Nevada Power seeks hikes

David Strow

Tuesday, Oct. 2, 2001 | 10:48 a.m.

Nevada Power Co. is asking state regulators for a $42.7 million "general rate" increase -- the first such request the utility has made since 1993.

This is a mere precursor, however, to what is expected to follow -- a rate hike request of at least $870 million, a move that could boost electric bills across Southern Nevada by at least 30 percent for the next three years, starting in April 2002. Together, the two requests total about $913 million.

The general rate hike would raise residential rates by about 8 percent, Nevada Power said.

The hike differs from the increases that raised residential bills a total of 27 percent in late 2000 and early 2001. In a general rate case, a utility seeks to adjust its rates based on its operating expenses, which changes its profit margin. Earlier rate increases were meant to simply pass through the higher costs of purchasing and producing electricity.

Mark Ruelle, Nevada Power president, said this requested hike reflects the costs of building infrastructure to keep up with Southern Nevada's rapid growth and the higher interest costs associated with Nevada Power's poorer credit ratings, caused by the deregulation crisis earlier this year.

"We've added about 100,000 customers since 1997," Ruelle said. "Our revenues are growing, but they haven't (in line with) our operating costs."

Nevada Power's request was a rude shock to Nevada consumer advocate Tim Hay, who until three weeks ago was expecting Nevada Power to file for a $30 million general rate decrease.

"The consensus was that they were overearning," Hay said.

But this hike is merely a warm-up for what's to come.

Since May, Nevada Power's rates have been locked into place, but the costs of producing and purchasing electricity on the open market continued to escalate. When wholesale electricity costs soared this summer, Nevada Power was selling electricity to its customers at a substantial loss.

Rather than recording these sales as losses on its balance sheet, Nevada Power has been accumulating the losses as an asset to be paid later -- a move that allowed the utility to show a net profit of $54 million in the quarter ending June 30, 2001.

In December, Nevada Power will come before the Public Utilities Commission of Nevada and ask for repayment. In May, it was thought the balance due wouldn't exceed $500 million. Nevada Power now estimates the deficit is closer to $870 million -- a balance it will ask Southern Nevada electricity customers to pay back over as many as three years, starting in April 2002.

That means Nevada electricity consumers will see their bills soaring even while electricity costs across the nation are falling dramatically. The exact amount of the rate hike is not yet known, Ruelle said.

"It's a terrible hardship for our customers, and we fully understand that," Ruelle said. "(But) if our rates do not correspond to the costs of operating our business, our business will fail."

Hay vowed to fight the request, arguing that Nevada Power waited too long to lock in power supply contracts. Had they struck power contracts in late 2000, Hay argues, the costs would have been far lower -- and the $900 million increase would have never been necessary.

"We're talking about a third (of Nevada's biannual budget) that's being taken out of the pocket book of consumers," Hay said. "No matter how you allocate it, it's a huge number for a state our size."

But it won't be easy to prove Nevada Power acted imprudently in purchasing power, Hay admits.

"It's going to be a huge piece of work, but we're confident there will be substantial prudency issues raised in the rate case," Hay said.

"Using the tool of perfect hindsight, I should have shorted the Nasdaq in April 2000," Ruelle retorted.

Nevada Power couldn't have locked in power contracts earlier than it did, Ruelle said, because the possibility of deregulation remained until this spring. Since there was still the possibility customers could leave Nevada Power, the utility could not purchase 100 percent of its power needs until later in the year, Ruelle said.

"It made a very poor environment for future planning," Ruelle said. "It was a disaster for our company, and clearly a disaster for our customers."