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Apple Canyon Lake Property Owners' Association and Lake Wildwood Association, Inc v. Illinois Commerce Commission and the People of the State of Illinois

March 5, 2013

APPLE CANYON LAKE PROPERTY OWNERS' ASSOCIATION AND LAKE WILDWOOD ASSOCIATION, INC., PETITIONERS/CROSS-RESPONDENTS,
v.
ILLINOIS COMMERCE COMMISSION AND THE PEOPLE OF THE STATE OF ILLINOIS, EX REL.
LISA MADIGAN, ATTORNEY GENERAL OF THE STATE OF ILLINOIS, RESPONDENTS
(APPLE CANYON UTILITY COMPANY AND LAKE WILDWOOD UTILITIES CORPORATION, ) RESPONDENTS AND ) CROSS-PETITIONERS). THE PEOPLE EX REL. LISA MADIGAN, ATTORNEY GENERAL OF THE STATE OF ILLINOIS, PETITIONER,
v.
ILLINOIS COMMERCE COMMISSION, APPLE CANYON UTILITY COMPANY, ) LAKE WILDWOOD UTILITIES CORPORATION, APPLE CANYON LAKE PROPERTY OWNERS' ASSOCIATION AND LAKE WILDWOOD ASSOCIATION, INC., RESPONDENTS.



Petitions for Review of Order of the Illinois Commerce Commission, Nos. 09-0548, 09-0549

The opinion of the court was delivered by: Justice Holdridge

JUSTICE HOLDRIDGE delivered the judgment of the court, with opinion.

Justices Lytton and Schmidt concurred in the judgment and opinion.

OPINION

¶ 1 This is an appeal of an order of the Illinois Commerce Commission (Commission) setting increased water rates to be charged by two water utilities, Apple Canyon Utility Company and Lake Wildwood Utilities Corporation (the Utilities). Appellants Apple Canyon Lake Property Owners' Association and Lake Wildwood Association (the Associations) represent all of the ratepayers served by the Utilities. The Associations maintain that the Commission violated the Public Utilities Act (the Act) (220 ILCS 5/1-101 et seq. (West 2008)) and the Illinois Administrative Procedure Act (5 ILCS 100/1-1 et seq. (West 2008)) by: (1) refusing to consider comments posted by ratepayers on the Commission's website and statements made by ratepayers at public forums regarding this water rate case; and (2) striking all references to these comments from the brief that the Associations filed with the Commission. The People have intervened to support the Associations' arguments on these issues.

¶ 2 The Associations also contend that the Commission erred by allowing the Utilities to include in the new water rate base the allocated costs of new billing and accounting systems recently implemented by the Utilities' parent company. Specifically, the Associations argue that the Commission violated the Act by failing to require the Utilities to prove that these new costs were just, reasonable, and of direct benefit to the ratepayers.

¶ 3 The Associations ask us to reverse the Commission's order and direct the Commission to:

(1) consider the public comments posted on the Commission's website and those made at the public forum in making its final decision regarding any new water rates;*fn1 and (2) require the Utilities to prove that the proposed allocated costs of the new billing and accounting systems are just, reasonable, and of direct benefit to the ratepayers affected by the Commission's order.

¶ 4 The Utilities have filed a cross-appeal challenging two aspects of the Commission's order. First, the Utilities argue that the Commission erred by allowing the Utilities to recover certain operation and management (O&M) and general expenses based upon a five-year historical average of those expenses rather than the actual expenses incurred in 2008, which was the "test year"chosen by the Utilities. Second, the Utilities maintain that the Commission erred by denying their application for rehearing which allegedly set forth "new evidence" regarding the Utilities' recoverable rate case expenses (i.e., the expenses that the Utilities incurred in prosecuting this rate case before the Commission and on appeal to this court).

¶ 5 The Commission filed a motion to strike those portions of the Associations' brief on appeal which cite or refer to the public comments made by ratepayers on the Commission's website and during the two public forums held by the Commission. The Commission also moved to strike the web comments and the transcripts of the public forums from the separate appendix filed by the Associations. The Commission argues that these materials were not part of the appellate record certified by the Commission and that this court may not take judicial notice of them. The Associations and the People filed separate responses to the Commission's motion. We took the Commission's motion with the case.

¶ 6 BACKGROUND

¶ 7 Apple Canyon Utility Company provides water usage service to approximately 890 customers and water availability service to approximately 1,800 customers in Jo Daviess County. Lake Wildwood Utilities Corporation provides water usage service to approximately 460 customers and water availability service to approximately 950 customers in Marshall County. Both companies are wholly owned subsidiaries of Utilities, Inc., which owns water utilities in Illinois and 15 other states.

¶ 8 On October 4, 2009, the Utilities separately filed amended tariff sheets instituting a general increase in rates for water service. Both companies proposed increasing rates for a typical customer by 275%. On November 12, 2009, the Commission suspended the amended tariff sheets from going into effect and initiated a proceeding to investigate the propriety of the proposed rate increases. The Associations were allowed to intervene. Commission staff also participated.

¶ 9 Pursuant to section 8-306(n) of the Act (220 ILCS 5/8-306(n) (West 2008)), the Associations requested that public forums be held to solicit comments on the proposed rate increases from members of the public. The Commission conducted public forums on February 24, 2010, for the Lake Wildwood Association and on March 2, 2010, for the Apple Canyon Lake Property Owners' Association. Transcripts of the two public forums were filed on the Commission's electronic docket.

