Retail Unbundling - Illinois


Status: More than half of the residential customers in the state have access to unbundling programs.


Overview: Three utilities in Illinois have "customer choice" programs that allow some or all of their residential customers to buy natural gas from competitive suppliers. As of January 1, 2005, about 161,082 residential customers were participating. All customers of Nicor Gas (formerly Northern Illinois Gas), the state's largest local distribution company with about 50 percent of the residential customers, became eligible for choice in March 2002. Since then, enrollment by the company’s residential customers has more than doubled, from 65,833 in March 2002 to 124,869 in January 2003, 147,123 in January 2004, and 153,479 in January 2005. Nicor Gas began its choice program in 1997 as a 3-year pilot. The Illinois Commerce Commission (ICC) allowed the pilot to continue for a fourth year on an interim basis, while investigating whether sufficient competition had developed. Final approval to expand to a permanent program was granted on January 2002, with all customers eligible as of March 2002. Customers can change suppliers at any time, or resume service with Nicor Gas, although they may be subject to penalties or supplier exit fees, depending on the terms of their contract. To withdraw from the program, customers must notify the supplier. Once they have returned to service with Nicor Gas, they have 45 days to choose another supplier or they will remain with Nicor Gas for one year.


The ICC also approved choice programs for residential and small business customers of Peoples Gas Company and North Shore Gas Company in March 2002. Enrollment limits were set at 13 percent for the first year, 24 percent for the second year, and 33 percent in the third year. As of January 1, 2005, Peoples Gas had 3 percent (5,181) of eligible residential customers enrolled, up from the 2 percent (3,963) enrolled in January 2004, and North Shore Gas had 7 percent (2,422). Enrollment is on a first-come, first-served basis and is open to all residential and small business customers who use 50,000 therms or less in a year. Customers may choose to discontinue service under the program, but may not voluntarily discontinue and then renew service within a 12-month period.


Legislation signed in February 2002 requires that all marketers serving residential customers obtain a certificate of authority from the ICC. As of January 2005, 10 companies had been certified: Corn Belt Energy Corporation, Dominion Retail, Inc., Illinois Natural Gas Corporation, Interstate Gas Supply of Illinois, Inc., MxEnergy, Inc., Peoples Energy Service Corporation, Santanna Energy Services, Shell Energy Services Company, U.S. Energy Savings Corporation, and Utility Resource Solutions. Eight companies are listed as serving customers in NICOR’s service area, with six actively enrolling customers, and three companies are listed in Peoples’ and North Shore’s areas.


A December 2004 study by the state’s consumer advocacy group, the Citizens Utility Board, concluded that most Illinois consumers who participated in choice programs paid higher prices in 2003 and 2004 than if they had continued to purchase gas from their local distributor. According to the report, marketers generally offer either a fixed rate for a period of 1 to 3 years, or a variable monthly rate tied to an index. The report also noted that many marketers affiliated with utilities had similar names and logos as the utilities, which could lead consumers to think they are regulated entities.


EIA State Data: In 2003, Illinois had 3,702,308 residential and 281,877 commercial customers with annual natural gas consumption of 473 and 212 billion cubic feet, respectively. The average prices paid for natural gas purchased from local distribution companies by residential and commercial customers were $8.65 and $8.26 per thousand cubic feet, respectively.


Eligibility/Participation in Retail Choice Programs:


Status as of December 31, 2004: Number of Customers





Customer Type



Total 2003

Eligible December 2004

Participating December 2004

Total

Percent of 2003 Total

 Total

Percent of Eligible

Percent of 2003 Total

Residential

3,702,308

2,083,400

56.3

161,082

 7.7

 4.4

Commercial/Industrial*

308,575

279,719

90.6

57,656

20.6

18.7

Total

4,010,883

2,363,119

58.9

218,738

 9.3

 5.5


*All large commercial customers have the option of purchasing natural gas from suppliers other than LDCs. The "eligible" and "participating" commercial/industrial customers include all Nicor commercial and industrial customers, but only small-volume commercial customers for Peoples Gas and North Shore Gas.

Sources: Total 2003: Energy Information Administration, Natural Gas Annual 2003 (December 2004). Eligibility and Participation: Nicor Energy, Peoples Gas, and North Shore Gas (January 2005).

 

Illinois:  Legislative and Regulatory Actions on Retail Unbundling


Summary: Legislation was enacted in February 2002 that requires the ICC to set certification standards for marketers participating in customer choice programs in the state. The ICC has had the authority to allow customer choice programs since the beginning of 1998. In the fall of 1999, the Illinois Commerce Commission proposed standards of conduct for transactions between utilities and affiliates and relationships with alternative retail gas suppliers.


