Duke Energy Corp. placed Mike Reed, president and CEO of its Indiana operations, on administrative leave Tuesday afternoon in the wake of a state investigation that involves the company and resulted in the dismissal of the chairman of the Indiana Utility Regulatory Commission.

Earlier in the day, Gov. Mitch Daniels fired IURC chief David Lott Hardy for allegedly allowing an agency official to continue presiding over a Duke Energy case even after talking with the utility about a job opportunity.

The governor in an announcement Tuesday morning said he was immediately replacing Hardy with Jim Atterholt as chairman of the IURC. Atterholt serves on the IURC and is the state’s former insurance commissioner.

The firing of Hardy follows the recent departure to Duke’s Plainfield office of Scott Storms, who had been administrative law judge for the IURC. Storms was presiding over a handful of cases involving Duke, including matters involving cost overruns at Duke’s Edwardsport generating plant.

Duke said Tuesday it was also putting Storms on administrative leave from his position in Duke’s legal-regulatory department. Reed and Storms will be on leave “pending the completion of a full evaluation,” Duke said in an announcement.

Storms and Duke previously sought an advisory opinion from the state ethics commission on whether Storms would be subject to a one-year cooling-off period from employment at Duke. The ethics commission said the cooling-off period didn’t apply to Storms, but rather to IURC commissioners involved in direct decision-making.

Critics, including the Citizens Action Coalition, said Storms, even as an administrative law judge, made critical decisions, such as whether or not to admit key evidence in utility cases.

David Pippen, Daniels' general counsel, said an internal review found that Storms was communicating with Duke about a job even while he was presiding over administrative hearings concerning Duke.

"Additionally, the agency head (Hardy) was aware of the communications and did not remove the lawyer from matters for which the lawyer was now conflicted,” Pippen told agency heads.

He added: “I wrote a letter to the IURC explaining the governor’s interpretation of the spirit and intention of the ethics reform he spearheaded when he came to office.”

Moreover, Daniels has directed that administrative opinions over which Storms presided will be reopened and reviewed “to ensure no undue influence was exerted in the decisions.”

It was not immediately clear which Duke cases those involved. “In short, he [Daniels] will not tolerate even the appearance of impropriety,” Pippen said in a memo to state agency heads.

Daniels also directed that a one-year cooling off period for decision makers is to be considered for those at the administrative law judge level, as well.

Further, the administration said it has referred the matter to the inspector general to determine if any laws were broken or whether misinformation was presented to the Ethics Commission.

The blowup is a potential embarrassment for the Daniels administration because  Reed was Daniels’ former commissioner of the Indiana Department of Transportation until leaving for Duke in June. Reed also was former executive director of the IURC under Daniels from 2006 to 2009.

Hardy, an attorney from Fort Wayne, was appointed to the IURC by Daniels in 2005 and was reappointed last year. His term was to have expired in 2014.

Until the mid-1980s, Hardy was an attorney for Public Service Indiana, the predecessor of North Carolina-based Duke’s operations in Indiana.

When Hardy was appointed to the commission five years ago the consumer group Citizens Action Coalition, which intervenes in utility regulation, warned that naming a former PSI lawyer was like “the chicken guarding the hen house.”

A Daniels administration spokeswoman at the time downplayed the affiliation, saying the commission needed someone who was experienced in utility industry matters.

Hardy could not be reached for comment Tuesday afternoon.

The action by Duke Energy was preceded by this action in the Governor's Office.

October 5, 2010
News Release
INDIANAPOLIS (October 5, 2010) -- Governor Mitch Daniels today terminated the employment of David Lott Hardy, chairman of the Indiana Utility Regulatory Commission, effective immediately, and appointed IURC Commissioner Jim Atterholt as the commission’s new chair.
The action follows the departure of the IURC’s general counsel Scott Storms, who accepted employment with Duke Energy of Indiana in September, and a letter Daniels sent shortly thereafter to Hardy outlining his expectations of the IURC in upholding a formal ethics opinion on the matter
David Pippen, the governor’s general counsel, also sent a memo to all executive branch agency heads.
The text is below:

To: All Agency Heads/General Counsels
From: David Pippen, General Counsel to the Governor
Re: Ethics

Recently, a former general counsel and administrative law judge (ALJ) for the Indiana Utility Regulatory Commission left state government to work for Duke Energy of Indiana, a regulated entity. I wrote a letter to the IURC explaining the Governor’s interpretation of the spirit and intention of the ethics reform he spearheaded when he came to office. In short, he will not tolerate even the appearance of impropriety.

Upon the Governor’s direction, an internal review of the matter revealed the lawyer was communicating with Duke regarding a position with the company at a time he was presiding over administrative hearings concerning Duke. Additionally, the agency head was aware of the communications and did not remove the lawyer from matters for which the lawyer was now conflicted.

So you understand the seriousness of this matter, I want you to know our response:
1. The Governor has terminated the employment of the chairman of the IURC;
2. The administrative opinions over which the ALJ presided regarding Duke will be reopened and reviewed to ensure no undue influence was exerted in the decisions;
3. The one-year cooling off period for decision makers are to be considered to include ALJs who preside over information gathering and order drafting; and
4. The matter has been referred to the Inspector General to determine if any laws were broken or misinformation given to the Ethics Commission when requesting a formal opinion;

To reiterate the ethics rules as they relate to regulated entities:
1. No ALJ should engage in communications with regulated entities regarding possible employment without recusing oneself from matters appearing before that regulator;
2. Administrative opinions over which an ALJ presided while pursuing employment opportunities with the regulated entity will be reopened and reviewed to ensure no undue influence was exerted in the decision;
3. The one-year cooling off period for decision makers includes ALJs who preside over information gathering and order drafting; and
4. Violations of these points will be referred to the Inspector General.

Please advise your staff to avoid this circumstance in the future.
Atterholt’s appointment is effective immediately. The governor will request that the IURC Nominating Committee begin the process of accepting applications to fill the open position on the commission.

Source: Office of the Indiana Governor

The story about Scott Storms going to work for Duke Energy was front page news in the Indianapolis Star last week.

If you missed this flap, check out the following articles:
 
http://www.indystar.com/article/20100922/BUSINESS/9220385/Consumer-group-criticizes-Indiana-regulator-s-move-to-Duke-Energy
 
http://www.indystar.com/article/20100925/LOCAL18/9250330/1197/LOCAL1802/Duke-vows-to-play-fair-with-new-lawyer
 
http://www.ibj.com/watchdogs-howl-over-duke-hiring-iurc-attorney/PARAMS/article/22460