Nevada Power accused of speculating in crisis

Monday, March 17, 2003 | 11:35 a.m.

CARSON CITY -- In a few weeks Nevada Power will begin presenting its case that it is entitled to an electricity rate increase of $741 million in Clark County -- but the utility is still battling to recover millions of dollars from a previous application.

And the attorney for Nevada Power says that in hindsight, the company probably should have sold its assets during the energy crisis in 2000 and 2001.

District Judge Bill Maddox heard four hours of arguments Friday on the lawsuit by Nevada Power asking for a new hearing before the state Public Utilities Commission to show it is entitled to $437 million more in increased rates to offset the costs for energy it purchased during the shortage in 2000 and 2001.

But the PUC, the state Bureau of Consumer Protection, the Nevada Coalition of Commercial Energy Users, the Southern Nevada Water Authority and Strip resort operator MGM MIRAGE all lined up against the company.

Maddox said he would have a decision in a few weeks.

In the meantime, Nevada Power is getting ready to process a new application for $741 million the company said it should recover because of higher energy costs it paid from October 2001 to September 2002.

C. Stanley Hunterton, attorney for Nevada Power, told the judge the utility during the energy crisis considered selling its assets.

"And in hindsight we should have," he said. "But the board (of directors) felt it had a responsibility to the customers."

He said the utility deserves credit for keeping the lights on in Las Vegas.

"We have been wrongly punished," he said. Nevada Power asked for $922 million in higher rates to recover money it paid to buy fuel during that period. The PUC allowed $485 million, lowering the request by $437 million. It found the company had not been prudent in all its purchases.

Hunterton asked the judge to send the case back to the PUC for further consideration, calling the first decision by the PUC "terribly wrong."

But Chris Van Dyke, senior deputy attorney general for the consumer protection bureau, argued the PUC should have rejected the full $922 million. He said Nevada Power knew it needed power and could have purchased it for $32 to $39 per megawatt. Instead it ended up paying as much as $400 a megawatt -- "when the prices went through the roof," he said.

"They bought too little too late," Van Dyke said.

Fred Schmidt, attorney for the Southern Nevada Water Authority, which wants to buy Nevada Power, said the PUC did the right thing in cutting the $922 million request. Nevada Power, Schmidt said, bought excessive power at $400 to $500 a megawatt, speculating that it would be able to sell it to California for $600.

But "the floor fell through" on the price of energy and a potential profit of $1 billion evaporated, Schmidt said.

"The (PUC) did the fair thing -- it was fair to the shareholders and the consumer," he said.

Jon Wellinghoff, attorney for MGM MIRAGE, argued the company acted in an incompetent manner. He said the utility could have entered into a contract in 1999 with Merrill Lynch to purchase power at $32 to $39 a megawatt hour.

"The company should have recognized the risk (in the energy market)," Wellinghoff said.

Bill Kockenmeister, attorney for the coalition of commercial energy users that includes UNLV, CCSN, some Las Vegas hospitals and some small and medium-sized casinos, argued that Nevada Power bought so much power that it could not use the electricity produced in its plants.

"They were speculating in the market," he said.

Kockenmeister said upper management did nothing while energy prices rose.

Jan Cohen, general counsel for the PUC, said the agency has expertise "that is not available to the court" in making decisions on rates. She said the court cannot substitute its judgment on the rate case except where it finds an abuse of discretion.

Cohen said Nevada Power was "in a state of disorganization" at the time.

"As long as there is substantial evidence in the record, the decision must be affirmed," Cohen said.

But Hunterton disagreed. He said the terms of a contract with Merrill Lynch were never finalized.

The decision of the PUC "nearly ruined the company," he said.

In the new application by Nevada Power, the bureau of consumer protection has recommended the request be cut by $292 million because of "imprudent" buying practices.