No. 3-06-0879 consolidated with No. 3-07-0569

_________________________________________________________________ Filed April 11, 2008 IN THE APPELLATE COURT OF ILLINOIS THIRD DISTRICT A.D., 2008 ILLINOIS POWER COMPANY, ) d/b/a/ AMERENIP, ) ) Petition for Review of an Petitioner-Appellant, ) Order of the Illinois ) Commerce Commission in v. ) Docket No. 03-0699 and ) Docket No. 04-0677. ILLINOIS COMMERCE COMMISSION ) and DYNEGY, INC., ) ) Respondents-Appellees. )

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JUSTICE LYTTON delivered the opinion of the court:

_________________________________________________________________ The petitioner, Illinois Power Company, d/b/a AmerenIP (Illinois Power), seek review of two orders issued bythe Illinois Commerce Commission (Commission), finding that Illinois Power did not act prudently in remediating delive rab ility issues at its natural gas storage facility in Hillsboro, Illinois. As a result, the Commission concluded that the costs Illinois Power incurred to obtainnatural gas to reinject the field in 2003 and 2004 could not be recovered from its customers. On appeal, Illinois Power argues that (1) the Commission’s findings are not supported by substantial evidence in the record, and (2) the Commission improperlyapplied the prudence standard. We affirm.

I. Commerce Commission Proceedings This consolidated appeal concerns Illinois Power’s Hillsboro natural gas storage facility. The Hillsboro facility is an2

underground reservoir that contains two different storage layers. The top layer of the reservoir contains working gas. Working gas is the volume of gas in the reservoir that is injected for storage during t he summer months and then withdrawn to be supplied t o customers in the winter months. The bottom layer houses base gas whichis the volume of gas required to provide adequate pressure to cycle the working gas. Generally, a utility does not remove the base gas from a reservoir field. Following an expansion project in 1993, Illinois Power began experiencing reduced inventory and deliverability problems at the Hillsboro plant and inadvertently began removing base gas from the field. After years of investigation, the company determined that the problems were caused by improper metering. In 2003, they began reinjecting the field to res tore the depleted natural gas inventory. The reinje cti on process was not completed until the spring of 2004. Pursuant to the Public Utilities Act (Act) (220 ILCS 5/ 10-201 et seq. (West 2002)), Illinois Power passed $6,879,109 in 2003 and $2,979,849 in 2004 onto its customers in the formof purchase gas adjustment (PGA) tariffs to recover the costs of the reinjection process. InNovember of 2003, the Commission commenced reconciliation hearings in accordance with section 9-220 of the Act and directed Illinois Power to present evidence showing its reconciliation of PGAtariff revenues with the actual cost of gas supplies prudently incurred for the 12 month period ending December 31, 2003 (Docket No. 03-0699). One year later, the Commission initiated a second reconcil iatio n proceeding directing Illinois Power to present3

evidence for the 12 month period ending December 31, 2004 (Docket No. 04-0677). The ev idence p resented at both proceedings was substantially the same. Illinois Power engineers and expert witnesses testified that the expansion of the Hillsboro field increased t h e working gas inventoryfrom 3.1 bil li on cubic feet (Bcf) to 7.6 Bcf and increased the peak day capacity (the amount of gas to be withdrawn per day) from 50,000 million cubic feet (Mcf) to 125,000 Mcf. The companyoperated Hillsboro at those levels for the 1993-1994

season. In subsequent winters, however, Illinois Power was unable to withdraw the full amount of gas that had been pre v iously injected into the field. Given the actions taken to expand the storage reservoir, the possib ility existed that the reservoir was physically breached during the expansion process, thereby allowing the newly injected gas to escape or migrate into other a reas of the reservoir from whichthe gas could not be accessed. Other potential causes involved gas migration, gas leaks to the surface, or damage to the intake and withdrawing wells, which would have prevented efficient productionof gas invent o ry. Illinois Power conducted numerous tests in an attempt to determine the cause of the problem. The companywas concerned about taking corrective actionwithout first properly identifying the cause of the problem. The company’s experts testified that because of the expansion, it was logical and appropriate to focus initially on a reservoir or structural defect. Thus, Illinois Power decided t o pursue an extensive structural investigation beginning in 1997

