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In Illinois, Nicor Wants Decoupling, Too

Nicor Gas is seeking a decoupling mechanism to preserve revenue in the face of declining throughput as part of a rate hike request at the Illinois Commerce Commission (ICC). Meanwhile, two other Illinois gas utilities said their decoupling mechanisms just yielded a million-dollar payback to customers.

Nicor's rate hike would raise about $140 million annually from business and residential customers. The utility, which serves most of the northern third of Illinois, excluding Chicago, is seeking an allowed rate of return of about 9% on a rate base of about $1.5 billion. In its last rate case, filed in 2004, the company was granted an allowed rate of return of 8.85%. Its requested allowed rate of return reflects a return on equity of about 11%. Sustained high gas prices and the sluggish economy have had a negative impact on company expenses, and Nicor has been earning less than its allowed rate of return, it said.

The Citizens Utility Board has come out against the Nicor rate hike and has vowed to fight it.

To mitigate the effect of decreased gas consumption by consumers, Nicor also plans to propose a what it calls a Conservation Partnership Plan. The plan would include a decoupling rate mechanism that supports conservation and increased investment in energy efficiency programs. It would also establish an independently administered conservation fund to invest in energy efficiency and conservation projects throughout Nicor's service territory.

Decoupling is designed to break the link between recovery of the company's costs -- largely fixed in nature -- and the quantity of gas used by customers. It would align the interests of Nicor with its customers by allowing the company to promote conservation and efficiency programs. Still, decoupling is not without controversy.

Earlier this year the ICC granted rate increases for Peoples Gas and North Shore Gas and allowed the utilities to institute decoupling (see NGI, Feb. 11). However, Illinois Attorney General Lisa Madigan had urged the ICC to reject the "controversial proposal...that would impose surcharges on customers for the delivery of gas they do not use." Madigan claimed that the utilities "would earn extra profits especially when customers use less gas."

Last week Peoples and North Shore said their customers will receive an overall net credit of $1 million on May bills from the decoupling programs. Shown on customer bills as a "volume balancing adjustment," most Peoples and North Shore customers will see a credit on May bills. The adjustment can be either a credit or a charge, depending on the amount of gas consumed by customers. The May adjustment is based on gas usage from March 2008. March was colder than normal and revenues collected were higher than what the utilities are expected to recover. Therefore, most customers will see a credit on their May bills.

Across the nation residential gas consumption has been in decline for a number of reasons, including improved appliance efficiency and increased conservation efforts by consumers in response to higher commodity prices. Utilities have responded by seeking to reduce the amount of fixed costs they recover through volumetric charges (see NGI, April 2, 2007; June 19, 2006) through the use of decoupling mechanisms. The National Association of Regulatory Utility Commissioners supports states' ability to use decoupling (see NGI, April 30, 2007). The Energy Information Administration has predicted that the use of decoupling mechanisms will grow (see NGI, Aug. 20, 2007).

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