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Peoples Gas, North Shore File to Fix Rates for 5 Years

Peoples Gas, North Shore File to Fix Rates for 5 Years

Following the lead of Central Illinois Light Co. (CILCO), Peoples Energy's Chicago gas utilities, Peoples Gas and North Shore Gas, last week took advantage of a state law passed last year that allows the LDCs to request approval of fixed annual gas rates.

They filed separate plans with the Illinois Commerce Commission (ICC) to lock in commodity fees for five years under specific provisions of the Electric Service Customer Choice and Rate Relief Law of 1997. Peoples stressed the main reason for the plans would be to shield commodity customers from spot market price spikes and annual fluctuations, which can reach 5 to 10 cents/therm. But the utilities also would be able to make a profit for the first time on regulated gas sales if purchased gas costs were lower than the fixed rate customers would pay under the plan.

"We are committed to finding ways to help minimize the impact of fluctuations in gas prices on customers," said Tom Patrick, Peoples executive vice president. "While gas bills would still reflect a customer's increased usage during winter, our proposal would eliminate spikes in customers' gas prices during the winter months." He also noted the fixed gas prices will provide benchmarks for customers to use when analyzing their energy costs. "Many of our customers prefer stable prices," said Patrick. "The fixed gas price is another way of increasing customer satisfaction."

The plans would fix gas prices at 32.76 cents per therm ($3.28/MMBtu) for customers of Peoples and 34.70 cents per therm ($3.47/MMBtu) for customers of North Shore. The rates are fixed based on price forecasts but comparable to what on average customers have paid over the past two years, said Peoples Gas' Kathy Donofrio, vice president of markets, business development and rates. "When you go back and look at historically what rates have done, you see usually they are 34-35 cents in the winter and they go down to maybe 26 cents in the summer. The annualized rate for 1998 was about 30 cents/therm, and the annualized rate for 1997 was about 34 cents."

Donofrio said the fixed rates proposed would be based on a forecast that takes into account the price impact of the new Canadian gas import capacity on Northern Border (700 MMcf/d this winter) and the proposed Alliance pipeline (1.35 Bcf/d in fall of 2000). With such a large amount of new pipeline capacity planned between western Canada and the Midwest, market observers expect midwestern gas prices to fall over the next few years. ICF Kaiser, for example, predicts prices at Chicago could drop 21 cents/MMBtu from 1997 levels when the 1.35 Bcf/d Alliance Pipeline project is put into service in fall of 2000.

The ICC apparently took that into account when it lowered CILCO's requested fixed rates by about 9 cents/therm when it approved its plan two weeks ago. 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 rejected the order last week, deciding the delay on Northern Border's expansion made it too risky this winter to fix rates below those that were charged in recent winters. It chose instead to continue its purchased gas adjustment mechanism, which sets rates on a monthly basis.

Rocco Canonica

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