The Public Utilities Commission is seeking to end its policy of having NV Energy’s Southern Nevada customers, who earn less than their northern counterparts, pay for the costs of preparing for natural disasters, primarily fires at Lake Tahoe.
NV Energy’s Natural Disaster Protection Plan (NDPP), submitted every three years, is the result of a legislative mandate passed in 2019 to mitigate the impacts of fires in areas with the highest threat. The legislation, sponsored by former Sen. Chris Brooks, was signed into law by then-Gov. Steve Sisolak.
“A single rate is exactly the cost effective strategy and method the Nevada Legislature intended,” Sen. Melanie Schieble, then-Sen. Brooks, and Assemblywoman Danielle Monroe-Moreno wrote in 2020 to the Public Utilities Commission as it contemplated a statewide disaster protection rate, which is not mandated in the legislation.
In late June, the PUC submitted a proposed regulation to the Legislative Counsel Bureau, suggesting an end to the statewide rate and instead allowing NV Energy to charge customers only for services provided in their region.
PUC Chairwoman Hayley Williamson declined to say why the commission changed course, citing the ongoing case. The regulation is likely to be implemented next year and apply to this year’s NDPP rate, according to experts.
Additionally, in a petition filed last month, PUC staff asked the commission to fine NV Energy $1.2 million, alleging the utility failed to follow the commission’s order to revise NDPP accounting procedures following concerns the utility is unfairly profiting from agreements with fire departments in the north. Staff testimony asserts the utility’s failure to abide by the PUC’s directive could cost ratepayers at least $29 million.
“Any financial effect on ratepayers is simultaneously a potential benefit to NV Energy, with the additional benefit of carrying costs, in this case,” says staff’s petition to show cause.
NV Energy sought to recover expenses that “are more properly recovered to a general rate case, or I believe are imprudent for recovery,” Nichole Loar, at the time a PUC financial analyst, said in testimony last year, adding NV Energy’s NDPP expenses need to “be scrutinized so that they are to be found just, reasonable and prudent.”
Loar asked the PUC to disallow many of the utility’s requests, and order NV Energy to cease practices such as contracting with rural fire agencies to provide capital costs and full-time funding for fire department personnel – a function better left to local taxpayers, critics contend.
The PUC ruled that NV Energy’s Northern Nevada ratepayers must foot the capital costs of disaster preparedness in the north, but it spread the burden of operations and maintenance costs statewide. The utility stands to earn a profit of $9.5 million over three years just on operations and maintenance, according to testimony provided to the PUC.
Commissioner Tammy Cordova of Las Vegas voted against the statewide rate. The commission’s two Northern Nevada members – Chairwoman Hayley Wiliamson and Randy Brown voted in favor of the subsidy, despite a letter from PUC staff noting its “general preference when designing rates is to follow the principle that costs should be borne by the cost causer….”
One state, one rate?
The Nevada Resort Association and Las Vegas hotels, who oppose the statewide rate, subsequently filed a petition for judicial review over the utility’s 2022 NDPP filing, which sticks Southern Nevada ratepayers with a $19.6 million subsidy of services in the north for the previous year.
Attorneys for the plaintiffs – Wynn Las Vegas, Boyd Gaming, Station Casinos, Venetian, MGM Resorts International, and the Nevada Resort Association – argue the PUC deviated from its principle that those who incur the costs, pay the costs.
“The longstanding Commission policy is to reject flat rate allocation methods for the utilities’ cost recovery for capital projects and operation and maintenance expenditures as inconsistent with cost causation principles,” says the complaint, which is assigned to Judge Gloria Sturman but has yet to be heard.
NV Energy is made up of two companies – Nevada Power in Southern Nevada and Sierra Pacific Power in the north. Their rates are set by the PUC in separate cases. However, the utilities attempt to operate as one for the purpose of recouping its natural disaster protection costs, leaving Southern Nevada customers footing much of the bill for protecting against disasters in the north.
Critics contend the scheme creates an unfair burden on customers in Southern Nevada, and they allege the utility is padding expenses in an effort to earn higher profits.
In 2021,“Reno and Carson City had per capita income of $71,489 and $60,445, respectively,” Brad Mullins, an energy consultant representing Wynn Las Vegas, testified last year. In contrast, he said, Southern Nevadans had a per capita income of $58,276, according to the Bureau of Economic Analysis.