. Illinois4

Power had a vertical seismic profile o f th e reservoir field prepared by outside consultants. This study concluded that a more detailed three dimensional seismic analyses was necessa r y. The p reliminaryresults of the 3-D seismic study indicated tha t approximately3.5 Bcf of gas had migrated to ano t her structure northeast of the field. In November 2000, based on the results of this study, Illinois Power drilled a new well but fo und no substructure bel ow. In light of these inconsistent findings, Illinois Power asked the consultants to reevaluate the 3-D seismic analysis. After collecting additiona l informationand reprocessing the 3- D seismic data, the firm concluded that the additional structure that had been thought to exist to the northeast of the Hillsboro field did not exist. This conclusion was reached in the fall of 2001. While investigating the possibility of structural causes or reservoir problems, Illino is Power also retained Peterson Engineering to conduct an audit of the metering instru m ents at Hillsboro. Petersonwas retained in August of 1999 and issued its finding in December of 1999. In its report, Peterson identified two problems with the Hi llsboro meters. First, two new turbine injection meters were over-registering gas volumes under certain operat ing c onditions. Specifically, when the nearby plant compressors operated at certain levels, they caused the meters to over-spin, thereby recording a greater amount of gas as having been injected than was actually passing through the meter. The turbine

me ter over-registration was calculated to be 26% wh en th e compressors were operati ng at 5 0% but only 1.7% when the5

compressors were operating at 100% loadings. Second, the orifice meter on one of the four withdrawal wells had an opening that was smaller than the size va lue stamped on the orifice plate. The diameter stamped on the plate was 10% larger than its actual diameter. This meant that less gas was being withdrawn from the field that had been believed. In basic terms, there was less gas going in and less gas coming out than the meters were indicating. According to Illinois Power, the amount o f error on the withdrawal meter could be easily calculated based on the different sized orifice measurements. However, the companymaintained that the injection meter over-registration could not be as easily determined. Illinois Power attempte d to calculate the loss by estimating when the compressors were operating at certain levels. Using this estimation method, Illinois Power initially determined that the two metering e rrors offset each other. It was subsequentlydiscovered that the injection metering error was much larger than the withdrawal metering error. Illi noi s Power made several meter operating corrections to the facilityto eliminate both meter measurement error. These changes were implemented in May 2000. Inearly s pring 2003, Illinois Power conducted another exhaustive set of structural analyses of the reservoir, including (1) neutron log analyses, (2) flame ionization surveys, (3) field metering versus plant metering comparisons, (4 ) r eservoir performance tests, and (5) volumetric analyses. These tests in di cated that the working gas and base gas volumes in the Hillsboro field had been significantly depleted over time due to6

the injection metering problem. As a result, Illinois Power developed an estimate of the total gas inventoryshortfall that had resulted from the metering error and created a plan to reinject gas to restore the Hillsboro base gas volume and working gas volume to the original post-expansion amounts. Illinois Power commen ced reinjection in the spring of 2003. Commission Staff presented evidence in response to Illinois Power’s position. Eric Lounsberry, an engineer in the engineering department of the Commission’s energydivision, testified that the information available to Illinois Power in 1999 pointed to metering

errors as the most likely cause of the deliver abi lity problems. Lounsberrystated that if Illinois Power had u sed existing information and available well data, it would have discovered that an inventory shortfall was the primary problem. First, Lounsberry testified that Illinois Power was aware of problems with its storage field metering equipment as e arly as 1996 and was also aware of similar deliverability issues at another Illinois Po wer field, the Shanghai storage field. The Peterson studynoted that the company was aware in 1996 that computed volumes fromthe plant metering and well metering instruments had not been satisfactorily reconciled at Hillsboro or the Shanghai plan t. Lounsberry stated that these two similar situatio n s indicated that Illinois Power’s ability to identify the root cause of the problem was inadequate. Second, Lounsberry asserted that the 1994 well data from the intake/withdrawal wells at Hillsboro could have been accurately7

