Southwest Gas gets OK for rate hike

Kevin Rademacher

Friday, Aug. 27, 2004 | 10:34 a.m.

Beginning Wednesday, customers in Southern Nevada will be paying more for natural gas.

The state Public Utilities Commission on Thursday approved a $7.3 million, or about 2.5 percent overall, general rate increase for Southwest Gas Corp. of Las Vegas. It will be the fourth time since December that rates have jumped.

The increase, however, is well below the $18.9 million, or 6.2 percent, increase requested by the utility.

In general rate cases, utilities are allowed to recover construction and maintenance costs for distribution systems as well as general administrative costs. Return for shareholders also is set in these cases.

The final impact on customers is still being calculated by PUC and utility executives. The order will increase the basic service charge, the amount paid by customers regardless of usage, from $8 to $8.50 per month.

PUC Commissioner Adriana Escobar Chanos, who presided over hearings in the case, had originally recommended an increase of just $6.2 million.

During deliberations, fellow Commissioner Carl Linvill and Chairman Don Soderberg pushed to increase the proposed order by about $1.1 million with an increase in the company's return on equity -- or return for shareholders -- to 10.5 percent. Escobar Chanos had recommended setting the ROE at 10.25 percent.

The company had argued in the case that it needed a higher rate on equity in an effort to attract investors and preserve its barely investment grade credit rating in light of high construction costs to meet rapid growth. The company also has said that decreasing per-customer usage has made it more difficult to recover those construction costs, particularly amid warmer than normal winters in recent years.

"It's not lost on me that this is one of the best-run gas companies in the country," Soderberg said. "But yet it's rated BBB- ... that's a concern for us."

Escobar Chanos said her original proposal balanced those risks.

"I see that the risk should be shared by shareholders," she said.

Southwest Gas officials were skeptical about the effect the rate case would have in improving the financial outlook for the company.

"We appreciate the acknowledgment by the commission of the fact that Southwest Gas is barely an investment-grade utility," utility spokesman Roger Buehrer said. "If we fall below that level it is not really in the best interest of the customer or the company. We don't think this order though will result in an improvement in the company's overall financial health."

Also in deliberations Soderberg and Linvill voted -- with Escobar Chanos dissenting -- to allow the company to recover about $250,000 for its Sales Incentive Program. That project encourages developers to equip homes with connections for natural gas appliances.

"I do believe strongly that the company's SIP program is a strong program and should be encouraged, not only for gas efficiency but for electric efficiency," he said, pointing out that it benefits consumers to reduce the electric demand in the summer by using gas appliances.

The program could also help add summer gas usage for the company, reducing the reliance on winter usage.

The PUC also voted to require the company to, within six months, file a plan to promote conservation and attempt to balance usage between winter and summer months.