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Illinois-American Water Co. v. Illinois Commerce Commission

May 18, 2001

ILLINOIS-AMERICAN WATER COMPANY, PETITIONER-APPELLANT,
v.
ILLINOIS COMMERCE COMMISSION, RESPONDENT-APPELLEE.



Petition for Review of an Order of the Illinois Commerce Commission ICC Docket No. 99-0418

The opinion of the court was delivered by: Presiding Justice Homer

Petitioner Illinois-American Water Company (Illinois-American) appeals a decision of the Illinois Commerce Commission (Commission) in a case Illinois-American initiated under the Public Utilities Act (Act) (220 ILCS 5/1-101 et seq. (West 1998)). Illinois-American sought permission to merge with Northern Illinois Water Corporation (Northern Illinois) and to recover certain merger costs from its ratepayers. While approving the merger, the Commission held that the costs at issue were transactional and not operational and therefore could not be recovered from ratepayers. We affirm.

FACTS

Illinois-American filed an application in 1999 seeking approval of its merger with Northern Illinois. Each utility was a subsidiary of American Works Company, Inc. (American Works), a holding company whose water utility subsidiaries serve more than 10 million people in 23 states. Through the Commission's order in docket No. 99-0093 (1999), the merger was approved. Prior to the merger, Illinois-American served approximately 146,000 customers in Peoria, Pekin, Cairo and Alton. Northern Illinois served 62,000 customers in Champaign, Streator, Sterling and Pontiac.

Illinois-American alleged that the merger was undertaken for the sole purpose of benefitting its consumers through cost savings and efficiencies. Evidence produced by Illinois-American projected a savings to Illinois-American consumers of $21,262,234 for the first 10 years following the merger. The majority of the savings, $13,497,857, was to be realized from a reduction in labor of 20 employees.

In order to realize the merger savings, Illinois-American alleged that it would incur $2,218,725 in expenses and desired to pass these costs on to its ratepayers. Specifically, Illinois-American requested $2,085,842 in employee transition costs, $40,000 in regulatory approval costs and $92,883 in communications costs. According to the proposal advanced by Illinois-American, these costs would be set off from the alleged consumer savings through a subsequent ratemaking scheme. In this regard, Illinois-American stated that it planned to initiate a general rate case based on a 2001 future test year. Accordingly, the alleged merger savings would be reflected in data used to establish, or reaffirm the reasonableness of rates paid by ratepayers following the merger.

Pursuant to the Commission's Rules of Practice (83 Ill. Adm. Code pt. 200 (2001)), the staff of the Commission played an integral part in the proceedings below. The staff agreed that the merger should be approved, but determined that all of the savings and none of the costs proposed by Illinois-American should be passed on to the ratepayers. According to the staff, the costs to be incurred in order to accomplish the merger are not costs of service or costs of operation of the water and sewer business. The staff maintained that the merger costs were to be incurred in order to effectuate a change in ownership of Illinois-American and not as a result of the utility's operational functions.

A hearing examiner for the Commission entered a proposed order in which he also concluded that the merger should be approved. The hearing examiner, however, rejected the staff's position that all merger costs should be disallowed. He proposed that the costs should be netted against merger savings to the extent that the costs are incurred in order to realize the savings. Nevertheless, the hearing examiner's proposed order rejected Illinois-American's claim for pension costs ($1,030,000), regulatory costs ($40,000), and employee separation and relocation costs ($585,520). As a result, the hearing examiner's estimation of the costs Illinois-American should be allowed to recover was $563,205 (stock plan costs of $470,322 and communication costs of $92,883).

The Commission's final order adopted the staff's position in full and rejected the hearing examiner's conclusion that stock plan costs of $470,322 and communication costs of $92,883 should be recovered from ratepayers. Consequently, Illinois-American was ordered by the Commission to pass on all of the merger savings and none of its merger costs to its consumers.

Illinois-American now appeals. Other facts relevant to the appeal will be introduced as they become necessary to the discussion.

SCOPE OF REVIEW

On appeal from the Commission, this court's review is limited to considering whether: (1) the Commission acted within its authority; (2) state or federal constitutional rights have been infringed; (3) the decision is supported by substantial evidence; and (4) adequate findings were made to support the decision. Lakehead Pipeline Co. v. Illinois Commerce Comm'n, 296 Ill. App. 3d 942, 949, 696 N.E.2d 345, 350 (1998). The Commission's findings and conclusions regarding factual questions are to be held prima facie true, and Commission rules, orders and decisions are to be considered prima facie reasonable. People ex rel. O'Malley v. Illinois Commerce Comm'n, 239 Ill. App. 3d 368, 376, 606 N.E.2d 1283, 1289 (1993). The burden of proof on all issues raised on appeal rests with the appellant. 220 ILCS 5/10-201(d) (West 1998); United Cities Gas Co. v. Illinois Commerce Comm'n, 163 Ill. 2d 1, 11, 643 N.E.2d 719, 725 (1994).

ANALYSIS

The sole issue presented by this appeal is whether the Commission properly denied Illinois-American recovery of the costs that it requested from its ratepayers. Illinois-American's three principal arguments for reversing the Commission's decision are: (1) that the Commission departed from its past decisions by rejecting recovery of the costs; (2) that the Commission made insufficient findings to support informed review by this court; and (3) that the Commission infringed Illinois-American's right to equal protection under the fourteenth ...


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