People ex rel. Madigan v. Illinois Commerce Commission

In March 2007, Peoples Gas Light & Coke Company and North Shore Gas Company (the utilities) petitioned the Illinois Commerce Commission (the commission) (defendant) to approve a volume-balancing-adjustment rider (Rider VBA) that would hold the utilities’ revenues constant despite reduced customer consumption by adjusting customer prices for natural gas such that prices would not be tied to customer consumption. If sales increased in a given period because of higher-than-expected sales, resulting in higher revenues, consumers would be given a credit; if sales were lower than expected, resulting in lower revenues, consumers would be surcharged. Through this true-up calculation, the utilities’ revenues would stay the same regardless of sales volume. In 2008 the commission approved Rider VBA as a four-year pilot program, and then in 2012 the commission approved it on a permanent basis. The commission reasoned that Rider VBA constituted a symmetric and transparent formula for ensuring that the utilities collected the approved distribution of revenue despite changes in consumption, and that it would reduce the need to engage in often-inaccurate forecasting, thereby improving stability for both the utilities and customers. The Illinois attorney general and the Citizens Utility Board (collectively, the petitioners) (plaintiffs) challenged the commission’s approval of Rider VBA, arguing that it violated the prohibitions against retroactive ratemaking and single-issue ratemaking. As to retroactive ratemaking, the petitioners argued that any credits or surcharges to the customers in the true-up calculation made the ratemaking retroactive. Additionally, as to single-issue ratemaking, the petitioners argued that Rider VBA constituted an improper automatic adjustment to existing rates based solely on actual customer usage.