Nevada PUC and consumer advocate under the gun over rising electric rates

Tuesday, Sept. 26, 2000 | 11:02 a.m.

CARSON CITY -- Despite an 8 percent increase in electric rates in Clark County, Nevada Power Co. is recovering only a fraction of what it is paying in higher fuel costs, a utility executive told the Legislative Commission on Monday.

Bill Peterson, counsel for Sierra Pacific Resources Co., which is the parent company for Nevada Power, members of the state Public Utilities Commission and Consumer Advocate Tim Hay defended the so-called "Global Settlement" that permits electric deregulation to begin and for Nevada Power to raise its rates every 30 days.

Peterson said the utility is probably recovering only 50 percent of what it is entitled to pass along to the customers because of higher than expected fuel and purchased power costs. Don Soderberg, chairman of the state Public Utilities Commission, said the last rate increase filed was $19 million less than the Las Vegas utility was fully entitled to.

But Democratic legislators from Southern Nevada continued their attack on the settlement as a "backroom deal" that ignores Nevada law that put a freeze on electric rates for three years.

Senate Minority Leader Dina Titus, D-Las Vegas, and Assembly Assistant Majority Leader Barbara Buckley, D-Las Vegas, led the questioning of members of the utilities commission and Hay who say the settlement is legal and is a good deal for consumers.

Buckley told them, "We approved a rate freeze" in the 1999 Legislature. "You ignored the law." She read from comments made during the Legislature by officials of Nevada Power Co., and from the consumer advocate's office, that there would not be any rate increases until March 2003 after the law was approved.

Buckley referred to a statement to the 1999 session made by former Consumer Advocate Fred Schmidt that said the "rates are not going up. There is a possibility of them going down. The small customer is clearly protected."

The Legislature passed the deregulation law but there were lawsuits challenging it. An out-of-court settlement was reached by the utilities, major gaming casinos in Las Vegas, Hay and the staff of the Public Utilities Commission. It permits the big users in Southern Nevada to start shopping around for other suppliers of low-cost power starting Nov. 1 and allows Nevada Power and its sister company Sierra Pacific Power Co. to recover part of the increased cost of fuel and purchased power they are paying for.

Peterson said the law permits Nevada Power to file the monthly increases but the amounts are limited. Sierra Pacific Power Co., of Reno, has filed notice it will raise rates 4.9 percent on Nov. 1.

Peterson said the settlement was accepted because "We were in desperate (financial) straits. We needed immediate relief." In return for allowing the higher rates, the utilities gave up on the so-called "stranded costs."

Stranded costs refer to investments made in a regulated environment that cannot be recouped in a competitive market. They can include such things as investments in expensive power plants and long-term contracts to purchase electricity at above-market rates. In other states moving toward deregulation, utilities have been given methods of collecting these costs from all customers, even those that bolt for a new utility.

But Sierra Pacific and Nevada Power officials agreed that proceeds from the sale of their generating plants will cover their stranded costs, so they will not be passed on to consumers.

Though there was an agreement on how to handle past costs in the settlement, the PUC adopted a regulation setting up the procedure for the utilities to recover their stranded costs from consumers, in case the "Global Settlement" falls apart. But the Legislative Commission delayed until its December meeting approval of the regulation.

Monday's hearing came the same day that PUC member Judy Sheldrew resigned in protest of the global settlement.

Gov. Kenny Guinn has said he will decide this week whether to allow the electric markets to open Nov. 1. But he has been under pressure from Democrats to ensure that consumers will be protected if he permits deregulation.

While the big customers will be able to leave the system immediately, homeowners would not be able to shop around for alternative power suppliers until September next year.

Critics of the deal said the small users is held captive to higher rates while the big customers will be able to search for potential savings.

Under the agreement, the public utilities commission does not review the increased rates prior to them going into effect to determine if they are reasonable. Instead, the utilities will hire an auditor in six months and submit a report to the commission to show if the rates were justified. The commission will then start its scrutiny to determine if they increases were too high.