{ "id": 2979967, "name": "ILLINOIS POWER COMPANY, Appellant, v. ILLINOIS COMMERCE COMMISSION et al., Appellees; CITIZENS UTILITY BOARD et al., Appellants, v. ILLINOIS COMMERCE COMMISSION et al., Appellees", "name_abbreviation": "Illinois Power Co. v. Illinois Commerce Commission", "decision_date": "1993-09-10", "docket_number": "Nos. 3\u201492\u20140679, 3\u201492\u20140779 cons.", "first_page": "293", "last_page": "311", "citations": [ { "type": "official", "cite": "254 Ill. App. 3d 293" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "601 N.E.2d 1014", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "235 Ill. App. 3d 577", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5783294 ], "pin_cites": [ { "page": "594" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/235/0577-01" ] }, { "cite": "70 Pub. Util. Rep. 4th 107", "category": "reporters:specialty", "reporter": "P.U.R.4th", "pin_cites": [ { "page": "114" } ], "opinion_index": 0 }, { "cite": "529 N.E.2d 610", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "174 Ill. App. 3d 1049", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3517054 ], "pin_cites": [ { "page": "1060" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/174/1049-01" ] }, { "cite": "320 U.S. 591", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 6143691 ], "weight": 3, "pin_cites": [ { "page": "602" }, { "page": "345" }, { "page": "288" } ], "opinion_index": 0, "case_paths": [ "/us/320/0591-01" ] }, { "cite": "488 U.S. 299", "category": "reporters:federal", "reporter": "U.S.", "case_ids": [ 1495157 ], "weight": 3, "year": 1944, "pin_cites": [ { "page": "310" }, { "page": "658-59" }, { "page": "617" } ], "opinion_index": 0, "case_paths": [ "/us/488/0299-01" ] }, { "cite": "420 N.E.2d 147", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "84 Ill. 2d 436", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 3045717 ], "opinion_index": 0, "case_paths": [ "/ill-2d/84/0436-01" ] }, { "cite": "529 N.E.2d 671", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "175 Ill. App. 3d 39", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3554269 ], "pin_cites": [ { "page": "51" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/175/0039-01" ] }, { "cite": "478 N.E.2d 1369", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "133 Ill. App. 3d 435", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3529059 ], "weight": 2, "pin_cites": [ { "page": "439" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/133/0435-01" ] }, { "cite": "510 N.E.2d 865", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "117 Ill. 2d 120", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5545200 ], "pin_cites": [ { "page": "142" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/117/0120-01" ] }, { "cite": "588 N.E.2d 1192", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "573 N.E.2d 858", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "214 Ill. App. 3d 222", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5297160 ], "pin_cites": [ { "page": "229-30" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/214/0222-01" ] }, { "cite": "588 N.E.2d 1190", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "566 N.E.2d 1372", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "208 Ill. App. 3d 779", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2547454 ], "pin_cites": [ { "page": "792" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/208/0779-01" ] }, { "cite": "585 N.E.2d 1032", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 9, "pin_cites": [ { "page": "1039" }, { "page": "1058" }, { "page": "1060" }, { "page": "1063" }, { "page": "1056" }, { "page": "1058" } ], "opinion_index": 0 }, { "cite": "146 Ill. 2d 175", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5597526 ], "weight": 9, "pin_cites": [ { "page": "225" }, { "page": "196" }, { "page": "236" }, { "page": "240-41" }, { "page": "247" }, { "page": "233" }, { "page": "236" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/146/0175-01" ] } ], "analysis": { "cardinality": 1364, "char_count": 44585, "ocr_confidence": 0.755, "pagerank": { "raw": 6.556305403386589e-08, "percentile": 0.4018728505020949 }, "sha256": "3155d5ef63704d481e90cb2c0ee0ead70cff72fded3abdecdae6ebcb9db2f750", "simhash": "1:e5bf4bddab47f4d6", "word_count": 7157 }, "last_updated": "2023-07-14T16:17:01.484927+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "ILLINOIS POWER COMPANY, Appellant, v. ILLINOIS COMMERCE COMMISSION et al., Appellees.-CITIZENS UTILITY BOARD et al., Appellants, v. ILLINOIS COMMERCE COMMISSION et al., Appellees." ], "opinions": [ { "text": "JUSTICE BARRY\ndelivered the opinion of the court:\nIllinois Power Company (IP) (No. 3 \u2014 92\u20140679) and the Office of Public Counsel and the Citizens Utility Board (OPC/CUB) (No. 3 \u2014 92\u2014 0779) appeal from certain orders and decisions of the Illinois Commerce Commission (Commission) relating to IP\u2019s request for an increase in electric rates to recover deferred post-construction costs of its Clinton Power Station (Clinton). Specifically, they appeal from:\n(1) a February 11, 1992, order requiring IP to file new tariff sheets so the Commission could review the propriety of ratemaking treatment accorded IP\u2019s Account 186, wherein IP had recorded between April 24, 1987, and March 30, 1989, the following post-construction charges: (1) depreciation, (2) real estate taxes, (3) associated income taxes, and (4) financing costs of (a) the Clinton investment not previously included in rate base as construction work in progress and (b) the amounts accrued in Account 186;\n(2) a March 10, 1992, decision of the Commission denying in part petitions for rehearing filed by IP and CUB and ordering a limited rehearing to reconsider its February 11, 1992, decision (the Commission stated that the purpose of the rehearing was to make, \u201cin light of BPIII [Business & Professional People for the Public Interest v. Illinois Commerce Comm\u2019n (1991), 146 Ill. 2d 175, 585 N.E.2d 1032], a determination of the proper ratemaking treatment of Account 186 balances, which would include those balances which were both included in and excluded from rate base by the February 11, 1992 Order, and *** the effect of any Account 186 disallowances on the financial viability of Illinois Power Company\u201d);\n(3) an order of August 7, 1992, upon rehearing allowing IP to recover $119,553,000 of IP\u2019s deferred post-construction costs and decreasing IP\u2019s annual electric operating revenues by $21,475,000; and\n(4) September 2 and September 25, 1992, decisions of the Commission denying IP\u2019s application for rehearing or reconsideration of the February and August orders and denying OPC/CUB\u2019s application for rehearing of the August order, respectively.