## I L L I N O I S 

## O F F I C I A L 

## RE P O R T S Appellate Court

Am eren Illinoi

s Co. v. Illin ois Com m erce Com m ’n , 2013 IL App (4th) 121008

Appellate Court Caption A M E R E N I LLIN O IS C O M P A N Y
, P e t i t i o n e r , v

. ILLIN O IS COMMERCE COMMI SSI ON; THE CI TI Z E NS UTI L I TY BO ARD; AARP; THE COMME RCI AL GROUP (B est Buy Company Inc., J .C. Penney Corporation, Inc., Macy ’s, Inc., Sam’s West, Inc., and Wal-Mart Stores, Inc.); THE I

NDUSTRIAL ENERGY C ON SUMERS (Air Products and Chemica ls Company
, Arc her- Daniels-Midland Company
, Caterpillar, Inc., CCP S Transpor tation, L L C
, GB C Metals, L L C, Key stone Consolidated I

ndustries, Inc., Marathon Petroleum Company
, L P, Ol in Corporation, Tate and Lyle Ing redie nts Americ as, Inc., University of I llinois
, Viscofa n USA, Inc., and Washington Mills Henne pin, I nc.); THE OFF I CE OF THE ATTORNEY GENERAL ; a nd T H E PE O PLE O F T HE STATE OF I L L I NOI S, Respondents.–A M E RE N I L L I NOI S COMPAN Y, Petitioner, v. I L L I NOI S COMMERCE COMMI SSI ON, THE CI TI Z ENS UTI L I TY BO ARD, AAR P
, THE OFF I CE OF THE ATTORNEY GENERAL
, and THE PEOPL E OF THE STATE OF I L L I

NOI S, Respondents.

District & N o. Four th District
Docke t Nos. 4-12-1008, 4-13- 0029 cons.

Filed Modified upon denial of r ehea

ring Dec ember

11, 2013

J anuar y 28, 2014Held

(Note : Thi s syl lab us

con st it ute s no pa r t of the opi nio n of the cour t but has bee n pre

par ed by t he Repo rt er of D e c i s i o n s f

o r t h e

c o n v e n i e n c e o

f t h e

rea der

. ) I n proce eding s on petitioner’s application to establish a perf ormanc ebased rate tariff under sectio n 16-108.5 of the Public Utiliti es Act, commonly known as the Energy Infra structure Modernization Ac t, the I llinois Commerce Comm ission properly reduc ed petitioner’ s proposed
rate of common equity to make it more consistent wi t h t h e comm on equity of petitioner’s h o l d i ng company , considere d petitioner’s

ac cu m u l ated defe rre d income taxes for projec ted plant additions in calc ulating petitioner’s rate base, and decr ease d petitioner’s rate base by unused vac ation pay

acc rued by

its employ ees.

Dec ision Under
Review Petition for revie w of order s of I llinois Commerce Commi ssion, Nos. 12- 0001, 12-0293.

J udg ment Affir med.

Counsel on Appea l Albert D. Sturtevant, of Whit t Sturte v an t L L P, of Chicag o, Edwar d C. Fitzhenry
, of Amere n Service s Company
, of St. L ouis, Missouri, and Mark A. Whit t (a rgu ed) and Andre w J

. Campbell, both of Whit t Sturtevant L L P, of Columbus , Ohio, for pe titioner.

J ohn P. Kelliher and J ames E. Weging (a rgu ed ), Special Assistant Attorney s Gene ral, of Chicag o, for responde nt I l l i n ois Commerce Commi ssion.

J ulie L

. Soderna, Krist i n Munsch, Christie Redd Hicks, and Orijit Ghoshal, all of Citi zens Utility Boa rd, of Chicag o, for responde nt Citi zens Utili ty

Boa rd.

L isa Madig an, Attorney Gene ral, of Chicag o (Michae l A. S co d ro, Solicitor Gene ral, and J ane Elinor Notz, J anice A. Dale, Kar en L

. Lusson, Susan L

. Satter, Timothy O’B rien, and Br ian F. Ba rov, Assistant Attorney s Gene ral, of counsel), for responde nt s Of fi ce of the Attorney Gene ral a nd the People.

Eric Robertson and Andre w Rankin, b o t h of Lueder s, Robertson & Konzen, L L C, of Gra

nite City
, and Conrad R. Reddick, of Wheaton, for other re spondents.

