Illinois utility company Peoples Gas wants to spend more money per year on replacing aging Chicago gas mains for the next two decades than it ever has, even since "accelerating" the massive infrastructure project six years ago.
In a May 10 filing with the Illinois Commerce Commission, Chicago's natural gas utility is proposing average $300 million-a-year budgets from now until all 1,909 miles of remaining old gas mains are updated.
"Peoples Gas has established a target end date of 2035-2040 and set annual investment levels of $300 million, which puts the company on track to complete the program within that 2035-2040 range," wrote Andy Hesselbach, Peoples vice president of construction, in a filing.
Costs have skyrocketed for the project since a 2009 estimate of $2.6 billion, for the Peoples Gas project, which started in 2011 and calls for replacing 2,000 miles of cast and ductile iron pipe with polyethylene pipe by 2030.
The filing, ironically, is in response to the commission's plea in February to do something about the extremely high costs of Peoples' project. The ICC was poised to approve the utility's plan at the time but surprised observers by asking it to come up with ways to do the work more cheaply.
Instead of doing that, Peoples has doubled down and even proposed a somewhat bigger annual budget than it had before.
"We think the commission has been pretty clear that the program needs some changes," said David Kolata, executive director of consumer advocate Citizens Utility Board. "It's disappointing they keep proposing versions of the status quo."
There is no disagreement that Chicago's old gas pipes, some of which date back a century, need replacing. The issue is the rising costs of heating homes and businesses in Chicago as a result of fast-tracking the work and the fact that Peoples is doing it more expensively than other utilities around the country.
The cost of the pipe is one of the "smallest components of the installation [cost]," Tony Radoszewski, president of the Plastics Pipe Institute, a trade group based in Irving, Texas, said earlier this year. Labor, machinery and the cost of rebuilding roads likely play a bigger factor.
Peoples claims in its May 10 filing a $300 million-a-year pace will raise heating bills by 1 to 2 percent each year. Opponents have projected far bigger increases.
WEC Energy Group, the Milwaukee-based company that owns Peoples, has made the high level of capital spending in Chicago a key part of its growth message to Wall Street. It bought the Chicago-based parent of Peoples in 2015 as controversy swirled around the high cost of the program.
But its budget only foresees those costs rising. Over the next four years, Peoples plans to spend $1.2 billion and retire a total of 336 miles of pipe. That comes to $3.57 million per mile, roughly in line with the $3.54 million per mile it achieved in 2015 and well above the $1.92 million per mile in 2016. (Last year was an anomaly, though, because Peoples had an unusually large number of pipes to retire left over from the previous year, Hesselbach said in an interview.)
Peoples isn't the only big-city gas utility replacing old gas mains. Older cities around the country have quickened the pace of updating their aging pipes, which typically are made of materials more prone to leaking than modern materials.
But none of the utilities in cities Peoples cited in its filing — including far larger New York — are performing the work as aggressively or as expensively as Peoples.
New York's Consolidated Edison has spent an average of $139 million annually the past two years and replaced 55 miles per year for an average cost of $2.53 million per mile. That's nearly a third less than Peoples is budgeting for the next four years.
Likewise, Baltimore Gas & Electric spent $87 million in 2015 replacing 40 miles of pipe—a cost of $2.18 million per mile. (Its data for 2016 were not yet available.)
Peoples' submission will touch off responses from other parties in the commission's proceeding, particularly the ICC staff, CUB, the city of Chicago and Illinois Attorney General Lisa Madigan's office.
The commission hopes to reach a decision on the way forward with the project around November. That will be less than a year before the next election, and Gov. Bruce Rauner has appointed four of five of the sitting commissioners including Chairman Brien Sheahan.
It's questionable whether the ICC will want to approve a project that can be painted as a large increase in Chicagoans' heating bills just as winter is starting and election season is in full swing.
WEC Energy executives have said they won't ask the commission for a general rate increase until after the election. But in the meantime Peoples is permitted under state law to collect a monthly surcharge on gas bills to help defray some of the costs.
Those infrastructure charges averaged $2.14 per month in 2016 for the typical Chicago household, according to CUB. But they're rising now and are $4.44 for the average household in May, according to a Peoples spokeswoman.
The utility also intends to plow ahead with its $300 million spending plan for 2017 despite the regulatory uncertainty.
Its capital spending already is paying dividends. Operating income in Illinois for WEC Energy was $155.4 million in the first quarter, up 18 percent from $137 million in the year-ago period. The company cited its gas-main program as one of the catalysts.