With pending $402 million rate hike, report shows Peoples Gas again failed to hit annual pipe replacement goals

Consumer advocates call on regulators to rein in rate hike, reform pipe replacement program

The Peoples Gas pipe replacement program failed to meet its pipe retirement goal for the 20th consecutive quarter, according to a new report filed Tuesday by Peoples Gas to the Illinois Commerce Commission. The overall program cost to retire each mile of pipe was also over budget for the year, as it has been every year since quarterly reporting began in 2018. Despite this, Peoples Gas is asking regulators to approve a record-breaking $402 million rate hike, and to allow the struggling pipe replacement program to proceed without reform.

“The time has come to hold Peoples Gas and its failing pipe replacement program accountable,” said Illinois PIRG Education Fund Director Abe Scarr. “Rather than approving the largest gas utility rate hike in Illinois history, the Illinois Commerce Commission should take this opportunity to limit the rate increase and rein in the out-of-control utility spending driving up gas bills in Chicago.”

For years, Chicagoans have paid for the pipe replacement program through a surcharge on customer bills, known as “QIP.” The surcharge cost the average Peoples Gas customer more than $16 per month during the fourth quarter of 2022. When approving the surcharge in 2013, legislators were told that Peoples Gas customers would pay a $1.14 monthly surcharge. In January, Peoples Gas announced it would not seek legislative extension of the QIP law, a victory for a coalition of 50 organizations that have called for its end — and the constituencies they represent. 

Separate reports released Tuesday showed Peoples Gas customers were collectively more than $100 million behind on their bills in January. According to the report, 19% of Peoples Gas customers were behind on their bills.

“AARP Illinois has heard from hundreds of our members about how these extraordinarily high gas bills are impacting them, many of whom are on fixed incomes and fear they’ll be forced out of their homes if they can’t pay,” said Al Hollenbeck, AARP Illinois State President. “We’re vehemently opposed to rate hikes and additional charges that threaten the quality of life of hundreds of thousands of older adults in Chicago.”

Rather than attempt to extend the QIP law and the bill surcharge, Peoples Gas is asking regulators to allow it to charge customers for the pipe replacement program through delivery charges, and to not take any action to reform the program.

The pipe replacement program has struggled since Peoples Gas first accelerated work in 2011. Alarmed by significant problems with the program out of the gate, Illinois Commerce Commission staff recommended an outside audit in 2012, commenting, “There is no evidence in this case that Peoples can or will solve its [pipe replacement program] problems.” 

That audit concluded that Peoples Gas management did not have a handle on overall program costs, duration, or why leak rates had not fallen in proportion to the amount of money spent on the program. A 2020 engineering study also found the pipe replacement program was failing to achieve its public safety purpose of rapidly replacing pipes at risk of failure. The study concluded that the program “has not coincided with a noticeable reduction in pipeline failure rates — particularly in the last decade.”

The last time the Commission evaluated the program was in a two-year investigation ending in January 2018. At the time, regulators concluded the QIP law did not allow the Commission to order changes to the program. With the QIP law ending this year, the Commission now has the opportunity to enact reforms

Despite this clear record of failure, Peoples Gas is reaping record profits from the program. By the end of the third quarter in 2022, Peoples Gas had already made $171 million in profits, more than it made over the entire year in 2019, which was a record at the time. In its third-quarter report to the Securities and Exchange Commission, parent company WEC once again credited the pipe replacement program for driving increased profits. WEC cited a $6.2 million increase in revenue attributable to the program compared to the same quarter last year. 

Illinois PIRG Education Fund has argued for years that the program is failing to reduce system risk in proportion to the billions of dollars Peoples Gas is spending because Peoples Gas is prioritizing an overhaul of its system from low-pressure pipes to medium-pressure pipes over replacing at-risk pipes. Access Illinois PIRG Education Fund’s detailed report on the program’s “tragedy of errors” at https://pirg.org/illinois/resources/tragedy-of-errors/