NV Energy’s move to restructure the way it bills Southern Nevada residential customers has many customers confused and worried about spikes in their bills. But what exactly is the “daily demand charge” the utility intends to roll out in January and why is it implementing it?
NV Energy is touting the demand charge as a way to measure how much strain individual households are putting on the electrical grid during their times of highest energy usage. It’s meant to balance costs that are, under the current billing structure, borne more heavily by non-solar customers than ones who have their own rooftop solar installations, according to the utility.
State energy regulators say that because the utility’s infrastructure is built to handle the maximum amount of energy that a customer requires at any point in time, it logically follows that a rate structure should be tied to a customer’s maximum demand on the system. They estimate that with the demand charge and other billing changes, overall bills will go down for roughly 90 percent of Nevadans.
Opponents, however, question the notion that it will lower customer bills. They also argue it will penalize solar customers when it goes into effect next year. It has garnered lawsuits from watchdog groups and the state’s Bureau of Consumer Protection, as well as extensive ratepayer concern and confusion.
State energy regulators have twice delayed the utility’s implementation of the charge, ordering NV Energy to increase its public education efforts. So how does the charge work and how will it affect customer bills?
How will bills change with the demand charge?
At their most basic level, NV Energy power bills currently contain:
A basic service charge (the cost for having monthly service)
Taxes
Fuel and power purchase charges (how much the utility spent procuring power)
Infrastructure charges
Customer program charges
With the addition of a daily demand charge, Southern Nevada customer bills will still have the same categories plus the additional daily demand charge. The demand charge is intended to be offset by reductions in the basic service charge (the fee customers pay just to have service) and the volumetric rate (how much customers pay for power.)
The basic service charge was lowered by 50 cents last year to $18 per month. And the volumetric rate will be reduced by 1.675 cents per kilowatt hour when the demand charge goes into effect.
NV Energy is composed of two separate entities: one that serves northern customers and one that serves southern customers. The charge only extends to its Southern Nevada customers; to apply it to its northern customers, the utility will have to take the proposal before state energy regulators in its next general rate case.
How will the daily demand charge be calculated?
Customers will be charged 14 cents per kilowatt of power that they use during their highest 15 minutes of usage on a single day. That amount will be multiplied by four to extrapolate the household’s highest hourly impact on the grid for that day. The charge resets each day.
An oversimplified way to visualize it is to picture a customer who runs their air conditioner all day and leaves one light on at their house. At some point during the day, that customer also turns on an electric stove to cook, starts a load of laundry and turns on additional lights in the house.
The customer will be charged 14 cents per kilowatt of power used during that peak 15-minute-period when all those appliances are turned on at once; that will then be multiplied by four to determine the strain that household is estimated to put on the grid during its peak hour of usage. Customers with residential solar systems will only be charged for power they pull from NV Energy’s grid.
The average Southern Nevada customer uses about 3.5 kilowatts of electricity during their highest peak usage, according to the utility. This will result in a demand charge of about $0.49 cents per day, totaling about $15-$20 per month. The reductions in the basic service charge and volumetric rate are intended to offset that.
Are there ways a customer could adjust their electricity use to minimize demand charges?
According to state energy regulators, most customers will likely see their bills decrease even if they do not adjust the way they use electricity. Customers concerned about spikes can spread out usage of appliances that require higher amounts of electricity.
But “that’s hard to do,” pointed out Julia Hubbard, state director at Solar United Neighbors (SUN).
“We need more education and more tools for people to respond to these things,” she said, suggesting things such as community education workshops. “I think there is a hunger by people to understand how their bill works, especially if they’re trying to lower their bill.”
Do all appliances require the same amount of power to use?
No. Larger appliances, such as electric stoves, clothing dryers, air conditioners and electric vehicle chargers use substantially more electricity than smaller appliances such as phone chargers, coffee makers, laptops and televisions.
Appliances require differing amounts of energy to power. (NV Energy/Courtesy)
How does this affect solar customers?
