Testimony wraps up in Nevada Power rate case

Kevin Rademacher

Friday, April 18, 2003 | 11:20 a.m.

Attorneys were packing boxes and filing out of the state Public Utilities Commission's Las Vegas offices late Thursday morning after testimony concluded in Nevada Power Co.'s $195 million rate case.

The last witness, Richard Coyle, vice president of finance and risk for Nevada Power's parent company, Sierra Pacific Resources, refuted claims by interveners that a series of transactions exceeded limits established by the company's risk management group.

He claimed the gas purchases Fred Schmidt, an attorney representing the Southern Nevada Water Authority, said totaled more than $93 million were being misrepresented. Those deals, which were made over two days in April 2001, were closer to $70 million, Coyle said.

Schmidt also failed to factor out a cancelled deal with Enron, Coyle said.

Through nearly two weeks of testimony in the case, gas purchases were a frequent point of scrutiny among Nevada Power's critics. Those critics are seeking to disallow between $40 million and nearly $90 million based on allegedly flawed gas purchases alone.

In testimony Wednesday, Coyle also tried to explain dozens of missing transactions in the company's electronic log of gas and electricity purchases. Coyle said the blanks were the result of a computer glitch.

On Tuesday, attorneys representing the state and large customers swarmed over testimony presented by the Nevada Bureau of Consumer Protection that there were a series of missing transaction in the logs.

"We did have a problem back when we first initially implemented this system," Coyle said in transcripts of his rebuttal testimony.

"There is no transaction actually missing," he added.

Now, after 33 witnesses, nine days of testimony and 117 exhibits, Nevada Power waits to hear the fate its request. Attorneys were ordered to have their closing briefs filed by Tuesday, and the PUC will begin fashioning its ruling.

Commissioner Adriana Escobar Chanos, who has presided over the rate case, has scheduled a May 7 hearing for the three-person commission to vote on a final order.

Nevada Power is seeking to recover $195 million in deferred energy costs over three years. That money was spent acquiring fuel and power used to serve customers between October 2001 and September 2002. Lower projected costs for future fuel and purchased power will result in an $81 million rate decrease in at least the first year, Nevada Power said.

Last year, the company was seeking to recover $922 million spent on power to serve customers for seven months during 2001. The PUC disallowed nearly half of that request, sending the company into financial turmoil.

This year, critics are seeking wide-ranging disallowances. The smallest request comes from the Southern Nevada Water Authority at just under $90 million. The largest request comes from the Bureau of Consumer Protection at $292 million.

Many of those requests are based on the same transactions that lead up to last year's record disallowance. While the parties in the case were hesitant to predict an outcome on the record, speculation swirled around how the commission will address three separate areas brought out in the testimony -- gas purchases, electric purchases and a long-debated contract that was never signed with Merrill Lynch.

Besides critics questioning between $40 million and $90 million in gas purchases, proposed disallowances for electric purchases average about $60 million.

An energy consultant for MGM MIRAGE said the Merrill Lynch contract represented a $96 million error on the part of Nevada Power. In the 2002 rate case, that same failed contract led to a disallowance of $180 million. This year, however, PUC staff -- which has recommended an overall disallowance of $111 million -- said the Merrill Lynch contract should not be considered by the commission when determining a final action.

The PUC staff also proposed raising the so-called "base tariff energy rate" to offset the disallowance. The base tariff rate is used to recover costs of ongoing fuel and purchased power. If the rate is set too low and the utility does not recover all of its costs, another deferred energy case will be needed next year to recover what is spent buying power for peak summer demand this year.

An increased base tariff rate would limit possible rate reductions for customers, and it would not protect the company from having to write off the amount of a disallowance. Such a move would hit shareholders in the form of earnings losses and possibly damage an already weak Wall Street reputation.

Analysts have been looking to the current rate case as a sign that the company is winning back the confidence of state regulators.

"The upcoming PUCN ruling ... will be key to the company's future," Standard and Poor's utilities analyst Swami Venkataraman said in a ratings affirmation released last week. "A substantially negative ruling may well lead to bankruptcy."

Analysts also are watching a Carson City district court case in which the utility sued to have last year's $434 million disallowance overturned. A ruling in that case could come any day.

Nevada Power also is facing a ruling in bankruptcy court that will decide a $300 million claim Enron has against the company over terminated contracts.

Nevada Power and its sister company, Sierra Pacific Power, also will testify next week in front of the Federal Energy Regulatory Commission that $300 million in long-term contracts should be thrown out because dysfunction in the Western energy markets artificially inflated prices.