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10 burning questions (and answers) about the 2023 rate-hike barrage

As CUB and other consumer advocates challenge a record $2.9 billion in utility rate-hike requests, here are 10 things you should know about the rate hikes.

1) How much are the utilities asking for? 

The rate hikes would impact more than 5 million customers across Illinois. The chart below shows the total impact of each rate hike, as well as how it would impact individual bills. Rate hikes effect customers differently, according to their usage, but here’s how the utilities estimate they would impact the average customer.

Utility Rate-hike request  Estimated average impact 
ComEd $1.5 billion over 4 years $4.25 a month, building to $17 a month by 2027
Ameren Illinois (electric) $481 million over 4 years $6.27 a month  (833 kWh/month in usage), building to about $25 a month by 2027
Peoples Gas $402 million a year $11.83 a month
Nicor Gas $320 million a year $9.28 a month
Ameren Illinois (gas) $148 million a year About $5-$6 a month (for 62 therms/month in usage)
North Shore Gas $17 million a year $6 a month 

2) What can I do? 

Consumer advocates have their hands full. Support CUB’s legal team, and, if you haven’t already, sign our petitions against these rate hikes. 

3) When would these rate hikes take effect? 

The increases would take effect on Jan. 1, 2024. They must first go through an 11-month state review process, during which consumer advocates will file testimony to reduce the increases as much as possible. The electric rate proposals are multi-year rate plans that spread out the rate hikes over four years: 2024, 2025, 2026, and 2027. The gas rate hikes proposed would stay in effect until the gas utilities choose to file a new rate case in a later year.

4) What part of my bill is impacted? 

These increases would impact delivery charges on bills–what the company charges us to deliver the electricity/gas to our homes–plus a profit. Those charges take up about a third to a half of the bill.

The rest of the bill is for electricity/gas supply, and the utilities, under state law, cannot profit off that part of the bill. They pass on to customers what they pay for the electricity/gas itself, with no markup.

5) Who decides what rate hikes these companies get? 

The Illinois Commerce Commission (ICC), the state body that regulates utilities, will rule on these cases after 11 months. 

The ICC is made up of five members (currently there is one vacancy), and the governor designates one Commissioner as chair. Each Commissioner is appointed by the governor and confirmed by the state Senate for a five-year term. State law requires that no more than three Commissioners may belong to the same political party.

You can let the ICC know how you feel about a rate case by making a public comment. It’s easy–please take action and urge the ICC to say NO to these increases.

6) What if CUB doesn’t agree with the ICC ruling? 

After a ruling, CUB has 30 days to file a petition for rehearing, asking the ICC to reconsider parts of its ruling. (We often do this.) The ICC then has 20 days to rule on that petition. If CUB is unsuccessful, then it can appeal to the Illinois Court of Appeals. If CUB doesn’t agree with the Court of Appeals, then it has the option to appeal the case to the Illinois Supreme Court. CUB makes these decisions based on the likelihood of the case to succeed as well as its resources.

7) What is ROE, and why is it important to these rate cases?  

ROE is “Return on Equity,” otherwise known as the profit rate for shareholders. In these 11-month rate cases, “return on equity is one of the primary powers the commission has to keep utility rates affordable,” Crain’s Chicago Business reported.

For 12 years under “formula rates”–the controversial rate-setting system that was at the heart of ComEd’s corruption scandal–ROE was determined by formula and was off the table in ComEd and Ameren electric rate cases. But the Climate and Equitable Jobs Act (CEJA) gives consumer advocates and regulators a chance to challenge the companies’ ROE and hopefully reduce the rate hikes. 

“CUB  anticipates seeking tens of millions of dollars in reductions to these excessive requests,” CUB General Counsel Eric DeBellis said. He listed the current and proposed ROEs for each utility. In the rate cases, the companies are asking for excessive profit rates for shareholders. 

