Cheap Hoover Dam power at issue in talks

Thursday, Feb. 3, 2000 | 11:01 a.m.

A 30-year agreement Nevada Power Co. signed with the Colorado River Commission in 1987 promised to pass the benefits of cheap hydroelectric power from Hoover Dam to Southern Nevada consumers.

Now, with a competitive electrical industry in the horizon in the state, the commission is trying to determine the best way to keep the benefits flowing to all Southern Nevada consumers, even if some of them switch power companies when competition begins.

The Colorado River Commission (CRC) will decide in the next two months the best way to make that happen after taking suggestions in a public workshop this week.

Competition is scheduled to begin March 1, though some government officials and industry leaders are skeptical that it will occur by then. Gov. Kenny Guinn has the authority to delay the start-up.

The CRC isn't concerned about having an agreement in place before competition starts since Nevada Power's rates will be frozen for three years and most customers are expected to stay with the company until competitors start marketing their plans.

Five organizations offered different alternatives. In the end, it was decided that whatever solution is chosen shouldn't improve or diminish Nevada Power's financial position. It also was decided that the CRC would have to monitor the issue more closely in the future, especially after the Nevada Power rate freeze ends.

A working group comprised of representatives from Nevada Power, the CRC, the consumer advocate's office, the Southern Nevada Water Authority and the city of Boulder City will negotiate a new plan that would replace the current agreement.

"At the end of the workshop, we agreed to look at a variety of mechanisms," said George Caan, executive director of the CRC.

Caan said once the group hammers out an agreement, it will be presented to the full seven-member commission, which monitors water, land and environmental issues in addition to power matters related to the Colorado River.

At issue is the annual allocation of 135 megawatts of power from Hoover Dam -- less than 2 percent of the company's requirement to meet customer needs. A clause in the contract Nevada Power signed requires that the benefits of the cheaper power be passed through to its residential customers.

Nevada Power gets a total of 235 megawatts from the dam, but only 135 are affected by the contract under review.

Hoover Dam's 17 generation units send 2,000 megawatts to the utility grid with 56 percent of it going to Southern California, 25 percent to Nevada and 19 percent to Arizona. Among the California utilities that contract with the Bureau of Reclamation for the power are the Los Angeles Department of Water and Power, Southern California Edison and the Metropolitan Water District of Southern California.

In Arizona and Nevada, the major contracts are with the Arizona Power Authority and the CRC, respectively, and those entities subcontract with utilities like Arizona's Salt River Project and Nevada Power. The Arizona Power Authority also has several small rural customers and in Nevada, the City of Boulder City contracts directly for Hoover electricity.

The five entities that addressed the commission workshop had different perspectives of how residential customers can continue to benefit from the cheap power.

Nevada Power attorney Donald Brookhyser said the company should be allowed to complete the 30-year contract and that it would pass through benefits of Hoover Dam power as the so-called "provider of last resort" -- the company that would take the customers that don't choose an electricity provider when competition begins.

Brookhyser noted that Nevada Power isn't allowed, under terms of the existing contract, to make a profit on the Hoover power.

Consumer Advocate Fred Schmidt, who calculated that the value of the Hoover power to be about $7 million to $10 million a year, or about $15 to $20 a year per residential customer, agreed that Nevada Power should continue to receive the allocation.

But he suggested that the company sell the power allocation on the open market with the profits earned being rebated to all residential customers. Nevada Power will continue to maintain the electrical wires for all power companies and a hearing on how distribution rates will be determined is scheduled later this month.

Schmidt and Nevada Power disagree over whether there should be a flat rate or per-unit costs on power distribution.

The CRC staff recommended that the Public Utilities Commission of Nevada be allowed to regulate the Hoover power allocation and determine the best way for it to benefit consumers.

The Southern Nevada Water Authority proposed that since it serves all Las Vegas-area customers, it could become the agency that passes through Hoover power savings for all consumers.

Representatives of the city of Boulder City said the city expected Nevada Power to have to surrender its Hoover power allocation since the company is divesting itself of its power generation facilities under terms of its merger with Sierra Pacific Resources Inc. The city, which owns and operates its own electric utility and has growing power needs, wants to apply for the allocation.

A spokeswoman for Sierra Pacific, parent company of Nevada Power, said the company will participate in the working group and is satisfied the company will get an opportunity to present its argument for why it should continue to receive the allocation.