Court overturns PUC on Southwest Gas rate case

Bill Gang

Wednesday, Nov. 18, 1998 | 11:29 a.m.

The Nevada Public Utilities Commission was a couple of players short of a team when it rejected a $5.7 million rate increase by Southwest Gas Corp. a year ago, a District Court judge ruled in declaring the action unlawful.

The result is that Southwest Gas customers across the state could see an increase in their bills that the regulatory body and the Attorney General's Consumer Affairs Office contend the company doesn't deserve.

At best, according to Southwest Gas attorney Thomas Sheets, ratepayers won't see any increase on their bills, although they also won't see any reductions when gas prices drop.

Those reductions won't occur until the $5.7 million is paid off.

At worst, Sheets said, the rate increase for users in Southern Nevada will be about 2 percent. It Northern Nevada, it could be 3 percent.

In court Monday, the issue for District Judge Sally Loehrer wasn't whether the PUC was justified in refusing to grant the rate increase that compensated Southwest Gas for increases in prices it had to pay for the gas it distributed across the state.

She ruled on purely procedural grounds that the PUC was unlawfully operating short-handed.

In this case, the holder of only one of the three commission seats was available for the October and November 1997 meetings that resulted in the order.

That member was commission chairwoman Judy Sheldrew, who acted unilaterally as "the commission" because one seat was vacant and the only other commissioner, Timothy Hay, was on medical leave.

Sheldrew, on the advice of the PUC staff, decided that Southwest Gas had improperly gambled prior to last winter not to lock in gas prices through contracts but to buy gas at prevailing market prices.

What occurred, according to PUC attorney Robert Johnston, was that a "spike" in the cost of gas forced Southwest Gas to spend millions more than it would have if it had locked in at least a portion of its supply through contracts at set prices.

He said the company exposed ratepayers to a wildly fluctuating market and when it lost, it went to the PUC to cover its losses.

"The PUC concluded that it was not prudent" to take that kind of risk without a study to minimize the impact on ratepayers, he said.

But Sheets called the PUC action "regulatory ambush" that came about only because of the unanticipated spike in gas prices.

"Gas was purchased on what we knew" and based on a purchasing model used since 1993.

The PUC, Sheets fumed, wanted Southwest Gas to implement a plan that would let it buy gas at or below market prices.

"So they encouraged you to steal gas or buy it on the black market?" Loehrer asked.

Sheets explained that gas could be purchased through contract at below market prices "if you have a crystal ball" and know short-term prices are going to jump.

The problem is that "if Southwest Gas beats the market by a zillion dollars," ratepayers get a refund, but if the company gets caught on the other end, the PUC wants stockholders to foot the bill.

Profit, in fact, was what was at stake had Southwest Gas lost the court case.

Sheets said the company reported net income for 1997 of nearly $16.5 million and that would have been reduced by $5.7 million if the rate reduction had been upheld.

PUC attorney Bing Young said the commission will now have to "consider its options" in light of Loehrer's decision and might appeal the case to the Nevada Supreme Court.

"We stand by our position that the original order was prudent and appropriate," Young said.