NV Energy wants Las Vegans to subsidize wealthier Northern Nevadans

Rate scheme incentivizes waste, expense padding by utility, say experts
NV Energy is asking regulators to saddle ratepayers with more than $30 million in expenses the company chalks up to preventing damage from natural disasters, including what experts deem wasteful spending, such as lavish dinners and an outreach event at a Lake Tahoe casino that cost $5,222 and drew ten people.

 “Because OMAG expenses receive a rate of return, there is little incentive for the company to limit spending which could create a perverse incentive to spend,” Nichole Loar, financial analyst for the PUC, said in recently filed testimony with the regulatory agency.(Photo: NV Energy National Disaster Protection Plan brochure)

by DANA GENTRY, Nevada Current
The company’s Natural Disaster Protection Plan (NDPP), submitted every three years, satisfies a legislative mandate passed in 2019 to mitigate the impacts of fires in areas with the highest threat, mostly in Northern Nevada. Critics contend the scheme creates an unfair burden on customers in Southern Nevada, and they fear the utility is padding expenses in an effort to earn higher profits.

The utility is proposing a statewide rate to recoup operating, management, administrative, and general (OMAG) costs associated with its disaster protection plan. Should it succeed, Southern Nevada customers will subsidize those in the north to the tune of just under $20 million for expenses incurred last year. A consumer session is scheduled for Tuesday at 6 pm.

NV Energy projects it will spend $373 million on disaster preparedness in the next three years – $171 million for capital expenses, primarily in the north. The utility stands to earn $9.5 million over three years just on OMAG costs, according to testimony provided to the Nevada Public Utilities Commission.

“The potential implications of a disaster on the Nevada economy are significantly greater than the cost of mitigation through the NDPP program,” Jeremy Aguero, principal analyst for Applied Analysis, testified on behalf of NV Energy. “That said, there is not perfect alignment between where disasters are likely to take place and where the company’s customer base is concentrated.”

Aguero, citing the societal benefits of a statewide rate, noted the state, “as a matter of policy to protect people, property and the environment from potential disasters,” will likely need to address disaster mitigation “in a manner similar to how the state treats education, public safety, transportation or health care by distributing the costs statewide or through Super Regional cost recovery zones.”

“Mr. Aguero makes an unsubstantiated justification that if a state government can redistribute taxes, there is ‘clear’ precedent for a private entity, which earns profit and carry, to do the same,” countered Patrick Morton, senior economist of the Bureau of Consumer Protection.

“In his testimony, Mr. Aguero attempts to provide an analysis… but ultimately fails,” Morton testified, adding the analysis “is questionable and is better characterized as an attempted analysis that ultimately falls short of the Commission’s requirements.”

Aguero did not respond to requests for comment.

“A single rate is exactly the cost effective strategy and method the Nevada Legislature intended,” Sen. Melanie Schieble, then-Sen. Chris Brooks, and Assemblywoman Danielle Monroe-Moreno wrote in 2020 to the Public Utilities Commission as it contemplated a statewide disaster protection rate.

David Chairez of the Bureau of Consumer Protection testified 88% of the 2022 NDPP OMAG expenses were incurred in Northern Nevada for the direct benefit of those customers. Chairez says the proposed rate results in Southern Nevada customers paying 67% of the 2022 NDPP O&M Expenses even though only 12% of the expenses were incurred in the south.

Chairez projects the cost shift would result in Southern Nevada customers providing a $19.6 million subsidy to customers in the north for 2022 NDPP expenses. He testified the PUC has already approved $47.6 million in subsidies from Southern Nevada ratepayers to the utility’s customers in the north in the first three years of the NDPP mandate.

According to Chairez, the subsidy would add about $1 a month to the bills of each of the utility’s half a million residential customers in Southern Nevada, who are already paying a subsidy of $1.50 a month on behalf of their northern counterparts.

Experts testified the subsidy is unfair because it burdens Southern Nevadans, who have lower incomes and higher power bills than ratepayers in the north.

Residential customers in Southern Nevada had an average monthly bill of $193.57 in 2022, compared with $130.02 in the north.

Chairez said the company’s effort to “shift costs onto customers with higher monthly bills… is perplexing and inequitable…”

“The implication that NPC (Nevada Power Co.) customers have a greater ability to pay for NDPP costs, and therefore, ought to be allocated additional costs of performing vegetation management and wildfire mitigation in Sierra Pacific Power Company’s service area, is misleading in terms of per capita personal income,” testified Brad Mullins, an energy consultant representing Wynn Las Vegas, noting “Reno and Carson City had per capita income of $71,489 and $60,445, respectively.” In contrast, he said, Southern Nevadans had a per capita income of $58,276 in 2021, according to the Bureau of Economic Analysis.

“It is a valid observation that economic activity is greater in the south, and that the potential for wildfire disaster is greater in the North,” Mullins testified. “The conclusion that customers in the south ought to pay more because of this relationship, however, ignores the fact that it is the electric service infrastructure in the north that is creating the disaster risk in the north, and the thing being mitigated through the NDPP.”

