Court: Southwest Gas, utilities must prove expenses are justified

The Nevada Supreme Court ruled that Southwest Gas must prove its expenses are justified if it wants to recover costs for them.

Southwest Gas asked the court to review the Public Utilities Commission’s rate-setting process, arguing that the utility “enjoys a presumption of prudence” with the expenses it incurs.

In an order filed Thursday, all seven Nevada Supreme Court justices rejected the utility’s argument, affirming a lower court ruling and a Public Utilities Commission decision that utilities bear the burden of proving their charges are appropriate.

The case stemmed from Southwest Gas’ 2018 application to raise customers’ gas rates by roughly $3 on average. The company said the increase would help recover costs for five software upgrade projects, adjusted pension expenses and a higher return on equity.

However, an audit of the application found “several seemingly inappropriate charges,” the court wrote.

“The PUC’s skepticism of SWG’s expenses was warranted in light of SWG’s earlier attempt to obtain reimbursement for a number of questionable expenses, including biweekly massages and a home theater system, and the utility’s lack of justification for its other expenses in its case-in-chief,” wrote Justice Lidia Stiglich in the court’s opinion.

Among other things, the utility initially sought reimbursement for a Casio electric piano, tens of thousands of dollars in consultant costs, $41,000 for non-travel meals and $3,000 for non-travel entertainment, a $307,000 Winnemucca house for a Winnemucca district manager and a golf course membership. The company would have passed on those costs to customers if the Public Utilities Commission had approved the plan.

Southwest Gas told regulators that those expenses were inadvertently included within and later removed from the application. However, the Public Utilities Commission determined Southwest Gas failed to justify its charges and denied the utility its request for recovery.

Southwest Gas appealed to the Eighth Judicial District Court, contending it held “presumption of prudence” and the commission violated due process. The appellate court upheld the commission’s ruling against Southwest Gas, and the state’s high court affirmed the decision.

In a written statement Monday, Southwest Gas spokesman Sean Corbett said the utility appreciated the court’s “decision and clarification regarding questions raised following the Company’s 2018 rate case decision.”

“The Company has constructively worked with the (commission) to ensure that it meets their expectations with respect to its regulatory filings,” the statement read. “Some of these expectations have been further clarified by the legislature during the last legislative session. We look forward to continuing to work with our regulators and all stakeholders to ensure Southwest Gas continues to meet customer and regulator expectations for providing affordable, safe, reliable and sustainable energy service.”

Corbett added that “a majority of the expenses in question and excluded in 2018 were later authorized for recovery in the Company’s very next rate case.”

Southwest Gas included similar expenses in a rate-increase application to the utilities commission in May 2020. The utility said the increase of about $4 per house on average was needed because of changes in the cost of capital and capital investments, as well as incremental costs for a software update.

Regulators found the company also included charges for Vegas Golden Knights tickets for board members, a dinner tab of more than $4,700, including more than $1,500 worth of alcohol, a $604 luxury vehicle charter in New York City and multiple stays at the Four Seasons in Las Vegas, which included a manicure and pedicure for a board member at the hotel spa.

The company told the Review-Journal in August 2020 that those charges were removed from the application.

Southwest Gas submitted a new general rate case application to the utilities commission on Aug. 31, looking to raise rates by $3.39 on average for a single-family Southern Nevada home. The commission’s review process is underway.

Contact Mike Shoro at mshoro@reviewjournal.com. Follow @mike_shoro on Twitter. Review-Journal staff writer Colton Lochhead contributed to this report.