\nThis action was initiated on March 19, 1991, when IP filed revised tariff sheets with the Illinois Commerce Commission requesting a general increase in electric rates. Petitions for leave to intervene were filed by the board of trustees of the University of Illinois, the office of the Attorney General on behalf of the State of Illinois, the Citizens Utility Board, the Office of Public Counsel and various members of the Illinois Industrial Energy Consumers (IIEC). All of the petitioners were allowed to intervene. At the hearings on IP\u2019s proposed rates, in addition to IP and the intervenors, Commission staff (Staff) participated.\nSome historical background and explanation of the case is needed to clarify the issues on appeal. This case concerns a lag period of 23 months between April of 1987 and March of 1989. Technically termed a \u201cregulatory lag period,\u201d it was that period of time between the completion of construction of the utility\u2019s new plant (here, Clinton) and the Commission\u2019s entry of a new rate order reflecting the cost of the completed plant. During the regulatory lag period, the utility filed its tariff sheets with the Commission proposing new rates, the Commission conducted an audit, held evidentiary hearings and ultimately issued an order determining the plant\u2019s \u201creasonable cost.\u201d\nThe \u201cdeferred post-construction charges\u201d for which IP sought recovery in this case consist of costs incurred by the utility during the regulatory lag period. Because normal accounting procedures would require the utility to stop recording a financing cost on its investment in a separate \u201cAFUDC\u201d account (\u201cAllowance for Funds Used During Construction\u201d) and begin depreciating the new plant as of its in-service date, and because retroactive ratemaking is prohibited, the utility assumes that it will experience an adverse financial impact during the regulatory lag period unless an accounting variance is permitted.\nPrior to the commencement of this action, IP petitioned the Commission in January 1986 (docket No. 86 \u2014 0002) for authorization to record depreciation expense for book purposes on the investment in Clinton upon its being placed in operation and, during the regulatory lag period, to record in a deferred asset account (Account 186) an amount equal to: (a) the depreciation expense; (b) the operation and maintenance expense (O&M); (c) taxes other than income taxes associated with Clinton; and (d) a financing cost or carrying charge on any investment in Clinton not already included in rate base. Recognizing that the regulatory lag period in this case could pose a serious financial impact on IP, its cost of capital and its shareholders, the Commission on March 5, 1986, entered its order allowing a departure from normal accounting practices, specifically permitting IP during the regulatory lag period: (a) to record and defer fixed operation and maintenance costs, depreciation and taxes other than income tax; and (b) \u201cto record financing costs on plant investment (including amounts in any deferred asset account) *** to the extent the underlying assets are included in rate base, from the in-service date of Clinton Unit I to the date on which rates become effective pursuant to a rate order which addresses placing Clinton Unit I in service.\u201d The Commission further stated:\n\u201c[T]he Commission is not making any determination as to the costs associated with Clinton that are properly includible in IP\u2019s rate base. Except as may be ordered by the Commission in a future rate case, the post-construction costs allowed herein to be recorded and deferred should be included in rate base *** and should be recovered under'an amortization plan conforming to generally accepted accounting principles applicable to regulated electric utilities.\u201d\nOn January 15, 1987, IP filed another petition with the Commission, docket No. 87 \u2014 0017 (consolidated with another docket initiated by the Commission, No. 86 \u2014 405\u2014\u201cInvestigation Concerning Proposed In-Service Criteria for Clinton Unit I\u201d), seeking to record as a deferred liability the difference between IP\u2019s Federal income tax expense as calculated under rates set by the Tax Reform Act of 1986 (which reduced IP\u2019s income tax) and its Federal income tax expense as calculated under the rates previously in effect. IP proposed to offset the tax expense reduction against depreciation and fixed operation and maintenance expenses that were being recorded in Account 186 as deferred assets pursuant to the Commission\u2019s order of March 5, 1986. The IIEC, OPC and others intervened, and on July 23, 1987, reached a settlement with IP, which was proposed to the Commission for approval. The Commission approved the settlement on November 24, 1987. Specifically, the Commission ordered that IP should commence the accounting variance approved in March 1986 as of April 24, 1987, the in-service date for Clinton, and that IP\u2019s next rate case should include the impacts of the Tax Reform Act of 1986, which would be prospective only.\nOn March 30, 1989, the Commission entered an order in dockets Nos. 84 \u2014 0055, 87 \u2014 0695 and 88 \u2014 0256, consolidated. Docket No. 87\u2014 0695 was IP\u2019s first rate case following completion of Clinton. In that docket IP had proposed that the entire Account 186 balance recorded during the regulatory lag period be included in rate base and that it be amortized over the remaining life of Clinton with the unamortized amounts included in rate base thereby earning a full return. The matter was heard, and ultimately the Commission allowed a rate increase of $60,536,000, or 6.89%. For purposes of consolidated dockets Nos. 84\u2014 0055, 87 \u2014 0695 and 88 \u2014 0256, the Commission found that IP\u2019s share of unreasonable construction costs of Clinton was $665,729,000 (a co-owner of Clinton is Soyland Power Cooperative, which is not regulated by the Commission), and that only 27.2% of Clinton was used and useful. The Commission therefore disallowed a common equity return on the remaining 72.8% of IP\u2019s reasonable and prudent investment in the plant. A full return of capital associated with the prudently incurred costs was allowed, as was a full return on the debt and preferred stock associated with such prudently incurred costs.