Document:

Exhibit 10.4 - ICC Order 03-0704 for NSG

    

      EXHIBIT
        10.4

      

      STATE
        OF ILLINOIS

      

      ILLINOIS
        COMMERCE COMMISSION

      

      

      
        	
                Illinois
                  Commerce Commission

              	
                :

              	 
	
                On
                  Its Own Motion

              	
                :

              	 
	 	
                :

              	 
	
                v.

              	
                :

              	
                03-0704

              
	 	
                :

              	 
	
                North
                  Shore Gas Company

              	
                :

              	 
	 	
                :

              	 
	
                Reconciliation
                  of revenues collected under

              	
                :

              	 
	
                gas
                  adjustment charges with actual 

              	
                :

              	 
	
                costs
                  prudently incurred

              	
                :

              	 

      

      

      

      ORDER

      

      By
        the
        Commission:

      

      On
        November 12, 2003, the Illinois Commerce Commission ("Commission") entered
        an
        Order commencing PGA Reconciliation Proceedings, in accordance with the
        requirements of Section 9-220 of the Public Utilities Act, which directed
        North
        Shore Gas Company ("North
        Shore" or "Company" or "Respondent") to present evidence in this docket at
        a
        public hearing to show the reconciliation of Respondent’s purchased gas
        adjustment clause ("PGA") revenues collected with the actual cost of such
        gas
        supplies prudently purchased for the twelve months ended September 30,
        2003.

      

      The
        Citizens Utility Board ("CUB") filed a petition to intervene, which was granted.
        The People of the State of Illinois (the "People") filed a petition to intervene
        on January 23, 2006, which is granted in this Order.

      

      I. The
        Settlement

      

      Issues
        present in this docket are present as well in North Shore’s fiscal year 2001
        reconciliation proceeding, I.C.C. Docket No. 01-0706 and in The Peoples Gas
        Light & Coke Co.’s fiscal year 2001 reconciliation proceeding, I.C.C. Docket
        No. 01-0707. What follows herein is a description of the proceedings in I.C.C.
        Docket No. 01-0707.

      

      Pursuant
        to proper notice, the trial in Docket No. 01-0707 was convened before a duly
        authorized Administrative Law Judge (an "ALJ") on April 18, 2005 and continued
        through April 21, 2005. Subsequently, the record was marked "Heard and Taken."
        After the parties and Commission Staff filed post-trial briefs, the ALJ issued
        a
        Proposed Order (the "ALJPO") on September 20, 2005.

      
        
          

           

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0704

          

        

      

      

      After
        Briefs on Exception and Reply Briefs on Exceptions were filed, and after
        oral
        argument was heard in Docket No. 01-0707, a Settlement Agreement and Release
        (the "Settlement") was entered into by North Shore and The Peoples Gas, Light
        & Coke Company (collectively the "Peoples Companies"), the People and the
        City of Chicago on January 17, 2006. CUB formally signed on to the Settlement
        on
        February 27, 2006. A copy of the Settlement is attached hereto as Exhibit
        1. In
        the Settlement, the Peoples Companies, the People, the City of Chicago, and
        CUB
        (collectively the "Settling Parties") agreed to settle globally the outstanding
        reconciliation dockets pending for Fiscal Years 2001 through 2004 of both
        Peoples Gas (I.C.C. Docket Nos. 01-0707, 02-0727, 03-0705 and 04-0683) and
        North
        Shore (I.C.C. Docket Nos. 01-0706, 02-0726, 03-0704 and 04-0682) (collectively
        the "Peoples Reconciliation Dockets").1
        Under
        the Settlement, the Settling Parties would settle the Peoples Reconciliation
        Dockets and the Peoples Companies would pay a $100 million refund, adopt
        certain
        forward-looking management and accounting proposals that were proposed in
        the
        ALJPO in Docket No. 01-0707, and meet other requirements defined in the
        agreement.

      

      On
        January 23, 2006, the Peoples Companies, the People and the City of Chicago
        filed a Joint Petition for Approval of the Settlement Agreement in each of
        the
        Peoples Reconciliation Dockets. At its February 8, 2006 Bench Session, after
        concerns were raised by certain Commissioners as to whether the consideration
        being paid in the Settlement was fair value in exchange for the settlement
        of
        all of the Peoples Reconciliation Dockets, the Commission asked that the
        Settling Parties meet with Commission Staff and the State’s Attorney to
        negotiate settlement terms that all parties could accept to settle the Peoples
        Reconciliation Dockets.

      

      During
        the next several weeks, Commission Staff, the State’s Attorney and the Settling
        Parties met on several occasions. In addition, Commission Staff Witnesses
        issued
        several data requests to the Peoples Companies, which the Peoples Companies
        responded to on an expedited basis. Based on those responses, Commission
        Staff
        developed for fiscal years other than 2001 an estimate of potential
        disallowances that Commission Staff asserted should be considered as part
        of the
        Settlement. Based on those discussions, the Settling Parties executed an
        Amendment and Addendum to the Settlement (the "Addendum"), which modified
        the
        terms of the Settlement to include these additional agreements and
        modifications, which the Settling Parties would support if the Commission
        were
        to approve the Settlement. A copy of the Addendum is attached hereto as Exhibit
        2. The Commission Staff, as well as the States Attorney, which was a party
        to
        dockets 01-0707 and 01-0706, did not agree with either the Settlement or
        the
        Addendum.

      

      _______________

      1  The
        Settlement also addressed three circuit court cases.

      
        
          

          2

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0704

          

        

      

      On
        February 28, 2006 and March 1, 2006, the Settling Parties filed statements
        advising the Commission of the revised settlement terms agreed to by the
        Settling Parties and requesting that the Commission approve the Settlement
        as
        revised by the Addendum. On March 2, 2006, the Commissioners issued data
        requests to the parties to obtain information about the Settlement and the
        Addendum. The parties filed verified responses to these Commission data requests
        on March 3, 2006.

      

      On
        March
        6, 2006, the Commission held a special open meeting addressing the Settlement
        during which Commissioners asked questions to, and received answers from,
        representatives of the parties and the Commission Staff. 

      

      II. Outstanding
        Procedural Matters

       

      The
        People of the State of Illinois filed a petition to intervene on January
        23,
        2006. The Commission grants the People’s petition to intervene. On March 16,
        2006, Commission Staff filed a motion seeking leave to file Exceptions and
        a
        Brief on Exceptions. That motion is hereby granted. 

      

      III. Legal
        Basis for Approval of the Settlement

      

      Even
        though Commission Staff and the States Attorney, in Docket Nos. 01-0706 and
        01-0707, did not approve of the Settlement or the Addendum, the Commission
        has
        the legal authority to approve a settlement for the Peoples Reconciliation
        Dockets. Under Business
        and Professional Peoples for the Public Interest v. Illinois Commerce
        Commission
        ("BPI"),
        136
        Ill. 2d 192 (1989), if parties unanimously support a settlement, it can be
        approved. Under the Commission’s Rules of Practice, Commission Staff is not
        considered a party to Commission proceedings, but has all the specific rights
        and duties enumerated in Part 200. 83 Ill. Admin. Code §200.40. 

      

      Here,
        with respect to the reconciliation dockets for Fiscal Year 2003, all of the
        parties unanimously have agreed to and executed the Settlement Agreement.
           

      

      IV. Terms
        of the Settlement

      

      The
        terms
        set forth in the Settlement (Exhibit 1) and Addendum (Exhibit 2) are described
        below.

