Runaway cost of Peoples' gas main revamp once alarmed the ICC. Now? Maybe not.
By Steve Daniels, Crain’s Chicago Business. January 7, 2017
What a difference a year makes. Or not.
A little over a year ago, the Illinois Commerce Commission moved for an overhaul of Peoples Gas’ gas main modernization program. Regulators professed to be alarmed by runaway costs and poor management.
Now the same regulators, poised to pass final judgment on the massive infrastructure project, have been presented with a proposed order that essentially would change nothing about how the program is run.
Meanwhile, costs for the multibillion-dollar, decades-long “system modernization program” continue to be every bit as high under Peoples’ new management, Milwaukee-based WEC Energy Group, as they were under the discredited former owners of the utility, Chicago-based Integrys Energy Group. That’s according to data submitted to the ICC late last month by the utility itself and in spite of a marked slowdown in work in 2016 compared with the year before.
An administrative law judge for the commission on Dec. 23 recommended permitting Peoples for the next three years to continue replacing the aging gas pipes beneath the city’s streets at a clip well above what it did in 2016 regardless of alarm over what the costs will do to Chicagoans’ heating bills in coming years. Commissioners will act on that recommendation in coming weeks.
In his proposed order, Judge Glennon Dolan acknowledged worry about affordability but agreed with ICC staff that the issue needed more study rather than action right now. That didn’t stop him from siding with Peoples on virtually every other issue under debate, including whether to incorporate Chicago-specific methane leak data in decisions about which pipes to replace in what order. The technology is used by other big cities replacing gas mains and is championed by the Environmental Defense Fund and the Citizens Utility Board.
But Peoples is opposed, preferring to do its work neighborhood by neighborhood. In 2017, Peoples says it plans to replace pipes in South Austin, Albany Park, West Humboldt Park, South Beverly, South Morgan Park and West Morgan Park.
Through 11 months of 2016, Peoples installed 50.6 miles of gas pipes for a total cost of $164.5 million. That’s $3.25 million per mile. Under Integrys, the “accelerated main replacement program,” as the company dubbed the project, replaced 340 miles at $1.1 billion over several years. The average cost per mile: $3.2 million. Gas utilities across the country that are replacing aging pipes generally are doing the work more cost-efficiently.
Pipe replacement in Chicago under WEC Energy Group remains “on an unsustainable path,” CUB Executive Director David Kolata says. Dolan’s recommendation “didn’t really ask anything new of Peoples Gas, and that should be of concern to Chicago consumers.”
Among other things, Illinois Attorney General Lisa Madigan, a consistent critic of the program, has proposed limiting Peoples’ annual pipe replacement budget to $130 million. That would mean completing Chicago’s gas main project sometime after 2050. Peoples has proposed finishing the work between 2035 and 2040 at an annual cost of more like $250 million. The ICC judge agreed with Peoples. (No one argues that the pipes, some of which are more than a century old, don’t need replacing.)
In an email, the utility says it’s pleased with Dolan’s recommendation. “We commend the commission for its leadership and vision throughout this process, and remain committed to working with all parties as we continue implementing” the program.
Much of the strategic underpinning of the Wisconsin company’s $5.7 billion acquisition last year of Integrys, which owned utilities in Michigan, Wisconsin and Minnesota in addition to Peoples and its suburban sibling North Shore Gas, was the steady revenue increases at Peoples due to the higher rates paid by Chicagoans to finance the infrastructure work.
In 2015, the ICC approved the deal while refusing to consider the soaring costs at Peoples but later found that Integrys executives had purposefully kept information about cost overruns from the commissioners even when asked directly. Peoples agreed last year to pay $18.5 million to settle charges that its former executives lied to the commission about a material issue, which state law forbids.
The ICC then moved for an expeditious reset of the gas main program. If it endorses its judge’s recommendation, at least it will have gotten the expeditious part right.
Read the full article here.