Officials debate Nevada Power numbers

Kevin Rademacher

Monday, April 14, 2003 | 11:23 a.m.

The staff of the state Public Utilities Commission last week found itself on the defensive in Nevada Power's rate case.

The staff found itself defending requested disallowances of portions of the rate hike. Other interveners found the staff's disallowances too low.

Jeffery Galloway, a financial analyst with the PUC, testified that $34.6 million Nevada Power is seeking to recover is based on imprudent hedging costs.

He was questioned by Fred Schmidt, an attorney representing the Southern Nevada Water Authority, who pointed out that his requested hedging disallowance was the lowest of any party testifying against the Las Vegas electric company.

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. The company said lower ongoing costs for fuel and power will result in a rate decrease in at least the first year.

Galloway's recommendation is part of PUC staff's overall effort to disallow the recovery of a total of $111.1 million, citing allegedly bad energy purchases. Those errors ranged from flawed hedging strategies to billing system errors, the staff said.

Schmidt said bad hedging deals totaled more than $90 million. Galloway said he was aware that his figures were low compared to other parties, but he was comfortable with the figures.

Earlier in the hearing, Steven Tackes, an attorney for the Utility Shareholders Association of Nevada, objected to adjustments Galloway made to his testimony late Wednesday that increased his requested disallowance by $3.4 million. That pushed PUC staff's overall disallowance request up from nearly $108 million.

Less than a week earlier, PUC staff had revised its disallowance up by more than $24 million, citing miscalculations in the original filings.

Staff blamed the newest revision on incomplete testimony provided by Nevada Power executives that only became clear during cross examination conducted Wednesday night.

Tackes said the late adjustments hurt Nevada Power's ability to prepare for evidence presented against it.

"It destroys the due process of the procedures in this case," he argued.

Schmidt sided with PUC staff when he said the water authority had similar problems with the electric company being "misleading in the responses."

The dispute arose over how the utility was treating payments for gas purchases.

Adriana Escobar Chanos, the presiding PUC commissioner, overruled the objection.

Also last week, PUC staff counsel Richard Hinckley questioned William Branch, director of energy planning and analysis for Nevada Power, on possible violations of the utility's risk management policies.

Transcripts of the exchange indicate Nevada Power executives may have approved in March 2001 the purchase of an additional 1,000 megawatts of power for the summer of 2002 without consulting with the company's exposure management committee and outside of an established timed procurement strategy. About 700 megawatts of the 1,000 that were authorized for purchase were actually acquired in this manner, testimony said.

The timed procurement strategy was designed to prevent the purchase of large blocks of energy at inflated prices, instead spreading the risk out over the preiod of several months.

Hinckley said the actions prove imprudence on the part of Nevada Power executives.

This week, other Nevada Power critics will defend their claims that the utility should be denied recovery of millions of dollars spent on imprudent purchases.

The State Bureau of Consumer Protection is seeking additional rate cuts of $292 million. The bureau, led by Nevada Consumer Advocate Tim Hay, said Nevada Power missed cost saving long-term contracts, botched natural gas purchases and violated its own risk management policies. The bureau is scheduled to testify today.

Southern Nevada Water Authority testimony said the company's request for cost recovery is overstated by $90.8 million. That agency, which has made a $3.2 billion offer to buy the troubled electric company, is scheduled to testify Tuesday.

The water authority claims the same transactions questioned in Nevada Power's nearly $1 billion rate case last year are affecting the current case. The PUC last year disallowed $434 million in that case, pushing Nevada Power into a financial tailspin.

The Nevada Energy Buyers Network, which represents several large Nevada Power customers, said the utility's errors totaled $147.4 million. The group also is scheduled to testify tomorrow.