Court Opinion

ID: 2674573
Source: CourtListenerOpinion
Date Created: 2014-05-16 07:02:01.844528+00
Date Added: 2024-06-11T13:06:03.368626
License: Public Domain

Illinois Official Reports

                                  Appellate Court

                  Commonwealth Edison Co. v. Illinois Commerce Comm’n,
                               2014 IL App (1st) 122860

Appellate Court        COMMONWEALTH EDISON COMPANY, Petitioner-Appellant, v.
Caption                ILLINOIS COMMERCE COMMISSION; CITIZENS UTILITY
                       BOARD; AARP; THE CHICAGO TRANSIT AUTHORITY; THE
                       CITY OF CHICAGO; NORTHEAST ILLINOIS REGIONAL
                       COMMUTER RAILROAD d/b/a METRA; THE PEOPLE OF THE
                       STATE OF ILLINOIS LOCAL UNION NO. 15, INTERNATIONAL
                       BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO;
                       ILLINOIS POWER AGENCY; THE BUILDING OWNERS AND
                       MANAGERS ASSOCIATION OF CHICAGO; THE ILLINOIS
                       INDUSTRIAL ENERGY CONSUMERS (ABBOTT LABORA-
                       TORIES, INC; CATERPILLAR, INC.; STERLING STEEL
                       COMPANY;     THERMAL     CHICAGO;     and  CHRYSLER
                       CORPORATION);     THE   RETAIL     ENERGY     SUPPLY
                       ASSOCIATION; CHAMPION ENERGY SERVICES, LLC;
                       CONEDISON SOLUTIONS; CONSTELLATION NEWENERGY,
                       INC.; DIRECT ENERGY SERVICES, LLC; ENERGETIX;
                       ENERGY PLUS HOLDINGS, LLC; EXELON ENERGY
                       COMPANY; GDF SUEZ ENERGY COMPANY; HESS
                       CORPORATION; INTEGRYS ENERGY SERVICES, INC.; JUST
                       ENERGY; LIBERTY POWER; MC SQUARED ENERGY
                       SERVICES, LLC; MINT ENERGY, LLC; NEXTERA ENERGY
                       SERVICES; NOBLE AMERICAS ENERGY SOLUTIONS LLC;
                       PPL ENERGYPLUS, LLC; RELIAN; TRIEAGLE ENERGY, LP;
                       NUCOR STEEL KANKAKEE, INC.; UNITED STATES
                       DEPARTMENT OF ENERGY; THE COMMERCIAL GROUP
                       (BEST BUY COMPANY, INC.; J.C. PENNEY CORPORATION,
                       INC.; MACY’S, INC.; SAFEWAY, INC.; SAM’S WEST, INC.;
                       TARGET, INC. and WAL-MART STORES, INC.), THE ILLINOIS
                       COMPETITIVE ENERGY ASSOCIATION (CONSTELLATION
                       NEWENERGY, INC.; DIRECT ENERGY SERVICES, LLC;
                       INTEGRYS ENERGY SERVICES, INC.; MC2 ENERGY
                       SERVICES; EXELON ENERGY COMPANY; FIRSTENERGY
                       SOLUTIONS      CORPORATION;     AMEREN       ENERGY
                       MARKETING; ENERGY, LLC; MIDWEST GENERATION-
                       EDISON MISSION SOLUTIONS; NORDIC ENERGY SERVICES,
                             LLC and RELIANT ENERGY, NORTHEAST LLC); THE
                             COALITION TO REQUEST EQUITABLE ALLOCATION OF
                             COSTS TOGETHER (A. FINKL AND SONS COMPANY; AUX
                             SABLE LIQUID PRODUCTS, LP; THE CITY OF CHICAGO;
                             COMMERCE ENERGY, INC.; INTERSTATE GAS SUPPLY OF
                             ILLINOIS, INC.; THE METROPOLITAN WATER RECLA-
                             MATION DISTRICT OF GREATER CHICAGO; PDV MIDWEST
                             REFINING LLC; UNITED AIRLINES, INC., and WELLS
                             MANUFACTURING COMPANY), Respondents- Appellees.

District & No.               First District, Third Division
                             Docket Nos. 1-12-2860, 1-12-3526 cons.

Filed                        March 26, 2014

Held                         On appeal from the Illinois Commerce Commission’s application of
(Note: This syllabus         what is commonly known as the Energy Infrastructure Modernization
constitutes no part of the   Act, the appellate court affirmed the Commission’s rulings requiring
opinion of the court but     an adjustment to utility rates charged petitioner’s customers to reflect
has been prepared by the     an expected increase in customers served, allocating certain costs
Reporter of Decisions        between distribution to ratepayers and transmission to out-of-state
for the convenience of       purchasers, restricting the recovery from ratepayers of performance
the reader.)                 bonuses paid to employees, denying the recovery from ratepayers of
                             part of the amount paid to an affiliate because the affiliate used the
                             payment to give its employees bonuses based on net income, and
                             denying the recovery from ratepayers for compensation paid to
                             managers in the form of stock in petitioner’s parent corporation, since
                             petitioner failed to establish any error in those rulings.

Decision Under               Petition for review of orders of Illinois Commerce Commission,
Review                       No. 11-0721.

Judgment                     Affirmed.

