Commission ends 2-year investigation into Peoples Gas main replacement program

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Illinois Commerce Commission votes 3-1 to end a two year investigation into the management of the Peoples Gas System Modernization Program. (WLS)

An ABC 7 I-Team Investigation
The Illinois Commerce Commission voted 3-1 to end a two-year investigation into the management of the Peoples Gas System Modernization Program.

On Wednesday, several Chicago residents fired back at state leaders who ended an investigation into a massive pipeline project.

There was a lot of shouting and even some tears from residents who say they are in fear of not being able to pay their Peoples Gas bill.

The controversy is all over a project designed to update and modernize gas lines, but critics say it is mismanaged, with a bloated budget.

Shouting, signs held high and even tears from concerned Peoples Gas customers.

"Why is she crying? Because her bill is going up. She's got to either heat or eat," said Peoples Gas customer LeAnn Mitchell.

All of it at Wednesday's Illinois Commerce Commission meeting where commissioners decided to end a two-year investigation into the management of the Peoples Gas System Modernization Program.

The ICC said the decision allows the project to move forward under a watchful eye.

"There are 88 recommendations the company has already adopted, they have agreed to do, we are hiring people to be on sight to help control costs. The project has to happen," said Victoria Crawford with the Senior Public Information Office.

But some fear that their gas bills will only grow.

"It is really going to affect me a whole lot because right now, today, I am behind and it is really hard for me and my family," said customer Donna Carpenter.

That money, passed on to customers from a project which will replace century old , rusting corroded pipe. It's estimated that the massive construction could require half of the city of Chicago's streets to be dug up over the next 10 to 20 years.

"They become brittle and occasionally fail unpredictably with catastrophic effects," said ICC Chairman Brien Sheahan.

Peoples Gas said bills may increase 2-3 percent annually but an estimate from the Illinois Attorney General's Office said the cost could double consumers' bills in the next 14 years.

"The Commission's decision allows Peoples Gas to continue excessive, unchecked spending for a program that has been mismanaged from the start," Illinois Attorney General Lisa Madigan said in a statement. "Peoples Gas customers already pay the highest natural gas delivery service rates in the state. By failing to exercise its regulatory authority, today's ICC decision guarantees that Peoples Gas' customers will continue to pay unfairly high rates for the company's poorly run program."

An independent 2015 audit revealed the cost of the project had grown from $2.5 billion to more than $8 billion. Peoples Gas has estimated the cost to now be around $6.8 billion, if completed by 2030.

On Wednesday's vote Peoples gas said: "...After an extensive two-year review, the Commission today confirmed that our plan for modernizing the natural gas delivery system is the best approach to cost effectively provide a safer, more reliable system for nearly one million Chicago families and businesses... "

The Illinois Public Interest Research Group (PIRG) disagreed.

"The Illinois Commerce Commission failed Peoples Gas customers they had the opportunity and responsibility to reign in this out of control project," said Abe Scarr with PIRG.

The Illinois Commerce Commission also points out that current state law says that costs of utility project like this can be passed on to customers. And saying it will it will continue to monitor the cost of the project with independent auditors.

In response to Wednesday's vote, a spokesperson for Illinois Attorney General's Office said in a statement, in part:

"Madigan asked the Commission in a petition filed in 2015 to slow AMRP spending to a more affordable pace in order to protect Peoples customers - and low income customers in particular - who would experience significant rate increases. The Commission opened a two-year investigation that was the subject of the order issued today. Today's decision leaves intact Peoples Gas's request to increase AMRP spending to $300 million per year, with the Commission concluding that it lacked authority under the Public Utilities Act to reign in the AMRP spending based on its interpretation of an obscure provision that caps total infrastructure spending financed through a monthly surcharge...

As a more affordable alternative, Madigan recommended, based on expert testimony, that Peoples Gas reduce AMRP spending to $130 million annually and enact a more targeted approach to identifying and replacing vulnerable mains. Madigan's recommendation would have set the spending rate at the same average annual expenditure level Peoples originally forecasted for the program when it approached the Commission in 2009 seeking approval of an accelerated program. Madigan's proposal would have also made rates more affordable in the years ahead.

An expert hired by the Attorney General's office, predicts that under the Commission-approved plan the annual Peoples Gas total bill for an average residential heating customer will more than double from approximately $1,200 today to about $2,892 in 2045. The expert also concluded that if Peoples is allowed to continue to spend as it has proposed (and the Commission approved), the main replacement program itself will have an annual residential customer rate impact of $785 by 2040. The total AMRP-related cost billed to the average residential heating customer over the life of the program will likely be in excess of $22,000.

