Recently, industry experts in public utilities sat down to discuss the challenges facing Nevada’s utilities, such as recruitment, climate change, growth and conservation efforts. Connie Brennan, publisher of Nevada Business Journal, served as the moderator for the event as part of the magazine’s monthly Industry Focus series, which brings industry leaders together to discuss issues pertinent to their professions. Following is a condensed version of the roundtable discussion.
Industry Challenges
Donald Soderberg: The Public Utilities Commission is an agency of about 90 people whose primary purpose is to regulate the rates of public utilities in Nevada. Our charge is to make sure that all rates are just and reasonable and that sounds relatively simple. The public looks to us to be the watchdog over the utilities. Yet, at the same time, the industry and the financial markets look to us to be somewhat of an internal partner with the industry in the state. So we kind of wear two hats in that respect. With those two charges working, we try to get to a point where the rates are just and reasonable, in light of what is being paid around the country.
Pat Mulroy: For Southern Nevada Warter Authority, the most compelling challenges we face are the consequences of warm climate change and what that does to water resources in the entire American West, which will make our job even more difficult then, and force an even higher level of creativity.
Mark Foree: Our major source of supply is the Truckee River and Lake Tahoe. The river is going to be sufficient to provide water for the majority of the growth that’s anticipated in the Truckee Meadows area. And sufficient water rights are available to make that happen. What happens is, these water rights are personal property rights. They were agriculture rights, originally. They need to be converted to municipal and industrial use, so that’s a process that takes place in the Reno area to provide for growth. There’s only one project that’s currently being built right now, and that’s in the north valley. It’s bringing water into the Lemon Valley area. But obviously, growth is going to be one of our challenges going forward.
Jeff Shaw: As a gas distribution utility, we have two major challenges. The first is the volatility of the commodity in terms of price. We have seen natural gas prices more than triple in the last decade, on a consistent basis. That’s problematic. The second challenge is price volatility affects customer growth. Customers usually call when they see increases in their bills. And that’s a concern. Another concern, still, for the industry is that we have seen declining usage on an average basis. With large cities like Phoenix, Las Vegas, Tuscon, you get what we call a heat island, and so the ambient temperature increases, and that causes people to use less gas. Plus, every appliance that gets replaced is usually picking up significant efficiency, and, therefore, natural gas is used less and less, which is a good thing. We believe that using less energy is always the goal that we should shoot for. Our challenge, then, is what type of rates do you need in order to have utilities remain healthy so that it can attract capital?
Tom Husted: One of the challenges that we see within Nevada, and really within the Southwest, is a lack of adequate transmission in generation facilities. We really have an island down here. But all public utilities need to work together to address the issues, whether it be power supply, transmission supply, helping formulate legislation and changes within the legislative environment, and conservation or renewables.
Michael Yackira: Following the significant growth in this state is a major challenge. We are one of the fastest growing states in the nation. Las Vegas, up until last year, had been the fastest growing city in the nation. We also have to face the price changes that our customers hate, quite frankly. The fact of the matter is the price of the commodity that creates electricity, mainly natural gas in this region, has had a tendency to increase in price. Anytime there is a price change, it is very difficult for customers to understand and to accept. We need to have a very strong, financially healthy, electric utility in order to accomplish what we need to support the infrastructure.
Increased Demand
Soderberg: I think Nevada utilities that supply the product, whether energy or water, are always going to be chasing two tails. They have to build the infrastructure to serve the community, but then they have to find the product, whether it’s water, natural gas, or electricity, to put into that infrastructure. So it creates sometimes untenable demands on a company. We have been very fortunate. To my knowledge, nobody in Nevada has gone without water. Nobody has gone without gas or has gone without power, regardless of what shortages or shake-ups occur in the market, such as the one energy crisis a few years ago.
Conservation
Mulroy: We have gotten extremely aggressive in our conservation efforts. Water that is used outside is lost. It’s a one-time use, whereas anything that hits the sewer system is recycled and reused. And we have an aggressive agenda to drive Southern Nevada’s usage down even further. The entire Colorado River which serves the Western United States as a whole, cannot survive if recipients don’t change their usage habits. The notion that going to the ocean for water will solve all the problems is fallacious. First of all, coastal property isn’t that easily accessible. It’s either a part of California, which is the most expensive real estate in the United States, or it’s in Mexico. There is an ever-increasing population and ever-decreasing amount of supply. The drought that is hurting the Colorado River is not short-term by any stretch of the imagination. We don’t expect to be out of this for some time. It took us this many years to get into it and get runoffs again. It’s going to take us at least seven to 10 years – if everything were to turn around tomorrow – to get that water back again. The only thing this community can do to assure the supply is conserve, and diversify consumption.
