Las Vegas Sun

March 28, 2024

Critics say utility’s land-sale profit must figure in rates

In August, Nevada Power Co. auctioned off 22 acres along Flamingo Road. The electric company made $24.8 million on the sale and touted it as a victory for ratepayers.

This week, parties in Nevada Power's $133.5 million general rate case hearings are asking why those gains were not included in the company's calculations.

Had the sale been included, that annual revenue request would have been trimmed by $6.3 million, said Eric Witkoski, senior deputy attorney general representing the state Bureau of Consumer Protection.

Matt Davis, Nevada Power's vice president for distribution services, testified that the land sale was not included in the case because the transaction closed beyond the Sept. 30 certification date for the case's test year.

That detail drew sharp criticism this week from critics of the utility's case.

Kirby Lampley, senior policy advisor for the state Public Utilities Commission, pointed out that in the company's last general rate case, Nevada Power was allowed to recover the cost of a new billing system. Installation of that system, however, was not completed until after the certification date for the case.

Lampley said that including the land sale could be a "matter of equity."

Marti Ashcraft, an attorney representing casino giant MGM MIRAGE, asked Davis if he disagreed with Lampley's assertion.

"I do respectfully disagree with that," he said, pointing out that work was actually being done on the billing system during the test period. "So to look at that compared to a land sale, where there was no activity during the test period because the land sale closed actually subsequently to the test period ... is really comparing apples and oranges."

Ashcraft responded that the auction of the land and the negotiations were, in fact, conducted during the test period.

"All I'm trying to say is when you enter into a land sale you don't have any guarantee that the land sale will actually take place," Davis said.

The closing date for the auctioned land was originally set for Sept. 10, within the test period. The closing was delayed until Oct. 27. Company officials outside of the hearing said the closing was delayed "at the request of the buyer."

"Then the result is that stockholders are going to get the benefit of that gain," said Alaina Burtenshaw, staff counsel for the PUC.

Davis responded that they would only realize the gain until the next general rate case when the transaction was included. But he also said that the proceeds of the sale will be amortized over the next two years.

Burtenshaw responded that the timing means ratepayers will see little, if any, benefit from the sale.

"So at the end of a two-year amortization period, if you file your next rate case in two years, there would be no unamortized balance or a very small one," she said, adding that the company could have extended the certification period through the end of October.

The 22 acres were won at auction by Chicago-based Newcastle Properties LLC. When the closing date drifted beyond Sept. 10, the advertised mandatory closing, two parties that submitted losing bids for two parcels included in the 22 acres filed a lawsuit against Nevada Power.

Vegas Paradise LLC and Maryland Crossing Ltd. are seeking to have their bids accepted and to gain control of the property. The separate lawsuits have been combined and are pending in U.S. District Court in Las Vegas.

In other testimony, Rick Hackman, manager of the PUC's Consumer Complaint Division, questioned Nevada Power's customer service record since the 1999 merger with Sierra Pacific Power Co. of Reno.

He pointed to a J.D. Power and Associates customer satisfaction survey that showed "a fairly rapid decline in the level of customer satisfaction."

"Beginning in 2000, the survey ranked Sierra Pacific Resources the seventh highest among Western utilities, which was quite good," Hackman's pre-filed testimony said. "The following year, however, they began to plummet."

While Hackman did not associate a dollar value with the poor rankings, he advised the commission to take the issue into account when making a recommendation on the company's request to raise rates.

"In my view, the companies' pledge to maintain or improve customer service has been an unfulfilled promise," he said. "I simply ask the Commission to take this testimony into consideration when making a decision on what level of merger costs should be allowed into rates."

archive