Rate hike foes say e-mails point to bad deal

Wednesday, March 6, 2002 | 11:09 a.m.

Opponents of a $922 million rate hike request from Nevada Power Co. alleged that a series of e-mails proves the utility could have spent far less money on energy purchased from other generators.

The allegation could result in a significant reduction in the proposed rate hike, opponents of the request said Tuesday at the ongoing hearings conducted by the Public Utilities Commission of Nevada.

The fall 1999 e-mails between Merrill Lynch energy broker Dan Gordon and Nevada Power principal trader Jon Perry appear to indicate that the utility could have paid $33.75 per megawatt hour for power from 2000 through 2003.

Instead, the deal fell through because Nevada Power would not agree to pay more than $33.50 per megawatt hour, which is enough energy to light roughly 1,000 homes for an hour. The utility wound up paying exorbitant prices as a result of California's energy crisis beginning May 2000, including as much as $1,300 per megawatt hour for a brief time that year and an average of $172 per megawatt hour in 2001.

"It's a smoking gun type of document," consultant Richard Anderson of the Nevada Coalition of Commercial Energy Consumers said. "There was clearly a lot of back and forth discussions with the company. Merrill Lynch was shown to be willing to negotiate. It could have been a done deal, but Nevada Power chose not to do it."

In another development Tuesday, Walt Higgins, chairman and chief executive officer of Nevada Power parent Sierra Pacific Resource of Reno, issued a memo denying that his company would seek an additional $260 million from ratepayers next year if the utility was unable to negotiate certain power contracts.

Steven Oldham, Nevada Power's senior vice president of energy supply, had testified Monday that it was possible his company would seek up to that amount if the company was unsuccessful in obtaining lower-cost contracts with the help of power-swapping arrangements with other generators. Higgins argued, however, that that testimony had been misconstrued.

The memo to unnamed Nevada business and civic leaders stated that the company planned to absorb its current high-cost contracts by blending them with lower-cost contracts.

"Let me be clear -- the likelihood of us filing for an increase in rates next year to cover these costs is nil," Higgins wrote. "We know better than to think that anything like that would be good for Southern Nevada and we are determined to develop solutions that provide rate stability and supply certainty for years to come."

Nevada Power defended its actions when questioned about the e-mails Tuesday. Utility representatives said the proposal would have covered 25 percent of its total power needs and 50 percent of its purchases from other generators from 2000 through early 2003.

In an e-mail on Dec. 15, 1999, Gordon reminded Perry that the Merrill Lynch offer was $33.75 per megawatt hour. Gordon then asked for Perry's target price.

"Believe it or not, a $0.25 (25-cent) decrease might get us there," Perry responded that day. "We're running production models and it's getting damn close. Give me a quarter and it could work."

But Nevada Power representatives said Tuesday that no written agreement was ever reached with Merrill Lynch because the company believed it could buy energy cheaper in late 1999.

Nevada Power also argued that from 1999 through late 2000 it chose not to lock in more low-cost long-range energy contracts than it did because the company was uncertain how many customers it would continue to serve had the state allowed consumers to buy retail electricity on the open market. It wasn't until November 2000, when Gov. Kenny Guinn put deregulation on hold, that the utility went more aggressively after power contracts.

"To buy a block and hold it and not have a load to fill, that would be speculating," Mike Smart, Nevada Power's vice president of resource management, testified. "Our policy prevents against speculation. It does not allow us to hold a position and sell it to make a profit."

Critics of Nevada Power maintained, however, that the utility paid other generators too much money for energy used between last March and September by Southern Nevadans because of ill-timed purchases and poor planning. One such critic was the Nevada Coalition of Commercial Energy Consumers, whose clients include casinos, hospitals and the University of Nevada, Las Vegas.

Coalition consultant Scott Craigie, former chairman of the Public Utilities Commission, testified that his group was seeking a $506.5 million reduction from the $922 million that Nevada Power is seeking. He said part of that reduction was justified because the utility should have struck a deal with Merrill Lynch.

"It appears to me Merrill Lynch was very motivated to do a deal," Craigie testified. "The quarter is a very small number on either side to be hung up on."

Steven Boss, representing the Nevada Energy Buyers Group, testified that his gaming and retail clients were seeking a $307.6 million reduction in Nevada Power's rate request. During a break in the hearing, his partner, Dave Gildersleeve, explained why his gaming clients were so concerned about the proposed rate hikes that could result in increases of up to 25 percent in energy bills over the next three years.