The staff of the Illinois Commerce Commission supports a base rate increase for WEC Energy Group Inc.'s Illinois gas distribution utilities; however, rate of return and capital structure have emerged as key issues of contention.

➤ The Illinois Commerce Commission (ICC) staff said on May 5 that an aggregate $128.8 million base rate increase premised upon a 9.48% return on equity (ROE) for The Peoples Gas Light and Coke Co. and North Shore Gas Co. would be appropriate at this time. The utilities propose a total base rate increase of roughly $220 million, which reflects a 10.10% ROE. The utilities' most recent rate cases were decided in 2023, and the authorized increases ultimately totaled about $317 million.

➤ A substantial portion of the total revenue requirement difference in the pending cases stems from rate of return disagreements. The ROE put forth by the staff is meaningfully lower than the figure backed by the utilities, and the staff supports a less equity-rich capital structure than the percentages identified in the companies' application and adopted in their previous cases.

➤ The companies said infrastructure investments are at the center of their instant rate case proposals. Peoples said it needed to invest a considerable amount in its system due to an earlier ICC order that required the utility's remaining cast and ductile iron (CI/DI) pipe to be replaced by Jan. 1, 2035.

➤ In 2023, Regulatory Research Associates lowered its ranking of Illinois regulation from Average/2 to Average/3 to reflect, in part, the adverse outcomes of multiyear rate plan proceedings for Ameren Corp. subsidiary Ameren Illinois Co. and Exelon Corp. subsidiary Commonwealth Edison Co. However, in 2024, the ICC issued orders allowing these utilities to proceed with plans to accelerate investment in their electric distribution businesses and recover the related costs through the multiyear ratemaking arrangement. RRA continues to accord the state's energy regulatory climate an Average/3 ranking.

In Docket 26-0065, the staff recommends a $125.5 million (12.74%) base rate increase for Peoples that is premised upon a 9.48% return on equity (50.00% of capital) and a 6.62% return on an average rate base valued at $4.554 billion for a test year ending Dec. 31, 2027.

RRA calculates that differences in rate of return account for approximately $38 million of the nearly $80 million net difference between the $205.1 million base rate increase sought by Peoples and the $125.5 million increase recommended by the staff. Rate base differences reduced the revenue requirement by approximately $13 million, while recommended net operating income adjustments reduced the revenue requirement by about $29 million.

In Docket 26-0066, the staff said a $3.3 million (3.15%) base rate increase is justified for North Shore. The recommended rate change is premised upon a 9.48% return on equity (50.00% of capital) and a 6.96% return on an average rate base valued at $412.4 million for a test year ending Dec. 31, 2027.

For North Shore, RRA calculates that differences in rate of return account for approximately $4 million of the roughly $11 million net difference between the $14.4 million base rate increase sought by the utility and the $3.3 million increase recommended by the staff. Rate base differences reduced the revenue requirement by approximately $4 million, while recommended net operating income adjustments reduced the revenue requirement by about $3 million.

The recommended 9.48% ROE for both utilities is below the prevailing nationwide average for gas utilities. An analysis conducted by RRA indicates that the average ROE authorized for gas utilities was 9.87% in rate cases decided in 2025, equal to the 9.87% average for 2024. There were 68 gas ROE authorizations in 2025 versus 69 in 2024.

The staff said a capital structure that includes a 50.00% equity component would be appropriate for both Peoples and North Shore. The staff said: "The companies' forecasted capital structures contain an excessive proportion of common equity and are therefore unreasonable and unfairly costly to consumers. Specifically, they propose to increase their common equity ratios relative to those included in their actual capital structures from the most recently completed calendar year. In contrast to the 54.00% equity ratios the companies propose, North Shore's year-end 2025 common equity ratio was 52.59%, while Peoples Gas's year-end 2025 common equity ratio was only 49.35%."

The staff noted that the capital structures proposed by Peoples and North Shore "include more equity than the capital structures authorized for gas distribution utilities across the United States over the last three years," as reported by RRA. The staff noted that the average authorized equity ratio for gas distribution utilities for the years 2023 through 2025 was 51.99%, according to RRA's research, which is lower than the 54.00% figure being used by the companies in the instant proceedings.

