## Facts

- Peoples Gas Light & Coke Company and North Shore Gas Company (the utilities) provide natural-gas distribution service in the Chicago area.
- In March 2007, the utilities petitioned the Illinois Commerce Commission (ICC) to approve a volume-balancing-adjustment rider (Rider VBA).
- Rider VBA was designed to keep the utilities’ approved distribution revenues constant despite changes in customer consumption by adjusting customer charges.
- Under the rider’s periodic “true-up,” if actual sales volume produced revenues above the authorized level, customers received a credit; if revenues fell below the authorized level, customers paid a surcharge.
- The true-up mechanism operated symmetrically: it could either reduce or increase customer charges depending on prior-period sales compared to the revenue target.
- In 2008, the ICC approved Rider VBA as a four-year pilot program.
- In 2012, after the pilot period, the ICC approved Rider VBA on a permanent basis, finding it was a formula-based method to align revenue collection with the approved distribution revenue level and to reduce reliance on sales forecasting.
- The Illinois Attorney General (Lisa Madigan) and the Citizens Utility Board (CUB) petitioned for judicial review, arguing the permanent rider violated Illinois prohibitions on retroactive ratemaking and single-issue ratemaking (including limits on automatic adjustment clauses).

## Issues

1. Whether Rider VBA’s periodic credits and surcharges, calculated using prior-period sales and revenues, constituted unlawful retroactive ratemaking.
2. Whether Rider VBA was impermissible single-issue ratemaking or an unauthorized automatic adjustment mechanism because it adjusted customer charges based on actual usage rather than through a full rate case.

## Decision

- The Illinois Appellate Court, Second District, affirmed the ICC’s order approving Rider VBA on a permanent basis.
- The court held that Rider VBA did not violate the prohibition on retroactive ratemaking because it operated under a prospective, Commission-approved formula rather than changing rates after service had been provided.
- The court held that Rider VBA was not improper single-issue ratemaking or an unlawful automatic adjustment clause because it functioned as a rate-design tool tied to an authorized revenue level set through Commission ratemaking, not as a stand-alone rate change outside that framework.
- The court upheld the ICC’s approval under deferential review of Commission ratemaking decisions, concluding the order was supported by the record and was not contrary to law.

## Legal Principles

- Retroactive ratemaking bars changing rates for past service by later altering the rate that applied when service was rendered; it does not bar prospective rate mechanisms approved in advance that use historical data to apply a pre-set formula.
- A Commission-approved rider that trues up revenues according to a formula established before the billing period can be treated as prospective ratemaking, even if the calculation references prior-period sales.
- Single-issue ratemaking generally prohibits changing a single component of rates in isolation when a full evaluation of costs and revenues is required; a rider may be allowed when it is part of overall rate design and implements an approved revenue level rather than re-setting the revenue requirement on its own.
- Automatic adjustments are more likely to be upheld when they are formula-based, apply symmetrically (credits and surcharges), and are linked to a revenue target established through Commission ratemaking.
- Courts give substantial deference to the ICC’s technical judgments in ratemaking and will uphold Commission orders that are supported by substantial evidence and consistent with the Public Utilities Act and Illinois ratemaking doctrines.

## Conclusion

The appellate court affirmed the ICC’s permanent approval of Rider VBA for Peoples Gas and North Shore Gas, rejecting claims that the rider’s true-up mechanism amounted to retroactive ratemaking or improper single-issue ratemaking, and holding that the Commission acted within its ratemaking authority when it adopted a prospective, formula-based rider to align billed distribution revenues with an approved revenue target.


People ex rel. Madigan v. Illinois Commerce Commission, 988 N.E.2d 146 (2013)