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Ill. Bell Tel. Co. v. Comm. Com.





APPEAL from the Circuit Court of Kane County; the Hon. JOHN S. PETERSEN, Judge, presiding.


Rehearing denied November 25, 1973.

Illinois Bell Telephone Company, hereafter called Bell, the City of Chicago, hereafter called the City, System Council T-4 International Brotherhood of Electrical Workers, hereafter called the Union, and Independent Voters of Illinois, hereafter called IVI, filed notices of appeal to the appellate court from the judgment of the circuit court of Kane County affirming the order of the Illinois Commerce Commission fixing rates for Bell. We have allowed Bell's motion, filed under Rule 302(b), and ordered that the appeal be taken directly to this court. Briefs have been filed on behalf of each appellant, on behalf of appellee, Illinois Commerce Commission, hereafter called the Commission, and intervenor-appellee, Anthony R. Martin-Trigona. Amicus curiae briefs have been filed on behalf of Central Illinois Light Company, Central Illinois Public Service Company, Commonwealth Edison Company, Illinois Power Company, General Telephone Company of Illinois, Northern Illinois Gas Company, Northern Illinois Water Corporation, United Cities Gas Company, Peoples Gas Light and Coke Company, and Arthur Andersen & Co.

The record shows that on September 23, 1971, Bell filed proposed tariff schedules with the Commission which would increase its annual operating revenues by $182,000,000. The Commission ordered the proposed tariffs suspended, and after extended hearings, granted a general rate increase in the amount of $44,562,000. On appeal the circuit court affirmed the Commission's order.

The record is extremely lengthy, the briefs numerous, the parties have briefed and argued a number of contentions, and therefore the evidence adduced before the Commission, its findings, and the contentions of the parties, will be reviewed only to the extent necessary to the discussion of the issues presented in this appeal.

The Commission found that on December 31, 1971, the original cost of Bell's telephone plant, in service, devoted to Illinois intrastate operations, was approximately $2,434,393,000, and that the accumulated provision for depreciation was approximately $512,453,000, resulting in a net original cost of $1,921,940,000. It found that the reproduction cost new, less depreciation, of the plant as of December 31, 1971, was $2,578,821,000. It found further that upon consideration of original cost, reproduction cost new, allowances for depreciation, properties held for future use, an appropriate allowance for materials and supplies, construction work in progress, accumulated deferred income taxes, "and by ascribing a weighting factor to its depreciated Original Cost and Reproduction Cost New which is considered fair and reasonable," the "fair value rate base" of Bell's property, "used and useful in its Illinois intrastate operations for rate-making purposes at December 31, 1971, is not less than $2,083,000,000."

The City, admitting that its contention had been rejected by this court in earlier cases, contends that the Commission should not use "fair value" as the rate base, and argues that "original cost" is the proper basis of value. In support of its position it cites numerous authorities which, it argues, demonstrate that original cost provides the proper base for rate calculations and that its use eliminates many of the intricate surveys, appraisals, computations and the application of "weighted" factors which enter into the determination of fair value. It cites recent cases (Illinois Power Co., Ill. C.C. Docket No. 57520; Peoples Gas Light and Coke Co., Ill. C.C. Docket Nos. 57573 and 57946, cons.) in which the Commission, for reasons stated in its orders, abandoned the fair value test and held that the appropriate rate base was original cost.

Bell, in response to the City's contentions, argues that this court has consistently construed section 36 of the Public Utilities Act (Ill. Rev. Stat. 1971, ch. 111 2/3, par. 36) to require the use of fair value rather than original cost, as a rate base, that the City's "policy arguments against fair value rate-making" are without merit and have been previously rejected by this court, and that the Commission's use of an original cost base in the cases cited by the City is an attempt, on the part of the Commission, "to amend the Act by administrative fiat, in plain defiance of numerous decisions of this court."

The Commission argues that its orders in those cases which it considered subsequent to its decision of this case are not included in the record, are "dehors the record," are not appropriate subjects of judicial notice, and may not, therefore, be considered by this court. Concerning the Commission's contention that this court may not take notice of its actions in proceedings subsequent to the one under review, we are of the opinion that as a tribunal charged with the duty to review the orders of the Commission this court is not required either by constitutional limitation or precedent to perform its judicial functions in a vacuum, and is free to notice those matters which cast light on the issues presented, particularly when, as here, the litigants and numerous amici have been given the opportunity to present briefs and argument on the precise question to which the subsequent orders of the Commission relate.

