NV Energy seeks to hike rates to fund self-insurance policies against wildfires

NV Energy is asking the Public Utilities Commission of Nevada to allow it to establish a $500 million self-insurance fund in order to have adequate liability insurance in the event of a catastrophic wildfire alleged to "have been caused or exacerbated by utility equipment." The fund would bring the utility's coverage to close to $1 billion.

The self-insurance policy would be funded by customers, based on their electricity usage.

The average Southern Nevada customer would pay an extra $.50 per month, while customers in Northern Nevada, where wildfires pose a greater risk, would see their monthly bill increase by about $2.40. Customers in the north would finance about three-quarters of the cost, with Southern Nevadans paying about a quarter.

Shareholders would commit to a 10% co-insurance payment for the amounts funded – up to $50 million for the $500 million policy, but only if the fund is depleted by claims.

During the last century, three wildfires in the U.S. were classified as super-catastrophic, meaning they resulted in more than $250 million in economic damage, NV Energy's application says. Since 2001, the number of super-catastrophic events has increased to 26. At least 19 caused damage of more than $1 billion.

"At least seven were allegedly connected to the equipment of electric utilities," according to the application.

"Catastrophic wildfires present an existential challenge to utilities across the Western United States, including in Nevada," the filing says, adding that utilities "in numerous states have sought additional financial protection to prevent negative financial consequences to customers in the event that a catastrophic wildfire is alleged to be caused or exacerbated by utility equipment, which can expose utilities to enormous liabilities that must be prepared for prudently in advance."

On Tuesday, fires fanned by winds exceeding 100 miles per hour caused evacuations in Pacific Palisades, threatening homes along the Southern California coastline.

Actuarial expert Nathan Pollak provided testimony indicating a "significant risk" of wildfires in Nevada in the next 10-20 years that would case financial damages of $1 to $2 billion, and an 18% risk of a catastrophic wildfire resulting in $1 billion in fire-related damages in the next decade.

NV Energy, the filing says, "cannot feasibly eliminate that they will cause or exacerbate a wildfire, although they can and have been mitigating it."

Utilities, challenged to procure insurance at a reasonable cost, are turning to self-insurance, the filing says, noting the California Public Utilities Commission approved the creation of a $1 billion self-insurance fund for the state's two largest utilities.

The self-insurance policy sought by NV Energy would be in addition to liability policies currently held by the company's subsidiaries in the south and in the north. The company currently has $405.5 million in liability coverage, with a $10 million deductible, per incident.

The financial consequences of catastrophic wildfires alleged to have been caused by electric utilities have impacted utilities in Hawaii, California, Texas, and Oregon, the filing notes.

Pollak testified NV Energy's risk exposure warrants liability insurance totaling $1 billion to $1.5 billion. However, the company is spending 30 to 40 times as much as it did in 2018 for insurance, and has no options to secure additional coverage in the commercial markets, experts testified.

"Having adequate insurance is vital to protect customers and the Companies from the potentially devastating financial consequences were such a wildlife to occur without sufficient insurance in place," the company said in a news release. "The policy is proposed to be collected over 10 years to avoid sudden rate increases, providing stability and predictability for customers."