Business & Professional People for the Public Interest v. Illinois Commerce Commission (136 Ill. 2d 192, 1989)

JUSTICE CALVO

delivered the opinion of the court:

The Illinois Commerce Commission (Commission) entered a sixth interim order (Sixth Order) in these consolidated cases on December 30, 1988, granting Commonwealth Edison Company (Edison) a two-step rate increase for electric service over a five-year period. Two of the seven commissioners concurred in part and dissented in part from the Sixth Order. Several interveners, on behalf of various ratepayers, filed motions with this court for a direct appeal pursuant to Supreme Court Rule 302(b) (107 Ill. 2d R. 302(b)), and we allowed said motions. Those interveners filing briefs opposing various provisions of the Sixth Order include Business and Professional People for the Public Interest (BPI), Citizens Utility Board (CUB), the City of Chicago (City), the People of Cook County ex rel. Richard M. Daley (Cook County), Low Income Residential Consumers (LIRC), the People of the State of Illinois ex rel. Office of Public Counsel (State), and the Illinois Department of Transportation (IDOT). Edison, the Commission and the Illinois Industrial Energy Consumers (IIEC) filed briefs asking us to uphold the Sixth Order.

I. Proceedings Before the Commission

On August 21, 1987, pursuant to the Public Utilities Act (Act) (Ill. Rev. Stat. 1987, ch. 111⅔, par. 1 — 101 et seq.), Edison filed tariffs with the Commission requesting a $1.414 billion annual, 26.9%, increase in rates for electric service to cover costs associated with bringing the Byron Unit 2, Braidwood Unit 1 and Braidwood Unit 2 nuclear power plants (units) into service. The Commission suspended the proposed tariffs through July 17, 1988, pursuant to section 9 — 201(b) of the Act, which allows the Commission to suspend tariffs for up to 11 months. Pending completion of audits of the units, as required by section 9 — 213 of the Act, the Commission held evidentiary hearings, beginning January 6, 1988, and extending over several months, on the nonaudit portions of the case. The auditors released the Byron Unit 2 and Braidwood Unit 1 audits in April 1988. Edison, various interveners and the staff of the Commission (Staff) filed briefs on the nonaudit issues in May 1988. Staff recommended in early 1988 that Edison receive a rate decrease of $343 million.

On June 6, 1988, Staff filed a “Motion for the Commission to Defer the Resolution of the Rate Case and to Pursue an Alternative Resolution.” Staff attached to this motion a settlement proposal. The proposal provided for a $235 million rate increase effective January 1, 1989, and a $245 million rate increase effective January 1, 1990. The proposal also provided for a rate freeze through December 31, 1993, after the second rate increase. The proposal contained numerous other provisions.

On June 8, the Commission entered its fourth interim order (Fourth Order) allowing Staff’s motion over the objections of various interveners. The Commission, however, found that because suspension of the tariffs ended on July 17, sufficient time did not exist within which to pursue a settlement. Consequently, the Commission, in its Fourth Order, stated that Edison had to withdraw and refile its tariffs if Edison wanted to pursue Staff’s settlement proposal. If Edison refiled the tariffs, the Commission could again suspend the tariffs and thus provide the parties and intervenors with another 11-month period within which to pursue a settlement and conduct further proceedings. The Commission also stated that it would then consolidate the two dockets.

The Fourth Order provided further that if Edison did not agree to pursue the settlement proposal, the Commission would enter an order deciding the merits of the case by June 13, 1988. The Commission stated that if Edison agreed to pursue the proposal, the parties and intervenors would engage in negotiations until August 1, 1988. At that time, Staff could end the negotiations, if no reasonable opportunities for a resolution existed. The case would then proceed from the point at which it had stopped prior to the negotiations, and the Commission would enter a final order deciding the merits of the case by September 15, 1988. The Fourth Order also provided, however, that if Staff filed an offer of settlement (Settlement) by August 1, the Commission would establish a hearing schedule which would permit the Commission to enter a final order allowing or denying the Settlement by December 1, 1988. Under the Fourth Order, if the Commission decided to reject the Settlement, the Commission would enter a final order deciding the merits of the case by December 31, 1988.

On June 10, 1988, Edison withdrew and refiled its tariffs. Staff filed a Settlement on August 1, 1988. This Settlement contained the same provisions as the settlement proposal attached to Staffs earlier motion. In response, various intervenors moved for a decision on the merits of the case; the Commission denied the motion. Procedural hearings on the Settlement and the audits of Byron Unit 2 and Braidwood Unit 1 began on August 2. The auditors had not completed the Braidwood Unit 2 audit, and they did not release the audit until February 28, 1989, so the proceedings and the orders of the Commission did not resolve issues related to the Braidwood Unit 2 audit. The Commission held evidentiary hearings from September 19 through October 11. The parties filed briefs thereafter, and oral arguments took place on December 1 and 2,1988.

