State Regulator Makes Pro-Consumer Recommendations in Citizens Gas

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Citizens Gas has requested an exorbitant rate increase and other perks for the company. CAC agrees wholeheartedly with the recommendations made by the Office of Utility Consumer Counselor to the Indiana Utility Regulatory Commission to slash the amount of the rate increase and reject other aspects of Citizens’ request.

OUCC News
Indiana Office of Utility Consumer Counselor
100 N. Senate Avenue, Room 501
Indianapolis, Indiana 46204-2215

Toll-free: 1-888-441-2494
Voice/TDD: (317) 232-2494
Fax: (317) 232-5923

www.IN.gov/OUCC
uccinfo@oucc.IN.gov

For Immediate Release Contact: Anthony Swinger

October 21, 2005 (317) 233-2747

Citizens Gas rate case: OUCC recommends substantial reduction of utility's proposed increase.

The Indiana Office of Utility Consumer Counselor (OUCC) is asking that the request of Citizens Gas & Coke Utility for an increase in its base rates and charges be dramatically reduced.

Citizens Gas - a municipally-owned public charitable trust serving approximately 265,000 customers primarily in Marion County - is requesting Indiana Utility Regulatory Commission (IURC) approval to increase its annual gas delivery revenues by $39.2 million. The OUCC - which represents utility consumer interests in all IURC cases - has filed testimony before the Commission recommending that the utility's increase be limited to no more than $4.3 million.

The OUCC's 638-page testimony and exhibits are based on the agency's review of Citizens' evidence, relationships between Citizens and its unregulated affiliates, and applicable law. Key points in the OUCC's testimony include:

  • Debt service costs: The OUCC believes Citizens' proposal would inappropriately hold gas utility customers responsible for the trust's long-term debt and recommends that Citizens' unregulated business units cover a reasonable share of such costs. This would reduce the utility's proposed base rate increase by approximately $5 million.
  • Administrative and general costs: The utility's proposal - in the OUCC's view - includes $12.9 million in excessive costs, some of which should be absorbed by the trust's unregulated entities.
  • Working capital and capital expenditures: OUCC testimony recommends the elimination of Citizens' proposed $6.7 million increase for working capital, stating that Citizens has not proven that its working capital requirements are increasing beyond the utility's current resources or available financing limits. The OUCC also recommends a $2.7 million reduction of the utility's proposed amount for extensions and replacements, based on Citizens' historical needs and its projected needs through 2009.
  • Marketing and advertising: The OUCC is recommending that much of Citizens' requested promotional marketing and advertising funding be denied, including all funding for "brand advertising" as the utility operates as a monopoly service provider.
  • Bad Debt Tracker: Citizens is requesting permission to implement a new automatic rate tracking mechanism that would allow it to adjust the rates of all customers to recover changes in unpaid debt amounts associated with defaulting utility customers. The OUCC is recommending that this request be rejected, but that a reasonable amount of bad debt expense be included in the utility's overall revenue requirement (which is typical ratemaking practice).
  • Volume Variance and Conservation Adjustment (VVCA): The OUCC is recommending that the IURC deny Citizens' request for a VVCA tracker, which would allow the utility to make monthly billing adjustments based on changes in sales volumes due to weather conditions or customer energy efficiency efforts. OUCC testimony lists a number of concerns with the VVCA tracker as proposed, including concerns that it would adjust rates with no overall look at total revenues and that it would lead to higher prices in some colder-than-normal months.
  • Monthly service charge: Citizens' proposal would increase the flat, monthly service charge for residential heating customers from $10.00 to $13.50 and from $6.65 to $10.50 for the utility's residential non-heating customers. The OUCC recommends that these increases be denied because the utility has not provided sufficient evidence to support the increases.

The OUCC's testimony notes that if Citizens' request were granted, the utility would have the highest base distribution rates among Indiana's large natural gas utilities, in spite of its tax exempt status, its geographically small service territory, and the fact that as a public entity, it does not have any shareholders.

Citizens Gas filed for a base distribution rate increase on Dec. 29, 2004. A public field hearing in this case was held in Indianapolis on Sept. 7, 2005.

Base distribution rates account for approximately 30 percent of a typical winter heating bill and cover "non-gas" costs such as operations, maintenance and capital improvements. Actual gas costs - which comprise most of a typical winter heating bill and which utilities may pass through to customers on a dollar-for-dollar basis - are reviewed separately through the state's gas cost adjustment (GCA) process and would not be affected by this case.

A technical evidentiary hearing in this case is currently scheduled for Nov. 30, 2005. All hearing dates are subject to change. A settlement agreement is possible in any legal proceeding; such an agreement would require IURC approval.

(IURC Cause No. 42767)

The Indiana Office of Utility Consumer Counselor (OUCC) is the state agency that represents the interests of all utility consumers and the public in matters related to the provision of utility services. The agency is active in proceedings before regulatory and legal bodies, and committed to giving consumers a voice in the creation of utility service policy. Residential, commercial and industrial consumers with questions or concerns regarding utility service can contact the OUCC toll-free at: 1-888-441-2494 or on the World Wide Web at www.IN.gov/OUCC.

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