http://www.nwitimes.com/business/local/article_6e326a77-83ac-5b6b-81a5-60310f582141.html
By Keith Benman keith.benman@nwi.com, (219) 933-3326 | Posted: Sunday, January 16, 2011 12:00 am
A day after Indiana's top utility regulator approved an order authorizing NIPSCO to hike electric rates, a director of the utility's parent company sent a thankful e-mail inviting him to take in thoroughbred farms and the races in Kentucky Bluegrass country.
In the next two weeks, the invitation was firmed up with offers of a stretch limo, a racetrack suite and dinner at an exclusive Lexington restaurant for then-Indiana Utility Regulatory Commission Chairman David Lott Hardy and his wife.
In one of the final e-mails, NiSource Inc. director Dennis Foster told Hardy: "I will arrange for a driver so we can all have fun. We have dinner reservations at Jonathon's at 6:45 Thursday (they are busy during races but promised a quiet table). ... And of course races Friday afternoon."
Hardy responded, "Regret the delay but - yes, party on."
Consumer groups already have been outraged by the clubby relationships Hardy cultivated with executives at Duke Energy. Those relationships first were reported by the Indianapolis Star in October when it published e-mails between Hardy and then-Duke Indiana President Michael Reed, a former IURC executive director.
But the newly discovered e-mails point to Hardy weaving an even wider web of relationships within the industry. NIPSCO is one of the largest utilities in the state, with 457,000 electric and 712,000 natural gas customers. Its parent, NiSource Inc., has 3.8 million energy customers stretching from the Gulf of Mexico to New England.
In the e-mails, Hardy also suggests inviting Duke Indiana President Reed to attend the outing and Foster obliges.
"This is all about (Hardy) trying to live the lifestyle of a CEO when he's actually the chief regulator," said Kerwin Olson, utility campaign organizer for the Citizens Action Coalition. "How can you be independent when you are in constant communication and wined and dined by those you regulate?"
NiSource Inc. officials say the arrangements being made between Foster and Hardy were entirely appropriate under its code of business conduct.
"Any time Mr. Foster hosted a visit by Mr. Reed and Mr. Hardy to Lexington, they always paid their own expenses," said NiSource spokesman Karl Brack. That information is based on NiSource's own review of the events, Brack said.
NiSource's code of business conduct warns that "entertainment that might be usual and customary in the private sector may be improper or even illegal when dealing with government employees."
Longtime friends
Reed and Foster are good friends from their days working at communications provider GTE, and Hardy came to know Foster through Reed, Brack said. Reed worked at the IURC under Hardy as executive director from September 2006 to February 2009.
Foster, 70, has been a NiSource board member since 1999 and is chairman of its audit committee. He is also the principal owner of Foster Thoroughbred Investments, which specializes in breeding, racing and training thoroughbred horses.
Foster received $185,212 for his service on the NiSource board in 2009, according to the company's 2010 proxy statement. At the end of 2009 he owned 92,777 shares of NiSource stock. He retired as vice chairman of Alltell Corp. in 2000.
Brack acknowledged Foster has had "infrequent and sporadic contact" with Hardy over the years, including dinner at Foster's home and an outing at the legendary Keeneland thoroughbred track in Lexington, Ky., about a year ago.
Reed did not respond to a call to his home for comment. Phone messages left for Hardy were not returned.
The last e-mails in the exchange include Reed suggesting an invite be extended to West Virginia Public Service Commissioner Jon McKinney. In a subsequent e-mail, Reed writes that Hardy has spoken to the commissioner and that he will be joining them for the horse farm tour and the races.
In response to a Times inquiry, the West Virginia Public Service Commission said in an e-mailed response that Commissioner McKinney initially understood he and his wife would be getting together with Hardy and his wife for dinner and at Keeneland. When McKinney learned that utility industry officials would be present he turned down the invitation.
The fallout
Brack said Hardy, Reed, Foster and their wives never got together for their planned outings Oct. 28 and 29. By that time, Hardy had been fired as IURC chairman and Reed's actions were being investigated by Duke Energy.
Hardy was sacked Oct. 5 by Gov. Mitch Daniels because he allowed IURC General Counsel Scott Storms to preside over cases involving Duke Energy while also interviewing for a job with the utility company. Storms went to work for Duke as a staff attorney in September, but he and Reed were fired in early November following Duke's own investigation of the matter.
In December, Duke President and Chief Operating Officer James Turner announced he would resign after the Indianapolis Star published e-mails in which he had planned a day boating on Lake Michigan with Hardy.
The Indiana inspector general began an investigation when Daniels fired Hardy, and later the Federal Bureau of Investigation began its own investigation.
The e-mails between Foster, Hardy and Reed were sent during a critical phase in the NIPSCO rate case, which was watched closely by Wall Street because it was considered crucial to NiSource's future.
At one point in the e-mails, Hardy inquires about purchasing a ticket "at the door" for him and his wife. Foster later tells him he has suite tickets.
The backlash
The city of Hammond and the LaPorte County Board of Commissioners have been formal parties to the NIPSCO proceedings since the utility filed its rate hike request two years ago. LaPorte lawyer Shaw Friedman has represented both governments in the rate case hearings before the IURC.
"NiSource's CEO, Bob Skaggs, needs to take appropriate steps and ask for Dennis Foster's resignation," Friedman said. "Ian Rolland (NiSource board chair) and Bob Skaggs have to talk to Foster and say we don't condone this cozy, club-like, good old boys atmosphere."
Friedman said the fact NiSource knew about the e-mails may explain why NIPSCO is so anxious to slash its 16.8 percent residential rate increase by more than half by replacing the first rate case with a request for a 7.9 percent increase filed in November.
When filing the second case on Nov. 19, NIPSCO CEO Jimmy Staton said the move was in reaction to customer comments and was designed to better reflect current economic conditions.
Hammond Mayor Thomas McDermott Jr. responded to the e-mails, saying it is no wonder the IURC always seems to side with utilities in rate cases.
"We'll never get a fair shake because we are not lobbying the IURC like the millionaires are," McDermott said.
The Citizens Action Coalition obtained some of the e-mails between Hardy and Foster through public records requests of the IURC. The Times has obtained others by making public records requests of the agency since early October. NiSource Inc. also obtained the same records, Brack said.
Olson, of the Citizens Action Coalition, said the discussion of the NIPSCO rate case in the e-mails between Hardy and Foster would clearly qualify as outside communications on a pending rate case. Under IURC regulations those would have to be reported and made part of the rate case record.
Brack said Foster has confirmed that he had no substantive discussions with Hardy concerning the NIPSCO rate case and that Foster "was simply expressing his personal views concerning the commission's decision."