Gas companies push back against effort to repeal surcharge

[February 11, 2022]  By PETER HANCOCK
Capitol News Illinois
[e-mail]

SPRINGFIELD – Natural gas utilities in Illinois warned of job losses and possible risks to public safety if state lawmakers repeal a law allowing them to add a surcharge on customer bills that consumer advocates say is being used to gouge customers.

“This provides around 500 good jobs annually and creates opportunity for diverse contractors,” Eric Kozak, vice president of gas operations for Ameren Illinois, told a House committee Wednesday. “And modernizing the system sets the stage for the state of Illinois to become a leader at utilizing renewable natural gas, synthetic natural gas, and even hydrogen, which can attract new businesses and retain industry.”

At issue is a 2013 amendment to the Public Utilities Act that allows large natural gas utilities – those serving more than 700,000 customers – to add a surcharge onto customer bills to recover costs associated with investments in “qualifying infrastructure plant,” or QIP.

Those include a return on investment and depreciation allowances related to things like replacing old, leaky gas lines and meters. Those surcharges are subject to review by the Illinois Commerce Commission, but only to determine whether they qualify under the statute.
 

The commission also has authority to review a company’s actual expenses to determine whether customers were overcharged and are owed a refund.

That law is scheduled to sunset at the end of 2023, but House Bill 3941 would move that date up one year, to Dec. 31, 2022.

“Over the past decade, through formula rates and QIP, Illinois has stripped away regulatory protections, supercharging the utility incentive to spend money to make money and raise rates as fast as they can,” said Abe Scarr, director of the consumer advocacy group Illinois PIRG. “The utilities have responded to these incentives with billions of dollars of wasteful spending. This is not surprising. It's exactly what we should expect. The question now is how will the General Assembly respond?”

As an example, Scarr pointed to the Naperville-based Nicor Gas, the state’s largest natural gas distribution company, which he said has raised its rates 77 percent in the last four years. That came after Nicor’s rates had risen only 28 percent over the previous 37 years.

“Rate increases and utility profits are largely driven by capital spending,” he said. “Nicor's capital spending sharply increased since it began using QIP in 2015. Since then, QIP has accounted for half of Nicor’s capital spending, making it a major contributor to the company's massive rate hikes.”

Consumer advocacy groups like Illinois PIRG have pushed for its repeal for years, to no avail. But this year, with rising natural gas prices across the board, and amid a global push to move away from fossil fuels to combat climate change, advocates think they have a better chance.

“Unless the General Assembly ends this unnecessary surcharge now, ratepayers will be stuck paying for stranded assets of a gas delivery system that will eventually become obsolete and not a part of the clean energy future that this legislature envisioned when it passed the Clean Energy Jobs Act and asked ratepayers and utility companies to move away from carbon- and methane-producing energy,” said Karen Lusson, staff attorney at the National Consumer Law Center.

Utility executives, however, argued that rising global prices for natural gas, not the surcharges, are the primary source of rising customer bills.
 

Abe Scarr, director of the consumer advocacy group Illinois PIRG, is pictured in a file photo. Scarr and PIRG are lobbying for the repeal of a surcharge on consumer gas bills one year before its scheduled sunset date. (Credit: Zoom.us)

“Ninety percent of the current high prices are being driven by global demand and prices, not this act,” Kozak told the committee.

Patrick Evans, president of the Illinois Energy Association, recalled that the surcharges came about partially in response to a natural gas pipe explosion in San Bruno, California, in 2010 that killed eight people, left 58 injured and destroyed 38 homes.

“At the time, Illinois' own (former Congressman) Ray LaHood was Secretary of Transportation,” Evans said. “And in response to this tragic incident, he actually issued a formal call to action, requesting that all natural gas utilities in the country begin to accelerate their pipeline replacement program to ensure that these incidents are minimized in the future.”

He said that led to negotiations between the industry and lawmakers which resulted in an agreement to end what he called the “regulatory lag” between the time a company invests money for system improvements and the time when it recovers those investments.

“That term simply means that we get to recover our investments quicker than the traditional method, which requires us to go to the (Illinois Commerce) Commission first,” he said. “It does not eliminate commission oversight. We will always have to prove up our investments at the commission. The standards have not been changed.”

Patrick Whiteside, senior vice president of operations for Nicor Gas, said the surcharge has enabled the company to improve the safety and reliability of its entire system.

“Nicor Gas' system was able to support our customers and communities through the polar vortex of 2019, the single largest delivery of energy ever recorded on our system, without interruption to service or pressure situations for our customers,” he said. “By replacing poorly performing materials, we are driving the rate trends down and reducing greenhouse gas emissions across the overall system.”

But J.C. Kibbey, a clean energy advocate with the Natural Resources Defense Council, noted that his own personal gas bill from Peoples Gas in January had a $15 surcharge, more than the company had previously said it would cost in a year, and that it had more than $95 in total infrastructure charges.

“These big charges are worrying and so is what they pay for,” he said. “They're building out a gas system to burn methane gas, fossil fuel, much of it in our homes. To be clear, this gas is no more natural than coal. Burning gas harms are health by releasing carbon monoxide and other pollutants in the air and our homes. This pollution disproportionately hurts underserved communities and people of color.”

The committee did not take action on the bill, which was on the agenda for discussion only.

In a separate email, Illinois PIRG’s Abe Scarr conceded that getting the bill through the General Assembly was a “long shot.” But he said he hopes the concerns that his group and other advocates are raising will deter lawmakers from extending the surcharge past its current 2023 expiration date.

Capitol News Illinois is a nonprofit, nonpartisan news service covering state government and distributed to more than 400 newspapers statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.