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Public Service Co. v. Commerce Com.





APPEAL from the Circuit Court of Jackson County; the Hon. CLARENCE E. WRIGHT, Judge, presiding.


Rehearing denied March 25, 1955.

On May 1, 1928, the Western United Gas & Electric Company, which owned and operated an electric light generating plant and distribution system in Murphysboro, entered into a fifty-year contract to purchase all its electric power from Central Illinois Public Service Company, hereafter referred to as CIPS. CIPS agreed to meet all Western's requirements by delivery of electricity at 2300 volts, and to build and maintain at the point of delivery a transformer capable of reducing power from the 66,000 volts at which it was carried in CIPS's transmission lines. CIPS also agreed to construct and maintain certain transmission lines and other equipment required for bringing its power into Western's system.

At the time when this contract was executed, CIPS's system included three generating plants located at Kincaid, Muddy, and Grand Tower. The contract did not stipulate the source of the power to be supplied, but the charges payable by Western were calculated in terms of the Muddy and Grand Tower stations. The demand charge was $1.50 per kilowatt of the highest monthly maximum demand determined on the basis of the number of kilowatt hours of energy used during the highest peak load of these two stations. And the energy charge, instead of being based on a specific rate of so many cents per kilowatt hour, was a "cost-plus" charge based on the "weighted average operating cost" of producing energy at these two stations, divided by 90 per cent, the latter figure representing allowance for transmission and transformer losses.

The contract was made subject to the approval of the Illinois Commerce Commission, and on July 31, 1928, the Commission approved it, "subject to the right of the Commission upon reasonable notice, to terminate the same when, in its opinion, public interest or convenience requires such termination." The Commission's order of approval also stated: "The approval of the agreement involved herein shall not be considered as in any way affecting the rates of the utilities should the question of rates of either one of the said parties come before the Commission in the future." In 1945, with the consent of CIPS, the contract was assigned to Illinois Electric and Gas Company, referred to hereafter as IEG, which had purchased Western's entire assets.

By 1951 CIPS had made many changes in its plant. A new station of 100,000 kilowatt capacity had been put into operation at Meredosia, and another of 50,000 at Hutsonville. At Grand Tower, which in 1928 had had a capacity of 50,000 kilowatts, an additional unit capable of generating 60,000 kilowatts was put into operation in March, 1951. All the stations except Muddy were now connected by a 138,000 volt line, while Muddy was connected with the rest of the system by a double circuit 69,000 volt line. Under this integrated system it was the practice to meet demand so far as possible by employing the newer and more efficient units. The station at Muddy, which had not been enlarged, was used only on a standby basis, and power drawn from Grand Tower was supplied principally by the new generating unit, the original units being employed only when necessary.

On February 7, 1951, CIPS filed a petition with the Commerce Commission asking that the contract with IEG be modified. The petition alleged that the expansion of CIPS's plant and the establishment of new connecting lines "necessarily required an allocation of production" among all its stations of the energy required by its various customers, including IEG; that such allocation between different stations must be made frequently; and that it was therefore impossible to calculate the compensation CIPS should receive on the basis of the demand on or operating costs of individual stations. The petition also alleged that the cost of production at Muddy exceeded that of the other three stations, and that this station had therefore been reduced to a standby basis. It was further alleged that when the new 60,000 unit at Grand Tower was put into operation, demand and operating costs there would become entirely different from those prevailing at the time when the contract was executed. Although the petition spoke in terms of the difficulty of calculating charges under the contract formula, it is apparent that its underlying premise was that the charges to IEG should be based on the cost of the power actually supplied to it, and that it was no longer possible, or at any rate practicable, to supply IEG exclusively from Muddy and Grand Tower. The petition did not allege, however, that the charges as calculated under the original contract were unreasonably low.

The proposed modification called for delivery of electricity at 33,000 volts or more at the demand charge of $1.50 per month per kilowatt, and an energy charge of .4¢ per kilowatt hour for the first 250 hours per month, and .3¢ per kilowatt hour for any excess. There was also a fuel clause providing for increases or decreases in the energy charge with variations in the price of coal. No other change in the contract was proposed. These terms were substantially the same as those contained in contracts between CIPS and two other utilities, Illinois Power Company and Central Illinois Gas & Electric Company. The contract with Illinois Power had already been executed and approved by the Commission. The contract with Central Illinois was executed on July 18, 1951, and received Commission approval in June, 1952.

On May 15, 1951, the Commission dismissed the petition on the ground that its allegations were not sufficient. A petition for rehearing was denied. No appeal was taken from this decision, but shortly thereafter, on July 3, 1951, CIPS filed a proposed rate schedule with the Commission, to become effective in thirty days. The schedule was denominated an "original filing of a rate for Wholesale Electric Service to public utilities subject to the jurisdiction of the Illinois Commerce Commission for resale to the general public in the State of Illinois," and it was further limited in application to "electric energy required in the operation of an isolated electric system having no other source of supply of electric energy" than CIPS. IEG, Illinois Power, and Central Illinois Gas & Electric are the only companies presently qualifying under these limitations.

The proposed schedule, hereafter referred to as Rate 12, stated that the rates set forth therein should "cancel and supersede the rates and charges for electric energy" contained in the contract with IEG as well as those contained in the contract with Illinois Power Co. The schedule also stated: "Except for this modification, said agreements and all their terms and conditions shall remain full force and effect." IEG filed objections to the proposed rate, and on July 24 the Commission suspended it until December 1, 1951, and entered into hearings upon the rate. By an order of November 20, 1951, the effective date of the rate was further suspended until June 1, 1952.

It was established in the course of the hearing that under Rate 12 IEG would be charged an average of .94¢ per kilowatt hour, whereas under the contract rate, according to estimates by IEG, the average charge would be .79¢ per kilowatt hour. It was also conceded by CIPS that under Rate 12, the burden of maintaining the transformer station would fall on IEG, at an estimated annual cost of $12,000, plus transformer losses. A witness for CIPS stated, "The only thing that will be left in the contract would be the contractual obligation of IE & G to take current exclusively from CIPS for the period of the contract term."

No evidence of the cost to CIPS of rendering service under Rate 12 was put into the case. In the course of the hearings, the examiner requested CIPS to furnish such evidence. The president of CIPS replied by letter, stating that it was impracticable to arrive at the cost of rendering service on any particular rate except through a comprehensive study involving the cost of rendering service on all rates, since complicated allocations had to be made of property, and of various undivided operating costs such as property and income taxes. The letter stated, however, that the company had initiated such an overall study, and that its results should be available during the latter part of July.

At the conclusion of the hearings, on May 20, 1952, the Commission entered an order canceling proposed Rate 12. The Commission found that the revised operation of CIPS had materially reduced the combined average weighted monthly cost of producing energy at Grand Tower and Muddy, that under normal conditions most of the energy to be delivered to IEG would continue to come from Grand Tower, and that the method of computing monthly bills as set forth in the 1928 contract had not been made more difficult or changed in any important respect by the fact that Muddy was not longer in full operation or that a new unit had been added to the Grand Tower Plant.

The order also found that CIPS had "failed and refused" to adduce the evidence of costs requested by the examiner; that the present actual or approximate cost to CIPS of furnishing the type of service provided for in the proposed Rate 12 was material to the issues herein; that the record did not contain sufficient evidence to enable the Commission to determine the justness or reasonableness of proposed Rate 12 or to determine what would be a just and reasonable rate for such service; and that CIPS had failed to sustain the burden of proving that proposed Rate 12 was just ...

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