People ex rel. Madigan v. Illinois Commerce Comm'n

2015 IL App (1st) 140275, 38 N.E.3d 87

• Court: Appellate Court of Illinois
• Decided: July 29, 2015
• Docket: 1-14-0275, 1-14-0403 cons.
• Status: Unpublished

Opinion

2015 IL App (1st) 140275 THIRD DIVISION July 29, 2015

Nos. 1-14-0275 & 1-14-0403 (cons.)

THE PEOPLE OF THE STATE OF ILLINOIS, ex rel. ) LISA MADIGAN, ATTORNEY GENERAL OF ) THE STATE OF ILLINOIS, and CITIZENS ) UTILITY BOARD, ) ) Petitioners, ) ) v. ) Petition for Review of ) Orders of the Illinois ILLINOIS COMMERCE COMMISSION; ) Commerce Commission COMMONWEALTH EDISON COMPANY; ILLINOIS ) in ICC Docket No. 13-0533 INDUSTRIAL ENERGY CONSUMERS; ) EXXONMOBIL POWER & GAS SERVICES, INC.; ) STERLING STEEL COMPANY; and CITY OF ) CHICAGO, ) ) Respondents. )

JUSTICE MASON delivered the judgment of the court with opinion. 1 Presiding Justice Pucinski and Justice Lavin concurred in the judgment and opinion.

OPINION

¶1 In these consolidated appeals, petitioners, the State of Illinois, ex rel. Lisa

Madigan, Attorney General of the State of Illinois (People), and the Citizens Utility

Board (CUB) (collectively petitioners), appeal from an order of the Illinois Commerce

Commission (Commission) determining that respondent, Commonwealth Edison

(ComEd), was entitled to calculate interest on the full amount of under collected revenues

pursuant to the annual reconciliation provisions of the Energy Infrastructure

Modernization Act (220 ILCS 5/16-108.5(d)(1) (Act) (West 2012)). Petitioners contend

1 This matter was recently assigned to Justice Mason. Nos. 1-14-0275 & 1-14-0403 (cons.)

that the Commission erred in not requiring that the interest calculation be net of

Accumulated Deferred Income Taxes (ADIT) attributable to the under-collected

revenues. Finding no error in the Commission's order, we affirm.

¶2 BACKGROUND

¶3 A. Energy Infrastructure Modernization Act

¶4 In Commonwealth Edison Co. v. Illinois Commerce Comm'n, 2014 IL App (1st)

130302, we recently addressed the history and purpose of the Act:

"In 2011, the legislature enacted the Energy Infrastructure Modernization

Act, which is section 16-108.5 of the Public Utilities Act (220 ILCS 5/16-108.5

(West 2012)), to stimulate new investments by utilities in the State's energy

infrastructure. The Act provides for guaranteed payment of utilities' costs and a

rate of return for its investments in infrastructure. 'A public utility is entitled both

to recover in its rates certain operating costs and to earn a return on its rate base

(i.e., the amount of its invested capital).' [Citation.]

In exchange for this legislative guarantee of payment, the utility must

commit to making very substantial investments in updating and improving its

facilities, and in hiring new employees. 220 ILCS 5/16-108.5(b) (West 2012). A

public utility's participation in the Act is voluntary. 220 ILCS 5/16-108.5(b)

(West 2012). ComEd is a participating utility and committed to invest an

estimated $2.6 billion in infrastructure on top of its normal annual capital

investment program over the next ten years. 220 ILCS 5/16-108.5(b)(2) (West

2012). Under the Act the formula to establish rates enables ComEd to make

planned substantial investment increases in its capital commitment by providing it

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with greater certainty of timely cost recovery than it would have received under

previous [ratemaking procedures]." Id. ¶¶ 4-5.

