Deal boosting Nevada electricity rates approved

Cy Ryan and Richard N. Velotta

Friday, July 21, 2000 | 11:11 a.m.

The Public Utilities Commission of Nevada approved a series of compromises that would end three lawsuits from the state's electrical utilities and pave the way for deregulation of the industry.

The landmark agreements, approved in 2-1 votes Thursday by the PUC in a five-hour meeting, would raise electricity rates for residential consumers by 4.7 percent beginning Aug. 1 and enable Nevada Power Co. to adjust rates to account for fluctuations in fuel costs monthly through December 2002. Commercial and industrial customers would see their rates climb by between 5 and 6.2 percent.

Because the agreements are considered court settlements, they must be approved by judges in courts where cases are pending. The commission also will meet Aug. 3 to consider related cases that could affect the settlement.

The $48 million rate increase that would take effect next month would raise the average residential utility bill of $77 a month by $3.55. Since the settlement agreement also gives Nevada Power and its parent company, Sierra Pacific Resources Inc., the ability to adjust rates to compensate for the cost of rising fuel costs, consumer bills could be even higher in the months ahead.

Although the amount of the monthly adjustment would be capped and fuel costs could fall, Nevada Power President Steve Rigazio said Thursday it's likely bills would increase in the next few months based on recent cost trends.

The settlement also provides for an independent audit of fuel costs and the utilities' passage of them to consumers every six months.

The agreement, in effect, keeps the same general electrical rate, but about half of the utility companies' expenses are in fuel costs, which is what the agreement allows to be increased. It was because the PUC did not authorize a fuel rate adjustment that Nevada Power and Sierra Pacific took the matter to court with filings in District Courts in Washoe County and Carson City and in U.S. District Court in Nevada.

The PUC rejected Nevada Power's fuel rate adjustment in February seeking $110 million. Under terms of the settlement, the utility agrees to end its pursuit of that.

The settlement enables Sierra Pacific Resources some recovery from a tumultuous financial period that has seen the company's stock price plummet from $27 a year ago when Nevada Power and Sierra Pacific merged to a low of $12.25 on March 28. Today, the company's stock was down 19 cents to $14.69.

In a survey of six analysts covering the company, four recommend a "hold" on the stock while two recommend a "strong buy."

For utility regulators and state officials, the compromise gets Nevada back on track to restructure and deregulate the utilities industry. Under the agreement, competition would open to five classes of commercial customers in three increments. The first customers would be able to take advantage of open markets Nov. 1, with different classes being added April 1 and June 1.

Residential customers would be eligible on a phased-in basis between Sept. 1, 2001, and Dec. 31, 2001.

The compromise builds in an incentive to the utility companies to help foster the transition to a competitive market. The companies would be eligible to collect $25 million from the proceeds of the sale of power plants if the deadlines are met.

The establishment of those deadlines also is beneficial to the state's gaming industry, since casino companies will be among the first to take advantage of lower utility rates offered by competitors. Attorneys for the Nevada Resort Association and three groups of casino companies were instrumental in hammering out the compromise agreement, which was brokered in closed-door meetings over the past three months and tinkered with up until five minutes before Thursday's meeting.

In all, 12 attorneys participated in the negotiations, including representatives from the utilities, the casino industry, the consumer advocate's office and the PUC staff. Representatives from the Southern Nevada Water District and the Utility Shareholders Association of Nevada also were invited to participate, but were not signatories to the final agreement, saying their interests were being represented by the other groups.

Commissioner Judy Sheldrew dissected the agreement line by line during the meeting and ultimately voted against it in three votes cast to approve the settlement in the three different courts.

Sheldrew said ratepayers gave up too much in the compromise and she questioned whether the agreement violated the intent of Legislature when it passed a law freezing utility rates for three years beginning in March.

But despite the disclosure that homeowner rates for customers of Nevada Power could jump by 9 percent by the end of the year, state Consumer Advocate Tim Hay said the deal was good for residential users.

Hay said these rates would only kick in under a "worst-case scenario," in which power costs continue to rapidly rise. But he said the settlement protects Nevada customers from extreme rate hikes like those seen in California this summer.