People v. Illinois Commerce Comm'n

2021 IL App (4th) 200105-U

• Court: Appellate Court of Illinois
• Decided: August 19, 2021
• Docket: 4-20-0105
• Status: Unpublished

Opinion

NOTICE This Order was filed under 2021 IL App (4th) 200105-U FILED Supreme Court Rule 23 and August 19, 2021 is not precedent except in the NO. 4-20-0105 Carla Bender limited circumstances 4th District Appellate allowed under Rule 23(e)(1). IN THE APPELLATE COURT Court, IL

OF ILLINOIS

FOURTH DISTRICT

THE PEOPLE OF THE STATE OF ILLINOIS ex rel. ) Direct Review of KWAME RAOUL, Attorney General of the State of ) Order of the Illinois, ) Illinois Commerce Petitioner, ) Commission v. ) No. 19-0436 THE ILLINOIS COMMERCE COMMISSION; ) AMEREN ILLINOIS COMPANY; CITIZENS ) UTILITY BOARD; UNIVERSITY OF ILLINOIS; ) LIBERTY STEEL AND WIRE; AIR PRODUCTS & ) CHEMICALS COMPANY; MARATHON ) PETROLEUM COMPANY; PHILLIPS 66; ARCHER- ) DANIELS-MIDLAND COMPANY; TATE & LYLE ) INGREDIENTS AMERICAS, INC.; VISCOFAN ) USA, INC.; AND CCPS TRANSPORTATION LLC, ) as Members of the Illinois Industrial Energy ) Consumers, ) Respondents.

JUSTICE HOLDER WHITE delivered the judgment of the court. Justices DeArmond and Steigmann concurred in the judgment.

ORDER ¶1 Held: The appellate court affirmed, concluding the Commission’s final order was supported by substantial evidence where it (1) adopted a 35-year amortization period for returning unprotected property-related EDIT to Ameren’s ratepayers and (2) excluded from rate base CWIP-related ADIT where the corresponding CWIP costs were not yet in rate base.

¶2 On April 18, 2019, Ameren Illinois Company (Ameren) filed with the Illinois

Commerce Commission (Commission) its eighth annual update of cost inputs to its

performance-based formula pursuant to section 16-108.5(d) of the Public Utilities Act (Utilities Act), commonly referred to as the Energy Infrastructure Modernization Act (Modernization Act)

(220 ILCS 5/16-108.5(d) (West 2018)). Ameren proposed a net revenue requirement of

$1,009,912,000, to be recovered in rates effective in 2020. The Commission opened a docketed

proceeding to investigate the “prudence and reasonableness” of Ameren’s updated cost inputs

and the corresponding charges to be recovered during 2020. The Attorney General of the State

of Illinois (Attorney General) appeared on behalf of the People of the State of Illinois, and the

Citizens Utility Board (CUB) and the Illinois Industrial Energy Consumers (IIEC) (jointly,

IIEC/CUB), both intervened in the matter. Commission Staff (Staff) also participated in the

proceedings.

¶3 On December 16, 2019, following an evidentiary hearing, briefing by all parties,

and oral argument, the Commission issued its final administrative order. In its final order, the

Commission made numerous ratemaking determinations that resulted in the approval of

Ameren’s revenue requirement to be recovered in rates in 2020.

¶4 On January 3, 2020, the Attorney General filed a verified application for

rehearing on two issues: (1) the amortization of excess deferred income taxes (EDIT) and (2) the

treatment of construction work in progress (CWIP) related to accumulated deferred income taxes

(ADIT). On January 21, 2020, the Commission denied the verified petition for rehearing.

¶5 On appeal, the Attorney General challenges two of the Commission’s decisions in

its final order. Specifically, the Attorney General argues the Commission erred by (1) approving

a 35-year amortization period for returning unprotected property-related EDIT to Ameren’s

ratepayers and (2) failing to deduct CWIP-related ADIT from rate base. We affirm the

Commission’s order.

¶6 I. BACKGROUND

-2- ¶7 A. Modernization Act

¶8 1. Participating Utilities

¶9 “In 2011, the General Assembly passed the Modernization Act (220 ILCS

5/16-108.5 (West 2012)), as a provision of the Utilities Act (220 ILCS 5/1-101 to 22-503 (West

2012)).” Ameren Illinois Co. v. Illinois Commerce Com’n., 2013 IL App (4th) 121008, ¶ 8, 2

N.E.3d 1087. “The Modernization Act applies to electric utilities or combination gas and

electric utilities serving more than 1 million customers in Illinois that voluntarily undertake to

create customer assistance programs and invest in an infrastructure program that creates Illinois

jobs.” Id. (citing 220 ILCS 5/16-108.5(b) (West 2012)). “The incentive for utility companies to

participate in this program is that the statute allows the company to recover its expenditures

through the ratemaking process[, including, but not limited to, the performance-based formula

rate].” Id. (citing 220 ILCS 5/16-108.5(b) (West 2012)). Ameren is a “participating utility”

under section 16-108.5(b) of the Modernization Act (220 ILCS 5/16-108.5(b) (West 2018)). See

Ameren Illinois Co., 2013 IL App (4th) 121008, ¶¶ 8-10.

¶ 10 2. Performance-Based Formula Rate

¶ 11 Under section 16-108.5(c) of the Modernization Act,

“A participating utility may elect to recover its delivery

services costs through a performance-based formula rate approved

by the Commission, which shall specify the costs components that

form the basis of the rate charged to customers with sufficient

specificity to operate in a standardized manner and be updated

annually with transparent information that reflects the utility’s

actual costs to be recovered during the applicable rate year, which

-3- is the period beginning with the first billing day of January and

extending through to the last billing day of the following

December.” 220 ILCS 5/16-108.5(c) (West 2018).

“The performance-based formula rate shall be implemented through a tariff filed with the

Commission consistent with the provisions of this subsection (c) that shall be applicable to

delivery services customers.” 220 ILCS 5/16-108.5(c) (West 2018). The performance-based

formula rate approved by the Commission shall “provide 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 2018). On January 3, 2012,

Ameren filed with the Commission its performance-based formula rate tariff, “Rate MAP-P

Modernization Action Plan—Pricing Tariff (Rate MAP-P), initiating Docket No. 12-0001. The

docket established the terms of the formula.” See Ameren Illinois Co., 2013 IL App (4th)

121008, ¶¶ 8-10.

