Most home customers of Southwest Gas in Arizona could see an average 6.7% monthly increase to their monthly bills, while low-income customers may see lower bills, under a proposal set to go before state regulators for final approval this week.
The proposed increase, which would add about $3 to the average monthly residential gas bill, is much less than Southwest Gas initially requested in December 2021 β about a year after the last rate increase.
That request would have boosted the average monthly residential gas bill over the entire year by more than $5.12, or about 11.6%, following a 9.7% increase that went into effect in January 2021.
After months of filed testimony and formal hearings at the Arizona Corporation Commission, Southwest Gas agreed to cut its revenue request by nearly a third, to $61.7 million and, with other adjustments, sought new rates that would raise the average monthly home bill by $3.38 or 7.6%.
But an administrative law judge has recommended an average residential rate increase of about 6.7%, or $2.98 β from $44.28 to $47.26 monthly for annualized average usage of 24 therms per month β in a proposed order expected to be considered by the Corporation Commission at its next open meeting on Tuesday.
Low-income breaks
The judge recommended approval of the companyβs plan to expand its Low Income Ratepayer Assistance (LIRA) 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.
On average, LIRA customers will see a decrease in the summer months of $3.41, or 15.99%, and an increase in the winter months of $3.13, or 6.37%, the company said.
The LIRA plan changes were supported by the commission staff and applauded by Wildfire, a Phoenix-based nonprofit focused on ending poverty.
Meanwhile, smaller business customers would see larger increases, with small general service customers getting a nearly 13% average increase, medium service customers an increase of about 10% and large customers an increase of about 5%.
ACC Administrative Law Judge Sasha Paternoster also recommended against an environmental groupβs proposals to require Southwest Gas to conduct a new gas infrastructure planning process, and to drop line-extension subsidies for new construction.
Southwest Gas says it needs more revenue to recover about $711 million in system investments the company has made or planned since 2019 to ensure safe and reliable service.
The company says it supports the judgesβ rate recommendation, though it has objected to the judgeβs exclusion of half of the costs of dues it pays to an industry association. The company also wants new rates to go into effect in mid-January rather than Feb. 1 as recommended by the judge.
Cutting costs
In her recommended opinion and order, Paternoster cited some compromises made by Southwest Gas in reducing its revenue requirement.
In addition to agreeing to some accounting reductions including lower borrowing expenses, Southwest Gas dropped its initial request to recover more than $2 million in unpaid late fees incurred by customers who were shielded from service shutoffs during the height of the COVID-19 pandemic in 2020 and 2021.
The company also agreed to drop its request to recover an βacquisition premiumβ of about $1 million for its $3.5 million buyout of Graham County Utilitiesβ gas system in January 2021.
But the judge recommended granting the company about $1 million in operating and maintenance expenses for repairs to the Graham County system, including a followup request for about $10,000 in additional costs.
About 5,300 former home gas customers of Graham County Utilities would see monthly bill increases averaging about $11, or nearly 26%, under the proposed rate order.
Paternoster also agreed to allow the company to count 12 months of expenses for pipeline and other infrastructure put in operation after a test year used to calculate rates.
The Residential Utility Consumer Office, a state agency representing consumers in rate cases before the ACC, had argued to allow only six monthsβ worth of so-called βpost test-year plantβ expenses, contending the companyβs building program had resulted in an βexplosionβ of costs.
But Paternoster recommended approval of 12 monthβs worth of post-test year plant to allow Southwest Gas to recover about $162 million in costs.
The judgeβs recommended order also would disallow expenses for some executive-compensation and employee programs, but would allow full recovery of more than $400,000 in fees paid to board members and about half of about $500,000 in expenses sought for executive insurance.
Gas transition?
The judge rejected a proposal by the Southwest Energy Efficiency Project (SWEEP), a formal intervenor in the rate case, to require Southwest Gas to implement a βGas Infrastructure and Investment Planβ to allow the ACC greater oversight over the companyβs capital spending.
SWEEP says the plan is needed βto protect ratepayers from increased costs during the transition currently underway in the gas industry.β
The group said electric heat pumps, heat-pump water heaters and induction cooktops are gaining traction as a lower-cost alternative to natural gas, while lowering greenhouse-gas emissions by more than half.
SWEEP also criticized Southwest Gasβ recent investments in renewable natural gas, and research into liquified natural gas, carbon capture and making hydrogen for fuel from natural gas as βcostly and risky.β
βTheyβre investigating different types of resources that theyβre bringing onto their system and right now, there is really no mechanism that the commission has to thoroughly investigate these types of resource acquisitions outside of a rate case,β said Caryn Potter, Arizona representative for SWEEP. βWe feel like thatβs a considerable blind spot when it comes to the Commissionβs ability to investigate and regulate the types of resources that Southwest Gas wants their customers to pay for.β
Strong demand
But Matt Derr, vice president of regulation for Southwest Gas, said SWEEPβs proposal is based on a flawed assumption that the state is moving away from natural gas.
βWeβve seen over the decades declining use thatβs kind of stabilized now,β Derr said. βBut in terms of aggregate new customers, weβre seeing very strong demand for gas. Homebuilders are building with gas because their customers are demanding it, so weβre just not seeing this gas transition in Arizona.β
The company, which serves about 1.1 million customers across 10 Arizona counties including Pima, says that over the past five years, it has added 61,000 Arizona customers, with expenses increasing about 9%.
Derr also cited major new industrial natural-gas users, such as the semiconductor fabrication plant Taiwan Semiconductor Manufacturing Co. is building in north Phoenix in the first phase of a $40 billion project.
Overall natural gas usage in Arizona declined in 2021 after rising since 2017 to a peak of nearly 500,000 million cubic feet, according to the U.S. Energy Information Administration. Residential consumption in the state has fallen slightly since reaching a 10-year high of about 42,000 million cubic feet in 2019.
As a policy matter, political support for natural gas is strong in Arizona and other Republican-controlled states as some cities have moved to ban new natural-gas hookups.
The Arizona Legislature passed a law in 2020 prohibiting local governments from adopting measures that would ban natural gas in new construction, and since then some 20 states with GOP-controlled legislatures have passed similar laws.
Line subsidies backed
SWEEP also proposed that the commission end the construction allowances developers get from Southwest Gas to extend gas lines to new homes and businesses, which average about $1,000 per home and about $1,800 per business. The group also proposed limiting a program funding replacement of customer-owned yard lines to qualified low-income customers.
But Southwest Gas said eliminating the subsidies would be economically devastating, particularly in rural areas, and it got support from a statewide manufacturing industry group whose members include Intel, Boeing and Raytheon.
In a letter filed with the ACC, the Arizona Manufacturers Council said both SWEEPβs gas infrastructure planning proposal and its bid to end construction allowances are βaimed at curbing natural gas use in the state.β
Citing the wide use of natural gas in manufacturing, the council said adoption of SWEEPβs proposals would have βgrave impacts on our existing members and would blunt future growth in this important economic sector.β
The judge recommended against dropping the construction allowances and customer-owned line subsidies.
Paternoster also recommended that the ACC reject a Southwest Gas proposal allowing residential and business customers to voluntarily sign up to buy blocks of carbon offset credits through the utility to offset their greenhouse-gas emissions.
The proposed βMove2Zeroβ program, supported by the commission staff but opposed by SWEEP, could be revisited in light of results of a similar, pilot program Southwest Gas launched recently in Nevada, the judge said.
