North Shore Gas Co. v. Illinois Commerce Comm'n ex rel Raoul

2026 IL App (2d) 240350-U

• Court: Appellate Court of Illinois
• Decided: March 10, 2026
• Docket: 2-24-0350
• Status: Unpublished

Opinion

2026 IL App (2d) 240350-U No. 2-24-0350 Order filed March 10, 2026

NOTICE: This order was filed under Supreme Court Rule 23(b) and is not precedent except in the limited circumstances allowed under Rule 23(e)(1) ______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT ______________________________________________________________________________

NORTH SHORE GAS COMPANY and ) On Petition for Administrative Review from THE PEOPLES GAS LIGHT AND COKE ) the Illinois Commerce Commission. COMPANY, ) ) Petitioners-Appellants, ) ) v. ) ICC Case Nos. 23-0068 ) 23-0069 THE ILLINOIS COMMERCE COMMISSION ) and the People ex rel. Kwame Raoul, ) Attorney General of the State of Illinois, ) ) Respondents-Appellees. ) ______________________________________________________________________________

JUSTICE JORGENSEN delivered the judgment of the court. Justice Birkett concurred in the judgment. Justice Hutchinson specially concurred.

ORDER

¶1 Held: Agency did not err in disallowing certain amounts for gas utilities’ safety modernization program, new shops and facilities, sewer replacement project, and rate case expense. However, agency’s mandate that the utilities file long-term gas infrastructure plans is vacated for being outside its authority. Affirmed in part and vacated in part.

¶2 Petitioners, North Shore Gas Company (North Shore) and The Peoples Gas Light and Coke

Company (Peoples Gas) (collectively, the Companies), petitioned for direct administrative review 2026 IL App (2d) 240350-U

of the Illinois Commerce Commission’s (Commission’s) final order and order on rehearing in their

rate cases. Ill. S. Ct. R. 335 (eff. Jul. 1, 2017) (direct review of administrative orders by appellate

court). Peoples Gas challenges: (1) the Commission’s decision on rehearing that disallowed

certain amounts in its safety modernization program budget; and (2) the Commission’s

disallowance of funds for new shops and facilities. North Shore appeals the Commission’s

disallowance of certain amounts for its: (1) Clavey Road project; and (2) rate case expense.

Finally, the Companies appeal the Commission’s directive to file long-term gas infrastructure

plans. We affirm in part and vacate in part.

¶3 I. BACKGROUND

¶4 North Shore is a wholly-owned indirect subsidiary of WEC Energy Group, Inc., and is

engaged in transporting, purchasing, distributing, and selling natural gas at retail to over 160,000

customers in Chicago’s northern suburbs. Peoples Gas is also a wholly-owned indirect subsidiary

of WEC and is engaged in transporting, purchasing, storing, distributing, and selling natural gas at

retail to over 873,000 customers within the City of Chicago.

¶5 The Public Utilities Act (Act) (220 ILCS 5/1-101 et seq. (West 2022)) defines the

Commission’s powers and duties in setting the rates a public utility may charge its customers. A

public utility is entitled to recover certain operating costs through the rates that it charges its

customers. Citizens Utility Board v. Illinois Commerce Comm’n, 166 Ill. 2d 111, 121 (1995).

Generally, a utility seeking a rate increase must file new schedules or supplements with the

Commission that indicate the proposed changes to be made in the schedule or schedules already

in place, as well as the time when the proposed changes would take effect. 220 ILCS 5/9-201(a)

(West 2022). “When a utility files a request for a rate increase in the form of a new tariff schedule,

the Commission has the authority upon complaint or its own initiative to hear evidence, hold

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hearings and determine the propriety of the requested increase.” Business & Professional People

for the Public Interest v. Illinois Commerce Comm’n, 146 Ill. 2d 175, 195 (1991); 220 ILCS 5/9-

201(b) (West 2022).

¶6 In January 2023, the Companies each separately filed with the Commission revised tariff

sheets from their schedule of rates for gas service, proposing general increases in gas service rates

(58.10% for Peoples Gas and 19.57% for North Shore) and revisions to service classifications,

riders, and terms and conditions of service, effective on February 20, 2023. 1 Id. § 9-201. The

Commission suspended the Companies’ rate changes pending a hearing, and the dockets were

consolidated (North Shore docket No. 23-0068; Peoples Gas docket No. 23-0069). Id. (a rate case

is initiated when a utility files tariffs providing for a rate increase and the Commission suspends

those tariffs to conduct an investigation and hearing). Commission staff participated in the

proceedings, the Office of the Illinois Attorney General and the City of Chicago filed appearances,

and various entities intervened in the proceedings. 2 An evidentiary hearing commenced on August

10, 2023.

1 As to the rate increases, the Commission ultimately, on November 16, 2023, approved a 43.24%

rate increase for Peoples Gas and an 11.58% rate increase for North Shore. 2 The entities included AARP, the Building Owners and Managers Association of Chicago, the

Citizens Utility Board, Community Organizing and Family Issues, the Environmental Defense Fund, the

Environmental Law and Policy Center, Gas Workers Union Local 18007, Utility Workers Union of

America, AFL-CIO, the Illinois State Public Interest Research Group, Inc., Legal Action Chicago, Local

2285, International Brotherhood of Electrical Workers, the Natural Resources Defense Fund, the People

for Community Recovery, and the Retail Energy Supply Association.

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¶7 A. Safety Modernization Program 3 (SMP) Investment (Peoples Gas)

¶8 1. Proceedings Leading to Commission’s Final Order

¶9 Peoples Gas sought to add $265 million to its rate base to fund its Safety Modernization

Program (SMP). The SMP’s purpose was to accelerate the pace of replacing aging at-risk

components of the company’s natural gas delivery system, specifically, the replacement of leaking

and at-risk cast iron (CI) and ductile iron (DI) main with plastic pipe and upgrading the aging low-

pressure system to medium pressure. 4

¶ 10 The Commission reviewed and approved the SMP as recently as 2018, following an

independent engineering audit it ordered be conducted by Kiefner & Associates, which

recommended that Peoples Gas replace all CI/DI pipes by 2030. Several public interest

organizations 5 recommended that the Commission order a new SMP investigation, require Peoples

Gas to develop and propose a metric that assesses SMP risk reduction, direct the company to pause

3 The record also refers to the program as the System Modernization Program. 4 An independent engineering auditor recommended that Peoples Gas replace all cast iron and

ductile iron pipes by 2023, and the legislature authorized separate funding for SMP-type costs for such

replacement under the rider Qualified Investment Plant (QIP) statute that sunset on December 31, 2023,

(220 ILCS 5/9-220.3(b)(1)-(7) (West 2022)), subject to later reconciliation proceedings before the

Commission (220 ILCS 5/9-220.3(e)(2) (West 2022)). The company sought to recover 2024 SMP costs in

the present case. 5 They included the Environmental Defense Fund, the Environmental Law and Policy Center, the

Illinois State Public Interest Research Group, Inc., and the Natural Resources Defense Fund (collectively,

public interest organizations).

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medium-pressure upgrades until after the investigation, and disallow SMP costs for facilities that

would not be placed in service in 2024.

¶ 11 On November 16, 2023, the Commission ordered Peoples Gas to stop SMP work, initiated

an investigation (on a separate docket), and removed the forecasted $265 million investment from

the rate base. It noted that, in explaining its reasoning for the project, Peoples Gas referred to a

schedule it had filed that stated it sought to maintain safety and reliability, its SMP was most

recently approved in an earlier docket (No. 16-0376), and it was supported by a 2020 engineering

study by an outside auditor (docket No. 18-1092). The Commission also noted that, when asked

what alternatives were considered, the company had responded “Not Applicable” and stated the

Commission had approved its approach in the earlier two dockets, which recommended continuing

accelerated replacement of the pipe mains in the company’s distribution system. The Commission

next stated that, in docket No. 16-0376, it approved Peoples Gas’s neighborhood approach but

stated therein that it made no determination regarding the prudence and reasonableness of costs

incurred by the company in carrying out the SMP and would determine such factors in subsequent

reconciliation proceedings or a future rate case. It also noted that the legal framework that

provided the company with concurrent cost recovery for all aspects of the SMP over the past

decade had changed and that the relevant statute would soon sunset. Thus, the present docket was

the Commission’s first comprehensive assessment of the reasonableness and prudence of SMP

costs after its decisions in docket Nos. 16-0376 and 18-1092.

¶ 12 The Commission found that, after 12 years of work, Peoples Gas had completed about 35%

of the SMP (as of October 2022). The Commission noted that, since its 2018 decision in docket

No. 16-0376, Peoples Gas used a neighborhood-by-neighborhood approach to implement the

SMP. “Given the risks posed by the CI/DI pipe remaining within [Peoples Gas’s] distribution

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system, the Commission is concerned with [Peoples Gas’s] management of this project overall and

its prioritization of pipeline replacement.” It noted that the company referenced an eight-year-old

study that estimated potential completion dates of 2030 and 2040, as well as docket No. 16-0376,

wherein the company provided overall completion target dates of 2035 to 2040. Peoples Gas, the

Commission further noted, had also referenced docket No. 18-1092 and a 2018 engineering review

(the Kiefner Study) of its pipeline system, which identified a timeline for the company to retire all

existing CI/DI pipe and recommended that all such pipes be replaced by 2030. The Kiefner Study

also recommended that pipeline replacement efforts be accelerated because more than 80% of the

remaining CI and DI pipes in Peoples Gas’s system had a remaining life of less than 15 years, with

most of the remaining CI mains averaging over 90 years old and most of the DI mains averaging

over 50 years old. The Commission noted that the Kiefner Study concluded that the replacement

rate had not been fast enough to compensate for the increase in failure rates expected from the

aging system. The study “is the primary authority on prioritizing [Peoples Gas’s] CI/DI retirement,

and it recommended (in 2020) that [Peoples’ Gas] accelerate its efforts to retire CI/DI by 2030.”

¶ 13 Further, the Commission determined that the record lacked sufficient detail regarding the

pipeline replacement to find that the company’s SMP 2024 test year 6 investments were prudent

6 The Illinois Administrative Code provides that a utility’s revenue requirement may be calculated

by beginning with costs incurred during a 12-month period known as a “test year,” which may be either an

historical or a future period. 83 Ill. Admin. Code § 287.20 (2025). If an historical test year is used, it can

be any consecutive 12-month period, beginning no more than 24 months before the utility’s filing new

tariffs, for which actual data are available at the time of filing. Id. “The supreme court has explained that

the purpose of the test year rules is ‘to prevent a utility from overstating its revenue requirement by

mismatching low revenue data from one year with high expense data from a different year.’ ”

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and reasonable. Between the end of 2018 and the end of 2022, Peoples Gas retired and replaced

237 miles (or 59 miles per year) of pipeline, at which rate it will take 26 years (i.e., until 2049) to

replace the existing high-risk pipe. It noted that Peoples Gas “makes no attempt in this record to

explain the steps [it] will take to complete retirement within or close to the Kiefner Study’s

specified timeline.” Rather, it had stated that accelerating the SMP to such timeline would present

practical challenges and provided no disaggregated information that the Commission could use to

make an informed decision regarding ways to practically meet the recommended retirement

timeframe. The Commission also found that Peoples Gas did not provide SMP spending

information to date or explain how the company developed the $265 million 2024 test year amount.

It did, however, provide spending data, which showed that, between 2018 and 2022, it spent an

average of $265 million per year. This amount appeared to be the amount the company used for

the 2024 test year, though it did not, the Commission noted, explain how this figure was

determined or why it was prudent for the SMP going forward. It also noted that the company

invoked the Kiefner Study

“to demonstrate a pressing need for SMP, while declining to timely adhere to the

Study’s pipe retirement recommendations. Most concerning is that [Peoples Gas] makes

no attempt to detail and justify the SMP 2024 test year investment level to accomplish

SMP’s primary objective according to the record—to replace all CI/DI pipeline.”

¶ 14 The Commission found Peoples Gas offered an inadequate record justification for

maintaining a $265 million spending level and provided no specific justification for continuing to

Commonwealth Edison Co. v. Illinois Commerce Comm’n, 405 Ill. App. 3d 389, 395-96 (2010) (quoting

Business & Professional People for the Public Interest, 146 Ill. 2d at 238).

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fund the entire SMP at the requested level. It declined to provide information to disaggregate the

SMP’s components and to identify the components meeting statutory requirements. It instead

provided reports (one of which was eight-years-old) as evidence for test year spending, and the

company’s quarterly reports to the Commission suggested that non-pipeline retirement activities

in the SMP were delaying the high-risk CI/DI pipe retirement. Accordingly, the Commission

found that the company had not justified continuation of prior-level spending for the SMP and

disallowed $265 million from the 2024 test year. It paused the SMP until it could determine, in a

separate proceeding, the optimal method to replace high-risk CI/DI pipe and the prudent

investment level needed to support the effort. The Commission noted that it expected Peoples Gas

to continue to address existing and new leaks as it would normally do to prioritize customer safety

(and as confirmed by the company during oral argument). It also noted that the 2024 SMP test

year disallowance was not intended to remove any funding related to emergency response to leaks,

pipe breaks, or other critical safety measures.

¶ 15 Finally, the Commission ordered a new investigation of the SMP and paused the SMP until

the end of the investigation. It noted that it appeared that neighborhood-by-neighborhood

modernization had failed to adequately prioritize replacement of high-risk pipe, as directed by a

federal agency, the study, and the Commission. The company’s regular quarterly reports to the

Commission suggested that neighborhood risk ranking was not resulting in prioritizing

neighborhoods with the highest levels of risk. It noted that neighborhoods ranked 20 and 21 were

scheduled ahead of those ranked 1, 2, 3, 5, 7, 10, and 11.

¶ 16 2. Rehearing

¶ 17 On December 1, 2023, Peoples Gas filed a verified emergency motion for clarification of

the Commission’s order, requesting clarification on the scope of the Commission’s ordered pause

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of the SMP in 2024. The Commission granted, in part, the company’s motion, noting that

rehearing would focus on SMP work in progress and emergency work, specifically addressing “the

extent to which works in progress must be permitted to continue in 2024” and “whether and to

what extent emergency work is part of SMP.”

¶ 18 On rehearing, in an order entered on May 30, 2024, the Commission authorized $28.5

million for emergency repairs, but again disallowed the remainder (i.e., $114 million) of the

company’s revised $144.9 million budget. It determined that Peoples Gas had not demonstrated

that costs were prudent and found that it appeared that the company was likely to double recover

for much of the work.

