The Citizens Utility Board (CUB), Illinois' consumer advocate, on Tuesday applauded a record refund package worth more than $196 million for Peoples Gas customers, which settled a long-standing challenge to the utility's dealings with Enron Corp. in the winter of 2000-2001. CUB had been working with the state's attorney general's office and Chicago officials for the past four years to ensure a settlement.
The refund stems from evidence uncovered by CUB, the City of Chicago and Attorney General Lisa Madigan's office showing how, under a five-year contract, Peoples Gas gave up control over its gas purchases and storage to Enron and its affiliates. Those companies then funneled profits from trading the gas -- originally intended for consumers' use -- to Enron and Peoples Energy, the gas utility's parent company. As a result of the contracts, during the winter of 2000-2001, Peoples Gas had to purchase replacement gas, and the overcharges formed the basis of the refund proposed to the Illinois Commerce Commission (ICC).
Earlier this month, the ICC heard final arguments in the case and was set to rule on the refund recommendation, at any time. An ICC administrative law judge had recommended a $118 million refund, but the company was urging the agency to lower the amount.
Under the pact negotiated by Madigan and Chicago Mayor Richard Daley's offices, consumers will receive a $100 million rebate on natural gas bills from Peoples Gas. In addition, the company will contribute $25 million into a fund to be used for weatherization, making it one of the largest weatherization programs in the nation.
Peoples Gas also will reconnect gas service to nearly 12,000 customers who were disconnected for nonpayment. All past due balances will be waived, and the company will take steps to repair those customers' credit reports. The company also will be prohibited from recovering in rates an additional $52.3 million it has accrued in bad debt. The settlement must receive ICC approval before it becomes final.
In a statement, Peoples Energy said the settlement provides a fair and reasonable benefit to consumers, as well as the company.
"The settlement does not constitute an admission by or finding against the company that the conduct alleged in the 2001 reconciliation case or civil litigation brought by the Illinois Attorney General and the City of Chicago was wrongful, unlawful or in violation of any law or regulation," Peoples Energy said. The utility "continues to believe that its gas purchases were consistent with acceptable practices and its 2001 gas prices were in line with other utilities in the state."
Peoples Energy CEO Thomas M. Patrick said, "We are encouraged that the city, the attorney general and the CUB are all in agreement with this settlement and we look forward to expeditious approval by the ICC so that customers will see the benefit in this winter's bills. While the cost of this settlement to the company is substantial, it is within our financial capacity and covers regulatory and civil litigation relating to five prior fiscal years. Achieving certainty and finality on these prior periods is important to the company, its employees, customers and shareholders. We want to work with our customers and focus on future plans for improving service to them. To do that, we must put these issues behind us."
Along with the refunds and reconnections, Peoples Energy agreed to implement ICC recommendations to conduct audits of its gas procurement practices. Of the audit requirements, Patrick noted, "we believe these will confirm the reasonableness and prudence of our purchasing practices, but we remain open to recommendations for improvement."
The costs of the settlement, when spread over two years, are manageable for the company from a financial standpoint, it said. "The company has a solid balance sheet and adequate liquidity in place to meet these obligations." As a result of the settlement, Peoples Energy expects to record a $92 million pretax charge ($1.45/share) for the quarter ending Dec. 31, 2005. This charge reflects the $100 million settlement and the $5 million first-year cost of the conservation program and is net of $13 million in liabilities that were previously recorded related to this proceeding.
"This is a great day for consumers," said CUB executive director David Kolata. "Not only is this the first natural gas refund of its kind in Illinois, but it's also one of the best rebate packages ever seen in Illinois. Period. And it couldn't come at a better time. Too many customers face the impossible choice between heating or eating. Between putting food on the table or paying for prescription drugs. On behalf of consumers, I'd like to thank Attorney General Madigan and Mayor Daley for fighting so hard to put this refund package together."
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