The New Mexico Gas Co. has negotiated an agreement with environmental and consumer advocacy groups to cut its recently proposed rate hike in half.
The company had requested Public Regulation Commission approval last December for a 9.1% rate hike that, if approved, would generate $40.7 million in additional annual revenue to pay for investments in infrastructure and increased operating expenses.
But under the new settlement agreement announced this week, the company will now lower its revenue request to $19.3 million, or a 4.3% rate increase.
The settlement comes at a time ratepayers are already facing the highest natural gas prices in more than a decade, fueled by pandemic-induced supply constraints, adverse weather patterns and the war in Ukraine.
PRC case examiners will review the settlement during public hearings next month, and then make a “recommended decision” to the five-member elected commission to reach a final decision. If approved, the increase would take effect in January 2023, adding just under $2.70 more per month to average customer bills, compared with $5.63 originally requested by the company.
The utility also agreed to work more closely with community groups on measures to reduce greenhouse gas emissions in its operations.
“It’s a good (settlement) that’s the result of hard bargaining,” Pat O’Connell of Western Resource Advocates told the Journal. “The gas company showed real willingness to sit down and work through the issues.”
Gerald Weseen, N.M. Gas vice president for regulatory strategy and external affairs, said the company is pleased with the outcome.
“We really appreciate the open and constructive dialogue among all parties,” Weseen told the Journal. “They invested time and energy to find a solution.”
Apart from cutting its rate request, the company also agreed to slash its proposal to increase “access fees” — which are fixed monthly charges customers pay to connect to the utility distribution system — from a $2.25 hike to just a 40-cent increase.
The utility will now postpone some investments in its pipeline system and other infrastructure to reduce its revenue needs, enabling the lower rate request, Weseen said. It will also postpone some hiring, and limit some anticipated operational investments to keep expenses down.
Offsetting gas prices
The settlement could help buffer the impact of soaring natural gas prices on local consumers. Pandemic disruption of domestic gas production and supplies, intense heat last summer that stressed natural gas-based generating plants as consumers cranked up their air conditioners and extreme cold in many places this past winter have all contributed to an inflationary spiral in the U.S. and elsewhere.
And now, with the war in Ukraine further disrupting global supplies, prices have climbed to their highest levels in more than a decade, reaching $8.50 per 1,000 cubic feet of gas in mid-May. That’s up from between $3 and $4 per 1,000 cubic feet this time last year, and below $2 before the pandemic.
New Mexico consumers are directly impacted, said Tom Bullard, N.M. Gas vice president of engineering, gas management and technical services.
The gas company passes its fuel costs through to retail consumers, who pay the actual price for gas that the utility pays. Company profits only come from delivery services.
“Prices are up everywhere,” Bullard told the Journal. “And we expect to see that continue through the summer and into next winter.”
The retail price for N.M. Gas consumers is projected at $1.29 per therm of consumption for June. That’s up from just 34 cents per therm in June 2021, and 12 cents per therm in June 2020.
During settlement negotiations, N.M. Gas agreed to work with community groups on a legislative proposal for next year’s session to enable reduced utility rates for lower-income New Mexicans. That agreement, however, is not a formal part of the rate-case settlement.
In addition, the settlement includes some environmental stipulations, particularly regarding company efforts to blend hydrogen with natural gas.
The company launched a pilot project last fall with local hydrogen company BayoTech to test the impact of mixing hydrogen with natural gas to operate domestic appliances. And in its rate case, it asked to charge ratepayers $2.9 million for a pilot program to distribute hydrogen-gas blends to some customers after current testing concludes.
Now, the company has agreed to not pursue that pilot program until fully sharing results from its hydrogen testing with environmental groups.
It also agreed to discard plans for company-owned compressed natural gas fueling stations to supply customers, and to favor electric vehicles in its own fleet, rather than hybrid or natural gas-based ones.