The staff concluded that its recommended equity component is consistent with the corresponding figures adopted by the ICC in recent rate cases for Ameren Illinois and Southern Co. subsidiary Northern Illinois Gas Co. in Dockets 25-0084 and 25-0055, respectively.

Overview of requests

Peoples, which serves roughly 885,000 retail customers, seeks a $205.1 million (21.04%) base rate increase premised upon a 10.10% return on equity (54.00% of capital) and a 7.20% return on a rate base valued at $4.678 billion.

Peoples said the primary impetus for its case filing is to begin recovering the costs associated with roughly $600 million of investments to be made through 2027 to replace a portion of the remaining CI/DI pipe less than 36 inches in diameter in its system in an expedited manner, in accordance with a prior ICC directive in an investigatory proceeding (Docket 24-0081). The investigation stemmed from the ICC's decision in the company's most recent rate case, Docket 23-0069, in which the commission permitted Peoples to implement a $302.8 million base rate increase premised upon a 9.38% return on equity (50.79% of capital) and a 6.65% return on a rate base valued at $4.194 billion. Peoples' rates were later amended pursuant to an amendatory order and an order on rehearing, such that the authorized increase was revised to $306.2 million based on the same return parameters and a $4.237 billion rate base.

In Docket 23-0069, the ICC had rejected Peoples' request to include its forecast test year system modernization program (SMP) investment in rate base and ordered a pause in and an investigation of the program. The commission subsequently ordered the utility to retire all CI/DI pipe under 36 inches in diameter by Jan. 1, 2035, and said that failure to meet this requirement could result in significant monetary penalties. The ICC said cost recovery of these investments would be contingent on the company's ability to "demonstrate the prudence of any related or additional investments in applicable rate cases."

In the instant rate case filing, Peoples said this pause "shut down virtually all SMP work in the City of Chicago, and resuming pipe retirement work has taken (and will continue to take) time to ramp back up."

North Shore, which serves roughly 160,000 retail customers, proposes a $14.4 million (13.89%) base rate increase premised upon a 10.10% return on equity (54.00% of capital) and a 7.58% return on a rate base valued at $448.6 million. The primary driver for North Shore's request is its approximately $26.5 million in actual and planned investments in safety and reliability since 2024.

In North Shore's previous rate case, Docket 23-0068, the utility was authorized an $11.0 million base rate increase premised upon a 9.38% return on equity (52.58% of capital) and a 6.96% return on a rate base valued at $422.1 million.

Dockets 23-0069 and 23-0068 marked two of the first known instances in at least a decade in which the commission adopted an ROE that was meaningfully below those put forth by the staff and the law judges in a gas utility rate proceeding. This trend continued with rate case decisions in November 2025 for Northern Illinois Gas and Ameren Illinois. In those decisions, the ICC took issue with the weighting that the staff and the law judges assigned to the capital asset pricing model in their ROE analyses due to "increased volatility in betas."

RRA view on Illinois regulatory climate

RRA historically viewed Illinois regulation as relatively balanced from an investor perspective. For over a decade, the formula rate plan framework for Illinois' large electric utilities required the companies to invest significantly in their infrastructure. The revenue requirement associated with these investments was addressed in annual proceedings, and the ROEs utilized in these cases were determined formulaically.

However, the ICC's actions in four gas rate case decisions in 2023, coupled with its actions in the multiyear grid and rate plan proceedings for Commonwealth Edison and Ameren Illinois, were rather restrictive. In 2024, the ICC authorized the utilities to proceed with implementing their revised grid plans such that their electric distribution rates will increase materially over the next several years.

For the gas utilities, the ICC's decisions to authorize equity returns markedly below those presented in many of the cases represent a potentially concerning trend that will continue to require monitoring.

The ICC has an active rate case agenda before it. In addition to the Peoples and North Shore rate adjustment requests, in Docket 26-0099, Northern Illinois Gas seeks a $220.8 million base rate increase premised upon a 10.35% ROE. Also, in dockets 26-0331 and 26-0332, MidAmerican Energy proposes a $26.1 million electric rate increase that reflects a 10.25% ROE and a $7.4 million gas base rate increase premised upon a 10.50% ROE, respectively.