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Can. Lake Ut. Co. v. Ill. Commerce Com.

OPINION FILED DECEMBER 27, 1983.

CANDLEWICK LAKE UTILITIES COMPANY, APPELLANT,

v.

ILLINOIS COMMERCE COMMISSION, APPELLEE (NORMAN K. SANDERS ET AL., APPELLEES-INTERVENORS).



Appeal from the Circuit Court of Boone County; the Hon. Paul A. Logli, Judge, presiding.

PRESIDING JUSTICE SEIDENFELD DELIVERED THE OPINION OF THE COURT:

Rehearing denied January 26, 1984.

Candlewick Lake Utilities Company, a public utility company which furnishes water and sewer services to the Candlewick Lake Subdivision in Boone County, appeals from the rate order of the Illinois Commerce Commission and from the affirming order of the circuit court. Norman K. Sanders and Candlewick Lake Association, Inc., intervenors, also appear as appellees.

The developer of the subdivision was a partnership consisting of W.L. Belvidere and U.S. Financial Northwest. The developer originally owned the utility but at some time unspecified in the record, the utility plant and its facilities were transferred to W.L. Belvidere. Belvidere organized the present utility corporation, the entire stock of which is owned by W.L. Belvidere, Inc. All of the 2450 lots in the subdivision have been sold by the developer. As of the end of the test year, 1980, slightly more than 100 customers were connected to both the water and sewer system (user customers), with service available to the remaining lot owners (availability customers). The water plant has a capacity of 600 customers and is designed to expand as more of the availability customers make connection to the system. The sewer plant has a capacity of 300 customers and is designed to expand to serve the remaining lots.

Under rates in effect prior to the rate orders which are subject to this appeal, and in effect since 1974, both availability and user customers were charged $4 per month for water service and $5 per month for sewer services.

On December 24, 1980, the utility filed revised rate schedules seeking a general increase in water and sewer rates, and the Commission set hearings. The utility requested an increase to produce an additional revenue of $63,591 for water services and additional revenues of $294,845 for sewer services.

Following the hearings the Commission entered an order in which it determined that the utility was entitled to receive a 16% rate of return on that portion of its capital that was fully utilized and no return on that portion which was not, resulting in a 4.37% average combined return on common equity capital (original cost rate base) and a return of 3.1% on fair value rate base. The order also made some changes in the monthly charges and the connection charges, disapproved certain expenses claimed by the utility and ordered the utility to institute various steps to improve its quality of service.

The utility filed a petition for rehearing. In the order resulting from the rehearing the Commission reaffirmed that the rate of return granted in the original order, adjusted to reflect certain corrections, would produce a fair return on fair value rate base. The adjustments resulted in an increase in the rate of return to 4.96% on original cost rate base and 3.67% on fair value rate base. Certain changes were also made in monthly charges allowable. The increase approved by the Commission would generate approximately $84,000.

Upon judicial review in the circuit court the orders of the Commission were affirmed in all aspects.

I

The utility first contends that the Commission orders do not allow it a just and reasonable return on its fair value rate base.

Under the provisions of the Public Utilities Act, the Commission is empowered "to ascertain the value of the property of every public utility * * * and every fact which in its judgment may or does have any bearing on such value." (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 30.) The statute provides that "[a]ll rates or other charges * * * shall be just and reasonable" (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 32), that the Commission shall establish rates "which it shall find to be just and reasonable" (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 36), that "[t]he findings and conclusions of the Commission on questions of fact shall be held prima facie to be true and as found by the Commission," and that its order or decision "shall not be set aside unless it clearly appears that the finding of the Commission was against the manifest weight of the evidence * * *." Ill. Rev. Stat. 1981, ch. 111 2/3, par. 72.

The standards for judicial review of the Commission's orders have been well established. Reviewing courts> are "empowered only to consider whether the Commission has acted within the scope of its authority, whether any constitutional right has been infringed, and whether its findings are founded on the evidence." (Cerro Copper Products v. Illinois Commerce Com. (1980), 83 Ill.2d 364, 370.) Generally, deference is given to the expertise of the Commission which is presumed to have acted correctly unless its findings clearly are contrary to the manifest weight of the evidence. (83 Ill.2d 364, 370-71.) "[T]he determination of rates is not a matter of formulas but one of sound business judgment." Villages of Milford v. Illinois Commerce Com. (1960), 20 Ill.2d 556, 561.

The utility is entitled to receive a reasonable return on the present fair value rate base of its property. (Cerro Copper Products v. Illinois Commerce Com. (1980), 83 Ill.2d 364, 369; Union Electric Co. v. Illinois Commerce Com. (1979), 77 Ill.2d 364, 379.) The rate must be just and reasonable, "`* * * both to the public and to the utility.'" (Produce Terminal Corp. v. Illinois Commerce Com. ex rel. Peoples Gas Light & Coke Co. (1953), 414 Ill. 582, 590.) It has been recognized that "[t]he fundamental purpose of providing a particular rate schedule is to generate a rate of return which the Commission has approved as just and reasonable and which will ...


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