COMMISSION NEWS |
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ARIZONA CORPORATION COMMISSION |
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TO: EDITORS, NEWS DIRECTORS |
DATE: February 27, 1998 |
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FOR: IMMEDIATE RELEASE |
CONTACT: Jennifer Jaress (520) 628-6556 |
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ACC REPORTS DECLINE IN CITIZENS PURCHASED GAS ADJUSTOR |
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The Arizona Corporation Commission has taken an in depth look at Citizens' Purchased Gas Adjustor (PGA) and projects that Citizens customers in Northern Arizona will see an immediate decline in the effective natural gas rate. |
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The PGA is a standard mechanism used by gas utilities across the country to recover the difference between the cost of natural gas assumed in the rates and the cost at which the utility is actually able to procure natural gas. |
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"Our office has received hundreds of calls from concerned customers, and has looked into this matter closely," Commissioner-Chairman Jim Irvin said. "There are a couple of things I'd like to point out. First, consumers will benefit immediately from the expiration of a three-and-a-half cent per therm surcharge that expired on January 31. Additionally, we're expecting to see a further decline in the price of natural gas, which will result in further reductions for consumers." |
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In Citizens' last rate case, the Commission set natural gas rates based on an assumption that Citizens could procure gas at 17 cents per therm. Because the cost of gas fluctuates due to numerous economic variables, the Commission also instituted a Purchased Gas Adjustor (PGA) to allow Citizens to recover the difference between the actual price of gas and the assumed price included in the rates. The Company does not realize any profit through the PGA, as it is solely a cost recovery mechanism. This practice, which is common throughout the United States, allows customers to benefit from any cost savings that the Company may experience, such as those realized by consumers in 1992 through 1996. |
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Citizens' PGA is based on a rolling 12-month average of natural gas prices in an attempt to insulate gas customers from possible rate shock that could result from wild fluctuations in the market. The Commission also requires Citizens to keep a running bank balance of the over-recovery or under-recovery of the cost of natural gas through the PGA mechanism. |
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"However, this method has not been as good as once thought to be, and the ACC is looking at other alternatives to stabilize gas prices to Citizens customers to prevent the rate shock customers experienced over the last two winters," Irvin continued. |
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History shows that Citizens was able to procure gas at less than the assumed rate during the period from 1992 through 1996 and thus over-collected the bank balance. Therefore, Citizens was required to refund over $20 million to its Arizona customers. |
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In 1996, various economic factors caused the current volatility in the price of natural gas. For example, utilities in the eastern United States began to compete for natural gas from the San Juan and Permian Basins normally marketed only to Western utilities. Furthermore, there was a significant change in the demand for natural gas as a result of a contract issue with a major California provider. |
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This volatility perpetuated into 1997, and an investigation by the Commission's Utilities Division shows that the price of natural gas over the last 12 months has ranged from 15 to 41 cents per therm. Due to the lag caused by the PGA mechanism's 12-month average, Citizens customers paid effectively only 14 cents per therm on their January 1997 bills, though the price of gas was actually 23 cents per therm at that time. |
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Though both Citizens and the Commission's Utilities Division are projecting that the under-recovered bank balance will fall to an acceptable level around April of this year, the Commission continues to investigate improved cost recovery methods to ensure that rate payers are not subjected to additional rate shock. |
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