Court Opinion

ID: 3140864
Source: CourtListenerOpinion
Date Created: 2015-10-22 17:52:28.616891+00
Date Added: 2024-06-11T12:07:54.032439
License: Public Domain

No. 3-06-0879
                    consolidated with No. 3-07-0569

_________________________________________________________________
Filed April 11, 2008
                             IN THE

                      APPELLATE COURT OF ILLINOIS

                            THIRD DISTRICT

                              A.D., 2008

ILLINOIS POWER COMPANY,        )
d/b/a/ AMERENIP,               )
                               ) Petition for Review of an
     Petitioner-Appellant,     ) Order of the Illinois
                               ) Commerce Commission in
     v.                        ) Docket No. 03-0699 and
                               ) Docket No. 04-0677.
ILLINOIS COMMERCE COMMISSION   )
and DYNEGY, INC.,              )
                               )
     Respondents-Appellees.    )
_________________________________________________________________

       JUSTICE LYTTON delivered the opinion of the court:
_________________________________________________________________

     The   petitioner,    Illinois   Power   Company,   d/b/a   AmerenIP

(Illinois Power), seek review of two orders issued by the Illinois

Commerce Commission (Commission), finding that Illinois Power did

not act prudently in remediating deliverability issues at its

natural gas storage facility in Hillsboro, Illinois. As a result,

the Commission concluded that the costs Illinois Power incurred to

obtain natural gas to reinject the field in 2003 and 2004 could not

be recovered from its customers. On appeal, Illinois Power argues

that (1) the Commission’s findings are not supported by substantial

evidence in the record, and (2) the Commission improperly applied

the prudence standard.     We affirm.

               I.     Commerce Commission Proceedings

     This consolidated appeal concerns Illinois Power’s Hillsboro

natural gas storage facility.         The Hillsboro facility is an
underground reservoir that contains two different storage layers.

The top layer of the reservoir contains working gas.             Working gas

is the volume of gas in the reservoir that is injected for storage

during the summer months and then withdrawn to be supplied to

customers in the winter months.         The bottom layer houses base gas

which is the volume of gas required to provide adequate pressure to

cycle the working gas.         Generally, a utility does not remove the

base gas from a reservoir field.

       Following an expansion project in 1993, Illinois Power began

experiencing reduced inventory and deliverability problems at the

Hillsboro plant and inadvertently began removing base gas from the

field.   After years of investigation, the company determined that

the problems were caused by improper metering. In 2003, they began

reinjecting    the   field     to   restore   the    depleted    natural   gas

inventory.    The reinjection process was not completed until the

spring of 2004.      Pursuant to the Public Utilities Act (Act) (220

ILCS    5/10-201   et   seq.    (West   2002)),     Illinois    Power   passed

$6,879,109 in 2003 and $2,979,849 in 2004 onto its customers in the

form of purchase gas adjustment (PGA) tariffs to recover the costs

of the reinjection process.

       In November of 2003, the Commission commenced reconciliation

hearings in accordance with section 9-220 of the Act and directed

Illinois Power to present evidence showing its reconciliation of

PGA tariff revenues with the actual cost of gas supplies prudently

incurred for the 12 month period ending December 31, 2003 (Docket

No. 03-0699).      One year later, the Commission initiated a second

reconciliation proceeding directing Illinois Power to present

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evidence for the 12 month period ending December 31, 2004 (Docket

No. 04-0677).   The evidence presented at both proceedings was

substantially the same.

     Illinois Power engineers and expert witnesses testified that

the expansion of the Hillsboro field increased the working gas

inventory from 3.1 billion cubic feet (Bcf) to 7.6 Bcf and

increased the peak day capacity (the amount of gas to be withdrawn

per day) from 50,000 million cubic feet (Mcf) to 125,000 Mcf.   The

company operated Hillsboro at those levels for the 1993-1994

season. In subsequent winters, however, Illinois Power was unable

to withdraw the full amount of gas that had been previously

injected into the field.

     Given the actions taken to expand the storage reservoir, the

possibility existed that the reservoir was physically breached

during the expansion process, thereby allowing the newly injected

gas to escape or migrate into other areas of the reservoir from

which the gas could not be accessed.       Other potential causes

involved gas migration, gas leaks to the surface, or damage to the

intake and withdrawing wells, which would have prevented efficient

production of gas inventory.    Illinois Power conducted numerous

tests in an attempt to determine the cause of the problem.      The

company was concerned about taking corrective action without first

properly identifying the cause of the problem.

