SUPREME COURT OF ILLINOIS
BUSINESS AND PROFESSIONAL PEOPLE FOR THE PUBLIC INTEREST et
555 N.E.2d 693, 136 Ill. 2d 192, 144 Ill. Dec. 334 1989.IL.1990
Petition for review of an order of the Illinois Commerce Commission.
JUSTICE CALVO delivered the opinion of the court.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CALVO
The Illinois Commerce Commission (Commission) entered a sixth interim order (Sixth Order) in these consolidated cases on December 30, 1988, granting Commonwealth Edison Company (Edison) a two-step rate increase for electric service over a five-year period. Two of the seven commissioners concurred in part and Dissented in part from the Sixth Order. Several intervenors, on behalf of various ratepayers, filed motions with this court for a direct appeal pursuant to Supreme Court Rule 302(b) (107 Ill. 2d R. 302(b)), and we allowed said motions. Those intervenors filing briefs opposing various provisions of the Sixth Order include Business and Professional People for the Public Interest , Citizens Utility Board , the City of Chicago (City), the People of Cook County ex rel. Richard M. Daley (Cook County), Low Income Residential Consumers , the People of the State of Illinois ex rel. Office of Public Counsel (State), and the Illinois Department of Transportation . Edison, the Commission and the Illinois Industrial Energy Consumers filed briefs asking us to uphold the Sixth Order. I. Proceedings Before the Commission
On August 21, 1987, pursuant to the Public Utilities Act (Act) (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 1-101 et seq.), Edison filed tariffs with the Commission requesting a $1.414 billion annual, 26.9%, increase in rates for electric service to cover costs associated with bringing the Byron Unit 2, Braidwood Unit 1 and Braidwood Unit 2 nuclear power plants (units) into service. The Commission suspended the proposed tariffs through July 17, 1988, pursuant to section 9-201(b) of the Act, which allows the Commission to suspend tariffs for up to 11 months. Pending completion of audits of the units, as required by section 9-213 of the Act, the Commission held evidentiary hearings, beginning January 6, 1988, and extending over several months, on the nonaudit portions of the case. The auditors released the Byron Unit 2 and Braidwood Unit 1 audits in April 1988. Edison, various intervenors and the staff of the Commission (Staff) filed briefs on the nonaudit issues in May 1988. Staff recommended in early 1988 that Edison receive a rate decrease of $343 million.
On June 6, 1988, Staff filed a "Motion for the Commission to Defer the Resolution of the Rate Case and to Pursue an Alternative Resolution." Staff attached to this motion a settlement proposal. The proposal provided for a $235 million rate increase effective January 1, 1989, and a $245 million rate increase effective January 1, 1990. The proposal also provided for a rate freeze through December 31, 1993, after the second rate increase. The proposal contained numerous other provisions.
On June 8, the Commission entered its fourth interim order (Fourth Order) allowing Staff's motion over the objections of various intervenors. The Commission, however, found that because suspension of the tariffs ended on July 17, sufficient time did not exist within which to pursue a settlement. Consequently, the Commission, in its Fourth Order, stated that Edison had to withdraw and refile its tariffs if Edison wanted to pursue Staff's settlement proposal. If Edison refiled the tariffs, the Commission could again suspend the tariffs and thus provide the parties and intervenors with another 11-month period within which to pursue a settlement and conduct further proceedings. The Commission also stated that it would then consolidate the two dockets.
The Fourth Order provided further that if Edison did not agree to pursue the settlement proposal, the Commission would enter an order deciding the merits of the case by June 13, 1988. The Commission stated that if Edison agreed to pursue the proposal, the parties and intervenors would engage in negotiations until August 1, 1988. At that time, Staff could end the negotiations, if no reasonable opportunities for a resolution existed. The case would then proceed from the point at which it had stopped prior to the negotiations, and the Commission would enter a final order deciding the merits of the case by September 15, 1988. The Fourth Order also provided, however, that if Staff filed an offer of settlement (Settlement) by August 1, the Commission would establish a hearing schedule which would permit the Commission to enter a final order allowing or denying the Settlement by December 1, 1988. Under the Fourth Order, if the Commission decided to reject the Settlement, the Commission would enter a final order deciding the merits of the case by December 31, 1988.
