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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowSix years after its $2.2 billion sale to AES Corp.-a deal that generated at least three shareholder lawsuits-IPALCO Enterprises has signaled that more sparks might fly from the long-done deal.
An attorney claiming to represent participants in a retirement insurance plan IPALCO spun off and stopped funding six years ago alleges the utility continues to recover from its 468,000 ratepayers millions of dollars a year toward the plan.
The letter asserts that Indianapolis Power & Light “is recovering in rates on average approximately $19 million per year allegedly intended for the funding of the IPALCO Voluntary Employee Beneficiary Association Trust,” IPALCO states in an Aug. 9 filing with the U.S. Securities and Exchange Commission.
In the filing, IPL does not identify the attorney or the number of retirees purportedly represented. The letter IPL received in June demands that it “backfund” the trust at $19 million per year “and fund at the same level going forward.”
The VEBA trust is the principal health and life insurance benefit plan for the utility’s retirees and their families. It has 1,615 participants, according to the trust’s most recent annual report.
In 2005, the trust’s managers warned that benefit reductions would be necessary “to extend the long-term viability” of the plan, which was strained by a wave of 550 early retirements when Virginiabased AES bought IPALCO.
The local utility now employs 1,500 people.
The 2000 spin-off of the retirement plan to a private administrator terminated IPALCO’s obligations to further fund the trust. The utility’s participation concluded with a $7.5 million contribution six years ago, according to SEC documents.
Regardless, if IPL does not resume funding the trust, according to the letter, “the complainants may file a complaint at the Indiana Utility Regulatory Commission.”
The IURC had not received such a complaint as of earlier this month.
IPALCO spokeswoman Crystal Livers-Powers declined to elaborate beyond the SEC filing. The company used the usual boilerplate in its filing:
“IPL believes it has meritorious defenses to the complainants’ claims and it will assert them vigorously in any formal proceeding; however there can be no assurances that it will be successful in its efforts.”
The attorney for the IPALCO VEBA, Marc Sciscoe of Ice Miller, said he didn’t draft the letter and didn’t know who did.
“Your guess is as good as mine,” he said.
One group that has been concerned about the VEBA trust’s viability in recent years has been the International Brotherhood of Electrical Workers, which represents IPL linemen.
Neither officials of IBEW Local 1395 nor their attorney would return phone calls.
That IPL might still be socking ratepayers for a trust it no longer funds or controls isn’t exactly a new theory; some IPL employees have been whispering about it for the last few years.
“I have heard people mention this in the past,” said David Menzer, the utilities coordinator at Citizens Action Coalition.
Many utilities have a number of employee costs baked into rates even after those employees and other costs have been eliminated, Menzer said.
It’s one reason CAC opposes so-called tracking mechanisms, which the IURC uses to approve certain utility revene requests, as an alternative to a comprehensive rate case. IPL has not filed for a rate case in several years.
Trackers “allow utilities to recover new costs without backing out old costs or costs that no longer exist,” Menzer added.
VEBA assets were $88.6 million at the beginning of last year versus $95 million at year-end 2004. It reported benefit claims in 2005 of $11.7 million versus $10.6 million in 2004.
That year, participants were told that if current trends continue, “there will not be sufficient funds in the VEBA Trust to provide benefits throughout the retirement of covered participants.”
Some benefits were cut and deductibles raised.
The trust has not yet filed its 2006 report. But Sciscoe said its finances have stabilized thanks to better investment income returns.
IPALCO and AES have largely diffused litigation that has arisen from their 2001 merger. The biggest case involved 1,800 investors in the IPALCO 401(k) plan who held AES shares. The stock fell more than 90 percent after the merger. Investors said managers conveyed rosy prospects about AES while simultaneously dumping their own AES shares.
But last March, U.S. District Judge David F. Hamilton ruled for the company, saying the utility gave 401(k) participants sound investment advice through a Wall Street brokerage. Hamilton also found there was no evidence managers who dumped AES shares had inside information about AES or about the prospects for its stock. Investors are appealing.
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