by Dana Gentry, Nevada Current
NV Energy’s plan to cut power rates for three months beginning in July to offset high summer usage is a money maker for the utility that will cost ratepayers more down the road, thanks to a state law that allows the utility to earn a profit on deferred energy purchases.
“Our customers have all been impacted by the higher natural gas prices and the corresponding effect it has on our customers’ rates,” NV Energy president and CEO Doug Cannon said in a news release Tuesday of the rate cuts, estimated at 5% to 14%, depending on location and services. “Recognizing the challenges higher energy rates create for customers, especially in the summer months, we decided to step in and deliver a solution.”
But the company’s summertime benevolence is in reality a brief respite for ratepayers and a boon to the utility.
While NV Energy can cut rates for the summer months, it still has to purchase enough power to cool Nevada homes and businesses. Federal law prohibits a utility from marking up the cost of energy it purchases. But state law gives the utility the right to not only recoup the cost of deferred energy – the cost of power it buys but doesn’t immediately collect from customers – but earn a profit, as well, at its pre-federal tax rate of return.
NV Energy earned $36.2 million ($28.4 million in Southern Nevada and $7.8 million in Northern Nevada) last year in profit on deferred energy balances, according to exhibits filed in pending cases before the Public Utilities Commission.
NV Energy bills are largely determined by two rates – the base tariff energy rate, calculated on the utility’s purchased fuel and purchased power costs on a 12 month average; and the deferred energy adjustment, based on the difference between the company’s actual costs for energy and its revenues.
If costs exceed revenue, the amount under-collected from ratepayers is factored into future rates and the utility can recoup a carrying charge of roughly 8%. Conversely, if revenue exceeds costs, the amount over-collected is credited against the under- collected amount or refunded to ratepayers later, along with the same carrying charge.
NV Energy is currently under-collected by hundreds of millions of dollars, according to public documents, meaning credits for ratepayers are unlikely in the near future.
NV Energy has the option to ask the PUC to forego carrying charges to truly save ratepayers money, however, it is not.
“The company will continue to calculate carry charges as allowed by the Public Utilities Commission of Nevada,” NV Energy spokeswoman Katie Nannini said Wednesday via email.
The Current reported last month Nevada’s Consumer Advocate Ernest Figueroa, who leads the Bureau of Consumer Protection in the Attorney General’s office, projected the average power bill in Southern Nevada would reach $470 for July usage. Figueroa declined to comment on NV Energy’s announced summer rate cut, according to John Sadler, a spokesman for the Attorney General.
The utility’s news release says the price it paid for natural gas “consistently increased in 2022 by more than 70 percent and peaked in January of 2023, increasing nearly 500 percent since 2021. These significantly higher natural gas prices caused NV Energy’s costs to increase.
NV Energy says cost increases are expected to decrease, as long as natural gas prices remain stable.
