Indiana Official Indicted After Improper Duke Energy Interactions

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The former head of the Indiana Utility Regulatory Commission, who was fired in October 2010 by Gov. Mitch Daniels for improper contact with top officials at troubled Duke Energy, has been indicted.

The Indianapolis Star reported that David Hardy was charged on Monday by a grand jury with failure to disclose secret meetings with Duke executives, and for his aid to IURC’s top lawyer in his effort to get a job with Duke. The newspaper, after it obtained emails via open records request, had revealed over several months “that Hardy had been chummy with industry executives and autocratic with his staff. That raised questions about whether Hardy had compromised the agency’s mission of balancing the needs of utilities and ratepayers.” 

Indiana laws forbid private communications about active cases between regulators and company representatives. In one February 2010 meeting Hardy met with Duke Energy CEO James Rogers and two other of its officials, in which they informed Hardy about cost overruns at the Edwardsport, Ind. coal gasification plant. According to The Star, Duke officials met privately with IURC officials on at least two separate occasions, but did not disclose those meetings until much later.

The power plant, originally estimated to cost about $1.9 billion but has now topped $3 billion, has been the source of controversy in the Hoosier State. About 700,000 Duke customers will be charged with at least some of the additional costs. The plant was touted as an innovative effort to burn coal while capturing its carbon dioxide emissions and storing them underground, which is an unproven technology. Rogers has met with Gov. Daniels to discuss disputes with Duke’s subcontractors on the Edwardsport project – General Electric and Bechtel Corporation – in the hope some agreement could be brokered where Duke’s costs could be alleviated and not passed on to customers or shareholders. Daniels has said he supports the project, but he also backs a recommendation by the state’s Office of Utility Consumer Counselor that Duke should pay for it.

Hardy is also accused of assisting former IURC lawyer Scott Storms, who sought (and received) a job with Duke while he still exercised influence in cases the company had before the commission. The Indiana Ethics Commission fined Storms $12,120 and barred him from future state employment for his misconduct, which included an “arrangement” with Duke for prospective employment while he participated in cases involving Edwardsport, and for his failure to notify his superiors of a potential conflict of interest or to seek an advisory ethics opinion.

The Star reported in May that Storms took a job with Duke in September 2010 that raised his annual salary from $93,000 to $135,000. Duke then fired him in November after the newspaper revealed emails in which he discussed his potential job with two top company officials, who also lost their jobs. Gov. Mitch Daniels dismissed Hardy in the same time frame because of his failure to do anything about Storms’s conflict of interest. 

The depth of Rogers’s role in the scandal has not been measured. Late last year he denied knowledge of the problematic correspondence between Duke and IURC officials. But in March he amended his testimony about the Edwardsport rate negotiations, stating that a review of 9,000 emails showed that discussions between Duke’s top Indiana executive, Mike Reed, and Hardy might indicate that a cost settlement was discussed between the two. Reed, one of the officials Duke fired in November 2010, knew of plans to bring Storms from IURC to Duke, and he also kept Rogers in the loop about where the rate case was going with IURC. Shouldn’t Rogers have known of Duke-Indiana’s efforts to bring a top IURC lawyer on board at such a critical time for the company’s troubled Edwardsport project?

IURC has granted permission for Duke to recover $2.35 billion in costs from its ratepayers, but Rogers wanted to charge them $350 million more. His February 2010 meeting with Gov. Daniels came one day after a meeting of the Duke board, in which directors were briefed about the “significant cost challenges” at Edwardsport. The effect on shareholders and whether they would foot the cost was likely a discussion topic also. Citizens groups who oppose the Edwardsport rate increases complained, “Only Duke and other important players can get a meeting like that.”

The IURC is now investigating whether Duke withheld information or committed fraud with regard to Edwardsport, and is also investigating Duke’s management of the project. The Star reported, “If it finds Duke guilty of those allegations, it could force the utility to swallow all the cost overruns, rather than passing them along to ratepayers.”

Boiled down, the leadership of James Rogers has been an ethical, mismanaged and crony capitalistic disaster. His pursuit of financial (tax breaks, incentives, grants) government favoritism, in the name of going “Green,” inflicted considerable harm upon his customers (especially the poorest ones) because of increased costs. That approach led him down the path to Edwardsport, the most expensive plant ever built in the U.S. and a huge liability that he desperately wants paid for. Profits declined 30 percent in the third quarter due to reduced power sales and costs from Edwardsport. And he has poured big dollars into Democrat leadership coffers, and advocated for their causes such as action on climate change, which also drives up electricity costs.

Can the company continue with his bungling any longer? 

Paul Chesser is an associate fellow for the National Legal and Policy Center.