Las Vegas Sun

March 28, 2024

Nevada Power asking for 9.6% rate hike

Nevada Power Co. on Wednesday asked the state Public Utilities Commission for a 9.6 percent rate increase that would generate $142 million over the next two years.

Utility executives and Nevada Consumer Advocate Tim Hay will now begin a debate over what portion of the rate increase request has been driven by the fallout of the Western energy crisis.

In addition to meeting the demands of growth in Southern Nevada, the additional revenue would rebuild the company's financial health. That health was damaged after the company's credit was downgraded in the wake of a $437 million regulatory disallowance for spending during the energy crisis.

"We are attempting to create a capital structure that takes us to being an investment-grade company," said Walter Higgins, chairman of Sierra Pacific Resources, Nevada Power's parent company.

Hay cautioned that the company should not be allowed to recover higher costs created by the past rate case disallowances since those losses have already been deemed imprudent by regulators. That, he said, would include higher interest costs that were incurred after the company's credit rating was slashed.

"We don't think it's appropriate to pass that on to ratepayers," said Hay, who added that he has not had enough time to examine the details of the filings.

Higgins said that higher interest costs are not a major factor in the rate case since the only debt that would be affected by the credit downgrade would be that which was refinanced since May 2002.

"Nevada Power has about $2 billion in debt, but most of that has not been refinanced," he said. "There is some effect on the cost of capital but not much."

Speaking from his office Wednesday evening, Higgins said he was not sure how how much interest expense the company was seeking to recover in the rate case. He added that the company had taken steps to "scrub out" inappropriate items from the rate case.

Higher interest costs, however, are plaguing Nevada Power, said Jake Mercer, a utilities analyst with US Bancorp Piper Jaffray. The company, he said, has paid $69.4 million in interest costs in the first six months of 2003, up 34 percent from the $51.9 million the company paid in the same 2002 period.

"It was a dramatic increase in interest expense," Mercer said.

The Las Vegas utility asked in its General Rate Case that the increase be instituted in phases, beginning with a 3.4 percent hike on April 1, 2004. That would amount to a $3.61 monthly increase for the average customer using 1,200 kilowatt hours of electricity.

The balance of the increase, if the company's request is granted by regulators, would go into effect on Jan. 1, 2005. That portion of the increase would be offset by the expiration of a 2001 deferred energy rate increase, creating no visible increase for customers.

Under that plan, the utility would recover about $50 million in 2004 and another $92 million in 2005.

"We are trying very hard to make sure that what we do has a minimal negative impact in our customers," Higgins said.

Hay had a more skeptical take on the request to institute the increase in phases.

"That's unusual if not unprecedented," he said. "It's done to make it easier for the PUC to approve a larger increase."

Once implemented, a general rate increase stays in effect until it is adjusted in a future regulatory proceeding. Utilities are required to file general rate cases every two years. In those cases, the company is allowed to recover the cost of building transmission lines and power plants, as well as administrative costs and a return to shareholders.

The other component of electric rates is the price of fuel and purchased power. Those costs are recovered in a so-called "Deferred Energy Rates Case." The company is not allowed to earn a profit on those costs. Nevada Power will file a deferred energy case on Nov. 14.

The typical Nevada Power customer is currently paying an average electric bill of $107.88 a month, statistics from the PUC said. That includes $42.05 for general rates and $65.83 for fuel and purchased power. Since 1990, general rates for that typical customer have risen by $5.35 while fuel and purchased power costs have risen $39.78.

The utility said it has spent $433 million over the past two years to connect new customers, build transmission lines and upgrade power plants. In addition, the company expects to spend $800 million in the coming years to connect new customers and build power plants. Those plants have been proposed in a resource plan currently awaiting PUC scrutiny.

"The capital structure proposed, if approved, will allow us to meet the needs spelled out in the resource plan," Higgins said.

He added that the utility, despite its fragile financial situation, should be able to defer until 2005 the collection of additional revenue. The company -- and its sister utility Sierra Pacific Power Co. of Reno -- has warned of bankruptcy if it is ordered to pay a $336 million judgment to Enron Corp. in bankruptcy proceedings in New York.

"Our financial people have carefully evaluated the cash flow implications of this proposal and they are comfortable that we have the cash to operate successfully," he said.

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