Court Opinion

ID: 2808585
Source: CourtListenerOpinion
Date Created: 2015-06-15 22:12:37.242362+00
Date Added: 2024-06-11T15:31:41.530981
License: Public Domain

2015 IL App (4th) 140173
                                                                            FILED
                                                                             June 2, 2015
                                                                            Carla Bender
                            NOS. 4-14-0173, 4-14-0182 cons.             4th District Appellate
                                                                               Court, IL
                             IN THE APPELLATE COURT

                                     OF ILLINOIS

                                  FOURTH DISTRICT

AMEREN ILLINOIS COMPANY,                               )      Appeal from
               Petitioner,                             )      Order of the Illinois
               v.          (No. 4-14-0173)             )      Commerce Commission.
THE ILLINOIS COMMERCE COMMISSION; THE                  )      No. 13-0192
CITIZENS UTILITY BOARD; THE ILLINOIS                   )
INDUSTRIAL ENERGY CONSUMERS (Archer-                   )
                                                       )
Daniels-Midland Company, Caterpillar, Inc., Air
                                                       )
Products and Chemical Company, and United States       )
Steel Corporation-Granite City Works); and THE         )
OFFICE OF THE ATTORNEY GENERAL,                        )
               Respondents.                            )
____________________________________________           )
                                                       )
                                                       )
DOMINION RETAIL, INC., and INTERSTATE GAS
                                                       )
SUPPLY OF ILLINOIS, INC.,                              )
            Petitioners,                               )
            v.           (No. 4-14-0182)               )
THE ILLINOIS COMMERCE COMMISSION;                      )
AMEREN ILLINOIS COMPANY, d/b/a AMEREN                  )
ILLINOIS; THE CITIZENS UTILITY BOARD; THE              )
                                                       )
PEOPLE OF THE STATE OF ILLINOIS; THE
                                                       )
ILLINOIS INDUSTRIAL ENERGY CONSUMERS;                  )
THE ILLINOIS COMPETITIVE ENERGY                        )
ASSOCIATION; and THE RETAIL ENERGY                     )
SUPPLY ASSOCIATION,                                    )
            Respondents.

            JUSTICE APPLETON delivered the judgment of the court, with opinion.
            Justice Harris concurred in the judgment and opinion.
            Justice Steigmann concurred in part and dissented in part, with opinion.
                                            OPINION

¶1             In tariffs it filed with the Illinois Commerce Commission (Commission), Ameren

Illinois Company (Ameren) proposed increasing its rates for natural gas. The Commission

suspended the tariffs and held an evidentiary hearing on them. The hearing culminated in a

lengthy written decision by the Commission. Ameren appeals from one aspect of that decision,

namely, the rate of return the Commission allowed Ameren on its equity. We are unable to say

that, in setting the rate of return, the Commission made a decision that was against the manifest

weight of the evidence. Therefore, in Ameren's appeal, case No. 4-14-0173, we affirm the

Commission's decision.

¶2             The other appeal, case No. 4-14-0182, which we have consolidated with Ameren's

appeal, arises from the same administrative case but concerns different tariffs. After filing its

tariffs proposing an increase in gas rates, Ameren filed "rider" tariffs proposing the establishment

of a small volume transportation program, a program that would allow retail gas suppliers to use

Ameren's infrastructure to deliver natural gas to customers who chose to enter into contracts with

the retail gas suppliers. The Commission approved the small volume transportation program but

required retail gas suppliers to abide by three consumer protections, over and above those that

statutory law already provided. Two interveners, Dominion Retail, Inc., and Interstate Gas

Supply of Illinois, Inc. (which we will call, collectively, "the retail gas suppliers," "the

alternative gas suppliers," or simply "the suppliers"), challenge the three consumer protections.

They contend the Commission lacked statutory authority to require these protections, and they

also contend there was no evidence that the protections were even necessary. We conclude the

Commission had statutory authority to require the inclusion of the new consumer protections in

the small volume transportation tariffs. The suppliers insist that little or no historical evidence

                                               -2-
justified these protections. But that is no reason to overturn them. A protection can serve the

legitimate function of preventing an injury from ever happening. Viewing the new consumer

protections that way, we defer to the Commission's judgment that they would be just and

reasonable conditions in Ameren's small volume transportation tariffs. Therefore, we affirm the

Commission's decision in the suppliers' appeal as well.

¶3                                     I. BACKGROUND

¶4                             A. Ameren's Revenue Requirement

¶5                             1. The Capital Asset Pricing Model

¶6                              a. An Introduction to This Model

¶7             To determine the rates a public utility may charge its customers, the Commission

must determine the utility's revenue requirement. Business & Professional People for the Public

Interest v. Illinois Commerce Comm'n, 146 Ill. 2d 175, 195 (1991). The revenue requirement

equals the utility's operating costs plus the rate base multiplied by an allowed rate of return.

People ex rel. Madigan v. Illinois Commerce Comm'n, 2011 IL App (1st) 100654, ¶ 26. In the

rates a regulated utility charges its customers, it not only deserves to be compensated for its

operating costs, but it also deserves a return on its investment: a return on the rate base. Id.

(The "rate base" is "the total value of all invested capital." Commonwealth Edison Co. v. Illinois

Commerce Comm'n, 2014 IL App (1st) 130302, ¶ 10.)

¶8             In setting rates, the Commission has to decide what, in the mind of a reasonable

investor, would be an attractive enough return on the present value of the utility's property. Id.

¶ 11. For several years, the Commission has used the capital asset pricing model (CAPM) to

determine the minimum rate of return needed to entice a reasonable investor to invest in a public

utility. (As we will discuss later, the Commission also uses the discounted cash flow (DCF)

                                              -3-
model. But Ameren does not appeal any aspect of the Commission's application of the DCF

model in this case.)

¶9             According to the CAPM, the required rate of return is a function of three things:

(1) a risk-free rate of return; (2) the premium that average-risk stocks must pay over the risk-free

rate to entice investors; and (3) the riskiness of the utility's equity in comparison to average-risk

stocks. Peter V. Pantaleo & Barry W. Ridings, Reorganization Value, 51 Bus. Law. 419, 433

(1996). The CAPM formula regards these three things as having the following relationship:

               Cost of equity = R(f) + (Beta x [R(m) – R(f)])

               Where: R(f) = risk-free rate of return

                         Beta = beta coefficient of the utility's stock, which

               measures the volatility of the utility's stock in comparison to the

               volatility of the market as a whole

                         R(m) = expected rate of return on a market portfolio

               comprised of a large number of diversified stocks, i.e., the

               expected rate of return on average-risk stocks. See id.

¶ 10           Expressed in words, the formula means this. The cost of the utility's equity—the

required rate of return for the utility—"is equal to the sum of the risk-free rate of return plus a

risk premium (i.e., a return above the risk[-]free rate)." Id. The formula assumes that if

investing in the utility would yield a rate of return no greater than that of treasury securities,

which are the prototypical risk-free investment, no sensible person would invest in the utility.

The utility would be riskier than treasury securities, and any rational investor would want

compensation, a premium, for the additional risk. Therefore, to entice investors, the utility has to

                                                -4-
offer a risk premium, some amount above the risk-free rate. In the formula above, the symbols

to the right of the plus sign determine that risk premium.

¶ 11           The risk premium the utility must offer is determined by multiplying the volatility

of the utility's equity by the market premium, the premium that investors expect the market as a

whole (the average-risk stocks) to pay above a risk-free investment (treasury securities).

Pantaleo and Ridings explain it this way—and for our purposes, the "target company" is the

utility:

                       "As noted, the yield on treasury securities is generally the

               best measure of the risk-free rate. The difference between the

               expected return on a 'market portfolio,' like the Standard & Poor's

               500, and the risk-free rate is a measure of the premium the market

               is expected to pay above a risk-free investment.       This market

               premium is commonly determined by reference to published data

               that tracks the average return on a given market portfolio and the

               average return on treasury securities over the same extended period

               of time (usually from 1926 or 1945 to the present). *** A beta

               coefficient greater than one means that a stock is more volatile

               than the market generally, as represented by a portfolio of a large

               number of stocks. *** A beta coefficient equal to one means that

               a particular stock is no more or less risky than the risk of the

               market itself. *** As the formula shows, a beta greater than one

               magnifies the cost of equity for a target firm. This makes sense

               because greater risk requires a greater return. Therefore, if the

                                               -5-
              equity investment in a target company is riskier than the 'average

              risk' of stocks represented by a market portfolio, the premium

              above a risk-free investment the target would have to pay in order

              to attract equity investors should be some multiple (higher than

              one) of the premium payable by the less risky 'average risk' stocks.

              A target's beta is that multiple." Id. at 434-35.

¶ 12          If the target company is publicly traded, its beta can be found in financial

publications, such as Value Line and Zacks. But what if the target company is not publicly

traded? Because Ameren is not publicly traded and hence there is no market data available for

Ameren stock, the only way to estimate Ameren's beta is to use the betas of a proxy group of

publicly traded gas companies that appear to pose about the same amount of risk as Ameren.

