A ‘regulatory earthquake’

Our campaign to end the $11 billion Peoples Gas pipe replacement boondoggle

Protestors hold signs at a rally outside Peoples Gas headquarters
ICJC | Used by permission

On November 16th the Illinois Commerce Commission zeroed out the $265 million 2024 Peoples Gas pipeline replacement program budget and put the entire program on pause while under formal investigation. I was quoted in the press describing the decision – along with a number of other positive outcomes across three gas utility rate cases – as a regulatory earthquake.” 

Here’s why this was a huge victory for Illinois PIRG and our allies.

Our critique

Peoples Gas is an old utility that has failed to perform proper maintenance. As a result, its pipe system has a large amount of old iron pipes at elevated risk of failing, posing serious public safety risks. Since 2011, the utility has been running an accelerated pipe replacement program. And since 2017, Illinois PIRG has been the program’s most outspoken critic, arguing:

  • The program is mismanaged. Its estimated budget ballooned from $1.4 to up to $11 billion dollars. Our analysis of the program’s most recent progress report found it had failed to hit its pipe replacement goals for the 23rd consecutive quarter. It further showed the program was over-budget for the year to date, as it has been every year. 

A chart showing the program has been over budget every year since 2018 through Q3 2023

  • The program is not achieving its safety objective. Multiple outside expert reviews found the program failing to reduce safety risk in any proportion to the money spent. In our in- depth 2019 report, we identified why: the program is not actually designed to effectively reduce risk. Instead, Peoples Gas is attempting a much larger overhaul of its entire system, prioritizing neighborhood by neighborhood “system modernization” over risk-reduction. 

  • The program is causing widespread affordability problems. Roughly one in five Peoples Gas customers is in debt to the utility. The super-majority of that debt is more than 3 months past due – for many, the problem is chronic and entrenched. These problems are clearly more severe for Peoples Gas customers than they are with any other Illinois utility.
  • The program is absurd in the face of climate change. At its current pace, the program is on track to wrap up around 2048. To hit Chicago and Illinois’ climate targets, we need to stop heating our homes with fossil fuels by 2050.

For years we’ve called on decision makers to reform the program by jettisoning the unnecessary “system modernization” work and instead prioritize effectively mitigating the risk posed by the aging pipes. In its decision, the Commission highlighted how “neighborhood by neighborhood modernization has failed to adequately prioritize the replacement of high-risk pipe.”

Our Campaign

We began working on this issue in January 2017, at the encouragement of the Attorney General’s office, which has consistently been in the trenches fighting to correct the program’s failures and protect Peoples Gas customers. At the time, the Commission was in the middle of a two-year investigation of the pipe replacement program. Unfortunately, the Commission ended that investigation by rubber- stamping the failing status quo. According to the majority of the Commission at the time, a state law, known as “QIP,” tied its hands.

The QIP law effectively pre-approved billions of dollars of wasteful gas utility spending, circumventing normal regulatory oversight and allowing the utilities to raise rates every month through a surcharge on customer bills. When the General Assembly passed the QIP law in 2013, the House bill sponsor told his colleagues that the average monthly cost to a Peoples Gas customer would be $1.14. In September 2023, the average cost was more than $17.

So while we continued to do all we could to bring attention to the failures of the pipe replacement program, we launched a campaign with AARP Illinois and CUB Illinois to end the QIP law ahead of its scheduled December 31, 2023 sunset. 

Press conference on gas utility legislation at CUB IL office

Our work over this period included:

  • Original research and analysis: Our 2019 report is a comprehensive overview of the program and its failings, including historical research showing the company’s failure to run an adequate pipe replacement program going back 40 years. 
    • When Peoples Gas began filing quarterly program reports in 2018, we publicized analysis showing how the program was consistently “over-budget and behind-schedule.” 
    • Since utilities began filing monthly affordability data in September 2021, we crunched the numbers to show how much worse affordability problems are for Peoples Gas customers.

    • We reviewed federal financial reports to document how the QIP law and pipe replacement program delivered 6 consecutive years of record profits to Peoples Gas, and how it turned its affordability problems into a profit center through late fees. 

    • We broadened our research to show how Nicor Gas and Ameren Gas were both spending wastefully under the QIP law. 
  • Media: over the years we helped generate hundreds of news stories and opinion pieces to educate the public and decision makers on the failures of the program, its negative impacts on Chicago, and the urgent need for reform.
  • Coalition building: We built a coalition of 50 organizations calling for an end to QIP. After starting with core partners AARP Illinois and CUB Illinois, we recruited more organizations into leadership positions, including environmental organizations like the Environmental Law and Policy Center and NRDC, and community organizations like COFI / POWER PAC. 
  • Advocacy: We took our campaign to local and state decision makers. We helped pass a resolution calling for action through the Chicago City Council in April 2020. We won the critical support of Gov. Pritzker in August 2020, when he included ending QIP in his list of policy principles for energy legislation. We worked with legislative champions including Representatives Will Guzzardi, Sonya Harper, and Joyce Mason, Senators Vilivalam and Castro and Congresswoman Delia Ramirez. We intervened at the Commission when it considered the final report of a 2021 engineering study of the Peoples Gas system, winning a new reporting requirement.

