1 in 10 Chicago households threatened with gas cutoffs this year
By Steve Daniels, Crain’s Chicago Business. November 30, 2018
More than 1 of every 10 Chicago households got a disconnection notice from Peoples Gas from April through September. Had Peoples followed through and disconnected even half of them, more than 37,000 city homes would have been potentially without heat as winter sets in.
But Chicago’s natural gas utility did no such thing. Through September, Peoples cut off the gas to 12,534 residential heating customers during the warmer months of 2018, according to a report the utility submitted in November to the Illinois Commerce Commission. At the same time, it reconnected 2,967.
That seems like a generous—and maybe politically adroit—thing to do for a utility under fire for rapidly rising heating bills thanks to a massive pipe-replacement program that has it spending hundreds of millions on capital projects annually. Peoples is slapping surcharges on gas bills that now are approaching $8 a month for the average residential customer.
But generosity has little to do with it. State law allows all utilities to pass on their bad-debt costs to ratepayers who are current on their bills each year. Through September, Peoples already had racked up $28.1 million in uncollectible expenses, the utility says. That leaves the relatively high-expense months of November and December to come before the total for the year is calculated.
Last year, Peoples incurred more than $58 million in bad debt, a mind-boggling figure given that the price of natural gas was historically low, the winter wasn’t particularly cold and unemployment was low. Peoples said the reason was that it disconnected just a few thousand customers—a “reprieve” nonpaying households got because the utility was overhauling its billing system and didn’t want to make mistakes on service cutoffs while that was occurring.
Earlier this year, Peoples wrote off a portion of that—$31.2 million—for last year’s uncollectibles, leaving some of the bad debt outstanding. It billed ratepayers extra to recover the total $31.2 million. Peoples still could ask ratepayers to reimburse it for some of the remaining uncollectible accounts if collection efforts fall short.
Peoples said in April it would send disconnection notices to roughly 50,000 customers to make up for the “lost” year of 2017. It far surpassed that, mailing the notices to nearly 75,000, the company says. A total of nearly 158,000 notices went out, as many customers received more than one.
But the utility didn’t follow through on its threats very often, leaving the uncollectible costs to rise as they did in 2017—costs in the future for households and businesses that are paying their utility bills. In past years, Peoples has disconnected between 30,000 and 40,000 customers of all kinds (commercial, residential, heating and nonheating). This year, it’s on track to do maybe half that—and this after a year when it disconnected virtually no one.
“Disconnecting the customer, for a number of reasons, is the option of last resort, and we make every effort to work with our customers and provide them with customized options,” a Peoples spokeswoman says in an email. “The intention of the notice is to provide customers with a warning so they can take action prior to disconnection.” Actions can include seeking heating assistance and negotiating a payment plan with the utility.
“Overall, our strategy has been to prioritize and pursue the accounts with the highest arrears versus accounts with lower overdue balances (there are more of those),” she says. “Typically, these high arrears accounts can be more difficult to collect on because, for example, they’re difficult to access and require multiple attempts.”
The spike in disconnection threats comes as heating bills are expected to rise substantially this winter, particularly in Chicago. Peoples predicts the average city household will pay $805 to heat their home from November to March. That’s up about 2 percent from last year. But that forecast presumes a warmer winter than last year.
If the weather—and gas consumption—is similar, that five-month price tab will be more than $842, a 7 percent increase. That’s assuming Peoples is correct about winter natural gas prices, which the futures markets have elevated for January and February beyond what the utility is forecasting.
Meanwhile, Peoples’ accelerated infrastructure program experienced a slowdown this year. The utility had budgeted $165.8 million to replace 45.2 miles of gas pipes—a $3.7 million-per-mile clip—by the end of September. The good news: Peoples spent less—$136.5 million. The bad news: It replaced only 32.1 miles. That’s $4.3 million per mile, 16 percent more than budgeted. It’s also well over the $3.5 million per mile that Peoples averaged in the two-year span of 2016 through 2017, a level already above other big-city gas utilities doing similar work.
Last year, Peoples replaced 53.5 miles of gas pipes, well below its targeted annual pace. This year, it appears on course to complete less. As of the end of September, Peoples has 1,812 miles of pipe left to update. In nearly seven years, it’s replaced 559 miles. The utility aims to complete the work no later than 2040. Peoples now expects to spend $206 million on the program this year, far less than the $300 million budgeted.
The utility cited changes in planned projects due to work it coordinated with other entities that dug up city streets for underground maintenance and repairs. The city’s Water Department, in particular, has been replacing water mains.
“There were over 20 new public improvement projects identified after the plan for the year was set including some projects in the central business district,” Peoples said in its report to the ICC. “As a result, several larger system improvement projects were deferred to 2019. Larger system improvement projects are typically less costly on a dollars per mile basis.”
Read the full Crain’s story here.