The Commission issued a fifth interim order (Fifth Order) on December 21, 1988. The Commission attached to the Fifth Order a draft of its Sixth Order which incorporated the Settlement with some modifications. In the Fifth Order, the Commission stated it would adopt the Sixth Order, if Edison agreed to be bound by the terms and conditions in the Sixth Order. The Commission stated that Edison must agree to the Sixth Order because the Sixth Order contained certain provisions which the Commission could not legally implement unilaterally; these provisions included imposition of a rate moratorium and allowance of retroactive refunds. If Edison did not agree to the Sixth Order, the Fifth Order provided that the Commission would enter a decision on the merits of the case by May 6,1989.

Edison submitted written acceptance of the Sixth Order, and on December 30, 1988, the Commission entered the Sixth Order. The Commission subsequently amended the Sixth Order on January 25, 1989, and again on February 8, 1989. One commissioner dissented from the latter amendment. The Commission denied the interveners’ petitions and applications for rehearing.

II. Authority of the Commission

A. Powers of the Commission

The main issue is whether the Commission had authority to enter the Sixth Order. The Commission only has those powers given it by the legislature through the Act. (Union Electric Co. v. Illinois Commerce Comm’n (1979), 77 Ill. 2d 364, 383.) Under the Act, the Commission has “general supervision of all public utilities” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 4 — 101), including Edison. In supervising the utilities, the Commission may examine the rates and other charges of the utilities and review the compliance of the utilities with the Act. Ill. Rev. Stat. 1987, ch. 111⅔, par. 4 — 101.

The Act gives the Commission investigative powers. (Ill. Rev. Stat. 1987, ch. 111⅔, .par. 10 — 101.) The Commission, usually through its Staff, may gather evidence, subpoena witnesses, depose witnesses, or require the production of documents in order to determine whether a utility has complied with the Act. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 106.) The Staff, or those employees of the Commission who engage in investigatory, prosecutorial, or advocacy functions, remains separate from the commissioners, hearing examiners and other members of the Commission who render decisions. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 103.) The Commission, therefore, has a special role in that it performs investigative, prosecutorial and advocacy, as well as decisionmaking, functions.

When a utility files a rate schedule, the Commission has the power, “upon complaint or upon its own initiative,” to hold “a hearing concerning the propriety of such rate.” (Ill. Rev. Stat. 1987, ch. HP/s, par. 9— 201(b).) The Act sets forth various findings the Commission must make before the Commission may approve the proposed rates of a utility. For example, the Commission cannot include in the rate base of a utility a “new electric utility generating plant,” or any “significant addition” to an existing plant, “unless and until the utility proves, and the Commission determines, that such plant *** is both prudent and used and useful in providing utility service to the utility’s customers.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9 — 212.) Moreover, the Commission cannot include the cost of new plants in the rate base of a utility until the Commission determines that such cost is “reasonable.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9— 213.) The Commission must also determine whether the proposed rates are “just and reasonable.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9 — 101.) If the Commission finds the rates unreasonable, it must set new, reasonable rates. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9 — 250.) If the rate hearings involve the proposed inclusion of a significant new production or generation facility in the rate base of an electric utility, “the Commission may consider the adoption of a rate moderation plan which is designed to diminish the immediate rate impact of such proposed inclusion.” Ill. Rev. Stat. 1987, ch. lll2/s, par. 9 — 217.

The hearing and rulemaking procedures of the Commission are governed by the Act and the Illinois Administrative Procedure Act (IAPA) (Ill. Rev. Stat. 1987, ch. 127, par. 1001 et seq.). (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 101.) The Act provides:

“Any proceeding intended to lead to the establishment of policies, practices, rules or programs applicable to more than one utility may, in the Commission’s discretion, be conducted pursuant to either rulemaking or contested case provisions, provided such choice is clearly indicated at the beginning of such proceeding and subsequently adhered to.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 101.)

The Commission may “adopt reasonable and proper rules and regulations relative to the exercise of its powers, and proper rules to govern its proceedings, and regulate the mode and manner of all investigations and hearings, and alter and amend the same.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 101.) These rules and regulations must be consistent with the Act and the IAPA. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 101.) Moreover, in all proceedings:

“any finding, decision or order made by the Commission shall be based exclusively on the record for decision in the case, which shall include only the transcript of testimony and exhibits together with all papers and requests filed in the proceeding, including, in contested cases, the documents and information described in *** the [IAPA].” Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 103.

