State orders new probe of massive Peoples Gas project

By Steve Daniels, Crain’s Chicago Business, March 1, 2017

In a remarkable about-face, state utility regulators opted today not to endorse Peoples Gas’ multibillion-dollar gas main replacement program and instead ordered a new investigation into bringing the costs down.

The unanimous vote was a surprise, given that members of the Illinois Commerce Commission last year had called for “rebooting” the controversial infrastructure as quickly as possible after massive cost overruns came to light.

But, faced with a recommendation late last month from an ICC administrative law judge to change little about a project that is projected to send Chicagoans’ heating bills soaring in coming years, the commission punted.

ICC ordered the record on the project reopened, with a new round of hearings. The scope of the new probe is broad, including investigating in ways that haven’t happened yet why the costs of the program remain stubbornly high even after the Chicago natural gas utility came under new management in 2015.

The decision also corresponded with pointed criticisms from a group of low-income residents who showed up at the ICC meeting today with signs protesting the elevated heating costs. In a hearing before the vote, several city residents accused the commission of failing in its job to keep heating costs affordable as property taxes, water rates and other unavoidable charges rise in Chicago.

In a statement, the Citizens Utility Board, which has been a fierce critic of the gas main program and ICC’s handling of it, called today’s news “a positive development.”

“The pipeline replacement project is on an unsustainable path that will be devastating to Chicago consumers unless there are significant improvements to the status quo,” CUB Executive Director David Kolata said in a statement. “We have to get this program under control, and CUB looks forward to working with state regulators to hold the company accountable to preserve safety and contain costs.”

No commissioners, including Chairman Brien Sheahan, made any statements before or after the vote.

In a statement, Peoples said it was “happy to be responsive” to the commission’s request for more information and would cooperate with all the parties involved. “We have made significant improvements implementing our System Modernization Program,” it said. Peoples called the current gas delivery system “outdated,” saying it “consists of thousands of short segments of cast and ductile iron pipe, some installed more than a century ago.”

The utility plans to spend big this year on replacing aging gas mains below Chicago’s streets after not accomplishing as much as it initially hoped in 2016.

Projected costs to replace 2,000 miles of gas mains by 2030 have escalated in recent years to nearly $7 billion. The commission is wrestling with questions like having the work done over a long period of time to reduce the annual cost impacts on Chicagoans.

No one disputes that the work is needed. Many of the pipes, built with leak-prone cast iron, are decades old. Some are more than a century old.

With the new order, the commission wants to look at Peoples’ whole approach to prioritizing replacement. Currently, Peoples is doing its work neighborhood by neighborhood rather than focusing on pipes deemed in greater need of immediate replacement—wherever they’re located.

Commissioners also want much more precise information on how the work will affect the average heating bill.

That will please the group of residents from the Cook County Workers Benefit Council, an advocate for low-income households, who angrily demanded that ICC stop Peoples from raising rates annually to pay for the infrastructure work.

“Peoples Gas has no incentive to reduce costs,” said Adrian Castro, a Brighton Park resident who works at a cafe and drives a car for Lyft. “You know Peoples Gas rates are not fair, they’re not just and they’re not reasonable.”

Tanya Zato, a preschool teacher who lives in Woodlawn, described neighbors who a few days ago lost two small children and saw a third injured in a well-publicized house fire “because they were using their stove to heat the house.”

“My last (heating) bill was $400,” Zato said. “That’s more than half my rent . . . Now I’m getting a part-time job just to pay my gas bill.”

Peoples Gas has said it’s improving many of the management problems that plagued the program to accelerate replacement of the aging mains in its initial rollout, beginning in 2011. A Milwaukee-based utility holding company, WEC Energy Group, acquired Peoples and other Midwest utilities from Chicago-based Integrys Energy Group in 2015.

ICC approved the $5.7 billion sale despite the questions surrounding Peoples’ cost management. Soon after the approval, the commission fined Peoples, concluding the utility’s previous management had improperly withheld evidence of the cost overruns from the commission in order to finalize the deal.

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