     The company’s experts testified that because of the expansion,

it was logical and appropriate to focus initially on a reservoir or

structural defect.   Thus, Illinois Power decided to pursue an

extensive structural investigation beginning in 1997.     Illinois

                                3
Power had a vertical seismic profile of the reservoir field

prepared by outside consultants. This study concluded that a more

detailed three dimensional seismic analyses was necessary.                       The

preliminary results of the 3-D seismic study indicated                          that

approximately 3.5 Bcf of gas had migrated to another structure

northeast of the field.     In November 2000, based on the results of

this study, Illinois Power drilled a new well but found no

substructure below.        In light of these inconsistent findings,

Illinois Power asked the consultants to reevaluate the 3-D seismic

analysis. After collecting additional information and reprocessing

the 3-D seismic data, the firm concluded that the additional

structure that had been thought to exist to the northeast of the

Hillsboro field did not exist. This conclusion was reached in the

fall of 2001.

     While investigating the possibility of structural causes or

reservoir     problems,    Illinois       Power    also      retained    Peterson

Engineering to conduct an audit of the metering instruments at

Hillsboro.    Peterson was retained in August of 1999 and issued its

finding in December of 1999.        In its report, Peterson identified

two problems with the Hillsboro meters.                 First, two new turbine

injection meters were over-registering gas volumes under certain

operating    conditions.      Specifically,        when      the   nearby   plant

compressors operated at certain levels, they caused the meters to

over-spin, thereby recording a greater amount of gas as having been

injected than was actually passing through the meter. The turbine

meter   over-registration     was     calculated        to   be    26%   when    the

compressors    were   operating     at     50%    but    only     1.7%   when    the

                                      4
compressors were operating at 100% loadings.                 Second, the orifice

meter on one of the four withdrawal wells had an opening that was

smaller than the size value stamped on the orifice plate.                      The

diameter stamped on the plate was 10% larger than its actual

diameter.     This meant that less gas was being withdrawn from the

field that had been believed.          In basic terms, there was less gas

going in and less gas coming out than the meters were indicating.

       According to Illinois Power, the amount of error on the

withdrawal meter could be easily calculated based on the different

sized orifice measurements.          However, the company maintained that

the injection meter over-registration could not be as easily

determined.     Illinois Power attempted to calculate the loss by

estimating when the compressors were operating at certain levels.

Using this estimation method, Illinois Power initially determined

that   the    two   metering   errors       offset    each     other.     It   was

subsequently discovered that the injection metering error was much

larger than the withdrawal metering error.                   Illinois Power made

several meter operating corrections to the facility to eliminate

both meter measurement error.          These changes were implemented in

May 2000.

       In   early   spring   2003,    Illinois       Power    conducted   another

exhaustive set of structural analyses of the reservoir, including

(1) neutron log analyses, (2) flame ionization surveys, (3) field

metering     versus   plant    metering       comparisons,       (4)    reservoir

performance tests, and (5) volumetric analyses.                     These tests

indicated that the working gas and base gas volumes in the

Hillsboro field had been significantly depleted over time due to

                                        5
the injection metering problem.

     As a result, Illinois Power developed an estimate of the total

gas inventory shortfall that had resulted from the metering error

and created a plan to reinject gas to restore the Hillsboro base

gas volume and working gas volume to the original post-expansion

amounts.     Illinois Power commenced reinjection in the spring of

2003.

     Commission Staff presented evidence in response to Illinois

Power’s position. Eric Lounsberry, an engineer in the engineering

department of the Commission’s energy division, testified that the

information available to Illinois Power in 1999 pointed to metering

errors as the most likely cause of the deliverability problems.

Lounsberry    stated   that   if   Illinois   Power   had   used   existing

information and available well data, it would have discovered that

an inventory shortfall was the primary problem.

     First, Lounsberry testified that Illinois Power was aware of

problems with its storage field metering equipment as early as

1996 and was also aware of similar deliverability issues at another

Illinois Power field, the Shanghai storage field.            The Peterson

study noted that the company was aware in 1996 that computed

volumes from the plant metering and well metering instruments had

not been satisfactorily reconciled at Hillsboro or the Shanghai

plant.     Lounsberry stated that these two similar situations

indicated that Illinois Power’s ability to identify the root cause

of the problem was inadequate.