Foree: In Northern Nevada, it’s sort of complicated. The Truckee River is the main source of supply for the Truckee Meadows (Reno/Sparks) area. Continued conversion of Truckee River agriculture water rights to municipal and industrial (M & I) use will be sufficient to supply anticipated development of nearly all available land in the Truckee Meadows over the next 20 years. As the cities of Reno and Sparks expand their service areas outside of the Truckee Meadows, other resources will have to be developed to supply water for that anticipated growth. There are currently several private water supply projects in various stages of progress that are planning to meet the water needs of those expanded service areas and other areas, including Fernley (Lyon County).
Mulroy: The most poignant number is what happened over a two-year period where we saw the largest decline. We went from a consumptive use of 325,000 acres to 265,000 acres. And usage has continued to go down, or remain at that level. We are continuing to replace turf with desert landscaping, and the restrictions dictating when you can water are now permanent. You will never ever again water five to seven days a week in Southern Nevada during the fall, winter and spring. We have seen our customer use go from what used to be an acre-foot per family of four in a given year down to a half an acre-foot for a family of five.
Yackira: We can’t do it like Southern Nevada Warter Authority. We must expand our conservation measures so that our customers see that we offer programs that will reduce their bill. Residential customers don’t understand rates. What they understand is their bills. So if there are things we can do, whether it’s to promote energy audits that show customers to see how they are wasting energy, or through the PUC providing rebates to customers that change their air conditioning units to higher efficiency air conditioning units. There’s a series of things we have been able to do to convince our customers that, yes, we really do want you to use less of the product.
Brennan: It stands to reason that if consumers use less, the utilities will make less?
Yackira: We do, but the growth that we see in this state is sufficient for us to grow faster than any utility in the United States. I would like to see us in the forefront throughout the United States, quite frankly. I think we need to do a better job of espousing conservation as an alternative, similar to espousing reusable energy as an alternative, and not just saying we’re going to wait for people to build wind power projects and solar power projects, but to co-invest with them so that we are truly part of the solution and not just waiting for something to happen.
Mulroy: To that end, Sierra Pacific Water Authority has been partnering with us in a lot of projects. It has been a very productive partnership to both of us. Since we’re the city industry first and foremost affected by such change, we have to lead the way to help solve the problem, as well.
Husted: Quite frankly, Nevada is behind the eight ball. I have never seen in my life so many inefficient consumers in one area. It’s amazing. You can’t have conservation until you have energy efficiency. For one, it’s an educational process. We’re not going to get there until we reach a price point where people say, “We have got to do something.” That brings us back to my original statement. We are separate autonomous units, but we have to work together on these common goals. We must change the shape of how people utilize their utility resources within the state.
Brennan: What types of restrictions for water conservation are implemented in the Northern part of the state?
Foree: We have had twice a week watering for a long time, probably 15 years now. That’s worked well for us. Our total annual water consumption has been fairly flat over the last several years, even with substantial growth due in part to customers switching to the metered rate and changing their water usage habits.
Aging Infrastructure
Yackira: As a franchise electric utility, as a franchise gas utility, we have to serve everybody who comes into our area. We don’t have a choice. That means, we have to build assets to support growth. Whether it be installing the distribution lines and setting the meters for new housing tracts, or building long-distance transmission assets to import electricity, either from power plants we own or other power plants – it’s constant. For Nevada Power and Sierra Pacific Power combined, in order to hook-up customers, it costs nearly $350 million and that does not include any projects we have, like major transmission lines or major generation power plants. This year alone, we will spend about $1.3 billion.
Shaw: Our goal is significant. We will experience capital expenditures in the next three years of $875 million in our state, which is substantial. We don’t have the situation which is similar to setting power plant transmission lines, but it’s much more gradual. We go into a subdivision that’s continuous to another subdivision, and you will extend a main out to that new subdivision. And we have models that determine how much we’re allowed to spend and put in the rate base. Anything above that, we are actually asking builders to contribute.
