Price cap rise may not help Nevada Power

David Strow

Wednesday, Dec. 26, 2001 | 9:58 a.m.

Price caps on wholesale electricity sold in the West could be rising in the near future, a move that Nevada Power Co. had been begging the Federal Energy Regulatory Commission to take since last summer.

But Nevada Power said a FERC decision last week will do little to help the utility or its Southern Nevada customers, who are being asked to foot a $921 million rate increase by the utility.

FERC last week changed the system for calculating the top price Western utilities may charge one another during the winter months for wholesale electricity. The cap now stands at $92 per megawatt-hour.

The cap won't necessarily change as a result of the order, which states only that the new ceiling price must be changed if three natural gas price indexes rise by 10 percent or more. Natural gas is a commonly used fuel for electric generation plants, particularly "peak" plants that come on-line when electric demand is high.

The FERC order stays in effect until April 30.

Nevada Power claims the FERC price caps, first imposed in June, are a big reason the utility is seeking a $921 million rate hike now. Designed to help California residents struggling under skyrocketing electric bills, the caps banned utilities in 11 states from selling wholesale power above the cap price.

But Nevada Power said this cap was below the price it paid to obtain electricity under contracts with other electric providers. So when Nevada Power had extra power, it couldn't sell the power at a profit into the wholesale market -- and couldn't offset losses it was taking by selling electricity to its customers at a loss.

Raising the cap now does little for Nevada Power, since the company's highest demand period from customers and other utilities is the summer months, not the winter. And natural gas prices have been falling dramatically in recent months.

"The (wholesale market) prices are not banging on that ceiling," said Nevada Power spokesman Paul Heagen. "It has no practical effect on Nevada."

Nevada Power would like to see the caps raised in a similar fashion -- or eliminated entirely -- during the summer of 2002, but isn't holding its breath.

"It (the FERC action) does show FERC wants price caps to work, but I think it would be unfair to interpret this as a signal for what they'll do this summer," Heagen said. "We didn't interpret that as a signal FERC is changing its mind on price caps."

Still pending before the FERC is a lawsuit filed earlier this month by Nevada Power. At issue in this lawsuit was the fact that wholesale price caps were not applied to power sold under contract. Wednesday's FERC decision did not address this lawsuit.

Nevada Power is arguing that the caps that were applied to wholesale power last summer should be applied, retroactively, to the power contracts Nevada Power entered into for 2002 and 2003. This would reduce Nevada Power's electricity costs for the next several years, and could reduce the severity of the utility's proposed rate hike.

Heagen said FERC has taken no action on this lawsuit yet, and that the utility will "press again at the beginning of the year" for action.

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