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06/10/88 Business and Professional v. the Illinois Commerce

June 10, 1988

BUSINESS AND PROFESSIONAL PEOPLE FOR THE PUBLIC INTEREST, PETITIONER-APPELLANT

v.

THE ILLINOIS COMMERCE COMMISSION ET AL., RESPONDENTS-APPELLEES. -- GOVERNOR'S OFFICE OF CONSUMER SERVICES, PETITIONER-APPELLANT,

v.

THE ILLINOIS COMMERCE

EDISON COMPANY, PETITIONER-APPELLANT

v.

THE ILLINOIS COMMERCE COMMISSION ET AL., RESPONDENTS-APPELLEES. -- THE

COMMERCE COMMISSION, PLAINTIFF-APPELLEE

v.

COMMONWEALTH EDISON COMPANY, DEFENDANT-APPELLANT (BUSINESS AND PROFESSIONAL PEOPLE FOR THE PUBLIC INTEREST ET AL., INTERVENORS-APPELLEES)



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIFTH DIVISION

COMMISSION et al., Respondents-Appellees. -- COMMONWEALTH

PEOPLE OF THE STATE OF ILLINOIS ex rel. THE ILLINOIS

Nos. 87-3356, 87-3373, 87-3408, 87-3846 cons.

525 N.E.2d 1053, 171 Ill. App. 3d 948, 121 Ill. Dec. 746 1988.IL.915

Petition for review of order of Illinois Commerce Commission in 87 -- 3356, 87 -- 3373 and 87 -- 3408.

APPELLATE Judges:

JUSTICE MURRAY delivered the opinion of the court. LORENZ, P.J., and O'CONNOR, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MURRAY

This is a consolidated appeal of four cases, all of which concern an Illinois Commerce Commission (Commission) order entered on October 7, 1987, directing Commonwealth Edison Company (Edison) to refund $70,019,453 plus interest to its customers by means of the fuel adjustment rate. The order resulted from a reconciliation hearing during which the Commission reviewed Edison's costs of fuel and purchased power for 1983. Pursuant to section 4-402 of the new Public Utilities Act, review of the Commission's order is governed by the public utilities law in effect at the initiation of the reconciliation hearing (August 22, 1984). Ill. Rev. Stat. 1987, ch. 111 2/3, par. 4-402.

In appealing from the Commission's order, Edison argues that the Commission exceeded its statutory authority in ordering a refund, the finding of Edison's imprudence was not based on substantial evidence, Edison was denied due process of law, the Commission's award of interest was erroneous, and the trial court abused its discretion in entering a mandatory injunction order. The other parties to this appeal, Business and Professional People for the Public Interest , Governor's Office of Consumer Services , Citizens Utility Board , and the Illinois Commerce Commission, support the propriety of the refund order. However, the parties disagree as to the awarded interest; their respective views on this matter are fully set forth later in this opinion.

This appeal constitutes the initial challenge to the extent of the Commission's authority under the fuel adjustment rate provision of the Act (Ill. Rev. Stat. 1983, ch. 111 2/3, par. 36 (now Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-220)). 1 Before addressing the issue of whether the Commission exceeded its authority, it is necessary to review the recent background of section 36, now section 9-220.

In 1977, the legislature amended section 36 of the Public Utilities Act (Act) (Ill. Rev. Stat. 1979, ch. 111 2/3, par. 36) to authorize the Commission to implement comprehensive, uniform fuel adjustment clauses for public utilities. The relevant portion of section 36 provided:

"Notwithstanding the provisions of this Article, the Commission may authorize the increase or decrease of rates and charges based upon changes in the cost of fuel used in the generation or production of electric power, changes in the cost of purchased power, or changes in the cost of purchased gas through the application of fuel adjustment clause or purchase gas adjustment clauses. Cost shall be based upon uniformly applied accounting principles. The Commission shall undertake an investigation to determine the feasibility of adopting uniform purchase gas adjustment clauses and fuel adjustment clauses, and report its findings to the Governor and Illinois General Assembly within one year. Annually, the Commission shall initiate public hearings to determine whether the clauses reflect actual costs of fuel or power prudently purchased and to reconcile any amounts collected with actual costs. The Commission shall have authority to promulgate rules and regulations to carry out the provisions of this paragraph." Ill. Rev. Stat. 1979, ch. 111 2/3, par. 36.

Accordingly, beginning in 1978, the Commission was empowered to investigate the feasibility of implementing a uniform fuel adjustment program and, if it decided to do so, was required to conduct annual hearings to reconcile the amounts collected from customers for the costs of fuels (and natural gas) with the "actual costs of fuel or power prudently purchased" as determined by the Commission. Pursuant to section 36, the Commission held extensive hearings, in which Edison actively participated, and subsequently in 1981 adopted General Order 211 -- the Uniform Fuel Adjustment Clause for electric utilities. (83 Ill. Adm. Code 425 (1983).) The order in which the Commission adopted General Order 211, listed as Docket No. 78 -- 0457 (45 P.U.R.4th *fn1 (1982)), noted that the UFAC provisions must meet the standards set forth in the Public Utilities Regulatory Policies Act of 1978 (16 U.S.C. § 2625(e) (Supp. III 1979)). PURPA requires, among other things, that fuel adjustment rates must be designed so as to "insure the maximum economies in those operations and purchases which affect the rates to which such clause applies." 16 U.S.C. § 2625(e)(1)(Supp. III 1979).

