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                                 Appellate Court                           Date: 2019.02.06
                                                                           09:26:51 -06'00'



    Citizens Utility Board v. Illinois Commerce Comm’n, 2018 IL App (1st) 170527



Appellate Court      CITIZENS UTILITY BOARD; PRAIRIE FARMS DAIRY, INC.;
Caption              UNITED STATES STEEL-GRANITE CITY WORKS; and THE
                     UNIVERSITY OF ILLINOIS, Appellants, v. THE ILLINOIS
                     COMMERCE COMMISSION and ILLINOIS-AMERICAN WATER
                     COMPANY, Appellees.



District & No.       First District, Second Division
                     Docket Nos. 1-17-0527, 1-17-0561 cons.


Filed                September 11, 2018



Decision Under       Appeal of order of Illinois Commerce Commission, No. 16-0093.
Review

Judgment             Affirmed.


Counsel on           Julie L. Soderna and Kelly A. Turner, of Chicago, for appellant
Appeal               Citizens Utility Board.

                     Eric Robertson and Ryan Robertson, of Leuders, Robertson & Konzen
                     LLC, of Granite City, for appellant Prairie Farms Dairy, Inc.

                     Thomas R. Stanton, Special Assistant Attorney General, of Chicago,
                     for appellee Illinois Commerce Commission.

                     Albert D. Sturtevant, Anne M. Zehr, and Nikhil Vijaykar, of Whitt
                     Sturtevant LLP, of Chicago, and Kenneth C. Jones, of Belleville, for
                     appellee Illinois-American Water Company.
     Panel                      JUSTICE LAVIN delivered the judgment of the court, with opinion.
                                Presiding Justice Fitzgerald Smith and Justice Cobbs concurred in the
                                judgment and opinion.


                                                  OPINION

¶1          This appeal arises from an order of the Illinois Commerce Commission (Commission)
       approving a general increase in the water and sewer service rates of Illinois-American Water
       Company (IAWC). More specifically, the Commission approved an increase in IAWC’s
       authorized return on equity (ROE). Several intervenors in the proceedings below, Prairie
       Farms Dairy, Inc., United States Steel Corporation-Granite City Works, and the University of
       Illinois, as well as Citizens Utility Board (collectively, the intervenors), now appeal. On
       appeal, the intervenors assert that (1) the ROE approved by the Commission was not supported
       by substantial evidence, (2) the Commission failed to articulate a reasoned basis for its
       incorporation of size and leverage adjustments, and (3) the authorized ROE exceeded what
       was necessary to ensure IAWC’s financial integrity and attract capital. For the following
       reasons, we affirm the Commission’s order.

¶2                                          I. BACKGROUND
¶3          On January 21, 2016, IAWC filed with the Commission revised tariff sheets seeking a
       general increase in water and sewer rates. The Commission suspended the tariff sheets from
       taking effect and commenced this proceeding to investigate the proposed rate increase. As
       stated, several parties intervened.1
¶4          The purpose of the Public Utilities Act (Act) is to provide “adequate, efficient, reliable,
       environmentally safe and least-cost public utility services at prices which accurately reflect the
       long-term cost of such services and which are equitable to all citizens.” 220 ILCS 5/1-102
       (West 2016). The Commission uses the Act’s rate of return principles to design and set just and
       reasonable rates for Illinois’s least-cost public utility services. People ex rel. Madigan v.
       Illinois Commerce Comm’n, 2015 IL 116005, ¶ 29. Those principles used to determine the
       revenue requirement take into account a recovery of prudent, reasonable costs as well as a
       return on equity.2 Id. ¶ 30. In addition, the return should assure confidence in the utility’s
       financial integrity in order to maintain its credit, attract capital (Federal Power Comm’n v.
       Hope Natural Gas Co., 320 U.S. 591, 603 (1944)), and compensate the utility’s investors (see
       Ameren Illinois Co. v. Illinois Commerce Comm’n, 2015 IL App (4th) 140173, ¶ 8).
¶5          During this proceeding, the parties resolved several issues but were unable to agree on an
       appropriate authorized ROE for IAWC. While IAWC sought a 10.75% ROE, the intervenors
       asserted that 9% was appropriate. The staff of the Commission (Staff) recommended a ROE of
       8.12%. The intervenors now challenge the Commission’s ultimate determination that an initial
       ROE of 9.87% is appropriate.

