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California PUC Issues Decision Granting Joint Motion for Approval of Settlement Involving Southwest Gas

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SAN FRANCISCO, California, March 24 -- The California Public Utilities Commission issued the following decision granting joint motion for approval of settlement (Agenda ID No. 19297):

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Southwest Gas Corporation (U905G) for Authority to Increase Rates and Charges for Natural Gas Service in California, Effective January 1, 2021.

DECISION GRANTING JOINT MOTION FOR APPROVAL OF SETTLEMENT BETWEEN SOUTHWEST GAS CORPORATION, PUBLIC ADVOCATES OFFICE AND CITY OF VICTORVILLE ADOPTING TEST YEAR 2021 GENERAL RATE INCREASES

Summary

This decision adopts and approves the Joint Motion of Southwest Gas Corporation (Southwest Gas), the Public Advocates Office of the California Public Utilities Commission (Public Advocates Office) and the City of Victorville (Victorville)/1 for Adoption of a Settlement Agreement (Settlement Agreement) pertaining to Southwest Gas' application for authorization to increase rates and charges for gas service in California effective January 1, 2021.

The settlement will produce an average monthly bill impact for average non-CARE residential customers of:

* 3.7 percent increase or $3.54 for their winter season baseline in the Southern California rate jurisdiction where average winter season baseline usage is 62 therms.

* 7.14 percent decrease or -$10.82 for their winter season baseline in the Northern California rate jurisdiction where average winter season baseline usage is 116 therms.

* 20.05 percent increase or $24.25 for their winter season baseline in the South Lake Tahoe rate jurisdiction where average winter season baseline usage is 115 therms.

Attachment 1 to this Decision is the Settlement Agreement, which resolves all issues related to the Application and memorializes the modifications to the Application that the parties agreed upon.

This Decision authorizes the following agreed rate base and increases set forth in the Settlement Agreement:

* A rate base amount of $285,691,044 and revenue increase of $3 million in the Southern California rate jurisdiction.

* A rate base amount of $92,982,933 and zero ($0) revenue increase in the Northern California rate jurisdiction.

* A rate base amount of $56,817,683 and revenue increase of $3.4 million in the South Lake Tahoe rate jurisdiction.

The parties further agree that the post-test year ratemaking mechanism approved in Decision (D.) 14-06-028 and D.17-06-006, will be continued, but that annual revenues will be adjusted by 2.75 percent in each of the three California rate jurisdictions to recover increases in post-test year expenses and capital expenditures in the 2022 through 2025 post-test year period.

We find that the Settlement Agreement between the parties is reasonable based upon the whole record in this proceeding and is consistent with the law and in the public interest.

This Decision closes proceeding Application 19-08-015.

1. Background

On August 30, 2019, Southwest Gas filed general rate Application (A.) 19-08-015, for authority to increase rates and charges for natural gas service in California effective January 1, 2021.

1.1. Parties

Southwest Gas Corporation (Southwest Gas) is a public utility engaged in the retail distribution, transportation and sale of natural gas for domestic, commercial, agricultural and industrial uses./2

Southwest Gas currently serves over 2 million customers in the states of California, Arizona and Nevada. Southwest Gas has three California rate jurisdictions: (1) Southern California; (2) Northern California; and (3) South Lake Tahoe. The Southern California rate jurisdiction comprises various communities and areas in San Bernardino County. The Northern California rate jurisdiction covers communities and areas in Placer, El Dorado and Nevada Counties and the South Lake Tahoe rate jurisdiction is entirely within El Dorado County. In total, the Company serves approximately 200,000 California customers.

Victorville is a community of approximately 120,000 residents located in southwestern San Bernardino County. Victorville operates Victorville Municipal Utility Services (VMUS), a local publicly owned utility that currently offers retail electric and natural gas service to customers located within, among other locations, the Southern California Logistics Airport (SCLA) (formerly George Air Force Base). Victorville is located within Southwest Gas' "Southern California" rate jurisdiction. Victorville is a Southwest Gas natural gas transportation and commodity customer under Southwest Gas's service schedule GS-40. Victorville receives wholesale service from Southwest Gas which it then resells, through VMUS, to provide retail natural gas service to its customers.

Public Advocates Office serves as representative on behalf of California consumers./3

Public Advocates Office's statutory mandate requires it to "advocate on behalf of the interests of public utility customers and subscribers within the jurisdiction of the commission," and "obtain the lowest possible rate for service consistent with reliable and safe service levels."

