Last year, utility regulators at the Illinois Commerce Commission finally held Peoples Gas and its failing pipe replacement program accountable. Not only did regulators launch a yearslong investigation into the program, but they paused it as well, finding the status quo unacceptable.
With the investigation scheduled to conclude in January, the ICC is now considering a draft decision written by two administrative law judges. Unfortunately, the proposed order would not only restore the unacceptable status quo, but it also would make it worse by throwing more of our money at the problem. That would lead to a decade of rate increases far greater than last year’s record-breaking $305 million Peoples Gas rate hike.
The ICC can’t allow that to happen. Rather, it must stay the course on reform and overhaul the program to cost less and actually fix unsafe pipes.
The problems with what Peoples Gas calls the “Safety Modernization Program,” or SMP, are well documented. When Peoples Gas first sought approval for the SMP in 2007, it said it would replace all of its iron pipes by 2030 at a cost of $1.4 billion. Recent estimates suggest the program is actually on track to run through 2049 and cost $12.8 billion to complete — on top of billions of dollars already spent.
Peoples Gas claims the approximately 1,100 miles of aging iron pipes under the streets of Chicago pose an “imminent safety risk.” This includes risks of gas leaks and explosions that could cause property damage, injury and death. The vast sums of money that Peoples Gas has already spent on the SMP were supposed to mitigate this risk, but multiple outside reviews found that indicators of risk, such as pipeline failure rates, have not declined.
The program’s delays, cost overruns and failures to make us safer flow from a common source: The true goal of the SMP is to expand Peoples Gas’ system and entrench its profits, not to protect public safety and promote the public interest.
What do I mean? Peoples Gas has designed the SMP to convert its system to deliver larger volumes of methane gas to customers by sending gas through its pipes at higher pressure. As a result, the SMP is not only replacing its 1,100 remaining miles of at-risk iron pipes, but it’s also replacing almost 400 additional miles of low-risk, “low-pressure” pipes.
Increasing the size of a multibillion-dollar program by more than a third adds significant costs. Those added costs lead directly to higher home heating bills for customers and higher profits for Peoples Gas. WEC Energy Group, Peoples Gas’ Milwaukee-based corporate parent, regularly tells Wall Street investors and federal financial regulators that the SMP has been the driving force behind six consecutive years of record profits for Peoples Gas.
Historically, utilities and their customers benefited when utilities expanded their infrastructure in a measured way. Utilities could grow profits by investing in and improving their system, while a steady supply of new customers consuming more energy spread costs out and kept bills manageable.
But that mutually beneficial scenario no longer exists. An increasing number of city, state and federal policies support decreasing our reliance on fossil fuels such as methane gas that harm our health and exacerbate climate change. Policies empowering consumers to make their homes more efficient and swap out gas for electric appliances mean Peoples Gas will be delivering less gas in the future. As the costs of aggressive expansion continue to pile up and Peoples Gas has fewer customers using less gas to pay for it, rate hikes will become unsustainable.
Jacking up Chicagoans’ heating bills to pay for an unnecessary expansion of fossil fuel infrastructure is absurd.
Even worse, Peoples Gas’ prioritization of expansion helps explain its repeated failure to make progress on the “imminent safety risk” the SMP is supposed to be addressing. To take one example, after running a flawed annual ranking of neighborhoods by risk, Peoples Gas doesn’t follow its own ranking. Instead, it selects neighborhoods for pipe replacement based on the imperatives of system expansion.
It does not have to be this way. The ICC should tell Peoples Gas to abandon its wasteful and unnecessary system expansion and adopt best practices for measuring risk and optimizing investments, resulting in a program that costs less, actually makes us safer and facilitates the transition to clean energy.
The ICC created this opportunity for reform — now it must take it.
Abraham Scarr is director of the Illinois Public Interest Research Group, better known as PIRG.
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