Southwest Gas rate hike set for approval

Kevin Rademacher

Tuesday, Nov. 9, 2004 | 11:08 a.m.

State utilities regulator Carl Linvill is recommending the approval of a $30.6 million rate increase for Southwest Gas Corp. of Las Vegas.

If approved by the state Public Utilities Commission on Wednesday, the current average residential monthly winter rates in Southern Nevada would increase from $68.04 to $74.16, an increase of $6.12, or about 9 percent.

A draft order in rate case issued by Linvill on Monday supports testimony provided by the commission's staff which favored nearly doubling Southwest Gas' original request for a rate increase of $16.3 million, or 4.9 percent. The natural gas distribution company said it needed the "purchased-gas adjustment" rate increase, which would go into effect on Dec. 1 and would be the fifth increase in 12 months, because of persistently higher natural gas costs.

PUC analyst Kellie Pister argued in her testimony in the case that the historical calculation method has failed to adequately account for the increasingly volatile natural gas market.

"While the costs incurred during a historic test period are known and measurable, they are outdated by the time the newly proposed rates go into effect," Pister's testimony said. "If the market price for natural gas were relatively stable, this method would be an adequate way to project future costs; however, when the market for natural gas is volatile, this method does not adequately reflect future gas costs."

When rates do not cover the full cost of natural gas, the company sees an unrecovered balance pile up over the year, accruing interest costs that are ultimately recovered from ratepayers in future rate cases.

With that, the staff request looked at future projections for gas prices in making the higher recommendation.

"The commission believes it has a responsibility to balance the benefits of protecting ratepayers from these unnecessary financing costs against the impact of increasing rates," the draft order said. "Given the data presented ... it is clear that the commodity cost of gas is significantly higher than the historical costs of gas Southwest used in its application."

The change in approach has drawn sharp criticism from Nevada Consumer Advocate Tim Hay, who unsuccessfully argued to have the testimony of Pister and fellow staff analyst David Chairez stricken from the rate case.

In the draft order, Linvill dismissed the objections of Hay and his Bureau of Consumer Protection.

The draft order pointed out that BCP's own expert testimony in the case indicated that setting new rates based on historical data would lead to an under-recovery for the company.

Linvill's order also counters claims by the BCP that accepting the staff recommendation would improperly deviate from the existing rate tariff and represent "a fundamental shift from the use of historic costs."

The order said "the commission finds no support for BCP's argument."

Linvill also pointed out that the tariff allows for deviation "if good cause exists and the deviation is in the public interest."

The so-called purchase gas adjustment case is designed to allow the company to recoup unrecovered gas costs or make refunds for overcharges. Southwest Gas is not allowed to earn a profit on gas costs. Every dollar spent on gas is passed on to customers to pay at a one-to-one ratio.