Peoples Gas settles for $18.5 million over main replacement costs; rate reductions not promised

By Ruth de Jauregui | May 20, 2016

CHICAGO – Peoples Gas customers may find some relief after the gas company settled with the Illinois Attorney General office over an investigation into the undisclosed costs of its gas line replacement program.

Investigations by the lllinois Attorney General's Office and the Citizens Utility Board into the costs of the Accelerated Main Replacement Program resulted in two settlements by Peoples Gas Light and Coke Company, Integrys Energy Group and Integrys' parent company, Wisconsin Energy Corporation Energy Group Inc. 

The settlements, totaling $18.5 million, await approval by the Illinois Commerce Commission.

Peoples implemented the gas line replacement program in 2011. The original estimated cost of replacing more than 2,000 miles of aging gas lines was $2.2 billion. The ICC hired Liberty Consulting Group in 2013 to conduct an audit of AMRP when concerns arose regarding the management and lack of cost controls on the project.

Attorney General Lisa Madigan  

WEC acquired Integrys Energy Group and Peoples Gas in 2015. At the time of the acquisition, the company reportedly estimated the costs of AMRP at $4.5 billion.

Liberty reported its audit results in September 2015, revealing that the estimated costs of AMRP had skyrocketed to $8 billion. At that cost, an expert in the Attorney General's office calculated that the average cost per customer would be nearly $7,700 over the remaining life of the project.

After the start of the project, Peoples and Integry continued to request multiple rate hikes plus increases in the fixed monthly charges. The fixed charges on the gas service rose 199 percent between 2007 and 2014, with a 43 percent increase requested in January 2015. The ICC reduced the 2015 request by 30 percent before approving the $74.8 million rate increase in a 3-1 vote.

Illinois Attorney General Lisa Madigan and CUB filed two petitions with the ICC after Liberty's audit report was submitted, alleging that Peoples withheld the true costs of the project from the ICC in order to facilitate the merger with WEC. The first petition requested an ICC investigation into the possibility that Peoples violated the Public Utilities Act by not informing WEC or the ICC of the true costs of AMRP. The second petition requested an investigation into the restructuring of the project.

“This project is a disaster that raises serious questions about the safety, reliability and affordability of Peoples Gas service,” Madigan said. “The shocking report from the ICC’s auditors is a call to action to completely reexamine the Accelerated Main Replacement Program and immediately address whether Peoples Gas executives misled consumers.”

Madigan announced the two settlements on May 10. The first settlement of $11 million will be used to refund customers and reconnect low-income customers who lost service due to the high costs of energy. The average refund per customer is calculated at approximately $12. The second settlement of $7.5 million provides $4.5 million to the state Public Utility Fund and its General Revenue Fund, and $3 million to the "Share the Warmth" program, which assists low- and fixed-income households with utility bills.

Madigan spokesperson Eileen Boyce said customers will receive the refund as a credit on their monthly bills within 90 days of ICC approval.

By settling the case, Peoples avoided litigation on the matter. The settlement may be included on the May 25 regular open meeting of the ICC for review and possible action; however, the agenda will not be posted until approximately 48 hours before the meeting.

While Peoples' rates are among the highest in the Midwest, the possibility of rate reductions with these settlements has not yet been addressed. In addition, the request to overhaul the project has not been resolved. Liberty's audit called for a complete restructure of the program. The gas pipe replacement program continues even as Madigan's petition to the ICC regarding overhaul of the project is under review. 

“This settlement will benefit Peoples’ customers who were misled about the true cost of this expensive project,” Madigan said. “I will continue to fight to overhaul the program, which still threatens the affordability of Peoples’ gas service. Peoples Gas’ customers already pay some of the highest utility rates in the Midwest, and they should not bear the burden of an unjustified and overpriced program.”

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Organizations in this Story

Citizens Utility Board Illinois Attorney General Peoples Natural Gas Co

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