Peoples Energy last week rejected claims by the Illinois-based Citizens Utility Board (CUB) that the company overcharged customers two years ago, and insists that natural gas purchases made during the winter of 2000-2001 were appropriate and prudent. The company, responding to charges that it owes customers refunds, said CUB’s claims were false and irresponsible, and said it would “strongly contest them.”

In unveiling its claims on Thursday, the Illinois watchdog’s Executive Director Martin Cohen accused Peoples Energy of entering into improper business arrangements, manipulating its storage gas and said the utility was “lax in its efforts to minimize the record-high gas prices during the winter of 2000-2001, costing consumers at least $109.5 million, or 14.5%, in higher gas costs that should be refunded.” CUB has filed a formal request with the Illinois Commerce Commission (ICC) for the refunds.

The ICC began a review of Peoples Energy last summer on the utility’s gas costs incurred during the winter of 2000-2001 to determine whether the utility acted prudently in its buying practices (see NGI, Aug. 5, 2002). Among other things, the ICC asked Peoples Energy to provide details on gas transactions done with former Enron Corp. affiliates in late 2000. The ICC has not offered evidence of wrongdoing, but in the filings last year, it noted that it wanted to “investigate the possibility” that the utility may have overcharged customers through deals with Enron affiliates.

The CUB filing would be part of that case. All intervenor testimony on the investigation is due to the ICC by Aug. 15, with hearings in December. The proceeding is expected to be concluded by mid-2004.

“When prices hit record levels during the winter of 2000-2001, Peoples Gas disavowed any responsibility and claimed there was nothing it could do to help customers,” Cohen said. “We now know that the company didn’t just fail to minimize costs, it took actions that winter that actually increased gas bills for consumers — actions that were inexcusable.”

Cohen said the refund would average $130 per customer, but it would vary based on actual gas usage. The more gas used the larger the refund. CUB is recommending the refund be paid as a credit on gas bills during the winter heating season, when gas prices typically rise.

As part of its review of the price spikes, CUB commissioned two studies of Peoples Energy’s purchasing practices. The first analysis, conducted by Exeter Associates Inc., of Columbia, MD, found that Peoples Energy engaged in improper purchasing practices and entered into contracts that raised gas costs for consumers by a total of $56.3 million. “According to the Exeter study, Peoples Energy leased a significant part of its storage facilities to third parties, at a profit for the company. As a result, the utility had less lower cost gas in storage for customers and had to purchase more expensive gas on the spot market instead, costing ratepayers an additional $51.2 million.”

In addition, the company entered into a gas supply contract with an affiliate of Enron, which CUB claims allowed the former energy marketer to manipulate the price of gas it supplied to the utility for storage during the summer. “As a result of the contract, Peoples customers paid $2.8 million more for gas stored during the summer than they should have. The Exeter study also documented an additional $2.3 million that should be disallowed, for a total disallowance of $56.3 million.”

The second study, conducted by CR Planning Inc., found that the company failed to prudently manage its gas supply and to minimize the huge price spikes to consumers in the winter of 2000-2001. According to the study, the company should have hedged at least 20% of its gas supply during the winter, a move that would have saved consumers $53.2 million.

Peoples Energy claims that the price spikes mirrored actions by other domestic utilities during the same period. The retail price spike is part of its standard regulatory structure that allows the utility to pass on its purchase costs to customers. In a statement, Peoples Energy said the gas charges were passed to customers without any markup, and added that it did not profit from the higher gas charge.

“The spike in gas prices nationally that year was unprecedented and not predicted by anyone,” said Peoples Energy. “The company worked very hard to secure the best available prices for its customers.”

Peoples Energy in its statement strongly rejected the suggestion of impropriety, saying in filings at that time that the commission staff’s motion was “replete with unsubstantiated and false innuendo.” It maintained that its 2001 purchasing practices were consistent with the standards applied by the ICC in its orders and upheld by the Illinois courts. The company “is confident that it conducted business prudently and in the best interest of customers within these established standards.”

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