A bill passed by legislators and signed into law by Gov. Joe Lombardo could change the way regulators set rates for natural gas utilities in Nevada, primarily Southwest Gas, and in a way critics say will lead to higher costs for customers.

Alternative rate-making , which has been adopted in a number of other states in various forms, and in Nevada for electric utilities, gives the Public Utilities Commission the option to abandon standard cost-of-service rate setting in favor of other variables, according to Nevada Current .

Southwest Gas currently files general rate cases as needed. The PUC analyzes the utility’s expenses and revenue requirements and adds in a permitted rate of return for the company.

Alternative rate-making allows the utility to submit a rate plan determined by factors other than cost of service, like performance metrics. For instance, rates could be based on a utility’s success in reducing carbon emissions, or increasing efficiency.

Formula rates, another form of alternative rate-making, allow utilities to extend the time between general rate cases. Rates could be automatically adjusted based on a predetermined formula.

Utilities suggest formula rates streamline the lengthy and complicated process of a general rate case.

But in Arizona, where the Arizona Corporation Commission adopted alternative ratemaking in December, the expert witness who appeared on behalf of regulators testified that formula rate plans “have resulted in large rate increases with very few rate decreases and no measurable improvement in reliability of service.”

Southwest Gas was among the earliest supporters of the Arizona effort to establish alternative ratemaking.

“We can’t rely on the 100 year-old utility construct,” Southwest Gas Senior Vice President Amy Timperley of Las Vegas said during a panel discussion on spurring economic development through expanded gas service at a trade association meeting in February, according to an audio recording provided to the Current. “We have to think differently… We can’t hinder growth because we’re not creative and we don’t evolve…and I think the regulatory construct absolutely has to change.”

Ernest Figueroa, Nevada Consumer Advocate and Chief Deputy Attorney General of the Bureau of Consumer Protection, testified against SB 417.

The inclusion of provisions regarding formula rates, Figueroa said, “unfairly tips the scales in the utility’s favor to the detriment of the ratepayer.”

Another bill, Assembly Bill 452 , which was also approved by Lombardo, ensures customers receive full refunds with interest for overcharges assessed by utilities.

NV Energy acknowledged it overcharged as many as 80,000 customers in the last two decades. The company’s initial effort to make good on the overcharges resulted in just 12 percent of the money due customers being paid back.

The bill also extends regulatory timelines for rate case reviews.

Lombardo also signed a bill that mandates utilities report the number of accounts disconnected as a result of non-payment .