Advocates hail regulatory ‘earthquake’ as state slashes requested gas rate increases

[November 17, 2023]  By ANDREW ADAMS
Capitol News Illinois
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CHICAGO – Regulators at the Illinois Commerce Commission on Thursday unanimously approved rate hikes for four major natural gas utilities, but the little-known regulatory body’s decision was perhaps more notable for what it rejected.

The five-member board flexed its regulatory muscle, slashing the utilities’ requested rate increases by as much as 50 percent.

“This was an earthquake in Illinois utility regulation,” Abe Scarr, director of consumer advocacy group Illinois PIRG told Capitol News Illinois after the Thursday meeting.

Scarr and PIRG were among the consumer advocates asking for greater regulatory oversight of the natural gas industry ahead of the requested rate increase from the four utilities that collectively serve 98 percent of Illinois’ gas customers – Nicor Gas, Ameren Illinois, Peoples Gas and North Shore Gas.

Rates will still rise next year, but not nearly as much as they would have if the commission had approved the utilities’ initial requests.

The commissioners instead sided with consumer advocates – rejecting several recommendations from the ICC’s own staff – in several key areas, including profit rates, low-income discounts and spending oversight.

Commissioners lowered Ameren’s initial ask by about 50.8 percent and cut Nicor’s request by 30.3 percent. For Peoples Gas, it was a 25 percent reduction, and for its sister company North Shore, regulators cut the request by 34 percent.

While advocates hailed the ICC’s decisions as a victory, utilities were wary.

“My initial reaction is that I’m concerned,” Matthew Tomc, who oversees regulatory affairs for Ameren Illinois, told Capitol News Illinois.

Tomc said that once Ameren staff fully reviews the ICC decision, they will consider requesting a rehearing to challenge the ICC’s conclusions.

Other companies involved in the cases indicated they were reviewing the decisions.

“Natural gas remains the most affordable energy source for winter-residential heating and is the main fuel source used by manufacturers in Illinois,” Nicor spokesperson Jennifer Golz said in a statement. “Nicor Gas provides an affordable energy source, which is more important now than ever with families facing rising costs for everything. resources as an energy.”

Nicor and Peoples Gas have not released cost estimates under the new rates approved Thursday. But downstate Ameren Illinois says costs will remain similar to last winter, echoing claims made by Peoples Gas earlier this year.

Spending oversight, consumer impacts

In general, the ICC’s five commissioners reduced the companies’ requests for infrastructure spending, citing a lack of evidence that increased rates were necessary to maintain system safety.

But the commission was particularly critical of one company’s spending choices. Peoples Gas, which operates in the city of Chicago, has been highly criticized for its ongoing system modernization program, which critics have said is plagued by regular budget overruns and is often behind schedule.

Thursday’s ICC decision not only reduced Peoples Gas’ overall infrastructure spending request, but it also took a strong oversight step for the company’s pipeline replacement program. The ICC paused all spending on the program for the next year and ordered a new ICC investigation into the program.

“We look forward to actively participating in future proceedings and demonstrating how our energy delivery system is critical to Chicago’s clean energy future,” Peoples Gas spokesperson David Schwartz said in a Thursday statement. “We are pleased the Commission shares our concern about safety.”

Scarr, a longtime critic of the program, praised the decision.

“This program was clearly problematic, literally since it got started. It stumbled out of the gates and there’s been so many investigations,” Scarr said. “For years, decision-makers have looked the other way, but they didn’t today and that’s a huge deal.”

Illinois Commerce Commission member Michael Carrigan (left), Chair Doug Scott, and member Ann McCabe are pictured at a commission meeting in Springfield earlier this month. (Capitol News Illinois photo by Jerry Nowicki)

Consumer impacts have been one of the most hotly debated elements of the four concurrent rate cases. Last year, the ICC directed utilities to propose a new system to offer lower energy rates for low-income customers.

These low-income rate designs were one of the areas of focus of Karen Lusson, a lawyer with the National Consumer Law Center who advocated for the plan that the ICC eventually adopted, overruling administrative judges’ recommendations.

“In previous rate case orders, the commission never specifically assessed how affordable or unaffordable rates are for customers,” Lusson said.

The plan will offer discounts to those with incomes below three times the federal poverty limit, with greater discounts for those making less money. Discounts would apply to an entire customer bill and would be as high as 83 percent for Peoples Gas customers and 75 percent customers of other companies, according to Lusson. These discounts are slated to go into effect in October 2024.

Ameren’s Tomc said he was worried about the program’s potential impacts on customers who are not low-income.

Profits slashed

The commission lowered the expected rate hikes by leveraging one of its most powerful tools: deciding companies’ profits through their “return on equity” or ROE.

Ameren and Nicor both requested ROE rates above 10 percent, while Peoples Gas requested a 9.9 percent figure. But consumer advocates pushed back on those asks. For example, the Citizens Utility Board, one of several groups that argued for lower rates, requested a range centered on 9.5 percent for Ameren and Peoples Gas and 9.4 percent for Nicor.

But in a surprising move, the Commission set rates in the cases at or below that recommendation. Nicor Gas will operate with a 9.51 percent ROE, and Ameren will operate with a 9.44 percent ROE. Peoples Gas and North Shore Gas will operate with a 9.38 percent ROE.

Sarah Moskowitz, CUB’s executive director, said the move has both consumer and climate implications.

“They (the ICC) sent a strong message today that they are looking out for the interests of utility customers and understand that we’re going to have to plan for a clean energy transition and that utilities can no longer dodge that issue,” Moskowitz said.

Thursday’s decisions also began a process for the state deciding what role natural gas should play in Illinois’ clean energy transition. Each gas company involved in the cases is set to participate in a series of “future of gas” hearings next year that could help shape the industry’s fate in Illinois.

“As the State embarks on a journey toward a 100 percent clean energy economy, the gas system’s operations will not continue to exist in its current form,” ICC Chairman Doug Scott said in a statement. “Identifying how our gas and electric systems can adapt to meet these goals, and what specific actions should be taken to achieve them, will be an important task for the Commission moving forward.”

That statement came a few hours after Scott told utility representatives and advocates that the companies had failed to take that transition into account during the rate cases.

In the Peoples Gas case, for instance, Scott noted that the company “signaled that they are not currently working toward the electrification goals of the state.” He made similar comments about Nicor and Ameren Illinois and cited it as reasoning for cutting some of the companies’ spending.

Climate advocacy groups such as the Illinois Clean Jobs Coalition celebrated the decision, issuing a statement that the ICC’s decision indicates “there’s a new sheriff in town.”

Capitol News Illinois is a nonprofit, nonpartisan news service covering state government. It is distributed to hundreds of print and broadcast outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation, along with major contributions from the Illinois Broadcasters Foundation and Southern Illinois Editorial Association.