Background
From January 2000 to June 2001, natural gas prices across the country rose to unprecedented levels, and the price of gas at the southern California border was at times the highest in the country. Consequently, the gas procurement rates charged by the regulated gas utilities in California increased to very high levels during this period. Gas prices hit their highest levels during the Winter of 2000-2001, at times spiking to nearly thirty times the price of a year earlier. This occurred during the winter heating season when gas usage by core customers reached its highest level and led to very high consumer bills.
While the gas procurement rates for all of the regulated gas utilities in California increased, the Commission received an unusually high number of complaint letters from the customers of Southwest, particularly from its Southern Division.1 We received a petition from the citizens of Victorville with over 20,000 signatures, expressing complaints and even outrage over the high natural gas rates being charged by Southwest.
From December 1997 to December 2000, the gas procurement rates for Southwest's Southern Division had been set at $2.21/decatherm (Dth). In October 2000, Southwest requested permission to change its gas procurement rates on a monthly basis to reflect more accurately its current costs of gas, just as other California gas utilities do. The Energy Division reviewed this request and approved it on November 1, 2000. On December 1, 2000, Southwest increased its procurement rates for its Southern Division to $8.62/Dth, an increase of nearly 300%. In January, February, and March 2001, the procurement rates jumped again to $12.96/Dth, $15.76/Dth, and $15.76/Dth, respectively. Needless to say, this 7-fold increase in gas procurement rates had a dramatic effect on Southwest's customer's bills, especially since the increases occurred during the winter, when gas usage was high. Over the Winter of 2000-2001, Southwest's procurement rates increased to an even greater degree than the rates for Pacific Gas and Electric Company (PG&E), Southern California Gas Company (SoCalGas), or San Diego Gas & Electric Company (SDG&E). 2
1 Southwest operates in two divisions in California, the Northern and Southern divisions. In the Northern Division, Southwest serves about 18,000 customers near Truckee and Lake Tahoe. In the Southern Division, Southwest serves about 105,000 customers in San Bernardino County. 2 In fact, as of April 30, 2001, Southwest still had a substantial undercollection in its purchased gas account. This means that Southwest's procurement rates had not collected all of their gas costs as of April 30, 2001.
