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June 4, 1996


Petition for Review of the Order of the Illinois Commerce Commission. Docket No. 92-0303.

The Honorable Justice DiVITO delivered the opinion of the court: Burke, J., concurs. Presiding Justice Hartman specially concurring.

The opinion of the court was delivered by: Divito

The Honorable Justice DiVITO delivered the opinion of the court:

The Illinois Commerce Commission (the Commission) determined that Commonwealth Edison Company (Edison) customers outside the City of Chicago (the City) are treated unfairly by Edison's recovery of the franchise fee it pays to the City, through the general rates it charges all its customers. The Commission therefore ordered Edison to remove local franchise fees and other franchise costs from base rates for all its customers and to localize recovery of those costs by adding a separate line-item charge on the bills of customers who reside in the municipality charging the fee. Under the order, residents of the City are to pay a pro rata share of the franchise fee charged to Edison by the City, while residents of other municipalities are to pay their share of franchise costs imposed by their own municipality. At issue in this appeal is whether the Commission's order constitutes rate discrimination. For the reasons that follow, we conclude that it does not.

In 1991, Edison filed a rider which localized recovery of the marginal costs of nonstandard services. City of Chicago v. Illinois Commerce Comm'n, 264 Ill. App. 3d 403, 404, 636 N.E.2d 704, 706, 201 Ill. Dec. 272 (1993). Nonstandard services, such as requiring the burying of transmission lines or the painting of utility poles, are services imposed by local ordinance beyond the services typically offered by Edison. City of Chicago, 264 Ill. App. 3d at 404, 636 N.E.2d at 706. At that time, the Commission approved Edison's rider with a modification that the recovery of nonstandard service costs imposed through franchise agreements also be localized. City of Chicago, 264 Ill. App. 3d at 406, 636 N.E.2d at 707. The modified rider, which was affirmed on appeal, did not include the fees paid pursuant to franchise agreements. City of Chicago, 264 Ill. App. 3d at 406, 636 N.E.2d at 707.

The Commission, however, ordered its staff to conduct an investigation into "restructuring the rates so that any costs imposed upon [Edison] by a local governmental unit, including but not limited to, franchise fees and free and/or reduced rate service, will be recovered solely from those ratepayers within the boundaries of the particular local governmental unit imposing such cost." City of Chicago, 264 Ill. App. 3d at 407, 636 N.E.2d at 707. As a result of staff's recommendation, on August 26, 1992, the Commission issued a citation order commencing proceedings regarding the restructuring proposed here.

Following the issuance of the citation order, many entities, including cities, villages, public interest coalitions, municipal conferences, and public utility companies, intervened or appeared. The City sought to amend the proposed restructuring to include all municipal payment obligations, including property taxes, but that motion was denied. Evidentiary hearings were held on March 10, March 11, and March 14, 1994.

Rita Athas, the executive director of the Northwest Municipal Conferences, testified that franchise compensation comes in two forms: payment to the City of a fee of 4% of Edison's gross receipts and free service to municipalities outside the City. During 1991 and 1992, City residents absorbed less than $15 million incurred from providing free service to municipalities, while customers outside the City absorbed more than $81 million incurred from the franchise fee paid to the City. Thus, customers outside the City made a net payment of approximately $34 million to Edison for its franchise payment to the City in 1991 and just over $33 million in 1992. Athas also testified that, for various reasons, real estate taxes should not be removed from base rates and treated as localized costs.

Thomas Stack, director of the water/sewer program of the Commission's Office of Policy and Planning, testified that the value of free service to the municipalities averaged 0.5% of Edison's revenues within the municipalities receiving that service. The annual cost per customer outside the City to pay for the City franchise fee was $20.51. In his estimation, customers outside the City paid $43,749,906 in 1991 for the franchise fee paid to the City and were consequently being treated unfairly by the recovery of franchise costs in general rates.

