Opinion ID: 2000132
Heading Depth: 1
Heading Rank: 1

Heading: Burden of Proof Under Section 30.1

Text: Noting that intervening events caused drastic increases in Edison's 1972 estimates of the time required to complete Byron and the project's total cost, the Commission identified the principal issue in the case as whether any part of the cost of Byron 1 should be excluded from Edison's rate base. The Commission dissenters, however, submitted that the majority had adopted the wrong approach in setting Edison's rate base under section 30.1; they contended that, rather than excluding from the total amount submitted by Edison only those costs proved to be unreasonable, the Commission could allow costs to be included in rate base under section 30.1 only when the costs were proved to be reasonable. The circuit court agreed with the Commission dissenters and ruled that the majority had improperly presumed the reasonableness of Edison's costs. Edison points out that before section 30.1 was enacted, costs incurred by a utility were presumed to be reasonable (see, e.g., City of Chicago v. Illinois Commerce Com. (1985), 133 Ill. App.3d 435, 442-43), and Edison argues that the enactment of section 30.1 did not eliminate that presumption. The Commission majority agreed with Edison that the historic presumption of reasonableness had survived the enactment of section 30.1. The majority believed that once a utility demonstrated the amounts that it had actually invested in the construction of a power plant, the investment was presumed to have been reasonable and the Commission was powerless to deny recovery of those costs unless there was some showing that they were unreasonably incurred. Section 30.1 provides that the costs associated with the construction of a power plant may not be included in a utility's rate base unless they are reasonable; under the statute, an audit is to form the basis for that determination. The audit is to be conducted by the Commission or, if the Commission is unable to do so, by persons independent of the utility who are selected by the Commission. The cost of the audit is to be borne initially by the utility but may later be recovered through normal ratemaking procedures. By providing a scheme by which the reasonableness of construction costs may be determined, the legislature has removed any need for the presumption of reasonableness that may have existed when the Commission had no comprehensive vehicle for examining costs. Moreover, we note that the legislative history of section 30.1 suggests that an affirmative showing of the reasonableness of a utility's construction-related costs is necessary if a sense of confidence in the ratemaking process is to be instilled in those consumers who are required to pay the increased rates resulting from those costs. (83d Ill. Gen. Assem., House Proceedings, May 10, 1984, at 154-55 (Statement of Representative Richard H. Brummer, House sponsor).) The mere presentation by a utility of the costs it incurred in building a power plant, potentially an overwhelming sum, does not engender in others a sense of confidence that the costs were reasonable. Nor would consumers' concerns about the costs involved in the construction of a power plant be overcome if the Commission presumed that the amounts expended by a utility on the new facility were reasonable. We therefore conclude that the audit required by section 30.1 has replaced the presumption of reasonableness. Under the statute, the audit now provides the primary means by which the Commission is to determine the reasonableness of the costs associated with the construction of power plants. The audit need not be the only means, however, by which the Commission determines the reasonableness of construction costs. If the audit is deficient in some respect, or if the Commission, its staff, or intervenors throw into doubt the reasonableness of the costs incurred in the construction of the plant, the Commission may order a supplemental audit, take affirmative evidence concerning the reasonableness of the costs, or deny the costs altogether if they are not shown to be reasonable. The fundamental, underlying value is that all costs incurred by a utility in the construction of a plant shown to be reasonable are to be included in the utility's rate base and that all costs not shown to be reasonable by the audit report or by affirmative evidence from other sources are not to be included in the rate base. Only when the Commission is satisfied by the audit report or by other affirmative evidence that the costs incurred by a utility in the construction of a plant are reasonable may those costs be included in the utility's rate base. In the case before us, numerous questions were raised by the audit and by the intervenors concerning the reasonableness of the costs associated with the construction of Byron 1. In most instances, the Commission allowed the questioned costs into the rate base because they had not been proved to be unreasonable. For example, the Commission order recites that certain costs, such as architectural and engineering fees and certain expenses related to productivity, were not excluded from the rate base because the intervenors had not proved that those costs were unreasonable. Also, the Commission apparently allowed substantial costs of preoperational testing and rework into the rate base without first determining from the audit report or other affirmative evidence whether the costs incurred were reasonable. Furthermore, the audit report was critical of the size of Edison's workforce and of the company's oversight of productivity; the intervenors also questioned whether Edison had overextended its workforce. Yet the Commission said that Edison responded to the audit's concerns and that the intervenors had failed to prove that Edison had managed its workforce imprudently. The Commission determined that the specific questions of unreasonableness had been rebutted but made no finding that Edison had presented affirmative evidence to show that the costs were reasonable. The Commission found no basis in this record to disallow any part of Byron's cost based on these issues and included the costs in the rate base. The Commission's approach of excluding costs from the rate base only if they were proved to be unreasonable is suggested by its statement that [t]he audit report was prompted by the desire to determine whether any of these increases should be disallowed. The purpose of the audit, however, is to assist the Commission in determining whether the costs of constructing a plant were reasonable and should therefore be allowed into the utility's rate base. Furthermore, under the comprehensive scheme set out in the Public Utilities Act, the Commission is to be an active participant. The Commission is not merely an arbitrator between a utility seeking a rate increase and any parties who happen to oppose it. Rather, the Commission is an investigator and regulator of the utilities, and under section 30.1 it may not rely on intervening parties to contest a rate increase or to challenge the evidence offered by the utility. Nothing in the Public Utilities Act requires any party other than the Commission and the utility seeking a rate increase to participate in a ratemaking proceeding. Thus, any participation by persons or groups opposing an increase is voluntary and purely fortuitous. It is possible that no person or entity will seek to intervene when a rate increase is sought; in other cases, those who intervene may lack the financial resources or the incentive to launch a vigorous challenge to all aspects of the increase. (See Calvert Cliffs' Coordinating Committee, Inc. v. Atomic Energy Com. (D.C. Cir.1971), 449 F.2d 1109, 1118.) Requiring intervenors to establish unreasonableness is therefore no substitute for requiring proof of reasonableness. The difference is significant. In the case before us, in determining the reasonableness of the costs associated with the construction of Byron 1, it is apparent that in many instances the Commission relied on the now impermissible practice that costs are presumed to be reasonable once the utility has established the amount. Because the Commission relied on the presumption of reasonableness, rather than an affirmative showing of reasonableness through the audit performed by ADL and specific evidence of reasonableness, the cause must be remanded to the Commission. Although it is possible for this court to examine the record to independently determine whether sufficient evidence of the reasonableness of the costs associated with the construction of Byron 1 has been presented through the audit report or otherwise, the Commission has been charged by the legislature with making that determination in the first instance. (See Illinois Power Co. v. Illinois Commerce Com. (1986), 111 Ill.2d 505.) In determining on remand whether sufficient evidence of reasonableness has been presented, the Commission may consider the present record in the light of the requirements of section 30.1 as expressed in this opinion, or require the presentation of such further evidence as may be necessary for it to make a proper determination.