2018 IL App (1st) 170527 

Nos. 1-17-0527 & 1-17-0561 cons. 

Opinion filed September 11, 2018. 

Second Division 

IN THE
 

APPELLATE COURT OF ILLINOIS
 

FIRST DISTRICT
 

CITIZENS UTILITY BOARD; PRAIRIE FARMS ) Appeal from the 

DAIRY, INC.; UNITED STATES STEEL-GRANITE ) Illinois Commerce 

CITY WORKS; and THE UNIVERSITY OF ILLINOIS, ) Commission 

) 

Appellants, ) 

) 

v. ) No. 16-0093 

) 

THE ILLINOIS COMMERCE COMMISSION and ) 

ILLINOIS-AMERICAN WATER COMPANY, ) 

) 

Appellees. ) 

JUSTICE LAVIN delivered the judgment of the court, with opinion. 

Presiding Justice Fitzgerald Smith and Justice Cobbs concurred in the judgment and 

opinion. 

OPINION 

¶ 1 This appeal arises from an order of the Illinois Commerce Commission (Commission) 

approving a general increase in the water and sewer service rates of Illinois-American Water 

Company (IAWC). More specifically, the Commission approved an increase in IAWC’s 

authorized return on equity (ROE). Several intervenors in the proceedings below, Prairie Farms 

Dairy, Inc., United States Steel Corporation-Granite City Works, and the University of Illinois, 
 

 

 

 

 

 

 

 

 

Nos. 1-17-0527 & 1-17-0561 

as well as Citizens Utility Board (collectively, the intervenors), now appeal. On appeal, the 

intervenors assert that (1) the ROE approved by the Commission was not supported by 

substantial evidence, (2) the Commission failed to articulate a reasoned basis for its 

incorporation of size and leverage adjustments, and (3) the authorized ROE exceeded what was 

necessary to ensure IAWC’s financial integrity and attract capital. For the following reasons, we 

affirm the Commission’s order. 

¶ 2 I. BACKGROUND 

¶ 3 On January 21, 2016, IAWC filed with the Commission revised tariff sheets seeking a 

general increase in water and sewer rates. The Commission suspended the tariff sheets from 

taking effect and commenced this proceeding to investigate the proposed rate increase. As stated, 

several parties intervened.1 

¶ 4 The purpose of the Public Utilities Act (Act) is to provide “adequate, efficient, reliable, 

environmentally safe and least-cost public utility services at prices which accurately reflect the 

long-term cost of such services and which are equitable to all citizens.” 220 ILCS 5/1-102 (West 

2016). The Commission uses the Act’s rate of return principles to design and set just and 

reasonable rates for Illinois’s least-cost public utility services. People ex rel. Madigan v. Illinois 

Commerce Comm’n, 2015 IL 116005, ¶ 29. Those principles used to determine the revenue 

requirement take into account a recovery of prudent, reasonable costs as well as a return on 

equity. 2 Id. ¶ 30. In addition, the return should assure confidence in the utility’s financial 

integrity in order to maintain its credit, attract capital (Federal Power Comm’n v. Hope Natural 

1

Several other entities participated below but are not parties to this appeal.

2

The ratemaking formula is “R (revenue requirement) = C (operating costs) + Ir (invested capital 

or rate base times rate of return on capital).” (Internal quotation marks omitted.) People ex rel. Madigan, 

2015 IL 116005, ¶ 7. 

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Gas Co., 320 U.S. 591, 603 (1944)), and compensate the utility’s investors (see Ameren Illinois 

Co. v. Illinois Commerce Comm’n, 2015 IL App (4th) 140173, ¶ 8). 

¶ 5 During this proceeding, the parties resolved several issues but were unable to agree on an 

appropriate authorized ROE for IAWC. While IAWC sought a 10.75% ROE, the intervenors 

asserted that 9% was appropriate. The staff of the Commission (Staff) recommended a ROE of 

8.12%. The intervenors now challenge the Commission’s ultimate determination that an initial 

ROE of 9.87% is appropriate. 

