Opinion ID: 2088513
Heading Depth: 2
Heading Rank: 4

Heading: Characterization of the Sixth Order

Text: In arguments before the Commission, the intervenors contended the Commission could not consider the Settlement because not all of the parties and intervenors had agreed to the Settlement. The intervenors also asserted the Commission had no authority to adopt a unilateral offer of settlement. The Commission, however, framed and dealt with the issue of its authority to implement the Sixth Order this way: The Intervenors misconstrue the nature of Staff's Offer of Settlement and the standard of the Commission's review of the Offer of Settlement. Staff does not present its Offer of Settlement as a negotiated and signed settlement agreement. Staff is not offering the negotiating process as the basis for the reasonableness of the rates proposed in its Offer of Settlement. Staff did not require any party to sign-on to the Offer of Settlement in contract fashion. Accordingly, the Intervenors are correct that the Offer of Settlement is not a settlement agreement and should not be judged by the standards for such an agreement. Staff does not claim otherwise. The Fourth Interim Order did not specify that Staff needed to obtain a settlement agreement. It did specify that Staff could file an `Offer of Settlement'. Staff presents its Offer of Settlement as a just and reasonable resolution of the issues in the subject proceedings on the merits, based on substantial evidence in the record as a whole. Staff proposes that its Offer of Settlement be reviewed pursuant to traditional just and reasonable standards and that such review be on the merits of each issue based on the record as a whole. Staff submits that the rate levels in its Offer of Settlement are justified by application of traditional ratemaking principles. The failure of the Act to make specific provisions for offers of settlement does not make such a procedure ipso facto unlawful. While there is precedent for the consideration of proposals labeled offers of settlement by regulatory agencies in the federal and other state jurisdictions, the label on the proposal is irrelevant. What is relevant is whether the Commission acts within its statutory authority and abides by the applicable statutory provisions in making its determination regarding the Offer of Settlement. The Commission has broad jurisdictional authority which it must exercise appropriately to reach a resolution. There is no question that the Commission can determine just and reasonable rates based on a lawful analysis. The Commission remains free under the Offer of Settlement to exercise all of its powers under the Act. Its resolution does not depend on the analyses of rate ranges presented by Staff and other parties. The negotiating process and range analysis preceding Staff's Offer of Settlement are not at issue. Rather, the consideration of the Offer of Settlement depends on the relevant and material evidence relating to traditional ratemaking principles. There are settlement aspects to the Offer of Settlement in that it contains certain restrictions and requirements which have not previously been imposed on a utility and which could not be imposed on a utility without its consent. Nevertheless, the Offer of Settlement must be evaluated on its merits and must be consistent with the requirements of the Act. Whether the Offer of Settlement proposes just and reasonable rates and whether its other proposals are balanced and fair will be determined by evaluating its provisions. (Emphasis added.) Thus, the Commission held it did not treat the Settlement as a settlement agreement; rather, it judged the Settlement as a traditional rate case based on the evidence in the record. The intervenors argue to this court that the Commission did not have authority to enter the Sixth Order. The intervenors contend the Commission entered into an illegal rate deal or bargain with Edison rather than decide the case based on the evidence and the record. The intervenors assert the Commission improperly delegated its ratemaking authority to Edison. (See Union Electric, 77 Ill.2d at 383-84.) According to the intervenors, the Commission, in effect, allowed Edison to set the rates by permitting Edison to choose whether to accept the Sixth Order or have the Commission decide the case on its merits. In determining whether the Commission had authority to enter the Sixth Order, we must decide whether the Commission actually treated the Sixth Order as a traditional rate case, nontraditional rate case or settlement. A traditional rate case decision involves a one-time increase or decrease in the rates of the utility. The Commission decides, based on the evidence, whether the utility is entitled, at that time, to an