\nThe Commission\u2019s rate order of March 30, 1989, was appealed to this court and resulted in an opinion issued on February 8, 1991, reversing in part the Commission\u2019s rate order and remanding for further proceedings to determine \u201cused and useful\u201d under pre-1986 standards. (Illinois Power v. Elinois Commerce Comm\u2019n (1991), 208 Ill. App. 3d 779, 792, 566 N.E.2d 1372 (IP I).) Our opinion was appealed to the Illinois Supreme Court and found to be in error in Business and Professional People for the Public Interest v. Illinois Commerce Comm\u2019n (1991), 146 Ill. 2d 175, 225, 585 N.E.2d 1032 (BPI II). Subsequent to BPI II the supreme court, in the exercise of its supervisory authority, vacated this court\u2019s judgment in IP I and remanded the cause to the appellate court for further proceedings consistent with BPI II. (588 N.E.2d 1190-91.) A final disposition of that cause was presented by the parties for our approval on November 6, 1992, and allowed December 2,1992. Specifically, we ordered:\n\u201c(1) the findings and determination of the Illinois Commerce Commission in its order of Mar. 30, 1989 *** that Illinois Power Company\u2019s share of the prudent and reasonable cost of Clinton Power Station at December 31,1987 is $3,136,909,000 is affirmed;\n(2) the finding and determination of the [ICC] in the 1989 Rate Order that deferred Clinton Power Station post-construction equity financing cost recorded in Account 186 between January 1, 1988 and March 30, 1989, would not be allowed for ratemaking purposes is reversed, such reversal not being a dispositive determination of the amount of deferred Clinton *** post-construction costs recoverable under [BPI II], which issue is before this Court in Case Nos. 3 \u2014 92\u20140697 [sic] and 3 \u2014 92\u20140779;\n(3) in all other respects, the appeals *** are dismissed ***; and\n(4) this Court\u2019s order of July 12, 1989, requiring Illinois Power Company to collect the increased revenues authorized by the 1989 Rate Order \u2018subject to refund\u2019 pending appeal is vacated.\u201d ''\nIP\u2019s next rate case (docket No. 89 \u2014 0276) proposed including in rate base the full unamortized Account 186 balances that had been allowed in the Commission\u2019s 1989 rate order. The order in docket No. 89 \u2014 0276 was issued on June 6, 1990, and, as amended, granted IP an annual rate increase of $74,799,000. IP appealed the Commission\u2019s use of IP\u2019s actual capital structure, rather than IP\u2019s proposed target capital structure, in determining the rate of return on common equity. On June 12, 1991, this court affirmed the Commission\u2019s decision finding that a 12.25% rate of return based on IP\u2019s actual capital structure was reasonable, but remanded for further proceedings consistent with IP I. (People ex rel. Hartigan v. Illinois Commerce Comm\u2019n (1991), 214 Ill. App. 3d 222, 229-30, 573 N.E.2d 858 (IP II).) On appeal to the Illinois Supreme Court, IP II was remanded on a supervisory order for further proceedings consistent with BPI II as well. (588 N.E.2d 1192.) The parties subsequently moved to dismiss their appeals in this court, and on October 30, 1992, we granted those motions.\nThis case (docket No. 91 \u2014 0147) followed. IP sought recovery of the entire unamortized balance of deferred charges associated with the reasonable cost of Clinton, including the post-1987 deferred equity return which the Commission had disallowed in the 1989 rate order. Ultimately, the Commission disallowed 72.8% of the deferred common equity return from the balance in Account 186 eligible for recovery; disallowed all deferred depreciation and real estate taxes; and applied an \u201cactual harm\u201d test to the remaining balance of deferred costs ($119,553,000) and allowed recovery of that amount. The Commission\u2019s orders resulted in a disallowance of approximately $199 million of the recorded deferred post-construction costs.\nThe issues presented by IP for our review in appeal No. 3 \u2014 92\u20140679 are: (1) whether the Commission erred in disallowing deferred post-construction depreciation, real estate taxes and 72.8% of the deferred Clinton post-construction common equity return; (2) whether the Commission erred in applying BPI II in determining IP\u2019s recovery of deferred post-construction costs; (3) whether the Commission erred in determining the test-year balance of deferred costs; (4) whether the Commission failed to give proper and adequate consideration to maintaining IP\u2019s financial viability; and (5) whether the Commission\u2019s allowance of a return on common equity of 12.40% was supported by the evidence and based on findings and analysis sufficient to allow informed judicial review. The sole issue presented by OPC/CUB in their appeal No. 3 \u2014 92\u20140779, here consolidated, is whether the Commission used an erroneous method for determining the extent of harm resulting from regulatory delay, thereby allowing IP to recover a profit contrary to the dictates of BPI II.\nI. DISALLOWANCES OF DEFERRED COSTS\nIP first argues that the Commission\u2019s fate orders in dockets prior to No. 91 \u2014 0147 and this court\u2019s opinion in IP I generally approved the deferral and recording of post-construction costs. Thus, IP contends, the Commission and this court authorized the recovery of such costs; and, at least to the extent that deferred post-construction items were not challenged on appeal from the earlier dockets, they should not have been disallowed in this case. Further, even if the Commission did not err in applying BPI II to this case, IP continues, BPI II does not invalidate Commission action taken to lessen the financial impact of regulatory lag upon IP, because such actions were understood by the parties as superseding general rules or were a valid exception to general rules. IP says that the Commission erred by ruling that it was required to remove test year items, such as accumulated depreciation and real estate taxes, from recoverable deferred costs pursuant to BPI II.