¶ 13              b. The Controversy Over Measurement Periods for the Beta

¶ 14                    i. The Staff's Use of Five-Year Measurement Periods

¶ 15          The Commission's staff (Staff) entered its appearance in the administrative

hearing, and a member of the Staff, Rochelle Phipps, presented her CAPM analysis.             To

determine the beta coefficient, she used the same proxy group of gas companies that Ameren

used in its CAPM analysis (except that she excluded one company). She obtained the betas of

these proxy companies from Value Line and Zacks, and she also performed a regression analysis

to estimate the beta.    See Samuel C. Thompson, Jr., Demystifying the Use of Beta in the

Determination of the Cost of Capital and an Illustration of Its Use in Lazard's Valuation of

Conrail, 25 J. Corp. L. 241, 266 (2000) (discussing the derivation of beta through regression

analysis). As the Commission noted, all three of these sources—Value Line, Zacks, and the

regression analysis—used a measurement period of five years (i.e., 260 weeks or 60 months):

                                               -6-
                       "Ms. Phipps used Value Line's betas, Zack betas, and

               regression analysis to estimate beta for the gas sample.       She

               explained that Value Line employs 260 weekly observations of

               stock price data, and then adjusts its beta.     [Citation.]   The

               regression analysis beta estimate for the gas sample employs 60

               monthly observations of stock and the U.S. Treasury bill return

               data, and then the beta is adjusted. Like Staff's regression data,

               Zacks employs 60 monthly observations in its beta estimation;

               however, the beta estimates Zacks publishes are not adjusted; that

               is, they are 'raw' beta estimates. Thus, Ms. Phipps adjusted them

               using the same formula she used to adjust the regression beta.

               [Citation.] Ms. Phipps explained that adjusting raw beta estimates

               towards the market mean of 1.0 results in a linear relationship

               between the beta estimate and realized return that more closely

               conforms to the CAPM prediction. [Citation.]" Ameren Illinois

               Co., Illinois Commerce Comm'n No. 13-0192, at 142 (Order Dec.

               18, 2013).

Perhaps the order means that the "raw beta estimates" had to be "adjusted" to fit into the CAPM

equation, whereby the number one signified the same level of risk posed by the market as a

whole, any number greater than one signified a greater risk than the market, and any number less

than one signified a lesser risk than the market.

¶ 16           In any event, the order continues:

                                                -7-
                      "Since both the Zacks beta estimate and the regression beta

              estimate are calculated using monthly returns (as Value Line uses),

              Ms. Phipps averaged the Zacks and regression betas to avoid over-

              weighting the monthly return-based betas. [Citation.] Then, she

              averaged that result with the Value Line beta to obtain a single

              estimate of beta for the sample. For the gas sample, the regression

              beta estimate is 0.54 and the Value Line beta and Zacks beta

              average 0.68 and 0.57, respectively. [Citation.] The average of the

              Zacks and regression betas is 0.56. Averaging this monthly beta

              with the weekly Value Line beta (0.68) produces a beta for the gas

              sample as 0.62. [Citation.] If Laclede Group is included in the gas

              sample, the regression beta equals 0.52, the average of the Zacks

              and regression betas equals 0.54 and the average of the Value Line

              beta with the monthly beta equals 0.60. [Citation.]" Id. at 142-43.

¶ 17          Thus, Phipps combined betas from Value Line, Zacks, and a regression analysis to

estimate Ameren's beta. Also, to avoid giving too much weight to monthly returns, she averaged

together the two monthly sources (Zacks and the regression analysis) before averaging that result

with the weekly source (Value Line).

¶ 18                ii. Ameren's Use of an 18-Month Measurement Period,
                            a 24-Month Measurement Period, and
                                a 5-Year Measurement Period

¶ 19          Ameren retained an expert, Robert Hevert, to perform a CAPM analysis. To

determine Ameren's beta, he relied on published financial data regarding a proxy group of

comparable gas companies which, for the most part, were the same proxies the staff used. The

                                              -8-
Staff objected to Hevert's analysis, however, because he "relie[d] on beta estimates that [were]

measured over 18 to 24 months." Id. at 147. (We are quoting from the Commission's order of

December 18, 2013, in which, for each issue, the Commission painstakingly summarized the

parties' arguments and counterarguments before stating its own conclusions.) The Staff argued

that "[b]etas measured over shorter time periods," such as 18 or 24 months, were "more prone to

measurement error arising from short-term changes in risk and investor risk preferences, which

[could] bias the beta estimate." Id. By contrast, the Staff relied on betas calculated with five

years of data. Id. at 142, 164.

¶ 20           In part because Hevert used 18-month and 24-month measurement periods to

determine the beta coefficient—measurement periods that the Commission regarded as too

short—the Commission found the Staff's CAPM analysis to be more reliable than Hevert's

CAPM analysis, and the Commission declined to average Hevert's CAPM analysis with the

Staff's CAPM analysis and the parties' DCF results. The Commission stated:

                       "In its Order in [Ameren Illinois Co., Illinois Commerce

               Comm'n No. 11-0282 (Order Jan. 10, 2012)], the Commission

               expressed 'serious concerns' with the betas used by Mr. Hevert.

               The Commission noted that it has traditionally relied upon betas

               calculated with five years of data. In the instant case, Staff again

               used a period of five years. Staff again takes issue with the beta

               measurement period used by Mr. Hevert, which in the current

               proceeding was 18 to 24 months.        Staff explained why betas

               measured over shorter time periods, such as those used by Mr.

               Hevert, are more prone to measurement error arising from short-

                                              -9-
              term changes in risk and investor preferences, which can bias the

              beta estimate. Having reviewed the record, the Commission again

              finds that the beta estimates provided by Staff are more reliable."

              Id. at 164.

¶ 21          In Ameren's application for rehearing, which it filed on January 16, 2014, Ameren

pointed out to the Commission: "But Mr. Hevert used three different beta sources—one with an

18-month measurement period, one with a 24-month measurement period, and a Value Line beta

coefficient source that is based on five years of data (same as Staff)." (Emphasis in original.)

See 220 ILCS 5/10-113(a) (West 2012) ("No person or corporation in any appeal shall urge or

rely upon any grounds not set forth in [an] application for a rehearing before the Commission.").

Evidently, by the parenthetical remark "same as Staff," Ameren did not mean that the Staff, like

Hevert, used an 18-month measurement period and a 24-month measurement but, rather, that

Value Line was one of the sources the Staff used for its betas. He used Value Line, and the Staff

used Value Line. Consequently, Ameren argued, the Commission erred by rejecting Hevert's

CAPM analysis. Instead, according to Ameren, if 18 months and 24 months were too short as

measuring periods, the Commission should have accepted Hevert's CAPM based only on Value

Line betas and averaged his CAPM result with the Staff's CAPM result and the parties' DCF

results. Ameren recalculated the rate of return that would result from excluding the 18-month

and 24-month betas:

              "If the Commission wished to exclude the beta sources based on a

              shorter measurement period, and instead just use Mr. Hevert's

              Value-Line based CAPM model (with the 5-year measurement

              period), [Ameren's] CAPM result would be 10.11%.              When

                                             - 10 -
               averaged with the Staff's CAPM result and the Order's DCF result,

               this produces a return on equity of 9.35%, a full 27 basis points

               higher than the Order's authorized return on equity.     Had the

               Commission followed [this] same [averaging] method it approved

               in [North Shore Gas Co., Illinois Commerce Comm'n No. 12-0511,

               at 207 (Order June 18, 2013)], this 9.35% return on equity is the

               result that would have been reached."

¶ 22           On February 6, 2014, in a "Notice of Commission Action," the Commission

denied Ameren's application for rehearing without specifically responding to Ameren's beta

argument—or, for that matter, any other argument Ameren made in its application for rehearing.

The ruling was simply a denial.

¶ 23               2. The Controversy Over Non-Dividend-Paying Companies
                         in the Parameter for the Overall Market Return

¶ 24              a. The Staff's Exclusion of Non-Dividend-Paying Companies

¶ 25           Again, the CAPM has three parameters: the risk-free rate of return, the expected

rate of return on the market, and the beta.

¶ 26           To estimate the expected rate of return on the market, the Staff, specifically

Phipps, performed a DCF analysis on the firms in the Standard & Poor's 500 Index, excluding

non-dividend-paying firms. A DCF model "is premised on the assumption that a stock's price is

the sum of the expected value of future dividends, discounted to present value by the rate of

return investors require." Citizens Utility Board v. Illinois Commerce Comm'n, 276 Ill. App. 3d
730, 747 (1995). Therefore, the model uses "three variables: price, future dividends, and the

rate of return." Id. Because dividends were a required variable in a DCF model, the Staff

considered only companies that paid dividends.

                                              - 11 -
¶ 27          Let us pause for a moment and, for clarity, restate what we said in the preceding

paragraph. To calculate a parameter of the CAPM model, namely, the overall market return, the

Staff used another model, the DCF model, but because of the way the DCF model worked, the

Staff excluded non-dividend-paying companies, using only dividend-paying companies. As the

Commission said:

                     "[The Staff estimated] [t]he expected rate of return on the

              market by *** conducting a DCF analysis on the firms composing

              the S&P 500 Index ('S&P 500') as of June 30, 2013. [Citation.]

              Firms not paying a dividend as of June 30, 2013, or for which

              neither Zacks nor Reuters growth rates were available, were

              eliminated from the analysis.     That analysis estimated that the

              expected rate of return on the market equals 12.33%. [Citation.]"

