Peoples Gas is digging up Chicago streets and replacing rusty, leak-prone pipes with plastic pipes that can deliver natural gas faster, safer and more efficiently.
“There’s pipe that went in the ground when Lincoln was president,” said Willard Evans Jr., president of Peoples Gas. “I can’t wait for it to be unsafe to replace it.”
The work is part of a $2.5 billion upgrade that would replace 2,000 miles of pipe and boost pipe pressure nearly a hundredfold, virtually guaranteeing water won’t seep into pipes, freeze and cause cracking and leaks. The plan also would eliminate the need for the utility to enter homes, because meters would be outside.
The catch, however, is that the utility’s plan to have rate payers pick up costs as work progresses went awry.
Peoples Gas, a unit of Chicago-based Integrys Energy Group, had hoped to follow electric utility Commonwealth Edison in getting its rates set largely based on a formula, a move that flows additional millions of dollars in revenue each year to the unit of Chicago-basedExelon Corp.from more frequent rates hikes.
But those efforts fell apart for Peoples Gas. If the utility follows the typical 11-month-long courtlike regulatory process as rates are now set, Peoples Gas said the project could stretch to 40 years from 20 years and cost rate payers an additional $244 million.
“We really think this is a good program, we really do,” said Jim Schott, vice president of external affairs for Integrys. “But under the current process it would require very frequent rate cases, and that would be very difficult. We’re monitoring what’s going on, on the electric side. We’re obviously monitoring that.”
How Peoples Gas got into its fix is somewhat circuitous.
In 2010 a judge ruled that regulators shouldnâEURTMt have allowed Commonwealth Edison to add a $5 million rider to be tacked onto customersâEURTM bills to pay for a smart grid pilot program in the Chicago area. The following year, an appellate court judge tossed out a surcharge Peoples Gas added to heating bills for the pipe replacement program.
Afterward, ComEd and downstate utility Ameren Illinois pressed state legislators for a faster way to recoup infrastructure upgrades from customers. The result was legislation passed in October allowing the electric utilities to set rates largely based on a formula that did away with the utilities continually seeking rate hikes to pay for improvements.
Peoples Gas tried to latch on to the ComEd-backed legislation but was rebuffed by the Legislature.
Now, Peoples Gas is wooing legislators in hopes of a reaching a similar solution, and people familiar with the talks say a rate plan could emerge sometime next year that would allow the company to continue its upgrade, which began last year.
“Being proactive about making improvements means avoiding more expensive replacements later, allowing us to keep rates lower than they might otherwise be. And by removing aging pipes that require frequent maintenance, we can reduce the cost of ongoing repairs,” Peoples said.
Nearly 50 utilities in 19 states tack on surcharges to pay for infrastructure upgrades, according to the American Gas Association. But in Illinois, state Attorney General Lisa Madigan and the Citizens Utility Board, the Chicago-based watchdog group, voiced opposition to the surcharge from the start.
Consumer advocates argued that the surcharges were illegal and that utilities should ask the Illinois Commerce Commission, which regulates utility rates, to approve hikes to reimburse expenses related to upgrades through the regular process.
When the surcharge, which allowed the utility to recover costs in near real time, was eliminated, Peoples Gas recovered only its first year of upgrade costs. The utility hopes to resolve the rate hike issue to continue the upgrade program beyond 2013.
So far, Peoples Gas has laid about 200 miles of polyethylene pipe as part of its project. This year , the company is on track to spend $80 million on upgrades. Plastic pipe makes leaks caused by natural causes such as water seepage much less likely, the company said.
“The mayor has said we need to build a next-generation infrastructure for Chicago,” said Peoples Gas spokeswoman Jennifer Block. “That’s exactly what we’re doing.”
About half of Peoples’ system consists of pipe made from cast iron or ductile cast iron. As new pipe is laid, the old pipes are just left in the ground. Once a circuit is complete, homes are converted to the new system all at once. The company said it has been laying 3,200 feet of pipe per day on average, or more than five city blocks (a block is 600 feet).
When Peoples Gas became the first utility in the city of Chicago in 1850, it was before the Great Chicago Fire, and streets were illuminated by natural gas lamps. Until 1932 there were no natural gas pipelines to Chicago. Instead, natural gas was manufactured from coal and stored in underground holders that looked like giant balloons and piped up to the light.
Over the years, new and safer forms of pipe were invented. Peoples Gas, as part of its regular maintenance rounds, replaced wooden pipes with steel pipes, then cast iron. Steel was prone to rust and holes, while cast iron and ductile cast iron pipes are rigid and, therefore, vulnerable to cracking.
Over the years Peoples Gas has made do, fixing leaks with everything from sealants to collarlike devices that work like a tourniquet. In some cases, new pipe was simply inserted inside old pipes.
When Peoples Gas President Evans began at the company as an intern 38 years ago, the system was almost entirely cast iron. In the 1980s, when the company began using plastic pipes, the concept was considered revolutionary. Today, however, most of the West Coast and major cities transport natural gas through plastic pipes. Nicor and North Shore gas customers largely get their gas through plastic pipes and mains.
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About 64 customers a day are being upgraded. Ultimately, improvements would be made 315,000 service lines to homes and businesses. Their lines are being converted from a low-pressure system that doesn’t keep out water from entering pipes to a medium-pressure system (20 pounds per square inch).
At the company’s training facility in Chicago’s North Lawndale neighborhood, Tom Wivinis, senior instructor of technical training and standards, demonstrated the difference. Switching on a low-pressure valve, air blew out gently and softly, like a diner blowing on hot soup. As he flicked on a medium-pressure valve, the noise was deafening, the pressure like a fire hose.
The pressure is stepped down before gas enters a customer’s home, but the increased pressure prevents water from entering pipes. Without that problem, Peoples Gas has been moving gas meters to the outside of homes. That means that if there is a problem, responders can shut off the gas. And for homeowners that also means no more in-home safety checks every three years or so.
Meters are already read remotely by trucks that pick up signals when driving up and down a street. And “excess flow valves” shut off gas automatically if medium-pressure natural gas attempts to enter a home.
That said, as pipes are replaced, consumers can expect some hassle, mostly by way of dug-up streets and small holes in yards. Like the human body, some pipes are larger than others and require more work to replace. The service pipes in yards are like capillaries and can be pushed through holes in the ground without digging trenches. The mains in streets are the arteries that feed those capillaries and are in nearly every street in Chicago. Header mains are like the aorta, carrying the gas from the source.
“We’re still going to be digging holes. We cannot work without digging our holes,” said Evans, observing a header main replacement in Portage Park, where massive black plastic pipes lined the street.
In the city’s Avondale neighborhood, a Peoples Gas worker wearing a an fluorescent vest stood in a waist-deep hole in the yard of one customer, who looked on curiously from his porch.
After finding the customer’s old pipe, the worker shut off the gas, cut the pipe and allowed a tiny bit of excess gas to escape before capping the pipe and abandoning it. The groundwork and pipe for the medium-pressure system had already been laid, and the customer was switched over to the new system that day.
“The switch happens right away,” said Salvatore Peri, general supervisor of operations, who was managing the Avondale site for Peoples Gas. “We check that everything is in place and re-light.”
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