Departures won’t cause power rate hike, says advocate

Thursday, Aug. 1, 2002 | 11:12 a.m.

Nevada's consumer advocate says consumers won't pay higher electricity rates as big casinos and other companies leave Nevada Power Co. and sign up with alternative electricity providers.

Advocate Tim Hay said that's because:

The Public Utility Commission of Nevada, in a 2-0 vote Wednesday, approved an order allowing five big companies to purchase electricity from Reliant Resources Inc., Houston, beginning Nov. 1. The order also sets the amount the five corporations -- four of them casino companies -- must pay to leave Nevada Power.

Rouse Fashion Show Management LLC, operator of the Fashion Show mall, would pay $439,000 to leave the system. Casino operators MGM MIRAGE would pay $1.97 million; Station Casinos Inc., $1.35 million; Coast Hotels and Casinos Inc., $305,000; and Gordon Gaming Corp., operator of the Sahara hotel-casino, $114,000.

The five companies also would have to pay their share of Nevada Power's $485 million in charges for energy used last year, which is being collected from ratepayers over the next three years.

The PUC accepted the recommendation of the state Bureau of Consumer Protection and Hay, a deputy attorney general.

"We're obviously pleased with the decision," Hay said after Commission Chairman Don Soderberg and Commissioner Adriana Escobar Chanos, who oversaw the procedure, voted in favor of approval of the order. Commissioner Richard McIntire was not present at the meeting.

"We did not want customers leaving and stranding the rest of the ratepayers with additional expenses," Hay said.

In their last session, Nevada lawmakers approved legislation that allows customers that average at least one megawatt of electricity use over the course of a year to apply to the PUC to buy electricity on the open market.

In the late 1990s, the state was moving toward deregulating the electricity industry, a move that would have opened the market and allowed Nevada Power customers to go to other companies for their electricity.

But the deregulation bid failed and the new legislation was drafted to help the state's largest power users to take advantage of their size and search the marketplace for more economical sources of electricity.

While the law permitted companies to seek new sources, it also required that those leaving the system do so without hurting Nevada Power's remaining customers.

The five applicants argued in PUC hearings that their departure would help Nevada Power because it would reduce the amount of high-priced electricity the utility would have to buy from wholesalers during periods of peak demand.

The PUC's regulatory staff backed the applicants and recommended that the companies pay no exit fee. But Hay's analysis differed.

Jim Polito, senior economist for Hay's office, said the exit fees are needed because Nevada Power faces costs it would not be able to avoid if the companies left the system, including plant maintenance and staffing.

Without those large companies, the expenses "would fall upon the backs of the other customers," Polito said.

Nevada Power officials said the company would see a decline of $48 million in revenue a year if the five companies left the system. But they also said costs would drop by $46 million a year if they left. Those companies use about 180 megawatts a day -- about 3.9 percent of the utility's total consumption during peak usage.

The exit fees would compensate Nevada Power and its remaining customers for revenue shortfalls occurring over about three years. By then, utility officials said, the company expects it would compensate for the loss of those companies with growth and new customers.

In the end, the PUC sided with Hay and his analysis.

Chanos said she felt her order "balanced the interests of the companies with the interests of Nevada Power and its customers."

The five companies must now determine if the additional cost of the exit fees still makes it economically feasible for them to leave the system and buy power from Reliant.