Docket No. 78 -- 0457 stated that "[in] a highly inflationary period, a comprehensive fuel adjustment clause is essential and should contain as many features as possible to promote efficient management and foster cost reduction for the benefit of investors and ratepayers alike. The public interest also requires a strong and effective program of close auditing and continuous scrutiny. A comprehensive energy clause is superior to one of narrowed dimension since comprehensiveness tends to reduce distortions and to provide incentives for decisions having the broadest economic merit." 45 P.U.R.4th 1, 5 (1982).

In furtherance of this policy, the Commission included the cost of purchased power and nuclear fuel in the UFAC. Additionally, the Commission noted that section 41 of the Act (Ill. Rev. Stat. 1979, ch. 111 2/3, par. 41 (now Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-250)) was an underpinning for General Order 211 so as to provide the Commission with the power to investigate, determine and order, after a hearing, any charge, contract or practice and to establish new rates, charges, contracts, or practices. Throughout the order's text, the Commission referred to the relationship between operating practices and final fuel costs. It stated that principles of economic dispatch would be applied so as to create an incentive for the economical purchases of energy. "Economic dispatch" was defined as "the operation of the electric utility's system, utilizing the source of available power to achieve minimum overall costs, taking into consideration the utility's voltage, frequency, reliability, environmental, safety and service quality requirements . . .." (83 Ill. Adm. Code § 425.40(a) (1982).) In 1985, the legislature repealed the "old" Public Utilities Act and implemented a new Act. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 1-101 et seq.) However, section 36 of the old Act was rewritten into the new Act as section 9-220 with only minor changes. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-220.) Thus, fluctuations in the costs of fuel and power to a utility are passed through to the consumer on a monthly basis through the fuel adjustment clause.

This appeal arises from a proceeding initiated sua sponte by the Commission in 1984, pursuant to section 36, in which it sought to reconcile the amounts Edison collected under its fuel adjustment clause with the actual costs of fuel and power purchased by the utility in 1983. During the hearings, much evidence was introduced regarding the poor performance of Edison's La Salle 1 nuclear power plant, which had been included in Edison's rate base beginning December 1982. The addition of La Salle 1 in the rate base resulted in a large rate increase to consumers because of inclusion of construction costs of the plant. The Commission approved La Salle 1's inclusion after Edison informed it that as of October 20, 1982; La Salle 1 was "inservice"; regular operation, as opposed to test operation, had commenced; the plant would generate substantial electricity on a consistent and sustained basis; and the plant would operate at a capacity level of 60% in 1983. Based on Edison's projections, the Commission approved a $660,700,000 traditional rate increase.

However, in 1983, La Salle 1 did not operate at all for 243 days out of 400 days (between October 20, 1982, through January 1, 1984) resulting in only a 17.7% operating capacity. As a result, through means of the fuel adjustment clause, Edison customers were required to pay approximately $70 million more in replacement power costs than would have been incurred if the plant had operated at 60% of its capacity.

During the reconciliation hearings, Edison asserted that La Salle 1 should not have been expected to operate at the same level of capacity (65.9%) attributed to its other nuclear facilities during their comparable start-up times because of the more rigorous restraints imposed by the Nuclear Regulatory Commission's start-up testing program. La Salle 1 was the first reactor of its type to come on line after the Three Mile Island accident. Edison also contends that the plant's reduced capacity was due in part to unanticipated equipment malfunctions. Moreover, it argued that the 60% operating capacity figure projected by an Edison witness to the Commission in 1982 was inaccurate as demonstrated by a 40% or higher projection in a 1982 document known as the Murphy/Huemann letter.

Following the reconciliation hearings, the hearing officer concluded that Edison had been imprudent in placing La Salle 1 in service in 1982 and recommended a refund of over $70 million to the customers. A majority of the commissioners affirmed the refund, but determined that Edison's prediction of La Salle 1's 1983 operating capacity of 60% had been imprudent. Two of the seven commissioners Dissented on the bases that neither an operating forecast nor operating performance was a proper subject of examination in a fuel reconciliation proceeding.

This court's jurisdiction of direct appeals from the Illinois Commerce Commission is governed by section 10-201 of the new Public Utilities Act. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-201.) Section 201 grants this court broader powers of review than before in that the court may, in whole or in part, remand, reverse, or affirm an order of the Commission. An order can be reversed, in whole or in part, only if the court concludes that it is not supported by substantial evidence on the record, the Commission lacked jurisdiction to enter the order, or the order, or the proceedings from which it ensued, were violative of the State or Federal Constitution or laws. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-201(e).) Additionally, the Commission's fact findings are prima facie true and the burden of proof is on the party appealing from the order. Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-201(e)(i).

The crux of this appeal concerns Edison's assertion that the refund order exceeded the Commission's statutory authority pursuant to section 36 of the old Act because: (1) the Commission misinterpreted section 36 in finding that it permitted an examination of plant productivity; and (2) such an interpretation violates the rule against retroactive ratemaking. Edison argues that the Commission's jurisdiction in a fuel reconciliation proceeding is limited to determining whether a utility made prudent purchases of power; there is no statutory authority to examine other matters, such as plant productivity. Since interpretation of a ...


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