Apple Canyon Lake Property Owners' Ass'n v. Illinois Commerce Comm'n , 985 N.E.2d 695 ( 2013 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Apple Canyon Lake Property Owners’ Ass’n v. Illinois Commerce Comm’n,
2013 IL App (3d) 100832Appellate Court APPLE CANYON LAKE PROPERTY OWNERS’ ASSOCIATION and
Caption 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.
District & No. Third District
Docket Nos. 3-10-0832, 3-10-0898 cons.
Filed March 5, 2013
Held When entering an order increasing the rates charged by two water
(Note: This syllabus utilities, the Illinois Commerce Commission erred in striking references
constitutes no part of to comments made by members of the homeowners associations
the opinion of the court representing the ratepayers at public forums and on the Commission’s
but has been prepared website; therefore, the cause was remanded to the Commission with
by the Reporter of directions to allow citation and consideration of the public comments and
Decisions for the inclusion of them in the administrative record and the record on appeal.
convenience of the
reader.)
Decision Under Petitions for review of order of Illinois Commerce Commission, Nos. 09-
Review 0548, 09-0549.
Judgment Affirmed in part and reversed in part; cause remanded.
Counsel on Richard C. Balough (argued) and Cheryl Dancey Balough, both of
Appeal Balough Law Offices, LLC, of Chicago, for Apple Canyon Lake Property
Owners’ Association and Lake Wildwood Association, Inc.
Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro,
Solicitor General, and Carl J. Elitz (argued), Assistant Attorney General,
of counsel), for People ex rel. Lisa Madigan.
W. Michael Seidel (argued) and Scott M. Levin, both of Howard &
Howard PLLC, of Chicago, and Scott J. Rubin, of Bloomsburg,
Pennsylvania, for Apple Canyon Utility Company and Lake Wildwood
Utilities Corporation.
Thomas R. Stanton (argued), General Counsel, of Illinois Commerce
Commission, and John P. Kelliher, Special Assistant Attorney General,
both of Chicago, for Illinois Commerce Commission.
Panel 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.
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¶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;1 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
1
Similarly, the People ask us to reverse and order the Commission “to give due consideration
to the substance of the public comments received by the Commission at its public forums and from
its website, and to make those comments part of its administrative record.”
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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.2
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 be cited 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
2
The managers of each of the Associations filed written testimony, as did one resident of the
Lake Wildwood Association. The Associations also filed expert testimony.
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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
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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).
¶ 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 reversal of such factual findings, “the appellant must show that the
opposite conclusion is clearly evident.” (Internal quotation marks omitted.) Pliura
Intervenors, 405 Ill. App. 3d at 207.
¶ 21 Moreover, despite the general proposition that issues of law are reviewed de novo,
“courts will give substantial weight and deference to an interpretation of an ambiguous
statute by the agency charged with the administration and enforcement of the statute.” People
v. Marshall, 242 Ill. 2d 285, 295 (2011); Illinois Consolidated Telephone Co. v. Illinois
Commerce Comm’n, 95 Ill. 2d 142, 152 (1983). Reviewing courts defer to an agency’s
interpretation of such statutes because an agency’s interpretation “expresses an informed
opinion on legislative intent, based upon expertise and experience.” Marshall, 242 Ill. 2d at
295. However, courts will not defer to an agency’s construction of a statute when the statute
is clear and unambiguous because “an interpretation placed upon a statute by an
administrative official cannot alter its plain language.” Burlington Northern, Inc. v.
Department of Revenue, 32 Ill. App. 3d 166, 174 (1975); see also Gray Panthers v.
Department of Insurance, 110 Ill. App. 3d 971 (1982). Nor will a reviewing court defer to
an administrative agency’s interpretation of a statute if the agency’s interpretation is
unreasonable. Griggsville-Perry Community Unit School District No. 4 v. Illinois
Educational Labor Relations Board, 2011 IL App (4th) 110210, ¶ 14.
¶ 22 Bearing these principles in mind, we turn to the issues raised by the parties.
¶ 23 A. The Associations’ Appeal
¶ 24 1. The Commission’s Decision to Strike the Public Comments
¶ 25 The Associations and the People argue that recent amendments to the Act require the
Commission to consider public comments made during public forums and public comments
posted on the Commission’s website in deciding contested ratemaking cases like the case at
bar. They also maintain that the Act and the Administrative Procedure Act unambiguously
establish that these public comments are part of the Commission’s record for decision.
Accordingly, they contend that the Commission erred in failing to consider the public
comments and in striking references to the content of those comments from the Associations’
brief.
¶ 26 To decide whether the Commission’s decision to strike references to the public
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comments from the Associations’ briefs was reversible error, we must first determine
whether the website and public forum comments were part of the Commission’s record for
decision. If the public comments were outside the Commission’s record, then it was
improper for the Associations to cite the comments in their briefs, and we must affirm the
Commission. However, if we find that the public comments were part of the record, we must
then determine whether it was error for the Commission to strike the comments from the
parties’ briefs. We must also determine whether the Commission gave the public comments
proper consideration during the proceeding and, if not, whether its failure to consider the
comments was error. If we find that the Commission erred in either respect, we will reverse
if the Associations were prejudiced by the error. We address these issues in turn.
¶ 27 a. Whether the Public Comments Were Part of the Commission’s Record
¶ 28 In 2006, the legislature amended the Act by adding certain special provisions relating to
water and sewer utilities. 220 ILCS 5/8-306 (West 2006). One of those new provisions
provides that:
“When any public utility providing water or sewer service proposes a general rate
increase, in addition to other notice requirements, the water or sewer public utility must
notify its customers of their right to request a public forum. A customer or group of
customers must make written request to the Commission for a public forum and must
also provide written notification of the request to the customer’s municipal or, for
unincorporated areas, township government. The Commission, at its discretion, may
schedule the public forum. *** The day of each public forum shall be selected so as to
encourage the greatest public participation. *** Reports and comments made during or
as a result of each public forum must be made available to the hearing officials and
reviewed when drafting a recommended or tentative decision, finding or order pursuant
to Section 10-111 of this Act.” (Emphasis added.) 220 ILCS 5/8-306(n) (West 2008).
