Opinion ID: 2088513
Heading Depth: 1
Heading Rank: 4

Heading: Second-Step Rate Increase

Text: We analyze next the propriety of the second-step rate increase. Several problems exist with the contingencies attached to the second-step rate increase. The first problem concerns the minimum rate base values of Byron Unit 2 and Braidwood Unit 1. The Commission, in the Sixth Order, found what it called the minimum rate base values of the two units. The Commission found these values reasonable. The Commission, however, also held that it would not make a determination of whether any remaining costs of the two units were reasonable until after the Braidwood Unit 2 audit and the 1989 hearings. The Commission held that the rate base values established in this Order are minimum values rather than a final determination of the reasonable costs of the two units. The Commission pointed out that under section 9-213 it may include reasonable costs in the rate base of a utility. The Commission found certain minimum costs of the two units reasonable and thus included those costs in the rate base. The Commission, however, left unanswered the question of whether additional costs were reasonable. The Commission asserted that it would determine the reasonableness of any additional costs after the 1989 hearings. In 1989, those additional costs found reasonable would be included in the rate base at that time. The Commission stated that during the 1989 hearings Edison could present evidence to establish whether the final rate base values of the units were greater than the minimum values found reasonable by the Commission. The Commission explained in the Sixth Order: During the hearings just completed, Edison presented testimony addressing issues which was intended to show that the rate base value of Byron Unit 2 and Braidwood Unit 1 was greater than the minimum rate base level established herein. Other parties likewise presented evidence intended to show that the value of those two units was lower than that found by the auditors. In this Order, the Commission has resolved the issues relating to whether the value of Byron Unit 2 and Braidwood Unit 1 was less than that found by the auditors. No resolution has been made as to whether the value of those plants should be set at a higher value; nor was such a determination necessary for purposes of the first step.    In view of the fact that we have not determined this matter, and because Staff and/or Intervenors should be given an opportunity to rebut this testimony, the second step of these proceedings should permit the presentation of such rebuttal evidence and appropriate responsive evidence. Edison receives an additional opportunity to prove larger rate base values. The intervenors, however, do not receive an additional opportunity to prove lower rate base values; they can only present evidence against higher rate base values. Commissioner Stone pointed out in her dissent that this decision of the Commission created an inherent unfairness in the Sixth Order: In the course of the first phase audit proceedings last fall, Intervenors were placed under unusually severe time constraints to both prepare and present their case for costs lower than those auditors had found reasonable. Meanwhile, [Edison] has had many months to develop its case to justify costs above those found reasonable by the auditors. According to the Order, [Edison] may prove up the final full rate base values for Byron 2 and Braidwood 1 during Step 2 proceedings. Intervenors, on the other hand, may present evidence only against increasing the rate base value; they are precluded from offering new evidence to lower the `minimum rate base value'   . Thus, [Edison] can move into the five-year moratorium with the assurance that this Commission has used a `one-way elevator' to set a `floor' for Byron 2 and Braidwood 1 rate base values. (Emphasis in original.) The rate base values of the two units, therefore, can only increase after the 1989 hearings. Edison argues the intervenors can present evidence during the 1989 hearings to establish rate base values less than the minimum values found by the Commission. In the Sixth Order, the Commission held: All matters resolved in the first phase, except as noted herein, including, but not limited to, the operating income and minimum rate base (without PVRR) necessary to find an increase in revenues of $270,685,000, should be considered final and appealable and no additional evidence should be accepted in these matters. Edison points out the Commission changed this language in its Second Order Amending Sixth Interim Order (Second Amending Order). In the Second Amending Order, the Commission changed the sentence as follows: All matters resolved in the first phase, except as noted herein, including, but not limited to, the operating income and minimum rate base (without PVRR) necessary to find an increase in revenues of $270,685,000, should be considered final and appealable. Except as otherwise noted herein, no additional evidence should be accepted on nonaudit issues. We do not agree with the interpretation by Edison of this change in the Sixth Order. The Commission did not change the part of the Sixth Order we quoted earlier regarding the minimum rate base values of the units and the 1989 hearings. In that quoted portion of the Sixth Order, the Commission clearly set forth the evidence Edison and the intervenors could