The on-going “strategic reorganization” at Peoples Energy in Chicago is aimed at addressing lower returns from its regulated local distribution companies, the result of rising costs and declining deliveries engendered by 10 years of relatively mild winters in the upper Midwest, conservation and increasing numbers of new, energy efficient buildings.

Peoples Energy, which includes LDCs Peoples Gas and North Shore Gas, followed up on top management changes announced earlier this month, with the offering this week of an enhanced early retirement package to employees. There is no specific target for the number of positions, spokesman Rod Sierra said, but at the end of August when the offer expires, the company may have to decide on additional lay-offs.

Simultaneously, Peoples Energy is continuing with a program to “simplify the organization — from vice president to office assistant. We want to make sure we have the right positions and then the right people in those positions.” The buyout offer “gives employees the option to have more control over their future.”

“We’re looking to stay within our allowable 10-11% rate of return,” Sierra said. “That means we’ll have to do some things differently to stay healthy.”

As an example, deliveries of 104 Bcf in the January through March quarter in 2004 were down 8% from the same quarter a year ago. Half the decrease was attributed to the warmer weather with the other half ascribed to conservation and fewer customers. Operating income for the LDCs was $79.2 million for the fiscal second quarter (Jan.-March), compared to $100.2 million in the year-ago period.

Chicago weather was 2.5% or 81 degree days warmer than normal and 5.1% or 171 degree days warmer than January to March 2003. And higher gas prices have sparked increased conservation by all classes of customers. Also, older buildings are being torn down and replaced by more energy efficient buildings. “The new housing is much more efficient; they have better furnaces, better appliances, more insulation,” Sierra said.

Industrials also are reconfiguring their operations. “They’re getting smarter at what they do; they’re getting more efficient operations, reusing energy and conserving.”

Peoples also is reconfiguring and selling additional services to go with its basic utility service. “We are offering other products, building on our expertise.” The services include home safety inspections, or inspections to insure customers are properly hooked up. For larger customers Peoples is offering engineering services such as laying out the heating plan for new plants. “We’ve been doing these things for 150 years. We are the experts and we can provide the services,” Sierra said. Services “are a more solid revenue generator. We can’t do anything about the warmer winters. Depending on the weather is a gamble.”

The strong focus on customer services is pointed up by the selection, announced July 8, of Desiree G. Rogers as president of the two LDCs, Peoples Gas and North Shore Gas. Rogers had been senior vice president of customer service and had headed up a number of programs to increase efficient services.

People’s two LDC companies have been “very proactive over the last two years” in communicating with customers. They have held about 90 community meetings of all sizes. “We talk to them about how to better manage their bills, how to caulk around windows, how to apply for financial aid. It’s a very comprehensive holistic approach,” Sierra said. “We keep telling our message from different angles and using different voices. And we keep repeating and repeating and repeating.”

Company officials also talk regularly with community leaders, politicians, church and other organizational leaders and have a summer seminar every year to walk them through what they can tell their constituents. “People don’t always want to listen to the ‘big bad utilities,’ but they’ll listen to their minister. We’ve had churches put information about weatherizing into their bulletins and the minister will talk about it from the pulpit. They’ll believe the guy up there, where they might not believe me. It’s a powerful message when you put it into the mouths of people they trust and respect,” Sierra, who is vice president of corporate communications, said.

Peoples’ reorganization at the top included installing William E. Morrow earlier this month as executive vice president of operations with oversight over all of the company’s Midwest-based operations, including the utilities. Morrow, who has been with Peoples for 25 years, also is president of Peoples Energy Resources. He will have responsibility for all the Peoples Energy operating units except the Houston-based oil and gas production unit.

In addition to shoring up its LDC operations, Peoples has been expanding its unregulated operations, including Midstream Services, Retail Energy Services and oil and gas production. In contrast to the LDC returns, operating results for the diversified businesses were at $21.6 million for the fiscal second quarter, up from $17.7 million in 2Q 2003.

The company received a setback in the retail sector, however when the Illinois Commerce Commission (ICC) recently fined affiliate Peoples Energy Services (Pesco) $40,000 for violating the consumer protection provisions of the state’s Alternative Gas Supplier Law by selling gas customers a “fixed rate” plan with prices that were not fixed and with other inadequately disclosed provisions, such as a clause that allows the company to drop the customer because of high gas supply costs (see Daily GPI, July 22).

Sierra said the company was “very disappointed with the ruling.” He said the retail services arm has an 89% retention rate of “very satisfied customers.” The ICC had acted on a complaint by the Citizens Utility Board (CUB), but Sierra claimed there were no direct complaints by customers. “The bottom line is customers signed up for a fixed rate for two years of 62 cents/therm and they all get that rate. We have never changed the rate.”

He acknowledged there were other charges that appeared “in the fine print on the back of the bill — the same as you see on your credit card bill. All of the marketers have similar charges.” The charges included a $2.95 a month service fee and a balancing fee for gas purchases. The heart of the ICC ruling was that marketing practices are less than clear and are confusing to customers, Sierra said. Pesco will be revising its offering and billing practices. The ICC has also initiated an investigation into the marketing practices of all the other retail marketers in the state.

Meanwhile, retail marketing has not caught on in a big way in Illinois and most residentials are still customers of the utilities, Sierra said. Those that have gone through all the hoops to buy gas from marketers haven’t seen much in the way of savings. “They may save two cents a therm or a total of $17 a year.” What customers have found out is “that really is the price of gas. They weren’t lying to you.”

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