¶ 29 In 2007, the legislature amended the Act again by requiring the Commission to “provide
a web site and a toll-free telephone number to accept comments from Illinois residents
regarding any matter under the auspices of the Commission or before the Commission.” 220
ILCS 5/2-107 (West 2008). The 2007 amendment further provided that “[t]he Commission
staff shall report, in a manner established by the Commission that is consistent with the
Commission’s rules regarding ex parte communications, to the full Commission comments
and suggestions received through [the website and toll-free telephone number] before all
relevant votes of the Commission.” (Emphases added.) Id.¶ 30 Section 10-103 of the Act provides that the record for decision in a Commission case
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 Section 10-35 of the Illinois Administrative Procedure Act.” 220
ILCS 5/10-103 (West 2008). Section 10-35 of the Administrative Procedure Act provides,
in relevant part, that the record in a contested case “shall include” eight separate categories
of materials, including (among other things) all of the evidence received, the pleadings,
“[a]ny decision, opinion, or report by the [ALJ],” and all “staff memoranda” or “data
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submitted to the administrative law judge or members of the agency in connection with their
consideration of the case that are inconsistent with Section 10-60.” (Emphases added.) 5
ILCS 100/10-35(a) (West 2008).3
¶ 31 When read together, these statutory provisions unambiguously provide that the public
forum and website comments at issue were part of the Commission’s record for decision in
this case. Because this is a contested case, the Commission’s record for decision includes all
information described in section 10-35 of the Administrative Procedure Act (220 ILCS 5/10-
103 (West 2008)), including any “staff memoranda or data submitted to the administrative
law judge or members of the agency in connection with their consideration of the case.” 5
ILCS 100/10-35(a)(7) (West 2008). Under the recent amendments to the Act, the
Commission staff must report any comments and suggestions received through the
Commission’s website before the Commission votes on the case. 220 ILCS 5/2-107 (West
2008). Similarly, public comments made during a public forum must be made available to
the ALJ and reviewed by the ALJ when drafting a tentative decision. 220 ILCS 5/8-306(n)
(West 2008). Thus, both types of public comments constitute either “staff memoranda” or
“data” that is “submitted to the administrative law judge or members of the agency in
connection with their consideration of the case.” 5 ILCS 100/10-35(a)(7) (West 2008). For
this reason alone, the website and public forum comments were part of the Commission’s
record for decision.
¶ 32 The Commission argues that the Associations and the People forfeited the argument that
the public forum and website comments were part of the Commission’s record for decision
under section 10-35(7) of the Administrative Procedure Act because they failed to raise this
argument in their applications for rehearing and raised it for the first time on appeal. Contrary
to the Commission’s assertion, however, both the Associations and the People raised this
argument in their applications for rehearing.
¶ 33 On the merits, the Commission argues that the public forum and website comments are
not “staff memoranda” or “staff data” under section 10-35(a)(7) of the Administrative
Procedure Act because: (1) they are comments made by the public, not the Commission’s
staff; and (2) the public forum comments are transcribed by a certified public accountant
employed by Sullivan’s reporting company–not the Commission staff–before they are posted
on the electronic docket. However, the Commission does not and cannot deny that the
Commission staff is responsible for reporting the website comments to the Commission. See
220 ILCS 5/2-107 (West 2008). Moreover, the fact that the Commission staff is required to
report these comments before the Commission votes on the case establishes that the
comments are submitted to the Commission “in connection with [its] consideration of the
3
Section 10-60 of the Administrative Procedure Act addresses ex parte communications. 5
ILCS 100/10-60 (West 2008). Thus, section 10-35 of the Administrative Procedure Act provides that
the Commission’s record shall include all staff memoranda or data submitted to the administrative
law judge or members of the agency in connection with their consideration of the case that are not
ex parte communications.
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case.” 5 ILCS 100/10-35(a)(7) (West 2008).4
¶ 34 In any event, contrary to the Commission’s suggestion, section 10-35(a)(7) refers to “staff
memoranda or data,” not “staff memoranda or staff data.” (Emphases added.) 5 ILCS
100/10-35(a)(7) (West 2008). Thus, by its plain terms, section 10-35(a)(7) includes any
“data” submitted to the ALJ and/or the Commission in connection with their consideration
of the case, regardless of whether the data was authored or submitted by the Commission
staff. Because the public forum and website comments at issue here were submitted to the
ALJ or the Commission “in connection with their consideration of the case,” the public
comments clearly fall within the ambit of section 10-35(a)(7). Id.¶ 35 The Commission and the Utilities also argue that the legislative history of section 8-
806(n) of the Act shows that the legislature intentionally decided that the public forum
comments should not be included in the Commission’s record for decision. However,
because we find that the plain language of the relevant sections of the Act and the
Administrative Procedure Act unambiguously require these comments to be included in the
record, it is neither necessary nor appropriate for us to consider any legislative history.
People v. Fitzpatrick, 158 Ill. 2d 360, 364-65 (1994) (ruling that “[w]here the statutory
language is clear and unambiguous, it will be given effect without resorting to other aids for
construction,” and the reviewing court “need not refer to the legislative history”); In re
Marriage of Mathis, 2011 IL App (4th) 110301, ¶ 9 (“a court may examine legislative history
only when the legislature’s intent is not clear from the statute’s plain language”). Regardless,
even if we were to consider the legislative history of section 8-806(n), it would not change
the result because the legislative history is susceptible to multiple interpretations and does
not clearly demonstrate that the legislature intended to exclude public forum comments from
the record.
¶ 36 In sum, we hold that, when sections 8-306(n), 2-107, and 10-103 of the Act are read in
conjunction with section 10-35(a)(7) of the Administrative Procedure Act, these statutes
unambiguously provide that the website and public forum comments are part of the
Commission’s record for decision. Because this interpretation is compelled by the plain
language of the statutory provisions themselves, the Commission’s contrary interpretation
is not entitled to deference. See, e.g., Abrahamson v. Illinois Department of Professional
Regulation, 153 Ill. 2d 76, 97 (1992) (“a court of review is not bound by an administrative
agency’s interpretation of a statute”); Burzic v. Illinois Workers’ Compensation Comm’n, 391
Ill. App. 3d 202, 208 (2009) (ruling that “[i]f the language of the statute is clear and
unambiguous, the court must interpret the statute according to its terms” regardless of the
interpretation provided by the agency); Burlington Northern, Inc., 32 Ill. App. 3d at 174 (“an
interpretation placed upon a statute by an administrative official cannot alter its plain
language”); see also Gray Panthers, 110 Ill. App. 3d at 973.5
4
This is true regardless of whether the Commission is required to consider the website
comments before voting on the case and regardless of whether it actually considers them.
5
The People argue that the website and public forum comments are part of the Commission’s
record for a second, independent reason. Specifically, the People argue that the website and public
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¶ 37 b. Whether the Commission Erred in Striking the Public Comments
¶ 38 Although we have determined that the website and public forum comments were part of
the Commission’s record for decision in this case, this does not end our inquiry. We must
also determine whether the Commission’s decision to strike the comments from the
Associations’ brief was improper.
¶ 39 The Commission and the Utilities argue that, regardless of whether the website and
public forum comments are part of the Commission’s record for decision, the Commission
properly struck them from the Associations’ brief because they are not evidence. The
Administrative Procedure Act provides that “[f]indings of fact shall be based exclusively on
the evidence and on matters officially noticed.” (Emphasis added.) 5 ILCS 100/10-35(c)
(West 2008).6 The public comments at issue were not introduced as evidence in the hearing.
