When Peoples Gas launched its massive, customer-funded System Modernization Program to replace 2,000 miles of aging iron pipes below Chicago streets in 2011, the utility said it would take 20 years and cost $2.6 billion to finish.
Nearly 10 years later, the pipeline replacement program is less than a third complete, and Peoples Gas now says it will take until 2040 and cost $7.7 billion.
The delay has left Peoples Gas racing the clock against both potential pipeline failures and the accelerating shift to renewable energy, as growing climate change concerns could make the slow-moving infrastructure project obsolete before it’s complete.
“By 2040, when they say that this program will finally be completed, the entire structure of the energy system, both gas and electric, will have been completely transformed,” said Christie Hicks, a senior attorney for the Environmental Defense Fund focused on clean energy initiatives in Illinois. “We really need to be taking a hard look at whether it is in the public interest to continue this program as it was designed almost a decade ago.”
The pipeline replacement program 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. The project has been plagued from the start by budget overruns, delays and charges of mismanagement.
Peoples Gas spends about $300 million annually on the program but will need lawmakers to sign off on extending ratepayer funding by 2023. The utility got legislative approval in 2013 to pass costs along to customers for 10 years.
Customers are paying an average of $10.81 per month this year to fund the program.
“We wish we could do this overnight,” said Charles Matthews, who became president and CEO of Peoples Gas after its June 2015 acquisition by Wisconsin Energy. “We’re trying to balance the impact of doing it too quick and having rate shock, and doing it too late.”
The replacement program was driven by pressure from the Obama administration to hold utilities across the U.S. accountable for aging pipeline systems following a 2010 explosion in San Bruno, California, that killed eight people, injured 58 and destroyed 38 homes.
Peoples Gas has more than 867,000 customers in Chicago, and 4,200 miles of underground gas pipes, nearly a third of which are original cast and ductile iron. Some of the iron pipes date to the 1800s, and pose risk of failure by suddenly releasing large volumes of gas, which could lead to an explosion.
The utility said it has primarily taken a neighborhood-by-neighborhood approach to replacing pipes to keep costs down and minimize disruption. Extensive work has been completed in the city’s Rogers Park, Austin, Beverly and River North areas, where the oldest pipe yet replaced dated to 1859.
Projects are underway in Bucktown, Mayfair, Kenwood and Marquette Park, among other neighborhoods, Peoples Gas said.
Engineering firm Kiefner released a pipeline study in January, commissioned by the utility and the Illinois Commerce Commission, that found 83% of the remaining 1,342 miles of iron pipes have an average life span of less than 15 years.
The study found 3,602 reported leaks between 2010 and 2018 from the iron pipes. It projected the leak rate would increase “significantly” if the replacement program took until 2040.
While Kiefner recommended completing the program by 2030, Peoples Gas told the ICC that speeding it up could potentially double the cost. In a September ruling, the ICC signed off on the 2040 target completion date, agreeing that an accelerated pace would lead to “additional costs for ratepayers.”
David Kolata, executive director of the Citizens Utility Board, a nonprofit Illinois watchdog group, said the infrastructure program is already too expensive.
“It’s on an unsustainable course, and it has been for quite some time,” Kolata said. “It is really driving large parts of the city into structurally not being able to pay their monthly heating bill.”
Kolata said the program has been mismanaged from the start, spending too much of customers’ money without normal regulatory oversight under the state’s pipeline replacement legislation.
In 2016, Peoples Gas agreed to pay $18.5 million to settle separate investigations by the Illinois attorney general’s office and the Illinois Commerce Commission for allegedly misleading consumers about the ballooning cost of the program.
A bigger concern at this point, Kolata said, is whether the program’s goals are relevant in a renewable energy future.
President-elect Joe Biden’s clean energy plan includes creating legislation that puts the country on “an irreversible path” to net-zero carbon emissions by 2050 and investing $400 billion over 10 years in renewable energy.
In 2020, however, natural gas is enjoying its moment. Advances in fracking have made it plentiful and cheaper in recent years, helping it grow its energy market share.
As a fossil fuel, natural gas emits about half the carbon dioxide of coal, gaining favor as a bridge to renewable energy sources such as wind and solar for power generation. Over the past decade, more than 100 coal-fired power plants in the U.S. converted to natural gas, according to the U.S. Energy Information Administration.
Power plants accounted for 36% of natural gas consumption in the U.S. last year, the EIA said. Industries consumed a third of the natural gas, while 27% went to homes and businesses, where it is used for heating buildings and water, cooking and drying clothes.
In Illinois, where the cold climate makes heating a three-season necessity, homes and businesses represent 62% of natural gas use, the EIA said.
Kolata and other advocates are pushing for electrification as a long-term alternative to natural gas, with electric-powered heat pumps — a sort of reverse air conditioner — proving both environmentally friendly and increasingly cost efficient.
Matthews said converting to electric heat by 2040 is unrealistic, especially in a city like Chicago, which is so dependent on natural gas. He said peak demand for gas on the coldest day in the winter is three times the peak electricity generated on the hottest summer day in Chicago.
Matthews said even if the utility industry transitions to electric heat, “gas doesn’t go away overnight,” and neither will the risk from an aging national pipeline infrastructure.
He cited the damage wrought by several major gas explosions over the past decade as cautionary tales.
The deadly 2010 explosion in San Bruno, California, which devastated a residential neighborhood and precipitated a federal call to action, proved costly for the utility, Pacific Gas and Electric. In 2015, California regulators fined PG&E a record $1.6 billion for violating state and federal pipeline safety standards.
In 2018, a series of gas explosions and fires ripped through three towns north of Boston, killing one person, injuring 20 and damaging dozens of homes. Columbia Gas of Massachusetts pleaded guilty to federal pipeline safety violations in the incidents, which were blamed on overpressurized gas lines.
“It makes sense to me to continue the pipeline replacement program as an insurance policy against a lot of things that can go wrong,” Matthews said.
While Peoples Gas still plans to replace all of the iron pipe in its system, it prioritizes replacement of the higher-risk pipe by neighborhood, and also targets mains where leaks have been found.
Both the Environmental Defense Fund and Citizens Utility Board recommended to the ICC that Peoples Gas employ an advanced leak detection system to prioritize pipe repair.
In 2017, Peoples Gas agreed to implement a leak detection pilot program in partnership with EDF and CUB. The program enlisted a fleet of Google mapping cars and outfitted them with methane sensors to detect gas leaks.
An Environmental Defense Fund trial run in 2015 found one gas leak every three miles in Chicago.
The ongoing pilot program shows gas leaks remain “fairly prevalent” in the city, Hicks said. Peoples Gas files results of the program annually with the ICC.
“The pipeline replacement program isn’t keeping up with the number of new leaks,” she said. “The leak detection pilot program showed that there were some leaks they were unaware of, and others that were more serious than they had realized before.”
Targeting leaky pipes would not only reduce the need for systemwide replacement and mitigate the risk of explosions, but also deliver gas to customers more efficiently, Hicks said.
Kolata said Peoples Gas is obligated to repair leaky pipes but doesn’t need a legislative rider to replace all of its remaining iron pipes over the next 20 years.
“We’re not saying they shouldn’t do any work, we just want much more oversight of it,” Kolata said. “And we want a plan to get where we want to go by 2050.”
