How High Fixed Charges Will Burden Northern Nevadans

Posted by Emilie Olson and Brian Turner on May 15, 2024 10:00:00 AM

Mitigating the Dangers of High Fixed Charges

What is a fixed charge? Similar to fixed costs you see on your cell phone or internet bill, a fixed charge, also referred to as a “basic service charge,” is a monthly fee that utility customers are required to pay no matter how much energy they actually use. Typically, utility bills are based on actual electricity and gas usage, perhaps with a modest fixed charge, but recently utilities have been proposing very large fixed charges on top of their already-approved charges and per-usage rates.  

Sierra Pacific, a subsidiary company of NV Energy, is proposing to increase their existing fixed charge from $16.50 to $44.40, which would be more than three times the national fixed charge average of $11.66 and higher than the current highest residential fixed charge of $37.41 in Mississippi. The utility filed this request with the Public Utilities Commission of Nevada in their most recent rate case, which could result in an overall rate increase of 9% to customers' utility bills.   

Screenshot 2024-05-09 at 10.42.14 AMNV Energy argues that the fixed charge increase would cover maintenance costs for the distribution system while stabilizing bills by reducing volumetric usage rates and encouraging energy-efficient technologies (think: buying that new electric vehicle).  

However, life is rarely so simple, and there are several dangers of fixed charges to keep in mind:  

Fixed charges don’t actually reduce the overall costs to utility customers; they just shuffle who pays them and how they’re paid. Zero-sum shuffling like this always results in winners and losers. And consumers tend to think in terms of what they see on their monthly utility bills. So, if consumers’ bills are suddenly higher due to a fixed charge, they’re likely to focus on that, not that their per-kWh rate has gone down.   

Lower-income and lower-energy households will feel it the most.  Low-income households tend to have the lowest energy footprint, yet they most acutely feel the burden of high energy bills. The energy burden of low-income Nevadans is already twice that of the national or state average in Reno and Las Vegas and rural parts of the state. Because a fixed charge rewards high-energy users and penalizes low-energy users, low-income Nevadans may find that they’re paying more on their bills no matter how carefully they try to conserve energy. 

Fixed charges disincentivize energy efficiency and clean energy. Consumers look to the “payback time” for investments in efficiency and clean energy, or how long before the utility bill savings will pay back their upfront investment. Fixed charges extend the payback time for almost all clean energy and energy efficiency investments, discouraging consumers from going green by creating a cost that can't be avoided.  

Fixed charges discourage beneficial electrification. Electrification – whether replacing a gas guzzler with an electric vehicle (EV) or a gas furnace with a heat pump – promises flexibility as a central value proposition. Consumers can lower their costs by setting the controls on smart thermostats and EV chargers to avoid high-priced electricity while still providing the same service. Once again, fixed charges would lower these savings and deter this grid-friendly flexibility.  

Fixed charges reduce accountability. Most businesses are subject to the discipline of the market: they have to work hard to keep their prices low or else they lose customers. But a fixed charge means NV Energy gets your money no matter how much of their product you buy. And for the Public Utilities Commission, who regulates utilities and is supposed to keep rates low, piling costs into a fixed charge reduces the incentive to scrutinize every dollar.  

A fixed 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 dogged in their oversight of NV Energy and thoughtful about proven tools to keep rates low. Here are three different ways to do this: 

1. Thoughtful rate design  

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. Focus on affordability  

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. If and when fixed charge increases are warranted, they have to be reasonable, and phased in over time. In states where fixed charges have been implemented, the average amount is $12.50, less than NV Energy’s existing charge and substantially less than the proposed increase. There also must be options for mitigating rate impacts to low-income customers. The simplest way to help low-income customers is also the cheapest and most efficient: rate discounts.  

3. Empower Nevadans  

Nevada’s rate structure should also empower customers to make choices that conserve energy and save them 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 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 a fixed charge increase is harmful to consumers and it is important 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 fixed charge increase.  

Topics: State Policy, Nevada



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