With Nevada recovering from the recession, utility companies are finally beginning to invest in capital improvements, technology and expansion. Although the outlook is positive, progress can be slow due to changing regulations in the Silver State. However, rates remain competitive and conservation efforts prove to be strong. Recently, utility experts met at the Las Vegas office of City National Bank to discuss these challenges and opportunities.
Connie Brennan, publisher of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.
What is happening with Utility Rates?
PAT EGAN: Our energy rates are going down. We have two components. One is the rate that we charge our customers for the energy that they consume. The other is essentially our base tariff general rate, which is our infrastructure and how we operate the system. We file cases every three years.
JOHN HESTER: There will be some slight upward pressure on rates, but don’t expect it to be dramatic. One of the things we see in the natural gas commodities market is that gas prices are significantly less than what they were three to five years ago to the extent that probably about 60 percent of your bill is actually related to costs that we pay suppliers. From the gas company’s perspective, the gas bill is still relatively low. We’re going to continue to make our system as safe and reliable as possible and make sure those rates don’t increase dramatically in the process.
JOHN ENTSMINGER: On the wholesale side, [rates] are stable. We have the citizens committee that came together and made some adjustments to fund the infrastructure at the lake, so we’re not expecting anything in the next 3 or 4 years, certainly. On the retail side, we’re going to ask our board to impanel the citizens committee to start taking a look at those rates, so in 2017 or 2018 we might be looking at an adjustment. We expect rates to track inflation plus 50 basis points just because the things we buy – concrete, steel, electrical power – have generally outpaced consumer price index (CPI) by a little bit.
TOM HUSTED: We’ll raise rates in 2017, but that’s coming off a decade of rate stability. In the last five years, we’ve grown our company from $125 million to $350 million. At a time of the worst recession in our state’s history, we’ve tripled the size of our company and have been able to maintain rate stability while still having the largest capital infrastructure in company history. We’ve weathered this storm. We’ve planned on this increase.
LEN CHRISTOPHER: We’re in a little bit of a different situation. Our rates are determined by the franchise agreement we have with the city. Those rates are already predetermined. What I can say about our rates is that Southern Nevada has the cheapest disposal and recycling rates in the Southwest, if not all of the western United States. For the residential side of things, it’s definitely cheap disposal.
RANDALL DEVAUL: You’d be surprised how many people actually take a no-growth position saying, “We can’t afford to grow. We don’t have enough water out there.” That’s really not realistic. We do need growth and we have to manage growth. That growth is going to impact our future water and sewer rates. I don’t think people understand that no growth means you have to be prepared to pay more for water and sewer services.
How regulated is this industry?
HUSTED: We desperately need a national energy policy that survives more than one administration. We need a state energy policy that’s going to direct us, especially in this time of change, when we move to the decentralized electric utility. The whole debate of net metering is brought about because of cheaper alternative sources to generate that power. As the average usage goes down, we’re putting in infrastructure, but then your alternative energy sources are coming down. That’s changing the rate base for utilities such as ours. We have monopolistic service territories, but that is changing now with the other sources of power. That discussion needs to happen in this state right now.
EGAN: If you look at what the Legislature has done, they’ve been fairly aggressive with having an energy policy. SB 123 and what the Legislature did to address net metering going forward are two examples of being proactive and setting a course. I agree, we don’t have a national energy policy, but there have been some changes. We’re in a very good position in Nevada to already meet those requirements without significant additional cost. Obviously, we’re in the process now of putting [the new solar] order into effect. We’ve already made the rate changes and we ultimately understand there’s a glide path in there. From our standpoint, the net metering subsidy, which the Commission chose to effectively end over five years, puts all of our customers in a better position. Those customers who choose not to take advantage of it ultimately are no longer subsidizing it. There actually had previously been a cap. SB 374 altered that cap and directed the Commission to do what they did, which was to come up with a rate structure that they think, and we think, is sustainable over time.
TOM MINWEGAN: The biggest challenge at Clark County Water Reclamation District is the change in regulations, especially with water quality on the collection side and, more so, on the treatment and discharge side. The regulations, as they change, will have the impact as far as what the infrastructure, both plant treatment as well as collection, may need to do. One thing they talked about at the EPA (Environmental Protection Agency) is virus removal rather than just bacteria removal. That will mean a lot for treatment capacities and treatment processes.
