CHICAGO (Legal Newsline) - An Illinois appellate court ruled last week that Peoples Gas cannot charge Chicago residents an extra fee to foot the bill for replacing old gas mains.

The state's First District Appellate Court, Fifth Division, issued its 52-page ruling late Friday.

Illinois Attorney General Lisa Madigan and the watchdog group Citizens Utility Board had argued that the surcharge, called the Infrastructure Cost Recovery rider, was both unnecessary and illegal.

The ICR rider covered replacement of the company's cast-iron main system -- work that Peoples has been required to do for decades.

CUB, in particular, had argued that Peoples already had the ability to recover such costs through traditional 11-month rate hike cases, and that the rider approved last year by the Illinois Commerce Commission merely served as an end-run around the regulatory process.

Peoples had argued the new charge would make it easier to accelerate the replacement of Chicago's gas mains.

However, the company had not committed to any concrete plans for future investments and the pace of the company's replacement program had slowed dramatically in recent years -- casting doubt in some people's eyes that the new charge was really needed.

Peoples has already begun to charge customers the rider, but the issue now heads back to the commerce commission.

There was no immediate word on when the charge would be removed from customers' bills.

While the financial impact of the ruling is somewhat unclear, it is expected to save consumers millions of dollars.

CUB said in a statement Monday that the ruling is a big victory for Chicago households.

"This is excellent news for Chicago consumers who are on the verge of another expensive winter," CUB Executive Director David Kolata said.

"We're glad Attorney General Madigan and CUB helped stop this charge. But we still have work to do, fighting a new $120 million rate increase proposed by Peoples and North Shore Gas."

Last week's ruling was connected to a January 2010 commerce commission decision that approved the rider along with a $70 million rate hike.

Since then, Peoples and its sister company, North Shore Gas, have requested a new $120 million increase.

The ICC is set to rule on that case in January 2012.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.