Citizens Utility Board v. Illinois Commerce Comm'n

1-95-0153)
1-95-0155)
1-95-0156)
1-95-0659) Cons.

CITIZENS UTILITY BOARD and THE PEOPLE OF COOK COUNTY,                 )
Appeal from an
          Petitioners-Appellants,                                ) order of
the                                                                   ) 
Illinois Commerce
          v.                                                ) Commission
                                                            )    
ILLINOIS COMMERCE COMMISSION and COMMONWEALTH EDISON COMPANY,         )    
          Respondents-Appellees,                                 )    
------------------------------------------------------------------------)
THE CITY OF CHICAGO,                                             )
          Petitioner-Appellant,                                  )
                                                            )
          v.                                                )
                                                            )
ILLINOIS COMMERCE COMMISSION, ILLINOIS COMMERCE COMMISSION STAFF,          )
THE PEOPLE OF THE STATE OF ILLINOIS, THE BOARD OF TRUSTEES OF THE          )
UNIVERSITY OF ILLINOIS, BIRMINGHAM STEEL CORPORATION, BUSINESS AND    )
PROFESSIONAL PEOPLE FOR THE PUBLIC INTEREST, CITIZENS UTILITY BOARD,  )
LABOR COALITION ON PUBLIC UTILITIES, THE PEOPLE OF COOK COUNTY, UNITED     )
STATES DEPARTMENT OF ENERGY, CHICAGO AREA INDUSTRIAL CUSTOMER         )
COALITION, ILLINOIS INDUSTRIAL ENERGY CONSUMERS, and RALPH M. SCHULTZ,     
)              
          Respondents-Appellees,                                 )
------------------------------------------------------------------------)
THE PEOPLE OF THE STATE OF ILLINOIS ex rel. JAMES E. RYAN, ATTORNEY   )
GENERAL,                                                    )
          Petitioner-Appellant,                                  )
                                                            )
          v.                                                )
                                                            )
ILLINOIS COMMERCE COMMISSION, COMMONWEALTH EDISON COMPANY, THE CITY OF     )
CHICAGO, THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS,         )
BIRMINGHAM STEEL CORPORATION, BUSINESS AND PROFESSIONAL PEOPLE FOR THE     )
PUBLIC INTEREST, CITIZENS UTILITY BOARD, THE LABOR COALITION ON PUBLIC     )
UTILITIES, THE PEOPLE OF COOK COUNTY ex rel. JACK O'MALLEY, COOK COUNTY    )
STATE'S ATTORNEY, UNITED STATES DEPARTMENT OF ENERGY, CHICAGO AREA    )
INDUSTRIAL CUSTOMER COALITION, ILLINOIS INDUSTRIAL ENERGY CONSUMERS,  )
RALPH     M. SCHULTZ, and THE PEOPLE OF THE STATE OF ILLINOIS ex rel JAMES )
E.RYAN, ATTORNEY GENERAL,                                        )
          Respondents-Appellees,                                 )
------------------------------------------------------------------------)
COMMONWEALTH EDISON COMPANY,                                     )
          Petitioner-Appellant,                                  )
                                                            )
          v.                                                )
                                                            )
ILLINOIS COMMERCE COMMISSION, THE PEOPLE OF COOK COUNTY ex rel. JACK  )
O'MALLEY, COOK COUNTY STATE'S ATTORNEY, THE BOARD OF TRUSTEES OF THE  )
UNIVERSITY OF ILLINOIS, THE PEOPLE OF THE STATE OF ILLINOIS ex rel.   )
JAMES E. RYAN, ATTORNEY GENERAL, CITIZENS UTILITY BOARD, THE CITY OF  )
CHICAGO, LABOR COALITION ON PUBLIC UTILITIES, UNITED STATES DEPARTMENT     )
OF ENERGY, BUSINESS AND PROFESSIONAL PEOPLE FOR THE PUBLIC INTEREST,  )
BIRMINGHAM STEEL CORPORATION, RALPH M. SCHULTZ, ILLINOIS INDUSTRIAL   )
ENERGY CONSUMERS, and THE CHICAGO AREA INDUSTRIAL CONSUMER COALITION, )    
                    Respondents-Appellees.                                 )


     PRESIDING JUSTICE HARTMAN delivered the opinion of the court:
     On February 10, 1994, Commonwealth Edison Company (Edison) filed
with the Illinois Commerce Commission (Commission) revised tariff
schedules, proposing an increase in annual revenues "by about 7.9%." 
