After a yearlong review, state regulators Thursday gave Peoples Gas the green light to resume its long-running, multibillion-dollar pipeline replacement program, but with a narrowed focus, accelerated timeline and greater accountability.
The order, unanimously approved by the Illinois Commerce Commission, directs the utility to retire the remaining 1,000 miles of aging leak-prone cast iron and ductile pipes running under Chicago by 2035.
A safety monitor will oversee and report on Peoples’ progress annually beginning in 2027, with the threat of civil penalties if the company “fails to comply with the completion deadline,” according to the order.
But the ICC did not sign off on a broader $7.2 billion proposal by Peoples to modernize its entire system by 2040, which included upgrading to medium pressure and moving gas meters outside homes. Instead, the utility will need to prioritize the pipeline replacement and justify the work in its annual rate hearings to recover the costs.
Abe Scarr, director of Illinois PIRG, a nonprofit consumer advocacy organization, hailed the decision as a victory for Peoples Gas customers that will help hold down future rate hikes associated with an infrastructure program that had expanded far beyond its initial mission.
“By refocusing Peoples Gas on cost-effective investments to mitigate safety risks, the ICC has directed Peoples Gas to run a program that costs less, makes us safer, and facilitates the transition to cleaner energy,” Scarr said in a news release.
Consumer groups have long argued that the utility should focus on repairing and replacing the most vulnerable leak-prone pipes, while Peoples has incorporated a broader system upgrade that has taken years longer and cost billions more than originally projected.
In the wake of the decision Thursday, Peoples Gas suggested the ICC order to speed up the process and focus entirely on pipeline replacement may prove more expensive and disruptive in the long run.
“This direction given by the Commission, compared to the prior approach, may necessitate additional cost and more construction sites disrupting streets across city neighborhoods,” Peoples Gas said in a statement.
Peoples Gas has a subterranean network of some 4,600 miles of pipes under the city, including significant stretches of original cast and ductile iron — some dating back to the 1800s — which pose a risk of gas leaks that could lead to an explosion.
Launched in 2011, the Safety (formerly System) Modernization Program to replace the aging iron pipes was projected at inception to cost $2.6 billion and take 20 years to finish. Plagued from the outset by delays and budget overruns, the program has already cost $3.3 billion and is just 38% complete, according to the utility.
About 1,078 miles of the leak-prone cast and ductile iron pipes remain, Peoples Gas spokesperson David Schwartz said Thursday.
Initially funded by a 10-year legislative rider enabling the utility to automatically pass the costs along to customers, the pipeline program was paused by the ICC last year for an investigation to determine the best path forward after the surcharge expired at the end of 2023.
In November, two Illinois Commerce Commission administrative law judges issued a proposed order recommending Peoples Gas resume and finish the work — including the upgrade to medium pressure and meter relocation — by 2035, at a projected additional cost of $7.2 billion.
The recommended plan, which was based on the preferred option suggested by Peoples Gas during the review process, would have put the total price tag of the program at $10.5 billion, with the utility’s 891,000 Chicago customers bearing the cost through their monthly bills.
Some consumer advocates believe the actual price would have been even higher.
In October, the Citizens Utility Board released a Groundwork Data report it commissioned warning that completing the pipeline replacement program would actually cost another $12.8 billion, topping the utility’s projections by more than $5 billion.
The report concluded Peoples Gas would need to impose record-breaking 7% annual rate increases over the next 15 years to cover that cost, effectively doubling delivery charges for its customers.
The long-running replacement program was driven by pressure from the administration of former President Barack Obama to hold utilities across the U.S. accountable for aging pipeline systems following a 2010 explosion in San Bruno, California, that killed eight people, injured 58 and destroyed 38 homes.
But consumer advocates have argued for years that gas pipelines may be obsolete by the time Peoples completes the systemwide infrastructure upgrade, as the shift to electrification and renewable energy sources, such as wind and solar, gain traction.
The new ICC order directs Peoples to retire all old cast iron and ductile pipe under 36 inches in diameter by 2035. During the review process, Peoples said that larger cast iron pipe in the system has a longer remaining life than smaller diameter pipe.
While the order didn’t preclude other system improvements, finding that “moving from a low-pressure to a medium-pressure system can offer improvements in safety and operational efficiency,” it nonetheless directs Peoples to focus on getting the old iron pipes out, and also “declined to prioritize” meter relocation work.
After years of budget overruns, delays and expanding scope, Scarr is hopeful that the refocused pipeline program will finally get the job done for Peoples Gas customers and the city.
“It should be less expensive for customers and get better outcomes,” Scarr told the Tribune.
rchannick@chicagotribune.com