ENTSMINGER: Clark County is 92 percent federal land, so all of these federal regulatory regimes are really our primary concerns. We’ve seen a number of federal agencies move forward with rule-making, which can be very hard to influence. It’s the lack of a process of where the utilities can be involved in helping to establish the standards that is of concern when the agencies move unilaterally without Congress. Overall, technology continues to get so much better at being able to detect contaminants. We now detect contaminants in the parts per trillion range in our water when it used to be parts per billion and parts per million. It’s the natural inclination of our regulators to then modify the standards to a lower and lower level.
How has Technology affected Utilities?
EGAN: All of us have businesses that are not necessarily easy to understand and people pay a certain rate whether they may like it or not, so you have to explain yourself. About 570,000 of our customers have a MyAccount portal. We, just last year, started sending out a weekly billing summary. It says this is the amount of energy you’ve used in the last month, and based on your usage pattern, what you can expect your monthly bill to be. The feedback on that has been tremendous. Customers really appreciate it.
DEVAUL: We are looking at implementing something very similar to NV Energy’s smart meter program. We have a pilot study in the ground with almost 300 meters where a customer can log in and see their usage. It will help them as far as water conservation goes. When we have a customer calling in with concerns or questions about their water bill, they can log in and see the same thing our customer service people are seeing and can be discussing it directly online. It will also read the meters for us and download it into the cloud, so we will have less meter reading expenses.
HESTER: To get the word out, there’s a lot more interest in web-based opportunities where you can get this kind of information. Social media, too, in the event that there might be a localized outage, or opportunities to increase the conservation for customers, those types of messages are great. A lot of our customers would like to have more of those opportunities that are based on the web to get that information so they don’t have to necessarily make a phone call or visit an office.
CHRISTOPHER: Not as elaborate as other systems, but we have what’s called My Resource where you can now go online and pay your bill. If you need additional services, it’s very convenient for contractors that need dumpsters on site to have an app on their phone at the push of a button. With the times and technology and customer demand, it’s a lot easier for them so they’re not picking up a phone to make the call and going through that process. Technology is, even in the waste and recycling business, allowing us to do that.
Is conservation still a challenge?
ENTSMINGER: The biggest challenge is clearly the drought on the Colorado River. It’s 90 percent of our community’s water supply and that’s driving almost everything we do, in particular, $1.5 billion in new infrastructure out of Lake Mead. Over the last 15 years, while our population increased by 25 percent, our aggregate water usage went down by 30 percent and our per capita usage went down by 43 percent, which is fantastic and why we’re in such a strong position. Conservation is an upside-down business model. We’re paying people not to use our product. A lot of our costs are fixed and I think that is the single biggest public relations challenge we face. It’s that conservation conundrum.
HESTER: We’ve got some pretty aggressive conservation programs. In 2015, we spent about $4.5 million on different types of rebates, energy audits, things like that to help customers use less. To the extent that we can pay less for that commodity because people are using less, that allows a significant savings. With that said, you still do have the fixed cost recovery. We worked with the Legislature and the PUCN (Public Utilities Commission of Nevada) several sessions ago to get a rate structure in place that would allow us to recover the fixed cost that are necessary to serve customers and allow us to continue to encourage conservation.
DEVAUL: During the days when we were the fastest growing city in the United States, we had already collaborated with SNWA (Southern Nevada Water Authority) on implementing conservation issues and approved those conservation techniques. As we were putting in 6,000 new homes a year, none of them had grass in their front yard because we already put that restriction in and benefited from that.
What improvements are you making?
CHRISTOPHER: We just finished what is now the largest residential recycling center in North America here in Southern Nevada. We’re extremely proud of that. We now have that place fully operational as we continue to expand our All-In-One recycling program. We’re also in the process of expanding our CNG (compressed natural gas) fleet. Currently, 30 percent of our trucks run on CNG and we are building a new area to fuel trucks. We have about 115 stalls and we’re in the process of building another 160 as we speak. We’re investing some money there as well. We buy trucks every year, but all the trucks we’ve been replacing, we’ve replaced with natural gas trucks.