¶ 6 A. Testimony 

¶ 7 Michael Gorman, a public utility regulation consultant, testified on behalf of the 

intervenors. Gorman testified that he used the discounted cash flow (DCF) and capital asset 

pricing model (CAPM) to measure the current market cost of equity.3 The DCF model is based 

on the assumption that a stock’s price equals the expected value of future dividends, discounted 

to present value, multiplied by the investors’ required rate of return. See Id. ¶ 26. Under the 

CAPM formula, a utility’s required rate of return equals the sum of the risk-free rate and a risk 

premium. Id. ¶ 10.4 

¶ 8 For DCF, Gorman used models for constant growth, sustainable growth, and multi-stage 

growth. Because IAWC is not a publicly traded company, he used water and gas proxy groups of 

publicly traded companies to approximate IAWC’s investment risk. See id. ¶ 12 (stating, with 

respect to utilities that are not publicly traded, that proxy groups carrying approximately the 

same amount of risk are used). As to the water proxy group, DCF analysis produced the 

3

Given the experts’ extensive testimony debating the appropriate methods to be used and how to 

apply them in determining an appropriate ROE, we present only a limited recitation of the experts’ 

positions.

4

A risk premium is determined by multiplying the volatility of the utility’s equity by the premium 

that investors expect the general market to pay above a risk-free investment. Ameren Illinois Co., 2015 IL 

App (4th) 140173, ¶ 11. 

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following average ROEs: (1) constant growth of 9.12%, (2) sustainable growth of 8.05%, and 

(3) multi-stage growth of 7.09%. DCF analysis for the gas proxy group produced these average 

ROEs: (1) constant growth of 9.12%, (2) sustainable growth of 9.48%, and (3) multi-stage 

growth of 7.64%. Based on the foregoing, Gorman’s recommended DCF range was from 8.3% to 

9.3%. Thus, he found his analysis supported a ROE of 8.8%, the midpoint of the range. 

¶ 9 Gorman’s CAPM analysis resulted in 8.49% for his water proxy group and 9.77% for his 

gas proxy group. After modifying those results, the CAPM study suggested a reasonable ROE 

between 8.5% and 9.8%, with a midpoint of 9.15%. Gorman rounded the midpoint to 9.2%. 

Accordingly, Gorman found these studies indicated that a reasonable ROE would be between 

8.8% (DCF) and 9.2% (CAPM), for an estimated ROE of 9%. Gorman further opined that a 9% 

ROE would support an overall rate of return that would permit IAWC to have an investment 

grade bond rating. 

¶ 10 That being said, Paul Moul, IAWC’s expert and a financial and regulatory consultant, 

found Gorman’s DCF results were too low, too unrealistic and certain results were “simply not 

credible.” Moul also found Gorman’s sustainable growth DCF and multi-stage growth DCF 

results were flawed and his CAPM results were incomplete. Furthermore, Moul found Gorman 

failed to establish a reasonable basis for comparing IAWC with Gorman’s gas proxy group. 

¶ 11 Moul testified on behalf of IAWC that he applied DCF, CAPM, risk premium analysis 

and a comparable earnings study to a proxy group of publicly traded water companies. His 

constant growth DCF model led to a ROE of 9.72%. He had reduced his DCF results to account 

for IAWC having a higher level of debt than the proxy group (leverage adjustment). 

Additionally, after adjusting his CAPM outputs to reflect IAWC’s smaller size (size adjustment), 

his CAPM results suggested a ROE of 11.03%. Thus, Moul’s combined DCF and CAPM 

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analyses indicated a range of 9.72% to 11.03% with a midpoint of 10.38%. Furthermore, Moul’s 

risk premium analysis suggested a ROE of 11.25% and his comparable earnings analysis 

suggested a ROE of 13.05%. 

¶ 12 Moul acknowledged, however, that all methods contain assumptions and constraints that 

are incomplete or overly restrictive. For example, he expressed concern for the circular nature of 

DCF analysis when used in rate cases. Moul further acknowledged his result did not take into 

consideration the possibility that unforeseen events would prevent IAWC from achieving its 

authorized rate of return, something that IAWC had not achieved for several years. 

