NV Energy looks at 5 percent rate increase to cover electricity conservation costs

Wednesday brought a first look at how Nevada's new electricity rate-recovery process will work, and that glimpse included word of a potential rate increase of just less than 5 percent for Southern Nevada customers of NV Energy.

A 2009 state law requires power utility NV Energy to change how it accounts for the financial effects of its energy-efficiency programs. The company once included conservation costs in the general rate cases it submits to the Public Utilities Commission of Nevada every three years, but it now must file those efficiency expenses separately each year.

In its first individual energy-efficiency filing Wednesday afternoon, NV Energy said it would need an April 1 rate increase of just less than 5 percent in Southern Nevada to recoup expenses and revenue lost to power conservation. But company officials said other types of filings could curb that impact, and the new filing schedule will save consumers money in the long run.

"Through demand-side management (efficiency programs), ratepayers benefit from the avoided cost of more-expensive generation and purchased power," said Robert Stewart, NV Energy's senior vice president of customer relationships. "These programs are more cost-effective than building new generation."

Eric Witkoski, the state consumer advocate who represents the interests of utility ratepayers, didn't respond to a request for comment on the new filing.

But Stephen Wiel, the Nevada representative for advocacy group Southwest Energy Efficiency Project, agreed that the new filing process would benefit utilities and consumers alike.

"If it's a 5 percent increase, it's in order to avoid a future increase of over 10 percent to generate electricity for customers to waste," Wiel said. "This is going to keep the company investing in demand-side management, and that's good for customers."

The new filing schedule's twin purposes are to provide incentives for utilities to develop energy-efficiency programs and to eliminate the interest costs that come with paying for those conservation programs over time.

Take those incentives first.

Energy efficiency carries an up-front price for NV Energy. In its Wednesday filing, the utility said its conservation efforts will cut about 5 percent from the revenue the Public Utilities Commission will allow it to capture in 2011, including $71 million in expenses such as rebates to consumers who participate in conservation programs, and $35 million in lost revenue as ratepayers use less juice.

Absent a mechanism to recover that revenue, the expenses would discourage any utility from promoting power savings, which would in turn raise long-term costs for ratepayers, Stewart said.

"The energy-efficiency programs that we run are generally twice as cost-effective as building power plants or purchasing power," he said. "Those savings free up capacity to serve other customers and allow us to avoid building power plants."

The new filing structure also should mean lower interest expenses.

Under the previous energy-efficiency recovery regime, NV Energy could recapture conservation costs only every three years, when the law requires the utility to file general rate cases to recover operating expenses.

In that three-year period, interest would accrue on NV Energy's conservation-related losses. Moving recovery to an annual process eliminates those ratepayer-funded carrying expenses, some of which can cost millions of dollars, Stewart said.

Although the requested increase is around 5 percent, Stewart said, it is too early to say what will happen to rates when the tariff kicks in on April 1. That's because the Public Utilities Commission will weigh the rate at the same time it determines quarterly adjustments in the price NV Energy pays for the power it buys from outside generators.

Those tweaks could counterbalance the energy-efficiency increase.

Stewart said energy prices are too volatile for him to forecast purchased-power rates as far out as the spring, but those costs have been on the downswing. The Public Utilities Commission cut NV Energy's purchased-power rates in Southern Nevada by 1.6 percent on Oct. 1, thanks partly to a continued slide in year-over-year natural-gas prices.

There will be a transition period for the new conservation filing schedule because some energy-savings costs are still stranded in the existing general rate structure. Sometime in 2013, NV Energy will account for all of its efficiency costs annually and separately from its general rates.

Consumers should know about one other major rate-filing tweak.

The Nevada Legislature in 2009 also changed NV Energy's general rate filing schedule. Previous law required the company to file its general rate cases in December, with new rates subsequently kicking in the following June.

In an effort to buffer consumers from potential rate boosts in the warmest part of the year, the Legislature moved the filings to June, with rate changes effective in December.

Under the new law, NV Energy will file its next general rate case in June, which means it'll come 2½ years after the utility's last filing, instead of the three years the law mandates. After 2011, the general rate case schedule will return to its full three-year cycle.

Contact reporter Jennifer Robison at jrobison@review journal.com or 702-380-4512.