Nevada policy on exit fees appealed

Kevin Rademacher

Wednesday, April 16, 2003 | 11:32 a.m.

The state Bureau of Consumer Protection Tuesday filed a challenge of the Public Utilities Commission's decision to allow nine major electricity users to leave the Nevada Power Co. system without paying exit fees in most cases.

In a petition for rehearing, Nevada Consumer Advocate Tim Hay said the PUC overstepped its bounds in a March 31 vote to allow Gordon Gaming Corp., Rouse Fashion Show Management LLC, Park Place Entertainment, Coast Hotels and Casinos Inc., Station Casinos Inc., Potlatch Corp., Stratosphere Corp., MGM MIRAGE and the Monte Carlo to purchase their own electricity.

Hay's complaint said state regulators should not have reviewed the cases as a group but instead should have assessed each case individually. He said that lumping the users together "opens the door for future groups of applicants to shift the burden of unrecovered assets to remaining customers."

He said the commission also erred in the accounting method used to establish a regulatory account to protect Nevada Power from possible lost revenue.

Nevada Power also has filed a request for clarification on the order in an effort to determine the usefulness of the new regulatory account plan.

The flurry of filings is the latest round of disputes surrounding exiting power users. Last month, the PUC drew fire from Nevada Power and state lawmakers for allowing two smaller users -- the Riviera and Imperial Palace -- to leave.

Nevada Power said that move left the company without revenue that would have been used to pay for part of its generation and transmission system, which was built with the intention of serving those exiting users. The utility challenged that ruling, and a new hearing is set for this week.

In the more recent 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 funds generated by 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.

Six of the nine users most recently given permission to leave 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.

Hay's challenge claims the accounting method used by the PUC in establishing the regulatory account was too speculative. Should prices drop, erasing the estimated benefit, customers would still be left with the $4.2 million bill.

"(The $26 million) is entirely a creature of modeling ... based on assumptions of the time," he said. "It's subject to many variables. Yet there's fairly hard numbers for the loss of rate revenue."

Hay said he does not object to the concept of a net benefit "if it were more specifically pinned down."

The shift from exit fees has been driven by increased natural gas prices, driving up projected costs for additional fuel and purchased power, creating a greater potential savings for remaining customers

"We are disappointed anything was filed," said Steve Boss, president of the Nevada Energy Buyers Network, who represents several of the exiting users. "We would be very disappointed if this slowed us down, because this benefit couldn't be realized by the remaining customers. This is basically a free insurance policy for remaining customers."

Boss said, if the challenge does not slow the exit process, customers could begin leaving the system July 1. He said he will review the filing and determine if the users can continue to plan for their exits while the regulatory issues are being decided.