Charges fly over Nevada Power rate hike

David Strow

Tuesday, Jan. 25, 2000 | 11:05 a.m.

Nevada Power Co. began its quest Monday to convince Nevada regulators it needs a $110 million rate hike -- but immediately ran into fire from parties arguing the company is making more than enough already.

The contentious hearings before the Public Utilities Commission of Nevada -- in which one attorney accused Nevada Power of "welshing" on prior commitments -- were the first in what promises to be a protracted case. It is expected hearings will continue through at least Friday and possibly into next week.

At stake is Nevada Power's request to hike rates by $110 million -- the last rate increase it can seek before full competition begins in Nevada. Electric competition is set to begin March 1, though that may be delayed. Nevada Power's rates will be capped until 2002.

"Before we lock (rates) up for three years, we'd better get it right," said Mark Ruelle, chief financial officer of Nevada Power parent company Sierra Pacific Resources.

Nevada Power's rate hike request is based on two elements. The first is recovery of "deferred costs" -- the difference between the rates charged to electric consumers and the actual cost of providing that power. Nevada Power is seeking deferred cost repayment through Aug. 31, 1999.

Second, Nevada Power is seeking to set its rates to reflect its expected costs through the freeze period.

The increase from $44 million to $110 million was caused by the addition of expected costs, and the extension of the deferred cost period from May 31 to Aug. 31. Nevada Power is trying to make this rate hike a "non-by-passable" charge -- meaning that customers would have to pay it, even if they switch to another power supplier after March 1 or when deregulation begins.

"We're setting rates in an environment were many consumers can flee," Ruelle said. "Any customer who flees could relieve themselves of costs already incurred on their behalf.

"It is unacceptable for us to assume away these costs for energy already consumed by customers."

In pre-filed testimony before the PUC, Douglas Burton, a consultant for several major casino operators, testified that Nevada Power would be allowed to "over-earn" about $26 million per year in exchange for accepting the risk of freezing its rates, thereby making a rate hike unacceptable.

But Ruelle testified that Nevada Power is currently earning below its regulated rate of return, making a rate hike necessary.

The system of charging for deferred costs was ended in May. Those opposing the Nevada Power rate hike attacked the utility on this front, saying that the company is trying to recover costs it is no longer entitled to receive.

Bob Marshall, an attorney for the Southern Nevada Water Authority, pointed to a commitment made by Steven Rigazio, a Nevada Power executive, to the Nevada Legislature as it considered legislation designed to open up the electricity market. In this testimony, Rigazio said Nevada Power would only try to recover deferred costs through May 31.

"Isn't the real reason ... that you're trying to increase rates as high as you possibly can before the company enters the three-year period?" asked Marshall. "Nevada Power welshed on its deal with the legislature."

Ruelle responded that Nevada Power was unwittingly caught between conflicting regulations. Ruelle acknowledged that deferred power charges ended in May, but said the company could not terminate this system without prior approval from the PUC. In the current hearings, Nevada Power is asking for permission to end this system.

"We're caught between a rock and a hard place," Ruelle said. "I can't satisfy both of those conditions. It's logically impossible."