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Peoples Gas Denies Overcharging Customers by $149M

Peoples Gas Denies Overcharging Customers by $149M

Peoples Gas, a subsidiary of Chicago-based Peoples Energy, allegedly overcharged customers by at least $149 million as the result of an illegal profit-sharing deal with an affiliate of now-bankrupt Enron Corp. during the winter of 2000-2001, according to a study commissioned by the city of Chicago and a consumer watchdog group.

The city and the Citizens Utility Board (CUB) have asked Illinois regulators to order a refund, averaging $163 per natural gas customer, of all overcharges documented by the latest testimony and by prior testimony submitted in 2003. The study has been filed as formal testimony with the Illinois Commerce Committee (ICC), which is investigating the local distribution company's gas purchasing practices during that winter period.

Based on documents obtained from Peoples Gas, the testimony reveals how the company gave up control over its gas purchases and storage to Enron and its affiliates, CUB and the city of Chicago said. The companies then funneled profits from trading the natural gas -- originally intended for consumers' use -- to Enron and Peoples Energy, they alleged.

As a result of the deals, during the winter of 2000-2001, when natural gas prices rose to nearly $1 per therm, Peoples Gas had to purchase replacement gas to sell to consumers at record-high market prices, CUB and the city contended.

"The charges are without merit and a review of our practices will show that," said Rod Sierra, a spokesman for Peoples Energy. He noted that Peoples Gas will have a "vigorous rebuttal [to the charges] by Jan. 28."

The city and CUB's testimony was prepared by the accounting firm of Grant Thorton LLP. It identified three new areas in which Peoples Gas consumers were allegedly overcharged $98 million. This was in addition to an estimated $51 million in overcharges that CUB previously identified, for a total of $149 million in refunds that it says are due consumers.

The city and CUB said their testimony documents how the deals between Peoples Gas and the Enron affiliates formed the basis for a controversial five-year contract that Peoples entered into to purchase roughly two-thirds of its natural gas from Enron -- a contract that CUB and the city's experts deemed as imprudent. The analysis by Grant Thorton found that under the contract, in 2001 alone, customers paid at least $36 million more than they should have for natural gas.

The analysis also identified a huge, as yet unexplained, increase on Peoples Gas' books in "lost or unaccounted gas," the difference between the amount of gas purchased by the company and the amount ultimately available for sale to customers.

Gas companies typically "lose" between zero and 3% of total gas purchases annually. In fiscal years 1999 and 2000, Peoples Gas reported a 3% loss, but its lost gas jumped to 8% in 2001, enough gas to heat the equivalent of 71,299 homes for an entire year, according to CUB and the city of Chicago.

Peoples Gas and affiliate North Shore Gas serve one million gas customers in Chicago and 54 communities in northeastern Illinois.

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