Nevada Power reaches deal on rate hike

Friday, July 14, 2000 | 11:24 a.m.

CARSON CITY -- After marathon negotiations with the last one ending at midnight, a settlement has been reached to allow Nevada Power Co. to increase its rates by $48 million and to open the electric market to competition.

This major agreement disposes of a number of court cases and pending issues before the state Public Utilities Commission, which must approve the far-ranging stipulations.

The parties involved in the negotiation were Sierra Pacific Resources Inc., which is the parent of Nevada Power, state Consumer Advocate Tim Hay, the staff of the utilities commission and representatives of the major hotel companies in Las Vegas including Park Place Entertainment Corp., Mandalay Resort Group and MGM MIRAGE. The Nevada Resort Association also had attorney Harvey Whittemore participating in the negotiations.

The settlement is expected to be formally announced later. But sources said the negotiators "reached unprecedented accord."

Sen. Randolph Townsend, R-Reno, who was one of the main sponsors of the 1997 and 1999 legislative bills calling for deregulation, called it a "remarkable agreement." Without these two laws, he said, rates in Clark County would be three times higher than they are now.

Without this settlement, he said, the parties would have to spend millions of dollars on court costs.

Under the agreement, Nevada Power will be able to boost its rates by 4.7 percent to homeowners and 6 percent to big customers in Clark County. That will produce $48 million of new money for the utility, enough, the sources said, to keep it solvent.

An audit will be conducted of Nevada Power by the state to examine whether this amount is too high and whether the company followed prudent practices in buying its power in recent high volume months. The agreement gives the utilities commission the authority to lower the $48 million amount.

In addition to this base rate increase, both Nevada Power and the other subsidiary, Sierra Pacific Power Co., of Reno, will be able to adjust their rates monthly, either up or down, depending on the price of fuel. There will be a cap on the amount the rate can increase.

This rate change will be in effect until March 2003. The 1999 law provided that Nevada Power would get one last rate increase to recover higher fuel costs before deregulation kicked in. Rates were to be frozen then. But this allows monthly increases in the bills.

Nevada Power last year asked the utilities commission for a $110.7 million rate increase, which translated to a 14 percent to 15 percent hike. The commission voted it down 2-1 and instead told the utility to lower rates by $9 million. Nevada Power sued and a court hearing was scheduled for twice this week in Carson City. But they were canceled to allow the negotiations to proceed.

Also settled was a dispute involving a refund by Sierra Pacific to its Northern Nevada users. It will give a rebate of $9.3 million. Hay said Sierra didn't want to give any rebate.

He called the agreement "a great deal for consumers." He said the goal of his office was to keep the rate hike below 5 percent.

The 1999 Legislature also allowed electric deregulation to go into effect March 1 this year. But Gov. Kenny Guinn said the state was not ready for the advent of open competition and he delayed it indefinitely.

Under the agreement, the market will be opened to the big Clark County users, such as the casinos, in November. On April 1 the industrial customers could opt to seek other power suppliers than Nevada Power. Open competition would come on line for other commercial customers on June 1 and on Sept. 1, 2001, for homeowners.

In Northern Nevada, open competition starts April 1 for the large customers, June 1 for general business and Sept. 1 next year for homeowners.

This schedule permits the big users to test the open market first. There have been a limited number of companies applying to the state supply energy to the smaller users.

As part of the agreement, Sierra Pacific Resources will dismiss their suit in U.S. District Court in Reno, challenging the constitutionality of the 1999 electric restructuring law. Also to be dismissed is Nevada Power's $110.7 million suit and other cases filed by the utilities.

The stipulation also deals with the sale of the power plants now held by the two utilities. They are valued at an estimated $1 billion. When they are sold, the proceeds collected over the book value of the plant will be placed in an escrow account. Hay estimated this amount to be $300 million to $500 million. An independent party would manage this account and it would be used to pay off the "stranded costs" of the two utilities.

These "stranded costs" are long-term contracts in which the utilities are paying higher than market rates for such things as geothermal power. Hay said this agreement on the escrow accounts "really protects the consumer" in having to pay the extra money to cover these stranded costs.

When the sales are completed, Nevada Power will receive $15 million. And $25 million will go into a pool as an incentive for the two utilities to open the market to competition on the agreed upon schedule. More than $16 million of the $25 million would be going to Nevada Power and the rest to Sierra.

The two utilities agree to file before July 20 an application with the Federal Energy Regulatory Commission to open the market. This is another step toward deregulation.

The two companies would operate the transmission and distribution systems at first. Hay said representatives from his office and the utilities commission would monitor the operation to make sure it is fair.

And the two companies agreed to creation of an independent regional transmission organization to eventually run the system.

Hay suggested that this far-reaching settlement will encourage big energy companies to build plants in Nevada and encourage economic development of the state.

Guinn's office was kept informed of the negotiations that took some 30 days. Sessions this week, conducted by conference calls, lasted 12 hours and usually closed at midnight.

The utilities commission is expected to consider the agreement next Thursday.