                                                 -2-
     Counsel on               Commonwealth Edison Company (Thomas S. O’Neill, Anastasia M.
     Appeal                   O’Brien, and Richard G. Bernet, of counsel), and Jenner & Block LLP
                              (Barry Levenstam, of counsel), both of Chicago, and Jenner & Block
                              LLP (David W. DeBruin, Katherine A. Fallow, and Matthew E. Price,
                              of counsel), of Washington, D.C., for petitioner.

                              Illinois Commerce Commission, of Chicago (John P. Kelliher and
                              Thomas R. Stanton, of counsel), for respondent Illinois Commerce
                              Commission.

                              Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro,
                              Solicitor General, and Jane Elinor Notz, Clifford W. Berlow, Janice A.
                              Dale, and Karen L. Lusson, Assistant Attorneys General, of counsel),
                              Lueders, Robertson & Konzen, of Granite City (Eric Robertson and
                              Andrew Rankin, of counsel), Conrad R. Reddick, of Wheaton, and
                              Schuchat, Cook & Werner, of St. Louis, Missouri (Marilyn S.
                              Teitelbaum and Rochelle G. Skolnick, of counsel), for other
                              respondents.

                              Whitt Sturtevant LLP, of Chicago (Albert D. Sturtevant, of counsel),
                              Whitt Sturtevant LLP, of Columbus, Ohio (Mark A. Whitt, of
                              counsel), and Ameren Services Company, of St. Louis, Missouri
                              (Edward C. Fitzhenry, of counsel), for amicus curiae.

     Panel                    JUSTICE NEVILLE delivered the judgment of the court, with
                              opinion.
                              Presiding Justice Hyman and Justice Pucinski concurred in the
                              judgment and opinion.

                                               OPINION

¶1         This case involves the Illinois Commerce Commission’s application of section 16-108.5 of
       the Public Utilities Act, commonly known as the Energy Infrastructure Modernization Act
       (220 ILCS 5/16-108.5 (West 2012)). After Commonwealth Edison (ComEd) filed its appeal in
       this case, the General Assembly further amended the Act in a way that resolved some of the
       issues on appeal. ComEd now challenges the Commission’s rulings (1) requiring an
       adjustment to rates charged to ComEd customers to reflect the expected increase in the number
       of customers served; (2) allocating certain general costs between distribution to ratepayers and
       transmission to out-of-state purchasers; (3) restricting ComEd’s recovery from ratepayers for

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     certain performance bonuses paid to ComEd employees; (4) denying ComEd recovery from
     ratepayers for part of the amount ComEd paid to an affiliate, because the affiliate used the
     payment to give its employees bonuses based on net income; and (5) denying ComEd recovery
     from ratepayers for compensation paid to ComEd managers in the form of stock in ComEd’s
     parent corporation. We find that ComEd did not meet its burden of showing error in any of the
     contested rulings. Accordingly, we affirm the Commission’s order.

¶2                                           BACKGROUND
¶3        The Act, as amended, permits electric utilities to use a “performance-based formula” (220
     ILCS 5/16-108.5(b) (West 2012)) to set rates for delivery of the electricity it sells. To use the
     formula, the utility must first establish its revenue requirement for a calendar year, subject to
     the Commission’s approval, using the formula: revenue requirement = operating expenses +
     cost of capital. See Business & Professional People for the Public Interest v. Illinois
     Commerce Comm’n, 146 Ill. 2d 175, 195 (1991). In this formula the cost of capital equals the
     rate base, defined as the total value of all invested capital, times the rate of return on capital.
     See Business & Professional People, 146 Ill. 2d at 195. The utility must then allocate the
     revenue requirement to several established classes of ratepayers, and set rates, based on
     historical data, which the utility expects to generate the required revenues.
¶4        To project its revenue requirement for a calendar year, say 2020, in 2019 the utility will use
     its actual expenses for 2018 plus the cost of projected capital additions and depreciation
     expenses for 2019, as an approximation of the 2020 expenses to recover through its 2020 rates.
     The utility will also include in its revenue requirement for 2020 the sum needed to reconcile its
     projected revenue requirement for 2018 with its actual costs (including the cost of capital)
     incurred in 2018. The Act permits the utility to collect interest on the reconciliation amount for
     the time between the payment of the costs, in 2018, and its subsequent collection of the
     reconciliation amount from ratepayers. 220 ILCS 5/16-108.5(c)(6) (West 2012). In exchange
     for the legislative guarantee of payment, the utility must commit to making very substantial
     investments in updating and improving its facilities, and hiring new employees. 220 ILCS
     5/16-108.5(b) (West 2012).
¶5        In 2011, ComEd chose to file a new rate tariff using the performance-based formula set out
     in the Act. ComEd promised to invest $1.1 billion over 5 years in system upgrades,
     modernization projects, and training facilities, plus an additional $1.5 billion within 10 years in
     further technological upgrades. ComEd also promised to create 2,000 new, full-time jobs. See
     220 ILCS 5/16-108.5(b) (West 2012).
¶6        The Commission staff and a number of other ratepayers opposed parts of the proposed rate
     tariff. The Commission permitted several of the ratepayers to intervene in proceedings on the
     proposed tariff. The Commission accepted transcripts of testimony from a number of witnesses
     for ComEd, the staff, and the intervenors. After the written submissions narrowed the issues,
     the Commission heard live testimony from several witnesses.
¶7        The disputed issues centered on the reconciliation process. In particular, the parties
     disagreed about when to include new capital additions in the rate base, and how much interest
     ratepayers needed to pay on the reconciliation amount.