¶5 The "performance-based" formula rate is designed to operate in a standardized

manner and is "updated annually with transparent information that reflects the utility's

actual costs to be recovered during the applicable rate year." 220 ILCS 5/16-108.5(c)

(West 2012). The Act generally requires that the formula rate approved by the

Commission "[p]rovide for the recovery of the utility's actual costs of delivery services

that are prudently incurred and reasonable in amount consistent with Commission

practice and law." 220 ILCS 5/16-108.5(c)(1) (West 2012). In order to place the issue

raised here in context, we describe the ratemaking process envisioned by the Act.

¶6 Public utilities like ComEd are subject to both federal and state regulation. The

Commission sets rates for power distributed in Illinois, while the Federal Energy

Regulatory Commission (FERC) regulates interstate transmission of energy. See 220

ILCS 5/16-101A(d) (West 2012); 16 U.S.C. § 824(a), (b)(1) (2012). Under federal law,

ComEd is required to file annually a FERC Form 1, which sets out comprehensive

financial and operating data for the previous year. Commonwealth Edison, 2014 IL App

(1st) 130302, ¶ 15. Under the Act, the Commission sets rates for any given rate year on a

preliminary basis using cost data for the prior year reflected in ComEd's most recently

filed FERC Form 1, plus projected plant additions and updated depreciation and expense

corresponding to those expected additions, resulting in ComEd's anticipated reasonable

and prudent costs of service during the upcoming rate year. 220 ILCS 5/16-108.5(c)

(West 2012). Following the calendar year for which rates were projected and once actual

figures for that rate year are known, the Act contemplates that ComEd will compare its

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anticipated and actual revenue requirement and calculate the difference, which, if the

projection underestimated actual costs of service, ComEd will recover from ratepayers or,

if the projection exceeded actual costs of service, ComEd will refund to its customers.

220 ILCS 5/16-108.5(d)(1) (West 2012). We refer to the difference—positive or

negative—as the reconciliation balance.

¶7 Thus, for example, ComEd's 2014 projected rate requirement was based, in part,

on cost data from its 2013 FERC Form 1. In 2015, once ComEd's actual costs of service

for 2014 were known, ComEd calculated the reconciliation balance and will either collect

or refund that amount in 2016. This process repeats each year.

¶8 The Act recites the purpose of the reconciliation:

"Notwithstanding anything that may be to the contrary, the intent of the

reconciliation is to ultimately reconcile the revenue requirement reflected in rates

for each calendar year *** with what the revenue requirement would have been

had the actual cost information for the applicable calendar year been available at

the filing date." Id.

¶9 At the time of the rate proceedings at issue here, subsection 16-108.5(d)(1)

provided:

"Any over-collection or under-collection indicated by such reconciliation shall be

reflected as a credit against, or recovered as an additional charge to, respectively,

with interest, the charges for the applicable rate year." Id.

This provision was amended in 2013 to specify that interest should be "calculated at a

rate equal to the utility's weighted average cost of capital approved by the Commission

for the prior rate year." 220 ILCS 5/16-108.5(d)(1) (West Supp. 2013). We discuss

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below the circumstances and significance of this amendment.

¶ 10 The issue here focuses on whether interest should be calculated on the entire

reconciliation balance or whether ADIT should be deducted from the balance prior to the

calculation of interest. ADIT reflects the temporary timing difference between when an

expense (or revenue) item is recognized on the company's books versus when the

company recognizes that expense (or revenue) on its tax return. As we observed in

Ameren Illinois Co. v. Illinois Commerce Comm'n, 2013 IL App (4th) 121008, ¶ 34,

ADIT "quantifies the income taxes that are deferred when the tax law provides for

deductions with respect to an item in a year other than the year that the item is treated as

an expense for financial reporting purposes." (Internal quotation marks omitted.) As

applied here, the timing difference means that although ComEd can recognize or "book"

the reconciliation balance (and the associated ADIT liability) in 2015 because, due to the

Act's provisions, it is probable that ComEd will realize that revenue in 2016, ComEd's

obligation to pay income tax on that revenue is postponed until it is actually received in

2016.