      

      
        
          

          3

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0704

          

        

      

      A. Distribution
        of the $100 Million Refund

      

      The
        Settlement Agreement and Addendum provide the Commission with flexibility
        in
        determining how to refund the $100 million to customers in PGL's and North
        Shore’s service territories. The Commission finds that the $100 million refund
        should be apportioned to North Shore and PGL customers based on the substantial
        evidence in the records of Docket No. 01-0706 and Docket No. 01-0707. That
        evidence demonstrates that North Shore customers suffered significantly less
        harm than PGL customers. 

      

      The
        Commission finds that the $100 million refund shall be allocated between
        North
        Shore and PGL customer accounts based on each utility’s approximate share of the
        total disallowances recommended by Staff in Docket Nos. 01-0706 and the instant
        docket. Staff recommended approximately $92 million disallowances in the
        Docket
        01-0707 and approximately $4 million disallowances in the instant Docket.
        Using
        those numbers as indicators of the level of harm caused to consumers in each
        service territory, the Commission finds that $4,000,000 of the $100,000,000
        shall be refunded to customer accounts in North Shore’s service
        territory.

      

      The
        $4,000,000 refund to North Shore customer accounts shall be allocated to
        all
        Service Classifications based on each Service Classification's share of the
        total PGA gas consumed by all Service Classifications during the 2001, 2002,
        2003, and 2004 reconciliation periods ("Reconciliation Periods"). 

      

      Each
        Service Classification’s allocation, with the exception of the allocations to
        Service Classification No. 3 - Large Volume Demand Service ("SC No. 3"),
        shall
        be divided by the total number of customer accounts (both sales and
        transportation) receiving service under that Service Classification on the
        date
        this Order is entered. The result for each Service Classification shall be
        refunded on a per capita basis to each customer account receiving service
        under
        that Service Classification on the date this Order is entered. Refunds to
        all
        Service Classifications shall be provided to both sales and transportation
        customer accounts with the exception of SC No. 3 accounts as outlined
        below.

      

      Refunds
        to SC No. 3 customer accounts shall be allocated to individual SC No. 3 customer
        accounts based on PGA gas usage during the Reconciliation Periods. The amount
        allocated to SC No. 3 shall be refunded to each individual SC No. 3 customer
        account, which received service at any time during the Reconciliation Periods
        and purchased PGA gas at any time during the Reconciliation Periods, based
        on
        each customer account’s share of the total PGA gas used during the
        Reconciliation Periods. If any of these entities are still a going concern
        but
        no longer a customer of the Company, then the Company and the customer shall
        arrive at a mutually acceptable method of administering the refund.

      

      
        
          

          4

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0704

          

        

      

      The
        Commission finds that the allocation methodologies for the different Service
        Classifications approved herein are equitable and take into consideration
        the
        administrative difficulties associated with providing refunds to nearly one
        million customers with vastly different usage characteristics and levels
        of
        service.

      

      Within
        seven (7) days of the date this Order is served to the parties, North Shore
        shall file an informational filing with the Commission's Chief Clerks Office
        describing the amount to be refunded to each customer in each Service
        Classification based on the methodology described herein and a plan for
        administering the refunds. 

      

      The
        informational filing shall include the following information for all Service
        Classifications except for SC No. 3:

      

      	§  	
              The
                number of customers receiving service on each Service Classification
                as of
                the date this Order is entered, 

            

      

      	§  	
              The
                usage of PGA gas by each Service Classification during the Reconciliation
                Periods, and

            

      

      	§  	
              The
                amount of the refund to be credited to each customer during the next
                30-day billing cycle.

            

      

      The
        following information is required for those customers that are on SC No.
        3
        Service Classification. 

      

      	§  	
              The
                number of current and former customers that held customer accounts
                and
                consumed PGA gas during the Reconciliation Periods,
                

            

      

      	§  	
              The
                amount of PGA gas consumed during the Reconciliation Periods by each
                current and former customer account, 

            

      

      	§  	
              An
                indication of whether former SC No. 3 customers are still a going
                concern,
                and 

            

      

      	§  	
              The
                amount to be refunded to each current and former customer account
                that
                received service during the Reconciliation
                Periods.

            

      

      The
        refund shall be issued in one installment and shall be a credit to the customer
        account. The credit shall be plainly designated on customers’ bills as a refund
        credit provided as a result of a Settlement and Addendum agreed upon by the
        City
        of Chicago, the Illinois Attorney General, the Citizens Utility Board, Peoples
        Gas, and North Shore and approved by the Illinois Commerce
        Commission.

      

      
        
          

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          03-0704

          

        

      

      Refunds
        shall be issued to all customer accounts within thirty (30) days of the date
        this Order is entered. Within forty-five (45) days of the date this Order
        is
        entered, the Company shall file an informational filing describing how the
        refund process was administered, the speed at which the refund process was
        completed, any problems that were incurred during the refund process, and
        any
        other issues associated with the refund process. This filing will also include
        the total number of customers receiving the refund for each Service
        Classification and the refund amount for each customer. 

      

      B. Accounting
        Proposals Adopted from the ALJPO in Docket 01-0707

      

      In
        the
        Settlement and the Addendum, the Settling Parties agreed that the Peoples
        Companies would adopt and incorporate into the Settlement several of the
        accounting provisions set forth in the ALJPO in Docket 01-0707. Section III.A.2
        of the Settlement includes a statement paralleling Finding (13) of the ALJPO.
        Section III.A.2. states:

      

      For
        a
        period of five years, Peoples Gas and North Shore Gas each shall perform
        an
        annual internal audit of gas purchasing and submit a copy of the audit report
        to
        the Manager of the ICC’s Accounting Department.

      

      (Settlement
        at 8.)

      

      Amendment
        Section A of the Addendum states that the Peoples Companies, including North
        Shore Gas Company, will account future HUB revenues in accordance with 83
        Ill.
        Admin Code 525, stating:

      

      Upon
        approval of the settlement agreement, Peoples Gas and North Shore Gas and
        all
        Peoples Companies shall account for all of their HUB revenues and third party
        non-tariff revenues, and ay other revenues referred to as HUB revenues or
        non-tariff revenues (as those terms have been used in ICC Docket 01-0707)
        in
        accordance with 83 Ill. Admin code 525.40(d). All such revenues shall serve
        to
        offset "recoverable gas costs" to arrive at the "gas charge" as those terms
        are
        used in Illinois Commerce Commission rules part 525.40(d) and in accordance
        with
        the Public Utilities Act. 83 Ill. Admin. Code 525.40(d); 220 ILCS 5/101
et.
        seq.
        The
        Peoples Gas and North Shore Gas and all Peoples Companies agree that this
        accounting of these revenues shall apply to all future Purchased Gas Adjustment
        reconciliation case and rate case filed by Peoples Gas and North Shore
        Gas.

      

      (Addendum
        at 1-2.)

