Casinos, mines fight electricity rate hike

David Strow

Wednesday, March 21, 2001 | 11:18 a.m.

Twenty-one days after hiking Nevada's electric rates by 17 percent, Sierra Pacific Resources now faces a fight from an alliance of the state's two most powerful industries -- gaming and mining.

Tim Hay, the state's consumer advocate, filed a motion Tuesday to throw out the $311 million rate increase implemented by Nevada Power Co. and Sierra Pacific Power Co. on March 1.

Supporting his move were two of the Strip's largest gaming companies -- MGM MIRAGE and Mandalay Resort Group -- as well as three of the state's largest mining companies: Newport Mining Corp., Barrick Goldstrike Inc. and Getchell Gold Corp.

Hay is demanding that the Public Utilities Commission throw out the rate hike and refund an estimated $20 million that he said has been illegally collected so far.

"There's about $862,000 a day being collected from consumers each day, which we believe is illegal," Hay said. "It's an uphill battle since the rates are already in place. (But) we believe since this rate was implemented without any public hearings, it was illegally adopted, and we have a good shot in the court system if not before the commission."

But Sierra Pacific Resources, the holding company of Nevada Power and Sierra Pacific, is warning the state will face a power crisis if the PUC caves to these demands.

"Our financial condition was so serious it would have had an impact on our ability to provide service," said Karl Walquist, spokesman for Sierra Pacific Resources. If overturned, the results will be "very serious," Walquist said.

The PUC is set to hear the motion to dismiss the rate hike at a Friday morning meeting.

Gaming is dependent on electricity for everything from lighting marquees and powering slots to cooling hotel rooms, though the industry has acknowledged that rising energy costs aren't going to affect its profits drastically. Mining is an electricity-dependent industry as well.

MGM MIRAGE spokesman Alan Feldman said his company isn't necessarily against a rate hike, but wants the company to prove it needs it first.

"We believe this rate case has been filed improperly and without justification," Feldman said. "We are ready to have the power company prove, credibly and honestly, that there's a need for a rate increase. Once they do that, we're certainly prepared to accept it, but that hasn't happened yet. This latest rate increase just seems to have whisked through the process without very much oversight."

Walquist responded that the increase was reviewed and approved by PUC attorneys, and pointed out that a judge denied efforts to halt the hike's implementation in February.

"The issue is whether the regulators had the authority to respond quickly and decisively to a genuine crisis, and they did," Walquist said.

Although the rate hike hit consumer wallets across Southern Nevada, it hit casinos and mining particularly hard. While residential bills went up an average of 17 percent, the state's largest consumers of electricity saw their bills go up more than 25 percent.

In 2000, the state Gaming Control Board reported, the 37 casinos on the Las Vegas Strip spent $130.8 million on energy costs. One gaming analyst has estimated the latest rate hike could cost MGM MIRAGE $10 million in 2001 alone.

"It's important for everybody," Feldman said. "It's costing millions for us as a company, and millions for our employees and their families."

Casinos and mining companies are generally considered industrial customers because of their heavy power demands. Over the first nine months of 2000, this relatively small group of customers accounted for 31 percent of Nevada Power's electricity revenues, and 34 percent of Sierra Pacific revenues.

But other large customers other than gaming and mining are annoyed as well. The Energy Department, which consumes a considerable amount of electricity through the Nevada Test Site, filed a blistering protest to the rate increases as well, accusing the companies of "backdoor financial agreements" in their power purchase contracts.

The DOE implied that the rate hikes were being implemented to pay for Sierra Pacific Resources' pending acquisition of Portland General Electric, rather than helping avert a California-like power crisis in Nevada.

"If these funds are to be used to finance any aspect of the companies' purchase of the Portland General Electric Co., then the commission should reject these proposals," the DOE said. "Nevada ratepayers should not be required to finance the companies' corporate merger ... we do not believe that the (rate increase) is in the public interest."

MGM MIRAGE and Mandalay are attacking along a separate front. Last year, the casino companies were signatories to a pact with Sierra and Nevada Power called "the global settlement" -- a deal that allowed the power companies to raise rates in controlled steps to deal with soaring electricity costs.

The March 1 hike was implemented outside of this settlement. As a result, if the PUC refuses to throw out the latest hike, Hay said he may challenge the entire settlement as a result -- and seek the return of more than $100 million collected from Nevada ratepayers under that settlement.

"We're still supportive of the concept of the global settlement, and our hope would be that the (rate hike) itself will be dismissed and we can preserve elements of the global settlement," Hay said.

Hay said he's willing to press the issue to the courts, but hopes the PUC will make that unnecessary.

"If we have to wait (for a court challenge), it could be months if not years," Hay said. "Then you're talking about hundreds of millions of dollars, as opposed to slightly more than $100 million."

Sun reporter

Cy Ryan contributed to this story.