¶ 11 Finally, the Act imposes limits on ComEd's calculated return on equity. To the

extent that collecting or refunding the reconciliation balance produces a higher or lower

rate of return than the limits specified in the Act, the rate of return is adjusted to keep the

prior rate year's actual return within statutory limits. 220 ILCS 5/16-108.5(c)(5) (West

2012). These limits are commonly referred to as the Return on Equity (ROE) Collar.

¶ 12 B. Procedural History

¶ 13 Following the 2013 amendments to the Act, on May 13, 2013, ComEd filed

proposed tariff pages and revised revenue requirements to implement the amendments.

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On June 5, 2013, the Commission approved ComEd's revised revenue requirements after

finding that the proposed tariff changes complied with the amendments.

¶ 14 On September 4, 2013, the People filed a complaint with the Commission alleging

that certain changes approved by the Commission produced excessive, unjust,

unreasonable and unlawful rates in violation of the Act. Ultimately, the Commission

initiated its own investigation into the matter and identified three issues to be addressed:

whether ComEd's May 30 tariff filing correctly calculated (1) interest on the

reconciliation balance by "grossing up" the weighted average cost of capital to account

for the income tax effect of the portion of interest attributable to equity financing (2) the

ROE Collar and (3) interest on the full reconciliation balance as opposed to the

reconciliation balance net of ADIT. The order initiating the investigation designated

ComEd as the respondent. In addition to the People and CUB, the City of Chicago and

the Illinois Industrial Energy Consumers appeared or intervened as parties.

¶ 15 After discovery and exchange of information, the Commission conducted an

evidentiary hearing on October 24, 2013. Written testimony of various experts and

exhibits were admitted into evidence. We further discuss below the substance of the

expert testimony. Following the hearing, the parties submitted briefs.

¶ 16 As relevant to the issue on appeal, petitioners argued that ComEd realized a cash

benefit from its deferred obligation to pay income tax on the reconciliation balance and

that allowing ComEd to calculate interest on the full reconciliation balance, without

deducting ADIT, allowed the recovery of excessive rates. ComEd challenged this

assertion contending that to the extent in any given rate year, the revenues it received

were less than its actual revenue requirement, it incurred a carrying cost for the entire

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shortfall and that netting ADIT from the interest calculation on the reconciliation balance

would under compensate ComEd for this expense.

¶ 17 On November 13, 2013, the administrative law judge (ALJ) issued a proposed

order for the Commission's review. After considering exceptions to the ALJ's proposed

findings, the Commission entered its order on November 26, 2013.

¶ 18 As it relates to this appeal, the Commission found that the interest provision in

subsection (d)(1) of the Act was ambiguous given that it did not specify one way or the

other whether interest should be calculated on the entire reconciliation balance or on the

net balance after deduction of ADIT. Resorting to principles of statutory construction,

the Commission concluded that ComEd was entitled to calculate interest on the full

reconciliation balance utilizing a rate equal to ComEd's weighted average cost of capital

for the prior year. The Commission first reasoned that because the legislature had

specified in one section of the Act that certain calculations be made on a "net" basis and

had also referred in another provision to a calculation "adjusted for taxes," an

interpretation that required ADIT to be deducted from the reconciliation balance prior to

the calculation of interest under subsection (d)(1) would read into the Act "exceptions,

limitations, or conditions the legislature did not express." The Commission also noted

that issues regarding subsection (d)(1)'s clarity, including the method of computing

interest on reconciliation balances, had been raised in a prior proceeding. Although the

legislature later amended the subsection to legislatively overrule the result reached by the

Commission on another issue, it did not change or clarify the method of computing

interest on the reconciliation balance. Given that the legislature had an opportunity to

clarify the issue, the Commission viewed its failure to do so as supporting the

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interpretation the Commission adopted here. The Commission concluded its findings on

this issue with the observation that if, "[i]n the future, [ ] further arguments from the

parties are presented or clarity from the legislature is provided on this topic, the

Commission will revisit the issue."

¶ 19 The Commission further ruled against ComEd on the first issue of whether the

weighted average cost of capital rate used to calculate interest on the reconciliation

balance was appropriately "grossed up" for the income tax effect of that portion of the

rate attributable to equity financing. The Commission found, as it did in connection with

the ADIT issue, that the legislature had specified a rate of return in the Act and that

ComEd's position would impose conditions on that calculation not expressed in the Act.