              Ameren, Illinois Commerce Comm'n No. 13-0192, at 142 (Order

              Dec. 18, 2013).

¶ 28          In defending its exclusion of non-dividend-paying companies when estimating the

market return, the Staff explained to the Commission: "A DCF analysis assumes that the market

value of common stock equals the present value of the expected stream of future dividend

payments to the holders of that stock. [Citation.] Since a DCF model incorporates time-

sensitive valuation factors, it must correctly reflect the timing of the dividend payments that

stock prices embody. [Citation.]" Id. at 140. (We are quoting the Commission's paraphrase of

the Staff's argument.) Unless dividends were paid, it was impossible to know the timing of the

dividend payments, and knowing the timing of the dividend payments was essential to doing a

DCF analysis. See In re Connect America Fund, 28 FCC Rcd. 7123, 7159-60 n.156 (2013)

                                              - 12 -
("The general DCF model cannot be used to calculate the cost of equity for a firm that does not

pay dividends."); In re Represcribing the Authorized Rate of Return for Interstate Services of

Local Exchange Carriers, 5 FCC Rcd. 7507, 7511 (1990) (before "DCF cost of equity

calculations" were made, "[t]he S & P 400 group and the electric group were to be screened to

remove *** companies that did not pay quarterly dividends").

¶ 29              b. Ameren's Inclusion of Non-Dividend-Paying Companies

¶ 30          In his calculation of the expected overall market return, Ameren's expert, Hevert,

used a constant-growth DCF model. Ameren, Illinois Commerce Comm'n No. 13-0192, at 134

(Order Dec. 18, 2013). As Ameren explained to the Commission, a constant-growth DCF model

"assumes constant unchanging growth as a component of the return an investor expects." Id. at

131. According to an apparently uncontested description by an intervenor in the administrative

proceeding, the Illinois Industrial Energy Consumers, "the constant growth version of the [DCF]

model is sometimes expressed as K = D1/P0 + G, where K = Investor's required return, D1 =

Dividend in the first year, P0 = Current stock price and G = Expected constant dividend growth

rate." Id. at 162. See Midwest Independent Transmission System Operator, Inc. & Ameren

Illinois Co., 141 FERC ¶ 63014, at 771 (2012) (setting forth the same formula).

¶ 31          In his use of the constant-growth DCF model to calculate the market return

parameter of the CAPM, Hevert included the non-dividend-paying companies of the Standard

and Poor's 500 Index. The Staff objected for the following reason:

              "Staff witness Phipps explained that Mr. Hevert's inclusion of the

              non-dividend paying companies in a constant growth DCF analysis

              upwardly biases his estimate of market return. [Citation.] That is,

              the dividend growth rate of non-dividend paying companies cannot

                                             - 13 -
               be both constant and equal to the earnings growth rate as Mr.

               Hevert's estimation process assumes. If the dividend growth rate is

               constant, it must remain 0%. In contrast, the average dividend

               growth rates of the non-dividend paying companies in Mr. Hevert's

               analysis equal approximately 14%. [Citation.]" Ameren, Illinois

               Commerce Comm'n No. 13-0192, at 148 (Order Dec. 18, 2013).

¶ 32           Ameren responded: "Ms. Phipps'[s] criticism is unfounded as investors do view

investments in the context of the entire market; dividend paying and non-dividend paying

investments alike." (Internal quotation marks omitted.) Id. at 135.

¶ 33           The Commission agreed with the Staff that the inclusion of non-dividend-paying

companies was inconsistent with the constant-growth DCF model that Hevert used to estimate

the average market return in the CAPM. The Commission said:

                      "In [Ameren Illinois Co., Illinois Commerce Comm'n No.

               11-0282], the Commission also expressed 'serious concerns' with

               the market risk premium relied upon by Mr. Hevert. There, as in

               the current case, Staff objected to Mr. Hevert's inclusion of non-

               dividend paying companies in the DCF analysis used in the

               calculation of the expected market return, from which the risk-free

               rate is subtracted in the calculation of the market risk premium.

               Staff contends that inclusion of non-dividend paying companies

               upwardly biases the estimate of the market return, as does [the

               Illinois Industrial Energy Consumers].     The Commission again

                                              - 14 -
              shares this concern, and agrees with Staff that the market risk

              premium calculated by Staff is more reliable." Id. at 165.

¶ 34          In its application for a rehearing, Ameren made essentially three points. First,

Ameren argued it made no sense to exclude non-dividend-paying companies from an estimate of

the market return, considering that non-dividend-paying companies were part of the overall

market. Second, "Hevert's model *** include[d] non-dividend paying stocks in the market risk

premium simply by recognizing the price appreciation of the stock over time." Third, the betas

from Zacks, on which the Staff relied, "include[d] non-dividend paying companies," and thus, in

Ameren's view, the Commission's "criticism of Mr. Hevert's use of the S & P 500 for his market

risk premium [was] plainly arbitrary."

¶ 35          As we said, the Commission denied Ameren's application for a rehearing.

¶ 36          In summary, then, the Commission regarded Ameren's CAPM analysis as

suffering from two flaws: (1) the use of short measuring periods for the beta and (2) the

inclusion of non-dividend-paying companies in the constant-growth DCF analysis that Ameren

used to calculate the market return in the CAPM.

¶ 37                      B. Newly Created Consumer Protections in a
                        Proposed Small Volume Transportation Program

¶ 38          In 2011, in a previous gas rate case (Ameren Illinois Co., Illinois Commerce

Comm'n No. 11-0282, at 185 (Order Jan. 10, 2012)), retail gas suppliers recommended that

Ameren establish a small volume transportation program that would allow residential customers

and small commercial customers to buy gas from "alternative gas suppliers."

¶ 39          Under section 19-110(a) of the Alternative Gas Supplier Law, the Commission

may license "alternative gas suppliers" to supply natural gas to "residential or small commercial

customers." 220 ILCS 5/19-110(a) (West 2012). "Alternative gas suppliers"—another name for

                                             - 15 -
"retail gas suppliers"—basically are suppliers other than public utilities. 220 ILCS 5/19-105

(West 2012). The idea, apparently, is that alternative gas suppliers will supply natural gas to

customers via the gas utility's infrastructure or delivery system. "Transportation services" are

"services provided by the gas utility that are necessary in order for the storage, transmission and

distribution systems to function so that customers located in the gas utility's service area can

receive gas from suppliers other than the gas utility and shall include, without limitation,

standard metering and billing services." Id.

¶ 40           At the conclusion of the 2011 case, the Commission ordered Ameren and

interested stakeholders to participate in workshops, hosted by the Staff, to determine whether a

small volume transportation program would be beneficial and feasible in Ameren's service

territories. Ameren, Illinois Commerce Comm'n No. 11-0282, at 194 (Order Jan. 10, 2012). To

the extent the workshops did not end in a consensus, the Staff was to report to the Commission

the issues that remained in dispute. Id. On January 10, 2013, the Staff gave the Commission a

report, which described the unresolved issues.

¶ 41           On January 25, 2013, pursuant to section 9-201(a) of the Public Utilities Act (220

ILCS 5/9-201(a) (West 2012)), Ameren filed new or revised tariff sheets, which proposed a

general increase in gas delivery charges.

¶ 42           On March 6, 2013, pursuant to section 9-201(b) (220 ILCS 5/9-201(b) (West

2012)), the Commission entered an order suspending the tariffs, thereby initiating the present gas

rate case.

¶ 43           A couple of weeks after filing its tariffs proposing a general increase in gas rates,

Ameren filed "supplemental direct testimony" by Venda K. Seckler, its managing executive of

gas supply, in which she stated that Ameren was "neutral with regard to the adoption of [small

                                                 - 16 -
volume transportation (SVT),] consider[ing] the matter of question of policy to be determined by

the Commission." Attached to her "supplemental direct testimony" were two exhibits: Ameren

exhibit Nos. 13.1 and 13.2.       She described these two exhibits as two versions of a tariff

pertaining to the proposed small volume transportation program. She testified: "Ameren Exhibit

13.1 is a copy of the last version of draft tariffs circulated to the workshop participants. Ameren

Exhibit 13.2 is an updated version, including refinements [Ameren] added after the conclusion of

the SVT workshop." (One might think a "tariff" is simply a list of prices, but actually, in the

jargon of public-utilities regulation, "tariff" has a more expansive meaning, to include not only

prices but also terms, conditions, rules, practices, and other descriptive text. See Sheffler v.

Commonwealth Edison Co., 2011 IL 110166, ¶ 28 ("A tariff is a public document setting forth

services being offered, the rates and charges with respect to services, and the governing rules,

regulations, and practices relating to those services.").

¶ 44           Thus, the administrative hearing was not only on the tariffs proposing a general

increase in gas rates but also on the "rider" tariffs proposing a small volume transportation

program.

¶ 45           The Citizens Utility Board called its former executive director, Martin Cohen, to

testify regarding the small volume transportation program.       In his direct testimony, Cohen

recommended that if the Commission approved such a program, it should order Ameren to

include consumer protections that went beyond those in the Public Utilities Act. He did not as of

yet specify what the additional consumer protections should be, but he suggested that additional

consumer protections were necessary, given the complaints consumers had made about small

volume transportation programs in northern Illinois. He cited two such complaints: one from

                                                - 17 -
2002, Citizens Utility Board, Illinois Commerce Comm'n No. 02-0425, and Citizens Utility

Board v. Illinois Energy Savings Corp., Illinois Commerce Comm'n No. 08-0175.

