CUB study shows Nicor customer paid too much on gas bills

CUB study shows Nicor customer paid too much on gas bills


The Citizens Utility Board (CUB) last Thursday urged state regulators to scrap a controversial “alternative regulation” plan that has allowed Nicor Gas to charge customers at least $27 million more than they would have paid under standard ratemaking rules.

The plan, approved for Nicor in 1999, changed the way gas prices are set for the utility, which serves 1.9 million customers across Illinois. The plan sets a benchmark price for gas and allows Nicor to keep 50 percent of any savings it achieves if its costs are below that price. The plan is supposed to give the company an incentive to purchase gas more efficiently. However, a recent analysis by CUB asserts that is not the case.

In testimony filed with the Illinois Commerce Commission (ICC) Thursday, CUB detailed how the plan is stacked in favor of the gas company, leading consumers to pay more than they should on gas bills. CUB is urging the ICC to scrap the plan or conduct further hearings to modify it dramatically.

“Nicor billed this plan as a win-win for consumers,” CUB Litigation Director Rob Kelter said. “We now know that the only winners are Nicor stockholders, who made excess profits while consumers paid more on their gas bills.”

Under Illinois law, a gas company must show that an alternative regulation plan provides lower rates than traditional regulation or some other concrete benefit to consumers. Nicor’s plan fails to meet those criteria, CUB’s study shows.

Specifically, the benchmark price is set too high, so Nicor benefits regardless of whether it increases its efficiency, according to CUB. During the first two years of the plan, Nicor entered into risky futures contracts for gas and lost money on them. Under the alternative regulation plan, consumers paid for 50 percent of those losses, costs they would not have paid under traditional regulation.

“Many customers experienced severe hardships because of record-high gas prices last winter,” Kelter said. “And the Nicor Gas plan added to that hardship by forcing consumers to pay even higher gas bills.”

Ted Lenart, assistant vice president of Supplies Operation in Naperville, stated, “We believe that the incentive rate mechanism has worked very effectively and has, in fact, saved our customers $27 million over the last two years by virtue of the incentives the mechanism provided.” As for the stockholders, he commented, “Our stockholders share the benefit, but benefit was equally shared between the stockholders and the ratepayers.”

Lenart feels this plan has been successful. “The plan has been in effect for the last two years,” he noted. “Now in 2002, we are going through a review process to determine if the plan needs to be modified or if it is meeting its goals, and we want to continue it into the future.”

The commission is scheduled to rule on the case in the fall.

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