-2-Panel J USTI CE HOL DER WHI T E delivere d the judgme nt of the court, with opinion.
J ustices Appleton and Pope c oncurr ed in the judg ment and opinion.

OP INION

¶ 1 I n J anuar

y 2012, Amere n I llinois Company (Amer en) filed its initial application with the I llinois Commerce Commi ssion ( Commi ssion) to establish a perf ormanc e-ba sed rate tariff under the authority of section 16-108.5 of the Public Utiliti es Act (Utilities Act), commonly ref err ed to as the Energy I nfra structure Modernization Act (Moder nization Act) (220 I L CS 5/16-108.5 (West 2012)), enac ted by Public Act 97-616 (Pub. Act 97-616, § 10 (ef f. Oct. 26, 2011)). Following a September 2012 evidentiar y hearing, the Commi ssion issued a written decision i n which, among other things, it (1) rejec ted an d subsequently reduc ed Ameren’s proposed r ate of common equity so that it was more c onsistent with the common equity of A me r e n ’ s h o ld in g c o mpa

ny , Amere n Company (holding company ); (2) consi d e r e d Ame r e n ’ s

acc umulated def

er red income taxes (ADI T) for projec ted plant additions in calc ulating Amere n’s rate base; a

nd (3) decr ease d Amere n’s rate base by unused vacation pa y acc rued by Amere n employ ees. ¶ 2 I n April 2012, Amere n filed its fir st a nnual update with the Commi ssion. I n Dec ember 2012, the Commiss ion rea ffirme d the af oreme ntioned finding s. ¶ 3 On appea l, Amere n asser ts the Commi ssion made three reve rsible err ors in rea ching its decision, including (1) considering the capital structure of Amere n’s holding company rathe r than the ac t ual capital structure of Amere n when deter mining rate base; (2) reduc ing Amere n’s rate base by ADI T for projec ted plant additions; and (3) decr easing Amere n’s rate base by unused vac ation pay

acc rued by

Amere n employ ees. ¶ 4 We affir

m.

¶ 5 I . BA CKGROUND ¶ 6 Amere n is a public utilit y that distributes elec tricity and g as to customers in I llinois

. As a public utility , Amere n’s rates are subject to r egulation by the State of I llinois pursuant to the Utiliti es Act (220 I L CS 5/9-101 to 22-503 (West 201 2 ))
, throug h which the Gene ral Assembly has deleg ated to the Commi ssio n the authority to revie w the rate s sug g ested by public utilit ies to deter

mine whether those rat es are “just and rea sonable.” 220 I L CS 5/9- 201(c) (West 2012).

¶ 7 A. Modernization Act ¶ 8 I n 2011, the Gene ral Assembly passed the Modernization Act (220 I L CS 5 / 1 6 -1 0 8

. 5 (West 2012)) as a provision of the Utiliti es Act (220 I L CS 5/1-101 to 22-503 (West 2012)).

-3-The Modernization Act applies to e lectric utilit ies or combination g as and electric utilit ies

serving more than 1 milli on customers in I llinois that voluntarily undertake to create customer assistance prog rams and invest in an infrastruc ture prog ram that cre ates I llinois jobs. 220 I L CS 5/ 16-108.5(b) (West 2012)

. To participate, a utilit y company must commit
to one of the following investment plans. The first option require s the utilit y company , within 5 y ear s, to invest $1.3 billion “in elec tric sy st em u p grade s, modernization projec ts, and training fac iliti es” and, within 10 y ear s, to invest $1.3 billion “to upg rade and modernize its transmission and distribution in f r a s tr u c tu r e

. ” 2 2 0 I L CS 5 /1 6

- 1 0 8

. 5 ( b)(1) (A), (b)( 1)(B ) (West 2012). The second option require s the utilit y company , over a 10-y ear period, to invest $265 milli on “in elec tric sy stem upg rade s, modernization projec ts, and training fac iliti es” and to invest $36 0 m i l lion “to upg rade and modernize its transmission and distribution infrastruc ture.” 220 I L C S 5/16-108.5(b)( 2)(A)
, (b)( 2)(B ) (West 2012). The incentive for utilit y companies to participate in this p ro gram is that the statute allows the company to

rec over its expenditures throug h the rate making proce ss. 220 I L CS 5/1 6 -1 0 8

. 5 (b) (West 2012).

