Guest columnist Timothy Hay: Is Nevada Power’s rate hike justified?

Timothy Hay

Friday, Feb. 15, 2002 | 4:36 a.m.

Nevada's utility ratepayers are again facing the prospect of a large increase in electric rates just before warm weather arrives and air conditioners start to run. Nevada Power argues that the management strategy that resulted in their $922 million rate increase should not be questioned, and that ratepayers alone must bear this huge burden.

Attorney General Frankie Sue Del Papa, my office and the majority of other participants in the rate case before the Public Utilities Commission will take a different approach. We believe that no ratepayer, whether the smallest residential customer or the largest industrial user, should be forced to pay for Nevada Power's mistakes.

Nevada Power has tried to obscure this basic issue by claiming that their actions, and costs, were the consequence of "keeping the lights on" during difficult times. While the lights of the Strip stayed on, unfortunately those in the Nevada Power executive offices apparently were not. When my office files its testimony on Wednesday, we will present a persuasive case that hundreds of millions of dollars of the requested rate increase represent costs that were unnecessary and imprudently incurred by the utility.

Our case will show that Nevada Power purchased energy in excess of its established targets and that the company failed on numerous occasions to implement prudent purchasing strategies that a responsible utility would have used under these circumstances. The risky course of conduct resulted in the need for ratepayers to bail out the utility under a settlement in August 2000 and served as pretext for the utility to propose a $312 million bailout approved in March 2001. Now the utility's continued mismanagement has resulted in the company's request to recover from ratepayers an additional deferred balance of $922 million.

When the Nevada Legislature enacted the "deferred accounting" statute during the 2001 legislative session, Nevada Power informed the Legislature that its deferred balance was approximately half the $922 million rate increase Nevada Power currently requests, and the legislators even then wisely limited the recovery of rate increases to exclude any costs that were the "result of any practice or transaction that was undertaken, managed or performed imprudently by the electric utility." We believe the conduct of Nevada Power was clearly imprudent

Nevada Power again tried to obscure the issues of this case by recently offering to spread its rate increase out over six years (instead of the three-year period specified by Nevada law) if the company was assured of its full request of $922 million. This offer is merely an attempt to divert attention from Nevada Power's mismanagement by trying to make its rate increase look smaller by spreading it out over a six-year period.

My preliminary calculations indicate that strategy would ultimately cost ratepayers an additional $147 million dollars in interest charges alone, and the terms of the offer would preclude the Public Utilities Commission from exercising its authority under the statute to examine the company's management practices and decisions. And it violates a law the Legislature enacted less than one year ago.

The hearing on this rate case may be the most contentious ever held before the PUC. The ultimate decision will be the most significant for the interests of Nevada's citizens and the health of our business. The utility's total statewide request for rate increases exceeds the amount the state general fund collects from gaming and sales taxes combined.

The Legislature has clearly charged the PUC with making a comprehensive examination of the prudence of Nevada Power's conduct, not the financial consequences to the company if the rate increase is denied. A regulated utility is a unique entity. It is guaranteed the opportunity to serve citizens and earn profits. It is not, however, allowed to pass on to ratepayers the costs of bad decisions or strategy.

Nevada Power's attempts to cloud the issues will not hide the fact that critics of the utility have a right to a fair hearing.