Guinn wants details on rate hike proposal

Monday, March 25, 2002 | 10:57 a.m.

Critics of Nevada Power Co. said consumers would be better off with a sharp reduction in the $922 million the utility seeks instead of the company's new plan to make the proposed rate hike more palatable for ratepayers.

But Gov. Kenny Guinn, who pressed the company behind the scenes to lower the percentage of the proposed rate hike, said the utility's new plan to seek a maximum 8.8 percent increase rather than as much as 25 percent as originally proposed "sounds very positive to me."

"We have to look at what is best for our ratepayers and I want to see other details," Guinn said. "This plan looks like it takes the rates down to something more realistic, but I want to see the whole plan on a piece of paper."

Guinn said he would not get involved in the rate case prior to Friday's expected ruling from the Public Utilities Commission of Nevada. State law requires any rate hike approved by the commission for any prudently purchased energy costs incurred last year to be recovered over the next three years from ratepayers.

Guinn said he told Nevada Power officials he was concerned about a sharp rate hike, because of Southern Nevada's struggling economy and rising unemployment following the Sept. 11 terrorist attacks.

"Once they rule there's not a whole lot I can do," Guinn said.

He said if he thinks the ruling is too high, he could call a special session of the state Legislature, asking lawmakers to change the time customers will have to pay off the amount from three to six years.

One Nevada Power critic, assistant Las Vegas City Attorney John Redlein, questioned the legality of the company's plan to reduce proposed rate hikes to a maximum 8.8 percent but apply them over a six-year period. He said the plan may violate Assembly Bill 369, the state law that requires prudent costs for fuel and power used last year to be recouped by Nevada Power within the next three years.

Redlein said he still believes the entire $922 million request should be rejected by the commission of Nevada.

"My position wouldn't be affected at all because we took the view that their whole management and systems were set up so that everything they did was imprudent," Redlein said. "Politically, they're trying to soften the blow so that the commission gives them the maximum amount in their application."

Las Vegas attorney Steve Boss, who represents the Nevada Energy Buyers Group, said his gaming and other commercial clients would rather see Nevada Power's application lowered by more than $300 million than see the percentage of the rate hike reduced.

"It does not change our argument," Boss said. "We still do not believe that in excess of $300 million was prudently incurred. Everyone would welcome a lower percentage increase. That would benefit the entire economy. But we still don't believe they should be able to collect the entire $922 million."

The Nevada Coalition of Commercial Energy Consumers, like many other critics of Nevada Power, said they want to know more about the plan.

"It's a creative package and we're interested in getting more details," coalition consultant Scott Craigie said.

State Consumer Advocate Timothy Hay, whose office is seeking a $950 million reduction, also said the plan was short on details. But he said the new plan does not change his mind that litigation may be necessary if the commission grants a substantial portion of Nevada Power's request.

"The commission has before it a record we believe shows that costs were imprudently incurred," Hay said. "If this was an attempt to influence the commission's decision, we think that is inappropriate."

Local businessman Michael Lavine, who formed the Consumers For the Protection of the People to fight Nevada Power, said the company's new plan is a bad idea.

"It's totally unacceptable because they're not deserving of the $922 million," Lavine said. "All of a sudden they got off their ass and got good prices for energy. Why didn't they do that two years ago?"

Nevada Power has defended its $922 million request for energy used last March through September. The company has argued that it was stung by high wholesale power prices caused by the California energy crisis and by federal regulations that capped prices paid by Californians but did not pass on similar benefits to Nevadans.

Nevada Power's initial $922 million rate hike request would have amounted to as much as a 25 percent rate increase over the next three years.

The company announced Friday that it is now seeking to limit rate increases for used energy and fuel to 8.8 percent beginning next month and then maintain that rate hike for six years. Someone who pays $100 a month today would see their bill climb to $108.80 a month under that scenario.

Walt Higgins, chairman and chief executive officer of Nevada Power parent Sierra Pacific Resources, said the company can afford to reduce the percentage of the rate hike because of a blend of long-term power contracts it has negotiated with other companies. Those contracts and others that have already been signed or are in the process of negotiation would cover Nevada Power's energy needs over the next six years, Higgins said.

He said the new plan was based largely on input from consumers as well as on what they perceived as instructions from the commission to pursue long-term contracts.

"They wanted us to know how a 20 percent-plus rate increase affects their lives and wanted us to do something about it," Higgins said of ratepayers. "Our customers can be comfortable that energy prices will stay the same for years to come."

One company, Reliant Energy of Houston, would sell Nevada Power as much as 500 megawatts of energy during peak summer usage periods, with an option for an additional 125 megawatts. That energy would be provided by Reliant's power plant near Boulder City, another one that is under construction in Nevada and possibly a third plant that is on the drawing board. Nevada Power uses as much as 4,500 megawatts of power during summer peaks.

Another company, Williams of Tulsa, Okla., has agreed to enter into power swap agreements with Nevada Power. The mixture of contracts will enable Nevada Power to buy energy at below wholesale prices through 2005, with the savings used to help defray the $922 million or any lesser amount approved by the commission.

Nevada Power would then pay above-market prices for power in 2006 through 2008 but would recoup those costs with the help of the 8.8 percent rate hike that would remain in effect through those years.

Higgins said the deals would give customers reliable sources of energy for the next six years. Among the details Nevada Power has yet to reveal are the prices of the long-term contracts and the amount of savings the company will enjoy in the first three years.

"Power prices in the open market are generally lower than they have been for two years but there is no assurance they will stay there," Higgins said. "If anything, what the last two years taught me is that no one can predict what the future prices of energy will be."

All of this hinges, however, on the commission's ruling. If the three-member commission rejects or significantly reduces the $922 million request, Nevada Power has indicated it would no longer be creditworthy and its long-term energy contracts would fall through.

The company, in fact, has said that it would be forced into bankruptcy if there were a drastic reduction in the company's rate request. The commission would also have to approve the long-term power contracts.

Wall Street, meantime, has been keeping a close eye on the Nevada Power case. The New York Stock Exchange on Friday momentarily suspended trading of Sierra Pacific Resources stock because of news of Nevada Power's new rate recovery plan.

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