Utility Watchdog Smells Scandal in Peoples Energy-Enron Relationship
"Peoples Energy: Anatomy of a Scandal" is the title of an elaborate diagram Chicago-based watchdog group Citizens Utility Board (CUB) has posted on its web site. The diagram graphically depicts how Peoples Gas allegedly forced Illinois ratepayers into paying "sky-high" gas prices in winter 2000-2001 while its parent company reaped profits with an alleged partner in crime, Enron Corp, through a joint venture called Enovate.
"It's as bad a violation of the public trust for a utility company of Illinois that I've ever seen," said CUB Executive Director Martin Cohen. "We don't know yet the full extent of the violations."
CUB alleges that the Chicago utility company took stored gas that it had already purchased for ratepayers and sold or transferred it to 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 for its ratepayers.
CUB estimated last summer that ratepayers were overcharged for storage by about $59 million and that total overcharges were about $110 million (see Daily GPI, Aug. 8, 2003), but in light of this new information regarding Peoples relationship with Enron and Enovate, the overcharges could be much higher, Cohen said.
"This may be just the tip of the iceberg," judging from the information recently made available through numerous Enron documents and emails in a database put together for the Federal Energy Regulatory Commission, he said.
The details also are under investigation by the state attorney general's office, according to the Chicago Tribune, which ran a story on the investigation on Friday.
Cohen said the staff of the Illinois Commerce Commission previously attempted to get additional information from the utility company on the transactions between Peoples Gas and Enovate, but the utility refused, saying that it was not required to provide details regarding its unregulated operations to the ICC.
"They were stonewalled by the company," said Cohen. "The staff filed a motion to compel, but eventually that motion was dropped. We don't know why that occurred, but it was only in recent weeks when we began a search of the Enron database that we began to connect the dots and find evidence that the commission, CUB and the public had been misled."
CUB charges that it was illegal for the utility to engage in transactions with an affiliate without commission approval. According to Cohen, Peoples Gas knew this and tried to hide its transactions with Enovate by signing checks to Enron Midwest, which had the same employees as Enovate, the same offices and was basically the same company.
CUB said there was at least one 18 Bcf deal with Enron Midwest that "appears to have provided secret profits to Peoples. The total that we have been able to document so far is $10.5 million" but that may be just the beginning, said Cohen.
He said most of People Gas' storage in winter 2000-2001 was tied up in questionable park and loan deals with Enron and other third parties and the company had to go back out and buy gas on the spot market to serve its own ratepayers.
"They were working with Enron to make money off of that storage and that was never disclosed," he said.
In a statement released on Friday, Peoples Energy said the Tribune story "contains inaccuracies and mistruths that are a repeat of allegations made by [CUB].
"Peoples Energy values its integrity and its role in providing essential services to the consumers of Chicago and northeastern Illinois," the company said. "We would not and have not jeopardized that integrity."
To illustrate its integrity, Peoples said that last year its gas purchasing strategies "shielded customers from $135 million in higher prices."
The utility noted that supply arrangements, such as the one it had with Enron, are common practice. "All such contracts, including the storage management contract with Enron Midwest -- which is the subject of the Tribune article -- have been provided to the Illinois Commerce Commission (ICC)," Peoples said.
Peoples said its 2001 purchasing practices were no different than in any other year. The only change was "an unprecedented and unexpected rise in the price of natural gas in national markets."
Peoples formed a joint venture with Enron in 1999 to "optimize 10 to 20 Bcf/year of Chicago area storage capacity" and related transportation and to provide physical and financial product and service offerings, such as balancing, storage, exchange, and title tracking for Chicago hub customers. Daily GPI Oct. 5
As part of the deal, Peoples also signed a five-year agreement to buy two-thirds of its gas supply, or an average of 100 Bcf/year, from Enron under some kind of index-based purchase transaction. Few details were ever made public, and according to CUB, Peoples never explained what the benefits were from the agreement.
"We still don't know the full extent of this," said Cohen. The supply contract was sold to Occidental Petroleum through the Enron bankruptcy process for about $40 million. Occidental apparently is still providing gas supply to Peoples. "They paid a pretty penny for it, so we would have to believe that was a quite a valuable contract and had been for Enron for the three years that they had supplied gas under it," said Cohen.
Cohen said CUB intends to file something regarding this investigation in the next few days possibly in an ongoing purchased gas adjustment proceeding at the ICC. The commission still is reviewing People Gas' gas purchases for the 2001 fiscal year.
"We believe that the conclusion of the proceeding will show that the company acted prudently and in the best interest of customers," Peoples said in its statement. "We are confident the testimony presented supports our position."
Peoples Gas serves about one million retail customers in Chicago and northeastern Illinois.