Moreover, the Commission argues that, because the public comments were unsworn
statements that were not subject to cross-examination or the other rigors of the fact-finding
process, they could not possibly be considered competent evidence capable of assisting the
Commission in resolving any disputed factual issues. Thus, the Commission and the Utilities
contend that the Commission had the discretion to strike the comments from the parties’
briefs in order to preserve the integrity of the fact-finding process. We disagree.
¶ 40 It is true that the Commission must base its factual findings on the evidence and on
matters officially noticed (5 ILCS 100/10-35 (West 2008)) and that nothing can be treated
as evidence unless it is introduced as evidence and satisfies the threshold evidentiary
requirements of admissibility. Village of Montgomery v. Illinois Commerce Comm’n, 249 Ill.
App. 3d 484, 495 (1993). It is also true that not everything in the Commission’s record for
decision meets these requirements and qualifies as evidence. For example, although ex parte
communications must be disclosed by the Commission and included in the record in
contested cases (5 ILCS 100/10-35(a)(8) (West 2008)), “[n]o such communication shall form
the basis for any finding of fact” (id.). Accordingly, the Commission may not rely on such
forum comments constitute “requests filed in the proceeding,” and are therefore included in the
Commission’s record pursuant to section 10-103 of the Act. 220 ILCS 5/10-103 (West 2008).
However, as the Commission correctly argues, the People have forfeited this argument by failing to
raise the argument in their application for rehearing before the Commission. The Act expressly limits
the scope of a party’s appeal to the reviewing court to those issues raised in the application for
rehearing before the Commission. 220 ILCS 5/10-113(a) (West 2008) (“No person or corporation
in any appeal shall urge or rely upon any grounds not set forth in such application for a rehearing
before the Commission.”); Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111, 134
(1995); Independent Voters of Illinois v. Illinois Commerce Comm’n, 117 Ill. 2d 90, 100-01 (1987).
We therefore decline to address the People’s alternative argument.
6
The parties do not argue that the Commission took official notice of the content of the
public comments in deciding the case, and we have found nothing in the record suggesting that it did
so. Nor do the parties address whether the Commission could or should have taken official notice
of the comments. Thus, we do not decide that question here.
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communications when resolving disputed issues of fact in contested cases, and it may
properly strike such communications from the parties’ briefs even though they are included
in the record for decision. See Village of Montgomery, 249 Ill. App. 3d at 495.
¶ 41 However, resolving disputed factual issues is not the only purpose of a contested
ratemaking proceeding under the Act. As the People and the Associations correctly note, the
Act requires the Commission in a contested case to determine whether the rate increases
proposed by a utility are “just and reasonable.” 220 ILCS 5/9-201(c) (West 2008). To make
this ultimate determination, the Commission must resolve disputed factual issues, but it must
also consider certain equitable and policy considerations. For example, the Commission must
ensure that consumers are treated fairly (220 ILCS 5/1-102(d) (West 2008)), that “the
application of rates is based on public understandability and acceptance of the reasonableness
of the rate structure and level” (220 ILCS 5/1-102(d)(ii) (West 2008)), and that “the rates for
utility services are affordable and therefore preserve the availability of such services to all
citizens” (220 ILCS 5/1-102(d)(viii) (West 2008)). The public website and public forum
provisions in sections 2-107 and 8-306 of the Act enable members of the public to inform
the Commission whether the proposed new rates and the rate structure are understandable,
generally accepted, and considered affordable by the public. They also help to inform and
guide the Commission’s discretion in its efforts to determine whether the rate increases
proposed by the utilities are fair, just, and reasonable. Striking this information from the
parties’ briefs undermines these statutory objectives. It also improperly prohibits the parties
from referring to or commenting upon material that the ALJ is legally required to consider
in deciding the case. See 220 ILCS 5/8-306(n) (West 2008).
¶ 42 Moreover, the Commission had no authority under any statute or Commission rule to
strike the website and public forum comments from the Associations’ brief. The Commission
relies upon section 200-190(a) of title 83 of the Illinois Administrative Code, which provides
that “[m]otions may be presented requesting *** the striking of irrelevant, immaterial,
scurrilous or unethical matter.” 83 Ill. Adm. Code 200-190(a) (1996). However, the
Commission and the Utilities do not and cannot argue that the public comments at issue were
“scurrilous” or “unethical.” Nor can they plausibly maintain that the website and public
forum comments were “irrelevant” or “immaterial” to this ratemaking proceeding. As noted
above, the Act requires the ALJ to review the public forum comments when drafting a
proposed decision (220 ILCS 5/8-306(n) (West 2008)) and requires the Commission staff to
report the website comments to the Commission before it votes on the matter (220 ILCS 5/2-
107 (West 2008)). Thus, although the public comments may not be treated as evidence or
relied upon to resolve contested issues of fact, the legislature has ordained that the comments
are relevant to ratemaking proceedings. Because the public comments might affect the
Commission’s decision, and because they are part of the Commission’s record, the parties
must be given an opportunity to cite to the comments in their briefs and to make permissible
arguments about the comments’ significance.
¶ 43 That is precisely what the Associations attempted to do here. The Associations’ opening
brief contained five comments taken verbatim from the Commission’s website and seven
excerpts accurately quoted from the public forums. In these comments, members of the
public characterized the rate increases proposed by the utilities as excessive, unfair, and
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unaffordable. The Associations offered these comments to demonstrate that the ratepayers
had “voiced concerns” and “expressed opposition to” the proposed rate increases. In other
words, the Associations cited the public comments at issue to demonstrate that there was a
public outcry against the proposed rate increases. That fact is relevant to the question
whether the public understands and accepts the proposed rate increases and whether those
increases are just and reasonable. As noted above, the Commission is required by statute to
address these issues before approving a proposed rate increase. See 220 ILCS 5/9-201(c), 1-
102(d)(ii) (West 2008). Thus, the parties are entitled to cite the public forum and website
comments for this purpose in their briefs to the ALJ and the Commission.
¶ 44 Contrary to the Commission’s and the Utilities’ assertions, the Associations did not seek
to use the public comments as evidence in support of a disputed factual issue.7 Accordingly,
although the Commission was free to accord the public comments whatever weight it deemed
appropriate, it was not free to disregard them or to strike them from the Associations’ briefs.
The Commission’s decision to strike the public comments from the Associations’ brief was
arbitrary and capricious and was based on the legally erroneous conclusion that the public
comments were not part of the Commission’s record for decision because they could not be
used as evidence. That decision was therefore both contrary to law and an abuse of
discretion. See, e.g., Northern Moraine Wastewater Reclamation District v. Illinois
Commerce Comm’n, 392 Ill. App. 3d 542, 572 (2009) (appellate court will reverse a
discretionary decision made by the Commission if the Commission exercised its
discretionary authority in an arbitrary or capricious manner); Niles Township High School
District 219 v. Illinois Educational Labor Relations Board, 369 Ill. App. 3d 128, 135 (2006).