Edison also filed exhibits and testimony in support of the rate
increase.  The Commission thereafter twice suspended, until January 9,
1995, Edison's filed tariffs.
     During these proceedings, appearances or petitions to intervene
were filed by the Staff of the Commission (Staff), the State of Illinois
by the Attorney General (AG), the City of Chicago (City), the Board of
Trustees of the University of Illinois, Birmingham Steel Corporation,
Business and Professional People for the Public Interest, Citizens
Utility Board (CUB), the Labor Coalition on Public Utilities, the People
of Cook County by the Cook County State's Attorney (SA), the United
States Department of Energy, the Chicago Area Industrial Customer
Coalition, the Illinois Industrial Energy Consumers (IIEC), and an
individual, Ralph M. Schultz.  The Commission held evidentiary hearings
from August 16 through September 2, 1994.  Public hearings were also
held, following proper notice, in various locations throughout Illinois. 
The Commission thereafter issued a proposed order and the parties filed
exceptions and replies to exceptions.  Following oral argument, the
Commission issued its final order on January 9, 1995, granting Edison a
$303.2 million increase in electric rates.  The Commission also found
that Edison's nuclear generating plants (Byron 2, Braidwood 1 and 2) are
"used and useful," thereby allowing Edison to include the costs of those
plants in its rate base.
     CUB, the SA, the City, the AG and Edison filed petitions for review
which were consolidated by this court.  CUB and the SA sought a stay of
the Commission's order which this court denied based on Edison's
commitment that in the event the Commission's rate order is reversed,
Edison "will refund to its customers any amounts collected pursuant" to
the Commission's order.  CUB, the City and the AG (collectively,
intervenors) appeal the Commission's order, raising several issues. 
Edison also appeals, contesting the Commission's denial of Edison's
requests for the recovery of flotation costs associated with stock
issuance and the Commission's disallowance of charitable contributions
in excess of $2 million.
     We need only address two of the issues presented by the intervenors
as we find the Commission's order proper in all other respects. 
Additionally, we reject Edison's contentions on appeal as being without
merit.
     The Public Utilities Act (Act) (220 ILCS 5/1  101 et seq. (West
1994)) provides, in part, as follows:
     "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; rules,
     regulations, orders or decisions of the Commission
     shall be held to be prima facie reasonable, and the
     burden of proof upon all issues raised by the
     appeal shall be upon the person or corporation
     appealing from such rules, regulations, orders or
     decisions."  220 ILCS 5/10  201(d) (West 1994).
     Section 10-201(e)(iii) of the Act provides:
     "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 thereof, the court shall
     remand the rule, regulation, order or decision, in
     whole or in part, with instructions to the
     Commission to make the necessary findings or
     analysis."  220 ILCS 5/10  201(e)(iii) (West 1994).
     Section 9  201(c) of the Act provides that "the Commission shall
establish the rates or other charges *** which it shall find to be just
and reasonable."  220 ILCS 5/9  201(c) (West 1994).  "[T]he burden of
proof to establish the justness and reasonableness of the proposed rates
or other charges *** shall be upon the utility."  220 ILCS 5/9  201(c)
(West 1994).
