Southwest Gas customers in Tucson shocked by high bills

When Marana resident Patrick Claflin opened his Southwest Gas bill for January, he was in for a shock.

His bill had more than doubled, from $98 to $215, though he didn’t recall any unusual usage and keeps his home gas furnace thermostat at 73 degrees.

“Who can pay these added expenses on a fixed income?” Claflin told the Star. “This is just not right. I can see $20 or $30 dollars but not $117 more, a plus 100% increase from the prior month.”

Claflin isn’t alone.

Southwest Gas has been fielding bill complaints from customers in Arizona after recent rate increases and a significant jump in charges that offset the commodity prices the utility pays for gas.

The story is much the same in Southwest Gas’ service territory in Nevada, where a group of customers protested higher bills outside of the utility’s Las Vegas office in mid-February.

Compared with last year, the gas costs paid by Arizona customers have jumped 51%, Southwest Gas says.

Spikes of the past

Much of that increase has been driven by the retroactive recovery of wholesale natural gas prices that spiked during the massive winter storm of February 2021, creating a power crisis in Texas, and in 2022 after Russia’s invasion of Ukraine roiled global energy markets.

The benchmark Henry Hub gas price peaked to nearly $9 per million British Thermal Units in mid-2022, driven partly by Russia’s invasion of Ukraine, and remained high before dropping in January 2023, according to the U.S. Energy Information Administration.

Amid tight market supplies and regional demand spikes driven by freezing weather, Southwest Gas says it paid an average monthly gas cost of more than $25 per mmBTU in January 2021 and between about $5 and $8 per mmBTU during most of 2022, before its cost dropped to the $3 range in early 2023. (A mmBTU equals roughly 10 therms.)

Marketwide, the Henry Hub price fell from an average $6.45 per mmBTU in 2022 to just $2.53 in 2023, and has plummeted to under $2 recently, according federal data.

But customers of Southwest Gas are still paying for those earlier prices spikes of more than a year ago, because of the way company is allowed to retroactively recover its costs to buy and transport gas, with no markup or profit to the company.

Under a rate provision overseen by the Arizona Corporation Commission, Southwest Gas is allowed to recover its gas costs incrementally by adjusting customer usage rates based on a rolling, 12-month average of the utility’s cost, with changes capped monthly at up to 15 cents per therm, up or down.

That helps spread out cost increases to minimize the impact on customers, said Matt Derr, vice president of regulation for Southwest Gas.

“It’s mathematically designed to shield customers from the immediate price impacts,” he said. “It slowly rolls up over time and then slowly rolls back down, and we don’t need commission approval to change the rate.”

The good news, Derr said, is that the gas charge is already coming down 10 cents per therm this month and will continue to fall this year.

‘Balancing’ charge

But in addition to the incrementally adjusted gas charges, the cost-recovery provision also includes a “gas-cost balancing account” charge that tracks the gas-cost rate against the actual cost of gas paid by Southwest Gas.

The balancing rate is adjusted to allow over-collections to be returned to customers through bill credits, or under-collections to be recovered by Southwest Gas through a surcharge.

Southwest Gas customers are now paying more for that balancing charge to offset past spikes in wholesale gas costs.

Last July, the Corporation Commission voted to allow Southwest Gas to recover about $357 million to cover excess gas costs through the balancing account over two years, boosting average home bills by about $5 per month through July 2025.

The company is forecasting that its average gas cost will stay around or below $4 per mmBTU through 2024, rising just over $5 next winter and flattening again next year.

But natural gas prices are volatile, and the recent collapse of gas to below $2 has prompted several major U.S. gas drillers to announce production cuts that could push prices upward again, analysts say.

Delivery rates rise

Meanwhile, Southwest Gas’ delivery charge, which covers the company’s operating costs and system investments plus a regulated profit margin, also has been on the rise as the company seeks to cover rising operating costs and recoup the cost of system investments.

In January, the Corporation Commission approved new rates expected to add about $3 or 6.7% to the monthly residential gas bill for average usage of 24 therms, while small-business customers would see an average monthly increase of nearly 13%.

That followed a rate increase that went into effect in January 2021, which raised average home gas bills by 9.7%

And in early February, Southwest filed an application with the Corporation Commission for a revenue increase of $125.6 million, or 11.9%, that would raise the average residential customer bill by $7.15 per month.