¶ 12 3. Annual Rate Updates and Reconciliations

¶ 13 “Subsequent to the Commission’s issuance of an order approving the utility’s

performance-based formula rate structure and protocols, and initial rates under subsection (c) of

this Section, the utility shall file, on or before May 1 of each year, with the Chief Clerk of the

Commission its updated costs inputs to the performance-based formula rate for the applicable

rate year and the corresponding new charges.” 220 ILCS 5/16-108.5(d) (West 2018).

“The inputs to the performance-based formula rate for the

applicable rate year shall be based on final historical data reflected

in the utility’s most recently filed annual [Federal Energy

Regulatory Commission] FERC Form 1 plus projected plant

-4- additions and correspondingly updated depreciation reserve and

expense for the calendar year in which the inputs are filed. The

filing shall also include a reconciliation of the revenue requirement

that was in effect for the prior rate year (as set by the cost inputs

from the prior rate year) with the actual revenue requirement for

the prior rate year (determined using a year-end rate base) that uses

amounts reflected in the applicable FERC Form 1 that reports the

actual costs for the prior rate year.” 220 ILCS 5/16-108.5(d)(1)

(West 2018).

¶ 14 Section 16-108.5(d) of the Modernization Act further states,

“Within 45 days after the utility files its annual update of cost

inputs to the performance-based formula rate, the Commission

shall have the authority, either upon complaint or its own initiative,

but with reasonable notice, to enter upon a hearing concerning the

prudence and reasonableness of the costs incurred by the utility to

be recovered during the applicable rate year that are reflected in

the inputs to the performance-based formula rate derived from the

utility’s FERC Form 1. During the course of the hearing, each

objection shall be stated with particularity and evidence provided

in support thereof, after which the utility shall have the opportunity

to rebut the evidence. Discovery shall be allowed consistent with

the Commission’s Rules of Practice, which Rules shall be enforced

-5- by the Commission or the assigned administrative law judge.” 220

ILCS 5/16-108.5(d) (West 2018).

“In a proceeding under this subsection (d), the Commission shall enter its order no later than the

earlier 240 days after the utility’s filing of its annual update of cost inputs to the

performance-based formula rate or December 31.” 220 ILCS 5/16-108.5(d) (West 2018).

¶ 15 B. Procedural History

¶ 16 1. Ameren’s 2020 Formula Rate Update and Revenue Requirement

¶ 17 On April 18, 2019, Ameren filed with the Commission its eighth annual update of

cost inputs to its performance-based formula pursuant to section 16-108.5(d) of the

Modernization Act (220 ILCS 5/16-108.5(d) (West 2018)). Ameren proposed a net revenue

requirement of $1,009,912,000, to be recovered in rates effective in 2020. Subsequently, the

Commission opened a docketed proceeding to investigate the “prudence and reasonableness” of

Ameren’s updated cost inputs and the corresponding charges to be recovered during 2020. The

Attorney General appeared on behalf of the People of the State of Illinois, and IIEC/CUB both

intervened in the matter. Staff also participated in the proceedings.

¶ 18 At a September 4, 2019, evidentiary hearing before duly appointed Administrative

Law Judges (ALJ), the parties submitted testimony and other evidence on the issues. Following

the evidentiary hearing, Ameren, Staff, the Attorney General, and IIEC/CUB filed briefs on the

contested issues. On October 4, 2019, the parties had the option of filing Statements of Position

and Suggested Conclusions on the contested issues, and jointly filed an Agreed Draft Order on

all other issues, for the ALJs’ consideration. On October 30, 2019, the ALJs served a proposed

order electronically to the parties. On December 3, 2019, the Commission conducted oral

argument on the issues.

-6- ¶ 19 The parties contested two issues: (1) the appropriate amortization period of

Ameren’s unprotected property-related EDIT resulting from a reduction in the federal corporate

income tax rate and (2) Ameren’s exclusion from rate base of CWIP-related ADIT (i.e., plant

assets that have not yet been placed into utility service). What follows is a brief overview of the

contested issues and the parties’ positions on the contested issues.

¶ 20 a. Amortization Period of EDIT

¶ 21 “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.) Ameren Illinois

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

Comm’n, 2012 IL App (4th) 100962, ¶ 11, 967 N.E.2d 298). Specifically, “ADIT represents

taxes payable in the future that provide a source of funds the utility can use until such time the

taxes become due.” Id.

¶ 22 In 2017, the State of Illinois income tax rate increased from 7.75% to 9.5%, and

the Tax Cut and Jobs Act of 2017 (TCJA) reduced the federal business income tax rate from

35% to 21%, effective December 31, 2017. See Pub. L. 115-97, 131 Stat. 2054 (2018).

“[T]he reduction in the income tax rate enacted as part of the

[TCJA] altered the amount of the anticipated repayment liability.

When, eventually, the higher taxable income is produced, it will be

taxed at 21%, not the higher rate in effect in the past.

Consequently, some portion of the ADIT reserve previously

recorded on the presumption that it would be taxed at the higher

-7- rate of 34 or 35% is rendered unnecessary for that purpose. This

portion is excess deferred income taxes, or EDIT.”

The Illinois tax increase also altered the state ADIT repayment liability, changed the state ADIT

reserve, and generated an offset to the federal EDIT.

“Under the TCJA , a defined type of property-related [also,

commonly referred to as plant-related] EDIT, the ‘excess tax

reserve’ or ‘protected’ EDIT, must be flowed through to customers

no faster than the underlying timing differences reverse using

Average Rate Assumption Method (ARAM) [which currently

approximates 35 years] or, if the utility doesn’t have the records

necessary to apply the ARAM, ratably over the remaining life of

the property. The remainder of the EDIT balance is ‘unprotected’

EDIT, which can be flowed through to customers at whatever rate

the regulator [Commission] deems reasonable and appropriate.”