\nFor purposes of our review, we are guided by the following standard as explained in BPI IP.\n\u201c[SJetting utility rates is a legislative rather than a judicial function. In the rate-making scheme, the Commission and not the court is the fact-finding body (People ex rel. Hartigan v. Illinois Commerce Comm\u2019n (1987), 117 Ill. 2d 120, 142[, 510 N.E.2d 865]) (Hartigan I). Its findings of fact are to be accepted as prima facie true and cannot be set aside on appeal unless they are against the manifest weight of the evidence. (City of Chicago v. Illinois Commerce Comm\u2019n (1985), 133 Ill. App. 3d 435[, 439, 478 N.E.2d 1369].) Accordingly, our review of the Commission\u2019s orders is limited to determining whether the Commission: acted within the scope of its statutory authority; set out findings of fact adequate to support its decisions; issued findings which were supported by the manifest weight of the evidence; and rendered decisions which do not infringe upon a constitutional right. City of Chicago, 133 Ill. App. 3d at 439. See Ill. Rev. Stat. 1989, ch. 111\u2154, par. 10\u2014 201(e)(iv).\u201d (BPI II, 146 Ill. 2d at 196, 585 N.E.2d at 1039.)\nGuided by BPI II, we find that IP\u2019s position with respect to the recovera-bility of deferred post-construction charges cannot withstand analysis.\nFirst, we reject IP\u2019s premise that the law as declared by the court in BPI II cannot be applied by the Commission in determining recoverability of the deferred post-construction charges recorded in Account 186. Indeed, the Commission was bound to follow our supreme court\u2019s decision to the extent that it addressed the issues in this case and clarified applicable law. Moreover, to the extent the Commission\u2019s prior orders or this court\u2019s decisions on appeal from such orders conflicted with BPI II, such prior orders and decisions were superseded by the decision in BPI II. Obviously, prior orders of the Commission allowing IP to record deferred charges during the regulatory lag period in contemplation of recovering them in the rate case were not final as to recovery and had no preclusive effect in the rate case. (Peoples Gas, Light & Coke Co. v. Illinois Commerce Comm\u2019n (1988), 175 Ill. App. 3d 39, 51, 529 N.E.2d 671.) Accordingly, we hold that the Commission did not err in applying BPI II to the facts of this case and rendering its ultimate determination based on the law as therein stated.\nNext, we believe it is clear from the Commission\u2019s order in docket No. 86 \u2014 0002 that the Commission was not authorizing recovery of any deferred post-construction costs, but merely approving an accounting variance to alleviate potentially adverse financial consequences during the regulatory lag period. Both the Commission in its March 5, 1986, order in docket No. 86 \u2014 0002 and our supreme court in BPI II distinguished between the recording of deferred post-construction charges and the ultimate decision to include or disallow recovery of such charges in rate base. The decision as to whether any of the deferred charges recorded during the regulatory lag period would be recoverable had to await the filing of the rate case. Then recovery would be permitted in the new rates only insofar as actual financial data available for the lag period established that the utility \u201cactually suffered significant *** financial impact.\u201d (Emphasis omitted.) (BPI II, 146 Ill. 2d at 236, 585 N.E.2d at 1058.) Thus, until the instant rate case, there was no finality as to the treatment of any recorded deferred charges for purposes of recovery. The Commission had not only the authority to determine the extent to which the utility\u2019s recorded deferred charges could be recovered from ratepayers, but the duty to do so according to current law (in particular, BPI II in this case), in the rate case seeking recovery of the recorded deferred charges \u2014 in this case, docket No. 91\u20140147. Relph v. Board of Education of DePue Unit School District No. 103 (1981), 84 Ill. 2d 436, 420 N.E.2d 147.\nBPI II specifically addressed as well the recoverability of deferred depreciation and found that allowance of such deferred charges violates the Commission\u2019s rules and is reversible error. (146 Ill. 2d at 240-41, 585 N.E.2d at 1060.) The fact that the Commission previously allowed deferred depreciation to be recorded pursuant to IP\u2019s requests for accounting variances did not effectuate an amendment of test-year rules so as to validate recovery of these charges in the rate case. Thus, we hold that the Commission\u2019s decision based on BPI II to disallow recovery of deferred depreciation in Account 186 was not error.\nSimilarly, the Commission\u2019s decision to disallow deferred real estate taxes should be affirmed. Real estate taxes, no less than depreciation, are clearly test year expenses and cannot be recovered without violating test year principles. BPI II, 146 Ill. 2d 175, 585 N.E.2d 1032.\nWith respect to the Commission\u2019s disallowance of 72.8% of IP\u2019s deferred return on common equity, we find that BPI II's proscription of allowing a utility to recover more than it would have had the ratemaking decision been synchronized with the plant in-service date justifies the disallowance of that percentage of financing costs recorded in Account 186. In explaining the difference between a rate case and a utility\u2019s request for an accounting variance, our supreme court in BPI II stated:\n\u201cThe purpose of the accounting variance is to protect [the utility] from adverse financial impact caused by the regulatory delay period, and to afford [the utility] the opportunity to recover these charges. The accounting variance should not be used to place [the utility] in a better position than it would have been in had synchronization been achieved. Just as it would be unfair to deny [the utility] recovery of its reasonable and prudent investment due to regulatory delays which the company could not control, so, too, would it be unfair if [the utility] were allowed to reap a windfall, at ratepayer expense, due to a regulatory delay which the ratepayers could not control.\u201d 146 Ill. 2d at 247, 585 N.E.2d at 1063.