¶ 19 Specifically, the Commission noted that it had approved a limited scope for rehearing to

focus on the SMP works in progress and emergency work, specifically, whether works in progress

needed to continue and whether emergency work was part of the paused the SMP. It noted that

Peoples Gas had presented during rehearing a new category of projects—consisting of emergency

work, system improvement (SI) work, and public improvement (PI) work—collectively called

emergency, safety, and reliability (ESR). The Commission further noted that it omitted PI and SI

work from the scope of rehearing (SI and PI represented “general utility reliability and

improvement efforts and responsibilities the company had to third parties and the city”), and that

issues related to 2024 SI and PI should be addressed in the pending SMP investigation and in a

future rate proceeding. It found that Peoples Gas did not provide a clear definition of emergency

work and failed to show that SI and PI represented true emergency work. Thus, it declined to

include SI and PI within the rehearing.

¶ 20 (a) Works in Progress

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¶ 21 Next, addressing SMP works in progress, the Commission addressed whether Peoples Gas

had established that specific projects on rehearing were within the scope of the proceeding, that

the costs were reasonable and prudent, and that the company should be allowed to include the

additional cost in its 2024 rate base. It acknowledged that no party contested that works in progress

necessary to avoid unintended safety or reliability impacts and service interruptions during the

SMP pause should be completed. The Commission noted that Peoples Gas explained that works

in progress included several different SMP project categories: neighborhood, PI, SI, and high-

pressure. It also explained that 85 projects were in progress as of the SMP pause date and 6

additional projects began after the Commission’s final order and it provided data for each work-

in-progress project. However, the Commission found, the data was not sufficient for it to conduct

a full prudence assessment (such as critical information on risk-ranking bases for project inclusion,

reasons for disparities between retired and installed mains, and showings respecting the

reasonableness of claimed costs) and that Peoples Gas’s position was compromised by its

“expansive definition of [works in progress] during oral argument.”

¶ 22 The Commission rejected the company’s works-in-progress request on several grounds and

denied its request to increase its 2024 test year rate base by $82.2 million. It found that Peoples

Gas failed to provide sufficient evidence and analysis showing that the SMP works-in-progress

projects were prudent and reasonable planning and investment decisions, either initially or as

continued work in 2024. For example, the company provided documents containing only general

information about its internal decision making steps and templates of its risk-ranking matrices.

The company also failed to provide results of its analyses as to specific proposed projects after

utilizing its standard procedures and template matrices. The Commission noted that this was

particularly concerning. It further noted that, given that several neighborhoods on the works-in-

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progress list were not given a high priority risk ranking before being initiated, more specific

evidence was needed to justify special treatment for SMP projects in such areas (and providing an

example of several neighborhoods that were risk-ranked between 20 and 29 prior to being

initiated). Next, it noted that six projects were begun after the Commission’s final order, and it

found that they could not be approved as works in progress in the limited rehearing.

¶ 23 As to the remaining 85 works-in-progress projects, the Commission found that Peoples Gas

failed to adequately explain and support its request, due to inadequate and contradictory record-

keeping and the provided project-accounting information. Addressing double recovery, the

Commission rejected Peoples Gas’s claim that it never had an opportunity to respond to the

Attorney General’s claim that there was no evidence that proposed works-in-progress costs were

recovered through QIP. The company’s rebuttal testimony, the Commission noted, admitted that

it expected 38 of 43 projects identified by the Attorney General to have been completed in 2023.

It noted that Peoples Gas did not respond in its reply brief to the Attorney General’s concern about

the implications of the testimony on works-in-progress projects expected to be completed in 2023

but delayed. Thus, this left unrebutted the Attorney General’s assertion that the company included

the costs of the 38 projects as plant-in-service in its 2023 rate case. The Commission noted that,

though the arguments were presented for the first time on rehearing, it would consider them. It

found that it could not determine the extent to which works-in-progress projects overlapped with

Peoples Gas’s 2023 QIP projects.

¶ 24 The Commission denied the company’s request to increase its rate base to include $82.2

million for works in progress. It found that Peoples Gas did not establish the proposed investment

tied to works-in-progress projects had not already been accounted for in the company’s 2023 plant-

in-service. Thus, it declined to approve a rate base and revenue requirement increase for the

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proposed works-in-progress projects. It noted that Peoples Gas acknowledged that it could seek

cost recovery for the work in a further rate proceeding. Further, the Commission noted that any

further consideration for the works-in-progress costs must clearly delineate the requested works-

in-progress project costs from QIP costs and provide evidence and analysis sufficient to

demonstrate the investments were reasonable and prudently incurred.

¶ 25 (b) Emergency Work

¶ 26 Next, addressing emergency work, the Commission noted that it granted rehearing to

determine whether necessary emergency work was part of Peoples Gas’s paused SMP and, if so,

to what extent the company’s revenue requirement should be increased to account for this work.

The Commission acknowledged that completing ongoing work and providing emergency service

would be necessary to avoid unintended safety or reliability impacts and service interruptions

during the SMP pause. The Commission agreed with the Attorney General and the city’s positions

and determined that it had specifically limited rehearing to works in progress and emergency work

and found that SI and PI are distinct from emergency work and outside its scope. It further found

that SI was out of the rehearing scope and did not need to be included in the company’s emergency

work budget in the rehearing; it was part of the broader SMP category that was better addressed

by the Commission through the ongoing investigation in docket No. 24-0081. Next, addressing

PI projects, the Commission determined that many were required by the City of Chicago during

other street projects, and it acknowledged that the company may need to complete some work

required by the city. However, it found that PIs, by definition, are not emergency projects and are

outside the scope of rehearing. It declined to include PI projects in the rate base on rehearing.

¶ 27 The Commission further determined that Peoples Gas’s justification for cost recovery of

$28.9 million for emergency work was not persuasive, and it was unconvinced that the company’s

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ESR definition as a whole constituted true emergency work. It credited city witness deputy

commissioner Kalayil, who identified significant issues with the company’s categorization of

emergency work, including the timing and scope of several projects. The Commission also noted

that it was particularly concerned with Kalayil’s assertion that Peoples Gas had been doing

extensive non-emergency work in the public way without city agency review and approval and

was now characterizing that work to the Commission as emergency work. It noted that the

Attorney General’s witnesses had analyzed the company’s 45 short-cycle list of emergency

projects and opined that: 1 project—a Grade 1 leak—represented emergency work; 34 projects

“may” represent emergency work; and 10 projects—addressing Grade 3 leaks, resolving third-

party coordination concerns, or bolstering system pressure or supply concerns—did not appear to

represent emergency work. The Commission found that the Attorney General and the city showed

that the company’s categorization of emergency projects was overly broad and that the company’s

evidence did not justify an increase to its revenue requirement for emergency work. It also

compared the 45 proposed projects with the company’s initial filings in docket No. 24-0206 and

found 18 projects on the 2023 QIP project list; it noted it was concerned that emergency work that

Peoples Gas had claimed would be conducted in 2024 was actually connected to the 2023 QIP

reconciliation. “While the Commission denied the [c]ompany’s requested $28.9 million tied to

the 45-project list, the Commission also instructs the [c]ompany to ensure 2024 emergency work

is not included in its 2023 QIP Reconciliation.”

¶ 28 Finally, the Commission noted that it remained concerned about the amount of existing

high-risk pipe on Peoples Gas’s system and the company’s ability to respond to leaks, pipe breaks,

or other critical safety measures, including certain Grade 1 leaks. Thus, out of an abundance of

caution and to ensure the company has the resources to respond to emergencies to maintain a safe

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gas distribution system, it approved an increase to the company’s revenue requirement for

emergency work. It used the company’s three-year historical average of emergency expenditures

for purposes of defining an adjustment to the company’s rate base, as recommended by the

Attorney General. It approved a $28,515,829 increase to the company’s rate base to address true

emergency conditions, which will result in an additional revenue requirement of $1.6 million.

¶ 29 The Commission also addressed the company’s proposed revenue requirement increase of

$7.9 million and adopted the lesser revenue requirement increase of $1.6 million. It found this

figure will provide the company the opportunity to recover its prudent and reasonable costs of

service for projects within the scope of rehearing and allow it to continue providing safe and

reliable natural gas service. “This Order does not modify the [c]ompany’s options for lawful

recovery of adequately supported costs in later proceedings.”

¶ 30 B. Investment in Shops & Related Facilities (Peoples Gas)

¶ 31 The next issue concerns the Commission’s disallowance of $236.2 million for new shops

and facilities. Peoples Gas has operations and maintenance shops in Chicago, and the parties

agreed that the shops are old and that the company needed to address the facilities. The Attorney

General and the public interest organizations disagreed with Peoples Gas’s decision to replace five

of its legacy shops with new ones. They asserted that the company had not analyzed less expensive

alternatives, such as refurbishment or remodeling that were identified in its reports, or performed

a cost-benefit analysis. Thus, they reasoned, because Peoples Gas had not performed these

analyses, it did not show the investment was prudent.

¶ 32 Peoples Gas argued that it made a prudent decision to replace aging, inefficient,

environmentally contaminated, and, in some cases, dangerous service facilities in Chicago. The

company has three principal service shops from which it has conducted operations, maintenance,

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and construction activities in the city over the past century, all of which have been replaced in

recent years or will need to be by 2025. The company explained that it needed three shops due to

safety concerns and to respond to natural gas leaks within 60 minutes of receiving a leak report in

the geographically-expansive city. Its newest shop was constructed in 1937, and its oldest shop

dates to 1906. Overcrowding conditions in the shops created inefficient and sometimes hazardous

conditions for employees. The company retained Mortenson Construction in 2015 to assess the

facilities. For each facility, Mortenson considered factors such as the condition of outside areas,

building envelopes, roofs, interior conditions, environmental hazards, energy use, mechanical

systems, and compliance with building codes. It also considered adaptability of each facility, i.e.,

whether it could be remodeled or refinished to serve the company’s needs, and it gave each facility

a score (1 for limited opportunity for re-use to 4 for open flexible space). The north and south

shops each received a score of 1 on this metric, and the central and Division Street shops each

received a score of 2 (meaning they would require more work to re-use greater than 50% of value).

Mortenson recommended replacing the north, central, and south shops, plus the Division Street

complex.

¶ 33 In 2016, Peoples Gas hired Cushman Wakefield, a national real estate brokerage, firm to

further assess the facilities. Each facility was analyzed for its ability to meet certain goals.

Cushman Wakefield made a series of tier-one and tier-two recommendations for construction of

new facilities and repurposing and renovating existing facilities. Finally, in 2017, Peoples Gas

retained McKissack & McKissack (a national architecture, engineering, and construction

management firm) and FH Paschen (a commercial construction and contracting company) to

review Cushman Wakefield’s recommendations, design new operations facilities, and create

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budgets and construction timelines for the projects. Peoples Gas used its own analysis and the

McKissack recommendations to plan for construction of new facilities in 2018.

¶ 34 Mortenson created a master plan and made specific findings as to the north shop, central

shop, and south shop, recommending that each be replaced. It also found the Division Street

complex to be in poor condition (score of 2.2) and recommended that it be replaced. The Cushman

Wakefield study developed a portfolio strategy focusing on the four facilities and contained

scorecards, recommending the actions that Peoples Gas either took or was taking at the time of the

proceedings before the Commission. (The Division Street shop was not replaced; its functions

were moved to other facilities.)

¶ 35 Peoples Gas argued that it employed appropriate cost controls when building the facilities,

conducted a competitive bidding process to select the design/build contractor, hired a facility

program manager, reviewed and approved all sub-contractor bid awards during the design and

construction phases, obtained certain preferred pricing, and employed an internal team of project

managers and a cost analyst to scrutinize change orders.

¶ 36 Peoples Gas maintained before the Commission that it considered refurbishment and chose

that option where possible for a number of facilities (following Mortenson’s recommendation),

and, thus, the north, central, and south shops were in the minority of all the facilities Mortenson

addressed (and where it recommended replacement). It also asserted that it was not feasible to

repair or refurbish the older facilities (that it ultimately decided to replace) to improve safety and

better serve customers (noting employee complaints about the facilities). The company argued

that the Attorney General and the public interest organizations had engaged in hindsight review in

alleging that Peoples Gas did not consider alternatives. It maintained that its actions were

reasonable and prudent under the circumstances that existed at the time. Finally, addressing

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arguments about the relative cost of alternatives, Peoples Gas responded that the cost of the new

facilities was “justified given the state of the facilities and the near-impossible task of renovating

them to the necessary standard[.]” Cost was important, it conceded, but other factors should not

be disregarded, such as customer service, operating efficiency, employee safety, ADA compliance,

reducing environmental impacts, and so on.

¶ 37 The Attorney General took the position that the record did not support Peoples Gas’s

position that the newly-constructed facilities were necessary or that significantly less costly

alternatives were unavailable. He asked the Commission to disallow the company’s request to

recover about $236.2 million for five facilities and the renovation of one existing facility because

the company failed to show that: the old facilities were unable to support the provision of service

to the company’s customers; the new facilities are appropriate in size and scope; sufficient

alternatives analyses were performed on options other than “do nothing” and “repairs”; and the

magnitude of the investments represented a reasonable use of ratepayer funds. The Attorney

General argued that the facilities reports Peoples Gas cited provided only conclusory statements,

no meaningful analysis, and showed that the company’s negligent maintenance practices likely

contributed to the facilities’ dilapidated condition.

¶ 38 In response to the company’s argument that it conducted an alternatives analysis, the

Attorney General argued that the alternatives analysis was fatally deficient because it provided no

evaluation or examples showing that existing facilities rendered it unable to serve customers at a

modern level or what a modern level meant. As for upgrades/improvements, the Attorney General

took the position that the company provided no cost estimates for such or analysis showing how

or why such repairs would be very costly. He also pointed to the Mortenson report’s cost estimate,

which showed that the cost to repair the north shop was $3.9 million, versus the $24.7 to $28.4

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million cost to build a new facility, reflecting that the company’s decisions were unjustified. He

also noted that the Mortenson report lacked any comparative analysis. Notwithstanding the report,

he asserted that the company’s alternatives analysis provided no basic information and no cost-

benefit analysis, which were necessary to evaluate Peoples Gas’s decision.

