Gas Co. Asks Rate Hike Amid Falling Oil Prices

The price of natural gas is being driven down rapidly, but Southern California Gas Co. said Friday that it wants to boost the rates it charges residential customers by $83.6 million annually, or at least 5%.

The gas company told the state Public Utilities Commission that it wants to charge higher rates to residential customers to make up for a sharp decline in revenues from industrial and other heavy users of natural gas.

The nation’s largest gas utility proposed an increase of $1.78, or 57%, in its flat monthly “customer charge.” It also proposed rate changes that could offset or raise the increase, depending on how much natural gas is used each month.

If approved by the PUC, a summer bill for a typical residential customer would increase by $1.09 to $23.34 a month, or 5%, the utility said. A typical winter bill would jump by $6.37, or 15%, to $47.87 a month.

Even if the full increase is granted, the gas company said, rates for residential customers would still be lower than they were three years ago. The utility said residential rates have fallen $103 million since 1983, when natural gas prices began a gradual decline.

The request to increase natural gas rates is an ironic side effect of the recent collapse in oil prices and its effect on other forms of energy.

Many of the gas company’s industrial users and its biggest single customer, Southern California Edison Co., can readily switch their boilers to burn oil instead of natural gas. They have used that flexibility to win sharply lower prices from the gas utility. However, the utility’s fixed costs, such as payrolls and other overhead, have not declined.

“They’re saying that somebody has to make up the difference,” said Erik Jacobson, adviser to PUC President Donald Vial. “But there are a lot of assumptions in their request that will be scrutinized. I wouldn’t say it’s a certainty that residential rates are going to go up.”

The gas company maintains that, as in the telephone business, the rates charged residential customers for natural gas have effectively been subsidized by the rates paid by large industrial customers.

Changed the Picture

The oil price collapse abruptly changed the picture, however. The PUC has twice in recent weeks permitted sharply lower rates for Edison and other electric utilities that are big users of natural gas, even though it held the prospect of higher residential rates. The commission wanted to prevent industrial customers from switching to fuel oil, which is dirtier to burn.

To make up for the big drop in revenues from industrial users, the gas company said, it needed price cuts of about $795 million from the two pipeline companies--El Paso Natural Gas and Trans Western Pipeline--that sell it natural gas. However, it has won price cuts of about $695 million.

The approximately $99 million shortfall would be made up by the $83.6-million increase in charges to residential customers and another $13 million to other users, including those commercial customers who do not have the capacity to switch from gas to oil, the utility said.