      
        
          

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          03-0704

          

        

      

      

      The
        text
        of the findings from the ALJPO in Docket 01-0707 incorporated into the
        Settlement by the Addendum is:

      

      
        	 	
                (7)
                  

              	
                Peoples
                  Gas Light and Coke Company shall update its operating agreement,
                  which was
                  approved by this Commission in Docket No. 55071, prior to filing
                  its
                  petition with the ICC for its next rate case or within sixty days
                  after
                  the date a final order is entered in this docket, whichever occurs
                  first;

              

      

      

      
        	 	
                (8)
                  

              	
                Peoples
                  Gas Light and Coke Company shall account for all gas physically
                  injected
                  into Manlove Field by including the cost associated with maintenance
                  gas
                  in the amount transferred from purchased gas expense to the gas
                  stored
                  underground account, Account 164.1;

              

      

      

      
        	 	
                (9)
                  

              	
                Peoples
                  Gas Light and Coke Company shall account for the portion of gas
                  injected
                  into the Manlove Storage Field to maintain pressure, as credits
                  from
                  Account 164.1, Gas Stored Underground, as charges to Account 117,
                  Gas
                  Stored Underground, in the case of recoverable cushion gas, or
                  to Account
                  101, in the case of non-recoverable portions of cushion
                  gas;

              

      

      

      *  *  *

      

      
        	 	
                (11)
                  

              	
                Peoples
                  Gas Light and Coke Company shall revise its maintenance gas accounting
                  procedures related to gas injected for the benefit of the North
                  Shore Gas
                  Company and third-parties to require those entities to bear the
                  cost of
                  maintenance gas, and it shall revise its maintenance gas accounting
                  procedures to ensure that all customers/consumers bear equal
                  responsibility for maintenance gas;

              

      

      

      
        	 	
                (12)
                  

              	
                Peoples
                  Gas Light and Coke Company shall submit its revised maintenance
                  gas
                  accounting procedures to the Commission’s Chief Clerk with a copy to the
                  Manager of the Accounting Department within 30 days after the date,
                  upon
                  which, a final Order is entered in this
                  docket;

              

      

      

      *  *  *

      

      
        	 	
                (14)
                  

              	
                Peoples
                  Gas Light and Coke Company shall submit quarterly reports reflecting
                  its
                  use of journal entries regarding maintenance gas to the Manager
                  of this
                  Commission’s Accounting Department within 45 days of the end of each
                  quarter, after the date of a final order is entered in this docket,
                  through the quarter ending September 30,
                  2009;

              

      

      

      
        
          

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          03-0704

          

        

      

      
        	 	
                (15)
                  

              	
                Peoples
                  Gas Light and Coke Company shall engage outside consultants to
                  perform a
                  management audit of its gas purchasing practices, gas storage operations
                  and storage activities. The firm selected to perform the management
                  audit
                  shall be independent of Peoples Gas Light and Coke Company, its
                  affiliates, Staff, and all parties in this docket, and approved
                  by this
                  Commission. Monthly reporting of the progress of the conduct of
                  the
                  management audit shall be submitted to the Bureau Chief of the
                  Commission’s Public Utilities Bureau, with a copy to the Manager of the
                  Commission’s Accounting Department, until the management audit report has
                  been submitted. Completion of this management audit shall occur
                  no later
                  than eighteen months after the date, upon which, a final order
                  is entered
                  in this docket. Upon completion, copies of the management audit
                  reports
                  shall be submitted to the Commission’s Public Utilities Bureau Chief and
                  the Manager of the Commission’s Accounting
                  Department;

              

      

      

      (ALJPO
        in
        Docket 01-0707, at 135-136.)

      

      C. Hardship
        Reconnection Program

      

      The
        Peoples Companies agreed to instate a Hardship Reconnection program to allow
        certain customers who have been disconnected for non-payment to be reconnected
        and their debt forgiven. The Commission applauds this program and the Companies’
pledge to permanently instate it. The Commission has high hopes for the
        program’s success. To keep ourselves informed of the success, the Commission
        finds that the Peoples Companies should file quarterly reports on the progress
        of the program.

      

      
        
          

          8

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0704

          

        

      

      D. Gas
        Reconciliation

      

      A
        reconciliation of North Shore’s total gas revenues with total gas costs for the
        reconciliation period October 1, 2002, through September 30, 2003 is shown
        in
        Appendix A hereto. This Appendix A contains an independent reconciliation
        for
        each of the following; Commodity Gas Charge, Non-Commodity Gas Charge and
        Demand
        Gas Charge, and Transition Surcharge. Below is an aggregation of the above
        referenced reconciliations.

      

      
        	
                1.  Unamortized
                  Balance at 9/30/02 per 2002 reconciliation
                  (Refund)/Recovery

              	 	
                $

              	
                2,144,033.54

              	 
	
                2.  Factor
                  A Adjustments Amortized to Sch. I at 09/30/02 per 2002 reconciliation
                  (Refund)/Recovery

              	 	 	
                1,009,785.91

              	 
	
                3.  Factor
                  O (Refunded)/Recovered during 2002

              	 	 	
                0

              	 
	
                4.  Balance
                  to be (Refunded)/Recovered during 2003 from prior periods

              	 	 	
                3,153,819.45

              	 
	
                5.  2003
                  PGA Recoverable Costs

              	 	 	
                140,967,628.86

              	 
	
                6.  2003
                  PGA Actual Recoveries

              	 	 	
                148,789,758.17

              	 
	
                7.  Interest

              	 	 	
                (28,710.51

              	
                )

              
	
                8.  Other
                  Adjustments

              	 	 	
                0

              	 
	
                9.  Pipeline
                  Refunds 

              	 	 	
                (3,645.65)

              	 
	
                10.  (Over)/Under
                  Recovery for 2003

              	 	 	
                (7,854,485.48

              	
                )

              
	
                11.  PGA
                  Reconciliation Balance at 9/30/03 (Over)/Under
                  Collected

              	 	 	
                (4,700,666.03

              	 
	
                12.  Factor
                  A Adjustments unreconciled at 9/30/03 (Refund)/Recovery

              	 	 	
                (1,381,294.80

              	
                )

              
	
                13.  Unamortized
                  Balance at 9/30/03 (Refund)/Recovery

              	 	
                $

              	
                (3,319,371.23

              	
                )

              
	
                14.  
                  Requested Ordered Reconciliation Factor to be (Refunded)/Recovered
                  [Factor
                  O]

              	 	 	
                0

              	 

      

      

      

      
        
          

          9

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0704

          

        

      

      E. Commission
        Analysis and Conclusions 

      

      The
        Commission finds that the Settlement Agreement, as revised by the Addendum,
        is a
        legal and reasonable compromise of potential disallowances North Shore might
        have to pay based on allegedly imprudent gas costs in fiscal year 2003. This
        finding is supported by the unanimous agreement of the parties to this Docket.
        The refund described above in "IV.A - Distribution of the $100 Million Refund,"
        shall be made in accordance with the Commission’s decision in this Order. The
        adoption of the Settlement Agreement and Addendum concludes the 2003 PGA
        reconciliation of North Shore and, based upon the Settlement, the Commission
        concludes that the 2003 PGA reconciliation, as shown in Appendix A hereto,
        should be approved. The Settlement Agreement and Addendum are hereby
        incorporated into and made a part of this Order and the similar orders entered
        for the other Peoples Reconciliation Dockets.

