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City of Chicago v. Illinois Commerce Com.






The present appeals arise out of interim and permanent rate increases granted to Commonwealth Edison Company (Edison) by the Illinois Commerce Commission (Commission). On January 8, 1982, Edison filed revised tariffs with the Commission reflecting an $805 million annual increase in rates charged to its customers. Edison also requested that approximately one-half of the proposed increase go into effect immediately on an interim basis pending a final decision by the Commission on the permanent increase. Following hearings on the propriety of granting the interim rate request, the Commission granted Edison interim rate relief of $324 million. Subsequently, the Commission held hearings on the request for permanent rate relief and issued a final order granting Edison a $660.7 million permanent increase. The Commission also reviewed the interim rate increases in its final order and found they were not excessive. At various stages in the proceedings before the Commission, the following parties intervened in order to oppose Edison's requested increases: the People of the State of Illinois (People); the South Austin Coalition Community Council (SACC); the City of Chicago (city); and United States Steel Corporation (U.S. Steel). Pursuant to section 68 of the Public Utilities Act (Ill. Rev. Stat. 1983, ch. 111 2/3, par. 72), 11 parties, among them the previously mentioned intervenors before the Commission, filed separate actions in the circuit court appealing the final order of the Commission. The cases were consolidated, and Edison was granted leave to intervene as a defendant. Several plaintiffs moved for stays of the Commission order or, in the alternative, for an order making continued collection of the increased rates subject to refund. The trial court denied these requests and the movants perfected interlocutory appeals to this court. Prior to the resolution of these interlocutory appeals, the trial court affirmed the Commission order on the merits. All plaintiffs appealed from this decision, with the People, SACC, the city, and U.S. Steel filing briefs with this court. The separate appeals from the final order of the trial court and the previous interlocutory appeals have been consolidated for review in the present opinion.

The numerous issues raised by plaintiffs on appeal may be broken down into four categories: (1) there are those issues contesting the utility's revenue requirements or the amount of the permanent increase; (2) there are those issues challenging the rate design which address the question of how the increase should be allocated among the different customer classes; (3) there are those contentions pertaining to the issuance and review of the Commission's interim rate order; and (4) there are those issues relating to the trial court's denial of the stay order initially raised in the interlocutory appeals. We affirm the judgment of the trial court upholding the rate increase granted by the Commission in its entirety. With respect to the interlocutory appeals, we also affirm the trial court's judgment refusing the requested stay.

In reviewing orders of the Commission, Illinois courts exercise a limited statutory jurisdiction under section 68 of the Public Utilities Act (Ill. Rev. Stat. 1983, ch. 111 2/3, par. 72). The section provides that findings of the Commission are prima facie true and cannot be set aside on appeal unless clearly against the manifest weight of the evidence. Cases construing this statutory standard have held that decisions of the Commission are "entitled to great weight as being the judgment of a tribunal appointed by law and informed by experience" (Village of Apple River v. Illinois Commerce Com. (1960), 18 Ill.2d 518, 523, 165 N.E.2d 329); that "deference to the judgment of the Commission is especially appropriate in the area of fixing rates" (Iowa-Illinois Gas & Electric Co. v. Illinois Commerce Com. (1960), 19 Ill.2d 436, 442, 167 N.E.2d 414); that this deference is required because the fixing of rates is a legislative function delegated to the Commission, not a judicial function (Illinois Bell Telephone Co. v. Illinois Commerce Com. (1973), 55 Ill.2d 461, 469-70, 303 N.E.2d 364); and that the setting of just and reasonable rates "is necessarily a question of sound business judgment rather than one of legal formula" (Produce Terminal Corp. v. Illinois Commerce Com. (1953), 414 Ill. 582, 590, 112 N.E.2d 141). Accordingly, "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." 414 Ill. 582, 589.) Rather, judicial review is limited to determining (1) whether the Commission stayed within the scope of its statutory authority, (2) whether the Commission made findings adequate to support its decision, (3) whether the findings have substantial evidentiary support in the record, and (4) whether constitutional rights have been infringed by the Commission's decision. (Illinois Bell Telephone Co. v. Illinois Commerce Com. (1973), 55 Ill.2d 461, 469, 303 N.E.2d 364.) It is against this backdrop that we must analyze the contentions of the various plaintiffs in the present consolidated appeals.

• 1 We will first address those issues attacking the amount of the permanent increase as unreasonable and not supported by substantial evidence. The plaintiff city raises three such accounting issues, contending: (1) there is no support in the record to justify the Commission's use of a 6% inflation rate for oil inventories; (2) the Commission's allowance of property held for future use in Edison's rate base is contrary to the manifest weight of the evidence; and (3) the Commission's failure to adopt the city's recession and weather adjustment is arbitrary and contrary to the manifest weight of the evidence. After reviewing the record, we believe the Commission's findings on these issues are supported by substantial evidence. Accordingly, we reject the city's contentions.

With respect to oil prices, the Commission found that "based on the 1982 inflation rate of approximately 6% as shown in government statistics the Commission is of the opinion that oil prices should be calculated at a 6% inflation rate beginning with April 1982." The city and staff of the Commission each presented witnesses who testified that fuel prices would not rise during 1983 and therefore no increase in fuel prices should be allotted. Edison's fuel price expert testified that a 9% increase for fuel prices was a more realistic forecast. A recognized independent forecasting firm had predicted fuel prices would rise faster than the rate of inflation for the period of 1982 to 1995. In order to resolve this dispute among the expert witnesses on the appropriate fuel escalation rates, the Commission opted for the 6% rate based on testimony from a staff witness that 6% was the appropriate inflation rate. We believe that the Commission's 6% rate for fuel costs is within the range of evidence presented and thus well within its discretion. Accordingly, we reject the city's first contention.

