People ex rel. Raoul v. Ill. Commerce Comm'n
| Citation | 2021 IL App (1st) 200366,197 N.E.3d 229,458 Ill.Dec. 816 |
| Docket Number | 1-20-0366 |
| Decision Date | 25 June 2021 |
| Parties | The PEOPLE of the State of Illinois EX REL. Kwame RAOUL, Attorney General of the State of Illinois, Petitioner, v. The ILLINOIS COMMERCE COMMISSION; Commonwealth Edison Co.; Citizens Utility Board; Illinois Industrial Energy Consumers; University of Illinois ; Sterling Steel Co.; Merchandise Mart ; General Iron Co. ; Exxonmobil Power & Gas Services, Inc.; Enbridge Energy, Limited Partnership; and Caterpillar, Inc., Respondents. |
| Court | United States Appellate Court of Illinois |
Kwame Raoul, Attorney General, of Chicago (Jane Elinor Notz, Solicitor General, and Frank H. Bieszczat, Assistant Attorney General, of counsel), for petitioner.
Robert W. Funk, Rebecca L. Segal, and Thomas R. Stanton, Special Assistant Attorneys General, of Chicago, for respondent Illinois Commerce Commission.
E. Glenn Rippie and Hanna M. Conger, of Jenner & Block LLP, of Chicago, and Matthew E. Price, of Jenner & Block LLP, of Washington, D.C., for appellee Commonwealth Edison Company.
¶ 1 Following an annual rate update proceeding pursuant to the Public Utilities Act (Utilities Act or Act) 220 ILCS 5/1-101 et seq. (West 2018), the Illinois Commerce Commission (Commission) issued a final order in which it made several decisions affecting the delivery service charges that electric utility Commonwealth Edison Company (ComEd) was permitted to collect from its customers in 2020. On direct appeal to this court, the Attorney General, on behalf of the people of the State of Illinois, challenges two aspects of the Commission's order.
¶ 2 The Attorney General's first challenge pertains to the fact that ComEd, like other utilities, uses the rates it charges to fund deferred income taxes that it will be required to pay in the future. A portion of the amount the utility had already designated for this purpose was rendered excess in 2018, however, when the federal corporate income tax rate was significantly reduced. The parties agree that the excess funds must be amortized over a period of time as reductions to ComEd's costs, which will result in lower rates to consumers. The Commission considered but rejected the Attorney General's suggestion that this should occur over a period of five years, agreeing instead with ComEd that a 39.47-year period would be more appropriate.
¶ 3 In his second challenge to the Commission's order, the Attorney General argues that the Commission improperly allowed certain plant additions to be included as cost inputs for purposes of calculating ComEd's 2020 rates. Through the rates it charges, ComEd may recover its reasonable costs for delivering electricity to its customers, plus a rate of return on its invested capital. Rates are set prospectively based on projected costs and later reconciled to reflect actual costs. To facilitate this process, each year the utility must file with the Commission both its actual costs for the preceding year and its projected costs for the current year. The Attorney General argues that plant additions initially projected to go into effect in 2019, but which it became clear during the ratemaking proceeding would not go into effect until 2020, should not have been included in these calculations.
¶ 4 As explained in more detail below, our review of the record in this case, the Commission's detailed order and the parties’ well-articulated arguments on appeal reveal no basis on which our deference to the Commission's broad expertise in the area of ratemaking should be questioned in this instance. We affirm the Commission's order.
¶ 7 The Commission is the administrative agency created by the Utilities Act and charged with approving the rates that public utilities may charge their customers. See id. §§ 2-101, 4-101, 9-102. The Act provides that all rates and charges by public utilities must be "just and reasonable." Id. § 9-101. In 2011, the Utilities Act was amended by Public Act 97-616 (Pub. Act 97-616, § 10 (eff. Oct. 26, 2011) (adding 220 ILCS 5/16-108.5 )), known as the Energy Infrastructure Modernization Act (EIMA). Under EIMA, utilities serving more than one million customers in Illinois may elect to participate in an infrastructure development program designed to create jobs in the state. 220 ILCS 5/16-108.5(b) (West 2018). Through a performance-based ratemaking formula, participating utilities are guaranteed a rate that allows them to recover their expenditures associated with this program plus a rate of return on their invested capital. Id. The total amount a utility may charge its customers—its "revenue requirement"—is calculated using the following basic formula: "R (revenue requirement) = C (operating costs) + Ir (invested capital or rate base times rate of return on capital)." (Internal quotation marks omitted.) 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).