¶ 13 Moul determined that based on the foregoing analyses, a ROE of 10.75% represented a 

fair, reasonable cost of equity that would permit IAWC to attract capital to replace aging 

infrastructure. Moreover, Moul testified that his opinion assumed that the Commission would 

also approve a volume-balancing adjustment rider (Rider VBA): Without it, IAWC would have a 

higher risk profile than the utility companies in the proxy group.5 

¶ 14 Gorman and Sheena Kight-Garlisch, a senior financial analyst in the Commission’s 

Financial Analysis Division, found that Moul’s size and leverage adjustments were inappropriate 

and, as a result, Moul’s ROE of 10.75% was too high. They rejected Moul’s suggestion that a 

leverage adjustment is required when a firm’s capitalization, as measured by market value, varies 

from the book value capitalization. Additionally, had Moul excluded those adjustments, his DCF 

analysis would have resulted in a ROE of 9% and his CAPM analysis would have resulted in a 

ROE of 8.9%. Moul, however, added a leverage adjustment of 0.89 to both studies and a size 

5

A Rider VBA attempts to accurately collect the revenue requirement through a transparent, 

symmetrical formula. See People ex rel. Madigan, 2015 IL 116005, ¶ 32. A Rider VBA does not 

guarantee net profits or net revenue but ensures the recovery of the revenue requirement determined by 

the Commission. Id. A Rider VBA offers a means for a utility to recover no more and no less than the 

utility’s revenue requirement. Id. 

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Nos. 1-17-0527 & 1-17-0561 

adjustment to the CAPM result. Gorman and Kight-Garlisch disagreed with Moul’s opinion that 

as a firm’s size decreases, its risk and required return increase or that a size adjustment was 

required. Gorman and Kight-Garlisch further testified that the inputs for Moul’s risk premium 

analysis inflated the risk premium. 

¶ 15 Kight-Garlisch testified on behalf of the Staff that she performed DCF and CAPM 

analysis on water and utility proxy groups. With respect to DCF, she used a nonconstant, multistage growth model with three stages of dividend growth, which led to ROE estimates of 7.24% 

for her water proxy group and 7.51% for her utility proxy group. Kight-Garlisch declined to use 

the constant growth DCF model, finding that the near-term average dividend growth rate for the 

companies in her proxy groups were not sustainable long term. With respect to CAPM, she came 

to a ROE of 8.8% for the water proxy group and 8.9% for the utility proxy group, after making 

certain adjustments. She did not make adjustments based on size and leverage. 

¶ 16 Kight-Garlisch testified that the average of her DCF and CAPM results for the water 

proxy group was 7.98%, while the average of her DCF and CAPM results for the gas proxy 

group was 8.16%. The average of both percentages was 8.07%, although she recommended a 

slightly higher ROE of 8.12%. Should the Commission approve IAWC’s proposed Rider VBA, 

Kight-Garlisch suggested an additional reduction, to 8.04%. Moul extensively criticized KightGarlisch‘s analysis and found it led her to underestimate IAWC’s return on equity. 

¶ 17 We also note that IAWC’s president, Bruce Hauk, testified that the utility had to compete 

with other companies and IAWC affiliates for discretionary capital and there was no incentive 

for IAWC’s shareholder, American Water Works Company, Inc., to invest in Illinois if it can get 

greater returns elsewhere. With a ROE of 8.04%, IAWC would have the lowest authorized ROE 

among its shareholder’s various investment entities. Additionally, IAWC would need to 

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reevaluate its investment decisions. Moul further testified that the investment community would 

be alarmed. Moreover, Moul opined that it was inappropriate to reduce a utility’s ROE to 

account for a Rider VBA. The record further suggests that 8.04% would be the lowest ROE 

authorized in Illinois. 

¶ 18 B. The Authorized ROE 

¶ 19 On October 19, 2016, the administrative law judges (ALJs) recommended that the 

Commission authorize a ROE of 8.92%. In reaching that percentage, the ALJs averaged the 

results of Gorman’s constant growth DCF analysis, Moul’s unadjusted constant growth DCF 

analysis, and Kight-Garlisch’s CAPM analysis. The ALJs observed that the Commission had 

consistently rejected size and leverage adjustments. The intervenors, IAWC, and the Staff all 

filed briefs on exceptions to the ALJs’ proposed order. 

¶ 20 In a 92-page order entered on December 13, 2016, the Commission rejected the ALJs’ 

recommendation. After acknowledging the difficulty in estimating ROEs, the Commission found 

that the ROEs presented by IAWC (10.75%), the intervenors (9%) and the Staff (8.12%) varied 

considerably, as did the expert witnesses’ methodology. The Commission found that while the 

parties had identified shortcomings in each of the experts’ opinions, Kight-Garlisch’s 

determination was simply anomalous and an uncompetitive ROE would deter investment. Thus, 

the Commission rejected her suggested ROE of 8.12% (before deduction). 