¶ 45 Moreover, the Commission’s erroneous decision to strike the public comments from the
Associations’ briefs and its refusal to consider the comments when deciding the case
prejudiced the Associations. By taking these actions, the Commission deprived the ratepayers
of their statutory right to have their comments heard and considered by the Commission
before the Commission issued its decision. 220 ILCS 5/2-107 (West 2008); see generally 220
ILCS 5/8-306(n) (West 2008). It also ignored public comments that were directly relevant
to issues that the Commission was statutorily required to consider, i.e., whether the proposed
rates were fair, just, reasonable, and understood and accepted by the public. The public
comments that the Associations cited showed a strong public outcry against the proposed rate
7
Most of the public comments cited by the Associations clearly had no bearing on any
disputed factual issue. However, two of the public comments cited by the Associations involved
public complaints regarding the allocated costs for the new billing systems and claims that the new
systems were faulty or inefficient. The Commission could have properly considered these comments
(together with the other public comments cited by the Associations) in deciding whether the public
understood and accepted the proposed rate increases and whether the proposed rates were just, fair,
and reasonable. However, the Commission could not consider these comments in resolving the
disputed factual issue of whether the Utilities should be allowed to recover allocated costs for the
new billing and accounting systems or the proper amount of any such recoverable costs. Nor could
the Commission consider these comments as evidence that the new systems were, in fact, ineffective
or inefficient.
-12-
increases. The Commission’s failure to consider these comments might well have resulted
in the Commission’s approval of rates that were higher than they would have been had the
Commission fulfilled its statutory obligations.
¶ 46 The Commission and the Utilities disagree with this analysis in several respects. First,
they argue that the Commission is not statutorily required to “consider” the public forum or
website comments under the Act. According to the Commission, sections 8-306(n) of the Act
requires the ALJ (not the Commission) to “review” the public forum comments before
issuing a recommended or tentative decision, and section 2-107 merely requires the
Commission staff to “report” the website comments to the Commission before all relevant
votes of the Commission. Neither provision expressly requires the Commission to “consider”
either type of public comments before issuing its decision. The Commission argues that
section 2-107 clearly suggests that the Commission has the discretion to decide whether or
not to consider the website comments. The Commission contends that, at most, the
governing statutes are ambiguous on the matter and that we are therefore required to defer
to the Commission’s reasonable construction of the statutes.
¶ 47 We disagree. Although “[a] reviewing court will not substitute its interpretation of a
statutory provision for a reasonable one adopted by the agency charged with the statute’s
administration” (emphasis added) (Pliura Intervenors, 405 Ill. App. 3d at 209), we will not
defer to an agency’s construction of a statute if it contradicts the plain terms of the statute
(Burlington Northern, Inc., 32 Ill. App. 3d at 174) or is “unreasonable” (Griggsville-Perry
Community Unit School District No. 4, 2011 IL App (4th) 110210, ¶ 14). See also Collins
v. Board of Trustees of the Firemen’s Annuity & Benefit Fund of Chicago, 155 Ill. 2d 103,
110 (1993) (“[a] statute capable of two interpretations should be given that which is
reasonable and which will not produce absurd, unjust, unreasonable or inconvenient results
that the legislature could not have intended”). In enacting the amended sections 8-306(n) and
2-107 of the Act, the legislature clearly intended to expand public participation in contested
rate cases by creating two separate avenues for the public to comment on proposed rate
increases and by requiring those public comments to be presented to the administrative
decision-makers before any proposed or final decisions are rendered. Section 8-306(n)
requires the ALJ to review the public forum comments before issuing a proposed decision
(220 ILCS 5/8-306(n) (West 2008)), and section 2-107 provides that the Commission staff
“shall report” the website comments to the Commission before the Commission votes on the
matter. (Emphasis added.) 220 ILCS 5/2-107 (West 2008). Clearly, the legislature intended
for the Commission to consider these public comments before deciding the case. Otherwise,
allowing the public to comment during the public forums and on the Commission’s website
would be an empty gesture that would give the public no meaningful opportunity to be heard.
Why would the legislature require the ALJ to consider the public forum comments before
issuing a proposed decision, only to leave the Commission free to ignore both types of public
comments when reaching its final decision? That result strikes us as absurd and
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unreasonable, and we cannot plausibly ascribe that intention to the legislature.8
¶ 48 The Commission also argues that, even if it were required to consider the website and
public forum comments, the Associations and the People have failed to overcome the
presumption that the Commission followed the law and considered these comments. Again,
we disagree. The Commission did not include transcripts of the website or public forum
comments in the record on appeal. Under the Administrative Procedure Act, the Act, and
Supreme Court Rule 335, the Commission is required to include in the record on appeal
anything that the Commission considered in making its decision, including everything
contained in the Commission’s record for decision. 735 ILCS 5/3-108 (West 2008)
(providing that the record on appeal should consist of “the entire record of proceedings under
review”); Ill. S. Ct. R. 335(d) (eff. Feb. 1, 1994) (“The entire record before the administrative
agency shall be the record on review unless the agency and the petitioner stipulate to omit
portions.”); 220 ILCS 5/10-110 (West 2010) (providing that, unless the parties stipulate
otherwise, the record on appeal shall consist of a transcript of the testimony and exhibits
presented to the Commission, the “pleadings, records, and proceedings in the case,” and “all
information secured by the Commission on its own initiative and considered by it in
rendering its order or decision (and required by this Act to be made a part of its records)”).
The Commission’s failure to include the public forum and website comments in the record
on appeal shows that the Commission did not consider those comments in rendering its
decision. Moreover, as noted above, the Commission erroneously believed that the public
comments could not be included in the Commission’s record because they were not
evidence, and the Commission was well aware that its decision must be based on the record.
This further supports the inference that the Commission did not consider the public forum
or website comments in reaching its decision. And, although not dispositive, comments made
by some of the commissioners during their deliberations on the Associations’ petition for
interlocutory review of the ALJ’s ruling suggest that some of the commissioners were
confused about whether they could consider the public forum and website comments in
rendering their decision.
¶ 49 In addition, the Commission argues that the Associations were not prejudiced by the
Commission’s purported failure to consider the public comments because the Associations
presented evidence regarding the potential impact of imposing the allocated costs of the new
billing and accounting systems on the ratepayers, including sworn testimony by one ratepayer
who testified that the proposed rate increases would impose a financial hardship on his
family. The Commission maintains that the public forum and website comments would have
been cumulative of this testimony. Moreover, the Commission contends that, if the
Associations wanted to present testimony from other ratepayers on this issue, it could have
8
Our conclusion is bolstered by the fact that the governing statutes in both the Administrative
Procedure Act and the Act unambiguously provide that the public forum and website comments are
part of the Commission’s record for decision. As noted above, the Commission’s conclusion that
these public comments are not part of the Commission’s record is based on an erroneous
construction of the plain, unambiguous terms of the applicable statutes and is, therefore, entitled to
no deference.
