Bringing to a close charges against the utilities of Peoples Energy for its dealings with Enron that resulted in significant customer overcharges, the Illinois Commerce Commission (ICC) on Monday approved an amended settlement agreement valued at $200+ million by a vote of 3-1. Among other things, Peoples Energy will refund $100 million to customers.
The settlement agreement was between Peoples Gas and North Shore Gas with Illinois Attorney General Lisa Madigan's office, the City of Chicago and the Citizens Utility Board (CUB). The agreement was reached in principle in mid-January (see Daily GPI, Jan. 18). The gas distribution segment of Peoples Energy serves about one million utility customers in Chicago and northeastern Illinois.
The refund stems from evidence uncovered by CUB, the City of Chicago and Madigan's office showing how, under a five-year contract, the utilities gave up control over their gas purchases, stored gas and gas storage capacity to Enron and its affiliates. Those companies then funneled profits from trading the gas, which originally was intended for consumers' use, to Enron and Peoples Energy, the gas utilities' parent company. As a result of the contracts, during the winter of 2000-2001, Peoples Gas had to purchase replacement gas, and the overcharges formed the basis of the refund proposed to the ICC.
"We are very happy with the settlement," said Jim Chilsen, a CUB spokesman. "In the end, the settlement represents the biggest refund of its kind in Illinois history. The breakdown of the $200+ million refund package includes $100 million in customer refunds, $259 million to forgive bad debt for 2000-2005, around $14 million to turn the gas back on for customers who were disconnected; and $30 million for a weatherization program. The total settlement does not add up because the company would not necessarily have recovered all of that [debt] money due to the fact that they are hardship cases." He added that the overall value of the settlement would depend on "how you value bad debt."
The ICC amended the original debt forgiveness agreement to cover 2000-2005 instead of just 2005. Under the original agreement, $52 million was the estimated amount allotted to forgive bad debt for just 2005.
"What is nice about the amended agreement is that the staff of the ICC was able to make the refund package a bit stronger by including more people and a longer time frame," said Chilsen. "We knew the company was taking extraordinary measures to settle this case because we had such strong evidence against them. This is really a big step forward."
According to the terms, Peoples Energy also must implement ICC recommendations to conduct audits of gas procurement practices.
With these matters now settled, Peoples said it will focus its efforts and resources on improving the quality of service to its one million customers. It will record a $10.7 million pre-tax settlement charge in its fiscal second quarter to reflect the impact of the change in accounting treatment for hub activities for fiscal 2005. This amount is in addition to the $105 million previously recorded.
The company also estimates that fiscal 2006 operating income will be negatively impacted by provisions of the amended settlement agreement. The change for hub revenues and the termination of credit and collection efforts on utility bad debt amounts written off during fiscal years 2000-2005 will likely adversely impact fiscal 2006 pre-tax operating income by $10 to $20 million. Peoples said it will provide a full update on its earnings outlook for fiscal 2006 at the time of its regularly scheduled second quarter earnings release.
Intelligence Press Inc. All rights reserved. The preceding news report
may not be republished or redistributed, in whole or in part, in any
form, without prior written consent of Intelligence Press, Inc.