¶ 21 Consequently, the Commission averaged the 10.75% ROE recommended by Moul with 

the 9% ROE recommended by Gorman. The Commission found that averaging the ROEs 

suggested by IAWC and the intervenors, to 9.87 %, would minimize some of the flaws identified 

in the parties’ respective analyses. Additionally, the order stated: 

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“The Commission acknowledges that IAWC’s DCF and CAPM results contain 

size and leverage adjustments. *** However, the ROE approved by the Commission in 

the instant docket is an average of IAWC’s and [the intervenors’] ROE recommendations 

and not an endorsement of every input of every aspect of the methodologies performed 

by these parties. See Docket No. 14-0419 at 44.” 

The Commission then deducted an additional eight points from the ROE based on its approval of 

the IAWC’s Rider VBA, in order to reflect IAWC’s reduced operating risk.

6 The Commission 

determined that a ROE of 9.79% “was reasonable, supported by the record, and consistent with 

the governing legal standard.” The intervenors now appeal. 

¶ 22 II. ANALYSIS 

¶ 23 A. The Act, the Commission’s Role, and the Reviewing Court’s Role 

¶ 24 Under section 9-101 of the Act, “[a]ll rates or other charges made, demanded or received 

*** shall be just and reasonable.” 220 ILCS 5/9-101 (West 2016). Section 9-201(c) further states 

that “[i]f the Commission enters upon a hearing concerning the propriety of any proposed rate or 

other charge ***, the Commission shall establish the rates or other charges *** proposed, in 

whole or in part, or others in lieu thereof, which it shall find to be just and reasonable.” Id. § 9­

201(c). Moreover, the utility has the burden of demonstrating that the proposed rate is just and 

reasonable. Id. 

¶ 25 “The Commission is not merely an arbitrator between the utility and parties opposing a 

rate change[;] it is an investigator and regulator of utilities[,] responsible for the setting of just 

rates for all affected by the rates.” Citizens Utility Board v. Illinois Commerce Comm’n, 276 Ill. 

App. 3d 730, 740 (1995). Its ratemaking function is legislative in nature. Business & 

Professional People for the Public Interest v. Illinois Commerce Comm’n, 146 Ill. 2d 175, 243 

6

The rider and adjustment are not the subjects of this appeal. 

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(1991). In addition, it is well settled that when it comes to “matters relating to services and rates 

of utilities technical data and expert opinion, as well as complex technological and scientific 

data, *** it [is] essential that the matter be considered by a tribunal that is itself capable of 

passing upon complex data.” Village of Apple River v. Illinois Commerce Comm’n, 18 Ill. 2d 

518, 523 (1960). Moreover, the Commission has the authority to address each situation before it 

despite how the Commission may have previously addressed a similar situation. Citizens Utility 

Board v. Illinois Commerce Comm’n, 291 Ill. App. 3d 300, 307 (1997). 

¶ 26 While the Act gives the Commission broad discretion, the Act also requires it to set forth 

analysis and findings sufficient to permit informed review by the appellate court. Id. at 304 

(citing 220 ILCS 5/10-201(e)(iii) (West 1994)). Consequently, the Commission must provide 

more analysis and reasoning than what is required of a circuit court. Id. That being said, the 

Commission need not make specific findings on each claim or evidentiary fact. Commonwealth 

Edison Co. v. Illinois Commerce Comm’n, 405 Ill. App. 3d 389, 398 (2010). The Commission’s 

findings are sufficient if they enable the reviewing court to engage in an intelligent, informed 

review of the Commission’s order. Id. 

¶ 27 Upon review, the Commission’s factual findings and conclusions are prima facie true and 

its decisions are prima facie reasonable. 220 ILCS 5/10-201(d) (West 2016). In addition, “[t]he 

burden of proof upon all issues raised by the appeal shall be upon the person or corporation 

appealing from such *** decisions.” Id. Moreover, the Commission is particularly entitled to 

deference in with respect to fixing rates because determining rates is a matter of sound business 

judgment, which the legislature has entrusted to the Commission. People ex rel. Madigan, 2015 

IL 116005, ¶ 23. This is because the Commission’s members are highly qualified to interpret 

evidence provided by specialists and technicians. People ex rel. Madigan v. Illinois Commerce 

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Comm’n, 2011 IL App (1st) 100654, ¶ 70; cf. Thompson v. Illinois Commerce Comm’n, 1 Ill. 2d 