Finally, the Commission rejected petitioners' proposal that an average rate base, as

opposed to a year-end rate base, be used for purposes of calculating the ROE Collar.

¶ 20 The People, CUB and ComEd each sought rehearing before the Commission.

Those applications were denied on January 15, 2014. The People, CUB and ComEd then

timely initiated this action for administrative review pursuant to Illinois Supreme Court

Rule 335 (eff. Feb. 1, 1994) and section 10-201 of the Public Utilities Act (220 ILCS

5/10-201 (West 2012)). The parties' respective appeals were consolidated. On June 9,

2014, ComEd voluntarily dismissed its appeal (No. 1-14-0114), leaving the appeals filed

by the People (No. 1-14-0275) and CUB (No. 1-14-0403), both of which concern only

the third issue addressed by the Commission.

¶ 21 ANALYSIS

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¶ 22 The scope of review of a Commission order is set out in section 10-201 of the

Public Utilities Act. Id. Under this provision, Commission orders are deemed prima

facie reasonable and the burden is on the party appealing the order to overcome that

presumption. 220 ILCS 5/10-201(d) (West 2012); People ex rel. Madigan v. Illinois

Commerce Comm'n, 2011 IL App (1st) 101776, ¶ 6 (quoting Commonwealth Edison Co.

v. Illinois Commerce Comm'n, 398 Ill. App. 3d 510, 514 (2009)). Commission orders are

subject to reversal when the Commission's findings are not supported by substantial

evidence. 220 ILCS 5/10-201(e)(iv)(A) (West 2012). Notwithstanding the statute's

reference to "substantial evidence," our supreme court has held that the Commission's

factual findings must be upheld unless they are contrary to the manifest weight of the

evidence. People ex rel. Hartigan v. Illinois Commerce Comm'n, 148 Ill. 2d 348, 367

(1992); see also Commonwealth Edison Co. v. Illinois Commerce Comm'n, 2014 IL App

(1st) 122860, ¶ 58 (applying manifest weight standard). Findings of fact are deemed

contrary to the manifest weight of the evidence only when an opposite conclusion is

clearly evident from the record. Continental Mobile Telephone Co. v. Illinois Commerce

Comm'n, 269 Ill. App. 3d 161, 171 (1994). As the parties challenging the Commission's

order, petitioners must affirmatively demonstrate that the conclusion opposite to that

adopted by the Commission is clearly evident. Id.

¶ 23 We accord deference to decisions of the Commission in light of its expertise and

experience in the complex field of utility regulation. Archer-Daniels-Midland Co. v.

Illinois Commerce Comm'n, 184 Ill. 2d 391, 397 (1998); Commonwealth Edison Co. v.

Illinois Commerce Comm'n, 398 Ill. App. 3d 510, 514 (2009). Where the Commission's

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decision involves construction of a statute, the extent of that deference depends on

whether the statute is ambiguous.

¶ 24 When the Commission construes an unambiguous statute, the agency's

interpretation is not binding on the court (People ex rel. Madigan, 2011 IL App (1st)

101776, ¶ 6) and the court need not defer to the agency's interpretation. But although

agency interpretations of ambiguous statutory provisions are likewise not binding, we

give "substantial weight and deference to an interpretation of an ambiguous statute by the

agency charged with the administration and enforcement of the statute." (Internal

quotation marks omitted.) Id. This is particularly true when the interpretation draws on

the agency's expertise and experience and we will not substitute our own construction of

an ambiguous statute for a reasonable interpretation adopted by the agency charged with

its administration. Quality Saw & Seal, Inc. v. Illinois Commerce Comm'n, 374 Ill. App.

3d 776, 781 (2007) ("if reasonable readers of a statute could differ over the extent of the

regulatory authority it confers, we defer to the agency's interpretation if the interpretation

is defensible").

