Peoples Gas looks to hike monthly delivery rates, keep customers on hook for $8 billion pipeline replacement costs

Peoples Gas plans to file for a $195 million rate increase Friday with the Illinois Commerce Commission, the Chicago-based utility told the Tribune.

If approved, the rate increase would add $11.83 per month to the average residential customer bill beginning in January 2024. That represents a 13% increase in delivery charges, but the utility is actually asking regulators for a lot more to continue its $8 billion pipeline replacement program, which is set to lose funding at the end of this year.

Peoples has legislative approval to automatically charge customers $15 per month to fund the program through December. The utility said it will not seek approval from lawmakers to extend the measure, but instead will ask state regulators to incorporate the costs — about $207 million per year — into delivery charges.

That would bring the utility’s total rate increase request to $402 million, including the pipeline replacement costs, which would no longer be reflected in a separate line item on customer bills. Whether regulators step in where legislators once did, and charge customers for the pipeline program, remains to be seen.

“Our priority is the work,” said Torrence Hinton, 46, who was promoted to president of Peoples Gas and North Shore Gas in June. “At this point, given everything we know, we feel the traditional rate-making path is the right path for now.”

Peoples Gas has more than 878,000 customers in Chicago and co-owned North Shore Gas has about 164,000 customers in the northern suburbs. The utilities were acquired by Milwaukee-based WEC Energy Group in 2015.

North Shore Gas will file for an $18.5 million rate increase Friday, which would add about $6 per month to the average residential customer bill, the utility said.

It will be the first rate increase request for Peoples since 2014, when the utility was granted legislative approval to fund its massive pipeline replacement program and pass costs along to customers for 10 years.

Launched in 2011, the System Modernization Program to replace 2,000 miles of aging iron pipes below Chicago streets was plagued from the outset by delays and budget overruns. More than a decade later, the pipeline replacement program is 35% complete, and Peoples Gas says it will take until 2040 and cost about $8 billion to finish.

It was originally projected to cost $2.6 billion and take 20 years to complete.

The pipeline replacement program was driven by pressure from the Obama administration to hold utilities across the U.S. accountable for aging infrastructure following a 2010 explosion in San Bruno, California, that killed eight people, injured 58 and destroyed 38 homes. In 2013, Peoples got approval from state lawmakers to do the improvements, with funding set to expire at the end of this year.

The work involves swapping out century-old iron pipes in neighborhoods across the city for plastic ones to boost pressure and cut down on dangerous natural gas leaks.

Consumer watchdog groups have been advocating for several years to end the built-in surcharge, putting Peoples’ spending under more regulatory scrutiny and forcing the utility to get infrastructure improvements approved through traditional rate cases.

Peoples decided not to pursue extending the legislation, given the opposition and an uncertain political environment in Springfield. But Hinton, a South Side native who started as an engineer for Peoples in 1999, said replacing the pipes remains a priority.

“They were encouraging states to think through some nontraditional rate-making options at the time our state put in the (legislative rider). Fast-forward 10-plus years, the environment is different,” Hinton said. “What isn’t different … is a need to continue to replace our older infrastructure.”

Other Chicago-area customers may also be seeing higher bills after Nicor Gas filed for a $321 million rate increase Tuesday. If approved that would raise the average residential gas bill by $9.28 per month, Nicor spokeswoman Jennifer Golz said.

Naperville-based Nicor, which is owned by Atlanta-based Southern Co., has 2.3 million customers in suburban Chicago and across northern Illinois.

“Nicor’s rate-hike request is a gut punch to consumers who are in their second consecutive winter of painfully high gas bills,” David Kolata, executive director of the Citizens Utility Board, a nonprofit Illinois watchdog group, said in a news release. “Enough is enough. CUB will review Nicor’s excessive request and we will fight every penny the utility can’t justify.”

Nicor Gas customers have seen their delivery rates increase by more than $500 million in the last five years, including a $240 million increase granted by the ICC in 2021.

The ICC has 11 months to review rate cases, meaning the earliest the utilities could implement the current requests would likely be January 2024.

rchannick@chicagotribune.com