{ "attribution": { "source": "legal.exploreworldai.com", "canonical": "https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:illappct-3-24-0021-2026-09-30", "cite_as": "NovaCopilot, legal.exploreworldai.com (https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:illappct-3-24-0021-2026-09-30)", "license": "https://legal.exploreworldai.com/revision", "version": "legal-2026-10-16", "fingerprint": "ewai:us:20376f", "proof": "sha256:4695ef6ae8061c9bd5deceb4f31aea076891f39f5942ba625c1b03b57ed94222", "jurisdiction": "us", "lang": "en", "publisher": "NovaCopilot by ExploreWorld Legal", "terms": "https://legal.exploreworldai.com/om" }, "brand_source": "Source: NovaCopilot", "item": { "schema_version": "1.0.0", "id": "us:illappct-3-24-0021-2026-09-30", "jurisdiction": "us", "lang": "en", "brand_source": "Source: NovaCopilot", "brand": { "product": "NovaCopilot", "platform": "ExploreWorldAI", "infrastructure": "ExploreWorld Legal", "infrastructure_url": "legal.exploreworldai.com", "legal_entity": "Valkiv Ventures AB", "permanent_url": "https://legal.exploreworldai.com/novacopilot", "source": "Source: NovaCopilot", "powered_by": "Powered by NovaCopilot", "license": "https://legal.exploreworldai.com/licensvillkor" }, "sections": [ { "title": "2026 IL App (3d) 240021", "paragraphs": [] }, { "title": "Nos. 3-24-0021, 3-24-0022, 3-24-0284, 3-25-0027 (cons.)", "paragraphs": [] }, { "title": "Opinion filed September 30, 2026", "paragraphs": [ "para_4" ] }, { "title": "IN THE", "paragraphs": [] }, { "title": "APPELLATE COURT OF ILLINOIS", "paragraphs": [] }, { "title": "THIRD DISTRICT", "paragraphs": [] }, { "title": "2026", "paragraphs": [] }, { "title": "INTERNATIONAL BROTHERHOOD OF )", "paragraphs": [] }, { "title": "ELECTRICAL WORKERS, AFL-CIO, )", "paragraphs": [] }, { "title": "LOCAL UNION 15 and COMMONWEALTH )", "paragraphs": [] }, { "title": "EDISON COMPANY, )", "paragraphs": [ "para_13" ] }, { "title": "Petitioners-Appellants, )", "paragraphs": [ "para_15", "para_16", "para_17" ] }, { "title": "THE ILLINOIS COMMERCE COMMISSION; )", "paragraphs": [] }, { "title": "CONSTELLATION )", "paragraphs": [] }, { "title": "ENERGY GENERATION, LLC; )", "paragraphs": [ "para_21" ] }, { "title": "POLICY CENTER, )", "paragraphs": [ "para_23" ] }, { "title": "Respondents-Appellees. )", "paragraphs": [ "para_25" ] }, { "title": "Petition for Review of Orders of the", "paragraphs": [ "para_27" ] }, { "title": "Appeal No. 3-24-0021", "paragraphs": [ "para_29" ] }, { "title": "24-0181", "paragraphs": [ "para_31", "para_32", "para_33", "para_34" ] }, { "title": "OPINION", "paragraphs": [ "para_36" ] }, { "title": "Workers, AFL-CIO, Local Union 15 (IBEW Local 15) and Commonwealth Edison Company", "paragraphs": [] }, { "title": "(ComEd), appeal from multiple orders issued by the Illinois Commerce Commission", "paragraphs": [ "para_39" ] }, { "title": "2", "paragraphs": [ "para_41", "para_42", "para_43", "para_44", "para_45", "para_46", "para_47", "para_48", "para_49", "para_50", "para_51", "para_52", "para_53" ] }, { "title": "Exelon Business Services Company (Exelon), and has collective bargaining agreements with", "paragraphs": [ "para_55", "para_56", "para_57", "para_58", "para_59", "para_60", "para_61", "para_62", "para_63" ] }, { "title": "3", "paragraphs": [ "para_65", "para_66", "para_67", "para_68", "para_69", "para_70", "para_71" ] }, { "title": "ILCS 5/16-108.5(b)(1), (c) (West 2022). However, in September 2021, the General Assembly", "paragraphs": [ "para_73", "para_74", "para_75", "para_76" ] }, { "title": "Commerce Comm’n, 2025 IL App (2d) 230020, ¶ 3. The Climate and Equitable Jobs Act amended", "paragraphs": [ "para_78", "para_79", "para_80", "para_81", "para_82", "para_83", "para_84", "para_85", "para_86", "para_87", "para_88", "para_89" ] }, { "title": "4", "paragraphs": [ "para_91", "para_92", "para_93", "para_94" ] }, { "title": "Commission approves must do the following, in pertinent part:", "paragraphs": [ "para_96", "para_97", "para_98", "para_99", "para_100", "para_101", "para_102", "para_103", "para_104" ] }, { "title": "(B) The cost of equity shall be approved by the Commission consistent with", "paragraphs": [ "para_106" ] }, { "title": "(C) The revenue requirement shall reflect the utility’s actual capital structure for", "paragraphs": [ "para_108", "para_109", "para_110", "para_111" ] }, { "title": "5", "paragraphs": [ "para_113", "para_114", "para_115", "para_116", "para_117", "para_118", "para_119", "para_120" ] }, { "title": "January 2024 through December 2027. ComEd and Staff of the Commission (Staff) participated", "paragraphs": [ "para_122", "para_123" ] }, { "title": "Industrial Energy Consumers, the Citizens Utility Board, the Community Development", "paragraphs": [ "para_125", "para_126", "para_127", "para_128", "para_129", "para_130", "para_131", "para_132", "para_133", "para_134" ] }, { "title": "6", "paragraphs": [ "para_136", "para_137", "para_138", "para_139", "para_140" ] }, { "title": "Commission concluded the rehearing sought by ComEd. On April 18, 2024, the Commission", "paragraphs": [ "para_142", "para_143", "para_144", "para_145", "para_146", "para_147", "para_148", "para_149", "para_150", "para_151", "para_152", "para_153", "para_154", "para_155", "para_156" ] }, { "title": "F.3d 177, 179 (D.C. Cir. 2013). A utility’s return on equity is the annual amount that its", "paragraphs": [ "para_158" ] }, { "title": "7", "paragraphs": [ "para_160", "para_161", "para_162", "para_163", "para_164", "para_165", "para_166", "para_167", "para_168", "para_169", "para_170", "para_171", "para_172", "para_173", "para_174", "para_175", "para_176", "para_177", "para_178", "para_179" ] }, { "title": "8", "paragraphs": [ "para_181", "para_182", "para_183", "para_184", "para_185", "para_186", "para_187" ] }, { "title": "909, 922 (Bankr. N.D. Ill. 1989). Accordingly, experts use the CAPM to measure a company’s", "paragraphs": [ "para_189", "para_190", "para_191", "para_192", "para_193", "para_194", "para_195", "para_196", "para_197", "para_198", "para_199", "para_200", "para_201" ] }, { "title": "Where: R(f) = risk-free rate of return", "paragraphs": [] }, { "title": "9", "paragraphs": [] }, { "title": "Beta = beta coefficient of the [company’s] stock, which measures the volatility of", "paragraphs": [ "para_205" ] }, { "title": "R(m) = expected rate of return on a market portfolio comprised of a large number", "paragraphs": [ "para_207", "para_208", "para_209", "para_210", "para_211", "para_212", "para_213", "para_214", "para_215", "para_216", "para_217", "para_218", "para_219", "para_220" ] }, { "title": "Energy Regulatory Comm’n, 926 F.2d 1206, 1208 n.2 (D.C. Cir. 1991). Accordingly, under the", "paragraphs": [ "para_222", "para_223", "para_224", "para_225", "para_226" ] }, { "title": "10", "paragraphs": [ "para_228" ] }, { "title": "York v. Federal Energy Regulatory Comm’n, 813 F.2d 448, 463 (D.C. Cir. 1987); Arkansas", "paragraphs": [ "para_230", "para_231", "para_232", "para_233", "para_234" ] }, { "title": "(ECAPM), and the risk premium model (RPM), to estimate ComEd’s return on equity. Graves", "paragraphs": [ "para_236", "para_237", "para_238", "para_239", "para_240", "para_241", "para_242", "para_243", "para_244", "para_245", "para_246", "para_247", "para_248", "para_249", "para_250" ] }, { "title": "11", "paragraphs": [ "para_252", "para_253", "para_254", "para_255", "para_256", "para_257", "para_258", "para_259", "para_260", "para_261", "para_262", "para_263", "para_264", "para_265", "para_266", "para_267", "para_268", "para_269", "para_270", "para_271", "para_272", "para_273" ] }, { "title": "12", "paragraphs": [ "para_275", "para_276", "para_277", "para_278", "para_279", "para_280", "para_281", "para_282", "para_283", "para_284", "para_285", "para_286", "para_287", "para_288", "para_289", "para_290", "para_291", "para_292", "para_293", "para_294", "para_295", "para_296", "para_297" ] }, { "title": "13", "paragraphs": [] }, { "title": "DCF model and the CAPM to calculate ComEd’s return on equity. Regarding his use of the DCF", "paragraphs": [ "para_300", "para_301", "para_302", "para_303", "para_304", "para_305", "para_306" ] }, { "title": "Gorman explained that the current beta for the proxy group was 0.89, which was “abnormally", "paragraphs": [ "para_308", "para_309", "para_310", "para_311", "para_312", "para_313", "para_314", "para_315", "para_316", "para_317", "para_318", "para_319", "para_320" ] }, { "title": "14", "paragraphs": [ "para_322", "para_323", "para_324", "para_325", "para_326", "para_327" ] }, { "title": "(5) ICCP at 9.4%.”", "paragraphs": [ "para_329", "para_330", "para_331", "para_332", "para_333", "para_334", "para_335", "para_336", "para_337", "para_338", "para_339", "para_340", "para_341", "para_342", "para_343", "para_344" ] }, { "title": "15", "paragraphs": [ "para_346", "para_347", "para_348", "para_349", "para_350", "para_351", "para_352", "para_353", "para_354", "para_355", "para_356", "para_357", "para_358", "para_359", "para_360" ] }, { "title": "Commission to use. The Commission also rejected the Attorney General’s and Walmart’s", "paragraphs": [ "para_362", "para_363", "para_364", "para_365", "para_366", "para_367", "para_368" ] }, { "title": "16", "paragraphs": [ "para_370", "para_371", "para_372", "para_373", "para_374", "para_375", "para_376", "para_377", "para_378", "para_379", "para_380", "para_381", "para_382", "para_383", "para_384", "para_385", "para_386", "para_387", "para_388", "para_389", "para_390", "para_391", "para_392" ] }, { "title": "17", "paragraphs": [ "para_394" ] }, { "title": "Moreover, as earlier noted in this [o]rder, a review of the evidence and the arguments of", "paragraphs": [ "para_396", "para_397", "para_398", "para_399" ] }, { "title": "ComEd’s CAPM cost of equity estimate,” which, the Commission explained, would “address the", "paragraphs": [ "para_401", "para_402", "para_403", "para_404", "para_405", "para_406", "para_407", "para_408", "para_409", "para_410", "para_411", "para_412", "para_413", "para_414" ] }, { "title": "ComEd less risk than traditional ratemaking or the [formula ratemaking]. Under [a rate", "paragraphs": [ "para_416" ] }, { "title": "18", "paragraphs": [ "para_418", "para_419", "para_420", "para_421", "para_422", "para_423", "para_424", "para_425", "para_426", "para_427", "para_428", "para_429", "para_430", "para_431", "para_432", "para_433", "para_434", "para_435", "para_436", "para_437", "para_438", "para_439" ] }, { "title": "19", "paragraphs": [ "para_441", "para_442", "para_443", "para_444", "para_445", "para_446", "para_447", "para_448", "para_449", "para_450", "para_451", "para_452", "para_453", "para_454", "para_455", "para_456", "para_457", "para_458", "para_459", "para_460", "para_461", "para_462", "para_463" ] }, { "title": "20", "paragraphs": [ "para_465", "para_466", "para_467", "para_468", "para_469", "para_470", "para_471", "para_472", "para_473", "para_474", "para_475", "para_476", "para_477", "para_478", "para_479", "para_480", "para_481", "para_482", "para_483", "para_484", "para_485", "para_486", "para_487" ] }, { "title": "21", "paragraphs": [ "para_489", "para_490", "para_491", "para_492" ] }, { "title": "ComEd’s pension contributions were “funded through cash generated through ComEd’s internal", "paragraphs": [ "para_494", "para_495", "para_496", "para_497", "para_498", "para_499", "para_500", "para_501", "para_502", "para_503", "para_504", "para_505", "para_506", "para_507", "para_508", "para_509", "para_510", "para_511" ] }, { "title": "22", "paragraphs": [ "para_513", "para_514", "para_515", "para_516", "para_517", "para_518", "para_519", "para_520" ] }, { "title": "Comm. Comm’n No. 05-0597 (Order-Order on Rehearing Dec. 20, 2006), in asserting that the", "paragraphs": [ "para_522", "para_523", "para_524", "para_525", "para_526", "para_527", "para_528", "para_529", "para_530" ] }, { "title": "0467 (Order-Final May 24, 2011), a decision in ComEd’s 2010 rate case, the Commission had", "paragraphs": [ "para_532", "para_533", "para_534", "para_535" ] }, { "title": "23", "paragraphs": [ "para_537", "para_538", "para_539", "para_540", "para_541", "para_542", "para_543", "para_544", "para_545", "para_546", "para_547", "para_548", "para_549", "para_550", "para_551", "para_552", "para_553", "para_554", "para_555", "para_556", "para_557", "para_558" ] }, { "title": "24", "paragraphs": [ "para_560", "para_561", "para_562", "para_563", "para_564" ] }, { "title": "Comm’n No. 05-0597, and Commonwealth Edison Co., Ill. Comm. Comm’n No. 10-0467. The", "paragraphs": [ "para_566", "para_567", "para_568", "para_569", "para_570", "para_571", "para_572", "para_573", "para_574", "para_575", "para_576", "para_577", "para_578", "para_579", "para_580", "para_581", "para_582" ] }, { "title": "25", "paragraphs": [ "para_584", "para_585", "para_586", "para_587", "para_588", "para_589", "para_590", "para_591", "para_592", "para_593", "para_594", "para_595", "para_596", "para_597", "para_598", "para_599", "para_600", "para_601", "para_602", "para_603", "para_604", "para_605" ] }, { "title": "26", "paragraphs": [ "para_607", "para_608", "para_609", "para_610", "para_611", "para_612", "para_613", "para_614", "para_615", "para_616", "para_617", "para_618", "para_619", "para_620", "para_621", "para_622", "para_623", "para_624", "para_625", "para_626", "para_627", "para_628" ] }, { "title": "27", "paragraphs": [ "para_630", "para_631" ] }, { "title": "(“Moody’s”) and Standard & Poor’s (“S&P”) have been upgraded several times since the", "paragraphs": [ "para_633", "para_634", "para_635", "para_636" ] }, { "title": "Both Moody’s and S&P view [formula ratemaking] positively, as shown by the", "paragraphs": [ "para_638", "para_639" ] }, { "title": "Similarly, in upgrading its assessment of ComEd’s business risk profile from strong to", "paragraphs": [ "para_641", "para_642", "para_643", "para_644", "para_645" ] }, { "title": "Both Moody’s and S&P agree that the [rate plan] will further enhance ComEd’s", "paragraphs": [ "para_647", "para_648", "para_649", "para_650", "para_651" ] }, { "title": "28", "paragraphs": [ "para_653", "para_654", "para_655", "para_656", "para_657", "para_658", "para_659", "para_660", "para_661", "para_662", "para_663", "para_664", "para_665" ] }, { "title": "ComEd’s capital structure carries an excessive amount of equity, it benefits Exelon, its", "paragraphs": [ "para_667", "para_668", "para_669", "para_670", "para_671", "para_672", "para_673", "para_674", "para_675" ] }, { "title": "29", "paragraphs": [ "para_677", "para_678", "para_679", "para_680", "para_681", "para_682", "para_683", "para_684", "para_685", "para_686", "para_687", "para_688", "para_689", "para_690", "para_691", "para_692", "para_693", "para_694", "para_695", "para_696", "para_697", "para_698" ] }, { "title": "30", "paragraphs": [ "para_700", "para_701", "para_702", "para_703", "para_704", "para_705", "para_706", "para_707", "para_708", "para_709", "para_710", "para_711", "para_712", "para_713", "para_714", "para_715" ] }, { "title": "Moreover, the Commission is “not bound to the use of any single formula or combination of", "paragraphs": [ "para_717", "para_718", "para_719", "para_720", "para_721", "para_722" ] }, { "title": "31", "paragraphs": [ "para_724", "para_725", "para_726", "para_727", "para_728", "para_729", "para_730" ] }, { "title": "Power Co. v. Illinois Commerce Comm’n, 245 Ill. App. 3d 367, 371 (1993)). “[T]he prudence", "paragraphs": [ "para_732", "para_733", "para_734", "para_735", "para_736", "para_737", "para_738", "para_739", "para_740", "para_741", "para_742", "para_743", "para_744", "para_745" ] }, { "title": "32", "paragraphs": [ "para_747", "para_748", "para_749", "para_750" ] }, { "title": "Commission made adequate findings in support of its decision, (3) whether the Commission’s", "paragraphs": [ "para_752", "para_753", "para_754", "para_755", "para_756", "para_757", "para_758", "para_759", "para_760", "para_761", "para_762", "para_763", "para_764", "para_765", "para_766", "para_767", "para_768", "para_769" ] }, { "title": "33", "paragraphs": [ "para_771", "para_772" ] }, { "title": "Madigan v. Illinois Commerce Comm’n, 2011 IL App (1st) 101776, ¶ 6. The reason for this", "paragraphs": [ "para_774", "para_775", "para_776", "para_777", "para_778", "para_779", "para_780", "para_781", "para_782", "para_783", "para_784", "para_785", "para_786", "para_787", "para_788", "para_789", "para_790", "para_791", "para_792", "para_793" ] }, { "title": "34", "paragraphs": [ "para_795", "para_796", "para_797" ] }, { "title": "NCDCF and constant-growth DCF models, and no witness had testified that “it was", "paragraphs": [ "para_799", "para_800", "para_801", "para_802", "para_803", "para_804", "para_805", "para_806" ] }, { "title": "Commerce Comm’n, 2025 IL App (5th) 240014, ¶ 105. As we earlier noted, section 9-201(c) of", "paragraphs": [ "para_808", "para_809", "para_810", "para_811", "para_812", "para_813", "para_814", "para_815", "para_816", "para_817" ] }, { "title": "35", "paragraphs": [ "para_819", "para_820", "para_821", "para_822", "para_823", "para_824", "para_825", "para_826", "para_827", "para_828", "para_829", "para_830", "para_831", "para_832", "para_833", "para_834", "para_835", "para_836", "para_837", "para_838", "para_839", "para_840", "para_841" ] }, { "title": "36", "paragraphs": [ "para_843", "para_844", "para_845", "para_846", "para_847", "para_848" ] }, { "title": "Commission cut down the values for the years after the date certain upon the strength of", "paragraphs": [ "para_850", "para_851", "para_852", "para_853", "para_854", "para_855", "para_856", "para_857", "para_858", "para_859", "para_860", "para_861", "para_862", "para_863", "para_864" ] }, { "title": "37", "paragraphs": [ "para_866", "para_867", "para_868", "para_869", "para_870", "para_871", "para_872", "para_873", "para_874", "para_875", "para_876", "para_877", "para_878", "para_879", "para_880", "para_881", "para_882", "para_883" ] }, { "title": "Ameren, Ameren Illinois Company (AIC) initiated rate proceedings before the Commission in", "paragraphs": [ "para_885", "para_886", "para_887", "para_888" ] }, { "title": "38", "paragraphs": [ "para_890", "para_891", "para_892", "para_893", "para_894", "para_895", "para_896", "para_897", "para_898" ] }, { "title": "CAPM analyses, AIC’s reliance on the bond yield plus risk premium, ECAPM models not", "paragraphs": [ "para_900", "para_901", "para_902", "para_903", "para_904", "para_905", "para_906", "para_907", "para_908", "para_909", "para_910", "para_911", "para_912" ] }, { "title": "39", "paragraphs": [ "para_914", "para_915", "para_916", "para_917", "para_918", "para_919", "para_920" ] }, { "title": "DCF analysis on each dividend paying company of the S&P 500 index, excluding those", "paragraphs": [ "para_922", "para_923", "para_924", "para_925", "para_926", "para_927", "para_928", "para_929", "para_930", "para_931", "para_932", "para_933" ] }, { "title": "CAPM and then found that “AIC’s ECAPM analysis was flawed because it used adjusted betas", "paragraphs": [ "para_935", "para_936" ] }, { "title": "40", "paragraphs": [ "para_938", "para_939", "para_940", "para_941", "para_942" ] }, { "title": "Commission also expressed “displease[ure] with the [NCDCF] models produced by IFCUP and", "paragraphs": [ "para_944", "para_945", "para_946", "para_947", "para_948", "para_949", "para_950", "para_951", "para_952", "para_953", "para_954", "para_955", "para_956", "para_957", "para_958", "para_959", "para_960" ] }, { "title": "41", "paragraphs": [ "para_962", "para_963", "para_964", "para_965", "para_966", "para_967", "para_968", "para_969", "para_970", "para_971", "para_972", "para_973", "para_974", "para_975", "para_976", "para_977", "para_978", "para_979", "para_980", "para_981", "para_982", "para_983", "para_984" ] }, { "title": "42", "paragraphs": [ "para_986" ] }, { "title": "However, the Commission was equally dismissive of most of IFCUP’s analysis, some of", "paragraphs": [ "para_988", "para_989", "para_990", "para_991", "para_992", "para_993", "para_994", "para_995", "para_996", "para_997" ] }, { "title": "CAPM models. Notably, the Commission was concerned with the inexplicably low DCF", "paragraphs": [] }, { "title": "(nonconstant growth model) values obtained by Staff and IFCUP and refused to consider", "paragraphs": [ "para_1000", "para_1001" ] }, { "title": "Staff originally averaged its DCF (9.40%) and NCDCF (8.23[%]) values to reach its DCF", "paragraphs": [ "para_1003", "para_1004", "para_1005", "para_1006", "para_1007", "para_1008" ] }, { "title": "43", "paragraphs": [ "para_1010", "para_1011", "para_1012", "para_1013", "para_1014", "para_1015", "para_1016", "para_1017", "para_1018", "para_1019", "para_1020", "para_1021", "para_1022", "para_1023", "para_1024", "para_1025", "para_1026", "para_1027", "para_1028", "para_1029", "para_1030", "para_1031", "para_1032" ] }, { "title": "44", "paragraphs": [ "para_1034", "para_1035", "para_1036", "para_1037", "para_1038", "para_1039", "para_1040", "para_1041", "para_1042", "para_1043", "para_1044", "para_1045", "para_1046", "para_1047", "para_1048", "para_1049", "para_1050", "para_1051", "para_1052", "para_1053", "para_1054", "para_1055", "para_1056" ] }, { "title": "45", "paragraphs": [ "para_1058", "para_1059", "para_1060", "para_1061", "para_1062", "para_1063", "para_1064", "para_1065", "para_1066", "para_1067", "para_1068", "para_1069", "para_1070", "para_1071", "para_1072", "para_1073", "para_1074", "para_1075", "para_1076", "para_1077", "para_1078", "para_1079" ] }, { "title": "46", "paragraphs": [ "para_1081", "para_1082", "para_1083" ] }, { "title": "ComEd less risk than traditional ratemaking or the [formula ratemaking]. Under [a rate", "paragraphs": [ "para_1085", "para_1086", "para_1087", "para_1088", "para_1089", "para_1090", "para_1091", "para_1092", "para_1093", "para_1094", "para_1095", "para_1096", "para_1097", "para_1098", "para_1099" ] }, { "title": "Ameren, we further find that the Commission’s ultimate determination was supported by the", "paragraphs": [ "para_1101", "para_1102", "para_1103" ] }, { "title": "47", "paragraphs": [ "para_1105", "para_1106", "para_1107", "para_1108", "para_1109", "para_1110", "para_1111", "para_1112", "para_1113", "para_1114", "para_1115", "para_1116", "para_1117", "para_1118", "para_1119", "para_1120", "para_1121", "para_1122", "para_1123", "para_1124", "para_1125", "para_1126", "para_1127" ] }, { "title": "48", "paragraphs": [ "para_1129", "para_1130", "para_1131", "para_1132", "para_1133", "para_1134", "para_1135", "para_1136", "para_1137", "para_1138", "para_1139", "para_1140", "para_1141", "para_1142", "para_1143", "para_1144", "para_1145", "para_1146", "para_1147", "para_1148", "para_1149", "para_1150", "para_1151" ] }, { "title": "49", "paragraphs": [ "para_1153", "para_1154", "para_1155", "para_1156", "para_1157", "para_1158", "para_1159", "para_1160", "para_1161", "para_1162", "para_1163", "para_1164", "para_1165", "para_1166", "para_1167", "para_1168", "para_1169", "para_1170", "para_1171", "para_1172", "para_1173", "para_1174", "para_1175" ] }, { "title": "50", "paragraphs": [ "para_1177", "para_1178", "para_1179", "para_1180", "para_1181", "para_1182", "para_1183", "para_1184", "para_1185", "para_1186", "para_1187" ] }, { "title": "ADIT” and rejected the Attorney General’s alternate recommendation to add $27 million to", "paragraphs": [ "para_1189", "para_1190", "para_1191", "para_1192", "para_1193", "para_1194", "para_1195", "para_1196", "para_1197", "para_1198" ] }, { "title": "51", "paragraphs": [ "para_1200", "para_1201", "para_1202", "para_1203", "para_1204", "para_1205", "para_1206", "para_1207", "para_1208", "para_1209", "para_1210" ] }, { "title": "ComEd’s pension plan with an equity contribution expending a rate of return. The", "paragraphs": [ "para_1212", "para_1213", "para_1214", "para_1215", "para_1216" ] }, { "title": "Comm’n No. 07-0566, at 5-10 (Order-Final Appendix Sept. 10, 2008). No witness in the", "paragraphs": [ "para_1218" ] }, { "title": "See generally Commonwealth Edison Co., Ill. Comm. Comm’n No. 07-0566, at 5-10 (Order-Final", "paragraphs": [ "para_1220", "para_1221" ] }, { "title": "52", "paragraphs": [ "para_1223", "para_1224", "para_1225", "para_1226" ] }, { "title": "Exelon pension plan. Commonwealth Edison Co., Ill. Comm. Comm’n No. 10-0467, at 95. Staff", "paragraphs": [ "para_1228", "para_1229", "para_1230", "para_1231" ] }, { "title": "Id. Staff further stated that, when the Commission had first awarded ComEd’s $25 million", "paragraphs": [ "para_1233", "para_1234", "para_1235", "para_1236", "para_1237", "para_1238", "para_1239", "para_1240", "para_1241", "para_1242", "para_1243", "para_1244", "para_1245" ] }, { "title": "53", "paragraphs": [ "para_1247", "para_1248", "para_1249", "para_1250", "para_1251", "para_1252", "para_1253", "para_1254", "para_1255", "para_1256", "para_1257", "para_1258", "para_1259", "para_1260", "para_1261", "para_1262", "para_1263", "para_1264", "para_1265", "para_1266", "para_1267", "para_1268", "para_1269" ] }, { "title": "54", "paragraphs": [ "para_1271", "para_1272", "para_1273", "para_1274", "para_1275", "para_1276", "para_1277", "para_1278", "para_1279", "para_1280", "para_1281", "para_1282", "para_1283", "para_1284", "para_1285", "para_1286", "para_1287", "para_1288", "para_1289", "para_1290", "para_1291", "para_1292" ] }, { "title": "55", "paragraphs": [ "para_1294", "para_1295", "para_1296", "para_1297", "para_1298", "para_1299", "para_1300", "para_1301", "para_1302", "para_1303", "para_1304", "para_1305", "para_1306", "para_1307", "para_1308", "para_1309", "para_1310", "para_1311", "para_1312", "para_1313", "para_1314", "para_1315" ] }, { "title": "56", "paragraphs": [ "para_1317", "para_1318", "para_1319", "para_1320", "para_1321", "para_1322", "para_1323", "para_1324", "para_1325", "para_1326", "para_1327", "para_1328", "para_1329", "para_1330", "para_1331", "para_1332", "para_1333", "para_1334", "para_1335", "para_1336", "para_1337", "para_1338", "para_1339" ] }, { "title": "57", "paragraphs": [ "para_1341", "para_1342", "para_1343", "para_1344", "para_1345", "para_1346", "para_1347", "para_1348", "para_1349", "para_1350", "para_1351", "para_1352", "para_1353", "para_1354", "para_1355", "para_1356", "para_1357", "para_1358", "para_1359", "para_1360", "para_1361" ] }, { "title": "Comm. Comm’n No. 21-0098 (Order-Final Nov. 18, 2021). There, Northern Illinois Gas Company", "paragraphs": [ "para_1363" ] }, { "title": "58", "paragraphs": [ "para_1365", "para_1366", "para_1367", "para_1368", "para_1369", "para_1370", "para_1371", "para_1372", "para_1373", "para_1374", "para_1375", "para_1376", "para_1377", "para_1378", "para_1379", "para_1380", "para_1381", "para_1382", "para_1383", "para_1384", "para_1385", "para_1386", "para_1387" ] }, { "title": "59", "paragraphs": [] }, { "title": "Commission actually made this acknowledgement, our review of the relevant decisions in", "paragraphs": [] }, { "title": "ComEd’s traditional article IX rate cases shows that the Commission has never expressly", "paragraphs": [ "para_1391", "para_1392", "para_1393", "para_1394", "para_1395", "para_1396", "para_1397", "para_1398", "para_1399", "para_1400", "para_1401", "para_1402", "para_1403", "para_1404", "para_1405", "para_1406", "para_1407", "para_1408" ] }, { "title": "IL App (5th) 240164, ¶ 140 (“The $100 million payment [into Ameren’s other post-employment", "paragraphs": [ "para_1410", "para_1411" ] }, { "title": "60", "paragraphs": [ "para_1413", "para_1414", "para_1415", "para_1416", "para_1417", "para_1418", "para_1419", "para_1420", "para_1421", "para_1422", "para_1423", "para_1424", "para_1425", "para_1426", "para_1427", "para_1428", "para_1429", "para_1430", "para_1431", "para_1432", "para_1433", "para_1434" ] }, { "title": "146 Ill. 2d at 208 (“The Commission is charged *** with setting rates which are ‘just and", "paragraphs": [] }, { "title": "61", "paragraphs": [ "para_1437", "para_1438", "para_1439", "para_1440", "para_1441", "para_1442", "para_1443", "para_1444", "para_1445", "para_1446", "para_1447", "para_1448", "para_1449", "para_1450", "para_1451", "para_1452", "para_1453", "para_1454", "para_1455", "para_1456", "para_1457", "para_1458", "para_1459" ] }, { "title": "62", "paragraphs": [ "para_1461", "para_1462", "para_1463", "para_1464", "para_1465", "para_1466", "para_1467", "para_1468", "para_1469", "para_1470", "para_1471", "para_1472", "para_1473", "para_1474", "para_1475", "para_1476", "para_1477" ] }, { "title": "50% would not diminish the company’s financial strength “ignore[d] critical evidence” that", "paragraphs": [ "para_1479", "para_1480", "para_1481" ] }, { "title": "Finally, ComEd argues that the Commission’s finding that the company’s common equity ratio", "paragraphs": [ "para_1483" ] }, { "title": "63", "paragraphs": [ "para_1485", "para_1486", "para_1487", "para_1488", "para_1489", "para_1490", "para_1491", "para_1492", "para_1493", "para_1494", "para_1495", "para_1496", "para_1497", "para_1498", "para_1499", "para_1500", "para_1501", "para_1502", "para_1503", "para_1504", "para_1505", "para_1506" ] }, { "title": "64", "paragraphs": [ "para_1508", "para_1509", "para_1510", "para_1511", "para_1512", "para_1513", "para_1514", "para_1515", "para_1516", "para_1517", "para_1518", "para_1519", "para_1520", "para_1521", "para_1522", "para_1523", "para_1524", "para_1525", "para_1526", "para_1527" ] }, { "title": "65", "paragraphs": [] }, { "title": "International Brotherhood of Electrical Workers, Local Union 15 v. Illinois Commerce", "paragraphs": [] }, { "title": "Comm’n, 2026 IL App (3d) 240021", "paragraphs": [] }, { "title": "Decision Under Review: Petition for Review of orders of the Illinois Commerce", "paragraphs": [ "para_1532" ] }, { "title": "Attorneys", "paragraphs": [ "para_1534" ] }, { "title": "Appellant:", "paragraphs": [ "para_1536" ] }, { "title": "Missouri, for appellant International Brotherhood of Electrical", "paragraphs": [ "para_1538", "para_1539" ] }, { "title": "E. Glenn Rippie, Kristin Munsch, and Monique Woody, of", "paragraphs": [ "para_1541" ] }, { "title": "Marjorie R. Kennedy, and Simon A. de Carvalho, of Jenner &", "paragraphs": [] }, { "title": "Block LLP, all of Chicago, for appellant Commonwealth Edison", "paragraphs": [ "para_1544" ] }, { "title": "Attorneys", "paragraphs": [ "para_1546" ] }, { "title": "Appellee:", "paragraphs": [ "para_1548" ] }, { "title": "Special Assistant Attorneys General, of Chicago, for appellee", "paragraphs": [ "para_1550" ] }, { "title": "Nicholas Wallace, Bradley Klein, and Robert Kelter, of", "paragraphs": [] }, { "title": "Environmental Law & Policy Center, of Chicago, for appellee", "paragraphs": [ "para_1553" ] } ], "paragraphs": [ { "text": "2026 IL App (3d) 240021", "paragraph_id": "para_1" }, { "text": "Nos. 3-24-0021, 3-24-0022, 3-24-0284, 3-25-0027 (cons.)", "paragraph_id": "para_2" }, { "text": "Opinion filed September 30, 2026", "paragraph_id": "para_3" }, { "text": "____________________________________________________________________________", "paragraph_id": "para_4" }, { "text": "IN THE", "paragraph_id": "para_5" }, { "text": "APPELLATE COURT OF ILLINOIS", "paragraph_id": "para_6" }, { "text": "THIRD DISTRICT", "paragraph_id": "para_7" }, { "text": "2026", "paragraph_id": "para_8" }, { "text": "INTERNATIONAL BROTHERHOOD OF )", "paragraph_id": "para_9" }, { "text": "ELECTRICAL WORKERS, AFL-CIO, )", "paragraph_id": "para_10" }, { "text": "LOCAL UNION 15 and COMMONWEALTH )", "paragraph_id": "para_11" }, { "text": "EDISON COMPANY, )", "paragraph_id": "para_12" }, { "text": ")", "paragraph_id": "para_13" }, { "text": "Petitioners-Appellants, )", "paragraph_id": "para_14" }, { "text": ")", "paragraph_id": "para_15" }, { "text": "v. )", "paragraph_id": "para_16" }, { "text": ")", "paragraph_id": "para_17" }, { "text": "THE ILLINOIS COMMERCE COMMISSION; )", "paragraph_id": "para_18" }, { "text": "CONSTELLATION )", "paragraph_id": "para_19" }, { "text": "ENERGY GENERATION, LLC; )", "paragraph_id": "para_20" }, { "text": "and ENVIRONMENTAL LAW & )", "paragraph_id": "para_21" }, { "text": "POLICY CENTER, )", "paragraph_id": "para_22" }, { "text": ")", "paragraph_id": "para_23" }, { "text": "Respondents-Appellees. )", "paragraph_id": "para_24" }, { "text": ")", "paragraph_id": "para_25" }, { "text": "Petition for Review of Orders of the", "paragraph_id": "para_26" }, { "text": "Illinois Commerce Commission.", "paragraph_id": "para_27" }, { "text": "Appeal No. 3-24-0021", "paragraph_id": "para_28" }, { "text": "ICC Docket # 22-0486, 23-0055,", "paragraph_id": "para_29" }, { "text": "24-0181", "paragraph_id": "para_30" }, { "text": "____________________________________________________________________________", "paragraph_id": "para_31" }, { "text": "PRESIDING JUSTICE HETTEL delivered the judgment of the court, with opinion.", "paragraph_id": "para_32" }, { "text": "Justices Brennan and Peterson concurred in the judgment and opinion.", "paragraph_id": "para_33" }, { "text": "____________________________________________________________________________", "paragraph_id": "para_34" }, { "text": "OPINION", "paragraph_id": "para_35" }, { "text": "¶ 1 In these consolidated proceedings, petitioners, International Brotherhood of Electrical", "paragraph_id": "para_36" }, { "text": "Workers, AFL-CIO, Local Union 15 (IBEW Local 15) and Commonwealth Edison Company", "paragraph_id": "para_37" }, { "text": "(ComEd), appeal from multiple orders issued by the Illinois Commerce Commission", "paragraph_id": "para_38" }, { "text": "(Commission) in ComEd’s rate case. In the orders, the Commission set ComEd’s return on equity,", "paragraph_id": "para_39" }, { "text": "2", "paragraph_id": "para_40" }, { "text": "denied ComEd a recovery on its pension asset, and imputed a capital structure. For the following", "paragraph_id": "para_41" }, { "text": "reasons, we affirm.", "paragraph_id": "para_42" }, { "text": "¶ 2 I. BACKGROUND", "paragraph_id": "para_43" }, { "text": "¶ 3 A. General Background", "paragraph_id": "para_44" }, { "text": "¶ 4 1. The Parties", "paragraph_id": "para_45" }, { "text": "¶ 5 ComEd is a public utility that provides electrical delivery services to more than 4 million", "paragraph_id": "para_46" }, { "text": "customers located in Illinois. As a public utility, ComEd is governed by the Public Utilities Act", "paragraph_id": "para_47" }, { "text": "(220 ILCS 5/1-101 et seq. (West 2022)) and regulated by the Commission. See id. §§ 3-105, 4-", "paragraph_id": "para_48" }, { "text": "101 (defining the term “public utility” and stating that the Commission has “general supervision”", "paragraph_id": "para_49" }, { "text": "of all public utilities).", "paragraph_id": "para_50" }, { "text": "¶ 6 IBEW Local 15 is a labor union that represents approximately 5,100 individuals employed", "paragraph_id": "para_51" }, { "text": "by ComEd and other companies. In its capacity, IBEW Local 15 serves as the collective bargaining", "paragraph_id": "para_52" }, { "text": "representative of approximately 3,400 individuals employed by ComEd and its parent company,", "paragraph_id": "para_53" }, { "text": "Exelon Business Services Company (Exelon), and has collective bargaining agreements with", "paragraph_id": "para_54" }, { "text": "ComEd that relate to employee wages and fringe benefits, as well as to the terms and conditions", "paragraph_id": "para_55" }, { "text": "of employment.", "paragraph_id": "para_56" }, { "text": "¶ 7 2. General Rate Setting Principles and Statutory Development", "paragraph_id": "para_57" }, { "text": "¶ 8 A public utility is entitled to recover certain operating costs through the rates that it charges", "paragraph_id": "para_58" }, { "text": "its customers. Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111, 121 (1995).", "paragraph_id": "para_59" }, { "text": "The Commission is responsible for setting the rates charged by a utility. United Cities Gas Co. v.", "paragraph_id": "para_60" }, { "text": "Illinois Commerce Comm’n, 163 Ill. 2d 1, 11 (1994). Generally, a utility seeking a rate increase", "paragraph_id": "para_61" }, { "text": "must file new schedules or supplements with the Commission that indicate the proposed changes", "paragraph_id": "para_62" }, { "text": "to be made in the schedule or schedules already in place, as well as the time when the proposed", "paragraph_id": "para_63" }, { "text": "3", "paragraph_id": "para_64" }, { "text": "changes would take effect. 220 ILCS 5/9-201(a) (West 2022). “When a utility files a request for a", "paragraph_id": "para_65" }, { "text": "rate increase in the form of a new tariff schedule, the Commission has the authority upon complaint", "paragraph_id": "para_66" }, { "text": "or its own initiative to hear evidence, hold hearings and determine the propriety of the requested", "paragraph_id": "para_67" }, { "text": "increase.” Business & Professional People for the Public Interest v. Illinois Commerce Comm’n,", "paragraph_id": "para_68" }, { "text": "146 Ill. 2d 175, 195 (1991).", "paragraph_id": "para_69" }, { "text": "¶ 9 Starting in 2012, under the formula ratemaking structure, ComEd’s rates were set pursuant", "paragraph_id": "para_70" }, { "text": "to a performance-based formula set forth under section 16-108.5(c) of the Public Utilities Act. 220", "paragraph_id": "para_71" }, { "text": "ILCS 5/16-108.5(b)(1), (c) (West 2022). However, in September 2021, the General Assembly", "paragraph_id": "para_72" }, { "text": "enacted Public Act 102-662 (eff. Sept. 15, 2021), commonly1 known as the Climate and Equitable", "paragraph_id": "para_73" }, { "text": "Jobs Act, “to put the state on a path toward 100% clean energy, invest in training a diverse", "paragraph_id": "para_74" }, { "text": "workforce for the jobs of the future, institute key ratepayer and residential customer protections,", "paragraph_id": "para_75" }, { "text": "and prioritize meaningful ethics and transparency reforms.” People ex rel. Raoul v. Illinois", "paragraph_id": "para_76" }, { "text": "Commerce Comm’n, 2025 IL App (2d) 230020, ¶ 3. The Climate and Equitable Jobs Act amended", "paragraph_id": "para_77" }, { "text": "the Public Utilities Act to further these goals. People ex rel. Raoul v. Illinois Commerce Comm’n,", "paragraph_id": "para_78" }, { "text": "2025 IL App (4th) 230491, ¶ 9.", "paragraph_id": "para_79" }, { "text": "¶ 10 In particular, the Climate and Equitable Jobs Act contains two amendments to the Public", "paragraph_id": "para_80" }, { "text": "Utilities Act that are relevant to this appeal. First, the Climate and Equitable Jobs Act requires", "paragraph_id": "para_81" }, { "text": "electric utilities that serve more than 500,000 customers in Illinois to submit a multiyear integrated", "paragraph_id": "para_82" }, { "text": "grid plan (grid plan) that details the utilities’ distribution planning process throughout a five-year", "paragraph_id": "para_83" }, { "text": "period. 220 ILCS 5/16-105.17 (West 2022). Second, the Climate and Equitable Jobs Act terminates", "paragraph_id": "para_84" }, { "text": "the use of the performance-based formula to set rates and allows electric utilities that serve more", "paragraph_id": "para_85" }, { "text": "1The legislature did not officially name the public act, but agencies including the Environmental", "paragraph_id": "para_86" }, { "text": "Protection Agency have used that name for it. See, e.g., Env’t Prot. Agency, Climate and Equitable Jobs", "paragraph_id": "para_87" }, { "text": "Act, https://epa.illinois.gov/topics/ceja.html (last visited September 28, 2026) [https://perma.cc/DDP3-", "paragraph_id": "para_88" }, { "text": "8K3T].", "paragraph_id": "para_89" }, { "text": "4", "paragraph_id": "para_90" }, { "text": "than 500,000 customers in Illinois to elect to file a general rate case under section 9-201 of the", "paragraph_id": "para_91" }, { "text": "Public Utilities Act or a multiyear rate plan (rate plan) that “establish[es] the base rates the", "paragraph_id": "para_92" }, { "text": "utilit[ies] shall charge for each delivery year of the 4-year period to be covered by the plan.” Id.", "paragraph_id": "para_93" }, { "text": "§§ 16-108.5(h), 16-108.18(d)(1), (9)(A). The statute further provides that any rate plan that the", "paragraph_id": "para_94" }, { "text": "Commission approves must do the following, in pertinent part:", "paragraph_id": "para_95" }, { "text": "“(A) Provide for the recovery of the utility’s forecasted rate base, based on the 4-", "paragraph_id": "para_96" }, { "text": "year investment plan and the utility’s [grid plan]. The forecasted rate base must include the", "paragraph_id": "para_97" }, { "text": "utility’s planned capital investments, with rates based on average annual plant investment,", "paragraph_id": "para_98" }, { "text": "and investment-related costs, including income tax impacts, depreciation, and ratemaking", "paragraph_id": "para_99" }, { "text": "adjustments and costs that are prudently incurred and reasonable in amount consistent with", "paragraph_id": "para_100" }, { "text": "Commission practice and law. The process used to develop the forecasts must be iterative,", "paragraph_id": "para_101" }, { "text": "rigorous, and lead to forecasts that reasonably represent the utility’s investments during the", "paragraph_id": "para_102" }, { "text": "*** annual investment period and least cost, consistent with the provisions of Articles VIII", "paragraph_id": "para_103" }, { "text": "and IX of this Act.", "paragraph_id": "para_104" }, { "text": "(B) The cost of equity shall be approved by the Commission consistent with", "paragraph_id": "para_105" }, { "text": "Commission practice and law.", "paragraph_id": "para_106" }, { "text": "(C) The revenue requirement shall reflect the utility’s actual capital structure for", "paragraph_id": "para_107" }, { "text": "the applicable calendar year. A year-end capital structure that includes a common equity", "paragraph_id": "para_108" }, { "text": "ratio of up to and including 50% of the total capital structure shall be deemed prudent and", "paragraph_id": "para_109" }, { "text": "reasonable. A higher common equity ratio must be specifically approved by the", "paragraph_id": "para_110" }, { "text": "Commission.", "paragraph_id": "para_111" }, { "text": "5", "paragraph_id": "para_112" }, { "text": "(E) Provide for recovery of prudent and reasonable projected operating expenses,", "paragraph_id": "para_113" }, { "text": "giving effect to ratemaking adjustments, consistent with Commission practice and law", "paragraph_id": "para_114" }, { "text": "under Article IX of this Act. ***.” Id. § 16-108.18(d)(3).", "paragraph_id": "para_115" }, { "text": "¶ 11 3. Procedural History", "paragraph_id": "para_116" }, { "text": "¶ 12 On July 21, 2022, the Commission ordered ComEd to file a grid plan under docket No. 22-", "paragraph_id": "para_117" }, { "text": "0486. On January 17, 2023, ComEd filed its grid plan and, under docket No. 23-0055, also filed a", "paragraph_id": "para_118" }, { "text": "rate plan. The Commission ultimately consolidated the two cases on January 19, 2023.", "paragraph_id": "para_119" }, { "text": "¶ 13 In its rate plan, ComEd proposed a general increase in rates for electric services billed from", "paragraph_id": "para_120" }, { "text": "January 2024 through December 2027. ComEd and Staff of the Commission (Staff) participated", "paragraph_id": "para_121" }, { "text": "in the consolidated rate proceedings, and the Office of the Illinois Attorney General (Attorney", "paragraph_id": "para_122" }, { "text": "General) filed an appearance. Additionally, petitions to intervene were filed by the Illinois", "paragraph_id": "para_123" }, { "text": "Industrial Energy Consumers, the Citizens Utility Board, the Community Development", "paragraph_id": "para_124" }, { "text": "Corporation of Pembroke and Hopkins Park, and People for Community Recovery (collectively,", "paragraph_id": "para_125" }, { "text": "ICCP); IBEW Local 15; the Illinois Public Interest Group; and Walmart, Inc. (Walmart).", "paragraph_id": "para_126" }, { "text": "¶ 14 On August 22, 2023, the Commission conducted an evidentiary hearing on the consolidated", "paragraph_id": "para_127" }, { "text": "rate proceedings, during which testimony and exhibits were entered into the record. Following the", "paragraph_id": "para_128" }, { "text": "hearing, on December 14, 2023, the Commission issued its final order in which it rejected", "paragraph_id": "para_129" }, { "text": "ComEd’s grid plan and approved the company’s rate plan with certain modifications (Final Order).", "paragraph_id": "para_130" }, { "text": "ComEd later filed an application for rehearing, which the Commission granted in part and denied", "paragraph_id": "para_131" }, { "text": "in part, and in response to which the Commission also issued an amendatory order in which it", "paragraph_id": "para_132" }, { "text": "clarified aspects of the Final Order (Amendatory Order). IBEW Local 15 also filed an application", "paragraph_id": "para_133" }, { "text": "for rehearing, which the Commission denied.", "paragraph_id": "para_134" }, { "text": "6", "paragraph_id": "para_135" }, { "text": "¶ 15 On January 10, 2024, ComEd filed a petition for administrative review of the Final Order,", "paragraph_id": "para_136" }, { "text": "the Amendatory Order, and the Commission’s partial denial of the company’s application for", "paragraph_id": "para_137" }, { "text": "rehearing. On that same date, IBEW Local 15 filed a separate petition for administrative review of", "paragraph_id": "para_138" }, { "text": "the Final Order and the Commission’s denial of the union’s application for rehearing. The petitions", "paragraph_id": "para_139" }, { "text": "initiated case Nos. 3-24-0022 and 3-24-0021, respectively. This court stayed both cases until the", "paragraph_id": "para_140" }, { "text": "Commission concluded the rehearing sought by ComEd. On April 18, 2024, the Commission", "paragraph_id": "para_141" }, { "text": "issued its final order on the rehearing (Order on Rehearing), and four days later, ComEd filed a", "paragraph_id": "para_142" }, { "text": "petition for administrative review of that order and thereby initiated case No. 3-24-0284. This court", "paragraph_id": "para_143" }, { "text": "subsequently stayed the proceedings in case No. 3-24-0284 after the Commission reopened the", "paragraph_id": "para_144" }, { "text": "consolidated rate proceedings to consider the grid plan that ComEd had refiled.", "paragraph_id": "para_145" }, { "text": "¶ 16 On December 19, 2024, the Commission issued an order in which it approved ComEd’s", "paragraph_id": "para_146" }, { "text": "refiled grid plan (Order on Refiling). On January 17, 2025, ComEd filed a petition for", "paragraph_id": "para_147" }, { "text": "administrative review of the Order on Refiling, which initiated case No. 3-25-0027. Upon motion", "paragraph_id": "para_148" }, { "text": "by the Commission, this court consolidated case No. 3-25-0027 with case Nos. 3-24-0021, 3-24-", "paragraph_id": "para_149" }, { "text": "0022, and 3-24-0284. The Commission decided the issues involved in this appeal in the Final Order", "paragraph_id": "para_150" }, { "text": "and did not in any way reconsider or modify its decisions on the issues in the Amendatory Order,", "paragraph_id": "para_151" }, { "text": "Order on Rehearing, or Order on Refiling.", "paragraph_id": "para_152" }, { "text": "¶ 17 B. ComEd’s Proposed Rate Increase", "paragraph_id": "para_153" }, { "text": "¶ 18 1. ComEd’s Return on Equity", "paragraph_id": "para_154" }, { "text": "¶ 19 To acquire equity capital, a utility must offer an estimated return on equity that is sufficient", "paragraph_id": "para_155" }, { "text": "to attract investors. Southern California Edison Co. v. Federal Energy Regulatory Comm’n, 717", "paragraph_id": "para_156" }, { "text": "F.3d 177, 179 (D.C. Cir. 2013). A utility’s return on equity is the annual amount that its", "paragraph_id": "para_157" }, { "text": "shareholders are permitted to earn from the equity that they have invested in the company. Ameren", "paragraph_id": "para_158" }, { "text": "7", "paragraph_id": "para_159" }, { "text": "Illinois Co., Ill. Comm. Comm’n No. 13-0501, at 4 (Order-Interim Nov. 26, 2013). “A utility’s", "paragraph_id": "para_160" }, { "text": "return should be reasonably sufficient to permit confidence in the utility’s financial soundness and,", "paragraph_id": "para_161" }, { "text": "with economical and efficient management, to support the utility’s credit and raise funds necessary", "paragraph_id": "para_162" }, { "text": "to properly discharge the utility’s public duties.” Citizens Utility Board v. Illinois Commerce", "paragraph_id": "para_163" }, { "text": "Comm’n, 2018 IL App (1st) 170527, ¶ 45 (citing Bluefield Water Works & Improvement Co. v.", "paragraph_id": "para_164" }, { "text": "Public Service Comm’n of West Virginia, 262 U.S. 679, 693 (1923)). “Additionally, ‘the return to", "paragraph_id": "para_165" }, { "text": "the equity owner should be commensurate with returns on investments in other enterprises having", "paragraph_id": "para_166" }, { "text": "corresponding risks.’ ” Id. (citing Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591,", "paragraph_id": "para_167" }, { "text": "603 (1944)).", "paragraph_id": "para_168" }, { "text": "¶ 20 In setting a utility’s return on equity, the Commission must evaluate expert use of financial", "paragraph_id": "para_169" }, { "text": "models that quantify the likely cost of attracting capital investment during the periods when the", "paragraph_id": "para_170" }, { "text": "rates will be in effect. People ex rel. Madigan v. Illinois Commerce Comm’n, 2011 IL App (1st)", "paragraph_id": "para_171" }, { "text": "100654, ¶ 74. When a utility is not a publicly traded company, experts apply financial models to a", "paragraph_id": "para_172" }, { "text": "proxy group of similar entities that are publicly traded. See id. (“Because the [natural gas utilities", "paragraph_id": "para_173" }, { "text": "are] not publicly traded, the financial models were applied to a proxy group of publicly traded", "paragraph_id": "para_174" }, { "text": "natural gas utilities with risk profiles identified to be similar to those of [the utilities].”). ComEd", "paragraph_id": "para_175" }, { "text": "is not publicly traded. Consequently, each of the relevant experts in the consolidated rate", "paragraph_id": "para_176" }, { "text": "proceedings estimated ComEd’s proper return on equity by applying primarily two different", "paragraph_id": "para_177" }, { "text": "financial models to entities similar to ComEd. These financial models were (1) the capital asset", "paragraph_id": "para_178" }, { "text": "pricing model (CAPM) and (2) the discounted cash flow (DCF) model.", "paragraph_id": "para_179" }, { "text": "8", "paragraph_id": "para_180" }, { "text": "¶ 21 i. General Principles Regarding ComEd’s Return on Equity", "paragraph_id": "para_181" }, { "text": "¶ 22 a. The CAPM", "paragraph_id": "para_182" }, { "text": "¶ 23 The CAPM is based on the assumption that the cost of equity in a company is proportional", "paragraph_id": "para_183" }, { "text": "to the amount of systemic risk of failure associated with that company. Zero Zone, Inc. v. United", "paragraph_id": "para_184" }, { "text": "States Department of Energy, 832 F.3d 654, 679 (7th Cir. 2016). The CAPM is also based on an", "paragraph_id": "para_185" }, { "text": "understanding that different companies have different levels of investment risk and, thus, should", "paragraph_id": "para_186" }, { "text": "produce different returns to their investors. In re Pullman Construction Industries Inc., 107 B.R.", "paragraph_id": "para_187" }, { "text": "909, 922 (Bankr. N.D. Ill. 1989). Accordingly, experts use the CAPM to measure a company’s", "paragraph_id": "para_188" }, { "text": "risk relative to the entire stock market and to, in turn, estimate the company’s required rate of", "paragraph_id": "para_189" }, { "text": "return on equity given its level of risk. Id. at 921; In re Doctors Hospital of Hyde Park, Inc., 507", "paragraph_id": "para_190" }, { "text": "B.R. 558, 653 (Bankr. N.D. Ill. 2013). More specifically, experts use the CAPM to measure the", "paragraph_id": "para_191" }, { "text": "risk associated with a specific company relative to the risk of a portfolio of companies and to price", "paragraph_id": "para_192" }, { "text": "or value that company relative to the return on the portfolio. In re Pullman, 107 B.R. at 922-23. A", "paragraph_id": "para_193" }, { "text": "company’s risk relates to the variability of its stock price. See id. at 921 (“Risk is measured as the", "paragraph_id": "para_194" }, { "text": "variability of a stock price relative to a market portfolio.”).", "paragraph_id": "para_195" }, { "text": "¶ 24 Under the CAPM, a company’s required rate of return is a function of three parameters:", "paragraph_id": "para_196" }, { "text": "“(1) a risk-free rate of return; (2) the premium that average-risk stocks must pay over the risk-free", "paragraph_id": "para_197" }, { "text": "rate to entice investors; and (3) the riskiness of the utility’s equity in comparison to average-risk", "paragraph_id": "para_198" }, { "text": "stocks.” Ameren Illinois Co. v. Illinois Commerce Comm’n, 2015 IL App (4th) 140173, ¶ 9. Experts", "paragraph_id": "para_199" }, { "text": "relate these three parameters to one another via the CAPM formula, which is as follows:", "paragraph_id": "para_200" }, { "text": "“Cost of equity = R(f) + (Beta x [R(m)-R(f)])", "paragraph_id": "para_201" }, { "text": "Where: R(f) = risk-free rate of return", "paragraph_id": "para_202" }, { "text": "9", "paragraph_id": "para_203" }, { "text": "Beta = beta coefficient of the [company’s] stock, which measures the volatility of", "paragraph_id": "para_204" }, { "text": "the [company’s] stock in comparison to the volatility of the market as a whole", "paragraph_id": "para_205" }, { "text": "R(m) = expected rate of return on a market portfolio comprised of a large number", "paragraph_id": "para_206" }, { "text": "of diversified stocks, i.e., the expected rate of return on average-risk stocks.” Id.", "paragraph_id": "para_207" }, { "text": "Expressed in words, the CAPM formula means that a company’s cost of equity (i.e., required rate", "paragraph_id": "para_208" }, { "text": "of return) “is equal to the sum of the risk-free rate of return plus a risk premium (i.e., a return above", "paragraph_id": "para_209" }, { "text": "the risk[-]free rate).”