¶ 25 As in any other case involving the construction of a statute, our review is de novo.

Ameren, 2013 IL App (4th) 121008, ¶ 18. We will not reverse a Commission

interpretation of law unless it is erroneous. Illinois Bell Telephone Co. v. Illinois

Commerce Comm'n, 282 Ill. App. 3d 672, 676 (1996).

¶ 26 Although ComEd argues that subsection (d)(1) is not ambiguous, we conclude the

Commission correctly determined that the provision was open to more than one

reasonable interpretation and was thus ambiguous. As the Commission noted, this

provision fails to address the method of computing interest on the reconciliation balance

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and so it is only by resort to interpretative aids other than the language of the provision

itself that the intent of the legislature can be discerned.

¶ 27 Normally, the language of a statute is the best indicator of its meaning. Solon v.

Midwest Medical Records Ass'n, 236 Ill. 2d 433, 440 (2010) (citing Blum v. Koster, 235

Ill. 2d 21, 29 (2009)). But when statutory language is ambiguous and susceptible to more

than one interpretation, both of which are reasonable, it is appropriate to resort to other

aids to construction to determine legislative intent. Id. (citing Landis v. Marc Realty,

L.L.C., 235 Ill. 2d 1, 11 (2009)).

¶ 28 The Commission further found, and we agree, that there is support for both

interpretations advocated by the parties. 2 Experts for petitioners opined that allowing

interest to be calculated on the full reconciliation balance fails to take into account the

cash benefit realized by ComEd as a result of its delayed obligation to pay income tax on

the revenue shortfall. Because, during the current rate year, ComEd records revenue

expected to be received in the following year, it likewise records a deferred income tax

expense related to that revenue. According to petitioners' experts, the net impact is that

ComEd records higher earnings due to the reconciliation revenue, but delays payment of

the income tax associated with those higher earnings until the revenue is actually

received from customers, a result they assert provides a cash benefit to the utility.

Consequently, they reason that the out-of-pocket cost to ComEd as a result of the

reconciliation balance is the after-tax amount of the balance and that interest should be

calculated only on that amount.

2 Indeed, before the Commission, CUB took the position that because subsection (d)(1) did not specifically address the issue, the proper interpretation was up to the Commission.

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¶ 29 Petitioners' experts further observed that netting ADIT from interest calculations

was consistent with generally accepted accounting principles (GAAP) and standard

regulatory practice that matches ADIT to the associated assets included in rate base, thus

recognizing the cash benefit to the utility of the accounting treatment.

¶ 30 ComEd counters that petitioners' experts failed to take into account the carrying

costs incurred by the utility on the revenue shortfall, which ComEd must finance for two

years prior to its recovery. Thus, although ComEd is able to defer payment of income tax

associated with the reconciliation balance, it must finance the entire shortfall, including

the deferred tax amount, and a formula rate that computes interest only on the balance net

of ADIT would not allow ComEd to recover the full cost associated with the

reconciliation balance.

¶ 31 ComEd's expert, Christine Brinkman, further articulated why ADIT in the context

of rate base and ADIT in the context of a reconciliation balance are different. ADIT is

deducted from rate base (comprised of investor funds on which the utility is allowed to

earn a return) to recognize the cash benefit realized from the excess of tax over book

depreciation. Brinkman explained that assets may, for book purposes, depreciate over 30

years, but for income tax purposes, those same assets depreciate over 5 years. Given the

larger depreciation deduction for tax purposes, ComEd's taxes payable are reduced in the

current rate year, resulting in cash available (from ratepayers) to fund rate base

investments. In contrast, the reconciliation balance provides no cash to ComEd until it is

collected. Thus, in this context, ADIT provides no benefit to the utility in the current rate

year and the entirety of the shortfall must be financed by ComEd through investor

supplied funds until it is collected.

