Regulators cut Peoples Gas rate hike, pause funding for over-budget pipe replacement program

Peoples Gas will soon crank up the financial heat on Chicago customers, but not by as much as expected — and without sinking more money into the utility’s controversial pipeline replacement program next year.

State regulators on Thursday slashed a request from Peoples Gas to increase rates starting next year while slamming the brakes on a program that has seen costs balloon to almost six times the original estimate to replace the pipes that send natural gas to Chicago households.

The Illinois Commerce Commission voted 5-0 to cut the utility’s pipe replacement budget for 2024, paused the program and ordered an investigation into the spending that commission Chairman Doug Scott said “is not justified.”

That was part of a decision that promises to increase gas bills for customers starting in January. It wasn’t yet clear how much costs will go up, but the monthly hit is expected to be under $10.

Earlier this year, Peoples Gas announced it was seeking a record-high $402 million rate increase, which would have amounted to an extra $11.83 tacked onto the average monthly residential bill.

Staffers for the commission, which has the final say on utility prices, recommended last month that the panel cut the hike to $350 million, or roughly $10 more per month for each of the 878,000 Chicagoans whose homes are fueled by Peoples Gas.

Though the commission doesn’t typically stray far from staff recommendations, its final ruling fell at about $301 million.

The exact impact on the average residential bill — which is calculated through complex formulas over hundreds of pages — wasn’t immediately available. In a statement, the commission said it would “issue an estimated bill impact for the average residential customer once the utilities submit updated compliance filings with the commission.”

Peoples Gas spokesman David Schwartz didn’t address the commission’s criticism of the pipe program, but said in an email that the utility would “fully review the final order to determine its impact on our customers and operations.

“We look forward to actively participating in future proceedings and demonstrating how our energy delivery system is critical to Chicago’s clean energy future,” Schwartz said. “We are pleased the commission shares our concern about safety.”

Consumer advocates were stunned and jubilant in the Loop board room after the commission wrapped up the rate cases, which also largely reined in hikes for suburban Nicor and North Shore Gas customers.

Sarah Moskowitz, executive director of the Citizens Utility Board, said the decision from the commission — which has had three new members appointed by Gov. J.B. Pritzker since March — should tell utilities that “customers of Illinois are not going to be an ATM anymore.”

Ashlee Rezin/Sun-Times

“They are going to hold these companies accountable to their customers, accounting for clean energy transition in a way that I find immensely heartening,” Moskowitz said.

Peoples Gas has long maintained a substantial hike was needed to ensure the system’s “ongoing safety, reliability and environmental sustainability in Chicago,” and that it expects rate increases to be offset by energy costs that are expected to dip over the next year.

The utility has also noted it’s the first rate hike it’s asked for in nine years, though customers have still felt the pinch in the meantime thanks to the pipe program.

More than $200 million of the initial hike request from Peoples Gas was earmarked to offset a $15-per-month surcharge that customers have been paying since 2013 but expires at the end of the year under state law.

Those dollars went to replace pipes neighborhood by neighborhood, a perpetually delayed endeavor that was initially projected to cost $1.7 billion, but could end up totaling over $11 billion by 2040.

“This has been a cash cow for People’s Gas, and they have been using this opportunity to charge their customers hand over fist for unnecessary investments at a time when we should be looking at ways to move away from fossil heat,” Moskowitz said.

Abe Scarr, director of the Illinois Public Interest Research Group, applauded the commission for stopping “a slow-motion train wreck.”

“The pipe replacement program has been driving the rate hike and would have been driving future rate hikes,” Scarr said. “After years of allowing the program to fail and to carry on, the commission is very firmly putting the brakes on the program and creating a process to hopefully reform the program to be much more effective, and much less costly to Chicago.”