PUC determines Southwest Gas purchases unreasonable

August 23, 2002 — The California PUC recently determined that Southwest Gas’ failure to store more gas or to contract in advance for delivery of natural gas for the winter of 2000-2001 was imprudent.

The PUC disallowed the utility’s recovery of $2.7 million in gas costs, which should be refunded to customers in proportion to their gas use that winter.

There are 10,400 customers in Southwest’s service territory. The $2.7 million reduction yields, on average, a $26 refund per customer. However, the refund is based on last winter’s consumption, so the refund customers will see depends on their bills. It will be about four percent of the November 2000 to March 2001 bills.

From January 2000 to June 2001, natural gas prices rose to unprecedented levels and hit their highest levels that winter. From December 1997 to December 2000 Southwest’s gas procurement rate for its Southern Division had been set at $2.21/decatherm (Dth). After the PUC approved Southwest’s request to change its procurement rates on a monthly basis to reflect its costs, Southwest increased its rates in December 2000 to $8.62/Dth and kept raising it up to $15.76/Dth in March 2001. The increase had a dramatic effect on the utility’s customers.

The commission determined that Southwest could have avoided the significant impact on consumers by storing more gas for winter use – Southwest had only used about 11 percent, or 0.17 Bcf (billion cubic feet) of its storage capacity. Also, rates could have been lower had Southwest used financial instruments such as futures contracts to hedge the price of winter gas.

Source: California PUC.

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