Indy Explains: Why NV Energy wants to triple Northern Nevada’s base rates

NV Energy is proposing to raise its flat rate for service across Northern Nevada while lowering how much customers pay for actual energy use — a move watchdog groups say penalizes customers with low incomes or those who curb their power usage through conservation or by adding rooftop solar installations.

Beginning in October, the state’s primary electric utility is looking to roughly triple its basic service charge for single-family residential customers to one of the highest rates in the nation, and double the charge for those living in multifamily housing units. NV Energy is also requesting a basic service charge increase for its Northern Nevada natural gas customers.

NV Energy is simultaneously proposing nearly halving the cost electric customers pay per kilowatt hour, guarding them against large seasonal fluctuations in summer and winter, according to the utility.

“A higher fixed charge creates more predictability in customer bills and … specifically decreases summer bills when usage and our customers’ bills is highest,” Janet Wells, vice president of regulatory, said in testimony to the Public Utilities Commission of Nevada.

The company describes the changes as necessary to cover investment costs in Northern Nevada, including expanding service to a growing population and improving technology to fight against cybersecurity threats, as well as addressing a shortfall caused by net metering — credits residential solar producers get for adding electricity to the grid. To do so, NV Energy says it must recover nearly $106 million annually from ratepayers — the bulk of that, $95 million, from its electricity users.

The utility is also seeking a higher return on investment for its shareholders.

Combined with lower natural gas prices, the billing shift could result in decreased energy bills for many customers, according to the utility.

But after crunching numbers provided by NV Energy, watchdog groups say low-income and low-usage customers such as those with rooftop solar systems will likely see their bills increase, while customers who use more energy are the ones who will see their bills decline.

“It’s a pretty significant restructuring of the bills,” said George Cavros, senior attorney at Western Resource Advocates. “It’s not smart rate design.”

Consumers can weigh in on the proposal at 1 p.m. and 6 p.m. June 4 at the PUCN’s office in Carson City. An additional, in-person only session will be held at 6 p.m. June 13 at the Washoe County Commission Chambers in Reno.

The highest basic service charge in the nation?

NV Energy serves nearly 323,000 residential customers throughout Northern Nevada.

Customers in single-family residences would see their basic service charge rise from $16.50 to $45.30 per month if NV Energy’s request is approved by state regulators. Customers in multifamily housing would see their basic rate increase from $8 to $18.80, and gas customers would see a base rate increase from $14 to $18.

The Public Utilities Commission of Nevada will decide on the matter in September. NV Energy has requested that new rates take effect on Oct. 1.

The basic service charge electric users pay typically covers costs incurred to serve individual customers such as service lines, meters and accounting and billing services, with the bulk of customers’ bills based on actual energy usage.

But utilities nationwide have recently been proposing a switch to larger fixed charges, lowering risks to the utility’s revenue stream from factors such as weather or economic downturns, according to Advanced Energy United (AEU), a nationwide industry association focused on clean energy.

AEU surveyed all other large investor-owned utilities nationwide, and many smaller companies. The survey showed that a basic service charge of $45.30 would not only push NV Energy’s fee to second-highest in Nevada for single family residences behind only a small rural co-op, it would also boost the utility’s basic service charge well above the national average of $11.66 charged by 170 other investor-owned utilities.

The highest fixed charge in the nation for investor-owned utilities is currently $37.41, in Mississippi, according to AEU.

“This would basically earn NV Energy the regrettable distinction of having the highest fixed charge in the nation,” said Emilie Olson, senior principal at AEU.

At the same time, the utility wants to up the rate of return on equity its shareholders receive from 9.5 percent to 10.4 percent. Like other investor-owned utilities, NV Energy sets its rate of return — a regulator-approved profit margin the utility is allowed to make on the sale and service of electricity to incentivize capital development and pay shareholders.

That rate of return offers “a reasonable balance between the needs of shareholders and customers,” Mike Behrens, NV Energy’s vice president and chief financial officer, told state regulators, and is less than the up to 11 percent recommended by consultants — paid for by the utility — who testified before the regulators.

The utility is also requesting an increase in its rate of return from 7.14 percent to 7.95 percent for its cost of capital.

‘A blow to the solar industry’

There are more than 67,000 solar installations in Nevada, most of them residential, and according to NV Energy, those residential customers are paying less than their fair share of fixed costs.

The proposed basic service charge change would be “the first step to mitigating the shortfall that results from [net metering] customers paying less than the appropriate share of fixed costs,” Wells said in her testimony.