On June 10, 1988, Edison withdrew and refiled its tariffs. Staff filed a Settlement on August 1, 1988. This Settlement contained the same provisions as the settlement proposal attached to Staff's earlier motion. In response, various intervenors moved for a decision on the merits of the case; the Commission denied the motion. Procedural hearings on the Settlement and the audits of Byron Unit 2 and Braidwood Unit 1 began on August 2. The auditors had not completed the Braidwood Unit 2 audit, and they did not release the audit until February 28, 1989, so the proceedings and the orders of the Commission did not resolve issues related to the Braidwood Unit 2 audit. The Commission held evidentiary hearings from September 19 through October 11. The parties filed briefs thereafter, and oral arguments took place on December 1 and 2, 1988.
The Commission issued a fifth interim order (Fifth Order) on December 21, 1988. The Commission attached to the Fifth Order a draft of its Sixth Order which incorporated the Settlement with some modifications. In the Fifth Order, the Commission stated it would adopt the Sixth Order, if Edison agreed to be bound by the terms and conditions in the Sixth Order. The Commission stated that Edison must agree to the Sixth Order because the Sixth Order contained certain provisions which the Commission could not legally implement unilaterally; these provisions included imposition of a rate moratorium and allowance of retroactive refunds. If Edison did not agree to the Sixth Order, the Fifth Order provided that the Commission would enter a decision on the merits of the case by May 6, 1989.
Edison submitted written acceptance of the Sixth Order, and on December 30, 1988, the Commission entered the Sixth Order. The Commission subsequently amended the Sixth Order on January 25, 1989, and again on February 8, 1989. One commissioner Dissented from the latter amendment. The Commission denied the intervenors' petitions and applications for rehearing. II. Authority of the Commission
A. Powers of the Commission
The main issue is whether the Commission had authority to enter the Sixth Order. The Commission only has those powers given it by the legislature through the Act. (Union Electric Co. v. Illinois Commerce Comm'n (1979), 77 Ill. 2d 364, 383.) Under the Act, the Commission has "general supervision of all public utilities" (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 4-101), including Edison. In supervising the utilities, the Commission may examine the rates and other charges of the utilities and review the compliance of the utilities with the Act. Ill. Rev. Stat. 1987, ch. 111 2/3, par. 4-101.
The Act gives the Commission investigative powers. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-101.) The Commission, usually through its Staff, may gather evidence, subpoena witnesses, depose witnesses, or require the production of documents in order to determine whether a utility has complied with the Act. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-106.) The Staff, or those employees of the Commission who engage in investigatory, prosecutorial, or advocacy functions, remains separate from the commissioners, hearing examiners and other members of the Commission who render decisions. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-103.) The Commission, therefore, has a special role in that it performs investigative, prosecutorial and advocacy, as well as decisionmaking, functions.
When a utility files a rate schedule, the Commission has the power, "upon complaint or upon its own initiative," to hold "a hearing concerning the propriety of such rate." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-201(b).) The Act sets forth various findings the Commission must make before the Commission may approve the proposed rates of a utility. For example, the Commission cannot include in the rate base of a utility a "new electric utility generating plant," or any "significant addition" to an existing plant, "unless and until the utility proves, and the Commission determines, that such plant . . . is both prudent and used and useful in providing utility service to the utility's customers." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-212.) Moreover, the Commission cannot include the cost of new plants in the rate base of a utility until the Commission determines that such cost is "reasonable." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-213.) The Commission must also determine whether the proposed rates are "just and reasonable." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-101.) If the Commission finds the rates unreasonable, it must set new, reasonable rates. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-250.) If the rate hearings involve the proposed inclusion of a significant new production or generation facility in the rate base of an electric utility, "the Commission may consider the adoption of a rate moderation plan which is designed to diminish the immediate rate impact of such proposed inclusion." Ill. Rev. Stat. 1987, ch. 111 2/3, par. 9-217.
