NV Energy plan would impose big, new hidden costs on ratepayers

Executive Summary

 Four key points:

  • NV Energy's NVision plan would increase the cost of electricity and reduce regulatory oversight by the Nevada Public Utilities Commission while incentivizing waste and inefficiency.
  • There is no cap on rate hikes caused by an increase in natural gas prices, which are historically volatile. These quarterly "fuel-cost adjustments" would not be part of general rate hearings.
  • Ratepayers would have to reimburse NVEnergy for constructing new power plants and also pay NV Energy for the capital costs of coal-fired power plants it's no longer using and even for stockpiles of coal it has purchased but no longer wants to use.
  • Economic modeling of a similar plan in Colorado found that Colorado ratepayers would pay between 11 to 50 percent more for power and that this would result in the net loss of between 280,000 and 1,180,000 jobs.

Introduction

NV Energy wants to replace existing power plants before their usefulness has ended and for consumers to not only pay for the new plants, but also to pay more in perpetuity.

A version of the plan, dubbed “NVision” by the utility’s public relations team, was first proposed to the state Public Utility Commission in 2012. When the PUC rejected the proposal, the company took it to Sen. Kelvin Atkinson and Assemblyman David Bobzien, who introduced it in the Nevada Legislature’s current session as Senate Bill 123.

If enacted, NV Energy’s legislation would require the firm to close down at least 800 megawatts (MW) of coal‐fired electric generation capacity before the standard decommissioning date — after having constructed new renewable and natural‐gas‐ fired power plants to replace that lost capacity.

Electric ratepayers in Nevada should find the plan alarming, since a component of the rate structure would reimburse NV Energy for the construction costs associated with building new power plants.

In other words, ratepayers would not only have to reimburse NV Energy for the costs of constructing the new renewable and natural‐gas‐fired power plants, but they would also be on the hook for all un‐depreciated and decommissioning costs for the coal‐fired plants that NV Energy now wants to close prematurely. The utility even wants to be compensated for the stockpiles of coal it has purchased, but no longer wants to use.

Senate Bill 123 also proposes to remove many of the utility’s decisions about replacing its coal‐fired power plants from the regulatory oversight of the Nevada Public Utilities Commission. Language from the first reprint of the bill states that the “Commission shall accept any element” of a capacity replacement plan that is consistent with the legislation, regardless of its potential impact on rates or reliability of service.

Such automatic deference to the state’s electric monopoly puts ratepayers at substantial additional risk. While electricity produced from both coal and natural gas is currently inexpensive in comparison to electricity produced through other means, fuel prices for natural gas are much more volatile than for coal.

The U.S. Department of Energy predicts that natural‐gas prices could more than double by 2040, growing from the 2013 opening price of $3.25 per million BritishThermal Units (BTU) to $7.83. Over the same time period, coal prices are only projected to increase from $2.13 to $3.08 per million BTUs. Since power plants typically have a 30‐ to 40‐year life cycle, both long‐term cost growth and short‐term volatility have been valid concerns of regulators.

Because the NVision plan would push aside these cost concerns, it has prompted sharp criticism from both the Nevada Public Utilities Commission and the state’s consumer advocate.

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Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.