Interest soars in power plan

Thursday, Jan. 31, 2002 | 11:03 a.m.

Nevada Power Co.'s proposal to spread its $922 million rate increase over six years could cost Southern Nevadans as much as $285 million in interest payments, state Consumer Advocate Timothy Hay said.

Nevada Power officials want to spread the increase over six years, rather than the three years required by law, saying the move would cut the expected 25-percent increase in ratepayers' monthly bills in half.

The proposal, which would help make up for losses that the utility incurred during the energy crisis last year, would tack a 9.66 percent annual interest rate on top of the rate hikes. Hay said the interest charges would add up to $285 million over six years, $147 million more than if the increase was spread over three years.

That is a 15.9 percent increase over the total sought by utility company, and the six-year payment plan could drive the bill to over $1.2 billion.

Hay likened that scenario to a situation in which a credit card company gives a consumer more time to pay a bill at a lower rate but collects more interest in the long run.

"It would increase the total burden on the rate payer," Hay said. "If the company offered to ask for only $138 million in interest over the six years, that would be a step in the right direction."

Nevada Power says that spreading the payments over six years would ease the burden on consumers. Spokesman Paul Heagen said Hay is "technically correct" that consumers would have to pay more interest over six years rather than three, just as they would for a 30-year home mortgage versus a 15-year mortgage. But Heagen also said Hay's calculations were premature and, if the company continues to buy cheaper power, Hay's predictions may never materialize.

"It may never show up if wholesale costs continue to drop," Heagen said of the interest charges. "And this whole solution that we are proposing may make those costs go away. If the price for the power we bring in is low enough, it may wash away any of those additional costs."

Nevada Power included the request for interest payments when it filed its rate increase requests with the state Public Utilities Commission last fall. In addition to the $922 million request, the utility is also seeking $22.9 million more to cover administrative costs. The commission, which will begin formal hearings Monday in Las Vegas on the $22.9 million general rate case, has the discretion to deny part or all of the requests, including the interest charges.

But with consumers fixated on the $922 million figure at five public hearings, including one before the Clark County Commission, the fact Nevada Power is also seeking interest charges has virtually been ignored.

Walt Higgins, chief executive officer of Nevada Power parent Sierra Pacific Resources, revealed Wednesday on "Face to Face With Jon Ralston" that his company planned Friday to file an amendment with the state commission seeking to recover the proposed rate hikes over six years rather than three. The television show aired on Las Vegas One, a partnership of the Las Vegas Sun, KLAS-TV and Cox cable channels 1 and 39.

"We've evaluated whether or not it's possible to take the three-year amortization or reduction of that balance and spread it out over six years, which would greatly reduce all by itself the size of the increase," Higgins said.

State law gives Nevada Power three years to recover costs it incurred to keep the lights on in Southern Nevada last year while California was experiencing rolling blackouts. The company's original rate hike request would have meant an increase of up to 25 percent in consumer bills over the next three years, beginning as early as April 1.

The company's amended proposal means the rates consumers pay could be lowered by "maybe half as much as they would have" because they would be spread out over six years, Higgins told Ralston. The company could then "take advantage of what we believe are contracts we could enter into to buy power for longer periods of time for a lot lower prices and help reduce future price volatility and uncertainty, maybe even help reduce the rates a bit more and get the price increase down to a level that's much more bearable for everybody," Higgins said.

"It answers a lot of concerns that, among others, the consumer advocate has raised," Higgins said. "How do we get the impact lower on customers? That's our goal as well."

In describing the six-year proposal as a "creative plan that works for Nevada," Higgins expressed confidence that the state law calling for a three-year period to recoup the company's energy costs could be amended if all concerned parties agreed to do so.

But Hay said the fact that Nevada Power wants to spread the rate hikes over a longer period does not alter his plan to testify before the commission that the company paid $500 million to $700 million more than it should have for energy from other generators since late 2000.

Former Public Utilities Commission Chairman Scott Craigie, who is representing businesses opposed to the rate increase, also said proposed amended request would not change his strategy as he, too, prepares to testify before the panel.

"To the extent that it helps reduce the rate shock, it's a good idea," Craigie said of the proposed amendment. "But there will be at least three more rate cases from Nevada Power after this, and consumers could be paying a high rate forever.

"The solution should be to reduce the amount of money consumers have to pay. The company is not contributing enough of its own resources to reduce the amount consumers have to pay."

Southern Nevada Water Authority, Nevada Power's single largest local energy consumer, is taking a wait-and-see approach on the proposal to spread rate hikes over six years, spokesman Vince Alberta said. The authority also will be testifying before the commission.

"We would have to see what's filed to get a better understanding of the details," Alberta said. "That idea may ease the pain short term, but it doesn't resolve the issue of the overall rate increase."

Higgins deflected criticism that his company paid energy wholesalers too much for spare power to satisfy peak demand periods. He said Hay didn't have all the facts, including the effect skyrocketing wholesale energy prices had on the utility.

"We bought a prudent power supply for our customers," he said. "We bought what was needed to keep the lights on, and we bought it at the very best price it could be bought."

Rising energy prices put Nevada Power on the brink of insolvency three times over the past two years, Higgins said. But he bristled at suggestions from critics that it would be all right if his company went into bankruptcy. He said that would cause an immediate disruption in service to customers.

"Having an essential public service go bankrupt is mindlessly unthinkable," Higgins said.

The commission has scheduled hearings Monday through Feb. 22 on the $22.9 million general rate case, the first such rate increase filing by Nevada Power since 1993. The more controversial $922 million deferred energy case will be heard by the commission beginning March 4. The commission has until April 1 to reach a decision in both cases.

Among others that will testify are Clark County, Las Vegas, MGM MIRAGE, the Utility Shareholders Association of Nevada Inc., the U.S. Energy Department, the Nevada Energy Buyers Group, the Nevada Coalition of Commercial Energy Consumers, the Nevada Independent Energy Coalition, Southern Nevada Homebuilders Association and Smith's Food and Drug Stores.

The public hearings will be conducted at the commission's offices at 101 Convention Center Drive.

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