Indiana Utility Regulatory Commission and Citizens Energy Group and Gas and Energy & Environment

Citizens Gas proposing billing overhaul

April 16, 2007

Citizens Gas & Coke Utility has revived its pitch for a regulatory plan that would fundamentally change the way it bills customers, helping it cover rising expenses as gas sales fall.

If the plan is approved, Citizens said, it will create an expanded energy conservation program that could include rebates for customers who buy gas-efficient furnaces and appliances.

Citizens Action Coalition, meanwhile, counters that the proposal submitted to regulators would shift some costs from industrial to residential customers, and "will generally result in rate increases due to the general trend of reduced customer usage."

The Indiana Utility Regulatory Commission rejected Citizens' proposed alternative regulation plan last October, saying it should first work out a deal with stakeholders and the Office of Utility Consumer Counselor, which is supposed to represent the interests of utility customers in regulatory matters.

Such a settlement was struck weeks ago with industrial customers and the OUCC, but not with Citizens Action Coalition and other groups that represent residential and smaller commercial customers in utility cases.

Cost pressures

The utility maintains that it's had a relatively stagnant base of about 265,000 customers in Marion County that increasingly is buying more efficient furnaces and appliances that use less gas than the old ones they replace. More energy-efficient homes and a trend toward conservation are driving down demand, the utility says.

The problem is that, under the current billing structure, the amount collected toward fixed operating costs is tied to how much gas Citizens sells. Over the last few years, the amount of gas it delivered to customers declined 17 percent--to 47.5 million dekatherms last year from 57.2 million dekatherms in 2003.

The proposal, using a complex calculation of margins, "essentially breaks the coupling between Citizens' customer sales volumes and recovery of its predominantly fixed non-commodity costs, making it possible for Citizens to encourage its customers to reduce natural gas purchases without creating financial harm to Citizens," states the settlement filed with the IURC.

"We could only charge customers what it costs to serve them. No more or no less," said Citizens spokesman Dan Considine.

"Right now, the utility gets penalized for encouraging people to conserve energy, which we currently do, but would like to be more proactive," Considine added.

Under the current billing structure, "the more gas we move, the more money we make."

Citizens said its alternative regulation plan is nothing new--noting a similar plan the IURC approved last year for Evansville-based gas utility Vectren.

But Citizens Action Coalition counters that just last October, Citizens Gas won IURC approval to raise its gas delivery and service charge 3.6 percent, which should be enough to help cover the rising fixed costs. The hike cost the average residential customer $3 a month and boosted Citizens' revenue $15 million, to $428.9 million.

Citizens Gas counters that the delivery charge is minor. It amounts to only about 25 percent of the average customer's bill--with the actual price of gas itself the biggest component.

The price the utility pays for gas on the market isn't at issue in the decoupling proposal.

Energy-efficiency board

Besides decoupling, the utility's agreement with industrials and the OUCC would create an "energy-efficiency oversight board" that would be responsible for the utility's energy-efficiency initiatives.

Board members would include a representative from the OUCC, the Lieutenant Governor's Office, Energy Center at Purdue University's Discovery Park, and a representative of the Center for Energy Research at Ball State University.

Gas company officials would be responsible for coming up with more programs to help customers save energy. Currently, the utility has a Web-based energy-saving tool that can help a customer find ways to curb usage. It also runs a program for low-income customers that includes weatherization and, in some cases, the purchase of a more energy-efficient furnace toward the goal of cutting a home's gas consumption 40 percent.

But Citizens doesn't provide rebates like Vectren.

Vectren offers residential customers up to $250 on the most efficient furnaces. It also offers up to $5,000 to commercial customers who buy high-efficiency natural gas boilers.

As with any regulatory proposal, the devil is in the details.

The decoupling and energy-efficiency settlement would amend last October's IURC order allowing Citizens to raise its delivery and service fees--slashing the average 63-percent increase faced by industrial customers in half.

Todd Richardson, a Lewis & Kappes attorney who represents several of those clients, including General Motors, National Starch and Rolls Royce, said the 63-percent increase was "disproportionately skewed against large-volume customers ... . That was a big whopping increase by anyone's measure."

Cost shifting

But Citizens Action Coalition argues that residential and general commercial customers would be penalized in return for the industrial rate relief.

The settlement with the industrials would allow Citizens to lower by more than $1.5 million what it could recover from large-volume customers, pushing that amount onto residential and commercial customer classes, according to documents filed in response to Citizens' plan.

The utility said $1.5 million would amount to only a 0.4-percent increase to the average residential heating customer's bill, or an average of 39 cents a month.

Citizens also could collect from most ratepayers the money it would use to fund the energy-efficiency initiative, said CAC attorney Jerry Polk. Documents show the amount that could be collected in the first year is $2.5 million. That is 0.5 percent of the average residential heating customer's bill, or an average of 56 cents per month, according to Citizens.

The utility downplays the efficiency program costs and the cost of delivery.

"Because gas costs represent approximately 70 percent of a typical residential customer's bill, efforts to reduce usage address the largest portion of customers' bills," Citizens said in its settlement filed with the IURC.

"We think it aligns the interests of the utility with the interests of the customer," said Citizens' Considine.

The filing is unrelated to Citizens' April 12 announcement that it will close its 98-year-old Indianapolis Coke plant at 2950 Prospect St., eliminating 300 jobs. Citizens said it was unsuccessful in finding a buyer and cited increased competition from foreign coke producers and a decline in American heavy industry that reduced demand for coke, which is used as a fuel in steel mills and foundries.

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