             1
            Several other entities participated below but are not parties to this appeal.
            The ratemaking formula is “R (revenue requirement) = C (operating costs) + Ir (invested capital or
             2

       rate base times rate of return on capital).” (Internal quotation marks omitted.) People ex rel. Madigan,
       2015 IL 116005, ¶ 7.

                                                      -2-
¶6                                              A. Testimony
¶7         Michael Gorman, a public utility regulation consultant, testified on behalf of the
       intervenors. Gorman testified that he used the discounted cash flow (DCF) and capital asset
       pricing model (CAPM) to measure the current market cost of equity.3 The DCF model is based
       on the assumption that a stock’s price equals the expected value of future dividends,
       discounted to present value, multiplied by the investors’ required rate of return. See id. ¶ 26.
       Under the CAPM formula, a utility’s required rate of return equals the sum of the risk-free rate
       and a risk premium. Id. ¶ 10.4
¶8         For DCF, Gorman used models for constant growth, sustainable growth, and multi-stage
       growth. Because IAWC is not a publicly traded company, he used water and gas proxy groups
       of publicly traded companies to approximate IAWC’s investment risk. See id. ¶ 12 (stating,
       with respect to utilities that are not publicly traded, that proxy groups carrying approximately
       the same amount of risk are used). As to the water proxy group, DCF analysis produced the
       following average ROEs: (1) constant growth of 9.12%, (2) sustainable growth of 8.05%, and
       (3) multi-stage growth of 7.09%. DCF analysis for the gas proxy group produced these average
       ROEs: (1) constant growth of 9.12%, (2) sustainable growth of 9.48%, and (3) multi-stage
       growth of 7.64%. Based on the foregoing, Gorman’s recommended DCF range was from 8.3%
       to 9.3%. Thus, he found his analysis supported a ROE of 8.8%, the midpoint of the range.
¶9         Gorman’s CAPM analysis resulted in 8.49% for his water proxy group and 9.77% for his
       gas proxy group. After modifying those results, the CAPM study suggested a reasonable ROE
       between 8.5% and 9.8%, with a midpoint of 9.15%. Gorman rounded the midpoint to 9.2%.
       Accordingly, Gorman found these studies indicated that a reasonable ROE would be between
       8.8% (DCF) and 9.2% (CAPM), for an estimated ROE of 9%. Gorman further opined that a
       9% ROE would support an overall rate of return that would permit IAWC to have an
       investment grade bond rating.
¶ 10       That being said, Paul Moul, IAWC’s expert and a financial and regulatory consultant,
       found Gorman’s DCF results were too low and too unrealistic and certain results were “simply
       not credible.” Moul also found Gorman’s sustainable growth DCF and multi-stage growth
       DCF results were flawed and his CAPM results were incomplete. Furthermore, Moul found
       Gorman failed to establish a reasonable basis for comparing IAWC with Gorman’s gas proxy
       group.
¶ 11       Moul testified on behalf of IAWC that he applied DCF, CAPM, risk premium analysis, and
       a comparable earnings study to a proxy group of publicly traded water companies. His constant
       growth DCF model led to a ROE of 9.72%. He had reduced his DCF results to account for
       IAWC having a higher level of debt than the proxy group (leverage adjustment). Additionally,
       after adjusting his CAPM outputs to reflect IAWC’s smaller size (size adjustment), his CAPM
       results suggested a ROE of 11.03%. Thus, Moul’s combined DCF and CAPM analyses
       indicated a range of 9.72% to 11.03% with a midpoint of 10.38%. Furthermore, Moul’s risk

           3
              Given the experts’ extensive testimony debating the appropriate methods to be used and how to
       apply them in determining an appropriate ROE, we present only a limited recitation of the experts’
       positions.
            4
              A risk premium is determined by multiplying the volatility of the utility’s equity by the premium
       that investors expect the general market to pay above a risk-free investment. Ameren Illinois Co., 2015
       IL App (4th) 140173, ¶ 11.