The hearing and rulemaking procedures of the Commission are governed by the Act and the Illinois Administrative Procedure Act (Ill. Rev. Stat. 1987, ch. 127, par. 1001 et seq.). (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-101.) The Act provides:
"Any proceeding intended to lead to the establishment of policies, practices, rules or programs applicable to more than one utility may, in the Commission's discretion, be conducted pursuant to either rulemaking or contested case provisions, provided such choice is clearly indicated at the beginning of such proceeding and subsequently adhered to." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-101.)
The Commission may "adopt reasonable and proper rules and regulations relative to the exercise of its powers, and proper rules to govern its proceedings, and regulate the mode and manner of all investigations and hearings, and alter and amend the same." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-101.) These rules and regulations must be consistent with the Act and the IAPA. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-101.) Moreover, in all proceedings:
"any finding, decision or order made by the Commission shall be based exclusively on the record for decision in the case, which shall include only the transcript of testimony and exhibits together with all papers and requests filed in the proceeding, including, in contested cases, the documents and information described in . . . the ." Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-103.
A reviewing court can only reverse, in whole or in part, a Commission rule, regulation, order or decision, if (1) the "findings of the Commission are not supported by substantial evidence," (2) the "rule, regulation, order or decision is without the jurisdiction of the Commission," (3) the rule, regulation, order or decision violates the Federal or State Constitution or laws, or (4) the manner by which the Commission decided its rule, regulation, order or decision violated the Federal or State Constitution or laws "to the prejudice of the appellant." (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-201(e)(iv).)
"Setting utility rates is a legislative rather than judicial function. [Citations.] In the ratemaking scheme, the Commission and not the court is the fact-finding body. [Citation.] Apart from examining whether the Commission acted within the scope of its authority or infringed upon a constitutional right, a court is limited to reviewing whether the Commission set out findings of fact supporting its decision and whether the findings are against the manifest weight of the evidence." (People ex rel. Hartigan v. Illinois Commerce Comm'n (1987), 117 Ill. 2d 120, 142.)
(See Cerro Copper Products v. Illinois Commerce Comm'n (1980), 83 Ill. 2d 364, 370-71; State Public Utilities Comm'n ex rel. City of Springfield v. Springfield Gas & Electric Co. (1919), 291 Ill. 209, 215-16.) The court's review of a Commission decision is, therefore, limited. The interpretation by the Commission of a question of law, however, is not binding upon a reviewing court. Hartigan, 117 Ill. 2d at 137.
C. Provisions of the Sixth Order
The essential provisions of the Sixth Order are as follows:
(1) On January 1, 1989, a rate increase of $235 million will take effect.
(2) On January 1, 1990, a rate increase of $245 million will take effect.
(3) Edison cannot file for any further rate increases prior to February 1, 1993, except under certain circumstances set forth in the Sixth Order.
(4) Staff will review the earnings of Edison at the end of each year from 1989 through 1993. If the Commission determines Edison earned excess revenue during the year, the Commission could order a refund which would become effective the following year.
(5) Because the Braidwood Unit 2 audit was not completed, the Commission did not make any findings or determinations in the Sixth Order regarding the rate base value of that unit. The Commission will hold hearings and make findings concerning the rate base value of Braidwood Unit 2 in 1989.
(6) The findings in the Sixth Order regarding Byron Unit 2 and Braidwood Unit 1 establish minimum rate base values. The parties and intervenors may present additional evidence concerning the final rate base values of these units during the 1989 hearings.
(7) The 1989 (first-step) rate increase is reasonable.
(8) The Commission did not determine the reasonableness of the 1990 (second-step) rate increase in the Sixth Order. The Commission will make that determination after completion of the Braidwood Unit 2 audit and after further hearings in 1989.
(a) The Commission will only approve the second-step rate increase if the evidence supports such a finding.
(b) Any revenues in excess of the first-step rate increase found just and reasonable in the Sixth Order may be used to support the second-step rate increase.
(c) The $245 million is a cap on, or the maximum of, the rate increase for 1990.