Mulroy: We’re in the same position as Nevada Power. Virtually most of our systems blend. We have invested significant dollars over the years replacing all the old lines in downtown Las Vegas, and we did it over a period of eight to 10 years so we have very few old lines left. Traditionally around the country, water loss from the system lies between 10 to 15 percent. For us, it’s 3 to 5 percent – our water loss is negligible. I’m worried about the new infrastructure we have to build. In fact, we’re bringing in the expertise and equipment out of Sweden and France because we’re bordering the mountain and Lake Mead in elevation. If you can figure out what the static pressure is, we’re going down to the elevation of 60 feet, going through the floor of Lake Mead and coming up through intake. Lake Mead will be a challenge and as the water level sinks, not only will we lose our first intake, but we will also have serious water quality problems.
Staffing Issues
Yackira: Our average workforce age in Nevada is 48 years. We have about 3,200 employees throughout the state and recruiting people becomes more difficult, especially in Southern Nevada, with so many similarly skilled employees needed for the growth we are experiencing. The cost of that labor force has gone up, as well. We have also seen an expectation for higher wages as we get more generation Y employees into the workforce, and they demonstrate less of a desire to stay with a company for life and to move up in the company.
Shaw: We are always looking for engineers and people with experience in technology. They are just becoming more of a scarce commodity. You don’t have as many graduates in these fields. The increased cost of living has also made it difficult for us to recruit people from out-of-state.
Foree: Nearly 80 percent of our technicians are going to be retiring within the next five years. We’re going to be faced with overstaffing for a few years so that we can have people who will, hopefully, know what they are doing when our skilled workforce retires.
Mulroy: I think part of the problem is that the universities and colleges aren’t producing students with those skill sets when they graduate. It is so difficult to find someone in the sciences willing to move to Southern Nevada. We’ve become very active with youth to try to encourage kids to start pursuing these degrees. We have extensive summer programs and winter break programs, both for high school students and university students to see if we can spark that interest.
Yackira: We are starting a curriculum in Northern Nevada at UNR to develop course work on renewable energy to train renewable electrical engineers. It’s been a very well received thought that is developing into a curriculum and will be starting by summer of 2007. We’re hoping to convince UNLV to create something similar down here.
Climate Changes
Mulroy: We must work under the assumption that the climate is changing – just to stay ahead in our industry.Let’s assume we were wrong. We at least have all the strategies in place. You can’t assume that it’s not going to happen. You have to assume that it is going to happen. We have been fighting over water rights in the
Shaw: Well, depending what you believe, I think you have to pay attention to what’s happening. The fact of the matter is that, whenever you have big metropolitan areas, it is going to create heat. So from my perspective, we have to be mindful of that and of our customers because, depending on how your rates are structured, your uses go down. Based on this use, and if you have a new customer, it gets warmer. I agree we must prepare for any eventuality. We can’t react – we must be proactive. I’m all for conserving every resource – whatever it is. We shouldn’t consume any resource without staying aware that all our resources are naturally finite. We are all affected by a number of issues, and climate is just one of them.
Yackira: Nobody would say that more carbon emissions are good. But at present, that doesn’t mean we can shut down all the power plants in the U.S. or in Nevada because they use fossil fuels in order to produce electricity. However, one example of the progress we are making is the planned major coal-fired power plant in Eastern Nevada. At a cost of about $4 billion, the most daunting energy project that Nevada has undertaken since the building of Hoover Dam. There are things that we are doing to ensure that building that power plant makes it the cleanest, environmentally-friendly coal plant in the West.
Renewable Energy
Shaw: Sometimes we hear the term renewable and the general customer may say, “Gee, that’s something that could be done for free or relatively inexpensive.” Well, that just isn’t the case. Renewable doesn’t necessarily mean inexpensive. As we move in that direction, it will require a huge investment to make the transition. We must find ways to educate and prepare the public for this eventually – even if they don’t have the time or interest.
Mulroy: It becomes a rate issue. Let’s be frank. When you look at utility rates in other nations, you’ll see that Americans are spoiled. As utility bills rise, if customers can learn to conserve and reduce consumption, the increases will have less impact. And if the utility companies educate the public and raise awareness, customers can learn to anticipate and plan for future changes, and take them in stride. I mean, I don’t see why any of us would be so selfish as to cause further environmental damage just to save a couple of bucks.
Soderberg: The technology and science are making leaps and bounds and renewable energy is on the horizon. However, until then, we need to invest in modern fossil-fuel-burning power plants to replace the outdated inefficient facilities. For the immediate short-term, we need to maximize efficiency. We can’t afford to wait for the politicians and special interest groups to finish their debates – we must set these actions in motion now, or we’re never going to get down the road in 15 years and say, “We have accomplished this.”