¶ 39 The Attorney General also disputed that the Cushman Wakefield report contained

renovation scenarios; instead, he asserted, it contained conclusory assertions. It also did not

contain any cost-benefit analysis of alternatives, nor evidence supporting dismissal of the repair

option or that the costs to purchase and renovate an existing building were even considered. The

Attorney General argued that the Cushman Wakefield report agreed with his position that new

facilities would result in higher costs over a 20-year timeframe, even when higher operations and

maintenance costs for the existing facilities are accounted for. (This was also true, he asserted,

when the figures from the report were calculated in present dollars.) The Attorney General raised

similar arguments concerning the McKissack and Paschen reports, asserting they also did not

evaluate alternatives, cost reasonableness, operational necessity, or provide any further meaningful

perspective. He also noted his witness’s, Rod Walker’s (a natural gas engineer’s), testimony that

the Mortenson report primarily focused on assessing existing facility conditions and stated that a

lack of ongoing capital investment in maintenance programs resulted in compounding issues,

including unchecked roof leaks that damaged drywall, paint, and ceilings. The Attorney General

argued that the company’s report showed that its deficient maintenance practices contributed to

deteriorating, dilapidated infrastructure of the facilities, and it was not reasonable or prudent for

ratepayers to pay the full cost of the company’s poorly maintained properties.

¶ 40 The Attorney General acknowledged that the Mortenson report proposed replacing several

facilities, but noted that it also showed that issues related to the facilities could have been addressed

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at far lower cost. He argued that Peoples Gas ignored or never properly considered the potential

savings in its approach. He further asserted that the company was afforded multiple opportunities

to provide its alternatives analysis and cost-benefit analysis to demonstrate that its decision to build

new construction or remodel each facility was the most cost-effective approach but declined to do

so.

¶ 41 The public interest organizations argued that, in response to their discovery request,

Peoples Gas admitted that the Cushman Wakefield report did not compare the net costs associated

with construction of new operational facilities with the net costs of refurbishment, repair,

remodeling, or refinishing of the legacy shops. It failed to provide any analysis comparing the

cost of repairing the facilities with the costs of replacement (or, alternatively, the net benefits to

ratepayers of each option). Nor did it conduct the analysis it should have conducted to ensure its

investments were in its customers’ best interests.

¶ 42 Catherine Elder, a witness for the public interest organizations, testified that Peoples Gas’s

reports did not demonstrate the new operational facilities were in customers’ best interests. The

studies, she opined, did not rigorously compare cost to ratepayers of constructing new facilities

versus the cost to them of refurbishing or renovating existing facilities or any other alternative.

She performed her own operations and maintenance analysis and opined that there would be no

operations and maintenance savings associated with the new facilities. She recommended that the

Commission disallow the costs of Peoples Gas’s new facilities.

¶ 43 Peoples Gas’s witnesses, Polly Eldringhoff (WEC’s vice president of operational

performance and compliance) and Alan Weber (Peoples Gas’s area manager) testified about the

Mortensen, Cushman Wakefield, and McKissack reports. Eldringhoff testified that the new shops

would provide operational benefits, efficiency, pedestrian and employee safety, and reduce

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operations and maintenance expenses. Weber addressed the 2015 Mortenson report and opined

that the facilities should be replaced. The Attorney General presented testimony from Walker,

who testified that the company considered the same two alternative approaches for each of the

facilities—do nothing or perform upgrades/improvements—but the company did not provide any

analysis for these alternatives or provide cost estimates for repairs/upgrades. He also criticized

Peoples Gas for not considering purchasing existing facilities and modifying them for its needs, or

considering targeted repairs/upgrades, such as parking solutions, facility expansions, etc. He

criticized the company’s reliance on reports from 2015, 2016, and 2017, characterizing them as

obsolete and/or irrelevant and opining that they did not justify full replacement of the facilities or

their costs. Nor did he believe that the facilities were necessary, especially at the cost proposed.

Walker disputed Peoples Gas’s claim about operations and maintenance savings and opined that

its analysis showed no material operations and maintenance savings and a total of tens of millions

of dollars in additional incremental revenue requirement. He concluded that the company failed

to justify $236.2 million on new facilities as prudent and recommended that the Commission

disallow recovery.

¶ 44 The Commission disallowed $236.2 million for the facilities. It noted that the evidence

showed that the subject buildings were in poor condition, but that there was insufficient evidence

showing that the newly-constructed facilities were prudent. Peoples Gas, it determined, did not

meet its burden to support its request to recover the costs through the rate base. The reports the

company submitted identified issues with existing buildings and provided recommendations on

how to address them. The Commission found the reports provided solutions and strategies to

ameliorate problems with existing buildings; however, Peoples Gas failed to demonstrate that the

costs it incurred were prudent, after considering alternatives. The company did not supply cost-

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benefit analyses for each facility or an alternatives analysis evaluating costs and other

considerations of repair, repurpose, and replace options. Further, the Mortenson report identified

repairs and upgrades for each shop that could have been pursued to maintain their operations. The

Commission noted that the report showed that the estimated cost to upgrade and repair the north

shop was $3.95 million, versus the $69.3 million that Peoples Gas wished to add to the rate base.

It also found that it was unclear if the company even considered this or other alternatives when

developing a strategy to modernize its facilities.

¶ 45 The Commission also determined that Peoples Gas failed to show why it could not have

pursued the investments identified in the Mortenson report to continue operating existing shops,

delay the need to build new shops, or pursue some combination of the two. “The Commission

acknowledges that a least-cost standard is not applicable to these facilities. However, [Peoples

Gas] must consider the cost to ratepayers when it embarks on capital investment, especially when

[its] own report identifies cheaper alternatives.” It noted that, in response to a question asking how

the company balanced the need for its new shops with its other capital investments, Peoples Gas

did not directly answer the question and instead responded “with its process for internal project

approval and provided no explanation of its consideration of the costs of these projects in the

context of [its] total portfolio.”

¶ 46 The Commission noted that “analyses of alternatives to new, upgraded replacement

facilities, cost-benefit projections for the investments, and rate impact assessments—with

supporting documentation—are reasonable steps that a utility should take before initiating a capital

investment project of this magnitude.” Peoples Gas, it noted, did not address the apparent lack of

planning that led to its decision to rebuild all the facilities at nearly the same time. Accordingly,

the Commission disallowed $236.2 million for the facilities.

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¶ 47 C. Clavey Road Project Costs (North Shore)

¶ 48 North Shore’s Clavey Road Phase II Public Improvement Project addressed a conflict with

the City of Highland Park’s storm sewer upsizing, reconfiguration, and road replacement project.

North Shore sought to recover the $4.1 million final cost of its Clavey Road project. The company

installed 2,450 feet of 12-inch steel high pressure main, 1,115 feet of 2-inch medium pressure

main, and retired older main that conflicted with the city’s storm sewer. The location was a

suburban residential street. The company maintained that, after construction began, it recognized

that Highland Park’s design plans, which it relied upon to design its facilities, were changing and

contained errors. North Shore had to bury its pipe deeper than originally planned to avoid the

city’s facilities. This could not have been anticipated, according to the company. It noted that it

estimated the cost of the Clavey Road project by categorizing each cost component, including

management and design, construction, installation, materials, environmental, labor, and

restoration. It also analyzed historical unit pricing and deployed a competitive bidding process.

The original cost estimate for the project was $2.28 million, and North Shore also used its $592,000

contingency and incurred about $1.2 million in overages, which the company claimed were due to

revised sewer designs and the leaking of a temporary storm sewer. The total cost of the project

was $4.1 million due to the overruns.

¶ 49 The Attorney General asked the Commission to disallow $1.689 million from North

Shore’s proposed costs for the Clavey Road project (reflecting the difference between what North

Shore spent and an industry-wide benchmark cost for a comparable project, adjusted for pipe size,

regional cost variation, and inflation, as calculated by Walker). The Attorney General argued that

North Shore had failed to provide a timeline for the project, project design, permit review

milestone dates, and descriptions or dates of the alleged changes or errors that might justify why

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it did not discover changes and errors until so late in the project. This showed, he asserted, a lack

of due diligence and poor management, as well as a blind eye toward regulatory accountability.

Next, addressing North Shore’s contention that a water main being found to be closer to the new

gas main than shown on plans was unforeseeable, the Attorney General argued that North Shore’s

failure to utilize effective engineering methods to determine sub-surface facilities and have

accurate records of the site was not unforeseeable. Finally, the Attorney General argued that North

Shore offered no justification as to why a temporary storm sewer’s failure was unforeseeable,

where the company failed to state who installed the temporary sewer, why it was installed, who

was responsible to maintain it while in operation, whether its failure was the result of poor

craftsmanship or damage sustained during excavation, or whether some other factor caused it to

leak into North Shore’s tie-in area.

¶ 50 Attorney General witness Walker ran a benchmark analysis and recommended a $1.68

million disallowance. He testified that the project cost of $5.6/mile was excessively high, as were

the company’s claimed incremental costs for additional depth. North Shore’s costs would have

been high even for an urban project; this project is located on the outskirts of the city on a

residential street. Walker noted that, regardless of the benchmark, North Shore exceeded its budget

by 68%, exhausted its contingency, and incurred nearly $1 million in overages. He testified that,

given that: (1) the only discrete cost-impact information North Shore provided related to the

changes concerning the change in depth; and (2) it did not identify any other costs justifying a

higher-than-typical cost or show that this project was extraordinary in any way, the Commission

should disallow $1.68 million. Walker also testified that his calculated benchmark was an average

of real-world projects that each would have had their challenges and unique costs associated with

them, similar to the depth issue with the Clavey Road project.

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¶ 51 Company witness Eldringhoff testified that the additional costs could not have been

anticipated. She disagreed with Walker’s use of a benchmark to recalculate the costs of the project,

testifying that there are inherent inaccuracies in using it. Actual costs were known here, as were

actual field conditions.

¶ 52 The Commission disallowed $1.689 million. It agreed with the Attorney General that the

use of a benchmark was a standard testing method for reviewing project costs for reasonableness

and was a valuable check on both budgeted and incurred costs. Walker stated that his benchmark

accounted for variables raised by North Shore. The Attorney General, the Commission further

found, demonstrated a 68% cost variance between the budgeted and actual costs incurred for the

project, or $1.54 million. This was “commensurate” with Walker’s benchmark disallowance of

$1.689 million.

¶ 53 The Commission further determined that North Shore did not provide sufficient evidence

demonstrating that the additional costs identified by the Attorney General were unforeseeable or

prudently incurred. Walker’s benchmark analysis supported the Attorney General’s contention

that the identified costs were excessive. North Shore, the Commission found, did not provide the

timeline of the project, project design, permit review milestone dates, or descriptions or dates of

the alleged changes or errors to justify its assertion that the additional costs were unavoidable,

unforeseen, and out of the company’s control. As an example of the company’s lack of prudence,

the Commission noted that it failed to provide basic information about the temporary storm sewer’s

failure, such as who installed it, why, and what caused the failure.

¶ 54 C. Rate Case Expense (North Shore)

¶ 55 North Shore filed a rate case expense (i.e., attorney and expert fees) estimate of $3.5 million

(resulting in $1.7 million in test year expenses). 220 ILCS 5/9-229 (West 2022) (allowing utilities

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to recover the just and reasonable amounts expended for “attorneys and technical experts to prepare

and litigate a general rate case”). 7 The company argued that its attorneys’ and experts’ rates were

in market and that their time was reasonable. The Attorney General proposed a disallowance of

$1.4 million.

¶ 56 North Shore’s witnesses, Koby Bailey and Joseph Zgonc, testified on its behalf. Bailey,

WEC’s senior counsel for regulatory affairs, opined that the company’s rate case expense was

reasonable and that its submission complied with the Commission’s requirements. Zgonc, WEC’s

manager for financial and regulatory planning, addressed the company’s expense documentation.

The documents were heavily redacted and removed the descriptions of the work performed, the

number of hours worked, and/or the hourly rate for various experts and attorneys. However, North

Shore subsequently removed some of the redactions.

¶ 57 The Attorney General’s expert, Mary Selvaggio, a certified public accountant and former

Commission accounting employee (for 33 years), testified that the rate case expense was neither

just, nor reasonable. She testified that the company’s rate case expense had a significant impact

on ratepayers—$10.74 per customer, which was multiple times higher than that of any other utility.

It also exceeded the expenses of each of the four major utilities that filed tariffs in 2023, and the

Companies, combined, had fewer customers than any other utility (excluding one). Selvaggio also

testified that the Companies were the only utilities to utilize multiple law firms for their rate cases

and that both utilities’ legal fees exceeded 50% of the overall rate case expense, which was higher

than all but one other utility. The Companies also paid their expert witnesses significantly more

7 Peoples Gas made a similar filing but does not appeal from the Commission’s disallowance as to

its filing.

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than other natural gas utilities paid their consultants. They also paid over $2 million to their parent

company, as compared to zero for Nicor Gas and $406,000 for Ameren Illinois’ gas rate case.

Selvaggio further testified that North Shore’s $3.5 million rate case expense comprised 18.7% of

its entire requested rate increase, which she stated was exceptionally high. The next highest

utility’s expense to rate increase ratio was 4% (Peoples Gas) and all other utilities were under 2%,

with ComEd’s ratio being the smallest (0.3%). On a per-customer basis, North Shore’s rate case

expense was the highest at $10.74 per customer per year, followed by Peoples Gas ($2.94) and

Ameren ($2.09; gas), with ComEd being the lowest ($0.37). Selvaggio recommended a

reasonableness adjustment of $1.4 million, which she calculated using Ameren’s average annual

per-customer charge of $2.09 (which was the highest, following the Companies). She also testified

that the Companies appeared to be duplicating efforts. Selvaggio noted that they are owned by the

same parent company, their cases were consolidated, and many issues (rate of return on rate base,

rate design, and a low income rate, rider proposals, and cash-working capital) were the same. “The

costs for essentially identical work are paid for twice.” The companies were also the only two

entities that included costs for two different law firms in rate case expense. She also explained

that the supporting documentation noted costs for tasks that “may be attributable to cases other

than this proceeding,” “represented the coordination of filings of other gas utilities to achieve an

unknown goal,” and “were for activities that may duplicate the tasks of other internal and external

attorneys” and company representatives.

¶ 58 The Commission adopted Selvaggio’s recommendation and disallowed $1.4 million.

¶ 59 D. Long-Term Gas Infrastructure Plans (the Companies)

¶ 60 The final issue concerns the Commission’s order that the Companies file biannual long-

term gas infrastructure plans (LTGIPs) beginning July 1, 2025. The Companies took the position

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that the proposals of several intervenors sought to turn this rate case into a broader investigation

of policy proposals and initiatives related to decarbonization and the “future of gas.” The

Companies asserted that these proposals had little or nothing to do with the test year rates and,

instead, sought to change the natural gas industry and were based on speculative and uncertain

predictions about the pace and feasibility of decarbonization and electrification efforts in Illinois.

As a result, they were premature. Further, they would make it more costly and difficult for the

Companies, for example, to modernize Chicago’s gas infrastructure and to improve its reliability

and safety.

