PUC nearly doubles gas rate hike request

Kevin Rademacher

Wednesday, Sept. 22, 2004 | 11:02 a.m.

The staff of the state Public Utilities Commission on Tuesday recommended a dramatic adjustment to Southwest Gas Corp.'s $16.3 million, or 4.9 percent, rate increase request for its Southern Nevada customers.

Even more dramatic was that staff suggested that the rate adjustment be increased by an additional $14 million, an overall increase of 9.25 percent.

Deviating from a traditional formula of using information from a 12-month historical test year, PUC financial analyst Kellie J. Pister made the higher calculations using projections looking at future gas prices.

The change in approach drew sharp criticism from Nevada Consumer Advocate Tim Hay.

"I was, quite frankly, appalled," he said. "This appears to be a substantial deviation from the commission's standard practices. Obviously one that will be substantially harmful to consumers."

Hay said his Bureau of Consumer Protection is reviewing the proposal and may ultimately question the recommendation on the grounds that the PUC might not have legislative authority for such a procedural change.

PUC spokeswoman Rebecca Wagner said state statutes require only that the commission set "just and reasonable" rates. Southwest Gas' rate tariff also allows for deviations for good cause and when it is in the public interest, she said.

"We are not contrary to our statute because we are trying to set just and reasonable rates," Wagner said.

Additionally, the PUC in a past rate case directed Southwest Gas to file a proposal to update its tariff to include future projections in ratemaking. That proposal was submitted earlier this month.

If Pister's recommendation is accepted, current average residential winter rates in Southern Nevada would increase from $68.04 to $74.16, an increase of $6.12 or about 9 percent.

The PUC is scheduled to begin hearings on the rate case on Oct. 11. If approved, the new rates would go into effect Dec. 1. It would mark the fifth rate increase for Southwest Gas customers in a year. Historically, it is not uncommon for the three-member commission to ultimately settle on a rate adjustment that differs from staff recommendations.

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 at a one-to-one ratio.

Pister said 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.

Southwest Gas officials said they supported the PUC staff proposal.

"We think staff's recommendation more accurately reflects what Southwest Gas will be paying for gas this winter," company spokesman Roger Buehrer said.

Larry Spitler, a former state lawmaker and associate director of the Nevada AARP, said that he had not seen the PUC's proposal. He was, however, concerned about the use of future projections in setting rates. Such a move, he said, means that customers will carry the burden when the utility is over-collecting when the market falls instead of the utility financing its own under-collections when the market rises.

He said it appears to be an attempt to shore up the finances of the utility. Southwest Gas has been in jeopardy of seeing its credit rating fall amid lower gas usage by consumers. A lower credit rating would mean higher financing costs that, ultimately, consumers will pay.

"It makes sense on one hand, but if you don't true up any overage, it's a problem," Spitler said, who also cast doubt on the legality of the proposal. "I would question do they have the legislative authority to do this."