B. Scope of Review

A reviewing court can only reverse, in whole or in part, a Commission rule, regulation, order or decision, if (1) the “findings of the Commission are not supported by substantial evidence,” (2) the “rule, regulation, order or decision is without the jurisdiction of the Commission,” (3) the rule, regulation, order or decision violates the Federal or State Constitution or laws, or (4) the manner by which the Commission decided its rule, regulation, order or decision violated the Federal or State Constitution or laws “to the prejudice of the appellant.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 201(e)(iv).)

“Setting utility rates is a legislative rather than judicial function. [Citations.] In the ratemaking scheme, the Commission and not the court is the fact-finding body. [Citation.] Apart from examining whether the Commission acted within the scope of its authority or infringed upon a constitutional right, a court is limited to reviewing whether the Commission set out findings of fact supporting its decision and whether the findings are against the manifest weight of the evidence.” (People ex rel. Hartiqan v. Illinois Commerce Comm’n (1987), 117 Ill. 2d 120, 142.)

(See Cerro Copper Produets v. Illinois Commerce Comm’n (1980), 83 Ill. 2d 364, 370-71; State Public Utilities Comm’n ex rel. City of Springfield v. Springfield Gas & Electric Co. (1919), 291 Ill. 209, 215-16.) The court’s review of a Commission decision is, therefore, limited. The interpretation by the Commission of a question of law, however, is not binding upon a reviewing court. Hartigan, 117 Ill. 2d at 137.

C. Provisions of the Sixth Order

The essential provisions of the Sixth Order are as follows:

(1) On January 1, 1989, a rate increase of $235 million will take effect.

(2) On January 1, 1990, a rate increase of $245 million will take effect.

(3) Edison cannot file for any further rate increases prior to February 1, 1993, except under certain circumstances set forth in the Sixth Order.

(4) Staff will review the earnings of Edison at the end of each year from 1989 through 1993. If the Commission determines Edison earned excess revenue during the year, the Commission could order a refund which would become effective the following year.

(5) Because the Braidwood Unit 2 audit was not completed, the Commission did not make any findings or determinations in the Sixth Order regarding the rate base value of that unit. The Commission will hold hearings and make findings concerning the rate base value of Braidwood Unit 2 in 1989.

(6) The findings in the Sixth Order regarding Byron Unit 2 and Braidwood Unit 1 establish minimum rate base values. The parties and intervenors may present additional evidence concerning the final rate base values of these units during the 1989 hearings.

(7) The 1989 (first-step) rate increase is reasonable.

(8) The Commission did not determine the reasonableness of the 1990 (second-step) rate increase in the Sixth Order. The Commission will make that determination after completion of the Braidwood Unit 2 audit and after further hearings in 1989.

(a) The Commission will only approve the second-step rate increase if the evidence supports such a finding.

(b) Any revenues in excess of the first-step rate increase found just and reasonable in the Sixth Order may be used to support the second-step rate increase.

(c) The $245 million is a cap on, or the maximum of, the rate increase for 1990.

(d) If the evidence demonstrates that reasonable costs are in excess of the amount necessary to support a $245 million rate increase, those costs will not be included in rates during the five-year moratorium.

(e) No carrying charges on excess revenues or on any costs excluded from rates can accrue during or after the moratorium.

(f) The Commission may, after a determination based on the evidence, include in rates after the moratorium any excess costs or revenues.

(g) If the Commission determines a rate increase less than $245 million is reasonable, Edison will have the option of withdrawing from the Sixth Order, and the Commission will have the right to consider whether a rate reduction and refund of the excess revenues from the first-step rate increase would be appropriate.

D. Characterization of the Sixth Order

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 interveners argue to this court that the Commission did not have authority to enter the Sixth Order. The interveners 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 interveners assert the Commission improperly delegated its ratemaking authority to Edison. (See Union Electric, 77 Ill. 2d at 383-84.) According to the interveners, 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. 111⅔, 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. 111⅔, 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. 111⅔, 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. 111⅔, par. 10 — 108.) Consequently, Edison and the Commission could not enter into a settlement alone, without the agreement of the seven interveners. 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 rate-making 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 investígation. 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. 111⅔, 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.

Commissioner Stone, who dissented in part and concurred in part in the Sixth Order, accurately analyzed the actions of the Commission:

“Had I been making this decision within a typical rate case context rather than this multiyear moratorium arrangement, I would have voted against the [Sixth] Order without hesitation for the $235 million Step 1 revenue requirement is supportable only in the context of the five-year, multiple benefits arrangement. But this ‘integrated whole’ was presented as an Offer of Settlement, which is a different animal: a hybrid. And therein lie some of the contradictions and shortcomings of the process and the product, as well as some of the benefits. ***

The Hearing Examiners repeatedly asserted that (1) this proceeding was a unilateral Staff Offer; (2) it was not a settlement proceeding and there were no trade-offs between parties; and (3) the Order is based entirely on traditional rate case evidentiary principles.

