DPU Feels The Heat From Rising Natural Gas Prices

In response to rising costs of natural gas the Los Alamos County Council will consider at its March 28 meeting approving a revision to the ordinance that would adjust the variable rate cap for natural gas, add an additional recovery rate component and a compensatory minimum value for the variable portion. Courtesy/DPU

Los Alamos Daily Post

The price of natural gas, like everything else, has risen. Everyone has been feeling the heat and the Department of Public Utilities (DPU) is no exception.

In response, Los Alamos County Council will consider approving at its March 28 meeting, a revision to the natural gas ordinance that would adjust the variable rate cap for natural gas, include an additional recovery rate component and add a compensatory minimum value for the variable portion.

If approved, the following would occur:

  • The variable cap rate would increase from 99 cents to $4 a thermal unit, broadening the range of allowable charges for the pass-through, cost-of-gas portion of the gas rate.
  • A 44-cent per thermal unit “sunsetting” recovery rate mechanism would be installed. This addresses the estimated $7.2 million shortfall in DPU’s natural gas fund, which was caused by escalating costs not being fully recovered under the current ordinance’s 99-cent cap. The recovery rate mechanism would sunset when the shortfall is recovered or two years from the new ordinance’s adoption, whichever happens first.
  • A compensatory minimum of 11 cents per thermal unit for the variable portion of the gas rate would be set. Its purpose is to soften the month-to-month rate swings caused by volatile commodity costs.

DPU Deputy Manager Heather Garcia said this ordinance is essential for getting DPU in a good financial place.

“We are not trying to increase everyone’s bill by times four, we’re just trying to be financially responsible to make sure this utility is here for the future and we don’t have to have some kind of handout, we don’t go bankrupt, we are able to continue to get low interest loans or financing for critical infrastructure projects,” she said.

Furthermore, Garcia said the whole goal is to “make sure everyone pays their fair share and that we are able to adapt to the changing gas market because it is crazy right now. We’re trying to do the best for our customers.”

If the new ordinance is approved, the changes will take effect April 8.

Garcia emphasized this is not a rate increase to fixed rates, meter charges or base rate per therm. Those were changed in 2022.

“… We’ve got a fixed component, which is 25 cents for residential, and then we’ve got a cost-of-gas component (that is) calculated monthly and published every eighth of the month on our website. That cost-of-gas component is based on the San Juan Index and includes expenses related to transportation that we pay to receive the gas, and the expense of spot market purchases,” Garcia explained.

What DPU and its customers have experienced with the natural gas prices is a historic thing, she added.

“What we saw this past winter was kind of historic,” she said. “We’ve seen the cap in the past couple of years … but until recently, we hadn’t seen it hit where the San Juan Index exceeded our cap three months in a row.”

The proposed ordinance will help address that issue as well as work to make it fair to all customers, Garcia said.

What DPU wants to prevent from happening is shifting expenses from one customer who used gas when the price was really high to a different customer who used natural gas when it was low.

The hope, DPU Public Relations Manager Cathy D’Anna said, is to have people’s bills reflective of the month that the customer actually used the gas.

“We really want to be able to collect what needs to be collected from customers who actually used it at the time they used it,” Garcia added.

This is what the cap achieves, she said.

Garcia and D’Anna noted that approving the cap at $4 does not mean that the pass-through component of the rate will regularly, if ever, be $4.

“It’s still going to work the same as it has since 2013. We are still going to have the same cost of gas calculation mechanism … nothing is really changing other than the cap is now increased,” Garcia said.

Another component of the ordinance is a 44-cent per thermal unit “sunsetting” recovery rate mechanism. Garcia explained this will allow DPU to recover its estimated $7.2 million shortfall in the natural gas fund in two years or less.

She emphasized that this billed rate would end in two years or, if the money is fully recovered sooner, before the two year period is up.

Also, to avoid volatile changes to people’s bills – having one month be extremely low and the next extremely high – the compensatory minimum of 11 cents per thermal unit is included in the ordinance, Garcia said.

Why is this happening?

D’Anna said they don’t want there to be any misconception that DPU is doing this to push people to go fully electric in order to achieve the department’s long-term sustainability goals.

The truth is coal plants are shutting down so the demand for natural gas is higher, Garcia said. Plus, there is the war in Ukraine and a lot of natural gas is being exported in Europe.

“The supply has got a lot more demand on it right now,” Garcia said.

As far as how DPU is handling the price fluctuation right now, Garcia said every month there is a portion of the cost-of-gas calculation that is an adjustment from the previous month. If there is an overcharge, a credit is passed on to the customer and if there is an undercharge, the variable rate is adjusted upward to collect that money back. Garcia said this is an industry standard.

If the proposed ordinance is not passed, DPU will need to curtail maintenance and replacement projects. This could impact the reliability of the system and eventually lead to DPU proposing a rate increase to address those capital projects.

DPU customers can take matters into their own hands when it comes to their bills. Water and Energy Conservation Coordinator Abbey Hayward said customers can do a wide range of things to conserve gas.

“There’s the behavioral changes that can cost nothing, to full conversion if that is something they’re into … it depends on what the customer is committed to,” she said.

Hayward offers several suggestions for gas-based appliances.

The things that are free include:

  • Turning down the water heater’s temperature to no lower than 120 degrees.
  • Shortening use of hot-water habits.
  • Using the cold wash on the laundry machine and run full loads.
  • Turning down the thermostat to reasonable comfort levels.
  • Maximizing the stove’s heat by making multiple meals at once.

Want to step it up?

  • Eliminate drafts by installing weather stripping around windows and doors.
  • Insulate attic and crawl spaces.
  • Purchase more efficient furnaces and appliances.

There are other options available, too.

D’Anna noted that people can sign up for budget billing. While this will not offer savings, it does offer consistency. Those who have been DPU customers for at least 12 months will be billed the same amount each month with a settling amount on the 12th month. To sign up, go to https://ladpu.com/BBilling.

DPU also offers the Utility Assistance Program, which is funded by customers’ contributions to assist those who struggle with paying their utility bills. For more information, visit https://ladpu.com/assist.

Recommending approval of the new ordinance is not being made lightly, Garcia said. She pointed out that all DPU customers, which include DPU administrators and personnel, are impacted by these rising costs.

“There’s a lot of conflicting viewpoints when considering these ordinances and we really do our best to look at it from every angle to make sure it is not only fair across the classes, but that it’s compensatory, fiscally responsible and feasible for the utility,” she said.


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