Record rate hike to be fought

Tuesday, Jan. 30, 2001 | 11:28 a.m.

Nevada Power Co.'s parent company says a plan it filed Monday with the Public Utilities Commission of Nevada will stabilize energy markets and spare the Silver State from the energy chaos gripping California.

But the proposal, which Sierra Pacific Resources Inc. wants to take effect March 1, faces opposition because it comes at a hefty price to the average consumer -- a record rate increase of about 17 percent. Large users could see their rates climb as much as 25.4 percent.

The plan would raise $300 million a year -- $208 million for Nevada Power and $102 million for Sierra Pacific.

Average Southern Nevada residential customers using 1,100 kilowatt hours of electricity in a month would see their bills climb by 1.25 cents per kilowatt hour, or $12.63 a month under the plan.

Under the tiered rate increase proposed, Southern Nevada residents would not be charged anything extra for the first 400 kilowatt hours per month of power they use. The next 275 kilowatt hours per month would have an increase of 1 1/2 cents per kilowatt hour. Anything above 675 kilowatt hours per month would be charged an additional 2 cents per kilowatt hour.

That's on top of rate increases that have been approved monthly since Aug. 1 that already have pushed the average bill up from $78.33 a month to $84.01 a month beginning Thursday.

With a proposed March 1 increase and the new proposal, the average customer using 1,100 kilowatt hours a month would pay $97.90 -- almost $20 more a month in less than a year.

It's also on top of natural gas rate increases that have forced the average consumer to pay $26.80 a month more to $66.92 a month for gas -- and that's before a proposed 28.6 percent increase Southwest Gas Co. also wants to take effect March 1.

"We know any rate increase is painful, but there is no escaping the fact that the consequences of inaction are much more severe to the residents and businesses of this state, as California clearly shows," Sierra Pacific Chief Executive Officer Walt Higgins said in a news conference Monday.

"Nevadans simply cannot let the lights go out with the kind of irresponsible inaction we've witnessed over the hill," Higgins said. "Even with this increase, our rates will still be lower than in California."

Meanwhile, the state's consumer advocate says he'll do his best to short-circuit the plan.

"I'm disappointed with a rate increase on top of the recent rate increases," said Tim Hay, the state's consumer advocate. "It's going to take a lot of analysis and a lot of convincing to justify this increase."

Hay said if nothing else, he'll attempt to convince the PUC that Sierra Pacific's plan should get the thorough review normally afforded rate increase proposals, a process that could take five to six months.

Here's what Sierra Pacific, which calls the filing an "emergency comprehensive energy plan," is seeking:

According to the proposal, the rate would be adjusted in March 2002, September 2002 and March 2003 to make sure the utilities aren't over- or under-recovering the costs of fuel and purchased power.

"At a time when Nevada clearly is poised to be an attractive location for new business, it is increasingly important that we can offer those businesses the confidence that the experience of California will not be repeated here," Higgins said.

Higgins said Sierra Pacific's proposed solution to state energy woes is less painful to Nevadans than measures being considered in other states are for their residents. He attributes that, in part, to the state's approval of a settlement last year to a suit the company filed about a year ago. It enables Nevada Power and Sierra Pacific to seek monthly rate increases to pass purchased power and fuel costs on to consumers.

"However, when the settlement was negotiated, no one expected prices for fuel and purchased power would continue to skyrocket to unheard-of levels," Higgins said.

"We've saved over $30 million in operating efficiencies since the Sierra Pacific-Nevada Power merger, but we simply do not have the same ability to control over $1 billion of fuel and purchased power expenses in an energy marketplace that's gone haywire."

Hay petitioned the PUC earlier this month for a delay in the sale of the two utilities' eight power plants and its interest in two others -- a condition the state and federal governments placed on the merger of the two companies in 1999.

The delay, Hay said, would give the PUC more time to determine if the sales remain in the public's best interest. If the plants aren't sold, it could solve the problem of where the utilities would go for power. But it also could generate a whole new set of problems.

If the sales don't go through, it's likely that the prospective buyers would sue the utilities.

If the plants aren't sold, Nevada Power and Sierra Pacific would have to negotiate new fuel contracts at prices that have gone up drastically from a year ago.

And, if the plants aren't sold, the two utilities won't realize about $1 billion in revenues, money that was to strengthen the company's creditworthiness. Higgins stressed that the revenue wasn't to be applied to the company's acquisition of Portland General Electric of Oregon.

