southwest gas decoupling adjustment charge

SWGas has agreed to make changes to its website to show information about decoupling, including naming the EEP Weather adjustment as the EEP Mo. Weather Adjustment.  Watch your next bill for changes.

Go to azcc.gov and do a docket search for Docket No. 13-0327

Here is the complete story:

The Hidden Monthly Weather Adjustment Charge of Southwest Gas

Richard Gayer (rgayer@cox.net)

Revised March 22, 2015

In January of 2012, Southwest Gas (“SWGas”) first imposed its new and then hidden “EEP Weather Adjustment” Charge (“Charge”) on residential customers who heat with gas in apparent reaction to warmer winters caused by Climate Change. This adds a “delivery” charge for gas not actually delivered (and not used), according to a formula approved by the Arizona Corporation Commission (“ACC”), and found in Arizona Gas Tariff No. 7 dated January 1, 2012 on pages 92 through 96. If a winter month is colder than normal (rare these days), then a corresponding amount is subtracted from a bill. This new Charge, actively concealed by SWGas from its customers until December 2014, is said to be a way to “decouple” SWGas’ revenue from varying winter weather conditions. Because of Global Warming, nearly all of these new Charges will be additions to the monthly bill.

The Charge was hidden for over two years because SWGas discontinued itemization of its bills about nine months before it added this Charge. All customers became aware of the Charge after Gayer won a settlement in his case before the ACC in Docket No. 13-0327 in late 2014.

The formula, for a given month (the “billing cycle”), first calculates a customer’s usage in therms per heating degree day (“HDD”) by dividing the total therms consumed for heating during that month by the number of HDDs during that period. It then subtracts the Actual HDDs for the month from the “Normal” HDDs for that month. Those “normal” HDDs are based on a 10-year average that SWGas buys from a proprietary source. SWGas does not use the 30-year averages published by the National Weather Service that are freely available to the public, but it does now publish the 10-year averages on its website because of Gayer’s victory in 2014. See www.swgas.com/tariffs/aztariff/decoupling and for other information.

The difference between the normal and actual HDDs is then multiplied by the therms per HDD calculated previously to produce the number of therms that will be added to (or possibly subtracted from) the bill. The dollar amount of the Charge is calculated by multiplying the added therms by the current “delivery” charge per therm. (There is no additional charge for the cost of the gas purchased by SWGas.) Customers may get a fully itemized bill by calling SWGas at the “800” number at the top of their bills.

The validity of the formula is questionable, and SWGas tacitly admits that it has problems. First is the use of HDDs, which is the number of degrees that the average daily temperature is below 65 degrees. For example, if the average temperature on a given day is 65 degrees, then there are zero HDDs, but a customer may still need to heat his home to be comfortable. But the formula, with a zero in the denominator, will force this customer into bankruptcy! To prevent customers from discovering the Charge from such a shocking bill, SWGas used a few measures that kept its customers in the dark for over two years.

First is a policy that there will be no Charge if the HDDs for the month are zero. That prevents a zero in the formula denominator. Suppose there are just a few HDDs in a month, like two or three, or even one. A small number in the denominator will result in a very large Charge, so SWGas usually uses a linear “regression” to avoid such a result. From January 2012 to December 2014, it was used by SWGas to avoid alerting a customer to the mere existence of the Charge by a very large bill. (This is now explained on its website, also because of the settlement in ACC Docket No. 13-0327.)

A regression tries to predict how many therms a given customer should use in view of the current monthly number of HDDs. This is based on that customer’s usage during four (or five – SWGas is not clear on this) winter months (December, January, February and March – and perhaps April) for the current and past years, resulting in eight (or ten) data points of therms versus HDDs. The regression produces a kind of average ratio of therms to HDDs which is called the coefficient; Gayer’s is about 0.23. SWGas multiplies that coefficient by the difference between the Normal and Actual HDDs for the month, and then multiplies the resulting number of therms by the current “delivery” charge to obtain the dollar amount of the EEP Weather Adjustment Charge.

Another method used by SWGas is to limit the number of therms added by the Charge to the number actually used by the customer. That is, if a customer used 50 therms to heat his or her house, then the extra Charge could not be based on a larger number of therms, even if the formula on pages 92 and 93 of the Tariff or a “regression” produced such a result. (This method was used for over two years as one way to prevent altering customers to the existence of the Charge by the shock of a huge bill.)

The final method to limit the new Charge so that customers do not become aware of it is actually found in the Tariff. However, the monthly limits found on page 94 under Annual Component, EEP Balancing Account, and Item A are not applied on a monthly basis, but only once a year. This now appears on bills as the “EEP Annual Adjustment”.

Another problem: SWGas uses proprietary data for the Actual HDDs for each month and does not make them publicly available. Actual HDD data are available to the public without charge from the National Weather Service, but SWGas has refused to use those data. However, those data are close enough for customers to verify their bills. See http://www.weather.gov/climate.

All of these practices were used for over two years to prevent customers of SWGas from verifying the accuracy of their bills. As a result of Gayer’s settlement in No. 13-0327, SWGas has added a line item to every bill that shows the Weather Adjustment Charge as the “EEP Weather Adjustment”, a monthly item; it has also added a line for the “EEP Annual Adjustment”. However, customers should call the “800” number on their bills and demand a fully-itemized bill.

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