Continuing to rally against allegedly unjust practices by Nicor Gas, the Citizens Utility Board (CUB) claims that the utility owes customers $143.3 million in refunds, or about $75 for the average customer, as a result of a complicated scheme the company allegedly embarked on to defraud consumers at a time when they were paying record high gas prices.

The news came on a busy week for Nicor Inc., which was also forced to address allegations of fraud committed by ex-executives of now defunct Nicor Energy — a retail energy marketing partnership between Nicor and Dynegy Marketing and Trade. Distancing itself from the related suits brought against the ex-executives by the Securities and Exchange Commission (SEC) and the U.S. Attorney for the Northern District of Illinois, Nicor Inc. assured that Nicor Energy had its own management and was operated separately from Nicor and Nicor Gas (see related story).

According to a study filed as expert testimony with the Illinois Commerce Commission (ICC) and conducted by Exeter and Associates on behalf of CUB and the Cook County States Attorney, the utility company overcharged consumers and misled regulators about it. The commission is currently reviewing Nicor’s actions under a performance based rate (PBR) plan that was in effect for the company from 2000 to 2002.

In April 2002, CUB urged state regulators to scrap the “alternative regulation” PBR plan that allowed the natural gas distributor to charge customers at least $27 million more than they would have paid under standard ratemaking rules (see NGI, April 15, 2002).

Late last month, Illinois Attorney General Lisa Madigan called for Nicor Gas to refund customers at least $160 million for overcharges in 2000, 2001 and part of 2002 through Nicor’s purchased gas adjustment (PBR) mechanism (see NGI, Dec. 1).

The Chicago utility, however, has denied any deliberate wrongdoing and is sticking to the findings of an internal investigation last year that identified “errors” resulting in only $15 million in overcharges.

Nicor Gas’ parent company, Nicor Inc., reasserted its confidence in the independent report of former U.S. Attorney Scott Lassar regarding the PBR, Nicor underscored the fact that its customers received the lowest gas costs in Illinois during the entire three-year period the PBR was in place (2000-2002). The company called overcharge claims “inaccurate.”

The independent report commissioned by Nicor’s board of directors and conducted by Lassar and his team from Sidley Austin Brown & Wood and assisted by KPMG LLP found that Nicor Gas did not engage in any criminal or fraudulent conduct.

The report also found that Nicor Gas had made errors resulting in overcharges of $15 million to its customers during the period 1999 through 2001, during which time it purchased and delivered approximately $2.8 billion of natural gas. Nicor Gas’ ICC filings demonstrate that in 2002, the final year of the PBR, the utility saved its customers approximately $53 million.

CUB said that after it filed its initial testimony in the case in November, the ICC administrative law judges hearing the case required the group to file it under seal. CUB said the version of the testimony released Tuesday is the public version.

“Never before has an Illinois utility been caught red handed like this misleading the commission and cheating consumers,” CUB Executive Director Martin Cohen said. “The ICC needs to send a strong signal that this kind of abuse will not be tolerated and make consumers whole.”

Nicor’s activity came to light after a company whistle-blower sent CUB a 14-page memo outlining an accounting scheme the company had used to allegedly overcharge consumers and hide its ill-gotten gains from the ICC. At the time, the ICC was reviewing the Nicor plan and considering whether it should be renewed.

Under the plan, which the company ended in 2002, Nicor’s gas prices were tied to a benchmark and if the company was able to purchase gas below the benchmark price, it shared half of the savings with consumers. Nicor argued the plan would give it an incentive to do a better job purchasing low-cost gas for customers, since half of the savings would go to the company.

However, CUB said it uncovered evidence that shows Nicor designed the plan to enable it to profit off of very cheap gas that had been in storage since the 1950s. When natural gas prices skyrocketed to over 90 cents per therm, CUB said Nicor released gas at 3 cents a therm. Without the PBR plan in place, the utility watchdog group said consumers would have gotten 100% of the benefits of that gas, which would have been used to offset the high winter prices. Instead, the company kept half of the money.

CUB’s testimony before the ICC documents how much that practice cost consumers, but the company is insisting that number — and many other details of its improper activities uncovered through discovery or depositions of company officials — remain confidential.

While utilities fill their storage in the summer when gas prices typically are lower and use that stored gas during the winter to save money for consumers, CUB found that Nicor manipulated its purchasing and releasing of gas in storage to increase company profits, costing consumers $67 million in higher gas costs. Those costs are included in the $143 million refund request.

The ICC is scheduled to take up the Nicor case in April, but a final decision is not expected until next summer. Nicor noted that it has and will continue to fully cooperate with the ICC in the PBR review.

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