extrapolated and would have quickly determined that the intake metering error was mu ch larger than the withdrawal error. He testified that Illinois Power had actually integrated some of the dailywell measurement to calculate the volume of gas injected and that the company could have used that data to integrate all of the measurements between 1994 and 1999. He stated that the integrated volume measurements would have been more accurate th an the estimationmethod used byIllinois Power and would have immediately alerted the company that the injection meter error was the source of the deliverabilityissue. Lounsberry concluded that if Illinois Power had conducted a more thoroughreview of the metering issues after the Peterson study was completed, it would have discovered the true magnitude of the injection metering error and could have started replacing the gas in the Hillsboro field during the 2000

season. II. The Commission Orders The Commission issued orders finding Illinois Power’s actions imprud ent in both cases. In docket No. 03-0699, the Commissi o n defined prudence as "that standard of c are whic h a reasonable personwould be expected to exercise under the same circumstances encountered by utility management at the time decisions had to be made." Applying this standard, the Commission determined that the delayin discovering the meter error and Illinois Power’s decision to delay reinjecting the Hillsboro storage field were imprudent. The Commission agreed with the Staff’s assessment that Illinois Power should have started replacing the inventory in the Hillsboro field during the 2000 season.8

The Commission was also persuaded that the Staff’s "overall storage concerns" were indications that Il l inois Power was less thanprudent at the Hillsboro site. The Commission order provided:

"Inthe Commission’s view, [I ll inois Power] imprudentlyselected the easy path when it discovered there might be a problem at Hillsboro. It appears that withinadequate thought, [Illinois Power] decided the problems at Hillsboro must be structural and beganhiring consultants to identify the exact nature of the problem. This followed the ineffect iv e pattern established for the Shanghai Storage Field. *** [C]learlysomething is amiss in[Illinois Power’s] oper ations and management of storage fields." Inconclusion, the C ommission held that Illinois Power was imprudent in its operationof the Hillsboro field because it "(1) failed to conduct a thorough studyof the injection error at the time it was identified, (2) failed to conduct any inspections to

as sure that the orifice meters were working properly, [and] ( 3 ) failed to begin returning the inventoryto the f ield when the working gas volumes fell belowthe pre-expansion volume of 3.1 Bcf after the 1999-2000 winter season." Consequently, the Commission ruled that $6,870,109 of incurred costs related to Illinois Power’s

re mediationof the Hillsboro depleted gas levels could not b e recovered from its customers through PGA tariffs. The order in docket No. 04-0677 reiterated most of the findings contained in the 2003 case. Based on the evidence adduced at the 2 004 hear ings and premised upon the Commission’s order9

entered in docket No. 03-0699, the Commission found that Illinois Power imprudently incurred $2,979,849 in additional gas costs in 2004. III. STANDARD OF REVIEW Anappellate court’s jurisdiction of direct appeals from the Commissionis governed by section 10-201 of the Act (220 ILCS 5/10- 201 (West 2002)). Section 10-201(e)(iv) states that we may only

reverse a Commission order if we conclude that "[t]he 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 *** order." 220 ILCS 5/10-201(e)(iv) (West 2002). The Commission’s findings of fact are to be accepted as prima facie true. Business and Professional People f or Public Interest v. Illinois Commerce Comm’n , 146 Ill. 2d 175 (1991); 220 ILCS 5/10-201(d) (West 20 02). Merely showing that the evidence presented would support a different conclusion than the one reached by the Commissionis not sufficient. Rather, the appellant must affirmativelydemonstrate that the opposite conclusion is "clearly evident." Continental Mobile Telephone Co. v. Illinois Commerce Comm’n , 269 Ill. App. 3d 161 (1994). IV. ANALYSIS The Ge neral Assembly allows utilities to recover their gas cost directly from the consumer through purchase gas adjustments (PGA) clauses. See 220 ILCS 5/9-220 (West 2002). The Act clearly places upon those utilities taking advantage of a PGAclause the burdenof proving the prudence of their gas purchases during the