Nevertheless, the Order often vacillates between rate case premises and a settlement rationale to reach or justify issue resolutions, picking and choosing among a wide range of evidence, sometimes more on a basis of expediency than of principle and consistency.”

Edison denies it entered into a bargain or deal with the Commission, and it also denies the Commission delegated any ratemaking authority to Edison. Edison asserts it did not set out the terms of the Sixth Order. Edison states it could only accept or reject the Sixth Order and such action is allowed under section 10 — 112 of the Act. Section 10 — 112, entitled “Service of Order,” provides:

“Every order of the Commission shall be served upon every person or corporation to be affected thereby, either by personal delivery of a certified copy thereof, or by mailing in the United States mail a certified copy thereof, in a sealed package with postage prepaid, to the person to be affected thereby or in the case of a corporation, to any officer or agent thereof upon whom a summons of a circuit court may be served in a civil action. *** Within a time specified in the order of the Commission every person and corporation upon whom it is served must, if so required in the order, notify the Commission in like manner whether the terms of the order are accepted and will be obeyed.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 112.)

Edison contends the Act contemplates acceptance or rejection of an order of the Commission, and thus the Commission did not delegate any power to, or improperly bargain with, Edison.

We do not agree with the assessment by Edison of section 10 — 112. Section 10 — 112 concerns service of a Commission order. Section 10 — 112 only requires notice by the parties to the Commission of whether the parties will obey the Commission order. Section 10 — 112 does not give a utility the power to disobey orders of the Commission. (See Ill. Rev. Stat. 1987, ch. 111⅔, pars. 5 — 101, 5 — 201.) Section 10 — 112 is merely a procedural requirement. Moreover, section 10 — 112 does not allow the Commission to improperly enter into a settlement with a utility or to set rates not based on the record. Our decision that Edison and the Commission entered into a settlement agreement is not based solely on the Commission’s giving Edison discretion to reject the Sixth Order. The Commission also did not base its decision on the evidence.

Edison, the Commission, and the IIEC contend the Commission had authority to consider a rejected settlement proposal as a decision on the merits of the case. They cite this language from Mobil Oil Corp. v. Federal Power Comm’n (1974), 417 U.S. 283, 312-14, 41 L. Ed. 2d 72, 97-98, 94 S. Ct. 2328, 2348, as support:

“New York contends that the Commission is without power to adopt as a rate order a settlement proposal that lacks unanimous agreement of the parties to the proceeding. That contention has no merit.

The Commission clearly had the power to admit the agreement into the record — indeed, it was obliged to consider it. That it was admitted for the record did not, of course, establish without more the justness and reasonableness of its terms. But the Commission did not treat it as such. As we have noted, the Commission weighed its terms by reference to the entire record ***. We think that the Court of Appeals correctly analyzed the situation and stated the correct legal principles:

‘No one seriously doubts the power — indeed, the duty — of FPC to consider the terms of a proposed settlement which fails to receive unanimous support as a decision on the merits. We agree with the DC Circuit that even “assuming that under the Commission’s rules [a party’s] rejection of the settlement rendered the proposal ineffective as a settlement, it could not, and we believe should not, have precluded the Commission from considering the proposal on its merits.” Michigan Consolidated Gas Co. v. FPC (1960), 108 US App DC 409, 283 F2d 204, 224.

As it should FPC is employing its settlement power under the APA, 5 USCA § 554(c), and its own rules 18 CFR § 1.18(a), to further the resolution of area rate proceedings. If a proposal enjoys unanimous support from all of the immediate parties, it could certainly be adopted as a settlement agreement if approved in the general interest of the public. But even if there is a lack of unanimity, it may be adopted as a resolution on the merits, if FPC makes an independent finding supported by “substantial evidence on the record as a whole” that the proposal will establish “just and reasonable” rates for the area.’ 483 F2d at 893. (Emphasis in original.)”

According to Edison, the Commission, and the IIEC, our holding means that the Commission may never even consider a settlement proposal as a decision on the merits unless all of the parties and interveners agree to it.

We first note that neither the Act nor the IAEA set out the settlement procedures the Commission must undertake. Likewise, Edison, the Commission and the IIEC have not referred us to any Commission rules on the subject. Second, Mobil dealt with Federal law and a Federal agency; Federal procedures are not necessarily consistent with Illinois law and procedures.

Nevertheless, our decision is not inconsistent with Mobil. Mobil provides that if a settlement proposal has unanimous support, an agency could adopt it as a settlement agreement. Mobil also holds, however, that if such a proposal lacks unanimous support, the agency may adopt it as a resolution on the merits. In other words, if the agency makes an independent finding, supported by substantial evidence in the record as a whole, that the proposal would establish just and reasonable rates, the agency may adopt a settlement proposal which fails to garner unanimous support.