¶ 9 B. A mere n’s Initial Application Under the Modernization Act ¶ 10 I n J anuar

y 2012, Amere n filed with the Commi ssion a p et i t i o n fo r ap p ro v al o f its “Moder n i zation Action Plan-Pricing Tarif f” pursuant to the Modernization Act (I llinois Commerce Commi ssion case No. 12-0001 (No. 12-0001))

. Severa l parties intervene d, including (1) the Attorney Gene ral on behalf of the People of the Sta t e o f I l l i nois, (2) the Citi zens Utility Boa

rd, (3) the Americ an Association o f R et i re d Persons (AARP), (4) the I llinois Industrial Energy Consumers, and (5) t h e Commercial Group. In September 2012, following an evidentiar

y hear ing and briefing by all parties, including Commi ssion staff, the Commi ssion approve d Amere n’s application with sever al modifications, i n cl uding (1) reje cting and subsequently reduc ing Amere n’s proposed rate of common equity so that it was

more consistent with the common equity of Amere n’s holding company , Amere n Company ; (2) considering ADI T on projec ted plant additions in calc ulating Amere n’s rate base; and (3) decr easing Amere n’s rate base by unused vaca tion pay acc rued by Amere n employ ees. Amere n filed an application for rehe aring
, which the Commi ssion de nied in October 2012. Ameren t h en filed a timely notice of appea l challeng ing, among other issues, the Commi ssion’s finding s with reg ard to Amere n’s (1) rate of common equity in cal cu l at i ng actua l capital structure and (2) ADI T on projected plant additions. This court dockete d Amere n’s appe al as No. 4- 12-1008.

¶ 11 C. Ameren’ s Annual Update Filing ¶ 12 I n April 2012, while Amere n’s applicatio n i n No

. 12-0001 was still pending , Amere n filed its first annual update with the Commi ssion as require d by the Modernization Act (I llinois Commerce Commi ssion case No. 12-0293 (No. 12-0293))

. In Dec ember 2012, the Commi ssion issued its written finding s consistent with No. 12-0001. The Commi ssion then denied Amere n’s J anuar

y 2013 motion reque sting a rehe aring

. Amere n filed a timely notice of appea l c halleng ing, among others issues, the Commiss ion’s decisions with reg ard to ( 1)

-4-reduc ing Amere n’s common equity as more consistent with Amere n’s holding company , (2)

considering ADI T on projec ted pl ant additi ons in calculating r ate base, and (3) decre asing Amere n’s rate base by unused v acation pay acc rued by Amere n employ ees. Amere n then filed a timely no t i ce o f appeal, which this court dockete d as No. 4-13-0029. We have consolidated both ca ses for r eview.

¶ 13 D. May 2013 Amendment to the Moder nization Act ¶ 14 I n May 2013, Public Ac t 98-15 (Pub. Act 98-15, § 5 ( eff . May 22, 2013)) amende d the Modernization Act, and those amendments applied retroa ctively to the proce eding s at issue in the prese nt case s. 220 I L CS 5/16-108.5 (West 2012) (ena cted by Public Act 98-15 (Pub. Act 98-15, § 5 (ef

f. May 22, 2 0 1 3 ))). Amere n subsequently filed motions in both case s to h av e sever al issues decla red moot, and the appellee s did not object. Thus, this cour t wi l l addre ss only

the re maining issues.

¶ 15 I I . ANALYSI S ¶ 16 On appea l, Amere n asser ts the Commi ssion err ed by (1) considering the capital struc ture of Amere n’s holding company rathe r than the actua l capital structure of Amere n when deter mining rate base; (2) reduc ing Amere n’s rate bas e b y AD I T for projec ted plant additions; and (3) decr easing Amere n’s rate base by unused vacation pay acc rued by Amere n employ ees. We a ddress e ach of these c ontentions in turn.