The utility projects NDPP spending of $373 million for 2024 through 2026, with Southern Nevada customers paying $102.2 million in costs incurred in the north, according to testimony from the Attorney General’s Bureau of Consumer Protection (BCP) regulatory manager David Chairez.
Chairez likens the effort to a reverse-Robinhood scheme, in which the company takes from lower income ratepayers in the south to subsidize higher income customers in the north.
In testimony before the PUC, Chairez used census data to compare median household incomes in Lake Tahoe with those in Las Vegas.
With the exception of Stateline, Chairez found Lake Tahoe residents earned far more than the statewide median of $70,770, “with Crystal Bay having a median household income that exceeded $250,000 per year. In contrast, Nevadans living in Assembly District 6, 11, and 15 all had median household incomes below $40,000 per year.”
Chairez testified he doesn’t understand why NV Energy asks “and to date the Commission has approved, these low-income customers in Las Vegas paying for work on the infrastructure used to serve the highest income people in the state.”
‘Just, reasonable and prudent’
While with the PUC, Loar, who is now a Regulatory Auditor with the Bureau of Consumer Protection, sampled invoices submitted by NV Energy for 2022 and discovered “numerous items of concern to me, expenses that I believe are more properly recovered to a general rate case, or I believe are imprudent for recovery.” She said NV Energy’s NDPP expenses need to “be scrutinized so that they are to be found just, reasonable and prudent.”
In response to concerns from Loar and others, last year the PUC ordered NV Energy to conduct an audit on “all fire agency transactions since inception.” It also ordered the utility to reclassify some expenses and move fire truck and equipment costs to a separate asset account to prevent the utility from unfairly profiting.
A petition to show cause filed June 25 by PUC staff asks the commission to fine NV Energy $1.2 million for failing to comply with its order.
The petition says the audit ordered by the commission is severely lacking. Instead of auditing all fire services as directed, the audit sampled about 15% of 567 invoices.
The petition says the utility, which earns profit on the amount of expenses it carries, continued to calculate carrying costs on the larger balance achieved by commingling expense and capital accounts, despite the commission’s order.
In response, NV Energy testified that “contrary to staff’s assertion, the companies complied with each of these directives,” and asserted that “Staff’s recommendation to issue an administrative fine… is unwarranted, unreasonable, and should be denied.”
NV Energy argues the petition is premature because in a filing with the PUC, the company asks regulators to determine if the utility’s response to the order is sufficient.
Loar, a former PUC staff member who is now with the BCP, is recommending the commission disallow NV Energy’s:
• recovery of 20% of 2022 and 2023 fire agency charges amounting to $5.9 million;
• recovery of 100% of fire agency vehicle charges amounting to $3.3 million for 2022 and 2023;
• recovery of $171,295 equating to 37% of outside counsel fees of half a million dollars, as well the carrying costs from which NV Energy profits;
NV Energy argues that in-house counsel are overworked, requiring the utility to contract with outside attorneys. PUC staff countered the utility is responsible for the increased workload because it has chosen to file more cases with regulators, and should not profit as a result.
Nevada law says a public utility that fails, neglects or refuses to follow a commission order is liable for an administrative fine after notice and opportunity for a hearing.
From 2005 through 2018, PUC staff sought no administrative fines against NV Energy, according to the agency’s records.
In 2019, the commission initiated its own show cause case regarding NV Energy’s failure to set aside $10 million for energy storage rebates from a $295 million allocation for all rebate programs. A stipulated agreement required NV Energy to pay an administrative fine of $100,000.
This year, staff filed an order to show cause against NV Energy for double-dipping. The utility, in a general rate case, asked to recoup the costs of the Mojave Community Based Solar Resource when the expense was already included in another rate. The PUC ordered NV Energy to pay a fine of $75,000.
Also this year, staff filed an order to show cause against NV Energy for including costs related to an excavation incident (call before you dig) in a general rate case filing when a previous agreement between the utility and PUC staff excluded such expenses.
The general principle in utility ratemaking is that ratepayers should not pay any costs associated with a utility’s negligence. The PUC ordered NV Energy to pay a $50,000 fine.