A little-noticed bill that passed in the eleventh hour of this year’s legislative session could open the door for Nevada’s largest natural gas utility to overhaul how its rates are designed — potentially allowing rates to automatically go up without direct approval from state regulators while shifting more financial risks to customers.   

Now, state energy regulators are grappling to outline how alternative ratemaking could look for Southwest Gas, which touted the move to alternative ratemaking — a suite of mechanisms that automatically adjust rates based on performance and other metrics — as a path to shift away from traditional cost-of-service ratemaking structures that look at operational costs over the past year in favor of more forward-looking methods.

Proponents say the change, adopted in multiple other states, is necessary to adapt to industry changes. SB417 “represents a forward-thinking and much-needed modernization of Nevada’s regulatory framework for natural gas utilities,” Emily Osterberg, director of government affairs for the Henderson Chamber of Commerce, told lawmakers in April.  

Behind the scenes, the utility lobbied hard at the end of the session with GOP Gov. Joe Lombardo, who ultimately signed off on the bill. 

Nevada has already dipped its toe in the alternative ratemaking water, passing similar legislation in 2019 for the state’s electric utilities. 

At the time, bill sponsor Sen. Chris Brooks (D-Las Vegas) painted alternative ratemaking as a way for Nevada to create a nimble regulatory environment for a more modern, reliable and efficient grid — but notably rebuffed efforts by Southwest Gas to piggyback its way onto the bill.

During the 2025 session, Nevada Conservation League Deputy Director Christi Cabrera-Georgeson pointed out to lawmakers that SB300 intentionally did not include gas because those utilities “are fundamentally different from electric utilities in their decarbonization, energy efficiency and affordability pathway.” 

Opponents to SB417 worry it will lower the bar for gas utilities to install more infrastructure and that the risk of funding construction will be shifted onto ratepayers.

Alternative ratemaking can lead to “large-scale buildout in a much shorter time in a time when we need to be considering how much new gas infrastructure we want,” said Keriann Conroy, research associate at the Energy Policy Institute. 

Southwest Gas Director of Public Affairs Scott Leedom acknowledges the utility will benefit from alternative ratemaking. But, he pointed out, there must also be a benefit to customers or else energy regulators won’t approve it — therefore, it behooves the utility to present a balanced plan. 

“We see this as a win-win for both,” he said.

Modernizing utility regulation or accelerating the buildout of gas infrastructure? 

The umbrella term of “alternative ratemaking” can include a suite of complicated mechanisms that do things such as tie customer rates to a utility’s performance (such as service reliability or average price for fuel in relation to peer utilities) or authorize future rate increases through a calculated formula.

It’s this last methodology, known as formula rate plans, that Southwest Gas is interested in, utility Senior Vice President Amy Timperley told Nevada lawmakers in May.

Formula rate plans are touted for their ability to reduce the frequency and costs of rate cases, reduce utilities’ financial risk and for making rate changes more gradual over time, rather than in a single, larger amount after a general rate case, according to a 2016 report compiled after the Texas Legislature required its energy regulators to analyze alternative ratemaking for electric providers. 

Many electric utilities utilize components of alternative ratemaking, but it’s a newer concept for gas utilities, according to Sarah Steinberg, managing director of Advanced Energy United, a national industry association.

To be most effective, she said, alternative ratemaking needs to encompass a package of reforms that ask utilities to think outside the box while moving states toward priorities, such as consumer protection or environmental goals. 

Formula rate plans by themselves fail to do that. 

“Formula rates kind of let the utility go on autopilot. They will go on with their business-as-usual spending,” she said. 

They can also shift financial risks on to customers, have less thorough review of utility costs by regulators and can reduce utility incentives to control costs between general rate cases, the Texas report found. 

For decades, if the utility invested in infrastructure, the utility would have to build it, wait until its next general rate case to seek approval for reimbursement of incurred costs from state energy regulators, then have to wait for a decision from those energy regulators before collecting those funds through rates to customers, something known as “regulatory lag” — although in 2023, Nevada legislation was passed that, in part, requires gas utilities to seek approval from energy regulators before construction.   

