Southwest Gas is proposing a sizable rate increase for Nevada natural gas customers to help pay for various infrastructure costs, and the utility also is asking for an increase to the company’s authorized profit margin.
In an application filed last week with the state’s Public Utilities Commission, Southwest Gas is proposing to increase rates by about $38.3 million statewide to help fund a variety of new and replacement infrastructure projects, including extending service into Mesquite and undertaking several major technology upgrades.
The filing and request to raise the rates comes in the company’s general rate case — a triennial plan required of most major utilities in the state where proposed rates for a service (natural gas, electricity) are reviewed and ultimately approved by Nevada’s Public Utilities Commission.
“Southwest Gas is committed to providing safe and reliable service to our customers throughout Nevada,” company spokesman Sean Corbett said in an email.
The proposed rate increases would mean the average monthly bill for a Southern Nevada single-family residence would go up by an estimated 8.65 percent, or a $3.71 hike in their monthly gas bill. The increase would be less for the company’s Northern Nevada customers, with an estimated 3.19 percent increase or roughly $2.47 increase in monthly gas bills.
“Southwest Gas’ existing rates and charges do not provide Southwest Gas with sufficient revenue to allow it a fair and reasonable return on its investment,” the company wrote in the filing.
The filing, which consists of thousands of pages of company testimony and extensive records of company work and records, stated that higher rates were required to help offset the cost of infrastructure upgrades, regular salary increases for its employees and a variety of other operations costs in order to maintain its normal rate of return — the PUC-approved profit margin for the utility company.
“From the perspective of debt investors, the authorized return should enable the Company to generate the cash flow needed to make its near-term financial obligations, make the capital investments needed to maintain and expand its system, and maintain sufficient levels of liquidity to fund unexpected events,” energy consultant Bob Hevert wrote in testimony on behalf of the company.
The company’s projected rate of return for this year is 5.32 percent in Southern Nevada and 6.14 percent in Northern Nevada. But Southwest Gas requested an increase in the company’s return on equity, a separate measure into a company’s financial performance found by dividing income by equity held by shareholders (Southwest Gas is a publicly traded company). The current return on equity for Southwest Gas is 9.25 percent, but Hevert recommended raising it to at least 10 percent to better meet investor expectations and keep pace with similarly sized utility companies.
Beyond adjustments in expected profits for the company, the general rate case provides a wide-open and detailed look into the expenses and operations of Southwest Gas.
The company stated in testimony that it had purchased a two-story office building in southwest Las Vegas in February 2019 at a cost of $12.9 million. William Brincefield, an executive with the company who oversees facilities and real estate, said in testimony that purchasing the building was necessary to house up to 200 staff and consultants working on a major customer service and gas transaction systems upgrade called the Customer Data Modernization Initiative (CMDI Project).
“The CDMI Project is the largest single undertaking of systems replacement that the company has undertaken in approximately 30 years and a project of this magnitude requires a large team of full-time employees and consultants,” he wrote in the filing.
Brincefield testified that the expected space needed for the project team would require 36,000 square feet of office space, which wasn’t available at the company’s other facilities. He also wrote that the natural gas utility wasn’t using the second floor of the building, but that the expected cost of that was removed from rate recovery that used to pay for the building.
Southwest Gas also reported making renovations and upgrading 30-year-old furniture at operation centers in Las Vegas and in Reno, at a price point of roughly $1 million each. The company also purchased land for a future operations center in Winnemucca, but because it's not expected to be built and operational until 2022 it isn’t included in the rate case.
Outside of real estate, the company is also making significant spending in various infrastructure upgrades, including the “Gas Infrastructure Replacement” program that allowed the company — with permission from the PUC — to proactively upgrade aging infrastructure.
It’s also seeking commission approval to include roughly $18 million in five major software projects to be included as part of the rate case, after it was earlier rejected by the commission. One of the projects would upgrade a dated general ledger and budgeting software used by the company since 1986.
Another noteworthy spending noted in the report deals with infrastructure upgrades around Allegiant Stadium in Las Vegas. Combined, Southwest Gas reported spending about $4 million to substantially boost capacity for the 65,000-seat stadium, including installing 2,200 feet of steel pipe and 2,900 feet of polyethylene pipe.