                                                      -3-
       premium analysis suggested a ROE of 11.25% and his comparable earnings analysis suggested
       a ROE of 13.05%.
¶ 12        Moul acknowledged, however, that all methods contain assumptions and constraints that
       are incomplete or overly restrictive. For example, he expressed concern for the circular nature
       of DCF analysis when used in rate cases. Moul further acknowledged his result did not take
       into consideration the possibility that unforeseen events would prevent IAWC from achieving
       its authorized rate of return, something that IAWC had not achieved for several years.
¶ 13        Moul determined that based on the foregoing analyses, a ROE of 10.75% represented a
       fair, reasonable cost of equity that would permit IAWC to attract capital to replace aging
       infrastructure. Moreover, Moul testified that his opinion assumed that the Commission would
       also approve a volume-balancing adjustment rider (Rider VBA): Without it, IAWC would
       have a higher risk profile than the utility companies in the proxy group.5
¶ 14        Gorman and Sheena Kight-Garlisch, a senior financial analyst in the Commission’s
       Financial Analysis Division, found that Moul’s size and leverage adjustments were
       inappropriate and, as a result, Moul’s ROE of 10.75% was too high. They rejected Moul’s
       suggestion that a leverage adjustment is required when a firm’s capitalization, as measured by
       market value, varies from the book value capitalization. Additionally, had Moul excluded
       those adjustments, his DCF analysis would have resulted in a ROE of 9% and his CAPM
       analysis would have resulted in a ROE of 8.9%. Moul, however, added a leverage adjustment
       of 0.89 to both studies and a size adjustment to the CAPM result. Gorman and Kight-Garlisch
       disagreed with Moul’s opinion that as a firm’s size decreases, its risk and required return
       increase or that a size adjustment was required. Gorman and Kight-Garlisch further testified
       that the inputs for Moul’s risk premium analysis inflated the risk premium.
¶ 15        Kight-Garlisch testified on behalf of the Staff that she performed DCF and CAPM analysis
       on water and utility proxy groups. With respect to DCF, she used a nonconstant, multi-stage
       growth model with three stages of dividend growth, which led to ROE estimates of 7.24% for
       her water proxy group and 7.51% for her utility proxy group. Kight-Garlisch declined to use
       the constant growth DCF model, finding that the near-term average dividend growth rate for
       the companies in her proxy groups were not sustainable long term. With respect to CAPM, she
       came to a ROE of 8.8% for the water proxy group and 8.9% for the utility proxy group, after
       making certain adjustments. She did not make adjustments based on size and leverage.
¶ 16        Kight-Garlisch testified that the average of her DCF and CAPM results for the water proxy
       group was 7.98%, while the average of her DCF and CAPM results for the gas proxy group
       was 8.16%. The average of both percentages was 8.07%, although she recommended a slightly
       higher ROE of 8.12%. Should the Commission approve IAWC’s proposed Rider VBA,
       Kight-Garlisch suggested an additional reduction, to 8.04%. Moul extensively criticized
       Kight-Garlisch’s analysis and found it led her to underestimate IAWC’s return on equity.
¶ 17        We also note that IAWC’s president, Bruce Hauk, testified that the utility had to compete
       with other companies and IAWC affiliates for discretionary capital and there was no incentive

           5
             A Rider VBA attempts to accurately collect the revenue requirement through a transparent,
       symmetrical formula. See People ex rel. Madigan, 2015 IL 116005, ¶ 32. A Rider VBA does not
       guarantee net profits or net revenue but ensures the recovery of the revenue requirement determined by
       the Commission. Id. A Rider VBA offers a means for a utility to recover no more and no less than the
       utility’s revenue requirement. Id.

                                                     -4-
       for IAWC’s shareholder, American Water Works Company, Inc., to invest in Illinois if it can
       get greater returns elsewhere. With a ROE of 8.04%, IAWC would have the lowest authorized
       ROE among its shareholder’s various investment entities. Additionally, IAWC would need to
       reevaluate its investment decisions. Moul further testified that the investment community
       would be alarmed. Moreover, Moul opined that it was inappropriate to reduce a utility’s ROE
       to account for a Rider VBA. The record further suggests that 8.04% would be the lowest ROE
       authorized in Illinois.