present during the 1989 hearings on the rate base values of the units. The change to which Edison refers does not alter this part of the Sixth Order. Moreover, the statement in the Second Amending Order merely provides that the Commission would not accept additional evidence on nonaudit issues; this does not mean the Commission would accept all evidence on all audit issues. Edison received more time to prove its position, but the intervenors did not. This action by the Commission skirts the edge of a due process violation. Because we are reversing the Sixth Order for other reasons, however, we need not decide whether this provision actually violates due process. The most disturbing aspect of the minimum rate base value issue is not its unfairness to the intervenors. Instead, we are concerned with the way the Commission shifted the evidence and issues between the two rate increases. The Commission allowed the parties and intervenors to present additional evidence of the final rate base values of the units during the 1989 hearings on the $245 million rate increase. The Sixth Order also provided that any revenues in excess of $235 million found just and reasonable could be used to support the $245 million rate increase. The Commission, however, had the audits and other evidence relating to the value of Byron Unit 2 and Braidwood Unit 1 before it in the 1988 hearings. The Commission should have decided, based on the evidence, the reasonable rate base value of those two units. This commingling of evidence on two separate rate increases shows, again, that the Commission analyzed the Sixth Order as an integrated whole. The Commission viewed the Sixth Order as a single rate increase, and it shifted the evidence between two rate increases to balance the results of various issues between Edison and the ratepayers. Thus, the Sixth Order was not based exclusively on the record, but was more akin to a settlement. The second problem with the second-step rate increase concerns the $245 million cap. The Commission admitted in the Sixth Order it could not determine the reasonableness of the $245 million increase until the completion of the Braidwood Unit 2 audit. Nevertheless, the Commission presumed the $245 million increase was reasonable. The Commission used $245 million as a benchmark. The Commission made provisions in the Sixth Order concerning what it would do if the evidence from the 1989 hearings revealed that a reasonable amount was greater or less than $245 million; these provisions are revealing. If the evidence discloses a reasonable rate increase should be greater than $245 million, the additional costs could be used to justify a rate increase after the five-year period, but those costs could not be used to increase rates during the five-year period. Edison agreed to this cap. The cap benefits ratepayers during the five-year period, if the evidence proves the increase should have been larger than $245 million. Nevertheless, the Commission determined, before any hearings and before the presentation of all the evidence, that a reasonable rate increase was no more than $245 million. In addition, if the evidence during the 1989 hearings shows the rate increase should be less than $245 million, Edison has the right to withdraw from the Sixth Order altogether. If Edison withdraws, the Commission reserved the right to consider whether the first-step rate increase should be reduced and whether the ratepayers should receive a refund of the first-step increase. Commissioner Romero, in his dissent, accurately raised the crucial issue: A problem    is the Commission's ability to arrive at the $245 million step two increase. Were it not for the $245 million cap which the Commission added to the original proposed order, this would have been the `Achilles heel' of the Commission's Order. It is inconceivable that the Commission would allow an as-yet undetermined rate increase to take effect. At the very least, the cap establishes the upper limit. But the cap simply begs the question of whether the Commission, let alone Edison, will accept an amount lower than $245 million, should that be what the evidence shows or will the Commission find sufficient benefits in the Offer of Settlement to justify the $245 million.  (Emphasis added.) The Commission, without an evidentiary basis, set $245 million as a reasonable rate increase for 1990. Considering the enthusiasm of the Commission for the Settlement, we doubt the Commission would find an amount less than $245 million reasonable, thereby risking the withdrawal of Edison from the Sixth Order. Nevertheless, the Commission had no authority under the Act to establish a rate increase before it examined all of the evidence, including the audit of Braidwood Unit 2, and determined whether the increase was reasonable. Ill. Rev. Stat. 1987, ch. 111 2/3, pars. 9-213, 9-101. We should also note the use by the Commission of the rate range analysis helps explain its decision to put a cap on the $245 million, second-step rate increase. The Commission had already decided to adopt a total present value rate increase of $373.8 million during the five-year period. Therefore, because the Commission raised rates by $235 million during 1989, it could not raise rates by more than $245 million in 1990. This is, once again, another example of the effort of the Commission to approve the Settlement, rather than decide the case on the evidence.