On its usual split 3-2 vote, the California Public Utilities Commission Tuesday approved $7.4 million in general rate increases for Las Vegas, NV-based Southwest Gas Corp. for its natural gas distribution utility customers in the remote foothill and desert regions in the eastern side of the state. The action authorized $3.8 million for Southwest’s Northern California customers and $3.6 million in the southern half of the state.

A greatly reduced alternative would have awarded $5.2 million ($1.73 million in the south and $3.47 million in the north).

In heading the majority of the commissioners supporting the increases, CPUC President Michael Peevey said the action represented decreases of about 13% and 37%, respectively, for the two regions compared to what the utility asked for in its filing. In addition, these are the first general rate increases for Southwest in California since 1995. (The bulk of Southwest’s retail customers are in Nevada and Arizona.)

Peevey encouraged the utility to come up with a proposal for an “incentive gas cost” mechanism similar to what the state’s major California-based natural gas utilities use in dealing with the issue of wholesale fuel costs. Part of the general rate decision was approval for an accelerated pipeline replacement program for the utility, funded at 22% less than the company asked for.

Peevey criticized an alternate proposed decision by Commissioner Loretta Lynch, a frequent adversary, alleging that the alternate would punish the utility for doing as a unanimous earlier decision by the CPUC had directed it to do in ordering long-term contracts for the gas utility.

For her part, Lynch was adamant in recommending that the regulators use actual past expenditures and earnings levels — rather than estimates — in setting allowed capital costs and earnings levels. However, Peevey called Lynch’s proposed lower level of cost-of-capital awards “deeply troubling” because he described Southwest as being only one notch above junk-bond status in its current credit ratings and objected strongly to lowering the utility’s rate of return by 24 basis points.

Lynch argued that Southwest had not demonstrated a “willingness to spend shareholder monies to improve its utility system,” so as far as she was concerned “enough is enough with this incredible rate increase.”

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