¶ 61 Addressing integrated resource planning, the Companies asserted that there was no

statutory basis requiring this for a gas utility, and there were practical problems with such a

proposal, like increased costs and project delays (as testified to by Eldringhoff). The Companies

presented witness Theodore Eidukas, who objected to the LTGIP based on his legal opinion that

the Commission lacked authority to require such a report. Brad Cebulko, a witness for the public

interest organizations, recommended that the Commission require the Companies to file LTGIPs

to assess their resource and major capital investment needs.

¶ 62 The Commission acknowledged that the parties disagreed on the appropriate proceeding in

which to address many of the Attorney General’s and the public interest organizations’ proposals

and noted that its order did not reflect a determination that certain proposals were or were not

appropriate to consider as part of a rate case.

¶ 63 Addressing the LTGIPs, the Commission noted that it agreed with the public interest

organizations that the Companies likely engaged in internal system planning, but further noted that

they did not submit a public long-term system plan and that this created an inherent information

asymmetry between the Companies and the Commission. The Companies’ lack of transparent

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planning, it found, made it challenging for the Commission, customers, and other stakeholders to

determine whether the Companies were prioritizing just, reasonable, and prudent investments that

are likely to be used and useful. Accordingly, the Commission found that the Companies’ capital

spending and associated planning, budgeting, and project selection processes merited careful

consideration “in this and future rate cases.”

¶ 64 Citing to sections 4-101, 8-501, 9-201(c), and 9-211 of the Act (220 ILCS 5/4-101, 8-501,

9-201(c), 9-211 (West 2022)), the Commission noted that it had authority to do what was

reasonably necessary to effectuate the legislature’s objectives. It ordered the Companies to file

LTGIPs with the Commission every two years, beginning on July 1, 2025, in order to “remedy the

difficulty of obtaining information in this case and to aid in the Commission’s informed review of

the Companies’ future rate increase requests.” It noted that, at a minimum, the LTGIPs include:

(1) a list of proposed system expenditures and investments, including analysis of infrastructure

needs and detailed information on all planned projects within the action plan; (2) a demonstration

that each project or program plan complies with Commission rules and jurisdiction requirements;

(3) a five-year action plan of investments with a longer-term planning horizon analysis where

applicable; (4) the estimated total cost and annual incremental revenue requirement of the proposed

action plan; (5) an explanation for the pace of each project or program, including why it cannot be

deferred to future years; (6) comparative evaluations of resource procurements and major capital

investments; (7) distribution mapping that identifies areas of constraint and risk, location of

planned projects, pressure districts served by each project, and locations of environmental justice

communities; (8) a description of lowest-societal-cost gas distribution system investments

necessary to meet customer demand and comply with public policy objectives; (9) a demonstration

that the program or project will minimize rate impacts on customers, particularly low-income and

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equity-investment-eligible communities; (10) a scenario and sensitivity analysis to test the

robustness of the utilities’ portfolio and investments under various parameters; (11) publicly filed

workpaper documenting all inputs and assumptions with limited use of confidentiality; and (12) a

summary of stakeholder participation and input, and an explanation of how the company

incorporated stakeholder engagement.

¶ 65 The Companies appeal.

¶ 66 II. ANALYSIS

¶ 67 Peoples Gas challenges: (1) the Commission’s decision on rehearing that disallowed

certain amounts in its SMP budget; and (2) its disallowance of funds for new shops and facilities.

North Shore challenges the Commission’s disallowance of certain amounts for its: (1) Clavey Road

project; and (2) rate case expense. Finally, the Companies appeal the Commission’s directive to

file LTGIPs.

¶ 68 The Act creates the Commission, which is the administrative agency responsible for setting

rates that public utilities may charge their customers. People ex rel. Madigan v. Illinois Commerce

Comm’n, 2015 IL 116005, ¶ 6; 220 ILCS 5/2-101 (West 2022). The statute provides that all rates

and charges by public utilities, as well as all rules and regulations concerning those charges, must

be “just and reasonable.” 220 ILCS 5/9-101, 9-201 (West 2022). In ratemaking-related

proceedings, “the burden of proof to establish the justness and reasonableness of the proposed rates

or other charges *** shall be upon the utility.” Id. § 9-201(c).

¶ 69 The supreme court

“has long recognized that the Commission ‘is not a judicial body, and its orders are

not res judicata in later proceedings before it.’ Mississippi River Fuel Corp. v. Illinois

Commerce Comm’n, 1 Ill. 2d 509, 513 (1953). The Commission, as a regulatory body, has

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the ‘power to deal freely with each situation as it comes before it, regardless of how it may

have dealt with a similar or even the same situation in a previous proceeding.’ [Id.]; see

also Citizens Utility Board, 166 Ill. 2d at 125 (holding the Commission’s past precedent of

allowing full recovery of statutorily imposed operating expenses ‘is not controlling,

because the Commission is a legislative and not a judicial body, and generally its decisions

are not res judicata in later proceedings before it’); United Cities Gas Co. v. Illinois

Commerce Comm’n, 163 Ill. 2d 1, 22-23 (1994) (rejecting argument that the Commission

is bound by its prior orders under the doctrine of res judicata).” Commonwealth Edison

Co. v. Illinois Commerce Comm’n, 2016 IL 118129, ¶ 24.

¶ 70 The Commission “must allow the utility to recover costs prudently and reasonably

incurred.” Citizens Utility Board, 166 Ill. 2d at 121 (citing 220 ILCS 5/1-102(a)(iv) (West 1992)).

“ ‘Prudence is that standard of care which a reasonable person would be expected to exercise under

the same circumstances encountered by utility management at the time decisions had to be

made.’ ” Illinois Power Co. v. Illinois Commerce Comm’n, 339 Ill. App. 3d 425, 428 (2003)

(quoting Illinois Power Co. v. Illinois Commerce Comm’n, 245 Ill. App. 3d 367, 371 (1993)).

“[T]he prudence standard recognizes that reasonable persons can have honest differences of

opinion without one or the other necessarily being ‘imprudent.’ ” Id. at 435. “[T]he Commission

should disallow recovery of any cost of capital in excess of that reasonably necessary for the

provision of services.” Citizens Utility Board v. Illinois Commerce Comm’n, 276 Ill. App. 3d 730,

746 (1995). In examining the prudence and reasonableness of actions, hindsight review is

prohibited. Illinois Power Co., 339 Ill. App. 3d at 428.

¶ 71 Judicial review of final orders issued by the Commission “involves the exercise of special

statutory jurisdiction and is constrained by the provisions of the [Act].” Commonwealth Edison

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Co. v. Illinois Commerce Comm’n, 2019 IL App (2d) 180504, ¶ 51. Section 10-201(d) of the Act

states that the “rules, regulations, orders or decisions of the Commission shall be held to be prima

facie reasonable” and that the burden of proof upon all issues raised by an appeal from an order

issued by the Commission is upon the party appealing from that order. 220 ILCS 5/10-201(d)

(West 2022). A reviewing court is required to give substantial deference to the orders of the

Commission because of the Commission’s expertise and experience in the area of setting rates.

Commonwealth Edison Co. v. Illinois Commerce Comm’n, 398 Ill. App. 3d 510, 514 (2009).

¶ 72 Judicial review of a decision by the Commission is limited to four questions: “(1) whether

the Commission acted within the scope of its authority, (2) whether the Commission made

adequate findings in support of its decision, (3) whether the Commission’s decision was supported

by substantial evidence in the record, and (4) whether constitutional rights have been violated.”

Central Illinois Public Service Co. v. Illinois Commerce Comm’n, 268 Ill. App. 3d 471, 476

(1994). “Substantial evidence” is simply “evidence that a reasonable mind might accept as

adequate to support a conclusion.” (Internal quotation marks omitted.) Welch v. Hoeh, 314 Ill.

App. 3d 1027, 1035 (2000). It is not conclusive evidence, and it requires more than a mere scintilla

but less than a preponderance of evidence. Commonwealth Edison Co., 398 Ill. App. 3d at 514.

“Substantial evidence can support multiple possible findings.” Citizens Utility Board v. Illinois

Commerce Comm’n, 2018 IL App (1st) 170527, ¶ 36. The Commission’s findings are deemed to

be prima facie true and correct, and the party challenging them has the burden of showing them to

be against the manifest weight of the evidence. 220 ILCS 5/10-201(d) (West 2022); see Cinkus v.

Village of Stickney Municipal Officers Electoral Board, 228 Ill. 2d 200, 210 (2008) (“In examining

an administrative agency’s factual findings, a reviewing court does not weigh the evidence or

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substitute its judgment for that of the agency. Instead, a reviewing court is limited to ascertaining

whether such findings of fact are against the manifest weight of the evidence.”).

¶ 73 Questions of law, such as the interpretation of statute or a regulation of the Commission,

are reviewed de novo. Save Our Illinois Land v. Illinois Commerce Comm’n, 2022 IL App (4th)

210008, ¶ 42. “While we are not bound by the Commission’s conclusion on questions of law, we

will give substantial weight and deference to an interpretation of an ambiguous statute by the

agency charged with the administration and enforcement of the statute.” (Internal quotation marks

omitted.) People ex rel. Madigan v. Illinois Commerce Comm’n, 2011 IL App (1st) 101776, ¶ 6.

The reason for this deference is that “courts appreciate that agencies can make informed judgments

upon the issues, based upon their experience and expertise[,] and *** agencies must have wide

latitude to adopt regulations reasonably necessary to effectuate their statutory functions.” (Internal

quotation marks omitted.) Id. Deference to the Commission is especially appropriate in matters

of ratemaking because such matters are legislative in character and the legislature has entrusted

the Commission, not the courts, to use its sound judgment and expertise in determining rates.

Madigan, 2015 IL 116005, ¶ 23; Cerro Copper Products v. Illinois Commerce Comm’n, 83 Ill. 2d

364, 371 (1980); City of Chicago v. Illinois Commerce Comm’n, 281 Ill. App. 3d 617, 622 (1996).

Judges are not utility regulators. Madigan, 2015 IL 116005, ¶ 22. However, where the

Commission departs from its usual rules of decision to reach an unexplained result in a single case,

thus, depriving a party of equal treatment before it, its decision is entitled to less deference. Abbott

Laboratories, Inc. v. Illinois Commerce Comm’n, 289 Ill. App. 3d 705, 715 (1997).

¶ 74 A. SMP Disallowance (Peoples Gas)

¶ 75 Peoples Gas argues that the Commission’s SMP disallowance was erroneous, where (1)

the Commission directed Peoples Gas to perform unfunded work; and (2) the Commission’s new

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cost deferral approach disregards test year principles and constitutes further error. Peoples Gas

asserts that the Commission’s initial $265 million disallowance, paired with its subsequent

directive that Peoples Gas continue non-neighborhood SMP work, was unlawful, where the

Commission cannot lawfully instruct the company to do necessary SMP work in Chicago (i.e.,

non-neighborhood work), while simultaneously denying all funding for that work. It requests that

this court restore $116 million required to comply with the Commission’s directive, because it is

entitled by law to cost recovery for that work, where the $116 million is for the same SMP work

that was included within its initially requested $265 million and does not constitute funding for

new SMP work, as respondents imply.

¶ 76 Peoples Gas further argues that the Commission’s “unfunded mandate” violates the most

basic principle of ratemaking: utilities are entitled to recover the reasonable and prudent cost of

providing service to customers. Here, it asserts, the Commission approved a marginal revenue

requirement that funded a mere fraction of Peoples Gas’s 2024 SMP work, thereby turning the

traditional utility cost-of-service model on its head. It did so, Peoples Gas further asserts, while

repeatedly warning the company that it must still comply with the statute’s safety and reliability

provisions. The practical effect, Peoples Gas argues, is that it must continue doing whatever it

deems necessary to preserve safety and reliability at its own expense, “or else.” The Commission

ordered the company to continue $116 million of SMP work in 2024, finding it necessary for

system safety and reliability, while denying cost recovery for the very same SMP work, finding it

imprudent and unreasonable. These conflicting positions, Peoples Gas argues, cannot be

reconciled, and the order is arbitrary and unlawful.

¶ 77 The Attorney General responds first that Peoples Gas does not challenge the portion of the

final order disallowing the company’s SMP spending as imprudent and, so, it forfeited any

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challenge to the propriety of that ruling. He notes that Peoples Gas instead argues more narrowly

that the Commission’s rehearing order, which added $28.5 million to Peoples Gas’s rate base

instead of its requested $144.9 million, forced Peoples Gas to do $116.4 million (i.e., the

difference) of work “for free.” This “free” work, the Attorney General further notes, is the

“emergency” work the Commission explained it expected the company to continue completing per

its statutory mandate. Thus, in the Attorney General’s view, the issue on appeal is whether the

Commission factually erred in finding on rehearing that the $116 million it declined to add to

Peoples Gas’s rate base arose from projects that were imprudent or exceeded the rehearing’s scope.

He argues that the findings were supported by substantial evidence and that this court should affirm

the Commission’s rehearing order.

¶ 78 The Attorney General further argues that substantial evidence supported the Commission’s

findings, where Peoples Gas failed to show that its proposed work-in-progress projects were: (1)

within the scope of rehearing; (2) prudent; and (3) its proposed ESR projects were in fact true

“emergency” projects. As to the first argument, the Attorney General argues that the record

supported the finding that the company failed to show that its proposed $82.8 million SMP work-

in-progress projects were within the scope of rehearing and prudent. His technical experts

explained that Peoples Gas provided no data to show how it determined which specific projects it

believed were necessary to address imminent safety threats. This was, as the Commission noted,

“particularly concerning” because several neighborhoods on the company’s list were not given

high-priority risk rankings before the projects began. The Attorney General also argues that the

company cites no evidence that the Commission overlooked. He also asserts that the record

supports the findings of more specific inadequacies in Peoples Gas’s evidence. For example,

Peoples Gas listed a project that involved replacing 386 feet of pipe with 5,608 feet of pipe with

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no explanation for the increase beyond that it was the second phase of a four-phase project. The

company also began six of its proposed SMP work-in-progress projects after the Commission

ordered it to pause the SMP, thereby contradicting the order. The Attorney General notes that the

company did not contest that it violated the order but attempted to justify the violation on the

ground that compliance would have been impracticable as a business matter. The Commission,

he notes, declined to excuse the violation, and a dispute regarding the agency’s business judgment

cannot support reversal. The Attorney General also argues that the evidence supported the finding

that Peoples Gas failed to show prudent SMP management and recordkeeping, specifically,

recordkeeping sufficient to show that its requested additions to its rate base for SMP work in

progress would not result in double recovery at its customers’ expense. The Commission noted

that many of the proposed SMP work-in-progress projects for which the company sought recovery

on rehearing overlapped with projects for which it sought recovery in its 2023 QIP reconciliation

case. And the company confirmed that 38 of the 43 newly added SMP projects were completed in

2023. Granting cost recovery for those projects, the Attorney General argues, would have resulted

in double recovery because the Commission disallowed costs only for a 2024 future test year.

