Commonwealth Edison Co. v. Ill. Commerce Comm'n
| Decision Date | 26 March 2014 |
| Docket Number | 1–12–3526.,Nos. 1–12–2860,s. 1–12–2860 |
| Citation | 380 Ill.Dec. 343,8 N.E.3d 513,2014 IL App (1st) 122860 |
| Parties | COMMONWEALTH EDISON COMPANY, Petitioner–Appellant, v. ILLINOIS COMMERCE COMMISSION; Citizens Utility Board; AARP; The Chicago Transit Authority; The City of Chicago; Northeast Illinois Regional Commuter Railroad d/b/a Metra; The People of the State of Illinois Local Union No. 15, International Brotherhood of Electrical Workers, AFL–CIO; Illinois Power Agency; The Building Owners and Managers Association of Chicago; The Illinois Industrial Energy Consumers (Abbott Laboratories, Inc.; Caterpillar, Inc.; Sterling Steel Company; Thermal Chicago; and Chrysler Corporation); The Retail Energy Supply Association; Champion Energy Services, LLC; Conedison Solutions; Constellation Newenergy, Inc.; Direct Energy Services, LLC; Energetix; Energy Plus Holdings, LLC; Exelon Energy Company; GDF Suez Energy Company; Hess Corporation; Integrys Energy Services, Inc.; Just Energy; Liberty Power; Mc Squared Energy Services, LLC; Mint Energy, LLC; Nextera Energy Services; Noble Americas Energy Solutions LLC; PPL Energyplus, LLC; Relian; Trieagle Energy, LP; Nucor Steel Kankakee, Inc.; United States Department of Energy; The Commercial Group (Best Buy Company, Inc.; J.C. Penney Corporation, Inc.; Macy's, Inc.; Safeway, Inc.; Sam's West, Inc.; Target, Inc. and Wal–Mart Stores, Inc.,) The Illinois Competitive Energy Association (Constellation Newenergy, Inc.; Direct Energy Services, LLC; Integrys Energy Services, Inc.; Mc2 Energy Services; Exelon Energy Company; Firstenergy Solutions Corporation; Ameren Energy Marketing; Energy, LLC; Midwest Generation–Edison Mission Solutions; Nordic Energy Services, LLC and Reliant Energy, Northeast LLC); The Coalition to Request Equitable Allocation of Costs Together (A. Finkl and Sons Company; Aux Sable Liquid Products, LP; The City of Chicago; Commerce Energy, Inc.; Interstate Gas Supply of Illinois, Inc.; The Metropolitan Water Reclamation District of Greater Chicago; PDV Midwest Refining LLC; United Airlines, Inc., and Wells Manufacturing Company), Respondents–Appellees. |
| Court | United States Appellate Court of Illinois |
OPINION TEXT STARTS HERE
Commonwealth Edison Company (Thomas S. O'Neill, Anastasia M. O'Brien, Richard G. Bernet, of counsel), Jenner & Block LLP (Barry Levenstam, of counsel), Chicago Jenner & Block LLP (David W. DeBruin, Katherine A. Fallow, Matthew E. Price, of counsel), Washington, D.C., for petitioner.
Illinois Commerce Commission, Chicago (John P. Kelliher, Thomas R. Stanton, of counsel), for respondent Illinois Commerce Commission.
Lisa Madigan, Attorney General, Chicago (Michael A. Scodro, Solicitor General, Jane Elinor Notz, Clifford W. Berlow, Janice A. Dale, Karen L. Lusson, Assistant Attorneys General, of counsel), Lueders, Robertson & Konzen, Granite City (Eric Robertson, Andrew Rankin, of counsel), Conrad R. Reddick, Wheaton, Schuchat, Cook & Werner, St. Louis, Missouri (Marilyn S. Teitelbaum, Rochelle G. Skolnick, of counsel), for other respondents.
Whitt Sturtevant LLP, Chicago (Albert D. Sturtevant, of counsel), Whitt Sturtevant LLP, Columbus, Ohio (Mark A. Whitt, of counsel), Ameren Services Company, St. Louis, Missouri (Edward C. Fitzhenry, of counsel), for amicus curiae.
¶ 1 This case involves the Illinois Commerce Commission's application of section 16–108.5 of the Public Utilities Act, commonly known as the Energy Infrastructure Modernization Act (220 ILCS 5/16–108.5 (West 2012)). After Commonwealth Edison (ComEd) filed its appeal in this case, the General Assembly further amended the Act in a way that resolved some of the issues on appeal. ComEd now challenges the Commission's rulings (1) requiring an adjustment to rates charged to ComEd customers to reflect the expected increase in the number of customers served; (2) allocating certain general costs between distribution to ratepayers and transmission to out-of-state purchasers; (3) restricting ComEd's recovery from ratepayers for certain performance bonuses paid to ComEd employees; (4) denying ComEd recovery from ratepayers for part of the amount ComEd paid to an affiliate, because the affiliate used the payment to give its employees bonuses based on net income; and (5) denying ComEd recovery from ratepayers for compensation paid to ComEd managers in the form of stock in ComEd's parent corporation. We find that ComEd did not meet its burden of showing error in any of the contested rulings. Accordingly, we affirm the Commission's order.
