What’s at stake in the Peoples Gas rate case rehearing

On Monday, Illinois PIRG and other parties filed final briefs in the Peoples Gas rate case rehearing. The brief is our opportunity to reply to the draft decision written by an administrative law judge last week. We expect a final decision from utility regulators at the Illinois Commerce Commission on Thursday, May 30.

Here’s what’s at stake in the rehearing. If the Commission approves the proposed order, it will mean:

• A $7.9 million rate hike, on top of the record breaking $303 million rate hike approved last November.
• Restoring more than half of Peoples Gas’ 2024 budget for the troubled pipe replacement program (the System Modernization Program, or SMP), despite the pause the Commission placed on the SMP. 
• Affirming and allowing Peoples Gas to charge customers for problematic “emergency” work that does not address actual emergencies, and for other problematic SMP sub-programs, despite an in-progress investigation into the SMP. 

The Commission granted the rehearing despite Peoples Gas’ own failure to present relevant evidence in the underlying rate case

When the Commission decided the Peoples Gas rate case in November 2023, it found that Peoples Gas had failed to adequately justify the SMP. Citing concerns over SMP cost overruns and evidence that the program is not effectively reducing risks posed by aging iron pipes, the Commission paused the SMP, zeroed out its 2024 budget, and initiated a formal investigation into the program. 

After the Commission rejected an emergency motion from Peoples Gas, the utility filed a more procedurally appropriate petition for rehearing. The Commission granted a rehearing with a limited scope. At issue in the rehearing are three questions:

• To what extent is emergency work part of the SMP?
• What if any work initiated before the pause should be allowed to be completed in 2024?
• Should customer bills go up  to cover this emergency work and SMP “work-in-progress.”

In granting the rehearing, Commission Chair Doug Scott commented that they were granting the rehearing despite the fact that

“Peoples’ petition lacks a statement of proposed additional evidence, if any, and an explanation why such evidence was not previously adduced, as required by the Commission’s rules on rehearing,”

and that the

“Commission’s decision to grant rehearing should not be misconstrued to imply that future withholding of information in dockets will allow any utility to exploit any sort of procedural advantage or simply to get another shot at your case.”

What the rehearing documented

In Peoples Gas initial rehearing filing, it asked to restore $145 million of its $265 million 2024 SMP budget, resulting in a $7.9 million rate hike on top of the $303 million increase that went into effect in December. 

Some of that request was arguably out of scope: instead of proposing a budget for emergency work, Peoples Gas proposed a category it introduced for the first time in the rehearing, so called “Emergency, Safety, and Reliability” or ESR work. Much of the proposed ESR work clearly does not address emergency conditions.

Expert witnesses working on behalf of the Attorney General and City of Chicago pointed out significant problems with the utility’s definition of “emergency” work, describing it as ill-defined and over-inclusive. The testimony from a senior executive at the Chicago Department of Transportation (CDOT) was particularly eye opening, for example:

“Peoples Gas has apparently characterized […] certain infrastructure work as “emergency” work, even though many projects described by [Peoples Gas] as “emergency projects” do not meet CDOT’s definition of, and rules and practices regarding emergency work …  In addition, [Peoples Gas] apparently has avoided compliance with CDOT’s requirements regarding prior review and approval of construction work in the public way. Without the [Division of Infrastructure Management]’s prior knowledge or permission […] [Peoples Gas] has performed significant non-emergency construction projects (as defined in CDOT’s Rules), including installing new facilities in the public way, without the required [Office of Underground Coordination] prior review and approval.”

Illinois PIRG and the Attorney General’s witness also identified problems with “work in progress” projects, including multiple projects that Peoples Gas started after the Commission ordered pause. Other projects that were significantly expanded compared to how Peoples Gas presented them just months earlier in the original rate case. 

Illinois PIRG’s recommendations to the Commission

All parties agree that Peoples Gas is legally required to immediately address bona fide emergencies. We all also agree any project wherein Peoples Gas has already dug up city streets, that project should be completed and the street restored. 

But the evidence in the rehearing raises significant questions about the both ESR work and work in progress. Therefore our recommendations include:

• Deny the $7.9M rate hike request. Rather than allowing Peoples Gas to charge customers for 2024 SMP work now, the utility should have to justify rate increases related to its 2024 SMP work when it files its next rate case.
• While the investigation is ongoing, restrict Peoples Gas’ “ESR” work to bona fide emergencies and limited other circumstances, for example, work required by the City of Chicago. 
• Require more reporting by Peoples Gas to better document its work in progress projects, allowing the Commission to evaluate it in the next rate case.