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SEMINAR FOR JUDGES ON REGULATION IN THE POWER SECTOR

CRYSTAL GARDEN HOTEL, KADUNA, KADUNA STATE, NIGERIA

July 12-14, 2010

The Role of Judges in Regulation: An International Perspective

Eve Moran, Administrative Law Judge, Illinois Commerce Commission

Ethan Kimbrel, Administrative Law Judge, Illinois Commerce Commission

I.

Introduction

I am very honored for the opportunity to participate in this illustrious conference.

My name is Ethan Kimbrel and I am an administrative law judge at the Illinois Commerce Commission. The Commission employs fifteen (15) Administrative Law Judges (ALJs). There are ten (10) ALJs in Chicago, the largest city in Illinois. Another five (5) ALJs work in Springfield, the capitol city of Illinois.

Let me tell you a little about our regulatory agency -

The Illinois Commission is a 5-member regulatory body.

It has general supervisory authority over public utilities operating in Illinois – given this broad power in the year 1913.

Its powers, however, are not unlimited - The source and the extent of the Commission’s powers is set out in the Public Utilities Act (“PUA”), 220 ILCS 5/1- 101 et seq. The Commission must do all that is required to do under the law and nothing more or less. Failing that, the Commission’s orders are subject to court review.

In each and every instance, it is the Commission that enters the final Order in a proceeding.

The agency ALJ handles all events prior to the entry of the final Order.

This conference is focused on the judiciary role in regulation. By way of introduction, I would have it be noted that there are two distinct types of judges involved in the regulatory process. First, there is the administrative law judge (also known as a hearings officer or hearings referee in some jurisdictions). Generally, this individual works for the regulatory agency. While not the final decision-maker, an ALJ manages the case from its inception, presides over the hearings and drafts a recommended order for presentation to the Commission. Second, there is the state court judge who, sitting on a panel, reviews the decision of the regulatory decision-maker in instances where that final Commission decision is challenged. This paper will highlight the roles played by each type of judge in the regulatory process.

I. OVERVIEW - IT TAKES A VILLAGE

Good and effective regulation is never the work of a single entity. There are many participants in utility regulation and each plays an important role.

1. Lawmakers: It all begins with the law. In the United States of America,

lawmakers in each respective state have established a regulatory agency to who

is delegated supervisory authority over public utilities and other entities serving

consumers. The regulating agency, however, can act only in the way that the law permits. Thus, the way that a law is crafted is very important. It must give the agency the right powers – neither too much, nor too little, to accomplish its work. The law in Illinois specifically establishes the role and authority of the ALJ

and the respective duties of the reviewing court judges.

2. Lawyers: Most parties to a Commission adjudicatory proceeding are represented by attorneys. (One notable exception is the consumer complainant who may and generally represents himself or herself). It is the role of the regulatory lawyer to file legally sufficient pleadings, to pursue adequate, but not burdensome, discovery, to introduce relevant and competent evidence at the hearings, to honor the confidentiality provisions of a protective order, and to present honest interpretations of the law during the argument/briefing stages.

3. Administrative Law Judges: The ALJ or hearing examiner bears the important responsibility of ensuring that a fair, impartial and complete record is developed. As will be illustrated later in this paper, an ALJ manages the procedural actions in

a case, hears and admits the evidence, reviews the law and the facts, and

ultimately prepares a comprehensive written recommended decision for the

Commission.

4. The Commission/Board: It is the Commission itself that enters the final and

judicially reviewable decision. It may accept, amend, or reject the ALJ’s recommendations in any given case. Just like the ALJ, the role of the Commission

is to be exercised thoughtfully and with integrity, impartiality and independence.

These attributes of good decision-making are of great importance during the pendency of a contested regulatory proceeding and ultimately must be reflected

in the agency’s final order.

5. The Reviewing Court: The particular state court authorized to review the regulatory agency’s decision is generally confined to a specific standard of review as dictated by law. In Illinois, the three-judge panel will review the legal briefs

and generally hear oral arguments from the parties’ lawyers. In the end, the reviewing court will issue a written opinion on the case and its holdings are governing on the Commission.

