NV Energy Denied Rate Hike, Ordered to Lower Rates Instead

Proclaiming that the “voices of Nevadans have been heard,” the Nevada Public Utilities Commission has directed Nevada Power Company d/b/a NV Energy to decrease both its fixed charges and volumetric rates by an amount that should offer an overall billing reduction of approximately 2% for the average residential customer.

The commission pegged the reduction at about $30 million. While admitting that such a cut is relatively modest, the commission drew attention to the fact that it was the first decrease ordered by the commission in almost 40 years. The commission reported that in its rate application, the electric utility had originally proposed an increase in the monthly residential charge from $12.75 to $17.36, a rise of more than 35%.

However, in the face of near-unanimous opposition, the company relented and later requested that its existing charge remain in place. But the commission found that the residential customer charge actually should be lowered, from $12.75 per month to $12.50 a month. In doing so, the commission cited the utility’s “reasonable and sound business decisions” that have left it in a financially healthy position even without a rate increase.

The commission reached a similar determination on the matter of an appropriate rate of return on common equity (ROE) for NV Energy. Whereas the utility had asked for an increase in ROE, from its currently authorized 9.8% to 10.0%, the commission instead ruled that a decrease in ROE was called for. After looking at all of the party positions, which, except for the company, generally agreed on a range of reasonableness of 9.0% to 9.5%, the commission opted for an ROE value at the upper end of that range, or 9.4%. In seeking a higher ROE, the utility had pointed out that it is facing certain unique risks compared to other utilities around the country. It elaborated that it is operating in an environment of significant regulatory uncertainty because the state is considering a plan of restructuring that would allow retail customers to engage in a shopping paradigm for their generation supplier.

During the November 2016 election cycle, Nevadans had voted in favor of an amendment to the state constitution that would eliminate the monopoly service territories that regulated utilities now enjoy, at least with respect to the generation component of service. Although the Energy Choice Initiative passed overwhelmingly in that vote, Nevada law provides that a constitutional amendment cannot take effect until it is approved by the electorate in two consecutive voting cycles. Thus, the upcoming November 2018 election schedule marks the second time that the Energy Choice Initiative will go before the voters. In the meantime, NV Energy argued that due to the uncertainty surrounding that vote, it must endure a greater level of risk than utilities that would be otherwise comparable in terms of economic and regulatory factors.

According to the utility, since the first vote in 2016, it has encountered more volatility in its stock prices, with investors wanting to see higher returns. The company also contended that a higher ROE was necessary to help offset possible stranded costs and expenses associated with its status as a provider of last resort for those customers who decline to shop for an alternative supplier. The commission, however, countered that, NV Energy’s claims notwithstanding, the data showed that the utility has been overearning on a consistent basis since its last general rate case three years before. During most of that time, the commission said, the company’s actual ROE had exceeded its authorized ROE of 9.8% by more than 200 basis points. Indeed, the commission added, during the most recent reporting period, its ROE was almost 300 basis points above its approved ROE.

As a consequence, the commission stated that it was hard to understand how the company could be asserting that the regulatory uncertainty associated with the Energy Choice Initiative had hurt the utility in terms of either earnings or investor expectations. After looking at the various ROE cost models proffered by the different parties, and examining those results against current capital market conditions, the commission held that there was no record support for an increase in ROE. To the contrary, the commission said, the evidence all pointed to a lower ROE for the company. The commission commented that NV Energy’s financial position has improved markedly since its last rate case. Moreover, the commission described as quite supportive the regulatory regime under which the company operates. That is, the commission explained, the commission has assured that various rate mechanisms are in place to help utilities mitigate the effects of both normal regulatory lag and impacts from new laws.

One matter was not fully resolved by the commission, however, that being the terms of net energy metering (NEM) tariffs that are to be applied to customers with self-sited solar capacity. The commission acknowledged that a 2015 decision in which it had eliminated retail utility rates as the basis for NEM credits had prompted an outcry from the public and the solar industry alike. It also resulted in unintended consequences in the form of plummeting sales of solar systems, which in turn made it more difficult for the state to meet its renewable portfolio standard targets.

The commission conceded that its 2015 order represented a far-reaching change in compensation policies for net-metered customers in that such customers now would be credited at prevailing wholesale rates rather than at higher retail rates for any excess output offered to the grid. The commission also had allowed utilities to start assessing higher fixed charges to self-generating customers. The combination of lower NEM credits and higher customer charges for net-metered customers led to an immediate and significant drop in the number of solar installations across the state. After a year of lagging interest in solar projects, however, the state legislature stepped in and enacted Assembly Bill (AB) 405, which largely restored prior NEM practices. The new law was aimed at reinvigorating the solar industry in Nevada. As an initial matter, AB 405 provided that net-metered customers with rooftop solar systems are to be paid for their surplus generation at 95% of the purchasing utility’s full retail rate. The law contemplates that as solar development reestablishes itself, the applicable rate of compensation can be reduced, although not below 75% of the otherwise applicable retail rate.

In the meantime, AB 405 required the commission to initiate a separate generic proceeding in which to address proper pricing mechanisms for NEM-related generation. In the NV Energy docket, the commission noted that such a proceeding is pending, for which it intends to issue a final decision by mid-March. Until then, the commission held, it would be best for the utility to retain its present NEM rate schedules, inclusive of time-of-use rates.

In discussing the net metering issue, the commission struck a far more conciliatory tone about the role of NEM and the benefits of solar power than it had in its 2015 decision. That may be due in part to the fact that none of the commissioners serving in 2015 are still with the commission. Nevertheless, the commission’s NV Energy order reads in some sections more like a policy paper than a rate case decision. That is, the commission extols the value Nevada derives from solar installations both monetarily and environmentally. It concurs with public advocacy groups that as interest in solar rooftop systems continues to grow, utilities are able to accelerate their planned closures of coal-fired power plants and are incentivized to focus on renewable energy and more extensive energy-efficiency measures.

Indicative of its ongoing support for solar, the commission remarked that solar has the potential for “a lot of value and opportunity to build a bright future.” The commission attributed the changes brought about by AB 405 to citizens actively participating in the governmental process and letting their opinions be known. To that end, the commission found that the electorate had evinced a clear preference for solar and solarsupportive rate mechanisms. Thus, the commission averred, it had crafted the NV Energy decision in accord with the “voices of Nevadans [it had] heard.” Re Nevada Power Co. d/b/a NV Energy, Docket Nos. 17-06003, 17-06004, Dec. 29, 2017 (Nev.P.U.C.).