Despite this, we never made any legislative progress. Peoples Gas, other utilities, and their labor allies were able to bottle up our legislation in committee year after year. In 2022, our fifth year of introducing legislation, the House Public Utilities Committee finally held a subject matter only hearing.

The end of QIP created an opportunity for accountability

Things changed going into 2023. We no longer needed to change the status quo to end the law early. Now, we only had to defend the status quo, allowing the QIP law to sunset as planned at the end of 2023. Here, Gov. Pritzker’s strong support was vital – it was clear he would veto legislation to extend the sunset. Our campaign had also firmly established the narrative that QIP was driving up utility rates, taking a veto-override off the table. 

In January, seeing the writing on the wall, Peoples Gas announced it would not attempt to extend the sunset. Instead, it filed a massive, record breaking rate hike, including carrying forward its pipe replacement program. Nicor Gas and Ameren Gas also filed large rate hikes, and also attempted to continue spending wastefully as QIP had allowed them to do. 

While the onslaught of massive rate hikes was daunting, we knew the end of QIP meant the Commission was positioned to once again exercise robust oversight over the pipe replacement program. We immediately called on the Commission to use the rate case as an opportunity for accountability.

Here is some of what we did this year:

  • We intervened in the 3 rate cases, along with partners Environmental Law and Policy Center, Environmental Defense Fund, and NRDC. Our joint parties made a factual case and legal arguments on a variety of issues, with an emphasis on policies related to the transition off the gas system towards heating our homes with clean energy. We placed significant focus on the Peoples Gas pipe replacement program, drawing heavily from Illinois PIRG’s body of research and analysis, which the Commission repeatedly cited in its decision. 
  • We organized outside of the rate cases. With an appointment in 2022 and three more appointments this year, Gov. Pritzker overhauled the five-person Commission, appointing Commissioners with track records supporting consumer and climate initiatives. We knew the newly constituted Commission would have some sympathy for our arguments, but we did not know how far they would be willing to go. So our strategy was to give the Commission the political space it needed to be as bold as possible. We did so by demonstrating widespread public opposition to the rate hikes and the wasteful spending driving them. Working with partners from our QIP coalition and the Illinois Clean Jobs Coalition, our work included:
    • organizing a 100+ person rally outside Peoples Gas headquarters in March,

    • turning out a steady drumbeat of public commenters at regular Commission meetings throughout the year, 
    • driving turnout to a special public hearing in August secured by AARP Illinois, 
    • flooding an October Commission meeting with so many people that we filled up the hearing room and an overflow room, 

Jordan Hamrick from Illinois PIRG makes a public comment before the Illinois Commerce Commission

    • generating ongoing media highlighting the need for action, and 
    • playing a leading role in a City Council Committee hearing on the Peoples Gas rate hike just one week before the final decision was released.

Together, we won.

The work continues

Within weeks of the decision, Peoples Gas filed a motion to restore more than $134 million of its pipe replacement program budget. And its allies are suggesting that the legislature should overturn the Commission’s decision. Clearly, we will need to defend the gains we made. 

The new investigation into the program begins in February. We’ll use the investigation to argue for a replacement program that cost effectively mitigates risk – and facilitates rather than frustrates the long-term transition off the gas system –through a mix of pipe replacement, repair, and strategic retirement of sections of the gas system paired with electrification.

The Commission will also be holding a “future of gas” proceeding next year. And lingering QIP proceedings at the Commission give us opportunities to win further refunds and rate reductions for Peoples Gas customers.  

But thanks to years of dogged campaigning, the ground has shifted and we have the opportunity to chart a much better path for Illinois gas utility customers.

Topics
Authors

Abe Scarr

State Director, Illinois PIRG; Energy and Utilities Program Director, PIRG

Abe Scarr is the director of Illinois PIRG and is the PIRG Energy and Utilities Program Director. He is a lead advocate in the Illinois Capitol and in the media for stronger consumer protections, utility accountability, and good government. In 2017, Abe led a coalition to pass legislation to implement automatic voter registration in Illinois, winning unanimous support in the Illinois General Assembly for the bill. He has co-authored multiple in-depth reports on Illinois utility policy and leads coalition campaigns to reform the Peoples Gas pipe replacement program. As PIRG's Energy and Utilities Program Director, Abe supports PIRG energy and utility campaigns across the country and leads the national Gas Stoves coalition. He also serves as a board member for the Consumer Federation of America. Abe lives in Chicago, where he enjoys biking, cooking and tending his garden.

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