Friday, Oct. 11, 2002 | 10:55 a.m.
CARSON CITY -- The state Public Utilities Commission said Thursday that Nevada Power Co. failed miserably to prove it was prudent in buying power in 2001 to keep the lights on in Las Vegas.
The commission said the results of the poor purchasing practices of Nevada Power should be borne by the investors of the utility and not the ratepayers.
Commission Counsel Jeff Parker filed an answering brief to the lawsuit by Nevada Power, which seeks to gain the full $922 million it said it spent in buying high-priced power during the energy crisis.
The PUC, after nine days of hearings and 50 witnesses, reduced the request by $437 million, but in a subsequent order allowed the company to recover an additional $16 million in rates from the customers.
A hearing before District Judge Bill Maddox is set for next year on the petition by Nevada Power, which maintains the PUC made errors in the hearing, disallowing testimony and showing bias against the utility.
The furor over the rate increase has prompted the Southern Nevada Water Authority to make an offer to buy Nevada Power. An advisory question on the November ballot asks residents if they would favor a public power company.
State Sen. Joe Neal, D-North Las Vegas, a candidate for governor, has asked for a bill to be drafted for the 2003 Legislature to lift the ban on the potential sale.
In his answering brief, Parker said, "The record in this case is voluminous and abundantly full of examples of the imprudent actions and decisions by Nevada Power."
The PUC said Sierra Pacific Resources, the parent of Nevada Power, was preoccupied with the proposed merger with Portland General Electric, rather than focusing on rising power costs.
Parker said Nevada Power knew in July 1999 that the prices it paid to supplement its production would rise. It entered into negotiations with Merrill Lynch for about 50 percent of its outside need of power at $32 to $39 a megawatt hour.
Talks continued but Parker said Nevada Power then broke off negotiations. It later bought power from other sources. The commission said the utility could have saved $180 million by carrying through with Merrill Lynch.
From November 1999 through January 2000, electricity future prices rose from $120 to more than $400 a megawatt hour.
The PUC said in early 2001 Nevada Power purchased 250 megawatt hours to be used late in the year at a price of $420 per megawatt hour. But the purchase "was made with only minimal investigation and planning. The purchase was not even discussed at Nevada Power's Feb. 8, 2001 risk management committee meeting," Parker said.
The PUC disallowed $116.2 million on this purchase by comparing the $420 per megawatt hour price with the spot market.
Then in April 2001, it purchased $72 million in excess power. The PUC said evidence showed the Las Vegas utility again paid too much.
Parker said the utility should have sold this excess power in the spring of 2001 while power prices were relatively high instead of waiting until later when the price dropped dramatically.
Nevada Power, in its suit, had complained the PUC struck portions of the prefiled testimony of its witness Dennis Schiffel about the financial condition of the utility when it filed for its deferred energy application. Parker said the hearing before the PUC must relate to whether the fuel purchases were prudent, not to the financial condition when the rate increase application was filed.
The utility said it spent almost $2 billion between March 1, 2001 and Sept. 30, 2001 "buying electricity and fuel to keep the lights on in Southern Nevada. It sought only half of that amount in its rate request."
The company said it had to borrow to pay the suppliers with the promise the utility would recover the money in the rate case that was authorized by the Legislature in April 2001. The action by the commission in reducing its request resulted in the company's ratings being reduced to junk bond status.
Parker said the law requires Nevada Power in its suit to show by "clear and satisfactory evidence" that the PUC order was unlawful or unreasonable.
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