Nevada Power: PUC gave in to political pressures

Tuesday, Aug. 13, 2002 | 11:11 a.m.

CARSON CITY -- Nevada Power Co. says the state Public Utilities Commission "succumbed to political pressures" in cutting $437 million from the rate request by the Las Vegas utility.

The company, in its opening brief filed Monday, asks District Judge Bill Maddox to give the utility its full $922 million or, in an alternative, send the case back to the PUC for further consideration.

The brief, signed by attorney Elizabeth Elliot, said the commission's "order wiped out over 40 percent of the equity value of the electric utility, debased its credit rates to junk bond status and raised the specter of bankruptcy."

The PUC must file its reply brief by the end of September. Oral arguments will be held in October before Maddox.

The utility, which serves 625,000 customers in Southern Nevada, said it spent the $922 million in buying extra power and fuel during the energy shortage and sought to recover that amount.

But the PUC ruled the utility did not use prudent practices in its purchases, saying that power could have been bought for lower prices, that it bought too much energy and that the utility was too slow in selling off its high-priced energy before the market price dropped.

In pushing the case, Elliot said, "In the midst of the most severe energy crisis in the history of the American West, Nevada Power Co. overcame enormous obstacles and procured sufficient power and fuel to keep the lights on in metropolitan Las Vegas during the summer of 2001."

The PUC knocked $180 million from the requested rate increase because the utility did not go through with a deal to buy energy from a subsidy of Merrill Lynch in 1999. That deal fell through.

The state agency also disallowed $188 million, saying the utility purchased excess power. And it rejected $44 million in higher rates because Nevada Power did not sell off its contracted power before the price dropped in September 2001.

But Nevada Power says the PUC ignored the volatility of the market at the time when there were rolling blackouts in California and the power supply was unreliable.

The company also cited the possibility in 2000 that the electric industry would be deregulated in Nevada, allowing other companies to compete with Nevada Power.

The erroneous ruling by the PUC "can be explained only by political considerations," the brief said.

Elliot said the PUC "succumbed to political pressures instead of applying established law."

The staff of the PUC recommended only an $85 million reduction, Elliot said.

"The massive disallowance order by the PUC was over five times larger than the disallowance recommended by commission staff," the utility said.

The utility brief said the PUC improperly struck testimony about the financial condition of the company and about what it called prudent practices it took to assure there would be enough energy for Las Vegas during the summer of 2001.

The company complained the PUC penalized the utility for failing to anticipate the rising prices and lock in additional long-term supplies from Merrill Lynch in late 1999, a full 18 months before the Nevada Legislature allowed the utility to recover costs for power purchased at higher than expected prices.

On the other hand, Nevada Power said the PUC penalized it for failing to anticipate the sharp price drop in the summer of 2001 and sell it its energy supplies then.

The PUC, said Elliot, is using hindsight and did not base its decision on the evidence presented by Nevada Power to justify the full $922 million.

The utility has already started to collect higher rates to recover the $485 million that the commission allowed.