Nevada Power may get most of request

Thursday, March 28, 2002 | 10:54 a.m.

The chairman of the state Public Utilities Commission is expected to recommend today that Nevada Power Co. should be allowed to recoup $800 million to $840 million from ratepayers for energy used last year, sources familiar with the case said.

The PUC would not comment this morning in advance of the release of the draft ruling from commission chairman Donald Soderberg on the $922 million request. But sources familiar with the case said they believe that the recommendation would be enough to keep Nevada Power solvent.

"We're hearing rumors that there is political pressure on the commission not to put the utility into bankruptcy," one source said.

The company is asking for $922 million plus interest for energy that was used last March through September.

The PUC said it would release its draft opinion this afternoon, and the three-member commission will vote on the matter Friday.

If the PUC gives Nevada Power the OK to take the amount, about $80 million to $120 million less than the utility asked for, it means utility customers would see a rate increase of about 8 percent.

That could be offset somewhat because of the PUC ruling Wednesday that Nevada Power's general rates for administrative costs be reduced by $42.9 million, or 3 percent.

After hearings earlier this month on the $922 million rate hike request, the PUC's staff recommended that the commission reduce Nevada Power's proposal by $84.5 million.

Other critics of Nevada Power's energy purchasing practices had recommended much higher reductions. Those recommendations ranged from the $270.5 million reduction requested by the Southern Nevada Water Authority to the $950 million reduction urged by the state Bureau of Consumer Protection.

Any rate hikes approved by the commission will take effect as early as Monday.

The state-record $922 million request from Nevada Power has been a highly contentious issue. Virtually all ratepayers who spoke at four PUC town hall meetings earlier this year expressed outrage at the company and many called for it to be replaced by a government-run utility.

Nevada Power argued that it could not lock in lower-cost long-term power contracts as early as 1999 because it was still possible at the time that all Nevadans would be able to buy retail electricity on the open market. Nevada Power officials said entering into such contracts would have been too risky because the company was uncertain how many customers it would have in the future.

Critics such as the state Bureau of Consumer Protection, MGM MIRAGE and the Southern Nevada Water Authority countered that Nevada Power did not have the proper staff in place to analyze business risk. They also argued that the company easily could have locked in long-term contracts that would have cost ratepayers only about one-fifth of the amount of money Nevada Power spent on energy last year.

The critics also alleged that Nevada Power never properly estimated the number of customers it would have lost through deregulation. The state wound up delaying deregulation until later this year, and that will apply only to large customers such as resorts and mining companies.

When California's electricity crisis struck Western power markets in 2000, Nevada Power had to pay skyrocketing prices for wholesale energy from other generators. The company received more than 26 percent in rate increases from August 2000 through early last year to help recoup energy costs.

But the company said the high wholesale prices continued through much of last year, necessitating the need to seek the additional $922 million. The company initially reported that its request would have resulted in rate increases of up to 25 percent over the next three years.

Last week, the company proposed holding the rate increase to a maximum of 8.8 percent, with the increase to take affect in April and remain in place for six years. Nevada Power officials said they were able to reduce the percentage of the rate hike through a blend of long-term power contracts negotiated with other companies, such as Reliant Energy of Houston and Williams of Tulsa, Okla.

The contracts are structured so that Nevada Power would pay less than wholesale cost for energy over the next three years, using the savings to help defray the $922 million. Nevada Power would then pay above market costs for power in years four through six. Those costs would be recovered by keeping the 8.8 percent rate hike in effect from 2006 through 2008.

The long-term contracts and maximum 8.8 percent increase hinge, however, on the commission's decision.