-14-
presented sworn testimony from those ratepayers during the hearing. According to the
Commission, the Associations cannot claim that they were prejudiced by their own decision
not to present such additional evidence.
¶ 50 The Commission is mistaken. The governing statutes require the Commission to consider
the public comments as a whole. Only when all of the public comments are considered can
the Commission fairly determine the proper weight to place on the comments and the extent
to which the comments show a substantial public outcry against the rates. Because these
comments are a part of the Commission’s record and there is no legitimate basis to exclude
them, the Associations had a right to cite them in their briefs and to comment on their
significance. The Commission’s refusal to allow the Associations to do this (and its failure
to consider the comments in toto) might have led the Commission to approve increased rates
that were perceived as unfair and unreasonable by the public. The Commission might well
have approved more modest rate increases had it properly considered the public comments
and the Associations’ arguments about their significance.
¶ 51 Further, for reasons similar to those discussed above, we deny the Commission’s motion
to strike references to the public forum and website comments from the Associations’ brief
and separate appendix. As noted, the public forum and website comments were part of the
Commission’s record for decision and the legislature has required the Commission to
consider these documents in deciding contested rate cases. Accordingly, the Commission
should have included the public comments in the record on appeal. Moreover, the Utilities
do not contest the accuracy of the public forum transcripts or the copies of the website
comments submitted by the Associations; although they may question the truth of the matters
asserted in the public comments, they do not contest that the comments were actually made
by members of the public and were properly transcribed and/or copied. Moreover, contrary
to the Commission’s argument, the public comments are not extra-record “evidence.”
Although the Commission may consider the public comments in assessing the public’s
understanding and acceptance of the proposed rate increases, it may not consider them as
evidence in support of any contested factual issue. For these reasons, we take judicial notice
of the public forum and website comments, deny the Commission’s motion to strike portions
of the Associations’ brief and separate appendix citing or referring to the public comments,
and remand the case to the Commission so that the Commission may appropriately consider
the public comments in deciding this case.
¶ 52 2. The Commission’s Inclusion of Accounting
and Billing System Costs in the Rate Base
¶ 53 The Associations argue that the Commission erred when it included the allocated costs
of the Utilities’ new nationwide billing and accounting systems in the increased rate base.
Specifically, the Associations maintain that the Commission erred by: (1) failing to require
the Utilities to establish the justness and the reasonableness of the proposed rate increases
and improperly shifting the burden of proof on this issue to the Associations; (2) failing to
determine whether and how the Utilities’ new billing and accounting system benefited the
Associations’ ratepayers; and (3) failing to properly consider the interests of ratepayers and
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the concerns expressed by some of them, and failing to balance the interests of the ratepayers
against the interests of the shareholders. We address these arguments in turn.
¶ 54 First, contrary to the Associations’ claim, the Commission held the Utilities to its burden
and did not improperly shift the burden of proof. Whether the Commission applied the
proper legal standard is a question of law that we review de novo. Illinois Bell Telephone Co.
v. Illinois Commerce Comm’n, 327 Ill. App. 3d 768, 775 (2002). Under the Act, a utility
bears the burden to establish that its proposed rates are just and reasonable. 220 ILCS 5/9-
201(c) (West 2008). Once a utility makes a showing of the costs necessary to provide service
under its proposed charges, it has established a prima facie case, and “[t]he burden then
shifts to others to show that the costs incurred by the utility are unreasonable because of
inefficiency or bad faith.” Illinois Bell, 327 Ill. App. 3d at 776; City of Chicago v. Illinois
Commerce Comm’n, 133 Ill. App. 3d 435, 443 (1985). In this case, the Utilities’ witnesses
testified that the billing and accounting systems used by the utilities in the past had become
obsolete and needed to be replaced. The Utilities engaged in a series of internal and external
evaluations and retained a well-known accounting firm which prepared a business case
supporting the selection of the new accounting and billing systems at issue. Steven
Lubertozzi, a certified public accountant (CPA) who testified on behalf of the Utilities,
provided testimony regarding the allocated costs of providing these new accounting and
billing systems to the Associations’ ratepayers. He also testified as to the benefits of the new
systems and described the process by which the systems were selected. Accordingly, the
Utilities established a prima facie case, and the burden shifted to the Associations to show
that the costs of the new systems were unreasonable because of inefficiency or bad faith.
Illinois Bell, 327 Ill. App. 3d at 776.
¶ 55 The Associations failed to carry that burden. The Utilities’ evidence regarding the costs
and benefits of the new accounting and billing systems and regarding the Utilities’ reasons
for selecting those systems was largely unrebutted. The Associations did not impeach the
Utilities’ evidence, challenge the Utilities’ business case supporting the selection of the new
systems, or provide testimony or other evidence suggesting the existence of a less expensive
or more efficient alternative. In their brief before the Commission, the Associations argued
that the allocated cost of the new billing and accounting systems to the Associations’
ratepayers was substantially higher than the national average charge to ratepayers for those
systems. However, these arguments were not supported by testimony or other evidence
properly introduced into the record. Moreover, the Commission staff and the Utilities
explained that the Associations’ cost calculations were based on errors and material
omissions.9 Thus, the Associations failed to show that the costs of the new systems were
9
For example, the Utilities and the Commission staff maintained that the Associations
omitted various items from the revenue requirement calculation, used an incorrect weighted cost of
debt, and ignored direct costs associated with operating the computer systems at issue, such as
maintenance and personnel costs. Moreover, the Utilities and the Commission staff noted that the
cost methodology employed by the Associations was not supported by sworn testimony which could
have been tested by cross-examination. Finally, the Utilities noted that, under the terms of an affiliate
interest agreement approved by the Commission in a prior docket proceeding, the Utilities were
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unreasonable because of inefficiency or bad faith.10
¶ 56 The Associations also argue that the Commission erred by accepting the Utilities’ cost
calculations “without question,” “[i]n spite of the lack of evidence demonstrating any direct
benefit to ratepayers from the new billing and accounting systems.” A public utility has the
burden of proving that the costs for which it seeks reimbursement “directly benefit[] the
ratepayers or the services which the utility renders.” Candlewick Lake Utilities Co. v. Illinois
Commerce Comm’n, 122 Ill. App. 3d 219, 227 (1983). Contrary to the Associations’
argument, however, there was evidence suggesting that the new billing and accounting
systems directly benefited both the ratepayers and the water services rendered by the utilities.
For example, Lubertozzi testified that the new systems would enable the Utilities to respond
to customer concerns more quickly and efficiently, manage projects more cost effectively,
and deliver information to regulators more accurately and efficiently. Lubertozzi testified that
the new systems were superior in several respects to previous billing and accounting systems,
which were obsolete, flawed, and no longer supported by vendors. He also testified that the
new systems were used by the Utilities’ employees on a daily basis to look up customer
accounts, answer billing questions, resolve billing issues, and post payments to customer
accounts in real time.
