May the Illinois Commerce Commission grant a certificate of public convenience and necessity, authorizing construction of new projects by an entity which not only is not a public utility, but isn’t applying to be certified as one? That’s one of the many important questions for the utility bar which the Illinois Supreme Court agreed to decide at the close of the November term, allowing a petition for leave to appeal in Illinois Landowners Alliance v. Illinois Commerce Commission, a decision from the Third District.

The applicant in Illinois Landowners Alliance is a subsidiary of a transmission energy development company with offices in Houston, Texas. The applicant was formed to construct and manage an electric transmission line from O’Brien County in northwest Iowa to Grundy County in northeast Illinois. The purpose of the project is to connect wind generation facilities in Iowa, South Dakota, Nebraska and Minnesota with electricity markets.

The applicant’s application for a certificate of public necessity and convenience outlined a plan for raising the capital necessary to finance construction on a “project finance basis.” The applicant emphasized that it wouldn’t be recovering the cost of the project through rate assessments; its rates would be regulated by the Federal Energy Regulatory Commission, and the project would supposedly pay for itself through revenues from anticipated purchase agreements with wind generators.

Numerous parties sought leave to intervene. Two moved to dismiss, arguing that the application was inadequate on its face because the applicant owned no infrastructure for electric transmission in Illinois, and accordingly wasn’t a public utility. The ALJ denied the motions to dismiss, holding that one didn’t already have to be a public utility to apply for a certificate; one could pursue certification and the application at the same time. During the subsequent evidentiary hearing, witnesses for the applicant conceded that the wind generators who played a crucial part in its energy and financial simulation models don’t actually exist yet; they’re based on projections. The applicant doesn’t currently have any transmission customers – it has to build the project first.

A federal electricity regulation and policies expert testifying for one of the intervenors opined that the financial aspects of the projects left open the possibility that the project might someday shift from “merchant” status to “cost allocation” status – meaning some future transmission costs might wind up being paid by electricity customers after all. The commission staff economist questioned the need for the project, and suggested that if the project failed to be successful on the competitive market, the applicant might wind up looking to ratepayers to put the project back on its feet. Nevertheless, the Commission issued a 242-page order granting the applicant a certificate of public convenience and necessity to transact business as a transmission public utility and to construct, operate and maintain the line.

The Appellate Court unanimously reversed. The Court found that the Act defined a “public utility” as any company which “owns, controls, operates or manages, within this State, directly or indirectly, for public use, any plant, equipment or property used or to be used for or in connection with, or owns or controls any franchise, license, permit or right to engage in . . . the production, storage, or transmission . . . of heat, cold, power, electricity, water, or light.” 220 ILCS 5/3-105(a)(1). Simply selling what public utilities usually sell doesn’t make you a public utility. Rather, the company must (1) own, control, operate or manage utility assets within Illinois; and (2) offer those assets for public use without discrimination.

The applicant failed to satisfy the first condition – it didn’t own, control, operate or manage assets in Illinois. Nor did it meet the second – the proposed transmission line was not for public use without discrimination. Simply selling gas to “a limited group of industrial customers” wasn’t good enough. Three quarters of the project’s capacity would be sold to the “anchor tenants.” The remaining one-quarter would be sold through an “open season” bidding process approved by the FERC. There was no requirement that an Illinois wind generator or other renewable energy generator participate in the bidding process, nor that one would prevail if it did. Nor was any part of the renewable energy transmitted along the proposed line designated for public use.

Because the applicant wasn’t qualified to be a public utility, the Court held that the Commission had no jurisdiction to issue a certificate of public convenience and necessity.

We expect Illinois Landowners Alliance to be decided in the fall of 2017.