‘Perverse incentive’

NV Energy’s 2022 NDPP filing with the PUC seeks compensation in the form of higher electricity rates for 45,000 line items of OMAG totalling $31.5 million, plus $4.7 million in carrying costs – the amount the utility pays to front the money for customers.

NV Energy is permitted to earn a profit on OMAG expenses. It also earns the most recently state authorized rate of return on carrying costs – 7.14% for Southern Nevada and 6.75% in the north.

“Because OMAG expenses receive a rate of return, there is little incentive for the company to limit spending which could create a perverse incentive to spend,” Nichole Loar, financial analyst for the PUC, said in recently filed testimony with the regulatory agency.

“All expenses filed related to the Natural Disaster Protection Plan (NDPP) were legitimately occurred expenses related to community outreach and engagement. These expenses would not have occurred if not for providing support for NDPP,” utility spokeswoman Meghin Delaney wrote in a statement. “Taking an active role in natural disaster and wildfire prevention in Nevada’s electrical infrastructure requires community outreach and is required in the NDPP, both for large events for the public and day-to-day interactions with fire officials and other key stakeholders. ”

Critics, including Loar, contend NV Energy is padding the NDPP costs in order to increase its earnings.

“Receiving a rate of return on expenses is not a common practice for utilities in the State of Nevada; additionally, the Company receives carry for each month OMAG expense sits on the company’s books with no offsetting,” Loar testified. “Mathematically, this results in carry being charged month after month until the utility is granted an NDPP rate to collect from (in October of the following year).”

Loar sampled invoices submitted by NV Energy and discovered “numerous items of concern to me, expenses that I believe are more properly recovered to a general rate case, or I believe are imprudent for recovery.” She said NV Energy’s NDPP expenses need to “be scrutinized so that they are to be found just, reasonable and prudent.”

Loar and others are asking the PUC to disallow many of the utility’s requests, and order NV Energy to cease practices such as contracting with rural fire agencies to provide capital costs and full-time funding for fire department personnel – a function better left to local taxpayers, critics contend.

“NV Energy has established critical contracts with state fire agencies to provide vegetation management and ground clearing work around NV Energy’s lines,” Delaney said. “By utilizing trained wildland fire personnel for these projects, they can also quickly be deployed by those fire agencies if fires occur throughout the state. These contracts realize substantial savings compared to other vegetation management contractors.”

Residential customers in Northern Nevada have seen a 61% rate increase in the last three years, while Southern Nevada customers have endured increases of 52% in the same time, Loar testified, adding she hoped to “illustrate the importance, more now than ever, for the need of just, reasonable, and prudent spending especially pertaining to O M A G expenses that receive carry.”

Examples of wasteful spending cited by Loar include $2,274 for banquet food at a community outreach event at the Hard Rock in Incline Village attended by ten members of the public. The total cost of the event was $5,221.

Loar testified she has no problem with the company providing “simple refreshments like water, lemonade and chips,” but says banquet catering is not “reasonable (especially with carry), nor do I believe the average rate payer is aware that these expenses are being charged back to them, (with a carry).”

She also objected to the company’s effort to recoup more than $2,000 in travel expenses for two employees not assigned to NDPP functions.

NV Energy is seeking rate compensation for an NDPP fire mitigation specialist’s travel expenses of more than $43,000 in 2022. Loar suggested the purposes of the trips, which included discussions with congressional officials, “may be viewed as lobbying efforts (seeking to influence politicians or other officials.)”

Loar also recommended the PUC disallow more than $900 NV Energy’s fire mitigation specialist spent wining and dining public officials and others, including a bill for $257 at Bimini Steakhouse in Reno for a meal shared with two fire officials from Elko County and Truckee Meadows.

The meal included a $65 New York steak and a $40 tip, according to Loar.

“NV Energy works in conjunction with local and state entities to ensure open lines of communication and coordination to protect Nevada’s communities,” Delaney said on behalf of the company. “Employees working in the program are required to travel across the state to oversee projects, meet with key stakeholder and customer groups, and coordinate with local government and emergency management officials.”

NV Energy is also seeking to recover expenses for 2021 in its NDPP filing for 2022, including more than $44,000 in lodging at the Hard Rock in Lake Tahoe for “Lodging for numerous crews and fire support personnel during Caldor Fire,” according to invoices included as exhibits in Loar’s testimony. That fire occurred in August 2021 in California and did not burn any part of Nevada. Loar testified NV Energy failed to transparently report expenses and the amount it received in grants to offset costs related to the Caldor fire.

The PUC hearing on the rate request begins July 17.

DANA GENTRY, Nevada Current

Dana Gentry is a native Las Vegan and award-winning investigative journalist. She is a graduate of Bishop Gorman High School and holds a Bachelor's degree in Communications from the University of Nevada, Las Vegas.