Under a plan criticized by consumer advocates, Nicor Gas Co. said it would allow its 2 million residential customers the option of choosing their own natural gas supplier beginning Friday.
The program, called Customer Select, was launched in pilot form in 1998, allowing small to midsize business customers and more than 270,000 residential customers in 16 communities the chance to switch to an unregulated natural gas supplier.
“If you are running a business or you are on a fixed income and you can lock in with a price you are comfortable with, why would you deny customers that choice?” asked John Madziarczyk, director of rate projects for Nicor Gas.
But Robert Kelter, legal counsel for the Citizens Utility Board, a Chicago-based consumer watchdog group, said it would be difficult for customers to compare Nicor Gas prices with any of its competitors’ prices.
“No one knows what Nicor Gas is charging until they file their rate each month with the ICC,” Kelter said.
Kelter noted that Nicor Energy, an unregulated affiliate launched by Nicor Gas and Houston-based Dynegy Inc., currently has some residential customers locked into two-year contracts at 59 cents per therm, the unit of measure for natural gas. Meanwhile, customers of Nicor Gas are now paying only about 26 cents per therm, he said.
“The average customer has no idea what’s going on in the futures market,” Kelter said.
“At CUB, we knew prices were falling and we would have told people that the deal was risky. Unregulated companies are in the business to make as much money as they can, in this case by getting people to pay as much as possible for their product.”
Nicor Energy is one of a half-dozen companies that will be competing for Nicor Gas’ customers. The other companies are Corn Belt Energy Corp., MxEnergy Inc., Peoples Energy Services, Santanna Energy Services and WPS Energy Services Inc.
Nicor Gas serves roughly the northern one-third of the state, excluding Chicago and some North Shore communities.
Peoples Energy Corp. plans to offer a similar choice plan to Chicago residents in May.
Nicor Gas, which is regulated by the Illinois Commerce Commission, announces its rate per therm each month. The company does not make money on the commodity, but on the delivery of the natural gas through its pipes. All the companies will be using the distribution system owned by Nicor Gas to deliver gas to their customers.
However, unlike the unregulated companies, Nicor Gas is obligated to obtain the lowest price possible for natural gas, and its charges are subject to ICC review.
Some concerns raised by CUB concerning consumer safeguards will be addressed in regulations still being drafted by the ICC.
Among other things, suppliers will have to apply for certification and will have to meet certain financial standards. ICC will have regulatory oversight over the suppliers in the event of a dispute between the customers and the suppliers.
By early this year, 130,000 customers, or 24 percent of the eligible residential customers and 36 percent of the business customers, in the pilot program areas had opted for another natural gas supplier, company officials said. Large industrial customers have been free to choose their supplier since 1985.
Hank Possley, a spokesman for the unregulated Nicor Energy, acknowledged that some customers had been dissatisfied with the plan after learning that they were now paying a higher rate than customers of the regulated utility, Nicor Gas.
He said that customers who complained could opt out of their contract at no charge.
“About 20 percent of those who were on the plan have called and asked out of the agreement,” Possley said.
Customers are free to choose another Nicor Energy plan, seek another competitive supplier or return to Nicor Gas, he said.
Another supplier in the Nicor Gas territory, Corn Belt Energy, said it wouldn’t be prepared to present its contract options until the third week of March, but the plans likely would include some form of fixed-price contracts, said Dave Hawkinson, Corn Belt’s vice president for operations.
Corn Belt has a five-year track record as a competitive supplier to Nicor Gas’ business customers, Hawkinson said.
“The plans are for customers who want to have some control over their rates,” he said. “With a fixed rate, you know the prices won’t change from month to month.”
In addition, customers could sometimes end up paying a lower rate than the regulated utility, though he acknowledged that was not always the case.
Still, Hawkinson said, “when Nicor Gas was at 95 cents per therm last winter, we had a fixed price of 35 cents per therm.”