      

      V. Findings
        and Ordering Paragraphs

      

      The
        Commission, being fully advised in the premises, is of the opinion and finds
        that:

      

      	(1)
                	
              North
                Shore Gas Company is
                a corporation engaged in the distribution of natural gas service
                to the
                public in Illinois and, as such, is a public utility within the meaning
                of
                the Public Utilities Act;

            

      

      	(2)
                	
              the
                Commission has jurisdiction over Respondent and of the subject matter
                of
                this proceeding;

            

      

      	(3)
                	
              the
                Settlement (Exhibit 1) as revised by the Addendum (Exhibit 2) is
                adopted
                and the terms incorporated herein as a settlement of allegations
                that,
                during the reconciliation period, Respondent had not acted reasonably and
                prudently in its purchases of natural gas and other activities that
                affected the amounts collected through Gas Charges in its fiscal
                year
                2003; 

            

      

      	(4)
                	
              the
                unamortized balances at the end of Respondent’s 2003 reconciliation year
                show a refundable balance for the Commodity Gas Charge of $(3,608,377.31);
                a recoverable balance of $279,394.15 for the Non-Commodity Gas Charge
                and
                the Demand Gas Charge; and a recoverable balance of $9,611.94 for
                the
                Transition Surcharge, for a total refundable balance of $(3,319,371.23);
                the Factor O Refund is zero;

            

       

      	(5)
                	
              the
                reconciliations submitted by North Shore Gas Company of the costs
                actually
                incurred for the purchase of natural gas with revenues received for
                such
                gas for the reconciliation period beginning October 1, 2002, through
                September 30, 2003, may properly be approved;

            

       

      
        
          
            

            10

            

            
            

          

          
            
            

            
              

            

          

          
            
            

            03-0704

            

          

        

      

       

      	(6)
                	
              pursuant
                to the Settlement, a refund of $100 million is to be distributed
                in the
                manner set forth above as part of the consideration paid in global
                settlement of this docket as well as I.C.C. Docket Nos. 01-0706,
                01-0707,
                02-0726, 02-0727, 03-0705, 04-0682 and
                04-0683;

            

       

      	(7)
                	
              North
                Shore Gas Company should follow the accounting procedures recited
                above,
                where applicable to it, the directives contained in the incorporated
                parts
                of the settlement agreement and the addendum thereto in all future
                gas
                adjustment charge reconciliation dockets.

            

       

      	(8)
                	
              North
                Shore Gas Company shall file quarterly reports with the Chief Clerk’s
                office detailing the progress of the Hardship Reconnection
                program.

            

       

      IT
        IS
        THEREFORE ORDERED that the reconciliations submitted by North Shore Gas Company
        of the costs actually incurred for the purchase of natural gas with revenues
        received for such gas for the reconciliation period beginning October 1,
        2002,
        through September 30, 2003, as shown in Appendix A hereto, be, and they are
        hereby, approved.

      

      IT
        IS
        FURTHER ORDERED that the Settlement (Exhibit 1), and Addendum (Exhibit 2)
        are
        hereby incorporated into and made a part of this Order.

      

      IT
        IS
        FURTHER ORDERED that any motions, objections, or petitions in this proceeding
        that have not been specifically ruled on should be disposed of in a manner
        consistent with the findings and conclusions herein.

      

      IT
        IS
        FURTHER ORDERED that subject to the provisions of Section 10-113 of the Public
        Utilities Act and 83 Ill. Adm. Code 200.880, this Order is final; it is not
        subject to the Administrative Review Law.

      

      IT
        IS
        FURTHER ORDERED that North Shore Gas Company shall comply with finding (7)
        above. 

      

      By
        Order
        of the Commission this 28th
        day of
        March, 2006.

      

      

      

      

      (SIGNED)
        CHARLES E. BOX

      

      Chairman

      

      
        
          
            

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            Appendix
              A

            Docket
              03-0704

            

          

        

      

      North
        Shore Gas Company

      Gas
        Charge Reconciliation Summary

      Fiscal
        2003

      

      
        	 	
                Commodity

                Gas
                  Charges

                (CGC)

              	
                Non-Commodity
                  Gas Charge

                and
                  Demand Gas Charge

                (NCGC
                  and DGC)

              	
                Transition

                Surcharge

                (TS)

              	
                Total

                Gas
                  Charge

              
	
                Line

              	 	 	 	 
	
                Fiscal
                  2002

              	 	 	 	 
	
                1  Unamortized
                  Balance at September 30, 2002

                (Refund)
                  / Recovery 

              	
                $867,888.08

              	
                $1,266,563.19

              	
                $9,582.27

              	
                $2,144,033.54

              
	
                2  Factor
                  A Adjustments unreconciled at September 30, 2002 (Refund) / Recovery
                  

              	
                $494,783.75

              	
                $513,420.08

              	
                $1,582.08

              	
                $1,009,785.91

              
	
                3  Factor
                  O

                (Refunded)
                  / Recovered 

              	
                $0.00

              	
                $0.00

              	
                $0.00

              	
                $0.00

              
	
                4  Balance
                  (Refundable) / Recoverable from Prior Periods (Line 1 + Line 2
                  + Line
                  3)

              	
                $1,362,671.83

              	
                $1,779,983.27

              	
                $11,164.35

              	
                $3,153,819.45

              
	
                Fiscal
                  2003

              	 	 	 	 
	
                5   Costs
                  Recoverable
                  through the Gas Charge 

              	
                $125,574,616.34

              	
                $15,393,012.52

              	
                $0.00

              	
                $140,967,628.86

              
	
                6  Revenues
                  Arising
                  though Application of the Gas Charge 

              	
                $131,932,674.27

              	
                $16,857,087.81

              	
                ($3.91)

              	
                $148,789,758.17

              
	
                7   Separately
                  Reported
                  Pipeline Refunds or Surcharges 

              	
                $0.00

              	
                ($3,645.65)

              	
                $0.00

              	
                ($3,645.65)

              
	
                8   Separately
                  Reported
                  Other Adjustments

              	
                $0.00

              	
                $0.00

              	
                $0.00

              	
                $0.00

              
	
                9   Interest
                  Calculated
                  at 2.00% thru Dec. 2002; 1.50% thereafter

              	
                ($19,762.41)

              	
                ($9,095.65)

              	
                $147.55

              	
                ($28,710.51)

              
	
                10  (Over)
                  / Under Recovery for Reconciliation Year

                (Line
                  5 - Line 6 + Line 7 + Line 8 + Line 9)

              	
                ($6,337,820.34)

              	
                ($1,476,816.59)

              	
                $151.46

              	
                ($7,854,485.48)

              
	
                11  (Over)
                  / Under Recovery Balance for Reconciliation Year (Line 4 + Line
                  10)

              	
                ($5,015,148.51)

              	
                $303,166.68

              	
                $11,315.81

              	
                ($4,700,666.03)

              
	
                12  Factor
                  A Adjustments unreconciled at September 30, 2003 (Refund) / Recovery
                  

              	
                ($1,406,771.20)

              	
                23,772.53

              	
                $1,703.87

              	
                ($1,381,294.80)

              
	
                13  Unamortized
                  Balance at September 30, 2003

                (Refund)
                  / Recovery (Line 11 - Line 12) 

              	
                ($3,608,377.31)

              	
                $279,394.15

              	
                $9,611.94

              	
                ($3,319,371.23)

              
	
                14  Requested
                  Factor O (Line 11 - Line 12 - Line 13) (Refund) / Recovery

              	
                $0.00

              	
                $0.00

              	
                $0.00

              	
                $0.00

              

      

      

        
          
            

            12Exhibit 10.5 - ICC Order 03-0705 for PGL

    EXHIBIT
      10.5

    

    STATE
      OF ILLINOIS

    

    ILLINOIS
      COMMERCE COMMISSION

    

    

    
      	
              Illinois
                Commerce Commission

            	
              :

            	 
	
              On
                Its Own Motion

            	
              :

            	 
	 	
              :

            	 
	
              v.

            	
              :

            	
              03-0705

            
	 	
              :

            	 
	
              The
                Peoples Gas Light and Coke Company

            	
              :

            	 
	 	
              :

            	 
	
              Reconciliation
                of revenues collected under

            	
              :

            	 
	
              gas
                adjustment charges with actual 

            	
              :

            	 
	
              costs
                prudently incurred

            	
              :

            	 

    

     

    

    ORDER

    

    By
      the
      Commission:

    

    On
      November 12, 2003, the Illinois Commerce Commission ("Commission") entered
      an
      Order commencing PGA Reconciliation Proceedings, in accordance with the
      requirements of Section 9-220 of the Public Utilities Act, which directed The
      Peoples Gas Light and Coke Company ("Peoples
      Gas" or "Company" or "Respondent") to present evidence in this docket at a
      public hearing to show the reconciliation of Respondent’s purchased gas
      adjustment clause ("PGA") revenues collected with the actual cost of such gas
      supplies prudently purchased for the twelve months ended September 30,
      2003.