     The Commission's findings will be reversed only if they "are not
supported by substantial evidence based on the record; the Commission
acted outside the scope of its statutory authority; the Commission
issued findings in violation of the State or Federal Constitution or
law; or the proceedings or the manner in which the Commission reached
its findings violates the State or Federal Constitution or laws, to the
prejudice of the appellant."  Citizens Utility Board v. Illinois
Commerce Comm'n, 166 Ill. 2d 111, 120-21, 651 N.E.2d 1089 (1995), citing
220 ILCS 5/10  201(e)(iv)(A) through (e)(iv)(D) (West 1992); United
Cities Gas Co. v. Illinois Commerce Comm'n, 163 Ill. 2d 1, 643 N.E.2d 719 (1994).  "Substantial evidence consists of more than a mere
scintilla but may be something less than a preponderance of evidence and
is such evidence as a reasoning mind would accept as sufficient to
support a particular conclusion."  People ex rel. O'Malley v. Illinois
Commerce Comm'n, 239 Ill. App. 3d 368, 376, 606 N.E.2d 1283 (1993),
citing Illinois Bell Telephone Co v. Illinois Commerce Comm'n, 203 Ill.
App. 3d 424, 433, 561 N.E.2d 426 (1990); Metro Utility v. Illinois
Commerce Comm'n, 193 Ill. App. 3d 178, 184, 549 N.E.2d 1327 (1990). 
This court can neither reevaluate the credibility or weight of the
evidence nor substitute its judgment for the Commission's.  Illinois
Bell Telephone Co. v. Illinois Commerce Comm'n, 283 Ill. App. 3d 188,
200-01, 669 N.E.2d 919 (1996).
     The Commission's interpretation of statutory standards is entitled
to deference, but this court is not bound by the Commission's
interpretation of law.  Citizens Utility Board, 166 Ill. 2d  at 121. 
Decisions of the Commission are not res judicata.  Peoples Gas, Light &
Coke Co. v. Illinois Commerce Comm'n, 175 Ill. App. 3d 39, 51, 529 N.E.2d 671 (1988).  Though the Act grants the Commission discretion, the
Commission's decisions are entitled to less deference when the
Commission drastically departs from past practice.  Business &
Professional People for the Public Interest v. Illinois Commerce Comm'n,
136 Ill. 2d 192, 228, 555 N.E.2d 693 (1989).  Because the Act obliges
the Commission to provide "findings or analysis sufficient to allow an
informed judicial review" (220 ILCS 5/10  201(e)(iii) (West 1994)), the
Commission must set forth more reasoning and analysis than would be
acceptable from a circuit court.  See generally Citizens Utility Board,
166 Ill. 2d  at 120-26.  "The Commission, however, is not required to
make particular findings as to each evidentiary fact or claim."  Lefton
Iron & Metal Co. v. Illinois Commerce Comm'n, 174 Ill. App. 3d 1049,
1055, 529 N.E.2d 610 (1988), citing United Cities Gas Co. v. Illinois
Commerce Comm'n, 47 Ill. 2d 498, 265 N.E.2d 608 (1970).
                                     I
     The City contends the Commission improperly failed to distinguish
between the marginal cost of adding a new customer who requires new
facilities and the marginal cost of serving all other new and existing
customers.  Edison counters that the City does not challenge the
correctness of the Commission's rate increase, but contests the
Commission's revenue allocation, a decision which requires the
Commission's expertise.  IIEC contends the City's position prohibits the
inclusion into the customer component of the costs associated with
serving that customer.  The Commission maintains that a distinction
between new and existing customers would result in a distortion of the
results of the marginal cost study.
     The Commission recognized testimonial evidence that Edison's study
does not reflect the costs of serving new as opposed to existing
customers.  IIEC witness Maurice Brubaker testified, however, that
Edison's study did not account for the distinction between new and
existing customers because such a distinction is "artificial and
inappropriate in the marginal cost sense.  The purpose of the marginal
study is to develop the cost associated with serving additional load. 
This cannot be accomplished if the cost of facilities required to serve
a substantial proportion of the load is ignored."  Edison witness Dennis
Kelter testified that the "carrying charges associated with additional
investment *** and costs associated with meter reading, billing and
customer service are incurred by [Edison] to serve that additional
customer.  The mere existence of additional customers on Edison's system
causes [Edison] to incur these costs."  On the other hand, Staff witness
Peter Lazare testified that, based on Edison's numbers, "approximately
[.03%] of existing customers will require replacement meters and [.05%]
of existing customers will require replacement services in a given
year."  The Commission concluded that it was
     "aware of the principle criticism of [Edison's
     marginal cost] study, that Edison has failed to
     distinguish between marginal customer costs and
     marginal [transmission and distribution] costs
     imposed by existing customers as opposed to new
     customers, but concludes that such a distinction in
     this proceeding could produce distortions in other
     areas of the marginal cost studies."  ICC Docket
     No. 94-0065.
