Year-end report demonstrates ongoing problems with Peoples Gas pipe replacement program

Illinois PIRG Education Fund

A year-end report filed Friday provides additional evidence that the troubled Peoples Gas pipe replacement program is a bad deal for Chicago gas customers. The gas utility’s System Modernization Program (SMP) is delivering less value for more money, making it so increasing numbers of customers can’t afford their gas bills. Furthermore, Peoples Gas is failing to adequately track or report on its program as ordered by the Illinois Commerce Commission (ICC).

The utility, which delivers home heating and cooking gas to Chicago homes and businesses, has known since 1981 of a need to protect public safety by replacing certain aging gas mains that pose an elevated risk for leaking, cracking or breaking. Since then, the company has replaced at-risk pipes with varying degrees of effectiveness.

In response, Illinois PIRG Education Fund Director Abe Scarr released the following statement:

Peoples Gas is spending too much money, too fast, while failing to address the public safety risk at the heart of the program.

In theory, when Peoples Gas began its “accelerated” program in 2011, spending more money each year, it would more rapidly replace at-risk pipes. In reality, instead of targeting at-risk pipes, Peoples Gas is upgrading its entire system.

Third party investigations have found that the program has failed to reduce leak rates. The program, originally projected to cost around $1 billion, could cost as much as $11 billion [1]. There is widespread acknowledgement that because of the program, an increasing number of Chicago households can’t afford essential home heating utility service [2].

Peoples Gas has consistently refused to or failed to adequately track its work and design an effective pipe replacement program based on empirical evidence and science. As a result, Chicago gas customers are paying for a failing and increasingly unaffordable program.

State Representative Sonya Harper has introduced House Bill 3044 so that Peoples Gas can no longer use a special cost recovery mechanism to charge customers for the SMP.

Below are some key facts and statistics from the report.

The year-end report documents:

• Peoples Gas spent $295 million on the SMP in 2018, while only replacing 52 miles of main. In contrast, in 2006, Peoples Gas spent $47 million in inflation-adjusted dollars to replace 47 miles of main.
• Peoples Gas went over-budget on specific pipe replacement work (spending 106 percent of budget) while replacing only 69 percent of the miles of main it planned to replace.
• As of October 2018, 37,826, or one in twenty, residential gas customers were eligible for disconnection.
• In December, the average residential customer paid $7.36 for the SMP. Over the year, the average residential customer paid $74.90 for the program. These amounts will greatly increase.
• Peoples Gas’ reporting on leak rates is confusing and appears to use cherry-picked data to present trends favorable to them.
• Peoples Gas regularly disregards its own neighborhood risk-ranking when scheduling work. In 2018, Peoples Gas worked in neighborhoods it’s ranking system ranked at 17th and 23rd, while not starting on neighborhoods its system ranked 3rd, 4th, 6th and 7th.
• The neighborhood with the reported leakiest pipes, South Loop’s Dearborn Park, with a remarkable 40 leaks per mile, was somehow ranked dead last (202nd) in the neighborhood risk ranking and is not scheduled for work to begin until 2040.
• Peoples Gas completely failed to report using multiple metrics ordered by the ICC in January 2018, including an “Earned Value Metric,” the “cost to complete [the] remaining neighborhoods”, and the “percent decline in annual O&M expense for mains and services”.

[1] AG Exhibit 2.0 – Sebastian Coppola, page 9, accessible at https://icc.illinois.gov/docket/files.aspx?no=16-0376&docId=246908

[2] See for example: https://www.chicagobusiness.com/article/20180720/ISSUE01/180719840/peopl…
and January 10, 2018 Regular Open Meeting Minutes, Chairman’s comments pages 50-51, accessible at https://icc.illinois.gov/meetings/detail.aspx?t=1&id=21200