for further proceedings, finding that the IURC maintains exclusive jurisdiction to determine the validity of the Ordinance.

In January 2019, the IURC found the Ordinance to be unreasonable and declared it void. The IURC determined that the Ordinance conflicted with Indiana Department of Transportation (“INDOT”) regulations and state law permitting reimbursement. It also found the Ordinance results in charges to the utility and to customers that are inconsistent with I.C. § 8-1-2. The IURC wrote in its order that the Ordinance “is overly broad in its application through its failure to consider the impact on the utility's statutory duty to provide reasonably adequate service and facilities at reasonable and just charges to its customers.”

Ordinance Determined Unreasonable and Void

The IURC declared Avon’s Ordinance void for three reasons. First, it conflicts with INDOT regulations relating to the relocation of utility facilities for highway improvement projects. Under INDOT regulations, a utility has a minimum of 90 days to review INDOT’s construction plan and to develop its work plan, in the case of a minor project. For a project considered a major project, the utility has additional time. Avon’s Ordinance provided a 60-day notice period. The IURC found that even if the 60-day notice period were removed, the Ordinance would be even more unreasonable because then Avon (or any municipality that enacts a similar ordinance) could demand a utility to relocate its facilities with any time frame, including a week or less.

Second, the IURC determined that the Ordinance conflicts with state law permitting reimbursement of a utility’s relocation costs under certain circumstances. The Ordinance required utilities to bear relocation costs in all circumstances.

Finally, the IURC found that the Ordinance also unfairly burdens Duke’s customers, many of which do not live in Hendricks County and will never use the trail. Duke has over 800,000 customers in 69 counties around Indiana. The IURC stated, “Cost-shifting ordinances … could ultimately force utility customers all over the state to bear the cost for numerous municipal construction projects that are located far from their homes, which is inequitable and unreasonable.”

Impact for Utilities and Municipalities

Utilities should be aware that they have protections in state laws and regulations from overreaching municipal ordinances concerning allocation of costs for utility relocations.

Municipalities interested in enacting ordinances requiring utilities to pay for relocation costs should heed the factors the IURC considered in voiding Avon’s Ordinance – language that conflicts with state law, the notice time period, and the creation of an undue burden on utility customers outside of the geographical area of the project.

Also, when undertaking a project, municipalities should consider minimizing relocation costs when choosing its optimal project design because municipalities are not guaranteed – even with an ordinance – that they can force the utility to cover all of the relocation costs. If the utility isn’t required to pay, then the burden will undoubtedly fall on the municipality and its taxpayers.

  • Partner

    Dave is Chair of the Utilities and Environmental Practice Group. He counsels clients on regulatory and transactional matters involving businesses, real estate, utilities and energy. He advises clients on a broad range of issues ...

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