Southwest Gas recruited elected officials to back its rate increase, records show

Championing Southwest Gas’ second rate increase in as many years, mayors in some of Arizona’s fastest-growing communities sent a letter of support to the Arizona Corporation Commission claiming proposals from a consumer interest group “would impose unnecessary and costly barriers for consumers” who want to use natural gas. 

“If enacted, these misguided policies will slow our economic progress and jeopardize the safety of our communities,” the mayors wrote.

But the letter wasn’t an organic outpouring of community support. Rather, it was written by Southwest Gas as part of a concerted effort by the utility to drum up outside support of its desired 11.6% price hike.

In the end, the Corporation Commission approved a lower rate hike on Jan. 10, in part because of misrepresentations of the intent of consumer advocates involved in the process that public records show Southwest Gas helped organize.

At issue with the application for the increase were proposals by the Southwest Energy Efficiency Project (SWEEP) to require Southwest Gas to conduct an Infrastructure and Investment Plan (IIP) to guide processes and shed light on future system upgrades. Additionally, SWEEP wanted to eliminate “construction allowances,” which are gas infrastructure subsidies for large construction projects paid by all ratepayers in the system.

“As you may know, SWEEP is a Boulder, CO based environmental NGO that has a stated organizational agenda that includes ‘advancing state policies that would accelerate electrification in buildings,’” Arizona state Sen. Sine Kerr and state Rep. Gail Griffin, both Republicans, wrote in a letter to the Commission days before the final hearing. “SWEEP’s IIP proposal would create a government-knows-best approach to energy in Arizona where politicians, not customers, would decide what infrastructure is right for a housing development or business.”

The letter echoed talking points Southwest Gas provided to at least one Arizona mayor that claimed SWEEP’s proposal was a backdoor attempt to “prevent gas utilities from being able to replace aging infrastructure for current customers and to stop us from extending infrastructure to new customers in favor of mandated building electrification.”

“There’s been some accusations or incorrect statements that our position means we’re trying to ban gas, which couldn’t be further from the truth,” SWEEP Arizona Representative Caryn Potter told the Arizona Mirror. “We believe that new customers and developers should pay the full cost for connecting to the system, or at the very least there needs to be an investigation into the updated economics of this, given all the changes to the market to housing, gas prices, and all the changes in economics and resources. They need to look at this a little bit closer, and it just hasn’t happened.”

SWEEP became involved in the process in the wake of the gas utility’s rate increase request to the Commission at the end of 2021, about a year after its previous increase. The consumer advocacy group applied for and received intervenor status so the public had representation in the process, which was overseen by an administrative law judge.

“The thing we were concerned with is that there’s a significant amount of investment being made in the gas system right now, and there’s really no way for the Commission to review those investments outside of a rate case,” Potter said. “The company has been investing a lot of resources into things like renewable natural gas and liquefied natural gas storage.”

Potter said that SWEEP’s goal is for Southwest Gas to be treated like electric utilities that go through what’s known as an “integrated resource planning process” that weighs projected customer needs and system capacity with objectives such as affordability, reliability and sustainability, along with reduction of greenhouse gas emissions, air pollutants and water use.

SWEEP maintains that the Southwest Gas delivery system is in good shape after the utility spent more than $700 million on maintenance and upgrades in recent years, and the company will use the rate increase to pay for work that may ultimately prove to be unnecessary, redundant or “stranded assets” as the U.S. attempts to move to more sustainable forms of energy production.

The approved increase raises overall rates by $61.7 million annually, and will result in an average increase of 7.6% for Southwest Gas’s customers.

Under the approved rates, a single-family residential customer can expect an average monthly increase of $2.98, or 6.73%, from $44.28 to $47.26, according to a summary of the hearing.

This comes on top of previous increases in the cost of gas that have raised customer rates significantly in the past year. The utility is not required to get approval from the Commission for rate increases due to fluctuations in the cost of fuel.

Southwest Gas provides service to 10 counties in Arizona, serving approximately 1.1 million customers, and gets the majority of its gas from sources outside of Arizona, which has minimal natural gas reserves. With few producing wells and little new drilling activity, Arizona’s annual natural gas production has declined from its peak of more than 2.1 billion cubic feet in 1990 to about 66 million cubic feet in 2020. Arizona’s total consumption of natural gas in 2020 was 483 billion cubic feet.

Much of the natural gas consumed in Arizona is used for electric power generation — 43% of the state’s electricity is produced from natural gas, according to the U.S. Energy Information Administration — and comes from other states through pipelines that enter Arizona at the New Mexico border.

Lobbying for support

As the process made its way to the Corporation Commission for final action, Southwest Gas was hard at work behind the scenes rallying support for its rate increase and to discredit SWEEP.

With promises of donations to local nonprofits in at least one case, Southwest Gas targeted mayors in some of Arizona’s fastest-growing communities to publicly question SWEEP’s motives and in support of the status quo.

Public records requests filed by the Energy and Policy Institute, a watchdog organization working to expose “attacks on renewable energy and counter misinformation by fossil fuel and utility interests,” found that mayors in nine Arizona cities signed off on a letter to the Commission less than a week before the hearing.