course of yearly reconciliat ion pr oceedings. 220 ILCS 5/9-22010

(West 2002). Prudence is not d efined within the Act. Commerce Commissionproceedings and our court have defined prudence as "that standard of care which a reasonable person would be exp ected t o exercise under the same ci rc umstances encountered by utility management at the ti m e decisions had to be made." Illinois Commerce Comm’n v. Commonwealth Edison Co. , Docket No. 84-0395, p. 17 (1987); Illinois Power Co. v. Commerce Comm’n , 339 Ill. App. 3d 425, 428 (2003). In determining whether a judgment was prudently made, only those facts available at the time judgment was exercised

canbe considered. Illinois Power Co. v. Commerce Comm’n , 245 Ill. App. 3d 367 (1993). A. Illinois Power claims that the Commission’s order should be reversed because the record demonstrates that it met the imposed burdenby showing that the gas costs it incurred in 2003 and 2004

as a result of the reduction of the withdrawal capacity were prudent. First, Illinois Power argues that substantial evidence in th e record shows that its decisions and actions were reasonab l e whenmade based on the information known to management at the time. Second, Illinois Power claims that to begin reinjecting replacement gas into H ill sboro in 2000, when the company was still investigating structural and geological issues, wo u ld have been imprudent. Finally, Illinois Power complains that the order must be reversed b e cause the Commission’s prudence determination was based, in part, on unsuppo rte d concerns at the Shanghai storage facility. The Commission’s findings of fact are to be accepted as prima11

facie true, and the burden of proof on all issues raised on appeal is on the party appealing the Commission’s order. See Business and Professional Peo ple , 146 Ill. 2d 175 (1991); see also 220 ILCS 5/10-201(d) (West 2002). Here, nothing in the record in docket No. 03-0699 or docket No . 04- 0677 demonstrates that an opposite conclusion is clearly evident. Initially, the record indicates that Illinois Power failed to promptlypurs ue p otential metering problems that were plainly stated and thoroughly analyzed in the 1999 Peterson report. The Peterson study furth er note d that the company was aware in 1996 that computed volumes from the facility metering and well metering had not been satisfactorily reconciled since 1994. At that time, Illinois Power was also aware of injection metering instru ment errors at the Shanghai station. Evidence further indicated that Illinois Power had accurate injection well data from 1994. That information could have been integrated to determine an accurate estimate of the total amount of gas that had been injected into the field between 1994 and 1999. Illinois Power claims that all of the data fromthose years had not beenextrapolated and was therefore unrealiable. However, no one

onbehalf of Ill inois Pow er testified that it would have been undulyburdensome to integrate the data to use as a comparison. As

a means of verification, the data was availa ble a nd was sufficiently reliable. In addition, Illinois Power neglected to

use those years for which it actually had integrated values. Given the extent to which it tested the structural integ rity of t he reservoir, it seems unreasonable to have ignored the 1994 well data12

as a means of testing the metering measurements of the reservoir. Inlight of these facts, the Commission’s decision that Illinois Power acted imprudently based on the inf ormation known to the company at the time is sufficiently supported by the records. Next, we disagree with Illi noi s Power’s assertion that it would have been imprudent to reinject the field with natural gas inventoryin 2000 when working gas volumes fell belowpre-expansion levels. The record demonstrates that Illinois Power pursued the potential structural and geological issues vigorously beginning in 1996 and even repeat e d and reassessed numerous geological tests based on their assumption that the problem was caused by the structural identity of the reservoir. However, beginning in 1999, several reports and analyses indicated that the deli verabi lity issue was caused by a field metering error rather than a structural

one. Thus, the Staff claimed that once Illinois Power corrected the metering errors in 2000, testing those corrections during the 2000 injection season would have been appropriate. Lounsberry’s testimonyshowed that many, if not most, of Illinois Power’s

concerns with reinjecting the field too soon were unfounded based

ona review of the 1999 Petersen report and the inconsistent 3-D seismic data on hand. Thus, the Commission position that Illinois Power should have attempted to reinject the field in 2000 to test the metering corrections is not unreasonable. By waiting three

more years be f ore even attempting to begin replacement efforts, Illinois Power unnecessarily depleted the base gas volumes of the reservoir and exponentially increased the cost of injection. Based

