Soaring Propane Bills Spur Furor

Payson mayoral candidates turn heating costs into a campaign issue

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January heating bills that topped $500 for some Payson homeowners have spurred a political furor, with homeowner protests and a flashpoint debate in the mayor's race.

The big January propane bills issued by SemStream reflect both a global energy shortage and the fine print in the Arizona Corporation Commission's approval of the company's purchase of Payson's unique underground propane system last year, say officials.

SemStream relies on two potentially confusing components of the bill to cover the sharply rising prices for the propane it sells to about 6,000 customers in Payson, who take deliveries through perhaps the only underground propane system in the state.

In addition, illnesses among the small team of meter readers during the holiday season delayed billing, so that many homeowners got a bill for 39 days of service instead of the normal 30. That alone could account for an apparent 25-percent increase in some bills, said company officials.

An initial Arizona Corporation Commission investigation of the charges on a handful of bills revealed no problems or unapproved charges, according to Rebecca Wilder, public information officer for the Arizona Corporation Commission.

"I wouldn't say the matter is concluded, but we have not found any error in the billing based on the bills we've reviewed," she said.

Payson Mayor Bob Edwards has accused challenger Kenny Evans of politicizing heating bills by questioning various charges on the statements. Edwards' accusation became the dramatic finale to a candidates forum on Tuesday, in which Edwards blasted Evans, then got all but booed when he tried to work in an extra response to Evans' spirited defense.

The Corporation Commission's initial review of bills submitted by Evans and others supported Edwards' assertion that SemStream hasn't raised rates except in an allowed adjustment to reflect its underlying fuel cost -- and that the longer-than-usual billing period contributed to the sticker shock many residents suffered.

However, Evans also provided documents to demonstrate that he actually started questioning the sharp increase in several charges on the bills back in July and didn't make it an election issue until Edwards accused him of bringing it up for misleading, political purposes.

Meanwhile, SemStream officials have tried to explain the complicated bill that has caused such political reverberations.

SemStream President Larry Payne said the various categories in the propane bill mostly allow the company to pass along the huge increase in the cost of propane the company buys, in a year that saw energy prices jump 70 percent.

All the charges on the bill have been approved by the Corporation Commission, which also limits any profit to no more than 10.3 percent of SemStream's assets, which essentially amounts to the company's infrastructure investment. Since buying the propane business from Energy West last April, the company has plowed all its operating profit back into upgrading infrastructure, said Payne.

"We want to protect our employees and I think they're getting unduly harassed by people and this becoming a political issue is not helpful to them. Guys go out to have dinner and they're bombarded with questions," said Payne.

Evans said that he started his quest to get information about propane rates back in July when he noticed several components of his bill had increased two- to four-fold. He has since pushed the corporation commission to reveal how SemStream was allowed to so rapidly increase the cost adjuster and energy surcharge portions of the bill over what Energy West had charged.

"This shouldn't have been a campaign issue -- it's an issue between me and the corporation commission," said Evans, who ran a 12,000-acre Yuma farm and played a leading role in agriculture insurance and finance before donating the bulk of his holdings to charity and moving to Payson.

"We need to look into how this happened," Evans said of the increase in SemStream charges.

"What they can do and what they should do are two different things. When you have a single mom teacher with the heat turned off because she can't afford to pay the bill, something is wrong with the process."

Gas bills become political

Evans said the only reason the issue has become political now, is that it demonstrates the difference in approach between he and Edwards.

"I'm enough of a bulldog that I'm not going to take the word of the first lawyer on it. I got the same answer back from the commission that he did -- and he said ‘tighten your belts,' but I said ‘I'm going to fight.' The fact that a monopoly has the right to do a thing is not the same as doing the right thing. There is a huge difference between breaking the law versus breaking the public trust by charging all that the law allows you to charge."

Edwards, who served in the Michigan legislature, ran a business and managed the Michigan unemployment office before retiring to Payson, has said that Evans' discussion of the energy bills at his frequent appearances around town failed the test of leadership.