¶ 57 The Commission is presumed to have acted correctly (Candlewick Lake Utilities Co., 122
Ill. App. 3d at 222), and the Commission’s findings on factual issues may be overturned only
if they are against the manifest weight of the evidence. Pliura Intervenors, 405 Ill. App. 3d
at 207. To warrant reversal under this standard, the appellant must show that the opposite
required to allocate shared costs of their billing and accounting systems among all of the
Associations’ customers, including “availability” (or “stand-by”) customers. Nevertheless, the
Associations excluded stand-by customers from their allocated cost calculation, a decision that was
not supported by any testimony or other evidence. According to the Commission staff, that
substantially (and artificially) inflated the Associations’ estimation of the per-customer cost.
10
In arguing that the Commission improperly shifted the burden of proof, the Associations
rely upon our supreme court’s decision in People ex rel. Hartigan v. Illinois Commerce Comm’n,
117 Ill. 2d 120 (1987). However, Hartigan is inapposite. Hartigan addressed an electric utility’s
burden to establish the reasonableness of power plant construction costs under section 9-213 of the
Act. 220 ILCS 5/9-213 (West 2008) (formerly Ill. Rev. Stat., 1985 Supp., ch. 111 2/3, ¶ 30.1).
Section 9-213 requires that the reasonableness of such costs must be determined by an audit
conducted by the Commission or by independent persons designated by the Commission. 220 ILCS
5/9-213 (West 2008); Hartigan, 117 Ill. 2d at 132-33. In Hartigan, the supreme court held that this
statutory requirement replaced the traditional presumption that the costs incurred by a utility in
constructing a power plant were reasonable. Thus, the supreme court ruled that the Commission
erred when it presumed that the costs asserted by the utility were reasonable and required the
intervenors to establish otherwise. However, Hartigan applies only to power plant construction
costs, which are governed by section 9-213. Costs incurred by utilities for other purposes, such as
the costs at issue in this case, are subject to the traditional burden-shifting analysis discussed above.
See, e.g., Illinois Bell, 327 Ill. App. 3d at 776. As noted above, the Commission properly applied that
analysis in this case.
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conclusion is “clearly evident.” Illinois-American Water Co., 331 Ill. App. 3d at 1037. The
credibility of witnesses and the weight to be given their testimony are matters for the
Commission as the trier of fact. Illinois Bell, 327 Ill. App. 3d at 777; Lefton Iron & Metal
Co. v. Illinois Commerce Comm’n, 174 Ill. App. 3d 1049, 1060 (1988).
¶ 58 In this case, the Utilities presented evidence that, after meeting with a consulting firm,
the Utilities’ parent company decided to replace the outdated systems with the new systems
at issue in this case. No Association witness impeached the Utilities’ evidence on this issue
or provided cost data of a less expensive or more reasonable alternative. The Associations
presented evidence suggesting that some ratepayers were having problems with the new
systems and that some of the features of the new systems did not actually benefit the
ratepayers at issue in this case. However, these facts do not negate the fact that the Utilities
presented competent, unrebutted evidence that replacement systems were needed and that the
new systems benefited both the Associations’ ratepayers and the services that the Utilities
provide in at least some respects. Accordingly, we cannot say that the Commission’s decision
to include the allocated costs of the new billing and accounting systems in the rate base was
against the manifest weight of the evidence.
¶ 59 Finally, the Associations argue that, in deciding to include the costs of the new billing
and accounting systems in the rates, the Commission failed to balance the interests of the
ratepayers against the interests of the shareholders, as required by the Act. See 220 ILCS 5/1-
102 (West 2008). The Associations did not raise this argument in their application for
rehearing before the Commission. The Act expressly limits the scope of a party’s appeal to
the reviewing court to those issues raised in the petition for rehearing before the
Commission. 220 ILCS 5/10-113(a) (West 2008) (“No person or corporation in any appeal
shall urge or rely upon any grounds not set forth in such application for a rehearing before
the Commission.”); Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111,
134 (1995); Independent Voters of Illinois v. Illinois Commerce Comm’n, 117 Ill. 2d 90, 100-
01 (1987). Accordingly, the Associations have forfeited the argument.11
¶ 60 However, even if we were to consider the Associations’ argument on this issue, we
would reject it. The Associations note, correctly, that “[t]he Commission cannot fulfil its
statutory duty to balance the competing interests of stockholders and ratepayers without
taking into account the interests of ratepayers by considering the impact of proposed rates
on ratepayers.” Citizens Utility Board v. Illinois Commerce Comm’n, 276 Ill. App. 3d 730,
737 (1995). However, the Associations have failed to overcome the presumption that the
11
The Associations argue that they raised the argument that the Commission failed to
consider and balance the ratepayers’ interests merely by asserting in their application for rehearing
that: (1) the Commission must consider benefits to the ratepayers before imposing costs; and (2) the
Utilities failed to prove that the new billing and accounting systems benefited ratepayers. We
disagree. Neither of these general statements raised the argument that the Associations now raise on
appeal. As our supreme court has noted, section 10-113(a) “specifically requires express mention
of grounds for review in the petition for rehearing.” Citizens Utility Board, 166 Ill. 2d at 136.
Because the Associations failed to expressly raise the argument as a ground for review in their
application for rehearing, it is forfeited.
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Commission followed the law and considered the effect of the proposed rate increases on the
ratepayers. Scott Rubin, the Associations’ expert witness, and the general managers of the
two Associations each testified regarding the impact of the proposed rate increases on
ratepayers and on the Associations. Paula Lange, the general manager of the Lake Wildwood
Association, and Rubin also testified regarding alleged flaws in the Utilities’ billing systems,
including various billing errors and delays. Moreover, Randy Hart, an Association member,
testified about the hardship a large rate increase would impose on his family. The
Associations offer nothing (aside from a bald assertion) suggesting that the Commission
failed to consider this evidence.12 The careful analysis employed by the Commission in its
written order suggests just the opposite. After reviewing the record evidence (including the
recommendations of its staff), the Commission approved rate increases that were 50% to
60% lower than the increases to the revenue requirements initially proposed by the Utilities.
Thus, the Associations failed to overcome the presumption that the Commission’s order was
lawful and that its factual findings were correct.
¶ 61 The Associations also argue that the Commission erred by failing to consider the
complaints that various ratepayers expressed about the new billing and accounting system
on the Commission’s website and during the public forums. However, as noted above, it
would have been inappropriate for the Commission to consider these public comments in
determining whether the new accounting and billing systems were faulty, inefficient, or
otherwise of little benefit to the ratepayers. The Commission must resolve disputed factual
issues like these based entirely upon the sworn testimony and other properly-admitted
evidence. As noted above, the unsworn public forum and website comments are not evidence
and may not be considered as such.