350, 356 (1953) (finding that because the case involved no technical questions or questions of 

rate where the Commission would be better situated to assess the evidence, the supreme court 

was not required to reach the same conclusion of the Commission). In contrast, judges are not 

utility regulators (People ex rel. Madigan, 2015 IL 116005, ¶ 22), and the wisdom of the 

Commission is not subject to inquiry (Village of Apple River, 18 Ill. 2d at 523). It follows that we 

must not reevaluate the credibility or weight of the evidence or substitute the Commission’s 

judgment with our own unless that judgment was clearly against the manifest weight of the 

evidence. People ex rel. Madigan, 2011 IL App (1st) 100654, ¶ 70. 

¶ 28 Consequently, a reviewing court will reverse the Commission’s findings only if the 

record does not show they are supported by substantial evidence, the Commission exceeded the 

scope of statutory authority, the Commission’s findings were unconstitutional, or the 

Commission reached its decision in a manner, or through proceedings, that were unconstitutional 

and prejudiced the appellant. 220 ILCS 5/10-201(e)(iv)A (West 2016); see also Monarch Gas 

Co. v. Illinois Commerce Comm’n, 261 Ill. App. 3d 94, 101 (1994) (stating that a reviewing court 

can set aside the Commission’s decision if it is clearly unreasonable). 

¶ 29 B. Substantial Evidence and Sufficient Findings 

¶ 30 The intervenors assert that the Commission’s decision was not supported by substantial 

evidence and sufficient findings. Before addressing their specific contentions, however, we find 

it inappropriate at this juncture for the intervenors to rely on the expert opinion of KightGarlisch, the expert for the Staff. A party must assert his own legal interests and rights, not those 

of third parties. Powell v. Dean Foods Co., 2012 IL 111714, ¶ 36. The intervenors have not 

developed a cohesive argument explaining why they should be permitted to rely on another 

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party’s evidence. See Enbridge Pipeline (Illinois), LLC v. Monarch Farms, LLC, 2017 IL App 

(4th) 150807, ¶¶ 79-80 (finding that failure to develop a cohesive argument results in forfeiture). 

More importantly, we find the Commission’s order was supported by substantial evidence and 

sufficient findings. 

¶ 31 Essentially, the intervenors suggest that in order for substantial evidence to have 

supported the ROE approved by the Commission, the record would need to show that (1) a 

witness recommended a 9.87% ROE, (2) that witness supported his testimony with additional 

evidence showing a ROE of 9.87% was appropriate, and/or (3) a witness testified that a ROE 

falling outside the range suggested by the witnesses would be proper. The intervenors contend 

that the varying expert opinions did not permit the Commission “to cobble together” an 

authorized ROE. Contrary to the intervenors’ position, that is precisely what the Act permits the 

Commission to do. 

¶ 32 To the extent that the Commission’s decisions are neither arbitrary nor capricious and are 

based on credibility determinations, the Commission has wide latitude to exercise its business 

judgment to implement pragmatic solutions by “filling gaps in the record.” Commonwealth 

Edison Co., 405 Ill. App. 3d at 402. Establishing a just and reasonable rate presents a question of 

sound business judgment, rather than the application of a legal formula, and must often be a 

tentative determination given that one cannot predict exact results. Iowa-Illinois Gas & Electric 

Co. v. Illinois Commerce Comm’n, 19 Ill. 2d 436, 442 (1960). The intervenors fundamentally 

misunderstand the Commission’s role. 

¶ 33 Here, the Commission did not pull a number out of the air. Instead, the Commission filled 

in the gaps left by the parties. The Commission observed that all three experts were subject to 

meaningful criticism, Kight-Garlisch more than the others. Stated differently, the Commission 

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clearly found that the experts’ criticisms of each other were credible. Yet, the Commission 

determined that the opinions of Gorman were not entirely unfounded, notwithstanding that the 

flaws of one expert apparently led to an overstated ROE and the flaws of the other apparently led 

to an understated ROE. 

¶ 34 The intervenors challenge as conclusory the Commission’s statements that the parties 

pointed out flaws in each other’s analyses and that averaging the results would minimize such 

shortcomings. While the Commission did not explicitly state that any particular flaws precluded 

adopting one recommendation over another, context made the Commission’s position clear in 

that regard. The Commission must make sufficient findings to permit review but this does not 

mean that a reviewing court must ignore context or the Commission’s unmistakable meaning. 

