Editorial: Another rate hike in the offing?

Friday, March 15, 2002 | 9:08 a.m.

Last week a Nevada Power executive said the utility may have to ask state regulators to raise rates another $260 million for costs incurred this year. That scenario elicited both double-takes and anger from ratepayers. Such an increase would be on top of the $922 million the power company already is seeking from the state Public Utilities Commission, a hike that has been fought vigorously by the state's consumer advocate and businesses, including casinos. Steven Oldham, Nevada Power's senior vice president of energy supply, testified that an additional $260 million, a 15 percent increase in rates, could be necessary because the utility paid more for energy from other generators this year.

The day after Oldham spoke, Walt Higgins, the CEO of Sierra Pacific Resources, which is the parent company of Nevada Power, dismissed talk of a supplemental rate hike request. "Let me be clear -- the likelihood of us filing for an increase in rates next year to cover these costs is nil," Higgins wrote in a memo addressed to business and civic leaders. Despite Higgins' assurances, his statement was more damage control than a realistic assessment.

Oldham, even after Higgins' missive went out, acknowledged again the possibility of another rate hike request. Oldham did say the company could avoid a rate hike if three separate events occurred. First, Nevada Power would have to be granted its full $922 million request, which the company says would maintain its credit worthiness. Second, the company could lower its own energy costs if it can swap power with other generators. Third, the Federal Energy Regulatory Commission would have to approve Nevada Power's petition to revise the high-priced power contracts for energy that will be used this year. But the likelihood of Nevada Power getting all of its $922 million request appears dim; it's unknown how successful the company will be in getting other generators to go along with power swaps that could reduce Nevada Power's energy costs; and the possibility t hat federal regulators will come through for Nevada Power is far from a lock.

Public confidence in Nevada Power will erode further if the utility has to ask for another increase in its rates, especially after it was adamant it wouldn't be needed. Nevada Power also didn't help itself any when it was recently revealed during the $922 million rate hike case that the utility passed up an opportunity in 1999 to lock in low rates for 25 percent of the company's total needs before wholesale prices started skyrocketing.

Nevada Power contends that the blame for the $922 million rate hike request lies with a combination of unforeseen factors: high wholesale electricity prices, an energy shortage and electric deregulation woes in California, a confluence it calls the "Perfect Storm." It would appear Nevada Power needs a reverse "Perfect Storm" of sorts, favorable decisions that would result in the company being able to escape another rate hike request of $260 million. But that scenario seems as plausible as the company's argument that its executives bear no responsibility for the circumstances that caused them to seek the $922 million rate hike.