Utility Current ROE Proposed ROE
Ameren Illinois (electric)  7.85% 10.5%
ComEd 7.85% 10.5%, rising to 10.65% by 2027
Peoples Gas 9.05% 9.9%
Nicor Gas 9.75% 10.35%
Ameren Illinois (gas) 9.67% 10.3%
North Shore Gas 9.67% 9.9%

As you can see, ComEd’s current ROE is 7.85 percent, and it wants a 2.8 percent increase. That may not seem like a big deal, but it accounts for $758 million in revenue in the utility’s latest rate-hike request, Crain’s reported.

8) But why, unlike most other businesses, do regulators have a say in a utility’s profits? 

It’s all because utilities are monopolies–they’re the only ones who own the massive network of wires, substations, pipelines,  and other equipment to deliver the electricity or gas to our homes. Nobody has the money or space to build a competing network. In short, utilities have no competitors, so they’re under special regulations: 

Each utility proposes the projects and operations it will undertake and what it claims this would cost, and state law tasks regulators (in Illinois, the Commerce Commission) with determining which expenses are necessary, and only approving those. The rates you pay for service are calculated to recover these approved expenses across each utility’s customers.

All this gets determined in 11-month rate cases that boil down to a lot of arguments back and forth over this basic equation: Total Revenue Requirement = Expenses + Rate Base + Depreciation + Return on Rate Base

Let’s break it down: 

Revenue Requirement: The amount of money a utility must collect in order to cover its costs and make an approved profit margin.

Expenses: These are the typical, regularly recurring and immediate costs of doing business that utilities have to cover, with no markup, including workers’ wages, routine maintenance, tree-trimming, and administrative expenses. 

Rate Base: The total value of a utility’s assets, such as plants and substations, poles and wires, pipelines. These are major costs that utilities have to finance (through loans and selling parent company stock) over a long period of time.

Depreciation: Because rate base is financed through debt and equity (loans and selling stock), ratepayers pay it off gradually over several years, like a mortgage. How long that takes is based on how many years the rate base assets are expected to last. For example, if the useful life of the assets (weighted by how much each asset costs) averages out to 25 years, the annual depreciation would be 4 percent of the original rate base amount.

Return on Rate Base: Funds to cover the cost of loans (return on debt) and shares sold (equity) to finance rate base. This is the profit rate for shareholders, or return on equity, or ROE, we talked about above.

9) Do other consumer advocates join these cases? 

Yes, because these cases are extremely time-consuming and expensive, CUB often partners with other groups and government bodies to challenge rate increases. Primarily, we work with the office of Illinois Attorney General Kwame Raoul and the Illinois Industrial Energy Consumer (businesses don’t like rate hikes, either). Depending on the case, CUB will also work with the City of Chicago and environmental groups like Environmental Defense Fund (environmentalists want to cut waste, too).

The Climate & Equitable Jobs Act (CEJA) has created an intervenor compensation fund designed to support more consumer interest groups getting involved in these expensive cases. CUB welcomes the opportunity to work with more groups–there’s plenty of work to go around.

10) Why are the electric rate hikes, unlike the gas hikes, four years?  

Gas utilities still operate under the traditional system, where they decide when to file a rate case and the rates that are approved in that case stay in effect until the utility files again in a later year. These proceedings are based heavily on customer needs in the first year the rates would be in effect, often to the detriment of long-term planning. 

On the electric side, the Climate and Equitable Jobs Act (CEJA) replaced the “formula rate” system, in which Ameren and ComEd were entitled to new rates every year, with “multi-year rate plans.” ComEd filed its $1.47 billion and Ameren its $1.3 billion rate plans under this new four-year rate-setting process. While it doesn’t mean the end of rate hikes, the new system is more transparent and gives the ICC more authority to challenge rate hikes.

Multi-year grid plans and performance metrics are tied to the ComEd and Ameren plans–to get the companies to serve customers better, by, for example, restoring power faster and preventing disconnections through better outreach to households. Under this system, Ameren and ComEd will have to deliver results, or pay a penalty that reduces their profits.