¶ 17 A. Standard of Review ¶ 18 This is a case of first impression, requiring this court to revie w and interpre t the statutory provisions o f the Modernization Act in the context of the Utiliti es Act. I ssues of statutory interpre tation are revie wed de novo

. People ex rel. Madigan v. Illinois Commerce Comm’n
, 231 I ll. 2d 370, 380, 899 N.E.2d 227, 232 (2008). How ever , the Utilities Act provides that the Commi ssion’s finding s of fac t are considere d prima facie rea sonable and the burden of proof on all issues raised upon appea l is on the challeng ing part y

. 2 2 0 I L CS 5/10-201(d) (West 2012). Review of

the Commiss ion’s fac tual finding s is ge nera lly limit ed to whethe r (1) the Commi ssion acte d within its authority
, (2) the Commi ssion made adequate finding s to support its position, (3) the decisio n i s s u p p orted by substantial evidenc e, and (4) constitutional rig hts hav e b ee n violated. People ex rel. Madigan v. Illinois Commerce Comm’n
, 2011 I L App (1st) 100654, ¶ 9, 958 N.E.2d 405. Substantial e vidence consists of evidenc e a rea soning mind woul d accept as sufficie nt to support the challeng ed finding; it is more than a scintilla of evidenc e but require s something less than a preponde ranc e of the evidenc e. Central Illinois Public Service Co

. v. Illinois Commerce Comm’n
, 268 I ll. App. 3d 471, 479, 644 N.E.2d 817, 823 (1994)

. ¶ 19 Given the highly techn i ca l n at u re of calc ulating the costs incurre d by a public utilit y , judicial defe renc e is “espe cially appropr iate in the are a of fix ing rate s.” Iowa-Illinois Gas & Electric Co. v. Illinois Commerce Comm’n
, 19 I ll. 2d 436, 442, 167 N.E.2d 414, 417 (1960). T h e C ommissi on’s finding s of fac t will not be overturne d unless they are ag ainst t h e

-5-manifest weig ht of the evidenc e. Commonwealth Edison Co. v. Illinois Commerce Comm’n
,

405 I ll. App. 3 d 389, 409, 937 N.E.2d 685, 706 (2010). W hen the Commi ssion’s decision
prese nts a question of mix ed law and fac t, we re v i ew t h e C ommissi on’s order under the clea rly err oneous standard. People ex rel. Madigan v. Illinois Commerce Comm’n
, 2011 I L App (1st) 101776, ¶ 8, 964 N. E

. 2 d 5 1 0

. “The clea rly err oneous standard of revie w lies betwee n the manifest weig ht of the evidenc e standard and the de novo standard, and as such, it g rants some defe renc e to the ag ency ’s decision.” People ex rel. Ma d igan v. Illinois Commerce Comm’n
, 2011 I L App (1st) 101776, ¶ 9, 964 N.E.2d 510. In that circ umstance, the revie wing court must be left with a “def inite and firm conviction” that the Commi ssion committed a mistake. (Interna l quotation marks omitted.) People ex rel. Madigan v. Illinois CommerceComm’n , 2011 I L App (1st) 101776, ¶ 9, 964 N .E.2d 510.

¶ 20 B. I ssues Raised by Amere n ¶ 21 1. Actual Capital St ructure ¶ 22 Amere n argues the Commi ssion err ed by imputing to Amere n the actua l capital structure of Amer en’s holding company

. Actual capital s tructure consists of (1) short- term debt, (2) long- term debt, and (3) common equity

. See, e.g. , P eople ex rel. Madigan v. Illinois Commerce Comm’n
, 2011 I L App (1st) 100654, ¶ 5, 958 N.E.2d 405. The parties’ chief contention on appe al is the rate of common equity adopted by

the Commiss ion. ¶ 23 I n No. 12-0001, in deter mining its actua l capital structure , Amere n estimated its c ommon equity at 54.30%, while its holding company had common equity in the amount of 52.24%. Commi ssion staff estimated Amere n’s common equity at 51.49%, a figure adopt ed b y t h e Commi ssion afte r an extensive hear ing. In No. 1 2 -0 293, Amere n estimated its common equity at 54.85%, while its holding company had common equity in the amount of 51.05%. Commi ssi o n staff estimated Amere n’s common equity at 51%, a fig ure adopted by the Commi ssion. I n both in s t an ce s , the Commi ssion adopted for Amere n a common equity fig ure be low that of the holdingcompany

