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City of Hurst v. Ill. Commerce Com.

OPINION FILED DECEMBER 23, 1983.

THE CITY OF HURST, PLAINTIFF-APPELLEE,

v.

THE ILLINOIS COMMERCE COMMISSION, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Williamson County; the Hon. Robert H. Howerton, Judge, presiding. JUSTICE KARNS DELIVERED THE OPINION OF THE COURT:

The Illinois Commerce Commission appeals from the judgment of the circuit court of Williamson County setting aside an order of the Commission which established increased wholesale water rates for Cities Water Company's service area which includes the city of Hurst. The Commission appeals from the final order of the circuit court entered on March 3, 1983, and the denial of its petition for clarification or reconsideration on March 25, 1983. The circuit court set aside the Commission's order in Commission Docket No. 78-0527.

On October 3, 1978, Cities Water Company (Company) filed a revised rate schedule with the Commission proposing to increase rates for general water service in the Royalton area and to increase the wholesale water rate to the municipalities of Hurst and Bush effective November 4, 1978. The proposed rates were not put into effect but were suspended by the Commission to September 2, 1979, pending hearings. Notice required by law and the rules of the Commission was given.

Several hearings followed. On January 18, 1979, the initial hearing commenced. Before the examiner two persons appeared on behalf of the Commission. Nothing of substance was decided nor any evidence taken. The examiner merely continued the cause, noting that the village of Royalton had intervened.

Subsequent hearings were held on April 25, 1979, and June 18, 1979. The transcripts of those hearings contain testimony of Francis J. Coyle, president and chairman of the board of the Company, Seymour Golden, a certified public accountant appearing on behalf of the Company, George Henton, an accountant in the accounts and finance section of the Commission, and Thomas R. Stack, a registered professional engineer in the water engineering section of the Commission. It is evident from the voluminous record of transcripts and exhibits certified by the Commission that extensive evidence was presented before the Commission. Indeed, the Commission's initial order reflects the exhaustive nature of the hearings by listing the following subheadings: "Nature of Respondent's Operations," "Present Tariff," "Proposed Tariff," "General Water Service," "Wholesale Service," "Test Year," "Original Cost Rate Base," "Operating Revenues, Expenses and Income," "Rate of Return," and "Cost of Capital Computation." Each subsection of the initial order contains meticulously detailed findings and conclusions.

The order was entered on August 22, 1979. The Commission rejected the Company's proposed revised rate schedule but ordered it to file a revised schedule conforming specifically to the rates and conditions of service attached to the order. The Commission found:

"Little if any direct testimony relating to a fair and reasonable return is contained in the record of this case. Nonetheless, this Commission is charged with the responsibility of establishing rates which are just and reasonable to the customers of Respondent's water utility and at the same time provide an opportunity for the investors of the Company to earn a fair and reasonable return on the investment for the risks assumed. * * *

While it is difficult for the small utility to prevent deterioration of its financial viability under present economic conditions, it is necessary that needed rate relief be anticipated and sought by management before circumstances result in an inability to provide adequate and safe utility service.

This Company, as is true with many smaller utilities, does not have a capital structure which may be subjected to the same rationale applicable to larger utilities in the determination of a fair and reasonable return on debt and equity components." (Cities Water Co., Ill. Com. Com., No. 78-0527, filed Aug. 22, 1979, at 5.)

The existing and proposed rates were both subjected to rigorous analysis, enabling the Commission to conclude:

"Under present rates pro forma operating income of $855 would reasonably be expected to result in a return of less than 4% on original cost rate base approved herein; such amount of operating income and the resultant return is insufficient, and unreasonable. The rates which produced such results should be permanently cancelled and annulled and the existing rate structure revised.

Under proposed rates pro forma operating income of $25,974 would reasonably be expected to result in a return of more than 38%; such amount of operating income and the resulting return is excessive and the rates proposed by Respondent in its tariff filing of October 3, 1978, should also be permanently cancelled and annulled." (Cities Water Co., Ill. Com. Com., No. 78-0527, filed Aug. 22, 1979, at 5.)

The Commission consequently established a rate structure between the extremes:

"After examination of the Company's present and proposed rate structure and the evidence relating thereof, the Commission is of the opinion that the Staff engineer's proposed rate structure as shown by Staff Exhibits 9, 10, 11 and 12 should be implemented. The Commission is of the opinion that the existing wholesale rate does not recover the appropriate portion of the expenses properly allocable to cost of providing such service, as shown by Staff Exhibits 9 through and including 12. * * *

The Commission is of the opinion that the Staff engineer's methodology is acceptable for the purpose of restructuring of the rate schedule of the Company." Cities Water Co., Ill. Com. ...


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