Chicago water faces uncertainty with threatened DuPage exit

DuPage County, Illinois, says it’s moving forward with plans to build its own water system drawing from Lake Michigan, a $6 billion effort that would deprive Chicago of its largest water customer.

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The 15 years remaining on the DuPage Water Commission’s contract with Chicago make the potential exit more of a long-term headline than an immediate risk to bondholders who hold some of the $3.1 billion of Chicago water debt, said ratings analysts.

All analysts cited the potential departure as a pressure point on future rates and affordability in recent Chicago Department of Water Management ratings reports.

The DuPage commission’s decision to break from Chicago would dampen the city’s effort to increase its regional footprint and raise more revenue to cover its growing capital plan, estimated at $4.57 billion through 2030.

The rising capital costs are due in part to a state and federal mandate to replace all of Chicago’s lead service lines, a 50-year undertaking with a price tag of around $15 billion.

Chicago’s water department provides drinking water to 42% of the state’s residents and serves 120 suburban communities as wholesale customers.

The DuPage Water Commission and the Northwest Suburban Municipal Joint Action Water Agency account for the largest and the third-largest of its suburban customers, together accounting for nearly 22% of water revenues.

Under a program announced last week, the two agencies would partner on a $6 billion Lake Michigan Regional Water Supply Initiative. It’s a 15-year plan to design and build a Lake Michigan raw-water intake and purification facility in the northern suburbs as well as tunnels, pipelines, and pumping stations serving Cook and DuPage counties, according to U.S. Rep. Raja Krishnamoorthi, who secured the project a $1 million Community Project Funding federal award.

Lack of rate control and frustrations about aging infrastructure are driving the move, leaders said.

“Currently the DuPage Water Commission and other water wholesalers have no participation in governance or rate control,” said Paul May, the commission’s managing director. “We simply purchase the water from Chicago under contract and as those systems have aged, it presented us with an opportunity to look to the future and make sure that we are doing the right thing for our ratepayers.”

DuPage has been planning the potential exit for years. In 2024, as its 40-year contract with Chicago neared its end, it purchased an abandoned golf course as a site for the system. Instead of entering into another long-term contract with the city, DWC signed a 17-year agreement, which it said would give it the time needed to build the alternate system.

It’s not a done deal, however.

“We have not written off the city of Chicago and we intend to continue to negotiate in good faith,” May said. “But right now, based on the conditions that we have, the project is a viable alternative and we continue to move forward with it. This system is currently aging and we don’t feel there’s adequate redundancy built into it.”

Chicago said the suburbs would need to overcome significant obstacles.

“Any shift away from the existing arrangement to facilitate construction of a new facility would require the enactment of state legislation, a lengthy permitting process, the expenditure of billions of dollars, and the allocation of public capital subsidies,” a spokesperson for Chicago Mayor Brandon Johnson said in an email. “The city continues to engage in conversations with the DWC and other stakeholders centered on maintaining a reliable, cost-effective supply of high-quality drinking water.”

The DWC accounts for 15% of Chicago’s revenues and nearly 40% of its top 10 suburban customers, according to its 2025 financial report.

“We’ve been tracking this,” said Andrew Truckenmiller, an analyst with S&P Global Ratings, which rates Chicago water bonds A-plus with a stable outlook. “It’s more of a long-term credit headline than an immediate credit risk.”

DuPage is “probing around, seeing what options they have going forward” before their contract expires in 2041, Truckenmiller said.

“They just want to reduce their dependence on Chicago and have concerns about future rate increases and infrastructure and general reliability,” he said. “What we’ll be watching for in the next months and years is if DWC completes a serious engineering and feasibility study, and then if Illinois regulators signal support for a massive suburban intake system.”

May said they have completed “a number of” initial technical and financial feasibility reports.

“Now we’ve confirmed that the project is technically feasible and financially viable, so we’re taking the next steps right now to develop the financial strategy,” he said.

The financing would be a mix of federal loans and bonds, May said.

“We expect that [Water Infrastructure Finance and Innovation Act loan] will be a significant source of funding and we’ll use reserves and conventional bonds for the remainder, but the strategy is still underway,” May said. He declined to disclose whether the DWC is working with financial advisors or consultants on the plan, only saying that they are “reaching out through a variety of means to the market.”

Chicago’s effort to expand its water footprint were successful in 2022, when the city snagged a new wholesale customer . The Grand Prairie Water Commission, anchored by the city of Joliet, the state’s fourth-largest city, would eventually become one of Chicago’s largest customers under a 100-year contract inked in 2023. Supply to the area southwest of the city will begin in 2030 and could generate up to $30 million in fresh revenue annually, the city said.

As was the case 42 years ago, Joliet and its partners moved to obtain Lake Michigan supply base because they could no longer rely on groundwater.

“That is a very large-scale addition they’ve done,” Truckenmiller said. “Obviously it’s never good to potentially lose the DuPage Water Commission and 15% of revenues, but if, over the course of 15 years, they add other regional communities, it could in the end be a net neutral effect,” he said. “These things take time, and Chicago water has a very competitive market condition.”

Among the frustrations the DuPage commission signaled in 2024 is that Joliet will pay Chicago significantly less than other suburbs are currently paying.

The city has said that starting in 2030 it will use the same pricing structure for all its wholesale customers. The “cost-of-service approach,” based on an American Water Works Association methodology, could increase transparency and predictability in rates, ratings analysts said.

“Existing wholesale contracts that expire prior to 2030 are expected to be renegotiated with billing practices in line with those anticipated for Joliet,” Fitch Ratings said in an April report.

Fitch rates Chicago water A-plus with a negative outlook that’s tied to the city’s own issuer default rating. Fitch took note of DuPage’s intention to “seek alternate supplies over the longer term,” and said DuPage’s 17-year contract “mitigates concern” over the largest customer exiting the system.

“However, failure to retain wholesale customers as contracts expire could pressure rates and retail affordability,” Fitch said.

The city has also created the Chicago Water Partners Advisory Council “to strengthen relationships with regional customers, which adopted its bylaws in June 2024,” said Moody’s Investors Service, which as of August 2025 rated the water debt Baa1 with a stable outlook.

KBRA, which pegs the water debt at AA with a stable outlook, also listed the potential loss of DWC as a chief credit challenge going forward.

Bond prices have seen a slight decline in late August trading.