Our decision mirrors this holding. The Commission stated in the Sixth Order that the Sixth Order was an order based on the merits, not a settlement agreement. We hold, however, that the Sixth Order, in reality, reflects a settlement agreement. Consequently, because the Sixth Order did not have unanimous support, it is invalid. We also hold that even if the Sixth Order is not a settlement, but a decision on the merits, it is still invalid because (1) the Commission did not have statutory authority to enter two of the provisions, and (2) the Sixth Order was not independently supported by the evidence in the record.

Absent statutory law to the contrary, we have no quarrel with the Commission’s ability to consider a settlement proposal not agreed to by all of the parties and the interveners as a decision on the merits, as long as the provisions of such a proposal are within the Commission’s power to impose, the provisions do not violate the Act, and the provisions are independently supported by substantial evidence in the whole record. Such was not the situation in the case at bar.

Edison believes the novel provisions in the Sixth Order benefit ratepayers and put ratepayers in a no-lose situation. This argument by Edison is irrelevant. Regardless of what benefits ratepayers may have derived from the Sixth Order, the Commission may not enter into a settlement with a utility which excludes the intervenors in the case, and it may not enter an order not based on the evidence.

The parties and intervenors all characterized the Sixth Order differently. They each referred to the Sixth Order in one or more of the following ways: a traditional rate case, a nontraditional rate case, a rate deal, a rate bargain or a settlement. We conclude the Sixth Order most closely resembles a settlement. We have enumerated the reasons for our conclusion in this opinion. This conclusion, however, is reinforced by the unique position of the Commission in rate cases. We pointed out earlier that the Commission has the power to investigate as well as decide rates. Staff in the case at bar presented its own witnesses at the hearings, and engaged in settlement negotiations with Edison and the intervenors. The Commission, through its Staff, acted as a party in the case. The commissioners, who are a separate part of the Commission, decided and entered the Sixth Order. Staff presented the Settlement and the commissioners approved it, after the commissioners gained the agreement of Edison. After reviewing the peculiar circumstances of the case at bar and the particular provisions of the Sixth Order, we conclude the Sixth Order constitutes a settlement.

Despite statements by the Commission in the Sixth Order to the contrary, we conclude the Commission used a settlement rationale to justify the Sixth Order. The Commission had no authority to impose a settlement not agreed to by all of the parties and the intervenors. Consequently, the Commission improperly entered into a settlement with Edison. Moreover, the Commission did not base its decision in the Sixth Order exclusively on the evidence presented in the record. We will address various provisions in the Sixth Order to further clarify our decision.

E. Five-Year Period

One of the unique aspects of the Sixth Order is it covers a five-year period. The Act is silent as to whether the Commission may set rates for a specific period of time. As we indicated earlier, however, the Act does not appear to permit that type of limitation inasmuch as a utility may file for a rate increase at any time.

In establishing rates, the Commission considers the revenues and expenses of the utility. To more accurately determine these figures, the Commission established an administrative rule, General Order 210 (83 Ill. Adm. Code §285.150 (1985)). Under General Order 210, the utility must file its rate data in accordance with a proposed one-year test year. This test year may be an historical, current or future year. The test-year rule prevents a utility from mismatching revenues and expenses. The utility cannot use a low revenue figure from one year and a high expense figure from another year to bolster its evidence in support of a rate increase. In turn, the Commission decides what test year would be most appropriate and bases its rate decisions on the test-year data. In the case at bar, Staff and Edison proposed a 1987 test year, which the Commission adopted.

The interveners contend the Commission violated its own General Order 210 by imposing rates for a five-year period. The interveners argue that data for a one-year period cannot accurately justify rates for a five-year period. Moreover, the interveners contend the Commission, by imposing the test-year rule, intended to limit itself to setting rates for only a one-year period. Thus, the Commission, on its own, set the one-year limit, but then violated that limit by setting rates for a five-year period.

The intervenors’ argument has merit. The Commission, in the Sixth Order, stated:

“The Commission adopts Staff’s 1987 Test Year. However, in reviewing the evidence in light of Staff’s proposal, consideration should be given to the fact that adoption of any such proposal will result in rates which will remain in effect for five years. If Staff’s proposal for a five-year rate moratorium is not adopted, the adjustment to rate base and operating income recommended by Staff and other parties but not adopted in this Order may be reconsidered.”

Although the Commission adopted the 1987 test year, it acknowledged the test year was not adequate to justify an order which would set rates for five years. The Commission said it would reconsider the rates if Edison did not accept the five-year proposal. We should also point out that the Commission did not adopt a new five-year test period or any other new standard. The Commission simply stated it would give “consideration” to the five-year rate moratorium when it set rates.