. ¶ 24 I n adopting the respe ctive rate s of common equity
, the Commi s s i o n m ad e d et ail ed finding s. I n No. 12-0001, the Commi ssion noted Amere n had a lower overa ll opera ting risk than its holding company due to Amere n’s lack of competiti o n an d participation in the Modernization Act; thus, the Commi ssion found t h at ad o p t ing the common equity ratio
sug g ested by Amere n would ultimate l y ex pose Amere n to more risk than its holding
company beca

use the perc entag e of common equity was too high fo r a co m p any that possessed less operatin g ri s k

. Amere n’s cre dit rating had also rec ently been incre ased by Moody ’s I nvestors S ervic e, which g ave A mere n the ability to obtain more favorable rate s. After considering Amere n’s advanta g eous regulatory environment, the Commi ssion f ound Amere n’s rate unrea sonable and adopted the Commi ssion staff’ s rec ommended rate , which the Commiss ion deemed mor e re asonable

. ¶ 25 I n No. 12-0293, the Commi ssion defe rre d, in part, to its rulin g i n No

. 1 2 -0 0 0 1

. The Commi ssion noted other utilit ies with a simil ar cre dit rating had much lower common equity
rate s in the rang e of 40%, which indicated a lower deg ree of financ ial risk. The Commi ssion commented it was in Amere n’s best interests to use a capital structure with highe r common

-6-equity beca use it would allow Amere n a g reater return on its capital while leaving rate pay ers to shoulder the incre ased cost of capital. Additionally
, in No

. 1 2 -0 293, the Commi ssion stated, “individually
, the conce rns raised by Staff are insufficient to wi n the day

. But cumulatively
, the Commi ssion is persua ded that Staff’s imputed capital structure is
appropr iate.” ¶ 26 Subsection (c) (2) of the Modernization Act require s formula ra t es t o “[ r] ef l ec t the utilit y ’s actua l capital structure for the applicable cale ndar y ear , excluding g oodwill, subject
to a deter mination of prudenc e and rea sonablene ss consistent with Commi ssion prac tice and law.” 220 I L CS 5/ 16-108.5(c )(2) (West 2012). Section 9-230 of the Utiliti es Act provides, “In deter m i n ing a rea sonable rate of return upon investment for any public utilit y in any proce eding to establish rate s or char g es, the Commi ssion shall not inclu d e a ny ( i) inc reme ntal risk, [or] (ii) incre ased cost of capital *** which is the direc t or indirect result of the public utilit y ’s aff

iliation with unregulated or nonutilit y companies.” 220 I L CS 5/9-230 (West 2012). ¶ 27 Amere n asser ts the Commi ssion failed to follow the pl ai n l an gu age o f the statute by ignor ing Amere n’s “actual capital structure ” and instead rely ing upon the capital structure of Amere n’s holding company

. Additionally
, Amere n rea sons th e s ta tu to r y la n g uag e require s the Commiss ion to presume Amer en’s pr oposed ac tual capital structure is appropriate a nd that the presumption can only be overc ome if the Commi ssion r eviews the rate and finds it

unrea sonable. Amere n contends the Commi ssion not only failed to make an express finding of unrea sonablene ss but also impr o p erly shifted the burden to Amere n to prove the

rea sonablene ss of its rate s. Finally
, Amere n argues its common equity rate should be highe r beca use t he regulatory en v i ro nment insulated Amere n from it s holding company ’s gre ater risk profile. ¶ 28 The Com mission, in turn, argues t h e s t at utory languag e does not cre ate a presumption of validity but instead provides the Commi ssion discretion to find Amere n’s proposed actua l capital structure unrea sonable, authority which the Commi ssion exercised in rea ching its decision. Specifica lly
, the Commi ssion argues section 9-230 of the Utiliti es Act (220 I L CS 5/9-230 (West 2012)) g rants the Commi ssion the authority to set rea sonable rate s on return of investments. The Commi ssion further contends, though it did not make an express finding of unrea sonabl en es s, its detailed finding implied that it found Amere n’s proposals to be

unrea sonable due, in part, to the inconsistency betwee n Amere n’s and its holding company ’s
rate s of common equity