\nIn its 1989 rate order the Commission determined that only 27.2% of Clinton was used and useful. To allow a greater recovery of the Account 186 deferred return on common financing costs would be tantamount to permitting the utility to pass on to its ratepayers the utility\u2019s cost of financing unreasonable construction charges. This is precisely the unfair \u201cwindfall\u201d the BPI II court sought to preclude in imposing the synchronization standard for determining the extent to which recorded, deferred charges may ultimately be included in rate base. Accordingly, we hold that the Commission did not err in disallowing 72.8% of IP\u2019s deferred common equity financing costs.\nIP contends that the Commission\u2019s prior orders allowing the utility accounting variances to protect it from potential adverse consequences of regulatory lag (dockets Nos. 86 \u2014 0002 and 86 \u2014 0405/87\u20140017) \u201cestablished a clear guideline\u201d for amortization and recovery of IP\u2019s deferred costs in the rate case. IP suggests that the Commission\u2019s disallowance of charges which it had previously allowed the utility to record in Account 186 was, therefore, arbitrary and capricious and in violation of the prohibition against single-issue ratemaking. We do not agree.\nAt the time of the Commission\u2019s orders in dockets Nos. 86\u2014 0002 and 86 \u2014 0405/87\u20140017, the Commission did not have the benefit of our supreme court\u2019s decision in BPI II, and the law applicable to the ratemaking treatment of deferred post-construction charges was unclear. Nonetheless, the Commission had previously established its \u201ctest year principle\u201d that bases the determination of a utility\u2019s revenue requirement on revenues, expenses and investments for a single year. In this case, the test year was the forecasted calendar year ending December 31, 1992. The rule precludes a utility from recovering on an annual basis more than its revenue requirement for the test year, in this case, 1992. The Commission is further bound in its ratemaking determinations by rules prohibiting retroactive and single-issue ratemaking. Significantly, in this case, as in BPI II, none of the Commission\u2019s orders allowing the utility to record and defer various post-construction charges purported to modify the Commission\u2019s rules. The orders approved accounting variances for the regulatory lag period \u2014 no more, no less. In docket No. 86 \u2014 0002, the Commission expressly prefaced its order with the statement that it was not making a determination as to costs properly includable in IP\u2019s rate base. The Commission stated, \u201cIn this proceeding, the Commission is not making any determination as to the costs associated with Clinton that are properly includible in IP\u2019s rate base.\u201d We thus believe that it could not have been clearer that all parties understood that the accounting variance was being approved for the sole purpose of protecting the utility from any substantial financial harm during the regulatory lag period, and not for the purpose of setting \u201cguidelines\u201d for includable test year expenses in the rate case. Based on all evidence presented to the Commission in this case, the Commission disallowed recovery of those charges that would have placed IP in a better financial position than it would have been had the ratemaking decision been synchronized with the plant in-service date, and ultimately granted a 7.22% increase in its rates. The Commission\u2019s determination was consistent \"with current law and the Commission\u2019s rules. We conclude that the Commission\u2019s application of BPI II to this case, notwithstanding the Commission\u2019s entry of prior orders permitting IP to record deferred post-construction charges that were later disallowed pursuant to BPI II, did not result in arbitrary and capricious or single-issue ratemaking.\nIP next contends that the Commission\u2019s action disallowing recorded post-construction charges was confiscatory and in violation of the Illinois and Federal Constitutions. IP\u2019s argument in this regard is not well taken. In applying the proper constitutional standard:\n\u201c \u2018It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unreasonable, judicial inquiry ... is at an end. The fact that the method employed to reach that result may contain infirmities is not then important.\u2019 [Citation.] *** [W]hether a particular rate is \u2018unjust\u2019 or \u2018unreasonable\u2019 will depend to some extent on what is a fair rate of return given the risks under a particular rate-setting system, and on the amount of capital upon which the investors are entitled to earn that return.\u201d (Duquesne Light Co. v. Barasch (1989), 488 U.S. 299, 310, 102 L. Ed. 2d 646, 658-59, 109 S. Ct. 609, 617, quoting Federal Power Comm\u2019n v. Hope Natural Gas Co. (1944), 320 U.S. 591, 602, 88 L. Ed. 333, 345, 64 S. Ct. 281, 288.)\nIn our opinion, the Commission\u2019s ultimate rate decision in this case passes constitutional muster. Inasmuch as we find that the rate of return granted to the utility is based on the evidence presented to the Commission and on applicable law and regulatory rules, we do not find that the 7.22% increase was so unjust or unreasonable as to be confiscatory.\nII. IP\u2019S FINANCIAL VIABILITY\nNext, IP argues that the Commission gave inadequate consideration to maintaining the utility\u2019s financial viability. IP contends that the Commission erred by denying IP\u2019s application for a rehearing of the August order to consider additional evidence on the financial consequences of the Account 186 disallowances. The thrust of IP\u2019s argument seems to be that the utility\u2019s bond rating \"with Standard & Poor\u2019s should be in the middle of the benchmark range of single A by 1995. IP contends that the utility was only rated EBB, the lowest investment grade for utilities, at the time of the August order, and that the Commission\u2019s decision in the August order to disallow deferred costs that had been previously included in rate base could be \u201cdevastating to investor confidence in Bli-nois regulation.