Testimony bolsters case for hike at Nevada Power

Kevin Rademacher

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

Nevada Power Co. defended its business practices Monday in testimony filed with the state Public Utilities Commission, setting the stage for the company's nearly $200 million rate hike case.

The filing responds to interveners' testimony submitted to the commission March 7, claiming company errors resulted in millions of dollars in imprudent purchases.

"I conclude that the purchases were prudent in their entirety, and that the evidence offered by those who allege otherwise suffers from a combination of mistakes, hindsight and the clearly unsupportable contention that the company should have been able to foresee what the market itself failed to foresee," economist Jeff Makholm said in testimony on Nevada Power's behalf.

Nevada Power is requesting an $81 million rate decrease as part of an overall plan to recover $195 million spent on fuel and purchased power to serve customers between October 2001 and September 2002. Lower ongoing costs for fuel and purchased power will result in a rate decrease in at least the first year, Nevada Power said.

The case got under way Monday with a few procedural moves. Formal testimony will begin Monday.

In earlier testimony, PUC staff testimony claimed errors by Nevada Power contributed to $80 million in bad energy purchases. Those errors ranged from flawed hedging strategies to billing system errors, the staff said.

The Nevada Energy Buyers Network, which represents several large Nevada Power customers, said Nevada Power errors totaled $147.4 million.

Southern Nevada Water Authority testimony said the company's request for cost recovery is overstated by $90.8 million. That filing claimed the same transactions questioned in Nevada Power's nearly $1 billion rate case for the seven months ending September 2001 are still affecting the current case. The PUC last year disallowed $434 million in that case.

State consumer advocate Tim Hay has said he would seek additional rate cuts of $292 million this time around. The company missed cost saving long-term contracts, botched natural gas purchases and violated its own Risk Management Committee's policies, Hay said.

In its rebuttal testimony, Nevada Power representatives claimed the state Legislature's decision to halt deregulation and the divestiture of generation assets left the company at the mercy of a volatile market.

Nevada Power gas buyer LoreLei Reid said the company had entered into agreements with the buyers of its generating plants to provide power based on 1998 gas costs. That went away in the spring of 2001 when divestiture was cancelled, she said.

While the interveners claimed that the current case is overstated because of imprudent purchases, they found that the company's projections for ongoing purchases are too low.

The water authority will seek to raise the so-called "base-tariff energy rate" to cover those costs. That increase would offset the amount the authority is seeking to disallow. Dennis Peseau, who prepared the Water Authority testimony, said projections for fuel and purchased power costs should be raised by $90.8 million.

Similarly, PUC staff is requesting an $80 million upward adjustment to offset an $80 million disallowance. The Nevada Energy Buyers Network requested a base-tariff rate adjustment of $48.8 million, far from offsetting its requested $147.4 million disallowance.

The company did not address the fuel and purchased power cost adjustments in rebuttal testimony.

But again, Nevada Power argued that the company managed a bad market well.

"The company faced a miserable market with high prices, and the market's consensus verdict, as gauged objectively by forward price projections, showed no break in prices," Makholm said. "The company had no basis to hope that waiting to purchase was a viable option."