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Reno-Gazette Journal

Ask the RGJ: Why is NV Energy charging more for natural gas when prices are falling?

By Mark Robison, Reno Gazette Journal,

2023-03-15

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Short question #1: Web searches show natural gas prices are lower than they were a year ago, so why is NV Energy charging customers more based on higher natural gas prices?

• Short answer #1: The utility covered the higher cost for natural gas when prices spiked a year ago, and it is recouping that cost now.

• Short question #2: If NV Energy does not mark up the price of natural gas, how does it make a profit?

• Answer: The rate that NV Energy charges customers has two parts – one is the cost of natural gas used to generate electricity, and the other is its general rate, which is the basis for how it makes money, as laid out in Nevada law.

Full report

In a recent story , NV Energy said customers should expect higher bills this summer largely because of higher natural gas prices.

Multiple readers wrote in with screenshots of fuel-price websites showing lower natural gas prices than they were a year ago.

One wrote, “After reading your article today, I looked up the trend in natural gas prices . Nationally, they have decreased dramatically over the past year, from $4.92 last March to $2.60 now. What gives in Nevada?”

Another reader zeroed in on a statement from NV Energy that it does not mark up the price of natural gas.

“How does NV Energy’s (profit & loss statement) look if they are just passing their cost onto us?” he wrote.

To learn more, I spoke again with NV Energy communications director Katie Nannini as well as the company’s director of regulatory pricing and economic analysis, Jeff Bohrman. Below is an edited version of our conversation.

• RGJ: Readers emailed screenshots of natural gas prices showing that they’re lower now than they were a year ago and asked why you said in my previous story that customers should expect natural gas prices to be higher.

• NV Energy: Customers’ bills reflect a rate adjustment in natural gas prices that we incurred 12 months ago.

• RGJ: That rate adjustment for the cost of natural gas happens every quarter, but you’re saying that this adjustment is not based on the price from three months’ previous but 12 months’ previous?

• NV Energy: Correct. There’s a 12-month lag.

• RGJ: The second part of readers’ questions I've received about natural gas is that if NV Energy is just passing along the cost, how does it make a profit?

• NV Energy: There are two basic parts of a customer's bill. There are our fuel and purchased-power costs, which are the ones we’re talking about now for natural gas, and then there are our general rates. The general rates recover the cost of us doing business – so that’s the dollars we invest in infrastructure, the expenses to run our customer accounting and customer service (departments), the meter that goes on your house, etc.

(These two parts of customers' bills are regulated by Nevada law . One is called the Base Tariff General Rate, and it’s calculated looking backward at actual costs from the previous year based on the utility company’s revenues, expenses, investments and construction projects to determine what it needs to charge customers in order to cover its costs, which include “a fair return for investors.” The other part of the bill is called the Base Tariff Electric Rate, and it’s the actual cost for fuel used to generate electricity at the company’s power plants or to buy electricity from other electric companies. By law, utilities cannot profit from fuel and purchased-power costs.)

• RGJ: Where do I see the natural gas cost on my bill?

• NV Energy: It and the general rate are built into the “electric consumption” line item on your bill. On the current bill, it’s about 6.7 cents for the fuel and purchased-power cost and about 5.7 cents on a residential customer’s bill for the Base Tariff General Rate.

• RGJ: So you combine those two, multiply it by your usage and the total is what you as a customer owe for electric consumption?

• NV Energy: Right.

• RGJ: Can people use those natural gas prices they found online to get a feel for what their NV Energy fuel cost will be a year from now?

• NV Energy: Those prices you’re looking at online are going to be for retail natural gas. That’s going to be different than the natural gas that goes to our power plants that we use to create electricity. It’s a different product. On our bill, our fuel and purchased-power cost reflects the cost to produce the electricity and not just the fuel that goes into the power plant.

Also, when searching for national natural gas prices, those are the prices at Henry Hub. Henry Hub is a natural gas distribution hub, and the prices at Henry Hub are used as benchmarks for the entire North American natural gas markets.

Due to the physical location of the Henry Hub in Louisiana, utilities in the Western region do not have direct access to these prices.

In the Western United States this winter, there were many factors in play that ultimately led to a large price difference between the West and the Henry Hub:

  • Below normal temperatures and higher natural gas consumption.
  • Pipeline maintenance in the West.
  • Lower natural gas storage levels in the Western region.

Because of these factors, the cost of natural gas that a customer researches online today is different than what a customer will see on their bill. And remember: today’s NV Energy customer bills reflect a rate adjustment in natural gas prices the company incurred 12-months ago.

The varying factor that customers can control is their usage and so the tips for energy efficiency and how to keep your energy low with thermostats and those sorts of things are really going to be how customers can manage their bill.

Comment on this story on Mark Robison's Greater Reno Facebook page or email your thoughts to mrobison@rgj.com for consideration in his weekly Greater Reno newsletter rounding up his stories and featuring behind-the-scenes peeks, reader comments and other bonus content.

Mark Robison covers local government for the Reno Gazette-Journal. His wages are 100% funded by donations and grants; if you’d like to see more stories like this one, please consider donating here .

This article originally appeared on Reno Gazette Journal: Ask the RGJ: Why is NV Energy charging more for natural gas when prices are falling?

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