¶ 23 b. CWIP-Related ADIT

¶ 24 Utilities record the costs incurred for assets under construction as “construction

work in progress,” or CWIP. Those costs consist of the total balances of work orders for electric

distribution and general and intangible plant that has not yet been placed in service, including

capitalized project costs such as land, fixtures, regulatory expense, engineering, surveys, and

other items that are incurred while a project is under construction. These capital project costs are

typically excluded from rate base until the project is placed into service. However, they do

accrue an “allowance for funds used in construction,” or AFUDC, to reflect the cost of debt and

equity funds used to finance construction. Those accrued AFUDC funds are added to the capital

-8- cost of the project. Once the project is complete, the asset is transferred from CWIP to Plant in

Service, at which time the assets are in rate base and earn a cash return.

¶ 25 There can be ADIT associated with CWIP as well. Prior to the date the CWIP

project is placed in service, tax law permits a utility to deduct all or a portion of the costs

incurred to invest in utility plant assets, while the assets must be capitalized and depreciated over

time for financial statement purposes. This results in a book-tax timing difference and related

ADIT. This ADIT is produced by expenditures that, as of the end of the rate setting period,

remain as CWIP and so are not reflected in rates. When the CWIP project is completed and

placed into service, that plant and its accrued AFUDC is included in rate base. At that time, the

ADIT related to the plant’s book and tax basis differences is also included as a liability that

offsets rate base.

¶ 26 Ameren’s rate base included approximately $3,110,000 of CWIP on which

AFUDC was not capitalized, or approximately 1% of the company’s total CWIP, as of December

31, 2018. For this small amount of CWIP in rate base, generally associated with minor CWIP

projects, Ameren included the related ADIT in rate base as well. The remaining 99% of

Ameren’s total CWIP balance was not included in rate base. Because the 99% of Ameren’s

CWIP was excluded from rate base, Ameren similarly excluded the CWIP-related ADIT for

those CWIP investments from rate base.

¶ 27 c. The Parties’ Positions on the Contested Issues

¶ 28 As to the issue of the appropriate amortization period of Ameren’s unprotected

property-related EDIT, the Attorney General argued the amortization of the unprotected

property-related EDIT should be over a five-year period, rather than the 35-year period proposed

by Ameren. The Attorney General based its position on testimony provided by witness, Michael

-9- L. Brosch, a consultant in the field of public utility regulation. Brosch testified that because

“deferred taxes were collected from ratepayers through utility rates over many prior years, and

are no longer needed to pay future federal income taxes[,]” equity demands the EDIT be returned

to customers on an expedited basis. A five-year amortization period makes it “more likely the

same ratepayers who previously paid the EDIT will benefit from the refunding of EDIT[.]”

¶ 29 Ameren recommended using the ARAM method for unprotected property-related

EDIT for an amortization period of 35 years where the ARAM period or its 35-year proxy aligns

the amortization of EDIT with the useful life of the underlying assets. Further, “amortizing

EDIT over the life of the asset ensures that current and future customers who pay for an asset

over its useful life (through depreciation) continue to receive the offsetting benefit of an EDIT

refund as they pay.” Ameren based its position on testimony provided by witness, Ronald D.

Stafford, Ameren’s Director of Regulatory Accounting.

¶ 30 IIEC/CUB provided its recommendation through witness, Michael Gorman, a

consultant in the field of public utility regulation. IIEC/CUB recommended a seven-year

amortization period. Similar to the Attorney General’s position, Gorman provided Ameren

should return EDIT to the same customers that contributed to it as quickly as possible. Both the

Attorney General and IIEC/CUB argued for a shorter amortization period where they recognized

EDIT as ratepayer funded, where Ameren did not.

¶ 31 Staff agreed with Ameren’s 35-year amortization period and based its position on

testimony provided by witness, Theresa Ebrey, a certified public accountant in the Commission’s

Financial Analysis Division. “Ebrey supported Ameren’s amortization period of 35 years for

EDIT based on the remaining useful life for the unprotected property-related EDIT.” Staff

supported Ameren’s position that “amortizing EDIT over the life of the assets ensure[d] the

- 10 - current and future customers pay a smoother, normalized cost for the asset over time.” Staff also

argued that a longer, ARAM-based amortization period can benefit ratepayers in two additional

ways if tax rates increase in the future. First, Ebrey explained a 35-year amortization period

would help offset the effect of a future tax increase because any remaining EDIT balance would

offset the deferred tax deficiency created by the tax increase. Second, Ebrey explained a longer

amortization period can act as a cushion against a spike in delivery services rates if the deferred

tax deficiency is collected too quicky from ratepayers.

¶ 32 As to the issue of CWIP-related ADIT, Ameren excluded approximately 99% of

its CWIP balance from rate base. Consistent with ratemaking principles, Ameren excluded the

CWIP-related ADIT for those projects from rate base as well. Ameren provided, through

Stafford, evidence demonstrating that (1) it does not earn a cash return on CWIP excluded from

rate base and (2) Ameren’s proposal provides the benefit of a rate base deduction for CWIP-

related ADIT to those ratepayers that fund the underlying assets. Ameren urged the Commission

to stick with the general practice of excluding from rate base CWIP-related ADIT where the

corresponding CWIP is not yet placed in rate base until the project is in service.

¶ 33 The Attorney General argued that Ameren should include its CWIP-related ADIT

in rate base so that “consumers realize the benefit of the ADIT adjustment.” Specifically, the

Attorney General argued “because CWIP accounting puts the gross costs (including AFUDC)

into rate base without an offset for ADIT generated by CWIP investment,” the Commission

should reduce Ameren’s rate base by the amount of CWIP-related ADIT or “ratepayers will

never see reduction to rate base that they are entitled to for ADIT generated by CWIP projects

and rates will include a return on ADIT despite the fact that ADIT is not investor money.”

- 11 - ¶ 34 The Attorney General’s witness, Brosch, cited a decision of the Missouri Public

Service Commission, Case No. 2012-0166, where the Missouri Commission adopted Brosch’s

position to require Ameren Missouri in a general rate case to include CWIP-related ADIT

balances in the electric utility’s rate base. Brosch recommended the Commission here “make the

same findings approved in Missouri” and require Ameren to include the remaining 99% of

CWIP-related ADIT in its rate base.

¶ 35 2. The Commission’s Final Order

¶ 36 On December 16, 2019, the Commission issued its final administrative order. In

its final order, in relevant part, the Commission recounted the parties’ positions regarding the

two contested issues: (1) the amortization of unprotected property-related-EDIT and (2) the

treatment of CWIP-related ADIT. The Commission resolved both issues as follows.

