Utility regulators at the Illinois Commerce Commission will soon deliver a final decision in their year-long investigation of the Peoples Gas pipe replacement program, what Peoples Gas calls the Safety Modernization Program.
The program demands reform: After 15 years and billions of dollars spent, it’s behind schedule, over-budget, and failing to effectively address the urgent safety risks posed by aging, leak-prone iron pipes running under Chicago’s streets. As customers, our bills have increased without getting enough of the critical safety improvements we’ve been paying for.
In the investigation, Peoples Gas has proposed essentially the same approach to the program that the ICC rejected when it launched this investigation in November 2023. This is a pattern. The last time the ICC required new program plans in 2015, Peoples Gas also served up a repackaged status quo. In this investigation and in 2023, when Peoples Gas requested a record-breaking rate hike, Peoples Gas refused to meaningfully consider alternative approaches, despite ICC directives to do so.
This highlights a challenge. Regulators can give utilities rules and direction, but they can’t — and shouldn’t — manage them. That’s the job of utility managers. So what’s a regulator to do with a deeply troubled program and utility managers that repeatedly refuse to meaningfully consider alternative approaches? How can the ICC set Peoples Gas up for success, considering multiple past attempts have failed?
In the investigation’s recently held oral argument, ICC Chair Doug Scott asked Peoples Gas two important questions that point to one potential approach. To paraphrase his questions:
- Regulators have reviewed and approved versions of the program multiple times over the past decade, but problems persist. Why is this time going to be different? and
- Why should regulators treat pipe replacement investments as a special program in the first place? Why not treat it like other critical investments utilities make every day?
Some context helps to show why these simple questions are important.
Enough of the status quo
Peoples Gas has been emphatic that the ICC approve a program plan, preferably its status quo proposal, and in so doing, give the utility “regulatory clarity.” That is, Peoples Gas is demanding assurance that, if it follows a plan approved by regulators, that those regulators will in turn approve big increases to rates and to Peoples Gas profits when the utility asks.
Illinois has tried this approach, through the “QIP” law from 2013-2023, which essentially guaranteed that certain gas utility infrastructure spending and associated profits would be approved. The law led directly to an explosion of gas utility over-investment, record-breaking rate hikes, and record utility profits.
QIP was signed into law by then-Gov. Pat Quinn, who has a well-earned reputation as a utility watchdog, not lapdog. As I understand it, he and his advisors thought that throwing money at Peoples Gas was what it would take for the utility to finally address safety risks posed by its aging, leaky iron pipes.
Unfortunately, the opposite happened. Instead of more rapid pipe replacement or employing cost-effective alternatives to replacement, Peoples Gas spent billions of dollars on expanding and overhauling its entire system. The “regulatory clarity” provided by QIP super-charged incentives to utility managers to spend wastefully rather than spend effectively.
It’s time for the opposite approach. It’s time to stop rewarding repeated failure with record profits. Instead, the ICC should clarify that it will not approve Peoples Gas rate hikes and sustained record profits unless it can demonstrate transparently that its spending cost-effectively addresses the specific safety risks associated with aging leak-prone iron pipes. This should include the consideration of non-replacement alternatives, such as advanced leak detection and repair technologies or targeted pipe retirement paired with energy efficiency and building electrification.
This reform alone won’t fix all the problems with Peoples Gas’ pipe replacement program, but putting a price on failure should help focus the mind of utility management and, hopefully, finally deliver what Chicago deserves: a program that costs less, makes us safer, and facilitates the transition to cleaner energy.
Abraham Scarr is director of Illinois PIRG and the PIRG Energy and Utilities Program Director.
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