NV Energy’s longstanding plan to woo back large businesses and other major electric customers from leaving utility service now has a name, structural outline and a promise by the utility that the program won’t cost residential and other ratepayers.
The proposed new pricing structure — called the “Customer Price Stability Tariff” — was announced by NV Energy last week as part of the company’s four-step “economic recovery” plan in response to COVID-19.
Although the new tariff is couched in economic recovery language — saying it will allow large businesses and government entities to “put people back to work and can provide critical services to communities during this time of recovery” — the pricing plan has been in the works for more than a year.
During the past several months, NV Energy has entered into arrangements with businesses and local governments that will see the utility making annual six-or-seven figure payments in exchange for a promise not to leave utility service and to apply for a special pricing program once it becomes available. Agreements made public with eight municipal governments indicate the utility is paying at least $4.7 million annually through the contracts, and the new pricing plan would be open to more than three dozen large customers.
That pricing program has now surfaced publicly as the “Customer Price Stability Tariff,” which if approved would give some of the state’s largest businesses and government entities a greatly reduced, locked-in price of electricity for at least five years based on new, cheap renewable energy contracts.
It’s also one of the final puzzle pieces for NV Energy in its campaign to provide a substantive alternative to Nevada’s “704B” process, the legal mechanism allowing large energy users to leave the utility and purchase power on the open market.
In public statements and filings with the state’s Public Utilities Commission (the regulatory body with the power to approve or disapprove of the proposed pricing plan), NV Energy claims the pricing program will not only help the company maintain business with its largest customers, but also not lead to increased costs for other ratepayers.
“This program will not raise rates for our other customers, it benefits all Nevadans and helps advance our state’s carbon reduction efforts,” NV Energy CEO Doug Cannon said in a statement. “This option will assist some of Nevada’s largest employers to revitalize the Nevada economy by putting people back to work and provides support for some of the critical service providers in our communities.”
Other aspects of the company’s COVID-19 plan have been previously announced, including the decision to suspend electric service disconnects for nonpayment, a $1 million donation from the NV Energy Foundation and the intention to file a $120 million rate reduction for Southern Nevada customers in its triennial rate case.
The 24-page white paper submitted by the utility goes over the function and rationale for the new pricing program in great detail, citing not only uncertainty about whether large customers will leave the utility but also a need to lower costs to help businesses respond to the ongoing COVID-19 pandemic.
“These customers are currently facing financial hardships like none experienced before which in turn impacts the incomes of many Nevada residents they employ and limits the services they can provide Nevada as recovery commences,” the document states. “It is not known how long they will feel the impacts of this crisis.”
The program would work like this: For an initial period of five years (2022-2027), large customers of the utility would be able to enroll in a special electric pricing program with a guaranteed, locked price of electricity. The price would be based on renewable energy power purchase agreements entered into by the utility with contractors for large scale solar and other renewable energy generating stations.
The utility argues in the paper that without creating a special rate for large businesses, they would almost certainly continue taking steps to leave utility service and drive up costs for other customers.
“Large customers have had, and continue to have, the opportunity to obtain electric services from an alternative provider, and unless Nevada creates a regulatory environment that offers the energy products and services demanded by these customers, they will take actions to obtain them by either modifying the regulatory environment or moving outside the regulatory environment, all to the detriment of other customers,” NV Energy said in the document. “The state’s economy cannot suffer another hit.”
The fixed rates would be composed of two components — one representing the effective wholesale price of the renewable energy, and another representing public program and other costs all utility customers are required to pay.
In total, the fixed five-year electric rate under the program would be $36.66 per megawatt-hour in Southern Nevada and $30.03 per megawatt-hour in Northern Nevada. A megawatt hour is a standard unit used to measure electricity output by utilities or power plants — it’s the equivalent of running a standard one-kilowatt microwave continuously for 1,000 hours, or 40 days.
In the application, NV Energy states the program would be available to all of the 35 large customers who show interest in the program during a March 2019 enrollment period for a previously proposed iteration of the special rate class, with a total demand of 3.1 million megawatt hours.
The fixed 5-year price point is significantly lower than the average retail amount normally paid for electricity. According to data from the federal Energy Information Administration, Nevada’s average retail price of electricity in 2018 was about $86.70 per megawatt hour. The price point is closer to the wholesale price of electricity — the average wholesale price of electricity measured in megawatts per hour was around $43.54 in New England in 2018, for example.
The discounted pricing is available through three long-term contracts with an estimated 1.2 gigawatts of solar capacity that the utility entered into in late 2019. The total value of the three contracts (or, how much less revenue the utility would be required to collect due to lowered electric costs) is roughly $402 million.
Along with the white paper, the utility also included a cost and benefits analysis of the plan submitted by an independent analyst. It found that creation of the tariff would lead to savings on RPS compliance, wholesale energy procurement, generation and other costs of service, but would also result in overall lost revenue and more administrative costs for NV Energy.
The analysis found that over a five-year period, the benefits of the tariff program outweighed the costs, but that over the 25-year life of the power purchase agreements upon which the new pricing program is based, the cost of the program would outweigh benefits.
“The (pricing plan) is net beneficial to non-participating customers,” the analysis stated. “However, if the program as currently designed were extended for twenty years, the costs to the non-participating customers exceed the benefits.”