     The Commission, unlike a circuit court, must provide "findings or
analysis sufficient to allow an informed judicial review ***."  220 ILCS
5/10-201(e)(iii) (West 1994); see generally Citizens Utility Board, 166 Ill. 2d  at 120-26.  Though the evidence may be substantial enough to
support the Commission's findings, the Commission's order is lacking in
sufficient analysis here: specifically, the Commission stated that
"distortions" "could" occur in other areas without explaining what
distortions could occur.  See 220 ILCS 5/10  201(e)(iii) (West 1994). 
The Commission's succinct statement leaves this court attempting to
discover why "such a distinction" could create a distortion, what type
of "distortions" could occur, and in what areas these "distortions"
could occur.  This court, however, cannot provide the analysis for the
Commission's order.  See Illinois Bell Telephone Co. v. Illinois
Commerce Comm'n, 283 Ill. App. 3d 188, 200-01, 669 N.E.2d 919 (1996). 
The Commission and Edison submit that Brubaker's testimony supports the
Commission's finding; however, Brubaker's testimony was not mentioned by
the Commission in its findings.  The Commission lastly relies upon
reasoning from an earlier order to support its finding; yet, the order
here contains no similar reasoning or analysis.
     Edison asserts the Commission was properly concerned "with applying
a marginal cost approach to certain cost elements but an inconsistent
approach to customer costs."  The Commission's order  reveals no such
concern and Edison's attempt to provide reasoning for the Commission's
ruling demonstrates the absence of any reasoning in the Commission's
order.  Accordingly, the Commission's order "does not contain findings
or analysis sufficient to allow an informed judicial review" (220 ILCS
5/10  201(e)(iii) (West 1994)), and the Commission's order concerning
the marginal costs of new customers is remanded to the Commission for
further analysis as to how "such a distinction in this proceeding could
produce distortions in other areas of the marginal cost studies."[fn1]
                                    II
     The AG contests the Commission's finding that Edison's cost of
equity was 12.28%.
                                     A
     The AG contends the Commission entered findings rejecting the
testimony of AG/City witness Richard LeLash, IIEC witness Michael Gorman
and United States Department of Energy witness Matthew Kahal
(collectively, intervenor witnesses) that were incomplete, erroneous and
unsupported by reasoning or analysis.  Edison and the Commission assert
a utility's rate of return is an issue particularly within the
Commission's expertise and the Commission's finding that Edison should
earn an overall rate of 9.87%, which incorporated a 12.28% return on
common equity capital, was a substantial decrease from the Commission's
1993 Remand Order, notwithstanding evidence that supported an increase
in the rate of return.
     The Commission here rejected the recommendations of Edison's
witnesses as well as the intervenor witnesses, noting that the
intervenor witnesses' presentations:
     "lead to determinations which underestimate
     Edison's cost of equity; [e.g.], use by all three
     Intervenor witnesses of an annual DCF [Discounted
     Cash Flow] model, which has been explicitly
     rejected by this Commission ([see], Northern
     Illinois Gas Co., Docket 87-0032 at 36 (Jan. 20,
     1988); Commonwealth Edison Co., Dockets 83-0537 [et
     al.] at 34 (Oct. 24, 1985)); *** GTE at 63, 66; use
     of untimely data, in their DCF studies; use by the
     Intervenor witnesses of growth rates calculated on
     the basis of a retention ratio method ***
     previously rejected as unsound by the Commission in
     the GTE Order at 65; use by Mr. Gorman of invalid
     unadjusted (raw) betas in his CAPM [Capital Asset
     Pricing Model] analysis; and failure of all three
     to recognize the greater risks facing Edison as
     compared to their various 'sample' groups of
     companies."  ICC Docket No. 94-0065.