                                                  -4-
¶8                                                Rate Base
¶9          In its proposed tariff, ComEd included in its rate base for a given year all additions to the
       rate base it made that year. That is, under its formula, it will include in the rate base for 2018 all
       of the additions to the rate base that it makes in 2018 and recover a cost of capital for 2018 as
       though it used all of the capital additions throughout the year.
¶ 10        Witnesses for the staff and intervenors pointed out that with ComEd’s methods, it will start
       earning its return on capital on January 1, 2018, for all investments it makes during 2018, even
       if it does not make the investment until December 2018. ComEd will start earning its rate of
       return on all of its investments before it makes those investments, sometimes earning the rate
       of return for several months prior to the investment. The staff and intervenors recommended
       instead a formula that would have the Commission use an average of the rate base as of
       December 31, 2017, and December 31, 2018, to determine the rate base on which ComEd
       would earn its return on capital for 2018. The witnesses explained that ComEd’s data, and the
       Act, constrained them to use only year-end data to determine the rate base in effect for a
       calendar year. The Act does not permit adjustments to make each investment start earning a
       return as part of the cost of capital on the date that ComEd makes the investment.
¶ 11        If the Commission adopted the staff’s recommendation, ratepayers would pay as the cost of
       capital for 2018 the established rate of return for all capital equipment in use for the entire year,
       plus that same rate for half of the capital investments made during the year. The staff’s
       recommendation effectively gives ComEd its full return on its new investments at the rate set
       for that year if ComEd distributes its new investments evenly throughout the year. If ComEd
       makes most of its investments before July 1, it would earn somewhat less than the set rate of
       return on capital for its new investments; if it makes the bulk of its new investments after July
       1, it would earn more than the set rate of return on its new investments. But under the staff’s
       proposal, ComEd would not get the consistent overpayment it sought through the formula it
       used, by which it never would make a new investment before the investment started earning its
       rate of return, and all new investments would consistently earn a rate of return in excess of the
       rate of return set for the year. Witnesses estimated that, because of the capital investments
       ComEd promised to make as a prerequisite for using the Act’s performance-based formula for
       rates, ComEd’s method for calculating its rate base would overstate its revenue requirement by
       about $15 million to $20 million per year.
¶ 12        The Commission adopted the recommendation of the staff and most of the intervenors,
       setting the rate base for each year as the average of the rate base at the end of the prior year and
       the rate base as of the end of the year at issue.

¶ 13                                              Interest
¶ 14       ComEd sought to earn interest on the reconciliation amount at the rate of return set for its
       total capital. The Act sets forth a formula for determining the cost of equity as a part of return
       on capital, and then the Commission uses that number and appropriate rates of return for
       long-term and short-term debt to find an overall cost of capital. The parties agreed that the
       formula permits ComEd to recover as part of its revenue requirement for 2010, for recovery
       through 2012 rates, a 10.05% return on equity, calculated as the average yield on United States
       Treasury bonds (4.25% in 2010) plus 580 basis points (4.25% + 5.80% = 10.05%). 220 ILCS
       5/16-108.5(c)(3) (West 2012). The parties further agreed that the Commission should allow
       about a 6.4% return on long-term debt, and 0.72% return on short-term debt. About 46% of

                                                     -5-
       ComEd’s capital comes from equity, more than 53% comes from long-term debt, and the
       remainder, about 0.5%, comes from short-term debt. Using the statutory formula yields an
       overall cost of capital of about 8.1%, computed approximately as (.46 × 10.05%) + (.535 ×
       6.4%) + (.005 × 0.72%).
¶ 15       The staff argued that the overall rate of return on capital compensates ComEd for the risk it
       incurs by investing in capital assets needed to produce electricity for a long period of time. If it
       invests unwisely, in assets that do not warrant their cost, the Commission may not permit
       ComEd to recover from ratepayers for the investments. If other energy sources replace
       electricity before the assets have exhausted their productive lives, ComEd may have excess
       production capacity and an insufficient market from which to recover its costs. Because of
       such risks, the Act requires ratepayers to give ComEd a return on equity far in excess of the
       rate of return for very safe investments. The Act systematically requires the cost of equity to
       exceed the return on Treasury bonds by 580 basis points. 220 ILCS 5/16-108.5(c)(3) (West
       2012).
¶ 16       The staff observed that under the Act ComEd will recover the reconciliation amount
       without facing any risk similar to the risks that justify the rate of return for equity. ComEd’s
       own witness testified that the reconciliation amount “[i]n essence *** represents a loan to
       customers for services already provided.” The reconciliation amount differs from a
       conventional loan in that the legislature mandated payment of the reconciliation amount
       through rates charged two years after ComEd makes the advance payments. The rates even
       compensate ComEd for uncollectible debts, so ComEd does not face even the risks of a
       conventional loan to the state. The staff’s witness recommended setting interest at the rate of a
       AAA-rated bond for a period of two years.
¶ 17       The Commission said:
               “Regarding our review of the various positions on this issue the Commission shares the
               concern raised by Staff that using the [cost of capital] as ComEd proposes would treat
               the reconciliation amount like a rate base investment rather than a reconciling item. We
               also find cred[ible] the point raised by the Company that the reconciliation adjustments
               will represent significant investments and operating expenses funded by the
               participating utility.
                   The Commission recognizes that the due to the [Act’s] timeline for the
               reconciliation period the interest rate is both short term and long term in nature. ***
               The Commission believes there is value in setting an interest rate based upon debt that
               is relevant to the Company for the time duration of the reconciliation. In order to
               capture the unique aspects of the relevant period we find that a hybrid approach should
               be utilized to determine the appropriate interest rate. Such a hybrid calculation would
               take the weighted costs of short-term debt and long-term debt and exclude the weighted
               cost of common equity as the methodology in calculating the interest rate. This results
               in an interest rate of 3.42%. The Commission concludes that this hybrid interest rate of
               3.42% is reasonable and appropriate to be utilized for the reconciliation period and is
               hereby adopted.”