(d) If the evidence demonstrates that reasonable costs are in excess of the amount necessary to support a $245 million rate increase, those costs will not be included in rates during the five-year moratorium.
(e) No carrying charges on excess revenues or on any costs excluded from rates can accrue during or after the moratorium.
(f) The Commission may, after a determination based on the evidence, include in rates after the moratorium any excess costs or revenues.
(g) If the Commission determines a rate increase less than $245 million is reasonable, Edison will have the option of withdrawing from the Sixth Order, and the Commission will have the right to consider whether a rate reduction and refund of the excess revenues from the first-step rate increase would be appropriate.
D. Characterization of the Sixth Order
In arguments before the Commission, the intervenors contended the Commission could not consider the Settlement because not all of the parties and intervenors had agreed to the Settlement. The intervenors also asserted the Commission had no authority to adopt a unilateral offer of settlement. The Commission, however, framed and dealt with the issue of its authority to implement the Sixth Order this way:
"The Intervenors misconstrue the nature of Staff's Offer of Settlement and the standard of the Commission's review of the Offer of Settlement. Staff does not present its Offer of Settlement as a negotiated and signed settlement agreement. Staff is not offering the negotiating process as the basis for the reasonableness of the rates proposed in its Offer of Settlement. Staff did not require any party to sign-on to the Offer of Settlement in contract fashion. Accordingly, the Intervenors are correct that the Offer of Settlement is not a settlement agreement and should not be Judged by the standards for such an agreement. Staff does not claim otherwise. The Fourth Interim Order did not specify that Staff needed to obtain a settlement agreement. It did specify that Staff could file an 'Offer of Settlement'.
Staff presents its Offer of Settlement as a just and reasonable resolution of the issues in the subject proceedings on the merits, based on substantial evidence in the record as a whole. Staff proposes that its Offer of Settlement be reviewed pursuant to traditional just and reasonable standards and that such review be on the merits of each issue based on the record as a whole. Staff submits that the rate levels in its Offer of Settlement are justified by application of traditional ratemaking principles.
The failure of the Act to make specific provisions for offers of settlement does not make such a procedure ipso facto unlawful. While there is precedent for the consideration of proposals labeled offers of settlement by regulatory agencies in the federal and other state jurisdictions, the label on the proposal is irrelevant. What is relevant is whether the Commission acts within its statutory authority and abides by the applicable statutory provisions in making its determination regarding the Offer of Settlement. The Commission has broad jurisdictional authority which it must exercise appropriately to reach a resolution. There is no question that the Commission can determine just and reasonable rates based on a lawful analysis.
The Commission remains free under the Offer of Settlement to exercise all of its powers under the Act. Its resolution does not depend on the analyses of rate ranges presented by Staff and other parties. The negotiating process and range analysis preceding Staff's Offer of Settlement are not at issue. Rather, the consideration of the Offer of Settlement depends on the relevant and material evidence relating to traditional ratemaking principles. There are settlement aspects to the Offer of Settlement in that it contains certain restrictions and requirements which have not previously been imposed on a utility and which could not be imposed on a utility without its consent. Nevertheless, the Offer of Settlement must be evaluated on its merits and must be consistent with the requirements of the Act. Whether the Offer of Settlement proposes just and reasonable rates and whether its other proposals are balanced and fair will be determined by evaluating its provisions." (Emphasis added.)
Thus, the Commission held it did not treat the Settlement as a settlement agreement; rather, it Judged the Settlement as a traditional rate case based on the evidence in the record.
The intervenors argue to this court that the Commission did not have authority to enter the Sixth Order. The intervenors contend the Commission entered into an illegal rate deal or bargain with Edison rather than decide the case based on the evidence and the record. The intervenors assert the Commission improperly delegated its ratemaking authority to Edison. (See Union Electric, 77 Ill. 2d at 383-84.) According to the intervenors, the Commission, in effect, allowed Edison to set the rates by permitting Edison to choose whether to accept the Sixth Order or have the Commission decide the case on its merits.
