Semstream To Cut Bills 21%

Company ordered to pay back $652,000 in overcharges starting next month

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Home heating bills this winter should drop by 21 percent for customers of SemStream, thanks to a refund for a $652,000 overcharge that will show up on bills starting in November.

The Arizona Corporation Commission approved the refund plan and reproached the company for over-collecting about $652,000 from Rim Country customers.

“In this tough economy, it’s important for utility companies to rebate monies back to their customers immediately, when it’s due to them,” said commission chair Kristin Mayes.

“In this economy, it comes not a moment too soon,” said commissioner Bob Stump.

The 45-cents-per-therm reduction will remain in place for about a year, or until the company pays back the overcharge.

Payson SemStream manager Doug Mann said the company should have applied for the refund back in May or June, but failed to do so as a result of an oversight.

However, the reduction will show up just as customers head into the winter heating season, when monthly bills often double.

The corporation commission estimated the refund will cut the average $96-monthly bill by 21 percent. The refund comes on top of a roughly one-third reduction from the peak price of propane last winter.

Moreover, customers might get a little help as well when the local utility’s parent company — Semgroup — comes out of bankruptcy next month. The parent group went bankrupt amidst allegations it had manipulated oil prices with complex futures contracts. The parent company was buying oil futures contracts which resulted in multi-billion-dollar losses.

The company has now been reorganized as a publicly traded corporation with new management and a new board, said Mann. The reorganization should have little impact on local operations, although it could free up a stalled $7-million project to build a propane storage facility in Winslow. That facility would give the local utility an additional site to store propane bought at cheap summer rates for use during the winter.

Mann said about 80 percent of the propane people in Payson will use this summer will come from existing storage facilities in Phoenix, generally bought at bargain prices.

“This winter, depending on how cold it gets, the pricing should be very good,” said Mann.

The refund comes from a “propane gas adjustor” surcharge on normal bills that is supposed to rise and fall with the open market price of propane.

Usually, the regulated limit on the amount the company can charge for propane lags behind the open market price, so the “adjustor” increases the bill.

However, the plunge in oil prices due to the global recession means the company’s regulated charge actually exceeded the open market price of the propane. Mann said this is only the second time in about 20 years that the regulated price has exceeded the open market price.

Normally, the company is supposed to go to the Corporation Commission to get approval for the refund within 45 days of the point at which the total over-collection rises above $120,000. That happened back in May. However, the company neglected to report the overcharge until about a month ago, by which time the total had exceeded $600,000.

Mann took responsibility for the delay in filing with the commission. “I’m still struggling as to whether it’s old age or something else,” he said ruefully.

The refund won’t affect people who fill up their own propane tanks because they aren’t hooked up to the underground system, since SemStream doesn’t have a state-regulated monopoly on serving those customers. Tank customers pay the open market price, with no surcharges. Typically, people who fill their own on-site propane tanks pay about 15 percent more for propane than people on the centralized, buried pipeline, said Mann.

Currently, the company charges about $2.08 per therm for people on the underground system — the equivalent of $1.90 per gallon. Projections call for a drop to $1.72 per therm by January. Last January the price stood at about $2.58 — after peaking at about $3.30 per therm. In addition, in the winter of 2008, customers paid two surcharges that reflected the price of propane. One of those surcharges kicked in because the company was paying so much for propane that it had under collected by at least $120,000. When the under collection continued to rise to above $600,000, a second surcharge went into effect.

So with record propane prices and two surcharges that more than doubled most bills, SemStream faced a near customer revolt and a town hall-style public hearing before the commission in the Payson High School gym.

All that came just as propane prices peaked and then collapsed. Most propane is a byproduct of gasoline production, so propane prices generally move in lock step with oil prices. At their peak, world oil prices topped out above $160 per barrel. Currently, they stand at about $70 a barrel, with futures prices trading at about $80 a barrel.

By contrast, this winter customers will enjoy a refund instead of a surcharge.

The drop in prices should come just in time for some customers.

Mann noted that the company each month sends out about 200 late payment notices, a number that has risen significantly due to the recession.

“That has affected a lot of people in Payson, especially in construction,” said Mann.

The company sends out about 40 final warnings monthly, but only shuts off two or three customers each month for non-payment. That number hasn’t actually changed much in the past year.

Mann said the company has been working with customers suffering from financial problems to stretch out payments or get help for them through Arizona Community Action Programs. These programs use federal standards and grants, plus money from a voluntary overpayment of bills by many customers to help people in trouble with their winter heating bills.

Mann said the company matches contributions to its Share the Warmth program.

He also encouraged anyone having trouble paying their winter heating bills because of economic problems to contact the company and work out something to keep the heat turned on.

“If they call our customer representatives, we can work with them on the bill,” he said.

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