¶ 18                                  Population Adjustment
¶ 19      Several intervenors, including the Attorney General, note that with some of the
       construction ComEd promised when it filed the new rate tariffs under the Act, ComEd

                                                    -6-
       proposed the building of new facilities to accommodate growth in the number of customers it
       serves. The Attorney General pointed out that if the rates for 2012 spread the collection of the
       revenue requirement amongst ratepayers for 2010, without any adjustment for the expected
       increase in the number of customers from 2010 to 2012, ComEd will systematically collect
       sums in excess of its revenue requirement. The Attorney General asked the Commission to
       adjust rates to reflect the anticipated size of each class of ratepayers.
¶ 20       ComEd argued that the Act did not permit an adjustment for anticipated population
       changes, because the Act mentioned only weather normalization, and not population changes,
       usage changes, or any other possible determinant of total sales. ComEd pointed out that it had
       recently suffered a decline in kilowatt hour sales per customer in some of its classes of
       customers, and the Commission did not adjust rates for a possible further decline in sales per
       customer.
¶ 21       The Commission held:
                    “All that [the Attorney General] proposes here is a methodology to ensure that the
               billing determinants are based on accurate information. As [the Attorney General and
               others] point out, Section 16-108.5(c)(1) of the statute provides that formula rates must
               be prudently incurred and reasonable in amount consistent with Commission practice
               and law. ***
                                                     ***
                    *** Without information as to what causes a decline in [kilowatt hour] sales, it does
               not appear that this decline should offset the increase in billing determinants that
               reflects ComEd’s new business. ComEd, in short, has not presented valid reasons for
               rejecting the [Attorney General’s] proposal.”
¶ 22       The Commission ordered ComEd to adjust its rates to reflect anticipated increases in the
       number of customers it served.

¶ 23                                          Cost Allocation
¶ 24       General and intangible plant and wages serve all of ComEd’s ratepayers, and they also
       contribute to the sales of energy transmitted to purchasers from out of state. Section
       16-108.5(c)(4)(I) of the Act (220 ILCS 5/16-108.5(c)(4)(I) (West 2012)) directs the
       Commission to allocate the costs of general and intangible wages and plant, along with other
       common costs including real estate taxes, between the distribution of power to Illinois
       ratepayers and the transmission of power out of state. The Commission sets only the rates for
       power distributed to ratepayers in Illinois. The Federal Energy Regulatory Commission
       (FERC) regulates the interstate transmission of energy.
¶ 25       In its filed tariff, ComEd used a formula for allocating the general costs that differed from
       the formula the Commission used in prior rate cases, and the proposal allocated several million
       dollars more to the amounts set for recovery from ratepayers. ComEd contended that its new
       formula coincided with the formula it used in its filings with FERC and assured that ComEd
       would fully recover all its costs, either from ratepayers or from out-of-state purchasers.
       According to ComEd, the use of a different formula for allocating costs might allow some
       costs to remain unrecovered, trapped between the FERC and Commission tariffs.
¶ 26       The staff argued that ComEd had not shown that its new proposal aligned costs with
       methods FERC required for cost allocation. The staff also pointed out that for determining the

                                                   -7-
       percent of common wages to allocate to ratepayers, ComEd used less than all general wages as
       the denominator, leading to an overstatement of the percentage of common wages recoverable
       from ratepayers.
¶ 27       The Commission said:
                   “ComEd points to no fact in its argument indicating that there actually is such a
               ‘trapping’ between the two jurisdictions. ***
                   The Commission also disagrees with ComEd’s contentions that it has met its
               burden of proof regarding the need to change its methodology, after several years, and,
               that it has established that costs are being ‘trapped’ between the two jurisdictions (this
               Commission and the FERC). ***
                   *** There has been no showing on the part of ComEd that there is any circumstance
               that warrants any change from what the Commission has approved in [the prior rate
               case], and in the decade or so preceding the final order in that docket ***.”
¶ 28       The Commission separately noted that it found no justification for changing the allocation
       of real estate taxes.

