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Failing upwards

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State utility regulators moved today to open a new investigation into Peoples Gas’ massive and troubled gas-main replacement program in Chicago. […]

A pair of letters to the ICC last month from anonymous whistleblowers alleged that Peoples is badly mismanaging the program. That prompted the commission to open the special probe.

“We’re pleased they’re ordering the investigation,” said David Kolata, executive director of the Citizens Utility Board in Chicago. “These are very serious allegations. We are concerned that perhaps a dual track has been set (to consider the merger and conduct the investigation separately). We think they are inextricably tied.” […]

[Attorney General Lisa Madigan’s] office has estimated that the average Chicago household’s base gas rates will double over the coming decade if Peoples’ program continues on its present course.

* Today…

A decade ago, Peoples Gas stood accused of ripping off Chicagoans under an arrangement with Enron to profit on cheap natural gas in storage that ratepayers had previously financed.

At the center of that scandal—which ended up costing the utility $100 million in customer rebates under a settlement with Illinois Attorney General Lisa Madigan and others—was an executive named Bill Morrow.

Morrow, then a vice president with Peoples, negotiated Peoples’ arrangement with Enron, the Illinois Commerce Commission determined. Enron, the Houston-based energy trading giant, later collapsed in disgrace following revelations of deceptive accounting and manipulation of energy markets that helped cause extensive power blackouts in California. The mishandling of Enron’s accounting eventually led to the fall of its auditor, Chicago-based Arthur Andersen, and sent Enron’s CEO, Jeffrey Skilling, to prison in 2006.

At its heart, Peoples’ deal with Enron in the early 2000s was a “shell game” that allowed Peoples’ parent company at the time to profit “at consumers’ expense,” the commission found in its final order in March 2006.

Fast forward to today. Peoples Gas again is under fire, this time for its management of a massive program to replace 2,000 miles of aging underground gas mains in Chicago. A project that Peoples parent Integrys Energy Group said in 2009 would cost $2.2 billion over 20 years now is estimated to cost $4.6 billion, according to the Attorney General’s interpretation of information provided by Peoples. […]

And the man who’s been in charge of the gas-main program since its inception in 2009? Bill Morrow.

Sheesh.

posted by Rich Miller
Friday, Mar 13, 15 @ 11:02 am

Comments

Think about it: Peoples Gas. People’s Gas.

So accurate in one context, such an anomaly in the other.

Comment by A guy Friday, Mar 13, 15 @ 11:26 am
It would have been helpful to hear what kind of “mismanagement” is being alleged. Is it some steering of work to overpriced, politically connected contractors or suppliers?

Having managed some of these replacement projects for other utilities in the past, cost escalation is not uncommon for old pipe replacement due to discovered conditions. These kind of projects usually start being estimated based on leakage occurrences rather than pressure testing and excavated inspection, which are better indication of the scope required. Once pressure testing is performed, the scope becomes much clearer, and often “potholing” (localized digging) to take underground pipe wall thicknesses is performed. Sometimes, once additionally unacceptably corroded piping is found during remediation, the scope has to be expanded while the pipe is exposed, as a change order. It’s not unusual for the unit costs of these change orders to be significantly higher than bid costs. That’s construction.

Coasts for this sort of project rarely go down, they only increase. Very few accurate drawings for initial assessment are available, as many have been trashed over the years.

Digging up streets for repair gets very expensive, and has to be done carefully to avoid hitting other utilities. Once you’ve opened up an urban street, you often have to work OT because of the public problems with leaving pits open.

The point I’m making is don’t assume that something crooked is going on just because of the cost escalation figures here. There may be funny business going on, but it’s more likely in the bid and contractor selection process than in the actual remediation scope.

Just my two cents worth….

Comment by Arizona Bob Friday, Mar 13, 15 @ 11:27 am
Any anomalies, small or large, are going to be a HUGE red flag if the guy you have running the program is the same guy who was in charge of a program in the past that was mired in scandal AND involved Enron.

Comment by Demoralized Friday, Mar 13, 15 @ 11:32 am
AB, the Tribune covered it the other day:

“The anonymous letter to commission general counsel Matthew Harvey asks for a full investigation into allegations that former members of management are benefiting from outside contracts on the project and that “there is an internal investigation from Integrys ongoing now about invoices from contractors for services never provided. We have been told the project is a (sic) ATM machine for contractors and consultants because those who are suppose (sic) to be in a position of oversight are the wolves watching the hen house.”"

http://www.chicagotribune.com/business/breaking/ct-peoples-gas-icc-0310-biz-20150309-story.html

Comment by Precinct Captain Friday, Mar 13, 15 @ 11:37 am
Thanks for the link, Precinct. People in utility management who have a financial stake in the contractors and vendors they hire is a pretty big deal. I remember a few decades ago there was an issue with utility managers having a big stake in a cost plus contractor for a central Illinois power plant being built, as well as management getting prime lake frontage property on a lake being built for the project that was supposed to be fairly allocated by lottery.

This contractor business is, of course, nothing new, and its been pretty blatant. A friend of mine was running a pre-bid meeting for big Chicago project. Attendance at the meeting was mandatory in order to bid. After they got started, in walked an irate Duff brother in his golf clothes. In front of everyone he yelled, “why are you wasting my time! I’m getting this contract, and everybody knows it!”

Darned if he wasn’t right after the other lower bidders were disqualified for “technicalities”.

Apparently some of them didn’t get the memo not to bid too low….

Comment by Arizona Bob Friday, Mar 13, 15 @ 12:26 pm
Incredible that the guy wasn’t let go after he cost the company $100 million in refunds. Instead he was rewarded! interesting corporate culture

Comment by yo Friday, Mar 13, 15 @ 1:44 pm
AB = Very few accurate drawings for initial assessment are available, as many have been trashed over the years.=
Who is responsible for keeping and maintaining system records?
Don’t the utilities’ have the cost of this function covered in their rate base?

Comment by Qui Tam Friday, Mar 13, 15 @ 3:42 pm