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Highland Supply Corporation, An Illinois Corporation v. Illinois Power Company

August 9, 2012


Appeal from the Circuit Court of Madison County. No. 09-MR-421 Honorable Clarence W. Harrison II, Judge, presiding.

The opinion of the court was delivered by: Justices: Honorable Bruce D. Stewart, J.


Decision filed 08/09/12.

The text of this decision may be changed or corrected prior to the filing of a Petition for Rehearing or the disposition of the same.

JUSTICE STEWART delivered the judgment of the court, with opinion. Justices Spomer and Wexstten concurred in the judgment and opinion.


¶ 1 The plaintiff, Highland Supply Corporation (Highland Supply), is in the business of manufacturing and marketing decorative packaging. It owns two manufacturing/warehousing facilities in or near the City of Highland, Illinois. The defendant, Illinois Power Company, doing business as AmerenIP (Ameren), is an investor-owned public utility that furnishes electric service to various customers in Illinois. Highland Supply filed a complaint for a declaratory judgment against Ameren pursuant to section 2-701 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-701 (West 2008)), seeking a declaration that it had the right to change its electric service from Ameren to a utility that is owned and operated by the City of Highland, Illinois. Ameren objected to Highland Supply's request to the extent that it sought to change its "delivery service" from Ameren to the municipally owned utility. The circuit court ruled in favor of Ameren and entered a summary judgment in its favor based on the court's construction of the terms of the parties' contracts. Highland Supply filed a timely notice of appeal. For the following reasons, we reverse.


¶ 3 The furnishing of electric service involves two distinct elements: (1) the "supply" of electric power, i.e., the electricity itself, and (2) the services necessary for the "delivery" of the electricity or "delivery service," i.e., those services necessary for the transmission and distribution of electricity, including lines, meters, and billing. 17 Ill. L. & Prac. Electricity & Gas § 9 (2012). Prior to December 1997, electric utilities in Illinois, in general, enjoyed a legislatively approved monopoly on the furnishing of electric service to customers in their defined service areas.*fn1 Customers in a utility's defined service area purchased a single "bundled" service that included the supply of electricity as well as delivery service. Strategic Energy, LLC v. Illinois Commerce Comm'n, 369 Ill. App. 3d 238, 247, 860 N.E.2d 361, 369 (2006).

¶ 4 On August 15, 1995, Highland Supply and Ameren entered into an "Electric Service Contract" that provided that Highland Supply would begin to purchase bundled electric service from Ameren for its two facilities. This contract is not at issue in the present case. Prior to this contract, Highland Supply purchased bundled service from an electric utility owned and operated by the City of Highland, Illinois. At the time of the 1995 agreement, Ameren believed that it had the right to provide electric service to Highland Supply's facilities but also believed that the City of Highland was likely to contest Ameren's right to provide the electric service.*fn2 The parties' contract included an indemnification agreement whereby Ameren agreed to indemnify Highland Supply and pay for any defense arising out of Highland Supply's discontinuance of electric service from the City of Highland. The record does not establish whether the City of Highland ever objected to or contested Highland Supply's switch to Ameren for its electric service.

¶ 5 Effective December 16, 1997, the legislature enacted the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) (220 ILCS 5/16-101 to 16-130 (West 2010)). The Customer Choice Law was designed to move "the Illinois electric industry from a heavily regulated world toward a competitive marketplace." Local Union Nos. 15, 51, & 702 v. Illinois Commerce Comm'n, 331 Ill. App. 3d 607, 608-09, 772 N.E.2d 340, 341 (2002). The Customer Choice Law amended the Public Utilities Act in order to introduce competition with respect to the "supply" portion of electric service. The Customer Choice Law allows for the creation of entities called "alternative retail electric suppliers" (ARES) that are authorized to sell and market electricity to customers. Illinois Power Co. v. Illinois Commerce Comm'n, 316 Ill. App. 3d 254, 257, 736 N.E.2d 196, 199 (2000). Eligible retail customers can then purchase "unbundled" service, i.e., electric "supply" from an ARES that is different than the entity providing the customer's delivery service. Strategic Energy, LLC, 369 Ill. App. 3d at 247, 860 N.E.2d at 369. Under the statute, customers can select unbundled service from an ARES, or they can continue to purchase bundled service from their local utility. Id.