. ¶ 29 The plain lang uage o f t h e s t at u t e p ro v i d es t he Commi ssion with the discretion to deter mine whether Amere n’s prop o s ed actua l capital structure is prudent and rea sonable. We disag ree with Amere n’s contention that the statutory languag e cre ates a presumption of

rea sonablene ss when rea d in conjunction with provisions of the Utiliti es Act. See 220 I L CS 5/9-230 (West 2012) (the Commi ssion has the authority to deter mine the rea sonablene ss of a utility ’s rate of re turn). We also disag ree the C ommissi on either failed to make a finding of reasonable ness or shifted t he burden of p ro of ont o Amere n to prove the rea sonablene ss of the rate of common equity

. The parties prese nted extensive evidenc e and the Commi ssion deter mined the Commi ssion staff’ s position was rea s o nable, thus reje cting Amere n’s proposed rate s as unrea sonable. There fore
, we conclude the Commi ssion both possessed and

-7-exercised its a uthority in a dopting the Commi ssion staf f’s rec ommendation. We must now deter mine whether the Commi ssion’s finding s of fac t wer e ag ainst the manifest weig ht of the evidenc e. Commonwealth Edison Co. , 405 I ll. App. 3d at 409, 937 N.E.2d at 706. ¶ 30 “Ge nera lly
, equity is a more expensive form of capital than debt.” Illinois Bell Telephone Co. v. Illinois Commerce Comm’n
, 283 I ll. App. 3d 188, 204, 669 N.E.2d 919, 931 (1996). “[B]eca use debt pay

ments are g ener ally tax deductible while dividend pay ments are not, debt
costs less than equity .” Citi zens Utility Board v. Illinois Commerce Comm ’n , 276 I ll. App. 3d 730, 744, 658 N.E.2d 1194, 1204 (1995) . In other wor ds, “the more equity in a utility ’s capital structure, the highe r t he R OR [rate of retur n ] m u s t b e to cover the cost of capital.” Illinois Bell Telephone Co.
, 283 I ll. App. 3d at 204, 669 N.E.2d at 931(citing Citi zens Utility Board
, 276 I ll. App. 3d at 744, 658 N.E.2d at 1204). “Reasonable person s will purcha se a corpor ation’s secur ities only if they expect to rec eive later their initial investment plus a reasonable return. When they invest, they understand that they risk the possibili ty that t h e corpor ation may g o out of business, and the investors may lose all or part of thei r investments. As the perc eived risk of loss incre ases, the amount of return investors demand incre ases.” Citi

zens Utility Board , 276 I ll. App. 3d at 743-44, 658 N.E.2d at 1204. ¶ 31 The common equity figures adopted by the Commi ssion permitted Amere n a favor able equity rate , better than other utilit ies with the same cre dit rating
, and ref lected Amere n’s lowrisk regulatory environment

. To allow Amere n to obtain a highe r rate of common equity under these circ umst an ce s wo u ld, as the Commi ssion explained, allow Amere n a g reater

re turn on its capital while leaving rate payers to shoulder the incre ased cost of capita l

. Be cause Amere n has decr ease d risk due to its regulatory environment and lack of competition, i t s t an d s t o rea son investors would expect a lesser rate of return on their investment. Additionally
, the rec ord ref lects the Commi ssion did not adopt the actua l capital
structure of the holding company in s et t i n g Am er en’s rate s. In No. 12-0001, the holding
company ’s common equity was 52.24%, but the Commi ssion implemented a rate of 51.49% for Amere n. L ikewise, in No. 12-0293, the holding company ’s common equity was 51.05%, but the C ommissi on adopted a common equity rate of 51% for Ameren. I n both case s, the

common equity was set just below the rate of the holding company , which il l u s trates the Commi ssion’s findi n g t hat Amere n has less risk than the holding company and, thus, less need f or hig her r ates of c ommon equity

. ¶ 32 The Commi ssion acte d within its authority and made adequate, detailed finding s on the substantial evidenc e prese nted. There fore
, we conclude the Commi s s i o n did not err in finding that Amere n’s rate was unrea son a b le and its subsequent adoption of the modified rate of common equity

in both cases.