When all participants to the regulatory process do their jobs well, the public is assured of the correctness and the integrity of the final decision. This builds public confidence and support in the workings of government.

II. FOCUS: THE ADMINISTRATIVE LAW JUDGE

In Illinois, the Administrative Law Judge is essentially a front line decision-maker and has the most complex mixture of responsibilities.

The ALJ must be knowledgeable about the Public Utilities Act, the rules of evidence, the agency’s rules of practice and statutory administrative law procedures.

An ALJ will decide on what goes into the record based on the state’s administrative code, the applicable rules of evidence, and the agency’s rules of practice. The main concern is that evidence be relevant and reliable. By far, the most important role of the ALJ is the creation of a fair and complete record. Thus, it is critical for the ALJ to govern the process in an impartial manner.

The ALJ must follow the settled rules of statutory construction when interpreting statutory provisions and prior Commission orders.

The ALJ is required to act independently of personal ideology or political meddling, and to guard against any improper influences that might be coming from regulated companies and their representatives, or from the various types of special interest groups

As an agency public official, however, an ALJ is not truly independent in terms of deviating from the law or in deciding on the facts. Agency precedent in establishing policy must be respected to large degree. Case law, i.e., the opinions of reviewing courts, is also binding on the ALJ.

The ALJ does more than decide who is the winner or loser on a disputed issue. He or she will have to set out a written recommended order that discusses all of the evidence presented and explains why the evidence supports the decision arrived at.

The ALJ must understand the concept of functional separation. Many times, one of the witnesses in a case is a co-worker at the same agency and the ALJ must carefully observe the state ban on ex parte communications.

The ALJ is required to be calm, detached and courteous to all parties, witnesses and observers. Further, the ALJ must maintain professionalism among all participants.

Throughout the proceeding, the ALJ will treat all of the lawyers, witness and other persons in a fair and impartial way. When procedures are employed that “appear” to unfairly or irrationally give an advantage to one side over the other, the public trust senses an indignity. Further, Illinois reviewing court judges will indeed look to see whether the basic elements of fairness and equality in treatment were provided to all the participants.

The lawyer disciplinary rules govern certain aspects of the ALJ’s behavior. To some degree also, the ALJ must comply with the rules of judicial conduct. As a state employee, the ALJ must comply with all applicable state ethics statutes and rules.

The ALJ must be attentive to and monitor outside actions for any conflicts with their official roles. For example, the ALJ will not negotiate for employment with a party when that party is in a case pending before the ALJ.

It is necessary for the ALJ to set aside personal biases and avoid situations that might leave parties or the lawyers or the public to believe that the Commission or ALJ might favor or accept the views of friends more easily than those of unknown parties. Likewise, the ALJ will set aside any feelings of dislike toward any party or its legal representative. Trust in the adjudication process is broken by the perception that a party never had a fair chance to prevail in a case because the decision-maker owed the other side special favors or because a certain party was disfavored on grounds of something different from the merits.

Where an ALJ has some personal interests that would knowingly, or even unknowingly, sway his or her recommended resolution of a dispute, the perception-of-fairness standard demands that the ALJ refrain from taking the case.

III. CONTEXT FOR THE ADMINISTRATIVE LAW JUDGE FUNCTION

In this part of the paper, I want to highlight the role of the ALJ in the context of the adjudicatory processes employed at the Illinois Commission. This will show how a case progresses and also outline the tasks performed by the ALJ at the various stages of a contested proceeding.

Note: Procedural due process under the U.S. Constitution, the Administrative Procedure Law, and the Commission’s own Rules of Practice impose a high degree of formality on agency adjudication. On the other hand, rulemakings (considered to be a quasi-legislative activity) generally proceed on a less formal basis. Rate cases are considered to be as quasi-legislative events in some jurisdictions and treated as adjudicatory matters in other jurisdictions.

