Hundreds of thousands of northern Illinois consumers have been slammed with soaring natural gas bills after switching services from traditional utilities to alternative gas suppliers, according to a consumer alert issued last week by the Citizens Utility Board (CUB). However, some of the competitive gas suppliers are crying foul over CUB's analysis of their offers to customers.
CUB said its newly revamped Gas Market Monitor, a free on-line tool that tracks monthly price offers by unregulated suppliers, shows that 93% of the plans marketed by these companies to date have cost consumers money when compared with prices of the regulated gas companies: Peoples Gas, Nicor and North Shore. And the average loss is huge: $270. The companies' marketing materials prey on fears of skyrocketing natural gas costs and often give misleading information about gas prices, CUB said.
CUB also has received complaints that door-to-door sales people posed as representatives from or claimed that their service was endorsed by the Illinois Commerce Commission (ICC), Peoples Gas, Nicor and even CUB. To protect themselves from unwanted gas-company marketing, CUB is urging consumers to sign up for a "Do Not Market" list managed by the Chicago area's gas utilities. Gas suppliers are required to obtain a copy of the list monthly and purge the names on it from their marketing campaigns.
"Competition in the natural gas market was sold to consumers as a way to lower their heating bills," CUB Executive Director David Kolata said. "But exactly the opposite is happening. Hundreds of thousands of consumers are paying substantially more than they should on their gas bills, often because unregulated suppliers misled them or didn't give them all the facts."
According to state and federal data, roughly 300,000 Illinois consumers are now served by unregulated, alternative suppliers, CUB said. Nine such companies are marketing to consumers in northern Illinois and those marketing efforts kick into high gear in September, right before the winter heating season begins. Most of the suppliers offer fixed-rate plans, which lock in prices for a period of one to five years. Some also offer a variable rate tied to an index that changes monthly.
While no one can accurately predict the future price of gas, the track record of these new companies shows that it is extremely unlikely customers will save money. For example, as of Sept. 10, one supplier was offering to lock Chicago consumers into a price of about $1.18/therm for four to five years. Yet Chicago's natural gas prices have only reached that level once in Illinois history -- and that was for a single month. The September price for Peoples Gas and Nicor is about 66 cents/therm.
On the Gas Market Monitor page of its website the nonprofit watchdog does concede that consumers can save money by switching to alternative gas suppliers. "It all depends on which company you choose and when you sign up," the site says. "If you happen to lock in a fixed rate just before prices skyrocket, you might save money. You may not be so lucky if prices plummet after you lock in. Sadly, you need a crystal ball to determine whether any of these plans are winners."
U.S. Energy Savings Corp. is one of the alternative suppliers active in the Peoples Gas and North Shore Gas service territories. According to CUB and confirmed by a U.S. Energy spokeswoman, the firm's offer is $1.14/therm fixed rate for four-five years. There also is a balancing charge of 3.81 cents/therm for customers on the Peoples system and 6.95 cents/therm for customers on the North Shore system.
"Our product -- long-term fixed price contracts -- is about peace of mind protection against volatile energy prices," said Brennan Mulcahy, CEO of U.S. Energy parent Energy Savings Group. "At the onset, our customers know that they are locking in at a somewhat higher rate than the floating rate they pay today to their utility. In doing so, they will know exactly what they will pay for their commodity for the next four or five years. In this way it is very much like a fixed mortgage versus an adjustable rate mortgage."
Mulcahy went on to cite statistics showing that a fixed-rate mortgage in the Chicago area is 25% more expensive than a one-year adjustable-rate mortgage. "It is the price you pay for stability," Mulcahy said.
Nordic Energy Services CEO Jim Deering told NGI that CUB's characterization of the market for competitive gas supplies in Illinois is "very inaccurate," particularly as it relates to Nordic. He said Nordic's floating price offer to customers on both the Peoples and Nicor systems has beaten the utility offering every month this year.
Deering said he knows that CUB staffers call his office to obtain price information because he sees the organization's name on caller ID. He said CUB representatives are not consistent in whom they speak with or the information they ask for, usually asking for Nordic's fixed-price offering, which is more expensive than the 58.5-cent floating offer. Deering went on to say that Nordic and some of the region's other gas marketers might be coming out with their own press release to refute CUB's assertions.
The Gas Market Monitor is purported by CUB to be "the most comprehensive gas-price analysis available" to Illinois consumers. CUB spokesman Jim Chilsen told NGI that CUB's website is "the only place where you can get apples-to-apples comparisons" of prices.
Chilsen said CUB has been looking at prices offered to consumers since deregulation pilots began in Illinois in the late 1990s. He said the organization has "always strived to bend over backward to be fair to the natural gas suppliers." Over the years CUB's methodology for gathering price information has improved, Chilsen said. Where once CUB relied on customer service representatives for pricing information, Chilsen said CUB now has contacts within the companies themselves that provide more accurate data.
CUB said it will be working with social-service agencies, community groups and local officials to get the word out to consumers about the risks of switching gas service. The organization is urging consumers to be skeptical of gas supply offers and research them carefully before signing any legally binding agreements.
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