The true cost of electricity

Bart Sheldon of Industrial Logistics Service makes a living by moving machinery for factories.

But business has been slow recently for Sheldon's company in Carson City, and he figures that the cost of electricity in Northern Nevada is one of the biggest culprits as the cost discourages companies from moving here.

"It's a deal killer," he says. "It's hurting everyone."

Perhaps not surprisingly, executives of NV Energy don't agree with either the analysis or the conclusions of those who lay blame for the region's economic malaise at the doorstep of the utility.

The situation is far more complex than it appears from a quick analysis, NV Energy says.

The quick analysis, based on data collected by the U.S. Energy Information Administration, shows that industrial users of electricity in Nevada paid an average of 7.3 cents a kilowatt-hour for power during the first seven months of this year.

That's a hair above the national average of 6.75 cents, but it's well above the average industrial power cost in some nearby states that compete with Nevada for new industry.

Oregon's average rate for industrial customers is 5.85 cents a kilowatt-hour, the federal agency says, while Washington is even lower at 3.94 cents.

Arizona's average cost is 6.62 cents, Idaho stands at 5.18 cents and Utah stands at 4.95 cents.

By comparison with California, however, Nevada's industrial power is a bargain. California's average this year has been 10.57 cents a kilowatt-hour for industrial customers.

Lance Gilman, developer of the giant Tahoe Reno Industrial Center east of Sparks, says uncompetitive power rates discourage some manufacturers from selecting sites in Northern Nevada.

"We don't make the cut," Gilman says. "We believe the long-term success of our project depends on competitive power rates."

He says power rates in Northern Nevada were among the most competitive in the West when ground was broken on Tahoe Reno Industrial Center in 2000; today, they're among the highest.

But things aren't all that simple, says Mary Simmons, vice president for external affairs at NV Energy.

For starters, she says the federal Energy Information Administration compares statewide figures, but costs can vary widely between one utility and another within a single state.

And average costs, Simmons says, often are misleading because they don't take into account factors such the time of day that an industrial customer needs power. Prices often vary between peak and non-peak hours.

Another factor is local climate. Plastics manufacturers, for instance, like the cool nights in northern Nevada because it reduces their need for air conditioning.

"We like to work with individual customers because their usages are so different," Simmons says.

And when companies are shopping for locations, they need to be careful that the rates they're quoted include the entire bundle of fees they're likely to pay. Within NV Energy's service territory, for instance, franchise fees vary from one county to the next.

And to some degree, power rates in Nevada are simply a function of the state's dependence on power plants that are fueled by natural gas and goal.

Oregon and Washington, the two nearby states with dramatically lower power costs, rely mostly on cheap hydropower.

"We will never be able to compete with hydro," says Simmons.

But for most companies that are scouting Northern Nevada locations, power costs are just one of the factors they weigh, says Brad Woodring, an economic development manager with NV Energy.

Along with electric bills, companies want to know about taxation, regulatory burdens, real estate costs, the availability of skilled labor and a multitude of other factors.

Mike McCabe, a longtime specialist in industrial properties with Colliers International in Reno, says electric rates in the region simply are a given fact, and some potential new companies with big needs for power sometimes will go somewhere else where rates are lower.

That's one of the reasons, he says, that distribution centers - which typically don't demand much power - are more likely to land in Northern Nevada.

But the many California-based manufacturers that are looking to Northern Nevada for new locations will see substantially lower power rates here, McCabe says.