¶ 37 a. Amortization Period of Unprotected Property-Related EDIT

¶ 38 As to the first issue regarding the proper EDIT amortization period, the

Commission determined as follows:

“All parties agree that the EDIT balances at issue in this

docket should be refunded to customers. The parties disagree,

however, about the appropriate amortization period that should be

applied to [Ameren’s] ‘unprotected’ plant-related EDIT, where the

ARAM methodology is not required, but permitted. [Ameren]

proposes, and Staff concurs, that the Commission should apply a

consistent amortization period for all plant-related deferred taxes,

both protected and unprotected. Specifically, [Ameren] argues that

the Commission should approve using ARAM for all

- 12 - property-related excess deferred taxes whenever ARAM is

required by law or is feasible. For those items where [Ameren’s]

tax systems cannot perform the necessary calculations for ARAM,

a 35-year amortization can be used as a proxy for the remaining

useful life of the assets. [The Attorney General] and IIEC/CUB

argue for a shorter amortization period—five and seven years,

respectively.”

¶ 39 The Commission stated that it addressed this issue less than one year prior in In re

Commonwealth Edison Co., Ill. Comm. Comm’n No. 18-0808 (Order-Final Dec. 4, 2018). The

Commission noted “many of the same arguments raised here by the [Attorney General] and

IIEC/CUB were raised by the [Attorney General] and CUB in Docket No. 18-0808, and those

arguments were considered and rejected by the Commission.” The Commission found

Commonwealth Edison’s longer amortization period for unprotected plant-related EDIT was

reasonable, explaining,

“If EDIT is reversed more rapidly than the rate at which

depreciation expense and the original ADIT gets reflected in rates,

customers in early years receive a benefit that is denied to

customers in later years even though those customers will be

paying for the underlying asset and the related ADIT.” Id. at 44.

The Commission found the same concern regarding “intergenerational inequality” at issue here.

¶ 40 The Commission further found,

“The [Attorney General] and IIEC/CUB have not

demonstrated that a different outcome is warranted here. While

- 13 - the Commission agrees with the [Attorney General] that EDIT

balances should be returned to the customers and returned in a

manner that benefits the customers, the Commission is not

persuaded that the [Attorney General] proposed five-year

amortization period, or the IIEC/CUB proposed seven-year period,

will provide such benefit. Neither the [Attorney General] nor

IIEC/CUB provide a clear methodology to support a specified

period, or clear explanation how a short period will benefit the

customers overall, as compared to the 35-year period derived from

the commonly accepted ARAM method. The [Attorney General]

and IIEC/CUB argument that a shorter amortization period will

ensure that the same customers that funded the EDIT balances will

enjoy the return is not supported by the evidence. Also, the

[Attorney General] and IIEC/CUB proposals overlook the interests

of the customers in the long run, those customers that will continue

paying for the underlying assets. The Commission is tasked with

balancing interest of all customers, in the short-term and

long-term, and must ensure that EDIT balances are refunded in a

manner that is equitable and benefits all customers. Accordingly,

the Commission finds that the record supports [Ameren’s]

argument that its use of the ARAM method to arrive at a 35-year

amortization period for unprotected plant-related EDIT is

reasonable and equitable. Consistent with that finding, the

- 14 - Commission approves [Ameren’s] proposal to use the ARAM

methodology for all property-related excess deferred taxes, both

protected and unprotected, or a 35-year proxy where ARAM is not

feasible.”

¶ 41 The Commission also rejected the Attorney General’s contention that ADIT and

EDIT are ratepayer funded, thereby justifying an accelerated amortization period. The

Commission noted it also previously rejected this contention in Commonwealth Edison.

Specifically, the Commission stated,

“As [Ameren] explains, [Ameren’s] income tax expense is

reflected in its revenue requirement at statutory tax rates. If taxes

are deferred, ratepayers enjoy the benefit of an offset to rate base

for the jurisdictional ADIT amounts and a reduced effective tax

rate. Thus, the deferral of taxes reduces the amount customers

would otherwise pay, and customers are not paying the full dollar

for dollar impact of deferred tax expense. Even when the deferred

tax amounts become excess with the reduction in federal income

tax rates, ratepayers have not supplied the full EDIT amount.

Consistent with its decision in Docket No. 18-0808, the

Commission again rejected the [Attorney General’s] contention

that ratepayers funded the underlying ADIT.

The Commission finds the [Attorney General’s] argument

that accelerated refunds make it more likely that ratepayers who

paid the pre-2018 statutory tax rate receive the (unprotected) EDIT

- 15 - refund is speculative and not supported by empirical evidence in

the record. There is no guarantee that pre-TCJA customers

continue to be [Ameren] customers (or will be five years from

now). Similarly, there are undoubtedly new [Ameren] customers

who did not pay those pre-2018 tax rates. In the interest of

equitable ratemaking, the Commission has previously determined

that it is in the best interest of ratepayers to align the amortization

of EDIT with the useful life of the underlying assets, allowing

customers to pay a smoother, more normalized cost over time. The

Commission sees no reason to depart from that practice now.”

¶ 42 b. CWIP-Related ADIT

¶ 43 As to the second issue regarding the treatment of CWIP-related ADIT, the

“It is undisputed that 99% of [Ameren’s] CWIP in this

proceeding is not included in rate base, and thus does not currently

provide a return on, nor a return of, investment. The question

before the Commission is whether it is appropriate to adopt the

[Attorney General’s] proposal to include in rate base the ADIT

associated with that CWIP. [Ameren] contends that the [Attorney

General]’s proposal is inconsistent with prior Commission practice

and would result in an inequitable treatment of ADIT and its

related cost items. The Commission agrees with [Ameren].

- 16 - In Docket No. 14-0317, [Ameren] accepted Staff and the

[Attorney General]’s proposals to remove ADIT assets and

liabilities from rate base when the underlying cost item was not

also in rate base, in order to ensure consistency between the

ratemaking treatment of ADIT and its related cost items. In that

case, the Commission approved the adjustment, finding the parties’

treatment of the identified ADIT issues appropriate. The

Commission finds that the same logic applies in this case, and the

[Attorney General] has not demonstrated why the Commission

should treat the CWIP-related ADIT in this case differently. It is

undisputed that [Ameren] does not earn a cash return on its CWIP

project costs until those projects are placed into service and

included in rate base. At that time, ratepayers will begin to pay for

those projects. And at that time, [Ameren] also includes the ADIT

related to those CWIP investments as a liability that offsets rate

base. The accrual of AFUDC until that point is immaterial because

AFUDC does not provide a current cash return, a fact that the

[Attorney General] does not contest.