¶ 33 2. Acc umulated Defe rred Inc ome Taxe s ¶ 34 Amere n contends the Commi ssion err ed by re d u ci ng Amere n’s rate base by ADI T for projec ted plant additions. “ADI T quantifies the income taxes that are defe rre d when the tax law provides for deductions with respe ct to an item in a y ear other than the y ear that the item is treated as an expense for financ ial repor ting purposes.” (Interna l quotation marks omitted.) Amere n Illinois Co. v. Il linois Commerce Comm’n
, 2012 I L App (4th) 100962, ¶ 11, 967

-8-N.E.2d 298. For reg ulated utilit ies, ADI T reduc es the utilit y ’s rate base beca use it is treated

as no-cost capital. Amere n Illinois Co.
, 2012 I L App (4th) 100962, ¶ 11, 967 N.E.2d 298. In other words, ADI T repr esents taxes pay able in the future that provide a source of funds the utilit y can use until such tim e the taxes bec ome due. ¶ 35 Subsection (c) (6) of the Modernization Act re quires par ticipating utili ties to present to the Commiss ion:
“fina l data based on its most recently filed FERC For m 1 [(Annual Report of Major Electric Utiliti es as require d by the Fe dera l Energy Reg ulatory Commi ssion)]
, p l us projec ted plant additions and corr esponding ly updated depre ciation rese rve and expense for the cale ndar y ear in which the tariff and data ar e filed, that shall populate the perf ormanc e-ba sed formula rate and set the initial delivery service s rate s under the formula.” 220 I L CS 5/ 16-108.5(c )(6) (West 2012). Additionally
, the s tatute provides “[n] othing in this Section is intended to allow c o s t s that

are not otherwise rec overa ble to be rec overa

ble by virtue of inclusion in FERC For m 1.” 220 I L CS 5/ 16-108.5(c )(6) (West 2012). ¶ 36 When the C ommissi on calc ulated Ameren’s rat e b as e, it deducte d ADI T for pr ojected plant additions, which reduc ed Amere n’s rate base by over $100 milli on in No. 12-0001 and

near ly $44 milli on in No. 12-0293. An AAR P wi t n es s, in rea ching the $44 milli on fig ure, deter mined “the exis tence of 50% bonus depre ciation in 2012 provides [Ameren] with a tax deduction equal to one-ha lf of the amount of additions to plant in service
, which would lead
to g rowth in the balanc e of ADI T in 2012 well in excess of g rowth that would take place in absenc e of bonus depre ciation.” Wit nesses for Commi ssion staff and the Citi zens Utility Boa rd sug g ested similar adjustments. ¶ 37 A me r e n a

r g u e s the Modernization Act did not provide the Commi ssion with the authori ty to deduct ADI T beca

use, while the statute provides g uidance for other adj u s t m ents, the
statute fails to mention an adjustment for ADI T. Am er en fu rt her asser ts the omission of ADI T adjustments in the statute was proper beca use ADI T does not re prese nt “transpa rent information” require d for ca l cu l ating formulas under the Modernization Act, which it illust rate s with the experts’ vary ing approximations of ADI T rang ing from $108 milli on to $173 milli on. Moreove r, Amer en ex plains the reconciliation proce ss in the Modernization Act eliminated the need for the traditional ADI T adjustment beca use the rec onciliation rate relies upon “ actua l costs” incurr ed by Amere n in supplying g as and e lectric ity

. ¶ 38 The Commi ssion contends it i s comm on prac tice to make ADI T adjustments to a rate base, and the Commi s sion has the authority under the Modernization Act to rely on its

common prac tices in deter mining a just and rea sonable ra te. 220 I L CS 5/16-108.5(c) (6) (West 2012). The Commi ssion notes Amere n used ADI T for y ear s in calc ulating its rate base and points out that only now under the Modernization Act does Amere n seek to exclude this adjustment. Whil e the Commi ssion ag ree s the statute does not expressly allow an adjustment for ADI T, the Commi ssion explains the statute does not expressly disallow the adjustment, but authorizes the Commi ssion to exercise its discretion in deter mining just and rea sonable
rate s. ¶ 39 The Modernization A ct expressly prohibits a utilit y from rec overing above and beyond

-9-what would normally be rec overa ble in a rate making case

. 220 I L CS 5/16-108.5(c) (6) (West 2012); see also Commonwealth Edison Co.
, 405 I ll. App. 3d at 405, 937 N.E.2d at 703 (The Utiliti es Act “re quires the Commi ssion to ensure that a utilit y ’s approve d rate base does not exceed the investment value that the utilit y actua lly uses to provide service .”)

