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Illinois Court Rejects Public Utility Designation

The highest state court in Illinois has vacated a decision by the Illinois Commerce Commission that had awarded a certificate of public convenience and necessity (CPCN) to an independent developer for the construction of a highvoltage electric transmission line. According to the Illinois Supreme Court, the commission had erred in granting the Rock Island Clean Line project a CPCN because the sponsoring company did not qualify as a public utility as defined in Illinois law. The court found that under the law, only public utilities are eligible for CPCNs. Consequently, the court said, the commission acted beyond the bounds of its authority when it bestowed a CPCN upon Rock Island. 

The court described Rock Island as part of National Grid USA, a business that owns and operates more than 8,600 miles of high-voltage transmission lines in the United States. Although the project claimed that its proposed transmission line would facilitate local connections with wind generation units located in South Dakota, Nebraska, Minnesota, and northwestern Iowa, the court noted that Rock Island itself has not constructed such plant before and does not yet own, control, operate, or manage any such facilities or property within Illinois or elsewhere. 

The court elaborated that the project is still very much in the developmental stage, with its prospects uncertain. That is, the court said, although Rock Island expects to interconnect with the electrical grid administered by PJM Interconnection, which encompasses wholesale markets serving customers in Illinois, Indiana, Michigan, Ohio, Kentucky, the District of Columbia, and eight states in the Northeast, the project has not yet signed specific service agreements with potential customers. The court added that Rock Island has signaled that it will not go forward with the line unless a sufficient number of customers have contracted for the power to be transmitted over the line to make the project financially viable. 

With a price tag estimated to be $1.8 billion, but its financial options not yet confirmed, Rock Island had acknowledged that its ultimate success was not guaranteed. Nevertheless, it testified, the Federal Energy Regulatory Commission (FERC) had approved its plan to "pre-subscribe" up to 75% of the proposed line's transmission capacity in an effort to "anchor" customers. 

Subsequent to receiving FERC's consent to the pre-subscription plan, Rock Island had filed an application with the Illinois commission for a CPCN to cover that portion of the line located in Illinois. In deciding to issue the requested CPCN, the state commission was unmoved by arguments that Rock Island could not apply for a certificate because it did not already have in place the transmission infrastructure that would qualify it as a public utility. 

In support of its grant of the CPCN, the Illinois commission had asserted that nothing in the state's public utility law required applicants to own public utility plant, equipment, or property at the time they apply for a certificate to construct public utility facilities. In explaining its reasoning, the commission remarked that such a requirement would create an unworkable "Catch-22" because if an entity could not apply for a certificate unless it already owns public utility plant yet could not construct such plant without first obtaining the requisite CPCN, the entity would be stuck in regulatory limbo. 

But the court disagreed with the commission, finding that in contrast to earlier versions of the state's public utility laws, current legislation clearly states in the present tense that in order to qualify as a public utility, a company must own, control, operate, or manage plant, equipment, or property within Illinois. Based on the undisputed facts reflected on the record, the court said it was obvious that Rock Island did not qualify as a public utility. 

Addressing the "Catch22" concerns expressed by the commission, the court ruled that nothing in the Public Utilities Act prohibits new entrants such as Rock Island from commencing development of transmission lines immediately as a "purely private" project. It added that so long as it did not transact business as a public utility, it would not be subject to the Public Utilities Act and therefore would not require commission authorization to proceed. 

The court remarked that once a project is further underway and a developer has attained ownership, management, or control of utilityrelated property or equipment required to qualify as a public utility, it may then seek certification to operate as a public utility if it wishes to conduct business in a way that would make it subject to the Public Utilities Act's regulatory framework. 

From the court's perspective, the fact that there may be barriers and significant costs to new companies wishing to enter the state to establish a new public utility is in no way incompatible with the theory and operation of the Public Utilities Act. It pointed out that the law governing public utilities in Illinois is based on a model of limited monopoly and reflects a policy of preventing rather than promoting competition with existing utilities. 

The court concluded that while one may disagree with that model, the wisdom of the state's regulatory system is a matter for the legislature, not the courts. To that end, the court stated that should the company elect to move forward with the Rock Island project and reapply for a CPCN as a public utility once it moves beyond the planning stage and actually owns, controls, operates, or manages transmission assets, the question of public use can be revisited under the facts and circumstances then present. Illinois Landowners Alliance, NFP et al. v. Illinois Commerce Commission et al., Docket Nos. 121302 et al., Sept. 21, 2017 (Ill.).