The proposed alternative electric pricing program for some of Nevada’s largest businesses could shift millions of dollars in costs to residential customers and small businesses, according to testimony filed by regulators and the Bureau of Consumer Protection.
The comments and findings come as testimony on NV Energy’s proposed Optional Pricing Program Rate (OPPR), an alternative pricing plan devised by the utility last year as a way to entice some of its largest customers who either already have left or are flirting with departing the utility and purchasing electric power from another provider. The plan was proposed last year and applications were opened in March, but it still requires approval of the three-member Public Utilities Commission to move forward.
Although the utility previously acknowledged that the plan, which relies on six low-cost solar power purchase agreements approved as part of the utility’s 2018 Integrated Resource Plan, would likely have a financial impact on other utility customers, filings made by three PUC staff economists and the state’s Bureau of Consumer Protection this month outlined a much broader range of concerns and recommended the three-member Commission reject the proposed plan.
Taken together, the filings attempt to poke several holes in the utility’s arguments for the alternative pricing structure, criticizing the application process and structure of the proposed pricing system, questioning whether it is truly a “renewable” energy pricing program and offering a general criticism that the pricing system would unfairly shift costs and violate tenets of equality in structuring electric rates.
“OPPR is inconsistent with the very premise of planning and operating the utility as a system for all ratepayers in the aggregate, and allocating those aggregate system costs based on cost of service,” Jerry Mendl, a consultant for the Bureau of Consumer Protection wrote in a filing.
Mendl and PUC staff said that the OPPR program exists because of NV Energy’s growing opposition to the so-called 704B process, the mechanism in state law that allows large electric consumers to apply and leave the utility to purchase power from other providers, in return for paying a substantial exit fee to avoid unexpected costs from burdening other ratepayers.
NV Energy has grown increasingly critical and combative in the rush of companies that have filed 704B applications, including filing several “alternative impact analysis” reports stating that without changes, granting more exit applications would cripple the utility’s expected load growth and likely raise costs substantially for other electric customers. A bill introduced last week in the Legislature would substantially overhaul the 704B process and make it much more difficult for businesses to depart the utility.
In a statement, utility spokeswoman Andrea Smith said the pricing plan was devised as a way to avoid potentially devastating effects if a large number of businesses made good on their promise to depart NV Energy as an electric customer.
“The energy landscape has changed significantly over the last decade and we proposed this Optional Pricing Program Rate in order to compete for our large commercial customers without resulting in increased costs to residential customers or small businesses,” she said in an email. “This option protects residential and small business customers from the cost shift that occurs as a result of the current 704B process by enhancing our ability to retain our largest customers.”
Offering the OPPR program — initially dubbed NRG 2.0, after the utility’s previous alternative pricing plan based on renewable energy — was the utility’s way to offer a competitive alternative to businesses flirting with the 704B process, through offering a rate that includes certain non-bypassable charges (such as gas transmission) but replaces the standard electric rate with a flat charge based on the six new major solar projects adding 1,001 megawatts of solar electricity to the company’s fuel mix.
Under the proposed subscription limit for the program, Mendl said that roughly 48 percent of the benefits from the new solar plants would go to utility customers that made up about 5 percent of total electric sales. In monetary terms, that small subsect of customers in the OPPR program would see about $65 million in benefits, while the utility’s other customers would see around $70 million in benefits.
If the benefits were allocated proportionally based on use, Mendl wrote that non-OPPR eligible customers should see around $128 million in benefits — about a $58 million difference.
“The captive customers pay more for their energy because a part of the cheapest system resources would be reserved for select customers, thus increasing the costs of serving the remaining system,” he wrote. “Stated differently, if OPPR is approved, the captive customers forego a fair share of the benefits of the lowest cost system resources.”
PUC staff economist Manuel Lopez wrote that the commission’s staff did not believe stated benefits claimed by the utility to other ratepayers were “realistic,” estimating that the program would cost $4.2 million per year in a cost shift to other ratepayers given the lower rates paid by potential OPPR customers. If the utility was to expand the program to all eligible customers — something it has hinted at considering — it could shift up to $17 million a year in costs to other ratepayers.
Lopez also wrote that under the pricing structure, rates for businesses in Southern Nevada under the OPPR program would be lower than current base rate, while those in Northern Nevada would be at the same level or higher.
Another PUC staff economist, Yasuji Otsuka, compared the OPPR program to a marketing tool used by cell phone or video service providers to entice consumers to switch services, but that the ability to “switch” was only available to a small number of businesses and the cost of the incentives were borne by all other ratepayers — something they called “particularly untimely and troubling from a public policy perspective.”
“(NV Energy’s) remaining customers, who are largely residential and small business customers with no option to choose their own energy suppliers, will be asked to pay more to support the Program, which is designed to benefit only a small number of large businesses who have the option to choose their own energy suppliers,” Otsuka wrote.
Otsuka also raised a concern that the flat rate included in the OPPR program would over time result in greater costs for the utility’s other customers, dismissing the utility’s studies on rate impacts to other customers as “limited in scope.” With normal electric rates based largely on the price of natural gas — still the state’s primary fuel source — cordoning off large customers with a flat rate based on cheap solar generation would mean a heavier burden for other utility customers if fuel prices were to increase or other factors caused rates to rise.
PUC staff were also critical of the utility’s preemptive open enrollment for the program, which was held on March 25 and awarded based on a first-come, first-served basis. PUC staff economist Karen Olesky wrote that applications for Southern Nevada companies reached capacity within 20 seconds of the open enrollment window opening.
“This could indicate that the ‘winners’ were those with the fastest internet connection and it seems arbitrary to pick winners and losers based upon the level of connectivity that an applicant possesses,” she wrote.
Otsuka criticized the program as “discriminatory in general,” saying that creation of a new class of customers based on 704B eligibility did not follow typical procedures used by the commission, and that it arbitrarily cut off some customers who did not apply in time for the program.
“Customer class delineation is an integral part of rate design and is typically done in relation with other rate payers who may, or may not, be similarly-situated; whether customers are differentiated by a cost of service study, customer characteristics and a customer cluster analysis,” Otsuka wrote. “(NV Energy) failed to conduct such important rate design analyses for this new rate class.”
Olesky also raised a concern with some of the utility’s marketing of the program as a “renewable” focused rate. Although the provided electricity to enrolled OPPR customers would come from the six large-scale power plants, the utility would continue to hold onto the Portfolio Energy Credits — which are used to measure compliance with the state’s Renewable Portfolio Standard — which could give a misleading impression to businesses attempting to meet a certain renewable energy or sustainable goals.
She and other PUC economists also raised concerns that the application structure would see the utility and individual companies enter into contracts without individual commission approval or oversight, a potentially major regulatory blind spot.
“If the Commission does not review each contract, the Commission will not know how much energy is being allocated to the Amended Tariff’s participants, what the tariff's rates are, and ultimately what the Amended Tariff's impact is on the amount of revenue collected until the next General Rate Case,” she wrote. “The Commission cannot even review or determine whether the contract is consistent with the Amended Tariff.”