01-05-2025
Citizen groups pan, business interests praise proposed rate process for Southwest Gas
Warnings the bill could harm consumers notwithstanding, the legislation passed the state Senate unanimously. (Photo: Jeniffer Solis/Nevada Current)
A bill before state lawmakers would allow Southwest Gas and other natural gas utilities in the state to ask the Public Utilities Commission to depart from traditional rate-setting in favor of alternative rate-making, a policy shift that could pose a cost burden to customers, according to opponents.
Southwest Gas currently applies for rate increases via a general rate case every three years, in which the PUC analyzes the utility's expenses and revenue requirements, and adds in a permitted rate of return for the company.
Alternative rate-making allows the utility to submit a rate plan determined by additional factors, and potentially extend the rate, which could be automatically adjusted via a predetermined formula, for longer than three years.
'Nothing in this bill removes any of the PUC's authority over the rate-making process. It does not issue Southwest Gas, or any other natural gas utility, a blank check to raise rates on its customers,' said Scott Leedom, director of regulation and public affairs for Southwest Gas, at a hearing before the Senate Committee on Growth and Infrastructure in April.
Senate Bill 417 suggests a number of rate-making mechanisms for which natural gas utilities could apply:
Performance-based rates, which are tied to outcomes, such as a utility's ability to reduce carbon emissions or increase efficiency. The utility's success in achieving the goal determines the rate;
Decoupling, or disassociating a utility's financial results from the sale of natural gas, thereby eliminating the utility's incentive to promote consumption; and,
Multi-year rate plans, which call for the PUC to set rates beyond the three-year duration set in general rate cases.
An amendment to SB 417 proposes allowing the PUC to establish methods to automatically adjust rates based on a pre-determined formula. The formula can include a method to recover the costs of capital expenditures, be adjusted for accumulated depreciation, deferred taxes, property taxes 'and any other costs established by the Commission.'
Proponents suggest formula rates streamline the lengthy and complicated process of a general rate case.
Alternative rate-making creates more predictable rate changes and lowers administrative costs, with the savings passed on to consumers, Leedom said, adding rate changes would 'potentially no longer have the cumulative stair-step increases to reflect the cost of providing service and rates. Instead, these adjustments would be smoother and incrementally smaller.'
Proponents, which include the Retail Association of Nevada, the Nevada Trucking Association, and a variety of chambers of commerce, cited predictability and the potential for lower costs in their testimony supporting the measure.
SB 417, they contend, mirrors a 2019 bill sponsored by then-Sen. Chris Brooks, which allowed electric utilities to apply for alternative ratemaking. The measure was signed into law by then-Gov. Steve Sisolak.
'It is not a mirror of SB 300,' said Ernest Figueroa, Consumer Advocate and Chief Deputy Attorney General of the Bureau of Consumer Protection. The measure, unlike SB 300, Figueroa said, does not state how the plan 'aligns an economically viable utility model to state public policy goals.'
Additionally, Figueroa said he believes the inclusion of provisions regarding formula rates 'unfairly tips the scales in the utility's favor to the detriment of the ratepayer.'
Other opponents, including the Sierra Club and the Nevada Environmental Justice Coalition, argue the proposed process is opaque.
Kristee Watson of the Nevada Conservation League noted that lawmakers, in the 2023 legislative session, established an integrated resource planning process for natural gas utilities. Southwest Gas is slated to file its first IRP this summer. Watson said that process should be permitted to play out before considering alternative rate-making.
'This is not the time to give gas utilities more tools to raise rates with less scrutiny,' she said.
Last year, Arizona's five-member elected body of utility regulators passed a measure approving formula rate plans for utilities, including Southwest Gas, which also operates in that state.
'Consumer advocates in Arizona and nationally have warned against ratemaking plans that reward utilities for engaging in high risk planning that can often lead to devastating consequences for ratepayers,' reports the Energy and Policy Institute.
Jermareon Williams, government affairs manager for Western Resource Advocates, an environmental nonprofit, testified that general rate cases 'act as safeguards for customers and shelter them from unneeded investments a utility may choose to pursue to increase their profits.'
The Senate passed the measure 21-0.
Reno resident Bari Levinson, a member of the Energy Coalition, testified that former Nevada Consumer Advocate Jon Wellinghoff, who also served as a member of the Federal Energy Regulatory Commission (FERC), opposes the measure. In a statement read by Levinson, Wellinghoff said that giving Southwest Gas 'the right to have their rates set on a future test year with estimated costs used to set rates charged to customers, rather than using actual known and experienced expenses will definitely drive up costs for consumers. We do not want our rates to skyrocket like they have in California.'
California began decoupling electric and gas rates in the early 1980s.
Sen. Rochelle Nguyen, who chairs the Senate Committee on Growth and Infrastructure, asked PUC attorney Garret Weir if the bill lacks guardrails present in SB 300, as opponents asserted.
Weir, who testified in neutral, said he was unaware of any guardrails in SB 300, but noted the PUC imposed 'robust regulations' via rulemaking. He also noted the legislation only allows natural gas utilities to apply to the PUC for alternative rulemaking.
'Ultimately, the commission would still have the obligation to ensure that any rates adopted pursuant to this statute were just and reasonable and in the public interest,' he said.
