Regulators limit evidence in Nevada Power rate hike case

Malcolm Hall

Tuesday, Jan. 15, 2002 | 9:46 a.m.

Nevada regulators refused Monday to consider claims by Nevada Power Co. that its financial condition will deteriorate to a dangerous level should the utility not receive a huge rate hike to recover its unexpectedly high costs for fuel and purchased electricity.

A 3-0 ruling by the Public Utilities Commission of Nevada was a victory for state consumer advocate Tim Hay, who had asked the regulators to strike testimony pre-filed by Dennis Schiffel, chief financial officer of Nevada Power parent Sierra Pacific Resources.

"We're pleased with the commission's decision to in large part strike testimony relative to the financial position of Nevada Power as being irrelevant to determining whether or not the company acted prudently in acquiring power, which is the largest issue in the pending $922 million rate case," Hay said.

Hay argued that commissioners should consider only prudent buying practices in the rate request, not Nevada Power's financial position.

Separately, Hay said his office likely would ask commissioners to lower the amount Nevada Power should be entitled to recover for fuel and purchased power by at least $500 million.

"Actually, it's likely to be between $500 million and $700 million but we won't have the numbers for a couple of weeks," he said. "It's all based on our analysis of the company's buying practices, including the quantity, timing and prices of their purchases. We also will propose other adjustments, but prudence of purchasing will be the largest dollar item."

Nevada Power had countered that evidence of its current financial condition is directly relevant to the considerations.

Schiffel had testified that if the "deferred energy purchase" rate request was not granted, Nevada Power faced an uncertain financial future.

Schiffel also submitted quotes from rating agency Standard & Poors regarding Nevada Power's "precarious credit rating," which the company said is the key factor in determining its creditworthiness for buying fuel and power.

In its "weakened financial condition," Schiffel said Nevada Power is particularly vulnerable to any increased volatility in the energy or credit markets, and may be unable to take full advantage of market opportunities.

"Any further deterioration in Nevada Power's credit ratings will drop (the company) below investment bond status, which will in turn have a significant and detrimental impact on Nevada Power's ability to transact for fuel and power," the company said.

In its order, the Public Utilities Commission said the prudence of decisions made by Nevada Power to obtain fuel and power during the energy crisis last year must be based on a case-by-case basis, not on the financial impact of those decisions today.

But commissioners said to some degree Nevada Power's financial condition at the time it purchased fuel and power "may be relevant to the prudence of those costs."

"In a nutshell, I believe the Bureau of Consumer Protection is correct. We are to disallow any expenditure that is found to be imprudent. I don't believe we can allow an expenditure to go into the rate that is imprudent because of some other circumstance, including the financial condition of the company," said PUC Chairman Don Soderberg.

"Conversely, if we find something to be prudent ... and we find the company is in good financial condition, we can't strike it just because the company is rich... It's either prudent or it's not."