State cracks down on Chicago gas utility as other utilities ask for rate increase

[February 21, 2025]  By Lily Carey, Andrew Adams

CHICAGO — State regulators on Thursday ordered Chicago’s natural gas utility, Peoples Gas, to abandon its approach to a long-beleaguered pipeline replacement program. Consumer advocates praised the decision, but the company said the decision could cost customers.

Meanwhile, natural gas utilities in the suburbs and downstate are asking regulators to increase prices by $7 to $9 per month for the average residential customer.

The Peoples Gas decision at the Illinois Commerce Commission followed a yearlong ICC investigation into the utility. Its System Modernization Program, launched more than a decade ago, was initially intended to replace at-risk gas mains across the city, many of which have less than 10 years remaining in their lifespans.

But the program went far over its initial budget estimate of $1.4 billion, leading to rate hikes that left nearly one in five Peoples Gas customers behind on their bills. A report by consumer advocates at the Citizens Utility Board late last year found that continuing the program would have cost $12.8 billion, although the company argued the actual costs would have been lower.

The plan approved by the ICC on Thursday will allow the pipe replacement program to restart — but will institute safety monitoring and sweeping changes to ensure Peoples Gas focuses specifically on the riskiest pipes.

“This investigation showed that Peoples Gas was not prioritizing removing (at-risk pipes), but rather pursued it as one of several components of its program. As a result, the retirement rates (for these pipes) went down,” ICC Commissioner Stacey Paradis said at the meeting.

As part of the ICC investigation, Peoples Gas proposed three options in November 2024 for continuing the pipe replacement program. But according to Commission Chair Doug Scott, the utility didn’t comply with many of the ICC’s orders, leaving the agency “unable to properly evaluate the program options proposed by the company.”

Instead, the ICC ordered Peoples Gas to launch a new program that focuses specifically on replacing cast iron and ductile iron pipes by 2035. There are 1,112 miles of these pipes beneath Chicago streets, and according to analyses by engineers throughout the investigation, they are by far the highest-risk part of Peoples Gas’ delivery system.

The commission also ordered a Safety Monitoring Report to follow the implementation of Peoples Gas’ new program. The report is to be completed in March 2027.

According to Peoples Gas spokesman David Schwartz, the commission’s order “may necessitate additional cost and more construction sites disrupting streets across city neighborhoods.”

For consumer advocates, the ICC’s decision was seen as a promising step toward holding utilities accountable.

“There’s going to be a real focus on ensuring that the investments are cost effective and effectively addressing the safety risks in the system. And I think that’s a big improvement,” said Abe Scarr, director of the Illinois Policy Interest Research Group and longtime critic of Peoples Gas.

Rate increases downstate

The ICC is also considering requests from the two other major gas utilities to raise monthly bills for customers in the Chicago suburbs and downstate.

Nicor Gas, the largest gas utility in the state, filed a request for a $309 million rate increase that would affect 2.3 million customers in northern Illinois and the Chicago suburbs. The company’s proposal would raise typical residential bills by about $7.50 per month – about a 9% increase, according to a company spokesperson.

Ameren Illinois, which serves about 812,000 customers in downstate Illinois, also filed for a $134.4 million rate increase in January. An Ameren spokesperson said typical residential bills would go up by $9.09 per month – an 11.9% increase – under the company’s plan.

Representatives from both companies pointed to the need to replace aging infrastructure for gas transmission and upgrades to gas storage facilities as key projects that will be funded by the rate increases.

Matt Tomc, the head of regulatory affairs for Ameren, told Capitol News Illinois the storage fields – which keep natural gas underground for use on days with high demand – have become more important over the past decade.

Dozens watch as members of the Illinois Commerce Commission discuss their ruling following more than a year of investigation into Chicago utility Peoples Gas. (Capitol News Illinois photo by Andrew Adams)

“As we’ve experienced some of these prolonged cold snaps, these facilities have become critical,” he said.

Tomc also noted that many of the maintenance and infrastructure upgrades Ameren has planned are to comply with federal safety regulations put in place following a deadly gas pipeline explosion in San Bruno, California in 2010.

But some critics of the companies say the requests would overly burden customers and put too much money in the pockets of shareholders.

Consumer advocates at the Citizens Utility Board – a nonprofit organization that provides testimony on behalf of customers in rate cases – said the Nicor request is the largest in state history. If approved, Nicor would have been granted over $1 billion in rate increases since 2018.

“When you consider that gas distribution utilities make money by spending money on infrastructure, it makes sense that they’re going to come in for rate cases to get more money to spend on infrastructure,” CUB Executive Director Sarah Moskowitz said. “Because that’s what they earn a rate of return on. It’s the role of advocates and regulators to act as a counterbalance to that.”

CUB also opposes the companies’ proposed increases to their return on equity – a measure of how much money is paid out to company shareholders.

Future of gas

Beyond the relatively narrow decision in the Peoples Gas investigation and rate cases the ICC is currently considering what the future of the natural gas industry will look like in Illinois.

After rate cases from all three major gas utilities presented similar problems in 2023, the ICC initiated a “Future of Gas” proceeding to better plan how to align the natural gas industry with the state’s goal to have a “clean” energy sector by 2050.

“It’s really a decarbonization process to really think through what are all of the different pathways we have to decarbonize the natural gas sector,” ICC Executive Director Jonathan Feipel said Tuesday. “There’s a whole slew of tools – everything from energy efficiency to different technologies to electrification.”

The trend toward electrification for things like vehicles and home heating has become a goal for many environmentalists, but a thorn in the side for some natural gas advocates.

Jen Walling, the head of the Illinois Environmental Council, said last week she and other environmental advocates are working on a bill that would encourage faster electrification of buildings and a reduction in natural gas use.

But she also noted she doesn’t expect major legislation on the subject to move soon, instead pointing to the ICC’s Future of Gas proceeding as a main driver of energy policy.

Ameren’s Tomc said the company recognizes there is a “transition with respect to how we use energy.”

In their rate case, Ameren even outlined a plan to pilot a “renewable natural gas” – that generates fewer greenhouse gas emissions – and a “zonal electrification” program in which communities can elect to forgo replacing aging gas pipes and instead go all-electric.

But Tomc said he is concerned that without appropriate planning customers will end up paying more for gas, electricity or both. He said more intervention from regulators could be necessary to avoid that.

“Maybe we shouldn’t leave it just to the markets,” Tomc said. “Maybe we need to do more resource planning – and Ameren supports that.”

Lily Carey is a graduate student in journalism with Northwestern University’s Medill School of Journalism, Media, Integrated Marketing Communications, and a Fellow in its Medill Illinois News Bureau working in partnership with Capitol News Illinois.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.