Editorial: Governor’s timeout is right call

Saturday, Oct. 7, 2000 | 2:44 a.m.

For weeks Democratic legislative leaders from Southern Nevada had been calling on Gov. Kenny Guinn to postpone electric deregulation until there were safeguards in place for residential customers. But the governor really had no other choice last week when he delayed for a second time the start of electric deregulation in Nevada. For starters, the supply of energy in the West hasn't kept pace with demand. So unleashing competition now, with electricity bills skyrocketing, could have hurt consumers. Outraged residents of San Diego, the first California city to begin deregulation, saw their power bills double this summer, a situation that has resulted in calls to abandon deregulation.

Guinn's timeout, which would prohibit competition for at least another year, does provide a needed respite. Although state lawmakers won't meet until February, they obviously will have to revisit deregulation. One thing that is clear is that the 1999 Legislature's passage of a three-year rate cap, while well-intentioned, was unrealistic. The costs for purchasing power shot up this summer, but the lid on rate increases prevented the companies from recovering the costs of the fuel they purchased. In essence, the Legislature tried to act as regulators, taking on the impossible task of projecting three years into the future what the costs of energy would be.

So late last year the state Public Utilities Commission was faced with a quandary when it received a rate hike request by Sierra Pacific Resources, the parent company of Nevada Power. The law didn't allow for rate hikes, but the company said it needed the money to pay for rising fuel costs. Initially the commission rejected the utility's request, but Sierra Pacific Resources sued, saying the commission's denial was unconstitutional. In an effort to find a compromise, secret negotiations were entered into by the casinos, Sierra Pacific Resources, the state consumer advocate and the commission's staff. These groups reached a tentative agreement that allowed for rate increases. Reversing its earlier rejection, the commission approved the backroom deal. While a rate freeze may not have been the best policy in such an uncertain market, the fact is that it is th e law, and unelected regulators shouldn't have snubbed the Legislature.

It also was disturbing that the commission allowed Nevada Power to get these rate boosts without its prior consent, a rejection of its previous practice. Instead the commission is relying on the advice of consultants handpicked by the utility to assess whether the increases are warranted. In addition, the commission's review of the increases isn't occurring until several months after the increases already are implemented. Guinn, in announcing the postponement, was on the right track when he said the commission should be taking only a few days, not months, before determining whether the rate hikes are merited. An even better course, though, would be for the commission to determine how much of an increase should be allowed before letting it go through. That method would ensure that customers aren't being overcharged.

In theory deregulation should, in time, result in lower prices and product innovation because of competition. The jury is still out, however, on how well this will work in the electric industry. Electricity, after all, is a commodity that can fluctuate wildly. And when there is a shortage of power, customers can be subjected to price gouging, especially when there is no regulatory oversight. It is encouraging, then, that the governor is creating a bipartisan panel that not only will come up with an energy plan for the state, but also will take another look at the rate hike settlement approved by the commission. Now's the time to take a deep breath and assess the state's direction, not rush headfirst into such an uncertain future.