Moreover, in context, the Commission’s order makes clear that, as the testimony of Moul and 

Hauk showed, a ROE of 8.12% was far too low to allow IAWC to compete for capital 

investment. The Commission had also been presented data showing how very low a ROE of 

8.12% would be when compared to other utilities’ ROEs. See Continental Mobile Telephone Co. 

v. Illinois Commerce Comm’n, 269 Ill. App. 3d 161, 171 (1994) (stating that the challenger must 

show that the opposite conclusion is clearly evident, not merely that the evidence could support a 

different conclusion); Metro Utility Co. v. Illinois Commerce Comm’n, 262 Ill. App. 3d 266, 278 

(1994) (stating that the presentation of contradictory evidence is not sufficient to reverse the 

Commission’s order). 

¶ 35 Ideally, one expert would have presented flawless analysis suggesting impeccable 

accuracy in determining what ROE is appropriate in this instance, thereby allowing the 

Commission to categorically adopt the conclusion of one witness. Unfortunately, this is not the 

nature of ratemaking. See Amax Zinc Co. v. Illinois Commerce Comm’n, 124 Ill. App. 3d 4, 11 

12 
 

 

 

Nos. 1-17-0527 & 1-17-0561 

(1984) (stating that ratemaking is not an exact science and lacks precision). Indeed, the 

Commission was within its authority to find that neither Gorman nor Moul provided a nonpareil 

opinion. 

¶ 36 The Act requires “substantial evidence,” not conclusive evidence. Substantial evidence 

requires more than a mere scintilla but less than a preponderance of evidence and requires 

evidence that a reasoning mind would find to be sufficient support for a particular conclusion. 

Commonwealth Edison Co. v. Illinois Commerce Comm’n, 398 Ill. App. 3d 510, 514 (2009); cf. 

5 ILCS 100/10-15 (West 2016) (stating under the Illinois Administrative Procedure Act that 

“[u]nless otherwise provided by law or stated in the agency’s rules, the standard of proof in any 

contested case hearing conducted under this Act by an agency shall be the preponderance of the 

evidence”). Substantial evidence can support multiple possible findings. Central Illinois Public 

Service Co. v. Illinois Commerce Comm’n, 268 Ill. App. 3d 471, 479 (1994). 

¶ 37 Presented with the insightful, albeit imperfect, calculations of Gorman and Moul, i.e., 

substantial evidence, the Commission used its expertise to determine that an average would be 

reasonable. The Commission’s order clearly shows how the figure of 9.87% was arrived at. Cf. 

Citizens Utility Board, 291 Ill. App. 3d at 305-06 (finding that while evidence might have 

supported the Commission’s decision, the Commission’s order lacked the specificity required by 

the Public Utility Act because the order failed to specify what “distortions” could occur if the 

entire marginal cost study distinguished between new and existing customers); Emera Maine v. 

Federal Energy Regulatory Comm’n, 854 F.3d 9, 23, 27-30 (D.C. Cir. 2017) (finding that the 

agency administering the Federal Power Act (16 U.S.C. §§ 824d(a), 824e(a) (2012)) failed to 

explain why the rate chosen was just and reasonable where the agency, among other things, 

(1) did not identify the unusual capital market conditions warranting a change from the usual 

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practice of setting the rate at the midpoint of the zone of reasonableness, (2) acknowledged that 

the alternative methods used did not lead to the specific rate chosen, (3) did not find that said rate 

would attract capital, and (4) identified inapposite cases supporting that rate). 

¶ 38 We also find the Commission’s citation, “See Docket No. 14-0419 at 44,” is neither 

vague nor confusing. In that case, on the page cited, the Commission stated that their decision to 

average the experts’ results was not an endorsement of one expert’s use of a leverage and size 

adjustment, and that averaging results would reduce “the effects of perceived shortcomings and 

biases described in the competing positions of the parties.” See Aqua Illinois, Inc., Ill. Comm. 

Comm’n No. 14-0419, at 43 (Order-Final Mar. 25, 2015); cf. Citizens Utility Board, 291 Ill. 

App. 3d at 306 (rejecting the Commission’s reliance on an earlier order whether the present order 

involved no similar analysis or reasoning). Given that the citation was provided after stating that 

the Commission was not endorsing every input used by the experts, the purpose of the citation is 

entirely clear. The Commission in both the present and prior case was declining to endorse the 

questionable adjustments. Only willful blindness could leave one in doubt of the Commission’s 

reason for citing the prior order. 