    

    The
      Citizens Utility Board ("CUB") filed a petition to intervene, which was granted.
      The City of Chicago (the "City") entered an appearance. The People of the State
      of Illinois (the "People") filed a petition to intervene on January 23, 2006,
      which is granted in this Order.

    

    I. The
      Settlement

    

    Issues
      present in this docket are present, as well in Peoples Gas’ fiscal year 2001
      reconciliation proceeding, I.C.C. Docket No. 01-0707. What follows herein is
      a
      description of the proceedings in I.C.C. Docket No. 01-0707.

    

    Pursuant
      to proper notice, trial in Docket No. 01-0707 convened before a duly authorized
      Administrative Law Judge (an "ALJ") on April 18, 2005 and continued through
      April 21, 2005. Subsequently, the record was marked "Heard and Taken." After
      the
      parties and Commission Staff filed post-trial briefs, the ALJ issued a Proposed
      Order (the "ALJPO") on September 20, 2005.

    
      
        

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    

    After
      Briefs on Exception and Reply Briefs on Exceptions were filed, and after oral
      argument was heard in Docket No. 01-0707, a Settlement Agreement and Release
      (the "Settlement") was entered into by Peoples Gas, North Shore Gas Company
      ("North Shore") (collectively the "Peoples Companies"), the People and the
      City
      on January 17, 2006. CUB formally signed on to the Settlement on February 27,
      2006. A copy of the Settlement is attached hereto as Exhibit 1. 

    

    In
      the
      Settlement, the Peoples Companies, the People, the City, and CUB (collectively
      the "Settling Parties") agreed to settle globally the outstanding reconciliation
      dockets pending for Fiscal Years 2001 through 2004 of both Peoples Gas (I.C.C.
      Docket Nos. 01-0707, 02-0727, 03-0705 and 04-0683) and North Shore (I.C.C.
      Docket Nos. 01-0706, 02-0726, 03-0704 and 04-0682) (collectively the "Peoples
      Reconciliation Dockets").1
      Under
      the Settlement, the Settling Parties would settle the Peoples Reconciliation
      Dockets and the Peoples Companies would pay a $100 million refund, adopt certain
      forward-looking management and accounting proposals that were proposed in the
      ALJPO in Docket No. 01-0707, and meet other requirements defined in the
      agreement.

    

    On
      January 23, 2006, the Peoples Companies, the People and the City filed a Joint
      Petition for Approval of the Settlement Agreement in each offor the Peoples
      Reconciliation Dockets. At its February 8, 2006 Bench Session, after concerns
      were raised by certain Commissioners as to whether the consideration being
      paid
      in the Settlement was fair value in exchange for the settlement of all of the
      Peoples Reconciliation Dockets, the Commission asked that the Settling Parties
      meet with Commission Staff and the State’s Attorney to negotiate settlement
      terms that all parties could accept to settle the Peoples Reconciliation
      Dockets.

    

    During
      the next several weeks, Commission Staff, the State’s Attorney and the Settling
      Parties met on several occasions. In addition, Commission Staff issued several
      data requests to the Peoples Companies, which the Peoples Companies responded
      to
      on an expedited basis. Based on those responses, Commission Staff developed
      for
      fiscal years other than 2001 an estimate of potential disallowances that
      Commission Staff asserted should be considered as part of the Settlement. While
      the Settling Parties agreed to many additional terms that increased the
      consideration to be paid by the Peoples Companies and the Peoples Companies
      accepted additional accounting proposals, Commission Staff and the States
      Attorney did not agree to the terms of the Settlement as revised. Based on
      those
      discussions, tThe Settling Parties executed an Amendment and Addendum to the
      Settlement (the "Addendum"), which modified the terms of the Settlement to
      include these additional agreements and modifications, which the Settling
      Parties would support if the Commission were to approve the Settlement. A copy
      of the Addendum is attached hereto as Exhibit 2. The Commission Staff and the
      States Attorney did not agree with either the Settlement or the
      Addendum.

     

    _______________

    1  The
      Settlement also addressed in three circuit court cases.

    
      
        

        2

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    On
      February 28, 2006 and March 1, 2006, the Settling Parties filed statements
      advising the Commission of the revised settlement terms agreed to by the
      Settling Parties and requesting that the Commission approve the Settlement
      as
      revised by the Addendum. On March 2, 2006, the Commissioners issued data
      requests to the parties to obtain information about the revised Settlement
      and
      the Addendum. The parties filed verified responses to these Commission data
      requests on March 3, 2006.

    

    On
      March
      6, 2006, the Commission held a special open meeting addressing the Settlement
      during which Commissioners asked questions to, and received answers from,
      representatives of the parties and Commission Staff. At the conclusion of this
      special open meeting, the Commission voted to approve the Settlement as revised
      by the Addendum to settle the Peoples Reconciliation Dockets.

    

    II. Outstanding
      Procedural Matters

    

    The
      People filed a petition to intervene on January 23, 2006. The Commission grants
      the People’s petition to intervene. On March 16, 2006, Commission Staff filed a
      motion seeking leave to file Exceptions and a Brief on Exceptions. That motion
      is hereby granted. 

    

    III. Legal
      Basis for Approval of the Settlement

    

    Even
      though Commission Staff and the States Attorney, in Docket Nos. 01-0706 and
      01-0707, did not approve of the Settlement or the Addendum, the Commission
      has
      the legal authority to approve athe S settlement for the Peoples Reconciliation
      Dockets. Under Business
      and Professional Peoples for the Public Interest v. Illinois Commerce
      Commission
      ("BPI"),
      136
      Ill. 2d 192 (1989), if parties unanimously support a settlement, it can be
      approved. Only in the absence of unanimous support is the Commission required
      to
      find that the settlement is based upon substantial evidence in the record.
      Under
      the Commission’s Rules of Practice, Commission Staff is not considered a party
      to Commission proceedings, but has all the specific rights and duties enumerated
      in Part 200. 83 Ill. Admin. Code §200.40. 

    

    Here,
      with respect to the reconciliation dockets forof Fiscal Years 2003 through
      2004
      (Docket Nos. 02-0727, 02-0727, 03-0704, 03-0705, 04-0682 and 04-0683), all
      of
      the parties unanimously have agreed to, and executed the Settlement Agreement.
      Accordingly, with respect to those dockets, the Commission can approve the
      Settlement Agreement without taking evidence and without Commission Staff’s
      approval.

    

    
      
        

        3

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    The
      States Attorney is a party only to the Fiscal Year 2001 reconciliation
      proceedings (Docket Nos. 01-0706 and 01-0707). In those proceedings, however,
      hearings have been held and substantial supporting evidence is in the record.
      The Settlement thus can be supported by the record in Docket Nos. 01-0706 and
      01-0707. Accordingly, the fact that the State’s Attorney has not executed the
      Settlement poses no obstacle to its approval in those dockets and the resolution
      of these matters.

    

    IV. Terms
      of the Settlement

     

    The
      Commission finds that an appropriate settlement has been reached in this docket
      and in the other Peoples Reconciliation Dockets, the terms of the settlement
      areof which are set forth in the Settlement (Exhibit 1) and Addendum (Exhibit
      2). The Settlement and Addendum are hereby into and made a part of this Order
      and the similar orders entered for the other Peoples Reconciliation
      Dockets.

