Dive Brief:

• The cost of Peoples Gas' Accelerated Main Replacement Program (AMRP) now exceeds $8 billion, and Illinois regulators want to know when Wisconsin Energy Corp. (WEC) and Integrys became aware of the skyrocketing price tag, EnergyWire reports. 
• During May hearings on the two companies' proposed merger, officials from Peoples Gas told the Illinois Commerce Commission that updated cost estimates were not available. The following month, the ICC approved Wisconsin Energy's $9.1 billion acquisition of Integrys, which at the time owned Peoples Gas. 
• A September audit report, however, indicates executives had access to the figures in January. Estimates in 2012 put the pipe replacement costs at less than $3 billion. Regulators want to know if company officials hid or avoided disclosure of the cost overruns to win merger approval.

Dive Insight:

This isn't the first time Peoples Gas' pipeline replacement program has been under scrutiny. Illinois regulators in March opened an investigation into allegations of mismanagement of the accelerated natural gas main replacement program, after two anonymous letters sent to the commission included charges that the ongoing management audit of the program, being conducted by Liberty Consulting, had been undermined by Peoples Gas’ management.

The merger went ahead, with the ICC approving the deal – contingent on a two-year rate freeze – in June. The main replacement program had been an issue in the proceeding, but the companies said updated cost estimates were not available.

Begun in 2011, the AMRP calls for replacing aging infrastructure in Chicago, mostly cast iron gas pipes. After identifying cost overruns, delayed progress and mismanagement of the project, Illinois regulators launched an investigation in June 2013, hiring Liberty to audit the project.

Liberty’s final report on the audit's initial phase, published in May, showed costs had risen from $2.63 billion to $4.45 billion between 2009 and 2012. But because of inadequate information available from Peoples Gas, Liberty was unable to provide the Commission with a credible estimate of either yearly or total AMRP costs.

Three days after ICC approved the acquisition of Peoples Gas by WEC, Peoples Gas President, Charles Matthews wrote in a letter to the commission that “WEC Energy Group’s management [was] provided, for the first time, after the close of the acquisition, with a preliminary cost estimate for the full 20-year AMRP. This projection exceeds $8 billion.”

But in September, Liberty submitted to the ICC its first quarterly report for the second phase of the AMRP audit, stating that the $8 billion cost estimate became available within Peoples Gas around January 2015. That prompted the ICC to open the investigation.

“Our Commissioners and Staff believe the scope of this investigation is broad enough to ensure all instances of misrepresentations on this matter are properly adjudicated,” ICC Chairman Brien 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 AMRP on May 20, 2015, or any other occasion, those incidents will be investigated.”

“The ICC will continue to aggressively oversee AMRP program reforms, and will ensure that customers do not bear any costs of program mismanagement," Sheahan added.