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On Friday, Peoples Gas submitted an engineering study to the Illinois Commerce Commission. The study, ordered by the Commission in July 2018 , was the first such study since 2002 despite a Commission order in 2007 that Peoples Gas conduct one every five years.  The study gives Peoples Gas, the Commission, and the public the first empirical look at the condition of the Peoples Gas distribution system in decades. That’s critically important information as Peoples Gas continues to run its troubled pipe replacement program.
Like the last outside expert review of the program, a management audit in 2014-2015, the engineering study found the program is fundamentally failing to accomplish its purported purpose of protecting public safety by replacing aging cast and ductile iron pipes. The study’s first finding includes: the program “has not coincided with a noticeable reduction in pipeline failure rates - particularly in the last decade."  That’s sadly not surprising. As Illinois PIRG Education Fund thoroughly documented in our June report on the program, Peoples Gas is not actually running a program designed to prioritize public safety. Instead of focusing on replacing the most at-risk pipes, Peoples Gas is focused on a much larger and prohibitively-expensive system overhaul.
Unfortunately, the study completely avoids investigating why the program is failing. Instead, it simply recommends that Peoples Gas speed up, working to finish by 2030 instead of 2040. The study also does not consider how Peoples Gas could accomplish such a feat, writing that it did not evaluate “the logistical or financial constraints that could be necessary to support an acceleration.” These critical topics, as well as customer costs, were not included in the scope of work. 
These omissions highlight a fatal flaw of the study: the Commission allowed Peoples Gas to hire and manage the outside engineering firm conducting the study. As the Attorney General and City of Chicago argued and common sense suggests, the Commission itself should have hired and managed the study, not the company, which has an incredible amount on the line. Capital spending is a well-articulated profit strategy for Peoples Gas parent company WEC Energy Group, planning $721 million in Peoples Gas capital spending in 2020 alone.  WEC, a Milwaukee-based energy holding company that owns gas and electric distribution utilities as well as electric generation and transmission assets, is also making gas utilities a bigger part of its business strategy going forward, planning to grow gas distribution’s share of WEC’s overall asset base from 31% at the end of 2018, to 37% by the end of 2024. 
Unfortunately, the decision to allow the self-interested utility to manage this study was one of many made by the Commission under the leadership of then-chairperson Brien Sheahan. These decisions included limiting investigation and attempts to get quality data from Peoples Gas, failing to hold the utility accountable for well-documented management failures and misrepresentations made to the Commission, and ultimately shirking responsibility to use Commission authority to ensure safe, affordable utility service.
Let’s take a quick look at some of the challenges that Peoples Gas kept out of the study.
First, logistical challenges: finishing the pipe replacement program in ten years, especially as currently constructed, would be near-impossible. Between 2012 and 2018, Peoples Gas has replaced 65 miles of pipe per year, on average. To replace the 1,356 miles of cast and ductile iron pipe still in the ground at the end of 2018 by 2030 would mean replacing 123 miles per year. But the challenge is even greater than that, because Peoples Gas is running a much larger program, planning to replace much more than its cast and ductile iron pipes. At the end of 2018, the universe of pipes Peoples Gas plans to replace is almost 500 miles greater, 1801 miles. To replace all of these pipes by 2030 would mean replacing 163 miles per year.
Put another way, Peoples Gas has replaced 2,109 miles of pipe over the past 37 years, and would be endeavoring to replace 1801 miles in 11 years. Such a rapid acceleration of work would be challenging for even the most well-managed utilities. Peoples Gas’ track record here is poor. As we wrote in our June report, when Peoples Gas last attempted a significant acceleration of work in 2011,
...it disregarded the recommendation of its primary contractor to ramp up work over five years, instead choosing “to be aggressive during the first construction year, hoping to build momentum quickly.” Auditors later concluded “the company did not understand, and certainly did not respond fully to, the magnitude of the challenges involved in ramping up to very high levels of production and sustaining them across twenty years.” The accelerated program began failing almost immediately. 
Not only would a sharp acceleration be difficult, Peoples Gas struggles to simply maintain its current pace: since Peoples Gas began filing quarterly performance reports in the beginning of 2018, it has been behind its pipe retirement goals in every single one of the seven quarters reported so far.
Second, the study ignores the impact of such an acceleration on Peoples Gas customers, who are already struggling to afford their bills. In 2018, Peoples Gas sent disconnection notices to 92,000, or 15 percent of, Chicago residential heating customers.  As Peoples Gas has admitted in commission proceedings, “completing the [pipe replacement program] on a shorter time frame will tend to increase the annual bill impact."  Again, because the study did not investigate the topic, we don’t have a clear sense of just how unaffordable home heating would get in Chicago if Peoples Gas attempted to complete its program by 2030, but such an acceleration would unquestionably supercharge the already serious affordability crisis.
So, what initial conclusions can we draw?
First, the study cannot be accepted at face value - the Commission should hire a third-party engineering expert to review the study on its behalf. Peoples Gas’ management of the study and its self-interested limitations of the study’s scope demand outside review and potentially a new, independent study. Any further studies must be grounded in the actual logistical and cost issues of the program-in-question and cannot ignore the real-world constraints that have persistently frustrated Peoples Gas’ attempts at running an effective and proper pipe replacement program for 40 years.
Second, the pipe replacements program must be reformed to properly prioritize public safety. Every outside review of the program has found that it is failing to reduce pipe failures, and, if the engineering conclusions of this study are sound, Peoples Gas needs to replace a significant amount of cast and ductile iron pipe in the next 10-20 years. Protecting public safety requires a program designed to effectively and systematically reduce risk, which the current program is not.
Finally, this study should be the last instance of the overly utility-friendly approach taken by the Commission under the leadership of former Chairperson Briend Sheahan. The Sheahan-led commission failed time and again to fulfil its regulatory responsibility to ensure safe, affordable utility service from Peoples Gas. Chairperson Zalewski should take this opportunity to chart a new course, starting by insisting on quality information on which to make critical decisions impacting the health and well-being of millions of Chicagoans.
1. Final Order, 18-1092
2. Final Order, Appendix A, Condition 23, 06-0540, 5. A 2007 study was conducted, but that study was a paper review of previous studies.
3. Kiefner and Associates, Inc. Final Report, Engineering Study of the Cast Iron and Ductile Iron Pipe System to the Peoples Gas Light and Coke Company, January 28th, 2020, (i).
4. Kiefner and Associates, Inc. Final Report, Engineering Study of the Cast Iron and Ductile Iron Pipe System to the Peoples Gas Light and Coke Company, January 28th, 2020, (ii), and Appendix B, CTR 4 to 5, 8.
5. WEC Energy Group, January 2020 Investor Presentation, slide 35, accessed at https://investor.wecenergygroup.com/investors/presentations/default.aspx
6. Ibid, slide 13.
7. Scarr, Abraham and Orcutt, Jeff, Tragedy of Errors, Illinois PIRG Education Fund and Chapman Energy Strategies, June 2019, 32.
8. Daniels, Steve, Peoples Gas blows the pipe-replacement budget again, Crain’s Chicago Business, 2/27/2019.
9. PGL Ex. 13.0, Debra E. Egelhoff, 16-0376, 3.
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