A. The Beginnings of a Case: Giving Due Notice.

Most cases begin with a pleading. A “pleading” is a general term that refers to an application, or a complaint or a petition or a motion. It is a written document filed with the Clerk of the Commission in a formal proceeding and, in each case, it asks the Commission to do something (e.g. grant a certificate of authority). A pleading may or may not come with attachments to support the request being made. The person, corporation or other entity that files a pleading is a party to the case.

The Chief Clerk is the keeper of records for the Commission. This office accepts the filing of an initial pleading and assigns a docket number to that case, for example, 09-XXXX. All subsequent filings made with the Clerk include that docket number and become part of the record in the case. See Sample “A” attached. Once a case is docketed, it is assigned to an ALJ who is then responsible for managing all aspects of the proceeding.

The Chief Clerk’s Office sends notices to the parties on behalf of the ALJ. A “notice” informs the recipient that something will happen on a certain date and time and at a certain location. See Sample “B” attached. The giving of timely notice, and an opportunity to be heard, is fundamental to what both the state and federal governments consider due process of law under the 14 th Amendment to the U.S. Constitution. An ALJ may find it necessary to send out several notices in the course of a proceeding. For example, the ALJ is responsible for giving due notice of status conferences (such as to set a schedule for the case; to litigate discovery disputes; to protect confidentiality of documents); of any rulings entered on motions (to

intervene in the case, to request a continuance, etc.) and of the date, time and other parameters of the evidentiary hearing.

Major Considerations: to give parties timely notice and an effective opportunity to be heard at all stages of the proceeding.

B. Building the Record.

The decision in a case requires a full and complete record of relevant evidence. The building of

a record largely takes place during the hearing and a stenographer is present to record all that

was said and done during the proceeding. The parties’ arguments on what that evidence means under the law and how it should be treated in the decision-making process are matters that will be included in briefs filed after the hearing.

C. The Evidentiary Hearing.

In contested matters, an evidentiary hearing is required. This is a formal proceeding, presided over by the ALJ, where witnesses appear to give evidence and where that evidence is tested. At

a typical Illinois Commission hearing, this evidence generally comes in the form of:

sworn-to written witness testimony . See Sample “C” attached;

live cross examination where the lawyer for another party, or the ALJ, puts questions to the testifying witness. See Sample “D” attached;

witness-sponsored business documents, correspondence, or other materials (e.g. graphs, charts, etc., prepared to explain matters at issue in the case). See Sample “E” attached.

1. The role of the lawyers.

Generally, each party is represented by a lawyer versed in the rules of evidence and familiar with the Rules of Practice. 83 Ill. Adm. Code 200, and the Public Utilities Act, 220 ILCS 1-101 et. seq. (Consumer complainants, however, frequently represent themselves, without an attorney). The attorney’s job at hearing is to protect the witness from responding to irrelevant and otherwise objectionable questions and to ensure (through the vehicle of cross-examination and re-direct examination) that the record is complete in setting out the client party’s evidence and position.

2. The role of the ALJ.

The ALJ will settle any evidentiary disputes that may arise during the hearing after listening to

the arguments on both sides of the issue.

And, he or she is responsible for keeping order and

maintaining professionalism in the hearing room. The ALJ may also ask questions of the witnesses as he or she considers necessary to resolve the issues of the case. At all times, the ALJ is focused on the building of a record sufficient to allow for a reasonable decision to be made in the case.

Major Considerations: fairness in the process for developing a full and complete record on the issues and in the treatment of the witnesses and their attorneys.

D. Post-Hearing Briefs.

After all the evidence is put into the record and identified as such for the Clerk, the ALJ will announce that the record is “Heard and Taken.” This means that the case must be decided on that record evidence only. (If special circumstances were to arise, it would require a formal re- opening of the record, with proper notice given, to take in new evidence).