¶ 46          It was not until later, in his rebuttal testimony, that Cohen proposed any specific

consumer protections. He proposed the following three protections:

                      "1. A customer shall be absolved from paying any

              termination fees if, prior to the due date of their first bill, they

              notify the supplier that they are terminating the contract.

                      2. When a customer has accepted service from a supplier

              after solicitation by a door-to-door salesperson, there shall be no

              termination fees assessed if the customer terminates during the first

              6 billing cycles.

                      3. If a supplier's marketing materials include a price

              comparison of the supplier rate and the gas utility rate, the

              depiction of such comparison shall display at least three years of

              data in no greater than quarterly increments and shall also display

              the supplier's offered price for the same or equivalent product(s) or

              service(s) for each of the same increments."        Ameren, Illinois

              Commerce Comm'n No. 13-0192, at 225 (Order Dec. 18, 2013).

¶ 47          In their initial brief to the Commission, the retail gas suppliers objected to these

proposed consumer protections for three reasons. First, they argued the consumer protections

were "unnecessary in light of provisions in the [Public Utilities] Act that protect consumers and

[in light of] the alleged decrease in customer complaints regarding existing SVT programs in

Illinois." Second, the retail gas suppliers argued that "any customer protections should have

                                              - 18 -
been a part of the workshop process and need not be considered in this proceeding." Third, the

retail gas suppliers complained that the Citizens Utility Board "did not offer its specific

recommendations [(that is, these three proposals for consumer protection)] until rebuttal

testimony."   (In its brief, the Commission informs us that the rebuttal testimony of the

intervenors—the Citizens Utility Board, the retail gas suppliers, and others—"was scheduled

simultaneously" and that "only Ameren was provided for surrebuttal in the established

schedule.")

¶ 48          The Commission disagreed that the scope of the workshop discussions restricted

the Commission's consideration of any small volume transportation issue. Id. at 247. The

Commission also disagreed that the retail gas suppliers had been deprived of an opportunity to

contest the proposed consumer protections. Id. at 248. The Commission noted that although

Cohen first proposed these consumer protections in his surrebuttal testimony, the retail gas

suppliers could have cross-examined him, but they did not do so. Id. The Commission agreed,

however, "that the three measures at issue [were] not supported by the record." Id. Therefore—

initially—the Commission decided the measures would "not be adopted at this time." Id.

¶ 49          Later, in an amendatory order of January 23, 2014, the Commission revised the

order of December 18, 2013, so as to state: "[T]he Commission finds that the three measures at

issue are supported by the record and will be adopted at this time." (This is the only change the

amendatory order made.) Ameren, Illinois Commerce Comm'n No. 13-0192, at 1 (Order Jan. 23,

2014).

¶ 50          Part IX of the order of December 18, 2013, the part pertaining to the small

volume transportation program, concludes with the following paragraph:

                                             - 19 -
                         "One of the 'resolved issues' is identified as 'SVT Program

                Separate Proceeding,' sometimes referred to as a tariff proceeding.

                [Ameren] shall file tariffs consistent with the findings of this

                Order.     As indicated above, [Ameren] is directed to hold a

                workshop following the issuance of this Order, focusing on the

                issues that are not resolved by this Order, and to file a petition,

                tariffs and testimony in support of the SVT program within 45

                days of the date of this Order. The separate proceeding shall be for

                the purpose of improving and editing the tariffs submitted in the

                instant proceeding, and to resolve the remaining issues not decided

                in this Order, to the extent a resolution of them is not reached in

                the workshop. All issues decided in the instant proceeding will be

                considered resolved for purposes of the second proceeding."

                Ameren, Illinois Commerce Comm'n No. 13-0192, at 251 (Order

                Dec. 18, 2013).

¶ 51            In their application for a rehearing, the retail gas suppliers argued to the

Commission that the three consumer protections not only were unauthorized by statutory law but

they lacked any evidentiary support in the record. In addition, the suppliers made a procedural

objection. They argued that "cross-examination of a witness without pertinent experience [was]

no substitute for alternative gas suppliers being able to sponsor knowledgeable witnesses who

could have testified as to whether [the Citizen Utility Board's] proposals [were] burdensome,

costly, difficult or ineffective."

¶ 52            The Commission denied the retail gas suppliers' application for a rehearing.

                                                - 20 -
¶ 53                                    II. ANALYSIS

¶ 54              A. The Commission's Rejection of Ameren's CAPM Analysis

¶ 55                                    1. North Shore

¶ 56            Ameren argues that in North Shore Gas Co., Illinois Commerce Comm'n No. 12-

0511, at 205 (Order June 18, 2013) (hereinafter, North Shore), the Commission established a

"practice" of "averaging the parties' model results" together and that, in the present case, the

Commission arbitrarily and enigmatically departed from that "practice" by rejecting Ameren's

CAPM analysis even though, in North Shore, the utilities used betas from Value Line, as Ameren

did in the present case, and even though, in North Shore, the utilities included non-dividend-

paying companies in their calculation of the market return in the CAPM, as Ameren did in the

present case.

¶ 57            North Shore is distinguishable for three reasons.   First, in North Shore, the

utilities' expert, Paul R. Moul, consulted only one source for the beta parameter: Value Line.

"For the beta measurement of systematic risk, he used the average Value Line for the Gas Group

***." Id. at 199. Value Line had a five-year measurement period. Id. at 200 ("259 weekly

observations of stock return data"). In his expert testimony in North Shore, Moul gave his

opinion of what the CAPM result should be (id. at 186), and for purposes of the beta, he based

his opinion on that single five-year source, Value Line (id. at 199). In the present case, by

contrast, when Hevert testified to what the CAPM result should be, he based his opinion on 3

measurement periods for the beta, the first 2 of which the Commission rejected as too short: 18

months, 24 months, and 5 years. As Ameren told the Commission in Ameren's application for

rehearing, "[f]or the beta measurement, [Hevert] used coefficients from three sources, including

Bloomberg and Value Line."       It does not appear that Hevert ever offered a CAPM result

                                             - 21 -
premised on Value Line as the sole source for the beta. Instead, it appears that Ameren first did

that on page 5 of its application for rehearing—which, of course, was not expert testimony. The

Commission could have reasonably regarded CAPM analysis as a matter for expert testimony.

¶ 58           Second, it appears that, in North Shore, none of the parties objected to the

inclusion of non-dividend-paying companies in a constant-growth DCF analysis. In fact, far

from objecting, the Staff in North Shore included non-divided-paying companies in its own

constant-growth DCF analysis. "[F]or the expected rate of return on the market parameter, Mr.

McNally," a member of the Staff, "conducted a DCF analysis on the firms composing the S&P

500 Index"—which, as the parties agree in the present case, includes non-divided-paying

companies. Id. at 201. And both McNally and Moul used a "constant growth DCF." Id. It

would be unreasonable to count on the Commission to sua sponte raise any and all problems,

such as including non-dividend-paying companies in a constant-growth DCF. The issue was

forfeited in North Shore. See 83 Ill. Adm. Code § 200.610(b) (2000) ("Objections must be made

at hearing to preserve them on appeal."). The issue is preserved in the present case.

¶ 59           Third, the Commission stated in North Shore that it "[did] not endorse every input

to or every aspect of the CAPM analyses performed by the Utilities or by Staff." North Shore,

Illinois Commerce Comm'n No. 12-0511, at 207 (Order June 18, 2013).                     Because the

Commission did not specify, however, which of the CAPM inputs by the Staff the Commission

found to be debatable, North Shore cannot be understood as establishing an across-the-board

"practice" of averaging parties' CAPM results together.       In other words, the "practice" of

averaging could depend on the presence of the defective inputs, whatever they were. Perhaps

that is why North Shore says: "[F]or purposes of this proceeding, the Commission finds that

                                              - 22 -
each provides useful input in estimating the market required return on common equity."

(Emphasis added.) Id.

¶ 60           In sum, we disagree with Ameren's argument that the Commission arbitrarily

departed from its decision in North Shore. Rather, for the reasons we have stated, North Shore is

distinguishable.

¶ 61           2. Findings That Ameren Claims Are Inconsistent With the Evidence

¶ 62                                  a. Measurement Periods

¶ 63           Ameren says:      "In the Order, the Commission rejected Mr. Hevert's CAPM

analysis because of its apparent misunderstanding of what Mr. Hevert did. The Commission

contended that Mr. Hevert's analysis should be disqualified because he used only 18- and 24-

month betas [citation to record], when in fact he also used 60-month betas. [Citation to record.]"

¶ 64           The following sentence of the Commission's order could indeed be understood as

assuming, incorrectly, that Hevert used only 18- and 24-month betas: "Staff again takes issue

with the beta measurement period used by Mr. Hevert, which in the current proceeding was 18 to

24 months." Ameren, Illinois Commerce Comm'n No. 13-0192, at 164 ( Order Dec. 18, 2013).

