Editorial: Don’t let utility off the hook

Friday, Jan. 4, 2002 | 4:52 a.m.

Nevada Power contends that state utility regulators should take into account the financial condition of the company in reviewing its request to raise the electricity rates of its customers by $921 million. The utility claims that it risks insolvency if the Public Utilities Commission doesn't give it the rate boost it is seeking. But state Consumer Advocate Tim Hay has a very different view. Hay says that the utility is crying wolf -- yet again -- in a bid to improperly influence regulators so that they they will award the utility money it doesn't deserve. The regulators, Hay notes, should only be looking at whether Nevada Power used sound judgment when it bought fuel and power at higher costs last year.

There are a number of factors at work that make this more than just the usual rate case. It was less than a year ago that the nation was hit by the energy crisis, one that was made worse by the electric deregulation debacle in California. Utilities across the West, including here in Nevada, scrambled to make sure that they had enough power to keep the lights on. The wholesale costs of electricity skyrocketed as well, placing an additional burden on Nevada Power.

The current case also has its ties to an October 2000 agreement in which the utility agreed with state officials to limited monthly rate hikes. But the costs for wholesale electricity increased far more than Nevada Power was permitted to charge its customers. So by the spring of last year, even though customers were being hammered by larger electricity bills, Nevada Power estimated it still had lost $300 million.

In response to the public outcry over the high electricity bills, the 2001 Legislature froze rates, and the Legislature allowed the utility to defer its losses from March 1 to Sept. 30. At the end of this time, Nevada Power would be able to make an application with the Public Utilities Commission to recover some of those costs. When that agreement was reached it was believed that the total would be around $500 million -- not the nearly $1 billion being sought today. Hay believes that Nevada Power brought much of the losses on itself, waiting too long last summer to buy long-term power contracts, a contention the company disputes. Still, Hay makes a very good point that Nevada Power could have used better judgment.

This case has profound implications for Southern Nevadans. In the past 18 months, Nevada Power already has received two increases from state regulators, boosting rates by a total of 26 percent. If the utility's latest application is approved, power bills would increase by another 21 percent over the next three years. For residential customers, the average power bill in the summer months would increase from $185 to $215 per month. Businesses, which are trying to rebound from the economic aftermath of Sept. 11, will be hurt if the hike goes through. The proposed increase also could affect local and state government, forcing budget cuts.

Nevada Power is a public company, with shareholders, and it is also a monopoly. Strict government regulation of this monopoly is essential because electricity is a necessity, not a luxury, and residential customers can't shop around for their electricity to avoid paying higher prices. The amount sought by Nevada Power, nearly $1 billion, is an incredible sum, almost one-third of Nevada state government's two-year budget.

So state regulators are left with some basic questions: Were the rate hikes unavoidable, or were they the result of bad management? And if it was poor management, how much should shareholders pay and what amount should be absorbed by customers? In the final analysis, Nevada Power shouldn't be able to skirt responsibility by sticking its customers with the tab for any bad decisions that the company may have made. Government doesn't have a responsibility to prop up a company simply because its executives made poor choices.

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