Southwest Gas applied for an 11.5% – $90 million annual – rate increase for its captive Arizona customers, citing an increase in customer growth since 2019 as its justification. The average monthly single-family residential bill will increase by $5.12 a month if the application is accepted as filed. Utility regulators approved a 9.68% increase for Southwest Gas in December 2020. An analysis of the latest rate case application details how Southwest Gas (SWG) – one of the largest gas utilities in the country – is trying to charge its customers for a significantly higher return on equity, which is the percentage that the utility is allowed to earn in profits from its capital investments. SWG also intends to charge its customers for the company’s dues to political trade associations, and for expenses it did not collect when it suspended late payment charges due to COVID-19. The company also wants to introduce a new carbon offset program for customers.
Intervening groups, including Wildfire, formerly the Arizona Community Action Association, and the Southwest Energy Efficiency Project will file direct and rebuttal testimonies in August, and hearings in front of the ACC will take place in late September.
SWG asking for a higher profit margin from regulators
ROE is what drives profits for investor-owned utilities. When a utility makes a capital investment, like building a new pipeline, regulators allow it to recover the costs of the expenditure plus a profit that’s determined by the ROE. A utility’s investors generally want to see the ROE be as high as possible.
SWG requested the same 9.9% ROE in its most recent rate case with the Public Utilities Commission of Nevada (PUCN), where SWG also has a monopoly utility. Instead, the PUCN approved the company’s ROE at 9.4%. The Nevada Bureau of Consumer Protection provided evidence that ROEs for gas utilities have been trending downward since 2018 and argued that the request for 9.9 percent ROE was “not consistent with regulatory and market trends and/or facts.”
Southwest Gas aims to make Arizona customers pay for industry membership dues
SWG is asking Arizona regulators to allow it to charge ratepayers hundreds of thousands of dollars per year in dues to support the utility’s membership to trade associations. Utilities typically request permission to recover expenditures they have placed in the 930.2 account in rate case proceedings, then pass the fees onto customers. The trade association groups use this revenue for strategies to undermine policies for electrification and promote ones that encourage the use of fossil gas.
Among costs included in the rate increase request are $664,596 in 2021 membership dues for the American Gas Association (AGA). AGA has coordinated legislative efforts opposing electrification, including in Arizona. In 2020, the Arizona legislature passed HB 2686, which banned cities and towns from passing codes or ordinances to restrict a utility provider’s service, such as the fossil gas from SWG. SWG supported HB 2686 and gave the legislators sponsoring the bill thousands of dollars in contributions.
AGA has also launched social media ad campaigns to improve public perceptions of cooking with gas, despite years of research showing that pollutants released by gas stoves have severe health effects. SWG recently used the same tactic when it launched a social media campaign to tout the benefits of fossil gas in Nevada.
SWG’s application includes the removal of 3.8% of AGA membership dues identified as “lobbying in nature.” However, AGA relies on a narrow, definition of the term lobbying from the Internal Revenue Service (IRS) that does not accurately reflect the trade group’s wide scope of political activities and advocacy work. SWG will charge ratepayers for those costs unless the PUCN denies them permission.
Additionally, SWG is looking to recover 2021 membership dues for the Coalition for Renewable Natural Gas (RNG Coalition) that total $30,000, despite not including a portion of these dues in its most recent rate case in Nevada. The RNG Coalition is a 501(c)6 trade association that promotes the expansion of “renewable natural gas” (RNG) markets. The group often appears in testimonies and public comments for state regulatory commissions and legislative meetings across the county. In Nevada’s 2021 “Future of Gas” docket, the RNG Coalition submitted comments in favor of the development of RNG in the state.
The Coalition pushes RNG at the state level despite the fuel’s lack of viability to economically replace fossil gas at scale. In May 2021, the Arizona Corporation Commission hosted an RNG workshop and invited representatives of SWG, AGA, and the RNG Coalition to present. In response to questions from the Arizona PIRG Education Fund, the RNG Coalition conceded that “the estimated potential for RNG from anaerobic digestion feedstocks in the 2040 timeframe” could replace only 5.4% of the country’s current gas consumption in the residential, commercial, industrial, and fossil gas vehicle sectors.
In a 2020 report, Earthjustice and the Sierra Club found that RNG is not available at the scale necessary to decarbonize buildings, nor will it resolve many air pollution issues concerning the use of gas. The report also found that RNG adoption would lead to higher costs for customers.
Intervenors, commission staff, and regulators around the country are increasingly voicing concerns over utilities’ recovery of trade association dues in rate cases without proving the clear benefit customers receive for paying these fees. In Arizona, utility regulators recently agreed with the Residential Utility Consumer Office’s recommendation to allow Arizona Public Service, an electric utility, to recover only 50% of its industry association dues.
The question sits before the Federal Energy Regulatory Commission (FERC). The Center for Biological Diversity (CBD) petitioned FERC to issue a rulemaking to amend the Uniform System of Accounts to require that utilities record their trade association dues as presumptively non-recoverable (below-the-line and charged to shareholders) for rate recovery purposes. FERC issued a notice of inquiry on the matter in December, asking the public and trade groups to weigh in. Utility regulators, attorneys general, and ratepayer advocates from 14 states submitted comments urging FERC to strengthen its accounting requirements for utilities looking to recover these dues.
SWG is requesting COVID-19 recovery after being denied by the Public Utilities Commission of Nevada
SWG is asking the ACC for permission to charge customers $2.5 million in waived and suppressed late payment charges. From April 1, 2020, through March 31, 2021, the utility had a temporary moratorium on collecting late fees from customers who fell behind on paying their utility bills on time. In 2020, the ACC allowed SWG to track related COVID-19 expenses, including the late fees it would otherwise have collected for possible recovery at a later date.
Consumer advocates have called late fees “punitive” efforts that “punish people for being poor,” and SWG’s other state regulators have denied their recovery. In SWG’s most recent rate case in Nevada, the PUCN denied SWG’s request to recover $6.6 million in late payment charges for COVID-19 recovery costs. The PUCN determined “late payment charges do not qualify as costs of maintaining service to customers affected by the COVID-19 pandemic.” Although the ACC includes these fees as eligible for “possible” recovery, the Commission explicitly stated the 2020 docket was opened due to concerns for “the physical and financial health and safety of utility customers, the regulated utilities, and their employees.” Utilities say that late payment charges are intended to encourage customers to pay their bills, not financially devastate them. The PUCN found that the fees do not make up a significant portion of a utility’s revenue and are unnecessary.
SWG proposes tariff change for voluntary carbon offset credit program
SWG is also proposing a change to the Arizona Gas Tariff to include its voluntary program MOVE2ZERO (M2Z), allowing Arizona customers to offset fossil gas greenhouse gas emissions through SWG’s purchase and retirement of carbon offset credits. Customers who choose to participate in the program are responsible for monthly premium charges associated with the number of carbon offset “blocks” they purchase. SWG is responsible for purchasing the blocks on behalf of the customer. Each block costs $5 per month and would offset 10 therms of fossil gas usage per month, according to SWG.
M2Z – and other carbon offset credit programs like it – ignores critical conclusions determined by the recent UN IPCC report. To maintain a reasonable chance of keeping global temperature increase below 1.5 degrees celsius, scientists say that it is necessary to cut methane emissions from burning fossil gas, rather than merely offsetting them. Instead, SWG is charging customers for carbon offset credits while simultaneously expanding fossil gas infrastructure.