Nevada Power rate hike called illegal

Wednesday, Aug. 14, 2002 | 11:12 a.m.

CARSON CITY -- State Consumer Advocate Tim Hay says the Public Utilities Commission unlawfully allowed Nevada Power Co. to raise its rates by $485 million to its customers in Clark County.

Hay, in his opening court brief filed in Carson City, is asking District Judge Bill Maddox to deny all of the $922 million sought by the Las Vegas utility.

He says the legal errors made by the PUC "adversely affect the substantial rights of the ratepayers of Nevada Power, forcing them to compensate the company for its mismanagement and mistakes."

The PUC in March cut $437 million from the $922 million request by Nevada Power to recover extra money it spent to buy fuel and electricity in 2001. Nevada Power filed suit to recover the full $922 million.

The consumer advocate filed a counter-suit to force the PUC to deny the full $922 million. Maddox will hear oral arguments in October. The PUC has until the end of September to answer both suits, which are now consolidated.

Nevada Power is claiming the PUC bowed to political pressure in reducing the request by $437 million and that the state agency made errors in reaching its decision.

Hay, in his opening brief, said the PUC found that Nevada Power had made "colossal management mistakes" in the purchases of its power. But he said the PUC failed to disallow the expenses that followed from these mistakes.

His brief said Nevada Power knew that power rates would rise in 1999 but the utility did not take any action to sign low cost power contracts for supplies for 2000 and 2001. Hay said the commission found this conduct to be imprudent, but it still allowed the utility to recover some of its costs.

"Nevada Power knew as stated by its own witness (at the PUC hearings), as early as July 1999 that the dynamics of supply and demand were expected to drive energy prices higher," Hay said. "However, Nevada Power, armed with this information in 1999, failed to secure power to cover its load obligation."

While the PUC recognized these actions were imprudent, it still permitted Nevada Power to recover $485 million, Hay complained.

Nevada Power, in its brief, said it tried to buy low cost power in 1999 but the deal fell through, then the severe energy crisis hit, forcing prices to skyrocket, resulting in rolling blackouts in neighboring California.

The utility said it had to buy energy at higher prices in order to keep the lights on in Las Vegas, which it did in the summer of 2001.

But Hay says the record in this case shows Nevada Power's risk management practices on purchasing power were imprudent. The Las Vegas utility instead focused its efforts on purchasing Portland General, a deal that later fell through.

Hay said Nevada Power's parent company Sierra Pacific Resources hired the consulting firm of Risk Recovery to perform the risk management function for the utility. Risk Recovery employee James Joyce found Nevada Power's financial risk was "very, very large" at the time. But the utility failed to act and the price of power escalated from $120 to more than $400 a megawatt hour from November 1999 to January 2000.

"The record before the commission and now before this court contains substantial evidence of imprudence on the part of Nevada Power and does not contain evidence which warrants passing $485 million on to Nevada Power's consumers," Hay said.