Testimony before the House Public Utilities Committee in opposition to House Bill 3115

Chairperson Walsh, Vice Chairperson Delgado, Spokesperson Wheeler, honorable members of the committee: thank you for the opportunity to testify today. My name is Abraham Scarr and I am the Director of Illinois PIRG. Illinois PIRG is a statewide, citizen funded, non-partisan public interest advocacy organization that speaks out for a healthier, safer world in which we’re freer to pursue our own individual well-being and the common good.

Summary

House Bill 3115 is the latest in a series of utility-driven initiatives to legislatively grant utilities overly broad authority to spend massive amounts of money with limited Illinois Commerce Commission (ICC) oversight, driving up customer bills with no guarantees of customer or public benefit. 

This series includes formula rates, which have driven ComEd delivery rates up 37% and is estimated to contribute to record ComEd profits this year. Formula rates have also driven up Ameren Illinois delivery rates by 25%, while falling well short of the customer and public benefits ComEd promised. This series also includes “Rider QIP” which is causing a home heating affordability crisis in Chicago while Peoples Gas also enjoys record profits. Rider QIP is similarly being used by Nicor and Ameren to spend hundreds of millions of dollars a year more than originally planned, mostly on transmission, by pursuing the highest cost method of responding to a federal record keeping request.

HB 3115 includes a specific recipe for unaccountable utility spending of questionable public benefit. For this reason alone, HB 3115 should be rejected.

Further, HB 3115 should be rejected because the potential benefits of using so-called “Renewable Natural Gas” (RNG) in the gas distribution context are dubious. 

Rather than passing this legislation, the General Assembly should initiate a multi-stakeholder investigation into the future of gas distribution and the potential targeted applications of RNG in a decarbonized Illinois economy. 

HB 3115 includes a specific recipe for unaccountable spending without clear public benefit

While it may not appear as such to an untrained eye, HB 3115 includes a specific recipe for allowing hundreds of millions of dollars of annual investment to be easily translated into utility profits and customer bill increases outside of meaningful ICC oversight. The recipe is as follows:

1. A broad definition of categories of qualified investments.
2. Direction that the ICC shall approve cost recovery for qualified investments if the investments can be described as in any way related to extremely broad and vague purposes.
3. An annual rate increase cap. 

This recipe is found in HB 3115 in the following sections:

1. A broad definitions of categories of qualified investments in Section 10: Definitions of “facility,” “low-carbon fuels,” “other low-carbon fuels,” “renewable energy sources,” and “renewable gas” and the application of those definitions in Section 15, subsection (d), including merely the purchase of low-carbon fuels or selling it to retail customers, along with allowances to invest in extending the gas pipeline and distribution system and two catch-all “any other investments” towards meeting the goals laid out in subsection (a) of Section 15.
2. Direction that the ICC shall approve RNG activities and cost recovery:
   – in Section 15, subsection (e) “The Commission shall approve a low-carbon fuels activity” (emphasis added) so long as it meets broad purposes such as reducing any pollutant, replacing any amount of “geologic” gas, or even the alleviation of a local nuisance associated with the emission of odors; and that 
   – in the same subsection, “Investments and costs incurred pursuant to this Section shall be deemed prudent and reasonable” (emphasis added) by the ICC so long as they fit the broad provisions of the Section. Prudence and reasonableness are the two key tests for approving cost recovery.
3. A 2% per year rate impact cap, in Section 15, subsection (h).

Ther are similar provisions currently in place in “Rider QIP” (Section 9-220.3 of the Public Utilities Act) which includes broad categories of qualified investments tied to a broad safety and reliability purpose and a 4% annual rate impact cap. Notably, Section 9-220.3 does not direct the ICC to approve activities and cost recovery as HB 3115 does, though it does include a bill surcharge allowing the utilities to “fully recover” costs (i.e. immediate and automatic recovery), subject to an annual accounting reconciliation.


The presence of an annual rate increase cap would appear a consumer protection, but in practice, per a January 2018 decision by the ICC, it functions in exactly the opposite manner, creating a slush fund of hundreds of millions of dollars per year. In ICC Docket No. 16-0376, an investigation into the Peoples Gas pipe replacement program, the ICC decided that it could not “legally limit Peoples Gas’ maximum periodic recovery of SMP costs under Rider QIP to levels below those authorized by the cap” (Final Order at 157-158) and that it was therefore powerless to regulate qualified activity or investments so long as they fell under the cap. The ICC decided this despite a clear record of project mismanagement, detailed in a highly critical multi-year program audit, and open acknowledgement that the program was causing severe affordability problems for a significant number of Peoples Gas customers. This interpretation of 9-220.3 was reaffirmed in an order approved by the ICC last Thursday, March 18th (ICC Docket No. 19-0721, Final Order at 32-33).

