Southwest Gas customers in Arizona could see an average bill increase of nearly 12% by January under a proposed rate increase the utility says is needed to cover increased operating costs and system improvements.
The rate case before the Arizona Corporation Commission would boost the average monthly single-family residential bill by an estimated $5.12, or about 11.6%, to $49.40, Southwest Gas says.
The average residential bill during winter months would increase by $7.68, or about 12.6%, according to the company, which serves more than a million customers in Arizona.
The company's rate request comes less than two years after regulators approved a 9.7% average rate increase that went into effect in January 2021, and as a pass-through charge for gas Southwest Gas purchases is on the rise due to higher wholesale gas prices.
The utility also is proposing a new program to allow customers to buy carbon credits to offset the environmental effects of their gas usage, and plans to expand its discount rate program to more low-income customers.
But as the case moves toward formal hearings at the ACC starting in late September, one of Southwest Gas' biggest commercial customers says it's too soon for the gas company to raise rates.
In a filing with the commission, Casa Grande-based Arizona Grain Inc. noted that the company's filing for this proposed increase in December 2021 came less than a year after the last rate increase went into effect, resulting in "pancake" rate filings.
"There are many other pressing matters for the commission to attend to that will devour resources. It is simply too soon for a new rate case," said Craig Marks, a Phoenix attorney for Arizona Grain.
Arizona Grain, which supplies durum wheat and Southwest grain seed with four locations in the state, also asked the commission to reject Southwest Gas' rate filing as "defective," based on the so-called "test year" the company used to calculate the new revenue it needs.
Test years are typically 12-month periods utilities and regulators use to determine past revenues and expenses in order to calculate new rates.
Arizona Grain contends that the test year Southwest Gas used to formulate its rate request ended Aug. 31, 2021, which includes four months of revenue under older, lower rates — which could make the company's current revenue needs seem higher without some complex adjustment.
A Southwest Gas spokesman said the company typically files rate cases about every two to three years to recover costs of system investments.
"The timing of this rate case is consistent with past timing and is aligned with the period between test years," spokesman Sean Corbett said in an email.
Southwest Gas is seeking an overall annual revenue increase of $90.7 million, which the company says reflects $711 million in system investments the company has made or planned since 2019 to ensure safe and reliable service in Arizona.
The Las Vegas-based gas company serves about 2 million customers in Arizona, California and Nevada, with 1.1 million in Arizona including Tucson and much of eastern Pima County and parts of Cochise, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Pinal and Yuma counties.
In January, the company added 5,300 customers in Graham County with the acquisition of the county's gas system.
Southwest Gas says that over the last five years, the company has added 61,000 customers, with both customer growth and expenses increasing about 9%.
System investments the company has made in Southern Arizona since 2019 include the addition of a Liquid Natural Gas storage facility in southeast Tucson to ensure reliability, replacement of customer-owned yard lines, modernized customer service and data systems, Corbett said.
The company is not proposing any changes to the basic monthly service charge on residential accounts, at $10.70, and it is not proposing any new rate plans.
But Southwest Gas also is looking to recover over three years $2.5 million in late-payment fees that were suspended under ACC orders from April 1, 2020, through March 31, 2021, to help customers cope with the economic havoc wreaked by the COVID-19 pandemic.
The gas company is proposing to expand its Low Income Ratepayer Assistance program by extending the 30% discount to apply year-round, instead of from November through April now, and to increase the income eligibility threshold to 250% of the Federal Poverty Level, from 200% currently.
The eligibility threshold is based on household size and under current guidelines apply to single-person households with total gross income of $27,180, or $55,500 for a household of four, for example.
Southwest Gas also is proposing a new program called "Move2Zero," in which most residential and business customers could voluntarily sign up to buy blocks of carbon offset credits through the utility to offset their greenhouse-gas emissions.
The company would buy certified carbon credits — generated by projects that remove carbon from the atmosphere such as reforestation and renewable-energy projects — and offer them to customers in blocks that would cost $5 per month and offset 10 therms of fossil-gas usage per month.
Gas price hikes
Besides the 2021 rate increase, Southwest Gas customers are seeing higher gas bills because of a global run-up in natural gas prices that are passed through to customers in a monthly charge based on usage.
The Monthly Gas Charge is adjusted twice a year, apart from base rates, based on what Southwest Gas pays for wholesale natural gas and is not marked up by the utility.
That charge was increased on Aug. 1 to about 52 cents per therm, from 47 cents previously, an increase of about $1.20 for an annual average monthly bill for 24 therms usage and nearly $2 more for the average winter bill at 36 therms.
The winter storm that crippled Texas' power grid and curtailed natural-gas supplies in February 2021 caused a spike in short-term gas costs to Southwest Gas and other gas companies in the region.
Southwest Gas said that its Arizona gas costs, including pipeline transportation charges, totaled about $191 million in February 2021 — compared with costs of about $133 million in all of 2020.
Corbett said those price spikes are reflected in the higher Monthly Gas Cost charge on customers' bills.
He noted that Southwest gas uses a 12-month, rolling average of gas prices to smooth out price volatility, and customers are protected from huge increases in the gas-cost charge with a 15-cent per therm cap on any increase in gas prices and a 10-cent cap on increases to a balancing account that tracks actual gas costs and revenue from the charge.
Southwest Gas has asked that new rates become effective "no later than January 2023."
The Corporation Commission utilities staff and other intervenors in the case have yet to file their initial testimony ahead of hearings scheduled to start Sept. 26 in Phoenix before an administrative law judge, who will submit a recommended rate order to the full commission.
The first of five telephonic public-comment meetings is scheduled for Tuesday, Aug. 9, at 6 p.m. and can be accessed online at azcc.gov/live, where information on phone access also will be available.