Struggling Peoples Gas pipe program once again over budget, behind schedule

Increasing percentage of heating bills coming from pipe replacement program

Illinois PIRG Education Fund

As its long-troubled pipe replacement program comes under increased scrutiny from the Chicago City Council, Peoples Gas filed its first 2019 quarterly program report to the Illinois Commerce Commission Wednesday. It shows that the program is once again over budget and behind schedule. Adding insult to injury, at least 7 percent of the average March residential customer bill is going toward pipe replacement work.

“The Peoples Gas pipe replacement program is a poorly designed, mismanaged, bad deal for Chicago,” said Illinois PIRG Education Fund Director Abe Scarr. “For a project spanning decades, falling behind schedule or going over budget any one quarter or year is not necessarily a sign of failure, but doing so every quarter, every year, is. Forcing Chicago heating customers to pick up the tab for this program is unacceptable”

Peoples Gas spent $48 million over the first three months of 2019, and retired 7.9 miles of gas mains, or $6 million per mile. In contrast, over the entire year in 2006, Peoples Gas spent $48 million in 2019 inflation-adjusted dollars to retire 47 miles of main, or $1 million per mile.

The average residential Peoples Gas customer has already spent $463 on gas bills in 2019, 5 percent of which went to pay for a bill rider for pipe replacement. In March, the average residential customer paid $7.72 on the rider, seven percent of the total bill, which does not even reflect the full cost customers pay for the program, because a significant amount is already included in “base rates.”

More findings from the report are included at the bottom of this release.

On April 24th, the Chicago City Council Committee on Health and Environmental Protection passed a resolution sponsored by Ald. Cardenas calling on “Governor JB Pritzker and the Illinois General Assembly to restore necessary oversight of this troubled program, and take adequate action to protect Peoples Gas customers and the public interest.” When asked by an investor about the resolution on an April 29th earnings call, Gale Klappa, the CEO of Peoples Gas’ parent company WEC, said he was not “overly concerned” and dismissed Crain’s Chicago Business reporting on the program as “fake news.” In presentations to investors, WEC management regularly tout aggressive capital investment as a key strategy to driving increasing earnings per share.

State Rep. Sonya Harper introduced House Bill 3044 so that Peoples Gas can no longer use a special cost recovery mechanism to charge customers for the program. Similar to legislation filed last year by Rep. Will Guzzardi, the bill was never given a hearing or opportunity for committee vote.

Advocates including Illinois PIRG, AARP Illinois and the Citizens Utility Board, continue to call on decision makers to protect Chicago gas customers and reform this failing program. The Chicago City Council resolution passed by committee in April is expected to be considered by the new City Council this summer.

Further findings from the First Quarter Program Report

• Peoples Gas planned to retire 12.6 miles of gas mains during the quarter, but only retired 7.9 miles.
• Peoples Gas planned to spend $43 million during the quarter, but spent $48 million.
• Peoples Gas retired more miles of gas mains (4.8 miles) through its reactive, more expensive, less efficient “Public Improvement / System Improvement” program than its “Neighborhood Program” (3.1 miles).
• Uncollectibles, the amount Peoples Gas customers are behind on their bills, rose to over $4 million in March.
• Peoples Gas Neighborhood risk rankings, which multiple third parties have critiqued, are only one factor in determining its schedule of work. While work has commenced in the neighborhood with the highest risk ranking (Mayfair), work is not scheduled to begin in the neighborhood with the 3rd highest risk ranking (Old Norwood Park) until 2024.
• Other neighborhoods ranked by Peoples Gas as in the top 10 for risk are scheduled to being work between 2020 and 2026, while work in a neighborhood ranked 36th for risk (Kenwood) is scheduled to begin this year.
• On May 10th, Peoples Gas submitted a supplement to its 2018 year-end report, showing a $6.8 million increase in operations and maintenance costs between 2017 and 2018. In theory, the pipe replacement program should be decreasing O&M costs as older pipes requiring more frequent maintenance are replaced.
• Peoples Gas has still not submitted multiple metrics ordered by the Illinois Commerce Commission in January 2018, including an “Earned Value Metric” and the “cost to complete [the] remaining neighborhoods.”