Officials: Nevada electric deregulation settlement is legal

Friday, Sept. 22, 2000 | 10:05 a.m.

CARSON CITY -- Two attorneys, who helped write the so-called "global settlement" that has allowed repeated increases in electric rates for customers of Nevada Power Co., say this is legal, despite claims that a new state law capped utility rates for three years.

State Consumer Advocate Timothy Hay and Jeff Parker, the general counsel to the state Public Utilities Commission, issued a statement Thursday saying the settlement is legally sound, despite growing criticism about the rate hikes and alleged "back-room deals."

The 1999 Legislature enacted a law for the cap as the state enters the era of electric deregulation. But Hay and Parker said the lawmakers never changed or repealed a longtime section in the law that permitted the utilities to recover the amount paid for the higher cost of fuel or purchased power.

Sen. Randolph Townsend, R-Reno, whose Commerce Committee wrote a major part of the law, said Thursday he was under the impression there was a rate cap. "But I'm not a lawyer," he said. It was his understanding that the utilities would be barred from boosting their rates because of higher fuel or purchased power costs.

But he said the lawyers have found otherwise and he backs the "global settlement," calling it a "better deal."

Senate Minority Leader Dina Titus, D-Las Vegas, said the utilities agreed to the rate cap at the 1999 Legislature and legislators were led to believe the law prohibited any hikes. That law permitting rate increases may be on the books, but she said the process should require prior scrutiny by the state Public Commission to justify any hike in rates.

The law Hay and Parker refer to says, "A public utility may not file an application to recover the increased cost of purchased fuel, purchased power, or natural gas purchased for resale more often than once every 30 days."

Under that law, the state Public Utilities Commission first reviewed the application to see if it was justified. Under the new settlement, the rates automatically go into effect with no prior approval.

Parker and Hay said, "We want to assure Nevada's citizens not only that the settlement is based on good law, but also that the agreement itself protects residential ratepayers from the uncertainties of deregulation that existed previously."

They said Nevada Power and Sierra Pacific Power Co. in Reno will be able to recover only a limited amount of their increased power costs. "Ratepayers are protected under the settlement from the type of rate shock evident in the San Diego market this summer because of the variety of caps contained in the settlement," Hay and Parker said.

Nevada Power has already filed four rate increases totaling 8 percent and Sierra Pacific submitted its first for 4.9 percent. If the utilities pursue the maximum amount, rates in Southern Nevada would rise by 64 percent by 2003 and in Northern Nevada by more than 50 percent, critics say.

While Townsend said he thought there was a rate cap in effect, he supports the "global settlement." It has prevented rates from skyrocketing anywhere from 15 to 40 percent in Southern Nevada, which would have happened under the law prior to 1999. "And you kept a utility from becoming insolvent, going into bankruptcy and being taken over by the state," he said.

Townsend said, "People who are pontificating on this are not familiar enough to understand this."

Titus said Assembly Assistant Majority Leader Barbara Buckley, D-Las Vegas, has asked the legislative staff to gather all the comments made at the hearings to show there was an agreement on a three-year cap.

"Nobody is saying the power companies should be put out of business," said Titus. But she objected to the "whole way this was done in the back room by only a few people and against what was agreed upon in the Legislature." She was referring to the secret negotiations between the utilities, the big gaming companies of Southern Nevada, Hay and Parker.

Titus said Nevada Power should file its applications, which would be reviewed by the utilities commission to make sure they are supported by evidence. At present these rate increases are automatic. Then after six months, the utility hires an independent auditor to see if they are justified.

Hay and Parker said, "All rate adjustments resulting from the agreement are subject to review by the commission staff, the consumer advocate and interested parties..." And they said there is a potential for refunds if there is an overcharge.

But critics point out the auditor will be hired by the company and these rates will have been in effect for months before anything is finalized.

Titus said nobody knows whether other business expenses are being slipped into these fuel cost adjustments, "like paying off (Michael) Niggli $2 million," when he left as chief executive officer of Sierra Pacific Resources, the parent company of Nevada Power and Sierra Pacific.

Hay and Parker said the "global settlement" also "ensures that ratepayers will not have to pay any costs associated with the proposed acquisition of Portland General Electric by Sierra Pacific Resources." Sierra is buying the Oregon utility for $3 billion. And it has promised a $95 million rate decrease over a period of years to customers of that utility.

Titus questioned how it can be reducing rates in Oregon but boosting them in Nevada.

Hay and Parker said the agreement requires that any money the utilities receive for the sale of their power plants above the book value goes to the ratepayers. "Nevada is the first state in the nation to guarantee that utility profits from the sale of generation assets will be given back to ratepayers, and removes all ratepayer exposure to 'stranded costs."'

The "global settlement" permits major casinos and other big users in Southern Nevada to start shopping around for cheaper power Nov. 1. Homeowners both in Southern and Northern Nevada will have to wait until September next year before the market is open to competition.

Gov. Kenny Guinn must decide whether to allow deregulation of the electric industry to start Nov. 1. He has said he will make his decision by the end of this month.

Titus, Buckley and Assembly Majority Leader Richard Perkins, D-Henderson, said before the market is opened, Guinn must ensure there is adequate protection for consumers.