NV Energy has made good on a longstanding promise to substantially slash its annual revenue requirement by $120 million, a change that if approved by state regulators would mark the likely largest one-time reduction in state history.
The request to lower electric rates was made in the utility company’s general rate case application filed on June 1 and makes good on a year-long promise by the state’s primary electric utility to reduce its revenue requirement — the calculated amount of profit its allowed to make on the sale of electricity.
Although the company announced plans to file a rate reduction last year, NV Energy framed the decision to reduce revenue — equivalent to a reduction of $4.05 per month for residential customers and $6.17 per month for typical small businesses starting in 2021 — as part of the utility’s response to help the state amid the COVID-19 pandemic.
“Our residential customers are facing the highest unemployment rate in the nation, small and large businesses alike are struggling to reopen after being closed and government entities are facing unprecedented funding shortfalls while seeing increasing demands for services given the economic conditions,” the company wrote in its application before the Public Utilities Commission. “It is not known how long Nevada will feel the impacts of this crisis. The company wants to be part of the solution and help our customers financially.”
In an interview, NV Energy President and CEO Doug Cannon said the proposed rate reduction was based on a combination of factors, including a restructuring of the company’s debt, changes to the federal tax code in late 2017 and lower operating costs.
“It's not one of those things where we cut costs and there were compromises in other parts of the business,” he said. “We were able to reduce the operating costs, and still deliver value still deliver a high quality product and service to our customers.”
The proposed reduction is on top of previously announced revenue cuts based on the company’s slate of low-cost, large-scale renewable energy projects, which included a $105.7 million rate decrease beginning in April, another $77.2 million starting in July and a pending $30.6 million that would take effect in October.
Combined, NV Energy says that electric rates remain not just low compared to neighboring states, but have remained flat over the past decade. Testimony provided by the company’s CFO Michael Cole states that current power prices in 2019 are about 3 percent lower than 2013 rates, and that monthly power bills are, without counting for inflation, essentially the same as they were in 2009.
Nevada, like several other states, authorizes one company (NV Energy) to have an effective monopoly on electric service for the vast majority of the state. In return, the company is required to have rates and other core business practices approved by state-appointed regulators — the Public Utilities Commission of Nevada — with the power to hold hearings and make decisions on the company’s prices for electric rates.
State law requires NV Energy and other electric utilities to file a so-called General Rate Case every three years, a highly-technical document that includes details on requested rate changes, what kinds of customers will pay and why the change is being requested, usually including dozens of expert testimonials.
The application is just a starting point — other parties, including the state’s Bureau of Consumer Protection, businesses and other interest groups can file to intervene in the case and participate in hearings, consumer sessions and other public meetings discussing the utility’s rate plan. Eventually, members of the utilities commission will draft an order, and then approve it during one of their normally scheduled meetings.
The application would also see the company’s authorized rate of return — the profit margin NV Energy is allowed to make on the sale and service of electricity to incentivize capital development and pay shareholders — reduce from 7.95 percent to 7.4 percent. It also seeks to increase the company’s return on equity — a measure of financial performance created by dividing net income by shareholder equity — from 9.4 percent to 10 percent.
According to NV Energy’s application, the company’s proposed reduction in rates is more generous than what is typically called for in state law, which shows that only a $95.5 million rate reduction is warranted. But the company wrote that it would stick with the $120 million reduction number to both “fulfill its commitment and assist its customers and the state during these unprecedented times.”
“We needed to be part of a solution,” Cannon said in an interview. “And part of the solution was reducing energy rates for our customers, so that they could invest that money in rebuilding their businesses and rebuilding their lives, so that the entire Nevada economy can get back on its feet and that economic engine can get working again. From our perspective, that economic engine working is beneficial for everybody, including NV Energy.”
Still, the utility company has not been immune to the effect of the COVID-19 pandemic, as many of its largest customers on the Las Vegas Strip shut their doors between March and June. Cannon said that the company saw energy use decreases between 6 to 10 percent depending on customer class, but that some of that was because of more favorable weather during the business shutdown.
An NV Energy spokeswoman said that the company has deferred late payments for more than 540,000 customers since the start of the pandemic.
The proposed rate reduction is part of a multi-part plan announced by the utility company to help address the impact of COVID-19, which also includes a $1 million donation from the company’s foundation and development of a special renewable-based pricing plan — the “Customer Price Stability Tariff” — for large electric customers.
The company also took action in March to suspend service shutoffs for nonpayment and waived late fees, while asking customers to contact them if they are facing financial hardships or are otherwise affected by the pandemic.
Cannon said the company was closely monitoring conditions in the state for an appropriate time to start bill collection activities again, saying the company would likely start with individuals who had not indicated they were affected by the virus and had a history of not paying their bills.
“There's a lot of factors that we'll consider as we start to make those decisions about collection activities,” he said. “And that's something I anticipate getting here over the course of the next few months. But again, we will rank that and we will start our activities with those who have definitively noticed that they are not affected by COVID-19.”