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A simple hypothetical illustrates the difference in outcomes. If we assume an

under-collection of revenues of $100,000, a 10% interest rate and an effective tax rate of

40%, the two approaches produce the following results:

Calculation of Interest before ADIT Calculation of Interest after ADIT

Undercollection: $100,000 Undercollection: $100,000

Plus Interest at 10%: +10,000 Less ADIT: - 40,000

Less ADIT on balance: - 44,000 Plus Interest at 10%: + 6,000

Tax on Balance ($106,000): 42,000

Net of tax recovery: $ 66,000 Net of tax recovery: $ 64,000

Hypothesizing an over recovery of revenues in the same amount, requiring a refund of

the reconciliation balance plus interest to ratepayers, produces the same result, i.e.,

calculating interest without netting ADIT results in a greater net of tax recovery to

ComEd's customers.

¶ 32 As noted, the Commission did not expressly address the question from an

accounting standpoint or determine, as a factual matter, whether ComEd realized a cash

benefit from ADIT on the reconciliation balance. Rather, the Commission determined

legislative intent regarding the alternative approaches by examining other provisions of

the Act as well as legislative action following a previous rate proceeding, which involved

the application of subsection (d)(1). Both of these approaches are acceptable aids to

statutory construction in the case of an ambiguous statute. See State Bank of Cherry v.

CGB Enterprises, Inc., 2013 IL 113836, ¶ 56 (" '[w]hen the legislature uses certain

language in one part of a statute and different language in another, we may assume

different meanings were intended' " (quoting People v. Hudson, 228 Ill. 2d 181, 193

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(2008))); People v. Marshall, 242 Ill. 2d 285, 292-93 (2011) (court will not view

language of ambiguous statute in isolation, but will consider other relevant provisions of

the statute (citing People v. Beachem, 229 Ill. 2d 237, 243 (2008))); In re Marriage of

O'Neill, 138 Ill. 2d 487, 496 (1990) (" '[w]here the legislature chooses not to amend a

statute after a judicial construction, it will be presumed that it has acquiesced in the

court's statement of the legislative intent' " (quoting Miller v. Lockett, 98 Ill. 2d 478, 483

(1983))); Stevens v. Lou's Lemon Tree, Ltd., 187 Ill. App. 3d 458, 464 (1989)

("Amendments to a statute *** are assumed to be enacted with the legislature's

knowledge of judicial construction of the law."). We cannot say that the Commission's

approach was unreasonable or that the resulting interpretation was erroneous.

¶ 33 The Commission first identified other provisions of the Act in which the

legislature specifically directed adjustments to an amount or a balance. Specifically,

section 108.5(c) of the Act (220 ILCS 5/16-108.5(c) (West 2012)) directs that amounts

related to projected plant additions are included in rate base on a net basis considering

"updated depreciation reserve and expense." Also, the Act's formula for the ROE Collar

calculation in section 108.5(c)(5) expressly requires that the calculation be "adjusted for

taxes." 220 ILCS 5/16-108.5(c)(5) (West 2012). The Commission reasoned that because

in other provisions of the Act, the legislature imposed "exceptions, limitations or

conditions" on required calculations, its failure to likewise condition or otherwise limit

the calculation of interest on the reconciliation balance meant that the entire balance

should bear interest, not the "net" balance or the balance "adjusted for" ADIT.

¶ 34 Although petitioners fault the Commission's reasoning on this point, we find it

persuasive. The legislature easily could have defined the manner in which "interest"

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should be calculated on the "balance," but unlike other provisions of the Act, chose not

to. We view this as a reliable indicator that no further limitations were intended. See

Davis v. Toshiba Machine Co., America, 186 Ill. 2d 181, 186 (1999) (had legislature

intended to restrict application of statute of repose in product liability cases to latent

injuries, "it would have inserted that limitation").

¶ 35 The Commission also found it significant that the legislature failed to amend the

language regarding the interest calculation following the Commission's decision in a prior

proceeding before the Commission to consider the Act's interest provision. In ICC

Docket No. 11-0721, the first proceeding following the Act's effective date, the

Commission addressed issues regarding the rate to be used in calculating interest on the

reconciliation balance under subsection (d)(1). Commonwealth Edison Co., Ill. Com.

