November 10, 2015 Updated 11/10/2015
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Steve Daniels
Crain’s Chicago Business
Wikimedia Commons Madigan
Illinois Attorney General Lisa Madigan wants state utility regulators to probe whether executives withheld information from them on the skyrocketing costs of replacing Chicago’s aging cast iron natural gas mains with new plastic pipes in order to gain approval of the lucrative buyout of Peoples Gas’ parent by Wisconsin Energy.
On Nov. 9, Madigan formally petitioned the Illinois Commerce Commission to open the investigation, as well as to undertake a fundamental rethinking of Peoples’ accelerated main replacement program (AMRP), which is on a course to sharply inflate Chicagoans’ heating bills if left unchecked.
At issue are questions that surfaced recently in an auditor’s report, which stated that Peoples execs knew back in January that the estimated cost of their 20-year program to update nearly 2,000 miles of gas mains in Chicago had soared past $ 8 billion. That figure wasn’t made public until late July, about a month after the ICC approved Milwaukee-based Wisconsin Energy’s $ 5.7 billion acquisition of Peoples parent Integrys Energy Group.
In between, commissioners and Madigan’s office, among others, asked for a cost update from the 2012 estimate of $ 4.5 billion, only to be told by the companies that Peoples was still working on it and couldn’t provide it.
“It does appear the answers (from the companies) were incomplete, misleading and evasive,” Madigan said at a news conference. “Regulation doesn’t work in that environment.”
She called on the commission to aggressively investigate whether either or both companies misled them, and if it finds evidence that’s what happened to impose fines and penalties under the Public Utilities Act.
As to the program itself, she said, “The auditor has made clear Peoples doesn’t know what it is doing. … It is absolutely shocking.”
Peoples Gas delivery rates already have risen substantially, largely because of the costs of the massive infrastructure program. WEC Energy Group, the name Wisconsin Energy adopted after the deal closed, has taken steps to begin reforming the program, starting by firing the consultant that was largely running it under Integrys.
WEC Energy is scheduled to deliver new cost updates, and options for scaling back the program, to the commission by the end of this month.
In an email, a WEC Energy spokeswoman wrote, “We agree with the Illinois attorney general that the (AMRP) needed a fresh start. As soon as Wisconsin Energy acquired Peoples Gas, our new management team began to take aggressive actions to improve the oversight and performance of the project. After the acquisition closed, our new management team learned that the previous outside contractor had developed an estimate showing that the program cost might rise to as much as $ 8 billion over the 20-year period. We did not have confidence in that estimate. We have now assembled an experienced construction management team and hired a nationally known firm to develop a bottoms-up cost and scheduling model.”
The company didn’t address its position on Madigan’s two new motions before the ICC.
Regarding the changes WEC Energy says it’s making, Madigan said, “It remains unclear if that is good change that will result in better management practices or just change.”
In a statement, the ICC said its staff already has begun an investigation “surrounding the timing of cost estimates related to the program.” It said the probe is continuing, and it had no comment on the details.
“The ICC will continue to aggressively oversee AMRP program reforms, as well as ensure that consumers do not bear any costs of program mismanagement,” the agency said. “The commission takes seriously its duty to ensure safe, reliable and cost-effective service for Illinois consumers.”
No one disputes that the pipes need to be replaced. Some are more than a century old, and many are made of cast iron, which is prone to leaks.
Madigan’s office made two filings today before the commission.
The first asks regulators to open a new proceeding to restructure the gas-main program and “start from scratch.” The second requests the launching of a formal probe into whether individuals at the companies misled the commission in violation of the state’s Public Utility Act and consideration of financial penalties if they were found to have done so.
