The average New Mexico Gas Company customer will see his or her monthly bills rise a few dollars per month under a rate increase proposed by the company.

The company filed the 3,500-page request Friday with the Public Regulation Commission, starting the months-long process required for approval. Any approved increase would take effect in February at the earliest.

New Mexico Gas executives aren't expecting an easy time getting approval, even though they are requesting the first increase for customers since 2007. The company is under investigation and facing at least two lawsuits following a natural-gas outage in February that left more than 28,000 customers without gas during a week of record-breaking cold weather.

Jack Torres, mayor of the town of Bernalillo, said his administration will be reviewing the rate case carefully. Bernalillo was one several towns in which New Mexico Gas shut off gas in early February. Torres is still fuming over it. The town recently filed a lawsuit against the company over the outage.

Public Regulation Commissioner Jason Marks said there's no doubt people will be skeptical about the rate request.

"People are upset over the outage. We're in middle of a recession and people are out of work, people are struggling," Marks said. "Commissioners will be looking at whether the cost of service the company wants to recover are prudently incurred, no different than in other cases. But given circumstances, there's even more of a burden on the commission to look at this really carefully and not just give the company the benefit of the doubt."

How it adds up

New Mexico Gas only distributes natural gas — it owns no wells or processing plants, according to Thomas Domme, vice president and general counsel. But it still has to cover the fixed cost of getting the natural gas from suppliers to customers, and pay for salaries, improvements and a return to investors.

About 60 percent of a customer's natural-gas bill is based on how much he or she uses and the going price for natural gas. New Mexico Gas doesn't collect any revenues from the natural-gas portion. The company shops around for the cheapest price, and that's what the customer pays, said Ryan Shell, the company's controller and treasurer.

"If we pay $4 for gas, you pay $4 for gas," he said. "All we charge for as a gas utility is to provide the service and deliver the gas."

The company's operations, maintenance and other costs equal about 30 percent of a monthly bill. Taxes make up the rest.

New Mexico Gas is asking for a rate that will increase a customer's monthly bill 13 percent at the outset. But based on how much less gas customers use each year, the actual increase will be about 8.5 percent a year, Shell said.

The average residential bill in 2010 was $53.78 per month. The average customer uses about 53 therms per month. With the requested increase, bills on average would increase by between $4.50 and $7 a month.

What it's requesting

New Mexico Gas is asking for a $34.5 million increase in annual base revenues to recoup operation and maintenance costs, pay for upgrades and give a higher return to investors. The increase means $2.9 million more in base revenues for the company than it had last year.

The company says it needs the annual increase to cover the increasing costs of delivering natural gas.

In addition, the company says it has spent $215 million to maintain and improve the system. Those costs include installing automated meter-reading equipment, putting in new pipe and renegotiating rights of way for delivery lines across pueblo lands.

New Mexico Gas customers have used less gas per person for several years in a row, and the company expects that trend to continue. In addition, the economic crisis and housing crash means fewer new customers. It costs the same to deliver the gas, regardless of whether 10 or 10,000 people need it.

"It costs us a fixed amount to deliver the gas," Domme said. "We want people to conserve, but we still have to recover our costs."

Rates are based on fixed costs, how much gas the company expects customers to order, capital costs of new infrastructure and the cost of equity.

"Lay people sometimes think the commission just splits the difference between what the company wants and the public thinks is reasonable," Marks said. "It just doesn't work that way. It is the combined result of numerous smaller decisions. Commission has to make a good, supportable decision on each one of those."

What it's not requesting

In Friday's rate increase request, New Mexico Gas didn't ask for compensation for costs incurred during the February natural-gas outage. "We're still calculating those costs, but it's in the millions," said Mary Homan, the company's regulator project manager.

The rate increase also doesn't include a $1 million fund the company has set up to help compensate customers affected by the gas outage. The outage impacted people in Taos, Española, Bernalillo, Artesia, Silver City and surrounding areas.

In addition, the company won't seek to recoup $43 million in initial start-up costs related to the 2009 purchase of gas interests from Public Service Company of New Mexico. Michigan-based Continental Energy Systems, the holding company of New Mexico Gas, purchased the gas interests for $620 million.

How equity rate pans out

New Mexico Gas company also must convince commissioners that a healthy return on equity will be good for customers. The PRC allowed the company a 9.53 percent return on equity in the last rate increase; the company claims the actual return on equity in 2010 was only 3.72 percent. According to Shell, that makes the company less attractive to investors than similar utilities.

In this rate case, the company is seeking an 11.25 percent return on equity.

The New Mexico Gas rate filing will be ready for public access on the NMPRC's website by Tuesday. The rate filing is case No. 11-00042-UT.

Where outage investigation stands

Even as the company fights for its increased rates, it will be defending itself during a PRC investigation into the natural-gas outage. A public hearing at the PRC is scheduled for May 3.

The company recently filed its testimony, Marks said. The company has maintained it ordered ample natural gas ahead of the cold front that slammed into New Mexico Feb. 2, but the gas they ordered never made it into their lines. "Clearly they were dealing with some pretty tough system constraints," Marks said. "I haven't seen anything nefarious so far as to why the gas was not coming, but we don't have full answers yet."

Marks said he'll particularly be interested in learning the answers to a few questions: Did New Mexico Gas enact its curtailment plan properly? Did it react soon enough? Was the relighting plan optimum?

And how could the company have communicated better with town leaders as the crisis unfolded?

Contact Staci Matlock at 986-3055 or smatlock@sfnewmexican.com.