Big customers say utility should cut rates

Malcolm Hall

Wednesday, Jan. 30, 2002 | 11:02 a.m.

Casino giant MGM MIRAGE said Tuesday that Nevada Power Co. should lower its general rates by nearly $107 million instead of increasing them by $22.9 million.

The news follows action Friday, when the state's Bureau of Consumer Affairs and Public Utilities Commission staffs weighed with their recommendations and were later joined by the Southern Nevada Water Authority and the Nevada Coalition of Commercial Energy Consumers.

At issue is the amount Nevada Power should receive as a return on investment on its capital improvement costs and other for-profit items. This case is separate from Nevada Power's request for a $922 million rate hike to cover fuel and purchased power costs.

MGM MIRAGE attorney Martha Ashcraft said Nevada Power's deferred taxes on its deferred energy balances should be cut by $45.5 million and its return on equity lowered from 12.25 percent to 8.6 percent, shaving another $41.8 million from the utility's proposal.

"They may never pay those taxes because of net operating losses they reported and that's money they're not entitled to keep," she said.

MGM MIRAGE wants to reduce the utility's operating expenses nearly across the board, including merger transition costs by $4.9 million and pension expenses by $8.4 million.

Consumer advocate Tim Hay proposed an overall revenue reduction in the general case of about $51 million.

"Nearly half of that is based on our rate-of-return recommendation and we disallowed the merger costs they claimed, their divestiture costs and depreciation rates," Hay said. "They asked for about $23 million so we're about $70 million apart."

And in testimony on behalf of the water authority, Dennis Peseau, president of Utility Resources Inc., said a fair and reasonable return on investment for Nevada Power is 10.5 percent, not the 12.25 percent requested by the company.

Peseau said his recommendation reduces Nevada Power's revenue requirement by $24.8 million and coupled with reductions in common equity trims the company's revenue requirement by another $2.7 million. Terry Page, a partner in Alrus Consulting, submitted testimony on behalf of the Nevada Coalition of Commercial Energy Consumers, which wants to reduce Nevada Power's revenue by more than $58 million.

The group includes UNLV, Community College of Southern Nevada, Sunrise Hospital, St. Rose Dominican Hospitals, Lake Mead Hospital, University Medical Center, Park Towers, Rinker Materials, Thomas and Mack Co., Silverton Hotel and Fletcher Jones.

PUCN spokeswoman Cynthia Messina said staff's recommendations cover an array of adjustments that address various elements in the case, including rate of return on the company's capital investments, certain merger expenses and incentive pay for employees.

"We recommend that the incentive compensation be denied because they didn't comply with past commission orders telling them they had to show service has improved," she said.

Messina said staff also wanted to give customers credit for power plant emission allowances the company sold.

"And we identified some various pieces of plant and equipment that are providing service to customers and recommend they remove them from their investment base," she said.

Commission staff attorney Fred Buck said commissioners also should reduce Nevada Power's operating and maintenance expenses related to the Mohave generating plant.

Nevada Power owns a 14 percent share of Mohave, located in Laughlin.

Buck said the commission should disallow depreciation on the plant, as well as deferred income taxes and property taxes.

Formal hearings on the general rate case will begin Feb. 4, while hearings for the deferred energy case will start March 4.