Peoples Gas pipeline program will cost another $12.8 billion to complete, report says

As the Illinois Commerce Commission nears a decision on the fate of the paused Peoples Gas pipeline replacement program following a yearlong review, a study released Tuesday for the Citizens Utility Board warns that completing the work would cost another $12.8 billion — topping recently revised utility projections by more than $5 billion.

Peoples Gas would need to impose record-breaking 7% annual rate increases over the next 15 years to cover that cost, effectively doubling delivery charges for its customers by 2040, the target completion date for the Safety (formerly System) Modernization Program, according to the Groundwork Data report commissioned by CUB.

“Our analysis finds that resuming the SMP at full funding levels puts Peoples Gas on an unsustainable trajectory with respect to revenue requirements and customer rate increases,” the report concluded.

Peoples Gas, which was provided a copy of the report before its release, refuted many of the findings — including the remaining cost — and disagreed with the conclusion that completing the pipeline replacement program was financially untenable for the company and its customers.

At the same time, the utility acknowledged that the projected price tag has gone up by billions of dollars since the program was paused by the ICC last fall.

“Unfortunately, the delay caused by the ICC’s decision to pause the safety work will likely have some cost impacts,” Peoples Gas spokesperson David Schwartz said in a statement.

Groundwork Data is a New York-based consulting firm focused on the transition to clean energy, a government-mandated change that the report said will reduce demand for natural gas before the pipeline project is completed, increasing the cost burden for remaining Peoples customers.

The ICC is expected to issue an order in January on the scope of the pipeline replacement program moving forward, but Tuesday’s report is too late to be filed as part of the proceedings, a CUB spokesperson said.

Launched in 2011, the program to replace 2,000 miles of aging iron pipes below Chicago streets was plagued from the outset by delays and budget overruns. More than a decade later, the project is 38% complete and Peoples Gas says it will take until 2040 to finish — if the ICC approves its resumption.

The pipeline replacement program was originally projected to cost $2.6 billion and take 20 years to complete. Those projections have been upwardly revised several times since Milwaukee-based WEC Energy Group acquired Peoples Gas in 2015.

Peoples Gas has spent $3.3 billion on the pipeline replacement program to date, Schwartz told the Tribune. The utility’s 891,000 Chicago customers have borne that cost.

Last year, Peoples Gas asked for a record $402 million rate hike for 2024, in large part to continue funding the pipeline replacement program after a 10-year legislative surcharge enabling it to automatically pass the costs along to customers expired. The ICC reduced the rate increase and paused the program for the entirety of 2024 to conduct an investigation.

At the time the program was paused, Peoples said it would cost $8 billion to complete, including the $3.3 billion already spent. That was at the low end of an $8 billion to $11 billion range that Peoples had filed with the ICC under the new owners in 2015.

During the review process with the ICC, Peoples Gas revised its projections, pegging its preferred pathway forward at $7.2 billion in additional spending to complete the project. That would put the entire project cost at $10.5 billion over 30 years.

The utility also presented two alternative approaches during the review process, the most expensive of which would cost nearly $13 billion to finish the work.

“Our proposal to restart work — if approved by state regulators — would cost $5.5 billion less than what CUB’s allies proposed, and would keep total costs within the estimate-range we provided to the ICC in 2015,” Schwartz said in a statement.

The Groundwork study said it will take $12.8 billion to complete the work — on top of the $3.3 billion already funneled into the program — with Peoples customers paying the tab through 2040 and potentially beyond.

Jim Chilsen, a spokesperson for Citizens Utility Board, a nonprofit watchdog group, defended the methodology of the Groundwork study, while questioning the credibility of Peoples Gas — at least in regard to its pipeline replacement projections.

“Peoples Gas has dramatically underestimated the cost of this program from day one, and they’ve never been right on their projections,” Chilsen said. “Our analysis is based on sound economic principles and corroborated by history.”

The replacement program was driven by pressure from the administration of former President Barack Obama to hold utilities across the U.S. accountable for aging pipeline systems following a 2010 explosion in San Bruno, California, that killed eight people, injured 58 and destroyed 38 homes.

But consumer advocates have argued for years that gas pipelines may be obsolete by the time Peoples completes the systemwide infrastructure upgrade, as the shift to electrification and renewable energy sources such as wind and solar gain traction.

An administrative law judge is expected to issue a proposed order on Nov. 25, with the commission having the final say on whether and in what form Peoples can resume the pipeline replacement program.

While it is too late to introduce the CUB-commissioned report into the pipeline review process, the consumer advocacy group plans to present it as part of the ICC’s ongoing Future of Gas proceeding, a series of workshops studying issues tied to decarbonization of the state’s gas system.

CUB is also hoping it will play a role in the court of public opinion — before the ICC rules on the pipeline program in January.

“This is the first report to actually detail the financial disaster that could be in store for Peoples Gas customers if the utility isn’t held in check,” Chilsen said. “We look at this report as a warning that the Peoples Gas pipe replacement boondoggle will become an even bigger financial disaster for customers if regulators don’t intervene and rein in the company’s reckless spending.”

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