Nicor parent talks rate changes despite earlier agreement
Tuesday, February 12, 2013—When is a ban on utility rate increases not one? AGL Resources Inc., owner of suburban natural gas utility Nicor, appears to be getting ready to answer that question.

The Atlanta-based company that bought Naperville-based Nicor in December 2011 is considering asking Illinois regulators for changes to Nicor's rates that would increase natural-gas delivery charges in much of suburban Chicago even though AGL agreed not to ask for an increase through 2014 in order to win Illinois Commerce Commission approval of the $2.5 billion deal.

On a Feb. 6 conference call to discuss fourth-quarter earnings, AGL executives told analysts they wanted rate changes in Illinois that would reduce their exposure to changes in weather, as well as help promote infrastructure investment.

While the company acknowledged the three-year prohibition on filing for "general rate cases," CEO John Somerhalder said, "Over the next year or two years, it will be important for us to look at ways to invest in infrastructure, depreciation rates, potentially weather normalization—the right things that work both for our customers in Illinois and will produce continued better results out of that business."

Apparently, AGL believes the regulatory pact allows it to seek "structural" rate changes that would have the effect of increasing what ratepayers pay for delivery of natural gas but wouldn't lift their base rates. Nicor, the second-largest utility in Illinois, serves 2.2 million customers in the majority of Chicago's suburbs.

An AGL spokeswoman declined to elaborate. In a statement, the company said, "We do not have any specific programs developed at this time, but any such initiative that may be presented in the future must be approved by the ICC and comply fully with our commitment not to change our base rates."

Gas utilities have suffered in recent years as warmer-than-normal winters have dampened demand for gas to heat homes. Weather "normalization" generally requires ratepayers to pay more than they would otherwise when winter temperatures aren't as cold as expected and conversely reduces their costs during colder-than-normal heating seasons.

Infrastructure programs generally call for rates to rise to allow utilities to recover their costs tied to big-ticket capital improvements more rapidly than they would under customary rate regulation.

Such efforts would be barred under the merger agreement with state regulators, argued David Kolata, executive director of consumer advocate Citizens Utility Board.

"We think the intent of the agreement with the ICC is a rate freeze," he said. "It seems Nicor is thinking of trying to work around that, and we'll have concerns if that is the case."

AGL in 2012 fell short of its own earnings projections, in part due to warm winter weather in suburban Chicago in both the first and fourth quarters. Earnings per share adjusted for merger expenses came in at $2.45. The company had forecast earnings between $2.60 and $2.75.

In the fourth quarter alone, AGL saw a $10 million revenue hit due to warmer-than-normal weather.

On Feb. 6, AGL's stock price dropped 4.4 percent, to $40.29 from $42.16, on the earnings disappointment. On Monday, the stock continued to lag at $40.28.

In the conference call, AGL Chief Regulatory Officer Scott Carter said, "There are needs (in Illinois) and we're looking at several different opportunities to improve the position up there relative to those issues."