¶ 39 The intervenors further argue that substantial evidence did not support the Commission’s 

inclusion of size and leverage adjustments in the approved ROE. They add, “[t]here are no 

findings of fact that explain why the Commission has determined size and leverage adjustments 

are acceptable, after decades of declining to do so.” The simple answer, once again, is that the 

Commission did not make such a determination, as the intervenors well know. As the intervenors 

acknowledge, the Commission specifically stated that it was not endorsing the entirety of the 

parties’ ROE analyses. Instead, the Commission’s order shows it was averaging the two ROE’s 

to offset the flaws in both experts’ opinions. 

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¶ 40 Moreover, contrary to the intervenors’ contention, the Commission’s decision to average 

the parties’ ROEs, does not conflict with that representation. Had the Commission actually 

endorsed Moul’s size and leverage adjustments, it may very well have found that the credibility 

of his opinion was markedly superior to Gorman’s opinion and authorized a ROE closer to 

10.75%. Moreover, the intervenors ignore that if the Commission’s practice of averaging results 

endorsed the flaws in IAWC’s position, the Commission likewise endorsed the flaws in the 

intervenors’ position. The intervenors have developed no argument showing that the 

Commission incorrectly found flaws in Gorman’s analysis. 

¶ 41 In short, we find that despite the intervenors’ characterization of its contentions, they 

essentially ask this court to reweigh the evidence and override the Commission’s sound business 

judgment. We decline to do so. 

¶ 42 We further reject the intervenors’ contention that the Commission’s decision is entitled to 

less deference here because it departed from past practice. See People ex rel. Madigan, 2015 IL 

116005, ¶ 25 (stating that the Commission’s decision will be entitled to less deference on review 

only when it departs from the Commission’s usual rules to obtain a different unexplained result 

in a single case); Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111, 131-32 

(1995) (stating that the Commission’s decisions are entitled to less deference when they 

drastically depart from the Commission’s past practices). The Commission has repeatedly 

averaged imperfect analyses. 7 See People ex rel. Madigan, 2011 IL App (1st) 100654, ¶ 74 

7

There are numerous examples of the Commission averaging an imperfect analysis. See Ameren 

Illinois Co., Ill. Comm. Comm’n No. 11-0282, at 126-27 (Order-Final Jan. 10, 2012) (After finding that 

no party’s ROE position stood out as being particularly superior to any other party’s position, the 

Commission decided to average the parties’ positions, according them equal weight.); Liberty Utilities 

(Midstates Natural Gas) Corp., Ill. Comm. Comm’n No. 14-0371, at 66 (Order-Final Feb. 11, 2015) 

(finding that “blending the Parties’ proposals in this manner results in an average return that significantly 

diminishes any perceived upward or downward bias”); North Shore Gas Co., Ill. Comm. Comm’n Nos. 

11-0280 & 11-0281 (cons.), at 138-40 (Order-Final Jan. 10, 2012) (finding that one expert’s size 

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Nos. 1-17-0527 & 1-17-0561 

(observing that the Commission averaged two experts’ opinions as to the rate of return on equity 

before making two downward adjustments). This is entirely within the Commission’s function of 

devising pragmatic solutions. We find the intervenors’ contention to be disingenuous. 

¶ 43 C. Bluefield and Hope 

¶ 44 Finally, the intervenors contend that the Commission’s order does not satisfy the criteria 

set forth by the United States Supreme Court in Bluefield Water Works & Improvement Co. v. 

Public Service Comm’n of West Virginia., 262 U.S. 679, 692-93 (1923), and Hope Natural Gas 

Co., 320 U.S. at 603.

8 Specifically, they argue that the ROE authorized by the Commission was 

“significantly higher than necessary to maintain the IAWC’s financial integrity and attract capital 

at reasonable terms.” 

