NUI Corp. said it will refund $28 million to Elizabethtown Gas customers and pay a $2 million penalty to the state of New Jersey as part of a settlement agreement reached last Wednesday with the New Jersey Board of Public Utilities (BPU).

The settlement follows a focused audit performed for the BPU on NUI and its subsidiaries, NUI Utilities and Elizabethtown Gas, that found a broad range of corporate management failures and inadequate financial insulation of the utility operations from NUI’s poorly performing nonutility businesses. The audit was order by BPU in April 2003 after several credit ratings downgrades due to the company’s unregulated operations. The audit was performed by Quentin, PA-based Liberty Consulting.

The refund and penalty total $18.6 million, net of tax, or $1.16 per share, and will be recorded as an adjustment to the company’s fiscal 2003 financial results. NUI believes the structure of the settlement was necessary to achieve a timely resolution of all the issues of the focused audit and closes a number of other outstanding issues and filings before the BPU.

NUI said the settlement clears a path for the continuation of its sale process, which it expects to initiate before the end of the second quarter. NUI put itself up for sale last year because of credit downgrades and “adverse business conditions.” CEO John Kean Jr. announced his retirement after 40 years of service with the company, and NUI brought in Craig Matthews, a former KeySpan executive, to oversee the company’s sale (see NGI, Feb. 16; Feb. 2; Nov. 24, 2003; and Sept. 29, 2003).

Under the terms of the settlement, Elizabethtown Gas will refund $7 million to ratepayers in fiscal year 2004; $6 million in fiscal year 2005; and $5 million each in fiscal years 2006, 2007 and 2008; plus interest. The method of the refunds and the impact on individual customers is still to be determined by the BPU.

In addition, NUI will pay the state of New Jersey $400,000 in each of fiscal years 2004-2008. Other details of the settlement agreement deal with financial controls and the administrative and financial separation of Elizabethtown Gas and NUI Utilities from the parent NUI.

NUI anticipates filing its 10-K with the SEC for the fiscal year ended Sept. 30, 2003, as well as its Form 10-Qs for the first and second quarters of fiscal 2004, on or before May 17.

Also on Wednesday the BPU approved NUI Utilities’ selection of Cinergy Marketing & Trading LP, to procure all of NUI Utilities’ gas requirements from April 1, 2004, through March 31, 2005. The contract was awarded through a competitive bidding process, as required by the BPU. Under the contract, NUI Utilities is required to pre-pay for gas purchases Cinergy makes on its behalf.

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