¶ 29                                Limit on Performance Incentives
¶ 30       The Act directs the Commission to set protocols for the “recovery of incentive
       compensation expense that is based on the achievement of operational metrics, including
       metrics related to budget controls, outage duration and frequency, safety, customer service,
       efficiency and productivity, and environmental compliance.” 220 ILCS 5/16-108.5(c)(4)(A)
       (West 2012). ComEd set performance goals for ComEd as a whole and for each group of
       employees, using metrics of the kinds listed in the Act. ComEd set in advance the amount of
       bonuses an employee would receive if ComEd and the group that included the employee
       achieved 100% of the goals ComEd set. But ComEd and the groups of employees could exceed
       the preset goals, and ComEd sought to recover from ratepayers’ bonuses to employees of more
       than 100% of the preset bonuses when performances of employee groups exceeded goals.
       ComEd shifted funds from the incentive bonus plan in place before it filed the new tariff to a
       plan set up to take advantage of the changes in the Act and the performance-based tariff.
¶ 31       A witness for the City of Chicago (the City) explained that when ComEd set the bonus
       amount for meeting all goals as part of its incentive compensation plan, it set the amount as “a
       form of ratepayer protection by capping overall [incentive bonus] payouts ***. Allowing
       [incentive bonus] expense in the Formula Rate Plan to increase based on management’s, or the
       boards, discretionary lifting of the net income limiter removes or negates that ratepayer
       protection.” The witness concluded that the Commission should permit ComEd to award
       bonuses to its employees in excess of the preset bonuses, “but any increases in [incentive
       bonus] payouts resulting from such discretionary increases should be borne by shareholders,
       not by ratepayers. It is unreasonable for ratepayers to pay additional expense for incentive
       compensation based on CEO discretion to increase the limitation otherwise provided by the net
       income limiter.” The City asked the Commission to limit ComEd’s recovery from ratepayers
       to 100% of its preset bonus amounts if it achieved all of the performance goals it set.
¶ 32       The staff agreed with the City that the discretionary increases in the bonuses rendered the
       limiting feature for bonuses deceptive. The staff and other intervenors noted that in
       transferring funds to the new bonus plan, ComEd could manipulate performance measures for

                                                   -8-
       various groups of employees to circumvent payout limits. But, unlike the City, the staff
       recommended a cap of 102.9% of the preset bonuses, a number used in the prior rate case, as
       the limit ComEd could recover from ratepayers. The excess would allow ComEd to recover a
       reasonable amount of the incentives it paid to encourage employees to exceed performance
       goals, while still limiting the cost to ratepayers of performance bonuses.
¶ 33       The Commission held:
               “[W]ithout some sort of cap on [incentive] programs, as Staff [and intervenors] point
               out, there can be manipulation on the part of management at ComEd between the two
               programs without any real accountability to ratepayers as to what the employees
               actually did to earn incentive compensation benefits. However, the Commission
               declines to modify ComEd’s two incentive compensation plans to exclude this
               discretionary power from the plans. ***
                   The Commission does, however, find that a cap on incentive compensation benefits
               that are recoverable through rates is necessary, given the potential for manipulation
               between the two incentive compensation programs. The Commission therefore adopts
               Staff’s cap of 102.9% for any incentive program. Doing so allows for some growth in
               incentive compensation for ComEd’s employees, while placing a damper on the ability
               of ComEd’s management to manipulate the caps on these programs in a manner that
               increases rates without evidence that adequate benefits flow to ratepayers. However,
               because the Commission places these restrictions on incentive compensation recovery
               through rates going forward, we decline to adopt the [City’s proposed] adjustment to
               remove this expense for 2010. The Commission thus disallows $2,142,000 [of the
               bonus expense as an addition to the revenue requirement].”

¶ 34                                       Payment to Affiliate
¶ 35       Exelon Corporation, a utility services holding company, operates ComEd as its subsidiary.
       ComEd purchases some services from another subsidiary of Exelon, Exelon Business Services
       Co. (BSC). The payments from ComEd to BSC include amounts used to pay BSC employees
       incentive bonuses based on BSC’s net income and earnings per share goals. ComEd included
       the full payments it made to BSC in its operating costs, for recovery from ratepayers. A witness
       for intervenors asked the Commission to reduce the amount of the compensation to BSC
       recoverable from ratepayers by an amount that reflected the incentive bonuses BSC paid its
       employees. The staff agreed with the intervenor’s witness, arguing that the Act does not permit
       recovery from ratepayers of bonuses based on net income or earnings per share. See 220 ILCS
       5/16-108.5(c)(4)(A) (West 2012).
¶ 36       ComEd argued that the section only forbids compensation from ratepayers for incentive
       compensation ComEd pays its own employees based on an affiliate’s net income or earnings
       per share, not compensation ComEd pays to an affiliate which includes the affiliate’s incentive
       compensation to its own employees.
¶ 37       The Commission held that the Act gives it “jurisdiction over affiliated interests having
       transactions *** with electric *** public utilities under the jurisdiction of the Commission.”
       220 ILCS 5/7-101(2)(ii) (West 2012). Under ComEd’s proposed rates, ratepayers ultimately
       would pay the incentive compensation to BSC employees. The Commission held:

                                                  -9-
              “[R]atepayers pay for this incentive compensation and ratepayers are entitled to proof,
              in this docket, that this portion of BSC’s charges is being prudently incurred. ***
              However, this record lacks such proof. ***
                  Further, *** the ‘earnings-per share’ program provides corporate incentive to
              increase profits, without regard to consumers’ welfare. Because the issue here is
              ‘earnings-per share’ type of incentive compensation that is awarded to BSC employees,
              it appears that BSC’s employees may be motivated to increase corporate profits at the
              expense of rate-paying consumers.”
¶ 38      The Commission adopted the staff’s proposed adjustment reducing the amount ComEd
       could recover from ratepayers for the services BSC provided.

