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October 25, 2014

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J. Patrick Coolican:

NV Energy has power to seek a rate hike — and blur the details

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Christopher DeVargas

Occupy Las Vegas demonstrates in front of NV Energy, speaking out against rate increases, Wednesday Nov. 9, 2011

J. Patrick Coolican

J. Patrick Coolican

There were as many police officers as protesters when I left a recent demonstration at NV Energy. But if people in Southern Nevada knew more about the electric utility rate hike, I think there would have been thousands there.

The Public Utilities Commission will decide soon on the company’s general rate case, which it submitted in June.

The company seems to have muted the outrage because even though it asked for a general rate increase of 24 percent on single-family homes beginning next year, our bills wouldn’t go up very much, at least for now. The monthly bill for the average single-family residence would increase from $140 to $147, but you should feel little relief from that small increase — it’s a mirage.

Rates increased 3.4 percent in July to pay for energy efficiency. (We use less energy but the company gets compensated as a way to encourage conservation efforts.)

And despite the rate increase request, the utility would keep bills down out of sheer luck: Natural gas prices are down, so its cost of electricity generation is down.

But there’s something going on here. NV Energy estimates the cost of natural gas, and we pay ahead of time. If gas prices are lower than expected, the company owes us money. And that’s the case here. They owe us money — about $88 million.

The company had wanted to give us our credit at the same time it raised our rates, which would have masked the increase in rates. But the regulators, the Public Utilities Commission, wouldn’t allow it, and forced the company to start paying us back last month.

What does this seem like to you? To me, it’s like my coffee company owes me money because I bought beans in advance and the price of beans is down, and just as it starts to pay me back for overpaying on beans, it raises the price of cups, water and the barrister labor.

All told, NV Energy is proposing to charge Nevada customers an extra $249 million. Why shouldn’t we think of this as a tax?

I guess we’re supposed to feel better because the company is proposing to defer $79 million we would owe until a later date. Except, we would have to pay interest, though the company hasn’t said what the rate would be. Imagine if your grocer said, “No, only pay me some of the money now. Pay the rest later. With interest.” Is he doing you a favor?

The company is also proposing to make a higher rate of profit, which calls to mind John McEnroe — “You’ve got to be kidding me!” Because the company is a monopoly, it is heavily regulated by the Public Utilities Commission, which sets rates and the company’s return on equity. NV Energy has asked that its return on equity increase from 10.5 percent to 11.25 percent. So at a time when Nevada households and businesses are all treading water in volatile economic seas, the electric monopoly wants more profit. This is the gall of the teenager asking for the car keys and then coming back for whiskey money.

Tony Sanchez, the company’s head of government affairs, said in an interview in June that the company’s return on equity is one of the lowest in the country, which explains its stagnant stock price. To which I say, so what? (Anyway, the stock was $10.32 on Jan. 2, 2009. It’s about $14.50 now — a 40 percent increase.)

In the same interview, Sanchez said the company made significant investments in electrical generation last decade that has paid off handsomely for consumers because the plants are more efficient, they use cheap natural gas, and they’ve given us a measure of independence because we don’t have to go out on the open market looking for electricity. He said that given the foresight of those investments, the company and its investors should be rewarded.

But due to historically low interest rates, the weak economy and economic instability, investors are begging to park their money in Treasuries and other safe investments — such as regulated utility monopolies — in exchange for lower rates of return. Lower risk, lower return. It’s an ironclad law, and there’s no reason for the PUC to give NV Energy any increase in its return on equity.

The only reason any of this is even being discussed is the sheer clout of NV Energy. One would think that the utility monopoly, to which we all send big checks every summer, would be a favorite target of populist politicians of both parties. One would think. But NV Energy has given more than $900,000 to political candidates the past three election cycles, nearly all of it to incumbents, according to the Institute on State Money and Politics. Sanchez said the giving isn’t partisan. And that’s the whole point. The company has access to both parties.

The Nevada political world was set aflutter when Gov. Brian Sandoval this year vetoed a renewable energy bill the company wanted. (Details of the bill’s passage probably sank it — it passed in the final hours of the legislative session in an act of sausage making that would have made Upton Sinclair’s stomach turn.)

But the reason people were surprised by the veto was because of the company’s considerable influence. NV Energy’s key lobbyists, Pete Ernaut of R&R Partners and Greg Ferraro, who runs his own firm, persuaded Sandoval to run for governor. (They also represent the Nevada Resort Association.) Sandoval was once an attorney advocating for higher power rates on behalf of utility shareholders, a group widely seen as a proxy for company management.

Sanchez sits on the board of Nevada Partners, a nonprofit group, with state Senate Majority Leader (and congressional candidate) Steven Horsford. I could go on.

There’s nothing nefarious about any of this. In fact, given our need for safe and stable electrical generation and desire to expand renewable energy generation, I want our elected officials to have a good working relationship with the power company.

But let’s get something straight. It’s a utility monopoly. It’s not like they’re competing with Steve Wynn or Sheldon Adelson. In fact, they’re not competing with anyone. This is a no-brainer: The Public Utilities Commission should cut ratepayers some slack.

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  1. That $249 million represents added income and profit for the stockholders and owners.

    The direct result is that the executive management, i.e. Michael Yackira get bonuses, raises, stock options and other income increases for increasing profit.

    Anytime the management increases the owner's profit, they are also due an increase - but when the company goes into debt, they keep their increases. This is standard procedure in business: justifying increased executive earnings because of increased 'stockholder' earnings.