Finally, he argues that, to the extent there was a conflict in the evidence regarding whether adding

the projects to the rate base would have yielded double recovery, the Commission was entitled to

resolve that conflict against Peoples Gas.

¶ 79 Second, the Attorney General contends that Peoples Gas failed to show its right to cost

recovery beyond $28.5 million for the ESR work it proposed on rehearing. He asserts that,

contrary to the Commission’s directive to present only emergency projects for cost recovery on

rehearing, the company sought to recover for all its ESR work, into which it improperly tried to

shoehorn $33.2 million worth of non-emergency, long-term proactive SI and PI projects. The

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Attorney General notes testimony that these projects were simply a mix of unreviewed integrity

management and PI projects for which Peoples Gas sought pre-approval and funding to bypass the

ordinary rate case prudence-review process. He notes that, in the principal rate case, the

Commission had already approved a revenue requirement of over $1 billion, 91% of the amount

the company requested despite the SMP pause. The purpose of the limited-scope rehearing, the

Attorney General argues, was not to give Peoples Gas a second bite at the apple on the remaining

9%, but, rather, to clarify whether the SMP pause inadvertently excluded cost recovery for

“emergency work” that could not safely wait for the end of the SMP pause. The Commission’s

finding, he argues, was supported by substantial evidence. He also notes that his experts testified

that the company provided generalized statements regarding the necessity of pipeline replacements

but no evidence addressing the thresholds for selecting projects. The Commission, he argues, was

free to base its factual findings on this testimony.

¶ 80 Finally, the Attorney General contends that the company erroneously seizes on one

sentence at the end of the rehearing order that it mischaracterizes as a legal error. It notes that,

after finding that Peoples Gas failed to support its request to recover costs for the projects it

proposed on rehearing, the Commission unremarkably noted that its order would “not modify the

Company’s options for lawful recovery of adequately supported costs in later proceedings.” The

Attorney General disputes the company’s assertion that the Commission adopted a “new cost

deferral approach” that “disregards test year principles.” He notes that the test year rule requires

a utility bringing a rate case to submit its supporting data in the form of a 12-month historical or

future period to prevent it from overstating its revenue requirement by mismatching low revenue

data from one year with high expense data from a different year. Regarding depreciation, it forbids

letting a utility recover deferred expenses for depreciation that occurred before the test year. Here,

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the Attorney General argues, the rehearing order neither permitted Peoples Gas to mismatch low

revenue data from one year with high expense data from another year, nor allowed it to recover

additional expenses not incurred during the test year. The order simply found that the company

failed to show that its proposed work-in-progress projects were within the scope of the rehearing

and prudent, and it failed to show that certain ESR projects in fact represented emergency work.

The Commission did not defer consideration of the projects to a later date, but fully considered

them in this case. Its observation that nothing stops the company from seeking to include the

projects in its rate base in a future case did not, the Attorney General urges, mean that its ruling

hinged on Peoples Gas later justifying cost recovery for these projects.

¶ 81 In its response brief, the Commission contends that it did not order Peoples Gas to perform

unfunded work; it determined that the company failed to show that more than the $28.5 million

approved by the Commission was necessary to allow it to fulfill its legal obligations. The

Commission further argues that its disallowance of Peoples Gas’s work-in-progress projects was

not against the manifest weight of the evidence, where (1) the proposed $33.2 million for new SI

and PI work was outside the scope of rehearing; and (2) the disallowance of $82.8 million for

works in progress was not erroneous, where six of the projects were not works in progress because

they began after the Commission directed the company to pause the SMP, the company failed to

appropriately risk-rank the SMP projects both initially and on rehearing, and the company never

rebutted the Attorney General’s argument regarding double recovery. Finally, the Commission

addresses Peoples Gas’s contention that it used a new cost deferral approach. The Commission

asserts that it merely restated the law and its practice and notes that, when it disallows recovery of

costs, a utility can try again with supporting evidence in its next rate case if that cost remains

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eligible for recovery. This is precisely, it contends, what Peoples Gas’s counsel asked for during

oral argument and what company witnesses Eldringhoff and Margaret Salvatore stated.

¶ 82 In reply, Peoples Gas again contends that the Commission illegally directed it to do $116

million of SMP work without cost recovery. It asserts that none of the Commission’s orders state

that Peoples Gas is only required to continue true emergency work or work in progress; rather, the

directive is much broader: the company must “address existing and new leaks as it would in the

normal course of prioritizing customer safety.” Peoples Gas argues that it showed it would take

$144.9 million to do that, but the Commission only gave it $28.5 million. It maintains that its

budget for 2024 SMP, including neighborhood and non-neighborhood work, was $265 million,

with about $120 million allotted for the neighborhood program and $144.9 million for non-

neighborhood work. The Commission disallowed the entire $265 million, while simultaneously

directing Peoples Gas to pause only the neighborhood portion of its SMP in 2024. If that was the

case, the disallowance, the company contends, should have been $120 million, leaving $144.9

million for non-neighborhood work. Ultimately, on rehearing, the Commission restored only

$28.5 million of the disallowance, while maintaining its order for the company, Peoples Gas

argues, to do much more than that: to continue addressing existing and new leaks. Thus, the

company contends, it must continue all non-neighborhood SMP work—a majority of which is

required by local, state, and federal law, “on its own dime.”

¶ 83 Finally, Peoples Gas asserts that the Commission’s unfunded mandate violates ratemaking

principles, which guarantees full recovery in rates for reasonable and prudent costs, and the

prudence standard. Further, it argues that the Commission’s proposed cure—to seek recovery in

a later test year—also defies those principles, as it prohibits recovery of the company’s

depreciation expenses. The Commission’s directive cannot stand with its $116 million

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disallowance for the same work. Work the Commission orders a utility to do is by definition

reasonable and prudent and, thus, recoverable, the company notes. It argues that telling it to

continue to address non-neighborhood SMP work (or face legal penalties), while also disallowing

recovery for the same work, is unlawful and unreasonable. Peoples Gas asserts that recovery in a

further rate case, if granted, would still deny it full recovery.

¶ 84 We conclude that the Commission did not err in adding $28.5 million to Peoples Gas’s rate

base. The Commission did not err in finding that Peoples Gas failed to show that its proposed

SMP spending was prudent and reasonable. In its final order, it explained how the company was

lagging in replacing its CI and DI pipe by 2030. It also found that the SMP’s bundling of

replacement and non-replacement work was delaying replacement work, and it found that the

neighborhood program inadequately prioritized replacement projects. Accordingly, it disallowed

$265 million of SMP spending in Peoples Gas’s rate base, ordered an investigation into the SMP

on a separate docket, and ordered a pause of further SMP work pending the outcome of that

investigation. The Commission explained that the disallowance applied only to funding of the

SMP’s neighborhood program, not funding for emergency responses to pipe leaks and breaks and

noted that it expected the company to continue fulfilling its statutory mandate to complete such

emergency work as it arises.

¶ 85 Turning to the rehearing, the Commission limited the scope of rehearing to whether the

revenue requirement should increase to account for work that “could be necessary to avoid

unintended safety or reliability impacts and service interruptions during the SMP pause”;

specifically, works in progress that could pose safety concerns if left unfinished and emergency

work. On rehearing, Peoples Gas asked to add $144.9 million to its rate base: (1) $82.8 million

for works in progress under its neighborhood program; and (2) $62.1 million for ESR work (a

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category first announced during rehearing that included emergency, SI, and PI projects). The

Commission reasonably found that the company did not meet its burden to show that the $82.8

million in SMP works in progress were within the scope of rehearing and prudent, and it added

$28.5 million of the requested $62.1 million to the company’s rate base to account for emergency

work.

¶ 86 Addressing works in progress, the Commission found that the company did not show that

the projects were prudent and reasonable, where it did not provide results of its analyses of specific

projects, several neighborhoods were not given high priority risk ratings prior to the work being

initiated, and where six projects commenced after the Commission’s final order directing a pause

to the SMP. The Commission reasonably determined that the company did not provide data to

show how it determined which projects were necessary to address imminent safety concerns and

specifically noted that several neighborhoods on its list were not given high-priority risk rankings

before the projects began. The Commission also noted a project that involved replacing 386 feet

of pipe with 5,608 feet of pipe without explanation for the increase other than it was the second

phase of a four-phase project. The Commission was also reasonably concerned with Peoples Gas’s

commencement of six of its proposed SMP works in progress projects after the agency paused the

SMP. Further, the Commission did not err in finding that Peoples Gas failed to show prudent SMP

management and recordkeeping, especially with respect to establishing that the company’s

requested additions to its rate base would not result in double recovery (because they overlapped

with projects for which the company sought to recover in its 2023 QIP reconciliation case). Indeed,

the company conceded that 38 of the 43 newly added SMP work in progress projects were

completed in 2023.

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¶ 87 As to emergency work, the Commission did not err in finding that the proposed projects

(such as SI and PI projects) were not true emergency projects. It reasonably added $28.5 million

to the requested rate base for certain short-cycle projects that it found qualified as work to address

true emergency conditions. The Commission’s decision to add $28.5 million of Peoples Gas’s

requested $62.1 million to its rate base to account for emergency work was not against the manifest

weight of the evidence. As the Attorney General notes, its technical experts testified that these

projects were a mix of unreviewed integrity management and PI projects for which Peoples Gas

sought pre-approval and funding to bypass the ordinary rate case prudence review process. The

Commission further reasonably found that Peoples Gas’s categorization of emergency projects

was overly broad.

¶ 88 We also conclude that the Commission’s finding that its order would “not modify [Peoples

Gas’s] options for lawful recovery of adequately supported costs in later proceedings” was

consistent with test year principles. The Commission did not adopt, as Peoples Gas argues, a “new

cost deferral approach” that “disregards test year principles.” The Commission did not defer

consideration of work in progress projects or certain ESR projects. It fully considered them in this

case. The challenged language did not reflect that the ruling was qualified or limited on the

company later seeking cost recovery for the projects. We agree with the Attorney General that the

Commission’s statement that Peoples Gas can pursue “lawful” cost recovery in a later case does

not imply that the Commission would allow the company to unlawfully recover depreciation

expense in a later case regarding projects for which it failed to justify recovery in this case. Further,

as the Commission notes, Peoples Gas’s attorney and its witnesses (Eldringhoff and Salvatore)

agreed that, if the Commission disallowed recovery, it could seek recovery again in the future. As

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to the company’s argument that it will not fully recover depreciation costs, this is the consequence

of any disallowance based on imprudence, as the Commission notes.

¶ 89 Peoples Gas’s argument that the Commission ordered it to continue addressing non-

neighborhood SMP work while also denying recovery for it is unavailing. In its final order, the

Commission stated that the disallowance applied only to the neighborhood SMP work, and it

clarified that the company should continue to address existing and new leaks, as the company had

confirmed during oral argument. On rehearing, the company sought $144.9 million for what it

now calls, in its entirety, “non-neighborhood” work and which consisted of: (1) $82.8 million in

works in progress, which the Commission found the company did not show were prudent and

reasonable and disallowed in full; and (2) $62.1 million in its new “ESR” category, which included

$33.2 million in SI and PI work that the Commission found did not constitute true emergency work

and disallowed, plus actual emergency work for which the Commission allowed $28.5 million in

recovery. Peoples Gas, thus, mischaracterizes the Commission’s orders, which did not reflect that

it ordered the company to continue to address work for which it was denying recovery.

¶ 90 In summary, the Commission did not err in adding $28.5 million to the rate base to address

emergencies.

¶ 91 B. Shops (Peoples Gas)

¶ 92 Next, Peoples Gas argues that the Commission erred in disallowing $236.2 million for the

company’s new shops and related facilities. The Commission’s approach, it contends, is not

designed to find a reasonable outcome, but to find a theoretical best possible outcome through a

process that identifies all potential alternatives and chooses the one that the Commission, after the

fact, deems optimal. Peoples Gas asserts that this has never been the standard. It contends that

the Commission’s disallowance was erroneous because (1) the Commission abandoned traditional

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prudence review in favor of a novel heightened standard; (2) the new prudence standard is more

like the least-cost requirements for projects governed by the certificate of public convenience and

necessity (CPCN) statute (220 ILCS 5/8-406(b) (West 2022)); however, the shops are replacement

facilities and never needed CPCNs; and (3) the full disallowance of the shop costs is not supported

by the record, and the Commission, in its final order, did not identify a lower-cost alternative.

¶ 93 Peoples Gas contends that the Commission imposed a new list of showings a utility must

make before it will deem a prior utility capital investment prudent: a cost-benefit analysis for each

facility; a thorough alternatives analysis for each facility; a showing as to why each alternative not

pursued was not feasible; an analysis balancing each alternative with other capital investments;

and a rate impact assessment for each alternative. It also directed that, for each required analysis,

the utility must include at least five alternatives: repair, refurbishment, replacement, delay, and

some combination of these. Peoples Gas argues that this is an entirely new regulatory approach to

prudence determinations for capital investments and constitutes reversible error.

¶ 94 Peoples Gas acknowledges that the Commission explicitly stated that the least-cost

standard did not apply to the facilities, but the level of analysis the agency found Peoples Gas

should have performed for the shops requires a least-cost determination and much more, including

that the utility show why it could not have performed each rejected alternative. Replacing the

traditional prudence standard with complex heightened requirements is per se legal error

warranting reversal, according to Peoples Gas. Further, the Commission never afforded the

company an opportunity to try and meet its novel standard. At a minimum, Peoples Gas argues,

the Commission should have granted rehearing so that it could present evidence of the type the

Commission has now said will govern its prudence review for capital investment projects “of this

magnitude.”

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¶ 95 Finally, Peoples Gas argues that the disallowance of the shops investment was not based

on substantial evidence, where the Commission acknowledged that operating the legacy facilities

without any improvements would not have been in customers’ or employees’ best interests, but it

eliminated $236.2 million capital investment in total. The company contends that the evidence

showed that all parties and the Commission agreed that the shops needed at least some investment,

thus, the Commission’s disallowance was unreasonable. If there was evidence in the record

regarding less costly alternatives, the company posits, then that information supported a partial,

not full, disallowance. Peoples Gas also argues that the Attorney General’s proposed disallowance

rested only on conjecture, where he did not identify any actual less-costly alternatives to the

investments the company made and merely insisted that there was a possibility that these

alternatives existed.

