This is what the start of a heating-affordability crisis looks like

The last few winters haven’t been particularly cold. Natural gas remains historically cheap. Unemployment is low. Yet customer nonpayments to Peoples Gas, which heats Chicagoans’ homes, soared last year.

The amount Peoples reported as uncollectible in 2017 was $58.2 million, more than twice the $26.5 million it recorded in 2016, according to filings with the Illinois Commerce Commission. The 2017 figure was 5 percent of Peoples’ revenue for the year. It also was well above the $37 million in uncollectible bills at Peoples in 2014, the notorious “polar vortex” year, when heating bills spiked.​

To put 2017 in further context, uncollectible accounts at far larger Nicor Gas, which serves much of suburban Chicago, were just $11 million, less than 1 percent of its 2017 revenue.

The stress that more Chicagoans are experiencing paying their heating bills coincides with unprecedented capital spending at Peoples, which is attempting to accelerate replacement of aging gas mains at such a pace that the state’s chief utility regulator has openly fretted about home-heating affordability in the near future while asserting there’s nothing he can do about it. Peoples is allowed to collect more from ratepayers without immediate regulatory review under a 2013 state law that permits fluctuating monthly surcharges on heating bills.

Those surcharges continue to rise. Peoples collected $62 million from them last year—almost akin to a fully adjudicated rate hike. The surcharge revenue was up nearly 50 percent from $42 million in 2016. And, based on monthly filings so far this year, Peoples is on track to boost that haul by a third, which would amount to $82 million.

Thanks to Peoples’ spending, which the ICC concluded in January that it has no statutory power to control, heating bills are rising even though gas consumption has been down the past two years. Peoples’ revenue in 2017 was up $100 million over 2016.

If the cost of natural gas rises even modestly, or Chicago experiences a brutally cold winter, the affordability problem is likely to quickly turn into a crisis. Legislation in Springfield to yank Peoples’ ability to impose the surcharge appears to be going nowhere due to opposition from unions, whose members are benefiting from the spending.

ICC Chairman Brien Sheahan through a spokeswoman declines to comment, citing pending cases involving Peoples.

Chicago Mayor Rahm Emanuel has been quiet on the issue thus far.

Only Illinois Attorney General Lisa Madigan has been fighting. Her office recently challenged in Illinois Appellate Court the ICC’s ruling in January that state law bars it from constraining Peoples’ gas-main replacement budgets, which are at $300 million or more per year. But a ruling will take up to a year, and Madigan is leaving office next year.

For Peoples, the bounty of spending and collecting is leading to outsize profits. Last year, Peoples posted record-setting net income of $124 million, nearly double the $66 million from 2016. In the past decade, the most the utility has earned in a single year was $87.8 million in 2015—when it won a $71 million rate hike.​

Peoples’ 2017 earnings were 31 percent more than the $94 million Nicor reported. Nicor serves 2.2 million customers versus Peoples’ 830,000 and had revenue that was nearly 50 percent higher.

In its annual report, Peoples said the blowout earnings were due to a combination of higher revenue from the surcharge and lower costs, led by slashing charitable giving and donations to $3.5 million from $16.7 million and reduced pension contributions.

DIVIDENDS PAID

Peoples paid $65 million in dividends to Milwaukee-based parent WEC Energy Group in 2016 and 2017, according to filings. In those two years, WEC Energy boosted its dividend payments to shareholders by 14 percent.

Peoples in an emailed response to questions says the surge in bad debt is due in large part to overhauling its billing system last year, which led the utility essentially to suspend normal disconnections for nonpaying customers. In an ordinary year, spokesman Brian Manthey says, the utility disconnects 30,000 to 40,000 of its 830,000 customers. It disconnected 3,000 last year. That led bad debt to pile up more than usual, he says.

The problem with that approach is that state law allows utilities to recover bad debts they deem uncollectible from paying customers in their rates. Peoples will file later this year to do that, but the utility won’t seek to recover all of the $58 million, Manthey assures. He allows, though, that Peoples may seek to recover it in coming years.

Nicor has at times over the years suspended disconnections while it’s updated its billing systems, just to ensure no one is cut off by mistake, a spokesman says. But it’s never suspended them for an entire year.

Now that heating season is over, Peoples says it expects to send disconnection notices to about 50,000 customers in the coming months.

As to its net income, Peoples says it was “reflective of the way we managed our business within the regulatory framework.” It emphasizes that its surcharge revenue is subject to after-the-fact ICC oversight and that it paid $10 million this year to settle ICC challenges to surcharges imposed in 2014.

Of course, that was under previous management of Peoples, which the ICC had found badly botched the rollout of the gas-main program. WEC Energy has owned the utility since mid-2015, when it acquired then-parent Integrys Energy Services.

Comparisons to Nicor, Peoples says, are “like comparing apples and oranges—different number of customers, different customer base, different geographic territory, different capital needs and different age of the system. We are rebuilding the natural gas delivery network in the entire city of Chicago, not maintaining a system in a predominantly suburban or rural community.”

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