Indiana Gas Co. and Citizens Gas, Light & Coke said theyplan to appeal to the Indiana Supreme Court an appellate courtdecision issued last week ordering the break-up of their jointventure energy marketing company, ProLiance Energy, which sellsmore than 200 Bcf of gas and 3 million MWh of power per year.

Indiana Gas and Citizens Gas formed ProLiance in March 1996without the approval of the Indiana Utility Regulatory Commission(IURC). ProLiance was created to take control of all the utilities’gas purchasing, transportation and storage operations.

What the utilities did was a “parlor trick, a house of cards,”said Jerry Polk, utility policy coordinator with the CitizensAction Coalition, which joined a group of large consumers and theUtility Consumer Counselor in the court battle against theutilities and ProLiance. “It was the same people, the samecomputers, the same desks, the same buildings [for ProLiance andthe utilities]. Once ProLiance came along, they were allowed to adda profit onto functions that previously they had to pass through.”

ProLiance sold gas to the utilities at published index prices,which Polk claims, are easy to beat “if you’re a company the sizeof ProLiance.” ProLiance also controls 37 Bcf of the utilities’working storage capacity and 600,000 Dth/d of their firmtransportation capacity on three interstate pipelines: ANR, TexasGas and Panhandle Eastern.

Industrial customers filed a complaint regarding ProLiance’smonopoly power over transmission and storage capacity in 1996, andthe formation and operation of the company was litigated in alengthy hearing before the IURC. The commission decided Sept. 12,1997 to approve ProLiance’s operations as being in the publicinterest. The appellate court last week overturned that decisionand remanded the case to the commission with instructions todisapprove utility gas supply agreements with ProLiance and refundcustomers. The crux of the appellate court’s decision focuses onthe index-based pricing arrangements, which it considered aviolation of Indiana statutory law. The court held that without analternative regulatory filing made by the utilities, the IURCexceeded its statutory authority in accepting the supply and otheragreements.

“This is not a commission that has always made decisions thathave favored consumers,” said Polk. “In fact, the history shows ithas always favored the utilities.”

The utilities have vowed to take the case to the state supremecourt, saying the appellate court’s decision incorrectly appliesstate statute. “Regardless of the outcome of that appeal,management takes note of the fact that the court of appeals has notchallenged the IURC findings that the agreements providesignificant economic value to customers and are in the publicinterest,” Indiana Gas said in a statement. “While these decisionsare pending final resolution, Indiana Gas will continue to utilizeProLiance for its gas supply.”

Polk said rates may be lower, “but the question is should theyhave been lower than they are but for ProLiance. ProLiance has beenextremely profitable. It has been the most profitable part of the[utilities’] businesses.” On Sept. 30, Indiana Gas’ parent company,Indiana Energy, reserved $1.1 million of ProLiance earnings aftertax. Total after-tax ProLiance earnings to date are $10.1 million,according to Indiana Gas. “This amount includes earnings from allof ProLiance’s business activities, and therefore is believed to bea very conservative estimate of the upper risk limit,” the companysaid. But Polk said he expects the utilities to low ball ProLianceprofits to avoid shocking investors.

“We don’t know how much money is involved. Could it be $50 or$60 million? It very well could be,” said Polk. “ProLiance hasillegally siphoned profits from the gas customers. Any profits thatProLiance has made that weren’t flowed through to customers throughreduced rates, don’t belong to ProLiance, don’t belong to theshareholders.

“We believe the law is strongly on our side. The appeals courtmade the right decision. Sending it on to the supreme court is anuisance and an aggravation. Ultimately we’re going to prevail andit’s just going to make an even larger amount of money they willhave to return to customers.”

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