¶ 96 The Attorney General responds that this court should affirm the Commission’s decision

disallowing Peoples Gas from adding $236.3 million to its rate base to fund its simultaneous

replacement of five shops and facilities and renovation of a sixth because (1) substantial evidence

supported its finding that the company failed to meet its burden to show that replacing the facilities

in this way was prudent; and (2) the decision applied standard prudence review principles.

¶ 97 The Attorney General contends that the evidence did not compel the Commission to find

that Peoples Gas’s spending on its shops and facilities was prudent. The Mortenson report showed

that the company could have fixed the issues with the north shop at a cost of $3.9 million, versus

the $69.3 million the company sought to replace it. Walker, the Attorney General’s expert, noted

that Cushman & Wakefield projected that replacements would result in higher total costs than

improvements over 20 years, even accounting for the operations and maintenance costs associated

with the existing buildings. Thus, the company’s own evidence supported the Commission’s

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finding that the company was imprudent in failing to take reasonable steps to rule out obvious less-

costly alternatives before taking the most extreme approach. The Attorney General further argues

that there was no evidence that Peoples Gas even meaningfully considered the repairs Mortenson

suggested, much less that it made a reasoned decision to reject any such less-extreme alternatives

than simultaneous wholesale replacement. Walker noted that the purported reason for the

replacements was to reduce capital and operations and management expenses arising from existing

facilities, but Peoples Gas submitted no cost-benefit analysis or other evidence showing that any

savings or repairs would have been high enough to balance or justify the outlay for the facilities.

The Attorney General notes that the Commission credited Walker’s testimony and found that

Peoples Gas failed to show the costs it incurred were prudent. He also notes that, as Walker

explained, the Mortenson report stated that there were issues at the facilities that resulted from

Peoples Gas’s own maintenance failures.

¶ 98 The Attorney General further argues that the Commission’s imprudence finding and the

evidence supported a full disallowance rather than a partial one. Walker, he notes, calculated an

alternative disallowance of $66.3 million, however, he stated that the company’s insufficient data

and negligent maintenance practices made it impossible to identify how far the company spent

beyond what was necessary to place the facilities in safe working order. The alternative estimate,

he further notes, did not account for the possibility of a less costly alternative such as restoring,

purchasing, or repurposing existing facilities. Walker also testified that the company provided no

analysis comparing the costs of repairing and replacing its facilities and, instead, relied on obsolete

or irrelevant reports from years earlier.

¶ 99 Next, addressing the standard the Commission applied, the Attorney General asserts that

the Commission applied standard prudence review principles in disallowing costs for the shops

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and facilities. He notes that the Commission explicitly noted that the facts in the case before it

showed that Peoples Gas did not meet its burden to support its request to recover the costs it sought

through the rate base. The Attorney General also asserts that the Commission addressed the

company’s failure to consider alternative approaches, because the evidence upon which the

company relied for its capital spending supported an obvious alternative that it could have pursued

at a fraction of the cost in a case where the company sought to raise its rates by 58.1%. He further

notes that the Commission pointed out Peoples Gas’s lack of analysis balancing its need for the

facility replacements with its other capital investments because the company was asked that

question in discovery and refused to answer. The Attorney General also notes that the Commission

expressly declined to adopt a least-cost standard for prudence review and rejected the Attorney

General’s request to do so. It merely assessed whether the company took reasonable steps before

initiating a large-scale capital investment project, which necessarily involved asking whether it

considered the relative costs of alternative investments. The Attorney General contends that the

Commission found, based on the relevant testimony, that Peoples Gas failed to consider an obvious

alternative raised in its own reports before initiating a costly project. That finding, he urges,

comported with basic prudence-review principles.

¶ 100 Finally, he asserts that nothing obligated the Commission to grant Peoples Gas rehearing,

where the company refused to present evidence in the principal case. It further found that the

company failed to even hint at what the evidence might be on rehearing.

¶ 101 The Commission, in its response, adds that Peoples Gas identifies no past practice from

which the Commission departed or a prior decision involving the construction of new shops or

facilities. It also contends that the company’s argument that the use of cost-benefit studies is a

new regulatory standard is disingenuous, and it points to the company’s use of a cost-benefit

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analysis to justify its investment in hardware and software upgrades for long-cycle work

management and to upgrade its meter reading system. It contends that Peoples Gas misconstrues

its order to create a list of required information to argue the Commission took a new regulatory

approach to evaluate prudence; it notes that, instead, its finding was that the company’s own

reports identified less expensive alternatives and that the company did not adequately explain why

it did not pursue them.

¶ 102 The Commission further argues that Peoples Gas provides no cognizable basis for a partial

disallowance. Walker opined that the company’s lack of alternatives analysis warranted a full

disallowance, and Weber stated that the 2015 Mortenson report was not valid to calculate the cost

of less expensive alternatives. Finally, the Commission argues that Peoples Gas is not barred from

future recovery, where it had multiple opportunities to provide an alternatives analysis and cost

benefit analysis but declined to do so; and Peoples Gas did not identify any new evidence it wished

to introduce in its application for rehearing to establish the prudence of its facilities investment.

However, the Commission notes, the company’s failure to establish prudence in the docket below

does not preclude future cost recovery, as Commission practice permits the company the

opportunity to seek recovery of its facilities costs in a future rate case. It provides as an example

the exclusion of the company’s pension assets from rate base, which it addressed for the fifth time

in its order.

¶ 103 We conclude that the Commission did not err in disallowing $236.2 million for Peoples

Gas’s investments in its shops and facilities. The Commission did not apply a new and unlawful

prudence standard. Rather, the Commission explicitly found that the company failed to show that

the costs it incurred were “prudent,” after considering some alternatives. The Commission

explicitly acknowledged that “a least-cost standard is not applicable [to] these facilities,” and it

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noted that the company must consider the cost to ratepayers when it embarks on capital investment,

especially when its own report identifies cheaper alternatives. See Citizens Utility Board, 276 Ill.

App. 3d at 737 (“The Commission cannot fulfill its statutory duty to balance the competing

interests of stockholders and ratepayers without taking into account the interests of ratepayers by

considering the impact of proposed rates on ratepayers.”). It also noted that Peoples Gas did not

directly answer a data request that asked, “How did the Company balance the need for its new

shops with its other capital investments?” Nor did Peoples Gas address the apparent lack of

planning that led to a decision to rebuild all the facilities at nearly the same time.

¶ 104 The Commission’s comments related to the “reasonable steps a utility should take before

initiating a capital investment project” did not impose a new standard. Read in full, the bases for

the Commission’s findings were that Peoples Gas did not meet its burden to support its request,

where the record was unclear as to whether it considered repairs and upgrades or other alternatives

and where it did not directly answer the question of whether it balanced the need for new shops

with its other capital investments or address the apparent lack of planning that led it to rebuild all

the facilities at nearly the same time. The Commission found that the record was unclear as to

whether Peoples Gas considered upgrading and repairing its facilities or other alternatives when

developing its strategy to modernize them; thus, this gave the Commission “no insight” into how

the company concluded that all five shops and facilities “needed to be replaced immediately.” It

noted that the Mortenson report identified repairs and upgrades for each shop that could have been

pursued to maintain their operations and at a much lower cost than replacement ($3.949 million

versus $69.3 million). The Commission also found that Peoples Gas failed to show why it could

not have pursued the investments identified in the facilities improvements list in the Mortenson

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report to continue operating existing shops, delay the need to build new shops, or pursue some

combination of the two.

¶ 105 We disagree that the Commission’s approach requires a utility to have made the best

possible, as opposed to a reasonable, decision. To argue that prudence review in this case would

not have included an assessment of the repair option (and substantiation of such during its case

below) defies logic. The Commission noted it was unclear from the record whether the company

considered upgrading and repairing its facilities. This was not a case where the company merely

eliminated a cheaper alternative. It provided, as the Commission reasonably determined, no

evidence that it even considered it. The Commission’s order did not impose a new standard or

reflect hindsight review, but an assessment of the reasonableness of the company’s actions at the

time they were made. Further, as the Commission notes, Peoples Gas did provide a cost-benefit

analysis to support its $40 million in hardware and software upgrades for long-cycle work

management and to upgrade its meter reading system. Thus, its claim that a cost-benefit analysis

is improper is not well taken.

¶ 106 The cases upon which Peoples Gas relies are not helpful to our analysis, because the

Commission in those cases explicitly departed from past practice and the imposed change was the

basis for its decision. See lllinois Power Co. v. Illinois Commerce Comm’n, 339 Ill. App. 3d 425,

435-40 (2003) (reversing the Commission’s finding that a present-value-of-revenue-requirement

was required for prudent decision-making, where the agency had not required such an analysis in

similar situations in the past; Commission departed from past practice; it “decided after the fact

that a [present-value] analysis should have been conducted in determining the prudence of an

action that had already been taken”); Commonwealth Edison Co. v. Illinois Commerce Comm’n,

180 Ill. App. 3d 899, 906-09 (1988) (reversing Commission’s decision to enter an electric utility’s

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rate schedule based on a calendar year, where, for 10 years prior, the agency had used a 12-month

revenue neutralization period rather than a calendar-year period; Commission had “radically

altered its past practice regarding the time-frame for analyzing revenue neutrality without notice

to interested parties, a hearing, or any readily apparent reason”); see also Ameren Illinois Co. v.

Illinois Commerce Comm’n, 2025 IL App (5th) 240014, ¶¶ 73-87 (vacating Commission’s

disallowance of a utility’s transmission plant capital additions associated with five maximum-

allowable-operating-pressure transmission projects it had proposed to place in service, where the

utility had provided information in required filings about each project, addressed at length why it

chose each method, provided a timeline for its planned reconfiguration, and where the

Commission’s reduction of budget included work that did not involve work relevant to issue on

appeal; where the utility provided the statutorily required information, it was “disingenuous” for

the Commission to penalize it “for allegedly failing to meet a standard not previously required”

before it issued its decision).

¶ 107 We also reject Peoples Gas’s argument that the Commission erred in writing off the entire

expense, where all parties agreed that it was prudent for the company to spend something to

improve the facilities. Peoples Gas does not point to any amount, for example, that it proposed as

such an alternative, and the company fails to specify a reasonable alternative amount. The

Commission’s determination that Peoples Gas did not act reasonably based on the information

available to it at the time was not erroneous.

¶ 108 Further, the Commission credited Walker’s testimony on this issue, and we cannot

conclude that this was unreasonable. Walker testified that, without a comprehensive evaluation

and cost-benefit analysis, it was premature to accept Peoples Gas’s position that constructing new

facilities was appropriate. The level of detail on the alternatives analysis the company provided,

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he further testified, was “miniscule,” consisting of, for example, “ ‘complete building renovation

is not recommended due to the likelihood of asbestos and other costly environmental materials at

the existing facilities.’ ” (Walker testified that environmental abatement was discarded but had

to occur anyway, so the discarding of the renovation scenario was confusing.) The Cushman

Wakefield report, he opined, echoed the foregoing, did not contain a detailed cost-benefit analysis

of the alternatives, did not provide evidence supporting the dismissal of the repair option, and did

not appear to even consider purchasing and renovating an existing building. It also concluded that

the new facilities would result in higher total costs over a 20-year timeframe, even accounting for

higher operations and maintenance costs for the existing facilities. The McKissack and Paschen

reports did not evaluate alternatives, cost reasonableness, operational necessity, or propose any

new perspectives. Turning to the 2015 Mortenson report, Walker opined that its primary purpose

was to assess the condition of the existing facilities and concluded that, due to Peoples Gas’s poor

maintenance practices (including failing to repair roof leaks, which led to unnecessary damage)

and lack of capital investment, there were compounding condition issues. Although the report

recommended replacing several facilities, the report also reflected that the cost of addressing the

issues with the existing facilities was far lower than replacing them.

¶ 109 Elder, the public interest organizations’ witness testified similar to Walker that Peoples

Gas’s studies did not rigorously compare cost to ratepayers of constructing new facilities versus

the cost to them of refurbishing or renovating existing facilities or any other alternative. Her own

operations and maintenance analysis reflected that there would be no operations and maintenance

savings associated with the new facilities.

¶ 110 Walker recommended the Commission disallow the recovery of the entire cost of the

facilities. When asked if he could propose a partial disallowance, he testified that the company’s

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inability or unwillingness to provide enough data made this impossible and that its failure to

perform maintenance caused even more concern. Nevertheless, he calculated a $66.3 million

partial disallowance (the amount by which the company exceeded Mortenson’s estimates of the

average cost of replacing the facilities on a per-square-foot basis), but only as a secondary option.

He did not account for the responsibility that Peoples Gas bore for failing to properly care for its

facilities or that there may have been a cheaper alternative, such as restoring, purchasing, or

repurposing existing buildings. We agree with the Attorney General’s argument that, given the

difficulties of calculating an alternative disallowance based on Peoples Gas’s evidence, the

Commission did not err in imposing a full, rather than a partial, disallowance.

¶ 111 We also find unavailing Peoples Gas’s assertion that the Commission erred in denying its

request for rehearing on this issue. The company did not specify what evidence it proposed to

present on rehearing, noting only generally that it sought to present “evidence of the type the

Commission has now said will govern its prudence review for ‘capital investment project[s] of this

magnitude.’ ” As the Attorney General notes, this was especially glaring given that Peoples Gas

refused to provide this type of evidence in its principal case. See Apple Canyon Lake Property

Owners’ Ass’n v. Illinois Commerce Comm’n, 2013 IL App (3d) 100832, ¶ 76 (affirming denial

of rehearing; utilities “did not identify this alleged ‘new information’ or explain how it proved that

the rate case expense estimates previously agreed to by the parties were inaccurate. *** [T]heir

application for rehearing presented nothing but conclusory assertions. That was not enough to

require rehearing based on ‘new evidence.’ 220 ILCS 5/10-201(e)(ii) (West 2008).”).

¶ 112 In summary, the Commission applied the proper standard and its disallowance was not

against the manifest weight of the evidence.

¶ 113 C. Clavey Road (North Shore)

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¶ 114 Next, North Shore argues that the Commission erred in disallowing $1.689 million for the

company’s Clavey Road project, which represented 44% of the total project cost. The

Commission’s basis for the write-off was, the company asserts, its incorrect finding that North

Shore failed to justify the prudence of the cost overruns for the project. North Shore contends that

the Commission abandoned traditional prudence review by requiring perfection, not

reasonableness, in the planning, designing, and estimating stages of a project to overcome a

disallowance request. North Shore maintains that it learned of the errors in Highland Park’s design

plans (which the company relied on to design its facilities) after construction began, resulting in

the cost variance. Yet the Commission penalized the company and failed to explain why it would

be fair to hold the company to a 100% accuracy standard. North Shore also argues that, beyond

this arbitrary departure from its past practice, the Commission’s finding also disregarded North

Shore’s substantial unrebutted evidence explaining the unanticipated cost variance, including: the

city revising its sewer main design and installing it deeper than originally designed, a water main

deeper than shown on the city’s drawings and requiring the gas main to be installed deeper than

planned, and a temporary storm sewer leaking heavily into the gas pipe tie-in opening that required

continuous draining. The company asserts that it was undisputed that these costs were outside its

control, thus, the Commission could not have reasonably found that they were imprudent.