    Then they tell you they 'earned' their raises. How? By raising rates 24%? A shoplifter gets 30 days in jail for stealing $50, and the jail time costs the taxpayer about $2,200. The NVEnergy Executive bumps up the bill $50 and gets a raise. Go Figure.

  2. All that Coolican writes may be true but, if you work with (not for) the electric company and take advantage of the ways they offer to shave your electricity use and, therefore, your bill, you will be a lot happier. I know, I am. I enrolled in "cool share" & "time of use" and, even as rates have risen, I've reduced my power bills by about 25%. I also installed ceiling fans (allowing me to remain comfortable while turning up the thermostat in summer) and I replace burned out incandescent bulbs with flourescents. I took positive action and it has worked for me. You can do the same.

  3. I'm not generally supportive of the Occupy Whatever City folks but in this case I'm glad they are bringing some additional attention to NV Energy. It is my impression that NV Energy is not completely forthcoming. In a competitive industry I usually take the Caveat Emptor point of view but NV Energy is a regulated monopoly with possibly disproportionate influence over their regulation.

    I say this because there seems to be at least one rate increase request pending at all times and often more. Apparently rather than taking a bottom line position NV Energy finds it easier to achieve their ends if they divide rate increase requests by category or reason, hence the confusion often expressed over what their current status is. How many rate increases are pending now? How many have their been in the last 1,2, or 3 year? What we were they for? Did the big discussion over one increase intended to pay for power supplied to California obscure others? What that its intention?

    I suspect this divide and conquer strategy works well with both the public and state regulators as they and we have been conditioned to consider requests separately. Like many valley residents, having had the requirement to live in different locations I've seen what competition brings. I'm still receiving annual checks from a co-op I left in 04; imagine NV Energy sending annual checks to customers after 7 years.

    In those areas where consumers have a choice rates tend to be lower, particularly when an energy co-op is one of the choices. Co-ops like Credit Unions tend to work for their members better than for profit providers for their customers. I'm not against profit. In a competitive environment with numerous consumer choices I would have decidedly less to say, but in a noncompetitive one where our fate rests in the hands of a company whose loyalty is to share holders and investors (as it should be) AND the state regulators who are subject to political considerations, we as customers are at their mercy with little recourse.

    Public meetings and comment periods are better than nothing but of little use to the average citizen who hasn't the time or resources to have a real grasp of the total picture or anything to compare it to, including me.

    I believe our long term energy security lies in achieving a competitive energy environment, especially if it includes one or more cooperatives. NV Energy would no doubt have numerous reasons why I'm wrong and that is to be expected. Competition would if nothing else force them to better justify their actions to their customers.

  4. "This is the gall of the teenager asking for the car keys and then coming back for whiskey money."

    Line of The Day is brought to you by....J. Patrick Coolican.

  5. I HAVE CUT MY ELECTRIC BILL IN HALF. In some months I've cut it by 60%. I am a bachelor. I live in a 950 square foot two bedroom apartment. I found the circuit box that contains the electric circuit breakers for my apartment. When I leave for work in the morning I turn OFF all the circuit breakers except for the refrigerator. When I come home in the evening I turn them all back ON. If I leave for an extended period of time on the weekend I do the same. My electric bill has gone from $60 - $70 per month to $30 - $35 per month. This should also work for bachelorettes and couples who work the same shift or are away from home for extended periods of time. Don't worry about your in-house network or computers. All will reset automatically when you turn back on the circuit breakers.

  6. This is a good example of what happens when the "Regulator" does not have staff experienced enough in the industry to be able to accurately analyze the regulatee's operations. They function as rubber stamps at best, or as facilitators at worst.

    Here we are once again, with the cost of capital at all time lows, the cost of inputs (natural gas and coal are the main sources of fuel) at lows -- and Nevada Energy wants to make more money so that their stock price will go up (and their top executive compensation can be increased).

    Currently, Nevada Energy has a yield of 3.58%, which is 2.6% above the interest earned on a "high interest" savings account, 1.56% above the yield on 10 year U.S. treasuries, 3.47% above one year U.S. Treasuries (constant maturity), and 3.565% above 90-day U.S. T Bills. What, exactly,l is the business necessity which requires them to pay a greater dividend? This rate increase seems to serve no public interest and no business purpose.

  7. There is no need for talk of any economic development for Southern Nevada if we have the Highest Water and Electric Rates along with the Lowest Ranked Higher Educated population of any major city.

  8. Not only are Nevada Energy's rates making it really expensive to live here, but they make it uneconomic for many businesses to relocate here. Even the casinos go outside to buy electricity at lower rates and bring it in on the grid. If the casinos can import cheap power, we could too. It just needs a buy large enough to get good pricing. Clark County could probably form its' own utility which could make the buys and distribute the power over Nevada Energy's local grid for much less than we pay now.

  9. I passed a NV Energy van today and on the side of it, it said "Save Energy, Save Money." I definitely see the irony in that statement as they are trying to get us to save energy by using different light bulbs and other energy efficient appliances (which I agree for the environment's sake is a must). But turning around and saying since they didn't sell as much energy their profits were down, so they need to raise rates is a bunch of BS. Tell me what business in this economy still gives raises to their employees and turns a profit quarter after quarter, year after year.

  10. Note to protesters: check your spelling before displaying signs.
    The guy on the right is unaware of the correct use of the word "your". Sign should read "you're".
    I bet he's really confused when he has to write "their", "there", or "they're"!