The parent company of Peoples Gas, WEC, held its quarterly earnings call Tuesday, and faced a question about the future of its failing pipe replacement program. WEC Executive Chairman Gale Klappa’s response highlights one of the ways the program is in desperate need of reform.
For years, we’ve criticized the $11 billion program as mismanaged, failing to address safety risks, driving a growing affordability crisis, and absurd as Chicago plans to transition off the gas system in the coming decades to reduce greenhouse gas emissions.
The state “QIP” law that has facilitated the program and shielded it from meaningful oversight is set to expire at the end 2023. Here is some of how Klappa responded to a question from a Wall Street analyst regarding the future of the pipe replacement program:
“… the work needs to continue whether it’s through a rider or whether it’s through a rate case with a forward-looking test period, the work needs to continue. And as you remember, the [Illinois] Commerce Commission asked us to have an independent engineering study done more than 80% in that study, which was extensive, and it took over a year to complete by an independent engineering firm. That firm found that more than 80% of the remaining pipes under the city of Chicago have a useful life left of less than 15 years. So the work must go on, we’re on target with it, and we’ll just continue to work in the process as we move into next year.”
This statement mischaracterizes the findings of the 2020 engineering study (among other things). That study, which we critiqued at the time as seriously flawed, found that 83% of iron pipes, the highest risk material, had an average remaining life of less than 15 years.
These two differences are significant:
- At the end of 2021, the Peoples Gas system had 4,634 miles of gas mains – 83% of that would be 3,714 miles. At that time the Peoples Gas system had 1,198 miles of iron mains – 83% of that is 994 miles, a difference of over 2,700 miles of pipe.
- The average remaining life of pipes is clearly different from the maximum remaining life of the pipes. If it’s the average remaining life, it would be wise to replace or repair a majority of the at-risk pipes in the next 15 years, with a focus on those most at-risk. But if it’s the maximum remaining life, you’d want to address them all.
We can cut Klappa some slack as he was speaking off the cuff, but his comments are an example of how Peoples Gas routinely and falsely invokes safety to justify its struggling program.
The pipe replacement program is in fact designed to tackle a much bigger scope of work than just addressing at-risk pipes in its system. Again, at the end of 2021, Peoples Gas had just under 1,200 miles of at-risk iron pipes in its system — but the pipe replacement program had plans to replace more than 1,600 miles of pipe. That’s because the program is focused on overhauling the entire system from low to medium pressure rather than targeting the most at-risk pipes for repair or replacement.
We’re hopeful that the “QIP” law will expire as planned at the end of next year. That alone won’t fix the problems with the Peoples Gas pipe replacement program, but it will give regulators the opportunity to restore much-needed oversight and accountability.