¶ 39                                    Restricted Stock Program
¶ 40       ComEd pays some of its managers part of their compensation in the form of shares of
       Exelon stock. ComEd makes the same stock payments regardless of corporate net income or
       earning per share. The staff’s accounting expert testified that the payment in this form aligns
       the managers’ interests with the interests of Exelon shareholders. Exelon’s shareholders
       benefit from increases in ComEd’s corporate profits, which ComEd may gain at the expense of
       ratepayers. The accounting expert saw no evidence that the payments in Exelon stock
       benefitted ComEd’s ratepayers.
¶ 41       ComEd argued that it needed to provide extra compensation to retain key managers.
       ComEd offered no explanation for the need to use Exelon stock, rather than a form of
       compensation that would not make managers benefit from increasing rates, to retain key
       managers.
¶ 42       The Commission noted that it had disallowed recovery from ratepayers for the cost of the
       same compensation program in the previous two rate cases ComEd brought, and ComEd had
       not shown that the program met statutory criteria for inclusion in costs recoverable from
       ratepayers. See 220 ILCS 5/16-108.5(c)(4)(A) (West 2012). The Commission again
       disallowed recovery from ratepayers for the compensation paid to key ComEd managers in
       Exelon stock.

¶ 43                                      Charitable Contributions
¶ 44       ComEd sought to recover from ratepayers $6 million for contributions ComEd made to
       charitable organizations ComEd chose. The Act expressly permits ComEd to recover from
       ratepayers, in addition to the costs of producing energy, the total of ComEd’s “donations ***
       for the public welfare or for charitable scientific, religious or educational purposes.” 220 ILCS
       5/9-227 (West 2012). That is, under the Act, ComEd in effect gives the ratepayers’ money to
       charitable organizations ComEd chooses. ComEd then charges the ratepayers interest on the
       donations, at an interest rate currently in excess of 8% per year. ComEd retains the interest on
       the donations of the ratepayers’ funds ComEd makes to charitable institutions. Applying the
       Act as written, the Commission allowed ComEd to include as recoverable costs, earning
       interest at the approved rate, all but a small portion of ComEd’s $6 million in charitable
       donations.

¶ 45                                     Rehearing and Appeal

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¶ 46       ComEd asked the Commission to reconsider several of its rulings. ComEd especially
       challenged the rulings concerning (1) what part of its capital investments for a given year it
       counts as part of its rate base for that year; (2) the interest ratepayers needed to pay on
       reconciliation amounts; and (3) the formula for recovering pension costs. Staff and several
       intervenors opposed the motion for rehearing on those three issues. ComEd also requested
       rehearing on issues of using expected population growth in setting rates, allocation of costs
       between in-state distribution and transmission out of state, limits on recovery for employee
       bonuses, limits on recovery for payments to BSC, and payment to managers in Exelon stock.
       Only the staff opposed the request for rehearing on these additional issues.
¶ 47       The Commission granted the motion for rehearing, but it limited the rehearing to the rate
       base, interest and pension issues. In an order dated October 3, 2012, the Commission
       reaffirmed its rulings on the rate base and interest, but it reversed its ruling on pensions and
       adopted ComEd’s proposal for recovering costs of funding pensions. ComEd filed a timely
       notice of appeal.

¶ 48                                     Legislative Intervention
¶ 49       During the pendency of this appeal, the General Assembly amended the Act further,
       expressly superseding and preempting the Commission’s order of October 3, 2012. Pub. Act
       98-15, § 1 (eff. May 22, 2013). With the amendment, the General Assembly expressly adopted
       ComEd’s calculation of its rate base and the interest ratepayers must pay to ComEd on the
       reconciliation amount. Pub. Act 98-15, § 1 (eff. May 22, 2013). Under the amended Act, for all
       of the capital investments ComEd makes in 2018, ComEd will start earning its return on capital
       on January 1, 2018–even if ComEd does not actually make any investment until December
       2018. Witnesses estimated the systematic overstatement of the cost of capital that the General
       Assembly approved at about $15 million to $20 million per year. The General Assembly then
       awarded ComEd interest on all reconciliation amounts, including the reconciliation needed for
       the overstatement of ComEd’s return on capital, at a rate that includes a cost of equity that
       exceeds the interest rate for safe investments by 580 basis points, despite the lack of risk to
       justify the award of such an interest rate. The parties agree that the amendment determines
       issues concerning the rate base and interest the Commission must use for reconciliation
       purposes. The parties also agree that the determination of those issues does not affect ComEd’s
       appeal on the issues of adjusting rates for population changes, allocating costs, limiting
       recovery for performance bonuses, limiting recovery for payments to affiliates, and denying
       recovery for payments to managers of Exelon stock. None of the intervenors have addressed
       the issues remaining before this court. We consider the appeal on the briefs of only ComEd and
       the staff.