Southwest Gas sent the mayors — Julia Wheatley of Queen Creek, Brigette Peterson of Gilbert, Joe Pizzillo of  Goodyear, Eric Orsborn of Buckeye, Skip Hall of Surprise, Nancy Smith of Maricopa, Craig McFarland of Casa Grande, Ed Honea of Marana and Tom Murphy of Sahuarita — a draft of the letter for comment. The utility also solicited suggestions from Smith, Maricopa’s mayor, for local nonprofits that it could donate to.

Southwest Gas also provided an “overview of the issues” that claimed SWEEP was advocating for “outright natural gas bans” disguised as long-term planning.

“While seemingly prudent on their face, the aim of these long-term natural gas resource planning processes is to prevent gas utilities from being able to replace aging infrastructure for current customers and to stop us from extending infrastructure to new customers in favor of mandated building electrification,” Southwest Gas stated regarding the proposed IIP.

Both Kerr and Griffin received thousands of dollars in campaign contributions from Southwest Gas’s political action committee, and U.S. Rep. Debbie Lesko — also a recipient of Southwest Gas largesse, in addition to numerous political donations from other sectors of the extraction industry — published her own take on the issue in the weeks leading up to the hearing. 

“[O]ut-of-state organizations are pushing for Arizona to adopt the same failed policies as California,” Lesko wrote in the Arizona Capitol Times. “These organizations are pushing to make Arizona the second state, behind California, to ban construction allowances for natural gas utilities, starting with Southwest Gas in their current rate case.”

Whether their efforts tipped the scales or not, the political heft of the mayors and state legislators added a certain amount of gravitas to opposition that likely caught the attention of the four Republican Commissioners who voted in favor of the final outcome.

“Arizona Corporation Commissioners certainly notice when other elected officials publicly take a position during a rate case or any other regulatory proceeding,” Potter wrote in a follow-up email to the Mirror. “This would be the case if the reverse happened and Commissioners engaged in other policy forums.”

In addition to the politicians that Southwest Gas solicited for support, several business groups connected to the utility filed letters echoing the utility’s talking points. The Arizona Manufacturers Council, which has a Southwest Gas representative on its board of directors, and the Arizona Restaurant Association lobbied for the rate increase.

Southwest Gas also received support from the Arizona Chamber of Commerce & Industry, which received $7,500 from Southwest Gas in 2021.

“Southwest Gas takes great pride in maintaining strong partnerships with a variety of stakeholders, including cities and towns, state agencies, economic development organizations, chambers of commerce, organized labor, infrastructure contractors and various industry associations,” Southwest Gas said in an emailed response to the Arizona Mirror. “After learning about these proposals and the impact they would have, several stakeholders asked how they could help. We were grateful that all interested Arizona stakeholders were able to participate in the numerous public comment sessions held by the Corporation Commission.”

Smith, Kerr and Griffin did not respond to requests for comment.

SWEEP rebuts claims in filing

The Colorado-based nonprofit SWEEP was founded in 2001 and has operated continuously in six western states, staffing offices with local residents who advocate for more accountability for energy producers across the southwest. With its mission to promote “greater energy efficiency and clean transportation in Arizona, Colorado, Nevada, New Mexico, Utah, and Wyoming,” SWEEP receives a portion of its funding from the U.S. Department of Energy.

A Jan. 9 response to public comments filed by Potter and SWEEP Program Utility Manager Justin Brant took issue with characterizations of its role and intentions, both by Southwest Gas and its allies, including the elected officials the utility recruited to weigh in.

“While SWEEP’s headquarters is in Colorado, we have had in-state representation since our inception more than two decades ago,” the nonprofit wrote in response to public comments labeling them as out-of-state operators. “Southwest Gas has a similar corporate structure, with its headquarters in Las Vegas, Nevada.”

As to SWEEP advocating for a “gas ban” and other accusations made throughout the process, the response ends with clarification of SWEEP’s intent.

“Throughout this proceeding, SWEEP has consistently focused on five critical issues, none of which call for an end to natural gas infrastructure or mandated building electrification. Rather, we have proposed sensible policies to eliminate undue economic hardships for Southwest Gas’s customers,” SWEEP states. “The fundamental question is whether the proposed rate increase is in the public interest. We are concerned that these distractions are red herrings that will cost customers millions of dollars.”

Potter reiterated SWEEP’s intentions in a follow-up email.

“Some have suggested that SWEEP has advocated for these policies because we want to ban gas infrastructure, which couldn’t be farther from the truth,” Potter wrote. “What we really want is to protect ratepayers from unnecessary costs and give the public greater visibility into the investments Southwest Gas is making on their behalf.”

In addition to denying SWEEP’s proposals, the Commission also extended the scope of Southwest Gas’s Low Income Ratepayer Assistance (LIRA) program that provides subsidies for low-income residents and denied Southwest Gas’s request to opt Arizona into its Move2Zero carbon offset program.

The Commission has until Feb. 8 before its  decision becomes final. Public comments can be submitted until then.