NV Energy rate increase gets commission’s OK

By Alexandra Berzon

Published Wednesday, June 24, 2009 | 12:18 p.m.

Updated Wednesday, June 24, 2009 | 3:16 p.m.

Southern Nevadans will see their monthly electricity bills increase an average of $10.29 per month over the course of a year following an order adopted by the Public Utilities Commission at a meeting Wednesday morning.

That's a slight increase from the proposal in a draft order issued last week from one of the commissioners.

In the final order, the PUC is allowing the utility NV Energy to increase its revenues $221 million based on the company's recent capital investments. That's 73 percent of the additional $305 million NV Energy had asked to earn from ratepayers. It translates into a residential rate increase of 12.4 percent for the portion of the bill that's based on the company's capital investments. NV Energy had asked for a 16.7 percent residential rate increase for those investments.

But after factoring in the decline in fuel costs, ratepayers will see their bills rise 6.9 percent. Natural gas costs have come down rapidly since a sharp rise last summer.

Normally, the fuel and the capital cost rates are determined in separate processes. Commissioner Sam Thompson decided to collapse them into one order so ratepayers don't become alarmed and think their bills will rise more than they really will.

He and Commissioner Rebecca Wagner voted in favor of the order Wednesday.

A third commissioner, Jo Ann Kelly, recused herself from the case due to a conflict of interest.

Wagner and Thompson explained that in making their determination, they are stuck in a tricky dance. They must protect ratepayers during what Thompson called "the worst economic climate Southern Nevada has ever had". But they also are instructed to maintain a strong financial position for the company so it doesn't have its credit ratings downgraded, which would make it harder to find financing for new projects.

Seated next to Wagner at a podium in a hearing room at the NV Energy offices before a small audience made up of utility executives, PUC staff members, representatives from the attorney general's Bureau for Consumer Protection office and others, Thompson said he understands the burden on families that the rate increase presents. But, he said, he also had to factor in a fair return for the company's investors. Residential ratepayers, he said, "are at or near their ability to absorb rate increases, against the economic backdrop in this state. We have to be cognizant of that. I have to balance those interests against the need to have a healthy and financially fit utility to provide services to the citizens of Nevada."

Thompson initially had determined that NV Energy should receive a 10.4 percent return on its capital investments. But Wagner countered that a 10.5 percent return would look better to Wall Street. The company is currently allowed to earn back 10.7 percent on investment and had asked for an 11 percent return.

Despite previously stating that ratepayers could not handle any additional increases, Thompson eagerly agreed with Wagner's assessment. The impact of the higher rate of return would be minor on each individual household, Thompson reasoned.

For the company, the difference is $3.7 million more in revenues.

Thompson designed the residential increase to come in phases, with the first portion in effect in July, and the second portion kicking in in January, after the costly summer months are over.

In the next rate hearing in a couple years, the company will request to receive profits back from the $85 million that it will lose from that phased-in approach.

The rate increase for commercial subscribers was not released Wednesday. It is less steep than the residential increase because the PUC has been trying for many years to narrow the gap between electricity rates for households and those for businesses.

Some call it a "subsidy" of residential electricity rates from businesses, and whether it really exists is a matter of some debate. Others say it's even more dramatic than previously believed. Thompson said after the hearing that he was ordering a study to sort that out.

The final order followed weeks of hearings that Wagner said was unlike anything she's ever seen before.

She's been nervous about this case since it was first filed, she said, "but the abundance of evidence in the record made my job a lot easier."