Propane Bills Could Drop 10 Percent

SemStream may return overcharge through cut in monthly bills

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Andy Towle/Roundup - atowle@payson.com

Juan Millan raises another post into a hole as this construction crew for the Arizona Department of Transportation worked quickly to replace the burned out guard rail and opened Houston Mesa Road before their deadline.

SemStream has over-collected about $652,000 from its Payson customers, which should result in an additional drop in charges of 5 to 10 percent in the next 12 to 18 months, according to company President Douglas Mann.

All told, propane prices could drop about 21 percent from the record levels they hit in January 2008, which caused a flood of public indignation.

In a letter to Arizona Corporation Commission Chair Kristin Mayes, Mann amended his previous estimates, all of which spells good news for Rim Country consumers this winter.

Meanwhile, Mayes has vowed to investigate the formulas used to let the company charge extra for propane to recover higher-than expected costs.

Mayes said she thinks these built-in “adjustors” lag behind the company’s actual costs when propane prices are falling, as they’ve done for most of the past year.

Mann agreed, in part, suggesting that the commission should allow the company to adjust its prices more quickly, whether prices are rising or falling. He said the current system stabilizes prices for consumers, with the company sometimes falling behind by $1 million in recovering its costs when prices jump suddenly.

“We’ve twice asked the commission to adjust the band” to either raise or lower prices faster, “but they’ve turned us down,” said Mann.

The Corporation Commission will discuss the propane company’s adjustor on Monday, said Mann. If the commission approves the company’s plan to return the $652,000 in overcharges by adjusting future bills, the average Payson customer could see a decrease in their bill of about 8 percent each month for the next year, said Mann.

That drop would come on top of a reduction of maybe 5 percent compared to this time last year, based on a sharp reduction worldwide in propane prices — which closely track oil prices.

Moreover, the company last May dropped a second surcharge, which reduced prices by perhaps 25 percent.

As a result, prices this winter could come in perhaps 38 percent below the peak hit last January.

The complicated formula used to set propane prices often bewilders consumers, as evidenced by the hearings in Payson last winter and the perplexing fluctuation in propane bills throughout the year.

The Corporation Commission in 1997 set the base rate the company can charge at $1.19 per therm (a measure of energy that’s about 10 percent higher than a gallon).

However, the commission also set up two different surcharges the company could use to charge extra when its costs rose sharply, as when the price of oil, and therefore propane, jumped.

The first surcharge goes into effect if the company can show that its costs exceed that base charge, said Mann. The second charge kicks in if the first surcharge isn’t enabling the company to catch up.

Back in January, both of those surcharges were in effect. The first surcharge added 93 cents per therm to bills and the second added another 55 cents. As a result, the surcharges cost homeowners more than the base rate.

The 55-cent surcharge disappeared last May. Meanwhile, the primary surcharge dropped from 93 cents to about 72 cents.

Despite those reductions, the adjustor has brought in about $253,000 too much in the past 12 months, said Mann.

For better or worse, the adjustors create a gap between what the company pays for propane and what it can charge its customers, said Mann.

“It’s kind of like if you stick your finger in Jell-O, you see an immediate reaction on the other side of the Jell-O. But if you raise the price in the propane market, you don’t see that immediate reaction at the consumer level,” said Mann.

Returning the $253,000 in the course of the year would result in a roughly 16-cent per therm discount, said Mann.

Mann noted that as of Thursday, the price per therm in Payson stood at $2.18 per gallon for people with external propane tanks and $1.84 per gallon for people whose homes are hooked up to the company’s system of underground pipes.

“My expectation is it’s going to be a pretty good winter.”

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