Actually, the third source that Hevert consulted for his beta calculation, Value Line, measured

betas over a five-year period. The order elsewhere acknowledges that "[t]o calculate his beta

coefficients, Mr. Hevert utilized reported beta coefficients from Bloomberg and Value Line for

each of the proxy group companies."        (Emphasis added.)     Id. at 134.   And evidently the

Commission was aware that Value Line used five-year measurement periods, for the order says:

"[Phipps] explained that Value Line employs 260 weekly observations of stock price data ***."

Id. at 142. It is as if, when summarizing the Staff's argument, the Commission overlooked what

it had written only a few pages earlier.

                                              - 23 -
¶ 65           Even after Ameren, in its application for a rehearing, disabused the Commission

of its apparent misconception that Hevert had used only 18- and 24-month measurement periods

for his beta, the Commission still rejected his CAPM analysis. The Commission still declined to

average his CAPM result (as modified by Ameren in its application for rehearing) with the

results of the other parties' experts to determine the rate of return. But the Commission included

Phipps's CAPM result in the average. The question for us is whether, with the misconception

dispelled, it is clearly evident that Hevert's modified CAPM result deserves as much weight as

Phipps's CAPM result. See Apple Canyon Lake Property Owners' Ass'n v. Illinois Commerce

Comm'n, 2013 IL App (3d) 100832, ¶ 20.

¶ 66           The answer is no—it is not clearly evident. When the 18- and 24-month sources

were disqualified, Hevert was left with a single five-year source (Value Line) compared to

Phipps, who relied on multiple five-year sources (Value Line, Zacks, and the regression

analysis). Consequently, the Commission could reasonably regard her beta estimation as more

reliable than his. Multiple beta sources could inspire more confidence than a single beta source.

Indeed, the Commission had said in a previous case: "We agree that, in the same way we rely on

multiple models to determine the cost of equity, Staff's well-considered use of multiple beta

sources is beneficial to reduce measurement error from any individual estimate." North Shore

Gas Co., Illinois Commerce Comm'n No. 09-0166, at 126-27 (Order Jan. 21, 2010). Also,

Hevert never offered an opinion based on Value Line as a single beta source.

¶ 67             b. Non-Dividend-Paying Companies in a Diversified Portfolio

¶ 68           Another concern the Commission had with Hevert's CAPM analysis was his

"inclusion of non-dividend[-]paying companies in the DCF analysis used in the calculation of the

expected market return, from which the risk-free rate [was] subtracted in the calculation of the

                                              - 24 -
market risk premium." Ameren, Illinois Commerce Comm'n No. 13-0192, at 165 (Order Dec.

18, 2013).

¶ 69           For two reasons, Ameren regards this concern about non-dividend-paying

companies as being against the manifest weight of the evidence:            (1) non-dividend-paying

companies are part of the overall market, which the market-return parameter should reflect; and

(2) Zacks, from which the Staff obtained its own beta estimates, used the Standard & Poor's 500

Index, which included non-dividend-paying companies. We will discuss each of those two

points.

¶ 70                            i. Non-Dividend-Paying Companies
                                    as Part of the Overall Market

¶ 71           Systematic risk is the risk posed by the market. Furman v. Commissioner of

Internal Revenue, 75 T.C.M. 2206, at 11 n.10 (1998). Unsystematic risk is the risk

unique to a particular asset. Id.

¶ 72           The CAPM assumes that someone who is considering investing in a public utility

has "the ability to hold[] diversified portfolios that eliminate, on a portfolio basis, the effects of

unsystematic risk." Id. Because the CAPM assumes that an investor holding a diversified

portfolio will encounter only systematic risk, the CAPM determines compensation only for

systematic risk. Id.

¶ 73           The diversification of a stock portfolio eliminates unsystematic risk (Demystifying

the Use of Beta, 25 J. Corp. L. at 247-48), and it is true, as Ameren says, that a diversified

portfolio might well include stocks in non-dividend-paying companies. Even so, non-dividend-

paying companies are not the sine qua non of a diversified portfolio. "[O]nce you have a

portfolio of 20 or more stocks, diversification has done the bulk of its work." Id. at 248. (We

need not regard this number 20 as magical; maybe the minimum number is 25 or 30 stocks.)

                                                - 25 -
Some of these 20 or more stocks could be in non-dividend-paying companies, or they all could

be in dividend-paying companies. Diversification does not fail with the exclusion of companies

that pay no dividends.

¶ 74           Because owning stock in non-dividend-paying companies is not absolutely

essential to having a diversified stock portfolio that eliminates unsystematic (or unique) risk, the

Commission could have reasonably decided that if a party chose to estimate the market return by

using a constant-growth DCF model, it was preferable to exclude non-dividend-paying

companies so as to avoid contradicting the constant-growth DCF model. Again, the Commission

is the regulatory expert, and it is not "clearly evident" that including non-dividend-paying

companies would be necessary or even logical, given the choice of a constant-growth DCF

model, which presupposes growing dividends. Abbot Laboratories, Inc. v. Illinois Commerce

Comm'n, 289 Ill. App. 3d 705, 714 (1997).

¶ 75           We realize that Ameren argued to the Commission:               "Hevert's model ***

include[d] non-dividend paying stocks in the market risk premium simply by recognizing the

price appreciation of the stock over time." But it is unclear how growth in the stock price could

substitute for dividends, considering that the current stock price (P0) and the dividend in the first

year (D1) are two separate variables in the equation.

¶ 76               ii. The Staff's Inclusion of Non-Dividend-Paying Companies
                                     in Its Estimation of the Beta

¶ 77           Ameren accuses the Commission of having a double standard in that the

Commission allowed the Staff to include non-dividend-paying companies in its estimation of the

beta but forbade Ameren to include non-dividend-paying companies in its estimation of the

market return. Ameren argues:

                                               - 26 -
                      "Not only did Staff admit that non-dividend-paying

              companies are part of the market intended to be measured by

              CAPM, the record also shows Staff relied on market information

              (Zacks betas) that included non-dividend paying companies.

              [Citation.] Since the record shows Zacks uses the S&P 500 for its

              beta calculations, and the S&P 500 includes companies that do and

              do not pay dividends, criticism of Mr. Hevert's use of the S&P 500

              for his market risk premium was plainly arbitrary and contrary to

              the record. [Citation.]"

¶ 78          Ameren seems to argue, in effect: "Look, the Staff did the same thing and

received a pass." But Ameren has not convinced us that the Staff really did the same thing. The

Commission's order specifically says that when Phipps used a DCF model to calculate the

market return, she excluded non-dividend-paying companies and that when Hevert used a

constant-growth DCF model to calculate the market return, he included non-dividend-paying

companies.

¶ 79          Ameren points out, however, that Zacks includes non-dividend-paying companies

in its beta estimates and that by obtaining betas from Zacks, Phipps included non-dividend-

paying companies. The problem, though, was not with non-dividend-paying companies per se.

It was not that they were unsuitable for all purposes. Rather, as we understand the Commission's

decision, the problem was it made no sense to apply a DCF model to non-dividend-paying

companies. We do not see how Phipps did that by using Zacks for purposes of the beta

parameter.

                                             - 27 -
¶ 80           Granted, there is a certain lack of symmetry in including non-dividend-paying

companies in the beta parameter while excluding them from the market-return parameter, but

those two parameters are concerned with different things—the beta coefficient is concerned with

the volatility of the utility compared to the volatility of the market as a whole, whereas the

market return is concerned with the expected return from the market—and it is unclear to us

what effect, if any, followed from this lack of symmetry. The Commission had a reason for

excluding non-dividend-paying companies from the market-return parameter: to avoid a conflict

with the constant-growth DCF model. In short, we are not financial analysts, and when we defer

to the Commission's expertise and experience (Commonwealth Edison Co. v. Illinois Commerce

Comm'n, 2013 IL App (2d) 120334, ¶ 36), we are unable to say it is "clearly evident" that the

inclusion of non-dividend-paying companies in the beta parameter (via Zacks) demanded their

inclusion in the market-return parameter if a constant-growth DCF model were used to calculate

the market return. Abbott, 289 Ill. App. 3d at 714.

¶ 81             B. The Sufficiency of the Commission's Findings and Analysis

¶ 82           Ameren argues that, "at a minimum," we should "remand this case with

instructions to the Commission to explain itself." We deem a remand to be unnecessary. The

Commission wrote a decision 254 pages long, 38 pages of which were devoted to the cost of

equity.   For each issue and sub-issue, the Commission diligently summarized the parties'

arguments and chose among the arguments. Its decision "contain[s] findings [and] analysis

sufficient to allow an informed judicial review." 220 ILCS 5/10-201(e)(iii) (West 2012).

¶ 83           We realize the Commission denied Ameren's application for a rehearing without

providing any explanation for doing so.      Nevertheless, we assume that, by the denial, the

Commission adhered to its finding that "the beta estimates provided by [the] Staff [were] more

                                              - 28 -
reliable." Ameren, Illinois Commerce Comm'n No. 13-0192, at 164 (Order Dec. 18, 2013). The

Commission's order has enough substance that we can tell whether the "opposite conclusion is

clearly evident." (Internal quotation marks omitted.) Apple Canyon, 2013 IL App (3d) 100832,

¶ 20. It is not "clearly evident" that Hevert's CAPM analysis is as reliable as Phipps's CAPM

analysis, considering that he used only one valid source for his beta, whereas she used multiple

sources, and considering that he included non-dividend-paying companies in his constant-growth

DCF analysis, whereas she excluded them from her DCF analysis. Id.

