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Decoupling and Energy
Efficiency Enabling Provision

Frequently Asked Questions
Description of Decoupling
Details of the EEP Weather Adjustment Calculation
10-Year Normal HDD Information

Frequently Asked Questions

Q. Temperatures have been warm, why isnít my bill as low as I thought it would be?

A. The cost of natural gas constitutes the largest portion of your natural gas bill. Southwest Gas does not make money on the cost of natural gas purchased for our customers. These costs are passed onto customers and are adjusted monthly based on a 12-month rolling average, doing so helps minimize the large swings in the cost of natural gas. With relatively constant usage from one year to the next your bill may be higher or lower due to changes in the cost of natural gas.


Q. Why do I have an EEP Weather Adjustment on my bill?

A. The EEP Weather Adjustment and EEP Annual Adjustment used to be included in the Usage Charge line item on your bill. Southwest Gas separated these two line items to provide more transparency on your bills.


Q. What makes up the EEP Annual Adjustment?

A. The EEP Annual Adjustment recovers or refunds differences between Southwest Gasí Arizona Corporation Commission (ACC or Commission) authorized non-gas revenue and its actual revenue. The EEP Annual Adjustment ensures that Southwest Gas recovers only the revenue authorized by the Commission, no more and no less.


Q. What is the companyís authorized revenue?

A. The revenue authorized by the Commission is the sum of all the costs associated with providing safe and reliable natural gas service to our customers. This amount is collected through the basic service charge and the delivery charge.


Q. Why does Southwest Gas need the EEP Annual Adjustment?

A. The EEP Annual Adjustment helps align the interests of Southwest Gas and its customers. The company currently has a volumetric rate whereby it recovers both gas costs and non-gas costs (or delivery charges) based upon how much gas it sells. Since the cost of providing service is recovered primarily through a volumetric rate, and approximately 99% of the companyís costs are fixed regardless of customer consumption, the Commission approved the EEP to financially protect both customers and the company. The EEP enables Southwest Gas to help its customers save money by using gas more efficiently and saving on the cost of gas, while at the same time allowing the Company to recover the fixed costs of providing gas service that have been approved by the Commission. For energy saving tips to help lower the amount of gas you use see www.swgasliving.com.


Q. What makes up the EEP Weather Adjustment?

A. The EEP Weather Adjustment provides stability for customer bills by providing a real time adjustment when actual weather from November to April differs from the average weather used to calculate rates during this time period. The EEP Weather Adjustment is designed to adjust customer bills when weather is either warmer or colder than normal, to protect customers from overpaying the delivery charge when it is colder than normal and to allow the company to recover its fixed costs of providing service when it is warmer than normal. The adjustments are unique to each customerís weather sensitive consumption patterns Ė so each customerís adjustment may vary and will simply adjust the bill to an amount that reflects normal weather conditions. The mechanism is symmetrical as it makes upward adjustments when it is warmer than normal and downward adjustments when it is colder than normal. The effect of the mechanism is to minimize volatility in customerís bills during the winter months and protect them from overpaying when weather is colder than normal.


Q. Where can I find more information on the EEP Annual Adjustment?

A. The EEP Annual Adjustment is discussed on Sheets 94 through 96 of the Energy Efficiency Enabling Provision of Southwest Gasí Arizona Gas Tariff and can be found at http://www.swgas.com/tariffs/aztariff/special/energy_efficiency_provision.pdf.


Q. Where can I find more information on the EEP Weather Adjustment?

A. The EEP Weather Adjustment is discussed on Sheets 92 through 94 of Southwest Gasí Arizona Gas Tariff and can be found at http://www.swgas.com/tariffs/aztariff/special/energy_efficiency_provision.pdf.

Description of Decoupling

What is decoupling?

Decoupling is a rate design methodology that separates a utilityís fixed cost recovery from its sales. Decoupled utilities collect revenues according to a predetermined revenue requirement, or revenue per customer, established by the Arizona Corporation Commission (ACC or the Commission).

