Utility’s tax refund may lower rates

Tuesday, April 9, 2002 | 11:15 a.m.

Customers of Nevada Power Co. and a fellow subsidiary of parent Sierra Pacific Resources are expected to benefit from an unanticipated $170 million tax refund the utilities will receive under a new federal law.

It remains unknown, however, whether the state Public Utilities Commission will choose to apply the refund to customer rates it approved last month or wait until the next round of rate cases in 2004.

"This is not our money," Nevada Power spokesman Paul Heagen said. "It is the customers' money. Since we charge customers for tax payments, the refunds we receive will apply to the customers as well."

Until it is determined by the PUC how that money goes back to ratepayers, Heagen said Nevada Power and fellow subsidiary Sierra Pacific Power Co. of Reno will be able to use the refund to pay such bills as fuel and energy purchases. The short-term cash infusion is sorely needed by the financially distressed companies.

"It's cash available to us, but it doesn't affect our financial liabilities or our credit rating," Heagen said.

But he also said Monday that the Las Vegas utility will have to lay off an undisclosed number of part-time employees and interns because of capital budget cuts that the company blamed on the PUC's latest rate case rulings. Heagen said the company will also have to cut loose an undisclosed number of contractors and consultants that were to be used this year for construction projects such as the expansion of transmission lines.

One fallout of the rate case rulings by the PUC was for Sierra Pacific to slash $125 million from this year's budget for construction projects, including major transmission line upgrades serving both ends of the state.

Heagen said Nevada Power will continue to fulfill existing contracts tied to the planned Centennial transmission grid, which is expected to double the amount of electricity available to the Las Vegas Valley by 2005. While the company intends to stick to that deadline, Heagen said the budget cuts will result in delays in construction work that was planned for this year but not yet under contract.

The tax refund that will be collected this spring is the result of the Job Creation and Worker Assistance Act of 2002, the economic stimulus package signed on March 9 by President Bush. The law extends unemployment benefits but most of the relief will be in the form of business tax write-offs and deductions.

The law, which is expected to cost taxpayers $51.2 billion this year, included a provision that allows companies such as the utilities with net operating losses in 2001 to subtract those losses from net gains enjoyed during the previous five tax years. Under former tax law, companies could only go back two to three years depending on the circumstance.

Because the eligible companies had already paid their taxes for those prior years, they can subtract their 2001 losses from those other years to get a refund this year. That's how Sierra Pacific qualified for $170 million, though Heagen said he did not know what numbers the company used to arrive at that figure. Heagen said $70 million would benefit Nevada Power and the remaining $100 million would go to Sierra Pacific Power.

"You could have a situation where you didn't have much in profits to subtract from in the past two years but if you go back five years, you may have profits you can subtract from," Internal Revenue Service spokesman Bill Brunson said.

Heagen said a large chunk of the operating losses could be attributed to the company's failure to get the full $922 million it was seeking from ratepayers for energy used last March through September. Instead, the PUC on March 29 granted the company only $485 million, a decision that Nevada Power said will prompt it to file a motion for reconsideration by Monday's deadline.

The PUC last month also reduced Nevada Power's general rates for administrative costs by $42.9 million, or 3 percent. Both rulings went into effect on April 1.

The tax refund is most likely to result in an adjustment to the general rates. Las Vegas attorney Steve Boss, who represents the Nevada Energy Buyers Group, said there is no doubt that refunds of taxes that were paid by customers through their electricity rates should result in lower rates. The question is whether to apply the refund to the newest rates or those that will be proposed by Nevada Power in October 2003 for the following year.

"It might be too late to apply the refund to Nevada Power's general rates this time around but not necessarily next time around," Boss said. "I don't know if anyone has a legal right to go back and amend the rates this time. It would have to be an agreement blessed by the commission."

State Consumer Advocate Timothy Hay said he agreed that it may be too late to amend the new general rates. But he also said he may file a petition asking the commission to consider whether the tax refund should be built into current rates.

"It could be that our preference will be to raise it in a special proceeding before the commission," Hay said of the refund. "All issues need to be on the table because of the magnitude of the tax refund."

Heagen, who said he believes it is too late to apply the refund to current rates, criticized comments reported Monday from Hay that the company's credibility was eroded because it didn't disclose the tax refunds until after the rate hearings concluded last month.

Heagen said that would have been a valid criticism had the tax law taken effect last year. But the hearings had already begun by the time Bush signed the bill, Heagen said.

"Tim Hay again has reacted with the clear intent of damaging this company," Heagen said. "It remains deeply troubling that he continues to behave this way."

In a letter Thursday to its power suppliers, Sierra Pacific noted that while its unsecured debt has been downgraded to junk status by credit-rating companies, it still has the ability to issue long-term investment grade secured debt. Such debt is secured through company assets.

"Nevada Power Company has in excess of $700 million of such capacity and Sierra Pacific Power Company has in excess of $200 million," the letter stated. "The ability to issue such debt is dependent on maintaining an investment grade rating for the debt, obtaining approval from the Public Utilities Commission of Nevada to issue such debt and the market appetite for the debt along with normal board of director approval."