                                    1.
     The AG initially asserts the Commission's findings on annual DCF
methodology and retention ratio are insufficient because those findings,
which are based on past agency decisions, require this court to make a
de novo review of the evidence.  Edison counters that the Commission can
rely on principles adopted in prior decisions and the Commission errs if
it departs arbitrarily or capriciously from its past practices and
principles, relying upon City of Chicago v. Illinois Commerce Comm'n,
133 Ill. App. 3d 435, 440, 478 N.E.2d 1369 (1985).  As stated in City of
Chicago, the decisions of the Commission are not res judicata, but the
Commission has the power to deal with each situation before it
regardless of how it may have dealt previously with a similar or the
same situation.  133 Ill. App. 3d at 440.
     The Commission's order detailed the testimony of all witnesses on
these issues and concluded that Staff witness Alan Pregozen's
presentation was the most reasonable recommendation because he "used
theoretically correct models and implemented them honestly and
carefully."  ICC Docket No. 94-0065.  Pregozen also balanced the
interest of ratepayers and shareholders.  The Commission recapped
Pregozen's testimony by stating that his DCF model "precisely reflects
the timing of each dividend payment" and "assumes [that] companies will
increase dividends once each year at a constant rate."  ICC Docket No.
94-0065.  The AG relies upon the Commission's stated rejection of the
intervenor witnesses' testimony for following practices previously
dismissed by the Commission.  The Commission found, however, that the
intervenor witnesses underestimated the cost of common equity.  This
finding was supported by several reasons, including the intervenor
witnesses' use of an annual DCF model, which the Commission explicitly
rejected in previous cases, rather than a DCF model which reflects the
timing of each dividend payment.  The Commission's findings are
considered prima facie true and the AG bears the burden of proof on
appeal.  220 ILCS 5/10  201(d) (West 1994).
     The findings of the Commission here are supported by substantial
evidence and the Commission's findings and analysis are sufficient to
allow an informed judicial review.  220 ILCS 5/10  201(e)(iii) (West
1994).  Accordingly, we affirm the Commission's findings on DCF
methodology and retention ratio.
                                    2.
     The AG next maintains that the Commission's findings on risk
factors affecting Edison's cost of equity erroneously disregard evidence
showing that risk was considered.  The Commission rejected the
intervenor witnesses' determinations, in part, because they used
"untimely data."  The AG also asserts this finding is vague, unsupported
by record evidence, and arbitrary.
     Here, the Commission rejected the intervenor witnesses'
presentation, in part, because "all three [fail] to recognize the
greater risks facing Edison as compared to their various 'sample' groups
of companies."  ICC Docket No. 94-0065.  The Commission's order does not
explain what "greater risks" are facing Edison or how the three
witnesses' presentations failed to account for those greater risks.  Nor
does the Commission explain the nature of the "untimely data."  The
Commission's findings here contain no reference to the evidence adduced
and its argument on appeal, therefore, cannot provide evidentiary
support.  The Act obliges the Commission to provide "findings or
analysis sufficient to allow an informed judicial review ***."  220 ILCS
5/10  201(e)(iii) (West 1994).  As previously noted, the Commission must
supply more reasoning and analysis than would be acceptable from a
circuit court.  See generally Citizens Utility Board, 166 Ill. 2d at
120-26; 220 ILCS 5/10  201(e)(iii) (West 1994).  The Commission, as the
fact-finding body, must render findings on these issues; failure to do
so, as here, leaves this court without an informed basis for judicial
review.  See 220 ILCS 5/10  201(e)(iii) (West 1994); Brinker Trucking
Co. v. Illinois Commerce Comm'n, 19 Ill. 2d 354, 166 N.E.2d 18 (1960). 
A remand is necessary so that the Commission can provide the appropriate
evidentiary basis and reasoning for its findings that the intervenor
witnesses used untimely data and failed to recognize the greater risks
facing Edison.
                                     B
     The AG next asserts the Commission rested its decision adopting
Staff's recommendation on a finding unsupported by any record evidence.
