Opinion ID: 2237187
Heading Depth: 1
Heading Rank: 3

Heading: Reasonable Costs Includable in Rate Base

Text: Under the Act, costs which the Commission has found to be reasonable are included in Edison's new rate base, while costs found to be unreasonable are disallowed. (Ill.Rev.Stat.1985, ch. 1112/3, par. 9-213; Hartigan I, 117 Ill.2d at 132-33, 109 Ill. Dec. 797, 510 N.E.2d 865.) The determination of whether a cost is includable in or disallowable from the utility's rate base is the essence of the Commission's ratemaking duties. In proceedings to add the costs of a utility's new electrical generating facility to its rate base, the Commission is governed by, inter alia, section 9-213 of the Act (Ill.Rev.Stat.1985, ch. 1112/3, par. 9-213). Section 9-213 provides in pertinent part: The cost of new electric utility generating plants and significant additions to electric utility generating plants shall not be included in the rate base of any utility unless such cost is reasonable. Prior to including the cost of plants or additions to utility plants in the rate base, the Commission shall conduct an audit of such costs in order to ascertain whether the cost associated with the new generating plant or the addition to electric utility generating plant is reasonable.    Any such audits shall be conducted in accordance with generally accepted auditing standards and shall include but not be limited to costs associated with materials, labor, equipment, professional services and other direct and indirect costs.       `Reasonable', as used in this Section, means that a utility's decisions, construction, and supervision of construction, underlying the costs of new electric utility generating plants and significant additions to electric utility generating plants resulted in efficient, economical and timely construction. In determining the reasonableness of plant costs, the Commission shall consider the knowledge and circumstances prevailing at the time of each relevant utility decision or action. (Emphasis added.) Ill.Rev.Stat. 1985, ch. 1112/3, par. 9-213. Under section 9-213, the costs related to the construction of a new generating facility shall not be included in the utility's rate base unless they are found to be reasonable costs. ( Hartigan I, 117 Ill.2d at 132, 109 Ill.Dec. 797, 510 N.E.2d 865.) The utility must affirmatively establish the reasonableness of construction-related costs before such costs may be included in the utility's rate base. ( Hartigan I, 117 Ill.2d at 133, 109 Ill.Dec. 797, 510 N.E.2d 865.) A determination of reasonableness is a question of fact ( Illinois Bell Telephone Co. v. Illinois Commerce Comm'n (1973), 55 Ill.2d 461, 470, 303 N.E.2d 364), and will not be overturned unless it is against the manifest weight of the evidence (see Peoples Gas Light & Coke Co. v. Slattery (1939), 373 Ill. 31, 48-49, 25 N.E.2d 482). The statutorily required audit is the primary means by which the Commission is to determine the reasonableness of the costs associated with the construction of power plants. ( Hartigan I, 117 Ill.2d at 133, 109 Ill.Dec. 797, 510 N.E.2d 865.) If, however, the audit is deficient or there is doubt concerning the reasonableness of costs, the Commission may hear other affirmative evidence or may deny the costs altogether if they are not shown to be reasonable. ( Hartigan I, 117 Ill.2d at 133-34, 109 Ill.Dec. 797, 510 N.E.2d 865.) Only when the Commission is satisfied by the audit report or by other affirmative evidence that the construction-related costs are reasonable may they be included in the utility's rate base. Hartigan I, 117 Ill.2d at 134, 109 Ill.Dec. 797, 510 N.E.2d 865. In its Rate Order II, the Commission adopted the finding of the auditor, Arthur Young, that $291.1 million in costs attributable to the construction and licensing of Byron I were unreasonable. The Commission determined that approximately $289.6 million of these costs were incurred as a result of 15.9 months of delay in Byron I's construction and operating schedules which the Commission found to be unreasonable. Therefore, pursuant to statute, the Commission disallowed the costs associated with this 15.9 months of unreasonable delay from Edison's rate base. (See Ill.Rev. Stat.1985, ch. 1112/3, par. 9-213; Hartigan I, 117 Ill.2d at 134, 109 Ill.Dec. 797, 510 N.E.2d 865.) The Commission's finding that Edison unreasonably delayed Byron I's construction and operating schedule by a period of 15.9 months forms the basis of the parties arguments with respect to Rate Order II.