Immediate Action Needed: New Law Impacts Municipal Water and Sewer Utility Rates for Users Outside the Municipality’s Boundaries: Governmental Services Alert

The Indiana legislature recently enacted House Enrolled Act No. 1126 (HEA 1126), a bill which permits customers who live outside a municipality’s boundaries (outside customers) and are charged higher rates than those who live within a municipality’s boundaries (inside customers) to petition the Indiana Utility Regulatory Commission (IURC) for review of their water and sewer rates and charges under certain circumstances. This process applies to municipal sewer utilities and water utilities that have withdrawn from the jurisdiction of the IURC. The petition process may occur if: 1) a municipal water or wastewater utility is outside the jurisdiction of the IURC; 2) the utility has outside customers; and 3) the outside customers are charged rates that exceed 15 percent more than the rates charged to inside customers.

Importantly for the purposes of this alert, there is a “grandfathering” provision built into the process. If a municipality had an outside rate in effect on March 31, 2012 that exceeds 15 percent but is less than 50 percent of the inside rate, a process has been established in which the municipality petitions the IURC for approval of the percentage difference in an abbreviated process. The IURC does not have discretion to deny the petition. This petition must be filed by Sept. 30, 2012. If it is not filed, then grandfather rights are lost.

For any municipality that wishes to adopt a rate ordinance that impacts inside and outside customers differently, new requirements are set forth in HEA 1126. After a rate ordinance has been introduced, the municipality must mail notice of a public hearing to the customers. The mailing must include information about the outside customer’s right to petition the IURC to review and adjust the rates. The ordinance must also clearly state the percentage difference between the rates charged to inside and outside customers. If the IURC receives a petition to review and adjust the rates, the municipality must continue to charge the rates currently in place until the IURC issues a ruling on the petition. In any proceeding before the IURC, the municipality has the burden to show the proposed rates are nondiscriminatory, reasonable and just. When determining whether the proposed rates pass this test, the IURC may consider the benefit and expense to all users of the utility to extend the utility outside the corporate boundaries of the municipality. During this review, the IURC may not consider connection fees or capital surcharges imposed on outside customers if those fees and charges are set to cover the costs associated with the main extensions. The bill does not allow the IURC to review or revise rates and charges for inside customers. It also does not return or subject municipalities to IURC jurisdiction for approval of rates and charges. The current law already provides a mechanism for customers to object to rates and charges by filing in court. If a petition is filed in the court system, a petition may not be filed with the IURC.

All municipalities should review their rate ordinances to determine whether they have grandfather rights and therefore must file a petition prior to the Sept. 30, 2012 deadline.

This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.