Locking horns yet again with Naperville, IL-based Nicor Gas, the Citizens Utility Board (CUB) — a utility watchdog group — last week urged state regulators to scrap a controversial “alternative regulation” plan that has allowed the natural gas distributor to charge customers at least $27 million more than they would have paid under standard ratemaking rules.

Approved for Nicor in 1999 by the Illinois Commerce Commission (ICC), the board claims the plan changed the way gas prices are set for the utility, which serves 1.9 million customers across Illinois. The watchdog group alleges that the plan sets a benchmark price for gas and allows Nicor to keep 50% of any savings it achieves if its costs are below that price. “The plan is supposed to give the company an incentive to purchase gas more efficiently,” CUB said. “However, a recent analysis by CUB shows that is not the case.”

In testimony filed with the ICC Thursday, CUB detailed how the plan is “stacked in favor” of the gas company, leading consumers to pay more than they should on gas bills. CUB urged the ICC to scrap the plan or conduct further hearings to modify it dramatically.

“Nicor billed this plan as a win-win for consumers,” CUB Litigation Director Rob Kelter said. “We now know that the only winners are Nicor stockholders, who made excess profits while consumers paid more on their gas bills.”

Under Illinois law, a gas company must show that an alternative regulation plan provides lower rates than traditional regulation or some other concrete benefit to consumers. CUB alleges that Nicor’s plan fails to meet those criteria.

From CUB’s study, Kelter said Nicor’s benchmark price is set too high, so it benefits regardless of whether it increases its efficiency. During the first two years of the plan Nicor entered into risky futures contracts for gas and lost money on them. Under the alternative regulation plan, consumers paid for 50% of those losses, costs they would not have paid under traditional regulation.

“Many customers experienced severe hardships because of record-high gas prices last winter,” Kelter said. “And the Nicor Gas plan added to that hardship by forcing consumers to pay even higher gas bills.” Kelter said the commission is scheduled to rule on the case in the fall.

The last time CUB and Nicor butted heads was over whether Nicor Gas could expand its gas deregulation program. In September 2000, CUB initially won a temporary block on the expansion until Nicor could prove how the program benefits consumers (see NGI, Oct. 2, 2000). In November of that year, Nicor Gas received permission from the ICC to continue its pilot program for 2001.

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