     Second, Lounsberry asserted that the 1994 well data from the

intake/withdrawal wells at Hillsboro could have been accurately

                                     6
extrapolated and would have quickly determined that the intake

metering error was much larger than the withdrawal error.                 He

testified that Illinois Power had actually integrated some of the

daily well measurement to calculate the volume of gas injected and

that the company could have used that data to integrate all of the

measurements between 1994 and 1999. He stated that the integrated

volume    measurements   would    have   been   more   accurate   than   the

estimation method used by Illinois Power and would have immediately

alerted the company that the injection meter error was the source

of the deliverability issue. Lounsberry concluded that if Illinois

Power had conducted a more thorough review of the metering issues

after the Peterson study was completed, it would have discovered

the true magnitude of the injection metering error and could have

started replacing the gas in the Hillsboro field during the 2000

season.

                     II.   The Commission Orders

     The Commission issued orders finding Illinois Power’s actions

imprudent in both cases.         In docket No. 03-0699, the Commission

defined prudence as "that standard of care which a reasonable

person would be expected to exercise under the same circumstances

encountered by utility management at the time decisions had to be

made." Applying this standard, the Commission determined that the

delay in discovering the meter error and Illinois Power’s decision

to delay reinjecting the Hillsboro storage field were imprudent.

The Commission agreed with the Staff’s assessment that Illinois

Power should have started replacing the inventory in the Hillsboro

field during the 2000 season.

                                     7
     The Commission was also persuaded that the Staff’s "overall

storage concerns" were indications that Illinois Power was less

than prudent at the Hillsboro site. The Commission order provided:

           "In   the    Commission’s    view,    [Illinois    Power]

     imprudently selected the easy path when it discovered

     there might be a problem at Hillsboro.           It appears that

     with inadequate thought, [Illinois Power] decided the

     problems at Hillsboro must be structural and began hiring

     consultants to identify the exact nature of the problem.

     This followed the ineffective pattern established for the

     Shanghai Storage Field. *** [C]learly something is amiss

     in   [Illinois    Power’s]   operations    and    management   of

     storage fields."

     In conclusion, the Commission held that Illinois Power was

imprudent in its operation of the Hillsboro field because it "(1)

failed to conduct a thorough study of the injection error at the

time it was identified, (2) failed to conduct any inspections to

assure that the orifice meters were working properly, [and] (3)

failed to begin returning the inventory to the field when the

working gas volumes fell below the pre-expansion volume of 3.1 Bcf

after the 1999-2000 winter season."      Consequently, the Commission

ruled that $6,870,109 of incurred costs related to Illinois Power’s

remediation of the Hillsboro depleted gas levels could not be

recovered from its customers through PGA tariffs.

     The order in docket No. 04-0677 reiterated most of the

findings contained in the 2003 case. Based on the evidence adduced

at the 2004 hearings and premised upon the Commission’s order

                                    8
entered in docket No. 03-0699, the Commission found that Illinois

Power imprudently incurred $2,979,849 in additional gas costs in

2004.

                     III.   STANDARD OF REVIEW

     An appellate court’s jurisdiction of direct appeals from the

Commission is governed by section 10-201 of the Act (220 ILCS 5/10-

201 (West 2002)).   Section 10-201(e)(iv) states that we may only

reverse a Commission order if we conclude that "[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 *** order."       220 ILCS 5/10-201(e)(iv) (West

2002).   The Commission’s findings of fact are to be accepted as

prima facie true.    Business and Professional People for Public

Interest v. Illinois Commerce Comm’n, 146 Ill. 2d 175 (1991); 220

ILCS 5/10-201(d) (West 2002).      Merely showing that the evidence

presented would support a different conclusion than the one reached

by the Commission is not sufficient.       Rather, the appellant must

affirmatively demonstrate that the opposite conclusion is "clearly

evident."   Continental Mobile Telephone Co. v. Illinois Commerce

Comm’n, 269 Ill. App. 3d 161 (1994).