With decoupling, the ACC establishes a fixed revenue per customer and adjusts the rate per therm to ensure that Southwest Gas never retains more or less revenue than what the ACC approved in its last rate case.

Southwest Gasí decoupling mechanism (also referred to as the Energy Efficiency Enabling Provision or EEP) has two components:

  1. A weather component which stabilizes customer bills by providing a ďreal timeĒ adjustment when actual weather during the winter months of November through April differs from the average weather used to calculate rates during this time period.
  2. An annual adjustment that adjusts revenues to reflect any difference between Southwest Gasí authorized revenues and actual revenues. The annual adjustment ensures that Southwest Gas recovers no more than its ACC authorized revenue, which means if customer usage results in the company over or under-collecting its authorized revenue, the EEP rate will adjust to bring revenues back to authorized levels.

Details of the EEP Weather Adjustment Calculation

What is the Energy Efficiency Enabling Provision (EEP) Weather Adjustment?
The EEP Weather Adjustment accounts for differences between the actual temperatures and normal temperatures for each winter day in a customerís billing cycle. The EEP Weather Adjustment applies to consumption during the winter season months of November through April.

What factors would give me a positive or negative EEP Weather Adjustment on my bill?
When the actual temperatures are colder than normal, usage is typically higher and the delivery charge portion of the customerís bill (i.e. the cost of delivering gas) will be adjusted downward to reflect what the customer would have used under normal temperature conditions. When actual temperatures are warmer than normal, usage is typically lower and the delivery charge portion of the customerís bill will be adjusted upward to reflect what the customer would have used under normal temperature conditions. These adjustments help provide bill stability for customers and also financial protection to both the company and its customers by ensuring no party is paying or recovering more than what was authorized by the Commission.

How do you determine when weather is either warmer or colder than normal?
Weather is quantified in Heating Degree Days (HDD), which is defined as the difference between 65 degrees Fahrenheit and the average daily temperature when the average daily temperature is below 65 degrees. When the average daily temperature is equal to or greater than 65 degrees, there are zero HDD. Click here for the 10-Year Normal HDD information.

How is the EEP Weather Adjustment calculated?
In order to determine the EEP Weather Adjustment and in an attempt to ensure that the adjustment is only reflective of changes in consumption due to colder or warmer weather, the Company compares the following three analyses and utilizes the lower of the three:

  1. Billing Cycle Analysis Volume Adjustment Ė The billing cycle analysis uses the customerís current billing cycle HDD variance (defined below) and billing cycle use per HDD to determine weather-sensitive gas use and to calculate the billing cycle analysis volume adjustment. Depicted below is an illustration of the calculation.

    Normal HDDs is the sum of the ten-year average HDDs for each day in the customerís billing cycle.

    Actual HDDs is the sum of the actual HDDs for each day in the customerís billing cycle.

    HDD variance is equal to Normal HDDs less the Actual HDDs.

    (Click on the image above to view a larger image size.)

  2. Multi-Season Analysis Volume Adjustment Ė The multi-season analysis uses winter billing data from the previous 24 months to determine weather-sensitive gas use and to calculate the multi- season analysis volume adjustment. A linear regression is used to compare the customerís historical monthly metered use to the actual weather in each billing cycle to determine use per HDD. The multi-season analysis volume adjustment is calculated by multiplying the result of the linear regression by the billing cycle HDD variance for the customerís current billing cycle.

    (Click on the image above to view a larger image size.)

  3. Current monthly metered usage Ė For this example, the customer used 129 therms. This is the amount of gas used within the month.

How is the EEP Weather Adjustment applied to my bill?
The EEP weather adjustment is calculated by multiplying the applicable volume adjustment by the delivery charge component of the customerís commodity charge (which is the charge per unit of billed usage). The applicable volume adjustment is whichever of the three components identified above is the closest to zero.

From the example calculation above, the EEP Weather Adjustment applied would be:

(Click on the image above to view a larger image size.)

Illustrated in the example above, the weather was colder than normal.