Northern Moraine v. Illinois Commerce, 2-07-1080.

• Decision Date: 12 June 2009
• Docket Number: No. 2-07-1080.,2-07-1080.
• Parties: NORTHERN MORAINE WASTEWATER RECLAMATION DISTRICT, Petitioner, v. ILLINOIS COMMERCE COMMISSION and Rockwell Utilities, LLC, Respondents.
• Court: United States Appellate Court of Illinois

912 N.E.2d 204

392 Ill. App. 3d 542

NORTHERN MORAINE WASTEWATER RECLAMATION DISTRICT, Petitioner, v. ILLINOIS COMMERCE COMMISSION and Rockwell Utilities, LLC, Respondents.

No. 2-07-1080.

Appellate Court of Illinois, Second District.

June 12, 2009.

Nancy J. Rich, Laura A. O'Connell, Monica J. Mosby, Katten Muchin Rosenman LLP, Chicago, IL, for Appellant.

John P. Kelliher, Illinois Commerce Commission, Phillip A. Casey, Anne W. Mitchell, Sonnenschein, Nath & Rosenthal LLP, Chicago, IL, for Appellee.

Justice McLAREN delivered the opinion of the court:

Petitioner, Northern Moraine Wastewater Reclamation District (the District), appeals from an order of the Illinois Commerce Commission (ICC) granting a certificate of public convenience and necessity to respondent Rockwell Utilities, LLC (Rockwell), to provide wastewater treatment services to parcels (the subject area) in the Village of Lakemoor (Village) in Lake County, Illinois.

On appeal, the District raises issues of law and fact. Specifically, the District argues: (A) the ICC's order was erroneous because: (1) the order violated the Clean Water Act of 1977(CWA) (33 U.S.C. § 1251 et seq. (2006)) because Rockwell was not the designated management agency (DMA) for the subject area; (2) the subject area was within the District's designated management area and thus the District was the DMA with authority to provide wastewater treatment services to the subject area; (3) the order erroneously concluded that the ICC had no authority to deny Rockwell's request for a certificate of public convenience and necessity, because the Illinois Environmental Protection Agency (IEPA) issued permits to Rockwell; (4) the District was not estopped from asserting that it was the DMA and thus must serve the subject area; and (5) the ICC had a duty to consider and follow federal law; (B) the ICC's authority was preempted under principles of conflict preemption in that: (1) conflict preemption applied because Rockwell and the District cannot both provide wastewater treatment services to the subject area; (2) the ICC's order was arbitrary and capricious because it erroneously ignored the controlling federal law and provided that the ICC was not required to consider the controlling federal law in deciding whether to issue the certificate; (3) Rockwell's wastewater treatment system was not exempt from the CWA's requirements for wastewater treatment; and (4) there was and is no emergency requiring or supporting the grant of a temporary certificate to Rockwell; (C) the ICC's finding that Rockwell was the least-cost option for providing water and wastewater treatment services to the subject area was not supported by substantial evidence in that: (1) the ICC's conclusion that Rockwell satisfied the requirements of section 8-406 of the Public Utilities Act (Utilities Act) (220 ILCS 5/8-406 (West 2006)) was erroneous because it was unsupported by the evidence presented; and (2) the ICC's conclusion that Rockwell was the only entity capable of providing services to the subject area was erroneous because it was unsupported by fact; (D) the ICC erroneously required the District to prove that it was the best option; and (E) the ICC improperly struck the District's brief on exceptions and almost all of its testimony and, therefore, the order was arbitrary and capricious in that it was based on an incomplete record. We affirm.

I. BACKGROUND

In its order, entered on August 15, 2007, the ICC issued a certificate of public convenience and necessity to Rockwell to provide water and sewer services to the subject area. The ICC found that: (1) public convenience and necessity required Rockwell's water and sewer service in the subject area; and (2) issuance of the certificate to Rockwell would promote the public convenience.

The case was initiated on July 24, 2006, when Rockwell filed with the ICC a petition for a temporary certificate of public convenience and necessity (emergency petition) (docket No. 06-0523) to provide water and sewer services to the subject area, pursuant to section 8-406(e) of the Utilities Act (220 ILCS 5/8-406(e) (West 2006)). Rockwell served a copy of its petition on all municipalities within 1½ miles of the subject area, pursuant to Title 83, section 200.150, of the Illinois Administrative Code (83 Ill. Adm.Code § 200.150, amended at 24 Ill. Reg. 16019, effi. October 15, 2000). Rockwell also served a copy of its petition on all water and sewer utilities within a reasonable distance of the subject area and those entities already parties to the proceedings. The ICC granted Rockwell's emergency petition in an interim order on August 16, 2006.