increase in rates. The Commission also determines the size of the rate increase, if any, to which the utility is entitled. In order to make this decision, the Commission holds hearings and then issues an order announcing its findings, the basis for its findings and its decision. The utility is free, at anytime thereafter, to file for another rate increase, if it feels it has some basis for an increase. The Act does not limit the number of times a utility may file for a rate increase within a particular period of time. (See Ill. Rev. Stat. 1987, ch. 111 2/3, pars. 9-102, 9-201; Illinois Bell Telephone Co. v. Illinois Commerce Comm'n (1953), 414 Ill. 275, 281.) In addition, this court has held that the Act does not permit retroactive ratemaking; that is, the law prohibits refunds when rates are too high and surcharges when rates are too low. Citizens Utilities Co. v. Illinois Commerce Comm'n (1988), 124 Ill.2d 195, 207. A comparison of a traditional rate case with the Sixth Order reveals that the Sixth Order is nontraditional in several respects. First, the Sixth Order sets rates for a five-year period. Second, Edison cannot file for another rate increase for five years. Third, the Sixth Order allows the Commission to give ratepayers retroactive refunds. The parties and the intervenors agree that the Sixth Order is unique; the Commission has never before entered an order with these types of provisions. Only Edison, Staff, and the IIEC agreed to the Sixth Order. Seven of the intervenors did not agree to the Sixth Order. Unless precluded by law, disposition may be made of any contested case by    agreed settlement   . (Ill. Rev. Stat. 1987, ch. 127, par. 1010(c).) In order for the Commission to dispose of a case by settlement, however, all of the parties and intervenors must agree to the settlement. (See Mobil Oil Corp. v. Federal Power Comm'n (1974), 417 U.S. 283, 313, 41 L.Ed.2d 72, 98, 94 S.Ct. 2328, 2348; see also Ill. Rev. Stat. 1987, ch. 111 2/3, par. 11-302 (The Office [of Public Counsel] shall be permitted to intervene in any Commission proceeding   .    The Office shall otherwise be treated as any party to Commission proceedings   ); Ill. Rev. Stat. 1987, ch. 111 2/3, par. 905(2)(d) (The Citizens Utility Board has the power to intervene as a party    in any proceeding which affects the interest of utility consumers); Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-108.) Consequently, Edison and the Commission could not enter into a settlement alone, without the agreement of the seven intervenors. The Commission realized this and, therefore, stated in the Sixth Order: [T]he Offer of Settlement is not a settlement agreement and should not be judged by the standards for such an agreement. The Commission went on to assert that the Settlement had to be justified by traditional ratemaking principles based on relevant and material evidence. From these statements the Commission leads us to believe it treated the Sixth Order as a traditional rate case, not as a settlement or a nontraditional rate case. In other places in the Sixth Order, however, the findings and holdings of the Commission reveal that the Commission actually judged the Sixth Order outside the context of a traditional rate case. For example, in finding the units used and useful pursuant to section 9-212 of the Act, the Commission stated: Thus, there is no question that a determination that Byron Unit 2 and Braidwood Unit 1 are used and useful under the terms of the Offer of Settlement is    appropriate   . The Commission makes no determination whether Byron Unit 2 and Braidwood Unit 1 would or would not be found to be used and useful under the terms of a traditional rate case or whether Braidwood Unit 2 would or would not be found to be used and useful under the terms of the Offer of Settlement or the terms of a traditional rate case. Such determinations are beyond the scope of this Order. (Emphasis added.) At another point in the Sixth Order, while discussing the second-step rate increase, the Commission held: If Edison is willing to accept this [Sixth] Order and a cap of $245 million on the second step rate increase, the Commission will proceed with the next phase of this proceeding. Otherwise, the Commission will reconsider the opinions and conclusions expressed herein in the context of a traditional rate case.  (Emphasis added.) Furthermore, in deciding whether a rate increase would be just and reasonable, the Commission stated in the Sixth Order: The record before the Commission is sufficient to enable it to determine whether Staff's proposed rate increase is just and reasonable under the terms of the Offer of Settlement.  (Emphasis added.) The Commission also decided the income tax investigation issue outside the context of a traditional rate case. One of the issues before the Commission concerned an income tax investigation of Edison. Because of a reduction in the Federal corporate income tax rate, the taxes of the utilities decreased. Consequently, an investigation and litigation commenced to determine whether, and to what extent, Edison ratepayers would be entitled to any refunds as a result of the tax decrease. In the Sixth Order, the Commission terminated the tax investigation. The Commission further held: In the event that the second step increase contemplated in this order cannot be implemented under the terms set forth herein, Edison would have the right to reject the Offer of Settlement in its entirety.    [T]he Commission would then have the right to consider whether a rate reduction and refund of any revenues in excess of what Edison's 1989 revenues would have otherwise been without the first step of the Offer of Settlement would be appropriate. If such a rate reduction and refund were of an amount that constitutes an effective rate decrease from the rates in effect prior to 1989, the decision to terminate the tax rider investigation should be reconsidered.  (Emphasis added.) The Commission, in setting the nonnuclear utility plant depreciation rate, stated: For the purposes of the Offer of Settlement, Staff recommended a 3.85% rate for non-nuclear depreciation. In its Brief, Edison accepts Staff's rate of 3.85%. The Commission adopts that rate for purposes of this Order. If the Offer of Settlement is not implemented, Edison should submit a new study in the form and detail which Staff recommends.  (Emphasis added.) In another section of the Sixth Order, the Commission held: The record in this case establishes that the 32-year life should be used in determining Edison's depreciation rate for nuclear plants for purposes of the Offer of Settlement.  (Emphasis added.) The Commission based many of its other holdings and findings in the Sixth Order on the purposes, terms, or context of the Settlement. Although the Commission stated the Sixth Order was supported by the evidence under traditional ratemaking principles, the findings and holdings of the Commission in the Sixth Order belie those statements. The Commission asserted in the Sixth Order that it did not consider the Sixth Order a settlement agreement. Our review of the Sixth Order, however, reveals the Commission treated the Sixth Order as a settlement and failed to base its decision exclusively on the record. (Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-103.) The excerpts of the Sixth Order just reiterated show that the Commission qualified its decisions on various issues. The Commission admitted it would reconsider its conclusions in the Sixth Order in the context of a traditional rate case, if Edison did not accept the Sixth Order. The Commission made a similar admission in the Fifth Order. The Commission thus implied it could find a different, and possibly lower, set of rates just and reasonable. Moreover, for many issues, the Commission based its decisions on the purposes, context, or terms of the Settlement. The Commission admitted the rate increase was interrelated to other provisions in the Offer of Settlement. The Commission repeatedly emphasized in the Sixth Order that the Settlement was an integrated whole. Therefore, Edison had to express its acceptance of Staff's Offer as a whole or forgo the Settlement altogether. Thus, the Commission did not base its decision on the record before it. Rather than decide each issue on its merits based on the evidence, the Commission balanced the results of its decisions on various issues between Edison and the ratepayers; this balancing act displays the settlement character of the Sixth Order. The Sixth Order contained two provisions the Commission did not have authority to unilaterally impose  retroactive refunds and a rate moratorium. To implement the Sixth Order, the Commission had to obtain the agreement of Edison to abide by the Sixth Order. The Commission, however, also had to account for the possibility that Edison would not agree. Thus, the Commission stated that if Edison did not agree to the Sixth Order, the Commission would decide the case in the context of a traditional rate case. By doing this, the Commission acted like any party who offers a settlement to its opponent. In essence, the Commission said to Edison, Here's our settlement offer. If you don't accept it, we'll have the case judged on its merits. The Commission admitted the Sixth Order had settlement aspects to it, but asserted the Sixth Order had to be evaluated on its merits. We cannot discount those settlement aspects and our review of the Sixth Order discloses the failure of the Commission to evaluate the case on its merits.