Utilities in Nevada took a beating during the recession. Now the light at the end of the tunnel may be an indication that the economy is recovering.
Utilities is a catchall phrase for services businesses and individuals use on a daily basis: water, power, natural gas. Most utilities are regulated by the Public Utilities Commission of Nevada, utility companies aren’t affected by budget shortfalls in the state as much as by customer base.
Utilities are funded by its customer base, from new connections, fees and fines. Past that, agencies have to find ways to finance projects the same as any business would, using rate increases or bonds in order to fund changes that directly impact both the environment and Nevadans when they flip a light switch or turn on a faucet.
Water
Southern Nevada Water Authority (SNWA) recently realized several milestones, one of the largest being a contract signed with Mexico. SNWA will pay $2.5 million to help make on-farm conservation improvements in Mexico in return for 23,000-acre-feet of water that will be stored in Lake Mead as a bridge supply.
Another project underway is the third drinking water intake in Lake Mead.
“It was very difficult building the third intake because it’s not growth related,” said Patricia Mulroy, general manager. “If it had been a growth-related project, we would have scrapped it, but we’re going to lose our other intake in Lake Mead. Knowing that, and knowing that would cost us 40 percent of our capacity, we knew we needed to replace it,” Mulroy said of the $800 million project.
Driven by drought rather than growth, the project was difficult to fund because there were no new customers to defray costs. “Now as the economy recovers and sales tax collections recover, as connection charges recover, as we add more customers to our base, that will go a long way to helping with the impact,” said Mulroy.
But without those factors in place, 2012 saw a difficult rate increase. With residential and business vacancies up, connection charge revenues which supply 57 percent of SNWA’s revenue base had diminished from $188 million a year down to $3 million. “We lived on our reserves from 2008 until last year,” said Mulroy, but the need for the third intake forced the agency to sell $350 million worth of bonds and something had to be done to stabilize reserves.
“It was a very difficult rate increase for the business community and the big issues at the time were fire lines and charging businesses for the fire lines they have,” said Mulroy.
As soon as the increase was approved by the SNWA board, 21 individuals, largely from the business community, were appointed to look at how to move forward and determine rate changes and the possibility of stair-stepping the next increase which may occur in 2016.
“It’s a difficult transition of going from a community that relied on revenues that came from growth to one that has to pay for their infrastructure themselves,” said Mulroy. “That transition occurred last year and you won’t see that again.”
Two back-to-back bad snow years in the Colorado River system means Lake Mead is expected to drop 13 feet this coming summer through the course of the water year, so the agency is working with the Metropolitan Water District of Southern California and the Central Arizona Project to store water in Lake Mead so it now sits 10 feet higher than normal.
Conservation plays a part, too. SNWA invests $10 million annually to give rebates to customers with desert-friendly landscape conversions. A conservation-driven decline of water consumption is evidence the program is working.
In other positive news, an increase in water sales in both commercial and residential sectors shows new connections and new customers coming online.
In Northern Nevada, Truckee Meadows Water Authority (TMWA) is also seeing an increase in the number of new inquiries for service. After hitting a low in the number of contracts sent out in 2011, there’s an uptick following several years of low or flat numbers, according to Mark Foree, general manager.
New inquiries are up, water is down. After two consecutive years of dry winters, a test of the snow pack in April showed the area to be at 60 percent of average for the second year in a row.
“That’s not great news, but we had a really big year two years ago and we’re still living off that because our primary reservoir, Lake Tahoe, is still half full,” said Foree. “That’s a really big reservoir and that’s where we get 90 percent of our water supply, from Lake Tahoe and the Trukee River system, so in terms of the rest of the calendar year it will be business as usual for us. We’ll have normal river flows through the end of the year.”
Conservation efforts continue to be in effect. Northern Nevada has had three-day-a-week watering restrictions for 20 years, and water meters in place for 12. Now that 98 percent of water services are metered, water usage over the last few years has dropped by 15 percent.
Other factors come into play to explain the reduced water usage. Residential and business vacancies reduce water consumption and a nationwide trend in the last 10 or 15 years shows consumers using less water. This despite the fact that during the last 12 years, as Northern Nevada consumers have used 15 percent less water, the service area has grown by 20 percent.
Conservation, coupled with the reserves from the last big winter, puts Northern Nevada water supply in good shape through 2013.
Southwest Gas Corporation
In many parts of the U.S., shale drilling in order to extract oil and gas is big news and a big economic bonus. For consumers in Nevada, what that means is a source of clean, cheap fuel. Natural gas prices are low and Jeffrey Shaw, CEO/director, Southwest Gas Corporation, doesn’t expect any spike in those prices any time soon.
“We have an extraordinary opportunity in this country with the shale mines and the exploration in shale for natural gas,” said Shaw. “There’s an extraordinary amount of supply they’ve found and if we get this right in our nation, natural gas could be the foundational fuel for many years to come. It’s clean, it’s abundant and it’s priced at a level that is much more affordable for the consumer than it was just five to seven years ago.”
Natural gas has a variety of applications, from heating to firing cleaner-than-coal power plants to fueling transportation. It’s also a backup for alternative energy in Nevada, because some alternative sources can be intermittent in nature, said Shaw – the wind isn’t always blowing, the sun isn’t always shining.
Natural gas is basically a byproduct from the shale drilling. The liquid fuels are far more valuable, which is why the industry is keeping an eye on any proposed regulations regarding extraction processes.