Rockwell also filed a petition (docket No. 06-0522) requesting a permanent certificate, as well as certain other relief not at issue in this appeal, pursuant to section 8-406 of the Utilities Act (220 ILCS 5/8-406 (West 2006)). The two dockets were consolidated by the administrative law judge (ALJ).

On August 31, 2006, the District filed a petition for leave to intervene, which was granted by the ALJ. While the District's petition was pending, the District filed a verified application for rehearing of the ICC's grant of Rockwell's emergency petition. The District also filed a motion to stay enforcement of the grant of the emergency petition.

In its petition for leave to intervene, the District alleged that the District is a municipal corporation located in McHenry County, Illinois, organized pursuant to the Sanitary District Act of 1917 (70 ILCS 2405/1 et seq. (West 2006)). The District also alleged that it has been the DMA for sewage treatment services for the entire Island Lake/Northern Moraine District Facilities Planning Area, comprising portions of McHenry and Lake Counties, since 1976. The District alleged that the CWA and the Illinois Environmental Protection Act (415 ILCS 5/1 et seq. (West 2006)) set out detailed procedures for revising the Illinois Water Quality Management (WQM) plan approved pursuant to the CWA, such as by taking authority away from a DMA. The District alleged that Rockwell failed to obtain the required approvals to revise the WQM plan to take away the District's DMA authority for the subject area. The District asserted that it was constructing major sewer interceptors and facilities that would serve additional areas of the Village, including land immediately adjacent to the subject area, at an estimated cost in excess of $19 million. The District alleged that, before Rockwell could obtain a certificate from the ICC, it was required to revise the WQM plan to remove the District's authority to serve the subject area. On September 26, 2006, the ALJ denied the District's verified application for rehearing of the ICC's grant of Rockwell's emergency petition and the District's motion to stay enforcement of the grant of the emergency petition.

Rockwell is an Illinois limited liability company formed in December 2005 by Kirk Corporation (Kirk), a large northern Illinois homebuilder and Rockwell's sole member. Rockwell filed an amended petition for a permanent certificate on February 23, 2007, and, at the direction of the ALJ, also filed a revised amended petition for a permanent certificate on April 16, 2007, which was served upon the parties. The revised petition essentially sought a permanent certificate to serve property purchased by Kirk, as well as surrounding property owned by other investors, in the subject area. In particular, the revised petition requested that the ICC: (1) grant a permanent certificate to provide water and sewer services to the subject area; (2) approve the general terms and conditions for the services; (3) approve the accounting entries related to Rockwell's acquisition of the water and sewer facilities of the subject area; (4) approve certain affiliated interest agreements; (5) authorize Rockwell's initial equity and debt financing; and (6) authorize Rockwell's refinancing of certain debt.

The subject area consisted of certain real estate commonly referred to as the "Sullivan Lakes Parcel," which included property owned by Kirk, Lakemoor Building Corporation (Lakemoor), and other investors, including JRC Lakemoor Investments Limited Partnership (Jupiter Investments) and JRC Lakemoor Development Company, LLC (Jupiter Development). Lakemoor, a private utility, served the Jupiter Apartments, located in the subject area, for 20 years, from 1987 to January 2007, after receiving permits from the IEPA.

The main witness on behalf of Rockwell was John P. Carroll, Kirk's president and chief executive officer. Carroll testified in October 2006 regarding Rockwell's agreement with Lakemoor to purchase the water and wastewater assets that Lakemoor was using to provide services to certain locations within the subject area. Lakemoor had difficulties providing services to the subject area, and Rockwell took steps to remedy the issues and improve the services. Carroll testified regarding Rockwell's proposed financing and equity and debt refinancing, which would occur within 12 months of approval of its amended petition.

Carroll testified that Rockwell had sufficient capacity to serve the subject area or could make enhancements to its system, if required. Rockwell was providing water and sewer services in the subject area to 496 customers in the Jupiter Apartments, 34 single-family homes, and 44 townhomes in the Sullivan Lakes Parcels. Carroll outlined potential additional developments in the subject area and Rockwell's ability to serve these additional developments. Carroll also outlined several techniques Rockwell could employ to increase capacity without expending substantial capital.

Carroll testified that Rockwell acquired the Lakemoor system for a purchase price equal to the available capacity of the system multiplied by $5,000, but not to exceed $3,535,000, as set forth in the asset purchase agreement with Lakemoor. The system's available capacity was equal to the number of homes that may...