After the record is closed, each of the parties will be given a specific date by which to file (with the Clerk and with copies served on all other parties to the case) their respective legal briefs. These initial briefs, prepared by the lawyers, are written statements that address the facts of the case, recite the pertinent law, and argue how the law applies to the facts in a way that supports a party’s position. In Illinois, parties are generally allowed to file reply briefs that respond to the arguments found in the initial briefs of others.

Major Considerations: giving each party an opportunity to present their respective arguments and positions on the governing law and the record facts of the case.

E. Writing the Proposed Order.

The ALJ will review the evidence of record and consider all of the parties’ arguments on the law and the evidence so as to prepare a “proposed order” for the Commission. A proposed order is what the ALJ recommends the Commission adopt as its final disposition of the matter.

The order is written for several reasons:

a). To allow the writer to test his or her analysis. When we write, the drafting process itself makes it possible to test the logic of our thoughts and to analyze what we have heard. Unlike the excitement and flurry of a hearing, the written order is produced in a calm setting, distant from the parties and with time for due reflection on the evidence, the law and the particular issues of the case.

b). To allow for certainty and confidence in the decision. A well-written order will inform the parties, the public, and the reviewing court of what was decided and why it was decided in that particular way. It will assess all of the relevant

evidence in a neutral fashion. It will be written in a clear and unambiguous style that is understandable to each audience. If the decision requires a party to do something, the Proposed Order will state, with precision, when and how the required action is to be performed.

c). To create precedent. A written order stands as a record of how the Commission treated a particular case. It informs future parties of what they might reasonably expect from the Commission if the situation they present is similar on facts and on the law. Regardless of whether a matter is being litigated under civil law system or the common law system, there is inherent in both a general respect for precedent. This follows from the commonsense notion that cases which are the same or similar on the facts and on the law, should be decided in a similar way. Under the legal system and the administrative system in Illinois, the Commission may break away from the traditional way that it treats certain issues or policies but the order must give reasons and fully explain why it is treating a similar situation different from what has been done in the past.

The written proposed Order is provided to all parties in the case. They are allowed a certain period of time by which to file Briefs on Exceptions that challenge the reasoning and conclusions of the Proposed Order. The ALJ considers this set of arguments and ultimately may, or may not, revise the Proposed Order. But, in each instance, the ALJ will give the reasons for the result in a Post-Exceptions Proposed Order that is put on the Agenda for the Commission’s next meeting and deliberations.

Major Considerations: fairness to the parties is shown by outlining their evidence and arguments in an objective manner and in drawing fair, reasonable and sustainable conclusions from the record. The reviewing court requires such an account for its function.

F. Defending the Proposed Order Before the Commission.

During the Commission’s public and open deliberations, the ALJ may be called upon to explain why the recommended Order is fair, complete and reasonable. The ALJ will be prepared to provide answers to questions asked by any of the individual Commissioners. In the end, the Commission may accept the proposed Order and enter it as its own, or it may modify all or part of the Order with its own language.

G. Final ALJ Actions in the Case.

The final “Order” of the Commission is the written decision on the issues of the case that is based on all of the relevant evidence of record and an analysis of each party’s arguments on that record and the relevant law. Once the Commission enters an Order, the Clerk will serve a

copy of the Order on each of the parties to the case. This will allow any unsatisfied party to file an “Application for Rehearing” with the Commission that identifies alleged errors in its Order. The ALJ will prepare a Memorandum for the Commission with a recommendation to grant or deny rehearing. If rehearing is granted by the Commission, the ALJ will have the Chief Clerk send out notice to all parties of a status conference to discuss procedures on the rehearing matter. If rehearing is denied by the Commission, the unsatisfied party may then challenge the Order in the Illinois Appellate Court.

