Chicagoans to pay over $4 a month for neighbors' unpaid gas bills

By Steve Daniels, Crain’s Chicago Business, May 22, 2020

More Chicagoans are unable to pay their heating bills, and the bad debt at Peoples Gas is piling up. So those still paying will shell out more than $4 a month beginning in June to cover that cost.

Peoples this week filed with the Illinois Commerce Commission to more than double the monthly charge for uncollectible bills to $4.35 from $2.02. That’s by far the most any Illinois utility has charged its customers since 2009, when utilities successfully lobbied for a state law giving them the power to pass on the cost of nonpaying customers to ratepayers.

Before that law, utilities were provided a set amount within their rates for expected bad debt and then either profited or lost when actual costs came in below or above that threshold. That incentivized the companies to prioritize collection. The 2009 law attempted to address that concern by allowing regulators to compel refunds if they decide the companies didn’t make enough of an effort. But any action like that, which has yet to occur since the law was passed, will come years after the fact.

For Peoples, the escalating bad debt—and now its impact on ratepayers—continues to raise questions about the cost and efficiency of its program to upgrade aging gas pipes below Chicago’s streets and to overhaul the system.

A separate monthly charge, authorized under a different state law enacted in 2013, allows Peoples to recover those infrastructure costs. That, too, has been increasing each year. So far this year, Peoples has increased that charge by about 16 percent. For the average Chicago household, it’s more than $10 per month.

With relatively high fixed charges on top of the monthly surcharges, many Chicagoans will pay roughly $50 per month before consuming any gas, including in the summer. In the past, summertime gas bills in Chicago were barely noticeable.

Small wonder, then, that Peoples Gas has set earnings records two years in a row.

The problem of growing uncollectible costs is likely to get worse, as Peoples and other Illinois utilities are currently barred from disconnecting customers for nonpayment. The ICC is working on a policy to address disconnections during the COVID-19 crisis, which has many people working from home.

“Like all Illinois utilities, late or unpaid bills will continue to be high for the foreseeable future due to our suspension of disconnections to help Chicagoans struggling through the COVID-19 pandemic,” Peoples said in an emailed response to questions. “This makes the safety net put in place by the state law which created (the surcharge) even more critical during this pandemic.”

The new $4.32 charge, though, doesn’t stem from costs associated with the pandemic. Before the stay-at-home orders, Peoples had adopted a light touch with nonpaying customers, and its uncollectible costs rose to $60 million by the end of 2019, a record for the company. The year before the cost was $36 million, also higher than usual.

Peoples continues to maintain that its high levels of bad debt stem mainly from installation of a new billing system in 2017. In that year, Peoples has said it essentially stopped cutting off nonpaying customers out of concern that disconnections might occur in error as the company adjusted to the new system.

Peoples also said heating costs have stayed relatively level in recent years. But an extraordinarily warm winter this past year, as well as historically low natural gas costs, are the reason for that. If Chicago sees a colder-than-normal winter, which often raises the cost of gas as demand increases, the high fixed costs for delivering the fuel will become an issue.

The Chicago City Council passed a resolution last month calling on the state to beef up oversight of Peoples’ infrastructure program and “take adequate action” to protect Chicagoans struggling to pay their bills. Legislation introduced in Springfield to rescind Peoples’ infrastructure surcharge authority has gone nowhere in the face of opposition from unions whose members benefit from the work.

Asked about that resolution, Gale Klappa, executive chairman of Peoples’ Milwaukee-based parent, WEC Energy Group, was dismissive during a May 4 conference call with analysts.

“If you look at customer bills, customer gas bills in Illinois, starting in the year that this legislation was passed that incentivized utilities in Illinois to accelerate the pipe replacement program, customer bills are actually down,” he said. “So we’ve not created an affordability crisis in any way, shape or form. Once completed, and it’s going to take a while, the system will be more efficient. That should be helpful in terms of customers’ bills.”

In the winter of 2013-14 following passage of that law, Peoples’ natural gas cost, which by law is passed along to consumers at no markup, was 74 percent higher than during this past winter. So Klappa’s comment effectively stated that gas costs are unusually low, something that can change and over which the utility has no control.

In its emailed statement, Peoples also pointed to an engineering study recently commissioned by the ICC that it says underscores the need to continue the unprecedented capital spending. “A recent independent engineering study is the latest validation of the urgency and pace of the (infrastructure program),” Peoples said. “Among other findings, it revealed that 80 percent of our system has 15 years or less remaining useful life. We must continue.”

Utility critics have said Peoples isn’t prioritizing pipes in most need of replacing. If it did, it could reduce the costs while also addressing safety concerns, they say.