¶ 84           Ameren purports to be mystified as to why the Commission required the

exclusion of non-dividend-paying companies from the market-return parameter, and Ameren

complains of the lack of an explanation. Actually, though, as far as we can see, Ameren never

has squarely responded to the Commission's stated rationale: that it is impossible to apply a

constant-growth DCF model to companies that pay no dividends. See Connect America Fund,

28 FCC Rcd. at 7159-60 n.156 ("The general DCF model cannot be used to calculate the cost of

equity for a firm that does not pay dividends."); Represcribing the Authorized Rate, 5 FCC Rcd.

at 7511 (before "DCF cost of equity calculations" were made, "[t]he S & P 400 group and the

electric group were screened to remove *** companies that did not pay quarterly dividends").

Ameren never has explained how the constant-growth DCF formula works when applied to non-

dividend-paying companies.

¶ 85           C. Consumer Protections in the Small Volume Transportation Program

¶ 86                                          1. Ripeness

¶ 87           The retail gas suppliers argue that the three consumer protections the Commission

required them to provide in the small volume transportation program violate the Public Utilities

Act and lack any evidentiary justification.

                                                - 29 -
¶ 88           The Commission responds, initially, that this issue is unripe. According to the

Commission, only after it approves the small volume transportation tariffs that Ameren filed in a

separate proceeding before the Commission, Ameren Illinois Co., No. 14-0097, will the

legitimacy of the consumer protections be ripe for review. Without approved tariffs, there can be

no small volume transportation program. The Commission raises the possibility that the program

might end up being too expensive to implement. In case No. 14-0097, Ameren disclosed that the

costs of the program would be triple the estimate Ameren made previously, in the present case.

In light of that disclosure, Ameren requested the Commission, in case No. 14-0097, to "enter an

"Interim Order and provide further direction confirming whether [Ameren] should proceed with

the SVT program."

¶ 89           The retail gas suppliers say, however, that if the Commission decides not to go

forward with the small volume transportation program, this will be a change of mind by the

Commission, because the Commission already has approved the program. The final order in the

present case states: "The Commission concludes that it is in the public interest to approve an

SVT program at this time, but with the additional consumer protections ***." Ameren, Illinois

Commerce Comm'n No. 13-0192, at 246 (Order Dec. 18, 2013). The order also states that the

Commission is "approving the implementation of an SVT program for [Ameren]." Id. at 249.

Thus, according to the suppliers, the small volume transportation program is more than a

theoretical idea or proposal; it is an approved program. Even though further details need to be

worked out in the tariffs, that does not detract from the Commission's approval of the program,

which, by the terms of the order in this case, shall include the consumer protections. The

suppliers see a danger that these newfangled consumer protections will be set in concrete, since

the order says that "[a]ll issues decided in the instant proceeding will be considered resolved for

                                              - 30 -
purposes of the second proceeding." Id. at 251. The suppliers are concerned that if we declare

their issue to be unripe, the opportunity to challenge the consumer protections will pass and

never return: the issue "will be considered resolved." Id.

¶ 90           The question of ripeness "is best seen in a twofold aspect, requiring us to evaluate

both the fitness of the issues for judicial decision and the hardship to the parties of withholding

court consideration." (Internal quotation marks omitted.) Alternate Fuels, Inc. v. Director of the

Illinois Environmental Protection Agency, 215 Ill. 2d 219, 231 (2004).

¶ 91           The legality of the additional consumer protections is an issue fit for judicial

decision. Also, courts commonly determine whether an agency's decision has any support in the

evidentiary record.

¶ 92           As for the hardship to the parties of withholding court consideration, the

consumer protections could have economic implications for the retail gas suppliers and therefore

could affect their decision whether to participate in the small volume transportation program—

and could affect their decision whether to participate further in fashioning the program. Because

the suppliers presumably will have to make financial commitments in order to fulfill contracts,

lengthening the grace periods during which customers could terminate contracts might hurt the

bottom line.   Keeping track of price data will be time-consuming, and companies do not

necessarily want to reveal their pricing strategies to competitors. The suppliers argued to the

Commission:

               "Requiring the reporting of the prices and terms of supplier

               contract offers will be extremely burdensome and provide

               ambiguous data. Market prices change daily and depending on the

               business model of an alternative gas supplier, its prices and terms

                                              - 31 -
               of supplier contract offers may vary daily and may vary for

               different customers.     Tracking this data would entail a huge

               amount of work for retail gas suppliers and assembling it in a

               useful format would be a monumental task for [the Citizen Utility

               Board's Office of Retail Market Development.] *** Additionally,

               certain supplier contract offers to customers may be sensitive or

               confidential and in a competitive marketplace a supplier should not

               be required to expose their pricing strategy to their competitors."

¶ 93           Even at this time, before the small volume transportation program has been

implemented, the effects of the additional consumer protections are tangible enough to the retail

gas suppliers that the issue is ripe for review. See id.

¶ 94                              2. The Commission's Authority
                               To Require the Consumer Protections

¶ 95           The retail gas suppliers challenge the Commission's authority to require them to

provide the three consumer protections proposed by the Citizens Utility Board.

¶ 96           Because an administrative agency, such as the Commission, is a creation of the

legislature, it has only the powers the legislature gives it in statutory law. Illinois Bell Telephone

Co. v. Illinois Commerce Comm'n, 203 Ill. App. 3d 424, 438 (1990). An act by an agency can be

unauthorized in either of two circumstances. One circumstance is the absence of a statute. "The

fact that no statute precludes an agency from taking a particular action does not mean that the

authority to do so has been given by the legislature." Id. There must be a statute expressly

granting the agency the power to do the act in question (id.) (and an express grant of power to do

the act is interpreted as including the "power to do all that is reasonably necessary to execute the

power *** specifically conferred" (Illinois Federation of Teachers v. Board of Trustees, 191 Ill.

                                                - 32 -
App. 3d 769, 774 (1989))). The other circumstance is the existence of a statute with which the

administrative act conflicts. See 220 ILCS 5/10-201(e)(iv)(C) (West 2012) ("The court shall

reverse a Commission *** decision, in whole or in part, if it finds that *** [t]he *** decision is

in violation of the State *** laws[.]").

¶ 97                             a. Is There an Empowering Statute?

¶ 98            The first question, then, is whether any statute expressly empowers the

Commission to require the observance of administratively created consumer protections as a

condition of participating in a small volume transportation program. See Illinois Bell, 203 Ill.

App. 3d at 438. The answer is yes. The statutory authority comes from sections 9-201 and 19-

120(b)(3) of the Public Utilities Act (220 ILCS 5/9-201, 19-120(b)(3) (West 2012)).

¶ 99            Under section 9-201(a) (220 ILCS 5/9-201(a) (West 2012)), whenever a public

utility wants to make a significant change, it has to file a "schedule," or tariff, with the

Commission. If the utility wants to change "any rate or other charge," it has to file a tariff. Id.

If the utility wants to change "any rule, regulation, practice[,] or contract relating to or affecting

any rate or other charge, classification[,] or service," it has to file a tariff. Id. If the utility wants

to change "any privilege or facility," it has to file a tariff. Id.

¶ 100           Section 9-201(b) says that whenever a utility files a tariff, "the Commission shall

have the power, and it is hereby given authority, *** to enter upon a hearing concerning the

propriety of such rate or other charge, classification, contract, practice, rule[,] or regulation, and

pending the hearing and decision thereon, such rate or other charge, classification, contract,

practice, rule[,] or regulation shall not go into effect." 220 ILCS 5/9-201(b) (West 2012).

¶ 101           Section 9-201(c) says that "[i]f the Commission enters upon a hearing concerning

the propriety of any proposed rate or other charge, classification, contract, practice, rule[,] or

                                                  - 33 -
regulation, the Commission shall establish the rates or other charges, classifications, contracts,

practices, rules[,] or regulations proposed, in whole or in part, or others in lieu thereof, which it

shall find to be just and reasonable." 220 ILCS 5/9-201(c) (West 2012). Once the Commission

approves a tariff, it "is a law, not a contract, and [it] has the force and effect of a statute."

(Internal quotation marks omitted.) Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 55

(2004).

¶ 102          In this case, Ameren filed not only tariffs proposing a general increase in its gas

rates but also "rider" or supplemental tariffs proposing the establishment of a small volume

transportation program. See 220 ILCS 5/9-201(a) (West 2012) ("new schedules or supplements"

(emphasis added)). The Commission had the statutory authority to scrutinize the "practices" and

"rules" proposed in the small volume transportation tariffs and to find those "practices" and

"rules" to be "just and reasonable" only if they included a provision whereby Ameren required

retail gas suppliers, as a condition of their participation in the program, to observe certain

consumer protections. 220 ILCS 5/9-201(c) (West 2012).

¶ 103          Section 19-120(b)(3) provides: "The Commission shall have jurisdiction *** to

investigate *** whether *** the alternative gas supplier has violated or is in nonconformance

with the transportation services tariff of, or any of its agreements relating to transportation

services with, the gas utility *** providing transportation services[.]" 220 ILCS 5/19-120(b)(3)

(West 2012).