¶ 115 North Shore contends that Highland Park’s design plans, over which the company had no

control, changed and contained errors and ultimately impacted North Shore’s plan for its facilities

and caused increases in the project’s actual cost compared to estimates. Further, it contends that,

after it presented evidence supporting the project costs in February 2023, it sought management

reauthorization to account for the city’s design changes that occurred after the project’s approval

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and after obtaining contractor bids, which directly led to cost increases. This shows, it argues, that

the cost increase was due to unforeseen circumstances.

¶ 116 The Attorney General responds that substantial evidence supported the Commission’s

disallowance. The disallowance, he contends, reflected the amount by which North Shore

exceeded an adjusted industrywide benchmark cost that Walker calculated. The Commission

agreed, finding the benchmark to be a standard test method to review reasonableness of costs and

a check on both budgeted and incurred costs. North Shore, the Attorney General argues, relied

solely on its actual costs without providing a reference point by which to gauge their

reasonableness. The Commission, he notes, stated that the company did not provide a timeline of

the project, project design, permit review milestone dates, or descriptions of the alleged changes

or errors to show that the additional costs were unavoidable. The Attorney General also notes that

he explicitly disputed North Shore’s assertion that the costs were outside its control. The company

failed to present evidence about its coordination with local officials to show the extent to which

the revision was unforeseeable, about the diligence it undertook to determine the sub-surface

facilities in the area, or who installed the temporary storm sewer and why and what caused the

failure.

¶ 117 The Commission responds that it did not apply a perfection standard, where it expressly

commented on the company’s evidence, the plan changes that necessitated the pipe to be installed

deeper than originally planned, and that the temporary storm sewer leaked and required draining.

The Commission contends that North Shore conflates actual evidence with witness Eldringhoff’s

unsupported opinions (e.g., that the plan changes and leaking storm sewers were unanticipated and

outside of the company’s control). The Commission found that the opinions did not establish

prudence, and it noted that North Shore did not provide basic information about the temporary

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storm sewer’s failure. The Commission also argues that North Shore’s evidence was disputed.

The Commission notes that it found that the company did not provide sufficient evidence showing

the additional costs identified by the Attorney General were unforeseeable or prudently incurred

(noting Walker’s testimony that the company’s explanation was insufficient to justify the discrete

costs).

¶ 118 We conclude that the Commission’s disallowance for the Clavey Road project was not

erroneous. The Commission’s decision nowhere reflects that it held North Shore to a perfection,

as opposed to a prudence standard, and its resolution of the evidence was not against the manifest

weight of the evidence. The Commission determined that North Shore did not provide sufficient

evidence showing that the additional costs were unforeseeable or prudently incurred. This finding

was not unreasonable. It credited Walker’s analysis and noted that North Shore did not provide

certain information concerning the project, such as a timeline, project design, permit review

milestone dates, or descriptions or dates of alleged changes or errors to justify its claim that the

additional costs were unavoidable, unforeseen, and out of its control. The Commission specifically

noted as an example of lack of prudence the company’s failure to provide basic information about

the temporary storm sewer’s failure, such as who installed it, why the failure occurred, and what

caused it.

¶ 119 Walker proposed a $1.689 million disallowance based on his benchmark analysis, which

he testified was a tried and tested method for reviewing costs for reasonableness. He noted that

North Shore asserted that the project was unique relative to his benchmark in two respects: it

asserted it was a “large sewer project” and involved installing pipe at a greater-than-expected

depth. However, North Shore did not provide a discrete cost impact to explain its “large sewer

project” reason, and the costs for the additional depth were excessively high at $5.6/mile for a

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project on a residential street. The Commission found this testimony credible, and we cannot

conclude that its assessment was erroneous.

¶ 120 In summary, the Commission’s $1.689 million disallowance for North Shore’s Clavey

Road project was not against the manifest weight of the evidence.

¶ 121 D. Rate Case Expense (North Shore)

¶ 122 Next, North Shore challenges the Commission’s $1.4 million disallowance for the

company’s rate case expense, arguing that it unreasonably departed from its past practice and that

its decision was not supported by substantial evidence. The company contends that it provided

evidence that its attorneys and consultants charged market rates and dedicated a reasonable amount

of time to this case, especially considering how many issues were disputed.

¶ 123 North Shore further contends that the Commission failed to evaluate relevant evidence in

finding that the company over-redacted legal bills. It notes that it provided less-redacted versions

of legal invoices, but the Commission deemed the submission noncompliant without making any

findings as to whether the revised bills cured the problem. Its decision, North Shore asserts,

focused solely on the initial bills and appears to rest the entire disallowance on that review. And

the Commission did not identify a nexus between the disallowance and its noncompliance finding,

where the Attorney General complained about bills from one firm (representing $330,000 of the

total projected rate case expense in the test year).

¶ 124 The company also argues that the Commission erred in accepting the Attorney General’s

reasonableness challenges. It notes that the Commission found that its rate case expense was

significantly higher than similarly situated utilities and argues that this is untrue in an “absolute

sense.” North Shore contends that its projected expense was the second lowest of the state’s five

major gas utilities. Thus, the Commission must have meant that its expense was significantly

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higher on a per-customer basis, as the Attorney General argued. North Shore asserts that there is

no legal or evidentiary basis for imposing a cost-per-customer cap on rate case expense. The

Commission’s disallowance limits North Shore to $338,647 to fully prosecute a rate case. The

company argues that this is unreasonable, where it is less than the filing fee for the case and less

than the funding the company must provide to the intervenors. North Shore also complains that

the Attorney General made no attempts to explain how Ameren’s case compared to North Shore’s

in stakes, complexity, or any other factors. It also argues that a cost-per-customer cap

disproportionately harms small utilities, because every rate case entails significant legal work

irrespective of a utility’s customer count. Finally, North Shore argues that the Commission’s

vague reference to the Attorney General’s speculation about duplicative work cannot form the

basis of its disallowance.

¶ 125 The Attorney General responds that the Commission appropriately reduced North Shore’s

rate case expense to a reasonable level, where the amount sought was significantly higher than that

of similarly-situated utilities and where this case was a straightforward consolidated rate case with

a single test year. He also argues that the company’s documentation was inadequate to show the

reasonableness of its expenses. The company’s less-redacted versions omitted basic information,

the Commission determined, and the Commission credited Selvaggio’s testimony that North

Shore’s legal bills included entries for potentially duplicative services. The Attorney General

further argues that using Ameren’s rate case expense was reasonable because that utility had the

highest rate case expense aside from Peoples Gas and North Shore; further, its rate case was far

more complex (involving its first multi-year integrated grid plan and first multi-year rate plan)

and, thus, using it as a baseline was generous.

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¶ 126 In its response, the Commission adds that the issue of redacted documents was not the basis

for its disallowance. Rather, the Commission partially disallowed North Shore’s rate case expense

because it comprised an inordinately high percentage—18.7%—of the utility’s entire requested

rate increase. It also determined that the expert witnesses used by the companies were

comparatively more expensive and that there may have been duplicative expenses. It credited

Selvaggio’s opinion that North Shore’s rate case expense was exceptionally high, where the next

highest utility’s expense ration was 4% (Peoples Gas) and all other utilities were under 2%. She

also calculated the rate case expense on a per-customer basis, noting that North Shore was the

highest at $10.74 per customer per year, followed by Peoples Gas at $2.94, Ameren at $2.09, and

ComEd at $0.37. Selvaggio recommended a reasonableness adjustment using Ameren’s figure to

arrive at the $1.4 million disallowance, which the Commission adopted. The Commission further

notes that it did not impose a per-customer cap and that Selvaggio opined that the companies’ rate

cases did not present novel or unprecedented issues.

¶ 127 The Commission further argues that North Shore’s argument about the redacted documents

is a misdirection. The billing detail did not alter the 18.7% expense ratio, i.e., it was unaffected

by the filed documents, whether redacted or not. The Commission criticized North Shore for filing

heavily redacted documents in violation of its rules, but the infraction was not the basis for its

disallowance. Finally, the Commission notes that, in North Shore’s last rate case, docket No. 20-

0810, it awarded the company $2.2 million amortized over six years, or $366,700 per year. That

order did not contain any discussion or ruling on a per-customer cap. The Commission asserts that

North Shore offers no explanation as to why its rate case expense ballooned by $1.3 million (from

$2.2 million in docket No. 20-0810 to $3.5 million in this case). The Commission notes that its

award in this case—$338,647—is nearly the same as in the earlier docket.

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¶ 128 Section 9-229 of the Act provides that “[t]he Commission shall specifically assess the

justness and reasonableness of any amount expended by a public utility to compensate attorneys

or technical experts to prepare and litigate a general rate case filing.” 220 ILCS 5/9-229(a) (West

2022). “Illinois courts have allowed utilities to recover rate case expense because ‘[t]he costs

incurred by a utility to prepare and present a rate case are properly recoverable as an ordinary and

reasonable cost of doing business.’ Central Illinois Public Service Co. v. Illinois Commerce

Comm’n, 243 Ill. App. 3d 421, 432 (1993) (citing Du Page Utility Co. v. Illinois Commerce

Comm’n, 47 Ill .2d 550, (1971)).” People ex rel. Madigan v. Illinois Com. Comm’n, 2011 IL App

(1st) 101776, ¶ 13.

¶ 129 Factors the Commission may consider in assessing the justness and reasonableness of

compensation costs, include, but are not limited to: (1) the fulfillment of the required support for

compensation costs as required in section 288.110; (2) the identification of the type of service

involved as either professional or support staff; (3) the novelty, complexity, or difficulty of the

issues; (4) the nature, extent, and reasonableness of work performed that was considered at the

time the work was performed, including, without limitation, the amount of support required for

pleadings, discovery, briefing, and hearings, and the relevance of the work products to the justness

and reasonableness of the proposed utility rates; (5) the requisite skill required to perform services

efficiently and accurately; (6) professional credentials, including, without limitation, education,

training, experience, achievements, and reputation, in the applicable professional discipline; (7)

the reasons why multiple outside counsel, outside technical experts, utility affiliate counsel, or

utility affiliate technical experts addressed the same issues; (8) relevant evidence regarding the

market rates concerning fees charged for comparable services, including, as applicable, fees

charged in other rate cases in Illinois or fees charged in other jurisdictions for rate cases; (9) hourly

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rates applicable to outside counsel and outside technical experts representing or retained by utilities

and outside counsel or outside technical experts representing or retained by other entities that

regularly appear in Commission proceedings; and (10) the reasonableness of the amount of time

taken to perform a task. Ill. Admin. Code tit. 83, § 288.110 (eff. Apr. 7, 2023).

¶ 130 We conclude that the Commission’s disallowance was not erroneous. We disagree with

North Shore’s argument that, in a departure from past practice, the Commission imposed a novel

cost-per-customer cap and a cap at a certain percentage of a utility’s requested rate increase, a

departure from which, it asserts, this court owes no deference. The Commission’s adoption of

Selvaggio’s testimony was not unreasonable, and it did not reflect that it imposed any novel caps

or departed from past practice. Selvaggio’s testimony reflected that she referenced other measures

as comparisons to other utilities and to show how North Shore was an outlier in certain respects.

We decline to find that this was improper here. Selvaggio also relied on circumstances unique to

North Shore (and, where relevant, Peoples Gas) to note why the expenses were high. She also

testified that the Companies’ rate cases did not present novel or unprecedented issues similar to

those presented in the electric multi-year rate cases. The Commission explicitly found that North

Shore’s projected rate case expense was “significantly higher” than the expenses of similarly

situated Illinois utilities and that it was unreasonable for the rate case expense to represent 18.7%

of North Shore’s proposed rate increase. Selvaggio testified that North Shore’s rate case expense

exceeded the expenses of each of the four major utilities that filed tariffs in 2023, and the

Companies, combined, had fewer customers than any other utility (excluding one). Although

North Shore’s requested increase was smaller than the other utilities, the Companies, she noted,

have the same parent company, adjacent service areas, the same witnesses, similar (if not identical)

issues, and the same attorneys; thus, she opined, there should be some economies of scale that

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reduce the costs of the rate case for each company. (Further, the two rate cases were

consolidated—the companies filed joint rebuttal testimony, staff and intervenor witnesses did not

file separate testimony for each company, and briefing would be consolidated.) It was not

unreasonable for the Commission to credit this testimony.

¶ 131 Selvaggio also testified that the company’s rate case expense had a significant impact on

ratepayers, specifically, $10.74 per customer, which was multiple times higher than any other

utility. The Companies also appeared to be duplicating efforts. Selvaggio testified that the

Companies were the only utilities to utilize multiple law firms for their rate cases and that both

utilities’ legal fees exceeded 50% of the overall rate case expense, which was higher than all but

one other utility. The companies also paid their expert witnesses significantly more than other

natural gas utilities paid their consultants. They also paid over $2 million to their parent company,

as compared to zero for Nicor Gas and $406,000 for Ameren Illinois’ gas rate case. Selvaggio

testified that North Shore’s $3.5 million rate case expense comprised 18.7% of its entire requested

rate increase, which she stated was exceptionally high. The next highest utility’s expense to rate

increase ratio was 4% (Peoples Gas) and all other utilities were under 2%, with ComEd’s ratio

being the smallest (0.3%). On a per-customer basis, North Shore’s rate case expense was the

highest at $10.74 per customer per year, followed by Peoples Gas ($2.94) and Ameren ($2.09;

gas), with ComEd being the lowest at $0.37. The foregoing provided proper context from which

the Commission could assess the evidence, including information concerning the impact on

ratepayers. See Citizens Utility Board, 276 Ill. App. 3d at 737 (“The Commission cannot fulfill

its statutory duty to balance the competing interests of stockholders and ratepayers without taking

into account the interests of ratepayers by considering the impact of proposed rates on

ratepayers.”). Selvaggio recommended a reasonableness adjustment of $1.4 million, which she

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calculated using Ameren’s average annual per-customer charge of $2.09 (which was the highest,

following the companies). It was not unreasonable for the Commission to adopt her

recommendation.

¶ 132 In summary, the Commission’s $1.4 million disallowance for North Shore’s rate case

expense was not against the manifest weight of the evidence.