1.2. Procedural Background

On August 30, 2019, Southwest Gas filed A.19-08-015 for authority to increase rates and charges for natural gas service in California effective January 1, 2021 (Application). Southwest Gas seeks authorization to raise rates for Test Year (TY) 2021 - 2025. It proposes to increase its revenue requirement by approximately $6.8 million for the Southern California rate jurisdiction, by $1.5 million for Northern California, and by $4.5 million for the South Lake Tahoe jurisdiction./4

Southwest Gas served direct and rebuttal testimony from nine witnesses in support of its Application./5

The Application appeared on the Commission's Daily Calendar on September 4, 2019. On September 26, 2019, in Resolution ALJ-176-3446, the Commission preliminarily designated the proceeding as ratesetting and concluded that hearings would be necessary.

On October 4, 2019, Public Advocates Office filed a protest to the Application, indicating that it will scrutinize Southwest Gas's forecasts for expenses, proposed capital structure, rate of return, capital expenditures, depreciation, and projections of sales, customers and revenues, to assure that the proposed rate increases are reasonable./6

Victorville also filed a response to the Application on October 4, 2019. It cited concerns about increases sought in Southwest Gas' natural gas rates, which it contends are not supportable because the rates are already higher than peer gas utilities./7

In its response, Victorville questions whether Southwest Gas's proposed margin transport rate increases for GS-40 customers are just and reasonable. It also questions whether Southwest Gas's billing determinants for Core General Sales for Resale COV Gas Service are reasonable, accurate, and consistent with accepted industry standards.

A prehearing conference (PHC) was held on November 21, 2019. The assigned Commissioner issued the Scoping Memo and Ruling on January 14, 2020, setting the following as issues to be determined in the proceeding:

a. Whether the Applicant's proposed rate increases for its Southern California, Northern California, and South Lake Tahoe jurisdictions are reasonable.

b. Whether Southwest Gas's forecast for expenses is reasonable and justified.

c. Whether Southwest Gas's proposed capital structure, consisting of 47.0 percent long term debt and 53.0 percent common equity is reasonable.

d. Whether the proposed Return on Equity (ROE) of 10.50 percent and the overall rate of return of 7.44 percent for Southern California and 7.76 percent for both Northern California and the South Lake Tahoe jurisdictions are reasonable.

e. Whether Southwest Gas's Automatic Trigger Mechanism (ATM) that was approved in D.14-06-028 and used to adjust its cost of capital, should be continued.

f. Whether Southwest Gas's forecast of capital expenditures is reasonable.

g. Whether Southwest Gas's depreciation study and proposed rates should be adopted and made effective January 1, 2021.

1.3. Settlement of Disputes

The parties met and conferred several times in the weeks following the PHC./8

On August 3, 2020, Southwest Gas, Public Advocates Office, and Victorville filed a Settlement Agreement resolving their disputes about the proceeding./9

2. Summary of Settlement Provisions Addressing Scope

2.1. Forecast Expenses

In its Application, Southwest Gas forecasts: (a) operating expenses from 2018-2021; (b) TY 2021 distribution expenses; (c) customer accounts expenses; (d) customer and information service account expenses; and (e) depreciation and amortization expenses.

Full text of the decision is available at https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M373/K131/373131829.PDF

* * *

Footnotes:

1/ Southwest Gas, Public Advocates Office and Victorville will be referred to collectively as "the parties" throughout this decision.

2/ Southwest Gas is a corporation organized under the laws of the state of California. Its principal place of business is 5241 Spring Mountain Road, Las Vegas, Nevada 89150 and phone number (702) 876-7011.

3/ See Public Utilities Code Sec. 309.5.

4/ See Application at 3-4.

5/ Southwest Gas served prepared testimony by Bradley C. Anderson, Celine Louise R. Apo, Robert B. Hevert, Kevin M. Lang, Brandy L. Little, Timothy S. Lyons, Valerie J. Ontiveroz, Byron C. Williams and Theodore K. Wood.

6/ Public Advocates Office served its analysis of Southwest Gas' data and supporting direct testimony dated March 27, 2020, from witnesses Mariana C. Campbell, Shelby Chase, Charlotte Chitadje, Matthew A. Karle, Yakov Lasko, Joyce Lee, Mark R. Loy, Thomas Renaghan, Pearlie Z. Sabino, Maricela Sierra, and Crystal Yeh.

7/ See Response of Southwest Gas dated October 4, 2019 at 2-3. On April 10, 2020, Victorville served testimony by Thomas W. Ingwers, in support of its position.

8/ See Settlement Agreement at 4. During the period following the PHC, Victorville served prepared direct testimony on April 1, 2020; Southwest Gas filed rebuttal testimony on May 15, 2020, and the parties filed a Joint Statement of Resolved issues on May 18, 2020. The parties also held a formal settlement conference on July 28, 2020.

9/ On December 30, 2020, Southwest Gas filed a motion to amend the Settlement Agreement (with the agreement of Public Advocates Office and Victorville). The amendment concerns Southwest Gas' South Lake Tahoe rate jurisdiction and corrects numerical discrepancies to accurately reflect the terms of settlement. The proposed changes do not impact the rate base amounts or rate increases described in the Summary of this decision.

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