Killarney Water Co. v. Illinois Commerce Commission
| Decision Date | 18 May 1967 |
| Docket Number | 40151,Nos. 40150,s. 40150 |
| Citation | 226 N.E.2d 858,37 Ill.2d 345 |
| Parties | , 69 P.U.R.3d 183 KILLARNEY WATER CO. et al., Appellees, v. ILLINOIS COMMERCE COMMISSION, Appellant. |
| Court | Illinois Supreme Court |
William G. Clark, Atty. Gen., Chicago (Edward G. Finnegan, Asst. Atty. Gen., of counsel), for appellant.
Harry R. Begley and Chapman & Cutler, Chicago, (John N. Vander Vries, Chicago, of counsel), amici curiae.
McDermott, Will & Emery, Chicago (Franklin J. Lunding, Jr., Frank E. Babb and Frank M. Covey, Jr., Chicago, of counsel), for appellees.
Pistakee Highlands Water Company, (Pistakee), and Killarney Water Co., (Killarney), are public utilities engaged in furnishing water service in McHenry County. On February 10, 1965, each utility petitioned the Illinois Commerce Commission for an order determining the original cost of its water plant in accordance with the Commission's General Order No. 183. From orders of the Commission requiring adjustments in their accounts, each utility appealed to the circuit court of McHenry County, which reversed the orders of the Commission. The Commission's direct appeals to this court (Ill.Rev.Stat.1965, chap. 110, par. 101.28--1.) have been consolidated for opinion.
In each case the water pumping plant and the distribution system was constructed and placed in operation by Pistakee Builders, Inc., (Builders), a company engaged in real-estate development. The Commission found that Builders and the two utilities were under common control. The controversy in each case centers about the proper treatment of funds which were segregated by Builders from the amounts it collected from purchasers of lots, and placed in 'water reserve' accounts. Broadly stated, the question is whether these funds should be treated as 'Contributions in Aid of Construction', or as 'Donations from Stockholders', within the meaning of the Uniform System of Accounts for Water Utilities prescribed by the Commission. While this proceeding does not directly involve rates, it may have a bearing upon them, for, as the utilities note, 'Historically, 'Contributions in Aid of Construction' have not been included in the determination of the fair value of a utility for rate purposes, whereas 'Donations Received from Stockholders,' * * * are properly a part of the fair value of the stockholders' investment * * *.'
The facts in the two cases, although similar, are not identical. In the case of Pistakee, the form of contract for the sale of lots which was used prior to 1956 provided: 'Purchaser agrees to pay to seller the sum of $200.00 per lot * * * in addition to payments hereinabove set forth * * * for making water connections either in the street fronting on said property or in the easements for public utilities on said property from a central water system, said sum to be turned over at option of seller to a separate utility company, to be organized for the purpose of installing the same * * *.' After 1956, Pistakee's contracts provided: 'Price of lot includes water main to lot line or easements.'
The Commission found that, of the amounts collected from its purchasers, Builders segregated $200 per lot in a 'water reserve' account. As the water plant was constructed it transferred amounts from this account to Pistakee, and charged the cost of constructing the plant against the amounts so transferred. The Commission also found that until the end of 1961 Pistakee recorded the transfers from the 'water reserve' account as 'Contributions in Aid of Construction.' But at the end of 1961 it reclassified $50,223.40 from 'Contributions in Aid of Construction' to 'Accounts payable to shareholders,' and thereafter again reclassified that amount as 'Donations received from shareholders.' Pistakee sought to justify these reclassifications on the ground that the $50,223.40 represented the sum of the $200 payments made by lot purchasers on post-1956 contracts. Its position was that it was not obligated to treat these payments as contributions in aid of construction, although it admitted that it was obligated to use the similar amounts collected under pre-1956 contracts 'to have water available to the lot.'
Since the funds that Pistakee sought to treat as contributions from stockholders were obtained by Builders from the purchasers of lots, the Commission sought to ascertain whether, apart from the various accounting reclassifications, Builders had treated those funds as its own. Builders refused to furnish information concerning the tax treatment of each of the utility plants and water reserve accounts by the builder or developer of the respective water systems. When the Commission's examiner proposed that a subpoena be issued to compel the production of these records, the attorney for Builders stipulated that, subject to relevancy, the Commission might draw whatever inferences it saw fit as to the way these funds were treated by Builders and the utilities for Federal tax purposes.
The Commission rejected Pistakee's accounting and ordered that the contested $50,223.40 be recorded as Contributions in Aid of Construction.
In the case of Killarney, the form of contract used by Builders for the sale of lots is not in the record. Apparently, however, it was similar to the post-1956 Pistakee form and contemplated that the price paid by the purchaser included a water main at the lot line. Upon oral argument, Killarney's attorney conceded that if mains were not made available at the lot line without cost to the purchaser of the lot, the contract would have been breached. From the amounts collected from purchasers of lots, Builders allocated $200 per lot, or sometimes $250, to a 'water reserve' account. It constructed Killarney's plant at a total cost of $92,204.92. Builders contracted to sell the plant to one of its officers, Ambrose E. Thillman, for approximately 25% Of the construction cost. It charged $73,500 of the construction costs against the water reserve account, and charged the balance of the costs to Thillman, who assigned his contract...
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