Comm'n No. 11-0721, at 33-36 (Order on Rehearing Oct. 3, 2012). Specifically, ComEd

contended that the rate should be equal to its weighted average cost of capital.

Commission staff advocated utilizing a rate equal to an AAA-rated bond for two years

(the period of time during which the balance—positive or negative—is carried by

ComEd). The Commission ultimately adopted a hybrid approach that calculated the rate

taking into account ComEd's cost of capital, the nature of the obligation and the

applicable borrowing period, resulting in a lower rate than ComEd's weighted average

cost of capital.

¶ 36 In the course of the prior proceedings, although it did not resolve the issue, the

Commission also addressed the People's contention—identical to the argument advanced

here—that interest should be calculated on the reconciliation balance after the deduction

of ADIT to assure that consumers receive the benefit of income tax deferrals. ComEd

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contended that the deferred income tax liability provided no source of cash to offset the

revenue shortfall. The Commission "declined to adopt" the People's position, stating:

"ComEd contends that this recommendation does not provide ComEd with

cash. [The People] provide little information establishing that this

procedure is within generally accepted accounting procedures or that it

would of benefit to ComEd or to ratepayers." Commonwealth Edison Co.,

Ill. Com. Comm'n No. 11-0721, at 167 (Final Order, May 29, 2012).

¶ 37 As noted above, following the Commission's decision, the legislature amended

subsection (d)(1) to overrule the Commission's determination as to the appropriate rate of

interest, specifically directing that the rate to be used in calculating interest on the

reconciliation balance is the utility's weighted average cost of capital. At the same time,

although the legislature was undoubtedly aware of the People's contention that the same

subsection should be interpreted to require the deduction of ADIT prior to the calculation

of interest, the legislature neither adopted that position via amendment nor did it

otherwise clarify subsection (d)(1).

¶ 38 Petitioners discount the significance of the legislature's failure to further define

the "balance" on which interest is calculated. They argue that since the Commission did

not actually decide the issue in the prior proceedings, but rather declined to address it for

lack of evidence, the legislature's inaction should not be interpreted as approving

ComEd's position. While we agree that the Commission's act in declining to adopt the

People's position for lack of evidence is not the functional equivalent of a decision on the

merits, the salient point is that when it amended subsection (d)(1), the legislature would

have been aware of the dispute. Since it was amending this very subsection, it would

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have been logical, therefore, to clarify the issue if, in fact, the legislature agreed that

interest should be calculated on the "net" reconciliation balance or the balance "adjusted

for taxes." Consequently, we believe the Commission's properly found the legislature's

failure to act to be indicative of the legislature's view that the "balance, with interest"

means the whole balance and not some derivative thereof.

¶ 39 Petitioners contend that the Commission acknowledged that petitioners' position

on this issue had "merit" in that it was consistent with GAAP and standard regulatory

practice, but declined to adopt it because the Commission believed it lacked authority to

do so. We disagree, as does the Commission, with this explanation for the Commission's

ruling.

¶ 40 First, the Commission points out, it has not been "standard regulatory practice" to

deduct ADIT from reconciliation balances for purposes of calculating interest. While

longstanding practice has been to deduct ADIT from rate base, there is no similar history

with respect to reconciliation balances given the Act's recent vintage. And we find

persuasive Brinkman's explanation of the difference that context makes in assessing

whether ADIT results in a cash benefit to the utility given that, in the reconciliation

balance context, both the revenue and the corresponding tax liability will be received and

paid, respectively, in the future. Thus, petitioner's emphasis on the Commission's

reference to standard regulatory practice is misplaced.

¶ 41 For the same reason, Ameren, 2013 IL App (4th) 121008, is inapposite. Ameren

dealt with the "standard regulatory practice" of deducting ADIT from rate base, a concept

with which ComEd does not disagree. Because, as explained above, ADIT resulting from

the difference between book and tax depreciation provides a source of cash to the utility,

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Ameren determined that failing to net ADIT from rate base would "allow [the utility]

what amounts to an interest -free loan at ratepayers' expense." Id. ¶ 39. Here, in contrast,

ComEd presented credible arguments that ADIT associated with a reconciliation balance

provides no cash benefit to a utility given that the revenues associated with the deferred

tax liability will not be realized until future rate years. Thus, unlike ADIT in the context

of rate base, ADIT associated with a reconciliation balance does not reduce the utility's

current tax liability nor does it afford the utility a source of funds at its customers'

expense.