¶ 62 B. The Utilities’ Cross-Appeal
¶ 63 1. Operation and Management Costs
¶ 64 In their cross-appeal, 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 average of those expenses rather than the actual expenses incurred in 2008,
which was the “test year”chosen by the Utilities. The Utilities argue that the Commission’s
decision violated the “test year” ratemaking principle and was not supported by substantial
evidence. We disagree.
¶ 65 In establishing the rates that a public utility is permitted to charge its customers, the
Commission must first determine the utility’s revenue requirement. The components of the
revenue requirement have frequently been expressed in the formula “R (revenue requirement)
= C (operating costs) + Ir (invested capital or rate base time rate of return on capital).”
12
That fact distinguishes this case from Citizens Utility Board, 276 Ill. App. 3d at 738, a case
relied upon by the Associations. In Citizens Utility Board, the Commission heard no evidence
regarding the effect that a proposed restructuring of rates would have on consumers, and the
Commission “effectively conceded” that it did not consider consumer interests or the effect on
consumers.
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(Internal quotation marks omitted.) Business & Professional People for the Public Interest
v. Illinois Commerce Comm’n, 146 Ill. 2d 175, 195-96 (1991) (BPI II); People ex rel.
Madigan v. Illinois Commerce Comm’n, 2011 IL App (1st) 101776, ¶ 12. In order to
accurately determine a utility’s revenue requirement, the Commission has established filing
requirements under which a utility must present its rate data in accordance with a proposed
one-year test year. People ex rel. Madigan, 2011 IL App (1st) 101776, ¶ 19. The purpose of
the test year rule is to prevent a utility from overstating its revenue requirement by
mismatching low revenue data from one year with high expense data from a different year.
BPI II, 146 Ill. 2d at 237-38; see also A. Finkl & Sons Co. v. Illinois Commerce Comm’n, 250
Ill. App. 3d 317, 330 (1993) (test year rule prevents a utility from “us[ing] a low revenue
figure from one year and a high expense figure from another year to justify a rate increase”).
The test year can be set as either a future or historical year. 83 Ill. Adm. Code 287.20 (2003).
¶ 66 In this case, the Utilities asked the Commission to measure its future O&M expenses13
based upon the expenses they actually incurred in 2008. However, the Commission staff
maintained that the Utilities incurred atypical, abnormally large O&M expenses in the 2008
test year due to temporary capital improvement projects that would not continue in future
years. Accordingly, the Commission staff recommended that the test year O&M expenses
should be adjusted (or “normalized’) to reflect a more representative level of the Utilities’
actual expenses going forward. To accomplish this, the Commission staff recommended that
the Utilities’ future O&M expenses should be estimated based upon the historical average
of those expenses over the five-year period from 2004 through 2008. The Commission
agreed with the staff’s recommendation.
¶ 67 On appeal from an order of the Commission, the appellant bears the burden of proving
that the order was not supported by “substantial evidence” (220 ILCS 5/10-201(d), (e)(iv)
(West 2008)). The appellant does not carry this burden merely by showing that the evidence
may support a different conclusion. Central Illinois Public Service Co. v. Illinois Commerce
Comm’n, 268 Ill. App. 3d 471, 479 (1994) (ruling that “substantial evidence” may support
more than one possible finding, and possibly even several). To prevail, the appellant must
show that the opposite conclusion is “clearly evident.” Continental Mobile Telephone Co.
v. Illinois Commerce Comm’n, 269 Ill. App. 3d 161, 171 (1994). We will not disturb the
Commission’s finding if “a reasoning mind would accept the evidence as sufficient to
support” the Commission’s conclusion. Central Illinois Public Service Co., 268 Ill. App. 3d
at 479. Thus, on review, the question is whether there is sufficient evidence supporting the
Commission finding, not whether we would have reached the same conclusion as the
Commission based on the evidence.
¶ 68 Applying these deferential standards, we hold that the Commission’s decision was
supported by substantial evidence. In its response to a data request propounded by the
Commission staff, the Utilities conceded that their parent company had added staff during
13
The rate increases at issue in this case would be in effect from 2011 through 2014. Thus,
the Commission had to estimate what the Utilities’ recoverable O&M expenses would be during
those future years.
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a large capital improvement project beginning in 2006 and that, “[s]ince that time, [the
Utilities’ parent company] ha[d] begun to downsize its staff and consolidate positions due
to the lack of necessity in direct relation to the amount of capital improvements that are
planned for future years.” After reviewing the information supplied by the Utilities,
Commission staff witness Burma Jones, a licensed CPA, opined that: (1) the magnitude of
the increases in the Utilities’ test year O&M expenses over the previous years’ expenses was
unreasonable; (2) the Utilities had failed to show that the test year expenses were
representative of the actual O&M expenses that the Utilities will incur during the five-year
period in which the new rates will be in effect; and (3) the Utilities’ alleged test year O&M
expenses would not be sustained going forward as the Utilities continued to downsize and
consolidate its staff. Jones therefore proposed an adjustment to the test year O&M expenses
based upon the five-year average of such expenses reported by each Utility to the
Commission for the years 2004 through 2008. Jones opined that using this five-year average
would represent a more just, reasonable, and representative level of O&M expenses during
the years in which the new rates would be in effect. She also opined that the five-year
average she proposed would be more representative of the Utilities’ future O&M costs than
would the three-year average proposed by the Utilities, because the three years chosen by the
Utilities (2007 through 2009) involved abnormally high O&M costs related to temporary
capital projects. This evidence is sufficient to support the Commission’s decision.
¶ 69 The Utilities take issue with the Commission’s order in several respects. For example,
they argue that the five-year average proposed by Jones and adopted by the Commission will
not be representative of their O&M costs going forward because it includes expense data
from as far back as 2004, seven years before the new rates were to take effect. Moreover, the
Utilities argue that the five-year average does not take into account the effects of inflation
and rising costs in health care, electricity, gas, and other costs. Further, the Utilities maintain
that the three-year average proposed by their expert would reflect their future O&M costs
more accurately than would the Commission’s five-year average, which was based on
outdated cost data.
¶ 70 The credibility of expert witnesses and the weight to be given their testimony are matters
for the Commission as the finder of fact. Lefton Iron & Metal Co., 174 Ill. App. 3d at 1060.
Thus, the Commission was entitled to credit Jones’s opinions over Lubertozzi’s. Moreover,
although the five-year average adopted by the Commission included O&M expense data
from 2004, it also included expense data from 2008, a year in which the Utilities’ O&M
expenses were abnormally high. This decreased the likelihood that the average chosen by the
Commission would understate the Commission’s actual future expenses. In addition, the
Utilities’ 2009 expense data showed that the Utilities’ O&M expenses were decreasing, even
if not at the rate predicted by Jones. Accordingly, there was ample evidence to support the
Commission’s conclusion. At most, the objections raised by the Utilities show that the
evidence could have reasonably supported another possible conclusion. In our view, the
Utilities have not shown that a conclusion opposite to the one drawn by the Commission was
“clearly evident.”
