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Island Lake Water Co. v. Commerce Com.

OPINION FILED NOVEMBER 8, 1978.

ISLAND LAKE WATER COMPANY, PLAINTIFF-APPELLANT,

v.

ILLINOIS COMMERCE COMMISSION, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Lake County; the Hon. JOHN L. HUGHES, Judge, presiding.

MR. PRESIDING JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

The Island Lake Water Company (the Company) appeals from an order of the circuit court of Lake County which affirmed an order of the Illinois Commerce Commission (the Commission) denying a requested 30% increase in water rates.

The appeal principally questions findings 10 and 12 of the Commission's order. Finding No. 10 states:

"The proposed rate schedules of Respondent would produce operating revenues of about $73,340 and operating income of about $18,985, but would result in rates which exceed the value of service to the customers, and would be virtually the highest in the State."

Finding No. 12 provides:

"The rates set forth in Appendix `A' attached hereto and made a part hereof, resulting in annual operating revenues of about $62,927 and annual operating income of about $11,017, are reasonable and just and should be approved."

In particular issue is whether the Commission's order contains sufficient findings for our review; if it does whether the findings support the order, and if so, whether the order is supported by the evidence.

• 1 The Commission is required to make findings sufficient for a judicial review of the case and which clearly disclose the grounds upon which the agency acted. (Reinhardt v. Board of Education, 61 Ill.2d 101, 103 (1975).) It has been stated that findings which will enable the court to intelligently review a commission order in a rate case should succinctly set forth the pro forma operating revenues, pro forma operating expenses, net original cost, *fn1 rate base and the rate of return to which the utility is entitled. (Camelot Utilities, Inc. v. Illinois Commerce Com., 51 Ill. App.3d 5, 8-9 (1977).) The Commission is also required to consider what the rate of return to each class of security holder will be under a proposed rate. City of Alton v. Commerce Com., 19 Ill.2d 76, 86 (1960).

While the order of the Commission is not a model of clarity it does contain findings as to pro forma operating revenue, pro forma operating expenses, net original cost and actual return. Although the rate of return as a percentage of the rate base is not expressly stated it can be computed to be 4.72% based on the finding that the Company's rate base as of December 31, 1975, was $232,957 and its annual operating income would be about $11,017. A focus of the Illinois cases is on the fair rate of return as a percentage of "fair value." Thus, although no findings were made as to a proposed recapitalization testified to by an accountant for the Company, nor as to whether the rate offered a reasonable return to the owners of the equity of the Company, we conclude that the findings are sufficient for our determination of whether a reasonable return to the investor is afforded on the basis of the fair value of the utility property. Illinois Bell Telephone Co. v. Commerce Com., 414 Ill. 275, 286 (1953). See also City of Alton v. Commerce Com., 19 Ill.2d 76, 86 (1960); Illinois Bell Telephone Co. v. Commerce Com., 55 Ill.2d 461, 478 (1973); Union Electric Co. v. Illinois Commerce Com., 48 Ill. App.3d 967, 970 (1977).

• 2, 3 It is undisputed that the fixing of utility rates is a legislative function and that the scope of judicial review is a limited one. (See, e.g., Village of Milford v. Commerce Com., 20 Ill.2d 556, 561 (1960).) The findings and conclusions of the Commission on questions of fact are held to be prima facie true as found and, in general, the order of the Commission will not be set aside unless it clearly appears that its findings are against the manifest weight of the evidence or in contravention of some established rule of law or constitutional right. (Ill. Rev. Stat. 1977, ch. 111 2/3, par. 72; Village of Milford v. Commerce Com., 20 Ill.2d 556, 561.) Also, where the findings do not support the order, the order will be set aside. However, where the findings do not support the order, we are not called upon to examine the evidence to determine whether it discloses facts which, if found, would sustain the Commission's decision. (Brinker Trucking Co. v. Commerce Com., 19 Ill.2d 354, 357 (1960); Commerce Com. v. New York Central R.R. Co., 398 Ill. 11, 15 (1947).) "While we may not supply a reasoned basis for the agency's action that the agency itself has not given [citation], we will uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned. [Citation.]" Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 286-87, 42 L.Ed.2d 447, 456, 95 S.Ct. 438, 442 (1974). See also Illinois Bell Telephone Co. v. Commerce Com., 55 Ill.2d 461, 472 (1973).

• 4 Following these criteria we must conclude that the findings of the Commission do not adequately support its order.

The Commission stated only two reasons for its rejection of the Company's proposed rates, that they would exceed the value of service to the customer and would be virtually the highest in the State (Finding 10). The Commission also found that the new approved water rates would produce an annual operating revenue of $11,017 and would be "reasonable and just" (Finding 12).

It is true that a utility may be made to accept a diminished rate of return where its inefficiency is the cause of the company's lack of funds. (See, e.g., State ex rel. Utilities Com. v. General Telephone Co., 285 N.C. 671, 683-86, 208 S.E.2d 681, 689-90 (1974); North Florida Water Co. v. Bevis, 302 So.2d 129, 130 (Fla. 1974).) However, there is no finding or other substantial support in the record from which it may be concluded that the Company's inefficiency is the cause of its lack of funds rather than other possible factors such as an antique plant, the inability to attract capital for replacement or the relatively small number of users (624 customers). It therefore cannot be said that the Commission's finding that the proposed rates would have been "virtually" the highest in the State without any explanation supports the Commission's order.

Nor does the finding that the proposed rates would have exceeded the value of service to the customers support the order. It is true as a general rule that the public should not be required to pay more than the services rendered are reasonably worth. (State Public Utilities Com. ex rel. City of Springfield v. Springfield Gas & Electric Co., 291 Ill. 209, 217 (1919).) However, we find no statement in the Commission's order which ...


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