\u201d\nIn our opinion, the Commission gave adequate consideration to IP\u2019s evidence of financial viability. The Commission acknowledged the importance of the utility\u2019s ability to raise capital by maintaining an investment grade bond rating and expressly weighed this factor in the March 1989 rate order. In the current case, the Commission again heard and considered substantial testimony relating to IP's financial integrity and the potential effects on the stock and bond markets that disallowances of previously authorized deferred costs could cause. In its August 1992 order, the Commission concluded, however, that the disallowances and resulting rates based on BPI II \u201cwill not significantly impair IP\u2019s financial viability. *** IP\u2019s cash flow is more than adequate to meet its expected construction needs *** [and the disallowances and approved rates] should not impair IP\u2019s ability to provide safe, adequate and reliable electric service.\u201d\nIn its application for further rehearing, IP proposed to demonstrate that the Commission\u2019s prediction of an improvement in its bond ratings was in .error and that IP\u2019s shareholders and the financial markets had in fact reacted adversely immediately after the Commission\u2019s August 7, 1992, order was issued. At the time of oral argument before this court, however, it was undisputed that IP\u2019s Standard & Poor\u2019s bond rating remained BBB.\nTo revisit the issue of financial viability every time the stock/ bond markets fluctuate would be, obviously, an impossibly onerous burden on the Commission\u2019s resources. Where the Commission has given consideration to the evidence presented to it, and its determination that the rates imposed do not impair the utility\u2019s ability to provide safe, adequate and reliable service is supported by the evidence, the inquiry may end. Contrary to IP\u2019s position on appeal, we find that the record before us demonstrates that the Commission\u2019s rejection of IP\u2019s position was supported by the evidence, and the Commission did not err in denying IP\u2019s application for yet another rehearing to introduce new evidence in support of its financial integrity argument. Accordingly, we hold that no reversible error was committed in the Commission\u2019s consideration of IP\u2019s financial viability or in its denial of IP\u2019s application for another rehearing on this ground.\nIII. RATE OF RETURN ON COMMON EQUITY\nIP next argues that the Commission\u2019s determination setting IP\u2019s rate of return on common equity (ROE) at 12.40% was not supported by the evidence and was not based on findings and analysis sufficient to allow informed judicial review. We again do not agree. Witnesses testifying about IP's cost of equity and fair rate of return included Dr. Eugene Brigham for IP, Scott Rungren for Staff and David Parcell for OPC/ CUB. The primary analyses used by these witnesses to determine IP\u2019s cost of common equity were the discounted cash flow (DCF) model and the capital asset pricing model (CAPM). Dr. Brigham explained that he had based his analyses on comparable utilities because IP was not paying a common stock dividend at the time of his analysis and IP\u2019s beta, a component of CAPM, was distorted due to a recent period of financial distress. He estimated IP\u2019s average cost of common equity to be 13.37% in the DCF model and 13.86% in the CAPM model. He said he included a 50-basis-points flotation cost recovery factor because the analyses did not account for issuance expenses. He concluded that a higher return on equity on rate base assets should be allowed if investors were to earn their required return on their total investment. Based on Dr. Brigham\u2019s analyses, IP requested a ROE of 13.69%.\nStaff witness Rungren utilized the same two models and comparable publicly traded utilities for his analyses. His selection of the comparables was based on a three-year average of eight risk measures. Based on his DCF analysis, Rungren estimated IP\u2019s cost of equity in the range from 11.30% and 12.59%. In his CAPM model, Rungren used the short-term Treasury Bill rate for one analysis and the long-term Treasury Bond for another. The short-term Treasury Bill rate yielded a 12.16% cost of common equity and the long-term Treasury Bond resulted in a 13.20% cost of common equity. Applying his own informed judgment to the figures, Run-gren estimated that IP\u2019s cost of common equity ranged between 12.40% and 13.00%. He said he further adjusted these rates by adding 17 basis points for flotation costs at the low end of the range and 18 points at the high end and recommended that IP be awarded a 12.88% ROE.\nOPC/CUB witness Parcell performed his analyses using a DCF model and a \u201ccomparable earnings model\u201d with a CAPM analysis as a check. Using the DCF analysis Parcell found IP\u2019s cost of equity was 11% to 12%. In the comparable earnings analysis, Parcell determined IP\u2019s cost of equity to be between 12.5% and 13%. His CAPM analysis yielded a 12.3% cost of equity. Parcell explained that he did not apply a flotation cost adjustment factor because IP had no current plans to issue new public offerings of common equity between 1991 and 1995.\nBefore weighing the testimony of the various witnesses, the Commission determined that IP\u2019s ROE should not include a flotation cost factor for the reason given by Parcell and because the evidence presented to the Commission failed to establish that IP had not fully recovered flotation costs from its common stock issuances between 1970 and 1991. In ultimately determining that IP\u2019s ROE should be allowed at 12.40%, the Commission noted that allowing a ROE at the low end of Staff witness Rungren\u2019s range \u201cis consistent with evidence in this record concerning recent market trends and the passage of amendments to the Public Utilities Act relating to the UEAC [Uniform Fuel Adjustment Clause, Ill. Rev. Stat. 1989, ch. lll2/s, par. 9 \u2014 220] and the Clean Air Act Amendments,\u201d which allow utilities to recover coal transportation expenses under contracts in existence on the effective date of the amendment through the UFAC and reduce IP\u2019s risks associated with the Clean Air Act.\nHaving reviewed the evidence presented to the Commission on the issue, we are convinced that the Commission\u2019s determination to grant IP a 12.40% rate of return on common equity is supported by substantial evidence, and the determination is in fact based on findings and analysis sufficient to allow informed judicial review. The Commission\u2019s determination is entitled to great deference, and it is not the function of this court to reweigh the evidence. (Leftron Iron & Metal Co. v. Illinois Commerce Comm\u2019n (1988), 174 Ill. App. 3d 1049, 1060, 529 N.E.2d 610.) Accordingly, having found that the Commission\u2019s determination is based on the evidence and the product of that body\u2019s reasoned, technical analysis, we hold that the Commission\u2019s determination should stand.