Southwest Gas defends rate hike request to PUC

Kevin Rademacher

Tuesday, June 29, 2004 | 10:46 a.m.

Southwest Gas Corp. of Las Vegas made a 550-page filing with state regulators Monday in defense of an $18.9 million general rate increase request.

The company has not backed off its request despite recommendations last month from the state Public Utilities Commission staff and the state Bureau of Consumer Protection -- both of which asked for the request to be slashed.

PUC staff recommended throwing out about more than $9 million of the request. The BCP said all but $41,000 of the request should be rejected by regulators.

The voluminous response filed by Southwest Gas was mandated by the significant differences the company had with the BCP's recommendation and, to a lesser extent, PUC staff, said Southwest Gas spokesman Roger Buehrer.

"Our concern was that the BCP rejected virtually all of the improvements we had proposed ... here in Southern Nevada," he said. "We felt like we really had to defend ourselves."

A general rate case allows utilities to recover construction and maintenance costs for distribution systems as well as general administrative costs. Rates of return for shareholders also are set in these cases. If the case is approved as proposed, rates would rise by 6.2 percent beginning Sept. 1.

The PUC is scheduled to begin hearings into the rate case July 12.

Included in the case -- and particularly contentious in the PUC staff and BCP responses -- is a request for an increase in the basic residential service charge. It was proposed as an effort to stabilize the company's recovery of costs.

In Southern Nevada, Southwest Gas has asked to raise the current $8 charge to $11.20 a month in the summer (between May and October) and $14.50 in the winter. That would be offset by a lower usage-based commodity charge, evening out customer bills.

The basic service charge is paid by every Southwest Gas customer, regardless of gas usage.

The result would be a more stable return for the company, said Roger Montgomery, Southwest Gas vice president for pricing. He also said it would mean smaller spikes in customer bills in cold months when usage climbs.

The company has struggled to keep up with construction demands in recent years as per-customer gas use has fallen amid higher building standards and the emergence of more efficient appliances, Montgomery said. Since 1987, residential usage for natural gas has dropped from 682 therms a year to 496 in 2003, company statistics show.

Southwest Gas has come under fire from Wall Street analysts because of weak revenue due to recent warm winter weather and for slow recovery of its construction expenses.

PUC staff and the BCP rejected the change in rate structure. PUC staff instead recommended raising the basic customer service charge to $9.

Ralph Miller, an energy consultant testifying on behalf of Southwest Gas, filed testimony on Monday pointing out that, despite their proposed rejection of the rate change, BCP "recognizes the need for improved revenue stability."

BCP argues, however, that the change in rates would create a large increase for small users, unfairly reduce Southwest Gas' risk and would encourage increased gas consumption.

Miller disagreed. He responded that the higher basic service charge is accompanied by declining commodity charges. He also points out that there is no regulatory prohibition to reducing the utility's risk while making the case that there is still plenty of risk to be faced by the company.

Miller also attacked the BCP claim that conservation would be hurt because -- with a smaller commodity charge for actual usage -- energy-saving investments would no longer be cost effective.

"Southwest's residential customers have other things to do with their incomes besides invest in energy efficiency," he said in his testimony.

Southwest Gas also is fighting for a higher rate of return -- an overall Wall Street measure of profitability incorporating a return for shareholders -- of 8.03 percent. The company is currently earning a rate of return of 5.92 percent. PUC staff recommended a rate of 7.55 percent. The BCP recommended 6.85 percent.

In Monday's testimony, Theodore Wood, the utility's Treasury Services Department manager, said the lower recommendations would have negative ramifications.

Those lower rates, he said, "will impact the company's ability to maintain its existing credit ratings and to continue to attract capital on a reasonable basis."