[BETA] Fortnightly

An Illinois appeals court has questioned the idea that Commonwealth Edison Co. faces a higher degree of risk than other utilities (and thus deserves a higher return on equity), but also has affirmed the "used and useful" status of the company's Byron 2 and Braidwood 1 & 2 nuclear units, as approved by the Illinois Commerce Commission in a 1995 rate case order, which had helped justify a $303-million increase in annual rates.

Thus, the court ruling has upheld the commission's rate base allowance for the nuclear plants, based on a "needs and economic benefits test," but has remanded the case to have the commission explain why it approved a higher equity return for ComEd than indicated by most studies without citing any specific risks faced by the company.

The court also asked for more findings on why the commission approved a marginal cost study proposed by ComEd that failed to distinguish differences in costs incurred in serving new versus existing customers. In its 1995 rate order (Re Commonwealth Edison Co., 158 PUR4th 458) the commission had claimed that recognizing such distinctions would distort the cost study. The court remanded the findings for a more detailed explanation of why such distortions would occur.

Regarding investor risk, the court ruled that the commission had failed adequately to explain why it adopted one of the higher figures (12.28 percent) in setting rate of return on common equity. The commission had rejected three more moderate forecasts, finding that the studies failed to "recognize the greater risks facing Edison" as compared to sample groups of companies traditionally used in forecasting returns required by investors.

According to the court, the commission failed to explain "what greater risks" the utility faced or whether the three rejected studies failed to account for such risks. The commission also failed to provide support for an upward adjustment of 54 basis points applied to return figures in the approved study, the court said. Citizens Utility Bd. v. I.C.C., Nos. 1-95-0153 et al., Aug. 1, 1997 (Ill.App.).

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