onthe entire record in both proceeding s, a conclusion that13

Illinois Power was prudent is not clearly evident. Last, we find that the Commission properly consi der ed the deliverabilityissues at Illinois Power’s Shanghai sto ra ge facility. We noted that the Act does not prohibit the Commission fromconsidering powe r utilities’ actions beyond the specific conduct in question. See 220 I LC S 5/9-201 et seq . (West 2002). Thus, when the Staff provided testimony of a similar metering error that arose at the Shanghai field, the Commission did not er r in reviewing those "concerns" in its decision. Further, we believe Commissionconsideration was appropriate based on t he s imilar deliverability issues in the Shanghai case. In Illinois Commerce Comm’n v. Illinois Power Co. , Docket No. 01-0 701, 2004 Ill. Puc Lexis 101 (2004), the Commission fil ed a reconciliation p roceeding involving Illin ois Power’s Shanghai fiel d for the year ending in December of 2001. As in this case, there

was a deliverability issue which was eventually associated with an injection metering problem. The error in that case caused Illinois Power to withdrawapproximately 743,313 Mcf of natural gas above the meter indications. The error existed from 1995 until it was identified in January 20 00. In that case, the Commission found that Illinois Power’s actions "were not imprudent." The decision inthat case indicates that by earl y 2000, I llinois Power had discove red a metering error was the cause of the company withdrawing 20.6% more gas above what its meters reflected from the Shanghai storage field. While the Commission was unwilling to find Illinois Power’s conduct at the Shanghai facility imprudent in 2001, the issue here14

is whether Illinois Power acted prudently by reserving its decision to reinject the Hillsboro field until the summer of 2003. Here, by early 2000, Illinois Power had not only the information from the Peterson study regarding metering problems at Hillsboro, but the knowledge that there had been nearly identical metering problems at Shanghai. This information, coupled with the information from the well chart data, would have allowed Illinois Power to calculate the magnitude of the metering problems in 2000 to the extent necessary to begin reinjection much in advance of the 2003-2004 season. In essence, the meterin g e rror identified at the Shanghai field in 2000 undercuts the argument that it was prudent for Illinois Power to concentrate its investigation on structural as opposed to metering causes beyond the 2000 injection se ason. Thus, the "overall concerns" presented by the Staff were properlyutilized as additional support for the Commission’s finding of imprudence. B. Illinois Power also asks us to consider the Commission’s application of the prudence standard. Illinois Power maintai n s that the Commission created an "after-the-fact" standard of care that a reasonable person should have followed in 2000 when deciding whether to reinject the Hillsboro field. We disagree. The Commission has stated that in utility cases the prudence standard conforms to the dictionary definition of prudence. Business & Professional People for the Public Interest v. Commerce Comm’n , 279 Ill. App. 3d 824 (1996). In Business & Professional People , the court noted that prudence is commonlydefined as "skill

or good judgment in the use of resources." 279 Ill. App. 3d at 83115

(citing Webster’s NinthCollegiate Dictionary 949 (1985)). When we applythe prudence standard, only those facts available at the time judgment was exercised can be considered, and imprudence cannot be

su stained by substituting one’s judgment for that of anothe r . Illinois Power Co. , 339 Ill. App. 3d at 428. As discussed, the reco rd sug gests that the Peterson report presented a clear indica tion that the deliverability issues at Hillsboro were due to injection metering problems. That report was issued in the fall of 1999. Illinois Power took t he neces sary actions in 2000 and corrected the metering issues outlined in the report. Thus, the Staff’s position that Illinois Power could have reinjected the field as early as 2000 is based on facts available to Illinois Power in 2000. Accordingly, the Commission’s decision that it was imprudent to wait to reinject the field for three more years is not based on an after-the-fact record. It is supported by substantial evidence in the record dating back to 1996 and is based on inf ormati on known to Illinois Power during the 2000 injection season. V. CONCLUSION For the above reasons, we affirm the Commission finding that Illinois Power’s dec ision to forego reinjecting the Hillsboro storage field until 2003 was imprudent. The Commission orders in case No. 03-699 and case No. 04-677 are therefore affirmed. No. 3-06-879 -- Affirmed. No. 3-07-569 -- Affirmed. CARTER, J., and MCDADE, PJ., concurring.