Court Opinion

ID: 9721060
Source: CourtListenerOpinion
Date Created: 2023-08-26 08:47:35.571709+00
Date Added: 2024-06-11T18:24:23.221910
License: Public Domain

JUSTICE LUND, dissenting: I dissent and would concur with the ICG’s finding that it was preempted from considering whether local distribution companies (LDC’s) should be allowed to recover from their customers all or part of take- or-pay costs allocated to the LDC’s by the rules of the Federal Energy Regulatory Commission (FERC). First, it should be understood that, pursuant to section 9—220 of the Public Utilities Act (Act) (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9—220), utilities are required to establish the prudence of purchases on an annual basis. Second, the automatic adjustment clause allowing costs of natural gas to be passed on through to the customers, as an alternative to general rate case filings, has been approved by the Illinois Supreme Court. (See City of Chicago v. Illinois Commerce Comm’n (1958), 13 Ill. 2d 607, 614, 150 N.E.2d 776, 780.) Third, as pointed out in the majority opinion, take-or-pay terms in contracts became standard during the natural gas shortage in the 1970’s. Fourth, when gas became plentiful, local users and LDC’s made direct purchases (often using the pipelines of the previous wholesale supplier) at a lower cost than interstate pipelines could charge (at least partly because of their existing take-or-pay contracts). The FERC stepped in with Order 500, allowing the interstate pipelines to pass on losses incurred because of the take-or-pay contracts. The majority opinion adequately describes Order 500 and its effect. Order 500, in effect, upholds the take-or-pay clauses and allows for, at least, part of the cost incurred by the clauses to be recovered by adding to the wholesale cost of power. The contracts entered into by the LDC’s, which included the take-or-pay clauses, were previously subject to scrutiny under the annual review provisions of section 9— 220 of the Act. The prudence review now sought would, in reality, be considering the propriety of the provisions of take-or-pay clauses included in the contracts. The FERC made the following statement in Re United Gas Pipe Line Co. (1988), 45 F.E.R.C. par. 61,335, at 62,054, 99 Pub. Utilities Rep. 4th 343, 344-45: “LDCs’ rates are regulated exclusively by state and local rate setting agencies. However, those agencies are preempted from questioning or altering the wholesale rates set by this Commission. Instead, they must allow their regulated LDCs to recover in retail rates the costs incurred as a result of paying the wholesale rates determined by this Commission. Consequently, state and local rate setting agencies take a special role in this Commission’s proceedings. That role is recognized in Commission regulations that grant automatic party status to state commissions that file timely notices of intervention. By participating in a pipeline’s take-or-pay recovery proceeding under Order No. 500 on the issue of prudence, state and local rate setting agencies are pursuing their only opportunity to examine the reasonableness of the take-or-pay costs of their regulated companies’ supplier and thereby have some input into the determination by this Commission of the amount of that supplier’s take-or-pay costs to be recovered through fixed charges.” It is my opinion that both Nantahala and Mississippi Power support the ICG’s conclusion of Federal preemption. In Nantahala, the North Carolina Supreme Court was reversed when it held the percentage of entitlement power allotted to a North Carolina utility by the FERC could be increased by the State Utilities Commission.' Not only was the FERC’s exclusive jurisdiction over interstate power recognized (Nantahala, 476 U.S. at 956, 90 L. Ed. 2d at 948, 106 S. Ct. at 2352), but the decision holds the exclusive jurisdiction extended to the allocation of entitlement power. At issue is the “matter of enforcing the Supremacy Clause.” Nantahala, 476 U.S. at 963, 90 L. Ed. 2d at 952, 106 S. Ct. at 2355. Justice O’Connor wrote, as follows: “In Chicago & North Western Transp. Co. v. Kalo Brick, 450 U.S. 311, 67 L. Ed. 2d 258, 101 S. Ct. 1124 (1981), the Court similarly noted that the filed rate doctrine as applied to the actions of the Interstate Commerce Commission assisted in the enforcement of the supremacy of federal law: ‘The common rationale of these cases is easily stated: “[Tjhere can be no divided authority over interstate commerce, and . . . the acts of Congress on that subject are supreme and exclusive.” Missouri Pacific R. Co. v. Stroud, 267 U.S. 404, 408 [,69 L. Ed. 683, 685, 45 S. Ct. 243, 245] (1925). Consequently, state efforts to regulate commerce must fall when they conflict with or interfere with federal authority over the same activity.’ Id., at 318-19, 67 L. Ed. 2d 258, 101 S. Ct. 1124.” (Nantahala, 476 U.S. at 964, 90 L. Ed. 2d at 953, 106 S. Ct. at 2355-56.) She went on to state: “In both contexts, these courts have concluded that a state utility commission setting retail prices must allow, as reasonable operating expenses, costs incurred as a result of paying a FERC-determined wholesale price.” Nantahala, 476 U.S. at 965, 90 L. Ed. 2d at 953, 106 S. Ct. at 2356. In Mississippi Power, the FERC had allocated costs of a nuclear power plant among four different operating companies owned by the holding company, which also constructed the nuclear plant. The State of Mississippi attempted to challenge the allocation assigned to Mississippi Power and Light Company, an intrastate utility. The Supreme Court, citing Nantahala, held that the FERC Federal action preempted State interference. Justice Stevens made the following statement: “In this case as in Nantahala we hold ‘that a state utility commission setting retail prices must allow, as reasonable operating expenses, costs incurred as a result of paying a FERCdetermined wholesale price .... Once FERC sets such a rate, a State may not conclude in setting retail rates that the FERCapproved wholesale rates are unreasonable. A state must rather give effect to Congress’ desire to give FERC plenary authority over interstate wholesale rates, and to ensure that the States do not interfere with this authority.’ Nantahala, 476 U.S. at 965, 966, 90 L. Ed. 2d 943, 106 S. Ct. 2349.” (Emphasis added.) Mississippi Power, 487 U.S. at 339, 101 L. Ed. 2d at 339, 108 S. Ct. at 2440. In our present case, the FERC has determined that take-or-pay power costs, incurred by interstate power suppliers, shall be passed on to LDC’s. The take-or-pay costs have, thus, been determined to be part of the wholesale cost of power by the FERC and must be allowed by the State utility commissioners as reasonable operating expenses when setting retail prices. I conclude that the ICC does not have the authority to consider the prudence of LDC’s prior commitments to take-or-pay costs.