Peoples, North Shore Reject ICC Fixed-Rate Ruling
Peoples Energy said it was "extremely disappointed" in orders by
Illinois Commerce Commission (ICC) that would sharply reduce the
gas rates the LDC and affiliate North Shore Gas could charge their
customers under fixed-price plans filed last fall. The utilities
said they cannot accept the ICC rulings and informed the agency
that they will remain instead under their existing pricing
"Despite reasonable recommendations from the hearing examiner in
this matter, the Commission chose to set impossibly low rates,"
said Thomas M. Patrick, president and COO of Peoples Energy. "We
regret that the Commission did not recognize and seize this prime
opportunity to lock in favorable long term gas prices for our
The fixed gas price would have shielded customers from monthly
price volatility. Under the current pricing mechanism, customers
pay 100% of actual costs and are subject to market fluctuations.
Under the fixed gas price proposal, market risks are shifted to the
utilities, insulating customers from price instability.
"The fixed gas prices in our proposals would have set gas prices
at rates below the average rates paid by customers over the last
six years," said Patrick. "We believe our customers would have
realized savings over the next several years had our proposals been
The ICC hearing examiner's proposed orders in these two cases
state that the utilities' proposed charges of 31.08 cents per therm
for customers of Peoples Gas and 31.02 cents per therm for
customers of North Shore Gas were "reasonable, prudent, and
necessary." Rejecting the hearing examiner's recommendations, the
ICC instead selected much lower fixed rates of 25.63 cents per
therm for Peoples Gas and 27.45 cents per therm for North Shore
The LDCs said accepting the fixed rates selected by the ICC
would have "endangered the long-term viability of the utilities.
Under the rates selected by the Commission, the utilities would
incur substantial losses or be forced to dramatically reduce costs
that could result in jeopardizing reliability."
"Our price proposals are far more realistic than those selected
by the Commission, especially considering that gas prices in the
commodity markets are expected to increase during the next few
years," said Kathy Donofrio, vice president of rates. Gas prices
have ranged between 22 and 43 cents per therm over the last two
years, and have averaged 32 cents per therm during that period.
Moreover, market analysts predict that prices will average 33 cents
per therm for customers, moving forward, Peoples said.
Some analysts, however, expect gas prices in Chicago to fall
sharply once the 1.3 Bcf/d Alliance Pipeline project goes in
service next fall.
The ICC apparently considered the impact of the pipeline
expansion in this case and another recent decision made on a
similar fixed-price proposal filed by CILCO. In the CILCO case, the
ICC lowered CILCO's requested fixed rates by about 9 cents/therm.
CILCO had requested a rate of 36.77 cents/therm in the winter
(November-March) and 28.80 cents/therm in the summer, but the ICC
reduced the rates to 29.60 cents for winter and 25.88 for summer.
CILCO also rejected its order last fall and chose instead to
continue its purchased gas adjustment mechanism, which sets rates
on a monthly basis.
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