¶ 18                                      B. The Authorized ROE
¶ 19       On October 19, 2016, the administrative law judges (ALJs) recommended that the
       Commission authorize a ROE of 8.92%. In reaching that percentage, the ALJs averaged the
       results of Gorman’s constant growth DCF analysis, Moul’s unadjusted constant growth DCF
       analysis, and Kight-Garlisch’s CAPM analysis. The ALJs observed that the Commission had
       consistently rejected size and leverage adjustments. The intervenors, IAWC, and the Staff all
       filed briefs on exceptions to the ALJs’ proposed order.
¶ 20       In a 92-page order entered on December 13, 2016, the Commission rejected the ALJs’
       recommendation. After acknowledging the difficulty in estimating ROEs, the Commission
       found that the ROEs presented by IAWC (10.75%), the intervenors (9%), and the Staff
       (8.12%) varied considerably, as did the expert witnesses’ methodology. The Commission
       found that while the parties had identified shortcomings in each of the experts’ opinions,
       Kight-Garlisch’s determination was simply anomalous and an uncompetitive ROE would deter
       investment. Thus, the Commission rejected her suggested ROE of 8.12% (before deduction).
¶ 21       Consequently, the Commission averaged the 10.75% ROE recommended by Moul with the
       9% ROE recommended by Gorman. The Commission found that averaging the ROEs
       suggested by IAWC and the intervenors, to 9.87 %, would minimize some of the flaws
       identified in the parties’ respective analyses. Additionally, the order stated:
                    “The Commission acknowledges that IAWC’s DCF and CAPM results contain size
               and leverage adjustments. *** However, the ROE approved by the Commission in the
               instant docket is an average of IAWC’s and [the intervenors’] ROE recommendations
               and not an endorsement of every input of every aspect of the methodologies performed
               by these parties. See Docket No. 14-0419 at 44.”
       The Commission then deducted an additional eight points from the ROE based on its approval
       of the IAWC’s Rider VBA, in order to reflect IAWC’s reduced operating risk. 6 The
       Commission determined that a ROE of 9.79% “was reasonable, supported by the record, and
       consistent with the governing legal standard.” The intervenors now appeal.


¶ 22                                        II. ANALYSIS
¶ 23               A. The Act, the Commission’s Role, and the Reviewing Court’s Role
¶ 24       Under section 9-101 of the Act, “[a]ll rates or other charges made, demanded or received
       *** shall be just and reasonable.” 220 ILCS 5/9-101 (West 2016). Section 9-201(c) further
       states that “[i]f the Commission enters upon a hearing concerning the propriety of any

          6
           The rider and adjustment are not the subjects of this appeal.

                                                     -5-
       proposed rate or other charge ***, the Commission shall establish the rates or other charges
       *** proposed, in whole or in part, or others in lieu thereof, which it shall find to be just and
       reasonable.” Id. § 9-201(c). Moreover, the utility has the burden of demonstrating that the
       proposed rate is just and reasonable. Id.
¶ 25        “The Commission is not merely an arbitrator between the utility and parties opposing a rate
       change[;] it is an investigator and regulator of utilities[,] responsible for the setting of just rates
       for all affected by the rates.” Citizens Utility Board v. Illinois Commerce Comm’n, 276 Ill.
       App. 3d 730, 740 (1995). Its ratemaking function is legislative in nature. Business &
       Professional People for the Public Interest v. Illinois Commerce Comm’n, 146 Ill. 2d 175, 243
       (1991). In addition, it is well settled that when it comes to “matters relating to services and
       rates of utilities technical data and expert opinion, as well as complex technological and
       scientific data, *** it [is] essential that the matter be considered by a tribunal that is itself
       capable of passing upon complex data.” Village of Apple River v. Illinois Commerce Comm’n,
       18 Ill. 2d 518, 523 (1960). Moreover, the Commission has the authority to address each
       situation before it despite how the Commission may have previously addressed a similar
       situation. Citizens Utility Board v. Illinois Commerce Comm’n, 291 Ill. App. 3d 300, 307
       (1997).
¶ 26        While the Act gives the Commission broad discretion, the Act also requires it to set forth
       analysis and findings sufficient to permit informed review by the appellate court. Id. at 304
       (citing 220 ILCS 5/10-201(e)(iii) (West 1994)). Consequently, the Commission must provide
       more analysis and reasoning than what is required of a circuit court. Id. That being said, the
       Commission need not make specific findings on each claim or evidentiary fact.
       Commonwealth Edison Co. v. Illinois Commerce Comm’n, 405 Ill. App. 3d 389, 398 (2010).
       The Commission’s findings are sufficient if they enable the reviewing court to engage in an
       intelligent, informed review of the Commission’s order. Id.
¶ 27        Upon review, the Commission’s factual findings and conclusions are prima facie true and
       its decisions are prima facie reasonable. 220 ILCS 5/10-201(d) (West 2016). In addition,
       “[t]he burden of proof upon all issues raised by the appeal shall be upon the person or
       corporation appealing from such *** decisions.” Id. Moreover, the Commission is particularly
       entitled to deference with respect to fixing rates because determining rates is a matter of sound
       business judgment, which the legislature has entrusted to the Commission. People ex rel.
       Madigan, 2015 IL 116005, ¶ 23. This is because the Commission’s members are highly
       qualified to interpret evidence provided by specialists and technicians. People ex rel. Madigan
       v. Illinois Commerce Comm’n, 2011 IL App (1st) 100654, ¶ 70; cf. Thompson v. Illinois
       Commerce Comm’n, 1 Ill. 2d 350, 356 (1953) (finding that because the case involved no
       technical questions or questions of rate where the Commission would be better situated to
       assess the evidence, the supreme court was not required to reach the same conclusion of the
       Commission). In contrast, judges are not utility regulators (People ex rel. Madigan, 2015 IL
       116005, ¶ 22), and the wisdom of the Commission is not subject to inquiry (Village of Apple
       River, 18 Ill. 2d at 523). It follows that we must not reevaluate the credibility or weight of the
       evidence or substitute the Commission’s judgment with our own unless that judgment was
       clearly against the manifest weight of the evidence. People ex rel. Madigan, 2011 IL App (1st)
       100654, ¶ 70.
¶ 28        Consequently, a reviewing court will reverse the Commission’s findings only if the record
       does not show they are supported by substantial evidence, the Commission exceeded the scope

