Illinois Begins Gas Market Probe

As soaring December bills for natural gas use hit the home front in Illinois last week, city and state officials opened a broad investigation into the causes of skyrocketing prices and made attempts to increase assistance to low-income households.

Spurred by the urgings of Gov. George H. Ryan and various legislators, the Illinois Commerce Commission voted 5-0 to open an investigation into this winter's price spikes. The ICC also directed its staff to put together a report in 60 to 120 days.

Chicago and suburban mayors, who gathered last Monday to support extension of the assistance program, also called on the ICC to initiate an emergency rulemaking to investigate natural gas pricing by the state's gas companies. The action follows the governor's creation of the state's first ever Energy Cabinet last week, and his call for a gas price investigation.

"Recent developments and volatility in the energy market experienced by the citizens of this state and nationally demonstrate an immediate need to create a framework for handling energy-related issues in the most effective manner," Ryan stated. The energy cabinet will be co-chaired by the governor's senior advisor on environment and natural resources and his senior advisor on regulatory affairs and will be comprised of key members in Ryan's cabinet.

"I call on the ICC to complete a full investigation of the recent natural gas price increases. Although, to date, natural gas utilities have been cooperative, we need assurances that Illinois consumers are not being taken advantage of," the governor said.

Commission spokesman David Farrell said a series of hearings on the utilities will be held starting on Jan. 18. Another meeting is tentatively scheduled for Jan. 24 with producers.

"This is not a witch hunt, or total fishing expedition," Farrell said. It is to receive "assurances that people in Illinois are not being taken advantage of." The spokesman said he believes the investigation will reveal that it is simply the way the market works. "The prices were not there, nobody drilled, all kinds of new uses for gas emerged, the economy took off, and we have more housing stock under construction within the last five years than probably during the previous 20."

In addition to the special investigation, the commission also asked its staff to expedite its annual prudence reviews of Illinois LDC's gas purchases for the past 12 months.

"This year, of course, it will be different, because everyone including their sister and brother will be in reviewing and asking, 'were you consistent with the market generally,'" Farrell said. He pointed out that these reviews can normally take a year or more, but the commission asked for the 14 different prudence reviews to be completed by the end of the calendar year.

The focus on natural gas prices by the mayors' coalition is being led by Chicago's environmental office, which contends distributor Peoples Gas acted imprudently in failing to hedge. The distributor "has the tools to hedge, but it did not," a spokesman for the environmental office said. Peoples rates to residentials currently are $9.70 MMBtu. "While industrial customers locked in purchases last summer, the city did not. They should have seen this coming and done something similar." The city will pursue its challenge in the annual rate review coming up in the spring. Part of that challenge will include whether the diversified businesses of parent, Peoples Energy, which has an E&P subsidiary, conflicts with its role as a utility.

Robert J. Kelter, director of litigation for the Citizens Utility Board (CUB), said, "I would be surprised if very much comes out of these hearings. I assume that they are going to ask people to give testimony, but I am not sure what a public interest group can say. Prices are way too high, the market is out of control, and consumers are getting screwed." Kelter said. CUB asked the ICC to order Peoples [Gas] to start hedging more, but the commission did not do it. He said if the commission had listened it might have prevented some of the current problems.

Kelter said he hoped the investigation would delve into whether affiliates of Peoples Energy and Nicor Gas were purchasing gas at better prices than their utilities. "If the utility's affiliates have been able to purchase gas cheaper than the utilities themselves, we want to know why."

Once the special investigation is completed sometime this spring, a final report including transcripts from the hearings and accompanying recommendations will be forwarded to the Energy Cabinet which Ryan formed earlier in the week. The report will then be forwarded to the governor, and then on to the general assembly in an effort to develop guidelines for a statewide energy policy.

Kelter remains pessimistic about the investigation, "I don't see the ICC doing a thorough investigation on whether gas producers are gouging Nicor and Peoples in some way," he said.

In a related action, ICC Chairman Richard Mathias asked the Federal Energy Regulatory Commission to look into whether the prices charged by natural gas pipeline companies to LDCs are the same as those published rates on file with the federal agency.

The Illinois legislature voted early last week to expand eligibility requirements, allowing an additional 47,000 families in the state to apply for the Low Income Home Energy Assistance Program (LIHEAP). The legislative action extends the LIHEAP program to families with incomes of less than 150% of the poverty level, or $25,575, up from the previous 125% or $21,312 limit. The 150% is the maximum allowed under the federal-state program.

Alex Steis

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