Following the lead of Central Illinois Light Co. (CILCO),Peoples Energy’s Chicago gas utilities, Peoples Gas and North ShoreGas, last week took advantage of a state law passed last year thatallows the LDCs to request approval of fixed annual gas rates.

They filed separate plans with the Illinois Commerce Commission(ICC) to lock in commodity fees for five years under specificprovisions of the Electric Service Customer Choice and Rate ReliefLaw of 1997. Peoples stressed the main reason for the plans wouldbe to shield commodity customers from spot market price spikes andannual fluctuations, which can reach 5 to 10 cents/therm. But theutilities also would be able to make a profit for the first time onregulated gas sales if purchased gas costs were lower than thefixed rate customers would pay under the plan.

“We are committed to finding ways to help minimize the impact offluctuations in gas prices on customers,” said Tom Patrick, Peoplesexecutive vice president. “While gas bills would still reflect acustomer’s increased usage during winter, our proposal wouldeliminate spikes in customers’ gas prices during the wintermonths.” He also noted the fixed gas prices will provide benchmarksfor customers to use when analyzing their energy costs. “Many ofour customers prefer stable prices,” said Patrick. “The fixed gasprice is another way of increasing customer satisfaction.”

The plans would fix gas prices at 32.76 cents per therm($3.28/MMBtu) for customers of Peoples and 34.70 cents per therm($3.47/MMBtu) for customers of North Shore. The rates are fixedbased on price forecasts but comparable to what on averagecustomers have paid over the past two years, said Peoples Gas’Kathy Donofrio, vice president of markets, business development andrates. “When you go back and look at historically what rates havedone, you see usually they are 34-35 cents in the winter and theygo down to maybe 26 cents in the summer. The annualized rate for1998 was about 30 cents/therm, and the annualized rate for 1997 wasabout 34 cents.”

Donofrio said the fixed rates proposed would be based on aforecast that takes into account the price impact of the newCanadian gas import capacity on Northern Border (700 MMcf/d thiswinter) and the proposed Alliance pipeline (1.35 Bcf/d in fall of2000). With such a large amount of new pipeline capacity plannedbetween western Canada and the Midwest, market observers expectmidwestern gas prices to fall over the next few years. ICF Kaiser,for example, predicts prices at Chicago could drop 21 cents/MMBtufrom 1997 levels when the 1.35 Bcf/d Alliance Pipeline project isput into service in fall of 2000.

The ICC apparently took that into account when it loweredCILCO’s requested fixed rates by about 9 cents/therm when itapproved its plan two weeks ago. CILCO had requested a rate of36.77 cents/therm in the winter (November-March) and 28.80cents/therm in the summer, but the ICC reduced the rates to 29.60cents for winter and 25.88 for summer.

CILCO rejected the order last week, deciding the delay onNorthern Border’s expansion made it too risky this winter to fixrates below those that were charged in recent winters. It choseinstead to continue its purchased gas adjustment mechanism, whichsets rates on a monthly basis.

Rocco Canonica

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