But that regulatory lag is a tool for consumer protection groups that rely on that time to examine the utility’s proposed costs. Under the proposed formula-based alternative ratemaking plan, opponents say the utility will actually have fewer reviews, ultimately leading to less consumer protection. They also point out that utilities can already address the issue of regulatory lag by filing general rate cases more often. 

But those additional rate cases cost utilities hundreds of thousands of dollars, Leedom said, plus the costs borne by state energy regulators and interveners. It also introduces regulatory fatigue. 

“There’s got to be a better way, and we feel like alternative ratemaking is the better way,” he said. 

Improved recovery or incentivizing overestimation of costs? 

After Southwest Gas was unable to piggyback onto the 2019 legislation greenlighting alternative ratemaking for electric utilities — “This is very narrowly tailored to an electric utility, and just not the appropriate vehicle for that concept,” Brooks said at the time — the gas utility shifted its focus to infrastructure-related legislation. 

In 2021, Sen. Nicole Cannizzaro (D-Las Vegas) introduced SB296 for a “gas infrastructure modernization plan”; that bill failed to pass. The following session, Sen. Skip Daly (D-Washoe County) introduced a similar concept in SB116 — it also failed to advance. Both pieces of failed legislation came amid a push for decarbonization the utility viewed as threatening its business model. 

This session, the utility pivoted back toward its push for alternative ratemaking, and, despite containing a fiscal note estimating more than $1 million that would add minor costs to ratepayers, SB417 passed unanimously out of the Senate in April. But the bill wasn’t voted on by the Assembly until the last day of the session with a 36-6 vote, with six Democratic lawmakers opposed.

In the days leading up to the end of the session, records obtained by the Energy & Policy Institute found that Southwest Gas President Justin Brown sent a letter to Lombardo stating that the bill “promotes regulatory innovation” and gives utilities “tools that can reduce the frequency and cost of rate cases, improve rate stability for customers, and allow for more timely cost recovery.” 

Just two days later, Dylan Keith, Southwest Gas’ senior manager of government affairs, drafted a letter to Lombardo to “humbly request” his signature on the bill.

Lombardo signed the bill the following week. 

In a release following the bill’s signing, Southwest Gas CEO Karen Haller said the move would lead to “improved timeliness of recovery of our costs.” 

Opponents counter that it’s just a way to earn a rate of return for its shareholders faster than it would under the current method.

It also puts a “much bigger question mark” on the relationship between Lombardo and Southwest Gas, Conroy said. “Lombardo has this relationship with Southwest Gas that we've seen have a negative effect on Nevada's climate goals in the past.”

SB417 wasn’t Southwest Gas’ only win in the past year. In late 2024, the Arizona Corporation Commission voted to adopt a formula rate policy, despite opposition from the Attorney General of Arizona and watchdog groups. Southwest Gas is the largest natural gas provider in Arizona.  

An opportunity for state regulators 

Southwest Gas is still a long way from being able to implement alternative rate making in Nevada. 

State energy regulators must first determine and adopt what that would look like — the rulemaking docket just opened in July. Once the rule is finalized, Southwest Gas would have to apply to be able to utilize it. For context, the rulemaking for SB300, the 2019 bill that applies to electric utilities, still hasn’t been finalized.

In Nevada, with Southwest Gas the dominant gas provider and NV Energy the dominant electricity provider, state energy regulators stand in for the competitive marketplace that would help control prices in non-monoply situations.

Now, it’s up to those state energy regulators to draft a strong framework that works for customers and toward state goals, Steinberg said.

“There’s an opportunity here for [state energy regulators] to say what they want these plans to look like and say, ‘Hey, Southwest Gas, if you want alternative ratemaking, you have to play within these rules.’” 

If energy regulators draft a strong enough framework, “utilities won’t want to play ball,” she said.