A utility scorned? Nicor erupts over proposed ‘lowball’ rate hike

By Steve Daniels, Crain’s Chicago Business. August 14, 2019

Summary: Nicor Gas originally wanted a $230 million rate hike and agreed to shave it to $180 million. Three judges for the Illinois Commerce Commission shocked the utility by recommending cutting it yet again to $152 million.

When Nicor Gas struck a deal with Illinois Commerce Commission staff to scale back its proposed rate hike by $50 million, the company thought the deal was sealed. Think again.

Three administrative law judges for the state’s utility regulator have proposed to trim another $28 million, which would bring the increase down to $152 million from what originally was a record-setting $230 million when Nicor first proposed it last fall. The rate case still awaits action by the commission itself, but the judges’ surprise move puts new Chair Carrie Zalewski in an interesting spot.

If her commission approves the judges’ recommendation over the adamant objections of Nicor, it will mark a clear departure from the ICC overseen until April by Brien Sheahan, Gov. Bruce Rauner’s ICC chairman. Zalewski was named chair by Gov. J.B. Pritzker in April; Sheahan remains on the commission in the meantime, and his term expires early next year.

Also important, action on Nicor’s rate request will create a precedent for Peoples Gas. Peoples provides natural gas in Chicago, while far larger Nicor serves much of the suburbs. Peoples hasn’t filed for a rate hike in five years and is likely to be requesting one within the next few years.

In the meantime, Peoples’ rates have been rising under a 2013 state law that permits it to impose a monthly surcharge on customer bills to help pay for accelerated replacement of gas mains, among other major capital projects. Rising heating costs earlier this year had more than 14 percent of Peoples’ residential heating customers so far behind on their bills that they were mailed one or more disconnection notices. Those surcharges will exceed $10 a month for most customers this year.

What is at issue now in the proceeding is the return on equity regulators will permit Nicor to earn. The judges proposed to set that at 9.13 percent, far below the 9.86 percent that ICC staff and Nicor agreed to. In the original rate filing, Nicor requested 10.6 percent.

In a filing responding to the judges, Nicor argued that the ICC allowed a 9.8 percent return just 19 months ago when it last approved a rate hike for the Naperville-based utility. In its filing, Nicor called the judges’ proposal “an inexplicable departure from recent commission decisions.”

Nicor argued the “lowball ROE” would put it at a disadvantage in attracting financing for investments in its system. “Further, it will place into question regulatory stability in the state, which will impact not only the company, but other Illinois utilities as well,” Nicor said in the Aug. 8 filing.

The utility left little doubt it would challenge the ruling in court if the commission sides with its judges.

“As it stands, the ROE recommended by the proposed order is not only unsupported and contrary to law, but—as the commission observed last year—contrary to the public interest,” Nicor wrote.

What Nicor left out of its testimony is that there is a new administration in Springfield—and, as a result, a new person in charge of the ICC. In fact, it wasn’t long ago that the commission was approving ROEs below 9.1 percent. Peoples Gas’ last fully adjudicated rate case in 2014 came in at 9.05 percent.

That was under the commission run by then-Chairman Doug Scott, appointed by Gov. Pat Quinn. Quinn, of course, has made a decades-long career opposing utility rate hikes. The political winds change. Using Nicor’s reasoning, Rauner’s more utility-friendly commission arguably ignored precedent in approving returns that were far higher than those backed by Quinn’s commission.

All of this could be moot, of course, if Zalewski and the four other commissioners (only one of whom Pritzker appointed) ignore the judges and endorse the compromise between Nicor and the ICC staff.

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