Cut with ‘an axe’: Watchdogs, AG call for massive cuts to Peoples Gas rate request

CHICAGO — Utility watchdog groups and consumer advocates urged regulators on Wednesday to “take an axe, not a knife” to the $205 million rate hike requested by Peoples Gas earlier this year.

While the watchdogs called on regulators to slash $137 million, or roughly two-thirds of the request, the attorney general’s office went further, calling not only for the entire request to be rejected, but for the company to return $4 million to customers.

“Chicago gas customers have for years borne the burden of the utility’s wasteful spending, serial rate hikes, and record profits,” Citizens Utility Board Executive Director Sarah Moskowitz said. “Our expert testimony shows that Peoples Gas is determined to continue this pattern unchecked, despite multiple ICC rulings ordering it to rein in reckless spending.”

A key driver of the requested spending is the company’s pipe retirement program, which seeks to retire over 1,000 miles of old iron pipes from Chicago’s heating system by 2035, as mandated by the Illinois Commerce Commission.

The request, if approved in full by the ICC, would add roughly $10-11 to monthly gas bills for typical residential customers in Chicago starting in 2027.

The flurry of testimony from watchdog groups and the AG’s office came the same day as Scott Lauber, chief executive officer of Peoples Gas’ parent company WEC Energy Group, told investors in a quarterly earnings call that the utility would likely begin to file rate hike requests on an annual basis, rather than every two or three years.

Peoples Gas spokesperson David Schwartz said that Lauber’s comments are consistent with what the company has projected is needed to complete the pipe retirement work.

“With the ICC’s order to conduct complex, large-scale construction on a significantly shortened timeline, we have always said additional investment would be needed across multiple years as construction ramps up to meet the deadline,” Schwartz said.

He said the work is “critical to ensuring the ongoing safety and reliability of the system,” adding that the company is taking a new approach to the work, as directed by the ICC.

Watchdog recommendations

Chicago home heating bills are currently lower than those in other major U.S. cities, according to the utility, and the company expects that to continue with the request.

But expert testimony filed on Tuesday from the utility watchdogs proposed major spending cuts, including the full $38.8 million linked to the pipe modernization project.

Witnesses for Illinois PIRG (Public Interest Research Group) argued Peoples Gas had failed to meet major transparency requirements set by the ICC for the program and had failed to consider non-pipeline alternatives.

Read more: Peoples Gas files $202 million rate increase request with Illinois regulatory body | ‘A hardship’: Peoples Gas customers rally against requested rate hike

As a result, PIRG witnesses called on the ICC to require Peoples Gas to implement a plan consistent with the ordered reforms, and to prohibit the company from charging customers for the work until such a plan was implemented.

“Instead of putting safety first, Peoples Gas is brazenly attempting to stick Chicago with a $15 billion tab for unnecessary, polluting fossil fuel infrastructure” said Illinois PIRG Director Abe Scarr. “Our expert testimony documents how cost-effective alternatives can deliver safer, cleaner energy for Chicago. The Commission should reject Peoples Gas’ proposal and enforce the reforms it ordered last year.”

In addition to the costs related to the pipe retirement program, witnesses for CUB called for a $42.8 million reduction in return on equity and a $14.4 million reduction in compensation for corporate executives.

Peoples Gas requested a return on equity of 10.1%, up from the current rate of 9.38% approved by the commission.  Advocates, the AG’s office and ICC staff all recommended lower rates, ranging from 8.9% to 9.48%.

“All the different witnesses come at this from slightly different angles, but we’re all united in that that Peoples Gas profit rate for shareholders was wildly excessive,” CUB spokesman Jim Chilsen told reporters during a Wednesday briefing.

Schwartz said the company is reviewing the filings, but that “a significant reduction in funding level would affect how quickly the work can be done, or whether the work can be done at all.”

However, Scarr said the company is required to maintain the system, regardless of funding approved by the ICC.

“They have a legal responsibility, (an) obligation to keep a safe system, and just because they can’t justify their planned approach does not relieve them of that obligation,” Scarr said.

Alternate approaches

Advocates argued in their testimony that Peoples Gas had not done enough to consider alternatives to replacement, such as pipe repair or non-pipeline alternatives.

Expert witness Sol DeLeon filed testimony for Illinois PIRG, estimating that the rate request as proposed could raise customer bills to an annual average of $581 by 2035, ultimately costing customers $15.2 billion through 2070.

DeLeon is an energy consultant with Synapse Energy Economics, Inc. and former project manager at a Washington, D.C.-based natural gas utility.

His estimate assumed a replacement-only approach to pipe retirement for all 1,020 miles of pipes under 36 inches in diameter mandated for retirement by the end of 2034.

A traditional pipe retirement approach requires digging up pipes to remove and replace them.

An alternative approach, called relining, involves sealing the pipes from within, using a small robot, interior fluid coating or other technologies. That means accessing pipes from existing entry points, which advocates say is less disruptive and less expensive than digging up streets.

DeLeon created a scenario in which the company would use pipe relining to retire pipes with a diameter over 8 inches, about 290 miles of the total. That scenario, DeLeon estimated, would save customers over $2 billion.

Though it’s not the exact outcome advocates want— they say it’s still too expensive — they consider the example illustrative of the kind of cost-benefit analyses Peoples Gas should be doing to identify more cost-effective solutions.

Risk analysis

Early last year, the commission ordered the pause of a previous version of the pipe modernization work, effectively throwing out the approach and sending Peoples Gas back to the drawing board following a yearlong ICC investigation.

The system modernization plan, as it was then called, was widely criticized for mismanagement and failure to prioritize the most at-risk pipes, leading to delays and budget shortfalls.

Peoples Gas has since launched the pipe retirement program, which uses a new statistical model to identify the most at-risk pipes, though consumer advocates say the company has not been transparent about how that model works.

“One fundamental problem is they have refused repeatedly over several years to allow our experts to examine the data inputs and the mathematical calculations they’re using,” Scarr said. “This is basically just a way for Peoples Gas to pretend that they’re doing sophisticated risk analysis, but really just default to what they want to do, which is to replace all the pipes, because that’s most profitable.”

Unprecedented regulatory environment

The current request came just three years after regulators approved a $303 million rate hike for the company in 2023, the largest in state history.

But in recent years, the ICC has pushed the utilities to justify their costs more directly, slashing requested rate hikes in 2023 and rejecting over 40% of the spending requested by Ameren Illinois and Nicor Gas late last year.

Whether commissioners would go so far as to cut rates as recommended by the AG is an outstanding question; it has been over a decade since the ICC has flipped a gas utility rate increase request to instead cut rates, and never for a request so large.

According to rate case data published on the ICC website, past instances include an $8.8 million request in which the commission ultimately ordered a $9.2 million decrease, and a $24.9 million request that the commission ultimately ruled be a $14.6 million decrease.

Each of those cases were filed in 2009 by former Ameren Illinois subsidiaries at a magnitude much smaller than the $205 million request now on the table for Peoples Gas.

The ICC is expected to rule on the case in November, giving commission members around six months to consider the arguments made by consumer advocates.

In the meantime, Peoples Gas will have the opportunity to file rebuttal testimony, and other parties will continue to refine final positions for the commission’s review.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.