About 10 percent of Nevadans have rooftop solar, primarily in Southern Nevada.
Current net metering programs allow residential customers with solar systems to use energy they generate as an offset to their monthly power bills. Most solar customers generate so many credits that they don’t end up paying the utility for maintaining its infrastructure, which they use when they pull power from the grid at night or when they transfer power onto the grid during the day, according to advocates of the demand charge. That shortfall is compounded as new solar customers are added to the system.
It’s estimated that residential customers without solar pay a combined roughly $50 million annually to cover those costs.
Solar advocates, however, say that solar owners have invested private capital to put solar on their houses, and that solar is infrastructure the utility doesn’t have to maintain.
“We’re still contributing to the cost of distribution and transmission,” Hubbard said.
The demand charge is expected to add an additional $12 per month to Southern Nevada solar customers’ bills.
Why state energy regulators are supporting it
The utility is constitutionally allowed the opportunity to recover its prudently incurred costs for providing service, Garrett Weir, general counsel for the Public Utilities Commission of Nevada, told lawmakers at an April 21 interim growth and infrastructure committee meeting.
“We can’t just make the utility eat the difference between the cost of providing service and the revenues generated from those customers they’re serving. If we were to do such a thing, it would immediately be overturned [in court],” he said.
The utility attempted to correct the imbalance during its last Northern Nevada general rate case, when it sought to increase the basic service charge for Northern Nevada customers. State energy regulators found that to be “too rigid of a tool,” he said.
“The best available tool remaining is this demand charge,” Weir said.
Why are solar and watchdog groups opposed to the charge?
Groups such as Vote Solar and SUN oppose the charge, as does the state’s Bureau of Consumer Protection. Two lawsuits about the matter are pending in court. Arguments include that the move penalizes customers for not just how much energy they use, but how they use it; that it disincentivizes residential solar installation; and that it is unfair to existing solar customers.
“Solar customers cut grid strain when it matters most. This charge ignores that, and bill credits can’t offset it,” according to SUN.
There are about 1,200 MW of installed solar capacity in Nevada, or about 4 percent of the state’s production, Hubbard said.
However, capacity refers to the amount of power that can be produced, not what is actually returned to the grid. Actual rooftop solar production varies depending on variables such as the time of day and weather. In addition, customers with solar use much of the power they generate.
Is this a time of use (TOU) charge?
No. While some states have a “time of use” billing structure that charges customers a higher rate for electricity used during peak hours, mandatory time of use rates for residential customers are prohibited in Nevada.
NV Energy does offer a voluntary time of use program that raises and lowers energy costs depending on the time of day and season. Under that program, rates are higher when enrolled customers use energy during peak times that shift throughout the year, encouraging them to use energy-intensive appliances during off-peak times. During those off-peak times, customers pay lower rates for the energy they use.
With the demand charge, it does not matter if the customer’s highest time of usage is at 2 a.m., 12 p.m. or 6 p.m. — the customer will still pay 14 cents per kilowatt of power used during their peak 15-minute period.
Hubbard said SUN supports time of use rates “because they can really help us reduce our demand when the grid is most strained. Time of use is not a tool available to us, but I think that is something that could be looked at.”
Can state lawmakers intervene with state energy policy?
Yes. Nevada lawmakers have tackled several energy-related issues over the years, including making mandatory time of use charges illegal.
In another instance, state energy regulators sought to separate solar and non-solar customers into separate classes — state lawmakers intervened in 2017, passing AB405, which says they cannot. In that same legislation, lawmakers progressively reduced the value of solar energy credits.
Former Sen. Chris Brooks (D-Las Vegas), the bill’s sponsor, told state energy regulators last year that their “recent decisions on net metering and rate design are consistent with [his] goal.”
How will customers be protected?
State energy regulators will require the utility to report on the charge annually. The utility will randomly poll customers to monitor effects on their bills; that information will be reported to the regulators.