                                                      -6-
       of statutory authority, the Commission’s findings were unconstitutional, or the Commission
       reached its decision in a manner, or through proceedings, that were unconstitutional and
       prejudiced the appellant. 220 ILCS 5/10-201(e)(iv)(A) (West 2016); see also Monarch Gas
       Co. v. Illinois Commerce Comm’n, 261 Ill. App. 3d 94, 101 (1994) (stating that a reviewing
       court can set aside the Commission’s decision if it is clearly unreasonable).

¶ 29                          B. Substantial Evidence and Sufficient Findings
¶ 30       The intervenors assert that the Commission’s decision was not supported by substantial
       evidence and sufficient findings. Before addressing their specific contentions, however, we
       find it inappropriate at this juncture for the intervenors to rely on the expert opinion of
       Kight-Garlisch, the expert for the Staff. A party must assert his own legal interests and rights,
       not those of third parties. Powell v. Dean Foods Co., 2012 IL 111714, ¶ 36. The intervenors
       have not developed a cohesive argument explaining why they should be permitted to rely on
       another party’s evidence. See Enbridge Pipeline (Illinois), LLC v. Monarch Farms, LLC, 2017
       IL App (4th) 150807, ¶¶ 79-80 (finding that failure to develop a cohesive argument results in
       forfeiture). More importantly, we find the Commission’s order was supported by substantial
       evidence and sufficient findings.
¶ 31       Essentially, the intervenors suggest that in order for substantial evidence to have supported
       the ROE approved by the Commission, the record would need to show that (1) a witness
       recommended a 9.87% ROE, (2) that witness supported his testimony with additional evidence
       showing a ROE of 9.87% was appropriate, and/or (3) a witness testified that a ROE falling
       outside the range suggested by the witnesses would be proper. The intervenors contend that the
       varying expert opinions did not permit the Commission “to cobble together” an authorized
       ROE. Contrary to the intervenors’ position, that is precisely what the Act permits the
       Commission to do.
¶ 32       To the extent that the Commission’s decisions are neither arbitrary nor capricious and are
       based on credibility determinations, the Commission has wide latitude to exercise its business
       judgment to implement pragmatic solutions by “filling gaps in the record.” Commonwealth
       Edison Co., 405 Ill. App. 3d at 402. Establishing a just and reasonable rate presents a question
       of sound business judgment, rather than the application of a legal formula, and must often be a
       tentative determination given that one cannot predict exact results. Iowa-Illinois Gas &
       Electric Co. v. Illinois Commerce Comm’n, 19 Ill. 2d 436, 442 (1960). The intervenors
       fundamentally misunderstand the Commission’s role.
¶ 33       Here, the Commission did not pull a number out of the air. Instead, the Commission filled
       in the gaps left by the parties. The Commission observed that all three experts were subject to
       meaningful criticism, Kight-Garlisch more than the others. Stated differently, the Commission
       clearly found that the experts’ criticisms of each other were credible. Yet, the Commission
       determined that the opinions of Gorman were not entirely unfounded, notwithstanding that the
       flaws of one expert apparently led to an overstated ROE and the flaws of the other apparently
       led to an understated ROE.
¶ 34       The intervenors challenge as conclusory the Commission’s statements that the parties
       pointed out flaws in each other’s analyses and that averaging the results would minimize such
       shortcomings. While the Commission did not explicitly state that any particular flaws
       precluded adopting one recommendation over another, context made the Commission’s
       position clear in that regard. The Commission must make sufficient findings to permit review,

