Southwest Gas has proposed refunding $12 million to customers under a state mandate that utilities pass on to ratepayers savings from a federal corporate income tax cut.
But the staff of the Arizona Corporation Commission says the credits proposed by the company — which amount to about 51 cents per month for the average home customer — fall way short of what customers deserve.
The commission’s Utilities Division has proposed higher monthly credits, along with a one-time credit of about $6 for the average home customer.
The gas company says it would prefer to file a new general rate case — an option given to all state-regulated utilities to comply with the tax-cut refund mandate — if the commission passes on its preferred plan.
The Corporation Commission is expected to decide the matter at its regular open meeting on Thursday, July 19, in Phoenix, when the five-member utility panel can vote to accept, amend or reject the staff’s proposal.
The issue stems from the tax-reform law passed in late 2017, which cut the corporate income-tax rate to 21 percent, from 34 percent.
That prompted regulators in Arizona and other states to seek refunds for customers, since the cut would otherwise result in a windfall based on the utilities’ cost-based rates.
The commission has already decided on tax-credit rates for other utilities including Tucson Electric Power Co., which is crediting its residential customers about $4.50 per month through the end of the year under a decision issued in late April.
The regulators also allowed TEP to defer payment of some of the tax-savings credits after 2018, to offset the effect of future rate increases.
In its plan, Las Vegas-based Southwest Gas proposed refunding $12 million in net tax savings, after adjustments for “unrealized rate relief,” reduced depreciation rates and an earnings test to ensure the utility earns its authorized rate of return.
The company said filing a new general rate case is its second preference.
But in a memorandum and proposed order filed last week, the commission’s Utilities Division rejected the idea of an earnings test, contending that Southwest Gas should refund the full of the amount of its 2018 federal tax savings — pegged at just over $20 million.
That works out to a usage-based credit of 82 cents monthly for the average Southwest Gas home customer using 26 therms of gas.
To catch up on compensation to customers for tax savings from January through July of this year, the commission staff proposed a one-time credit of $5.77 per customer.
Beyond 2018, the credit should be adjusted based on actual tax savings until the new tax rate can be incorporated into Southwest Gas’ next rate case, the regulators said.
In a filing on Tuesday, Southwest Gas opposed the staff’s recommendations, contending they were made without any discussion or analysis of why the company’s proposals would be inconsistent with the commission’s tax-cut refund order.
Southwest Gas spokeswoman Amy Washburn said the company has always been fully supportive of working with all stakeholders “to ensure customers receive the full benefits of tax reform in an expedited and efficient manner.”
Washburn noted that the company’s application to the commission included the option of filing a general rate case, and it would commit to doing so within 120 days.
But the company prefers its plan to reduce the rebate amount based on “a more administratively efficient option … that essentially simulates a rate case outcome,” using existing rules to ensure that Southwest Gas is not earning more than its authorized rate of return, Washburn said in an email.
The commission staff generally does not comment on pending matters.
Southwest Gas’ last general rate case was decided in April 2017, resulting in an overall revenue increase of $16 million and an average home bill increase of about 40 cents monthly.
The company is authorized to collect about $468 million in revenues annually.
