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Peoples Energy Corp. v. Ill. Commerce Com.





Appeal from the Circuit Court of Cook County; the Hon. George J. Schaller, Judge, presiding.


Plaintiffs, Peoples Energy Corporation (Peoples Energy), Natural Gas Pipeline Company of America (Natural Gas) and MidCon Corporation (MidCon), brought this action for injunctive relief and a declaratory judgment against defendant, Illinois Commerce Commission (the Commission). Plaintiffs sought to have the Commission enjoined from asserting or exercising jurisdiction over plaintiffs in regard to the planned corporate reorganization of Peoples Energy, and they further sought a declaratory judgment that the Commission lacked jurisdiction over the planned reorganization. The Commission filed a separate action against plaintiffs as well as Peoples Gas Light and Coke Company (Peoples Gas Light) and North Shore Gas Company (North Shore) to enjoin the planned reorganization until the Commission had completed its investigation of the reorganization. The two actions were consolidated. Various organizations and government entities seeking to enjoin the reorganization were permitted to intervene as defendants and file counterclaims. The trial court granted plaintiffs the injunctive relief and declaratory judgment which they had sought, and denied the relief sought by the Commission and intervenors. The critical issue on appeal is whether the trial court correctly determined that the Commission lacked jurisdiction to intervene in Peoples Energy's activities because Peoples Energy is not a public utility. We affirm.

Peoples Energy is a holding company for various subsidiaries engaged in the transmission of natural gas, distribution of natural gas, oil and gas exploration, and other related aspects of the energy industry. On January 16, 1981, Peoples Energy publicly announced that it was studying the possibility of a corporate reorganization that would result in separating its two public utility subsidiaries, Peoples Gas Light and North Shore, from its other subsidiaries. In June 1981, Peoples Energy's board of directors approved the reorganization. Under the plan for reorganization, Peoples Energy would continue as the holding company for the two public utility subsidiaries. MidCon, a newly formed, wholly owned subsidiary of Peoples Energy, would become a separate holding company, owning the outstanding common stock of the other subsidiaries currently owned by Peoples Energy.

On July 22, 1981, the Commission entered a citation order requiring Peoples Energy, Peoples Gas Light, North Shore and Natural Gas to appear on August 5, 1981, and show cause why the divestiture was not subject to Commission jurisdiction, or, if it was, why the divestiture would be in the public interest. Plaintiffs presented the Commission with a motion to dismiss for lack of jurisdiction. The Commission considered the motion on August 19, but deferred ruling on it at that time. The Commission scheduled a hearing for August 31.

On August 20, plaintiffs filed the present action against the Commission in the circuit court, seeking preliminary and permanent injunctive relief and a declaratory judgment prohibiting the Commission from interfering with the reorganization. To this same end, plaintiffs also filed an emergency motion for a temporary restraining order, which was granted. The Commission filed a motion to dismiss plaintiffs' complaint. It also sought, unsuccessfully, to remove the action to Federal court. See Peoples Energy Corp. v. Illinois Commerce Com. (N.D. Ill. 1981), 520 F. Supp. 1145.

The Commission's motion to dismiss was denied on September 9. Around this time, other parties were allowed to intervene as defendants and permitted to file counterclaims in which they, too, sought to enjoin the reorganization. The intervening defendants are South Austin Coalition Community Council (SACCC) (a not-for-profit community organization); Business and Professional People for the Public Interest (BPI) (a public interest law organization); People of Cook County ex rel. Richard M. Daley, State's Attorney of Cook County (Cook County); Governor's Office of Consumer Services (GOCS) (an agency of the State executive branch); People of the State of Illinois ex rel. Tyrone Fahner, Attorney General of Illinois (the State); and Mary Imelda Murtaugh (a shareholder of Peoples Energy).

Also during this period, the Commission filed a separate action in the circuit court seeking to enjoin Peoples Energy and its subsidiaries from taking any action to consummate the reorganization until the Commission could investigate the matter and give its approval. After the Commission and the State unsuccessfully sought to have implementation of the reorganization stayed and the temporary restraining order dissolved by filing emergency motions in the Illinois appellate and supreme courts, the trial court heard the parties' respective motions and cross-motions for preliminary injunction. On October 23, 1981, the court granted plaintiffs' motion for a preliminary injunction and denied the cross-motions of defendants.

By the time plaintiffs' motion for a preliminary injunction was granted, the stockholders of Peoples Energy had approved the reorganization plan. Although the reorganization was scheduled to take effect on September 30, 1981, it was temporarily postponed by Peoples Energy due to this litigation. Following the entry of the preliminary injunction, on November 4, 1981, Peoples Energy announced that it would proceed with the reorganization on November 30 if no appeal was taken from the order granting the preliminary injunction. When no appeal ensued, Peoples Energy proceeded with its reorganization on the announced date.