Regulatory and Legislative Actions

Legislation

02/02

Alternative Gas Supplier Law (SB 694) Enacted. Governor signed legislation on 2-8-02, which required the ICC to establish certification standards for marketers participating in local and statewide service unbundling programs. Marketers must comply with informational and reporting requirements, be licensed to do business in the state, be bonded ($150,000), and demonstrate creditworthiness. New rules coincide with the start of Nicor's customer-wide voluntary choice program in March 2002.

 

12/97

Alternative Rate Regulation Conditions. Amendment to Section 9-244(b) of the Public Utilities Act gives the ICC authority to allow alternative rate regulation for gas and electric utilities if it would likely result in lower rates and additional benefits than under traditional rate-of-return regulation, allow customers to share jointly with the utility any economic benefits of such a program, not adversely affect reliability and safety standards, not adversely affect the utility's financial condition, and not impede development of competitive markets.

Consumer Advocate Report

12/04

Citizens Utility Board Report Critical of Retail Choice. Report claims most consumers who switched suppliers paid on average $172 more in utility costs over the past 2 years than if they had stayed with their utility company. Of the 85 expired plans, consumers in 83 of them lost money, while consumers on 124 of the remaining 130 plans would have lost money to date, although data are incomplete and total savings or losses cannot be determined.

Regulatory Action

07/04

Peoples Energy Service Fined for Misleading “Fixed Price” Offer. ICC fined marketer $40,000 for violating consumer protection provisions of the Alternative Gas Supplier Law. Its fixed price plan included a clause allowing the company to cancel the contract or raise rates at any time and included a mandatory termination fee for customers who wished to opt out of the program.

Regulatory Action

03/02

Small-Volume Transportation Program Approved for Peoples Gas and North Shore Gas. Enrollment open to residential and small businesses who use 50,000 therms or less a year. Enrollment limits were set at 13 percent for the first year, 24 percent for the second year, and 33 percent in the third year. The 12-month minimum stay requirement will not apply until enrollment limits are reached. Suppliers can provide single billing. Customer enrollment via Internet and telephone must be permitted in the utilities’ tariffs.

 

01/02

Nicor Choice Approved as Permanent Program. ICC gave final approval to Nicor Choice program for all customers beginning March 2002.Customers can change suppliers at any time, or resume service with Nicor Gas, although they may be subject to penalties or supplier exit fees, depending on the terms of their contract. To withdraw from the program, customers must notify the supplier. Once they have returned to service with Nicor Gas, they have 45 days to choose another supplier or they will remain with Nicor Gas for one year.

 

09/01

ICC Issued Report on Utility Billing Practices as requested by the state legislature (HR 102 of the 92nd General Assembly).

 

07/01

ICC voted to expand Nicor program systemwide. Nicor says it will offer choice to all its customers by March 2002. Program opposed by consumer advocacy group Citizens Utility Board, which asked for a rehearing. Group considers program not competitive - choice of only 3 suppliers with almost all choosing to buy from Nicor affiliate.

 

02/01

Nicor Pilot Extended for Fourth Year. PUC allowed Nicor pilot to continue for fourth year on interim basis while investigating program to assess what competition has developed and if program should be expanded (currently pending in Dockets 00-0620 and 00-0621, Consolidated (doing business as Nicor Gas Company).

 

11/99

Approval of Alternative Rates for Northern Illinois Gas Co. (doing business as Nicor Gas Company). The Commission approved a 2-year "Gas Cost Performance Program" in which recoverable gas costs would be benchmarked to a market-based index. If gas costs are lower or higher than the benchmark, Nicor would share the savings or losses equally with its customers up to $30 million. Additional savings/losses would be apportioned 90% to customers and 10% to Nicor and reflected in rates the following year. The benchmark gas cost would equal the market index cost minus a storage credit adjustment, plus firm deliverability adjustment plus commodity adjustment. The formulae for the market index cost and adjustments are specified in the Commission's ruling.

 




9/99

Affiliate Transactions, Draft Rule. The Commission posted for comment draft rules to govern transactions between LDCs and their affiliates and relationships with alternative retail gas suppliers. Utilities cannot provide any preferential treatment or customer information to its affiliates, cannot jointly advertise or market services, and cannot tie transportation services with any other goods of its affiliates. All information received from alternative retail gas suppliers (ARGS) is to be considered confidential unless the ARGS specifies otherwise. Utilities and affiliates in competition with ARGSs in the utility's service area must operate independently and cannot share services or facilities, but affiliated interests are permitted to use the logo or corporate name of the gas utility in marketing and advertising. A public hearing on the proposed rules was set for early December and subsequently rescheduled for January 11, 2000.


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File last modified: 01/31/2005