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Peoples, North Shore Reject ICC Fixed-Rate Ruling

Peoples, North Shore Reject ICC Fixed-Rate Ruling

Peoples Energy said it was "extremely disappointed" in orders by Illinois Commerce Commission (ICC) that would sharply reduce the gas rates the LDC and affiliate North Shore Gas could charge their customers under fixed-price plans filed last fall. The utilities said they cannot accept the ICC rulings and informed the agency that they will remain instead under their existing pricing structure.

"Despite reasonable recommendations from the hearing examiner in this matter, the Commission chose to set impossibly low rates," said Thomas M. Patrick, president and COO of Peoples Energy. "We regret that the Commission did not recognize and seize this prime opportunity to lock in favorable long term gas prices for our customers."

The fixed gas price would have shielded customers from monthly price volatility. Under the current pricing mechanism, customers pay 100% of actual costs and are subject to market fluctuations. Under the fixed gas price proposal, market risks are shifted to the utilities, insulating customers from price instability.

"The fixed gas prices in our proposals would have set gas prices at rates below the average rates paid by customers over the last six years," said Patrick. "We believe our customers would have realized savings over the next several years had our proposals been approved."

The ICC hearing examiner's proposed orders in these two cases state that the utilities' proposed charges of 31.08 cents per therm for customers of Peoples Gas and 31.02 cents per therm for customers of North Shore Gas were "reasonable, prudent, and necessary." Rejecting the hearing examiner's recommendations, the ICC instead selected much lower fixed rates of 25.63 cents per therm for Peoples Gas and 27.45 cents per therm for North Shore Gas.

The LDCs said accepting the fixed rates selected by the ICC would have "endangered the long-term viability of the utilities. Under the rates selected by the Commission, the utilities would incur substantial losses or be forced to dramatically reduce costs that could result in jeopardizing reliability."

"Our price proposals are far more realistic than those selected by the Commission, especially considering that gas prices in the commodity markets are expected to increase during the next few years," said Kathy Donofrio, vice president of rates. Gas prices have ranged between 22 and 43 cents per therm over the last two years, and have averaged 32 cents per therm during that period. Moreover, market analysts predict that prices will average 33 cents per therm for customers, moving forward, Peoples said.

Some analysts, however, expect gas prices in Chicago to fall sharply once the 1.3 Bcf/d Alliance Pipeline project goes in service next fall.

The ICC apparently considered the impact of the pipeline expansion in this case and another recent decision made on a similar fixed-price proposal filed by CILCO. In the CILCO case, the ICC lowered CILCO's requested fixed rates by about 9 cents/therm. CILCO had requested a rate of 36.77 cents/therm in the winter (November-March) and 28.80 cents/therm in the summer, but the ICC reduced the rates to 29.60 cents for winter and 25.88 for summer. CILCO also rejected its order last fall and chose instead to continue its purchased gas adjustment mechanism, which sets rates on a monthly basis.

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