Nevada Power, legislators weigh action on exit fees

Kevin Rademacher

Wednesday, March 12, 2003 | 11:03 a.m.

Nevada Power Co., and possibly state lawmakers, will challenge a recent state Public Utilities Commission ruling allowing big power users to leave the Nevada Power grid without paying exit fees.

The Imperial Palace and the Riviera Hotel received permission from the PUC two weeks ago to leave the Nevada Power grid and buy electricity elsewhere without being assessed the exit fees.

The commission ruled unanimously that since Nevada Power could save $3 million over the next three years in energy purchases because of the hotels' departures, no exit fees are needed.

The utility is expected to realize savings because it will need to buy less energy at high prices during peak periods, like the hottest afternoons in the summer. The high costs for those peak-period purchases are passed on to all customers, not just the departing hotels.

Nevada Power officials are arguing that, while the $3 million is passed on to customers, the utility will be left to cover the $1.5 million the exiting users would have paid in capital costs to maintain a generation system built, in part, to serve them.

A request for reconsideration will be filed by Friday, said Sonya Headen, a Nevada Power spokeswoman.

"We really don't have a choice but to ask the PUC to reconsider the order," she said.

The criteria for weighing costs and benefits of power users exiting the system was established by the 2001 Legislature.

"We don't think this is the intent of the legislation," said Matt Davis, Nevada Power's vice president for distribution services. "The idea was to do no harm."

Dick Burdette, resource market analysis manager for the PUC, did not dispute that the company will be unable to recover those capital costs because of the lack of exit fees. But he said a solution exists.

"It is true, they are not getting a return on those investments," he said.

"I would urge them to file a rate case" to recover the costs through rates, he said.

That argument has the attention of some state lawmakers. While they were not familiar with the details of the most recent case, Sen. Randolph Townsend, R-Reno, and Assemblyman David Goldwater, D-Las Vegas, agreed that there could be a problem.

"This company is in serious financial trouble," Townsend said. "For the largest users to come in and out at their whim is a little concerning."

Goldwater, chairman of the Commerce and Labor Committee, said the users leaving behind unpaid costs would be contrary to the 2001 legislation.

"Definitely, the spirit of the legislation was to make sure anyone that left the system fairly compensated shareholders and remaining users for costs left behind," he said.

Goldwater said failure to meet that standard could warrant further action.

"Clearly, if regulators rule in a manner contrary to legislative intent, it would be incumbent on the Legislature to take a look at the issue again," he said.

Davis said the exiting users would not leave until summer. Even with a successful rate case, the company would not begin recovering the costs until next spring.

Once a rate case is approved, those costs can be passed on to customers, but both the utility and the PUC agreed that the effect on consumers would be offset by the $3 million savings.

Compounding the concern for Nevada Power, 10 other major power users are looking to leave. Six of those applicants have applied before and all were assessed exit fees -- from nearly $2 million for MGM MIRAGE to $114,000 for the Sahara Hotel.

Each of the six applicants -- also including Park Place Entertainment Corp., Station Casinos Inc., Coast Casinos Inc. and Fashion Show Mall owner Rouse Fashion Show Management LLC -- allowed their exit approval to expire without leaving. All of them, along with Potlatch Corp., the Palms, the Stratosphere and the Monte Carlo, are expected to have new requests approved by the end of the month.

Burdette said he expects all but one of the new applications to be approved without exit fees. Still facing an exit fee is Rouse, he said, due to large swings between the Fashion Show's maximum and minimum power demands.

Davis said the company would clearly be harmed if the recent trend continues.

"It's not so much this case, but the precedent it set," he said. "If all of the 10 users leave without an exit fee, there would certainly be harm."