The [Attorney General]’s proposal would reduce rates for

current customers that do not fund those underlying CWIP projects

and to whom the CWIP assets do not provide service. However, as

the Commission recognized in Docket No. 14-0317, consistency

requires that the tax benefit of ADIT should be reflected for

- 17 - customers when the associated plant in service is in rate base. The

Commission notes that, consistent with this principle, [Ameren]

has included approximately 1% of its CWIP in rate base, and the

ADIT associated with that 1% of CWIP is also included in rate

base. This is equitable and provides a current tax benefit to those

customers that are funding those assets.

The Commission finds the [Missouri Public Service

Commission] decision [in Case No. 2012-0166] unpersuasive here,

particularly where this Commission has examined this issue more

recently and come to the opposite result. The Commission

therefore rejects the [Attorney General]’s proposal to include

CWIP-related ADIT in rate base.”

¶ 44 On January 3, 2020, the Attorney General filed a verified application for

rehearing. On January 21, 2020, the Commission denied the verified application for rehearing.

On February 24, 2020, the Attorney General filed a notice of appeal with the Commission and a

petition for review with this court.

¶ 45 This appeal followed.

¶ 46 II. ANALYSIS

¶ 47 On appeal, the Attorney General argues the Commission’s December 16, 2019,

final order should be reversed where the Commission erred by (1) approving Ameren’s proposal

to amortize unprotected property-related EDIT over 35 years, rather than the 5-year period

proposed by the Attorney General and (2) failing to deduct CWIP-related ADIT from Ameren’s

rate base, causing ratepayers to impermissibly provide a return on those funds as a result.

- 18 - ¶ 48 A. Ameren’s Mootness Arguments

¶ 49 We first consider Ameren’s argument that this appeal should be dismissed as

moot. Ameren argues the Attorney General’s appeal is moot because the 2020 rates established

by the Commission in its final order were superseded by new rates approved for 2021.

¶ 50 “ ‘Courts of review will not decide moot or abstract questions, will not review

cases merely to establish precedent, and will not render advisory opinions.’ ” People ex rel.

Raoul v. Illinois Commerce Commission, 2021 IL App (1st) 200366, ¶ 40 (quoting Goral v.

Dart, 2020 IL 125085, ¶ 76). “ ‘An appeal is considered moot where it presents no actual

controversy or where the issues involved in the trial court no longer exist because intervening

events have rendered it impossible for the reviewing court to grant effectual relief to the

complaining party.’ ” Id. (quoting In re J.T., 221 Ill. 2d 338, 349-50, 851 N.E.2d 1, 7-8 (2006)).

¶ 51 Ameren asserts because new rates took effect in January 2021, the issues

challenged by the Attorney General in this appeal which are based on the 2020 rates “are no

longer subject to refund or adjustment.” In support of its argument, Ameren cites Independent

Voters of Illinois v. Illinois Commerce Comm’n, 117 Ill. 2d 90, 510 N.E.2d 850 (1987). In

Independent Voters, the Illinois Supreme Court determined that certain expenses and deductions

allowed in the Commission’s rate order were improper, but the court only invalidated those

portions of the rate order “from the time [the] court entered its judgment” until “the new rates

took effect” in January of the following year. Independent Voters of Illinois, 117 Ill. 2d at

102-03.

¶ 52 The Attorney General argues this appeal is not moot, either because, even though

the 2020 rates were no longer in effect, any decision on the issue will necessarily affect future

- 19 - rates or because the issues raised are reviewable under an established exception to the mootness

doctrine. We agree.

¶ 53 As to the first issue—the amortization period approved by the Commission for

unprotected property-related EDIT—the Attorney General correctly points out that this decision

affected not just the rates set for 2020 but will continue to affect future rates. Effectual relief

may still be granted because a reversal of that decision would affect rates going forward.

¶ 54 As to the second issue—the treatment of CWIP-related ADIT—the Attorney

General argues the public interest exception to the mootness doctrine applies. A court may

review an otherwise moot issue under that exception when “(1) the question presented is of a

public nature; (2) an authoritative resolution of the question is desirable for the purpose of

guiding public officers; and (3) the question is likely to recur.” Bettis v. Marsaglia, 2014 IL

117050, ¶ 9, 23 N.E.3d 351. While the exception is a narrow one and “requires a clear showing

of each of its criteria” (Commonwealth Edison Co. v. Illinois Commerce Comm’n, 2016 IL

118129, ¶ 13, 51 N.E.3d 788), we find the exception applies here.

¶ 55 First, the Commission decided a question of public nature when it concluded

Ameren was not required to include CWIP-related ADIT in rate base until the corresponding

CWIP was included in rate base when the project was placed into service. This was a decision

that affected the electricity rates for Ameren customers across central and southern Illinois.

While this issue directly affected only the rates Ameren charged those customers in 2020, the

approach taken by the Commission could affect other formula rate update decisions in the future.

Thus, it is not an issue that “uniquely applies only to a specific group of regulated entities for a

specific project.” Id. ¶ 14.

- 20 - ¶ 56 Second, an authoritative resolution of this issue is desirable to guide the

Commission in future proceedings, particularly given the lack of case law on the effect of

CWIP-related ADIT on rate base. See In re Shelby R., 2013 IL 114994, ¶ 22, 995 N.E.2d 990.

Finally, we agree with the Attorney General this issue is likely to reoccur because a utility’s

formula rate is updated annually, and issues will continue to arise when new projects generate

CWIP-related ADIT. Further, we find support for our conclusion that the issues raised on appeal

are not moot where the Commission filed a brief on the issues but has not joined in Ameren’s

mootness argument.

¶ 57 B. Standard of Review

¶ 58 Next, we address the parties’ disagreement regarding the appropriate standard of

review on appeal. “The level of deference given to an administrative agency’s decision typically

depends on the nature of the issue resolved by the agency.” People ex rel. Raoul, 2021 IL App

(1st) 200366, ¶ 50. We review questions of law de novo. Cook County Republican Party v.