Stack further testified that electricity from a generating station does not go exclusively to customers in the area in which the generating station is located, but may go to customers in a very wide area. For example, the generating station near Kincaid is more than 200 miles from downtown Chicago and is a "mine-mouth" operation that saves coal transportation costs. Yet the power from that plant could supply customers in the City or in many other portions of Edison's service area at various periods of time.

On behalf of the City, Paul Vallas, director of the Department of Revenue for the City, testified that the City collects compensation for all commercial uses of the public ways and that no user or group is singled out for the obligation. The revenues from franchise fees are deposited into the City's general fund, along with other fee and tax receipts, and are used to provide basic community services. Because of the City's position as a center of commerce, culture, and tourism, many non-Chicagoans enjoy the benefits of the public services. Although Edison has approximately 3,000 miles of facilities in City rights-of-way, the City had not determined the costs attributable to such use.

Ross Hemphill, principal consultant with Analysis Support Network, Inc., testified that the proposed restructuring would discriminate against similar costs of doing business. Franchise fees are indistinguishable from property taxes as costs of doing business. For example, in Ogle and Grundy Counties, Edison's property tax payments subsidize local tax payments. He opined that localizing the recovery of franchise fees and costs would result in residential customers in the City paying as high as $14 million more annually and commercial and industrial customers paying $28 million more.

Edward Bodmer, another consultant with Analysis Support Network, testified that City customers subsidize non-City customers by approximately $311 million annually through franchise costs, property taxes, rate structure, distribution costs, and production costs. That testimony, however, was characterized by Peter Lazare, senior economic analyst for the Commission, as flawed. He testified that Bodmer's analysis divided Edison into two systems, one serving the City and one serving the rest of Edison's service territory. It also used embedded, rather than marginal, costs for rate design purposes, accounted for only 60% of the total distribution costs, contained several mathematical errors, and failed to spread revenues and expenses to all customers.

The 30-page order that is the subject of this appeal was entered on September 7, 1994. That order, the stated purpose of which was to remedy the unreasonable recovery of franchise fees and free and reduced service imposed on Edison by local governmental units, inter alia, directed Edison to reduce base rates for all customer classes on an equal-percentage basis by removing franchise and franchise-type costs and, correspondingly, to add to customer bills a separate line item delineating franchise and franchise-type costs. The City, pursuant to section 10-201(a) of the Public Utilities Act (220 ILCS 5/10-201(a) (West 1992)), appeals from that order.

The Commission is given the responsibility of fixing rates of public utilities that will be just and reasonable. City of Champaign v. Illinois Commerce Comm'n, 209 Ill. App. 3d 1070, 1075, 154 Ill. Dec. 438, 441, 568 N.E.2d 438, 441 (1991); 220 ILCS 5/9-201(c) (West 1992). Matters of rate regulation are of legislative character and courts should not interfere with the functions and authority of the Commission so long as its order demonstrates sound and lawful analysis. City of Chicago, 264 Ill. App. 3d at 409, 636 N.E.2d at 708.

The scope of review is limited to whether: (1) the Commission acted within its authority; (2) the Commission made adequate findings to support its decision; (3) the Commission's decision is supported by substantial evidence; and (4) constitutional rights have been violated. Illinois Bell Telephone Co. v. Illinois Commerce Comm'n, 55 Ill. 2d 461, 469, 303 N.E.2d 364, 369 (1973); City of Chicago, 264 Ill. App. 3d at 408; 636 N.E.2d at 708. Substantial evidence has been defined as "'evidence which a reasoning mind would accept as sufficient to support a particular conclusion and consists of more than a mere scintilla of evidence but may be somewhat less than a preponderance.'" Metro Utility v. Illinois Commerce Comm'n, 193 Ill. App. 3d 178, 184, 549 N.E.2d 1327, 1330-31, 140 Ill. Dec. 455 (1990), quoting Black's Law Dictionary 1281 (5th ed. 1979). On review, ...

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