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ALJ Says Enron-Peoples Gas Venture Led to $118.6M in Utility Customer Overcharges

Pending approval by the five-member Illinois Commerce Commission (ICC), a proposed decision by an administrative law judge (ALJ) could put about $160 back in the pockets of each of Peoples Gas' customers. The ruling recommends that Peoples Gas refund customers $118.6 million for imprudent gas purchases and illegal profit sharing between Peoples' parent company and an Enron affiliate in winter 2000-2001.

Furthermore, this case may be just the tip of the iceberg because Peoples Gas had a five-year asset optimization deal and joint venture partnership with Enron, which covered the utility's commodity purchases and the use of its gas storage, transportation capacity and gas distribution system among other assets. Gas purchases by Peoples Gas in each of those five years are now being reviewed.

The case dates back to 1999 when Peoples Energy Corp. and Enron North America Corp. (ENA) partnered to reap profits from the Chicago energy marketplace, using Peoples' utility assets and Enron's marketing and trading skills. The two companies said they planned to expand and enhance Peoples' existing gas market hub, offering a variety of transportation and storage services and optimizing Peoples' 20 Bcf/year of Chicago-area storage capacity.

During the winter of 2000-2001, however, natural gas prices soared, reaching a peak during January 2001 bidweek of $10.93 at the Chicago citygate. A year earlier they had averaged only $2.44 in Chicago.

What the ALJ determined was that the Chicago utility company took gas that it had already purchased and stored for ratepayers in the summer of 2000 and then sold it or transferred it to the Enron-Peoples partnership (named Enovate), which then resold the gas and split the profits between Enron and Peoples Energy. The utility, meanwhile, had to go back out on the market and repurchase more expensive supplies on the spot market during the winter for its ratepayers.

"Over and over in the winter of 2000-2001, Peoples Gas swore to customers struggling to pay their bills that it wasn't profiting off of the record-high gas prices, when, in fact, the company was swindling them," said Dave Kolata, director of policy and governmental affairs at the Citizen Utility Board, the Illinois consumer watchdog group that first drew attention to the overcharges. "We will be urging the ICC to approve this refund as quickly as possible so consumers can get some relief on this winter's gas bills."

The commission is expected to rule on the refund in November.

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