                                                   -7-
       but this does not mean that a reviewing court must ignore context or the Commission’s
       unmistakable meaning. Moreover, in context, the Commission’s order makes clear that, as the
       testimony of Moul and Hauk showed, a ROE of 8.12% was far too low to allow IAWC to
       compete for capital investment. The Commission had also been presented data showing how
       very low a ROE of 8.12% would be when compared to other utilities’ ROEs. See Continental
       Mobile Telephone Co. v. Illinois Commerce Comm’n, 269 Ill. App. 3d 161, 171 (1994) (stating
       that the challenger must show that the opposite conclusion is clearly evident, not merely that
       the evidence could support a different conclusion); Metro Utility Co. v. Illinois Commerce
       Comm’n, 262 Ill. App. 3d 266, 278 (1994) (stating that the presentation of contradictory
       evidence is not sufficient to reverse the Commission’s order).
¶ 35        Ideally, one expert would have presented flawless analysis suggesting impeccable
       accuracy in determining what ROE is appropriate in this instance, thereby allowing the
       Commission to categorically adopt the conclusion of one witness. Unfortunately, this is not the
       nature of ratemaking. See Amax Zinc Co. v. Illinois Commerce Comm’n, 124 Ill. App. 3d 4, 11
       (1984) (stating that ratemaking is not an exact science and lacks precision). Indeed, the
       Commission was within its authority to find that neither Gorman nor Moul provided a
       nonpareil opinion.
¶ 36        The Act requires “substantial evidence,” not conclusive evidence. Substantial evidence
       requires more than a mere scintilla but less than a preponderance of evidence and requires
       evidence that a reasoning mind would find to be sufficient support for a particular conclusion.
       Commonwealth Edison Co. v. Illinois Commerce Comm’n, 398 Ill. App. 3d 510, 514 (2009);
       cf. 5 ILCS 100/10-15 (West 2016) (stating under the Illinois Administrative Procedure Act that
       “[u]nless otherwise provided by law or stated in the agency’s rules, the standard of proof in any
       contested case hearing conducted under this Act by an agency shall be the preponderance of
       the evidence”). Substantial evidence can support multiple possible findings. Central Illinois
       Public Service Co. v. Illinois Commerce Comm’n, 268 Ill. App. 3d 471, 479 (1994).
¶ 37        Presented with the insightful, albeit imperfect, calculations of Gorman and Moul, i.e.,
       substantial evidence, the Commission used its expertise to determine that an average would be
       reasonable. The Commission’s order clearly shows how the figure of 9.87% was arrived at. Cf.
       Citizens Utility Board, 291 Ill. App. 3d at 305-06 (finding that while evidence might have
       supported the Commission’s decision, the Commission’s order lacked the specificity required
       by the Public Utility Act because the order failed to specify what “distortions” could occur if
       the entire marginal cost study distinguished between new and existing customers); Emera
       Maine v. Federal Energy Regulatory Comm’n, 854 F.3d 9, 23, 27-30 (D.C. Cir. 2017) (finding
       that the agency administering the Federal Power Act (16 U.S.C. §§ 824d(a), 824e(a) (2012))
       failed to explain why the rate chosen was just and reasonable where the agency, among other
       things, (1) did not identify the unusual capital market conditions warranting a change from the
       usual practice of setting the rate at the midpoint of the zone of reasonableness,
       (2) acknowledged that the alternative methods used did not lead to the specific rate chosen,
       (3) did not find that said rate would attract capital, and (4) identified inapposite cases
       supporting that rate).
¶ 38        We also find the Commission’s citation, “See Docket No. 14-0419 at 44,” is neither vague
       nor confusing. In that case, on the page cited, the Commission stated that their decision to
       average the experts’ results was not an endorsement of one expert’s use of a leverage and size
       adjustment, and that averaging results would reduce “the effects of perceived shortcomings

