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New report details multiple critical failures of the Peoples Gas pipe replacement program

For Immediate Release

Illinois PIRG Education Fund has released a new report, Tragedy of Errors, detailing multiple critical failures of the Peoples Gas pipe replacement program, and the failure of state policy makers to hold the utility company accountable on behalf of Chicago gas customers.

The report places the program notorious for cost overruns and management problems in historical context. It also documents how the program fails to prioritize public safety, suffers from chronic mismanagement, makes it hard for Chicagoans to afford their bills, and offers dubious value as climate scientists recommend shifting away from heating buildings with fossil fuels such as gas. The report further explores how the Illinois Commerce Commission has failed to hold Peoples Gas accountable despite having multiple opportunities to do so.

“Peoples Gas is failing to prioritize public safety with its poorly-executed pipe replacement program,” said Illinois PIRG Education Fund Director and report co-author Abraham Scarr. “Instead, it is overhauling its entire system, busting its budget, and leaving customers with the bill.”

The report shows how the Peoples Gas “System Modernization Program” prioritizes upgrading its entire system to medium pressure over systematically removing the most at risk pipes from its system. As a result, leak rates have not declined in proportion to the billions of dollars that Peoples Gas has spent on pipe replacement in recent years.

The report further lays out how Peoples Gas has failed to properly fix chronic management problems documented in a 2015 audit report by the Liberty Consulting Group. For example, program cost estimates grew from $1.4 billion to as much as $11 billion between 2007 and 2015, yet Peoples Gas still has not put forth a credible, official cost estimate, a key recommendation made by Liberty. Also contrary to Liberty’s recommendations, Peoples Gas has also not adopted a fixed end date and long-term schedule of work, instead recreating a “rolling” three-year plan every year. Peoples Gas consistently falls short of annual work targets while spending more than budgeted per unit of work.

Despite these well-documented problems, the Illinois Commerce Commission ended a two-year investigation of the program in January 2018 without forcing reforms.

“The Commission excluded necessary expertise from its investigation,” said Jeff Orcutt, President of Chapman Energy Strategies, report co-author, and former Policy Adviser to then-Commissioner Miguel del Valle during the years of the Liberty Audit and Commission Investigation. “The investigation did not even reach conclusions on the questions it set out to answer and wrongly claimed its hands were tied by the state legislature.”

The massive project is driving up customers’ bills. Average residential customers paid more than $75 for the program in 2018 out of a total annual bill of $1,219. If the program continues on its current pace, customers could be paying ten times that by 2040, creating financial hardships for hundreds of thousands of Peoples Gas customers. In 2018, Peoples Gas sent disconnection notices to 15 percent of Chicago households.

“Families in Chicago cannot afford and should not have to pay for this flawed program,” said State Representative Sonya Harper, who introduced House Bill 3044 to rescind the law that allows Peoples Gas to use a special bill rider to recover program costs. “I call on my colleagues to join me in protecting Chicago gas customers.”

"The new report from Illinois PIRG Education Fund is a wake-up call about the Peoples Gas pipe replacement program,” said State Representative Will Guzzardi, a bill co-sponsor. “The misplaced priorities, programmatic failures, and excessive costs of this program require meaningful oversight. I continue to believe the company should no longer receive a blank check from ratepayers to fund the program, and instead should be subject to the typical rate review process."

In April, a Chicago City Council committee passed a resolution, sponsored by Alderman George Cardenas, calling on Gov. J.B. Pritzker and other state leaders to do more to reform the program. Advocates, including AARP Illinois, CUB Illinois, and our sister organization Illinois PIRG are calling on local and state policy makers to take action now to protect Chicago gas customers.

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