©2015 E&E Publishing, LLC
Republished with permission

By Jeffrey Tomich

The Illinois Commerce Commission is examining whether utility executives hid information about the rising cost of a Chicago-area gas main replacement program to win approval of Wisconsin Energy Corp.’s $5.7 billion buyout of Integrys Energy Group Inc. earlier this year.

At issue in the case is testimony from executives at Peoples Gas, its former parent Integrys and new owner Wisconsin Energy during a May 20 hearing. Officials from each company assured regulators that they did not yet have a cost estimate for the 20-year infrastructure program.

But a consultant’s report issued weeks ago suggest that Peoples Gas knew the price tag had ballooned to more than three times the original estimate.

A representative for Peoples Gas didn’t immediately respond to a message seeking comment on the order.

The Accelerated Main Replacement Program (AMRP) that was started in 2011 involves replacing aging infrastructure in the city of Chicago. The project mostly involves replacing 2,000 miles of cast iron pipe with newer plastic pipe and making other system updates to enhance safety and reliability.

A commission-ordered audit of the program in 2013 revealed the price tag for the work had nearly doubled to $4.45 billion between 2009 and 2012. The audit by Liberty Consulting Group and concerns about further cost escalation prompted questions of three senior executives from Peoples Gas, Integrys and Wisconsin Energy during an open meeting on May 20.

Commissioners specifically asked for an up-to-date cost figure and were told that a model to generate the estimate hadn’t been developed.

A month after the merger was completed, the new president of Peoples Gas, Charles R. Matthews, said in a letter to the ICC that the full cost of the 20-year program would exceed $8 billion. And a follow-up report from Liberty Consulting to the commission on Sept. 30 indicated that the new cost estimate had been available to Peoples Gas as early as January.

Illinois Attorney General Lisa Madigan and the Citizens Utility Board, a Chicago-based utility watchdog group, filed complaints with the commission last week. One asks the ICC to investigate whether the companies violated the Illinois Public Utilities Act.

The Nov. 9 complaint questions whether executives deprived regulators of critical information that could have led the commission to deny the merger, or at least impose tough conditions.

The other complaint urges the ICC to re-evaluate the scope, cost and schedule of the gas main program.

The ICC has not taken any action on either complaint.

In ordering its own probe of the program, the commission is demanding answers to several key questions: Exactly who within Peoples Gas and Integrys knew about the $8 billion cost estimate and when did they know, and when was the information provided to Wisconsin Energy?

The commission voted 4-1 to approve the investigation at yesterday’s meeting. Commissioner Miguel del Valle voted against the probe because he thought the scope ought to be broader than the testimony offered by utility executives on May 20, according to the Chicago Tribune.

ICC Chairman Brien Sheahan, however, said the investigation will be thorough.

“Commissioners and staff believe the scope of this investigation is broad enough to ensure all instances of misrepresentations on this matter are properly adjudicated,” Sheahan said in a statement. “If the investigation reveals that a representative of Peoples Gas or any other person knowingly misrepresented or omitted material information about [the program] … or any other occasion, those incidents will be investigated.”

Illinois law authorizes the commission to impose a fine of up to $500,000 per violation.