Nevada - General Revenue Adjustment Mechanism
What is the General Revenue Adjustment (GRA) mechanism?
The GRA mechanism breaks the link between utility sales and recovery of fixed costs. By changing the methodology for how Southwest Gas recovers these costs, it eliminates the financial incentives and disincentives associated with increasing and decreasing sales volumes. With the GRA mechanism, the Public Utilities Commission of Nevada (PUCN) establishes a fixed revenue per customer and adjusts the rate per therm to ensure Southwest Gas never retains more or less revenue than what the PUCN approved in its last rate case.
Why the GRA mechanism?
In the current rate model, the Company’s ability to recover its costs associated with running the gas system – otherwise known as fixed costs – is contingent upon selling a set volume of gas. If sales are higher than expected, Southwest Gas recovers more revenue than it needs to pay for its fixed costs. If sales are lower than expected, Southwest Gas recovers less revenue than is required to pay for those costs. Such a model creates an obvious financial incentive for Southwest Gas to have its customers use more natural gas and a strong financial disincentive to have customers use less natural gas.
How much can my bill fluctuate due to Southwest Gas’
current GRA mechanism?
Customers, on average, can expect annual adjustments that range anywhere from a refund to an increase that generally results in a minimal per therm rate impact. For example, Southwest Gas’ last adjustment resulted in a per therm credit of $0.02 for Northern Nevada customers and a per therm increase of $0.003 for Southern Nevada customers. This belief is also supported by industry studies that have found such adjustments to be very modest.
Why is it possible for me to receive a refund with the GRA mechanism?
If Southwest Gas collects more revenue than the amount authorized by the PUCN, the rate paid by customers will be adjusted to provide a refund.
If I reduce my natural gas usage, will I still pay for natural gas I did not use?
No. If a customer reduces their natural gas consumption, they save money. For every unit of natural gas a customer saves, they will not pay for the natural gas they did not consume. The following example further illustrates this point.
Example: If Mr. and Mrs. Smith consume the system average amount of natural gas and reduce their usage by 10 therms, they will not pay the associated $1.00/therm cost of natural gas, which means they save $10.00.
Why does Southwest Gas believe the GRA mechanism is good for its customers?
By modernizing the current ratemaking model and eliminating the link between sales and recovery of fixed costs, the GRA mechanism allows Southwest Gas and its customers to work together through company-sponsored energy efficiency programs to assist customers in reducing their energy consumption and lowering their bills.
The GRA mechanism also protects customers by preventing Southwest Gas from increasing profits through increased sales. By implementing the GRA mechanism, the PUCN effectively places Southwest Gas on a fixed income. Regardless of how much natural gas the Company sells it will only be allowed to retain the PUCN-approved revenue per customer that was approved in the last rate case – any over collection is refunded to customers.
What other states have approved such a mechanism?
Due to the increased national focus on energy efficiency and conservation, these mechanisms have been a growing trend in the United States. Nearly half the public utility commissions in the United States have approved similar mechanisms, sometimes referred to as decoupling mechanisms. Visit www.aga.org for a map showing which states have adopted them.
- American Gas Association Decoupling Fact Sheet
To learn how gas rates are set click here.
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