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Peoples Gas to return $4.7M to customers after pipe replacement cost overruns

Peoples Gas Light and Coke Co. will return to customers $4.7 million the company spent as part of a troubled system modernization project in 2014, under an order by the Illinois Commerce Commission.

The commission, or ICC, had been investigating whether Peoples Gas used its funds prudently when upgrading the company's aging natural gas infrastructure in Chicago. The commissioners voted unanimously to require the company to refund the money as a result of major cost overruns, delays and a lack of proper management oversight of the system modernization program.

The refund was agreed to as part of a settlement among the commission, Peoples Gas, the state attorney general's office, the city of Chicago and the Citizens Utility Board.

"The ICC is mandated to approve [qualifying infrastructure project] recovery costs when they are deemed reasonable and prudently incurred. This has been no simple task," ICC Executive Director Cholly Smith said in a statement. "ICC staff has analyzed every work order, invoice, permit, and management decision made by Peoples Gas in 2014."

Much of the $4.7 million refund will be returned in one-time bill credits, while another large chunk will be applied to assistance for low-income customers. The company also agreed to propose to permanently remove $5.4 million from the rate base that is used to calculate the utility's base rates.

The ICC used this opportunity to incorporate recent cuts to the corporate tax rate into Peoples Gas' customer rates.

Peoples Gas spokesman Brian Manthey said Feb. 21 that the company believes that the settlement is "a fair resolution of the disputed amounts" and emphasized that changes have been made to the program since the cost overruns came to light.

Peoples Gas in 2009 estimated that its accelerated mainline replacement project would cost about $2.63 billion but in 2012 revised its estimate to $4.45 billion. In early 2015, the lead project management company tried to increase the estimated cost of the project to more than $8 billion.

"Since the new management team was put in place in 2015, we have made significant improvements in managing the program — lower contractor costs, improved coordination with the City of Chicago and better interactions with residents, resulting in fewer complaints," Manthey said. "The ICC recently authorized the continuation of our approach to the program."

Formal investigations into the prudence of system modernization costs in 2015 and 2016 are pending at the commission.