¶ 42 Further, while GAAP dictates the methodology for recording revenue and

expense items for accounting purposes, it does not purport to predict whether the

accounting treatment results in a "cash benefit" to the business, which was the focus of

the parties' arguments before the Commission. For this reason, the Commission's

comment that the "concept" of netting ADIT against the reconciliation balance is

consistent with GAAP is not the same as a finding that ADIT must be deducted under the

language of the statute or that the failure to deduct ADIT prior to calculating interest on

the balance is inconsistent with GAAP.

¶ 43 Petitioners contend that the tentative nature of the Commission's ruling evidenced

by its stated willingness to revisit the issue should circumstances warrant indicates that

the Commission is intimidated by recent legislative overrides of its rulings and has thus

abdicated its statutory directive to establish rates, "which it shall find to be just and

reasonable." 220 ILCS 5/9-201(c) (West 2012). We disagree. We view the

Commission's statement in this regard as an acknowledgement that this is the first

definitive resolution of this issue. As noted, although the People raised this issue in a

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prior proceeding, the Commission did not address the issue on its merits, instead

declining to adopt the People's position for lack of supporting evidence. The

Commission has now considered additional evidence and arguments advanced by all

parties and has reaffirmed its prior decision not to adopt the People's proposal. We view

the Commission's further statement of its willingness to consider this issue in future

proceedings as nothing more than a recognition that the legislature may opt to consider

further amendments to the Act.

¶ 44 As the Commission notes, its observation that there "may be merit" to petitioners'

proposal is not an indication that ComEd's position lacks merit or that the Commission

believes petitioners' interpretation of subsection (d)(1) is the correct one. Indeed, for the

reasons we have articulated above, the Commission found, we believe correctly, that the

interpretation advocated by ComEd was consistent with legislative intent. Once

legislative intent is determined, the Commission is not free to make findings inconsistent

with that intent, even if the Commission might have ruled otherwise had the matter been

committed to its discretion. See Illinois Bell Telephone Co. v. Illinois Commerce

Comm'n, 283 Ill. App. 3d 188, 207 (1996) ("It is impermissible for the Commission to

substitute its reasonableness standard for the legislature's absolute standard."). Certainly

petitioners have not sustained their burden to identify anything in the language of

subsection (d)(1) or its legislative history that compels a finding that ADIT must be

deducted from a reconciliation balance prior to the calculation of interest. Thus, we

cannot say that the conclusion opposite to the one reached by the Commission is "clearly

evident." Continental Mobile Telephone Co., 269 Ill. App. 3d at 171.

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¶ 45 Finally, contrary to petitioners' contention, nothing in the record before the

Commission leads us to conclude that the adoption of ComEd's position results in the

recovery of unjust or unreasonable rates. Fundamentally, this argument overlooks the

fact that the benefit flowing from the higher interest calculation inures to the utility in

some years and ratepayers in others. Specifically, in years where ComEd recovers

revenues in excess of its actual revenue needs and must refund the excess to its

customers, the method of calculating interest on the reconciliation balance adopted by the

Commission results in a higher refund to ratepayers. Under these circumstances, it

cannot be said that the interest rate calculation approved by the Commission produces

rates that unjust and unreasonable.

¶ 46 CONCLUSION

¶ 47 The Commission had the power to interpret the provisions of the Act relating to

the calculation of interest on the reconciliation balance, which it exercised in accordance

with well-established principles of statutory construction. Nothing in the Act or its

legislative history compels the finding that the only possible interpretation of the interest

provision is that advocated by petitioners and we therefore we affirm the Commission's

order.

¶ 48 Affirmed.

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