                            IV.   ANALYSIS

     The General Assembly allows utilities to recover their gas

cost directly from the consumer through purchase gas adjustments

(PGA) clauses.   See 220 ILCS 5/9-220 (West 2002).    The Act clearly

places upon those utilities taking advantage of a PGA clause the

burden of proving the prudence of their gas purchases during the

course of yearly reconciliation proceedings.        220 ILCS 5/9-220

                                   9
(West 2002).    Prudence is not defined within the Act.         Commerce

Commission proceedings and our court have defined prudence as "that

standard of care which a reasonable person would be expected to

exercise under the same circumstances encountered by utility

management at the time decisions had to be made."               Illinois

Commerce Comm’n v. Commonwealth Edison Co., Docket No. 84-0395, p.

17 (1987); Illinois Power Co. v. Commerce Comm’n, 339 Ill. App. 3d
425, 428 (2003).   In determining whether a judgment was prudently

made, only those facts available at the time judgment was exercised

can be considered. Illinois Power Co. v. Commerce Comm’n, 245 Ill.

App. 3d 367 (1993).

                                  A.

      Illinois Power claims that the Commission’s order should be

reversed because the record demonstrates that it met the imposed

burden by showing that the gas costs it incurred in 2003 and 2004

as a result of the reduction of the withdrawal capacity were

prudent. First, Illinois Power argues that substantial evidence in

the record shows that its decisions and actions were reasonable

when made based on the information known to management at the time.

Second, Illinois Power claims that to begin reinjecting replacement

gas   into   Hillsboro   in   2000,    when   the   company   was   still

investigating structural and geological issues, would have been

imprudent.   Finally, Illinois Power complains that the order must

be reversed because the Commission’s prudence determination was

based, in part, on unsupported concerns at the Shanghai storage

facility.

      The Commission’s findings of fact are to be accepted as prima

                                  10
facie true, and the burden of proof on all issues raised on appeal

is on the party appealing the Commission’s order. See Business and

Professional People, 146 Ill. 2d 175 (1991); see also 220 ILCS

5/10-201(d) (West 2002). Here, nothing in the record in docket No.

03-0699 or docket No.      04-0677 demonstrates that an opposite

conclusion is clearly evident.

     Initially, the record indicates that Illinois Power failed to

promptly pursue potential metering problems that were plainly

stated and thoroughly analyzed in the 1999 Peterson report.            The

Peterson study further noted that the company was aware in 1996

that computed volumes from the facility metering and well metering

had not been satisfactorily reconciled since 1994.         At that time,

Illinois Power was also aware of injection metering instrument

errors at the Shanghai station.

     Evidence further indicated that Illinois Power had accurate

injection well data from 1994.         That information could have been

integrated to determine an accurate estimate of the total amount of

gas that had been injected into the field between 1994 and 1999.

Illinois Power claims that all of the data from those years had not

been extrapolated and was therefore unrealiable.         However, no one

on behalf of Illinois Power testified that it would have been

unduly burdensome to integrate the data to use as a comparison. As

a   means   of   verification,   the    data   was   available   and   was

sufficiently reliable.     In addition, Illinois Power neglected to

use those years for which it actually had integrated values. Given

the extent to which it tested the structural integrity of the

reservoir, it seems unreasonable to have ignored the 1994 well data

                                   11
as a means of testing the metering measurements of the reservoir.

In light of these facts, the Commission’s decision that Illinois

Power acted imprudently based on the information known to the

company at the time is sufficiently supported by the records.

       Next, we disagree with Illinois Power’s assertion that it

would have been imprudent to reinject the field with natural gas

inventory in 2000 when working gas volumes fell below pre-expansion

levels.    The record demonstrates that Illinois Power pursued the

potential structural and geological issues vigorously beginning in

1996 and even repeated and reassessed numerous geological tests

based on their assumption that the problem was caused by the

structural identity of the reservoir. However, beginning in 1999,

several reports and analyses indicated that the deliverability

issue was caused by a field metering error rather than a structural

one.    Thus, the Staff claimed that once Illinois Power corrected

the metering errors in 2000, testing those corrections during the

2000 injection season would have been appropriate.    Lounsberry’s

testimony showed that many, if not most, of Illinois Power’s

concerns with reinjecting the field too soon were unfounded based

on a review of the 1999 Petersen report and the inconsistent 3-D

seismic data on hand. Thus, the Commission position that Illinois

Power should have attempted to reinject the field in 2000 to test

the metering corrections is not unreasonable.     By waiting three

more years before even attempting to begin replacement efforts,

Illinois Power unnecessarily depleted the base gas volumes of the

reservoir and exponentially increased the cost of injection. Based

on the entire record in both proceedings, a conclusion that

                                 12
Illinois Power was prudent is not clearly evident.

     Last, we find that the Commission properly considered the

deliverability     issues    at   Illinois    Power’s      Shanghai    storage

facility.    We noted that the Act does not prohibit the Commission

from considering power utilities’ actions beyond the specific

conduct in question.        See 220 ILCS 5/9-201 et seq. (West 2002).