¶ 71 We also hold that the Commission’s decision did not violate test year principles. The
Utilities submitted test year data, and the Commission utilized that test year data in
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determining the Utilities’ revenue requirement. However, after finding that the evidence
showed that the Utilities’ test year O&M expenses were atypical (i.e., abnormally high), the
Commission adjusted the recoverable O&M expenses downward for the five-year period in
which the new rates would be in effect. The Commission did this to ensure that the new rates
would more accurately reflect the Utilities’ actual O&M costs going forward. It is important
to note that the Commission was setting rates for a five-year period, not for a single year. If
the Commission had set the new five-year rates based on the atypical test year O&M
expenses submitted by the Utilities, the rates would not represent the Utilities’ actual costs,
resulting in an unfair and an unwarranted windfall for the Utilities. This is precisely the result
that the test year rule was designed to prevent.
¶ 72 The Commission’s order did not permit the Utilities to mismatch low revenue data from
one year with high expense data from a different year in order to justify an improper rate
increase. See BPI II, 146 Ill. 2d at 237-38. Nor did it allow the Utilities to recover additional
future expenses not incurred during the test year, thereby authorizing a recovery amount that
exceeded the test year expense level. See A. Finkl & Sons Co., 250 Ill. App. 3d at 330-31.
Instead, the Commission merely sought to “normalize” the test year figure based on a
historical average of the Utilities’ O&M expenses to prevent the Utilities from recovering
a nonrepresentative level of O&M expenses. Under the circumstances of this case, we find
that the Commission’s order did not violate test year principles.14
¶ 73 2. The Commission’s Denial of the Utilities’ Request for Rehearing
¶ 74 The Utilities also argue that the Commission erred by denying their verified application
for rehearing, which, the Utilities claim, set forth new evidence regarding the Utilities’ rate
case expenses15 that was not available at the time the Commission conducted a hearing on
this issue. The Utilities maintain that the Commission was required to grant its request for
rehearing under section 10-201(e) of the Act, which provides:
“If it appears that the Commission failed to receive evidence properly proffered, on a
hearing or a rehearing, or an application therefor, the court shall remand the case, in
14
The Utilities also argue that the Commission’s estimation of O&M costs based on a five-
year historical average was improper because section 287.40 of title 83 permits adjustments to the
test year data only for “known and measurable changes” to the test year, i.e., only for changes that
are “reasonable certain to occur” subsequent to the test year and only where the amounts of such
changes are “determinable.” 83 Ill. Adm. Code 287.40 (2003). However, that regulation governs “pro
forma adjustments” which may be requested by a utility. It does not address or limit the
Commission’s authority to adjust abnormally high test year expenses to ensure that prospective rates
reflect the actual costs that the utility will incur while the new rate is in effect.
15
Rate case expenses are the costs a utility incurs in preparing and presenting a rate case at
the Commission and on appeal, which may include outside legal fees, consulting fees, incremental
personnel expenses, and travel and lodging expenses. See 83 Ill. Adm. Code 285.3085(a) (2003).
Reasonable rate case expenses are operating expenses that a utility may recover in its proposed rates.
Id.; see also Candlewick Lake Utilities Co., 122 Ill. App. 3d at 226.
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whole or in part, to the Commission with instructions to receive the testimony so
proffered and rejected, and to enter a new order based upon the evidence theretofore
taken, and such new evidence as it is directed to receive, unless it shall appear that such
new evidence would not be controlling, in which case the court shall so find in its order.”
220 ILCS 5/10-201(e)(ii) (West 2008).
¶ 75 The Utilities’ argument fails. As a preliminary matter, in the proceedings before the ALJ,
the Utilities expressly accepted the Commission staff’s recommendations regarding the rate
case expenses that could be recovered by the Utilities, including the staff’s estimate of the
total rate case expenses that the Utilities would incur in the future. In surrebuttal testimony
filed on May 10, 2010, one of the Utilities’ witnesses testified that “[f]or the purposes of
these cases, the [Utilities] will accept staff’s adjustment to [the Utilities’ proposed] rate case
expenses including the five year amortization period.” Moreover, in their joint reply hearings
brief filed on June 25, 2011, the Utilities informed the ALJ that “the [Utilities] have elected
not to contest the rate case expense reviewed and recommended by Staff.” The ALJ’s July
21, 2010, proposed order accepted the Companies and staff’s agreed recommendation.
Although the Utilities filed exceptions to certain aspects of the ALJ’s proposed order on
August 6, 2010, they did not raise any objection to the ALJ’s recommendation regarding the
recoverable rate case expenses. In sum, the Utilities accepted the Commission staff’s future
rate case expense estimates, expressly agreed not to contest the issue before the Commission,
and urged the Commission to adopt the Commission’s estimates of current and future rate
case expenses. Thus, the Commission argues that the doctrines of waiver, estoppel, and
invited error preclude the Utilities from rescinding their prior agreement and relitigating the
issue of rate case expenses.
¶ 76 Although these arguments might well have merit, we do not need to address them to
decide this issue. In their application for rehearing, the Utilities baldly asserted that “new
information” proved that the Utilities’ actual rate case expenses exceeded the amount that
the Commission allowed them to recover. However, the Utilities did not identify this alleged
“new information” or explain how it proved that the rate case expense estimates previously
agreed to by the parties were inaccurate. In sum, the Utilities presented no new evidence
justifying the recovery of additional rate case expenses; their application for rehearing
presented nothing but conclusory assertions. That was not enough to require rehearing based
on “new evidence.” 220 ILCS 5/10-201(e)(ii) (West 2008). Given this, and given the
Utilities’ unequivocal and unqualified prior acceptance of the Commission staff’s future rate
case expense estimates, we cannot say that the Commission erred in denying the Utilities’
application for rehearing. See generally Illinois Power Co. v. Illinois Commerce Comm’n,
254 Ill. App. 3d 293, 304-05 (1993).
¶ 77 CONCLUSION
¶ 78 For the foregoing reasons, we reverse the Commission’s order granting the Commission
staff’s motion to strike from the Associations’ brief references to the comments made by
members of the public during the public forums and on the Commission’s website. We
remand the matter to the Commission and direct the Commission to: (1) allow the parties to
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cite those public comments in their briefs and to make appropriate arguments based on those
comments; (2) consider the substance of the public comments and the parties’ arguments
regarding the comments in a manner consistent with this Opinion when deciding the case;
and (3) include transcripts of the public comments in the Commission’s administrative
record and, if necessary, the record on appeal. We affirm the Commission’s decision in all
other respects. The Commission’s motion to strike material from the Associations’ brief on
appeal and separate appendix is denied.
¶ 79 Affirmed in part and reversed in part; cause remanded.
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