Like the water utilities, Southwest Gas Corporation is seeing a rise in the number of new meter sets, new construction to actually run a main and service to a house. It’s not a dramatic improvement, but it’s a positive economic indicator.
Natural gas can provide the U.S. with energy independence and less reliance on foreign energy sources, and is an abundant supply of clean fuels currently bringing about the change in power plants.
NV Energy
In the last six years NV Energy invested $6.5 billion in new power generating plants, efficient natural gas-fired plants that use less natural gas and less water to produce electricity than other plants in the system. That $6.5 billion investment produced no incremental price to customers in part because of the efficiency of the plants and in part because of the abundant supply and low price of natural gas.
Michael Yackira, NV Energy CEO, expects rates will increase at about the same rate as inflation, or about 1.5 percent per year. A plan proposed to the Legislature calls for early elimination of Nevada coal-fired plants and using both natural gas-fired plants and renewable energy to replace them. If the early retirement of the coal plants goes into affect, the increase in rates would probably be 1.65 percent annually. That’s a tenth of a percent higher than increases a ‘normal’ plan would cause, and benefits should include job creation, improvements in the environment and more reliability from the system.
If natural gas plants are new for NV Energy, renewable energy isn’t. The agency has grown its renewable portfolio for 25 years. By 2012, when required to be at 15 percent renewable energy, NV Energy exceeded that number.
Renewable energy portfolios also include conservation efforts. The Legislature decided if the objective of renewable energy is to reduce consumption of natural gas and coal in the production of electricity, then another way to do that would be to reduce consumption of electricity in the first place. Which has led to rebate programs for NV Energy customers, and also to the smart meter program.
NV Energy was the first utility in the U.S. to reach an agreement with the Department of Energy to have them fund the $300 million project to the tune of $140 million. The installation of the meters is virtually completed, allowing the utility to turn service on and off faster, and to track when a transformer is nearing peak capacity, allowing workers to make proactive rather than reactive moves to prevent power outages.
Another NV Energy project, One Nevada Line (ON Line) is a transmission line that will interconnect Northern and Southern Nevada in order to more efficiently utilize power throughout the state. When one end of the state needs more power than the other, either in cold Northern Nevada winters or hot Southern Nevada summers, the power company will be able to balance energy needs inside the state rather than buying power from outside, and efficiently utilizing power plants will reduce customer costs.
There have been 11 consecutive quarters of new growth in NV Energy’s service area, with business customers picking up, especially in the mining regions like Elko, and a return in Southern Nevada of residential customers in the form of new housing starts and the turnover of existing inventory. “As we said to the investment community, with quarterly earnings we see the economy returning, but it’s going to be years rather than months before we see a robust recovery,” said Yackira.
Southern Nevada’s “Other” Power Company
When Southern Nevadans think of power, the majority think of NV Energy. But, there is another power company that is making signifcant inroads into deliving electricity to Southern Nevada. Valley Electric Association (VEA) started as a small rural electric utility in 1965. The member-owned cooperative has grown significantly and within the past year, VEA has opened the door for a host of future renewable energy projects in the Silver State and acquired federal contracts with two of the nation’s most prominent defense facilities – Creech Air Force Base and the Nevada National Security Site.
The Pahrump-based utility now provides service to more than 45,000 customers within a vast 6,800-square-mile service area located primarily along the California-Nevada border, with the majority in Nevada. The company’s service area starts in Sandy Valley, southwest of Las Vegas, and extends north for more than 250 miles to Fish Lake Valley.
Despite the company’s rapid growth, CEO Thomas Husted says VEA remains committed to its core mission as a community-oriented utility, seeking to provide homes, businesses and government facilities with reliable electric service at the lowest rates possible. “We see ourselves as a trusted business partner for Nevada,” Husted says. “In addition to keeping rates low for our members, we are working to provide the region with valuable economic growth through renewable energy development and regionalization initiatives.”
Husted says the most significant step toward VEA’s vision for Nevada’s economic future came in January when the company joined the California Independent System Operator Corporation’s grid. This transition provides VEA with the unique advantage of a direct tie-in to the California grid, which will allow the company to transmit and sell energy to California while promoting new projects and job growth in Nevada. “Joining the California ISO allows VEA and other Nevada companies to meet the growing demand for renewable energy in California,” Husted says. “We see this as an integral step toward establishing Nevada as a power player in the region’s renewable energy market.”
Looking toward the future, Husted says VEA is working to secure partnerships with renewable energy producers in Nevada while implementing a long-term plan to foster innovation and expansion within the industry.
To position itself for future growth, VEA has expanded its workforce and introduced new initiatives within its service area.
In 2012, VEA also completed the Northwest Transmission Loop Project, the largest capital expansion in the company’s history. The project included significant work within five substations, 80 miles of transmission line and 80 miles of 48-strand fiber optic cable. In an effort to meet the needs of its increasingly sophisticated members, the company converted its dispatch center to a full-time, 24/7 facility, receiving certification from the North American Electric Reliability Corporation and the Western Electricity Coordinating Council.
“One of the major concerns Valley Electric has for our industry as we continue to move forward is that all utilities work together to benefit the whole as we continue to develop the region,” said Husted. “We think that’s imperative to the citizens of Nevada. We hold a very special monopolistic benefit and with that comes the need to act responsibly for the benefit of those citizens.”