V. STATE COURT JUDGES-REVIEW OF THE REGULATORY ORDER

In Illinois, the Appellate Court has the power to hear appeals of the Illinois Commerce Commission’s orders. This is expressly provided for in Section 10-201 of the Public Utilities Act (PUA). 220 ILCS 5/10-201. Illinois law recognizes that the purpose for bringing an appeal to the court is to have the reasonableness or lawfulness of the rule, regulation, order or decision inquired into and determined by the court. Id. Generally, the Appellate Court hears and decides upon a case in three-judge panels. Sometimes, all three judges agree on the analysis and the outcome. At other times, one judge may disagree and will file a dissenting opinion. In any event, the majority opinion that the state court issues is important not only for the case at hand but also stands as governing legal authority for future cases brought before and decided by the Commission.

A. Record on Review

It is to be noted that no new or additional evidence may be introduced in any proceeding upon appeal from a rule, regulation, order or decision of the Commission issued or confirmed after a hearing. The appeal shall be heard only on the record of the Commission as certified by it. 220 ILCS 5/10-201 (d). (emphasis added).

B. Presumptions on Review.

Pertinent to the Court’s review, Section 10-201 (d) of the Public Utilities Act provides that:

a. The findings and conclusions of the Commission on questions of fact shall be held prima facie to be true and as found by the Commission.

b. Rules, regulations, orders or decisions of the Commission shall be held to be prima facie reasonable.

c. The burden of proof upon all issues shall be upon the person or corporation appealing. 220 ILCS 5/10-201(d).

Illinois courts give great deference to the Commission’s decisions as they are the judgments of an administrative body with tremendous expertise in the field of public utilities and have the

qualifications to interpret specialized and highly technical evidence. United Cities Gas Co. v. Illinois Commerce Commission,643 N.E. 2d 719 (1994).

C. The Court Standards Of Review

Judicial review of the Illinois Commission’s orders is limited. The powers and duties of the reviewing court are expressly set out in the PUA. 220 ILCS 5/10-201(e). By law, a reviewing court only has authority to affirm, reverse, or remand a Commission order or decision.

D. Basis for a “Remand”

1. Failure to Admit Evidence

If it appears that the Illinois Commission failed to receive evidence properly proffered, on a hearing, or a rehearing, or on an application for rehearing, the court will remand the case, in whole or in part, to the Commission with instructions to:

a. receive the testimony so proffered and rejected; and,

b. to enter a new order based upon the evidence theretofore taken, and such new evidence as it is directed to receive.

If, however, it appears that such new evidence would not be controlling on the issues, the court shall so find in its order. This theory of “harmless error” essentially means that the Commission might have erred but, even if the excluded evidence were admitted and considered, it would have no effect on the decision. In this situation, the Commission would be criticized for its actions (a guide/requirement for future cases) buts its decision would likely stand.

2. Insufficient Findings To Allow For Review

If the court determines that the Commission's rule, regulation, order or decision does not contain findings or analysis sufficient to allow an informed judicial review the court will remand the rule, regulation, order or decision, in whole or in part, with instructions to the Commission to make the necessary findings or analysis. The reason that courts require specificity in the Illinois Commission’s findings of fact is that they are not empowered to conduct a de novo review. Cerro Copper Products v. Illinois Commission, 415 N.E. 2d 345 (1980). This is why the ALJ is required, in the first instance, to draft a complete and neutral discussion of the evidence and findings of fact for the recommended order, and why, as the ultimate decision-maker, the Commission must ensure that the Order it enters is fully explanatory.

E. Basis For a “Reversal”

The PUA provides that the Court’s reversal of an Illinois Commission order is warranted in the following four circumstances.

1. The findings of the Commission are not supported by substantial evidence based on the entire record of evidence presented to or before the Commission for and against such rule, regulation, order or decision; or

2. The rule, regulation, order or decision is without the jurisdiction of the Commission, or

3. The rule, regulation, order or decision is in violation of the State or federal constitution or laws; or

4. The proceedings or manner by which the Commission considered and decided its rule, regulation, order or decision were in violation of the State or federal constitution or laws, to the prejudice of the appellant. 220 ILCS 5/10-201 (e)(iv)(emphasis added).

A fuller description of these legal events is outlined below.

Not supported by substantial evidence.