This conflict between the one-year test year and the five-year order became apparent when the Commission had to determine whether all, part, or none of the units were “used and useful” under section 9 — 212. Only used and useful units may be included in the rate base of a utility. One of Staffs expert witnesses, Michael Gorman, testified that, based on the 1987 test year, 48% of Byron Unit 2 and 21% of Braidwood Unit 1 were used and useful. Although the Commission reiterated the testimony of the numerous witnesses presented by Staff, the interveners and Edison on the used and useful issue, the Commission only appeared to take stock in Gorman’s analysis. The Commission, however, rejected Gorman’s findings, stating:

“The facts of the case now before the Commission are the facts of Staff’s Offer of Settlement. Under its Offer of Settlement, Staff no longer submits that Mr. Gorman’s methodology is appropriate. Staff presented Mr. Gorman’s methodology in the context of a one year rate case and still argues that it could be appropriate in the context of a one year rate case, depending on the circumstances involved. However, it is Staffs position that Mr. Gorman’s methodology is not appropriate in the context of Staff’s Offer of Settlement which establishes a five-year rate moratorium. Staff points out that while the Commission has broad discretion to make used and useful determinations, the reasonable exercise of that discretion depends on the circumstances at hand. Staff concludes that it is clearly appropriate under pre-1986 law to find Byron Unit 2 and Braidwood Unit 1 used and useful under the terms of the Offer of Settlement.

* * *

The Commission concurs with Staff that the used and useful disallowances proposed by Mr. Gorman are not appropriate under the terms of the offer of Settlement. While Mr. Gorman’s methodology looked only at the 1987 test year, Mr. Gorman testified that Byron Unit 2 and Braidwood Unit 1 are needed to meet demand and provide economic benefits beyond the 1987 test year. Also, it is inherent in Mr. Gorman’s methodology that a utility could present a rate case each year to ratebase more of its generating facility as used and useful as demand and economic benefits increase under the application of Mr. Gorman’s methodology. Under Staff’s Offer of Settlement, the Commission is setting rates for five years. Edison will not be allowed to file for an increase in rates during that period. Under the terms of the Offer of Settlement, it is not appropriate to impose used and useful disallowances based upon a one-year analysis due to the nature of the five-year moratorium.”

The Commission then found “within the context of the Offer of Settlement” all of Byron Unit 2 and Braidwood Unit 1 were used and useful:

“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 a determination appropriate under pre-1986 law. The Commission makes no determination whether Byron Unit 2 and Braid-wood Unit 1 would or would not be found to be used and useful under the terms of a traditional rate case ***.”

Thus, the Commission adopted the 1987 test year, but did not use it to decide the used and useful issue.

The Commission discounted Gorman’s approach and based its decision to find all of the units used and useful on two circumstances. First, the Sixth Order encompassed a five-year period and Edison could not file for a rate increase during that period. Presumably, if the Commission found only part of the units used and useful, and a larger percentage of the units became used and useful over the next several years, Edison could not include in its rate base that additional percentage until after 1993. Consequently, the Commission found it “inappropriate to impose used and useful disallowances based upon a one-year analysis due to the nature of the five-year moratorium.” For this reason, the Commission found that “within the context of the Offer of Settlement” all of the units were used and useful.

Second, the Commission based its decision on its discretion to make used and useful determinations under pre-1986 law. The Commission stated in the Sixth Order that it was “consistent with the Commission’s reasonable exercise of discretion under pre-1986 law not to impose used and useful disallowances under the circumstances.” Under section 9 — 215, if the units were, already under construction prior to 1986, the effective date of the new Act, any determination of whether the units are used and useful must be made under the law in effect prior to 1986. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9— 215.) Byron Unit 2 and Braidwood Unit 1 were under construction prior to 1986. The Commission, therefore, correctly determined it had to decide the used and useful issue based on pre-1986 law. Prior to 1986, however, the Act did not define used and useful. After reviewing pre1986 common law, the Commission found the units used and useful because the units were “in service, [were] in round-the-clock daily use, [were] base loaded and economically dispatched, and [were] producing substantial fuel savings.” Even if the Commission had discretion under pre-1986 law to determine what portion, if any, of the units was used and useful, the Commission still based part of its decision on the five-year scope of the Sixth Order and the rate moratorium.

Moreover, the Commission did not cite the testimony of any witness to support its finding the units 100% used and useful in the first year and throughout the five-year period. Edison presented the testimony of witnesses to support its position that the units were used and useful. The Commission did not state that it based its decision on the testimony presented by Edison. Instead, the Commission only relied on Gorman’s testimony, but it then disagreed with his testimony. Thus, the Commission failed to support its decision with any credible evidence; that is, any evidence other than the circumstances of the Settlement and its own discretion.

