Southwest Gas questioned on need for bigger increase

Kevin Rademacher

Wednesday, Sept. 21, 2005 | 11:05 a.m.

State regulators and an attorney for the Bureau of Consumer Protection on Tuesday quizzed a Southwest Gas Corp. executive with questions about the utility's purchasing practices amid soaring natural gas prices.

The exchange came in the first hours of hearings into Southwest Gas' request to raise the average Southern Nevada residential customers' rates by as much as $6.50 a month, or 13.4 percent. Southwest Gas said it needs the rate increase to recover $11.3 million in past gas costs. The company also needs another $53.5 million in additional annual revenue to cover projected gas price increases in future months.

Alaina Burtenshaw, staff counsel for the PUC, asked Larry Black, director of gas supply for Southwest Gas, about the company's Volatility Mitigation Program.

The program, created about seven years ago, calls for the company to purchase 50 percent of the expected demand about a year in advance through fixed-price contracts. The balance is purchased as needed.

"Is it reasonable to have a 50 percent open position when prices have a 50 percent chance of going up or down?" she asked.

Black responded that it is, given the fluctuations in customer usage.

"It also includes volatility in demand," he said. "How much of the supply can you place under must-take or must-purchase contracts?"

Ernest Figueroa, deputy attorney general of the Bureau of Consumer Protection, also questioned Brooks Congdon, Southwest Gas' manager of pricing and tariffs, about the nature of the pending request.

The company orginally favored a roughly 3 percent rate increase based on historical prices. That move would increase the average Southern Nevada customer's winter bill by a more modest $1.37 per month.

Congdon said that the company originally favored that historical methodology because it expected to begin filing for quarterly rate adjustments by the end of the year.

"There might be large increases (in rates) almost immediately followed by a large decrease," he said in testimony, explaining that the first quarterly filing could have come at the same time as the new rates went into effect.

Southwest Gas was granted the opportunity to make quarterly filings in the last legislative session. Congdon said the company originally expected that it would be making such filings by as early as Nov. 1. He said the company now estimates that the earliest it would begin the quarterly filing process is May 1.

Figueroa, however, asked Congdon which calculations best represent the true rate requirements. Congdon replied, "projected."

Figueroa also pointed out that if the large rate increase was approved it would go into effect on Nov. 1, the traditional start of the winter heating season, presumably maximizing the effect of consumers.

"That's one of the difficulties of the proceeding here," Congdon said.