What is a daily demand charge?  

A demand charge is a utility fee based on the maximum amount of energy a customer uses during a short period of time within a billing cycle. Nevada Power, a subsidiary company of NV Energy, is proposing to add a mandatory daily demand charge for its residential customers.

Under this plan, your electricity meter would be measured on a 15-minute cycle each day, and your bill will be based on the highest 15-minute period energy use during that day. For example, if your highest energy usage is from 6:45-7 PM on a day in July, the demand charge for that day will be based on this time, regardless of your usage during the rest of the day. This would be in addition to the basic service charge of $18.50 that customers already pay. This is something no other investor-owned utility (IOU) in the country currently does.

The utility filed this request with the Public Utilities Commission of Nevada in its most recent rate case, which could result in higher energy bills for all customers. According to NV Energy, the average customer will see this reflected as $19.95 per month in their bills, but it’s likely to be higher. If this plan is rejected, NV Energy proposes raising the basic service charge to $24 instead.

NV Energy argues that the daily demand charge will reduce customers' bills because they will have more control over their energy usage on a day-to-day basis, instead of over an entire month.

There is an alternative solution to lowering bills with more predictability: Time-of-Use Rates. 

Time-of-Use (TOU) rates are rates that an electric utility can charge customers with different rates for power depending on what time of day they use it. At peak hours (usually the afternoons and evenings), power is more expensive because it is in high demand. At off-peak hours (usually the mornings and later evenings), the rates drop and make electricity cheaper to use. Consumers are better able to understand this bill construct: higher prices at certain hours, lower prices at other hours. If consumers understand the rate structure better, they can shift their energy use better. Other alternatives are discussed below.

There are several reasons why NV Power’s proposal poses serious problems:

Daily demand charges will put Nevadans at risk, as these demand charges will not actually reduce the overall costs to utility customers; they raise them.

It sounds ideal that you can track your own usage and your bill will go down, but that is not how the charge will play out. The utility wants to incentivize consumers to spread their energy usage over time, but not every customer can do so. For example, consumers with medical equipment that is required to operate during peak times will have extremely high utility bills as a result of this charge. This demand charge will impact those most vulnerable, regardless of how hard they try to save and conserve energy. 

Working families will feel this the most. Most residential customers are not able to stretch their energy use throughout the day if they do not work from home. This will have an extremely negative impact on working Nevadans who are not home from 8-5 (think teachers, nurses, etc.). If you are at work from 8-5 you do not have the freedom to choose to run your dishwasher, laundry, or other appliances throughout the day. A daily demand charge rewards energy users who have the flexibility to run appliances at different times of the day and penalizes those who do not have this luxury, no matter how hard they try to change their energy use patterns.

Daily demand charges disincentivize energy efficiency and clean energy. Consumers look to the “payback time” for investments in efficiency and clean energy, meaning how long before the utility bill savings will pay back their upfront investment. Daily demand charges will increase the utility bills of customers who have already invested in clean energy, extending the payback time for almost all clean energy and energy efficiency investments. This will discourage consumers from newly adopting these technologies by creating a cost that they cannot control.

A better way forward

A daily demand charge will not solve Nevada’s rate challenges, nor will it encourage electrification efforts, and Nevada policymakers – from the Public Utilities Commission to the Legislature - need to be persistent in their oversight of NV Energy and thoughtful about proven tools to keep rates low, fair, and affordable. Here are three different ways to do this:

1. Implement voluntary time-of-use rates

As explained above, time-of-use rates are a better solution. Nevada should strengthen its time-of-use rates. Time-of-use rates that better reflect actual costs to the grid at specific times of day, or year, empower consumers to reduce their costs while helping the grid. Time-of-use-rates can be structured to allow customers to opt-in to different rate structures that preserve incentives. For instance, many customers may be happy to sign up for a voluntary electrification rate that pairs a modest fixed charge along with super low rates at the cheapest (and cleanest) generating hours.

2. Prioritize affordability for all Nevadans

Nevada’s utility regulators must remain focused on affordability for all consumers and avoid rate measures that result in substantial increases for those least able to absorb them. For the average residential customer, the daily demand charge will cost at least $19.95/month. This is on top of the $18.50 basic service charge customers already pay for. Daily demand charges should not be a required charge, but could be a voluntary opportunity for customers to participate in. Requiring every residential customer of NV Power to be subjected to a daily demand charge will not be affordable for every customer, and in many cases will result in a bill increase customers cannot afford.

3. Foster consumer choice

Nevada’s rate structure should also empower customers to make choices that conserve energy and save money. This can be done through rate options that provide incentives for customers to invest in energy-efficient programs and technologies, leading to decreased demand for electricity and cost savings for everyone.

Nevada also needs to make it easy for consumers to invest in home solar and storage, EVs, and flexible demand technologies that provide cost savings and beneficial services to the grid and the overall electricity system. This can be done through Virtual Power Plant (VPP) programs that incentivize the adoption of clean energy technologies, as utilities can draw power generated from individuals’ home batteries and flexible demand devices and compensate them for it.

Nevada policymakers should adopt policies that ensure affordability and fairness in utility rates. It is no secret that a daily demand charge is harmful to consumers. Not only is it unfair, unprecedented, and ineffective, it increases costs, discourages advanced energy investments, and undermines regulatory certainty.

It is important for the state to maintain affordability and avoid roadblocks to conservation and investment in energy-efficient technologies. The stakes are too high to entertain NV Energy’s request now, and we urge the Nevada Public Utilities Commission to reject NV Energy’s proposed daily demand charge.