Study Shows How Utility's Deals With Enron Harmed Consumers
CHICAGO, Jan. 10 /PRNewswire/ -- Peoples Gas overcharged customers at
least $149 million as the result of a secret, illegal profit sharing deal with
an affiliate of Enron that resulted in consumers paying excessive rates during
the winter of 2000 - 2001, when gas prices reached record highs, according to
a study commissioned by the Citizens Utility Board (CUB) and the City of
The study has been filed as formal testimony with the Illinois Commerce
Commission (ICC), which is investigating the Chicago-based company's gas
purchases from that winter. CUB and the City are asking the ICC to order a
refund, averaging $163 per customer, of all overcharges documented by the
study and by previous testimony filed by the groups in 2003.
Based on documents obtained from the company, the testimony shows how
Peoples Gas gave up control over its gas purchases and storage to Enron and
its affiliates. Those companies then funneled profits from trading the gas --
originally intended for consumers' use -- to Enron and Peoples Energy, the gas
utility's parent company.
As a result of the deals, during the winter of 2000 - 2001, when natural
gas prices reached nearly $1 per therm, People Gas had to purchase replacement
gas to sell to consumers at record-high market prices.
The City and CUB's testimony, prepared by the accounting firm of Grant
Thornton LLP, identified three new areas in which consumers were overcharged
because of the shady relationships between Peoples Gas and Enron, overcharges
totaling $98 million. Previous testimony by CUB identified at least
$51 million in overcharges stemming from the Enron deals, for a total of
$149 million in refunds due consumers.
"Our experts have been poring over company documents for the last year and
they have pieced together a tangled web of secret, improper deals designed to
inflate the profits of Peoples Energy at the expense of consumers," CUB
Executive Director Martin R. Cohen said. "At a time when gas costs were
skyrocketing and the company said it was doing all it could to reduce prices,
Peoples Gas was swindling its own customers -- and they almost got away with
The CUB/City testimony documents how the deals between Peoples Gas and the
Enron affiliates formed the basis for a controversial five-year contract
Peoples entered into to purchase roughly two thirds of its natural gas from
Enron -- a contract CUB and the City's experts conclude was imprudent.
The contract was so heavily weighted in favor of Enron, that without the
secret profit sharing arrangements between Peoples Energy and Enron, Peoples
Gas would have had no incentive to adopt it. Grant Thornton's analysis finds
that under the contract itself, in 2001, customers paid at least $36 million
more than they should have for natural gas.
The study also identified a huge, as yet unexplained, increase on Peoples
Gas' books in "lost or unaccounted for gas," the difference between the amount
of gas purchased by the company and the amount ultimately available for sale
Gas companies typically "lose" between 0 and 3 percent of total gas
purchases and in fiscal years 1999 and 2000, Peoples Gas reported a 3 percent
loss. In 2001, however, that loss jumped to 8 percent, enough gas to heat the
equivalent of 71,299 homes for an entire year.
Although company documents show Peoples Gas was aware of the problem, the
company has given no explanation for the increase and took no actions to
correct it. Evidence suggests that the "lost" gas actually was diverted to the
Enron trading deals, at consumers' expense. Customers paid $41 million more
than they should have because of these arrangements.
The CUB/City testimony also recommends that $20 million in profits
generated by the trading deals, and split between Enron and Peoples Energy,
should be credited to ratepayers because the profits were generated at the
expense of consumers.
The company has refused to turn over key documents needed to quantify
other overcharges in 2001, the year under investigation. Once CUB and the City
obtain those documents, the refund recommendation is likely to increase. And,
many of the study's conclusions will apply to other years, so additional
refunds will be warranted in the future.
SOURCE Citizens Utility Board
Pat Clark of Citizens Utility Board, +1-312-263-4282
-0- Jan/10/2005 20:17 GMT
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