The Illinois Citizens Utility Board (CUB) said it believes that Nicor Gas should be fined $27 million for “lying” to state regulators in an alleged effort to hide a complicated scheme that used improper accounting procedures to defraud Illinois consumers at a time when customers were paying record high gas prices. The move comes as the latest shot fired in the ongoing feud between the utility watchdog group and the Naperville, IL-based utility.

The motion, filed with the Illinois Commerce Commission (ICC) by CUB and the Cook County State’s Attorney’s Office on Wednesday, cites the company’s actions in promoting its performance-based regulation (PBR) plan, which was approved by the commission in 1999. CUB said Nicor Gas discontinued the plan Jan. 1, in the wake of the accounting scandal. CUB first made the charges of deceptive practices against the Naperville, IL-based company last April (see NGI, April 15, 2002).

“This is the first time a utility has been caught lying so blatantly to state regulators,” CUB Executive Director Martin R. Cohen said. “By levying a heavy fine on Nicor and ultimately ordering refunds to consumers, the Illinois Commerce Commission will be letting all utilities know that this kind of abuse and deception will not be tolerated.”

The watchdog group said Nicor’s wrongdoings came to light during the summer of 2002 after a company whistleblower sent a 14-page memo to CUB detailing how the utility had allegedly used accounting tricks to overcharge customers and hide the ill-gotten profits from the ICC. During that time, the ICC was in the process of reviewing the Nicor plan and considering whether it should be renewed.

“We have and will continue to fully cooperate with the Illinois Commerce Commission and its review of our PBR program,” said Kris Lathan, spokeswoman for Nicor Gas. “Since the very start of this, we have fully cooperated with their review.” While noting that Nicor has not yet seen the motion filed at the commission, Lathan said, “We believe that there is no basis on which a penalty like this could, or would be imposed on Nicor.” She added that once the company had viewed the motion, Nicor would file a response with the ICC.

Nicor’s PBR program was approved by ICC in 1999 and launched Jan. 1, 2000 (see NGI, Nov. 29, 1999). It provides an incentive to Nicor Gas to purchase natural gas at costs below a market-based benchmark, while maintaining a safe and reliable supply of gas.

While Nicor argued that the PBR plan motivated the company to seek cheaper natural gas for its customers, CUB said evidence it has uncovered shows that Nicor merely intended to use the plan to profit off the release of last-in-first-out (LIFO) gas. Under traditional regulation, CUB said customers would have gotten 100% of the benefit of that cheap gas, but under the new rate plan, Nicor got to keep half.

Nicor said it conducted its own investigation into the scandal and concluded that it had never lied to the ICC, but CUB said it has evidence that disproves the utility’s claim. As an example, the board pointed toward documents filed with the ICC where Nicor repeatedly denied it had done “any projections, analyses or studies” about how it planned to generate profits under the PBR plan. However, CUB said it recently obtained a Nicor report, dated October 1998, which explains how the company can “capture” the benefits of the LIFO gas by “filing and implementing a Gas Rate Performance Plan (GRPP) related to gas costs.”

The board added that the utility lied again to state regulators in 2002 during the ICC’s review of the program.

“The company claimed it saved customers $54 million but denied to CUB that it had quantified where those savings came from,” the board said in its complaint. “But internal documents obtained later show that Nicor had in fact done such an analysis — and that most of the savings came from the LIFO gas.” CUB alleges that a Nicor memo dated Aug. 4, 2000 even discusses the company’s requirement to report results of the PBR plan to the ICC and plots how the company can conceal its profits. “We will need to be careful to not highlight the LIFO benefit,” CUB quoted the Nicor as saying.

CUB said it determined the amount of the proposed fine by dividing the $54 million the company claimed to save customers under the PBR plan in half. The board believes that if Nicor had been truthful about the plan, the ICC, in all likelihood, would have rejected the idea and Nicor would have been out the $27 million in profit.

CUB said that in addition to seeking the fine, which would be paid to the state, it will also be asking for refunds to consumers of all the money they were overcharged.

In Ocober, an independent report commissioned by a special committee named by Nicor’s board of directors found no evidence that Nicor Inc. affiliate Nicor Gas engaged in criminal fraud in carrying out its PBR program for Illinois gas customers, but the local distribution company did overcharge its customers by an estimated $15 million over the past couple of years (see NGI, Nov 4, 2002).

CUB, which immediately blasted the report, said that Nicor has estimated it owes customers $15 million because of the scandal, but CUB believes the harm to consumers was “much greater” and the group said it is currently studying other evidence of wrongdoing by the company.

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