Thursday, Aug. 5, 2004 | 10:50 a.m.
Nevada Power Co. is attracting widespread support -- even from frequent critics -- for its $558 million plan to purchase and complete and unfinished power plant from Duke Energy of North Carolina.
In testimony filed on Wednesday with the state Public Utilities Commission, the Bureau of Consumer Protection, the Southern Nevada Water Authority and PUC staff members supported the purchase. The parties, however, requested that the commission reject or modify a request from the utility for a 5 percentage point incentive increase in the company's return on equity associated with the new plant.
Phil Williamson, an economist for the BCP, called the return on equity increase "excessive, unfair and unreasonable to ratepayers."
The requested incentive on the 1,200 megawatt power plant alone would be worth $248 million over the next 20 years, Williamson said. He added that the utility indicated that it would have pursued the project without any incentive.
Williamson's testimony also indicated concern that the incentive would set a precedent for the company to seek similar incentive returns on so-called "critical plant additions." If that were true and the incentive were more widely applied, he testified, the company could collect an additional $1.2 billion from ratepayers by 2026.
He also pointed out that the PUC in March determined that a fair return on equity was reasonable.
"If 10.25 percent provides a balance between shareholder interests and ratepayer interests, the request by (Nevada Power) for a return on equity of 15.25 percent, almost a 50 percent increase in return on equity, destroys this balance and imposes an unfair burden on ratepayers," Williamson said.
PUC staff testimony recommended cutting the incentive from 5 percent to 3 percent, and the Southern Nevada Water Authority recommended cutting the incentive to 1.75 percent.
In making his recommendation for the 1.75 percent incentive, Dennis Peseau, an economist for the water authority, indicated that the move was positive but not so extraordinary as to merit such a high increase.
"Management acted responsibly and positively, but not unusually," he said.
Peseau also indicated that the incentive would be seen by financial markets as a sign that the commission recognizes improved management decisions at the utility.
Also on Wednesday, the PUC gave preliminary approval to the Temporary Renewable Energy Development trust designed to give renewable developers additional guarantees that they will receive a return on their investments.
The commission staff will now begin working out the details and regulations required to implementing the plan, which also must receive approval from the commissioners.
Developers have complained that because of the shaky financial condition of Nevada Power and Sierra Pacific Power Co. in Reno, financiers had been hesitant to fund the deals to build renewable energy power plants in the state.
Under the proposal, which was a compromise between state officials and renewable developers and the utilities, payments from ratepayers earmarked for renewable energy would go directly into the trust and then be paid out to developers.
Under a 2001 law handed down by the Nevada Legislature, an increasing percentage of the state's electric utilities' portfolios must come from renewable sources. Lack of financing and the resulting lack of new resources have prevented the utilities from meeting those standards in the initial years of the mandate.
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