Southwest Gas customers will see slightly lower bills for the foreseeable future under a ruling by state regulators on Thursday.
The Arizona Corporation Commission unanimously ordered Southwest Gas Corp. to refund to ratepayers just over $20 million in benefits from federal tax reform, rejecting a company plan to withhold some of the money to cover other costs.
As a result, the typical Southwest Gas home customer will see an immediate one-time bill credit for July amounting to $5.77 for the average home customer.
After July, credits going forward will average 82 cents monthly, based on average monthly usage of 26 therms, until new rates are approved in a general rate case.
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 Corporation Commission already has ordered several utilities, including Tucson Electric Power Co., to return their federal income-tax savings to ratepayers.
TEP is crediting its residential customers about $4.50 per month through the end of the year under a decision issued in late April, though 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 adjusting its $20 million in tax savings 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 was 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 amount of its 2018 federal tax savings — pegged at just over $20 million.
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.
Cathy Mazzeo, managing counsel for regulation and litigation at Southwest Gas, said Thursday that the company is committed to passing along the full benefits of tax reform to ratepayers.
But she said that refunding the full amount would negatively affect the company’s cash flow and its “rate-case-like” proposal takes into account other expected costs.
But Elijah Abinah, director of the commission’s Utilities Division, said Southwest Gas hasn’t disputed the estimated $20 million in savings.
He said filing a new rate case would require a special filing, since the rate settlement approved in April 2017 barred the company from filing a new rate case until May 2019 under a “stay-out” provision.
Once filed, major rate cases typically take a year to 18 months to decide.
“Southwest Gas doesn’t agree with our recommendations, and now they want Option 3,” Abinah said. “We just believe the $20 million should be refunded right away.”
Mazzeo said the commission staff‘s proposed tax-adjustment mechanism doesn’t adequately take into account other factors, including the company’s cost of service, fair asset value, business needs and pressure on cash flows.
“A rate case is a more balanced approach,” she said, adding that a provision in the company’s rate settlement allows the company to file a new rate case “in the event of a significant regulatory development that materially impacts the agreement.”
But commissioners questioned the need for a new rate case and said they wanted ratepayers to see refunds as soon as possible.
“It’s my view the refund should be the full $20 million, with a process in place with the tax adjustor,” Commissioner Justin Olson said.
“We viewed the last rate case based on facts at the time, and the company would be in the same position if the tax act hadn’t passed.”
Commissioner Boyd Dunn said he was concerned with the length of time it would take to process a rate case and the precedent that would be set by overriding the stay-out provision in Southwest Gas’ rate settlement.
“I consider these stay-out provisions very sacred, as something ratepayers should rely on,” he said.
“If we’re going to open that process up, we’re going to be open to some legitimate criticism.”
