Advocate may challenge new policy on utility’s exit fees

Kevin Rademacher

Tuesday, April 1, 2003 | 11:09 a.m.

The state Bureau of Consumer Protection on Monday criticized the Public Utilities Commission's move to allow eight major electricity users to leave the Nevada Power Co. system without paying exit fees.

The Bureau of Consumer Protection is expected to file a request for reconsideration on the matter.

Nevada Consumer Advocate Tim Hay, who heads the bureau, said the utility's remaining customers are at risk following Monday's 2-0 vote to allow Sahara owner Gordon Gaming Corp., Rouse Fashion Show Management LLC, Park Place Entertainment Corp., Coast Hotels and Casinos Inc., Station Casinos Inc., Potlatch Corp., Stratosphere Corp., MGM MIRAGE and the Monte Carlo to purchase their own electricity.

"It puts the risk of recovery of increased costs on the remaining customers," Hay said.

Rouse's Fashion Show Mall was the only user charged an exit fee. The order said the $44,000 fee was necessary because of dramatic swings between high and low usage at the mall, limiting any potential fuel or purchased power savings to Nevada Power.

Last month the PUC drew fire from Nevada Power and some state lawmakers for allowing two smaller users -- the Riviera and Imperial Palace -- to leave without exit fees.

Nevada Power said that move left the company without revenue that would have been used to pay for a generation system built with the intention of serving those exiting users.

In the PUC's new order, a regulatory account of $4.2 million -- the amount the exiting companies would have paid for the existing generation system -- would be established by Nevada Power. Those funds, minus load growth, will be recovered in the next general rate case, currently scheduled for October.

While the money is not immediately available, it will show up on the company's books as an asset, an important distinction as Wall Street closely watches the struggling utility, said Matt Davis, Nevada Power's vice president for distribution services.

"It looks like a favorable ruling," Davis said, adding that the company must still review the details of the order.

But if load growth does not cover the generation costs, Hay said, the company will then turn to remaining customers for those costs.

Assemblyman David Goldwater, D-Las Vegas, had criticized the PUC's move to allowed Imperial Palace and Riviera out of the system without exit fees. He said the new order must be examined closely.

"At the end of the day, we want to make sure someone exiting the system doesn't leave the company or the remaining customers holding the bag," Goldwater said. "I'm positive (PUC Chairman Don) Soderberg and the rest of the commissioners know that's the intent."

Six of the nine users given permission to leave Monday had received similar approval in the past. Each time they had been assessed exit fees -- from nearly $2 million for MGM MIRAGE to $112,000 for Gordon Gaming's Sahara Hotel.

Those fees were not required this time because the PUC ruled that the $4.2 million negative effect on consumers was outweighed by a projected $26 million savings in fuel and purchased power costs that would have been needed to serve the exiting users.

The shift from exit fees was driven by increased gas prices, driving up projected costs for additional fuel and purchased power, creating a greater savings for remaining customers, said Steve Boss, president of the Nevada Energy Buyers Network, who represents several of the exiting users. The previous exit fees, he said, amounted to the difference between lost generation costs and the projected fuel and purchased power savings.

Hay said those savings, at this point, are merely speculative. Hay also criticized the PUC's handling of the nine cases as a group.

"If any of these applications would have been taken individually, it appears there would have been a different outcome."