Illinois State Board of Elections, 232 Ill. 2d 231, 243, 902 N.E.2d 652, 660 (2009). An agency’s

findings of fact will be reversed only if they are against the manifest weight of the evidence. Id.

“An agency’s application of a rule of law to established facts is a mixed question of fact and law

that will not be reversed unless it is deemed ‘clearly erroneous.’ ” Id. at 243-44 (quoting Cinkus

v. Village of Stickney Municipal Officers Electoral Board, 228 Ill. 2d 200, 211, 886 N.E.2d

1011, 1018 (2008)). “A decision is clearly erroneous where, having considered the entire record,

we are ‘left with the definite and firm conviction that a mistake has been committed.’ ” People

ex rel. Raoul, 2021 IL App (1st) 200366, ¶ 50 (quoting Board of Trustees of the University of

Illinois v. Illinois Educational Labor Relations Board, 224 Ill. 2d 88, 97-98, 862 N.E.2d 944,

950-51 (2007)).

- 21 - ¶ 59 The Attorney General argues our review of the Commission’s order should be for

clear error where the Commission resolved a mixed question of law and fact when it determined

the legal effect of two sets of undisputed facts concerning EDIT amortization and CWIP-related

ADIT. The Commission and Ameren respond that the clear error standard is not applicable

because section 10-201 of the Utilities Act (220 ILCS 5/10-201 (West 2018)) requires this court

to review the Commission’s decisions for “substantial evidence.”

¶ 60 “[O]ur supreme court has made clear that the matter of rate regulation is

essentially one of legislative control and is not a judicial function.” (Emphasis in original and

internal quotation marks omitted.) Raoul, 2021 IL App (1st) 200366, ¶ 52; see also Adams v.

Northern Illinois Gas Co., 211 Ill. 2d 32, 59, 809 N.E.2d 1248, 1265-66 (2004); Fields Jeep-

Eagle, Inc. v. Chrysler Corp., 163 Ill. 2d 462, 472, 645 N.E.2d 946, 951 (1994). Thus, we agree

with the Commission and Ameren that the Utilities Act not only governs the Commission but

“ ‘also governs the courts, and their review of the Commission’s decisions.’ ” Raoul, 2021 IL

App (1st) 200366, ¶ 53 (quoting People ex rel. Madigan v. Illinois Commerce Comm’n, 2015 IL

116005, ¶ 20, 25 N.E.3d 587).

¶ 61 Section 10-201(e)(iv) of the Utilities Act sets out the circumstances under which a

decision of the Commission may be reversed by this court, as follows:

“(iv) The court shall reverse a Commission rule, regulation, order

or decision, in whole or in part, if it finds that:

A. The findings of the Commission are not supported by

substantial evidence based on the entire record of evidence

presented to or before the Commission for and against such

rule, regulation, order or decision; or

- 22 - B. The rule, regulation, order or decision is without the

jurisdiction of the Commission; or

C. The rule, regulation, order or decision is in violation of

the State or federal constitution or laws; or

D. The proceedings or manner by which the Commission

considered and decided its rule, regulation, order or

decision were in violation of the State or federal

constitution or laws, to the prejudice of the appellant.” 220

ILCS 5/10-201(e)(iv) (West 2018).

¶ 62 Here, the Attorney General does not argue the Commission lacked jurisdiction or

that its order violated a statutory or constitutional right. Therefore, the only avenue for reversal

is for the Attorney General to demonstrate that the Commission’s findings were not supported by

substantial evidence. “Substantial evidence exists ‘if a reasoning mind would accept the

evidence as sufficient to support the challenged finding.’ ” Raoul, 2021 IL App (1st) 200366,

¶ 54 (quoting City of Elgin v. Illinois Commerce Comm’n, 2016 IL App (2d) 150047, ¶ 25, 52

N.E.3d 631). “For reversal to be warranted, it is not enough that the evidence could support a

different conclusion; rather, ‘it must be shown that the opposite conclusion is clearly evident.’ ”

Id. (quoting Continental Mobile Telephone Co. v. Illinois Commerce Comm’n, 269 Ill. App. 3d

161, 171, 645 N.E.2d 516, 523 (1994)).

¶ 63 The substantial evidence standard reflects the reality that courts are generally far

less equipped than the Commission to design and update ratemaking schemes in accordance with

the Utilities Act. Id. ¶ 55 (citing People ex rel. Madigan, 2015 IL 116005, ¶ 22 (noting that, in

appeals like this one, the reviewing court’s authority “is deferential by statute” but “also by

- 23 - nature” and acknowledging that “[W]e are judges, not utility regulators. Though we are free to

disagree with the Commission on what the [Utilities] Act means [citation], we remain hesitant to

disregard how the Commission applies it [citation].”)). “ ‘Because of its complexity and [the]

need to apply informed judgments, rate design is uniquely a matter for the Commission’s

discretion.’ ” Id. (quoting Central Illinois Public Service Co. v. Illinois Commerce Comm’n, 243

Ill. App. 421, 445, 610 N.E.2d 1356, 1372-73 (1993)). “And it is one that ‘the General

Assembly has entrusted to the Commission, and not to the courts.’ ” Id. (quoting People ex rel.

Madigan, 2015 IL 116005, ¶ 23).

¶ 64 In considering the two issues raised on appeal, we look to whether the

Commission’s final order was supported by substantial evidence. Having said this, we also agree

with the Attorney General’s statement in its reply brief that “whether the Commission’s decision

is reviewed for clear error or substantial evidence is not outcome determinative because both

standards essentially require a reasoned basis supported by the evidence.”

¶ 65 C. Amortization of Unprotected Property-Related-EDIT

¶ 66 The Attorney General argues the Commission erred by approving a 35-year

amortization period for unprotected property-related EDIT where the Commission’s decision

rested on an erroneous conclusion about the source of EDIT and untenable reasoning regarding

the effect of a speedier refund. Ameren and the Commission argue (1) the selection of an

appropriate amortization period was a decision falling within the Commission’s broad discretion,

which was made following the evaluation of the evidence and (2) there is no compelling reason

why the Commission should have adopted the Attorney General’s five-year proposal or

IIEC/CUB’s seven-year proposal. We agree with Ameren and the Commission.

