INDIANAPOLIS -- Gov. Mitch Daniels on Tuesday fired the chairman of the Indiana Utility Regulatory Commission, citing ethics concerns.

David Lott Hardy was removed from his position effective immediately, and IURC Commissioner Jim Atterholt was appointed to replace him.

According to a memo sent from the governor's office to all executive branch leaders, the removal of Hardy was prompted by the recent move of Scott Storms, a former general counsel of the IURC, to a job in the private sector with Duke Energy last month.

Before his departure, Storms was talking with Duke about a job with the company at the same time that he presided over administrative hearings that concerned Duke, said David Pippen, the governor's general counsel.

Daniels alleged that Hardy was aware of the situation and did not remove Storms from oversight.

"He (Daniels) will not tolerate even the appearance of impropriety," Pippen said in the memo. "The agency head was aware of the communications and did not remove the lawyer from matters for which the lawyer was now conflicted."

Daniels directed that the IURC's opinions on matters that involved Storms are under review "to ensure no undue influence was exerted in the decisions."

Watchdog groups called the matter into question because Storms was involved in oversight discussions related to a $2.9 billion coal-gasification plant Duke wants to build in southwestern Indiana.

Grant Smith, head of the Citizens Action Coalition, said there may have been illegal dealings on a series of rate increases amounting to millions of dollars.

"He (Storms) had significant influence over the decisions in the Duke cases and we believe the negotiations with Duke have been going on for quite some time," he said.

Hardy was appointed to chair the IURC in September 2005. He was reappointed in April, with a term that would have expired in 2014.

In response to the probe, Duke Energy said it has launched its own internal investigation. Storms and Mike Reed, president of Duke Energy Indiana, have been placed on administrative leave pending the results of the investigation.

"We value the trust our customers and communities have in us, and we’re committed to doing all that we can to maintain their confidence," the company said in a release Tuesday.

Reed is a former IURC executive and previously served as commissioner of the Indiana Department of Transportation under Daniels.

The head of the Senate Utilities Committee told 6News' Norman Cox he's surprised and disappointed with Hardy, but encouraged by Daniels' swift reaction.

"The governor has made it very obvious that he has a zero-tolerance for even the appearance of ethical violations," said Sen. James Merritt, R-Indianapolis. "And I'm looking forward to the complete analysis of what went on."