BPU examines gas rate

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Utilities > Staff argues that adopting variable rate over fixed rate is more sustainable

By Arin McKenna

At this Wednesday’s Board of Public Utilities meeting, Department of Public Utilities staff will seek approval of an ordinance that would change the way customers are billed for natural gas consumption.

While the proposed change in the rate structure stands to save money for consumers, it would also add a certain level of unpredictability for residents to contend with on a monthly basis.

Under the current ordinance, customers are charged a flat rate regardless of the actual cost of gas.

“The really big driver is that gas rates have been fluctuating so much the last several years,” said Deputy Utilities Manager for Finance and Administration Robert Westervelt. “Four or five years ago they were $11 (per unit), then they went down to $2, now it’s about $2.50. It just fluctuates so much it’s hard to devise a budget that ensures you have enough money to pay for your gas.

“In the past we have always had to absorb the risk of gas rate fluxuations in our fixed gas rate, since we just had one gas rate that covered all costs, including the purchase price of gas. So we had to build a cushion into our price to cover the fluxuation of the market costs, and if the market rate of gas fluxuated a lot, then it was very hard to budget for. If the costs went way up, then it’s really hard to recover our costs.”

Under the proposed ordinance, service charges remain unchanged at $9.50 per month for residences and small businesses and $28.50 per month for large businesses and county facilities.

Per unit costs would have two components: a fixed rate for predictable costs, such as operations and maintenance and financing costs, and a variable rate for the actual cost of gas. 

The fixed rate would be .29 cents per unit for residential and commercial customers and .25 cents per unit for schools and the county.

“So this just enables us to tie our rates closely to what the actual costs of providing the service are,” Westervelt said. 

Utilities Manager John Arrowsmith pointed out that the proposed rate structure is standard in the industry. DPU staff researched New Mexico’s largest supplier, New Mexico Gas Company, as well as the City of Farmington. Both combine variable and fixed rate charges. 

“I think there might be some concerns about the predictability, but around the country people have that unpredictability with their gas costs,” Arrowsmith said. 

“Just like gasoline, we don’t know what it’s going to cost next week. When I was growing up, my parents heated our house with oil, and whenever you fill up your tank with oil, whatever the price is at that time is what you pay.”

Westervelt was quick to point out that the proposed change could actually save customers money.  

“I think if people will really understand the rate they’ll understand that in order to build enough into our budget to make sure that we can cover the variable cost of gas, we actually have to build a larger budget than we otherwise would need to,” Westervelt said. 

“For example, we would have to assume $3.50 per unit when it may be $3.25. So we’d be recovering extra that would go into our cash reserves and just be sitting there. 

“People would basically be building up a cash bank in the utilities department, which nobody wants to do.”

“So it’s really a benefit to the consumers, because we can closely tie what we are charging them for gas to what it actually costs to provide the service, rather than have enough in there to provide for the fluctuation, the risk of a rise in the cost of gas.  But it is harder to predict, it is harder for them in their household budget to know what their gas cost is going to be.”

The board holds a public hearing on the proposed change at 5:30 p.m. July 17 in room 110 of the municipal building. 

If the board recommends the change, the ordinance will come before council for consideration Aug. 13.