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¶ 50                                           ANALYSIS
¶ 51                                       Standard of Review
¶ 52       The Act establishes the applicable standard of review:
               “The findings and conclusions of the Commission on questions of fact shall be held
               prima facie to be true and as found by the Commission; rules, regulations, orders or
               decisions of the Commission shall be held to be prima facie reasonable, and the burden
               of proof upon all issues raised by the appeal shall be upon the person or corporation
               appealing from such rules, regulations, orders or decisions.” 220 ILCS 5/10-201(d)
               (West 2012).
¶ 53       Neither party challenges the Commission’s evidentiary rulings, and neither party argues
       that the Commission’s order lacks sufficient findings for informed judicial review. See 220
       ILCS 5/10-201(e)(ii), (e)(iii) (West 2012). ComEd does not contest the Commission’s
       jurisdiction, nor does ComEd argue that the proceedings violated state or federal law. Thus,
       under section 10-201(e)(iv) of the Act, this court should not disturb the Commission’s rulings
       unless “[the rulings] are not supported by substantial evidence based on the record; the
       Commission acted outside the scope of its statutory authority; the Commission issued findings
       in violation of the State or Federal Constitution or law; or the proceedings or the manner in
       which the Commission reached its findings violates the State or Federal Constitution or laws.”
       Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111, 120-21 (1995); see 220
       ILCS 5/10-201(e)(iv) (West 2012). Although the Commission’s interpretation of the Act does
       not bind this court, “the interpretation of a statute by the agency charged with the
       administration of the statute is entitled to substantial deference [citation], and such
       construction should be and normally is persuasive.” Milkowski v. Department of Labor, 82 Ill.
       App. 3d 220, 222 (1980).

¶ 54                                      Population Adjustment
¶ 55       ComEd argues first that the Commission violated the Act by mandating an adjustment of
       rates to reflect the expected growth in the number of customers served. The Act provides: “The
       performance-based formula rate approved by the Commission shall *** [p]ermit and set forth
       protocols, subject to a determination of prudence and reasonableness consistent with
       Commission practice and law, for *** historical weather normalized billing determinants
       ***.” 220 ILCS 5/16-108.5(c)(4)(H) (West 2012).
¶ 56       The Act does not specifically mention adjustments to performance-based rates for
       expected changes in the number of customers, usage, or any other determinant of total sales,
       apart from weather normalization. ComEd argues that the Act forbids any rate adjustment for
       expected changes in the number of customers served.
¶ 57       The staff counters that the Act directs the Commission to determine rates “subject to a
       determination of prudence and reasonableness consistent with Commission practice and law.”
       220 ILCS 5/16-108.5(c)(4) (West 2012). With appropriate deference to the Commission’s
       interpretation of the Act, we find that ComEd has not met its burden of proving that the
       Commission violated the Act when it required an adjustment of ComEd’s rates to take into
       account expected growth in the number of customers it served.
¶ 58       ComEd also argues that we should reverse the population adjustment as arbitrary and
       capricious, because the Commission chose not to adjust rates for other billing determinants,

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       like expected usage per customer. ComEd showed that in one year it experienced a decline in
       kilowatt hour sales per customer in some classes of customers. However, the Commission
       made a factual finding that ComEd did not show a cause for the decrease, and the Commission
       could not project on the basis of ComEd’s data whether ComEd would likely experience
       further declines in sales per customer. We agree with the Commission that ComEd has not met
       its burden of showing that the Commission’s finding is contrary to the manifest weight of the
       evidence, or that the Commission acted unreasonably when it ordered an adjustment to rates to
       account for the expected increase in the number of customers served. See Ellison v. Illinois
       Racing Board, 377 Ill. App. 3d 433, 440-41 (2007).

¶ 59                                          Cost Allocation
¶ 60       Next, ComEd contends that the Commission’s method for allocating general costs between
       distribution to the ratepayers in Illinois, and transmission to out-of-state buyers, violated
       federal law. ComEd admits that the Commission applied the same formula for allocating costs
       to distribution and transmission that it used in several previous rate cases. The staff does not
       dispute ComEd’s evidence that it filed documents with FERC in which it allocated a greater
       percentage of its costs of general wages and plant, including real estate taxes, to distribution,
       thereby reducing the price for the electricity ComEd sold to out-of-state purchasers.
¶ 61       The staff argued that ComEd presented no evidence that FERC rules required the
       allocation for which ComEd sought approval. ComEd knew from past cases the allocation
       formula the Commission had approved, and it presented no evidence that it could not have
       applied the same allocation formula in its FERC filings. ComEd’s desire to recover a larger
       part of its costs from ratepayers, rather than from out-of-state purchasers, does not suffice as
       grounds for rejecting the Commission’s allocation of costs in a manner consistent with
       allocations used in prior rate cases. ComEd has not met its burden of proving that the
       Commission violated federal or state law or acted unreasonably in its allocation of part of
       general wages and plant costs, including real estate taxes, to distribution of power to Illinois
       ratepayers.

¶ 62                         Limit on Recovery of Performance Incentives
¶ 63       ComEd maintains that the Commission violated the Act when it imposed a limit on the
       amount ComEd can charge ratepayers for approved performance bonuses paid to its
       employees. A witness explained that ComEd could manipulate the performance metrics to
       award larger bonuses, thereby negating the beneficial effect of the net income limiter on
       bonuses. ComEd has not presented any evidence to show the witness’s conclusions erroneous.
       The Commission held that because of the possibility of manipulation, it would restrict the
       recovery of bonuses from ratepayers to 102.9% of the preset incentive bonus amount promised
       for meeting all of ComEd’s performance goals, even if ComEd exceeded those goals by more
       than 2.9%. The Act permits ComEd to recover certain bonuses for performance incentives, but
       the Act leaves that recovery “subject to a determination of prudence and reasonableness
       consistent with Commission practice and law.” 220 ILCS 5/16-108.5(c)(4) (West 2012). In
       view of the possibility of manipulation, we cannot say that ComEd has met its burden of
       proving that the Commission violated the Act or acted unreasonably in limiting ComEd’s
       recovery from ratepayers to 102.9% of the preset incentive bonus amount.

