Regulators OK Peoples Gas’ $900 million gas-main replacement budget – Utilities News

on Jan11

10 January 2018 | 4:00 pm

More than two years ago, state utility regulators slammed the brakes on Peoples Gas’ plan to spend $800 million over three years to replace aging gas mains in Chicago. Chairman Brien Sheahan at the time called the Illinois Commerce Commission’s action “a pretty strong rejection of that.”

Fast forward to today and Sheahan’s ICC, with votes provided solely by appointees of Gov. Bruce Rauner, approved a plan for the utility to spend even more—$900 million over three years.

Read more:

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Critics led by Illinois Attorney General Lisa Madigan say the unprecedented capital spending will in just a few years make heating bills unaffordable for an increasingly sizable chunk of Chicago households.

In remarks before the vote, Sheahan acknowledged the spending could create hardship for some ratepayers. He chided Peoples for setting spending goals at the upper limits of what’s allowed by a 2013 law authorizing the program and a monthly gas-bill surcharge to help pay for it.

But he said the ICC’s hands were tied. Staff of the commission believe the law doesn’t give regulators the authority to do anything but perform an after-the-fact check on spending to make sure it’s properly and efficiently managed.

“It is with reluctance I accept their opinion,” Sheahan said from the bench.

He opened the door to the Legislature revisiting the law, saying the commission would “welcome any opportunity to be part of a discussion.”

Of course, there’s great dispute on how strict the law is. Commissioner Miguel del Valle, former Gov. Pat Quinn’s last remaining appointee to the ICC who will depart in about a week, said he didn’t agree with Sheahan. He voted against the plan today.

“The commission should have shown more leadership in this docket,” del Valle said.

The program, he added, “as approved today is unaffordable.”

HOW WE GOT HERE

The statute in question ironically was signed into law by long-time utility foe Quinn. The idea was to help gas utilities more quickly recover the costs of upgrading the infrastructure below the city’s streets. Modeled in part on the 2011 “smart grid” law authorizing Commonwealth Edison’s $2.6 billion grid modernization, the gas law ended up offering fewer consumer protections, at least as interpreted by Rauner’s ICC. ComEd’s law was enacted over Quinn’s veto.

The bottom line is that WEC Energy Group, the Wisconsin-based parent of Peoples, now has the green light to spend liberally in Chicago as part of a company-wide strategy of boosting profits by hiking rates after its utilities in various Midwestern states spend billions on capital needs.

Opponents said they’ll petition the Legislature to amend the law to clarify that the commission can control such spending. But in addition to capital improvements utilities are free spenders when it comes to campaign contributions, and the outlook for such action is murky.

Chicago government officials increasingly have expressed alarm in filings before the ICC about the affordability of heat due to Peoples’ spending. But Mayor Rahm Emanuel hasn’t made it a high-profile issue before today.

“While infrastructure upgrades are important, such upgrades must be done in a way that is aligned with ongoing city infrastructure improvements and at a rate that is affordable to Chicagoans,” Emanuel said in statement. He said he was disappointed in the ICC’s “hasty” decision, which ignored city recommendations to make the program more affordable.

And the mayor added a wrinkle: “Peoples Gas can immediately take action to bring relief to customers by returning its multi-million-dollar corporate tax windfall to Chicago residents and businesses.”

The city estimates the savings to Peoples at more than $25 million.

Peoples has said it’s already begun the process with the ICC of determining how to share the tax savings it’s getting with ratepayers.

HEATING BILL HIKES

Today’s ICC order does impose some additional reporting requirements on the utility and requires the hiring of a pair of consultants to help keep an eye on progress. Sheahan likened that action to similar steps the ICC took in the 1980s when ComEd’s nuclear construction program resulted in similarly huge cost overruns. The comparison was apt; at roughly $8 billion, Peoples’ infrastructure program is on a similar order of magnitude.

It took ComEd ratepayers more than two decades to pay for those nukes. The order sets a goal of completing the pipe replacement no later than 2040. To achieve that, Peoples has said, it will need to spend $300 million a year until then.

That pace of investment will double Chicagoans’ heating bills by 2030, which already exceed $1,000 over the course of a normal winter, according to detailed estimates from Madigan’s office that have gone mainly uncontested by the utility. Rates already have climbed enough that the cost is roughly the same as it was for Chicagoans during the brutal “polar vortex” winter of 2013-14, when the number of households unable to pay their bills soared and gas shutoffs the following spring followed suit.

Peoples has argued that there’s no price on safety and that the breakneck schedule is needed to lower the risk of explosions due to leaks in old pipes.

In a statement, Peoples said the cost of the gas-main program alone adds 2 to 3 percent annually to customer bills. But that doesn’t account for other capital spending, which also is unusually high. Peoples’ $1.5 billion capital budget in Illinois for the next three years is equivalent in inflation-adjusted dollars to all of its capital spending in the 1990s.

“There are multiple variable factors that go into creating a customer’s bill,” the company said. “Too many assumptions would need to be made to accurately predict a customer’s total bill in 10, 15 or 20 years. What the AG provided is pure speculation.” Peoples interpreted the commission’s ruling as affirming the utility’s plan is “the best approach to cost effectively provide a safer, more reliable system for nearly one million Chicago families and businesses.”

Of course, Peoples has been replacing gas mains since the early 1980s and the pace of replacement only has increased marginally despite the massive increase in the budget. Utility executives have pinned some of the blame for the mushrooming costs on city rules and higher standards for street and curb replacement.



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