SemStream collected $582,000 too much from its Payson customers in recent months, leaving in place a surcharge despite a dramatic decline in propane prices, the Arizona Corporation Commission concluded.
The overcharge will likely result in a refund, good news for residents already likely to benefit from a plunge in propane prices internationally.
Company officials did not return calls seeking comment.
The commission not only asked for a refund, but is seeking an explanation as to why it took the company so long to figure out that it was charging consumers too much, said Kris Mayes, chairwoman of the Arizona Corporation Commission.
“We will be asking them to come in with an application to make a refund to their customers as soon as possible, as well as asking questions about why they didn’t make the application sooner,” said Mayes.
Most propane is produced as a byproduct of refining oil into gasoline, so propane prices generally rise and fall with oil prices.
The Arizona Corporation Commission sets a maximum rate the company can charge, but allows two different types of surcharges to let the company collect extra money when the cost of the fuel rises above the regulated rate. One of the surcharges is based on the cost of fuel and the other on excess costs.
Last winter, Rim Country customers found their bills doubling or tripling, mostly as a result of two different surcharges on their bills. Many customers complained of price gouging to the corporation commission, which held a public hearing to listen to complaints.
The propane bills even briefly became an issue in the race for mayor, since then-challenger Kenny Evans had been corresponding for some time with the corporation commission about allegedly excessive surcharges related to SemStream’s purchase of the company a year earlier. Then-mayor Bob Edwards accused Evans of using the issue to make political points, even though he had no way of lowering propane bills.
SemStream’s parent company then went bankrupt in the midst of a worldwide surge in oil and gas prices. The parent company allegedly had been betting on oil and gas futures, a practice that many experts say led to a worldwide escalation of oil prices.
The hearing in Payson focused on whether the company had boosted the surcharges too high, seeking to collect unrecovered charges the previous company owners had not added to the bills.
The largest and most controversial of the surcharges dropped off of bills at the end of April 2008, and there hasn’t been a surcharge to recover those uncollected charges in place since then.
However, the second of the extra charges remains.
“The company’s PGA report covering June 2009 shows the bank balance is over-collected by $582,000 as of the end of June 2009,” Mayes said. “Commission staff expects that over collection has continued to grow since then. The trigger on SemStream’s PGA bank balance for the Payson Division is $120,000. The Payson Division swung from an under collection of $121,875 at the beginning of April, to an over collection of $266,539 at the end of April,” said Mayes.
SemStream officials have promised to file paperwork explaining the over collection soon, said Mayes.
“Commission staff asked (Payson Manager Doug Mann) about propane prices for SemStream heading into the upcoming winter,” said Mayes, “and he said that they had locked in a lot of their propane for the upcoming winter at favorable prices.”
Mann provided monthly estimates of prices for the winter, based on purchases already made.
Typically, propane companies try to buy as much fuel as possible in the summer when prices are low, store the gas nearby, then sell it to customers during the winter.
Locked-in propane prices for the coming winter include:
• October 2009 - $1.13 per gallon, $1.24 per therm
• November 2009 - $1.13 per gallon, $1.24 per therm
• December 2009 - $1.04 per gallon, $1.14 per therm
• January 2010 - $1.05 per gallon, $1.15 per therm
• February 2010 - $1.05 per gallon, $1.15 per therm
• March 2010 - $1.05 per gallon, $1.15 per therm
In September, the company’s monthly PGA rate for Payson stands at $0.8351 per therm, while the regulated price is $0.6248 per therm — which means the company can still impose a surcharge.
For September bills, Payson customers will be paying a gas cost of $1.4599 per therm, said Mayes.
As of Sept. 1, the spot market price for propane at the Mont Belvieu, the Texas hub from which SemStream gets most of its fuel, was $0.9175 per gallon (or $1.01 per therm). Transport prices boost the cost of that propane by the time it gets to Payson.
Mayes said experts expect propane prices to remain relatively flat for the next year.
Still, she said she wants the corporation commission to look into whether such commonly used surcharges effectively inflate prices — rising too quickly when underlying prices rise and then coming down too slowly when prices fall.
“I think that the adjustors generally over collect and that’s something we want to take a look at,” she said.