HUSTED: We’re doing a number of things. The big one is fiber optics. Technology is driving changes for our consumer and for the utility. The interaction of the relationship between the two requires an investment in capital and communications and that’s going to be the key. Probably no one here would have bet that our service area, those small communities, would be the first communities in the state to be all fiber optic.
HESTER: Our biggest capital improvement project would probably be related to the cost of replacing some of the older pipe in our system. We do have a number of other projects that are growth related. For example, in Northern Nevada, we started up a new lateral [pipeline] to deliver additional supplies to the Elko area. It’s a 35 mile, $35 million pipeline off of the Ruby pipeline. In addition to us being able to get gas to Elko from the western part of the state, we’ll be able to get it from the northern part of the state as well. In Southern Nevada, we increased what we call our gas infrastructure replacement activity. In 2015, the Nevada Commission authorized us to replace about $15 million of aging pipe. For 2016, that number is moving up to $45 million.
ENTSMINGER: As of September , our third intake is online. That was a $817 million project underneath Lake Mead. Your drinking water in Southern Nevada today is being pulled out of the third intake. This year, we began construction of the new low lake level pumping station. That’s a $650 million project that should be done by 2020. We’re talking 34 pump shafts drilled down 500 feet through highly variable geology. That will be a challenge. On the retail side, we’re looking at new reservoirs, pump stations, for Summerlin, Sky Canyon and down in the southwest mountain edge area over the next five years.
EGAN: With a fairly large asterisk, we don’t have a lot of new generation other than the two new solar facilities that we expect to commission this year, two 100 megawatt facilities that are primarily dedicated to a couple of specific customers. We should be finalizing the remaining 25 percent of the Silverhawk facility. We’ve operated it, but we’ve had a 75 percent ownership stake in our joint interest to complete that and make it 100 percent. Really for us, it’s about better deployment of technology. We’re investing more in quicker detection and some sort of self-healing, some of our sub-station capability of switching power so that our customers really never see an outage. Those investments are ongoing.
ALLEN PAVELKA: As a city, we have our storm drainage flood control lines. We also have our sanitary sewer and water reclamation plant. Our biggest challenge would be finding the public funding to improve existing facilities and upgrade them. The second challenge is space within our public right of way to fit everything. We’re working closely in partnership with the utility companies and I think we’re doing a good job with that. Regarding utilities, [capital investments include] never-ending plant upgrades for the water treatment facility and up-sizing older sanitary sewer facilities. Also, our city is really into sustainability, so we’ve been looking to put solar panels on top of all of our new garages and parks. The new city hall has them in front and on the roof. I know just recently, the mayor had a press release saying that we’ve made an agreement with NV Energy to use 100 percent fully renewable energy for the entire city, in addition to all of our little projects.
EGAN: Well, not so little. The City of Las Vegas has done a fantastic job in the energy efficiency space for years. Part of the way we facilitated that was to look at all their buildings and come up with 17 new projects to help offset the cost of that.
DEVAUL: Our current capital improvement five year program is about $50 million. We’re right now in the process of revising that. I do project that going closer to $100 million for the next five years. One of our biggest projects is our northeast interceptor sewer, which will provide sewer service to the northeast quadrant of our city. We have water there, but no sewer. All the developers come in and say, “If we had sewer there, we could build.” Our mayor has heard their comments and that’s a very high priority project for us. I would say maybe 30 percent of our expenditures deal with expansion while the other 70 percent deal more with existing infrastructure enhancements and sustainability.
MINWEGAN: We’re in the third year of a five year capital improvement program, and that five year program will cost about $750 million. Largest of those projects currently ongoing right now is what we refer to as our Paradise Whitney Interceptor, about 13.5 miles large, 72 inches diameter sewer. We’re trying to do it with less inconvenience to the traveling public. It’s gone so slow in some areas because of the technical challenges just of the geology and the geographic areas. It’s $160 million just for about a 13 mile stretch. That project is an example of us being just about half way through, but still, there’s a second half to go. The patience is wearing thin. These projects just don’t make a lot of progress when they’re that deep.