Draft decision in Peoples Gas investigation perpetuates failing status quo

2035 pipe replacement deadline risks massive rate hikes

A draft decision in the Illinois Commerce Commission (ICC) investigation into the Peoples Gas pipe replacement program would allow the Chicago gas utility to resume its troubled program without implementing meaningful reforms. The proposed order, authored by two Administrative Law Judges, would also require that the program speed up in order to conclude by 2035. To do so, Peoples Gas would likely need to spend an estimated $550 – $650 million per year, more than twice the average level of annual spending that was the primary driver of Peoples Gas’ record breaking rate hike in 2023. 

The final ICC decision will likely be different. In recent high profile proceedings, the five members of the commission have significantly amended proposed orders to take tougher positions towards utilities. 

“The Peoples Gas pipe replacement program prioritizes methane gas system expansion over public safety, driving up our bills and unnecessarily expanding fossil fuel infrastructure without cost-effectively making us safer,” said Illinois PIRG Director Abe Scarr. “Instead of requiring needed reforms, the proposed order throws more of our money at the problem.”

In almost all contested issues in the case, the proposed order sides with Peoples Gas or with commission staff, whose positions in the case are closest to the utility. The proposed order rejects many recommendations from the other active parties in the case, the Office of the Illinois Attorney General, the City of Chicago and Illinois PIRG. 

Expert witnesses working on behalf of Illinois PIRG identified multiple fundamental errors in the methods Peoples Gas has used for years to prioritize unsafe pipes for replacement. These errors help explain how Peoples Gas has spent billions of dollars on the program while failing to achieve its public safety goals. 

Illinois PIRG’s expert witness also identified flaws in the new risk management model Peoples Gas claims it will begin implementing in December. The utility refused to answer basic questions about its new model, therefore PIRG’s experts could not independently verify it followed best practices. Peoples Gas also stated that it will not use the new model to determine the cost-effectiveness of pipe replacement projects. 

Instead of adopting Illinois PIRG’s recommendations to ensure Peoples Gas adopts a valid, transparent risk methodology, the proposed order requires Peoples Gas to convene informal workshops with stakeholders, to conclude within 60 days of completion of the investigation. As Peoples Gas refused to share detailed information about its new risk methodology within this formal investigation, it is unlikely to within an informal workshop process.

“The commission rightly saw the need for reform when it paused the program and ordered an investigation,” said Scarr. “I’m confident the final outcome in this case will include meaningful reforms, leading to a program that costs less, makes us safer, and facilitates the transition to clean energy.”

Illinois PIRG Education Fund’s 2019 report, Tragedy of Errors, documented how Peoples Gas has failed to properly prioritize the replacement of risky iron pipes for over four decades. The modern version of the program, the Safety Modernization Program (SMP), has been beset by delays, cost overruns, and failures to reduce pipeline failure rates. 

Despite this, previous ICC leadership declined to reform the program at the conclusion of a two-year investigation in January 2018, claiming its hands were tied by a state law. Peoples Gas filed a rate case in January 2023 ahead of that state law expiring at the end of 2023. At the conclusion of that proceeding in November 2023, the ICC paused the SMP and initiated a new investigation into the program. A rehearing of the rate case in May 2024 reinforced concerns with the design and management of the SMP.

Parties in the case will file legal briefs in response to the proposed order, and then to reply to other parties’ responses, in December. A final decision is due in January.