"The bottom line is that politicians shouldn't pander -- it's tempting to go out and try to get votes, but you can either be a statesman or a politician. I get really disgusted when I see politicians doing it -- I don't have much truck for politicians. But that's why he's doing the pandering ads that he's doing."

Edwards then noted that he is setting up a task force to look into the SemStream rates.

"There's enough questions among the citizens that we want to go look at that -- and at ways we can become energy selfsufficient." He noted that Tom Leoffler, who is running for council on a ticket endorsed by Edwards, will head up a search for conservation strategies.

Explaining the propane bills

Meanwhile, SemStream officials have set to work trying to explain the complicated propane bills that have befuddled residents and roiled politicians.

The propane bill includes three major categories -- the base rate, the energy surcharge and the purchase gas adjustor, explained Payne.

The base rate or energy usage charge was set by the corporation commission in 1997 and allows the company to charge a certain amount for each therm of propane used. A typical residential customer will use between 150 and 300 therms per month. As a result of a cold December and the extra days in the billing cycle due to the illness of so many meter readers, that charge rose even though the rate per therm hadn't changed at all, said Payne. The base rate stands at $1.19 per therm and changing that rate is a laborious process involving multiple public hearings.

The real debate about the bills centers on the other two components -- both of which enable the company to pass along its rising costs for buying propane. About half of the nation's supply of propane is a byproduct of refining oil, the price of which has risen 70 percent in the past year, said Payne.

The rest of the propane supply comes from natural gas fields -- almost all of them in the U.S. However, the costs of natural gas has also risen dramatically as a result of energy demand in India and China that has cut once-comfortable energy production margins to a price-inflating bare minimum, said Payne.

The company can recover those rising energy costs by increasing those two extra components of the bill, starting with the fuel surcharge.

Fuel surcharge has not changed

The amount allowed by the corporation commission for the fuel surcharge hasn't changed in the time that SemStream has owned the company, said Payne.

The surcharge essentially allows the company to recover increased propane costs, although those costs often remain on the books for up to a year before the company can recover them. For instance, SemStream currently has "banked" $800,000 in increased propane costs that it will recover in the next 12 months through the fuel surcharge, said Payne.

"It's a pretty big number on the bill, and it's based on actual payments that have been made on behalf of the customers and not collected," said Payne. The surcharge totals about 55 cents per therm, said Payne.

If energy prices stabilize, that surcharge could eventually drop off the bill, Payne said.

That charge is one of the key items Evans has questioned in correspondence with the corporation commission going back to July, when he noticed that the charge for that category jumped threefold on his bill as soon as SemStream took over. He said that SemStream negotiated a steep rise in that category in buying Energy West, which had been charging less that the maximum allowed.

The third major component of the monthly bill is the purchase gas adjuster, which is the only rate that has changed in the past several months, said Payne.

The corporation commission allows the company to boost this rate by up to 16 cents per therm, based on a 12-month rolling average of propane and other costs. The "fudge factor" is intended to help the company deal with surges in propane prices and SemStream must ultimately demonstrate to the commission that it paid out that extra money for propane. The company has charged the maximum allowed, boosting the purchase gas adjustor charge to about 85 cents per therm.

Payne noted that SemStream's regulated profit is based on its underlying investment, not on the amount it charges for propane. In fact, when propane prices rise the use drops -- and so does the company's profit. So the company struggles to keep prices as low as possible, said Payne.

That's why the company is building a new gas storage facility in Holbrook, said Payne. Currently, the company buys propane from all over the country then ships it in railway cars to storage facilities in Phoenix and Holbrook. The company buys as much propane in the summer as possible when it's cheaper, then stores it until demand peaks in the winter. However, the companies operating those storage facilities have reduced available capacity.

Payne said that anyone struggling with a bill because of that extra week in the December billing cycle can work out a payment plan with the local SemStream office.

"Our company is dedicated to our customers and our communities. We understand these issues and will do the best we can to try to manage it," concluded Payne.

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