Substantial evidence has been defined by the courts as evidence which a “reasoning mind would accept as sufficient to support a reasonable conclusion and consists of more than a mere scintilla of evidence but may be somewhat less than a preponderance.” Central Illinois Public Service Co. v. Illinois Commission, 644 N.E.2d 817 (1994). Thus, a decision on an issue that is unsupported by substantial evidence will be deemed unreasonable and thus, unsustainable, by the courts.

The order or decision is without the jurisdiction of the Commission.

In each matter coming before it or initiated by its own action, the Illinois Commission must be clear about its jurisdiction. There are three aspects to the “jurisdiction” of the Commission. These are:

1. personal jurisdiction – considers the agency’s authority over the parties and the intervenors involved in the instant proceeding.

2. subject matter jurisdiction – concerns the agency’s power to “hear and determine the general type of case to which the instant case belongs.

3.

scope of authority under statute - looks to the extent of the power granted to the Commission under the PUA.

Generally, jurisdiction can be challenged at any stage of a proceeding and unlike other errors, it is not subject to waiver. Jurisdictional problems can go both ways – the Commission can be faulted for doing more than it has the right to do. Or, it may be reversed in instances when it does not do all that the law requires it to do.

The order or decision is in violation of the State or federal constitution or laws.

The Courts are not bound by the way that the Commission has interpreted and applied a law. Moreover, even where the Illinois Commission’s construction is reasonable, its order may be reversed if the statute on which it relies is challenged and found by the Court to be unconstitutional. This might also be the result, if a state statute has been pre-empted by federal law. It must be noted that the Illinois Commission has no authority, of its own accord, to find a statute unconstitutional even if it so believes. It must apply the law as written, and await court action on the statute.

The proceedings or manner by which the Commission considered and decided its order or decision were in violation of the State or federal constitution or laws, to the prejudice of the appellant.

The most prominent concern for the reviewing court is any violation of the right of due process of law, i.e., notice and a meaningful opportunity to be heard. Also at critical interest is the right to pursue discovery, present evidence and cross examine adverse witnesses. Most importantly, is the right to a full, fair and neutral consideration of the matter, and a determination by, an impartial decision-maker. If any of these events show themselves on record, the Courts are bound to reverse the Commission’s order or decision. This makes clear the importance of fair process as is largely the responsibility of the ALJ.

VI. FINAL REVIEW – THE ILLINOIS SUPREME COURT

The Illinois Supreme Court is the highest tribunal in the state. There are seven justices sitting on the Court. Section 10-202 of the PUA provides that:

Appeals from all final orders and judgments entered by the appellate court, in review of rules, regulations, order, or decisions of the Commission may be taken to the Illinois Supreme Court as in other civil cases. 220 ILCS 5/10-202.

From this point, the Illinois Supreme Court Rules govern the proceeding. This means that within 35 days of the entry of judgment, any party (including the Commission) must file its petition for leave to appeal. If the Illinois Supreme Court grants appeal, it will follow and apply the same standards of review as are binding on the Appellate Court.

VII. COMMISSION ACTIONS ON REMAND

The reviewing court does not have the power to direct the Commission to make a specific finding or determination. Under the PUA, a court reviewing an Illinois Commission order has only three options:

1. affirm the Commission's order;

2. reverse the order (necessitates a remand); or,

3. remand the cause to the Commission to receive new or additional evidence or to make sufficient findings.

When an order is set aside or remanded, the Commission may accept additional evidence, reevaluate the evidence already presented, or simply reverse its original determination. The main objective on remand is for the Commission to determine the correct means by which to satisfy the Court’s directions.

As a practical matter, and after the mandate of the court is issued, the Illinois Commission will give notice of a hearing on remand. All interested parties will set out their respective positions on what the court requires in the particular situation and how the matter should proceed.

By law, the Illinois Commission has five (5) months time to enter its Order on Remand. Of course, this Order on Remand may again be subject to judicial review (in the manner described above).