¶ 104          We conclude, therefore, that statutory law (1) authorizes the Commission to

require the inclusion of consumer protections in a small volume transportation tariff and (2)

gives the Commission "jurisdiction" over retail gas suppliers to investigate their compliance with

these consumer protections.

                                               - 34 -
¶ 105          The retail gas suppliers point out that the three consumer protections are not

actually in any of the proposed small volume transportation tariffs that Ameren has filed.

Nevertheless, the import of the Commission's order is that the three consumer protections shall

be in Ameren's small volume transportation tariff. After all, this administrative case was a

hearing on tariffs. The Illinois Competitive Energy Association (ICEA) and the Retail Energy

Supply Association (RESA) must have contemplated that if the Commission adopted the

consumer protections proposed by the Citizens Utility Board, the protections would be in the

small volume transportation tariff. They argued to the Commission: "ICEA/RESA says [the

Citizens Utility Board] is under the misunderstanding that the tariffs of Illinois gas utilities are

the only source of consumer protections. *** ICEA/RESA states that protections for residential

and small-volume non-residential natural gas customers are set forth in Section 19-115 of the Act

[(220 ILCS 5/19-115 (West 2012))]." Ameren, Illinois Commerce Comm'n No. 13-0192, at 245

(Order Dec. 18, 2013).

¶ 106            b. Do the Three Consumer Protections Violate Statutory Law?

¶ 107                           i. The First Consumer Protection

¶ 108          The first consumer protection that the Commission approved in this case provides

as follows:

                       "(1) A customer shall be absolved from paying any

               termination fees if, prior to the due date of their first bill, they

               notify the supplier that they are terminating the contract." Id. at

               247.

¶ 109          The retail gas suppliers argue that because this consumer protection requires a

grace period "different from" the grace period in section 19-115(g)(5)(B) of the Public Utilities

                                               - 35 -
Act (220 ILCS 5/19-115(g)(5)(B) (West 2012)), it "directly conflict[s] with" that statute. Section

19-115(g)(5)(B) reads as follows:

                      "(g) An alternative gas supplier shall comply with the

               following requirements with respect to the marketing, offering, and

               provision of products or services:

                                              ***

                              (5) Early Termination.

                                     ***

                                     (B) In any agreement that

                              contains an early termination clause,

                              an alternative gas supplier shall

                              provide the customer the opportunity

                              to terminate the agreement without

                              any termination fee or penalty within

                              10 business days after the date of the

                              first bill issued to the customer for

                              products or services provided by the

                              alternative   gas     supplier.     The

                              agreement     shall      disclose   the

                              opportunity and provide a toll-free

                              phone number that the customer may

                              call in order to terminate the

                                              - 36 -
                               agreement."        220    ILCS    5/19-

                               115(g)(5)(B) (West 2012).

Thus, if a contract between an alternative gas supplier and a customer includes a provision

governing an early termination of the contract, the contract must inform the customer that the

customer has the right to terminate the contract, without penalty, within 10 business days after

the first bill is issued to the customer. Also, the contract has to provide a toll-free telephone

number the customer may call to exercise this right of early termination.

¶ 110          The alternative gas suppliers complain that the grace period the Commission

ordered in the first consumer protection is longer than the grace period that section 19-

115(g)(5)(b) "allow[s]." Again, the first consumer protection provides that a customer may

terminate the contract, without penalty, before the due date of the first bill.          Under the

Commission's rules, "[b]ills for residential customers shall be due a minimum of 21 days after

the date they are sent to the customer, and bills for non-residential customers shall be due a

minimum of 14 days after the date they are sent to the customer."               83 Ill. Adm. Code

§ 280.50(e)(1), adopted at 38 Ill. Reg. 21331 (eff. Nov. 1, 2014). Thus, the first consumer

protection lengthens the grace period from 10 days after the issuance of the first bill to a

minimum of 21 days after the issuance of the first bill for residential customers and a minimum

of 14 days after the issuance of the first bill for nonresidential customers.

¶ 111          According to the retail gas suppliers, this substitution of a longer grace period for

the shorter grace period in the statute is an unauthorized act, like the Commission's violation of

section 9-230 (220 ILCS 5/9-230 (West 1994)) in Illinois Bell Telephone Co. v. Illinois

Commerce Comm'n, 283 Ill. App. 3d 188 (1996). Section 9-230 provided:

                                                - 37 -
                       " 'In determining a reasonable rate of return upon

               investment for any public utility in any proceeding to establish

               rates or charges, the Commission shall not include any incremental

               risk or increased cost of capital which is the direct or indirect

               result of the public utility's affiliation with unregulated or

               nonutility companies.' " (Emphases in original.) Illinois Bell, 283
Ill. App. 3d at 205 (quoting 220 ILCS 5/9-230 (West 1994)).

Illinois Bell Telephone Company (Illinois Bell) was affiliated with Ameritech Corporation

(Ameritech), and "[instead of] determining whether [Illinois] Bell's risk or capital costs were

greater because of its affiliation with Ameritech, the Commission merely determined [that

Illinois] Bell's capital structure was reasonable." Id. at 207. If, however, the affiliation with

Ameritech caused Illinois Bell to be a riskier investment than it otherwise would have been, the

supposed reasonableness of the affiliation was irrelevant; the statute flatly forbade using the

added risk as a justification for allowing Illinois Bell a higher rate of return. The appellate court

said:

               "In section 9-230, the legislature used the word 'any' to modify its

               prohibition of considering incremental risk or increased cost of

               capital in determining a reasonable [rate of return]. This usage

               removes all discretion from the Commission. Section 9-230 does

               not allow the Commission to consider what portion of a utility's

               increased risk or cost of capital caused by affiliation is 'reasonable'

               and therefore should be borne by the utility's ratepayers; the

               legislature has determined that any increase whatsoever must be

                                               - 38 -
               excluded     from    the   [rate-of-return]   determination.   It   is

               impermissible for the Commission to substitute its reasonableness

               standard for the legislature's absolute standard." Id.

The statutory phrase "shall not include any incremental risk" was an absolute prohibition.

¶ 112          The statute before us, section 19-115(g)(5)(B) of the Public Utilities Act (220

ILCS 5/19-115(g)(5)(B) (West 2012)), would be more comparable to the statute in Illinois Bell if

it said something to the effect of: "The agreement shall not include any grace period other than a

period of 10 business days after the issuance of the first bill." But that is not what section 19-

115(g)(5)(B) says. Instead, it says that the alternative gas supplier "shall provide the customer

the opportunity to terminate the agreement without any termination fee or penalty within 10

business days after the [issuance] of the first bill." Id. If the supplier provides the customer the

opportunity to terminate the agreement within, say, 14 business days after the issuance of the

first bill, then, ipso facto, the supplier would provide the customer the opportunity to do so

within 10 business days after the issuance of the first bill. A longer period encompasses a shorter

period. If the deadline for early termination is the 14th day and the customer calls on the 10th

day, the supplier surely will not regard the call as ineffectual and require the customer to call

back in four days. By giving the customer the opportunity to terminate the contract within 14

days, the supplier gives the customer the opportunity to do so on the first day, the second day,

the third day, etc., all the way up to day 14.

¶ 113          The alternative gas suppliers argue, however, that if the legislature really intended

to allow a grace period of longer than 10 business days, the legislature could have used a

modifier such as "no less than" or "at least": "An alternative gas supplier shall provide the

customer the opportunity to terminate the agreement without any termination fee or penalty

                                                 - 39 -
within no less than 10 business days after the date the first bill was issued to the customer."

True—or the legislature could have spoken in terms of an "opportunity" to terminate the

contract. The best evidence of legislative intent is the plain and ordinary sense of the words the

legislature used (Paris v. Feder, 179 Ill. 2d 173, 177 (1997)), and in the plain and ordinary sense

of words, when someone is given an "opportunity" to do something within a period of longer

than 10 days, the person necessarily is given the "opportunity" to do it within 10 days. Hence, in

our de novo interpretation (see Quad Cities Open, Inc. v. City of Silvis, 208 Ill. 2d 498, 508

(2004)), we conclude that section 19-115(g)(5)(B) of the Public Utilities Act (220 ILCS 5/19-

115(g)(5)(B) (West 2012)) does not forbid the Commission to prescribe a grace period longer

than 10 business days after the issuance of the first bill.

¶ 114                             ii. The Second Consumer Protection

¶ 115          The second consumer protection likewise lengthens the grace period for the early

termination of a contract, making the grace period especially long if the contract was preceded

by a door-to door solicitation:

                       "2. When a customer has accepted service from a supplier

               after solicitation by a door-to-door salesperson, there shall be no

               termination fees assessed if the customer terminates during the first

               6 billing cycles." Ameren, Illinois Commerce Comm'n No. 13-

               0192, at 247 (Order Dec. 18, 2013).

¶ 116          The retail gas suppliers make essentially the same argument against the second

consumer protection that they make against the first consumer protection: under section 19-

115(g)(5)(B) (220 ILCS 5/19-115(g)(5)(B) (West 2012)), "ten days means ten days, regardless of

how a customer was solicited." In our discussion of the first consumer protection, we explained

                                                 - 40 -
why we disagree with that argument. For the same reason, we disagree with the suppliers'

argument against the second consumer protection.