\nIV. DETERMINATION OF EXTENT OF HARM\nOPC/CUB argue that the Commission erred in adopting Staff\u2019s \u201cnet income\u201d test to determine the extent of harm caused to IP by regulatory lag. Under this test Staff compared IP\u2019s earnings for 1987, 1988 and 1989 to its effective return on equity for the three years. Staff acknowledged that using the actual 23-month deferral period would have been preferable to using the three calendar years, but testified that Staff had not had enough time to develop rate base values for each year of the actual deferral period and opined that if the three-year analysis was detrimental to anyone, it would be detrimental to IP.\nAccording to OPC/CUB, their witness, David Effron, used the proper method by determining the loss that IP suffered from not being able to synchronize a rate change with the in-service date of Clinton. Effron used the operating income from the 1989 rate order as a starting point to determine the extent of financial harm. According to Staff, IP\u2019s revenue requirement in that proceeding was based on the historical data for 1986 and adjusted pro forma to arrive at a forecasted revenue requirement. Staff criticized Effron\u2019s use of data from the 1989 rate order because actual data for the deferral period was available.\nWe begin our analysis with reference to BPI II. The court there prefaced its discussion by observing that to qualify for an accounting variance for recording purposes during the lag period, the utility \u201cmust show that (1) circumstances beyond its control have created a significant regulatory lag between the in-service date and the date of the Rate Order, and that (2) denial of the accounting variance could significantly and adversely affect the company\u2019s earnings, as well as its short-term and long-term cost of capital. (ICC Docket No. 85\u20140092; Re Commonwealth Edison Co. (Ill. Com. Comm\u2019n Oct. 3, 1985), 70 Pub. Util. Rep. 4th 107, 114.)\u201d BPI II, 146 Ill. 2d at 233, 585 N.E.2d at 1056.\nFor our purposes, it is part 2 that is in issue. The Commission in BPI II had determined that actual harm to the utility during the deferral period had to be based on the record as it stood on January 1, 1988, the beginning date for recording deferred post-construction costs for the utility\u2019s Byron Unit 2 plant. As of January 1, 1988, the utility\u2019s revenue requirements were based on financial forecasts made in 1987. Since the rate case had been filed in 1990, actual historical data was in fact available for all or part of the deferral period. Our supreme court ruled that the Commission\u2019s legal determination to apply the actual harm test based on forecasted financial data, and ignoring actual historical data, was arbitrary. The court was particularly concerned about allowing the utility to record and recover over $1 billion in deferred charges if the actual financial data available refuted the forecasted data upon which the allowed recovery was based. Accordingly, the court remanded the cause for a determination of any \u201csignificant adverse financial impact\u201d actually suffered by the utility between the in-service date and the date of the rate order. 146 Ill. 2d at 236, 585 N.E.2d at 1058.\nIn this case, as in BPI II, the test used by the Commission relied on financial data outside the actual deferral period. By using three calendar years, instead of the actual 23-month deferral period, the Commission arbitrarily assumed that any financial impact of the additional four months in 1987 and nine months in 1989 would be detrimental only to IP. We find no sound basis for this assumption. Accordingly, we find that this case must be remanded for further proceedings to determine actual, significant financial harm, if any, suffered by IP during the April 24, 1987, through March 30,1989, deferral period.\nFurther, the Commission rejected application of rate-setting adjustments as proposed by OPC/CUB witness Effron because \u201can analysis which identifies all appropriate rate setting adjustments has not been presented in this case.\u201d It thus appears that the Commission agreed generally with the position of OPC/CUB that such adjustments should be applied in the \u201cactual harm test\u201d if the Account 186 balance is to accurately reflect what the utility \u201clost\u201d because of failure to synchronize rate recognition with in-service. We anticipate that on remand the parties will present to the Commission\u2019s satisfaction appropriate rate-setting adjustments so that the recalculated recoverable Account 186 balance is an accurate, rather than an \u201cestimated,\u201d figure.\nV. CALCULATION OF TEST YEAR BALANCE OF DEFERRED COSTS\nFinally, we consider IP\u2019s argument that in its August 1992 order the Commission erred in calculating the amortization of recoverable deferred charges for the period between March 31, 1989, through June 30, 1992, and understated the test year balance of deferred costs.\nOur review of this issue is hampered to some extent by the various appellees\u2019 uniform failure to track the issues presented by the appellant, IP. While we do not in any respect fault the quality of the briefing in this case or the professionalism of the attorneys\u2019 presentation in this court, it bears repeating that the parties may not expect an appellate court of general jurisdiction to come to these cases with the same or comparable expertise in ratemaking determinations as can be expected at the Commission level. (See United Cities Gas Co. v. Illinois Commerce Comm\u2019n (1992), 235 Ill. App. 3d 577, 594, 601 N.E.2d 1014 (Lund, J., dissenting).) For our benefit, it would be helpful if all parties would confine themselves to presenting arguments in direct response to the issues and, to the extent possible, track the issues as offered by the party-appellants.\nDespite the confusing manner with which the parties\u2019 arguments are presented in this case on review, we note that it is not disputed that the Commission failed to grant the utility\u2019s application for rehearing wherein IP took issue with the Commission\u2019s calculation of the test year balance of deferred costs. The Commission in this appeal suggests that its calculation of the deferred equity return corrected all errors to Account 186 and properly reflected appropriate amortization on a prospective basis. To adopt IP\u2019s position, the Commission asserts, would constitute retroactive ratemaking.