The Commission also failed to adopt an alternative approach. In other words, the Commission did not want to base its decision on the test year, but it did not articulate a new standard upon which to evaluate the used and useful issue. The Commission simply considered the five-year scope of the Sixth Order and relied on its discretion under pre-1986 law.

Commissioner Stone, who dissented in part from the Sixth Order, asserted that Gorman’s methodology was rational and reasonable. Nevertheless, Stone acknowledged the difficulty in predicting whether and to what extent a unit was used and useful over five years based on a one-year standard. Stone, however, pointed out that the Commission failed to “adopt any alternative to the Gorman approach.” Stone stated:

“[H]aving rejected Gorman’s single test year determination, there were other alternatives available from the record, had the Commission wished to use them. Most notably, Morris Brubaker, on behalf of IIEC, developed the basis for a five-year phase-in of Braidwood 1. ***

To preserve Gorman’s approach and apply an appropriate used and useful standard for the five year period of the Offer of Settlement, Gorman’s methodology could have been combined with the 2% load growth analysis of Brubaker. Under Brubaker’s analysis, Braidwood 1 would become 100% used and useful in the last year of the moratorium. (1988: 21% used and useful, 1989: 40%, 1990: 60%, 1991: 80%, 1992: 100%) Determining in advance to phase in Braidwood 1 over five years in increments when the reserve margin was expected to fall below 20% would have set a standard — and an appropriate one — for used and useful in the context of the Offer of Settlement.

While such an approach could create problems in Step 2, it would have had the advantage of greater intellectual honesty. It — or a variation of it — would have adopted and adhered to an understandable standard, supported in the record. It would also have provided a basis for future Commission decisions.

Here it is well worth quoting Staff’s position on page 9 of its Brief on Exceptions to this Order:

‘In their briefs, [the State] and BPI *** take exception to the Examiner’s resolution of the used and useful issue. Staff agrees with these exceptions to the extent that they argue that an explicit standard should be set forth. There were a number of standards proposed by the various witnesses. Mr. Gorman used a 1 year standard; Mr. Brubaker used a 5 year standard; Mr. Wayland proposed a 10 year standard; and Edison advocated use of an ‘economic dispatch’ standard. While Staff believes that its one year standard is most appropriate for rate orders which will be in effect for only about a year, longer term standards may be more appropriate for rates which are proposed to be in effect for five years. Thus, either Mr. Brubaker’s or Mr. Wayland’s standard would be appropriate.’

The Order chooses not to apply any transferrable standard in deciding that Byron 2 and Braidwood 1 are used and useful ***.”

Under certain circumstances, the Commission may have authority to establish rates over a five-year period. The Act does not explicitly limit the authority of the Commission in this regard. In addition, the Act permits the Commission to adopt a “rate moderation plan which is designed to diminish the immediate rate impact” of the inclusion of a new facility in the rate base. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9 — 217.) As we indicated earlier, however, the Commission cannot impose a rate moratorium upon a utility during that period without the agreement of the utility.

Nevertheless, we need not decide here whether or under what circumstances the Commission could set long-term rates because circumstances justifying the establishment of rates over a five-year period clearly do not exist in the case at bar. The established past practice of the Commission was to set rates on a year-to-year basis. (See Commonwealth Edison Co. v. Illinois Commerce Comm’n (1989), 180 Ill. App. 3d 899, 908 (The accepted practice of the Commission is to set rates through use of a 12-month measuring period).) General Order 210, a rule adopted by the Commission, is an explicit example of this practice. In the case at bar, the Commission adopted a single test year, 1987, as required by General Order 210, but then, when deciding certain issues such as whether the units were used and useful, refused to rely on testimony based on this test year.

The Commission admitted when it adopted the 1987 test year and when it decided the used and useful issue that it had to consider circumstances outside the test-year data; that is, the five-year length of the Sixth Order and the rate moratorium. The Commission thus appeared to establish a new test-year or test-period standard which would apply to cases where the Commission set rates over more than one year. The Commission, however, never clearly articulated such a standard. The Commission just “considered” these other circumstances.

The Commission may alter or amend its past practice, but it must follow the procedures set forth in its rules and the Act. Section 10 — 101 of the Act provides: “Any proceeding intended to lead to the establishment of policies, practices, rules or programs applicable to more than one utility may *** be conducted pursuant to *** contested case provisions, provided such choice is clearly indicated at the beginning of such proceeding and subsequently adhered to.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 101.) The Commission could have set a new standard of procedure in the Sixth Order pursuant to section 10— 101. The Commission also could have added a new rule, or amended General Order 210, to establish a new test year or test period for cases which would set rates for more than one year.