                                                   -8-
       and biases described in the competing positions of the parties.” See Aqua Illinois, Inc., Ill.
       Comm. Comm’n No. 14-0419, at 43 (Order-Final Mar. 25, 2015); cf. Citizens Utility Board,
       291 Ill. App. 3d at 306 (rejecting the Commission’s reliance on an earlier order whether the
       present order involved no similar analysis or reasoning). Given that the citation was provided
       after stating that the Commission was not endorsing every input used by the experts, the
       purpose of the citation is entirely clear. The Commission in both the present and prior case was
       declining to endorse the questionable adjustments. Only willful blindness could leave one in
       doubt of the Commission’s reason for citing the prior order.
¶ 39        The intervenors further argue that substantial evidence did not support the Commission’s
       inclusion of size and leverage adjustments in the approved ROE. They add, “[t]here are no
       findings of fact that explain why the Commission has determined size and leverage
       adjustments are acceptable, after decades of declining to do so.” The simple answer, once
       again, is that the Commission did not make such a determination, as the intervenors well know.
       As the intervenors acknowledge, the Commission specifically stated that it was not endorsing
       the entirety of the parties’ ROE analyses. Instead, the Commission’s order shows it was
       averaging the two ROE’s to offset the flaws in both experts’ opinions.
¶ 40        Moreover, contrary to the intervenors’ contention, the Commission’s decision to average
       the parties’ ROEs, does not conflict with that representation. Had the Commission actually
       endorsed Moul’s size and leverage adjustments, it may very well have found that the
       credibility of his opinion was markedly superior to Gorman’s opinion and authorized a ROE
       closer to 10.75%. Moreover, the intervenors ignore that if the Commission’s practice of
       averaging results endorsed the flaws in IAWC’s position, the Commission likewise endorsed
       the flaws in the intervenors’ position. The intervenors have developed no argument showing
       that the Commission incorrectly found flaws in Gorman’s analysis.
¶ 41        In short, we find that despite the intervenors’ characterization of its contentions, they
       essentially ask this court to reweigh the evidence and override the Commission’s sound
       business judgment. We decline to do so.
¶ 42        We further reject the intervenors’ contention that the Commission’s decision is entitled to
       less deference here because it departed from past practice. See People ex rel. Madigan, 2015
       IL 116005, ¶ 25 (stating that the Commission’s decision will be entitled to less deference on
       review only when it departs from the Commission’s usual rules to obtain a different
       unexplained result in a single case); Citizens Utility Board v. Illinois Commerce Comm’n, 166
       Ill. 2d 111, 131-32 (1995) (stating that the Commission’s decisions are entitled to less
       deference when they drastically depart from the Commission’s past practices). The
       Commission has repeatedly averaged imperfect analyses. 7 See People ex rel. Madigan, 2011

           7
             There are numerous examples of the Commission averaging an imperfect analysis. See Ameren
       Illinois Co., Ill. Comm. Comm’n No. 11-0282, at 126-27 (Order-Final Jan. 10, 2012) (after finding that
       no party’s ROE position stood out as being particularly superior to any other party’s position, the
       Commission decided to average the parties’ positions, according them equal weight); Liberty Utilities
       (Midstates Natural Gas) Corp., Ill. Comm. Comm’n No. 14-0371, at 66 (Order-Final Feb. 11, 2015)
       (finding that “blending the Parties’ proposals in this manner results in an average return that
       significantly diminishes any perceived upward or downward bias”); North Shore Gas Co., Ill. Comm.
       Comm’n Nos. 11-0280 & 11-0281 (cons.), at 138-40 (Order-Final Jan. 10, 2012) (finding that one
       expert’s size adjustment was unwarranted but that all parties’ expert opinions were flawed, and
       averaging the experts’ determinations); Du Page Utility Co. v. Illinois Commerce Comm’n, 47 Ill. 2d

                                                     -9-
       IL App (1st) 100654, ¶ 74 (observing that the Commission averaged two experts’ opinions as
       to the rate of return on equity before making two downward adjustments). This is entirely
       within the Commission’s function of devising pragmatic solutions. We find the intervenors’
       contention to be disingenuous.