¶ 6 Although the Customer Choice Law introduced competition with respect to the "supply" of electricity, under this new statutory scheme, the local electric utility continues to supply its customers with "delivery service." Commonwealth Edison Co. v. Illinois Commerce Comm'n, 328 Ill. App. 3d 937, 939, 767 N.E.2d 504, 506 (2002). "Because facilities that transmit and distribute electricity are not easily replicated, the Customer Choice Law provides that the existing utility companies will continue to control the transmission and distribution of electricity in their service areas, even after the introduction of competition to the market." Illinois Power Co., 316 Ill. App. 3d at 257, 736 N.E.2d at 200.

¶ 7 In the present case, as noted above, prior to the enactment of the Customer Choice Law, Highland Supply purchased bundled service from Ameren for its two manufacturing/warehousing facilities pursuant to the August 15, 1995, Electric Service Contract. However, on December 17, 1997, one day after the enactment of the Customer Choice Law, Highland Supply and Ameren entered into two new contracts for bundled electric service for the two facilities. These two new contracts are at the heart of the current controversy between the parties. Pursuant to the terms of these contracts, Ameren agreed to provide electric energy to Highland Supply's facilities, and Highland Supply agreed to purchase its electric energy needs for its two facilities exclusively from Ameren during the terms of the contracts. Ameren agreed to furnish both the supply of electricity and the services necessary for delivery of the electricity.

¶ 8 The contracts provided Highland Supply with electric service at a rate discount that was unavailable to other customers under Ameren's tariff.*fn3 Each of the contracts included a recital that Highland Supply "would not have selected [Ameren] as electric supplier in the absence of this agreement." The discounted rates offered to Highland Supply in the contracts were authorized by the Illinois Commerce Commission by a separate "Electric Contract Service" tariff (ECS tariff) that allowed Ameren to provide the discounted rate to only a limited number of nonresidential customers and for only a limited period of time. The ECS tariff provided that the term of any contract under the tariff "shall be provided in the contract, but shall in no event exceed 5 years, except where service to Customer requires Utility to expend more than $1 million in transmission or distribution facilities. If such facilities are required, the term of the contract shall not exceed seven (7) years." The tariff limited Ameren to only three contracts in effect under this discounted rate at any one time.

¶ 9 Highland Supply agreed that, during the contracts' terms, Ameren would "be the sole source of supply of electricity to [Highland Supply's facilities]." The contracts authorized Ameren to select the supply lines which would service the facilities and required Highland Supply to make space available for Ameren's transformers and meters that were necessary "to the delivery of service" to the facilities. In addition, under the contracts' terms, Ameren was to provide and maintain one "Point of Delivery" at each facility at which electric energy would be supplied and a "Metering Point" at each facility at which electric demand and energy was to be measured.

¶ 10 The contracts provided that their terms began on their effective date and ran for a period of three years thereafter. Accordingly, the terms of the contracts expired on December 31, 2000.*fn4 The current dispute between Highland Supply and Ameren centers around the meaning of the following clause contained in each contract:

"This Agreement shall terminate, and this Electric Service Contract shall become null and void, without notice by either party at the end of the third year following the Effective Date ('Expiration of Contract Term'). Thereafter, [Highland Supply] may take electric service from any source, or may take electric service under any of [Ameren's] generally available service classifications for which [Highland Supply] qualifies by virtue of its load and usage characteristics." (Emphasis added.)

¶ 11 The record on appeal includes a December 16, 1997, correspondence from Highland Supply's president to the Illinois Commerce Commission (Commerce Commission or Commission) requesting approval of the "special contract" between Highland Supply and Ameren. The record, however, does not indicate whether the Commerce Commission approved the specific terms of the contracts. The ECS tariff required the contracts to be submitted to the Commerce Commission "for informational purposes." It also provided for submission of the contracts to the Commerce Commission's staff for review no less than 10 days before submitting the contract to the Commission. The record includes a transmittal letter dated December 31, 1997, from Ameren to the Commerce Commission for the filing of the contracts "for informational purposes pursuant to the provisions of Rate ECS-Electric Contract Service."

ΒΆ 12 After entering into the contracts, Highland Supply received electric service from Ameren pursuant to the rate provided in the ECS tariff until the expiration of the contracts on December 31, 2000. The record does not reflect whether any discussions or negotiations took place between Highland Supply and Ameren leading up to the expiration of the contracts. In addition, Highland Supply did not notify Ameren that it intended to take electric service from a different source prior to the expiration of the contracts. After December 31, 2000, Ameren continued to furnish bundled service to Highland Supply's two facilities. However, Ameren furnished the bundled service at the rates generally available to all customers of Highland Supply's size as set forth in Ameren's tariff, Service Classification 19, not at the discounted rate provided in the ECS tariff. An affidavit attached to ...

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