¶ 3 The Act, as amended, permits electric utilities to use a “performance-based formula” (220 ILCS 5/16–108.5(b) (West 2012)) to set rates for delivery of the electricity it sells. To use the formula, the utility must first establish its revenue requirement for a calendar year, subject to the Commission's approval, using the formula: revenue requirement = operating expenses + cost of capital. See Business & Professional People for the Public Interest v. Illinois Commerce Comm'n, 146 Ill.2d 175, 195, 166 Ill.Dec. 10, 585 N.E.2d 1032 (1991). In this formula the cost of capital equals the rate base, defined as the total value of all invested capital, times the rate of return on capital. See Business & Professional People, 146 Ill.2d at 195, 166 Ill.Dec. 10, 585 N.E.2d 1032. The utility must then allocate the revenue requirement to several established classes of ratepayers, and set rates, based on historical data, which the utility expects to generate the required revenues.
¶ 4 To project its revenue requirement for a calendar year, say 2020, in 2019 the utility will use its actual expenses for 2018 plus the cost of projected capital additions and depreciation expenses for 2019, as an approximation of the 2020 expenses to recover through its 2020 rates. The utility will also include in its revenue requirement for 2020 the sum needed to reconcile its projected revenue requirement for 2018 with its actual costs (including the cost of capital) incurred in 2018. The Act permits the utility to collect interest on the reconciliation amount for the time between the payment of the costs, in 2018, and its subsequent collection of the reconciliation amount from ratepayers. 220 ILCS 5/16–108.5(c)(6) (West 2012). In exchange for the legislative guarantee of payment, the utility must commit to making very substantial investments in updating and improving its facilities, and hiring new employees. 220 ILCS 5/16–108.5(b) (West 2012).
¶ 5 In 2011, ComEd chose to file a new rate tariff using the performance-based formula set out in the Act. ComEd promised to invest $1.1 billion over 5 years in system upgrades, modernization projects, and training facilities, plus an additional $1.5 billion within 10 years in further technological upgrades. ComEd also promised to create 2,000 new, full-time jobs. See 220 ILCS 5/16–108.5(b) (West 2012).
¶ 6 The Commission staff and a number of other ratepayers opposed parts of the proposed rate tariff. The Commission permitted several of the ratepayers to intervene in proceedings on the proposed tariff. The Commission accepted transcripts of testimony from a number of witnesses for ComEd, the staff, and the intervenors. After the written submissions narrowed the issues, the Commission heard live testimony from several witnesses.
¶ 7 The disputed issues centered on the reconciliation process. In particular, the parties disagreed about when to include new capital additions in the rate base, and how much interest ratepayers needed to pay on the reconciliation amount.
¶ 9 In its proposed tariff, ComEd included in its rate base for a given year all additions to the rate base it made that year. That is, under its formula, it will include in the rate base for 2018 all of the additions to the rate base that it makes in 2018 and recover a cost of capital for 2018 as though it used all of the capital additions throughout the year.
¶ 10 Witnesses for the staff and intervenors pointed out that with ComEd's methods, it will start earning its return on capital on January 1, 2018, for all investments it makes during 2018, even if it does not make the investment until December 2018. ComEd will start earning its rate of return on all of its investments before it makes those investments, sometimes earning the rate of return for several months prior to the investment. The staff and intervenors recommended instead a formula that would have the Commission use an average of the rate base as of December 31, 2017, and December 31, 2018, to determine the rate base on which ComEd would earn its return on capital for 2018. The witnesses explained that ComEd's data, and the Act, constrained them to use only year-end data to determine the rate base in effect for a calendar year. The Act does not permit adjustments to make each investment start earning a return as part of the cost of capital on the date that ComEd makes the investment.
¶ 11 If the Commission adopted the staff's recommendation, ratepayers would pay as the cost of capital for 2018 the established rate of return for all capital equipment in use for the entire year, plus that same rate for half of the capital investments made during the year. The staff's recommendation effectively gives ComEd its full return on its new investments at the rate set for that year if ComEd distributes its new investments evenly throughout the year. If ComEd makes most of its investments before July 1, it would earn somewhat less than the set rate of return on capital for its new investments; if it makes the bulk of its new investments after July 1, it would earn more than the set rate of return on its new investments. But under the staff's proposal, ComEd would not get the consistent overpayment it sought through the formula it used, by which it never would make a new investment before the investment started earning its rate of return, and all new...
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Commonwealth Edison Co. v. Ill. Commerce Comm'n
...510 ). ¶ 10 In this formula the cost of capital equals the rate base times the rate of return on capital. Commonwealth Edison Co. v. Illinois Commerce Comm'n, 2014 IL App (1st) 122860, ¶ 3, 380 Ill.Dec. 343, 8 N.E.3d 513 (citing Business & Professional People for the Public Interest v. Illi......
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...v. Illinois Commerce Comm'n, 148 Ill.2d 348, 367, 170 Ill.Dec. 386, 592 N.E.2d 1066 (1992) ; see also Commonwealth Edison Co. v. Illinois Commerce Comm'n, 2014 IL App (1st) 122860, ¶ 58, 380 Ill.Dec. 343, 8 N.E.3d 513 (applying manifest weight standard). Findings of fact are deemed contrary......
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Commonwealth Edison Co. v. Ill. Commerce Comm'n
...v. Illinois Commerce Comm'n, 148 Ill.2d 348, 367, 170 Ill.Dec. 386, 592 N.E.2d 1066 (1992) ; see also Commonwealth Edison Co. v. Illinois Commerce Comm'n, 2014 IL App (1st) 122860, ¶ 58, 380 Ill.Dec. 343, 8 N.E.3d 513 (applying manifest weight of the evidence standard). Findings of fact are......