    

    A. Distribution
      of the $100 Million Refund

    

    The
      Settlement Agreement and Addendum provide the Commission with flexibility in
      determining how to refund the $100 million to customers in PGL's and North
      Shore’s service territories. The Commission finds that the $100 million refund
      should be apportioned to North Shore and PGL customers based on the substantial
      evidence in the records of Docket No. 01-0706 and Docket No. 01-0707. That
      evidence demonstrates that North Shore customers suffered significantly less
      harm than PGL customers. 

    

    The
      Commission finds that the $100 million refund shall be allocated between North
      Shore and PGL customer accounts based on each utility’s approximate share of the
      total disallowances recommended by Staff in Docket Nos. 01-0706 and the instant
      docket. Staff recommended approximately $92 million in disallowances in the
      instant proceeding and approximately $4 million in disallowances in Docket
      No.
      01-0706. Using those numbers as indicators of the level of harm caused to
      consumers in each service territory, the Commission finds that $96,000,000
      of
      the $100,000,000 shall be refunded to customer accounts in PGL’s service
      territory.

    

    The
      Company shall distribute the $96,000,000 refund to customer accounts in PGL's
      service territory by refunding one hundred dollars ($100.00) to each customer
      account in Service Classification No. 1 - Small Residential Service ("SC No.
      1")
      that is receiving service from the Company upon the date this Order is entered.
      The $100 refund shall be provided to all SC No.1 customer accounts—both
      transportation and sales service. 

    

    
      
        

        4

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    After
      $100 dollars is allocated to each SC No. 1 customer account, the remainder
      of
      the $96,000,000 shall be allocated to all remaining Service Classifications
      ("Non-residential Service Classifications) based on each Non-residential Service
      Classification’s share of the total PGA gas consumed by all Non-residential
      Service Classifications during the 2001, 2002, 2003, and 2004 reconciliation
      periods ("Reconciliation Periods"). 

    

    Each
      Non-residential Service Classification’s allocation, with the exception of the
      allocations to Service Classification No. 3 - Large Volume Service ("SC No.
      3")
      and Service Classification No. 4 - Large Volume Demand Service ("SC No. 4"),
      shall be divided by the total number of customer accounts (both transportation
      and sales) receiving service under that Service Classification on the date
      this
      Order is entered. The
      result for each Service Classification shall be refunded on a per capita basis
      to each customer account receiving service under that Service Classification
      on
      the date this Order is entered. Refunds to all Non-residential Service
      Classifications shall be provided to both sales and transportation customer
      accounts with the exception of SC No. 3 and SC No. 4 customer accounts as
      outlined below. 

    

    Refunds
      to SC No. 3 customer accounts shall be allocated to individual SC No. 3 customer
      accounts based on PGA gas usage during the Reconciliation Periods. The amount
      allocated to SC No. 3 shall be refunded to each individual SC No. 3 customer
      account, which received service at any time during the Reconciliation Periods
      and purchased PGA gas at any time during the Reconciliation Periods, based
      on
      each customer account’s share of the total PGA gas used during the
      Reconciliation Periods. If any of these entities are still a going concern
      but
      no longer a customer of the Company, then the Company and the customer shall
      arrive at a mutually acceptable method of administering the refund. Refunds
      to
      SC No. 4 customer accounts shall be calculated in the same manner as refunds
      to
      SC No. 3 customer accounts.

    

    The
      Commission finds that the allocation methodologies for the different Service
      Classifications approved herein are equitable and take into consideration the
      administrative difficulties associated with providing refunds to nearly one
      million customers with vastly different usage characteristics and levels of
      service.

    

    Within
      seven days of the date this Order is served to the parties, PGL shall file
      an
      informational filing with the Commission's Chief Clerks Office describing the
      amount to be refunded to each customer in each Service Classification based
      on
      the methodology described herein and a plan for administering the refunds.
      

    

    The
      informational filing shall include the following information:

    

    
      	§  	
              the
                number of customers receiving service on each Service Classification
                as of
                the date this Order is entered; 

            

    

     

    
      
        
          

          5

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          03-0705

          

        

      

    

    
 

    
      	§  	
              the
                usage of PGA gas by each Service Classification during the Reconciliation
                Periods;

            

    

    

    
      	§  	
              the
                amount to be refunded to each customer account in each service
                classification;

            

    

    

    
      	§  	
              the
                number of current and former customers that held customer accounts
                on
                Service Classification No. 3 and Service Classification No. 4 during
                the
                Reconciliation Periods and consumed PGA gas at any time during the
                Reconciliation Periods;

            

    

    

    
      	§  	
              the
                amount of PGA gas consumed during the Reconciliation Periods by each
                current and former customer that held a Service Classification No.
                3 or
                Service Classification No. 4 account during the Reconciliation
                Periods;

            

    

    

    
      	§  	
              an
                indication of whether former SC No. 3 and SC No. 4 customers are
                still a
                going concern, the amount to be refunded to customers in each service
                classification; and, 

            

    

    

    
      	§  	
              the
                amount to be refunded to each current and former customer account
                that
                received service under Service Classification No. 3 and Service
                Classification No. 4 during the Reconciliation
                Periods.

            

    

    

    The
      refund shall be issued in one installment and shall be a credit to each customer
      account. The credit shall be plainly designated on customers’ bills as a refund
      credit provided as a result of a Settlement and Addendum agreed upon by the
      City
      of Chicago, the Illinois Attorney General, the Citizens Utility Board, Peoples
      Gas, and North Shore and approved by the Illinois Commerce
      Commission.

    

    Refunds
      shall be issued to all customer accounts within thirty days of the date this
      Order is entered. Within forty-five (45) days of the date this Order is entered,
      the Company shall file an informational filing describing how the refund process
      was administered, the speed at which the refund process was completed, any
      problems that were incurred during the refund process, and any other issues
      associated with the refund process. The filing will also include the total
      numbers of customers receiving the refund, and for all Service Classifications
      except for SC 1, the refund amount for each customer.

    

    
      
        

        6

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    B. Accounting
      Proposals Adopted from the ALJPO in Docket No. 01-0707

    

    In
      the
      Settlement and the Addendum, the Settling Parties agreed that the Peoples
      Companies would adopt and incorporate into the Settlement several of the
      accounting provisions set forth in the ALJPO in Docket No. 01-0707 (Exhibit
      1).
      Section III.A.2 of the Settlement includes a statement paralleling Finding
      (13)
      of the ALJPO. Section III.A.2. states:

    

    For
      a
      period of five years, Peoples Gas and North Shore Gas each shall perform an
      annual internal audit of gas purchasing and submit a copy of the audit report
      to
      the Manager of the ICC’s Accounting Department.

    

    (Settlement,
      at 8.)

    

    Amendment
      Section A of the Addendum states that the Peoples Companies will account future
      HUB revenues in accordance with 83 Ill. Admin Code 525, stating:

    

    Upon
      approval of the settlement agreement, Peoples Gas and North Shore Gas and all
      Peoples Companies shall account for all of their HUB revenues and third party
      non-tariff revenues, and ay other revenues referred to as HUB revenues or
      non-tariff revenues (as those terms have been used in ICC Docket 01-0707) in
      accordance with 83 Ill. Admin code 525.40(d). All such revenues shall serve
      to
      offset "recoverable gas costs" to arrive at the "gas charge" as those terms
      are
      used in Illinois Commerce Commission rules part 525.40(d) and in accordance
      with
      the Public Utilities Act. 83 Ill. Admin. Code 525.40(d); 220 ILCS 5/101
et.
      seq.
      The
      Peoples Gas and North Shore Gas and all Peoples Companies agree that this
      accounting of these revenues shall apply to all future Purchased Gas Adjustment
      reconciliation case and rate case filed by Peoples Gas and North Shore
      Gas.

