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Utility Watchdog Questions Nicor Gas Rate Hike Amid Investigations

Coming as the latest shot in the ongoing squabble between the Citizens Utility Board (CUB) and Nicor Gas, the utility watchdog group last week blasted a $55 million rate hike proposed by the utility that received a favorable recommendation from two administrative law judges at the Illinois Commerce Commission (ICC).

CUB said the judges' recommendation comes even as the utility faces state and federal investigations and its customers brace for soaring winter heating prices. The case now goes before the five-member ICC, which is scheduled to vote on the matter on Oct. 3. Any new rates would take effect in November.

The judges' recommendation is less than Nicor's request for a $78 million increase. However, a separate CUB case accusing Nicor of overcharging its customers by $190 million has yet to be concluded -- and a large part of the recommended increase is based on an assumption that Nicor will prevail on a key issue in that undecided case.

"Although the cases are separate, CUB's experts have shown how Nicor's rate increase would allow the company to profit from its attempt to defraud customers," said Martin Cohen, executive director at CUB. "Why should the utility be rewarded for misconduct?"

Specifically, the judges recommend allowing Nicor to charge consumers $25.9 million per year for the cost of replacing extremely cheap gas it had in storage with high-priced gas bought on the market. Those business moves are at the heart of CUB's push for the $190 million customer refund. They also are the focus of state and federal probes into whether Nicor used a now-defunct "alternative regulation" plan to defraud customers.

The plan, called "Performance Based Regulation" (PBR), was supposed to serve as an incentive for Nicor to buy less expensive gas, because the utility would share savings with customers if the price it paid for natural gas fell under a predetermined benchmark (see NGI, Dec. 15, 2003).

Knowing that its customers were receiving all the benefits of cheap stored gas under traditional regulation, Nicor used the PBR plan to capture half of those savings. Now, CUB said Nicor wants a rate hike to recover the costs of replacing that cheap gas with expensive market-priced gas.

"Nicor wants its customers to continue to shoulder the costs of its fraudulent scheme," Cohen said. "The judges' ruling, in effect, would allow the utility to do that."

Also, CUB said the judge ignored the $20 million in revenues Nicor earns from selling a gas-line repair plan called "Comfort Guard" (see NGI, May 9). Although the service is technically provided by an unregulated Nicor affiliate, evidence obtained from the company show that Nicor covers most of the marketing costs. Since those costs are included in Nicor rates, CUB argued that the revenues garnered from the program should be used to offset any rate increase.

The proposed increase would be reflected in Nicor's distribution charges, which pay for delivering gas to customers as well as administrative expenses. The cost for the actual gas, shown as the "gas charge" on bills, would not be affected by the increase. That cost fluctuates monthly based on the market price of gas and is at record levels for this time of the year.

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