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Commonwealth Edison Co. v. Illinois Commerce Commission

April 03, 1998

IN THE APPELLATE COURT OF ILLINOIS SECOND DISTRICT COMMONWEALTH EDISON COMPANY, PETITIONER,
v.
ILLINOIS COMMERCE COMMISSION, RESPONDENT.



The opinion of the court was delivered by: Justice Doyle

ICC Docket No. 96--0229

Petitioner, Commonwealth Edison Company (ComEd), appeals directly to this court from an order of respondent, the Illinois Commerce Commission (Commission). The order denied ComEd's petition to the Commission for consent and approval to provide energy support services to energy users. ComEd contends that the order was erroneous because the Commission improperly (1) applied a required balancing test; (2) based its decision on a section of the Public Utilities Act (220 ILCS 5/1-101 et seq. (West 1996)) that had no bearing on the proceedings; and (3) relied on two central factual findings that were not supported by substantial evidence.

On April 1, 1996, ComEd filed a petition with the Commission seeking the Commission's consent and approval pursuant to section 7--102 of the Public Utilities Act (Act) (220 ILCS 5/7--102 (West 1996)) to provide energy support services to energy users. The petition and a later amended petition described energy support services as including the following: the furnishing, design, engineering, construction, operation, analysis, and management of electrical power equipment, energy systems, and energy conversion systems; the selection, evaluation, acquisition, installation, and testing of equipment used in such systems, including energy efficiency and conservation equipment; and the auditing and monitoring of such energy systems.

ComEd's amended petition stated that the business of providing energy support services typically involved a number of components, including evaluating an energy user's need for energy support services; developing a proposal describing the work to be completed in implementing the energy support services and the estimated cost and benefit to the user; purchasing and financing the proposed energy support services (including possible financing arranged by ComEd); providing the energy support services, possibly involving ComEd contracting with third-party service providers who would perform portions of the work; and, in some cases, guaranteeing part of the user's projected energy cost savings from the implementation of the energy support services.

On October 16, 1996, and October 24, 1996, a hearing was conducted regarding ComEd's petition. Both ComEd and the staff of the Commission (Staff) appeared at the hearing and presented evidence. The Central Illinois Light Company (CILCO) and the Northern Illinois Coalition for Fair Competition (NICFC) also appeared at the hearing and were allowed to intervene. Neither CILCO nor NICFC presented evidence at the hearing.

ComEd presented the testimony of several witnesses. ComEd's testimony included the following: ComEd filed the petition because it perceived a need to provide energy support services to energy users who had requested such services; ComEd is facing competition on many fronts and it is therefore imperative that it be allowed to provide energy support services so that it can be as competitive as possible; ComEd's entry into the energy support services market would constitute diversification for the company and would decrease its overall business risks by better enabling it to retain customers that it might otherwise lose to competitors that are able to provide energy support services; and it is important that ComEd be allowed to provide energy support services itself because customers want "one-stop" shopping that would allow them to obtain both energy and energy support services from a single provider.

ComEd also presented testimony regarding the benefits that would result if it were allowed to provide energy support services. This testimony was that ComEd's provision of energy support services would result in the following benefits: (1) benefits to all ComEd customers through the retention of customers by meeting customers' needs; (2) promotion of the public interest in the safe and efficient operation of electrical equipment; (3) establishment of reliable energy supply and support services for customers; and (4) enhancement of the skills of ComEd personnel who provide such services.

Staff also presented testimony. Two Staff witnesses recommended that the Commission deny ComEd's petition. One of these Staff witnesses was Scott Rungren, a senior financial analyst in the finance department of the public utilities division of the Commission. Rungren based his recommendation on his opinion that allowing ComEd to provide energy support services would impact ComEd's risk and cost of capital in an unquantified way, creating the potential for a violation of section 9-- 230 of the Act (220 ILCS 5/9--230 (West 1996)) in a future rate proceeding. Rungren testified that if a non-regulated subsidiary of Unicom, ComEd's parent holding company, provided energy support services instead of ComEd, there would be no need to be concerned about the Commission's ability to enforce section 9--230 in a future rate proceeding. In Rungren's view, any risk associated with the provision of energy support services would not be reflected in ComEd's cost of capital if a Unicom subsidiary provided energy support services instead of ComEd.

The other Staff witness who recommended that the Commission deny the petition was Eric P. Schlaf, a senior economist with the Commission's office of policy and planning. Schlaf testified that it was not necessary for ComEd itself to provide energy support services because an unregulated subsidiary of Unicom could provide energy support services and accomplish each of the benefits that ComEd asserted would result from its provision of energy support services. Schlaf also testified that the approval of the petition would allow ComEd to take unfair advantage of its competitors in the energy support services market by exploiting a monopoly that ComEd has with respect to the transmission of energy in its service area.

ComEd presented testimony that was intended to rebut the testimony of Rungren and Schlaf. This testimony included the following: allowing ComEd to provide energy support services would decrease, not increase, ComEd's business risks because not offering energy support services would tend to increase the risk that ComEd would lose customers to other providers that are able to provide energy support services; because ComEd's entry into the energy support services business would not increase its business risk, it would not increase ComEd's cost of capital; the public interest would best be served if ComEd, rather than an unregulated Unicom subsidiary, provided energy support services because customers benefit most from "one-stop" shopping; the provision of energy support services by an unregulated Unicom subsidiary would place ComEd at a competitive disadvantage to other suppliers of energy support services; ComEd would not and could not take advantage of competitors through any monopoly it had in the transmission of energy; and, if the Commission were to deny ComEd's petition, ComEd's core electric business would be exposed to greater risk.

On January 16, 1997, the hearing examiner issued a proposed order. The proposed order included findings that ComEd's plan to provide energy support services was reasonable and would promote the public interest and convenience. The proposed order recommended approval of ComEd's amended petition.

On March 31, 1997, the Commission issued its final order (the order). The order denied ComEd's petition after finding that "ComEd's proposal to provide energy support services will not promote the public convenience."

ComEd subsequently filed a petition for rehearing, which was denied. ComEd's timely appeal followed.

A direct appeal from an order of the Commission is governed by section 10--201 of the Act (220 ILCS 5/10--201(a) (West 1996)). Section 10--201 provides that the appellate court shall reverse a commission order if the court determines, inter alia, that the order was not supported by substantial evidence, or the order was in violation of the state or federal constitutions or laws. 220 ILCS 5/10--201(e)(iv)(A), (C) (West 1996).

On appeal, ComEd first contends that the Commission committed legal error by improperly applying a required balancing test when it decided to deny ComEd's petition. The parties agree that section 7--102 of the Act governs ComEd's petition.

Section 7--102 requires a public utility to seek formal approval from the Commission before the utility may, inter alia, make a contractual guarantee, engage in a nonutility business (such as the provision of energy support services), or provide financing to third parties. See 220 ILCS 5/7--102(f),(g),(h) (West 1996). Section 7--102 directs the Commission, if it considers it necessary, to conduct a hearing regarding the utility's petition.

Section 7--102 also directs the commission to apply a "public convenience" standard. In this regard, section 7--102 provides that "if the Commission is satisfied that such petition should reasonably be granted, and that the public will be convenienced thereby, the Commission shall make such order in the premises as it may deem proper ...


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