Nicor Gas is pursuing a rate hike at the Illinois Commerce Commission (ICC) that would raise about $140 million annually from business and residential customers. The company also is proposing a decoupling mechanism to preserve revenue in the face of declining gas consumption.

Nicor, which serves most of the northern third of Illinois, excluding Chicago, is seeking an allowed rate of return of about 9% on a rate base of about $1.5 billion. In its last rate case, filed in 2004, the company was granted an allowed rate of return of 8.85%. Its requested allowed rate of return reflects a return on equity of about 11%. Sustained high gas prices and the sluggish economy have had a negative impact on company expenses, and Nicor has been earning less than its allowed rate of return, it said.

To mitigate the effect of decreased gas consumption by consumers, Nicor also plans to propose a what it calls a Conservation Partnership Plan. The plan would include a decoupling rate mechanism that supports conservation and increased investment in energy efficiency programs. It would also establish an independently administered conservation fund to invest in energy efficiency and conservation projects throughout Nicor’s service territory.

Decoupling is designed to break the link between recovery of the company’s costs — largely fixed in nature — and the quantity of gas used by customers. It would align the interests of Nicor with its customers by allowing the company to promote conservation and efficiency programs. Still, decoupling is not without controversy.

Earlier this year the ICC granted rate increases for Peoples Gas and North Shore Gas and allowed the utilities to institute decoupling (see Daily GPI, Feb. 7). However, Illinois Attorney General Lisa Madigan had urged the ICC to reject the “controversial proposal…that would impose surcharges on customers for the delivery of gas they do not use.” Madigan claimed that the utilities “would earn extra profits especially when customers use less gas.”

Legislation has cleared a House committee in the Illinois legislature that would overturn decoupling for Peoples and bar its implementation in the future. The Citizens Utility Board has come out against the Nicor rate hike and has vowed to fight it.

The decoupling ratemaking approach has been approved by public utility commissions in Illinois and 12 other states, including California, New York, New Jersey, Ohio and Indiana, and is under active consideration in several others, Nicor noted. According to the Energy Information Administration, decoupling has grown in popularity as gas utilities struggle with declining throughputs and the consequent declines in revenue (see Daily GPI, Aug. 16, 2007; June 14, 2006).

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