¶ 133 E. LTGIP Mandate (the Companies)

¶ 134 The Companies’ final argument is that the LTGIP mandate is outside the Commission’s

authority. They note that certain utilities were required to file biannual integrated resource plans

(111 ILCS 5/8-402 (West 1996) (repealed by P.A. 90-561, Art. I, § 18 (eff. Dec. 16, 1997))) and

electric utilities must comply with multi-year grid plan requirements (220 ILCS 5/16-105.17 (West

2022)), whereas there are no such explicit requirements for gas utilities. The Companies also

assert that the Commission’s plenary power under section 5-501 of the Act is limited to doing what

is necessary to accomplish the legislature’s objectives, not the Commission’s agenda. Id. § 5-501.

Finally, the Companies argue that the Commission’s ratemaking authority is governed by Article

IX (rates), not Articles V (duties of public utilities accounts and reports) or VIII (service

obligations and conditions) of the Act. In ratemaking, the Commission’s sole responsibility is to

determine the propriety of the requested increase within the regulatory parameters. Here, the

Companies argue, the Commission exceeded its Article IX authority by prospectively requiring

the Companies to file perpetual biannual LTGIPs, independent of any future rate case filing.

¶ 135 The Attorney General responds that the Commission’s order for the Companies to file

infrastructure plans was a lawful exercise of its supervisory authority over them, appropriate under

the circumstances of this case, and not unauthorized rulemaking under the Administrative

Procedure Act (5 ILCS 100/1-1 et seq. (West 2022)). First, he asserts that the Commission has

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statutory authority to supervise all public utilities, including inquiring into the management of their

business and doing what is reasonably necessary to fulfill the statutory mandate. It found that,

here, imposing transparency measures on the Companies was reasonably necessary to keep the

Commission informed of how they are managing their businesses, given their failure to

meaningfully respond to questions during discovery. Second, the Attorney General argues that

the record supported the Commission’s decision because the Companies insufficiently answered

questions about how they intended to respond to electrification trends, which raised concerns that

they were not working towards State electrification goals and unwilling to factor electrification

scenarios into their infrastructure planning. Third, the party-specific remedy imposed in response

to the Companies’ conduct in this case was not an administrative rule promulgated out of

compliance with the notice-and-comment procedures under the Administrative Procedure Act.

The Ameren decision, the Attorney General further argues, is incorrect.

¶ 136 The Commission responds that section 5-101 of the Act authorizes it to direct the

Companies to file LTGIPs where, as here, the Commission requires the information, and that this

court should not follow the erroneous Ameren decision. See 220 ILCS 5/5-101 (West 2022)

(“Every public utility shall furnish to the Commission all information required by it to carry into

effect the provisions of this Act”; “[w]henever required by the Commission, every public utility

shall deliver to the Commission, any *** reports, documents, books, accounts, papers and records

in its possession *** in such form as the Commission may direct[.]”).

¶ 137 The Commission

“is an agency ‘created by statute and has no general or common law powers.’

Harrisonville Telephone Co. v. Illinois Commerce Comm’n, 176 Ill. App. 3d 389, 392

(1988). It ‘derives its power and authority solely from the statute creating it, and its acts

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or orders which are beyond the purview of the statute are void.’ Id. (citing Illinois Power

Co. v. Illinois Commerce Comm’n, 111 Ill. 2d 505, 510 (1986)). While the Commission is

assigned many functions, including investigative, prosecutorial, advocacy, and decision-

making and rule-making roles (see Alhambra-Grantfork Telephone Co. v. Illinois

Commerce Comm’n, 358 Ill. App. 3d 818, 823 (2005) (citing Business & Professional

People for the Public Interest v. Illinois Commerce Comm’n, 136 Ill. 2d 192, 202 (1989))),

its authority is limited to that granted by statute. See 220 ILCS 5/1-102, 4-101 (West

2022).” Ameren Illinois Co. v. Illinois Commerce Comm’n, 2025 IL App (5th) 240014,

¶ 94.

¶ 138 In Ameren, the petitioner appealed from the Commission’s requirement that it submit a

detailed gas infrastructure plan, arguing that it was outside the Commission’s authority. There,

the Attorney General and public interest organizations recommended the filing of such a plan, with

the latter asserting that the petitioner likely had an internal system plan but the lack of a transparent

planning process made it challenging to determine whether the company was prioritizing least

cost, least risk prudent investments that were likely to be used and useful. They also noted that

long-term gas system planning was critical to considering the State’s decarbonization goals and

the likely impacts of electrification on natural gas distribution infrastructure and that rate cases

were not a sufficient substitute for this type of planning, though long term integrated infrastructure

planning could aid the Commission in future rate cases. Other states already require these filings.

The public interest organizations also argued that the expected decrease in gas usage in the near

future due to the anticipated impacts of electrification on the petitioner’s system was the basis for

its request for a long-term plan. Such a detailed analysis would align with the State’s electrification

goals, and this was proper in a rate case because the petitioner’s current capital investment

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schedules failed to address future electrification and, instead, it was spending money on plants that

might not exist in the future. The Attorney General proposed nine items to be addressed for all

planned projects and five topics to be addressed regarding completed projects. The petitioner

argued that there was no legal authority to mandate an infrastructure gas plan and enacted

legislation imposed certain planning requirements on electric utilities but not gas utilities, which

could be indicative of legislative intent. Any such plan was also beyond the scope of the

petitioner’s rate case. The Commission required the petitioner to file a detailed infrastructure plan

every two years, identifying 12 topics for inclusion to aid its review of the current and future rate

increases. It found authority for its mandate in sections 4-101, 8-501, 9-201(c), and 9-211 of the

Act and Abbott Laboratories, Inc. v. Illinois Commerce Comm’n, 289 Ill. App. 3d 705, 712 (1997)

(holding that, although there was “no express authorization in the Act [to impose a certain penalty],

it is a well established rule that the express grant of authority to an administrative agency also

includes the authority to do what is reasonably necessary to accomplish the legislature’s

objective”).

¶ 139 The Fifth District vacated the Commission’s requirement as void for being outside the

Commission’s authority. Ameren, 2025 IL App (5th) 240014, ¶ 103. It determined that the

Commission’s requirement was essentially that the petitioner prepare a plan for future rate cases

because its mandate did not affect the case before it, where the Commission had already issued its

decision in that case. Id. ¶ 92. The legislature had specifically required a long-term plan only for

electric companies in a statute that elsewhere contained requirements for both types of utilities and

explicitly noted it applied to both; thus, the Commission’s use of an order in the case at bar was

questionable. Id. ¶ 93 (referencing Public Act 102-662 (eff. Sept. 15, 2021); codified at 220 ILCS

5/16-105.17 (West 2022) (imposing multi-year grid plan requirements on electric utilities)). The

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court also concluded that the Commission did not have authority outside the statute to require gas

utilities to prepare long-term infrastructure plans because it would then have been unnecessary to

include therein such a mandate for electric utilities. Id. ¶ 96. It further determined that, even if it

was within its authority, the Commission’s mandate was a rule, and the agency could not bypass

the rulemaking process, such as public notice and comment requirements. Id. ¶¶ 101, 103.

¶ 140 Recently, in Northern Illinois Gas Co. v. Illinois Commerce Comm’n, 2025 IL App (3d)

240092, the Third District addressed the same issue, agreed with the court in Ameren, and vacated

a nearly identical infrastructure plan on the grounds that the Commission exceeded its authority

by ordering it. Id. ¶ 133.

¶ 141 We come to the same conclusion here. Section 4-101 of the Act tasks the Commission

with the “general supervision of all public utilities,” including “inquir[ing] into the management

of [their] business” and “keep[ing] itself informed” as to how “the business is conducted.” 220

ILCS 5/4-101 (West 2022). The Commission also ensures that utilities operate safely (id. § 8-

501), determines in specific cases whether a utility has met its burden to show the “justness and

reasonableness of [its] proposed rates,” (id. § 9-201(c)), and determines whether certain capital

investments for which the utility seeks to recover costs are prudent (id. § 9-211). Notwithstanding

this broad authority, we agree with the Companies that the Commission exceeded its authority

when it ordered them to file LTGIPs. Public Act 102-662 applies only to electric utilities, not gas

utilities. As the Ameren court noted, Public Act 102-662 need not have been enacted to impose

long-term planning requirements for certain utilities if the Commission already had the power to

order such plans under its broad statutory authority. Ameren, 2025 IL App (5th) 240014, ¶¶ 93,

95-96.

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¶ 142 We disagree with the Attorney General that the Commission’s order here was a party-

specific remedy imposed in response to the Companies’ particular conduct in this case—their

allegedly insufficient answers to questions concerning how they intend to respond to electrification

trends—and was, thus, not an unauthorized promulgation of an administrative rule. We also reject

the Commission’s related argument that its order is not a statement of general applicability and,

thus, it is not a rule under the Administrative Procedure Act. See 5 ILCS 100/1-70 (West 2022)

(defining “rule” as “each agency statement of general applicability,” but excluding statements ***

not affecting private rights and procedures available to persons or entities outside the agency”).

The Commission ordered the parties to submit LTGIPs beginning in 2025 and every two years

thereafter. Thus, the remedy was not limited to this case; it had broader applicability and was

promulgated without compliance with the Administrative Procedure Act.

¶ 143 Also unavailing is the Commission’s argument that its broad powers under section 5-101

authorize it to request LTGIPs from the Companies. Section 5-101 addresses a utility’s duty to

provide the Commission with requested information. Id. § 5-101 (“[e]very public utility shall

furnish to the Commission all information required by it to carry into effect the provisions of this

Act and shall make specific answers to all questions submitted by the Commission”; this includes

“reports *** in such form as the Commission may direct”). However, as the Companies note, “the

express grant of authority to an administrative agency [ ] includes the authority to do what is

reasonably necessary to accomplish the legislature’s objective.” (Emphasis added.) Abbott

Laboratories, Inc, 289 Ill. App. 3d at 712. Here, the only evidence of the legislature’s objective

is that gas utilities are not subject to statutes mandating the filing of plans similar to the LTGIPs

at issue here.

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¶ 144 In summary, the Commission’s order that the Companies prepare LTGIPs was void for

being outside its authority and is therefore vacated. 8

¶ 145 III. CONCLUSION

¶ 146 For the reasons stated, we affirm in part and vacate in part the Commission’s decision.

¶ 147 Affirmed in part and vacated in part.

¶ 148 JUSTICE HUTCHINSON, specially concurring:

¶ 149 I have little to add to my colleague’s thorough and thoughtful disposition. I specially

concur to make a minor point. As we were recently reminded, those seeking to overturn a decision

of the Commission must clear a high bar. Under the manifest-weight standard, it is not enough to

“ ‘show[ ] that the evidence may support a different conclusion; it must be shown that the opposite

conclusion is clearly evident.’ ” Concerned Citizens & Property Owners v. Illinois Commerce

Comm’n, 2026 IL 131026, ¶ 27 (quoting Continental Mobile Telephone Co. v. Illinois Commerce

Comm’n, 269 Ill. App. 3d 161, 171 (1994)). I agree with my colleagues that the Companies’

evidence in this case did not meet that high threshold.

¶ 150 Further, like my colleagues, I found the decisions in Ameren Illinois Co. v. Illinois

Commerce Comm’n, 2025 IL App (5th) 240014, ¶¶ 92-103, and Illinois Gas Co. v. Illinois

Commerce Comm’n, 2025 IL App (3d) 240093, ¶¶ 126-133, to be well-reasoned and persuasive.

8 On January 27, 2026, prior to oral argument in this case, the Commission filed an unopposed motion in this court to inform us of its January 21, 2026, reopening of docket Nos. 23-0068 and 23-0069 for the purpose of rescinding its direction to the Companies to file LTGIPs. It asserted that its decision to rescind its LTGIP order would render moot the LTGIP issue, and a decision by this court on the issue would thereby be unnecessary. However, as of the filing of this decision, the matter remains pending with the Commission, and no final order has been issued. In the interest of avoiding further delays in resolving the matters in this appeal, we issue this decision.

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At oral argument, I was left with the distinct impression by counsel for both the Attorney General

and counsel for the Commission that they realized the gravity of the LTGIP issue and would

quickly work to address it. Both attorneys indicated that the long-term planning requirement had

been erroneously applied to many non-electrical applicants, and not just the Companies here or in

Ameren, or Illinois Gas Co.

¶ 151 My concern has more to do with fairness. When the Companies had their rehearing before

the Commission, roughly six months before the decision in Ameren was issued, members of the

Commission repeatedly asked about the Companies’ long-term infrastructure and planning, which

had little to do with the SMPs directly. The Companies were also chided for how they presented

their data, and for not sufficiently “disaggregating” the per-project costs of each component of the

SMP. It is difficult to separate those lines of inquiry from the now-recognized-as-erroneous

demand that the Companies submit a nominal LTGIP. I remain highly skeptical as to how the

Commission will remedy this problem post-Ameren, which would be like “separating spaghetti

from the sauce after they had been mixed.” Maslat v. Illinois Workers’ Compensation Comm’n,

2023 IL App (1st) 220003WC-U, ¶ 16.

¶ 152 Due process requires more than just notice and opportunity to be heard; it requires that the

hearing itself be fair. What concerns me most here is that applicants in this hugely important and

expensive process that helps keep our state running are required to build their rate-requests on the

shifting sands of the Commission’s and the Attorney General’s non-precedential interpretations

of the relevant statutory authority. There is nothing to prevent these officials from “chang[ing]

their minds about the law’s meaning at any time, even when [the General Assembly] has not

amended the relevant statutory language in any way.” Loper Bright Enterprises v. Raimondo, 603

U.S. 369, 427 (2024) (Gorsuch, J., concurring). Here, the LTGIP “mandate” is a perfect example

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of overreach. It was an additional “requirement” that seems to have been both broadly imposed

and poorly conveyed, all in derogation of the safeguards attendant to notice-and-comment

rulemaking, or even an amendment by the people’s elected legislators. There is in no small sense

a quasi-judicial and fact-finding component to the Commission’s work as well as the Attorney

General’s role in those proceedings. I would strongly encourage their “judicial restraint,” by which

I mean a closer adherence to the statutory text and the clearest possible communication to

applicants of what information the Commission and staff require (and how “disaggregated” it

ought to be) before having to rehear a case. I would submit that if the Commission and the

Attorney General “ ‘construe the law with ‘[c]lear heads *** and honest hearts,’ not with an eye

to policy preferences that had not made it into the statute” (Loper Bright, 603 U.S. at 403-04

(quoting 1 WORKS OF JAMES WILSON 363 (J. Andrews ed. 1896)), these hearings would be more

direct, less costly, less time-consuming, and more efficient. Accordingly, I specially concur in the

judgment.

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