¶ 117                          iii. The Third Consumer Protection

¶ 118          The third consumer protection provides as follows:

                      "3. If a supplier's marketing materials include a price

               comparison of the supplier rate and the gas utility rate, the

               depiction of such comparison shall display at least three years of

               data in no greater than quarterly increments and shall also display

               the supplier's offered price for the same or equivalent product(s) or

               service(s) for each of the same increments."       Ameren, Illinois

               Commerce Comm'n No. 13-0192, at 247 (Order Dec. 18, 2013).

¶ 119          The retail gas suppliers make essentially two arguments against this consumer

protection. First, nothing in the Public Utilities Act authorizes the Commission to order this

consumer protection. Second, this consumer protection "directly conflicts with" sections 19-

115(g) and 19-125(c) of the Public Utilities Act (220 ILCS 5/19-115(g), 19-125(c) (West 2012)),

in the sense that "the expression of one thing in an enactment excludes any other, even if there

are no negative words prohibiting it." Illinois Bell, 203 Ill. App. 3d at 438. We will address

each of those arguments in turn.

¶ 120                              (a) Statutory Authorization

¶ 121          As we have discussed, when the Commission holds an administrative hearing on a

tariff filed by a utility, section 9-201(c) empowers the Commission to "establish" "just and

reasonable" "practices, rules[,] or regulations" "in lieu" of those the utility has proposed in the

tariff. 220 ILCS 5/9-201(c) (West 2012). Thus, if the third consumer protection is just and

                                              - 41 -
reasonable, the Commission has the power to establish it as a practice, rule, or regulation in

Ameren's small-volume transportation tariff.

¶ 122                         (b) The Argument of Implied Exclusion

¶ 123          The retail gas suppliers argue that the third consumer protection "directly conflicts

with provisions in the [Public Utilities Act] that address marketing practices and price

comparisons." The only such provisions the suppliers cite are sections 19-115(g) and 19-125(c)

(220 ILCS 5/19-115(g), 19-125(c) (West 2012)). The suppliers do not explain how the third

consumer protection requires them to do anything that sections 19-115(g) and 19-125(c) forbid.

¶ 124          Perhaps the suppliers mean that sections 19-115(g) and 19-125(c) impliedly

exclude the third consumer protection. Expressing one thing in a statute can impliedly exclude

another thing, but it does not always do so. If the statement "the expression of one thing in an

enactment excludes any other" were taken at face value, there could be only one enactment.

Illinois Bell, 203 Ill. App. 3d at 438. Actually, the exclusionary implication is heavily dependent

on context and common sense. In Illinois Bell, for example, the only reasonable inference from

section 9-244 of the Public Utilities Act (Ill. Rev. Stat. 1989, ch. 111 2/3, ¶ 9-244) was that the

legislature did not intend the Commission to unilaterally implement incentives to improve utility

performance, because the statute authorized the Commission to do a study on the necessity and

desirability of an incentive program and then to report its findings to the legislature, " 'with

appropriate legislative recommendations.' " (Emphasis omitted.) Illinois Bell, 203 Ill. App. 3d at

437-38 (quoting Ill. Rev. Stat. 1989, ch. 111 2/3, ¶ 9-244). Because the legislature wanted the

Commission to study the question and then make its recommendations to the legislature, the

clear implication was that the legislature had reserved to itself the decision of whether to have an

incentive program for utilities.

                                               - 42 -
¶ 125           We find no comparable exclusionary implication in either section 19-115(g) (220

ILCS 5/19-115(g) (West 2012)) or section 19-125(c) (220 ILCS 5/19-125(c) (West 2012)).

Section 19-115(g) says only this about marketing materials: "Any marketing materials which

make statements concerning prices, terms, and conditions of service shall contain information

that adequately discloses the prices, terms[,] and conditions of the products or services." 220

ILCS 5/19-115(g)(1) (West 2012). We do not understand by what logic this statute impliedly

excludes the third consumer protection, which governs marketing materials that purport to make

"a price comparison of the supplier rate and the gas utility rate."

¶ 126           As for section 19-125(c) (220 ILCS 5/19-125(c) (West 2012)), it has nothing to

do with marketing. Rather, it requires alternative gas suppliers to provide the Commission their

pricing information, which the Commission then will post on the Internet so that customers can

compare the prices of the various suppliers. It is unclear how this statute could be interpreted as

impliedly saying no to something quite different: a regulation governing marketing materials

that purport to compare the supplier's rate to the gas utility's rate.

¶ 127              3. The Lack of an Opportunity To Present Rebuttal Evidence

¶ 128           The retail gas suppliers complain that "[b]ecause [the Citizens Utility Board

proposed the three consumer protections] in the rebuttal phase of the case, there was no

additional round of testimony during which [the suppliers] could have addressed those issues."

¶ 129           Nevertheless, as the Commission notes, the suppliers did not object when, during

the rebuttal phase, Cohen proposed the three consumer protections.             According to the

Commission's brief, "his evidence was admitted into the administrative record without

objection." The suppliers could have objected during Cohen's testimony. They could have

objected that by waiting until the rebuttal phase to propose these new rules, the Citizens Utility

                                                 - 43 -
Board deprived them of the opportunity to respond with evidence that the proposed new rules

would be too burdensome or too costly. Then the administrative law judge could have sustained

their objection or, alternatively, could have modified the schedule so as to allow them to present

surrebuttal evidence. But the suppliers made no contemporaneous objection.

¶ 130          A rule of the Commission provides: "Objections must be made at hearing to

preserve them on appeal." 83 Ill. Adm. Code § 200.610(b) (2000). Pursuant to that rule, we

conclude that the suppliers have forfeited their procedural objection to the proposal of new rules

during rebuttal.

¶ 131                 4. The Argument That the Three Consumer Protections
                              Lack Evidentiary Support in the Record

¶ 132          The Commission found that "in light of the experience in [n]orthern Illinois, the

three requirements proposed by [the Citizens Utility Board were] reasonable and appropriate

supplements to the existing statutory protections," and therefore the Commission "adopted"

them. The suppliers argue that, for all that appears in the record, "the experience in [n]orthern

Illinois" consists merely of two cases, one from 2002 and the other from 2008, and that these two

isolated cases from years ago, which did not even occur in Ameren's service territory, cannot

reasonably serve as a basis for the three consumer protections. Thus, the suppliers argue, "[t]he

findings of the Commission are not supported by substantial evidence based on the entire record

of evidence presented to or before the Commission for and against such rule, regulation, order[,]

or decision." 220 ILCS 5/10-201(e)(iv)(A) (West 2012).

¶ 133          Let us assume, for the sake of argument, that the suppliers are correct: if the aim

is to respond to historical abuses, the two cases from northern Illinois cannot reasonably serve as

a justification for the three consumer protections. Let us say these cases are too few and too stale

to be the basis for any decision.

                                               - 44 -
¶ 134         It does not necessarily follow that the three consumer protections are "[un]just

and [un]reasonable." 220 ILCS 5/9-201(c) (West 2012). The suppliers cite no case holding that

the Commission must be purely reactive, and never proactive, in the practices, rules, and

regulations it requires in tariffs. They cite no case holding that consumers must be exploited in

sufficient numbers before measures can be taken to protect them. To borrow an analogy from

the Commission's brief, the Commission should not have to wait until someone is run over by a

train before it declares a railroad crossing to be dangerous. See Galt v. Illinois Commerce

Comm'n, 28 Ill. 2d 501, 504 (1963).

¶ 135         Section 9-201(c) requires that the "practices, rules[,] or regulations" in tariffs be

"just and reasonable," not that they be validated by a compelling history of abuses. 220 ILCS

5/9-201(c) (West 2012). The Commission could reasonably foresee the potential for unfairness,

deception, or exploitation and, by the insertion of a rule or regulation into the tariff, try to

prevent the wrong from ever happening.

¶ 136                                 III. CONCLUSION

¶ 137         For the foregoing reasons, we affirm the Commission's decision.

¶ 138         Affirmed.

                                             - 45 -
¶ 139           JUSTICE STEIGMANN, concurring in part and dissenting in part.

¶ 140           With one small exception, I agree completely with the sound majority opinion.

That small exception pertains to one of the three additional consumer protections the

Commission added, providing that a customer shall be absolved from paying any termination

fees if, prior to the due date of the customer's first bill, the customer notifies the supplier that the

customer is terminating the contract. The retail gas suppliers argue that because this consumer

protection requires a grace period that is different from the one provided in section 19-

115(g)(5)(B) of the Public Utilities Act (220 ILCS 5/19-115(g)(5)(B) (West 2012)), it directly

conflicts with that statute. I agree with that analysis and respectfully dissent from that portion of

the majority's opinion.

¶ 141           The majority opinion sets forth section 19-115(g)(5)(B) of the Public Utilities Act

in its entirety (see supra ¶ 109), so I will not repeat that section here. In my judgment, that

section constitutes a legislative determination regarding the time in which any agreement that

contains an early termination clause may be subject to an early termination. The legislature has

decided that the customer may terminate the agreement without any termination fee or penalty

within 10 business days after the date of the first bill issued to the customer for products or

services provided. Contrary to the majority opinion, I view this language as constituting a

definitive legislative judgment that is binding upon the Commission.                 Accordingly, the

Commission exceeded its lawful authority by purporting to extend the time for early termination

beyond that contained in section 19-115(g)(5)(B) of the Public Utilities Act.

                                                 - 46 -