Propane Bills: No Wrongdoing

Commission report backs SemStream, but Mayor Evans


SemStream didn't communicate well with its Payson propane customers, but doesn't appear to have done anything wrong in imposing surcharges that doubled and tripled winter heating bills, concluded a staff report for the Arizona Corporation Commission.

Payson Mayor Kenny Evans whose complaints about the skyrocketing propane bills helped trigger a ACC town hall meeting in Payson earlier this year said the report answered none of the key questions. He predicted residents will pursue filing a lawsuit, based on suspicions the company illegally recovered $1.8 million in undercharges and perhaps manipulated gas prices.

Evans said the corporation commission report seemed more intent on proving the commission itself didn't do anything wrong than on probing resident's complaints.


Kenny Evans

"Every concern I had going in ended up unaddressed," said Evans. "We probably have to file a notice of disagreement with their ruling -- then the commission has a little time to reply to that. If we still don't agree, then we have to go to a court and ask if the judge agrees. But for the people of Payson," the hearing and the ACC report was "an exercise in futility."

SemStream officials, on the other hand, welcomed the report and said they are working hard to improve communications with their customers.

SemStream Arizona Propane President Doug Mann said, "I think (the commission staff) did a good job of looking into a number of issues. Nothing popped out at me as something that they overlooked. I think it pretty well confirmed that there wasn't anything that SemStream did that reflected itself in the propane prices."

Mann maintained that the rapid rise in propane prices shadowed the national rise in gasoline prices, since most propane is manufactured from oil.

Evans' key complaints center on about $1.8 million in undercharges on the books when SemStream first started talking to Energy West about buying the company. Corporation Commission rules set a regulated price for propane, but allows the company to impose a surcharge to recover excess costs. Either shortly before or soon after the two companies started talking about a sale, Energy West began adding a surcharge to recover those costs.

Since December of 2007, that fund has gone from a $1.2 million deficit to a projected $247,000 surplus for April.

Evans says the swing contributed significantly to the speed with which bills increased.

Now that the overcharges have been recovered, the company will eliminate the surcharge, said Mann. The SemStream president insisted that Energy West first added the surcharge for that fund in July of 2006, but didn't start discussions about a sale with SemStream until about November of 2007.

Evans maintains that the $1.8 million in undercharges should have been factored into the cost of the company and the ACC should not have allowed SemStream to recover those costs after buying the company.

The ACC staff report essentially found no fault with SemStream's imposition of two different surcharges to recover excess costs, but did not specifically address Evans' concerns.

The staff report said the commission may act to boost SemStream's base rate now, given the soaring cost of both gasoline and propane nationwide.

"While the elimination of the surcharge would immediately reduce customer's bills...the propane cost recovery level in SemStream's rates, absent the surcharge, may be insufficient... It is possible that SemStream could come before the Commission this coming fall or winter to implement a new PGA surcharge."

Generally, the staff report supported the company's key assertions at that lightly attended town hall meeting, at which residents complained that various, confusing surcharges had dramatically increased their monthly bills, which topped $500 for some homeowners in December and January. However, the report did criticize explanations for the bills provided to customers and a longer than usual billing cycle cause by illnesses among meter readers.

Evans and other critics had called for an investigation into whether SemStream's parent company had used its storage facilities and national buying network to ensure that Payson customers paid a premium for propane.

The ACC staff report said that since SemStream's national parent company controls only 3-5 percent of the propane market nationally, it seemed unlikely the company could have significantly manipulate the price of propane.

The commission report did what it called a superficial analysis of the claim of price fixing by comparing the price Payson customers paid to national prices. A graph in the commission report suggested that Payson residents paid 10 to 20 percent above the national average, but the report concluded such a premium was reasonable because trucks must deliver propane to Payson from storage and pipeline terminals in Phoenix and Holbrook.

The report noted that consumers recently won a $300 million settlement against British Petroleum after a Texas judge concluded that the company manipulated the price of gas sold from its Mont Belvieu storage facility. However, the commission's report noted that in that case BP controlled 88 percent of the regional propane market.

The commission staff said it would require a much more expensive and comprehensive market review to be sure SemStream had not manipulated propane prices.

"Staff does not have any reason to believe that SemStream is (treating) suppliers differently than non-affiliated suppliers. A full procurement review would provide additional opportunities to analyze this and other purchasing questions."

The commission report also briefly considered suggestions made at the town meeting that the state encourage natural gas suppliers to provide competing facilities, since at present natural gas is selling in Flagstaff and other cities for much less than propane is selling in Payson.

However, the staff report concluded it would cost at least $40 to $50 million to lay down a pipeline that would deliver natural gas to Payson, which would likely make the gas at least as expensive as the liquefied propane delivered in tanker trucks.

Mann concluded, "I would readily admit that propane prices are higher than they've ever been -- just like gasoline." But he said that the report shows that unlike Evans had claimed "there wasn't something SemStream was doing to rip people off."

"My impression is that the report told us what we already knew. But where there were things that were questionable either as to propriety or legality they said, ‘we'll study that -- we thought about that, but we'll wait and deal with that later.' So I'm not sure what we got out of the report since they didn't investigate any of the issues that I thought were substantive," Evans said.

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