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City of Galesburg v. Commerce Com.





APPEAL from the Circuit Court of Knox County; the Hon. CHARLES H. WILHELM, Judge, presiding.


This is an appeal by plaintiff City of Galesburg from an order of the Circuit Court of Knox County affirming (on consolidated appeal from defendant Illinois Commerce Commission (Commission)) orders entered by the Commission in Docket No. 59733, a gas rate equalization proceeding initiated by defendant Illinois Power Company (Illinois Power).

The City of Galesburg was granted leave to intervene in Docket No. 57933, and took appeals to the Circuit Court of Knox County from two orders of the Commission. The first appeal was taken from the Commission's order of August 19, 1975, refusing rehearing of an order entered by the Commission on July 9, 1975, which denied the City of Galesburg's request for discovery of certain information from defendant Illinois Power. The City of Galesburg also appealed from the Commission's order of March 24, 1976, which denied rehearing of the final, dispositional order in Docket No. 59733, entered by the Commission on February 11, 1976. That order mandated the graduated equalization of residential gas rates within Illinois Power's gas service territory. On September 9, 1976, the Circuit Court of Knox County affirmed the orders of the Commission.

The City of Galesburg appeals, raising issues involving (1) the scope and effect of section 38 of the Public Utilities Act (Ill. Rev. Stat. 1975, ch. 111 2/3, par. 38), which forbids any unreasonable difference in rates charged or services provided by a public utility, but allows the Commission to authorize uniform class rates within Commission-determined regional units; (2) the scope and nature of issues properly considered in a hearing under section 36 of the Public Utilities Act (Ill. Rev. Stat. 1975, ch. 111 2/3, par. 36), when the Commission suspends tariffs; (3) the sufficiency of the evidence to support the Commission's final order in Docket No. 59733; (4) the effect upon the proceedings in Docket No. 59733 of a finding (in a separate appeal) by the Circuit Court of Sangamon County, that certain portions of the Commission's order in Docket No. 58907 were invalid; and (5) the reasonableness of the Commission's order.

Illinois Power is a regulated electric and gas public utility providing service in areas of Illinois aggregating about 15,000 square miles. Gas service is provided by Illinois Power to over 350,000 customers located in 321 communities, including the City of Galesburg. Historically, Illinois Power has divided its gas service area into geographically separate supply areas, based on the interstate supplier of gas to each area. Prior to March 1961, Illinois Power provided gas service to five supply areas, designated Supply Areas A, B, C, D, and E, pursuant to rates which were separately applicable to each of the supply areas. In March 1961, Illinois Power withdrew rates filed for Supply Area D, due to the merger of two of Illinois Power's gas suppliers and the consequent combination of Supply Areas A and D. Since March 21, 1962, when the Commission authorized and directed Illinois Power to unify its operations in Supply Areas A and C, the rates charged in Areas A and C have been identical except for a small differential in the cost of purchased gas adjustment applied to each supply area. As presently comprised, Supply Areas A and C are located primarily on the Illinois side of the St. Louis metropolitan area, and extend into Jackson, Jefferson, Marion, Fayette, Christian and Macoupin counties. Supply Area B consists of such cities as Galesburg, Jacksonville, Decatur, Champaign, Urbana, Danville and Monmouth. Supply Area E consists of a number of smaller towns in Knox, Mercer, Henry and Bureau counties.

On March 14, 1974, Illinois Power filed proposed revised tariff sheets with the Commission, the effect of which would increase electric rates 9.28% and gas rates 9.09%. Among other proposals, the tariffs would have applied a uniform cost of purchased gas adjustment to all service classifications, and eliminated from Illinois Power's rules, regulations and schedule of rates applying to gas service, all reference to supply areas. These changes would have the effect of equalizing gas rates among the existing supply areas serviced by Illinois Power. The Commission suspended these rate proposals in Docket No. 58907 and ordered hearings. Galesburg intervened and participated in Docket No. 58907.

Prior to the entry of a final order in Docket No. 58907, the Commission took action in Docket Nos. 58559 and 58582, gas curtailment proceedings brought by Illinois Power, in which, among other things, Illinois Power proposed the elimination of industrial interruptible gas service. Instead of eliminating that service, the Commission ordered Illinois Power to provide the service at substantially increased rates. The effect of revenues from this new rate (Rate 79) was then found to entirely offset Illinois Power's proposed residential rate increase in Docket No. 58907 (resulting in denial of the rate increase).

On February 13, 1975, the Commission entered its final order in Docket No. 58907. With respect to Illinois Power's proposal to equalize gas rates across supply areas, the Commission stated:

"Examination of IP Exhibit 5.8, and the testimony relating thereto, discloses the extent to which the Company has integrated its gas supply system. The integration of the Company's gas supply system enables Respondent to utilize incremental gas available in one supply area for purposes of necessity in another supply area. The integration of the Company's gas supply system will also enable Respondent to utilize its gas storage facilities, wherever located, for the benefit of all its customers.

The development of the Company's extensive underground gas storage facilities enables it to operate with a lower pipeline contract quantity and at a higher load factor with its gas suppliers. A lower overall cost of gas is one of the benefits and integration of Respondent's system will pass this savings on to all of its customers in equal fashion. In addition, storage of gas available from suppliers in the summer months may be used by the Company in meeting the peak day requirements of its customers in any service area during the winter heating season.

To allocate the fair and reasonable proportion of the cost of a gas storage facility located in one area of the Company to another and different supply area, when all supply areas derive a benefit therefrom, would be a difficult task and result in discriminatory rates.

The City of Galesburg contended that the gas rates proposed by Respondent are preferential, discriminatory and inequitable to the municipalities, including the City of Galesburg, located in Supply Area B, in that customers located in Supply Area B are subjected to a higher increase in rates than are customers located in the remaining supply areas of the Company. At page 17 of the Brief of Intervenor City of Galesburg, filed November 18, 1974, in this case, its counsel stated as follows:

`Historically and until the present time, different rates have been charged by Illinois Power for the different supply areas. The important point is why have the rates been different. The answer is quite simple — the cost of service for one particular supply area is different from the cost of service for a different supply area requiring that different rates be charged. The rates that are presently in effect for the various supply areas are and must be presumed to be reflective of the cost of providing service in that particular supply area.'

The record in this case discloses that a new gas storage facility was placed into full operation in Supply Area B in 1974. The Company previously had constructed several gas storage facilities in its other supply areas. For several years, customers located in Supply Area B have had the benefits of the Respondent's gas storage capability without the allocation of any cost attributable to these storage structures to the cost of service for Supply Area B. Full operation of new Supply Area B storage reservoir is dependent upon gas being made available from other supply areas.

The integration of Respondent's gas supply system tends to create an integrated system or a `regional unit' as provided by Section 38 of the Public Utilities Act, for which this Commission may `prescribe uniform rates for consumers or patrons of the same class of service'. All classes of customers, with some exceptions, are being served under substantially similar conditions at a similar respective cost to Respondent. The Commission is of the opinion that integration of Respondent's gas supply system is in the public interest.

The ability of Respondent to transfer available gas from any one of its service areas to another benefits all its customers and, in substantial part, is justification for common rates throughout all service areas of the Company. Respondent, by the tariff filing of March 15, 1974, proposes common rates for all classifications of service other than its general service classification, for which the ...

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