Wednesday, April 10, 2013 | 2 a.m.
NV Energy surprised the nation last week with an announcement that it’s divesting from coal and investing in natural gas and renewable energy.
While many applauded the move away from coal, the announcement also spurred criticism that it would precipitously raise rates.
How legislative action has affected energy bills has been in the spotlight recently, after Public Utilities Commissioner David Noble fired a broadside at the Legislature for passing renewable energy mandates that he says are driving up rates.
But renewable energy advocates — including many lawmakers — say such investment will deliver lower rates over time and will help the environment and health of Nevadans.
So who’s really to blame for high rates?
Nevadans already pay nearly the highest power rates in the Mountain West region. The $104.10 average monthly bill comes in second only to Arizona, where residents pay an average of $118.62 per month.
(A different estimate specifically for Southern Nevada puts the average monthly bill at $149.24.)
So what’s driving energy costs in this state?
Here are the five big factors affecting your power bill:
Cheap natural gas
The bulk of your power bill comes from a simple equation: the going rate for power multiplied by how much energy you use.
The average Nevadan doesn’t use a lot of energy, partially because Nevadans have scrimped during the recession and have used less power. In fact, Nevada ranks 41st in the nation in energy usage.
But Nevadans pay more than the average American for the energy they do use. Nevada has the 18th highest energy rate in the nation.
Still, it could be worse.
“Cheap natural gas has kept rates down,” said Dan Jacobsen, consumer advocate for the Attorney General’s Bureau of Consumer Affairs.
Because Nevada gets two-thirds of its energy from cheap natural gas, energy costs have come down even as NV Energy has increased other costs.
But it’s arguably too good to be true. Articles about a “natural gas bubble” abound. If something happens to spark a spike in natural gas prices — if the bubble pops — Nevada energy customers could be in trouble.
“We’re so overleveraged on natural gas,” said Assemblyman David Bobzien, D-Reno, who chairs the Assembly Commerce and Labor committee. “If we’re not doing enough on renewable energy, then we’re really going to be caught.”
Paying more for using less
More efficient appliances, light bulbs and windows, as well as other programs that allow you to use less energy, come at a cost because the utility charges all ratepayers for the energy you’re not using.
“They get to charge customers for the sales that they didn’t make,” Jacobsen said. “The cost of subsidizing the energy efficiency, whether it's light bulbs or more efficient air conditioners, is a cost ratepayers had to bear.”
The practice of using less and paying more began following the passage of a bill in 2009.
(It’s the “Energy Efficiency” charge on your bill.)
NV Energy argues that the efficiency charge costs ratepayers less than what it would cost for the utility to either buy or generate the electricity that would be needed to meet the demand absent the efficiency programs.
“Efficiency has historically been both the cheapest and cleanest way to meet customer energy needs and to meet the Nevada renewable standard,” NV Energy spokesman Rob Stillwell said.
Bottom line, an analysis from the Public Utilities Commission shows that this charge accounts for about 4 percent of the average bill, or $5.68.
Renewable energy mandates
Commissioner Noble said last month that NV Energy customers are “maxed out” on various mandates the Legislature passes.
Several of these mandates include renewable energy programs.
The state’s “Renewable Portfolio Standard” requires the utility to buy renewable energy, even when it’s not the most cost-effective means to provide energy to ratepayers.
The state also mandates charges for renewable energy subsidies and development. They comprise a percentage of your overall bill.
The Public Utilities Commission estimates that renewable energy mandates accounted for about 4.1 percent of the average bill in Southern Nevada last year.
That’s $5.83 a month.
NV Energy construction costs
In two broad categories, the utility can either buy power from a third party or own and operate power plants.
NV Energy has invested in the latter, adding 3,700 megawatts of gas-fired generation in the past decade, said Bob Johnston, a lawyer representing renewable energy companies in Nevada. Of that, 1,800 megawatts are in Southern Nevada, according to the company.
So while energy costs have been decreasing because of cheap natural gas, the utility’s construction and operations expenses have increased, meaning rates have remained relatively flat during the past five years.
The upshot for the utility’s shareholders is that the utility collects a return on its construction investment.
That’s good for shareholders. NV Energy doubled its year-over-year profit in 2012.
“Utilities make money by building stuff,” said Luke Busby, a renewable energy lobbyist, at a hearing April 1. “They receive a return on equity for a system they built.”
The utility company has spent about $2.4 billion during the past 10 years. This is a cost that ratepayers pay for, with interest.
Franchise fees and energy assistance programs
Local governments charge a flat “franchise” fee to you, the ratepayer. Local governments also charge the utility company a fee to do business in their jurisdictions, a cost that is passed on to ratepayers.
The other fee you will likely see on your bill is the “UEC” charge, or Universal Energy Charge, which gets deposited into a state fund for energy assistance for low-income Nevadans.
It’s a fixed charge that hasn’t changed during the past five years for NV Energy customers. It comprises 0.3 percent of an average bill while the local government fee totals about 5 percent of the average bill.
Bottom line, these two charges combined add about $7.53 to the average bill, according to a Public Utilities Commission analysis.