     The Commission summarized Pregozen's testimony, in part, as
follows:
     "he averaged the DCF cost of equity estimates for
     Edison with those for the comparable sample. 
     Averaging these estimates increases the measured
     cost of equity by 54 basis points, to 11.85%, in
     relation to the comparable sample estimate of
     11.31%.  He also added 54 basis points to the risk
     premium estimates for the comparable sample because
     [Edison's] true beta probably exceeds the estimated
     beta for both it and the comparable sample.  ***  
          In summary, the DCF estimates form the low end
     of the range Mr. Pregozen estimated for [Edison's]
     required [return on equity], while the risk premium
     estimates, with 54 basis points added to reflect
     the difference in risk between Edison and the
     comparable sample and an apparent downward bias in
     [Edison's] estimated beta, form the high end."
     Pregozen estimated the cost of equity for Edison using three models:
constant-growth DCF, non-constant-growth DCF, and risk premium analysis. 
Edison and the Commission again attempt to provide the evidentiary basis
for the Commission's finding that Pregozen equally weighed the DCF and
risk premium-based results; however, this analysis should have been
provided by the Commission.  The Act obliges the Commission to provide
"findings or analysis sufficient to allow an informed judicial review
***."  220 ILCS 5/10  201(e)(iii) (West 1994).  Although Pregozen did
not explicitly state he equally weighed the various factors, this does
not mean he did not in fact do so.  The Commission's order, however,
fails to explain fully how Pregozen's approach equally weighed the DCF
and risk premium-based results or how he arrived at the sum of 54 basis
points.  Accordingly, the Commission's finding must be remanded for
further analysis.  220 ILCS 5/10  201(e)(iii) (West 1994). 
                                     C
     The AG next maintains that the Commission's conclusions on Edison's
rate of return are contrary to the manifest weight of the evidence.  The
AG notes that six different witnesses testified concerning cost of
equity, three of whom reached the same conclusion on Edison's cost of
equity and another, Pregozen, a Staff witness, reached a similar
conclusion.
     Pregozen's constant-growth DCF model "produced a cost of equity
range of 10.93% to 11.35% for the comparable sample and 12.68% to 12.84%
for Edison."  (Emphases added.)  ICC Docket No. 94-0065.  Pregozen's
testimony, therefore, does not support the AG's argument.  The mere fact
that the intervenor witnesses outnumbered Staff witness Pregozen does
not, a fortiori, require the Commission to follow their recommendations;
rather, the credibility of expert witnesses and the weight to be given
their testimony are matters for the Commission as the fact finder.  See
Lefton Iron & Metal Co. v. Illinois Commerce Comm'n, 174 Ill. App. 3d
1049, 529 N.E.2d 610 (1988).  We cannot say the Commission's decision is
against the manifest weight of the evidence; nevertheless, we believe
remand is appropriate here in light of the Commission's need to provide
further analysis regarding risk factors, untimely data, Pregozen's equal
weighing of the DCF and risk premium-based results, how Pregozen arrived
at the sum of 54 basis points, and whether his addition of 54 basis
points was proper.  After reanalyzing those bases, the Commission can
determine whether or not Pregozen's cost of equity presentation should
still be followed.
     For the foregoing reasons, the findings of the Commission
concerning: (1) the distortions created by recognizing a distinction
between new and existing customers; (2) risk factors and untimely data;
and (3) Pregozen's equal weighing of the DCF and risk premium-based
results, and his conclusion that 54 basis points should be added to the
comparable sample are remanded to the Commission so that it can provide
further analysis.  The Commission's order is affirmed in all other
respects.
     Affirmed in part; remanded in part.
     HOFFMAN and SOUTH, JJ., concur.

     [fn1]CUB also notes the Commission's failure to distinguish between
new and existing customers, but raises this argument in connection with
its contention that the Commission used an inappropriate methodology and
asserts that the Commission's revenue allocation is contrary to law and
the evidence.  We find no error in the Commission's methodology nor do
we find that the Commission's revenue allocation was contrary to law and
the evidence; rather, we find the order is lacking in sufficient
analysis regarding the distinction between new and existing customers.