The Illinois Commerce Commission disallowed funding and paused the multibillion-dollar Peoples Gas pipeline replacement program Thursday pending a new investigation into the best approach to modernization of the century-old underground infrastructure.
The decision pulls $265 million of money earmarked to continue the long-running System Modernization Program out of the 2024 budget for Peoples Gas, but does not relieve the utility of its responsibility to identify and repair leaking pipes that may pose a danger across the city.
“The company offered inadequate record evidence for this level of spending to prudently accomplish SMP’s primary objective, which according to the record is to replace all cast iron and ductile iron pipeline,” said Doug Scott, chairman of the ICC, which regulates utilities in the state. The ruling does not remove any funding “related to emergency response to leaks, pipe breaks or other critically important safety measures,” he said.
The ICC also approved smaller-than-requested rate increases next year for Peoples Gas, North Shore Gas and Nicor Gas at Thursday’s meeting.
Peoples Gas had requested a record $402 million rate increase. The ICC cut the increase by $101 million, or 25%.
“We will fully review the final order to determine its impact on our customers and operations,” Peoples Gas spokesperson David Schwartz said in a statement Thursday. “We look forward to actively participating in future proceedings and demonstrating how our energy delivery system is critical to Chicago’s clean energy future. We are pleased the Commission shares our concern about safety.”
The ICC reduced a $17 million rate hike request from North Shore Gas by nearly $6 million, or roughly 34%. North Shore Gas has 164,000 customers in the north suburbs. Both Peoples and North Shore are owned by Milwaukee-based WEC Energy Group.
A $320 million rate increase request from Nicor Gas was cut by nearly $97 million, or about 30%. Naperville-based Nicor has 2.3 million customers in suburban Chicago and across northern Illinois.
Consumer advocates cheered the pause of the pipeline replacement program as a victory for more than 884,000 Peoples Gas customers in Chicago.
“I think it’s incredibly good news for Chicagoans,” said Abe Scarr, director of Illinois PIRG, a nonprofit consumer advocacy organization. “The commission is reining in the program, holding it accountable and through this investigation hopefully we’ll finally have a pipe replacement program in Chicago that doesn’t overcharge customers and is effective in addressing the real risk of leaking pipes in the Peoples Gas system.”
Peoples Gas filed for the $402 million rate hike in January, with more than half of the increase earmarked for its pipeline replacement program after a 10-year legislative surcharge enabling it to pass the costs along to customers expires at the end of this year. While Peoples currently charges customers $15 per month to fund the pipeline program through December, most pay about $50 per month in fixed costs — before using any gas — making it harder for many Chicago residents to afford their heating bills.
The requested increase would have added $11.83 per month to the average residential bill for Peoples Gas customers beginning in January. With the reduction by the ICC, the rate increase will likely be cut in half to about $6 per month for most customers, according to the Citizens Utility Board, a nonprofit Illinois watchdog group.
“We never like to see gas bills go up,” said Jim Chilsen, a CUB spokesperson. “However, we thank the Illinois Commerce Commission for holding the gas utilities accountable and sending a clear message that it’s no longer business as usual in Illinois.”
Launched in 2011, the System Modernization Program to replace 2,000 miles of aging iron pipes below Chicago streets was plagued from the outset by delays and budget overruns. More than a decade later, the pipeline replacement program is 36% complete, and Peoples Gas says it will take until 2040 and cost about $8 billion to finish.
It was originally projected to cost $2.6 billion and take 20 years to complete.
Consumer watchdog groups have long advocated to end the built-in surcharge, putting Peoples’ spending under more regulatory scrutiny and forcing the utility to get infrastructure improvements approved through traditional rate cases, such as the proposal before the ICC Thursday.
The groups have challenged the need for a record increase in the wake of six years of record profits by the utility’s parent company, ballooning customer late fees and a massive infrastructure project that is behind schedule and billions above initial budget projections.
While the city has no authority over the rates charged by Peoples Gas, the Committee on Environmental Protection and Energy held a hearing earlier this month where members grilled Peoples Gas President Torrence Hinton about the need for an increase. On Monday, they sent a letter to the ICC asking it to reject the Peoples’ proposal and “significantly” reduce the requested rate hike, despite the need for ongoing pipeline replacement.
“We do acknowledge the age of pipes in the Peoples Gas system and that replacement work does need to continue,” the aldermen said in the letter. “But the program should be reformed to eliminate mismanagement. We support well-run, cost-efficient pipeline replacement. We oppose reckless, irresponsible spending that gouges customers.”
The pipeline replacement program was initially driven by pressure from the Obama administration to hold utilities across the U.S. accountable for aging infrastructure following a 2010 explosion in San Bruno, California, that killed eight people, injured 58 and destroyed 38 homes. In 2013, Peoples got approval from state lawmakers to do the improvements, funded by customers over 10 years.
The work involves swapping out century-old iron pipes in neighborhoods across the city for plastic ones to boost pressure and cut down on dangerous natural gas leaks.
As part of its decision, the ICC issued an order for a new investigation into the System Modernization Program to begin by February to determine the best method and investment level to replace high-risk pipes.
“The Commission will reexamine how the company’s neighborhood approach prioritizes high-risk pipe retirement,” Scott said, adding Peoples Gas will need to provide more detailed cost information to “determine the reasonableness and prudence of the company’s next iteration of the SMP.”
The ICC also approved a new discount rate Thursday to directly reduce heating costs for low-income gas utility customers across the state. The program will offer monthly credits to qualifying customers beginning in October.