Thus, when the Staff provided testimony of a similar metering error

that arose at the Shanghai field, the Commission did not err in

reviewing those "concerns" in its decision.             Further, we believe

Commission consideration was appropriate based on the similar

deliverability issues in the Shanghai case.

     In Illinois Commerce Comm’n v. Illinois Power Co., Docket No.

01-0701, 2004 Ill. Puc Lexis 101 (2004), the Commission filed a

reconciliation proceeding involving Illinois Power’s Shanghai field

for the year ending in December of 2001.           As in this case, there

was a deliverability issue which was eventually associated with an

injection metering problem. The error in that case caused Illinois

Power to withdraw approximately 743,313 Mcf of natural gas above

the meter indications.       The error existed from 1995 until it was

identified in January 2000.        In that case, the Commission found

that Illinois Power’s actions "were not imprudent."              The decision

in that case indicates that by early 2000, Illinois Power had

discovered    a   metering    error   was    the   cause    of   the   company

withdrawing 20.6% more gas above what its meters reflected from the

Shanghai storage field.

     While the Commission was unwilling to find Illinois Power’s

conduct at the Shanghai facility imprudent in 2001, the issue here

                                      13
is whether Illinois Power acted prudently by reserving its decision

to reinject the Hillsboro field until the summer of 2003. Here, by

early 2000, Illinois Power had not only the information from the

Peterson study regarding metering problems at Hillsboro, but the

knowledge that there had been nearly identical metering problems at

Shanghai. This information, coupled with the information from the

well chart data, would have allowed Illinois Power to calculate the

magnitude of the metering problems in 2000 to the extent necessary

to begin reinjection much in advance of the 2003-2004 season.           In

essence, the metering error identified at the Shanghai field in

2000 undercuts the argument that it was prudent for Illinois Power

to concentrate its investigation on structural as opposed to

metering causes beyond the 2000 injection season.                Thus, the

"overall concerns" presented by the Staff were properly utilized as

additional support for the Commission’s finding of imprudence.

                                    B.

     Illinois Power also asks us to consider the Commission’s

application of the prudence standard.          Illinois Power maintains

that the Commission created an "after-the-fact" standard of care

that a reasonable person should have followed in 2000 when deciding

whether to reinject the Hillsboro field.          We disagree.

     The Commission has stated that in utility cases the prudence

standard   conforms   to   the   dictionary    definition   of   prudence.

Business & Professional People for the Public Interest v. Commerce

Comm’n, 279 Ill. App. 3d 824 (1996).          In Business & Professional

People, the court noted that prudence is commonly defined as "skill

or good judgment in the use of resources." 279 Ill. App. 3d at 831

                                    14
(citing Webster’s Ninth Collegiate Dictionary 949 (1985)). When we

apply the prudence standard, only those facts available at the time

judgment was exercised can be considered, and imprudence cannot be

sustained by substituting one’s judgment for that of another.

Illinois Power Co., 339 Ill. App. 3d at 428.

     As discussed, the record suggests that the Peterson report

presented a clear indication that the deliverability issues at

Hillsboro were due to injection metering problems. That report was

issued in the fall of 1999.      Illinois Power took the necessary

actions in 2000 and corrected the metering issues outlined in the

report. Thus, the Staff’s position that Illinois Power could have

reinjected the field as early as 2000 is based on facts available

to Illinois Power in 2000. Accordingly, the Commission’s decision

that it was imprudent to wait to reinject the field for three more

years is not based on an after-the-fact record.     It is   supported

by substantial evidence in the record dating back to 1996 and is

based on information known to Illinois Power during the 2000

injection season.

                          V.   CONCLUSION

     For the above reasons, we affirm the Commission finding that

Illinois Power’s decision to forego reinjecting the Hillsboro

storage field until 2003 was imprudent.     The Commission orders in

case No. 03-699 and case No. 04-677 are therefore affirmed.

     No. 3-06-879 -- Affirmed.

     No. 3-07-569 -- Affirmed.

     CARTER, J., and MCDADE, PJ., concurring.

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