Instead, the Commission adopted the one-year test-year standard, but used its discretion to consider circumstances outside the test year in deciding particular issues. The Commission had to either abide by the 1987 test-year standard or set an articulable alternative standard which the parties and intervenors could follow and on which the parties and intervenors could present evidence; the Commission did neither. If the Commission set forth a new standard in the Sixth Order, it did not establish exactly what circumstances or evidence would be relevant or admissible under that standard. The confusing standard and procedure used by the Commission left the parties and intervenors unable to discern what evidence to present or how to structure their arguments and positions on the various issues. The Commission also did not set a clearly identifiable alternative standard on which future cases would be based. For these reasons, the Commission violated its rules and the Act to the prejudice of the intervenors, and therefore committed reversible error. Ill. Rev. Stat. 1987, ch. 111⅔, par. 10— 201(e)(iv)(D).

Moreover, the decision of the Commission to find all of the units used and useful was “not supported by substantial evidence based on the entire record of evidence.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10— 201(e)(iv)(A).) Any order of the Commission must “be based exclusively on the record.” (Ill. Rev. Stat. 1987, ch. 111⅔, par. 10 — 103.) As Commissioner Stone noted, the Commission had evidence on which to determine the used and useful issue, but the Commission chose to disregard this evidence. The Commission instead improperly relied on the circumstances of the Settlement. Consequently, the Commission committed reversible error. Ill. Rev. Stat. 1987, ch. 111⅔, par. 10-201(e)(iv)(A).

In the Sixth Order, the Commission referred to its “broad jurisdictional authority *** to reach a resolution.” The Commission states in its brief that it can deal freely with each situation which comes before it, regardless of how it dealt with the same or a similar situation in the past; that is, it can make decisions on a case-by-case basis. (Mississippi River Fuel Corp. v. Illinois Commerce Comm’n (1953), 1 Ill. 2d 509, 513.) Edison contends nothing in the Act requires the Commission to adhere to a test year or precludes the Commission from considering matters outside the test year. Edison argues that in the past the Commission has allowed consideration of evidence outside the test year. Edison asserts that General Order 210 simply informs a utility of what data the utility must file with its rate request. (83 Ill. Adm. Code §285.110 (1985).) General Order 210 does not bind the Commission to make a decision based solely on this data. (83 Ill. Adm. Code §285.110 (1985).) Edison thus argues the test year is just a starting point and the Commission can still exercise its discretion. Edison also contends the refund mechanism in the Sixth Order will nevertheless protect ratepayers if the rates are too high.

While some of these arguments may be true, the Commission cannot violate the Act or its own rules, both of which we have held the Commission did under the circumstances in the case at bar. We also note that no matter how much discretion the Commission is afforded under the Act, its decisions are entitled to less deference when it drastically departs from past practice. See Commonwealth Edison, 180 Ill. App. 3d at 908.

The interveners cite specific examples of instances where the Commission improperly relied on evidence outside the test year to support its decision for a rate increase. For example, interveners assert the Commission relied on 1988 data concerning the unseasonably hot summer and corresponding high electric demand. Again, Edison contends the Commission has discretion to consider such evidence. Part of the confusion in this regard stemmed from the failure of the Commission to set forth an identifiable test-year standard. We need not address these specific arguments here because upon remand the Commission will have to establish an appropriate test year or period in accordance with the Act and the rules of the Commission, and then reevaluate the evidence and arguments of the parties and interveners. Any decision on our part would be premature, as the issue may not recur upon remand.

The IIEC argues that the Sixth Order constitutes a rate moderation plan under section 9 — 217 of the Act. (Ill. Rev. Stat. 1987, ch. 111⅔, par. 9-217.) While the purpose of the Sixth Order may be rate moderation, especially inasmuch as three new units are being added at one time to the rate base of Edison, the Commission cannot impose a rate moderation plan which violates the rules of the Commission or other provisions of the Act. Furthermore, although the phase-in of a single rate increase over a period of years may be considered a rate moderation plan, the Sixth Order is not a phase-in of a rate increase.

Finally, we wish to point out that the act of the Commission in considering terms in the Sixth Order, such as the five-year rate moratorium, as a basis for altering the test-year standard reveals to us again the settlement rationale of the Sixth Order. The Commission realized Edison would be penalized by the moratorium, so to balance that aspect of the order, the Commission gave Edison leeway on the test-year data. We would not so readily come to this conclusion had the Commission set forth a new, articulable test-year standard based on the evidence. The ad hoe way in which the Commission used its discretion, however, leads us to conclude the Commission merely balanced the various issues between Edison and the ratepayers in the form of a settlement. We appreciate the effort of the Commission to resolve these rate issues ov