What’s going on in the investigation into the Peoples Gas pipe replacement program?

The Safety Modernization Program (SMP) is the latest version of the Peoples Gas pipe replacement program.

Roughly one quarter of the gas pipes running under Chicago’s streets are old iron pipes that should have been replaced years ago. Those old iron pipes pose safety risks like gas leaks and explosions. Over the past decade Peoples Gas has spent billions of dollars on the SMP, raising average annual customer bills by hundreds of dollars.

But the program has been plagued by delays and cost-overruns: Peoples Gas said it would replace all of its iron pipes by 2030 and cost $1 billion. Recent estimates suggest the program is actually on track to run through 2048 and cost $11 billion. Even worse: the program isn’t making us safer – a recent study by outside experts found that pipeline failure rates are increasing.

Last year, Peoples Gas filed a record breaking rate hike. The rate proceeding provided the ICC the first opportunity to comprehensively review the SMP since a previous investigation ended in January, 2018. 

The ICC’s final decision cited several concerns with the program. The ICC’s primary concern was that the program was failing to properly prioritize the risks posed by aging iron pipes, in part because Peoples Gas had grouped non-safety “modernization” work along with work focused on the high-risk iron pipes. Here are a few select quotes from the ICC’s decision:

“Given the risks posed by the [iron] pipe remaining within [Peoples Gas’] distribution system, the Commission is concerned with [Peoples Gas’] management of this project overall and its prioritization of pipeline replacement.”

“It appears neighborhood by neighborhood modernization has failed to adequately prioritize the replacement of high-risk pipe”

“The Commission is pausing SMP until the Commission can determine, in a separate proceeding described below, the optimal method to replace high-risk [iron] pipe and the prudent investment level needed to support this effort.”

“Specifically, the Commission must determine whether grouping critical safety measures with modernization measures is the most practical, cost-effective and expedient method to retire all [iron] pipe.”

The ICC’s investigation into the SMP is a formal docketed case, meaning it proceeds similarly to a court case. Various parties, represented by lawyers, participate. Active parties in the investigation include Peoples Gas, ICC staff, the Office of the Illinois Attorney General, the City of Chicago, and Illinois PIRG.

The investigation has two main parts: an evidentiary period that builds a factual record, and a briefing period in which parties make arguments using the record and applicable laws to argue disputed issues. 

The evidentiary record is built by parties exchanging discovery requests and filing expert witness testimony. The evidentiary period ends with a hearing in which parties formally enter their evidence in the record. Parties can also cross-examine one another’s witnesses through the hearing. 

After parties file initial and reply briefs, an administrative law judge issues a draft decision. Parties then respond to that with further briefing, after which the five person Commission makes a final decision. 

This investigation is scheduled to end in January 2025. 

You can learn more about how the ICC operates here.

On October 1st, Peoples Gas, the staff of the ICC, the Office of the Attorney General, the City of Chicago, and Illinois PIRG filed their initial briefs. In briefing, parties use the factual record developed during the evidentiary period and applicable law to argue disputed issues. 

Reply briefs are due October 23rd. 

In briefing, parties use the factual record and the law to make arguments about how the Commission should decide contested issues in the case. 

In reply briefs, parties respond to arguments other parties made in initial briefs.

Illinois PIRG has argued for years that the fundamental problem with the SMP is that it is not reducing risk in any proportion to the billions of dollars spent. A more rigorous approach to risk should mean the program will cost less while achieving greater reductions in safety risk. 

PIRG sponsored a team of experts in the investigation who demonstrated fundamental flaws in the way Peoples Gas has been measuring risk and prioritizing risk reduction – and laid out a rigorous, transparent, probabilistic method Peoples Gas should adopt.

Among other things, a rigorous risk methodology should allow for analysis that ensures Peoples Gas is optimizing its investments. That includes analysis such as cost-benefit analysis (is the benefit of a given investment greater than the cost?) and “risk spend efficiency” (how much risk is mitigated per dollar spent?). These analyses are critical to ensure Peoples Gas does not spend billions of dollars more on a failing program.

Peoples Gas is in the middle of a long-overdue transition to a new risk methodology. This is a move in the right direction, but it complicates the investigation as the Commission and parties to the case don’t have a full view of the new methodology yet. Peoples Gas claims the new methodology will be operational by the end of 2024, one month before the investigation concludes. 

In their rebuttal testimony, Illinois PIRG witnesses described three problems with Peoples Gas new approach:

1. Peoples Gas has stated that it will not perform cost benefit analysis of proposed risk mitigation investments. As our witnesses stated, “It is untenable for PGL to propose spending billions of dollars of ratepayer money without determining whether such expenditures are cost-effective and prudent.”
2. The new “JANA” methodology is not transparent – Peoples Gas refused to answer specific questions about its methodology when asked by Illinois PIRG and the City of Chicago. As our witnesses stated: “The lack of transparency means that outsiders cannot reproduce and verify the model results. Instead, the model effectively becomes a “black box” whose reasonableness cannot be evaluated independently.”
3. Finally, to the extent they have been able to review the JANA methodology, our witnesses are concerned it suffers from errors, meaning Peoples Gas “will likely misspend ratepayer monies on inefficient mitigations.”

While Illinois PIRG is the only intervening party with risk experts, experts from the City of Chicago and Attorney General’s office also offered testimony underlining that any risk methodology must be transparent. As the Attorney General’s witnesses wrote: “The final product should be created with transparency and have the ability to withstand Commission and public scrutiny.”

One reason the SMP has failed to cost-effectively address risky pipes is that Peoples Gas has mixed together risk-reduction work with broader “system modernization” work. 

What is “system modernization”? In this context, it means a change in the pressure of gas as it moves through the pipes from “low” to “medium.” 

Before this investigation, Peoples Gas only provided the most high level and cursory justifications for pursuing this pressure change. The investigation has forced Peoples Gas to provide much more justification, and it is attempting to argue that low-pressure gas systems are inherently less safe than medium-pressure systems. 

The witnesses from both the Attorney General’s office and City of Chicago did a great job in rebuttal testimony debunking this line of argument. 

The witness for the Attorney General’s office, who are gas engineers with decades of industry experience, methodically evaluated Peoples Gas’ claims that low-surre systems are inherently less safe. They found that many of Peoples Gas’ claims “misconstrued” or “mischaracterized” the sources they cite. Other claims were “out of context and irrelevant.” 

The City of Chicago witness helpfully dug into data analysis presented by Peoples Gas, showing the analysis “skewed” the presentation of data to support its safety claims about low pressure. 

Illinois PIRG has long argued that pressure work should be separated from risk reduction work, and that Peoples Gas has never justified its goal of a system-wide change in pressure. 

As the City of Chicago witness wrote, the Commission should not make “forever and for always” decisions about the SMP in this investigation. 

For one, until Peoples Gas implements a valid risk methodology, it’s impossible to make the best decisions about program priorities, budgets, timelines, etc. Second, the policy landscape is changing rapidly. For example the ICC is currently holding workshops on the Future of Gas and more stringent federal regulations on leak detection and repair are expected soon. The SMP will be forced to change and adapt over time. 

There is broad alignment between Illinois PIRG, the Attorney General’s office, City of Chicago, and ICC staff that the Commission should exercise more robust ongoing oversight of the program going forward. And while details differ, witnesses for Illinois PIRG, the Attorney General’s office, and City of Chicago all recommend a roughly two year interim period after which the Commission should return and make longer term decisions about the future of the program.