Hay isn't alone in his skepticism of the Sierra Pacific proposal. The matter will be discussed when the Nevada Legislature convenes next week and Sen. Randolph Townsend, R-Reno, indicates it won't be pretty.

"I have yet to see the justification for this and I have a really hard time with this increase," Townsend said. "The Legislature put (rate) caps on the last bill. There's no doubt in my mind that every party got to testify before both houses and before the governor and everybody agreed to the three-year cap. The utility didn't fight it.

"As soon as it was signed into law, they decided to sue the state in both state and federal court," he said. "The settlement, which the Legislature was not a party to, came up with this plan of escalating monthly charges to accommodate changes in the marketplace.

"Now, they want an additional $300 million above and beyond that. I don't know where it ends for these guys."

Townsend said it was like "playing tennis without a net or moving the goal posts in a football game all the time."

"There's nothing in here for consumers that gives them any protection that the Legislature provided them 20 months ago," Townsend said. "All I've heard about from them is, 'We've got to buy Portland.' It's all extremely troublesome.

"My colleagues and I are not here to take care of Wall Street, but to take care of all of the citizens of Nevada," Townsend said.

Townsend said the issue would be high on the agenda of the Senate Commerce and Labor Committee, which he chairs, when the Legislature meets next week.

"Tuesday morning, 8 o'clock, we will start hearings in my committee and we won't stop until we get them done," he said.

Townsend's counterpart in the Assembly also expects the Legislature won't act favorably to the proposal.

"The proposed rate increase is unbelievably high and I'm very concerned about what it is going to do to the average Nevada ratepayer," said Assemblywoman Barbara Buckley, D-Las Vegas.

Buckley, who chaired the Assembly Commerce and Labor Committee in the last session, but will yield to Assemblyman Joe Dini, D-Carson City, when she takes over as assembly speaker this year, said she's also concerned about the accountability of the PUC.

"Right now, I am not confident that the PUC is watching out for the best interests of the consumer in Nevada," Buckley said. "They approved the global settlement. The utilities are saying, 'We're just passing on to you what we're having to pay.' But are they acting prudently in finding the best purchased-power and fuel costs?"

Among the state's largest power users are the mines and Russ Fields, president of the Nevada Mining Association, said rate increases in the vicinity of 29 percent would be devastating.

"Energy is one of the highest costs affecting our member companies when they produce their products, whether it's gold, gypsum or crushed rock," Fields said. "Electricity, propane and diesel amounts to well over 30 percent of the costs of producing the products, second in costs only to labor and resources.

"So, when you're talking about an increase of this magnitude, yes, it's cause for concern, especially when margins are at a 20-year low and we have no ability to pass through the costs to end users," he said. "This will really put the squeeze on our member companies."

Fields, who served with Hay, Townsend and Higgins on Gov. Kenny Guinn's Nevada Electric Energy Policy Committee in the last three months, said he understands the need to stabilize the energy market.

"It's really an unfortunate situation," Fields said. "The problems in the energy market in California are likely having an influence on our situation. The whole region needs a sound energy policy and we've got to get this repaired or it's going to have a devastating impact on our industry as well as our citizens. It's bigger than just Sierra Pacific Resources."

Another major power user in the state -- the casino industry -- hasn't completed its review of the Sierra Pacific proposal.

Martha Ashcraft, an attorney representing the utility interests of several major casino companies in Las Vegas, said her clients just received the proposal and want to review it before commenting.

But the utilities have an ally in the Utility Shareholders Association of Nevada, which issued a statement Monday praising the Sierra Pacific proposal.

"We're pleased that the companies have prepared a comprehensive plan to address the energy emergency presently being faced by California and the rest of the western United States," said Joyce Newman, president of the association.

"We know the rate increases will be painful for some, but to do nothing at this juncture will mean desperate measures are needed down the road," she said.

Sierra Pacific and Nevada Power have issued quarterly dividends of 25 cents a share since the companies merged. Prior to the merger, each company issued dividends for years. Higgins said the payment of dividends is an issue that comes up at every quarterly board meeting and that's likely to continue.

Hay said he expects the payment of dividends to shareholders "is an issue that should be on the table" for debate when the PUC considers Sierra Pacific's plan.

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