- 24 - ¶ 67 The Commission in its final order noted it addressed this amortization issue less

than one year prior in In re Commonwealth Edison Co., Ill. Comm. Comm’n No. 18-0808

(Order-Final Dec 4, 2018). Here, as in the Commonwealth Edison order, the Commission finds

that an amortization period for unprotected property-related EDIT that is calculated using the

ARAM or a 35-year proxy aligns the amortization of EDIT with the useful life of the assets. The

Commission found the Attorney General and IIEC/CUB failed to demonstrate a different

outcome was warranted. Specifically, the Commission stated,

“Neither the [Attorney General] nor IIEC/CUB provide a clear

methodology to support a specified period, or clear explanation

how a short period will benefit the customers overall, as compared

to the 35-year period derived from the commonly accepted ARAM

method. The [Attorney General] and IIEC/CUB argument that a

shorter amortization period will ensure the same customers that

funded the EDIT balanced will enjoy the return is not supported by

the evidence.”

¶ 68 The Commission also rejected the Attorney General’s contention that ADIT and

EDIT are ratepayer funded, thereby justifying an accelerated amortization period. The

Commission noted it also previously rejected this contention in Commonwealth Edison.

reflected in its revenue requirement at statutory tax rates. If taxes

are deferred, ratepayers enjoy the benefit of an offset to rate base

for the jurisdictional ADIT amounts and a reduced effective tax

- 25 - rate. Thus, the deferral of taxes reduces the amount customers

would otherwise pay, and customers are not paying the full dollar

for dollar impact of deferred tax expense. Even when the deferred

tax amounts become excess with the reduction in federal income

tax rates, ratepayers have not supplied the full EDIT amount.”

¶ 69 The Attorney General argues the Commission erred when it found ADIT and

EDIT are not ratepayer funded. The Attorney General asserts EDIT is always ratepayer funded

because, by definition, it consists of money that was collected from ratepayers to pay deferred

taxes that become excess due to later changes in the tax rate. If Ameren had not collected EDIT

from its customers, there would be no money to refund and no reason to remit it to them or

deduct it from rate base. Therefore, the EDIT being returned to the ratepayers must have been

supplied by ratepayers because that is a defining characteristic of EDIT. The Attorney General

argues a shorter amortization period is proper to refund unprotected property-related EDIT to the

customers who funded the EDIT.

¶ 70 In support of its argument, the Attorney General cites Business and Professional

People for the Public Interest v. Illinois Commerce Comm’n, 146 Ill. 2d 175, 258, 585 N.E.2d

1032, 1068 (1991). In Business and Professional People for the Public Interest, our supreme

court affirmed the Commission’s decision to amortize unprotected property-related EDIT over a

three-year period because it was “fair and reasonable to return these excess ADITs to the

ratepayers who actually paid this money to the company.” Business and Professional People for

the Public Interest, 146 Ill. 2d at 258. We find the case law distinguishable.

¶ 71 While the court in Business and Professional People for the Public Interest

affirmed the Commission’s decision to adopt a shorter amortization period to refund the

- 26 - “ratepayers who actually paid this money to the company[,]” the court in Central Illinois Public

Service Co v. Illinois Commerce Comm’n, 243 Ill. App. 3d 421, 439, 610 N.E.2d 1356, 1368

(1993), found Business and Professional People for the Public Interest “does not mandate a

particular treatment of excess unprotected deferred taxes in all cases.” Rather, in Central Illinois

Public Service, the Commission found its decision in Business and Professional People for the

Public Interest to impose a shorter amortization period had “resulted from the particular facts of

that case.” Id. at 439. In Central Illinois Public Service, the Commission adopted a longer

amortization period to return unprotected property-related EDIT, over the much longer

remaining useful life of the assets. Id. at 437-40.

¶ 72 Ameren argues ADIT and its related EDIT are not ratepayer funded. Rather,

ADIT is more accurately characterized as an interest-free loan from the government.

Specifically, Ameren explains as an interest-free source of capital, ADIT is deducted from rate

base so that customers do not provide a return on the ADIT amounts. This reduces the revenue

requirement and thus the amount customers pay. In other words, when taxes are deferred,

customers pay less than they would if no taxes were deferred. Therefore, customers cannot say

they have “supplied” the full deferred tax amounts recorded as ADIT. Even when the deferred

tax amounts become excess with the reduction in federal income tax rates, customers have not

paid the full EDIT amount.

¶ 73 The Commission agreed with Ameren that ADIT and its related EDIT are not

ratepayer funded. The Commission found the EDIT at issue in this case became excess ADIT as

a result of the federal tax rate change. Thus, contrary to the Attorney General’s assertion,

Ameren can flow EDIT through to customers not because they prepaid it, but because Ameren

no longer owes that money to the government. Based on the evidence, we agree with the

- 27 - Commission and find the Attorney General failed to provide substantial evidence that ADIT and

its related EDIT are ratepayer funded.

¶ 74 Even assuming, arguendo, EDIT is ratepayer funded, that issue is irrelevant to the

question of whether the Commission adopted the appropriate amortization period for unprotected

property-related EDIT. The source of EDIT would not mandate a specific amortization period.

Rather, the selection of an appropriate amortization period is a decision that falls within the

Commission’s broad discretion. “The Commission has broad discretion in deciding what is

reasonable and it is not the position of this court to interfere with the functions and authority of

the Commission, so long as [its] order demonstrates a sound and lawful analysis of the problems

encountered.” Camelot Utilities, Inc. v. Illinois Commerce Comm’n, 51 Ill. App. 3d 5, 9-10, 365

N.E.2d 312, 315 (1977).

¶ 75 The Commission adopted Ameren’s proposal to amortize unprotected

property-related EDIT over 35 years. Consistent with that finding, the Commission approved

Ameren’s proposal to use “the ARAM methodology for all property-related excess deferred

taxes, both protected and unprotected, or a 35-year proxy where ARAM is not feasible.”

Ameren argued using ARAM amortization or its 35-year proxy would (1) cost ratepayers less

over the long term; (2) avoid a substantial spike in the revenue requirement in the year after the

Attorney General’s proposed five-year amortization period; and (3) allocate EDIT to all

customers that will pay for and support the depreciable asset smoothly over its useful life.

Stafford explained that ARAM amortization provides for “intergenerational integrity” by

allocating the EDIT to all of the customers that will pay for and support the depreciable asset

smoothy over its useful life.