(Internal quotation marks omitted.) Id. As this court has previously explained:", "paragraph_id": "para_210" }, { "text": "“The formula assumes that if investing in the [company] would yield a rate of return no", "paragraph_id": "para_211" }, { "text": "greater than that of treasury securities, which are the prototypical risk-free investment, no", "paragraph_id": "para_212" }, { "text": "sensible person would invest in the [company]. The [company] would be riskier than", "paragraph_id": "para_213" }, { "text": "treasury securities, and any rational investor would want compensation, a premium, for the", "paragraph_id": "para_214" }, { "text": "additional risk. Therefore, to entice investors, the [company] has to offer a risk premium,", "paragraph_id": "para_215" }, { "text": "some amount above the risk-free rate. In the formula above, the symbols to the right of the", "paragraph_id": "para_216" }, { "text": "plus sign determine that risk premium.” Id. ¶ 10.", "paragraph_id": "para_217" }, { "text": "¶ 25 b. The DCF Model", "paragraph_id": "para_218" }, { "text": "¶ 26 The DCF model is based on the classical valuation theory that the value of an asset should", "paragraph_id": "para_219" }, { "text": "be determined by its ability to generate future cash flows. Tennessee Gas Pipeline Co. v. Federal", "paragraph_id": "para_220" }, { "text": "Energy Regulatory Comm’n, 926 F.2d 1206, 1208 n.2 (D.C. Cir. 1991). Accordingly, under the", "paragraph_id": "para_221" }, { "text": "DCF model, the fundamental value of a given asset “is the discounted sum of all future income", "paragraph_id": "para_222" }, { "text": "flows that will be received by the owner of the asset.” (Internal quotation marks omitted.) Id. When", "paragraph_id": "para_223" }, { "text": "applying the DCF model to calculate a company’s rate of return, experts examine and relate the", "paragraph_id": "para_224" }, { "text": "following three parameters: (1) the current annual dividend amount, (2) the current market price", "paragraph_id": "para_225" }, { "text": "of the stock, and (3) the growth rate of the stock, which is defined as “the expected increase in the", "paragraph_id": "para_226" }, { "text": "10", "paragraph_id": "para_227" }, { "text": "dividend [amount], expressed in percentage form.” Public Service Comm’n of the State of New", "paragraph_id": "para_228" }, { "text": "York v. Federal Energy Regulatory Comm’n, 813 F.2d 448, 463 (D.C. Cir. 1987); Arkansas", "paragraph_id": "para_229" }, { "text": "Louisiana Gas Co. v. Federal Energy Regulatory Comm’n, 654 F.2d 435, 439 n.9 (5th Cir. 1981).", "paragraph_id": "para_230" }, { "text": "¶ 27 ii. Return on Equity Proposed by ComEd", "paragraph_id": "para_231" }, { "text": "¶ 28 ComEd proposed a return on equity of 10.5% in 2024, with an increase of 5 basis points", "paragraph_id": "para_232" }, { "text": "per year starting in 2025. In support of this proposal, Frank Graves, a principal at a consultancy,", "paragraph_id": "para_233" }, { "text": "testified that he had applied multiple financial models, including the CAPM, the empirical CAPM", "paragraph_id": "para_234" }, { "text": "(ECAPM), and the risk premium model (RPM), to estimate ComEd’s return on equity. Graves", "paragraph_id": "para_235" }, { "text": "testified that he had also applied the constant growth DCF model, which, he explained, was a form", "paragraph_id": "para_236" }, { "text": "of the DCF model that “assumes a single long-term growth rate in perpetuity.” Graves explained", "paragraph_id": "para_237" }, { "text": "that, because ComEd was not publicly traded, he had applied each financial model to a proxy group", "paragraph_id": "para_238" }, { "text": "of 17 entities with operating and risk characteristics that were similar to ComEd.", "paragraph_id": "para_239" }, { "text": "¶ 29 Additionally, Graves testified that his use of the DCF model, the CAPM, the ECAPM, and", "paragraph_id": "para_240" }, { "text": "the RPM had yielded “a wide range of results, within which there [was] a band of overlapping", "paragraph_id": "para_241" }, { "text": "agreement from about [10% to 11% return on equity], which [he] deemed to be the relevant range", "paragraph_id": "para_242" }, { "text": "within which ComEd’s allowed rate should [have fallen].” Based on the range of results that he", "paragraph_id": "para_243" }, { "text": "had obtained, Graves recommended that the Commission set ComEd’s return on equity at “the", "paragraph_id": "para_244" }, { "text": "midpoint range” of 10.5% in 2024, with an increase of 5 basis points per year starting in 2025.", "paragraph_id": "para_245" }, { "text": "¶ 30 iii. Return on Equity Proposed by Staff", "paragraph_id": "para_246" }, { "text": "¶ 31 Staff proposed a return on equity of 8.91% or, alternatively, 7.05% or 10.05%. Relevant to", "paragraph_id": "para_247" }, { "text": "Staff’s proposals, Michael McNally, a senior financial analyst with the Commission, testified that,", "paragraph_id": "para_248" }, { "text": "in assessing the proper method to use to calculate ComEd’s return on equity, he had made certain", "paragraph_id": "para_249" }, { "text": "observations, which he articulated as follows:", "paragraph_id": "para_250" }, { "text": "11", "paragraph_id": "para_251" }, { "text": "“The [rate plan] shares some characteristics of a rider, most notably, the annual", "paragraph_id": "para_252" }, { "text": "reconciliation will provide more timely and certain cost recovery. In other words, the true-", "paragraph_id": "para_253" }, { "text": "up nearly guarantees that ComEd will recover its costs. Like cost recovery pursuant to a", "paragraph_id": "para_254" }, { "text": "rider, the [rate plan] reconciliation process effectively shifts risk from the [c]ompany to", "paragraph_id": "para_255" }, { "text": "ratepayers and, consequently, reduces risk to investors and lowers the expected returns.”", "paragraph_id": "para_256" }, { "text": "McNally explained that, based on his observations, he had determined that ComEd’s risk would", "paragraph_id": "para_257" }, { "text": "be lower under its rate plan than under formula ratemaking and that, consequently, “the analyses", "paragraph_id": "para_258" }, { "text": "and comparisons Staff usually employ[ed] to assist in determining [a return on equity did] not", "paragraph_id": "para_259" }, { "text": "provide [a return on equity] applicable to ComEd as it enter[ed] the four-year [rate plan] period.”", "paragraph_id": "para_260" }, { "text": "McNally stated that, nevertheless, it was “clear *** that the statutorily established [performance-", "paragraph_id": "para_261" }, { "text": "based formula], under which ComEd [had] been operating for over a decade, *** [was] sufficient", "paragraph_id": "para_262" }, { "text": "to support the [c]ompany’s financial health and minimize the cost of capital.” McNally emphasized", "paragraph_id": "para_263" }, { "text": "that it was also important that the rate plan was an “entirely new” ratemaking structure for ComEd", "paragraph_id": "para_264" }, { "text": "and that the effect of setting ComEd’s rate of return at an amount lower than those approved in the", "paragraph_id": "para_265" }, { "text": "past was unknown. McNally explained that, based on these points, he had concluded that the", "paragraph_id": "para_266" }, { "text": "performance-based formula should be used to calculate ComEd’s return on equity and", "paragraph_id": "para_267" }, { "text": "recommended a return on equity of 8.91%, to be updated annually throughout the rate plan process.", "paragraph_id": "para_268" }, { "text": "¶ 32 McNally further testified that, in the alternative and “[i]f the Commission were to consider", "paragraph_id": "para_269" }, { "text": "the [rate plan] as essentially a rider ***[, then] the [weighted average cost of capital] in [ComEd’s]", "paragraph_id": "para_270" }, { "text": "most recent [formula ratemaking] case could be adjusted to reflect the reduced risk under the [rate", "paragraph_id": "para_271" }, { "text": "plan].” Regarding the precise adjustment that the Commission could make to ComEd’s return on", "paragraph_id": "para_272" }, { "text": "equity, McNally stated the following:", "paragraph_id": "para_273" }, { "text": "12", "paragraph_id": "para_274" }, { "text": "“The yields for 30-year high-quality corporate bonds were 5.18% as of March 2023, which", "paragraph_id": "para_275" }, { "text": "represents the return on equity for low risk bonds. ***. The 2022 [formula rate return on", "paragraph_id": "para_276" }, { "text": "equity] for ComEd [was] 8.91%. The midpoint between the two is 7.05%, which represents", "paragraph_id": "para_277" }, { "text": "a 186 basis point adjustment from the cost of equity that will be authorized in the", "paragraph_id": "para_278" }, { "text": "[c]ompany’s current [formula ratemaking] case. Using the midpoint recognizes that some", "paragraph_id": "para_279" }, { "text": "level of risk remains with the utility because costs recovered through the [rate plan] remain", "paragraph_id": "para_280" }, { "text": "subject to a prudence review, but that the future test years and reconciliation mechanisms", "paragraph_id": "para_281" }, { "text": "that are key features of the [rate plan] ensure the [c]ompany will timely recover 100% of", "paragraph_id": "para_282" }, { "text": "all its prudent investments under the [rate plan].”", "paragraph_id": "para_283" }, { "text": "¶ 33 Additionally, McNally testified that, separate from the performance-based formula, he had", "paragraph_id": "para_284" }, { "text": "also used the constant growth DCF model, the nonconstant growth DCF (NCDCF) model, and the", "paragraph_id": "para_285" }, { "text": "CAPM to calculate ComEd’s return on equity. McNally stated that the constant growth DCF model", "paragraph_id": "para_286" }, { "text": "had yielded a 9.99% return on equity, that the NCDCF model had yielded an 8.48% return on", "paragraph_id": "para_287" }, { "text": "equity, and that he had averaged these values to calculate an “overall DCF estimate” of 9.23%", "paragraph_id": "para_288" }, { "text": "return on equity. McNally further stated that, separately, the CAPM had yielded a 10.87% return", "paragraph_id": "para_289" }, { "text": "on equity, which he then averaged with his overall DCF estimate to ultimately yield a 10.05%", "paragraph_id": "para_290" }, { "text": "return on equity. McNally explained, however, that he did not recommend a 10.05% return on", "paragraph_id": "para_291" }, { "text": "equity for ComEd because, for the reasons to which he had earlier testified, ComEd’s risk was", "paragraph_id": "para_292" }, { "text": "lower than that of the entities included in the proxy group used in the DCF model and the CAPM.", "paragraph_id": "para_293" }, { "text": "¶ 34 iv. Return on Equity Proposed by ICCP", "paragraph_id": "para_294" }, { "text": "¶ 35 ICCP proposed a return on equity within the range of 9.2% to 9.6%. Related to ICCP’s", "paragraph_id": "para_295" }, { "text": "proposal, Michael Gorman, a consultant in the field of public utility regulation and a managing", "paragraph_id": "para_296" }, { "text": "principal with an energy, economic, and regulatory consulting firm, testified that he had used the", "paragraph_id": "para_297" }, { "text": "13", "paragraph_id": "para_298" }, { "text": "DCF model and the CAPM to calculate ComEd’s return on equity. Regarding his use of the DCF", "paragraph_id": "para_299" }, { "text": "model, Gorman explained that his “DCF estimates include[d] an elevated DCF return using the", "paragraph_id": "para_300" }, { "text": "constant growth DCF analysis, supplemented by DCF returns in the sustainable growth and multi-", "paragraph_id": "para_301" }, { "text": "stage growth DCF models, which reflect[ed] a reversion to more reasonable estimates of long-term", "paragraph_id": "para_302" }, { "text": "sustainable growth.” Gorman stated that the DCF model had yielded a 9.2% return on equity.", "paragraph_id": "para_303" }, { "text": "¶ 36 As to his use of the CAPM, Gorman further explained that, prior to the COVID-19", "paragraph_id": "para_304" }, { "text": "pandemic, the beta inputs for the proxy group that he had used had generally ranged between 0.65", "paragraph_id": "para_305" }, { "text": "and 0.75 but that, after the pandemic, the betas for the group had become “elevated.” Additionally,", "paragraph_id": "para_306" }, { "text": "Gorman explained that the current beta for the proxy group was 0.89, which was “abnormally", "paragraph_id": "para_307" }, { "text": "high,” and that, conversely, the long-term historical average beta of the proxy group reasonably", "paragraph_id": "para_308" }, { "text": "aligned with that of the entire industry. Gorman stated that, consequently, he endorsed the use of", "paragraph_id": "para_309" }, { "text": "the long-term historical average beta, which was 0.77. Gorman stated that, when he used a beta", "paragraph_id": "para_310" }, { "text": "input of 0.77, the CAPM had yielded a 9.6% return on equity. Gorman further stated that, based", "paragraph_id": "para_311" }, { "text": "on his analyses using the DCF model and the CAPM, he recommended that “ComEd’s return on", "paragraph_id": "para_312" }, { "text": "equity be in the range of 9.20% and 9.60%, with a point estimate of 9.40%.”", "paragraph_id": "para_313" }, { "text": "¶ 37 v. Return on Equity Proposed by Others", "paragraph_id": "para_314" }, { "text": "¶ 38 The Illinois Public Interest Research Group proposed a return on equity of 6.5%, which the", "paragraph_id": "para_315" }, { "text": "Attorney General endorsed. Walmart proposed a return on equity of “no higher than 9.14[%],”", "paragraph_id": "para_316" }, { "text": "without an annual increase throughout the rate plan.", "paragraph_id": "para_317" }, { "text": "¶ 39 vi. The Commission’s Findings and Decision", "paragraph_id": "para_318" }, { "text": "¶ 40 In its Final Order, the Commission first noted that it had been “presented with a wide range", "paragraph_id": "para_319" }, { "text": "of proposed [returns on equity] with a low end proposed by [the Illinois Public Interest Research", "paragraph_id": "para_320" }, { "text": "14", "paragraph_id": "para_321" }, { "text": "Group] at 6.5%, which [was] also supported by the [Attorney General], to a high end proposed by", "paragraph_id": "para_322" }, { "text": "[ComEd] at 10.5% with annual increases.” The Commission also noted that, “in the middle,” were", "paragraph_id": "para_323" }, { "text": "“(1) Staff’s primary proposal at 8.91% (adjusted annually based on a formula rate", "paragraph_id": "para_324" }, { "text": "methodology); (2) Staff’s alternate proposal of 7.05% (the midpoint of Staff’s 8.91%", "paragraph_id": "para_325" }, { "text": "proposal and the 5.18% yield on 30-year high quality corporate bonds); (3) Staff’s 10.05%", "paragraph_id": "para_326" }, { "text": "estimate (based on traditional [return on equity] analyses); (4) Walmart at 9.14%; and", "paragraph_id": "para_327" }, { "text": "(5) ICCP at 9.4%.”", "paragraph_id": "para_328" }, { "text": "The Commission stated that, in assessing the various proposals and setting ComEd’s proper return", "paragraph_id": "para_329" }, { "text": "on equity, it had considered the principles set forth in Hope, 320 U.S. 591, and Bluefield, 262 U.S.", "paragraph_id": "para_330" }, { "text": "679.", "paragraph_id": "para_331" }, { "text": "¶ 41 Relevant to ComEd’s proposal, the Commission noted that a credit agency had indicated", "paragraph_id": "para_332" }, { "text": "that the Climate and Equitable Jobs Act was favorable to ComEd in that the statute would likely", "paragraph_id": "para_333" }, { "text": "enable ComEd to operate under a rate plan with forward test periods, which would, in turn, enhance", "paragraph_id": "para_334" }, { "text": "rate predictability and reduce regulatory lag. The Commission also noted that, whereas under", "paragraph_id": "para_335" }, { "text": "formula ratemaking, it could only lower ComEd’s return on equity for the company’s failure to", "paragraph_id": "para_336" }, { "text": "achieve certain performance metrics, under the rate plan, it could raise or lower ComEd’s return", "paragraph_id": "para_337" }, { "text": "on equity based on the company’s performance metrics. The Commission found that, accordingly,", "paragraph_id": "para_338" }, { "text": "ComEd’s risk under the rate plan would be lower than under the formula and traditional ratemaking", "paragraph_id": "para_339" }, { "text": "structures and, “[i]ndeed, *** most closely akin to the risk that ComEd face[d] under its various", "paragraph_id": "para_340" }, { "text": "riders.” Based on this finding, the Commission rejected ComEd’s proposed return on equity and", "paragraph_id": "para_341" }, { "text": "declined to otherwise raise the company’s return on equity to offset any alleged increase in risk.", "paragraph_id": "para_342" }, { "text": "¶ 42 As to the remaining proposals, the Commission noted that section 16-108.18 of the Public", "paragraph_id": "para_343" }, { "text": "Utilities Act required it to determine a cost of equity that was consistent with “Commission", "paragraph_id": "para_344" }, { "text": "15", "paragraph_id": "para_345" }, { "text": "practice and law.” The Commission further noted that there was “no clear definition of what", "paragraph_id": "para_346" }, { "text": "constitute[d] ‘Commission practice’ ” and that, although it “ha[d] generally adopted the use of", "paragraph_id": "para_347" }, { "text": "sound financial market-based models and market data, the details of its cost of equity", "paragraph_id": "para_348" }, { "text": "determination practice [had] reasonably varied and evolved over time based on relevant factors", "paragraph_id": "para_349" }, { "text": "presented in the record of each case.” Additionally, the Commission articulated that it had “broad", "paragraph_id": "para_350" }, { "text": "discretion to determine just and reasonable rates, and by extension, the methods by which to", "paragraph_id": "para_351" }, { "text": "determine the rate of return reflected in such rates.” The Commission further articulated that,", "paragraph_id": "para_352" }, { "text": "accordingly, it had the discretion to “use or consider, in whole or in part, the cost of equity models", "paragraph_id": "para_353" }, { "text": "and resulting estimates presented in the record *** and to consider the appropriate inputs to apply", "paragraph_id": "para_354" }, { "text": "to other cost of equity models presented in the record to determine a fair and reasonable rate of", "paragraph_id": "para_355" }, { "text": "return.” The Commission then stated that, in light of the evidence before it, it would rely upon the", "paragraph_id": "para_356" }, { "text": "financial models that it had generally adopted in the past, “albeit with adjustments.”", "paragraph_id": "para_357" }, { "text": "¶ 43 In applying the standards that it had articulated, the Commission rejected Staff’s proposed", "paragraph_id": "para_358" }, { "text": "use of the performance rate formula to calculate ComEd’s return on equity because the formula", "paragraph_id": "para_359" }, { "text": "differed from the rate plan, which section 16-108.18 of the Public Utilities Act required the", "paragraph_id": "para_360" }, { "text": "Commission to use. The Commission also rejected the Attorney General’s and Walmart’s", "paragraph_id": "para_361" }, { "text": "proposals because they were not based on traditional financial analyses. Additionally, the", "paragraph_id": "para_362" }, { "text": "Commission rejected the Illinois Public Interest Research Group’s proposed return on equity", "paragraph_id": "para_363" }, { "text": "because it was “unreasonably low.”", "paragraph_id": "para_364" }, { "text": "¶ 44 As to the remaining proposals and the financial models employed therein, the Commission", "paragraph_id": "para_365" }, { "text": "rejected ComEd and ICCP’s reliance on the constant growth DCF model on the basis that the", "paragraph_id": "para_366" }, { "text": "model had included inputs that the Commission had “consistently rejected” in the past, such as", "paragraph_id": "para_367" }, { "text": "outdated historical stock prices. The Commission further noted that ICCP had incorporated", "paragraph_id": "para_368" }, { "text": "16", "paragraph_id": "para_369" }, { "text": "sustainable growth rates into its constant growth DCF model even though the Commission had", "paragraph_id": "para_370" }, { "text": "also “consistently rejected” such rates in the past and ICCP had failed to show how the rates could", "paragraph_id": "para_371" }, { "text": "accurately reflect investors’ growth expectations or how the rates were “superior” to the analyst", "paragraph_id": "para_372" }, { "text": "earning growth rate forecasts upon which the Commission had traditionally relied. Additionally,", "paragraph_id": "para_373" }, { "text": "the Commission found that the growth rate that Staff had used in the constant growth DCF model", "paragraph_id": "para_374" }, { "text": "was unsustainable into perpetuity because the rate was “nearly 40% higher than the forecasted", "paragraph_id": "para_375" }, { "text": "long-term growth of the economy.” The Commission further found that this “measurement error”", "paragraph_id": "para_376" }, { "text": "could “not be sufficiently addressed by averaging Staff’s constant growth DCF estimate with its", "paragraph_id": "para_377" }, { "text": "NCDCF” and that, therefore, as it had similarly done in the past, it declined to rely on the constant", "paragraph_id": "para_378" }, { "text": "growth DCF model. The Commission stated that, instead, it adopted the NCDCF model, as well", "paragraph_id": "para_379" }, { "text": "as the 8.48% return on equity that Staff had proposed based on that model.", "paragraph_id": "para_380" }, { "text": "¶ 45 Next, the Commission rejected the use of the RPM, as it had similarly done “in many prior", "paragraph_id": "para_381" }, { "text": "rate decisions.” Regarding the CAPM, the Commission noted that it “regularly relie[d] on current,", "paragraph_id": "para_382" }, { "text": "observable market interest rates rather than forecasted interest rates” and, thus, adopted Staff’s use", "paragraph_id": "para_383" }, { "text": "of the then-current United States Treasury bill rate as the risk-free rate input and rejected ComEd", "paragraph_id": "para_384" }, { "text": "and ICCP’s reliance upon forecasted United States Treasury bond yields. As to the beta input, the", "paragraph_id": "para_385" }, { "text": "Commission explained that it had historically relied upon an average of weekly and monthly beta", "paragraph_id": "para_386" }, { "text": "estimates to calculate the beta that it would apply “because the use of multiple beta sources reduces", "paragraph_id": "para_387" }, { "text": "measurement error from any individual estimate.” However, the Commission observed the", "paragraph_id": "para_388" }, { "text": "following regarding the evidence presented during the consolidated proceedings:", "paragraph_id": "para_389" }, { "text": "“[T]he record shows that the weekly beta estimates [used by ComEd, Staff, and ICCP] are", "paragraph_id": "para_390" }, { "text": "inordinately high compared to the two monthly beta estimates from Zacks and Staff’s", "paragraph_id": "para_391" }, { "text": "regression beta. The Commission further observes that beta is a measure of risk and Staff", "paragraph_id": "para_392" }, { "text": "17", "paragraph_id": "para_393" }, { "text": "demonstrated that the [p]roxy [g]roup has a higher overall risk compared to ComEd.", "paragraph_id": "para_394" }, { "text": "Moreover, as earlier noted in this [o]rder, a review of the evidence and the arguments of", "paragraph_id": "para_395" }, { "text": "the parties show that the [c]ompany’s risk under the [rate plan] will be lower than under", "paragraph_id": "para_396" }, { "text": "both the [formula] and traditional ratemaking.”", "paragraph_id": "para_397" }, { "text": "Based on its observations, the Commission found that it was “more reasonable to use the average", "paragraph_id": "para_398" }, { "text": "monthly beta estimates published by Zacks and Staff’s regression beta (i.e., 0.705) for determining", "paragraph_id": "para_399" }, { "text": "ComEd’s CAPM cost of equity estimate,” which, the Commission explained, would “address the", "paragraph_id": "para_400" }, { "text": "increased measurement error that would arise from the use of inordinately high weekly betas and", "paragraph_id": "para_401" }, { "text": "*** recognize the lower risk of ComEd relative to the [p]roxy [g]roup.” Finally, relevant to the", "paragraph_id": "para_402" }, { "text": "risk premium input, the Commission rejected Staff’s risk premium estimate because it was based", "paragraph_id": "para_403" }, { "text": "on outlier company growth rates that were “either too high or too low to be sustainable” and instead", "paragraph_id": "para_404" }, { "text": "applied the growth rate criteria of the Federal Energy Regulatory Commission (FERC) to revise", "paragraph_id": "para_405" }, { "text": "Staff’s risk premium input to 11.48%. The Commission then applied the CAPM and the relevant", "paragraph_id": "para_406" }, { "text": "inputs that it had adopted to calculate a 9.33% return on equity.", "paragraph_id": "para_407" }, { "text": "¶ 46 Following its preliminary findings, the Commission averaged “Staff’s NCDCF estimate of", "paragraph_id": "para_408" }, { "text": "8.48% and the revised CAPM estimate of 9.33%” and authorized the resulting 8.905% as ComEd’s", "paragraph_id": "para_409" }, { "text": "return on equity for each of the four test years of the rate plan. In making this determination, the", "paragraph_id": "para_410" }, { "text": "Commission affirmed that “[t]he market-based financial models and adjustments underlying [the", "paragraph_id": "para_411" }, { "text": "return on equity were] consistent with Commission practice and law.” The Commission then", "paragraph_id": "para_412" }, { "text": "concluded by offering the following justification for its decision:", "paragraph_id": "para_413" }, { "text": "“The Commission concurs with Staff’s observation that [the rate plan] affords", "paragraph_id": "para_414" }, { "text": "ComEd less risk than traditional ratemaking or the [formula ratemaking]. Under [a rate", "paragraph_id": "para_415" }, { "text": "plan], ComEd will have the benefits of multiple future test years that reduce regulatory lag", "paragraph_id": "para_416" }, { "text": "18", "paragraph_id": "para_417" }, { "text": "and annual revenue requirement reconciliations that provide greater certainty of its cash", "paragraph_id": "para_418" }, { "text": "flows, among others. The Commission observes that the last authorized [return on equity]", "paragraph_id": "para_419" }, { "text": "for ComEd under formula rates *** was 7.85% for the 2023 filing year. Additionally, the", "paragraph_id": "para_420" }, { "text": "authorized [returns on equity] for the filing years 2017 through 2022 under formula rates", "paragraph_id": "para_421" }, { "text": "were 8.64%, 8.40%, 8.69%, 8.91%, 8.38%, and 7.36%, respectively. The Commission", "paragraph_id": "para_422" }, { "text": "further observes that credit rating agencies upgraded ComEd’s credit rating multiple times", "paragraph_id": "para_423" }, { "text": "while it was under formula rates. In authorizing a [return on equity] of 8.905%, which lies", "paragraph_id": "para_424" }, { "text": "in the lower range of [return on equity] proposals put forth in this case, the Commission", "paragraph_id": "para_425" }, { "text": "recognizes the lower risk that ComEd bears under a [rate plan] compared to traditional", "paragraph_id": "para_426" }, { "text": "ratemaking in terms of more risk that is transferred from the [c]ompany to its customers.”", "paragraph_id": "para_427" }, { "text": "¶ 47 2. ComEd’s Alleged Pension Asset", "paragraph_id": "para_428" }, { "text": "¶ 48 The evidence that the parties presented to the Commission showed that, under generally", "paragraph_id": "para_429" }, { "text": "accepted accounting principles, a pension asset is the amount by which a company’s cumulative", "paragraph_id": "para_430" }, { "text": "pension contributions exceed its cumulative net periodic pension costs. Generally, the cost of a", "paragraph_id": "para_431" }, { "text": "pension is “the expected change in the pension benefit obligation *** funded status (i.e., the", "paragraph_id": "para_432" }, { "text": "difference between pension plan assets and the [pension benefit obligation]) over the next year.”", "paragraph_id": "para_433" }, { "text": "The cost of a pension is also affected by “any existing underfunding over a relatively long period", "paragraph_id": "para_434" }, { "text": "of time.”", "paragraph_id": "para_435" }, { "text": "¶ 49 The funding of a pension is governed by federal and state laws that mandate the minimum", "paragraph_id": "para_436" }, { "text": "contribution that a pension plan sponsor must make to a pension plan. In general, this required", "paragraph_id": "para_437" }, { "text": "minimum contribution represents the amount by which a pension plan’s funding liability is", "paragraph_id": "para_438" }, { "text": "expected to increase “in the upcoming year, plus an amount to ‘make up’ any existing", "paragraph_id": "para_439" }, { "text": "19", "paragraph_id": "para_440" }, { "text": "underfunding over a 7-year period.” Any funds that a pension plan sponsor pays in excess of the", "paragraph_id": "para_441" }, { "text": "minimum contribution constitute a prepaid pension asset.", "paragraph_id": "para_442" }, { "text": "¶ 50 ComEd first reported a pension asset on its audited financial statement in 2003 and was", "paragraph_id": "para_443" }, { "text": "involved in 2005, 2007, and 2010 rate cases, all while traditional ratemaking was in effect. ComEd", "paragraph_id": "para_444" }, { "text": "was also involved in numerous rate cases throughout the subsequent period of formula ratemaking", "paragraph_id": "para_445" }, { "text": "that occurred from 2012 through 2023, during which time section 16-108.5(c)(4)(D) of the Public", "paragraph_id": "para_446" }, { "text": "Utilities Act mandated that a utility receive a return on its pension asset. 