Dana Gentry

(Nevada Current) An order from the Nevada Public Utilities Commission requiring Southern Nevada residents and businesses to subsidize $19.6 million in electricity charges for their Northern Nevada counterparts violates the PUC’s statutory mandate to “provide customers with just and reasonable rates” according to a petition for judicial review filed in Clark County District Court.

The PUC approved the statewide rate in August, but gaming interests and the Attorney General’s Bureau of Consumer Protection filed a motion for reconsideration with the PUC. In October the three-member commission issued a final order requiring ratepayers in the south to subsidize NV Energy’s natural disaster preparedness and prevention plan (NDPP), which is focused primarily in Lake Tahoe.

The commission’s two northern Nevada members, both appointed by Gov. Joe Lombardo, voted in favor of the subsidy, despite a letter from PUC staff noting its “general preference when designing rates is to follow the principle that costs should be borne by the cost causer with limited exceptions such as clear and explicit legislative direction in statute or substantial evidence supporting a deviation…”

The state Bureau of Consumer Protection, a part of Attorney General Aaron Ford’s office, is not a party to the complaint filed in District Court, however, it intends to file a statement of intent to participate, according to spokesman John Sadler.

The average $2.50 a month NDPP charge is expected to double statewide as a result of the PUC’s approval.

NV Energy’s Natural Disaster Protection Plan, submitted every three years, is the result of a legislative mandate passed in 2019 to mitigate the impacts of fires in areas with the highest threat. The legislation, sponsored by former Sen. Chris Brooks, was signed into law by then-Gov. Steve Sisolak.

NV Energy projects it will spend $373 million on disaster preparedness in the next three years –  $171 million for capital expenses ($43.5 million in Southern Nevada and $127.6 million in Northern Nevada) and $202 million for operations, maintenance, administrative & general (OMAG) costs  – projected at $33.5 million for Southern Nevada and $168.5 million for Northern Nevada.

The PUC ruled that NV Energy’s Northern Nevada ratepayers must pay for the project’s capital costs in the north, but spread the burden of operations, maintenance, administrative and general (OMAG) costs statewide.

NV Energy is permitted to earn a profit on capital expenses as well as OMAG costs. The utility stands to earn $9.5 million over three years just on OMAG costs, according to testimony provided to the PUC.

Attorneys for the plaintiffs – Wynn Las Vegas, Boyd Gaming, Station Casinos, Venetian, MGM Resorts International, and the Nevada Resort Association – argue the PUC deviated from its principle that those who incur the costs, pay the costs.

“The longstanding Commission policy is to reject flat rate allocation methods for the utilities’ cost recovery for capital projects and operation and maintenance expenditures as inconsistent with cost causation principles,” says the complaint, which is assigned to Judge Gloria Sturman.

The gaming interests argue the PUC failed to engage in rulemaking required “when promulgating a new policy of general applicability.”

NV Energy is a holding company. Its principal subsidiaries, Nevada Power Co. in Southern Nevada and Sierra Pacific Power Co. in Northern Nevada, do business as NV Energy, but are “two separate and distinct electric utilities,” according to the complaint filed by the gaming interests. “Each utility holds its own Certificate of Public Convenience and Necessity” and “serve different and geographically separate service areas and different sets of customers.” Each utility has its own rates and tariffs, with rates that are “much lower in northern Nevada” than in the south.

The ruling “arbitrarily requires the customers of one utility (NPC) to pay approximately $19.6 million in NDPP-related costs incurred by a separate utility (SPPC), exclusively to perform activities in SPPC’s service territory, for the benefit of SPPC’s customers.”

The PUC has rejected proposals to consolidate the utilities or its rates, “out of concern that as a result, customers in one retail service territory could be required to subsidize customers in another retail service territory,” the complaint says.

“In rendering its decision, the PUCN violated Nevada statutes and ratemaking principles that prohibit the collection of one utility’s costs from the customers of another utility,” says the complaint, which alleges the PUC “engaged in ad hoc rulemaking in approving a statewide rate” to recover operations and management costs incurred in the north.

A spokesman for the PUC said the commission had not been served with the complaint.

“NV Energy sought cost recovery in the same manner that has previously been approved by the Public Utilities Commission of Nevada,” the utility’s spokesperson Katie Nannini said via email. “The company has not reviewed the petition and therefore has no opinion on the merit of any claims made by any party in the petition.”