¶ 8 Once the Commission has approved a participating utility's formula rate structure and initial rates, EIMA requires it to evaluate the utility's revenue requirement annually. 220 ILCS 5/16-108.5(c) (West 2018). On or before May 1 of each year, the utility must submit updated cost inputs for this purpose. Id. § 16-108.5(d). Because actual costs will not yet be known when rates are established for the year following the update (referred to as the "rate year"), projected costs for the current year are used. Id. § 16-108.5(d)(1). These are based on the utility's most recent Federal Energy Regulatory Commission (FERC) Form 1, "plus projected plant additions and correspondingly updated depreciation reserve and expense for the calendar year in which the inputs are filed." Id. The new rates are effective from January to December of the rate year. Id. § 16-108.5(d)(2). At the same time, the utility submits its actual, known costs for the year preceding the update (two years prior to the rate year), and the difference between the actual and projected costs for that year are reconciled, with the balance collected or refunded, with interest, during the rate year. Id. § 16-108.5(d)(1). As a result, the accuracy of the cost projections a utility submits with its annual rate update does not affect the total costs it ultimately recovers, only when it recovers those costs.
¶ 10 ComEd became a participating utility under EIMA in 2012, agreeing to invest approximately $2.6 billion in additional infrastructure over a 10-year period. As it had in the intervening years, in April 2019, ComEd submitted to the Commission its updated cost inputs for the calculation of its performance-based rates for January to December of the following year. In calculating its projected revenue requirement for 2020, ComEd included historical costs and rate base data from its most recent FERC Form 1, its projected plant additions for 2019, and updated depreciation and expense corresponding to those expected additions. ComEd then calculated its reconciliation adjustment for 2018 and applied this to its projected revenue requirement for 2020. The updated delivery charges ultimately approved by the Commission for January to December of 2020 were designed to allow ComEd to recover this amount.
¶ 11 The Commission opened a docketed proceeding to investigate the reasonableness of ComEd's updated cost inputs and revenue requirement calculations. Commission staff participated as a party to that proceeding. The Attorney General, representing the people of Illinois, also participated on behalf of ratepayers and was joined by intervenors, Illinois Industrial Energy Consumers and Citizens Utility Board (IIEC/CUB). During that proceeding, the Attorney General objected to ComEd's 2020 revenue requirement calculations on two grounds, arguing that (1) amortization of a certain category of excess deferred income taxes should be over a five-year period, rather than the 39.47-year period proposed by ComEd, and (2) certain plant additions initially projected to go into service in 2019 should be excluded from the calculations because during the rate update proceeding it became clear they would not go live until 2020.
¶ 13 The administrative law judge (ALJ) assigned to this matter heard live testimony from a ComEd representative in August 2019 and received written testimony from that witness and over a dozen additional witnesses, including a number of experts. What follows is a brief overview of the evidence before the Commission.
¶ 15 On the amortization issue, the Attorney General submitted the written testimony of Michael Brosch, a consultant in the field of public utility regulation. Mr. Brosch explained that accumulated deferred income taxes (ADIT) are funds a utility collects from its customers for the payment of income taxes in advance of those taxes becoming due. A large portion of a utility's ADIT balance arises when it is permitted to claim accelerated depreciation of an asset for federal tax purposes but not for state regulatory financial reporting. The utility holds on to the money to pay the higher federal taxes that will become due when the accelerated depreciation period ends. Accumulated deferred income taxes become excess deferred income taxes (EDIT) when it becomes clear that they will never become due. This happened on December 31, 2017, when the Tax Cuts and Jobs Act of 2017 (TCJA) reduced the federal business income tax rate from 35% to 21%. See Pub. L. 115-97, 131 Stat. 2054 (2018). Taxes that, according to Mr. Brosch, ComEd had already collected from its customers at the 35% rate would instead ultimately be paid to the federal government at the new 21% rate. This created an EDIT...
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