220 ILCS 5/16-", "paragraph_id": "para_447" }, { "text": "108.5(c)(4)(D) (West 2012). ComEd now asserts that, starting in 2005, the Commission allowed", "paragraph_id": "para_448" }, { "text": "the company a return on its recognized pension asset in each of its rate cases that occurred during", "paragraph_id": "para_449" }, { "text": "both the traditional and formula ratemaking periods. Conversely, Staff asserts that the Commission", "paragraph_id": "para_450" }, { "text": "did not, in fact, allow ComEd a return on a recognized pension asset in the company’s 2005, 2007,", "paragraph_id": "para_451" }, { "text": "and 2010 rate cases.", "paragraph_id": "para_452" }, { "text": "¶ 51 This appeal arises from ComEd’s first rate case that follows the enactment of the Climate", "paragraph_id": "para_453" }, { "text": "and Equitable Jobs Act. As we earlier articulated, the Climate and Equitable Jobs Act required the", "paragraph_id": "para_454" }, { "text": "Commission in these consolidated rate proceedings to revert to applying traditional, rather than", "paragraph_id": "para_455" }, { "text": "formula, ratemaking principles in determining whether to allow ComEd a return on its alleged", "paragraph_id": "para_456" }, { "text": "pension asset. See 220 ILCS 5/16-108.18(d)(3)(E) (West 2022) (requiring a rate plan to “[p]rovide", "paragraph_id": "para_457" }, { "text": "for recovery of prudent and reasonable projected operating expenses, giving effect to ratemaking", "paragraph_id": "para_458" }, { "text": "adjustments, consistent with Commission practice and law under Article IX of this Act”).", "paragraph_id": "para_459" }, { "text": "¶ 52 i. ComEd’s Position Regarding Its Alleged Pension Asset", "paragraph_id": "para_460" }, { "text": "¶ 53 In its rate plan, ComEd requested a return on the actual balance of its alleged prepaid", "paragraph_id": "para_461" }, { "text": "pension asset for each year of the plan, as an operating expense and pursuant to section 16-", "paragraph_id": "para_462" }, { "text": "108.18(d)(3)(E) of the Public Utilities Act. In the alternative, ComEd instead requested a return", "paragraph_id": "para_463" }, { "text": "20", "paragraph_id": "para_464" }, { "text": "on the balance that it asserted that the Commission had previously found, as of ComEd’s 2010 rate", "paragraph_id": "para_465" }, { "text": "case, to constitute a shareholder-funded pension asset, “jurisdictionalized and adjusted for", "paragraph_id": "para_466" }, { "text": "[accumulated deferred income taxes (ADIT)] and additions made during the formula rate period.”", "paragraph_id": "para_467" }, { "text": "¶ 54 In support of ComEd’s position, Lisa Graham, senior vice president, chief financial officer,", "paragraph_id": "para_468" }, { "text": "and treasurer with ComEd, testified that the balance of ComEd’s pension asset was $1,219,271,886", "paragraph_id": "para_469" }, { "text": "as of the end of the third financial quarter of 2022. Graham explained that there had been “a long", "paragraph_id": "para_470" }, { "text": "history of ComEd recovering a return on [its] pension asset” and that the balance of the company’s", "paragraph_id": "para_471" }, { "text": "then-current pension asset was the sum of smaller pension asset balances that the Commission had", "paragraph_id": "para_472" }, { "text": "approved prior to formula ratemaking, “plus the effect of the additional shareholder-funded", "paragraph_id": "para_473" }, { "text": "contributions made since that date.” According to Graham, the two smaller pension asset balances", "paragraph_id": "para_474" }, { "text": "that the Commission had previously approved were one balance that the Commission had", "paragraph_id": "para_475" }, { "text": "recognized as resulting from an $803 million contribution that Exelon had made to ComEd’s", "paragraph_id": "para_476" }, { "text": "pension plan in 2005 and another balance that the Commission had recognized as resulting from a", "paragraph_id": "para_477" }, { "text": "separate $104.5 million contribution made in 2009. Graham summarized ComEd’s alleged history", "paragraph_id": "para_478" }, { "text": "of receiving returns on its pension asset as follows:", "paragraph_id": "para_479" }, { "text": "“ComEd was permitted to earn a return related to its [p]ension [a]sset in its 2005, 2007,", "paragraph_id": "para_480" }, { "text": "and 2010 rate cases, and the formula rate statute provided for a debt return on [p]ension", "paragraph_id": "para_481" }, { "text": "[a]sset. Under formula ratemaking, ComEd received a return on its pension asset equal to", "paragraph_id": "para_482" }, { "text": "its long-term debt cost, as provided for by the statute. ***. Prior to formula ratemaking,", "paragraph_id": "para_483" }, { "text": "the Commission granted ComEd some form of return on its pension asset that amounted to", "paragraph_id": "para_484" }, { "text": "$25.3 million. In Docket No. 07-0566, the Commission allowed a return on ComEd’s", "paragraph_id": "para_485" }, { "text": "pension asset that amounted to $25.1 million. In Docket No. 10-0467, the Commission", "paragraph_id": "para_486" }, { "text": "allowed a return that amounted to approximately $25 million ***. Since the earliest general", "paragraph_id": "para_487" }, { "text": "21", "paragraph_id": "para_488" }, { "text": "rate case after ComEd first reported a pension asset *** in 2003, the Commission has", "paragraph_id": "para_489" }, { "text": "consistently approved a level of return on ComEd’s reported pension asset, both before and", "paragraph_id": "para_490" }, { "text": "after a debt return was specifically provided for in the formula rate statute.”", "paragraph_id": "para_491" }, { "text": "¶ 55 As to the source of the funds in ComEd’s alleged pension asset, Graham testified that", "paragraph_id": "para_492" }, { "text": "ComEd’s pension contributions were “funded through cash generated through ComEd’s internal", "paragraph_id": "para_493" }, { "text": "operations that would otherwise be passed to investors or reinvested in the business.” Graham also", "paragraph_id": "para_494" }, { "text": "explained that certain other phenomena had ensured that ComEd’s pension asset was funded by", "paragraph_id": "para_495" }, { "text": "shareholders and not by ratepayers. More specifically, Graham explained:", "paragraph_id": "para_496" }, { "text": "“In the time since the Commission last substantively addressed ComEd’s [p]ension [a]sset", "paragraph_id": "para_497" }, { "text": "in [d]ocket No. 10-0467, ComEd’s recovery of pension expense was reconciled annually,", "paragraph_id": "para_498" }, { "text": "and this process ensured that ratepayers did not pay any additional funds that would", "paragraph_id": "para_499" }, { "text": "represent an overpayment and contribute to the creation of the [p]ension [a]sset. Likewise,", "paragraph_id": "para_500" }, { "text": "the formula rate structure has ensured that funds from which excess contributions were", "paragraph_id": "para_501" }, { "text": "made do not constitute rate recovery in excess of lawfully approved costs of service that", "paragraph_id": "para_502" }, { "text": "could be considered ‘ratepayer funds.’ Unlike in the case of utilities whose rate recoveries", "paragraph_id": "para_503" }, { "text": "are not reconciled to their actual prudent and reasonable cost of utility service including", "paragraph_id": "para_504" }, { "text": "costs of capital, these contributions in excess of pension cost were necessarily made from", "paragraph_id": "para_505" }, { "text": "funds that ComEd collected to cover approved costs and that, had the contribution not been", "paragraph_id": "para_506" }, { "text": "made, would have been return on or of investment, i.e. shareholder funds.”", "paragraph_id": "para_507" }, { "text": "¶ 56 Additionally, Graham testified that ComEd’s pension asset would lower the pension cost", "paragraph_id": "para_508" }, { "text": "throughout the years of the rate plan, which, in turn, would benefit ComEd’s customers “in the", "paragraph_id": "para_509" }, { "text": "form of lower pension expense included in the rates,” as well as “the stability that results from", "paragraph_id": "para_510" }, { "text": "having a levelized contribution strategy that helps minimize volatility of future period required", "paragraph_id": "para_511" }, { "text": "22", "paragraph_id": "para_512" }, { "text": "pension contributions and increase the level of certainty that the pension trust can support the full", "paragraph_id": "para_513" }, { "text": "level of benefit obligations.” Graham stated that the “cumulative benefit” of the pension asset was", "paragraph_id": "para_514" }, { "text": "“significant,” in that, within “the years since formula rates were introduced customers have had", "paragraph_id": "para_515" }, { "text": "pension expense reduced by nearly one billion dollars.”", "paragraph_id": "para_516" }, { "text": "¶ 57 ii. Staff’s Position Regarding ComEd’s Alleged Pension Asset", "paragraph_id": "para_517" }, { "text": "¶ 58 Staff proposed that the Commission deny ComEd’s request for a return on its alleged", "paragraph_id": "para_518" }, { "text": "pension asset. In support of Staff’s proposal, Scott Tolsdorf, a member of the accounting", "paragraph_id": "para_519" }, { "text": "department of the Commission, testified that ComEd had relied on Commonwealth Edison Co., Ill.", "paragraph_id": "para_520" }, { "text": "Comm. Comm’n No. 05-0597 (Order-Order on Rehearing Dec. 20, 2006), in asserting that the", "paragraph_id": "para_521" }, { "text": "Commission would not deviate from its past practice by allowing the company to earn a return on", "paragraph_id": "para_522" }, { "text": "its alleged pension asset in this case. Tolsdorf explained that ComEd’s reliance on this past", "paragraph_id": "para_523" }, { "text": "decision in the company’s 2005 rate case did “not withstand scrutiny,” in that the Commission", "paragraph_id": "para_524" }, { "text": "there had indeed allowed “a debt return on a one-time contribution of $803 million made in 2005”", "paragraph_id": "para_525" }, { "text": "but, in doing so, “was very clear about the unique treatment for that one-time contribution.”", "paragraph_id": "para_526" }, { "text": "Tolsdorf further explained that, more specifically, the Commission there had stated that, in", "paragraph_id": "para_527" }, { "text": "allowing the debt return, it was “not sanction[ing] the prefunding of a utility pension plan as a", "paragraph_id": "para_528" }, { "text": "mechanism to increase its base rates.”", "paragraph_id": "para_529" }, { "text": "¶ 59 Next, Tolsdorf testified that, in Commonwealth Edison Co., Ill. Comm. Comm’n No. 10-", "paragraph_id": "para_530" }, { "text": "0467 (Order-Final May 24, 2011), a decision in ComEd’s 2010 rate case, the Commission had", "paragraph_id": "para_531" }, { "text": "approved a continued debt return on the 2005 $803 million contribution but had also denied “(1)", "paragraph_id": "para_532" }, { "text": "a return on the full amount of ‘pension asset’ requested by ComEd, (2) a return on any additional", "paragraph_id": "para_533" }, { "text": "amounts, [and] (3) a return for the entire $803 million one-time contribution.” Tolsdorf stated that", "paragraph_id": "para_534" }, { "text": "the Commission there had also acknowledged “that the hypothetical debt issued in 2005 to fund", "paragraph_id": "para_535" }, { "text": "23", "paragraph_id": "para_536" }, { "text": "the $803 million contribution would diminish with the passage of time” and denied ComEd’s", "paragraph_id": "para_537" }, { "text": "overarching request to include its alleged pension asset in its rate base. Accordingly, Tolsdorf", "paragraph_id": "para_538" }, { "text": "recommended that the Commission in these consolidated rate proceedings deny ComEd “any”", "paragraph_id": "para_539" }, { "text": "return on its alleged pension asset.", "paragraph_id": "para_540" }, { "text": "¶ 60 In rebuttal, Joshua Levin, senior vice president, chief financial officer, and treasurer with", "paragraph_id": "para_541" }, { "text": "ComEd, testified that, contrary to Tolsdorf’s assertion, ComEd’s regulatory debt did not diminish", "paragraph_id": "para_542" }, { "text": "over time because the debt did not amortize but, instead, consisted of “ ‘straight coupon’ ” or", "paragraph_id": "para_543" }, { "text": "“ ‘bullet’ ” bonds. Levin explained that ComEd paid the interest on these securities over time and", "paragraph_id": "para_544" }, { "text": "that the principal “remain[ed] outstanding in its entirety until a maturity date, at which point it", "paragraph_id": "para_545" }, { "text": "[was] either paid off or refinanced.” Levin further explained that, even if ComEd were to have", "paragraph_id": "para_546" }, { "text": "paid off the principal of its regulatory debt over time or upon maturity, neither the pension asset", "paragraph_id": "para_547" }, { "text": "nor the regulatory debt would have diminished. He elaborated on this point as follows:", "paragraph_id": "para_548" }, { "text": "“If a borrower borrows money and pays it back, that debt has diminished. But if a borrower", "paragraph_id": "para_549" }, { "text": "finances something with that money and pays it back, the debt diminishes and the borrower", "paragraph_id": "para_550" }, { "text": "still retains the asset that was financed. After a borrower has completed paying off their", "paragraph_id": "para_551" }, { "text": "mortgage the borrower is not left with nothing—they are left with an asset. And, as", "paragraph_id": "para_552" }, { "text": "importantly, that asset remains funded by the former borrower, and the cost of that asset", "paragraph_id": "para_553" }, { "text": "has not disappeared.”", "paragraph_id": "para_554" }, { "text": "Levin stated that, “if Exelon [were to] pay off [ComEd’s regulatory debt,] ComEd [would] not", "paragraph_id": "para_555" }, { "text": "lose the $803 million that was contributed to the pension trust, and customers [would] not lose the", "paragraph_id": "para_556" }, { "text": "continued benefits resulting from that asset.”", "paragraph_id": "para_557" }, { "text": "¶ 61 iii. The Commission’s Findings and Decision", "paragraph_id": "para_558" }, { "text": "24", "paragraph_id": "para_559" }, { "text": "¶ 62 At the outset of its analysis in its Final Order, the Commission stated that it must review a", "paragraph_id": "para_560" }, { "text": "request for a return on a pension asset pursuant to traditional ratemaking principles, under which", "paragraph_id": "para_561" }, { "text": "“the Commission will not approve a return on pension asset unless the utility can prove the pension", "paragraph_id": "para_562" }, { "text": "asset was funded by shareholder, not ratepayer, funds.” Next, the Commission noted that ComEd", "paragraph_id": "para_563" }, { "text": "had “misconstrue[d]” its findings on similar issues in Commonwealth Edison Co., Ill. Comm.", "paragraph_id": "para_564" }, { "text": "Comm’n No. 05-0597, and Commonwealth Edison Co., Ill. Comm. Comm’n No. 10-0467. The", "paragraph_id": "para_565" }, { "text": "Commission then clarified the findings by stating that, “[i]n Docket No. 05-0597[, it] allowed a", "paragraph_id": "para_566" }, { "text": "debt return on a one-time contribution based on a hypothetical debt” and that “[t]his was a", "paragraph_id": "para_567" }, { "text": "diminishing debt, not a permanent source of funding, as [it] later affirmed in Docket No. 10-0467.”", "paragraph_id": "para_568" }, { "text": "¶ 63 Additionally, the Commission emphasized that it did “not sanction the prefunding of a", "paragraph_id": "para_569" }, { "text": "utility pension plan as a mechanism to increase rate bases.” The Commission found that, therefore,", "paragraph_id": "para_570" }, { "text": "ComEd’s projected excess contributions for each of the years of the rate plan were neither prudent", "paragraph_id": "para_571" }, { "text": "nor reasonable. The Commission also noted that, “[p]ursuant to the methodology [that it] approved", "paragraph_id": "para_572" }, { "text": "in Docket No. 10-0467,” Staff had calculated that ComEd’s regulatory debt would fully diminish", "paragraph_id": "para_573" }, { "text": "before rates under ComEd’s rate plan would go into effect, which vitiated the need for a further", "paragraph_id": "para_574" }, { "text": "return. Furthermore, the Commission noted that, although ComEd had made a “broad assertion”", "paragraph_id": "para_575" }, { "text": "that shareholder funds had comprised the contributions made to its alleged pension asset, the", "paragraph_id": "para_576" }, { "text": "company had failed to identify a “specific source” of the funds. Consequently, the Commission", "paragraph_id": "para_577" }, { "text": "concluded that “any further recovery of the one-time contribution from 2005 [was] not reasonable”", "paragraph_id": "para_578" }, { "text": "and denied ComEd a return on its alleged pension asset.", "paragraph_id": "para_579" }, { "text": "¶ 64 3. ComEd’s Capital Structure", "paragraph_id": "para_580" }, { "text": "¶ 65 A public utility may charge rates that allow it to earn a return on the amount of its invested", "paragraph_id": "para_581" }, { "text": "capital. Madigan, 2011 IL App (1st) 100654, ¶ 76 (citing Citizens Utilities Co. of Illinois v. Illinois", "paragraph_id": "para_582" }, { "text": "25", "paragraph_id": "para_583" }, { "text": "Commerce Comm’n, 124 Ill. 2d 195, 200-01 (1988)). The amount of a utility’s return is dependent", "paragraph_id": "para_584" }, { "text": "on its capital structure. See Citizens Utility Board v. Illinois Commerce Comm’n, 276 Ill. App. 3d", "paragraph_id": "para_585" }, { "text": "730, 743-46 (1995) (explaining the costs associated with different forms of capital and how a", "paragraph_id": "para_586" }, { "text": "utility’s capital structure impacts the amount that it recovers in revenue). A utility’s capital structure", "paragraph_id": "para_587" }, { "text": "typically consists of short-term debt, long-term debt, and equity. See Ameren Illinois Co. v. Illinois", "paragraph_id": "para_588" }, { "text": "Commerce Comm’n, 2013 IL App (4th) 121008, ¶ 22. “Generally, equity is a more expensive form", "paragraph_id": "para_589" }, { "text": "of capital than debt.” Illinois Bell Telephone Co. v. Illinois Commerce Comm’n, 283 Ill. App. 3d", "paragraph_id": "para_590" }, { "text": "188, 204 (1996). “Therefore, the more equity in a utility’s capital structure, the higher the [rate of", "paragraph_id": "para_591" }, { "text": "return] must be to cover the cost of capital.” Id.", "paragraph_id": "para_592" }, { "text": "¶ 66 i. Capital Structure Proposed by ComEd", "paragraph_id": "para_593" }, { "text": "¶ 67 ComEd proposed that its capital structure contain 50.58% common equity in 2024, 50.81%", "paragraph_id": "para_594" }, { "text": "in 2025, 51.03% in 2026, and 51.19% in 2027. Relatedly, Graham testified that ComEd’s capital", "paragraph_id": "para_595" }, { "text": "structure was designed to ensure that the company was able “to provide adequate, efficient, and", "paragraph_id": "para_596" }, { "text": "reliable service and *** to access capital consistently and at a reasonable cost.” Graham explained", "paragraph_id": "para_597" }, { "text": "that, in particular, ComEd had a practice of creating plans and forecasts regarding the company’s", "paragraph_id": "para_598" }, { "text": "projected capital structure that ensured that the structure “maintain[ed] strong, investment-grade", "paragraph_id": "para_599" }, { "text": "credit rating agency target metrics” and “ready and reasonable-cost access to the credit markets,", "paragraph_id": "para_600" }, { "text": "in which [ComEd] compete[d] for capital with other utilities and non-utility corporations.” Graham", "paragraph_id": "para_601" }, { "text": "further explained that, in creating these plans and forecasts, ComEd would also consider how its", "paragraph_id": "para_602" }, { "text": "capital structure was viewed by regulatory entities and reflected in rates. Graham stated that the", "paragraph_id": "para_603" }, { "text": "projected capital structures that ComEd had proposed under the rate plan were “in line” with those", "paragraph_id": "para_604" }, { "text": "of other similarly situated entities and that both ComEd’s proposed capital structures and the", "paragraph_id": "para_605" }, { "text": "26", "paragraph_id": "para_606" }, { "text": "methods that the company had used to create them were consistent with those that the Commission", "paragraph_id": "para_607" }, { "text": "had approved in the past.", "paragraph_id": "para_608" }, { "text": "¶ 68 Additionally, Graham testified that ComEd’s projected capital structures had reflected the", "paragraph_id": "para_609" }, { "text": "company’s financial needs throughout the rate plan, during which ComEd would need to support", "paragraph_id": "para_610" }, { "text": "both its existing investments and an increasing level of new investments. Graham explained that", "paragraph_id": "para_611" }, { "text": "it was important for ComEd to maintain its financial health because, typically, the company used", "paragraph_id": "para_612" }, { "text": "debt and other capital to help pay for its investments and credit ratings impacted the costs of such", "paragraph_id": "para_613" }, { "text": "capital, which were, in turn, borne by ComEd’s customers. Graham further explained that, thus, if", "paragraph_id": "para_614" }, { "text": "ComEd were able to maintain favorable credit metrics, then the costs to its customers would be", "paragraph_id": "para_615" }, { "text": "minimized. As to the proposed increase in common equity contained in ComEd’s projected capital", "paragraph_id": "para_616" }, { "text": "structures for each year of the rate plan, Graham stated that it was necessary because of “the greater", "paragraph_id": "para_617" }, { "text": "uncertainty over the period associated with the longer-term reconciliations in the latter years of the", "paragraph_id": "para_618" }, { "text": "[r]ate [p]lan, the risks inherent in the new [Climate and Equitable Jobs Act] reconciliation process,", "paragraph_id": "para_619" }, { "text": "and cash flow headwinds.”", "paragraph_id": "para_620" }, { "text": "¶ 69 ii. Capital Structure Proposed by Others", "paragraph_id": "para_621" }, { "text": "¶ 70 Staff recommended that the Commission reject ComEd’s proposed capital structure and,", "paragraph_id": "para_622" }, { "text": "instead, impute a capital structure that contained 50% common equity. ICCP and the Attorney", "paragraph_id": "para_623" }, { "text": "General also joined in Staff’s position.", "paragraph_id": "para_624" }, { "text": "¶ 71 In support of Staff’s recommendation, McNally testified that ComEd’s proposed capital", "paragraph_id": "para_625" }, { "text": "structure contained “an excessive amount of common equity,” in that ComEd had failed to offer", "paragraph_id": "para_626" }, { "text": "evidence that sufficiently showed that a capital structure containing more than 50% common", "paragraph_id": "para_627" }, { "text": "equity was warranted. McNally also testified as to the following, regarding ComEd’s credit rating:", "paragraph_id": "para_628" }, { "text": "27", "paragraph_id": "para_629" }, { "text": "“[Formula ratemaking] has had a positive impact on ComEd’s credit ratings. This", "paragraph_id": "para_630" }, { "text": "is evidenced by the fact that ComEd’s credit ratings from Moody’s Investors Service", "paragraph_id": "para_631" }, { "text": "(“Moody’s”) and Standard & Poor’s (“S&P”) have been upgraded several times since the", "paragraph_id": "para_632" }, { "text": "implementation of formula rates. ***. In summary, ComEd’s credit rating from Moody’s", "paragraph_id": "para_633" }, { "text": "improved three notches since formula rates began, while ComEd’s S&P rating improved", "paragraph_id": "para_634" }, { "text": "two notches ***.", "paragraph_id": "para_635" }, { "text": "* * *", "paragraph_id": "para_636" }, { "text": "Both Moody’s and S&P view [formula ratemaking] positively, as shown by the", "paragraph_id": "para_637" }, { "text": "credit upgrades that have occurred. ***. In fact, Moody’s stated that ComEd’s rating could", "paragraph_id": "para_638" }, { "text": "be upgraded even farther ‘if [formula ratemaking] is established permanently.’ ***.", "paragraph_id": "para_639" }, { "text": "Similarly, in upgrading its assessment of ComEd’s business risk profile from strong to", "paragraph_id": "para_640" }, { "text": "excellent ***, S&P stated, ‘[ComEd] has benefitted from a formulaic approach to rate", "paragraph_id": "para_641" }, { "text": "making that has helped the company to improve the level of earned returns. The use of", "paragraph_id": "para_642" }, { "text": "formula rates to calculate rate adjustments diminishes uncertain[ty] around investment", "paragraph_id": "para_643" }, { "text": "recovery.’", "paragraph_id": "para_644" }, { "text": "* * *", "paragraph_id": "para_645" }, { "text": "Both Moody’s and S&P agree that the [rate plan] will further enhance ComEd’s", "paragraph_id": "para_646" }, { "text": "credit quality. Specifically, Moody’s states, ‘The multi-year plan process, similar to the", "paragraph_id": "para_647" }, { "text": "formulaic rate regulation, should still produce transparent and predictable cash flow, but", "paragraph_id": "para_648" }, { "text": "likely with less regulatory lag and improved profitability.’ ***. Similarly, S&P states, ‘We", "paragraph_id": "para_649" }, { "text": "anticipate that ComEd will operate under a multi-year rate plan with forward test periods", "paragraph_id": "para_650" }, { "text": "which would enhance rate predictability and regulatory lag.’ ”", "paragraph_id": "para_651" }, { "text": "28", "paragraph_id": "para_652" }, { "text": "¶ 72 As to the relationship between Exelon and ComEd, McNally testified that S&P had viewed", "paragraph_id": "para_653" }, { "text": "the two companies as having similar and “ ‘[e]xcellent’ ” levels of operating risk. McNally further", "paragraph_id": "para_654" }, { "text": "explained that, “[a]ll else equal, companies with similar operating risk levels can maintain a given", "paragraph_id": "para_655" }, { "text": "credit rating with a similar percentage of equity on their balance sheets” but that, nevertheless, in", "paragraph_id": "para_656" }, { "text": "its rate plan, ComEd was seeking to increase its percentage of equity despite the fact that its “three-", "paragraph_id": "para_657" }, { "text": "year average common equity ratio *** was already much higher than [Exelon’s].” McNally stated", "paragraph_id": "para_658" }, { "text": "that the relationship between Exelon and ComEd was a “very common” one, on which he", "paragraph_id": "para_659" }, { "text": "elaborated as follows:", "paragraph_id": "para_660" }, { "text": "“[W]hen a larger corporation owns a utility, the corporation is generally not motivated to", "paragraph_id": "para_661" }, { "text": "establish the optimal, lowest-cost capital structure for the utility, but to instead use a capital", "paragraph_id": "para_662" }, { "text": "structure with a greater percentage of equity than is optimal, thereby allowing the parent", "paragraph_id": "para_663" }, { "text": "company to realize a greater return. In other words, the capital structure of the regulated", "paragraph_id": "para_664" }, { "text": "utility can be manipulated to include excessive equity to inflate the rate of return. ***. If", "paragraph_id": "para_665" }, { "text": "ComEd’s capital structure carries an excessive amount of equity, it benefits Exelon, its", "paragraph_id": "para_666" }, { "text": "parent and sole shareholder, to the detriment of ComEd ratepayers, who would pay for the", "paragraph_id": "para_667" }, { "text": "excessive amount of equity.”", "paragraph_id": "para_668" }, { "text": "¶ 73 According to McNally, since 2020, Exelon has provided ComEd with $2 billion in cash", "paragraph_id": "para_669" }, { "text": "infusions, which has increased ComEd’s common equity balance. McNally stated that, although", "paragraph_id": "para_670" }, { "text": "there was nothing in the governing statute that prohibited the cash infusions, ComEd could only", "paragraph_id": "para_671" }, { "text": "charge rates that reflected a common equity balance that was “reasonable” and there was “no threat", "paragraph_id": "para_672" }, { "text": "to the [c]ompany’s financial condition or credit position to justify ComEd’s increased equity ratios", "paragraph_id": "para_673" }, { "text": "and the corresponding higher costs to ratepayers.”", "paragraph_id": "para_674" }, { "text": "¶ 74 iii. The Commission’s Findings and Decision", "paragraph_id": "para_675" }, { "text": "29", "paragraph_id": "para_676" }, { "text": "¶ 75 In its Final Order, the Commission articulated that, pursuant to section 16-108.18(d)(3)(C)", "paragraph_id": "para_677" }, { "text": "of the Public Utilities Act, a utility’s actual capital structure that is 50% or less is “deemed just and", "paragraph_id": "para_678" }, { "text": "reasonable,” whereas “[a] common equity ratio above 50.00% must be specifically approved by", "paragraph_id": "para_679" }, { "text": "the Commission.” The Commission further articulated that, in the consolidated rate proceedings,", "paragraph_id": "para_680" }, { "text": "the burden was upon ComEd to prove that the common equity ratio that it sought, which exceeded", "paragraph_id": "para_681" }, { "text": "50%, was reasonable.", "paragraph_id": "para_682" }, { "text": "¶ 76 Next, the Commission noted from the available evidence that, since 2012, ComEd’s actual", "paragraph_id": "para_683" }, { "text": "common equity ratio had been 46.57%, that the proxy group upon which McNally had relied had", "paragraph_id": "para_684" }, { "text": "a common equity ratio of only 44.17% from 2020 through 2022, and that ComEd’s risk would be", "paragraph_id": "para_685" }, { "text": "less than or remain the same as it was under formula ratemaking. The Commission also credited", "paragraph_id": "para_686" }, { "text": "McNally’s testimony that, based on credit rating agencies’ assessment, a 50% common equity ratio", "paragraph_id": "para_687" }, { "text": "would not lessen ComEd’s financial strength. Further, the Commission found that ComEd’s rate", "paragraph_id": "para_688" }, { "text": "plan would reduce the company’s risk and that ComEd’s affiliation with Exelon had caused the", "paragraph_id": "para_689" }, { "text": "company to have an elevated common equity ratio, to the benefit of Exelon and the detriment of", "paragraph_id": "para_690" }, { "text": "ratepayers. Consequently, the Commission rejected ComEd’s proposed capital structure and", "paragraph_id": "para_691" }, { "text": "imputed a capital structure that contained 50% common equity for the duration of the rate plan.", "paragraph_id": "para_692" }, { "text": "¶ 77 II. ANALYSIS", "paragraph_id": "para_693" }, { "text": "¶ 78 A. Standards of Review", "paragraph_id": "para_694" }, { "text": "¶ 79 Section 9-101 of the Public Utilities Act provides that “[a]ll rates or other charges made,", "paragraph_id": "para_695" }, { "text": "demanded or received *** shall be just and reasonable.” 220 ILCS 5/9-101 (West 2022). Section", "paragraph_id": "para_696" }, { "text": "9-201(c) of the Public Utilities Act further provides that, “[i]f the Commission enters upon a", "paragraph_id": "para_697" }, { "text": "hearing concerning the propriety of any proposed rate or other charge, *** [then] the Commission", "paragraph_id": "para_698" }, { "text": "30", "paragraph_id": "para_699" }, { "text": "shall establish the rates or other charges *** which it shall find to be just and reasonable.” Id. § 9-", "paragraph_id": "para_700" }, { "text": "201(c).", "paragraph_id": "para_701" }, { "text": "¶ 80 “The Commission is not merely an arbitrator between the utility and parties opposing a rate", "paragraph_id": "para_702" }, { "text": "change[;] it is an investigator and regulator of utilities[,] responsible for the setting of just rates for", "paragraph_id": "para_703" }, { "text": "all affected by the rates.” (Internal quotation marks omitted.) Citizens Utility Board, 2018 IL App", "paragraph_id": "para_704" }, { "text": "(1st) 170527, ¶ 25. Therefore, the Commission must balance the interests of the utility and the", "paragraph_id": "para_705" }, { "text": "utility’s investors and customers when setting rates. See Business & Professional People, 146 Ill.", "paragraph_id": "para_706" }, { "text": "2d at 208 (“The Commission is charged by the legislature with setting rates which are ‘just and", "paragraph_id": "para_707" }, { "text": "reasonable’ not only to the ratepayers but to the utility and its stockholders.” (Emphasis in", "paragraph_id": "para_708" }, { "text": "original.)). More specifically,", "paragraph_id": "para_709" }, { "text": "“[t]he Commission has the responsibility of balancing the right of the utility’s investors to", "paragraph_id": "para_710" }, { "text": "a fair rate of return against the right of the public that it pay no more than the reasonable", "paragraph_id": "para_711" }, { "text": "value of the utility’s services. While the rates allowed can never be so low as to be", "paragraph_id": "para_712" }, { "text": "confiscatory, within this outer boundary, if the rightful expectations of the investor are not", "paragraph_id": "para_713" }, { "text": "compatible with those of the consuming public, it is the latter which must prevail.” Camelot", "paragraph_id": "para_714" }, { "text": "Utilities, Inc. v. Illinois Commerce Comm’n, 51 Ill. App. 3d 5, 10 (1977).", "paragraph_id": "para_715" }, { "text": "Moreover, the Commission is “not bound to the use of any single formula or combination of", "paragraph_id": "para_716" }, { "text": "formulae” when exercising its power to set rates, which, “of necessity, requires the use of", "paragraph_id": "para_717" }, { "text": "pragmatic adjustments which may be called for by the particular circumstances.” Iowa-Illinois Gas", "paragraph_id": "para_718" }, { "text": "& Electric Co. v. Illinois Commerce Comm’n, 19 Ill. 2d 436, 442 (1960); Hope, 320 U.S. at 602.", "paragraph_id": "para_719" }, { "text": "¶ 81 The utility bears the burden of proving that its proposed rates are just and reasonable. 220", "paragraph_id": "para_720" }, { "text": "ILCS 5/9-201(c) (West 2022). To meet this burden, “the utility must show that its operating costs", "paragraph_id": "para_721" }, { "text": "are reasonable, its rate base is the reasonable value of its property used for serving the public, and", "paragraph_id": "para_722" }, { "text": "31", "paragraph_id": "para_723" }, { "text": "its rate of return on capital is the reasonable cost of the capital needed to provide the services.”", "paragraph_id": "para_724" }, { "text": "Citizens Utility Board, 276 Ill. App. 3d at 746.", "paragraph_id": "para_725" }, { "text": "¶ 82 The Commission “must allow the utility to recover costs prudently and reasonably", "paragraph_id": "para_726" }, { "text": "incurred.” Citizens Utility Board, 166 Ill. 2d at 121 (citing 220 ILCS 5/1-102(a)(iv) (West 1992)).", "paragraph_id": "para_727" }, { "text": "“ ‘Prudence is that standard of care which a reasonable person would be expected to exercise under", "paragraph_id": "para_728" }, { "text": "the same circumstances encountered by utility management at the time decisions had to be made.’ ”", "paragraph_id": "para_729" }, { "text": "Illinois Power Co. v. Illinois Commerce Comm’n, 339 Ill. App. 3d 425, 428 (2003) (quoting Illinois", "paragraph_id": "para_730" }, { "text": "Power Co. v. Illinois Commerce Comm’n, 245 Ill. App. 3d 367, 371 (1993)). “[T]he prudence", "paragraph_id": "para_731" }, { "text": "standard recognizes that reasonable persons can have honest differences of opinion without one or", "paragraph_id": "para_732" }, { "text": "the other necessarily being ‘imprudent.’ ” Id. at 435. “[T]he Commission should disallow recovery", "paragraph_id": "para_733" }, { "text": "of any cost of capital in excess of that reasonably necessary for the provision of services.” Citizens", "paragraph_id": "para_734" }, { "text": "Utility Board, 276 Ill. App. 3d at 746.", "paragraph_id": "para_735" }, { "text": "¶ 83 Judicial review of final orders issued by the Commission “involves the exercise of special", "paragraph_id": "para_736" }, { "text": "statutory jurisdiction and is constrained by the provisions of the Public Utilities Act.”", "paragraph_id": "para_737" }, { "text": "Commonwealth Edison Co. v. Illinois Commerce Comm’n, 2019 IL App (2d) 180504, ¶ 51. Section", "paragraph_id": "para_738" }, { "text": "10-201(d) of the Public Utilities Act provides that the “rules, regulations, orders or decisions of", "paragraph_id": "para_739" }, { "text": "the Commission shall be held to be prima facie reasonable” and that the burden of proof upon all", "paragraph_id": "para_740" }, { "text": "issues raised by an appeal from an order issued by the Commission is upon the party appealing", "paragraph_id": "para_741" }, { "text": "from that order. 220 ILCS 5/10-201(d) (West 2022). A reviewing court is required to give", "paragraph_id": "para_742" }, { "text": "substantial deference to the orders of the Commission because of the Commission’s expertise and", "paragraph_id": "para_743" }, { "text": "experience in the area of setting rates. Commonwealth Edison Co. v. Illinois Commerce Comm’n,", "paragraph_id": "para_744" }, { "text": "398 Ill. App. 3d 510, 514 (2009). Consequently, a Commission regulation may be set aside “only", "paragraph_id": "para_745" }, { "text": "32", "paragraph_id": "para_746" }, { "text": "if it is clearly arbitrary, capricious, or unreasonable.” Central Illinois Public Service Co. v. Illinois", "paragraph_id": "para_747" }, { "text": "Commerce Comm’n, 268 Ill. App. 3d 471, 476-77 (1994).", "paragraph_id": "para_748" }, { "text": "¶ 84 When reviewing a Commission order, courts are limited to determining the following four", "paragraph_id": "para_749" }, { "text": "issues: “(1) whether the Commission acted within the scope of its authority, (2) whether the", "paragraph_id": "para_750" }, { "text": "Commission made adequate findings in support of its decision, (3) whether the Commission’s", "paragraph_id": "para_751" }, { "text": "decision was supported by substantial evidence in the record, and (4) whether constitutional rights", "paragraph_id": "para_752" }, { "text": "have been violated.” Id. at 476. “Substantial evidence” is “evidence that a reasonable mind might", "paragraph_id": "para_753" }, { "text": "accept as adequate to support a conclusion” and is “more than a scintilla of evidence but *** less", "paragraph_id": "para_754" }, { "text": "than a preponderance of the evidence.” (Internal quotation marks omitted.) Save Our Illinois Land", "paragraph_id": "para_755" }, { "text": "v. Illinois Commerce Comm’n, 2022 IL App (4th) 210008, ¶ 37. If reasonable minds could differ", "paragraph_id": "para_756" }, { "text": "as to where the weight of the evidence lies, then a reviewing court should defer to the", "paragraph_id": "para_757" }, { "text": "Commission’s finding of fact. Id. “The substantial-evidence standard is the same as the manifest-", "paragraph_id": "para_758" }, { "text": "weight standard.” Id.", "paragraph_id": "para_759" }, { "text": "¶ 85 “The findings and conclusions of the Commission on questions of fact shall be held", "paragraph_id": "para_760" }, { "text": "prima facie to be true and as found by the Commission,” except when a finding or conclusion is", "paragraph_id": "para_761" }, { "text": "not supported by substantial evidence or, otherwise stated, is against the manifest weight of the", "paragraph_id": "para_762" }, { "text": "evidence. 220 ILCS 5/10-201(d) (West 2022); see Raoul, 2025 IL App (4th) 230491, ¶ 54. “[A]", "paragraph_id": "para_763" }, { "text": "finding is against the manifest weight of the evidence if all reasonable persons would agree that", "paragraph_id": "para_764" }, { "text": "the finding is erroneous and that the opposite conclusion is evident.” (Internal quotation marks", "paragraph_id": "para_765" }, { "text": "omitted.) Raoul, 2025 IL App (4th) 230491, ¶ 54.", "paragraph_id": "para_766" }, { "text": "¶ 86 Separately, we decide questions of law, such as the interpretation of statute or a regulation", "paragraph_id": "para_767" }, { "text": "of the Commission, de novo. Save Our Illinois Land, 2022 IL App (4th) 210008, ¶ 42. “While we", "paragraph_id": "para_768" }, { "text": "are not bound by the Commission’s conclusion on questions of law, we will give substantial weight", "paragraph_id": "para_769" }, { "text": "33", "paragraph_id": "para_770" }, { "text": "and deference to an interpretation of an ambiguous statute by the agency charged with the", "paragraph_id": "para_771" }, { "text": "administration and enforcement of the statute.” (Internal quotation marks omitted.) People ex rel.", "paragraph_id": "para_772" }, { "text": "Madigan v. Illinois Commerce Comm’n, 2011 IL App (1st) 101776, ¶ 6. The reason for this", "paragraph_id": "para_773" }, { "text": "deference is that “courts appreciate that agencies can make informed judgments upon the issues,", "paragraph_id": "para_774" }, { "text": "based upon their experience and expertise[,] and *** agencies must have wide latitude to adopt", "paragraph_id": "para_775" }, { "text": "regulations reasonably necessary to effectuate their statutory functions.” (Internal quotation marks", "paragraph_id": "para_776" }, { "text": "omitted.) Id.", "paragraph_id": "para_777" }, { "text": "¶ 87 Additionally, mixed questions of law and fact are reviewed for clear error. Id. ¶ 8. A mixed", "paragraph_id": "para_778" }, { "text": "question of law and fact is one that asks the legal effect of a given set of facts or, otherwise stated,", "paragraph_id": "para_779" }, { "text": "“is one in which the historical facts are admitted or established, the rule of law is undisputed, and", "paragraph_id": "para_780" }, { "text": "the issue is whether the facts satisfy the statutory standard, or whether the rule of law as applied to", "paragraph_id": "para_781" }, { "text": "the established facts is or is not violated.” Id. An agency decision is clearly erroneous when “the", "paragraph_id": "para_782" }, { "text": "reviewing court, on the entire record, is left with the definite and firm conviction that a mistake", "paragraph_id": "para_783" }, { "text": "has been committed.” (Internal quotation marks omitted.) Id. ¶ 9.", "paragraph_id": "para_784" }, { "text": "¶ 88 B. Return on Equity", "paragraph_id": "para_785" }, { "text": "¶ 89 First, ComEd argues that the Commission erred by setting an 8.905% return on equity for", "paragraph_id": "para_786" }, { "text": "the duration of the rate plan. ComEd contends that this determination was erroneous because, in", "paragraph_id": "para_787" }, { "text": "arriving at it, the Commission did not adopt the return on equity proposed by any of the testifying", "paragraph_id": "para_788" }, { "text": "experts based on their application of the traditional financial models but, rather, customized those", "paragraph_id": "para_789" }, { "text": "financial models, “cherry-picked” their inputs, and then calculated a return on equity that no expert", "paragraph_id": "para_790" }, { "text": "had proposed. Specifically, ComEd points out that the Commission relied solely upon monthly", "paragraph_id": "para_791" }, { "text": "beta inputs when applying the CAPM, despite the fact that “no witness” had testified that it was", "paragraph_id": "para_792" }, { "text": "proper to rely solely upon such inputs and the only expert who had relied upon monthly beta inputs", "paragraph_id": "para_793" }, { "text": "34", "paragraph_id": "para_794" }, { "text": "averaged them with weekly beta inputs. ComEd also points out that the Commission applied only", "paragraph_id": "para_795" }, { "text": "the NCDCF model and “discard[ed]” the constant-growth DCF model, despite the fact that Graves", "paragraph_id": "para_796" }, { "text": "had applied only the constant-growth DCF model, McNally and Gorman had applied both the", "paragraph_id": "para_797" }, { "text": "NCDCF and constant-growth DCF models, and no witness had testified that “it was", "paragraph_id": "para_798" }, { "text": "methodologically sound to discard the constant-growth results entirely.”", "paragraph_id": "para_799" }, { "text": "¶ 90 Moreover, ComEd argues that, in applying its “ad hoc financial analyses,” the Commission", "paragraph_id": "para_800" }, { "text": "failed to weigh the available evidence and, instead, improperly “create[ed] its own evidence”", "paragraph_id": "para_801" }, { "text": "following the close of evidence presentation and thereby deprived the company of the opportunity", "paragraph_id": "para_802" }, { "text": "to timely object to its financial analyses. ComEd also argues that the Commission’s actions", "paragraph_id": "para_803" }, { "text": "constituted a departure from its past practices and led to it approving a return on equity that was", "paragraph_id": "para_804" }, { "text": "“too unmoored from what the record as a whole establish[ed].”", "paragraph_id": "para_805" }, { "text": "¶ 91 A utility’s return on equity is closely tied to its rates. Ameren Illinois Co. v. Illinois", "paragraph_id": "para_806" }, { "text": "Commerce Comm’n, 2025 IL App (5th) 240014, ¶ 105. As we earlier noted, section 9-201(c) of", "paragraph_id": "para_807" }, { "text": "the Public Utilities Act states that, if, as here, “the Commission enters upon a hearing concerning", "paragraph_id": "para_808" }, { "text": "the propriety of any proposed rate or other charge, *** [then] the Commission shall establish the", "paragraph_id": "para_809" }, { "text": "rates or other charges *** which it shall find to be just and reasonable.” 220 ILCS 5/9-201(c) (West", "paragraph_id": "para_810" }, { "text": "2022). “To determine whether [a utility’s] rates are just and reasonable, the utility’s revenue", "paragraph_id": "para_811" }, { "text": "requirement must be determined using the sum of the company’s operating costs and the rate of", "paragraph_id": "para_812" }, { "text": "return on its invested capital.” Ameren, 2025 IL App (5th) 240014, ¶ 105. Additionally, as this", "paragraph_id": "para_813" }, { "text": "court has explained in a previous decision:", "paragraph_id": "para_814" }, { "text": "“A utility’s return should be reasonably sufficient to permit confidence in the", "paragraph_id": "para_815" }, { "text": "utility’s financial soundness and, with economical and efficient management, to support", "paragraph_id": "para_816" }, { "text": "the utility’s credit and raise funds necessary to properly discharge the utility’s public duties.", "paragraph_id": "para_817" }, { "text": "35", "paragraph_id": "para_818" }, { "text": "[Citation.] Additionally, ‘the return to the equity owner should be commensurate with", "paragraph_id": "para_819" }, { "text": "returns on investments in other enterprises having corresponding risks.’ [Citation.] An", "paragraph_id": "para_820" }, { "text": "investor has a legitimate concern with the utility’s financial integrity, which requires that it", "paragraph_id": "para_821" }, { "text": "have enough revenue for operating expenses and capital costs. [Citation.]” Citizens Utility", "paragraph_id": "para_822" }, { "text": "Board, 2018 IL App (1st) 170527, ¶ 45.", "paragraph_id": "para_823" }, { "text": "¶ 92 ComEd cites Ohio Bell Telephone Co. v. Public Utilities Comm’n of Ohio, 301 U.S. 292", "paragraph_id": "para_824" }, { "text": "(1937), and People ex rel. Hartigan v. Illinois Commerce Comm’n, 117 Ill. 2d 120 (1987), to", "paragraph_id": "para_825" }, { "text": "support its argument that the Commission’s determination of its return on equity was erroneous.", "paragraph_id": "para_826" }, { "text": "In Ohio Bell, a telephone company instituted a rate case in which the Public Utilities Commission", "paragraph_id": "para_827" }, { "text": "of Ohio (Ohio Commission) was required to “ascertain the value of [subject] property as ‘of a date", "paragraph_id": "para_828" }, { "text": "certain,’ ” which was later determined to be June 30, 1925. Ohio Bell, 301 U.S. at 295. During the", "paragraph_id": "para_829" }, { "text": "subsequent proceedings, the Ohio “Commission did not confine itself *** to a valuation of the", "paragraph_id": "para_830" }, { "text": "property as of the date certain” but, rather, also “undertook *** to fix a valuation for each of the", "paragraph_id": "para_831" }, { "text": "years 1926 to 1933 inclusive” by “t[aking] judicial notice of price trends during those years[ and]", "paragraph_id": "para_832" }, { "text": "modifying the value which it had found as of the date certain by the percentage of decline or rise", "paragraph_id": "para_833" }, { "text": "applicable to the years thereafter.” Id. at 296. After the Ohio Commission issued its valuation, the", "paragraph_id": "para_834" }, { "text": "telephone company filed a petition for rehearing in which it argued that the Ohio Commission had", "paragraph_id": "para_835" }, { "text": "denied the company a fair hearing in violation of “the requirements of the Fourteenth", "paragraph_id": "para_836" }, { "text": "Amendment,” in that the Ohio Commission had accepted data concerning a decline in values that", "paragraph_id": "para_837" }, { "text": "“did not come from any official sources which the [Ohio] Commission had the right to notice", "paragraph_id": "para_838" }, { "text": "judicially” and that had not been entered into evidence. Id. at 298. The telephone company also", "paragraph_id": "para_839" }, { "text": "asserted that it had not been given an opportunity to explain or rebut the data relied upon by the", "paragraph_id": "para_840" }, { "text": "Ohio Commission. Id.", "paragraph_id": "para_841" }, { "text": "36", "paragraph_id": "para_842" }, { "text": "¶ 93 On appeal following the Ohio Commission’s denial of the petition for rehearing in Ohio", "paragraph_id": "para_843" }, { "text": "Bell, the United States Supreme Court noted that the Ohio Commission had given proper notice", "paragraph_id": "para_844" }, { "text": "only of the fact that the value of the subject property would be fixed as of the date certain, that", "paragraph_id": "para_845" }, { "text": "“[e]vidence directed to the value at that time had been laid before the triers of the facts in thousands", "paragraph_id": "para_846" }, { "text": "of printed pages,” and that, “[w]ithout warning or even the hint of warning that the case would be", "paragraph_id": "para_847" }, { "text": "considered or determined upon any other basis than the evidence submitted, the [Ohio]", "paragraph_id": "para_848" }, { "text": "Commission cut down the values for the years after the date certain upon the strength of", "paragraph_id": "para_849" }, { "text": "information secretly collected and never yet disclosed.” Id. at 300. The Court further noted that", "paragraph_id": "para_850" }, { "text": "the Ohio Commission had “curt[ly] refus[ed]” the telephone company’s request for “disclosure of", "paragraph_id": "para_851" }, { "text": "the documents indicative of price trends, and an opportunity to examine them, to analyze them, to", "paragraph_id": "para_852" }, { "text": "explain and to rebut them.” Id. Based on these observations, the Court concluded that the hearing", "paragraph_id": "para_853" }, { "text": "that the Ohio Commission had conducted was not “the fair hearing essential to due process” and", "paragraph_id": "para_854" }, { "text": "reversed the Ohio Commission’s determination. Id. at 300, 307.", "paragraph_id": "para_855" }, { "text": "¶ 94 Separately, in Hartigan, ComEd filed a request with the Commission for a rate increase", "paragraph_id": "para_856" }, { "text": "and, in the request, sought to include the costs of the construction of a nuclear power plant in the", "paragraph_id": "para_857" }, { "text": "company’s rate base. Hartigan, 117 Ill. 2d at 127-28. The Commission subsequently hired a", "paragraph_id": "para_858" }, { "text": "company to audit the construction costs in compliance with the provisions of the governing statute,", "paragraph_id": "para_859" }, { "text": "which required the audit to “ ‘be conducted in accordance with generally accepted auditing", "paragraph_id": "para_860" }, { "text": "standards.’ ” Id. at 128, 130 (quoting Ill. Rev. Stat., 1985 Supp., ch. 111⅔ ¶ 30.1). During the", "paragraph_id": "para_861" }, { "text": "rate proceedings, numerous intervenors filed motions in which they argued that the audit that had", "paragraph_id": "para_862" }, { "text": "ultimately been conducted was deficient under the governing statute and then requested that the", "paragraph_id": "para_863" }, { "text": "proceedings be suspended to improve the audit. Id. at 128. The Commission denied the", "paragraph_id": "para_864" }, { "text": "37", "paragraph_id": "para_865" }, { "text": "intervenors’ motions, conducted “trial-type hearings” regarding the audit and ComEd’s proposed", "paragraph_id": "para_866" }, { "text": "rate increase, and issued a final order that set ComEd’s rates. Id. at 128-29.", "paragraph_id": "para_867" }, { "text": "¶ 95 On appeal, the Hartigan court considered whether the Commission had properly", "paragraph_id": "para_868" }, { "text": "interpreted the statutory phrase “generally accepted auditing standards.” Id. at 136-41. The court", "paragraph_id": "para_869" }, { "text": "noted that the Commission had received “a great deal of evidence” as to what constituted generally", "paragraph_id": "para_870" }, { "text": "accepted auditing standards. Id. at 137. The court then found that, nevertheless, the Commission’s", "paragraph_id": "para_871" }, { "text": "“interpretation fail[ed] to acknowledge the evidence introduced by the parties,” in that it “included", "paragraph_id": "para_872" }, { "text": "only two of the factors identified by the audit witnesses of [ComEd] and the intervenors and", "paragraph_id": "para_873" }, { "text": "ignor[ed] other standards the witnesses identified as applicable.” Id. at 137, 139. Accordingly, the", "paragraph_id": "para_874" }, { "text": "court remanded the matter for the Commission to correctly determine whether the audit that had", "paragraph_id": "para_875" }, { "text": "been conducted met generally accepted auditing standards. Id. at 141.", "paragraph_id": "para_876" }, { "text": "¶ 96 Unlike the appeal in Ohio Bell, the one at present does not raise an issue as to the proper", "paragraph_id": "para_877" }, { "text": "valuation of property as of a date certain or whether the Commission properly assessed the value", "paragraph_id": "para_878" }, { "text": "of said property following the date certain. Nor, unlike the appeal in Hartigan, does this appeal", "paragraph_id": "para_879" }, { "text": "concern the proper interpretation of the statutory phrase “generally accepted auditing standards”", "paragraph_id": "para_880" }, { "text": "or arise from the Commission’s determination of whether an audit conformed with such standards.", "paragraph_id": "para_881" }, { "text": "Therefore, we find ComEd’s reliance on Ohio Bell and Hartigan to be unpersuasive.", "paragraph_id": "para_882" }, { "text": "¶ 97 Instead, we find more persuasive the decision in Ameren, 2025 IL App (5th) 240014. In", "paragraph_id": "para_883" }, { "text": "Ameren, Ameren Illinois Company (AIC) initiated rate proceedings before the Commission in", "paragraph_id": "para_884" }, { "text": "which the company proposed a 10.3% return on equity. Id. ¶ 1, 3, 33. AIC’s proposal was based", "paragraph_id": "para_885" }, { "text": "on the analysis of its expert, who had applied the DCF model, the RPM, and the CAPM to estimate", "paragraph_id": "para_886" }, { "text": "AIC’s proper return on equity. Id. ¶ 33. The expert’s application of the DCF model yielded a 9.54%", "paragraph_id": "para_887" }, { "text": "return on equity, using both projected and current interest rates; his application of the RPM yielded", "paragraph_id": "para_888" }, { "text": "38", "paragraph_id": "para_889" }, { "text": "an 11.73% return on equity, using projected interest rates, and an 11.63% return on equity, using", "paragraph_id": "para_890" }, { "text": "current interest rates and “based on the ‘fundamental principle that greater risk required greater", "paragraph_id": "para_891" }, { "text": "rewards’ for investors”; and his application of the CAPM yielded an 11.75% return on equity,", "paragraph_id": "para_892" }, { "text": "using projected interest rates, and an 11.69% return on equity, using current interest rates. Id.", "paragraph_id": "para_893" }, { "text": "“Once [AIC’s expert] determined the results, he then adjusted the values for size, credit risk, and", "paragraph_id": "para_894" }, { "text": "flotation costs and determined the [return on equity] range of 10.60% to 11.60%[,] using projected", "paragraph_id": "para_895" }, { "text": "interest rates and 10.56% to 11.56%, using current interest rates.” Id.", "paragraph_id": "para_896" }, { "text": "¶ 98 Staff in Ameren proposed a 9.89% return on equity. Id. ¶ 34. The difference between the", "paragraph_id": "para_897" }, { "text": "returns on equity proposed by Staff versus AIC “stemmed from different inputs in the DCF and", "paragraph_id": "para_898" }, { "text": "CAPM analyses, AIC’s reliance on the bond yield plus risk premium, ECAPM models not", "paragraph_id": "para_899" }, { "text": "traditionally relied on by the Commission, and what were designated as ‘inappropriate adjustments", "paragraph_id": "para_900" }, { "text": "to the [return on equity] for size risk, credit risk, and flotation costs.’ ” Id. Staff used a “multi-stage", "paragraph_id": "para_901" }, { "text": "DCF that considered stock price, dividends, and an average of DCF growth (9.40%) and quarterly", "paragraph_id": "para_902" }, { "text": "[NCDCF] models (8.23%) to reach its DCF rate.” Id. In applying the CAPM, Staff used the 4.19%", "paragraph_id": "para_903" }, { "text": "yield on four-week United States Treasury bills to estimate the risk-free return input and analyzed", "paragraph_id": "para_904" }, { "text": "S&P 500 companies to calculate an expected rate of return of 12.65%. Id. ¶ 35. As for the beta", "paragraph_id": "para_905" }, { "text": "input, Staff used “Zacks beta estimate and regression beta estimate because they relied on monthly,", "paragraph_id": "para_906" }, { "text": "as opposed to weekly, data.” Id. Staff calculated an 8.81% return on equity using the DCF model", "paragraph_id": "para_907" }, { "text": "and a 10.96% return on equity using the CAPM and then averaged the two values to arrive at the", "paragraph_id": "para_908" }, { "text": "9.89% return on equity that it proposed that the Commission allow AIC to recover. Id. ¶ 34.", "paragraph_id": "para_909" }, { "text": "¶ 99 As to the other participants in the rate case in Ameren, a group of entities represented by", "paragraph_id": "para_910" }, { "text": "the acronym “PIO” recommended a return on equity below 10.3%, Walmart recommended “no", "paragraph_id": "para_911" }, { "text": "increase from the previously authorized 9.67%,” and a group of entities that were represented by", "paragraph_id": "para_912" }, { "text": "39", "paragraph_id": "para_913" }, { "text": "the acronym “IFCUP” proposed a 9.5% return on equity. Id. ¶¶ 9 n.2, 10, 36, 37. In support of its", "paragraph_id": "para_914" }, { "text": "proposal, IFCUP “presented five separate models” as follows:", "paragraph_id": "para_915" }, { "text": "“The first model was a constant growth DCF model using consensus analysts’ grown rate", "paragraph_id": "para_916" }, { "text": "projects and revealed average and median returns of 9.52% and 9.42%, respectively. The", "paragraph_id": "para_917" }, { "text": "constant grown DCF model, using sustainable growth rate estimates, revealed average and", "paragraph_id": "para_918" }, { "text": "median DCF results of 9.84% and 9.96%, respectively. This model was based on the FERC", "paragraph_id": "para_919" }, { "text": "method of estimating the expected return on a market by performing a constant growth", "paragraph_id": "para_920" }, { "text": "DCF analysis on each dividend paying company of the S&P 500 index, excluding those", "paragraph_id": "para_921" }, { "text": "with growth rates greater than 20%. After determining the weighted average (8.70%) and", "paragraph_id": "para_922" }, { "text": "adjusting the dividend yield (2.09%), the DCF-derived expected return was determined by", "paragraph_id": "para_923" }, { "text": "adding those two values, i.e., 10.79%. The multi-stage growth DCF model suggested a", "paragraph_id": "para_924" }, { "text": "reasonable [return on equity] of 9.2%. The Risk Premium model used a bond yield plus", "paragraph_id": "para_925" }, { "text": "risk premium model. After addressing all the possible inputs, IFCUP found the reasonable", "paragraph_id": "para_926" }, { "text": "[return on equity] would be 9.80%. Finally, IFCUP also presented a CAPM that resulted in", "paragraph_id": "para_927" }, { "text": "an 11.71% expected return.” Id. ¶ 36.", "paragraph_id": "para_928" }, { "text": "¶ 100 In analyzing AIC’s showing in support of its proposed return on equity, the Commission", "paragraph_id": "para_929" }, { "text": "in Ameren noted that it had rejected the relevant size and flotation cost risks in prior orders, that", "paragraph_id": "para_930" }, { "text": "the credit risk adjustment that AIC had used was “unnecessary,” and that “AIC’s [return on equity]", "paragraph_id": "para_931" }, { "text": "relied on weekly beta estimates instead of both weekly and monthly beta estimates.” Id. ¶ 40. The", "paragraph_id": "para_932" }, { "text": "Commission also expressed that it preferred five-year betas over two-year betas as inputs for the", "paragraph_id": "para_933" }, { "text": "CAPM and then found that “AIC’s ECAPM analysis was flawed because it used adjusted betas", "paragraph_id": "para_934" }, { "text": "instead of raw betas, which rendered the results meaningless.” Id. Accordingly, the Commission", "paragraph_id": "para_935" }, { "text": "rejected AIC’s analyses that involved the use of the CAPM and ECAPM. Id. The Commission also", "paragraph_id": "para_936" }, { "text": "40", "paragraph_id": "para_937" }, { "text": "rejected AIC’s analysis that involved the DCF model because AIC had used a 60-day average", "paragraph_id": "para_938" }, { "text": "stock price instead of current or spot market prices. Id.", "paragraph_id": "para_939" }, { "text": "¶ 101 Regarding IFCUP’s proposal, the Commission noted that the group had used outdated", "paragraph_id": "para_940" }, { "text": "stock prices in its DCF model and both forecasted United States Treasury bond yields and weekly", "paragraph_id": "para_941" }, { "text": "beta estimates in its CAPM, “all of which” the Commission had previously rejected. Id. ¶ 41. The", "paragraph_id": "para_942" }, { "text": "Commission also expressed “displease[ure] with the [NCDCF] models produced by IFCUP and", "paragraph_id": "para_943" }, { "text": "Staff.” Id.", "paragraph_id": "para_944" }, { "text": "¶ 102 Next, the Commission found that Staff’s DCF model and CAPM were “consistent with its", "paragraph_id": "para_945" }, { "text": "preferred and accepted methods of determining [return on equity]” and adopted the models, with", "paragraph_id": "para_946" }, { "text": "the exception of “Staff’s use of its 12.65% forward-looking market risk premium, which was", "paragraph_id": "para_947" }, { "text": "‘significantly higher’ than the FERC’s method, and the expected market returns published by U.S.", "paragraph_id": "para_948" }, { "text": "financial institutions.” Id. ¶ 42. The Commission articulated that “substitution of Staff’s 12.65%", "paragraph_id": "para_949" }, { "text": "with the 10.79% FERC value resulted in a ‘more reasonable market risk premium estimate, which", "paragraph_id": "para_950" }, { "text": "in turn result[ed] in a revised Staff CAPM estimate of 9.47%’ ” Id. “The Commission then", "paragraph_id": "para_951" }, { "text": "averaged Staff’s 9.47% CAPM estimate with *** Staff’s constant growth 9.40% DCF estimate”", "paragraph_id": "para_952" }, { "text": "and approved the resulting value of 9.44% as AIC’s return on equity. Id.", "paragraph_id": "para_953" }, { "text": "¶ 103 On appeal from the Commission’s determination in Ameren, AIC argued that the return on", "paragraph_id": "para_954" }, { "text": "equity set by the Commission was “ ‘improper and unlawful.’ ” Id. ¶ 110. Specifically, AIC argued", "paragraph_id": "para_955" }, { "text": "that the Commission had “disregarded” all the evidence that the company’s expert had presented", "paragraph_id": "para_956" }, { "text": "and had “used an ‘unprecedented and facially improper methodology’ by setting the [return on", "paragraph_id": "para_957" }, { "text": "equity] far below the return that an investor would expect on investments of comparable risk, as", "paragraph_id": "para_958" }, { "text": "constitutionally required.” Id. AIC further argued that the Commission’s reliance on Staff’s DCF", "paragraph_id": "para_959" }, { "text": "model and CAPM was improper because, in truth, the Commission had “ ‘selected [a return on", "paragraph_id": "para_960" }, { "text": "41", "paragraph_id": "para_961" }, { "text": "equity] at a level it desired and then attempted to support it post hoc by, in a marked departure", "paragraph_id": "para_962" }, { "text": "from past practice, cherry-picking inputs to achieve the desired results.’ ” Id. ¶ 113. Additionally,", "paragraph_id": "para_963" }, { "text": "AIC argued that it was inappropriate for the Commission to have relied upon “any data from the", "paragraph_id": "para_964" }, { "text": "IFCUP CAPM model after rejecting the IFCUP analyses for some of the same reasons it rejected", "paragraph_id": "para_965" }, { "text": "the AIC analysis.” Id. ¶ 114.", "paragraph_id": "para_966" }, { "text": "¶ 104 In addressing AIC’s arguments, the Ameren court noted that “[n]umerous” financial models", "paragraph_id": "para_967" }, { "text": "had been presented regarding AIC’s proper return on equity. Id. ¶ 111. The court further noted the", "paragraph_id": "para_968" }, { "text": "following:", "paragraph_id": "para_969" }, { "text": "“The Commission order addressed each model, the factors included in each model, the", "paragraph_id": "para_970" }, { "text": "adjustments, the other parties’ criticisms of the models, as well as the rebuttal testimony", "paragraph_id": "para_971" }, { "text": "related thereto. It then addressed factors that must be considered to determine reliability of", "paragraph_id": "para_972" }, { "text": "the models, the competing interests, and opinions. It found that reliance on nonutility proxy", "paragraph_id": "para_973" }, { "text": "groups, size adjustments, higher credit risks, *** forecasted United States Treasury bond", "paragraph_id": "para_974" }, { "text": "yield instead of current, observable market interest rates, *** the bond yield plus risk", "paragraph_id": "para_975" }, { "text": "premium model, *** adjusted betas in the ECAPM model, and flotation adjustments were", "paragraph_id": "para_976" }, { "text": "unwarranted.", "paragraph_id": "para_977" }, { "text": "The Commission order also noted its preference for CAPM and ECAPM analysis,", "paragraph_id": "para_978" }, { "text": "based on both weekly and monthly beta estimates, *** CAPM analyses that used betas", "paragraph_id": "para_979" }, { "text": "over a period of five years, [and] DCF analyses using current or spot market prices (as", "paragraph_id": "para_980" }, { "text": "opposed to a 60-day average of stock prices). ***", "paragraph_id": "para_981" }, { "text": "*** [The Commission] decision focused on each expert’s testimony, the criticisms", "paragraph_id": "para_982" }, { "text": "bestowed thereon, and the expert’s rebuttal to that criticism. After clearly indicating that", "paragraph_id": "para_983" }, { "text": "all of AIC’s models were deficient—some for reasons expressed numerous times in the", "paragraph_id": "para_984" }, { "text": "42", "paragraph_id": "para_985" }, { "text": "past—it had only the models of *** Staff and IFCUP to determine [a return on equity].", "paragraph_id": "para_986" }, { "text": "However, the Commission was equally dismissive of most of IFCUP’s analysis, some of", "paragraph_id": "para_987" }, { "text": "which suffered from the same failures as AIC’s expert testimony.” Id. ¶¶ 111-13.", "paragraph_id": "para_988" }, { "text": "As to the Commission’s adoption of IFCUP’s FERC input in the group’s CAPM, the Ameren court", "paragraph_id": "para_989" }, { "text": "further noted that the Commission had found that Staff’s 12.65% forward-looking market estimate", "paragraph_id": "para_990" }, { "text": "was too high compared to IFCUP’s FERC input and that AIC had made “no argument as to why", "paragraph_id": "para_991" }, { "text": "*** Staff’s *** [forward-looking market return value] was more reliable than one based on the", "paragraph_id": "para_992" }, { "text": "FERC method,” except to say that Staff had not used the FERC input. Id. ¶¶ 114, 116. Near the", "paragraph_id": "para_993" }, { "text": "end of its analysis, the court also articulated the following:", "paragraph_id": "para_994" }, { "text": "“What the Commission concluded was that there were several diverse models that", "paragraph_id": "para_995" }, { "text": "failed to ascribe to Commission preference when determining [return on equity]. The most", "paragraph_id": "para_996" }, { "text": "palatable models were presented by Staff, and those were its DCF (constant growth) and", "paragraph_id": "para_997" }, { "text": "CAPM models. Notably, the Commission was concerned with the inexplicably low DCF", "paragraph_id": "para_998" }, { "text": "(nonconstant growth model) values obtained by Staff and IFCUP and refused to consider", "paragraph_id": "para_999" }, { "text": "them due to the lack of explanation associated with the divergence, as they were ‘well", "paragraph_id": "para_1000" }, { "text": "below any [return on equity] the Commission has ever approved for a natural gas utility.’", "paragraph_id": "para_1001" }, { "text": "Staff originally averaged its DCF (9.40%) and NCDCF (8.23[%]) values to reach its DCF", "paragraph_id": "para_1002" }, { "text": "average value of 8.81%. However, in reaching the [return on equity] here, the Commission", "paragraph_id": "para_1003" }, { "text": "eliminated *** Staff’s average *** and simply used the DCF constant growth value", "paragraph_id": "para_1004" }, { "text": "(9.40%) after discounting the unexplained divergence associated with the NCDCF.” Id.", "paragraph_id": "para_1005" }, { "text": "¶ 115.", "paragraph_id": "para_1006" }, { "text": "Based on its observations, the court concluded that the Commission had sufficiently explained its", "paragraph_id": "para_1007" }, { "text": "reasons for substituting the FERC input into Staff’s calculations. Id. ¶ 117. The court further", "paragraph_id": "para_1008" }, { "text": "43", "paragraph_id": "para_1009" }, { "text": "concluded that the Commission’s findings were supported by the available evidence and not", "paragraph_id": "para_1010" }, { "text": "contrary to the applicable law and, consequently, “affirm[ed] the Commission’s substitution of", "paragraph_id": "para_1011" }, { "text": "FERC values in the Staff’s calculation and the [return on equity] derived therefrom.” Id.", "paragraph_id": "para_1012" }, { "text": "¶ 105 As was similarly so in Ameren, the participants in this case presented numerous financial", "paragraph_id": "para_1013" }, { "text": "models that the Commission could potentially use to determine ComEd’s return on equity. As was", "paragraph_id": "para_1014" }, { "text": "also similarly so in Ameren, the Commission in this case expressly recounted each of the financial", "paragraph_id": "para_1015" }, { "text": "models that the participants had presented, various factors and inputs relevant to each model, the", "paragraph_id": "para_1016" }, { "text": "relevant criticism that participants had to some of the models, the reliability of the models, and the", "paragraph_id": "para_1017" }, { "text": "relevant standards and competing interests and opinions that the Commission needed to consider", "paragraph_id": "para_1018" }, { "text": "in making its ultimate determination. The Commission also expressly surveyed its past practices", "paragraph_id": "para_1019" }, { "text": "and preferences and explained the substitutions that it had made to certain inputs in the financial", "paragraph_id": "para_1020" }, { "text": "models that it adopted in this case.", "paragraph_id": "para_1021" }, { "text": "¶ 106 Specifically, in its Final Order, the Commission acknowledged that, in assessing ComEd’s", "paragraph_id": "para_1022" }, { "text": "return on equity, it was required to weigh the company’s interest in accessing capital at a", "paragraph_id": "para_1023" }, { "text": "reasonable cost against ratepayers’ interest in paying rates that are no higher than those that are", "paragraph_id": "para_1024" }, { "text": "both just and reasonable. As to relevant factors, the Commission found, as a preliminary matter,", "paragraph_id": "para_1025" }, { "text": "that ComEd’s risk under the rate plan would be lower than it was under traditional ratemaking,", "paragraph_id": "para_1026" }, { "text": "which eliminated the need for a higher return on equity. Additionally, the Commission recognized", "paragraph_id": "para_1027" }, { "text": "that it was required to consider and adhere to its past practice but found that there was “no clear", "paragraph_id": "para_1028" }, { "text": "definition of what constitute[d] Commission practice.” The Commission explained that, although", "paragraph_id": "para_1029" }, { "text": "it had “generally adopted the use of sound financial market-based models and approaches to", "paragraph_id": "para_1030" }, { "text": "applying such models, *** the details of its cost of equity determination practice ha[d] reasonably", "paragraph_id": "para_1031" }, { "text": "varied and evolved over time based on relevant factors presented in the record of each case.”", "paragraph_id": "para_1032" }, { "text": "44", "paragraph_id": "para_1033" }, { "text": "¶ 107 With respect to the standards that applied to its consideration of the financial models that", "paragraph_id": "para_1034" }, { "text": "the participants had presented, the Commission stated that, “by extension” of its broad discretion", "paragraph_id": "para_1035" }, { "text": "to determine just and reasonable rates, it also had the broad discretion to determine “the methods", "paragraph_id": "para_1036" }, { "text": "by which to [calculate] the rate of return reflected in such rates.” The Commission explained that,", "paragraph_id": "para_1037" }, { "text": "accordingly, it had the discretion “to use or consider, in whole or in part, the cost of equity models", "paragraph_id": "para_1038" }, { "text": "and resulting estimates presented in the record” and “to consider the appropriate inputs to apply to", "paragraph_id": "para_1039" }, { "text": "other cost of equity models presented in the record to determine a reasonable and fair rate of", "paragraph_id": "para_1040" }, { "text": "return.”", "paragraph_id": "para_1041" }, { "text": "¶ 108 Next, after outlining the participants’ financial models, as well as the evidence and", "paragraph_id": "para_1042" }, { "text": "criticism relevant thereto, the Commission rejected ComEd and ICCP’s DCF models because they", "paragraph_id": "para_1043" }, { "text": "had used inputs that the Commission had “consistently rejected” in the past. The Commission also", "paragraph_id": "para_1044" }, { "text": "rejected ComEd’s DCF model, on the additional basis that the model did not appropriately reflect", "paragraph_id": "para_1045" }, { "text": "the timing of the quarterly dividends that the entities in the proxy group paid out, and rejected", "paragraph_id": "para_1046" }, { "text": "ICCP’s DCF model, on the separate basis that ICCP had failed to demonstrate how its sustainable", "paragraph_id": "para_1047" }, { "text": "growth rates could accurately reflect investors’ then-current growth expectations or were superior", "paragraph_id": "para_1048" }, { "text": "to the analyst earnings growth rate forecasts upon which the Commission had traditionally relied.", "paragraph_id": "para_1049" }, { "text": "Separately, the Commission “concur[red] with Staff that the growth rate it used for its constant", "paragraph_id": "para_1050" }, { "text": "growth DCF model [was] unsustainable into perpetuity” and that, consequently, consistent with", "paragraph_id": "para_1051" }, { "text": "past decisions, it was proper for the Commission to reject Staff’s constant growth DCF model and", "paragraph_id": "para_1052" }, { "text": "to adopt only Staff’s NCDCF model and the 8.48% that it yielded.", "paragraph_id": "para_1053" }, { "text": "¶ 109 As to the CAPM, the Commission noted that, for the risk-free rate input, it had “regularly", "paragraph_id": "para_1054" }, { "text": "relie[d] on current, observable market interest rates rather than forecasted interest rates given the", "paragraph_id": "para_1055" }, { "text": "difficulty of accurately forecasting interest rates.” Accordingly, the Commission rejected ComEd", "paragraph_id": "para_1056" }, { "text": "45", "paragraph_id": "para_1057" }, { "text": "and ICCP’s risk-free rate inputs because they were based on forecasted interest rates and adopted", "paragraph_id": "para_1058" }, { "text": "Staff’s risk-free rate input because it was based on “the spot (current) U.S. Treasury bill risk rate.”", "paragraph_id": "para_1059" }, { "text": "Relevant to the beta input, the Commission acknowledged that it had “historically favored the use", "paragraph_id": "para_1060" }, { "text": "of both weekly and monthly beta estimates because the use of multiple beta sources reduce[d]", "paragraph_id": "para_1061" }, { "text": "measurement error from any individual estimate.” Nevertheless, the Commission articulated the", "paragraph_id": "para_1062" }, { "text": "following regarding the record before it:", "paragraph_id": "para_1063" }, { "text": "“[T]he Commission observes that the record shows that the weekly beta estimates *** used", "paragraph_id": "para_1064" }, { "text": "by ICCP[, ]Staff[, and] ComEd[***] are inordinately high compared to the two monthly", "paragraph_id": "para_1065" }, { "text": "beta estimates from Zacks and Staff’s regression beta. The Commission further observes", "paragraph_id": "para_1066" }, { "text": "that beta is a measure of risk and Staff demonstrated that the [p]roxy [g]roup has a higher", "paragraph_id": "para_1067" }, { "text": "overall risk compared to ComEd. Moreover, as earlier noted in this [o]rder, a review of the", "paragraph_id": "para_1068" }, { "text": "evidence and the arguments of the parties show that [ComEd’s] risk under the [rate plan]", "paragraph_id": "para_1069" }, { "text": "will be lower than under both [formula ratemaking] and traditional ratemaking.”", "paragraph_id": "para_1070" }, { "text": "The Commission then concluded that it was more reasonable for it to use only the monthly beta", "paragraph_id": "para_1071" }, { "text": "estimates published by Zacks and Staff, which amounted to 0.705, “[t]o address the increased", "paragraph_id": "para_1072" }, { "text": "measurement error that would arise from the use of inordinately high weekly betas and to recognize", "paragraph_id": "para_1073" }, { "text": "the lower risk of ComEd relative to the [p]roxy [g]roup.” After approving Staff’s risk premium", "paragraph_id": "para_1074" }, { "text": "input of 7.29%, the Commission “adopt[ed] a CAPM using Staff’s risk free rate of 4.19%, the", "paragraph_id": "para_1075" }, { "text": "average monthly beta of 0.705, and [a risk premium] that [was] 7.29%, which result[ed] in a CAPM", "paragraph_id": "para_1076" }, { "text": "[return on equity] estimate of 9.33%.”", "paragraph_id": "para_1077" }, { "text": "¶ 110 Near the end of its analysis, the Commission averaged “Staff’s NCDCF estimate of 8.48%", "paragraph_id": "para_1078" }, { "text": "and the revised CAPM estimate of 9.33%” and adopted the resulting 8.905% as ComEd’s return", "paragraph_id": "para_1079" }, { "text": "46", "paragraph_id": "para_1080" }, { "text": "on equity for the duration of the rate plan. The Commission also stated the following as concluding", "paragraph_id": "para_1081" }, { "text": "justification for its determination:", "paragraph_id": "para_1082" }, { "text": "“The Commission concurs with Staff’s observation that [the rate plan] affords", "paragraph_id": "para_1083" }, { "text": "ComEd less risk than traditional ratemaking or the [formula ratemaking]. Under [a rate", "paragraph_id": "para_1084" }, { "text": "plan], ComEd will have the benefits of multiple future test years that reduce regulatory lag", "paragraph_id": "para_1085" }, { "text": "and annual revenue requirement reconciliations that provide greater certainty of its cash", "paragraph_id": "para_1086" }, { "text": "flows, among others. The Commission observes that the last authorized [return on equity]", "paragraph_id": "para_1087" }, { "text": "for ComEd under formula rates *** was 7.85% for the 2023 filing year. Additionally, the", "paragraph_id": "para_1088" }, { "text": "authorized [returns on equity] for the filing years 2017 through 2022 under formula rates", "paragraph_id": "para_1089" }, { "text": "were 8.64%, 8.40%, 8.69%, 8.91%, 8.38%, and 7.36%, respectively. The Commission", "paragraph_id": "para_1090" }, { "text": "further observes that credit rating agencies upgraded ComEd’s credit rating multiple times", "paragraph_id": "para_1091" }, { "text": "while it was under formula rates. In authorizing a [return on equity] of 8.905%, which lies", "paragraph_id": "para_1092" }, { "text": "in the lower range of [return on equity] proposals put forth in this case, the Commission", "paragraph_id": "para_1093" }, { "text": "recognizes the lower risk that ComEd bears under a [rate plan] compared to traditional", "paragraph_id": "para_1094" }, { "text": "ratemaking in terms of more risk that is transferred from the [c]ompany to its customers.”", "paragraph_id": "para_1095" }, { "text": "¶ 111 Based on our review of the Final Order, we find, like the court in Ameren, that the", "paragraph_id": "para_1096" }, { "text": "Commission in this case sufficiently explained its reasons for relying solely upon monthly beta", "paragraph_id": "para_1097" }, { "text": "inputs when applying the CAPM and for applying only the NCDCF model and rejecting the", "paragraph_id": "para_1098" }, { "text": "constant-growth DCF model in calculating ComEd’s return on equity. Also like the court in", "paragraph_id": "para_1099" }, { "text": "Ameren, we further find that the Commission’s ultimate determination was supported by the", "paragraph_id": "para_1100" }, { "text": "evidence in the record and in accordance with the applicable law. Consequently, we uphold the", "paragraph_id": "para_1101" }, { "text": "Commission’s decision to set ComEd’s return on equity at 8.905% for each year of the company’s", "paragraph_id": "para_1102" }, { "text": "rate plan.", "paragraph_id": "para_1103" }, { "text": "47", "paragraph_id": "para_1104" }, { "text": "¶ 112 C. Pension Asset", "paragraph_id": "para_1105" }, { "text": "¶ 113 Next, ComEd and IBEW Local 15 argue that the Commission erred by denying a return on", "paragraph_id": "para_1106" }, { "text": "ComEd’s pension asset. ComEd asserts that, ever “[s]ince [the company] first recorded a pension", "paragraph_id": "para_1107" }, { "text": "asset, the Commission has *** authorized a return” in “every” one of its rate cases, namely, in its", "paragraph_id": "para_1108" }, { "text": "2005, 2007, and 2010 traditional rate cases governed by article IX of the Public Utilities Act, as", "paragraph_id": "para_1109" }, { "text": "well as in every one of its formula rate cases from 2012 to 2023. ComEd further asserts that the", "paragraph_id": "para_1110" }, { "text": "Commission’s