An amicus curiae brief filed on behalf of General Telephone Company of Illinois, Northern Illinois Gas Company, Northern Illinois Water Corporation and United Cities Gas Company argues that "No valid basis has been shown for this court to abandon stare decisis and reverse its long-standing construction of the Illinois Public Utilities Act requiring the Illinois Commerce Commission to consider reproduction cost in determining the fair value of a utility's property for ratemaking purposes." An amicus brief on behalf of the Peoples Gas Light and Coke Company argues that the fair value method "remains as important as ever to sound utility rate-making" and that a utility is entitled to rates based on the present fair value of its property. An amicus brief filed on behalf of Central Illinois Light Company, Central Illinois Public Service Company, Commonwealth Edison Company and Illinois Power Company argues that "Continuance of fair value rate-making is critical to meeting the problem of inflation presently faced by regulated public utilities" and that "Any change from fair value rate-making is a matter for the General Assembly to determine in the public interest." An amicus brief filed on behalf of Arthur Andersen & Co., which describes itself as "an auditor for many public utilities," argues that "Original cost is economically meaningless," that its use as the sole measure of rate base "has dire economic consequences," that "the original cost method works only if the rate of return is juggled," and that "current value must be reflected in the utility's rate base."

Since the Commission, in this case, used a fair value rate base, we need not and therefore do not decide whether it was mandated by our earlier opinions to adhere to a fair value base for rate calculation, and concern ourselves only with the issue of whether its refusal, in this case, to adopt the value base for which the City contends requires reversal of its order.

In Produce Terminal Co. v. Commerce Com., 414 Ill. 582, in defining the appropriate limits of judicial review of orders of the Commission, the court said: "In reviewing an order of the Commission, the courts are limited to a consideration of the questions of whether the Commission acted within the scope of its authority, whether it made findings in support of its decision, whether the findings and decision have a substantial foundation in the evidence, and whether constitutional rights have been infringed by the decision. The statute does not authorize a court to put itself in the place of the Commission and to determine independently the issues presented, or to substitute its judgment for that of the Commission. (Illinois Central Railroad Co. v. Franklin County, 387 Ill. 301.) The law is well settled in this State that the matter of rate regulation is essentially one of legislative control. The fixing of rates is not a judicial function, thence the right to review the conclusion of the legislature or of an administrative body, acting under authority delegated by the legislature, is so limited. Public Utilities Com. ex rel. City of Springfield v. Springfield Gas and Electric Co., 291 Ill. 209." 414 Ill. 582, at 589.

In Iowa-Illinois Gas and Electric Co. v. Commerce Com., 19 Ill.2d 436, 442-443, the court said: "This deference to the judgment of the Commission is especially appropriate in the area of fixing rates. Quoting from the Springfield Gas Co. case, we said in Produce Terminal Corp. v. Commerce Com. ex rel. Peoples Gas Light and Coke Co., 414 Ill. 582, 590: `A just and reasonable rate, therefore, is necessarily a question of sound business judgment rather than one of legal formula, and must often be tentative, since exact results cannot be foretold. * * * Like so many other questions in the law that involve reasonableness of conduct, it is a question of fact to be settled by the good sense of the tribunal it may come before.'

"The power to make rates, of necessity, requires the use of pragmatic adjustments which may be called for by the particular circumstances. (Federal Power Co. v. Hope Natural Gas Co., 320 U.S. 591, 602, 88 L.Ed. 333, 344; Federal Power Com. v. Natural Gas Pipeline Co., 315 U.S. 575, 586, 86 L.Ed. 1037, 1050.) This, of course, does not mean that the Commission may ignore pertinent factors affecting the rate structure. In Illinois Bell Telephone Co. v. Commerce Com., 414 Ill. 275, 286, we stated the guiding rule for the Commission: `In the final analysis, the rates fixed by it (in fixing prices as low as possible for the general public purchasing the services) should be sufficient to provide for operating expenses, depreciation, reserves that are necessary in good business judgment and operations and a reasonable return to the investor on the basis of the fair value of the utility property.'"

Upon application of the rules above stated we find that the Commission's order sets forth adequate findings with respect to its determination of fair value which are supported by substantial evidence, and that this record presents no basis for holding that it erred in its utilization of "fair ...

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