Utility: Plan lessens burden of hike

Friday, March 22, 2002 | 11:14 a.m.

Nevada Power Co. was expected to announce today what it believes is a more palatable way to recoup $922 million it spent on energy used last year.

With the record rate-hike request pending before the state Public Utilities Commission, Walt Higgins, chairman of Nevada Power parent Sierra Pacific Resources, said Thursday that the plan would increase rates by only 8.8 percent over the next six years.

Previously, the company said it would take a rate increase of as much as 25 percent over the next three years to pay off its debt.

The PUC is considering Nevada Power's request to raise rates to pay off the $922 million the utility said it spent last year during the power crisis in the West. The PUC could decide to award the utility all, part or none of the request.

The increase could go into effect as early as April 1 depending on what the commission decides.

The company still hopes to recoup $922 million plus interest over the next three years for energy used last March through September.

Nevada Power officials say without the additional money, the company will be forced into bankruptcy. But the request has been met with criticism from the state Bureau of Consumer Protection along with large ratepayers, such as casinos and the Southern Nevada Water Authority, because of the proposed 25 percent increase in power bills.

Higgins said Nevada Power will be able to significantly reduce the rate hike percentage because it has negotiated long-term power swapping contracts with two other power generators and is working on a similar deal with a third company. The deals have been in the works for weeks but were only finalized this week.

Higgins said the utility has negotiated six years worth of wholesale energy contracts with two undisclosed power vendors and is trying to reach a deal with a third company. Through power-swapping arrangements, Nevada Power would pay less than market price for energy in the first three years but pay more than market price in years four through six.

"It puts the price at a fairly stable rate for six years," Higgins said. "This is really a huge insurance policy for our customers. It's easy to say that the prices could be lower in the future but they could be higher, too. Our customers are telling us in no uncertain terms that they don't like price volatility."

The savings Nevada Power enjoys in the first three years would help the company recoup the amount approved by the commission. In essence, the amount ratepayers would pay would be supplemented by the savings the company would enjoy this year through 2005, which explains how the company can reduce the rate increase from 25 percent to a maximum 8.8 percent.

The above-market costs the company pays in years four through six would be absorbed by keeping customer rates for 2006 through 2008 at a maximum 8.8 percent higher than they are today, Higgins said.

The new plan would mean that a ratepayer who pays $100 a month now for electricity would see their bill climb to $108.80 beginning April, roughly a $100 hike over the course of a year. Barring unforeseen events, ratepayers would continue to pay at that level for six years with no further rate increases for fuel and energy costs.

Under the original plan, ratepayers would have paid off the $922 million through a 25 percent rate hike that would disappear after three years so that the rates in April 2005 would return to their current levels. But it was then possible that ratepayers would have faced new rates hikes from 2003 through 2008.

For instance, it has been reported that Nevada Power could also ask ratepayers by Dec. 1 for up to $260 million more for energy used this year. But Higgins said that cost would be absorbed under the new deals.

Higgins said, however, that the deals are contingent on what happens March 29, when the Public Utilities Commission is expected to rule on the $922 million request. If the commission grants a lesser sum, the rate hike would be less than 8.8 percent, Higgins said.

But if the commission denies the $922 million request entirely or reduces it significantly to the point where Nevada Power is no longer creditworthy, Higgins said the deals would fall through. He said he did not know as of Thursday how much of a reduction from the $922 million Nevada Power could bear to remain solvent.

"There's only so much lower you can whack us before we don't become creditworthy and the whole thing falls apart," Higgins said. "I don't know what that number is because it depends on how the commission's order is written and what it is."