decisions in these past rate cases reflect that the Commission had a “longstanding", "paragraph_id": "para_1111" }, { "text": "practice and law, both before and after the formula ratemaking statute, *** [of] approving returns", "paragraph_id": "para_1112" }, { "text": "related to ComEd’s pension asset because that asset benefited ratepayers and workers.” ComEd", "paragraph_id": "para_1113" }, { "text": "and IBEW Local 15 argue that the Commission improperly departed from its past practice and law", "paragraph_id": "para_1114" }, { "text": "by stating in the Final Order in these proceedings that it had only allowed “a debt return on a one-", "paragraph_id": "para_1115" }, { "text": "time contribution” in 2005 and ultimately denying ComEd any return on its pension asset.", "paragraph_id": "para_1116" }, { "text": "¶ 114 As we earlier recited, section 16-108.18(d)(3)(E) of the Public Utilities Act requires the", "paragraph_id": "para_1117" }, { "text": "Commission to permit a utility that files a rate plan to recover “prudent and reasonable projected", "paragraph_id": "para_1118" }, { "text": "operating expenses *** consistent with Commission practice and law under Article IX of this Act.”", "paragraph_id": "para_1119" }, { "text": "220 ILCS 5/16-108.18(d)(3)(E) (West 2022). In turn, article IX of the Public Utilities Act requires", "paragraph_id": "para_1120" }, { "text": "that “[a]ll rates or other charges made *** be just and reasonable.” Id. § 9-101.", "paragraph_id": "para_1121" }, { "text": "¶ 115 In first determining the Commission’s governing practice and law, we note that there is a", "paragraph_id": "para_1122" }, { "text": "wealth of decisions in traditional article IX rate cases in which the Commission has denied a return", "paragraph_id": "para_1123" }, { "text": "on a utility’s pension asset because the utility failed to prove that the pension asset was funded by", "paragraph_id": "para_1124" }, { "text": "shareholders. See, e.g., Ameren Illinois Co., Ill. Comm. Comm’n No. 20-0308, at 11, 13 (Order-", "paragraph_id": "para_1125" }, { "text": "Final Jan. 13, 2021) (declining to add a utility’s “Other Post-Employment Benefits” contra-liability", "paragraph_id": "para_1126" }, { "text": "balance into the utility’s rate base after finding that the Commission’s past decisions confirmed", "paragraph_id": "para_1127" }, { "text": "48", "paragraph_id": "para_1128" }, { "text": "that the Commission had a practice of denying a return on plan investments funded by ratepayers", "paragraph_id": "para_1129" }, { "text": "and that the utility had failed to convince the Commission to depart from its practice); Northern", "paragraph_id": "para_1130" }, { "text": "Illinois Gas Co., Ill. Comm. Comm’n No. 17-0124, at 29 (Order-Final Jan. 31, 2018) (“[The utility]", "paragraph_id": "para_1131" }, { "text": "has not demonstrated sufficient evidence to show that the pension asset is comprised of any", "paragraph_id": "para_1132" }, { "text": "shareholder funds. Therefore, the Commission declines to include the [utility’s] pension asset in", "paragraph_id": "para_1133" }, { "text": "rate base.”); MidAmerican Energy Co., Ill. Comm. Comm’n No. 14-0066, at 12 (Order-Final Nov.", "paragraph_id": "para_1134" }, { "text": "6, 2014) (explaining that “prior Commission decisions denied inclusion of prepaid pension asset[s]", "paragraph_id": "para_1135" }, { "text": "because [the assets] were created by ratepayer supplied funds” and excluding the pension expense", "paragraph_id": "para_1136" }, { "text": "before it from the rate base because the utility had failed to prove that its pension had been funded", "paragraph_id": "para_1137" }, { "text": "by shareholders). In light of these decisions, we find that the Commission’s governing practice", "paragraph_id": "para_1138" }, { "text": "and law is to deny a utility a return on its pension asset whenever the utility fails to prove that", "paragraph_id": "para_1139" }, { "text": "shareholders, and not ratepayers, funded the pension asset.", "paragraph_id": "para_1140" }, { "text": "¶ 116 In next evaluating whether the Commission also had a practice and law of awarding returns", "paragraph_id": "para_1141" }, { "text": "on pension assets on the basis that the pension assets benefited ratepayers, we turn to examining", "paragraph_id": "para_1142" }, { "text": "the Commission’s relevant decisions in ComEd’s 2005, 2007, and 2010 traditional article IX rate", "paragraph_id": "para_1143" }, { "text": "cases. Relatedly, throughout our remaining analysis, we decline to also examine the Commission’s", "paragraph_id": "para_1144" }, { "text": "decisions in ComEd’s formula rate cases, in light of the fact that section 16-108.18(d)(3)(E) of the", "paragraph_id": "para_1145" }, { "text": "Public Utilities Act required the Commission to adhere merely to its practice and law under", "paragraph_id": "para_1146" }, { "text": "traditional article IX ratemaking and not also under formula ratemaking. See 220 ILCS 5/16-", "paragraph_id": "para_1147" }, { "text": "108.18(d)(3)(E) (West 2022).", "paragraph_id": "para_1148" }, { "text": "¶ 117 In its 2005 rate case, ComEd sought to recover a return on its alleged pension asset of $853", "paragraph_id": "para_1149" }, { "text": "million, which, the company asserted, “resulted in large part from an $803 million contribution of", "paragraph_id": "para_1150" }, { "text": "equity that Exelon made to ComEd in March 2005 to enable ComEd to ‘fully fund’ its portion of", "paragraph_id": "para_1151" }, { "text": "49", "paragraph_id": "para_1152" }, { "text": "the Exelon pension plan,” which had previously been underfunded. Commonwealth Edison Co.,", "paragraph_id": "para_1153" }, { "text": "Ill. Comm. Comm’n No. 05-0597, at 28 (Order-Final July 26, 2006). ComEd explained that Exelon", "paragraph_id": "para_1154" }, { "text": "had obtained the funds for the $803 million equity infusion by issuing debt and receiving tax", "paragraph_id": "para_1155" }, { "text": "benefits from the contribution. Id. ComEd further explained that, if Exelon had not made the equity", "paragraph_id": "para_1156" }, { "text": "infusion, then “ComEd would have had to issue additional debt itself, which would likely have", "paragraph_id": "para_1157" }, { "text": "resulted in a downgraded credit.” Id. ComEd argued that its $803 million contribution should be", "paragraph_id": "para_1158" }, { "text": "“included as an asset in rate base” to enable Exelon to recover its costs in funding the contribution", "paragraph_id": "para_1159" }, { "text": "and because the contribution was funded solely by shareholders and benefited ratepayers by", "paragraph_id": "para_1160" }, { "text": "causing the pension expense to decrease by approximately $30 million. Id. at 28, 30.", "paragraph_id": "para_1161" }, { "text": "¶ 118 Also in its 2005 rate case, ComEd argued that its “decision to fund” the Exelon pension", "paragraph_id": "para_1162" }, { "text": "plan was prudent and reasonable, in that Exelon had the financial strength and resources to make", "paragraph_id": "para_1163" }, { "text": "the equity infusion to fund ComEd’s $803 million contribution. Id. at 28-29. ComEd further argued", "paragraph_id": "para_1164" }, { "text": "that the decision was prudent and reasonable for the additional reason that the $803 million", "paragraph_id": "para_1165" }, { "text": "contribution had then made it so that the funding level of the Exelon pension plan was “more in", "paragraph_id": "para_1166" }, { "text": "line with that of *** other companies [with large pension plans] and ComEd’s own goals for", "paragraph_id": "para_1167" }, { "text": "itself.” Id. at 28-29.", "paragraph_id": "para_1168" }, { "text": "¶ 119 As to the other parties that were involved in ComEd’s 2005 rate case, Staff argued at the", "paragraph_id": "para_1169" }, { "text": "outset that ComEd did not have an actual pension asset because, “[f]or such asset to exist, the", "paragraph_id": "para_1170" }, { "text": "pension fund would [have needed] to contain funds in excess of [the] pension obligations” and yet", "paragraph_id": "para_1171" }, { "text": "ComEd had “readily admit[ted] to the pension trust fund being fully funded, not over funded.” Id.", "paragraph_id": "para_1172" }, { "text": "at 39. Separately, the Attorney General recommended that the Commission remove ComEd’s", "paragraph_id": "para_1173" }, { "text": "pension asset from the company’s rate base and instead reflect the reduction in pension expense", "paragraph_id": "para_1174" }, { "text": "caused by the $803 million contribution in a way that was consistent with Commission precedent.", "paragraph_id": "para_1175" }, { "text": "50", "paragraph_id": "para_1176" }, { "text": "Id. at 32. The Attorney General further recommended, in the alternative, that if the Commission", "paragraph_id": "para_1177" }, { "text": "were to elect “to allow a return on the pension contribution, [then] ComEd *** only be allowed to", "paragraph_id": "para_1178" }, { "text": "recover the cost of debt financing for the contributions, which *** [was] $27 million.” Id.", "paragraph_id": "para_1179" }, { "text": "¶ 120 In its final order in ComEd’s 2005 rate case, the Commission found that “no pension asset", "paragraph_id": "para_1180" }, { "text": "exist[ed] given that Exelon’s infusion in ComEd’s pension trust fund [did] not result in over", "paragraph_id": "para_1181" }, { "text": "funding.” Id. at 39. The Commission also noted that “it [was] not clear why ComEd chose to fully-", "paragraph_id": "para_1182" }, { "text": "fund its pension obligations when it did” and “[i]t seem[ed] that the timing of the funding [affected]", "paragraph_id": "para_1183" }, { "text": "the cost.” Id. Relatedly, the Commission explained that it did “not want to establish perverse", "paragraph_id": "para_1184" }, { "text": "financial incentives by allowing ComEd’s parent company to profit from its inexpensive debt and", "paragraph_id": "para_1185" }, { "text": "tax breaks by tucking the funds away in a regulated utility’s rate base.” Id. The Commission then", "paragraph_id": "para_1186" }, { "text": "reduced ComEd’s rate base by “$853.9 million along with the corresponding adjustments to", "paragraph_id": "para_1187" }, { "text": "ADIT” and rejected the Attorney General’s alternate recommendation to add $27 million to", "paragraph_id": "para_1188" }, { "text": "ComEd’s operating expenses. Id. at 40.", "paragraph_id": "para_1189" }, { "text": "¶ 121 During rehearing in ComEd’s 2005 rate case, ComEd asserted that “the central issue ***", "paragraph_id": "para_1190" }, { "text": "concern[ed] identifying a middle ground position” between its initial position that the entire cost", "paragraph_id": "para_1191" }, { "text": "of its $803 million contribution to the Exelon pension plan be moved into its rate base and Staff’s", "paragraph_id": "para_1192" }, { "text": "argument that ComEd receive no recovery at all. Commonwealth Edison Co., Ill. Comm. Comm’n", "paragraph_id": "para_1193" }, { "text": "No. 05-0597, at 17. ComEd identified three alternative measures by which the company could at", "paragraph_id": "para_1194" }, { "text": "least partially recover the cost of its $803 million contribution, the third of which calculated the", "paragraph_id": "para_1195" }, { "text": "amount of ComEd’s proposed recovery “based on ‘what ComEd’s actual cost of long-term debt in", "paragraph_id": "para_1196" }, { "text": "June 2005 would have been had ComEd, instead of Exelon, issued long-term debt in June 2005 to", "paragraph_id": "para_1197" }, { "text": "finance the $803 million contribution.’ ” Id. In turn, Staff maintained its initial position that no", "paragraph_id": "para_1198" }, { "text": "51", "paragraph_id": "para_1199" }, { "text": "pension asset actually existed because ComEd had merely fully funded, and not overly funded, its", "paragraph_id": "para_1200" }, { "text": "portion of the Exelon pension plan. Id. at 28.", "paragraph_id": "para_1201" }, { "text": "¶ 122 After analyzing the parties’ respective positions on rehearing, the Commission in ComEd’s", "paragraph_id": "para_1202" }, { "text": "2005 rate case found that “ComEd [had] incurred a cost and that customers [had] derived some", "paragraph_id": "para_1203" }, { "text": "benefit as a result of the pension contribution” and that, accordingly, ComEd was entitled to", "paragraph_id": "para_1204" }, { "text": "recover some of the costs for the contribution. Id. The Commission then concluded that it was", "paragraph_id": "para_1205" }, { "text": "“best and most appropriate” that ComEd recover the approximately $25 million that it had", "paragraph_id": "para_1206" }, { "text": "proposed under its third alternative. Id. Subsequently, the Commission limited the implications of", "paragraph_id": "para_1207" }, { "text": "its conclusion by stating the following:", "paragraph_id": "para_1208" }, { "text": "“[I]n *** so [concluding], the Commission does not sanction the prefunding of a utility", "paragraph_id": "para_1209" }, { "text": "pension plan as a mechanism to increase base rates. Clearly Exelon chose to prefund", "paragraph_id": "para_1210" }, { "text": "ComEd’s pension plan with an equity contribution expending a rate of return. The", "paragraph_id": "para_1211" }, { "text": "Commission bases its conclusion on this issue on the specific details of this proceeding,", "paragraph_id": "para_1212" }, { "text": "not to be construed as precedent for future proceedings concerning pension plan funding.”", "paragraph_id": "para_1213" }, { "text": "Id.", "paragraph_id": "para_1214" }, { "text": "¶ 123 Later, in its 2007 rate case, ComEd included the $25 million recovery for Exelon’s $803", "paragraph_id": "para_1215" }, { "text": "million contribution in ComEd’s operating statement. Commonwealth Edison Co., Ill. Comm.", "paragraph_id": "para_1216" }, { "text": "Comm’n No. 07-0566, at 5-10 (Order-Final Appendix Sept. 10, 2008). No witness in the", "paragraph_id": "para_1217" }, { "text": "proceedings challenged ComEd’s inclusion of the recovery in the company’s operating statement.", "paragraph_id": "para_1218" }, { "text": "See generally Commonwealth Edison Co., Ill. Comm. Comm’n No. 07-0566, at 5-10 (Order-Final", "paragraph_id": "para_1219" }, { "text": "Sept. 10, 2008). Nor did the Commission engage in any substantive discussion regarding said", "paragraph_id": "para_1220" }, { "text": "inclusion in the operating statement, which the Commission ultimately approved. See generally", "paragraph_id": "para_1221" }, { "text": "52", "paragraph_id": "para_1222" }, { "text": "id. at 5-10; see also Commonwealth Edison Co., Ill. Comm. Comm’n No. 07-0566, at 5-10 (Order-", "paragraph_id": "para_1223" }, { "text": "Final Appendix Sept. 10, 2008).", "paragraph_id": "para_1224" }, { "text": "¶ 124 Finally, in its 2010 rate case, ComEd sought to continue to recover the $25 million that the", "paragraph_id": "para_1225" }, { "text": "Commission had previously allowed as the cost of the company’s $803 million contribution to the", "paragraph_id": "para_1226" }, { "text": "Exelon pension plan. Commonwealth Edison Co., Ill. Comm. Comm’n No. 10-0467, at 95. Staff", "paragraph_id": "para_1227" }, { "text": "recommended that the Commission reduce ComEd’s amount of recovery “due to the passage of", "paragraph_id": "para_1228" }, { "text": "time.” Id. at 96. Staff stated that ComEd had been “effectively treat[ing its $25 million recovery]", "paragraph_id": "para_1229" }, { "text": "as a permanent investment that [would] never decline, even though the [c]ompany itself", "paragraph_id": "para_1230" }, { "text": "acknowledge[d] that the contribution [did] not exist in perpetuity and [would] decrease over time.”", "paragraph_id": "para_1231" }, { "text": "Id. Staff further stated that, when the Commission had first awarded ComEd’s $25 million", "paragraph_id": "para_1232" }, { "text": "recovery, it omitted to specify how long the $25 million was intended to be reflected in ComEd’s", "paragraph_id": "para_1233" }, { "text": "utility rates. Id. Staff asserted that the original basis for ComEd’s $25 million recovery “was a", "paragraph_id": "para_1234" }, { "text": "series of 5, 10, and 30 year bonds,” that it had calculated estimates of the average outstanding term", "paragraph_id": "para_1235" }, { "text": "of these hypothetical underlying bonds, and that its calculations had revealed that “approximately", "paragraph_id": "para_1236" }, { "text": "25% of the average term of debt assumed to finance the 2005 pension contribution would have", "paragraph_id": "para_1237" }, { "text": "been recovered” by the effective date of the rates to be established in ComEd’s 2010 rate case. Id.", "paragraph_id": "para_1238" }, { "text": "at 97-98. Accordingly, Staff recommended that the Commission reduce ComEd’s $25 million", "paragraph_id": "para_1239" }, { "text": "recovery by 25%, or approximately $6 million. Id. at 98.", "paragraph_id": "para_1240" }, { "text": "¶ 125 In response to Staff’s position in the company’s 2010 rate case, ComEd argued that Staff’s", "paragraph_id": "para_1241" }, { "text": "presumption that the $803 million contribution was gradually diminishing in value was incorrect,", "paragraph_id": "para_1242" }, { "text": "partly because long-term debt, which ComEd had, did not amortize over time and, instead, ComEd", "paragraph_id": "para_1243" }, { "text": "paid “interest periodically and the principal balance remain[ed] outstanding in its entirety until the", "paragraph_id": "para_1244" }, { "text": "maturity date.” Id. at 96. In its final order, the Commission noted the parties’ respective showings", "paragraph_id": "para_1245" }, { "text": "53", "paragraph_id": "para_1246" }, { "text": "and clarified that, in ComEd’s 2005 rate case, it had allowed ComEd “to recover the cost associated", "paragraph_id": "para_1247" }, { "text": "with the $803 million contribution, not as a pension asset in rate base *** but through a lower cost", "paragraph_id": "para_1248" }, { "text": "of debt, as deemed by the Commission to be reasonably reflected in [the third alternative measure", "paragraph_id": "para_1249" }, { "text": "of recovery proposed by ComEd].” Id. at 98. The Commission found that Staff’s adjustment in the", "paragraph_id": "para_1250" }, { "text": "proceedings before it “appropriately relie[d] on [ComEd’s third alternative measure], which [was]", "paragraph_id": "para_1251" }, { "text": "the only basis for any amount of cost recovery related to the [c]ompany’s discretionary 2005", "paragraph_id": "para_1252" }, { "text": "pension contribution of $803 million.” Id. The Commission further found that ComEd had failed", "paragraph_id": "para_1253" }, { "text": "to present “sufficient evidence to show that [the] regulatory debit ha[d] not diminished as the", "paragraph_id": "para_1254" }, { "text": "underlying debt mature[d].” Id. Accordingly, the Commission “approve[d] Staff’s disallowance of", "paragraph_id": "para_1255" }, { "text": "25% of ComEd’s regulatory debit in the amount of $6.329 million and reduce[d] ComEd’s $25.078", "paragraph_id": "para_1256" }, { "text": "million regulatory debit to the Staff proposed balance of $18.749 million.” Id.", "paragraph_id": "para_1257" }, { "text": "¶ 126 In its 2010 rate case, ComEd also sought to recover the $92.5 million jurisdictional rate", "paragraph_id": "para_1258" }, { "text": "base effect of a $152 million contribution that it made in 2009 to the Exelon pension plan, which,", "paragraph_id": "para_1259" }, { "text": "again, had been previously underfunded. Id. at 49. Staff recommended that the Commission", "paragraph_id": "para_1260" }, { "text": "exclude the $152 million contribution to ComEd’s rate base and instead allow ComEd to recover", "paragraph_id": "para_1261" }, { "text": "the costs associated with the $152 million contribution, “only to the extent there [was] a", "paragraph_id": "para_1262" }, { "text": "corresponding ratepayer benefit.” Id. at 50.", "paragraph_id": "para_1263" }, { "text": "¶ 127 In its final order in ComEd’s 2010 rate case, the Commission found that ComEd’s “2009", "paragraph_id": "para_1264" }, { "text": "pension contribution was a prudent response to the decline in the funded status of the pension,” in", "paragraph_id": "para_1265" }, { "text": "that, “[b]y making the contribution ***, ComEd properly avoided the compounding effect of", "paragraph_id": "para_1266" }, { "text": "continued underfunding and as a result of earnings on the contribution, reduced the pension", "paragraph_id": "para_1267" }, { "text": "expense.” Id. at 51. The Commission noted, however, that “allowing ComEd to recover its pension", "paragraph_id": "para_1268" }, { "text": "prepayment in its revenue requirement may encourage utilities to divert capital resources from", "paragraph_id": "para_1269" }, { "text": "54", "paragraph_id": "para_1270" }, { "text": "other utility investments in order to obtain a full return on pension prepayments, rather than making", "paragraph_id": "para_1271" }, { "text": "other prudent investments related to provision of utility service.” Id. The Commission then rejected", "paragraph_id": "para_1272" }, { "text": "the $92.5 million jurisdictional rate base effect of ComEd’s $152 million pension contribution and", "paragraph_id": "para_1273" }, { "text": "limited the company’s recovery to the costs associated with the amount by which ratepayers", "paragraph_id": "para_1274" }, { "text": "benefited from the contribution. Id.", "paragraph_id": "para_1275" }, { "text": "¶ 128 Our review of the Commission’s relevant decisions in ComEd’s 2005, 2007, and 2010 rate", "paragraph_id": "para_1276" }, { "text": "cases reveals that the Commission never specifically found that ComEd had a pension asset or that", "paragraph_id": "para_1277" }, { "text": "ComEd was entitled to a return on its alleged pension asset for traditional article IX ratemaking", "paragraph_id": "para_1278" }, { "text": "purposes. Rather, the Commission awarded ComEd returns based on the costs associated with its", "paragraph_id": "para_1279" }, { "text": "$803 million and $152 million contributions to the Exelon pension plan in recognition of the fact", "paragraph_id": "para_1280" }, { "text": "that the contributions benefited ratepayers. Moreover, although we acknowledge that, in ComEd’s", "paragraph_id": "para_1281" }, { "text": "2007 rate case, the Commission approved the company’s operating statement, which happened to", "paragraph_id": "para_1282" }, { "text": "reflect a $25 million recovery for Exelon’s $803 million contribution, we nevertheless note that", "paragraph_id": "para_1283" }, { "text": "the Commission expressly awarded ComEd a return associated with its pension contributions only", "paragraph_id": "para_1284" }, { "text": "twice, namely, in ComEd’s 2005 and 2010 rate cases. We further note that, in so awarding ComEd,", "paragraph_id": "para_1285" }, { "text": "the Commission cautioned utilities against prefunding their pension plans and limited its", "paragraph_id": "para_1286" }, { "text": "determination to permit the recovery for the $803 million contribution to the facts of the 2005 rate", "paragraph_id": "para_1287" }, { "text": "case. Additionally, we note that ComEd and IBEW Local 15 fail to identify any other traditional", "paragraph_id": "para_1288" }, { "text": "article IX rate cases involving utilities other than ComEd in which the Commission allowed a", "paragraph_id": "para_1289" }, { "text": "return based on costs associated with a pension plan contribution, on the basis that the contribution", "paragraph_id": "para_1290" }, { "text": "benefited ratepayers. Consequently, we find that the Commission’s decisions in ComEd’s", "paragraph_id": "para_1291" }, { "text": "traditional article IX rate cases did not establish a practice or law that compelled it to award ComEd", "paragraph_id": "para_1292" }, { "text": "55", "paragraph_id": "para_1293" }, { "text": "a return based on the costs associated with the company’s pension plan contributions at issue in", "paragraph_id": "para_1294" }, { "text": "these proceedings, regardless of whether the contributions had indeed benefited ratepayers.", "paragraph_id": "para_1295" }, { "text": "¶ 129 Now having determined the Commission’s governing practice and law under section 16-", "paragraph_id": "para_1296" }, { "text": "108.18(d)(3)(E), we turn to analyzing whether the Commission’s decision in the Final Order was", "paragraph_id": "para_1297" }, { "text": "consistent with said practice and law. To this end, we note that, in line with its relevant decisions", "paragraph_id": "para_1298" }, { "text": "in ComEd’s 2005, 2007, and 2010 rate cases, in its Final Order in these proceedings, the", "paragraph_id": "para_1299" }, { "text": "Commission denied ComEd a return on its alleged pension asset after finding, in part, that ComEd", "paragraph_id": "para_1300" }, { "text": "had failed to sufficiently prove that shareholders, and not ratepayers, had funded the asset. This", "paragraph_id": "para_1301" }, { "text": "determination and the underlying rationale comport with the Commission’s relevant practice and", "paragraph_id": "para_1302" }, { "text": "law of denying a utility a return on its pension asset whenever the utility fails to prove that", "paragraph_id": "para_1303" }, { "text": "shareholders, and not ratepayers, funded the pension asset. Therefore, we reject ComEd and IBEW", "paragraph_id": "para_1304" }, { "text": "Local 15’s argument that the Commission improperly departed from its practice and law in the", "paragraph_id": "para_1305" }, { "text": "Final Order.", "paragraph_id": "para_1306" }, { "text": "¶ 130 Next, ComEd argues that the Commission’s decision to deny the company a return on the", "paragraph_id": "para_1307" }, { "text": "contributions to its pension plan was not supported by the record. More specifically, ComEd argues", "paragraph_id": "para_1308" }, { "text": "that the Commission’s finding that ComEd had failed to sufficiently prove that the regulatory debt", "paragraph_id": "para_1309" }, { "text": "associated with the $803 million contribution to its portion of the Exelon pension plan had not", "paragraph_id": "para_1310" }, { "text": "diminished was flawed for two reasons. ComEd asserts that, first, even if it were true that the debt", "paragraph_id": "para_1311" }, { "text": "associated with the contribution had diminished, the pension asset itself would still remain, as paid", "paragraph_id": "para_1312" }, { "text": "for by shareholders, who, in turn, could not be denied a return on the asset because the asset", "paragraph_id": "para_1313" }, { "text": "benefited ratepayers. ComEd further asserts that, second, the premise that the regulatory debt", "paragraph_id": "para_1314" }, { "text": "associated with the $803 contribution had diminished is “ ‘false.’ ”", "paragraph_id": "para_1315" }, { "text": "56", "paragraph_id": "para_1316" }, { "text": "¶ 131 To start, and as we earlier stated, the Commission never expressly found that ComEd had", "paragraph_id": "para_1317" }, { "text": "an actual pension asset for traditional article IX ratemaking purposes, and there was no governing", "paragraph_id": "para_1318" }, { "text": "practice or law that compelled the Commission to award ComEd a return on its pension plan", "paragraph_id": "para_1319" }, { "text": "contributions on the basis that the contributions benefited ratepayers. Nor are we aware of any", "paragraph_id": "para_1320" }, { "text": "authority that required the Commission to award ComEd a return on its alleged pension asset on a", "paragraph_id": "para_1321" }, { "text": "similar basis. Therefore, ComEd’s first assertion, that its pension asset would remain even if the", "paragraph_id": "para_1322" }, { "text": "debt associated with its $803 million contribution were to diminish, is unavailing.", "paragraph_id": "para_1323" }, { "text": "¶ 132 As to ComEd’s second assertion, we note that it is essentially a regurgitation of arguments", "paragraph_id": "para_1324" }, { "text": "and assertions that ComEd already made before the Commission in the company’s 2010 rate case", "paragraph_id": "para_1325" }, { "text": "and these proceedings. Specifically, and as we earlier noted, in its 2010 rate case, ComEd argued", "paragraph_id": "para_1326" }, { "text": "for the first time before the Commission that any presumption that the regulatory debt associated", "paragraph_id": "para_1327" }, { "text": "with its $803 million contribution diminished over time was false because the long-term debt that", "paragraph_id": "para_1328" }, { "text": "the company had did not “amortize down over time.” Id. at 96. ComEd further argued that, instead,", "paragraph_id": "para_1329" }, { "text": "the company “pa[id] interest periodically and the principal balance remain[ed] outstanding in its", "paragraph_id": "para_1330" }, { "text": "entirety until the maturity date.” Id. In response, Staff argued that the regulatory debt associated", "paragraph_id": "para_1331" }, { "text": "with ComEd’s $803 million contribution would, in fact, diminish over time. Id. at 96-97. To", "paragraph_id": "para_1332" }, { "text": "support its argument, Staff introduced calculations that estimated the average outstanding term of", "paragraph_id": "para_1333" }, { "text": "the hypothetical bonds that underlay ComEd’s $803 million contribution. Id. at 97.", "paragraph_id": "para_1334" }, { "text": "¶ 133 Before the Commission in these proceedings, ComEd renewed its argument that the", "paragraph_id": "para_1335" }, { "text": "regulatory debt associated with its $803 million contribution did not diminish over time, as well", "paragraph_id": "para_1336" }, { "text": "as its accompanying assertions that the long-term debt that the company had did not diminish over", "paragraph_id": "para_1337" }, { "text": "time and that the company paid periodic interest on such debt, the entire principal of which", "paragraph_id": "para_1338" }, { "text": "remained outstanding until the maturity date. In finding in its Final Order that no further return on", "paragraph_id": "para_1339" }, { "text": "57", "paragraph_id": "para_1340" }, { "text": "the $803 million contribution was warranted, the Commission expressly noted that, “[p]ursuant to", "paragraph_id": "para_1341" }, { "text": "the methodology [it had] approved in [ComEd’s 2010 rate case], Staff calculate[d] that the", "paragraph_id": "para_1342" }, { "text": "regulatory debt would be fully diminished before rates from this proceeding go into effect as the", "paragraph_id": "para_1343" }, { "text": "underlying debt mature[d].” Although ComEd disagrees with Staff’s calculation that the regulatory", "paragraph_id": "para_1344" }, { "text": "debt had diminished, the fact remains that the calculation constituted available evidence that was", "paragraph_id": "para_1345" }, { "text": "sufficient to support the Commission’s determination to deny the company a continued return", "paragraph_id": "para_1346" }, { "text": "related to its $803 million contribution. Therefore, ComEd’s continued effort to challenge Staff’s", "paragraph_id": "para_1347" }, { "text": "calculation is unpersuasive.", "paragraph_id": "para_1348" }, { "text": "¶ 134 Additionally, ComEd argues that the Commission erred by finding that, “other than a broad", "paragraph_id": "para_1349" }, { "text": "assertion that the[] contributions [to its portion of the Exelon pension plan] must be shareholder", "paragraph_id": "para_1350" }, { "text": "funds, [ComEd did] not provide a specific source of the funds for the contributions.” ComEd", "paragraph_id": "para_1351" }, { "text": "asserts that the evidence that it presented showed that the company’s “pension asset [was] derived", "paragraph_id": "para_1352" }, { "text": "from shareholder funds contributed prior to the implementation of formula rates, and [that] once", "paragraph_id": "para_1353" }, { "text": "formula rates were implemented, [the company’s] pension expense recovered from ratepayers", "paragraph_id": "para_1354" }, { "text": "‘was perfectly reconciled each year and ComEd continued to make regular pension", "paragraph_id": "para_1355" }, { "text": "contributions,’ ” which meant that “those contributions could not have come from ratepayer", "paragraph_id": "para_1356" }, { "text": "funds.” ComEd further asserts that there was no record evidence that countered its own and that", "paragraph_id": "para_1357" }, { "text": "the Commission ignored the company’s “uncontroverted” evidence in finding that the company", "paragraph_id": "para_1358" }, { "text": "did not provide a specific source of the funds for its contributions to the Exelon pension plan and", "paragraph_id": "para_1359" }, { "text": "in the company’s overall pension asset.", "paragraph_id": "para_1360" }, { "text": "¶ 135 In countering ComEd’s argument, the Commission cites Northern Illinois Gas Co., Ill.", "paragraph_id": "para_1361" }, { "text": "Comm. Comm’n No. 21-0098 (Order-Final Nov. 18, 2021). There, Northern Illinois Gas Company", "paragraph_id": "para_1362" }, { "text": "(Nicor) asserted that its $83 million pension asset had been funded by its shareholders and not by", "paragraph_id": "para_1363" }, { "text": "58", "paragraph_id": "para_1364" }, { "text": "ratepayers. Id. at 4. Nicor explained that it had established its pension plan in 1954 and that the", "paragraph_id": "para_1365" }, { "text": "three sources of funding for the plan were the company’s shareholders, ratepayers, and market", "paragraph_id": "para_1366" }, { "text": "appreciation. Id. Nicor also asserted that its “pension asset must have come from shareholders”", "paragraph_id": "para_1367" }, { "text": "because “it is a principle of Illinois rate design that customers pay only the pension cost and that", "paragraph_id": "para_1368" }, { "text": "market returns do not count toward the calculation of the pension asset”; “as of 1990, the", "paragraph_id": "para_1369" }, { "text": "cumulative prepaid pension balance was negative”; “ratepayers received pension credits in each", "paragraph_id": "para_1370" }, { "text": "year during the 1990s and large credits in the early 2000s,” during which time “the pension asset", "paragraph_id": "para_1371" }, { "text": "grew from a negative figure to over $150 million”; and, since 1954, ratepayers had paid a net total", "paragraph_id": "para_1372" }, { "text": "of only $9 million, which signified that any incidental ratepayer contribution to Nicor’s pension", "paragraph_id": "para_1373" }, { "text": "plan had to have been returned. Id. at 5.", "paragraph_id": "para_1374" }, { "text": "¶ 136 The Commission in Nicor’s rate case noted that, in the company’s previous rate cases, the", "paragraph_id": "para_1375" }, { "text": "Commission had “analyzed [shareholder] and ratepayer pension contributions since the fund’s", "paragraph_id": "para_1376" }, { "text": "inception in 1954 and definitively concluded that ratepayers funded the asset.” Id. at 13. The", "paragraph_id": "para_1377" }, { "text": "Commission further noted that “[n]o facts [had] changed to warrant a different finding” in those", "paragraph_id": "para_1378" }, { "text": "rate proceedings]. Id. Thus, the Commission found that the applicable evidence showed that", "paragraph_id": "para_1379" }, { "text": "Nicor’s pension plan had been funded by ratepayers rather than shareholders. Id.", "paragraph_id": "para_1380" }, { "text": "¶ 137 Here, ComEd’s showing regarding the source of the funds in its alleged pension asset is", "paragraph_id": "para_1381" }, { "text": "similarly lacking. ComEd asserts that, in 2005, the balance of its alleged pension asset was $853.9", "paragraph_id": "para_1382" }, { "text": "million, which included the $803 million contribution that ComEd had made to fully fund its", "paragraph_id": "para_1383" }, { "text": "portion of the Exelon pension plan. ComEd further asserts that the Commission acknowledged that", "paragraph_id": "para_1384" }, { "text": "the contribution had been funded by shareholders by awarding ComEd a return related to the", "paragraph_id": "para_1385" }, { "text": "contribution in recognition of the fact that “ComEd ha[d] incurred a cost and that customers ha[d]", "paragraph_id": "para_1386" }, { "text": "derived some benefit as a result of the pension contribution.” However, regardless of whether the", "paragraph_id": "para_1387" }, { "text": "59", "paragraph_id": "para_1388" }, { "text": "Commission actually made this acknowledgement, our review of the relevant decisions in", "paragraph_id": "para_1389" }, { "text": "ComEd’s traditional article IX rate cases shows that the Commission has never expressly", "paragraph_id": "para_1390" }, { "text": "determined that the remaining $50.9 million in ComEd’s pension plan by 2005 was also funded", "paragraph_id": "para_1391" }, { "text": "solely by shareholders.", "paragraph_id": "para_1392" }, { "text": "¶ 138 Additionally, we acknowledge that Graham testified that ComEd’s alleged pension asset", "paragraph_id": "para_1393" }, { "text": "could have only been funded by shareholders because ComEd’s recovery of pension expense had", "paragraph_id": "para_1394" }, { "text": "been reconciled annually since the company’s 2010 rate case and the formula rate structure ensured", "paragraph_id": "para_1395" }, { "text": "that funds from which excess contributions were made do not constitute rate recovery in excess of", "paragraph_id": "para_1396" }, { "text": "lawfully approved costs of service that could be considered. However, we also note that Graham", "paragraph_id": "para_1397" }, { "text": "further testified that “ComEd’s [p]ension [c]ontributions [were] funded through cash generated", "paragraph_id": "para_1398" }, { "text": "from ComEd’s internal operations.” Cf. North Shore Gas, Ill. Comm. Comm’n No. 12-0511, 12-", "paragraph_id": "para_1399" }, { "text": "0512 (cons.), at 82 (Order-Final June 18, 2013) (“[T]he amount that the [c]ompanies allege to be", "paragraph_id": "para_1400" }, { "text": "a ‘pension asset’ was not created with funds supplied by shareholders. Instead, they represent", "paragraph_id": "para_1401" }, { "text": "amounts from normal operating revenues collected or to be collected from utility rate payers. ***", "paragraph_id": "para_1402" }, { "text": "Since the alleged ‘pension asset’ is funded by normal operations, rather than provided by discrete", "paragraph_id": "para_1403" }, { "text": "shareholder contributions, shareholders should not earn a return on it.”). Moreover, we note that,", "paragraph_id": "para_1404" }, { "text": "like Nicor, ComEd does not indicate here that it ever offered more specific evidence regarding the", "paragraph_id": "para_1405" }, { "text": "funding of its portion of the Exelon pension plan since the date of the plan’s inception to support", "paragraph_id": "para_1406" }, { "text": "Graham’s general assertion in her testimony that all $1,219,271,886 of ComEd’s pension asset had", "paragraph_id": "para_1407" }, { "text": "to have been funded by shareholders. Cf. Ameren Illinois Co. v. Illinois Commerce Comm’n, 2026", "paragraph_id": "para_1408" }, { "text": "IL App (5th) 240164, ¶ 140 (“The $100 million payment [into Ameren’s other post-employment", "paragraph_id": "para_1409" }, { "text": "benefits trust] is not disputed. Ameren needs to realize, however, that the fund contains ratepayer", "paragraph_id": "para_1410" }, { "text": "funds as well as that provided by its parent company and that a copy of the treasury note moving", "paragraph_id": "para_1411" }, { "text": "60", "paragraph_id": "para_1412" }, { "text": "the funds into the *** trust does not validate Ameren’s claim that shareholders made the payment,", "paragraph_id": "para_1413" }, { "text": "especially when its witness confirmed that ratepayer and shareholder funds were included in the", "paragraph_id": "para_1414" }, { "text": "trust and the reason for the overfunding stemmed from excellent investment strategy related to the", "paragraph_id": "para_1415" }, { "text": "fund.”). Therefore, we uphold the Commission’s finding that ComEd failed to sufficiently prove", "paragraph_id": "para_1416" }, { "text": "the source of the funds for its contributions to its alleged pension asset and the funds in the alleged", "paragraph_id": "para_1417" }, { "text": "pension asset as a whole. As it follows, we also uphold the Commission’s decision to deny ComEd", "paragraph_id": "para_1418" }, { "text": "a return on its alleged pension asset.", "paragraph_id": "para_1419" }, { "text": "¶ 139 D. Capital Structure", "paragraph_id": "para_1420" }, { "text": "¶ 140 Lastly, ComEd argues that the Commission erred by rejecting its proposed capital", "paragraph_id": "para_1421" }, { "text": "structure, which the company asserted before the Commission was its actual capital structure, and", "paragraph_id": "para_1422" }, { "text": "by imputing a capital structure that contained 50% common equity for the duration of the rate plan.", "paragraph_id": "para_1423" }, { "text": "In particular, ComEd argues that, in considering whether to adopt its proposed capital structure,", "paragraph_id": "para_1424" }, { "text": "the Commission applied the incorrect legal standard by stating that ComEd bore the burden of", "paragraph_id": "para_1425" }, { "text": "showing “that a capital structure higher than 50% is ‘necessary to support ComEd’s financial", "paragraph_id": "para_1426" }, { "text": "strength or to maintain its investment grade rating.’ ” (Emphasis in original.) ComEd asserts that,", "paragraph_id": "para_1427" }, { "text": "in using this language, the Commission improperly “shunned the settled standard for assessing a", "paragraph_id": "para_1428" }, { "text": "utility’s actual capital structure in favor of a strict ‘necessity’ standard.”", "paragraph_id": "para_1429" }, { "text": "¶ 141 As we earlier noted, section 9-201(c) of the Public Utilities Act provides that, in the event", "paragraph_id": "para_1430" }, { "text": "that the Commission conducts a hearing regarding a utility’s proposed rates, the utility bears the", "paragraph_id": "para_1431" }, { "text": "burden of proving that the proposed rates are just and reasonable. 220 ILCS 5/9-201(c) (West", "paragraph_id": "para_1432" }, { "text": "2022). When considering justness and reasonableness, the Commission must balance the interests", "paragraph_id": "para_1433" }, { "text": "of the utility and its investors against those of the ratepayers. See Business & Professional People,", "paragraph_id": "para_1434" }, { "text": "146 Ill. 2d at 208 (“The Commission is charged *** with setting rates which are ‘just and", "paragraph_id": "para_1435" }, { "text": "61", "paragraph_id": "para_1436" }, { "text": "reasonable’ not only to the ratepayers but to the utility and its stockholders.” (Emphasis in", "paragraph_id": "para_1437" }, { "text": "original.)). Furthermore, under section 9-320 of the Public Utilities Act, “the Commission shall", "paragraph_id": "para_1438" }, { "text": "not include any *** incremental risk *** [or] increased cost of capital *** which is the direct or", "paragraph_id": "para_1439" }, { "text": "indirect result of the public utility’s affiliation with unregulated or nonutility companies.” 220", "paragraph_id": "para_1440" }, { "text": "ILCS 5/9-230 (West 2022). Additionally, “the Commission should disallow recovery of any cost", "paragraph_id": "para_1441" }, { "text": "of capital in excess of that reasonably necessary for the provision of services.” Citizens Utility", "paragraph_id": "para_1442" }, { "text": "Board, 276 Ill. App. 3d at 746.", "paragraph_id": "para_1443" }, { "text": "¶ 142 Also pertinent to ComEd’s present argument, section 16-108.18(d)(3)(C) of the Public", "paragraph_id": "para_1444" }, { "text": "Utilities Act states that “[t]he revenue requirement shall reflect [a] utility’s actual capital structure", "paragraph_id": "para_1445" }, { "text": "for the applicable calendar year.” 220 ILCS 5/16-108.18(d)(3)(C) (West 2022). The section further", "paragraph_id": "para_1446" }, { "text": "states that, whereas “[a] year-end capital structure that includes a common equity ratio of up to", "paragraph_id": "para_1447" }, { "text": "and including 50% of the total capital structure shall be deemed prudent and reasonable,” the", "paragraph_id": "para_1448" }, { "text": "Commission must specifically approve any higher of a common equity ratio. Id.", "paragraph_id": "para_1449" }, { "text": "¶ 143 The Commission’s statement in its Final Order in this case that ComEd’s proposed", "paragraph_id": "para_1450" }, { "text": "common equity ratio was greater than what was “necessary” corresponds with the requirement", "paragraph_id": "para_1451" }, { "text": "recognized in Illinois case law that the Commission disallow a utility from recovering on costs", "paragraph_id": "para_1452" }, { "text": "beyond those that are “reasonably necessary” for the provision of its services. See Citizens Utility", "paragraph_id": "para_1453" }, { "text": "Board, 276 Ill. App. 3d at 746. Moreover, in its analysis, the Commission noted that the Public", "paragraph_id": "para_1454" }, { "text": "Utilities Act required it to examine a utility’s actual year-end capital structure when setting the", "paragraph_id": "para_1455" }, { "text": "utility’s revenue requirement and that, under the statute, a common equity ratio of 50% or under", "paragraph_id": "para_1456" }, { "text": "was prudent and reasonable, whereas ComEd had the burden of showing that the Commission", "paragraph_id": "para_1457" }, { "text": "should specifically approve a greater common equity ratio. The Commission further noted that the", "paragraph_id": "para_1458" }, { "text": "Public Utilities Act also prohibited a utility’s affiliation with an unregulated parent company from", "paragraph_id": "para_1459" }, { "text": "62", "paragraph_id": "para_1460" }, { "text": "increasing the cost of capital that the Commission ultimately approved. In applying the governing", "paragraph_id": "para_1461" }, { "text": "principles to the facts before it, the Commission expressly weighed the benefits of ComEd’s", "paragraph_id": "para_1462" }, { "text": "common equity ratio to its sole investor, Exelon, against the detriments to the company’s", "paragraph_id": "para_1463" }, { "text": "customers. The Commission also examined whether the relationship between ComEd and Exelon", "paragraph_id": "para_1464" }, { "text": "increased the cost of ComEd’s capital. As these portions of the Final Order demonstrate, the", "paragraph_id": "para_1465" }, { "text": "Commission applied the correct legal standard in analyzing ComEd’s proposed capital structure.", "paragraph_id": "para_1466" }, { "text": "¶ 144 ComEd also argues that the Commission’s findings that culminated in its decision to reject", "paragraph_id": "para_1467" }, { "text": "ComEd’s proposed capital structure were not supported by substantial evidence. More specifically,", "paragraph_id": "para_1468" }, { "text": "ComEd argues that the Commission’s finding that ComEd faced no increased risk under the rate", "paragraph_id": "para_1469" }, { "text": "plan was “dubious” and contradicted by the “uncontested record evidence *** that ComEd’s", "paragraph_id": "para_1470" }, { "text": "anticipated needs in the next four years [would] differ from its needs over the last decade for other", "paragraph_id": "para_1471" }, { "text": "reasons.” (Emphasis in original.) ComEd points out that the evidence that it presented showed, for", "paragraph_id": "para_1472" }, { "text": "example, that the company anticipated a continued “heightened inflationary environment” and", "paragraph_id": "para_1473" }, { "text": "continued “banking sector turmoil” and political uncertainty related to the “debt ceiling.” ComEd", "paragraph_id": "para_1474" }, { "text": "asserts that nothing in the record before the Commission suggested that the company’s projections", "paragraph_id": "para_1475" }, { "text": "were unreasonable.", "paragraph_id": "para_1476" }, { "text": "¶ 145 Additionally, ComEd argues that the Commission’s finding that a common equity ratio of", "paragraph_id": "para_1477" }, { "text": "50% would not diminish the company’s financial strength “ignore[d] critical evidence” that", "paragraph_id": "para_1478" }, { "text": "showed that a utility needs a “stronger” common equity ratio than that which is “strictly", "paragraph_id": "para_1479" }, { "text": "‘necessary’ ” to prevent a credit downgrade and to provide the utility with the flexibility to address", "paragraph_id": "para_1480" }, { "text": "unforeseen financial “shocks,” such as extreme weather, high inflation, or geopolitical conflicts.", "paragraph_id": "para_1481" }, { "text": "Finally, ComEd argues that the Commission’s finding that the company’s common equity ratio", "paragraph_id": "para_1482" }, { "text": "was inflated because of the company’s affiliation with Exelon was “wholly unsupported,” in that", "paragraph_id": "para_1483" }, { "text": "63", "paragraph_id": "para_1484" }, { "text": "the evidence showed “only that such a relationship exist[ed], which [was] not in and of itself", "paragraph_id": "para_1485" }, { "text": "sufficient to support a finding of causation.”", "paragraph_id": "para_1486" }, { "text": "¶ 146 Counter to ComEd’s showing regarding its risk under the rate plan, McNally testified that", "paragraph_id": "para_1487" }, { "text": "Moody’s and S&P had viewed formula ratemaking positively and that S&P had stated that formula", "paragraph_id": "para_1488" }, { "text": "ratemaking benefited ComEd by improving the company’s returns and diminishing the uncertainty", "paragraph_id": "para_1489" }, { "text": "around investment recovery. McNally further testified that Moody’s and S&P had both upgraded", "paragraph_id": "para_1490" }, { "text": "ComEd’s credit rating in light of their positive view of formula ratemaking and that both agencies", "paragraph_id": "para_1491" }, { "text": "had agreed that the rate plan would enhance ComEd’s credit quality even further. McNally testified", "paragraph_id": "para_1492" }, { "text": "that, in particular, Moody’s had stated that “ ‘[t]he multi-year plan process, similar to the formulaic", "paragraph_id": "para_1493" }, { "text": "rate regulation, should still produce transparent and predictable cash flow, but likely with less", "paragraph_id": "para_1494" }, { "text": "regulatory lag and improved profitability,’ ” and that S&P had similarly stated that it", "paragraph_id": "para_1495" }, { "text": "“ ‘anticipate[d] that ComEd [would] operate under a multi-year rate plan with forward test periods", "paragraph_id": "para_1496" }, { "text": "which would enhance rate predictability and regulatory lag.’ ” McNally also testified that S&P had", "paragraph_id": "para_1497" }, { "text": "viewed ComEd as having an “ ‘excellent’ ” level of operating risk.", "paragraph_id": "para_1498" }, { "text": "¶ 147 As to ComEd’s showing regarding its financial strength, the company’s specific basis for", "paragraph_id": "para_1499" }, { "text": "believing that the Commission ignored certain evidence is unclear. Moreover, counter to ComEd’s", "paragraph_id": "para_1500" }, { "text": "position regarding its financial strength, McNally testified that, as was so with ComEd, Moody’s", "paragraph_id": "para_1501" }, { "text": "and S&P had also viewed Exelon as having an “ ‘excellent’ ” level of operating risk. McNally", "paragraph_id": "para_1502" }, { "text": "explained that, in general, companies with similar levels of operating risk could maintain a given", "paragraph_id": "para_1503" }, { "text": "credit rating with a similar percentage of equity. McNally then pointed out that, nevertheless,", "paragraph_id": "para_1504" }, { "text": "ComEd sought to increase its percentage of equity in its rate plan despite the fact that its “three-", "paragraph_id": "para_1505" }, { "text": "year average common equity ratio *** was already much higher than [Exelon’s].”", "paragraph_id": "para_1506" }, { "text": "64", "paragraph_id": "para_1507" }, { "text": "¶ 148 In elaborating on ComEd’s relationship with Exelon, McNally further testified that, “when", "paragraph_id": "para_1508" }, { "text": "a larger corporation owns a utility, the corporation is generally not motivated to establish the", "paragraph_id": "para_1509" }, { "text": "optimal, lowest-cost capital structure for the utility, but to instead use a capital structure with a", "paragraph_id": "para_1510" }, { "text": "greater percentage of equity than is optimal, thereby allowing the parent company to realize a", "paragraph_id": "para_1511" }, { "text": "greater return.” McNally explained that, specific to this case, “[i]f ComEd’s capital structure [were", "paragraph_id": "para_1512" }, { "text": "to carr[y] an excessive amount of equity, it [would] benefit[***] Exelon, its parent and sole", "paragraph_id": "para_1513" }, { "text": "shareholder, to the detriment of ComEd ratepayers, who would pay for the excessive amount of", "paragraph_id": "para_1514" }, { "text": "equity.” McNally then went on to state that Exelon had provided ComEd with $2 billion in cash", "paragraph_id": "para_1515" }, { "text": "infusions, which had increased ComEd’s common equity balance in a way that was unjustified.", "paragraph_id": "para_1516" }, { "text": "¶ 149 Our review of the record in this case reveals that there was substantial evidence to support", "paragraph_id": "para_1517" }, { "text": "the Commission’s findings that ComEd faced no increased risk under the rate plan, that a common", "paragraph_id": "para_1518" }, { "text": "equity ratio of 50% would not diminish ComEd’s financial strength, and that ComEd’s common", "paragraph_id": "para_1519" }, { "text": "equity ratio was inflated because of the company’s affiliation with Exelon. Therefore, we conclude", "paragraph_id": "para_1520" }, { "text": "that the Commission’s decision to reject ComEd’s proposed capital structure and impute a capital", "paragraph_id": "para_1521" }, { "text": "structure that contained 50% common equity for the duration of the rate plan was proper.", "paragraph_id": "para_1522" }, { "text": "¶ 150 III. CONCLUSION", "paragraph_id": "para_1523" }, { "text": "¶ 151 For the reasons stated herein, we affirm the Commission’s orders setting ComEd’s return", "paragraph_id": "para_1524" }, { "text": "on equity, denying ComEd a return on its pension asset, and imputing a capital structure for the", "paragraph_id": "para_1525" }, { "text": "company.", "paragraph_id": "para_1526" }, { "text": "¶ 152 Affirmed.", "paragraph_id": "para_1527" }, { "text": "65", "paragraph_id": "para_1528" }, { "text": "International Brotherhood of Electrical Workers, Local Union 15 v. Illinois Commerce", "paragraph_id": "para_1529" }, { "text": "Comm’n, 2026 IL App (3d) 240021", "paragraph_id": "para_1530" }, { "text": "Decision Under Review: Petition for Review of orders of the Illinois Commerce", "paragraph_id": "para_1531" }, { "text": "Commission, Nos. 22-0486, 23-0055, 24-0181.", "paragraph_id": "para_1532" }, { "text": "Attorneys", "paragraph_id": "para_1533" }, { "text": "for", "paragraph_id": "para_1534" }, { "text": "Appellant:", "paragraph_id": "para_1535" }, { "text": "Amanda K. Hansen, of Schuchat, Cook & Werner, of St. Louis,", "paragraph_id": "para_1536" }, { "text": "Missouri, for appellant International Brotherhood of Electrical", "paragraph_id": "para_1537" }, { "text": "Workers, AFL-CIO, Local Union 15.", "paragraph_id": "para_1538" }, { "text": "Hanna Conger, of Benesch Friedlander Coplan & Aronoff LLP,", "paragraph_id": "para_1539" }, { "text": "E. Glenn Rippie, Kristin Munsch, and Monique Woody, of", "paragraph_id": "para_1540" }, { "text": "Commonwealth Edison Company, and Clifford W. Berlow,", "paragraph_id": "para_1541" }, { "text": "Marjorie R. Kennedy, and Simon A. de Carvalho, of Jenner &", "paragraph_id": "para_1542" }, { "text": "Block LLP, all of Chicago, for appellant Commonwealth Edison", "paragraph_id": "para_1543" }, { "text": "Company.", "paragraph_id": "para_1544" }, { "text": "Attorneys", "paragraph_id": "para_1545" }, { "text": "for", "paragraph_id": "para_1546" }, { "text": "Appellee:", "paragraph_id": "para_1547" }, { "text": "Brian J. Dodds, Robert W. Funk, and Thomas R. 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