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¶ 64        ComEd also claims that the Commission’s order is internally inconsistent. ComEd points
       to this passage:
                “However, because the Commission places these restrictions on incentive
                compensation recovery through rates going forward, we decline to adopt the CUB/City
                adjustment to remove this expense for 2010. The Commission thus disallows
                $2,142,000.”
¶ 65        In this passage, the Commission rejected the proposal from the City and the Citizens Utility
       Board for limiting the bonus recoverable from ratepayers for 2010 to 100% of the preset bonus.
       The Commission instead adopted the staff’s proposal, limiting the bonuses recoverable
       through rates to 102.9% of the preset bonus, in accord with a ruling in a prior rate case. Under
       the staff’s proposal, the Commission deducted $2,142,000 from the costs ComEd included in
       its proposed revenue requirement, instead of making the larger deduction the City proposed.
       We see no inconsistency or ambiguity of the order on this issue.

¶ 66                                          Payment to BSC
¶ 67       The Commission did not allow ComEd to recover from ratepayers the full payment ComEd
       made to its affiliate, BSC, for services BSC performed. The Commission found that part of the
       payment reflected an amount needed to pay bonuses to BSC employees, where the employees
       earned the bonuses when BSC met certain net income and earnings per share targets. ComEd
       claims that the Commission violated the Act, because the Act does not give the Commission
       jurisdiction over BSC.
¶ 68       The Act provides, “[i]ncentive compensation expense that is based on net income or an
       affiliate’s earnings per share shall not be recoverable under the performance-based formula
       rate.” 220 ILCS 5/16-108.5(c)(4)(A) (West 2012). The Commission interpreted this provision
       to permit it to disallow recovery from ratepayers of that part of any payment ComEd makes to
       an affiliate that goes to payment of bonuses paid to the affiliate’s employees based on the net
       income or earnings per share of the affiliate. ComEd argues that the Act means only that
       ComEd cannot recover from ratepayers the incentive compensation it pays its own employees
       based on an affiliate’s net income or earnings per share. According to ComEd, the Act requires
       recovery from ratepayer for amounts ComEd pays to an affiliate to provide incentives for the
       affiliate’s employees to improve the affiliate’s net income.
¶ 69       ComEd asks us to read into the Act a limitation not expressed in the Act. But “[a] court
       may not inject provisions not found in the statute.” Bridgestone/Firestone, Inc. v. Aldridge,
       179 Ill. 2d 141, 154 (1997). We find that the Commission’s interpretation of the Act accords
       with the words of the Act. Deferring to the Commission’s expertise in interpreting the Act, we
       hold that ComEd has not shown that the Commission erred when it disallowed recovery from
       ratepayers of part of the amount ComEd paid to its affiliate, to reflect the part of the payment
       from ComEd that provided incentive bonuses to the affiliate’s employees based on the
       affiliate’s net income. Milkowski, 82 Ill. App. 3d at 222.

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¶ 70                                    Restricted Stock Program
¶ 71       Finally, ComEd contends that the Commission erred when it did not allow ComEd to
       recover from ratepayers the cost of stock in Exelon that ComEd paid to certain managers. The
       staff’s witness explained that the form of compensation ComEd chose aligned the managers’
       interests with the interests of Exelon’s shareholders. In particular, because ComEd chose to
       pay the managers in Exelon stock, the managers earn more compensation by maximizing
       Exelon’s price per share, where Exelon’s net income and earnings per share correspond
       roughly with the price per share of Exelon’s stock. Thus, the managers earn more by
       maximizing the profits that ComEd extracts from its operations. Maximizing the revenue
       ComEd receives from its ratepayers helps increase its profits. We agree with the Commission
       that ComEd did not meet its burden of proving that aligning the interests of its managers with
       the interests of shareholders, and giving the managers an incentive to maximize the cost to
       ratepayers of ComEd services, served the interests of ratepayers. The Commission did not err
       when it disallowed recovery from ratepayers for amounts ComEd paid to its managers to align
       the managers’ interests with the interests of Exelon shareholders.

¶ 72                                          CONCLUSION
¶ 73        ComEd did not meet its burden of proving that the Commission made findings contrary to
       the manifest weight of the evidence, misinterpreted the Act, or misapplied the Act to the facts
       in its decisions to disallow recovery from ratepayers for bonuses in excess of 102.9% of preset
       bonus amounts for meeting performance targets, bonuses paid to an affiliate’s employees, and
       incentive compensation paid to managers in the form of Exelon stock. ComEd also did not
       meet its burden of showing error in the Commission’s decision to adjust rates for expected
       increases in the number of customers ComEd will serve, and to allocate costs of general wages
       and plant in accord with the formula used in prior rate cases, rather than using the formula
       ComEd adopted for its filings with FERC. Accordingly, we affirm the Commission’s order.

¶ 74      Affirmed.

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