\nFrom the record before us, we cannot determine whether the Commission incorrectly subtracted an amortization of deferred costs previously disallowed in the Commission\u2019s 1989 rate order even though such costs had not, in fact, been recovered by the utility. If a mere mathematical error resulted in a double reduction for the disallowed deferred charges, the mistake should be remedied. If, however, the calculation was designed to account for errors in Account 186 on a prospective basis, then what IP perceives as ministerial error was in fact an informed policy decision and should not be disturbed. Therefore, because this cause must be remanded for further proceedings to determine the extent of harm and we cannot determine on review that the Commission\u2019s calculation was not flawed as charged, we hold that the Commission should permit IP on remand to fully present its position so that if a miscalculation in fact was made it may be corrected.\nVI. CONCLUSION\nFor the reasons stated, we remand this cause to the Commission for further proceedings to determine the extent of financial harm, if any, suffered by IP during the regulatory lag period of April 24, 1987, to March 30, 1989, using actual financial data for said period and to verify its calculation of the test year balance of deferred costs upon consideration of IP\u2019s evidence of an alleged double deduction from recoverable deferred charges. In all other respects, we affirm the decision of the Commission.\nAffirmed in part; reversed in part and remanded.\nMcCUSKEY, P.J., and BRESLIN, J., concur.\nORDER UPON DENIAL OF REHEARING\nIllinois Power (IP) and the Commission both filed petitions for rehearing. Upon due consideration of the issues raised by the parties, it is the decision of this court that those petitions should be denied; however, we have modified our opinion to correct a misstatement in our discussion of the Commission\u2019s disallowances of deferred costs.\nIP points out that we erroneously stated in our original opinion that \u201cthe Commission determined that only 27.2% of Clinton was used and useful on April 21, 1977, Clinton\u2019s in-service date\u201d (italicized clause deleted in our modified opinion). In fact, as all parties agree, the Commission\u2019s used and useful determination made in its March 1989 rate order was derived from data projected for 1988,1989 and 1990.\nIP urges that, inasmuch as actual data presented to the Commission for the regulatory lag period established a higher used and useful percentage, it is being unfairly punished contrary to the dictates of BPI II by using the estimated used and useful figure. IP further argues that even if the Commission had determined the extent to which the Clinton plant would have been found used and useful based on hypothetical data projected as of April 24, 1987, that percentage would have been greater than 27.2%.\nIn our opinion, the Commission\u2019s use of the used and useful percentage derived for purposes of the rate order was not error. The used and useful percentage of the Clinton plant was fully litigated in connection with the rate case, and our review of the record before us does not disclose that the formula adopted by the Commission would have resulted in a greater percentage if a used and useful projection synchronized with the date Clinton went on-line had been calculated for the deferral period. Since IP has demonstrated no prejudice resulting from the use of the figure developed for the March 1989 rate order, we find no basis for reversing the Commission\u2019s order disallowing 72.8% of IP\u2019s deferred common equity financing costs.\nMoreover, inasmuch as BPI II does not allow the utility to recover more of its deferred common equity financing costs than it would have with a synchronized order, application of actual, historical data in this regard could not have benefitted IP.\nAccordingly, we have modified our opinion to correct the misstatement of fact, and we deny petitions for rehearing brought by both IP and the Commission.", "type": "majority", "author": "JUSTICE BARRY" } ], "attorneys": [ "Allan Horwich, James P. Gaughan, Jr., and Lisa C. Leib, all of Schiff, Hardin & Waite, of Chicago (Owen E. MacBride, of counsel), for Illinois Power Company.", "Nancy Shannon and Carol Brown, both of Office of Public Counsel, of Chicago, for Office of Public Counsel.", "Susan L. Satter, of Citizens Utility Board, of Chicago, for Citizens Utility Board.", "Roland W. Burris, Attorney General, of Springfield (David W. McGann and John P. Kelliher, Special Assistant Attorneys General, of Chicago, of counsel), for respondent Illinois Commerce Commission.", "Jed S. Freeman, of Lueders, Robertson & Konzen, of Granite City (Eric Robertson, of counsel), for respondent Illinois Industrial Energy Consumers.", "John P. Meyer, of Law Offices of John P. Meyer, of Danville, for respondent University of Illinois." ], "corrections": "", "head_matter": "ILLINOIS POWER COMPANY, Appellant, v. ILLINOIS COMMERCE COMMISSION et al., Appellees.-CITIZENS UTILITY BOARD et al., Appellants, v. ILLINOIS COMMERCE COMMISSION et al., Appellees.\nThird District\nNos. 3\u201492\u20140679, 3\u201492\u20140779 cons.\nOpinion filed September 10, 1993.\nModified on denial of rehearing January 13, 1994.\nAllan Horwich, James P. Gaughan, Jr., and Lisa C. Leib, all of Schiff, Hardin & Waite, of Chicago (Owen E. MacBride, of counsel), for Illinois Power Company.\nNancy Shannon and Carol Brown, both of Office of Public Counsel, of Chicago, for Office of Public Counsel.\nSusan L. Satter, of Citizens Utility Board, of Chicago, for Citizens Utility Board.\nRoland W. Burris, Attorney General, of Springfield (David W. McGann and John P. Kelliher, Special Assistant Attorneys General, of Chicago, of counsel), for respondent Illinois Commerce Commission.\nJed S. Freeman, of Lueders, Robertson & Konzen, of Granite City (Eric Robertson, of counsel), for respondent Illinois Industrial Energy Consumers.\nJohn P. Meyer, of Law Offices of John P. Meyer, of Danville, for respondent University of Illinois." }, "file_name": "0293-01", "first_page_order": 311, "last_page_order": 329 }