The Illinois Citizens Utility Board (CUB), a non-profit statewide utility watchdog organization created by the state legislature, told state regulators Thursday to throw out the $14 million base gas rate increase proposed by Ameren/CILCO, which serves about 250,000 gas customers in the state. CUB said a financial analyst it commissioned and the Illinois Attorney General’s Office determined that the utility overstated its expenses by $11 million in order to justify the rate increase.

“There’s never any excuse for an unjustified rate increase, but CILCO’s proposal is especially troubling now, when gas prices are skyrocketing and consumers are struggling to heat their homes,” CUB Executive Director Martin Cohen said. “Costs simply have not increased as much as the company claims.”

Central Illinois Light Co. filed the rate request with the Illinois Commerce Commission last fall. Its last base rate increase was filed in 1994 and this was the third increase requested in the last 20 years. The company said increases in expenses for operations and maintenance along with an investment of more than $84 million since 1994 in CILCO’s gas distribution system created the need for the increase.

If approved, CILCO said the rate hike would increase the rates of average residential space-heating customers by 12.5 cent/day or $3.81/month, resulting in a 4.99% increase in their total annual bill. Base rates include all the company’s costs of operating and maintaining the gas distribution system, including meter reading and customer service, and a profit for stockholders on their investment in the system. They do not include commodity purchase costs, which are passed through to consumers on a monthly basis.

However, CUB claims the increase in base rates would drive up charges to natural gas customers by an average of 18.8%. CUB spokeswoman Pat Clark said the utility company is just trying to pull the wool over customers’ eyes. She also noted that utilities frequently overestimate their rate increases because they know the rate requests will be cut down sharply by regulators.

“The 5% number that the company is using includes the cost of gas purchased on behalf of customers and that actually diminishes the true effect on customers,” she said. “The base revenues, which the company gets from customers and keeps, are in fact almost going up by 19%.”

According to CUB and the Attorney General’s Office’s analysis, the company has overstated its operations and maintenance expenses by more than $6 million and inflated the amount of its investment in plant and equipment, a key component in setting rates. The company also is seeking an excessive profit rate for stockholders of 11.66%, CUB said.

CUB found $11 million in overcharges “without even considering whether the investments were prudent or overpriced and unnecessary,” said Clark. “We didn’t even really address that. These are very significant adjustments that almost wipe out their proposed increase entirely even before we get to any other issues.”

When the utility’s expenses and investments are adjusted and a more appropriate profit rate is applied, the analysis shows CILCO can justify no more than a $3 million, or 4%, revenue increase, CUB said.

“We certainly disagree with the interpretation of the numbers but we respect CUB,” said Ameren/CILCO spokesman Neil Johnson. “They are pretty retentive though. They are entitled to their opinion. It was interesting reading. I don’t know where they are coming from. There certainly is a large disparity isn’t there?

“But we didn’t include the cost of commodity in there,” Johnson said. “That’s against the law. We are a distribution company. This is the regulated portion of the deregulated gas industry. The purchased gas adjustment is passed directly onto customers with no mark-up whatsoever.”

An ICC decision in the rate case is not expected until October.

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