Read Illinois Commerce Commission Chairman Brien J. Sheahan's comment on the ruling here.

The ICC also released the following statement Wednesday:

The Illinois Commerce Commission (ICC) today approved in Docket 16-0376 a new oversight plan for the Peoples Gas Light and Coke Company's (Peoples Gas) System Modernization Program (SMP), a project to replace aging and deteriorating natural gas pipelines across Chicago. The new plan includes stronger regulatory oversight by the Commission to ensure the project is properly managed and costs are controlled.

Because it is not a rate case, today's decision did not approve any spending for the project. The Commission will review and must approve any recovery under the Company's qualifying infrastructure plant (QIP) Rider, pursuant to legislation enacted in 2013 which is discussed further below.

The Peoples Gas main replacement project calls for the replacement of 2,000 miles of at-risk mains, the upgrading of 300,000 customer services lines and relocating gas meters from inside customer premises to outside, over an approximately 30 year period.

"Today's decision puts the safety of Peoples' ratepayers first and charts a new path forward for the ICC's oversight of the SMP. Chicago's natural gas distribution system is one of the oldest in the country, and our priority must be ensuring it remains safe for the people of Chicago," said ICC Executive Director Cholly Smith. "Strict oversight by the ICC will help put this vital public safety project back on pace, while ensuring the company follows the steps necessary to keep costs down to protect ratepayers."

The Final Order in Docket 16-0376 includes the following key provisions to control the cost, pace, and scope of the SMP:

- Rigorous regulatory oversight and assessment tools, including long-term annual and quarterly reporting and performance metrics that will measure the company's progress in targeting the highest risk pipe, reduction in risk of the system as a whole, and management of the SMP's cost;
- New reporting metrics sought by parties including the Attorney General's office that will allow stakeholders to better monitor progress of the project;
- The hiring of two consultants, one to assist the ICC in auditing the cost of the SMP, and a second to assist the ICC in evaluating Peoples Gas' ongoing project management of the SMP; and
- Creation of a pilot program through 2021 to determine the value of advanced methane detection technology at the urging of the Citizens Utility Board (CUB) and the Environmental Defense Fund (EDF). Peoples Gas will submit annual reports to the Commission concerning program methodology, costs, benefits, results in terms of annual methane leak flow rate reduction and other potential uses for the technology.

The additional oversight measures approved by the ICC today build on past Commission actions, depicted in the graphic below, to improve management of the SMP. Previously, the Commission ordered an independent audit (conducted by Liberty Consulting) of the project, which led to implementation of 88 project recommendations over the last two years.

In addition, Staff of the Commission announced today a forthcoming stipulated agreement in the company's QIP cost recovery case, Docket 15-0209. Under Section 9-220.3 of the Public Utilities Act, the ICC is mandated to approve QIP recovery costs when they are deemed reasonable and prudently incurred.

The stipulated agreement will address the ICC's investigation into the 2014 costs of the Peoples Gas SMP, and would result in a refund to customers and reduction of the company's QIP recovery for its failures to address major cost overruns, permitting and material delays, and a lack of proper management oversight. If approved, the stipulated agreement would reduce Peoples Gas' QIP recovery by $5.4 million and approximately $4.5 million would be divided between (a) assistance to low-income customers and/or "Share the Warmth," a Peoples Gas program which provides heating grants to limited and fixed-income households having trouble paying their bills, and (b) a credit to the bills of customers who were subject to QIP charges. Formal investigations into the prudence of QIP-related costs in 2015 and 2016 are currently pending before the Commission.

The Company is able to recover QIP costs as a result of the 2013 Natural Gas Consumer, Safety and Reliability Act drafted by the Illinois General Assembly with assistance from the ICC and the Attorney General's Office, and signed by former Governor Pat Quinn. The law allows gas utilities to make incremental investments in infrastructure upgrades and recover the costs through a surcharge on customer bills, with a cap on the percentage of spending that can be passed onto ratepayers.

The law was enacted following a series of deadly gas explosions involving aging cast iron and steel mains in cities around the country, including a 2010 explosion in San Bruno, California that killed eight people, injured over 50, and caused billions of dollars in damage. In March 2011, then U.S. Secretary of Transportation Ray LaHood announced a "Call to Action" through the Pipeline and Hazardous Materials Safety Administration urging utilities to accelerate the repair or replacement of high-risk pipelines across the country.

The ICC is expected to vote on the stipulated agreement during the next regular open meeting on January 25, 2018.

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