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CUB Claims Nicor Unit's Winter Cap Plan Employs 'Deceptive Marketing'

CUB Claims Nicor Unit's Winter Cap Plan Employs 'Deceptive Marketing'

Continuing to follow Nicor Gas and a subsidiary's actions very closely, the Citizens Utility Board (CUB) said Thursday that Nicor Solutions is using "deceptive marketing" to pitch a pilot program that charges consumers $107 a year to protect against high natural gas prices -- a plan the board contends never would have saved Nicor's customers any money in the history of the gas market.

Filed on Thursday, CUB's complaint asks the Illinois Commerce Commission (ICC) to order Nicor Gas' unregulated affiliate to stop marketing its Winter Cap plan, which it began advertising to Nicor Gas customers in November, unless it adequately provides the prices, terms and conditions of the offer.

"Under the Winter Cap program, consumers fork out more than $107 a year for limited protection against what amounts to a 100-year flood, but Nicor's confusing, deficient and deceptive marketing never makes that clear," said Martin Cohen, CUB executive director. "Nicor Solutions shouldn't be allowed to pitch this program in Illinois unless consumers are given all the information they need to make an informed choice."

Responding to the allegations, Nicor Solutions spokesman Hank Possley, said Winter Cap "was introduced last year in November as a pilot program. We believe the terms and conditions of not only that product, but all of our products, are clear and we believe that the people we are marketing to understand these product offerings and more importantly -- they want product offerings.

"Winter Cap is one of a couple of products that we have that are developed to help customers mitigate some of the price volatility that you see in the industry right now," Possley added.

Nicor Solutions advertises the Winter Cap program as an "affordable safeguard from the possibility of high natural gas prices this winter." However, CUB said that even though the program provides protection only for the winter months (November through March), it charges an $8.95 monthly fee all year, for a total cost of $107.40 -- on top of the actual cost of gas that consumers pay.

In return, Nicor promises to credit a participant's bills if the market price of gas -- the final "settle price" of the New York Mercantile Exchange (Nymex) gas futures contracts -- rises above 70 cents per therm in a given month. However, CUB said that Nicor Solutions doesn't tell consumers that the settle price has exceeded 70 cents per therm only two months in the history of the gas market -- January of 2001 and March of 2003.

"Even in those two instances, the price wasn't high enough to overtake the total cost of the program -- with the monthly fee -- and save customers any money, CUB maintains in its complaint. "In fact, the Nymex price would have to average at least 78 cents in each winter month, just for a customer to break even. To compare, even after a price spike this winter, the Nymex price for January is 61.5 cents per therm, and the monthly average so far this winter has been 51.6 cents per therm."

While mainly asking the commission to force Nicor Solutions to correct its marketing, CUB is also asking state regulators to bar the company from accepting new Winter Cap customers, and to allow current customers to end the agreement without penalty. The watchdog agency said that "buried in the fine print" of Nicor Solution's solicitation is the fact that a exit fee of $7 per month for the life of the consumer's remaining contract will be charged to customers who drop out of the plan after 10 days.

In addition, CUB recommends that the ICC fine Nicor Solutions $100 for each customer it improperly solicited, up to $1 million.

"If consumers have any chance of benefiting from competition in the gas market, the offers have to be clear to the average customer," Cohen said. "The only way that will happen is if the ICC cracks down on marketing abuses."

CUB pointed out that the Winter Cap program, which is initially being offered to 5,000 customers, is the second Nicor Solutions plan to run into trouble. In 2002, CUB filed a class action lawsuit, which is still pending, accusing Nicor Solutions of misleading customers about its Fixed Bill program.

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