In 2019, Peoples Gas, Nicor, and Ameren spent a combined $858 million under Rider QIP, all while staying under the 4% annual increase cap. For scale, this accounted for 60% of Peoples Gas’ and Ameren’s capital spending that year, and 45% of Nicor’s. 

A 2% annual rate increase would therefore allow at least $429 million in annual spending by the three utilities combined, all under limited ICC oversight. This level of spending, when converted into utility profits and added to customer bills, would compound affordability problems already arising from Rider QIP. For example, as recently reported in Crain’s Chicago Business:

Two out of every 3 households not already on utility-payment assistance in Englewood’s ZIP code were delinquent on their heating bills in January, according to the data. Two of every 5 were late by more than four months. Collectively, past-due totals in that neighborhood alone from those customers approached $5 million, more than $952 for each account on average.

The same data referenced in the article demonstrates that severe affordability problems pre-date the pandemic. 

Such broad authority for utilities to spend massive amounts of money under limited ICC oversight would be bad policy even for the most worthy purpose. ICC oversight exists precisely to ensure customer and public benefit is achieved. It is even worse policy considering the dubious potential benefits of RNG in the gas distribution context.

The potential benefits of using RNG in the gas distribution context are dubious

HB 3115, which I understand to be an initiative of Nicor, Section 5 finds that:

• “(9) Including renewable gas and other low-carbon fuels resources in a natural gas utility’s supply portfolio is a cost effective way to provide beneficial environmental impacts utilizing the natural gas utility infrastructure” and
• “(10) The development of renewable gas and other low-carbon fuels resources serves the public interest and should be encouraged to leverage the natural gas system to reduce greenhouse gas emissions and support a smooth transition to a low-carbon energy economy in Illinois.”

Yet, in a docket currently before the ICC, Nicor has acknowledged that it has not yet determined that these claims are true, but rather seeks to determine whether or not they are true, stating:

[Nicor] seeks to determine whether the development of RNG production facilities in Nicor Gas’ service territory will provide customer benefits, advance environmental goals, create jobs, and/or promote economic development in Northern Illinois. (ICC Docket. No 20-722, CUB-NRDC Cross Ex. 12 at 1)

In the same Docket, an expert witness hired by the Citizens Utility Board and NRDC raises significant questions about the viability of RNG to replace fossil gas in gas distribution in anything more than a de minimis fashion, at high cost, while not necessarily reducing greenhouse gas emissions.

The amount of potential RNG is limited. According to a study conducted by the American Gas Foundation, i.e. an industry study, potential statewide production of RNG is somewhere between 6% and 16% of statewide consumption. This estimate is based on the use of technology that is not projected to make meaningful contributions until after 2030. Based on current technology, the resource potential, according to the industry study, ranges from 2.8% to 4.8% of 2019 statewide consumption.

RNG is expensive. According to the same study, the range of estimated per MMBtu cost in 2019 dollars ranges $7 to $32. In December, fossil gas spot prices cited by the Energy Information Administration were $2.59 per MMBtu.

The greenhouse gas emissions savings from RNG are questionable. RNG reduces greenhouse gas emissions by burning methane that would otherwise be released into the atmosphere. Direct methane emissions are 28 to 36 more potent than the equivalent release of carbon dioxide. However, the greatest potential source for RNG is from landfill sites, most of which already have gas collection in place. While more direct emission reductions may be achieved from other potential RNG sources, such as animal manure, the RNG production potential is much smaller and the costs much higher. 

To be clear, avoiding direct methane emissions is critical, including the emissions from fossil gas extraction, transmission and distribution. But replacing fossil gas in gas distribution systems is very likely not the best application of RNG. It often can and is used at the site of production. Illinois will likely want to reserve RNG for hard to electrify applications, which home heating and cooking are not. Ultimately, simply flaring gas onsite achieves the same greenhouse gas emission reductions as injecting it into the gas distribution system and eventually burning it in someone’s furnace, and flaring can be achieved without spending billions of dollars.

Conclusion

Climate science indicates we should significantly, if not completely, electrify space and water heating by 2050 if we are to meet the greenhouse gas emissions targets our state and nation are committed to through the 2015 Paris climate agreement. We can debate whether it is wise or feasible to completely electrify home heating by 2050, but climate science indicates we must consider it. In this context, potentially spending billions of customer dollars such that gas utilities’ portfolios consist of at least 3% RNG by 2035 would be misguided at best.

In the first legislative session since the revelation of the ComEd bribery scandal, will the General Assembly pass more legislation granting utilities broad authority to spend billions of dollars absent meaningful oversight for projects of questionable customer and public value? It should not. 

Instead of passing HB 3115, the General Assembly, or the ICC on its own initiative, should initiate a multi-stakeholder investigation into the future of gas distribution and the potential targeted applications of RNG in a decarbonized Illinois economy. 

Thank you for the opportunity to testify today. I will be happy to answer any questions the committee may have.