Former senator used campaign funds for gifts at state utility agency, Braun alleges

“Simply put, as set forth in the following exhibits, Governor Braun had cause for removal,” the filing said.

Zay filed a lawsuit Aug. 10 to regain his seat on the powerful IURC before his former colleagues — and a replacement — vote on whether to reconsider a contentious $71 million rate hike for AES Indiana customers.

A hearing for preliminary injunction is set for Aug. 27.

Zay’s lawsuit claimed a pattern of the governor’s office infringing on the commission’s statutory duty as an “impartial fact-finding body.”

The IURC plays a key role in determining how much Hoosiers pay for electricity, natural gas, water and other utility services.

Braun appointed Zay as chairman in January but demoted him in June after Zay supported a rate hike for AES Indiana. He was then fired Aug. 3.

The State Personnel Department has accused Zay of several “potential violations” of state policy, but he contends the firing is really about his vote to support the rate increase and for control over what happens next.

The new legal response says the governor’s office learned Zay used campaign funds for impermissible purposes – namely the purchase of ties and scarves emblazoned with his initials, images of utility-themed objects such as a power plant and electrical station. The tag read “Designed exclusively for Andy Zay by Candor Threads.”

A campaign expenditure report shows a $3,091 purchase from Candor Threads on Feb. 1. Zay, a Republican from Huntington, resigned from the state Senate seat he held since 2016 on Jan. 8 and began work at the IURC on Jan. 12.

Indiana Election Division staff told the governor’s office the expenditure didn’t appear to be legitimate, according to Braun’s response.

Steve Carter, deputy counsel for appointments for the Braun administration, filed an affidavit saying he initially had concerns about Zay’s appointment.

“I was concerned that he thoroughly understood his obligations to leave politics and partisan activities behind if he was appointed to, and accepted, the role,” Carter said.

Carter, a former state attorney general, spoke with Zay by phone to make sure he understood his obligations before Braun appointed Zay to the IURC.

On July 26, Carter was made aware of the ties and scarves.

“Mr. Zay’s use of campaign contributions was concerning because the purchases did not appear to be for a legitimate campaign-related purpose. And if they were for a campaign-related purpose, then may have been in violation of the prohibition of a Commissioner engaging in political activity,” Carter’s affidavit said.

The campaign report also shows a $1,900 meal at St. Elmo’s on Feb. 1 and a $147 charge to Hyatt Place on the same day.

Additionally, the filing says Zay improperly awarded bonuses to IURC employees. The Capital Chronicle reported Zay gave $900 “spot bonuses” to the entire staff on May 9. Zay in his lawsuit said those bonuses went through the State Personnel Department.

Carter said Zay failed to follow state procedure in the identification of bonus recipients as well as exceeding the allowable amount of bonus payments.

The last reason for cause, according to Braun, is Zay didn’t file a financial disclosure form. As chairman he was an appointing authority and in that role is required to file the form within 30 days of leaving the position.

“When I went to meet with Mr. Zay on August 3, 2026, I intended to elicit his explanation for the matters identified above,” Carter said. “I did not contemplate that he would refuse to explain his actions.”

That led to his removal, Carter said.

Zay said when Carter came to his office he refused to speak without an attorney.

The latest filings also dispute the granting of a preliminary injunction by Zay, who wants his job back. Braun has already replaced him with Josh Bain.

“The Indiana Supreme Court has long and consistently held that injunctive relief only protects those currently holding an office and shall not be used to eject the current occupant. As discussed below, foremost is the concept that injunctive relief should not interfere with the operation of public business,” Braun’s response said. “All injunctive relief is extraordinary, but the extraordinary remedy requested here is contrary to a century’s worth of cases saying injunctive relief will not be used to oust an office holder.”

Fired Indiana utility regulator sues governor over his removal

The parties in the case also cannot agree on the scope of discovery, according to the new documents.

Braun’s legal team said Zay has proposed discovery that goes far beyond cause for removal.

Zay’s lawsuit points to numerous examples of Braun saying he was unhappy with Zay voting for an AES Indiana rate hike.

“Whatever the other issues may be, the only issue for the Court, as presented by Plaintiff, is whether there was cause for removal,” the response said.

It claims expedited discovery should be limited, noting tens of thousands of emails and other communication would potentially be responsive to Zay’s requests.

Instead, the governor’s office has proposed a list of limited discovery items.

And if the court determine preliminary relief is appropriate, the governor’s team says it should be narrowly tailored.

“Plaintiff is not entitled to shut down the State’s utility regulatory body while he seeks post-deprivation relief,” the response said.

Braun recommends any relief should be limited to Bain not agreeing or requesting to be assigned cases at the IURC through Aug. 31 and Braun not appointing any other person to that seat.

SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX.