Despite this year's dramatic fall in energy prices, Southern California Gas asked for authority Friday to impose higher rates for natural gas that would boost the average bill for a residential customer by about 31%, or $9 a month.
The controversial proposal by the nation's biggest gas utility would collect the entire rate increase of $277 million from its residential customers rather than spread the charges across its industrial and commercial customers as well.
If approved by the California Public Utilities Commission, the new rates would take effect Jan. 1. But the proposal drew immediate criticism, and the PUC seems likely to try to protect consumers from any big increase in energy bills at a time when energy prices are falling.
Yet if that effort raises industrial rates, many big industrial customers could walk away from the gas company altogether, placing an even greater burden on residential and small-business customers.
'Tiger by the Tail'
"We in the PUC have a tiger by the tail," said Donald Vial, president of the commission.
The ironic move to boost rates for natural gas when natural gas prices are falling stems from the gas company's need to make up a big shortfall in revenues from the industrial and electricity-generating customers that consume half the utility's natural gas.
Because those heavy users of natural gas are able to switch readily to burning oil instead of natural gas, they used that flexibility on two occasions this year to follow oil prices down and win sharply lower prices from Southern California Gas.
"Historically, revenue from gas sales to large-volume commercial and industrial customers . . . provided sufficient revenue to cover a substantial part of our costs of serving residential customers," said Charles O. Parker, vice chairman of the Los Angeles-based utility.
"However, some of these large customers have switched to oil since oil prices fell last January. We have been successful in retaining the rest of these customers only by reducing their gas rates so they are competitive with the cost of oil."
The utility's biggest customer, Southern California Edison, now pays just $1.50 per million British thermal units, or BTUs, for the natural gas that fuels its boilers, compared with $4.40 last December, said Roy Rawlings, assistant vice president of the gas company's regulatory group.
Overall, the utility said it will take in about $300 million less than it expected this year, and proposes to make up most of it by boosting rates for residential customers who can't switch fuels and thus have no bargaining power.
"This is what happens when market forces go to work," Vial said. "But the marketplace gives more power to those with options. We've got to protect those people who are stuck."
Southern California Gas said the rate request would raise the average bill for a residential customer to $36.46 a month from the current $27.84, an increase of 31%. It would increase overall revenues by about 8% from the current $3.54 billion.
The utility said the new average monthly bill under the proposed higher rates would still be about $7 less than the $43.31 average of two years ago. Residential rates generally have been declining since 1981 along with natural gas prices.
The gas company has long maintained that, as in the telephone business, its residential customers are in effect subsidized by big industrial and commercial users. Even under its proposed rate increase, the utility said, residential rates would only contribute about 54% of revenues, while they account for 64% of the utility's operating costs. Currently, residential customers generate 50% of revenues.
Setting Gas Rates
The PUC is reviewing the way natural gas rates are set, and has indicated that it intends to make rates for different classes of customers more closely reflect what it costs the utility to serve them.
But in approving a smaller Southern California Gas rate request in August, the commission indicated that it wasn't willing to impose an entire rate increase on residential customers. As a result, industrial and electricity-generating customers this month and next are incurring new fixed charges that the gas company claims will ultimately drive them away from natural gas altogether.
That possibility is ridiculed by the San Francisco-based consumer group Toward Utility Rate Normalization, which vowed to oppose the latest request.
"It won't happen unless they want to disconnect from the gas system altogether and put themselves at the mercy of OPEC, and I don't think any responsible businessman would want to do that," said Michael Florio, staff attorney for the group.