    

    (Addendum,
      at 1-2.)

    

    The
      text
      of those findings from the ALJPO in Docket No. 01-0707 incorporated into the
      Settlement by the Addendum is:

    

    
      	 	
              (7)
                

            	
              Peoples
                Gas Light and Coke Company shall update its operating agreement,
                which was
                approved by this Commission in Docket No. 55071, prior to filing
                its
                petition with the ICC for its next rate case or within sixty days
                after
                the date a final order is entered in this docket, whichever occurs
                first;

            

    

    

    
      
        

        7

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    
      	 	
              (8)
                

            	
              Peoples
                Gas Light and Coke Company shall account for all gas physically injected
                into Manlove Field by including the cost associated with maintenance
                gas
                in the amount transferred from purchased gas expense to the gas stored
                underground account, Account 164.1;

            

    

    

    
      	 	
              (9)
                

            	
              Peoples
                Gas Light and Coke Company shall account for the portion of gas injected
                into the Manlove Storage Field to maintain pressure, as credits from
                Account 164.1, Gas Stored Underground, as charges to Account 117,
                Gas
                Stored Underground, in the case of recoverable cushion gas, or to
                Account
                101, in the case of non-recoverable portions of cushion
                gas;

            

    

    

    *  *  *

    

    
      	 	
              (11)
                

            	
              Peoples
                Gas Light and Coke Company shall revise its maintenance gas accounting
                procedures related to gas injected for the benefit of the North Shore
                Gas
                Company and third-parties to require those entities to bear the cost
                of
                maintenance gas, and it shall revise its maintenance gas accounting
                procedures to ensure that all customers/consumers bear equal
                responsibility for maintenance gas;

            

    

    

    
      	 	
              (12)
                

            	
              Peoples
                Gas Light and Coke Company shall submit its revised maintenance gas
                accounting procedures to the Commission’s Chief Clerk with a copy to the
                Manager of the Accounting Department within 30 days after the date,
                upon
                which, a final Order is entered in this
                docket;

            

    

    

    *  *  *

    

    
      	 	
              (14)
                

            	
              Peoples
                Gas Light and Coke Company shall submit quarterly reports reflecting
                its
                use of journal entries regarding maintenance gas to the Manager of
                this
                Commission’s Accounting Department within 45 days of the end of each
                quarter, after the date of a final order is entered in this docket,
                through the quarter ending September 30,
                2009;

            

    

    

    
      
        

        8

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    
      	 	
              (15)
                

            	
              Peoples
                Gas Light and Coke Company shall engage outside consultants to perform
                a
                management audit of its gas purchasing practices, gas storage operations
                and storage activities. The firm selected to perform the management
                audit
                shall be independent of Peoples Gas Light and Coke Company, its
                affiliates, Staff, and all parties in this docket, and approved by
                this
                Commission. Monthly reporting of the progress of the conduct of the
                management audit shall be submitted to the Bureau Chief of the
                Commission’s Public Utilities Bureau, with a copy to the Manager of the
                Commission’s Accounting Department, until the management audit report has
                been submitted. Completion of this management audit shall occur no
                later
                than eighteen months after the date, upon which, a final order is
                entered
                in this docket. Upon completion, copies of the management audit reports
                shall be submitted to the Commission’s Public Utilities Bureau Chief and
                the Manager of the Commission’s Accounting
                Department;

            

    

    

    (ALJPO
      in
      Docket No. 01-0707, at 135-136.)

    

    

    C. Hardship
      Reconnection Program

    

    The
      Peoples Companies agreed to instate a Hardship Reconnection program to allow
      certain customers who have been disconnected for non-payment to be reconnected
      and their debt forgiven. The Commission applauds this program and the Companies’
pledge to permanently instate it. The Commission has high hopes for the
      program’s success. To keep ourselves informed of the success, the Commission
      finds that the Peoples Companies should file quarterly reports on the progress
      of the program.

    

    
      
        

        9

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    D. Gas
      Reconciliation

    

    A
      reconciliation of Peoples Gas’ total gas revenues with total gas costs for the
      reconciliation period October 1, 2002, through September 30, 2003 is shown
      in
      Appendix A hereto. This Appendix A contains an independent reconciliation for
      each of the following; Commodity Gas Charge, Non-Commodity Gas Charge and Demand
      Gas Charge, and Transition Surcharge. Below is an aggregation of the above
      referenced reconciliations.

    

    
      	
              1.  Unamortized
                Balance at 9/30/02 per 2002 reconciliation
                (Refund)/Recovery

            	 	
              $

            	
              2,929,960.13

            	 
	
              2.  Factor
                A Adjustments Amortized to Sch. I at 09/30/02 per 2002 reconciliation
                (Refund)/Recovery

            	 	 	
              4,104,778.44

            	 
	
              3.  Factor
                O (Refunded)/Recovered during 2002

            	 	 	
              0

            	 
	
              4.  Balance
                to be (Refunded)/Recovered during 2003 from prior periods

            	 	 	
              7,034,738.57

            	 
	
              5.  2003
                PGA Recoverable Costs

            	 	 	
              706,357,105.37

            	 
	
              6.  2003
                PGA Actual Recoveries

            	 	 	
              691,292,069.43

            	 
	
              7.  Interest

            	 	 	
              264,823.88

            	 
	
              8.  Other
                Adjustments

            	 	 	
              0

            	 
	
              9.  Pipeline
                Refunds 

            	 	 	
              (31,240.25

            	
              )

            
	
              10.  (Over)/Under
                Recovery for 2003

            	 	 	
              15,298,619.57

            	 
	
              11.  PGA
                Reconciliation Balance at 9/30/03 (Over)/Under
                Collected

            	 	 	
              22,333,358.14

            	 
	
              12.  Factor
                A Adjustments unreconciled at 9/30/03 (Refund)/Recovery

            	 	 	
              5,738,002.63

            	 
	
              13.  Unamortized
                Balance at 9/30/03 (Refund)/Recovery

            	 	
              $

            	
              16,595,355.51

            	 
	
              14.  Requested
                Ordered Reconciliation Factor to be (Refunded)/Recovered
                [Factor O]

            	 	 	
              0

            	 

    

    

    E. Commission
      Analysis and Conclusions 

    

    The
      Commission finds that the Settlement Agreement, as is revised by the Addendum,
      ais a legal and reasonable compromise of potential disallowances Peoples Gas
      might have to pay based on allegedly imprudent gas costs in fiscal year 2003.
      This finding is supported by the unanimous agreement of the parties to this
      Docket. The refund described above in "IV.A - Distribution of the $100 Million
      Refund," shall be made in accordance with this Order. The approval adoption
      of
      the Settlement Agreement and Addendum concludes the 2003 PGA reconciliation
      of
      Peoples Gas, and based upon the Settlement Agreement, the Commission concludes
      that the 2003 PGA reconciliation, as shown in Appendix A hereto, should be
      approved. The Settlement Agreement and Addendum are hereby incorporated into
      and
      made a part of this Order and the similar orders entered for the other Peoples
      Reconciliation Dockets.

