Utility to focus on lawsuit

Tuesday, April 16, 2002 | 11:10 a.m.

Nevada Power Co. declined to ask the state Public Utilities Commission to reconsider a ruling that granted the utility barely half of the $922 million it sought for energy used last year.

By failing to file a motion for reconsideration by Monday's 5 p.m. deadline, Nevada Power has chosen to restrict its battle to Carson City District Court, where it sued the PUC last week. Nevada Power has charged that the PUC's March 29 decision to grant only $485 million of the request put the company in financial jeopardy.

But the state Bureau of Consumer Protection on Monday did ask the PUC to reconsider and to reject the entire $922 million request on the grounds that Nevada Power made imprudent business decisions. The bureau suggested that the PUC also could disallow between $531 million and $565 million rather than the $437 million state regulators subtracted from Nevada Power's request.

"We're very optimistic that the record before the commission justifies a larger adjustment, and I'm certain they will give this careful consideration," state Consumer Advocate Timothy Hay said.

Nevada Power spokesman Paul Heagen said the company decided to concentrate only on the lawsuit, because it believes the district court will issue a ruling quicker than the PUC would. Heagen said the utility expects a ruling from District Judge William Maddox within 30 days, whereas the PUC has 40 days to decide on motions for reconsideration.

"We feel the case we filed with district court takes precedence over any administrative hearings by the commission," Heagen said. "We believe there is significant risk to the company and its customers, and we want to resolve this case as fast as we can. It's a timing issue."

However, Nevada Power is asking the PUC to reconsider a March 27 ruling that resulted in a $42.9 million decrease in general rates for administrative costs. The company, which had sought a $22.9 million increase, argued in a motion filed Monday that the commission should reconsider six issues.

The utility is seeking adjustments in the way the 3 percent general rate decrease, which went into effect April 1, was calculated by the PUC. It disputes the capital investment costs, depreciation expenses and costs associated with the merger of Nevada Power into parent Sierra Pacific Resources. Nevada Power is now seeking a $10 million to $20 million increase in general rates.

Nevada Power will have 15 days to respond to the motions for reconsideration filed in the $922 million rate case by the state Bureau of Consumer Protection and the Nevada Coalition of Commercial Energy Consumers.

The state bureau argued that the PUC should have considered all of Nevada Power's "colossal management mistakes" since 1999. Specifically, the bureau said Nevada Power displayed poor risk management and should have known in 1999 that wholesale energy prices were rising.

The bureau "believes the record clearly shows that Nevada Power's purchasing practices were extraordinarily inept, causing excessive costs to be reflected in proposed rates of Nevada Power," the bureau stated.

The bureau reminded the PUC that Nevada Power had secured only 7 percent of its summer 2000 energy needs by the previous January, in contrast with the prior year, when the utility locked up 60 percent of its summer 1999 needs by January 1999. Nevada Power subsequently wound up paying skyrocketing wholesale prices beginning in May 2000, when an energy crisis struck the West.

"The company's failure to secure power and close its open position during a time it was under a price cap, and when it had indications of escalating wholesale prices, establishes a prima facie showing of imprudence that the company failed to overcome," the bureau stated.

Nevada Power has argued that it did not lock in long-term, low-cost energy contracts as early as 1999, because there was still a chance it would have lost customers based on a state law that was to give all Nevadans opportunity to buy retail electricity on the open market. Such deregulation never was implemented, however, and the consumer protection bureau charged that Nevada Power overestimated the number of customers it would have lost.

In its motion for reconsideration, the Nevada Coalition of Commercial Energy Consumers requested that the PUC reduce the $922 million request by an additional $12.7 million. The PUC included in its disallowance a $180 million deduction, because Nevada Power failed to take advantage of a long-term, low-cost energy contract offered by Merrill Lynch in 1999.

The coalition, which represents UNLV, hospitals and other businesses, argued that the PUC miscalculated the value of the Merrill Lynch deal and should have subtracted an additional $12.7 million.

Heagen said, however, that the proposed deal had many problems, including its price and the reliability of the offer. Heagen also noted that Merrill Lynch's energy trading branch no longer exists, having been purchased by another company. Nevada Power maintains that it was unfair for the PUC to even consider the Merrill Lynch deal.

"They never even met the qualifications of our request for proposals," Heagen said of Merrill Lynch. "They had never had a long-term contract like that before."