Energy news mixed for Nevadans

David Strow

Thursday, Oct. 11, 2001 | 11:02 a.m.

David Strow

Natural gas prices in Las Vegas may soon be on the way down.

Electricity prices are heading down nationally as well -- but Nevada Power Co., locked into long-term power contracts, may not be able to pass along those declines to its consumers.

On Wednesday Southwest Gas Corp. said it filed a request with the Public Utilities Commission of Nevada to lower rates by $51.6 million statewide.

For the average residential customer, the decrease would result in a monthly decrease of $10.73, or about 14 percent.

The decrease, Southwest Gas said, is the result of plunging natural gas costs. By this winter, the wholesale cost of natural gas is expected to be 50 percent below last year's levels.

"If those projected gas costs for this winter continue to hold, another sizable decrease request is possible by spring," said Roger Montgomery, Southwest vice president of pricing.

It is the first measure of relief seen by southern Nevada natural gas customers following a year of massive increases in natural gas prices. These started last December with a 9.2 percent increase, followed by a January increase of 23.8 percent and a July increase of more than 21 percent. All three were designed to pass through the constantly rising costs of wholesale natural gas, rather than generating additional profits for Southwest.

Southwest is still seeking a $29.4 million general rate increase, a move that would result in an average monthly increase of 7.7 percent. A general rate case reflects the costs of Southwest's operations, rather than its cost of purchasing natural gas. It is an attempt to re-adjust the profit margin the utility derives from those operations.

If both requests were approved, rates would fall 4 percent to 5 percent, or about $5 per month for residential winter bills.

Electricity prices are also heading on the way down. But customers of Nevada Power are already facing potential rate hikes of more than 30 percent next year -- and may not see the benefits of those falling electricity prices.

Nevada Power and its sister utility, Sierra Pacific Power Co., locked in long-term power contracts earlier this year in an effort to control costs. At the time, the move seemed prudent, as wholesale electricity costs were soaring.

"It would have been irresponsible for us to gamble months ago and rely on the spot (wholesale) market," said Paul Heagen, spokesman for the utilities' parent company, Sierra Pacific Resources.

But since then, wholesale electricity costs have plunged, leaving the utilities holding commitments to buy electricity for the next two years at prices well above market rates. If the two utilities tried to sell these contracts today, it would lose $800 million, Heagen estimated.

Nevada Power raised residential rates a total of 27 percent in late 2000 and early 2001 in an effort to pass along soaring wholesale electricity costs, but had its ability to raise rates temporarily frozen last spring. As a result, the utility could not charge customers the full cost of its wholesale electricity, and has instead accumulated a massive deficit it plans to recover from ratepayers.

Nevada Power now estimates that deficit will total $870 million. Collecting this balance could raise rates 30 percent for a three-year period.

If forced to stay in its current contracts, Nevada Power and its customers won't see this increase offset by falling wholesale electricity prices. Further deficits -- and therefore, further rate hikes -- could be possible, but aren't anticipated at this point.

Estimating the damage to Nevada consumers is difficult, since market prices are constantly changing. Based on current long-term contract prices, the PUC estimates the cost of keeping Nevada Power's current contracts could total $450 million in lost savings through the end of 2003.

When Nevada Power doesn't need the electricity it has purchased, it often resells it at a profit in the wholesale market and uses the profits to offset any deficits it may have accumulated. But the Federal Energy Regulatory Commission has placed price caps on the rates utilities may charge on the wholesale "spot" market that are above the rates Nevada Power is locked into for the long-term. That means Nevada Power wouldn't be able to sell power at a profit -- and wouldn't be able to offset the deficits that would be passed along to consumers.

"We have been robbed of that opportunity because of the FERC price caps," Heagen said. "We want to make sure the caps apply to all power sold in the West."

So on Wednesday, the PUC voted to allow its attorneys to lobby the federal officials and join federal lawsuits in an effort to allow the utilities to renegotiate the contracts, or void them entirely. Gov. Kenny Guinn has already made such a request to the Federal Energy Regulatory Commission.

"We paid high prices (under the contracts) when the prices were high, but to pay high prices when the prices are low is outrageous," said PUC Chairman Don Soderberg.