Nevada Power rates are at issue again

Cy Ryan and Richard N. Velotta

Friday, Feb. 25, 2000 | 11:24 a.m.

Nevada Power Co. renewed its quest for a rate increase Thursday as company experts began submitting testimony on why it should be allowed to recover $44.3 million in deferred energy and purchased power expenses.

The utility, the primary power provider for Southern Nevada, is making its second bid for a rate increase this month after the Public Utilities Commission of Nevada rejected a $110 million rate increase Feb. 4.

In the meantime, Nevada Power filed a motion asking the PUC to reconsider its original $110 million rate increase.

Commission Chairman Don Soderberg, who cast the swing vote against the rate increase in the earlier request, is the presiding officer in the new hearing, which is expected to continue into next week.

Nevada Power filed for the rate hearing in July and amended the $44.3 million request to $110 million in September. The amended request was the one rejected earlier by the PUC.

The request is important to Nevada Power because it is the last deferred energy rate increase allowed by the utility for three years, during which power rates will be capped. The industry is being restructured to allow competition and during the period rates are capped, alternative sellers are expected to enter the market.

Most industry experts expect competition to be delayed from the scheduled March 1 start date, an option open to Gov. Kenny Guinn. Even if competition is delayed, the Nevada Power rate cap would take effect -- as soon as the final deferred energy case and the appeal on the earlier rejection are resolved.

A $44.3 million rate increase would raise rates 7.7 percent for residential customers and 2.7 percent for other customers -- 4.9 percent overall.

Dave Maher, Nevada Power's principal economist, testified that Nevada Power's bid for an increase is more important than the average annual deferred energy request because this one closes the books on deferred energy and purchased power rate adjustments in Nevada.

Under Nevada law, utilities have been allowed to make annual adjustments in rates to pass through the cost of fuel and power they buy from other sources. Sometimes, costs have fallen and the new rates favor consumers. Other times, increases are sought to compensate for higher costs.

Once the industry is restructured, companies will have to make their own adjustments and, presumably, competition will keep costs down.

Although deferred energy adjustments aren't supposed to affect a company's bottom line, investors perceive the rate requests as opportunities to increase revenue and when the $110 million request was rejected, the company's stock price fell.

Representatives of the Utility Shareholders Association of Nevada were present at Thursday's hearing as Nevada Power experts testified for the $44.3 million request.

During rate hearings, the utility introduces testimony by company experts. Intervenors cross-examine the experts before putting their own experts up for similar scrutiny.

In the Nevada Power case, the Southern Nevada Water Authority and a coalition of casino companies are intervening, as are the PUC staff, representatives from the consumer advocate's office and the shareholders' association.

Experts from Nevada Power and the Water Authority completed their presentations Thursday. The PUC staff testimony is expected to continue today. Experts sponsored by Park Place Entertainment Corp., Mirage Resorts Inc. and Mandalay Resort Group are expected to give their testimony next week.

Written testimony filed in advance of the hearing indicated the PUC staff, the consumer advocate's office and the casino industry representatives would seek a reduction in the proposed rate increase.

In fact, the casino industry experts are suggesting an overall reduction in rates.

The PUC staff proposal is for a $12 million rate increase. The consumer advocate's expert suggests a rate increase of $3.2 million.

PUC officials said the company, the PUC and the consumer advocate are using different interpretations of accounting measures to arrive at what they believe is fair for the company to recover.

Meanwhile, utility experts representing the casino companies say Nevada Power should reduce rates by $11.5 million.

The reason for the vast difference: The casino companies believe the utility is incorrect in its interpretation of legislation on deferred energy cost recovery. The casinos believe Nevada Power has overrecovered deferred energy and purchased power costs.

As a result, they are suggesting that rates should come down before they are capped next month.

Separately, in its request to reconsider the $110 million increase, Nevada Power said the commission violated state rules and ignored the law in rejecting the proposed 15 percent rate hike.

"The injury inflicted on Nevada Power by the PUCN's order is grievous and way out of all proportion to any sense of equity, fairness or balance among the parties," said the request from Nevada Power attorneys William Peterson and Elizabeth Elliot.

Peterson and Elliot said they were never given a chance to rebut some of the PUC staff's testimony.

Peterson and Elliot said the commission must set aside its prior ruling and hear all the evidence.

"To do otherwise would deprive Nevada Power of substantial annual revenues, without benefit of an opportunity to rebut the evidence presented by intervenors in their direct case in violation of the Nevada Administrative Procedures Act, the rudiments of fair play and procedural due process," they said.

The utility said the "irrefutable evidence" shows Nevada Power is earning below its authorized rate of profit. And the dismissal of the rate case by the commission on a 2-1 vote "not only exacerbates that situation but, in light the statutorily mandated rate freeze, condemns Nevada Power's shareholders to persist in that condition and most probably in a progressively worsening condition over the next several years.

"Nevada Power shareholders recently suffered a 37 percent reduction in dividend ($1.60 to $1) in recognition that the company needed to retain more earnings to pay for the continuing growth and infrastructure to maintain good customer service.

"No one disputed nor can dispute that the costs disallowed by the Public Utilities Commission were prudently incurred actual out-of-pocket costs incurred by the company for the benefit of ratepayers.

"Shareholders received no return whatsoever for that expenditure and expected only that they be reimbursed," the company said.