The city also asserts that the Commission's decision to include in rate base property held for use as a future site of the Langham coal-fired generating station was contrary to the manifest weight of the evidence. In support of its position, the city contends the Commission was required to disregard the evidentiary showing that the site will be so used and apply a rule of thumb used by the Commission in previous years to automatically exclude any and all property from rate base if it was not scheduled to be placed in service within 10 years.

"Property held for future use" refers to a utility's investment in property which is not currently being used to provide service to its customers but which will be used in the future to provide such service. The question then arises whether such property should be included in rate base, thereby allowing the utility to earn a return on property not currently being used to provide service. The Commission had previously adopted a policy where property for future use would be included in rate base if it would be in service within 10 years. The city contends that since the Langham site had a scheduled in-service date of 1996, a date more than 10 years from the issuance of the Commission's order, it should not have been included in rate base.

• 2 Initially, we note that decisions of the Commission are not res judicata. (Mississippi River Fuel Corp. v. Illinois Commerce Com. (1953), 1 Ill.2d 509, 513, 116 N.E.2d 394.) "The concept of public regulation includes of necessity the philosophy that the commission shall have power to deal freely with each situation as it comes before it, regardless of how it may have dealt with a similar or the same situation in a previous proceeding." (1 Ill.2d 509, 513.) Thus, like other administrative agencies, the Commission is free to change its standards so long as such changes are not arbitrary and capricious. See also Montana Power Co. v. Environmental Protection Agency (9th Cir. 1979), 608 F.2d 334, 347 (agency not absolutely bound by prior determinations, but may adjust policies in light of experience).

• 3 Here, the Commission rejected its 10-year standard and focused instead on the nature of the investment. The Commission found that Edison's investment in the Langham site was reasonable and the property should be retained; that a significant lead time was required between acquisition of a plant site and plant completion; and that long-range planning was necessary. We believe the Commission's approach is consistent with decisions from other jurisdictions addressing the issue of whether property held for future use should be included in rate base. (See Petition of New England Telephone & Telegraph Co. (1949), 115 Vt. 494, 506, 66 A.2d 135, 142-43 (question is whether purchase of property for future use is a reasonable business judgment with a definite plan); State ex rel. Pacific Telephone & Telegraph Co. v. Department of Public Service (1943), 19 Wn.2d 200, 228-29, 142 P.2d 498, 513 (real estate permitted in rate base where purchase made in good faith with reasonable expectation that it would be improved).) A utility is entitled to earn a return on its investment in property held for future use if the property was acquired in good faith with a definite plan for its use and it is reasonably acquired and retained to serve the utility's customers. (Southern Bell Telephone & Telegraph Co. v. Public Service Com. (S.C. 1978), 270 S.C. 590, 600, 244 S.E.2d 278, 283-84.) Here, the Commission properly concluded that prudent investment required long-range planning and acquisition of a plant site more than 10 years from the plant's scheduled completion date. Accordingly, the Commission's decision to include the Langham site in rate base was not contrary to the manifest weight of the evidence where the investment was reasonable and a definite plan for development existed.

• 4 Next, the city contends that the 1983 revenue projections by Edison reflected our "recessionary times" and that Edison's sales predictions were too low. The city argues that the Commission should have adopted the testimony of its own witness, who proposed a higher forecast based on what he claimed to be the more normal weather and economic conditions during the period of 1975 to 1979.

In order to determine the reasonableness of the new rate set by the Commission, it was necessary to estimate how much revenue the rate will generate. The more a rate will produce in terms of revenue, the less it needs to be raised to meet expenses. Here, the Commission heard conflicting forecasts on the amount of revenue generated by a given rate increase and rejected the testimony of the city's witness as speculative. Edison presented evidence that rebutted the charge that its sales forecasts were too low and set forth estimates of what its sales would be. The Commission adopted the forecasts of Edison as more persuasive. Thus, the Commission's decision is supported by the record since it involves the resolution of a dispute among experts which is well within the Commission's authority. Accordingly, we reject the city's contention to the contrary.

• 5 The People raise one final accounting issue relating to the amount of the permanent increase granted Edison. The People contend that the Commission unlawfully shifted the burden of proof and deprived the intervenors of an adequate hearing in its consideration of Edison's constructive program. We disagree.

The Commission heard a considerable amount of evidence concerning the desirability of completing Edison's extensive generating plant construction program. It devoted 23 pages of its order to an exhaustive review of all the evidence, including the testimony of seven witnesses appearing on behalf of the People. The Commission found that the benefits to be derived from completion of the construction program far outweighed the costs and that timely completion of the program was in the public interest. Based on its review of the record and the Commission's order, the trial court determined that there was ample evidence in the record to support the Commission's finding.

On appeal, the People do not attempt to challenge the trial court's determination that the Commission's order was supported by substantial evidence. Rather, the People assert that Edison did not, as a matter of law, meet its burden of proof because it did not go forward with its evidence on the construction program until the People had presented testimony challenging the reasonableness of the program. The People contend that Edison's failure to come forward ...

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