. T he C ommissi on asser

ts that ignor ing the ADI T figure would do just that–allow Am er en t o

rec over an unjust and unrea sonable rate base that has been inflated by no-cost capital for the benef it o f Amere n. We ag ree

. Omitting ADI T from the rate base calc ulation would allow Amere n what amounts to an interest-f ree loan at the rate pay ers’ expense that would artificia lly incre ase Amere n ’s rate s until the next rec onciliation proce ss, a result which is neither just nor rea sonable for rate pay ers. As Amere n noted, the rec onciliation proce ss will allow Amere n to rec over its actua l costs of the fore caste d ADI T for projec ted plant additions in the event of

a miscalc ulation during the ratemakingproce ss. ¶ 40 As it was consistent with the common prac tice of the C ommissi on to include AD I T in the rate making proce ss, we conclude the Commi ssion did not err by including the ADI T adjustment for proje cted plan a dditions i n its ratemaking calc ulation.

¶ 41 3. Vacation Pay ¶ 42 Amere n’s final argument on appea l is that the Commi ssion err ed in deter mining acc rued but unused vaca

tion pay , an amount of more than $12 milli on, was an operating rese rve that should be deduct ed fr o m the rate base. W e begin by noting Ameren did not challeng e thi s issue in No 12-0001. I nstead, this argument was prese nted for the first time on appea l in No. 12-0293. ¶ 43 Amere n asser

ts the Commi ssion had the discretion in the proce eding s at issue in No. 12- 0293 to alter the r ate ba se by removingthe re duction for accr ued vacation pay

but cites no authority in support of this arg ument. Additi o n a ll y , Ame r en contends the Commi ssion issued

a conclusory finding that acc rued vacation pay was an operating rese rve and that the finding

was a g ainst the manifest we ight of the evidenc e. ¶ 44 We initially note it has not been consistent with the Commi ssio n ’s p ra ct i ce or law to reduc e a public utilit y ’s rate base by acc rued vacation pay ; in fac t, the Commi ssion has only done so in this case and in Commonwealth Edison’s relat ed case (I llinois Commerce Commi ssion No. 11-0721, order of May 29, 2012), wh i ch i s now pending on appea l. The Commi ssion’s asser

tion that acc rued but unused vacation pay results in additional monies for Amere n’s use is suspect g iven Amere n’s liabiliti es associate d with the funds. Howeve r, beca use of our di scussi o n b el o w, we are not require d to decide whether a reduction of t he
rate base by

acc rued but unused va cation pay is appropriate. ¶ 45 We ag ree with the Commi ssio n ’s ar gu ment that it lacke d authority in No. 12-0293 to

rec alculate the rate base during the rec onciliation proce eding s. Subsecti o n (c) of the Modernization Act perta ins to the establishment of th e initial perf ormanc e-ba sed formula
rate , while subsection (d) g overns proce eding s during the annual rec onciliation proce ss. 220 I L CS 5/16-108.5(c)
, (d) (West 2012). Subsection (d)( 1) provides “[t] he first such

rec onciliation is not intended to provide for the rec overy of costs previously excluded from
rate s based on a prior Commi ssion or der finding of imprudence or unrea sonablene ss.” 220

-10-I L CS 5 /16- 108.5(d)( 1) (West 2012). Under subsection (d)( 3), “the Commi ssion shall n o t * * *

have the authority in a proce eding under this subsection (d) to consider or order any chang es to the structure or protocols of the perf ormanc e-ba sed formula rate appr o v ed p u rsuant to subsection (c) of this Section.” 220 I L CS 5/16-108.5(d)( 3) (West 2012). In other words, the plai n , u n ambig uous languag e of subsections (d)( 1) and (d)( 3) prohibited the Commi ssion from rec onsidering the initial perf ormanc e-ba sed formula rate during the first annual

rec onciliation proce eding at issue in No. 12-0293. 220 I L CS 5/16-108.5(d)( 1), (d)( 3) (West 2012). ¶ 46 We there fore conclude the Commi ssion lacke d the authority to rec alculate the rate base during the first rec onciliation proce eding and proper ly ref used to alter the rate base by removingthe ca lculation for a ccr ued but unused va cation pay

.

¶ 47 I I I . CONCL USI ON ¶ 48 For

the re asons stated a

bove, we aff

irm the finding s of the Commissi on.

¶ 49 Affir

med.

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