People v. Illinois Commerce Commission
2011 IL App (1st) 100654
Ill. App. Ct.2011Background
- North Shore and Peoples Gas sought to restructure residential natural gas delivery rates and to implement an Infrastructure Cost Recovery Rider (ICR) to fund a main replacement program.
- The Illinois Commerce Commission (ICC) approved a rate design, denied certain pension and incentive costs, and adopted Rider ICR with specific baseline and audit provisions.
- Parties, including the People (Attorney General) and the Citizens Utility Board (CUB), and the Utilities appealed the ICC’s final order.
- The ICC’s order allowed accelerated replacement of cast iron and ductile iron mains, but critics argued it violated the single-issue rule by singling out a specific cost stream.
- The appellate court affirmed in part, reversed in part, and remanded for further proceedings consistent with its reasoning, including a critical reversal of Rider ICR as improper single-issue ratemaking.
- The court also reviewed the Utilities’ challenges to operating expenses and rate base, including incentive compensation, pension costs, and ROE adjustments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Rider ICR permissible as single-issue ratemaking? | People/CUB: Rider ICR violates the single-issue rule. | Peoples Gas/ICC: Rider ICR is justified under exceptional circumstances. | No; Rider ICR abused single-issue ratemaking and must be reversed. |
| Are incentive compensation costs recoverable as customer rates? | Utilities: Costs are reasonable, prudent, and customer-benefiting. | ICC: Most incentive costs lack direct customer benefit. | Partial reversal; most incentive costs denied under direct customer benefit standard. |
| Should Peoples Gas’s pension asset be included in rate base? | Staff/People: Pension asset funded by ratepayers; should be included. | Peoples Gas: Asset funded by shareholder contributions. | Pension asset excluded from rate base; not a ratepayer-funded item. |
| Did the ICC properly adjust the utilities’ market-based ROE? | Staff: ROE should reflect higher risk; adjustments warranted. | Utilities: Adjustments overstated risk and double-counted riders. | Adjustments upheld; net ROE reductions affirmed. |
Key Cases Cited
- Commonwealth Edison Co. v. Illinois Commerce Comm’n, 398 Ill. App. 3d 510 (2009) (administrative deference; nexus between salaries and ratepayers; benefit to ratepayers not guaranteed)
- City of Chicago v. Illinois Commerce Comm’n, 281 Ill. App. 3d 617 (1996) (riders can be used for cost recovery absent abuse of discretion)
- Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111 (1995) (rider flexibility; single-issue ratemaking limits; direct recovery of a cost per se allowed in some contexts)
- Finkl & Sons Co. v. Illinois Commerce Comm’n, 250 Ill. App. 3d 317 (1993) (single-issue ratemaking limits; caution against unpredictable costs in riders)
- Commonwealth Edison Co. v. Illinois Commerce Comm’n, 405 Ill. App. 3d 410 (2011) (Second District on Rider SMP; framework for exceptional circumstances)
- Citizens Utilities Co. of Illinois v. Illinois Commerce Comm’n, 124 Ill. 2d 195 (1988) (rate base adjustments for consumer-funded assets; retroactive ratemaking concerns)