WEC Energy Group’s Peoples Gas utility may have withheld information from the Illinois Commerce Commission about the ballooning costs of a gas main replacement program in order to win approval from the commission for its recent acquisition by Wisconsin Energy Corp.
Peoples Gas, which provides natural gas to the Chicago area, is one of the utilities Wisconsin Energy assimilated in the $9 billion acquisition of Integrys Energy Group that formed Milwaukee-based WEC Energy Group Inc. in June.
Illinois Attorney General Lisa Madigan Monday filed a petition with the Illinois Commerce Commission to investigate possible violations of the Public Utilities Act by WEC, Integrys Holding Inc. and The Peoples Gas Light and Coke Co.
The petition accuses the companies of knowingly misrepresenting facts by withholding material information about the cost of the Peoples Gas Accelerated Main Replacement Program in Chicago.
The natural gas main replacement program was initially projected to cost $2.2 billion, but an audit being conducted at the ICC’s orders by The Liberty Consulting Group now shows the costs had ballooned to about $8 billion. The petition asserts that cost information was misrepresented or withheld from the ICC while it was considering the acquisition of Peoples and its parent, Integrys.
“This project is a disaster that raises serious questions about the safety, reliability and affordability of Peoples Gas service,” Madigan said. “The shocking report from the ICC’s auditors is a call to action to completely reexamine the Accelerated Main Replacement Program and immediately address whether Peoples Gas executives misled consumers.”
According to the filing, WEC president Allen Leverett testified during evidentiary hearings regarding the acquisition that Integrys discussed with Wisconsin Energy the projected cost of the main replacement program, but he did not recall the figure.
However, the Liberty audit shows Peoples Gas knew the $8 billion AMRP program costs as of January 2015.
“In spite of their continuing obligation to do so, at no point did Peoples Gas, Integrys, WEC or any of the other joint applicants revise or supplement their responses to discovery requests of the ICC Staff, the AG or other parties to the reorganization proceeding to reveal the January 2015 cost estimates for the AMRP,” the filing says. “Nor did Peoples Gas or Integrys disclose the $8 billion figure in response to direct questions about cost estimates from commissioners at the May 20th Open Meeting. Instead, Peoples Gas and Integrys representatives withheld that information from the Commission by insisting that no long-term estimate was available. These inaccurate statements or omissions deprived the Commission, its staff, and parties to the merger docket of material information directly relevant to the Commission’s consideration of the proposed reorganization.”
A WEC Energy Group spokesperson referred a BizTimes reporter to a Peoples Gas spokesperson for comment. That spokesperson said:
“We agree with the Illinois attorney general that the Accelerated Main Replacement Program 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. We will provide the results of that review to the Illinois Commerce Commission by November 30th.
“We will continue to cooperate with all stakeholders, including the Illinois Commerce Commission and Illinois attorney general.”
Madigan’s office estimated that at $8 billion, each Peoples Gas residential heating customer would be on the hook for about $7,700 over the remainder of the AMRP project.
The ICC can penalize a corporation for each misrepresented fact by up to $500,000.
In an interview with BizTimes in August, WEC chairman and CEO Gale Klappa said Wisconsin Energy’s due diligence showed that despite escalating costs, the AMRP project could be put back on track and completed by about 2030.
“This is something we know how to do. We have done over the last decade in Wisconsin what is just beginning in Illinois,” he said in that interview.