¶ 43                                        C. Bluefield and Hope
¶ 44       Finally, the intervenors contend that the Commission’s order does not satisfy the criteria
       set forth by the United States Supreme Court in Bluefield Water Works & Improvement Co. v.
       Public Service Comm’n of West Virginia., 262 U.S. 679, 692-93 (1923), and Hope Natural Gas
       Co., 320 U.S. at 603.8 Specifically, they argue that the ROE authorized by the Commission
       was “significantly higher than necessary to maintain the IAWC’s financial integrity and attract
       capital at reasonable terms.”
¶ 45       A utility’s return should be reasonably sufficient to permit confidence in the utility’s
       financial soundness and, with economical and efficient management, to support the utility’s
       credit and raise funds necessary to properly discharge the utility’s public duties. Bluefield
       Waterworks & Improvement Co., 262 U.S. at 693. Additionally, “the return to the equity owner
       should be commensurate with returns on investments in other enterprises having
       corresponding risks.” Hope Natural Gas Co., 320 U.S. at 603. An investor has a legitimate
       concern with the utility’s financial integrity, which requires that it have enough revenue for
       operating expenses and capital costs. Id. Thus, Bluefield and Hope address the need for
       minimum returns, not the intervenors’ concern with maximum returns.
¶ 46       In any event, the Commission expressly acknowledged in its order that Bluefield and Hope
       required the Commission to “consider whether the authorized return will allow a return that is
       sufficient to maintain the utility’s financial integrity and to attract capital at reasonable terms,
       while ensuring that customers do not pay an excessive or reasonable return on those rates.” The
       Commission subsequently determined that a ROE of 9.79% “was reasonable, supported by the
       record, and consistent with the governing legal standard.” The Commission’s determination
       finds support in the record. See also id. at 602 (stating that “[i]f the total effect of the rate order
       cannot be said to be unjust and unreasonable, judicial inquiry under the [federal Natural Gas
       Act of 1938 (15 U.S.C. § 717 et seq. (1940))] is at an end”).
¶ 47       Notably, the intervenors argue that Gorman testified that a ROE of 9% would maintain
       IAWC’s financial integrity but ignore that Moul criticized Gorman’s analysis. As the
       Commission observes on appeal, Gorman admitted that his analysis was not as comprehensive


       550, 560-61 (1971) (where the utility claimed $31,680 in salaries paid as operating expense and the
       intervening homeowners associations instead suggested $0 was appropriate, the reviewing court found
       the Commission properly allowed the utility to claim $15,840, half of its original claim); North Shore
       Gas Co., Ill. Comm. Comm’n Nos. 12-0511 & 12-0512 (cons.), at 205-08 (Order-Final June 18, 2013)
       (finding that averaging the analyses used by the Staff and the utilities was an appropriate basis to
       determine the ROE and that doing so did not endorse every aspect of their analyses); Ameren Illinois
       Co., Ill. Comm. Comm’n No.13-0192, at 166 (Order-Final Dec. 18, 2013) (finding that averaging the
       DCF and CAPM results would minimize the effects of the shortcomings of the parties’ positions), aff’d
       Ameren Illinois Co., 2015 IL App (4th) 140173, ¶¶ 20, 56 (suggesting that the practice of averaging
       could depend on whether there were defective inputs and what the defective inputs were).
           8
             Bluefield involved a Virginia statute, whereas Hope involved the federal Natural Gas Act of 1938.

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       as Standard & Poor’s financial review. In addition, the intervenors ignore that Moul
       recommended a ROE of 10.75% to assure confidence in IAWC’s financial integrity. Moul also
       testified that investors would view a significant reduction in IAWC’s ROE as being unhelpful
       to the utility’s financial health. Furthermore, Hauk testified that the utility had to compete with
       other companies and IAWC affiliates for discretionary capital and it would not make sense for
       IAWC’s shareholder to invest in IAWC if the shareholder could achieve greater returns
       elsewhere. IAWC, however, had the lowest authorized ROE of its shareholder’s various
       investment entities. See Hope Natural Gas Co., 320 U.S. at 602 (stating that the Federal Power
       Commission was not required to use any particular formula and that ratemaking requires
       pragmatic adjustments). Finally, the intervenors’ contention that IAWC failed to identify any
       specific capital investment that could not be made at a ROE below 9% is misleading, as the
       record essentially shows that IAWC’s capital investments would need to be reevaluated with a
       lower ROE. Id. at 603 (stating that establishing a just and reasonable rate under the federal
       Natural Gas Act of 1938 involves balancing the interests of the consumer with those of the
       investor).

¶ 48                                       III. CONCLUSION
¶ 49       Here, the Commission’s order was supported by sufficient findings and substantial
       evidence. Having considered the parties’ contentions, the record, and the Commission’s
       decision, we find no basis to reverse that decision or remand for further proceedings. See 220
       ILCS 5/10-201(e)(iv)(A) (West 2016).
¶ 50       For the foregoing reasons, we affirm the Commission’s decision.

¶ 51      Affirmed.




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