¶ 10 In addition, pursuant to section 2-107 of the Act (220 ILCS 5/2-107 (West 2008)), several ratepayers posted comments on the Commission's website. Specifically, 72 of the Companies' 1,370 active customers (or 5.3%) posted comments on the website. In their posted comments, the ratepayers expressed concerns about the magnitude of the proposed rate increases and the effect that the proposed rate increases would have on their already strained budgets. Some ratepayers also discussed various problems with water bills and customer service that they had allegedly experienced since the Utilities' parent company implemented new billing and accounting systems.

¶ 11 The cases were consolidated, discovery was conducted, and written testimony was filed.*fn2

On May 18, 2010, an evidentiary hearing was conducted before an administrative law judge (ALJ). During the hearing, the parties presented documentary evidence and witness testimony, including expert testimony. The managers of the Associations and at least one ratepayer, a resident of the Lake Wildwood Association, testified on behalf of the Associations. Among other issues, the parties presented evidence regarding the cost, effectiveness, and necessity of the new accounting and billing systems recently implemented by the Utilities' parent company and whether those systems provided benefits to ratepayers.

¶ 12 After the hearing, the parties filed written briefs with the Commission. In their "Joint Initial Hearings Brief," the Associations referred to some of the public comments made on the Commission's website and during the public forums, citing to the website entries and the public forum transcripts found on the Commission's electronic docket. The Commission staff moved to strike these references from the Associations' brief. The Commission staff argued that public comments made on the Commission's website or during public forums were not part of the Commission's record for decision and, therefore, could not becited by the parties. The ALJ issued an order granting the staff's motion to strike.

¶ 13 The Association timely filed a petition for interlocutory appeal of the ALJ's order with the Commission. The People of the State of Illinois intervened for the limited purpose of addressing the petition for interlocutory review. The People asked the Commission to reverse the ALJ's order and rule that: (1) both the ALJ and the Commission are obligated under the law to consider the public comments made on the Commission's website and during public forums; and (2) the parties are entitled to cite and quote such public comments in briefs and other documents filed with the Commission. The Commission denied the Associations' petition for interlocutory review, ruling that it was required to make decisions based on the "evidentiary record," which did not include unsworn comments made by members of the general public.

¶ 14 The ALJ subsequently issued a written proposed order on the merits of the rate case. The parties and the Commission staff each filed replies and exceptions to the ALJ's proposed order. The Commission held oral argument and issued its final order on September 9, 2010. The Commission's order included in the new rate base the allocated costs of new billing and accounting systems recently implemented by the Utilities' parent company. It also allowed the Utilities to recover certain O&M and general expenses based upon a five-year average of those expenses from 2004 to 2008. The order's sole reference to the public comments was a statement that "[t]he Commission conducted public hearings on February 24, 2010 for Lake Wildwood and on March 2, 2010 for Apple Canyon."

¶ 15 The Associations, the People, and the Utilities each subsequently filed applications for rehearing. The Utilities argued, inter alia, that "new information" which was not available at the time of the hearings showed that the Utilities' rate case expenses (i.e., the Utilities' cost of litigating the rate case before the Commission and on appeal), were higher than previously anticipated by the parties. The Commission denied all of the parties' applications for rehearing.

¶ 16 The Associations and the People appealed the Commission's order striking references to the public forum and website comments from the Associations' brief. The Associations also appealed the Commission's order permitting the Utilities to recover the allocated costs of the new billing and accounting systems. The Utilities cross-appealed the Commission's ruling on O&M expenses and the Commission's denial of the Utilities' application for rehearing regarding its rate case expenses. The appeals were consolidated.

¶ 17 After the Associations filed their opening brief on appeal, the Commission filed a motion to strike from the Associations' brief all citations or references to the public comments made on the Commission's website and during the public forums, and to strike from the Associations' separate appendix the transcripts of the website comments and the public forums. The Commission argued that these materials were not part of the appellate record certified by the Commission and that this court may not take judicial notice of them. The Associations and the People filed separate responses to the motion. On August 2, 2011, this court ruled that the Commission's motion would be taken with the case.

¶ 18 ANALYSIS

¶ 19 The Act prescribes the standard and scope of appellate review of Commission orders. An appellate court "shall reverse a Commission rule, regulation, order or decision, in whole or in part," if it finds that: (1) the findings of the Commission are not supported by substantial evidence based on the entire record of evidence presented to the Commission for and against such order or decision; (2) the Commission lacked jurisdiction to enter the order or decision; (3) the order or decision is "in violation of the State or federal constitution or laws"; or (4) the proceedings or manner by which the Commission considered and decided its order or decision were in violation of the state or federal constitution or laws, to the prejudice of the appellant. 220 ILCS 5/10-201(e)(iv) (West 2008); see also Pliura Intervenors v. Illinois Commerce Comm'n, 405 Ill. App. 3d 199, 207 (2010).

ΒΆ 20 The standard of review is deferential. Orders or decisions of the Commission are deemed "prima facie reasonable," and the Commission's findings of fact are deemed prima facie true. 220 ILCS 5/10-201(d) (West 2008). The party appealing an order or decision of the Commission bears the burden of proof upon all issues raised by the appeal. 220 ILCS 5/10-201(d) (West 2008); see also Pliura Intervenors, 405 Ill. App. 3d at 207. Thus, the Commission's findings and conclusions on questions of fact will not be disturbed unless they are against the manifest weight of the evidence. Pliura Intervenors, 405 Ill. App. 3d at 207; Illinois-American Water Co. v. Illinois Commerce Comm'n, 331 Ill. App. 3d 1030, 1036-37 (2002). To obtain ...


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