Opinion ID: 2088513
Heading Depth: 1
Heading Rank: 3

Heading: Rate Range Analysis

Text: The determination by the Commission of the amount of the first-step and second-step rate increases was improper. The Commission allegedly examined the costs and revenues of Byron Unit 2 and Braidwood Unit 1. Throughout its 275-page order, the Commission made findings on virtually all of the rate issues raised by the parties and the intervenors. The Commission used its findings to substantiate the $235 million and $245 million rate increases and hold those amounts reasonable. Despite the findings by the Commission in the Sixth Order, the Commission apparently determined the rates another way. Staff developed a rate range analysis the Commission described in its brief: The staff Offer of Settlement provided for the equivalent of a present value (as of July 1, 1988) rate increase of $373.8 million as just and reasonable.    The testimony which staff filed demonstrated the range of just and reasonable rates to be considered.    In the first step of staff's analysis the low end of the range was developed. The low end of the range takes as its starting point the positions which staff developed during the rate case docket    which are supported by substantial evidence. The analysis extended staff's rate case positions and the resulting revenue requirements throughout the five-year moratorium period. Adjustments were made in each succeeding year to reflect inflation, an updated used and useful analysis, the inclusion of Braidwood Unit 2, and other adjustments based upon items affected by the passage of time or individual circumstance. The result of this first step was to simulate rate case results over the next five years under the assumption that staff positions as presented in the rate case would be accepted without change   .          [T]he annual results were redefined in present value terms to derive the current value, or `payment', of the minimum amount within a just and reasonable range. That is, the present value one-time payment resulting from this analysis is the equivalent of rate case results during the moratorium which adopt Staff's positions. This amount was then chosen as the low end of the just and reasonable price range.    The low end was a present value revenue increase of $95.9 million.    In the second step of staff's analysis the high end of the just and reasonable price range was identified. This step identified key issues of staff's case to which was attached an element of risk. Those key issues involve the treatment of Braidwood 2 and related costs, staff's used and useful analysis, the deferred charges issue    and staff's recommended phase-in adjustment.       The development of the high-end of staff's range analysis continued with the inclusion of two more items. First, staff subtracted a one-time payment to customers of $225 million from the upper end of the dollar range. This was done due to the fact that pursuant to Section G of staff's Offer of Settlement, Edison's income tax investigation would be dismissed. Staff recognized that this action had value to Edison, and staff, therefore, charged Edison for this benefit.    Second, an item identified as `other' was added to the upper end of staff's range. This item reflected staff's judgment as to the value of a settlement, the value of a moratorium, increased costs in doing business not anticipated by staff, and recognition that staff positions on the remaining rate case issues (other than the ones mentioned above) might not prevail in whole or in part.       Staff's range was based upon consideration of positions advocated by the parties   . These positions all have substantial evidentiary and legal support. The Commission, in the exercise of its discretion, could find rates to be just and reasonable at virtually any point within the staff range.    Staff selected $373.8 million for two main reasons. First, was the belief that it is more appropriate to use the 1% load growth range analysis.    Second, the schedules used presented two different methodologies for resolving the issues and deriving a $373.8 million revenue requirement. Schedules 2.6 to 2.8    project out the resolution of the issues over the full five-year period of the Proposal in order to derive a $373.8 million present value revenue requirement. Schedule 2.9    reflects the resolution of the issues on a 1987 test year basis so as to derive a $373.8 million revenue requirement. Staff determined the low end of the rate range; that is, what rates would be if it won on all of the rate issues. Staff next determined the high end of the range; in other words, what rates would be if Edison won on some or all of the rate issues. Staff then chose the midpoint of the range. That midpoint equalled a $373.8 million present value increase in rates. Staff translated that $373.8 million into a $235 million increase in 1989 and a $245 million increase in 1990. In the Sixth Order, the Commission acknowledged that the two rate increases equalled a $373.8 million present value rate increase. Romero and Stone, in their dissents, also referred to the $373.8 million present value rate increase reflected in the Sixth Order. The State points out, however, that the Commission explicitly rejected the rate range analysis in the Sixth Order. The Commission, in the Sixth Order, stated: The Commission remains free under the Offer of Settlement to exercise all of its powers under the Act. Its resolution does not depend on the analyses of rate ranges presented by Staff and other parties. The negotiating process and range analysis preceding Staff's Offer of Settlement are not at issue. Rather, the consideration of the Offer of Settlement depends on the relevant and material evidence relating to traditional ratemaking principles. Despite this statement, the Commission did not base its rate decision on the evidence. The Commission, in effect, conceded this point by explaining the rate range analysis in its brief; thus, it favored the analysis. The Commission made its decision backwards: it chose a rate increase and then relied on the evidence which substantiated the rate it decided upon. The Commission did not determine the two rate increases independently based on the evidence. The attempt by the Commission to justify each provision in the Sixth Order separately fell short of covering the rate range analysis on which the Commission relied. The rate range analysis included consideration of the value of a settlement, the value of a moratorium, increased costs in doing business not anticipated by staff, and recognition that staff positions on the remaining rate case issues    might not prevail, according to the Commission in its brief. Staff arbitrarily selected the midpoint of the rate range and made arbitrary assumptions on the success of the various positions of the parties and the intervenors. Such considerations clearly are not findings based on the record. Hartigan, 117 Ill.2d at 145. The rate range analysis also certainly elucidates the settlement aspects of the Sixth Order. The rate range analysis balances the value of the various issues between Edison and the ratepayers, which is exactly what a settlement aims to achieve. Therefore, we conclude the findings of the Commission concerning the $235 million and $245 million rate increases were not supported by substantial evidence based on the record. Ill. Rev. Stat. 1987, ch. 111 2/3, par. 10-201(e)(iv)(A).