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Consultant: East Aurora overpaid for natural gas for nearly a decade

Updated: February 27, 2014 6:55AM

AURORA — According to a consultant hired by East Aurora School District to evaluate the district’s utilities contracts, the district has wasted tens of thousands of dollars by failing to carefully monitor its natural gas bills and contracts for nine years.

Ralph Padron, a Naperville resident whose wife is a retired East Aurora teacher, spoke before the School Board last Tuesday about what he discovered in the district’s records since he was hired last May as a consultant.

The district paid Padron $7,500 to look over its natural gas, electric and garbage collection contracts after he filed several information requests inquiring about the district’s utilities. Padron is a retired purchasing manager who has experience auditing and negotiating contracts.

He alleges that because the district used the same natural gas broker for nine years — from 2004 to 2013 — the district was locked into above-average natural gas rates, resulting in tens of thousands of wasted taxpayer dollars each year.

Padron also alleges that in some instances the district was wrongfully overbilled for its natural gas consumption and in one instance double paid a monthly bill.

Padron is calling on East Aurora officials to conduct a comprehensive audit of its natural gas bills dating back to 2004 and to hold accountable anyone who was responsible for wrongdoing during that time. He also wants School Board members to disclose to the public how much money was wasted.

“Does anyone understand the seriousness of this shameful loss of taxpayer dollars and the wrongdoings which were done?” he asked board members. “What else is still out there that has still to be exposed?”

History of the

The natural gas contract in question was signed in July 2004 — the same month that Jay Augustine began his tenure as assistant superintendent for business affairs, a role in which he oversaw the district’s finances.

Augustine retired unexpectedly from his position in September 2012 after a series of financial discrepancies surfaced. The next month, Augustine’s secretary was fired for insurance record-keeping discrepancies. In November 2012, the then-assistant director of business, Diana McCluskey, resigned from her position after a little over two months on the job.

The turnover was the source of a continuing headache for the district over the next year, as officials struggled with the janitorial supply and food services contracts.

District officials have repeatedly said business office vacancies, sloppy record-keeping and outdated business software prevented the district from noticing billing errors and issues with bids.

School Board President Annette Johnson, who is an accountant, has led the charge of trying to turn around the district’s financial record-keeping. The district now has a fully staffed business office, with a new director of business who was hired in July, and updated business software.

Johnson met with Padron in October to discuss his findings after he reviewed a 2004 contract that auto-renewed eight times with Windy City Energy, a natural gas broker based in St. Charles.

Natural gas is a commodity with a fluctuating price and many organizations work with a consultant or broker to negotiate rates on their behalf.

“At first my reaction was ‘My goodness,’” Johnson recalled in an interview on Friday.

The Windy City Energy contract was in place under Augustine, Johnson said, “and it hadn’t been reviewed much other than what Jay Augustine was doing with it.”

This wasn’t the first time Johnson saw the district had issues with its utility bills. According to the Beacon-News archives, in September 2012, Johnson said the district took a “large hit” in late fees for utility bills when Augustine was responsible for paying them.

Johnson said after meeting with Padron that she called the Citizens Utility Board, a nonprofit created by Illinois legislators to help utility customers.

Johnson said a representative from the Citizens Utility Board looked over the district’s past natural gas rates and said it appeared that the natural gas broker hadn’t chosen the natural gas provider with the best rates at the time.

But the district didn’t have a case against the natural gas provider, Johnson said, because the issue was with the consultant acting as the intermediary.

“Unfortunately we just had bad gas rates,” Johnson said. “It’s a roll of the dice. It’s like your stock broker invests your money and loses money, what are you going to do?”

The district severed its contract with Windy City Energy in June. In July, the district signed a nine-month contract with the Aurora-based Progressive Energy, which uses Nicor as a natural gas provider.

In May, the district’s accountant, Jeff Ryder, emailed Richard Schutz, the president of Windy City Energy, letting Schutz know the district wished to cancel the “fixed monthly arrangements” that were established under Augustine.

Ryder told Schutz, according to an email obtained by The Beacon-News, that the district planned to skip a month’s bill because if it was paid Windy City would “owe us back $55,265.83.” Ryder said he wanted Schutz to apply a credit to the district’s bill and requested that Schutz send “the actual bills from now on.”

Calls and an email sent Saturday requesting comment from Schutz were not returned as of press time.

Next steps

East Aurora is now in the process of selecting new natural gas and electric providers or consultants and signing new contracts.

The district put out a request for proposals in October and narrowed down the list to five possible providers or consultants. The School Board’s Buildings and Grounds Committee will meet in early February to look over additional information recently received from those five companies, according to Bernard Weiler, the district’s attorney.

“What we are really looking for in the process is to find someone who can be the best representative for the district to ensure our energy procurement,” Weiler said. “We’ll also be looking for our consultant or partner or broker to help us with auditing bills on a regular basis.”

The goal is to have a new contract in place by late February or early March.

The new consultant will be responsible for making sure energy consumption matches what the district is being billed for and will review old bills to look for potential savings, Weiler said. The contract will be closely monitored each year, he added.

“This is very high on [board members’] consciousness that there are people out there who can make a change,” Weiler said.

Padron alleges that by waiting to negotiate new natural gas rates until now, the district has missed its chance to lock in lower natural gas rates — again.

According to the Citizen’s Utility Board, the district’s current natural gas provider, Nicor, had a rate the month Padron submitted his final report to East Aurora of 39 cents a therm — that was in October. This month, Nicor’s rate is 46 cents a therm. A therm is what the average home furnace uses per hour of heat production.

An Associated Press news report on Saturday said this winter’s low temperatures have led to a record-setting demand for natural gas across the country, leaving the market volatile and predicted that consumers nationwide could be hit with higher natural gas prices in the months ahead.

Weiler said the district is taking its time to negotiate a new contract and is not worried about spiking rates. Over the summer, he said, rates were higher. According to the Citizen’s Utility Board, Nicor’s rates for April, May and June were higher than the current price.

“We have been told by all of the providers that we are well-placed in the market,” Weiler said on Friday. “We don’t have to scramble. We don’t want to rush in and have someone say we picked the worst possible person, which is now what is being said about Windy City.”

Johnson said the district plans to review other contracts that were in place under Augustine, but that it will take time.

“We’re trying to get through every contract but the board is basically unpaid volunteers and the administrators are working on fixing so many things,” she said. “It still continues to be a struggle, but it is what it is. We are moving as fast as we can. I feel we’ve all made tremendous efforts.”

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