Opinion ID: 2238939
Heading Depth: 1
Heading Rank: 4

Heading: Prudence Review

Text: The appellate court in this case directed the ICC on remand to admit evidence pertaining to    the factors relevant to the prudence of the past purchasing practices of the [distributors] as they relate to take-or-pay costs. (191 Ill. App.3d at 465, 138 Ill.Dec. 678, 547 N.E.2d 1299.) We believe, however, that the filed rate doctrine prohibits State prudence review of FERC-mandated costs ( Mississippi Power, 487 U.S. at 375, 108 S.Ct. at 2440-41, 101 L.Ed.2d at 340-41), and we find no exception to the filed rate doctrine under the circumstances here. Without deciding the issue, the Supreme Court has acknowledged the exception to the filed rate doctrine articulated in Pike County Light & Power Co. v. Pennsylvania Public Utility Comm'n (1983), 77 Pa. Cmwlth. 268, 273-74, 465 A.2d 735, 737-38, and Kansas-Nebraska Natural Gas Co. v. State Corp. Comm'n (1980), 4 Kan.App.2d 674, 679-80, 610 P.2d 121, 127. Under that exception, States retain the authority to review the prudence of a distributor's actions in incurring FERC-approved supply charges when the distributor had a choice whether to incur the charge. ( Mississippi Power, 487 U.S. at 373-74, 108 S.Ct. at 2440, 101 L.Ed.2d at 339-40; Nantahala, 476 U.S. at 972, 106 S.Ct. at 2359-60, 90 L.Ed.2d at 958.) For example, a State regulatory agency could find that purchase of a particular quantity of power from a particular source was unreasonable if lower cost power was available elsewhere, even if the cost of the purchased power had been approved by FERC and therefore deemed reasonable. Mississippi Power, 487 U.S. at 373, 108 S.Ct. at 2440, 101 L.Ed.2d at 340; Nantahala, 476 U.S. at 972, 106 S.Ct. at 2360, 90 L.Ed.2d at 958. That exception to the filed rate doctrine does not apply here, for the distributors in this case cannot avoid the current take-or-pay charges. ( Mississippi Power, 487 U.S. at 374, 108 S.Ct. at 2440, 101 L.Ed.2d at 340.) As the appellate court acknowledged, the FERC-approved take-or-pay costs and the FERC-approved allocation of those costs are mandatory. (191 Ill.App.3d at 464, 138 Ill.Dec. 678, 547 N.E.2d 1299.) Under orders issued by FERC, the distributors are liable to the pipelines for the take-or-pay costs regardless of any actions the distributors may take now or in the future, even if they cease purchasing gas from the pipeline imposing the charge. Because FERC has allocated the sharing of costs in such a manner that distributors have no opportunity to accept or reject the amount billed, the ICC may not conduct a prudence review of the take-or-pay charges for the purpose of determining whether some part of the allocated costs may or may not be recovered through the distributor's rates. ( Mississippi Power, 487 U.S. at 374, 108 S.Ct. at 2440, 101 L.Ed.2d at 340.) State prudence review under these circumstances would be an impermissible collateral attack on the reasonableness of FERC's cost allocations and could result in an impermissible trapping of FERC-mandated costs. ( Mississippi Power, 487 U.S. at 373 n. 12, 108 S.Ct. at 2439 n. 12, 101 L.Ed.2d at 339 n. 12.) The ICC is not empowered, through the artifice of a prudence review, to trap federally mandated costs. See Mississippi Power, 487 U.S. at 372, 108 S.Ct. at 2439, 101 L.Ed.2d at 339. See also Kentucky West Virginia Gas Co. v. Pennsylvania Public Utility Comm'n (3d Cir.1988), 862 F.2d 69, 74 (the principles of Nantahala Power and Mississippi Power  prohibited State prudence review of a distributor's mandatory costsidentical in effect to the take-or-pay clauses at issue herebecause the distributor could not avoid the costs). We find that the case before us presents no exception to the filed rate doctrine. Indeed, this case presents the classic situation for application of the doctrine, for it involves an intermediary faced with a FERC-set wholesale rate, who would, if the doctrine were not applied, be forced to sell power at less than its reasonable cost as determined by FERC. Nantahala, 476 U.S. at 969, 106 S.Ct. at 2358, 90 L.Ed.2d at 956. Moreover, even if in this case the filed rate doctrine permitted State review of distributors' past purchasing decisions, it would be difficult to say in what respect distributors have been imprudent in incurring these particular costs. The distributors did not know and could not have foreseen at the time that those purchasing decisions would lead to the imposition of direct-billed take-or-pay costs years later. Until 1985, when FERC issued Order No. 436 establishing the open-access policy, no one knew that the long-term take-or-pay contracts between pipelines and producers would create multibillion dollar liabilities for the pipelines. And it was not until FERC issued Order No. 500 in 1987 that distributors had any idea that pipeline take-or-pay liabilities would be passed on to them. (See Associated Gas Distributors v. Federal Energy Regulatory Comm'n (D.C.Cir.1989), 893 F.2d 349, 356 (rejecting the suggestion that FERC's decision in Order No. 500 could have been anticipated based on hints in a 1984 FERC decision).) By that time, the purchasing decisions that the appellate court has directed the ICC to review for prudence had long since been made. As the distributors point out in their briefs to this court, unless clairvoyance has become an element of prudence, there simply is no basis on which the ICC could conduct a meaningful prudence review. In light of our result, we do not consider the separate argument by the distributors and the ICC that a prudence review under these circumstances would be inconsistent with Illinois law. See Business & Professional People for the Public Interest v. Illinois Commerce Comm'n (1988), 171 Ill.App.3d 948, 959, 121 Ill.Dec. 746, 525 N.E.2d 1053. In sum, we hold that fundamental principles of Federal preemption, as reflected in the longstanding and consistent application of the filed rate doctrine, prohibit the ICC from conducting prudence reviews of FERC-mandated take-or-pay costs. Illinois distributors must be allowed to pass through to their customers the full amount of these charges. Accordingly, we reverse the judgment of the appellate court and reinstate the order of the ICC. Appellate court reversed; Illinois Commerce Commission order affirmed. Justices BILANDIC and HEIPLE took no part in the consideration or decision of this case.