¶ 45 A utility’s return should be reasonably sufficient to permit confidence in the utility’s 

financial soundness and, with economical and efficient management, to support the utility’s 

credit and raise funds necessary to properly discharge the utility’s public duties. Bluefield 

Waterworks & Improvement Co., 262 U.S. at 693. Additionally, “the return to the equity owner 

should be commensurate with returns on investments in other enterprises having corresponding 

risks.” Hope Natural Gas Co., 320 U.S. at 603. An investor has a legitimate concern with the 

utility’s financial integrity, which requires that it have enough revenue for operating expenses 

adjustment was unwarranted but that all parties’ expert opinions were flawed, and averaging the experts’ 

determinations); Du Page Utility Co. v. Illinois Commerce Comm’n, 47 Ill. 2d 550, 560-61 (1971) (where 

the utility claimed $31,680 in salaries paid as operating expense and the intervening homeowners 

associations instead suggested $0 was appropriate, the reviewing court found the Commission properly 

allowed the utility to claim $15,840, half of its original claim); North Shore Gas Co., Ill. Comm. Comm’n 

Nos. 12-0511 & 12-0512 (cons.), at 205-08 (Order-Final June 18, 2013) (finding that averaging the 

analyses used by the Staff and the utilities was an appropriate basis to determine the ROE and that doing 

so did not endorse every aspect of their analyses); Ameren Illinois Co., Ill. Comm. Comm’n No.13-0192, 

at 166 (Order-Final Dec. 18, 2013) (finding that averaging the DCF and CAPM results would minimize 

the effects of the shortcomings of the parties’ positions), aff’d by Ameren Illinois Co., 2015 IL App (4th) 

140173, ¶¶ 20, 56 (suggesting that the practice of averaging could depend on whether there were 

defective inputs and what the defective inputs were).

8

Bluefield involved a Virginia statute, whereas Hope involved the federal Natural Gas Act of 

1938. 

16 
 

 

 

 

 

 

Nos. 1-17-0527 & 1-17-0561 

and capital costs. Id. Thus, Bluefield and Hope address the need for minimum returns, not the 

intervenors’ concern with maximum returns. 

¶ 46 In any event, the Commission expressly acknowledged in its order that Bluefield and 

Hope required the Commission to “consider whether the authorized return will allow a return 

that is sufficient to maintain the utility’s financial integrity and to attract capital at reasonable 

terms, while ensuring that customers do not pay an excessive or reasonable return on those 

rates.” The Commission subsequently determined that a ROE of 9.79% “was reasonable, 

supported by the record, and consistent with the governing legal standard.” The Commission’s 

determination finds support in the record. See also id. at 602 (stating that “[i]f the total effect of 

the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the [federal 

Natural Gas Act of 1938 (15 U.S.C. § 717 et seq. (1940))] is at an end”). 

¶ 47 Notably, the intervenors argue that Gorman testified that a ROE of 9% would maintain 

IAWC’s financial integrity but ignore that Moul criticized Gorman’s analysis. As the 

Commission observes on appeal, Gorman admitted that his analysis was not as comprehensive as 

Standard & Poor’s financial review. In addition, the intervenors ignore that Moul recommended 

a ROE of 10.75% to assure confidence in IAWC’s financial integrity. Moul also testified that 

investors would view a significant reduction in IAWC’s ROE as being unhelpful to the utility’s 

financial health. Furthermore, Hauk testified that the utility had to compete with other companies 

and IAWC affiliates for discretionary capital and it would not make sense for IAWC’s 

shareholder to invest in IAWC if the shareholder could achieve greater returns elsewhere. 

IAWC, however, had the lowest authorized ROE of its shareholder’s various investment entities. 

See Hope Natural Gas Co., 320 U.S. at 602 (stating that the Federal Power Commission was not 

required to use any particular formula and that ratemaking requires pragmatic adjustments). 

17 
 

 

Nos. 1-17-0527 & 1-17-0561 

Finally, the intervenors’ contention that IAWC failed to identify any specific capital investment 

that could not be made at a ROE below 9% is misleading, as the record essentially shows that 

IAWC’s capital investments would need to be reevaluated with a lower ROE. Id. at 603 (stating 

that establishing a just and reasonable rate under the federal Natural Gas Act of 1938 involves 

balancing the interests of the consumer with those of the investor). 

¶ 48 III. CONCLUSION 

¶ 49 Here, the Commission’s order was supported by sufficient findings and substantial 

evidence. Having considered the parties’ contentions, the record, and the Commission’s decision, 

we find no basis to reverse that decision or remand for further proceedings. See 220 ILCS 5/10­

201(e)(iv)A (West 2016). 

¶ 50 For the foregoing reasons, we affirm the Commission’s decision. 

¶ 51 Affirmed. 

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