In determining whether the Commission had authority to enter the Sixth Order, we must decide whether the Commission actually treated the Sixth Order as a traditional rate case, nontraditional rate case or settlement. A traditional rate case decision involves a one-time increase or decrease in the rates of the utility. The Commission decides, based on the evidence, whether the utility is entitled, at that time, to an increase in rates. The Commission also determines the size of the rate increase, if any, to which the utility is entitled. In order to make this decision, the Commission holds hearings and then issues an order announcing its findings, the basis for its findings and its decision. The utility is free, at anytime thereafter, to file for another rate increase, if it feels it has some basis for an increase. The Act does not limit the number of times a utility may file for a rate increase within a particular period of time. (See Ill. Rev. Stat. 1987, ch. 111 2/3, pars. 9-102, 9-201; Illinois Bell Telephone Co. v. Illinois Commerce Comm'n (1953), 414 Ill. 275, 281.) In addition, this court has held that the Act does not permit retroactive ratemaking; that is, the law prohibits refunds when rates are too high and surcharges when rates are too low. Citizens Utilities Co. v. Illinois Commerce Comm'n (1988), 124 Ill. 2d 195, 207.
A comparison of a traditional rate case with the Sixth Order reveals that the Sixth Order is nontraditional in several respects. First, the Sixth Order sets rates for a five-year period. Second, Edison cannot file for another rate increase for five years. Third, the Sixth Order allows the Commission to give ratepayers retroactive refunds. The parties and the intervenors agree that the Sixth Order is unique; the Commission has never before entered an order with these types of provisions.
Only Edison, Staff, and the IIEC agreed to the Sixth Order. Seven of the intervenors did not agree to the Sixth Order. "Unless precluded by law, Disposition may be made of any contested case by . . . agreed settlement . . .." (Ill. Rev. Stat. 1987, ch. 127, par. 1010(c).) In order for the Commission to dispose of a case by settlement, however, all of the parties and intervenors must agree to the settlement. (See Mobil Oil Corp. v. Federal Power Comm'n (1974), 417 U.S. 283, 313, 41 L. Ed. 2d 72, 98, 94 S. Ct. 2328, 2348; see also Ill. Rev. Stat. 1987, ch. 111 2/3, par. 11-302 ("The Office [of Public Counsel] shall be permitted to intervene in any Commission proceeding . . .. . . . The Office shall otherwise be treated as any party to Commission proceedings . . ."); Ill. Rev. Stat. 1987, ch. 111 2/3, par. 905(2)(d) (The Citizens Utility Board has the power to "intervene as a party . . . in any proceeding which affects the interest of utility consumers"); Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-108.) Consequently, Edison and the Commission could not enter into a settlement alone, without the agreement of the seven intervenors. The Commission realized this and, therefore, stated in the Sixth Order: "he Offer of Settlement is not a settlement agreement and should not be Judged by the standards for such an agreement." The Commission went on to assert that the Settlement had to be justified by "traditional ratemaking principles" based on "relevant and material evidence." From these statements the Commission leads us to believe it treated the Sixth Order as a traditional rate case, not as a settlement or a nontraditional rate case.
In other places in the Sixth Order, however, the findings and holdings of the Commission reveal that the Commission actually Judged the Sixth Order outside the context of a traditional rate case. For example, in finding the units used and useful pursuant to section 9 -- 212 of the Act, the Commission stated:
"Thus, there is no question that a determination that Byron Unit 2 and Braidwood Unit 1 are used and useful under the terms of the Offer of Settlement is . . . appropriate . . .. The Commission makes no determination whether Byron Unit 2 and Braidwood Unit 1 would or would not be found to be used and useful under the terms of a traditional rate case or whether Braidwood Unit 2 would or would not be found to be used and useful under the terms of the Offer of Settlement or the terms of a traditional rate case. Such determinations are beyond the scope of this Order." (Emphasis added.)
At another point in the Sixth Order, while discussing the second-step rate increase, the Commission held:
"If Edison is willing to accept this [Sixth] Order and a cap of $245 million on the second step rate increase, the Commission will proceed with the next phase of this proceeding. Otherwise, the Commission will reconsider the opinions and Conclusions expressed ...