- 28 - ¶ 76 The Attorney General argues the Commission erred when it adopted a 35-year

amortization period. Specifically, the Attorney General asserts the Commission failed to

consider the interests of the ratepayers who supplied the EDIT when it adopted its amortization

period. The Attorney General’s suggestion of a shorter amortization period appears to rely

solely on the proposition that customers should be refunded faster because they funded the

EDIT. As stated above, the Commission rejected that EDIT is ratepayer funded.

¶ 77 Further, the Commission found,

“[T]he [Attorney General] and IIEC/CUB have not

demonstrated that a different outcome is warranted here. While

the Commission agrees with the [Attorney General] that EDIT

balances should be returned to the customers and returned in a

amortization period, or the IIEC/CUB proposed seven-year period

will provide such benefit. Neither the [Attorney General] nor

period, or clear explanation to how a shorter period will benefit the

customers overall, as compared to the 35-year period derived from

and IIEC/CUB argument that a shorter amortization period will

ensure that the same customers that funded the EDIT balances will

enjoy the return is not supported by the evidence.”

- 29 - The Commission also found the Attorney General overlooked the interests of customers in the

long term, the customers that will continue paying for the underlying assets. Where the

Commission was tasked with balancing the interest of all customers, in the long-term and

short-term, it found a 35-year amortization period was more equitable and benefited all

customers. As stated above, each case is dependent on the relevant facts of the case and it is up

to the Commission to determine the appropriate amortization period. See Central Illinois Public

Service, 243 Ill. App. 3d at 439.

¶ 78 The Commission’s order adopting a 35-year amortization period based on the

ARAM method for unprotected property-related EDIT was reasonable and supported by witness

testimony. The decision also coincided with the recommendations of the Staff and was consistent

with the Commission’s prior approach regarding this issue in Commonwealth Edison. Based on

the evidence, we find the Attorney General failed to meet its burden of establishing the

Commission’s order was not supported by substantial evidence. Where the Commission’s order

demonstrates a sound and lawful analysis of the problems encountered, the court will not

interfere with the function and authority of the Commission. See Camelot Utilities, 51 Ill. App.

3d at 9-10.

¶ 79 D. CWIP-Related ADIT

¶ 80 Last, the Attorney General argues the Commission erred when it excluded from

rate base CWIP-related ADIT. The Attorney General proposed the Commission include

CWIP-related ADIT in rate base regardless of whether the underlying CWIP costs were included

in rate base. Ameren and the Commission argue the Commission properly excluded from rate

base CWIP-related ADIT where the corresponding CWIP was not included in rate base because

the project was not yet placed in service. Ameren based its argument on prior Commission

- 30 - practice and consistent ratemaking treatment of ADIT and its related cost items. We agree with

Ameren and the Commission.

¶ 81 The Commission in its final order adopted Ameren’s proposal to exclude from

rate base CWIP-related ADIT where the corresponding CWIP was not included in rate base

because the project was not yet placed into service. The Commission based its findings, in part,

on prior Commission practice. Specifically, the Commission found,

“In Docket No. 14-0317, [Ameren] accepted Staff and the

liabilities from rate base when the underlying cost item was not

also in rate base, in order to ensure consistency between the

ratemaking treatment of ADIT and its related cost items. In that

case, the Commission approved the adjustment, finding the parties’

Commission finds that the same logic applies in this case, and the

should treat the CWIP-related ADIT in this case differently. It is

undisputed that [Ameren] does not earn a cash return on its CWIP

project costs until those projects are placed into service and

included in rate base. At that time, ratepayers will begin to pay for

those projects. And at that time, [Ameren] also includes the ADIT

related to those CWIP investments as a liability that offsets rate

base. The accrual of AFUDC until that point is immaterial because

- 31 - AFUDC does not provide a current cash return, a fact that the

[Attorney General] does not contest.”

¶ 82 The Attorney General argues the Commission failed to address the problem

caused by calculating a part of AFUDC based on CWIP-related ADIT, instead stating that the

accrual of AFUDC “was immaterial because AFUDC does not provide a current cash return.”

The Attorney General alleges the fact that AFUDC does not provide a current cash return does

not change the fact that AFUDC provides a future cash return, which it argues is partially

derived from CWIP-related ADIT, when it is included in rate base. The Attorney General argues

by deciding this issue based solely on its practice of matching ADIT with its associated asset, the

Commission failed to address the problem caused by AFUDC and impermissibility allowed

Ameren to earn a deferred return on CWIP-related ADIT. We disagree. The Commission never

alleged Ameren does not accrue AFUDC, rather the Commission stated the accrual of AFUDC is

“immaterial” before the CWIP costs are included in rate base. When CWIP costs are included in

rate base, Ameren also includes CWIP-related ADIT to those CWIP investments as a liability to

offset rate base.

¶ 83 The Attorney General’s proposal to include CWIP-related ADIT in rate base

regardless of whether the underlying CWIP costs were included in rate base sought to lower

current customers rates, leaving the cost of the CWIP assets for future ratepayers to bear. The

Commission rejected the Attorney General’s proposal to include CWIP-related ADIT into rate

base regardless of whether the underlying CWIP costs were included, determining the Attorney

General’s approach was “inconsistent with prior Commission practice and would result in an

inequitable treatment of ADIT and its related costs items.” Further, the Commission found the

- 32 - Attorney General’s reliance on a Missouri Commission decision “unpersuasive, particularly

where this Commission has examined this issue more recently and come to the opposite result.”

¶ 84 The Commission’s order excluding from rate base CWIP-related ADIT where the

corresponding CWIP was not included in rate base because the project was not yet placed in

service was reasonable and supported by the evidence. The decision also coincided with prior

Commission practice and consistent ratemaking treatment of ADIT and its related cost items.

Based on the evidence, we find the Attorney General failed to meet its burden of establishing the

Commission’s order was not supported by substantial evidence. As stated above, where the

Commission’s order demonstrates a sound and lawful analysis of the problems encountered, the

court will not interfere with the function and authority of the Commission. See Camelot

Utilities, 51 Ill. App. 3d at 9-10.

¶ 85 III. CONCLUSION

¶ 86 For the reasons stated, we affirm the Commission’s order.

¶ 87 Affirmed.

- 33 -