Net metering allows customers with rooftop solar systems to earn credits from the excess energy they generate. Throughout 2015, NV Energy pushed to stop an increase in the state’s net metering cap; legislation approved that year by then-Gov. Brian Sandoval grandfathered in existing solar customers who continued to receive full compensation for the power they fed the grid while decreasing compensation for new solar customers incrementally as rooftop solar grew, bottoming out at 75 percent — enough for solar installations to continue making economic sense for homeowners.

Net metering customers avoid paying usage-based charges, which allows them to “disproportionately benefit” when fixed costs are recovered via the volumetric rate, or cost per kilowatt hours used, that customers pay, Wells said.

In 2023, the PUCN directed NV Energy to explore solutions to address that inequity, NV Energy spokeswoman Katie Nannini said in an email.

This rate case and its basic service charge increase aims to “address the subsidy paid by customers who do not have net metering,” she wrote. “This proposal is about equity to all customers.”

Non-solar customers pay full infrastructure costs, while solar customers do not, she wrote. In Northern Nevada, solar customers are underpaying their share of cost by about $90 per month, according to Nannini.

But reducing the volumetric rate while increasing the basic service charge sends the wrong signal to customers, Cavros said. Reducing the volumetric rate lowers the value of conserving energy, rewarding energy waste rather than conservation.

It also penalizes those who have made investments in home efficiency or solar, he said, resulting in customers having less control over their bills as less of their monthly payment is related to actual energy use.

Instead of raising the basic service charge, Olson said the utility should focus on thoughtful rate design. This could look like offering time-of-use rates that better reflect actual costs to the grid, such as lower rates during the cheapest and cleanest generating hours and higher rates during peak usage times.

“We should be thinking about incentivizing people, not necessarily punishing them,” she said. “We’re not rewarding people for taking certain actions and making certain investments that have a net benefit to the grid … If the fixed charge goes through, it will be a blow to the solar industry.”

Will customers save on their bills?

NV Energy’s request is a substantial step up from previous rate increases the utility sought for both Northern and Southern Nevada customers.

Nevada law requires energy utilities to file a general rate case at least once every three years, although the utility can file more often as long as previous active rate cases have been closed.

In January, with state regulators’ approval, the utility increased its Southern Nevada basic service charge from $12.50 to $18.50, the full amount requested by the utility.

In NV Energy’s last Northern Nevada rate case in 2022, it increased the basic service charge from $15.25 to $16.50.

If state regulators approve NV Energy’s request, Northern Nevada customers will pay more to cover fixed costs related to distribution, such as electric line extensions, poles and transformers — infrastructure that doesn’t directly serve customers. The money to fund those kinds of infrastructure projects currently comes from the volumetric charge.

According to the utility, customers will see the rate they pay per kilowatt hour used drop from $0.05745 to $0.03292, and in a press release earlier this year, NV Energy announced that customers’ bills will decrease about 10 percent by the end of this year.

But that decrease is not because of any action taken by the utility — it’s because fuel costs are going down, said Christi Cabrera-Georgeson, deputy director of the Nevada Conservation League, who added that natural gas prices are volatile and could increase at any time.

In a March statement, the U.S. Energy Information Administration said it expects natural gas prices will stay lower than in previous years through 2024 because of higher-than-normal inventory. Natural gas prices fell nearly 36 percent between March 2023 and March 2024.

“Temporary lower gas prices do not excuse NVE for raising rates and fees in other areas,” Cabrera-Georgeson said.

Sheila Hallstrom, principal at AEU, believes NV Energy has proposed the rate increase to coincide with the decrease in natural gas prices so that, if approved, customers experience less sticker shock.

“They are saying bills might go down, but once you add the fixed rate, they won’t really go down,” she said. “There’s minimal ways to reduce the bill once you have this fixed rate attached.”

NV Energy estimates average customer use to be 765 kWh per month, when averaged out over a year. According to the utility, a customer using that average amount of power per month would see a cost savings of less than a dollar, a roughly 1 percent decrease.

But the utility’s rate is flawed, according to Emily Walsh, clean energy policy analyst with Western Resource Advocates. NV Energy’s estimated cost does not include its deferred energy accounting adjustment and public policy rates such as universal energy charges and expanded solar access program, she said. When those charges are factored into customers’ bills, the only residents who will see cost savings are those who use 1,150 kWh or more per month, she said.

According to Walsh, a customer using 765 kWh would see a roughly $10 monthly increase when those additional costs are added in.

— This story is used with permission of The Nevada Independent. Go here for updates to this and other Nevada Independent stories.