Whatever increase the Corporation Commission grants will likely go into effect next year, after hearings before an administrative law judge who will make a recommendation to the full commission.

Derr noted that the company’s delivery charge has risen relatively slowly over the past dozen years, compared with gas costs.

He cited figures showing that in January 2012, the delivery charge comprised $27.58 of an average monthly home bill of $41.18, and this past year comprised $34.97 of an average bill of $57.35.

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Slumping natural gas prices helped lower average Southwest Gas bills in 2021 — with gas costs comprising just $4.93 of a total average bill of $37.36 in January 2021.

But the average monthly gas cost rose to $15.08 by January 2023, and to $23.46 in January this year, according to Southwest Gas.

“This really points out that the biggest driver of those higher bills, it’s going to be that gas cost,” Derr said. “And then you layer that on top of high usage, and you guys had like two weeks of freezes in Tucson (in January).... You can kind of understand that’s why the customer is feeling the highest bill that they’ve had.”

Mercy of the market

As a natural gas distribution utility, Southwest Gas is largely at the mercy of the market.

The utility now produces some “renewable natural gas” at methane-capture projects at three dairy farms and two wastewater plants in Arizona that went online in the past few years.

Southwest Gas also stores some natural gas at a liquified natural gas (LNG) facility it opened in late 2019 near East Valencia and South Pantano Roads, which can store three or four days worth of gas supply to serve some 280,000 customers in Southern Arizona.

That LNG supply is used mainly as needed to vaporize and inject into the local supply for reliability purposes, Derr said, adding that some of that gas was used when gas costs skyrocketed during the 2021 winter storm.

Generally, the company buys gas during the year under a baseload supply plan and then makes daily purchases as needed, Derr said.

A program of gas-price hedging through contracts to lock in prices was dropped several years ago with the approval of the Corporation Commission, after studies showed it ended up costing customers more, he added.

Weather and climate

Southwest Gas’ estimated bill impacts are based on an annual average monthly usage of 24 therms on home bills across its Arizona service territory, which includes warmer areas like Phoenix and much of Central Arizona.

But the impacts are greater for higher gas usage during the winter months and areas with higher elevations and cooler climes, like Tucson and much of Southern Arizona.

The average usage for Southwest Gas customers in Tucson is 28 therms per month, with average monthly usage in the winter at 46 therms, compared with the statewide winter average of about 35 therms, according to Southwest Gas.

The impact of the usage-based charges are magnified for higher users, and greater for all users during cold snaps.

Claflin looked back at his bills and realized he used a lot more gas in January than in December 2023.

Indeed, a cold and wet January included a stretch of days with overnight lows at or below 30 degrees, and daily highs were in the 50s for much of the first half of the month, while a rainy spell later in the month pushed the month’s precipitation to nearly and inch more average, according to the National Weather Service.

That followed a December 2023 that was the sixth-warmest on record, with an average temperature nearly 5 degrees above normal.

Claflin said he’ll keep an eye on his usage in the hope that his bills will return to normal.

“Given my second look at the billing and understanding we are in the winter time in Arizona this is not surprising,” he said. “It’s just scary when you’re on a fixed income, to get such a higher bill.”

Lowering your bill

While no one can control the weather, gas customers can limit their usage by using programmable thermostats and lowering their thermostat temperature in the winter, improving insulation and sealing air leaks, and using energy-efficient appliances.

Southwest Gas also offers an equal-payment plan that levels your monthly bill over the year based on your usage.

The company offers an online Energy Savings Portal that helps customers compare their monthly gas usage and benchmark them to similar homes in the area.

Customers also can take a home energy analysis to see how their homes uses energy and get personalized tips at tucne.ws/savegas.

Bill helps reach more

Meanwhile, more lower-income Southwest Gas customers in Arizona can now qualify for the company’s Low-Income Ratepayer Assistance, or LIRA, program, which provides a 30% bill discount for eligible customers as well as a discounted basic service charge.

Under the company’s most recent rate decision in January, the Arizona Corporation Commission approved extending the LIRA discount from winter months only to year-round, and upping the qualification level to 250% of the federal poverty level based on total household income.

Those eligibility thresholds now range from $36,450 for a single householder to $75,000 for a household of four.

The median household income in the Tucson metro area was $64,323 in 2022, according to the U.S. Census Bureau.

For customers having trouble paying their bills, Southwest Gas offers payment extensions, installment payment plans and referrals to local agencies that offer bill assistance.