    
      
        

        10

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    

    V. Findings
      and Ordering Paragraphs

     

    The
      Commission, being fully advised in the premises, is of the opinion and finds
      that:

    

    
      	(1)
                	
              The
                Peoples Gas Light and Coke Company is
                a corporation engaged in the distribution of natural gas service
                to the
                public in Illinois and, as such, is a public utility within the meaning
                of
                the Public Utilities Act;

            

    

    

    
      	(2)
                	
              the
                Commission has jurisdiction over Respondent and of the subject matter
                of
                this proceeding;

            

    

    

    
      	(3)
                	
              the
                Settlement (Exhibit 1) as revised by the Addendum (Exhibit 2) is
                adopted
                approved and the terms incorporated herein as a settlement of allegations
                that, during the reconciliation period, Respondent had not acted
                reasonably and prudently in its purchases of natural gas and other
                activities that affected the amounts collected through Gas Charges
                in its
                fiscal year 2003; 

            

    

    

    
      	(4)
                	
              the
                unamortized balances at the end of Respondent’s 2003 reconciliation year
                show a recoverable balance for the Commodity Gas Charge of $13,225,025.22;
                a recoverable balance of $3,394,605.71 for the Non-Commodity Gas
                Charge
                and the Demand Gas Charge; and a refundable balance of $24,275.42
                for the
                Transition Surcharge, for a total recoverable balance of $16,595,355.51;
                the Factor O Refund is zero;

            

    

     

    
      	(5)
                	
              the
                reconciliations submitted by The Peoples Gas Light and Coke Company
                of the
                costs actually incurred for the purchase of natural gas with revenues
                received for such gas for the reconciliation period beginning October
                1,
                2002, through September 30, 2003, may properly be approved;
                

            

    

     

    
      	(6)
                	
              pursuant
                to the Settlement, a refund of $100 million is to be distributed
                in the
                manner set forth above as part of the consideration paid in global
                settlement of this docket as well as I.C.C. Docket Nos. 01-0706,
                01-0707,
                02-0726, 02-0727, 03-0704, 04-0682 and
                04-0683;

            

    

     

    
      	(7)
                	
              The
                Peoples Gas Light and Coke Company should follow the accounting procedures
                recited above the directives contained in the incorporated parts
                of the
                settlement agreement and the addendum thereto in all future gas adjustment
                charge reconciliation dockets.

            

    

     

    
      
        

        11

        

        
        

      

      
        
        

        
          

        

      

      
        
        

        03-0705

        

      

    

    
      	 	
              (8)

            	
              The
                Peoples Gas Light and Coke Company shall file quarterly reports with
                the
                Chief Clerk’s office detailing the progress of the Hardship Reconnection
                program.

            

    

    

    IT
      IS
      THEREFORE ORDERED that the reconciliations submitted by The Peoples Gas Light
      and Coke Company of the costs actually incurred for the purchase of natural
      gas
      with revenues received for such gas for the reconciliation period beginning
      October 1, 2002, through September 30, 2003, as shown in Appendix A hereto,
      be,
      and they are hereby, approved.

    

    IT
      IS
      FURTHER ORDERED that any motions, objections, or petitions in this proceeding
      that have not been specifically ruled on should be disposed of in a manner
      consistent with the findings and conclusions herein.

    

    IT
      IS
      FURTHER ORDERED that the Settlement (Exhibit 1), and Addendum (Exhibit 2) are
      hereby incorporated into and made a part of this Order.

    

    IT
      IS
      FURTHER ORDERED THAT the Peoples Gas Light and Coke Company shall comply with
      Finding (7) above. 

     

    IT
      IS
      FURTHER ORDERED that subject to the provisions of Section 10-113 of the Public
      Utilities Act and 83 Ill. Adm. Code 200.880, this Order is final; it is not
      subject to the Administrative Review Law.

    By
      Order
      of the Commission this 28th
      day of
      March, 2006.

    

    

    

    

    (SIGNED)
      CHARLES E. BOX

    

    Chairman

    

    
      
        
          

          12

          

          
          

        

        
          
          

          
            

          

        

        
          
          

          Appendix
            A

          Docket
            03-0705

        

      

    

    The
      Peoples Gas Light and Coke Company

    Gas
      Charge Reconciliation Summary

    Fiscal
      2003

    

    
      	 	
              Commodity

              Gas
                Charges

              (CGC)

            	
              Non-Commodity
                Gas Charge

              and
                Demand Gas Charge

              (NCGC
                and DGC)

            	
              Transition

              Surcharge

              (TS)

            	
              Total

              Gas
                Charge

            
	
              Line

            	 	 	 	 
	
              Fiscal
                2002

            	 	 	 	 
	
              1  Unamortized
                Balance at September 30, 2002

              (Refund)
                / Recovery 

            	
              $2,194,194.24

            	
              $760,047.68

            	
              ($24,281.79)

            	
              $2,929,960.13

            
	
              2  Factor
                A Adjustments unreconciled at September 30, 2002 (Refund) / Recovery
                

            	
              $3,352,154.88

            	
              $756,712.12

            	
              ($4,088.56)

            	
              $4,104,778.44

            
	
              3  Factor
                O

              (Refunded)
                / Recovered 

            	
              $0.00

            	
              $0.00

            	
              $0.00

            	
              $0.00

            
	
              4  Balance
                (Refundable) / Recoverable from Prior Periods (Line 1 + Line 2 +
                Line
                3)

            	
              $5,546,349.12

            	
              $1,516,759.80

            	
              ($28,370.35)

            	
              $7,034,738.57

            
	
              Fiscal
                2003

            	 	 	 	 
	
              5   Costs
                Recoverable through the Gas Charge

            	
              $653,653,807.37

            	
              $52,703,298.00

            	
              $0.00

            	
              $706,357,105.37

            
	
              6   Revenues
                Arising though Application of the Gas Charge

            	
              $641,025,406.44

            	
              $50,266,794.40

            	
              ($131.41)

            	
              $691,292,069.43

            
	
              7   Separately
                Reported Pipeline Refunds or Surcharges

            	
              $0.00

            	
              ($31,240.25)

            	
              $0.00

            	
              ($31,240.25)

            
	
              8   Separately
                Reported Other Adjustments

            	
              $0.00

            	
              $0.00

            	
              $0.00

            	
              $0.00

            
	
              9   Interest
                Calculated at 2.00% thru Dec. 2002; 1.50% thereafter

            	
              $283,848.94

            	
              ($18,652.24)

            	
              ($372.82)

            	
              $264,823.88

            
	
              10  (Over)
                / Under Recovery for Reconciliation Year

              (Line
                5 - Line 6 + Line 7 + Line 8 + Line 9)

            	
              $12,912,249.87

            	
              $2,386,611.11

            	
              ($241.41)

            	
              $15,298,619.57

            
	
              11  (Over)
                / Under Recovery Balance for Reconciliation Year (Line 4 + Line
                10)

            	
              $18,458,598.99

            	
              $3,903,370.91

            	
              ($28,611.765)

            	
              $22,333,358.14

            
	
              12  Factor
                A Adjustments unreconciled at September 30, 2003 (Refund) / Recovery
                

            	
              $5,233,573.77

            	
              $508,765.20

            	
              ($4,336.34)

            	
              $5,738,002.63

            
	
              13  Unamortized
                Balance at September 30, 2003 

              (Refund)
                / Recovery (Line 11 - Line 12) 

            	
              $13,225,025.22

            	
              $3,394,605.71

            	
              ($24,275.42)

            	
              $16,595,355.51

            
	
              14  Requested
                Factor O (Line 11 - Line 12 - Line 13) (Refund) / Recovery

            	
              $0.00

            	
              $0.00

            	
              $0.00

            	
              $0.00

            

    

    

      
        
          

          13

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