In February 1982, defendants were permitted to file amended counterclaims due to changes caused by effectuation of the reorganization. The Commission sought a writ of mandamus under section 75 of the Public Utilities Act (the Act) to compel plaintiffs to comply with their statutory duties by seeking Commission approval of the reorganization. (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 79.) It also sought the imposition of penalties pursuant to sections 76 and 78 of the Act. (Ill. Rev. Stat. 1981, ch. 111 2/3, pars. 80, 82.) The other defendants essentially sought to have the reorganization held void.

On April 27, 1982, the city of Chicago (the city) was granted leave to intervene, but with the express condition that it be bound by orders previously entered and evidence previously received. During July and August 1982, the trial court held extensive hearings on the consolidated cases. On November 19, 1982, the trial court granted plaintiffs' request for a permanent injunction and declaratory relief, ruling that the Commission lacked jurisdiction over the reorganization. The court enjoined the Commission from asserting or otherwise exercising jurisdiction over Peoples Energy, Natural Gas or MidCon for the purpose of inquiring into or otherwise interfering with the reorganization. The court denied all relief sought by the Commission and the intervenors.

• 1 The Act *fn1 provides for general supervision of all public utilities by the Commission. (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 8.) The Commission derives its power and authority solely from the statute creating it, and it may not, by its own acts, extend its jurisdiction. Regional Transportation Authority v. Illinois Commerce Com. (1983), 118 Ill. App.3d 685, 694, 455 N.E.2d 172, 178; Ace Ambulance & Oxygen Service Co. v. Illinois Commerce Com. (1979), 75 Ill. App.3d 17, 19, 393 N.E.2d 1322, 1325. Here, Commission jurisdiction must be found, if at all, in the Commission's power to regulate public utilities, which are defined in section 10.3 (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 10.3), or in the Commission's power to assert jurisdiction over affiliated interests having transactions with public utilities pursuant to section 8a (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 8a).

Section 10.3 of the Act defines a public utility as follows:

"`Public utility' means and includes every corporation, company, association, joint stock company or association, firm, partnership or individual, their lessees, trustees, or receivers appointed by any court whatsoever that owns, controls, operates or manages, within this State, directly or indirectly, for public use, any plant, equipment or property used or to be used for or in connection with, or owns or controls any franchise, license, permit or right to engage in:

c. the production, storage, transmission, sale, delivery or furnishing of heat, cold, light, power, electricity or water; * * *

e. the conveyance of oil or gas by pipe line." (Ill. Rev. Stat. 1981, ch. 111 2/3, par. 10.3.)

Defendants focus on the "indirect control" language, and they contend that Peoples Energy is a public utility under the plain meaning of the statute as well as under judicial and administrative interpretations. According to defendants, Peoples Energy's status as a public utility is evidenced by Peoples Energy's stock ownership of Peoples Gas Light and North Shore, its shared common history and development with those subsidiaries, and its business control of those subsidiaries.

• 2 While section 10.3 of the Act broadly defines public utilities, we do not believe that the definition is so expansive that it encompasses a nonoperating holding company of a public utility such as Peoples Energy. Moreover, when the Act is viewed as a whole, it is clear that it seeks to regulate entities and individuals which actually operate and manage the property devoted to public use. (See J. Mueller, Origin and Development of Public Utility Regulation in Illinois (Ill. Ann. Stat., ch. 111 2/3, Commentary at IX, XV (Smith-Hurd 1966)); Palmyra Telephone Co. v. Modesto Telephone Co. (1929), 336 Ill. 158, 164, 167 N.E. 860, 862.) The Commission's past practice in regard to public utility holding companies supports this conclusion.

• 3 The dominant characteristic of a holding company is the ownership of securities by which it is possible to control or substantially influence the policies and management of one or more operating companies in a particular enterprise. (North American Co. v. Securities & Exchange Com. (1946), 327 U.S. 686, 701, 90 L.Ed. 945, 956, 66 S.Ct. 785, 794.) The general rule, however, is that holding companies and their subsidiaries are separate legal entities. (Hughey v. Hoffman Rosner Corp. (1982), 109 Ill. App.3d 633, 638, 440 N.E.2d 1049, 1052.) This separate corporate identity is not destroyed by the fact that the company, through it stock ownership, has power to control the subsidiary. See Smith v. Illinois Bell Telephone Co. (1930), 282 U.S. 133, 143-44, 75 L.Ed. 255, 260-61, 51 S.Ct. 65, 67.

Here, it is undisputed that Peoples Energy owned 100% of the stock of the operating utilities. Moreover, it is clear that Peoples Energy exercised substantial business control over the operating utilities. We agree with D. Leroy Sample, the certified public accountant who testified on defendants' behalf, that business control was exhibited by the presence of the following factors: 100% ownership of common stock; common directors and officers; parent board approval of certain capital expenditures; subsidiaries' periodic reporting of operating plans and budgets; adherence by the subsidiaries to administrative practices, such as personnel policies, advised by the parent; and a dividend payout ...

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