Commercial versus residential rates considered in hearing

Kevin Rademacher

Friday, Feb. 13, 2004 | 11:22 a.m.

Hearings on Nevada Power Co.'s $133.5 million general rate case wrapped up on Thursday, and for the waning hours of testimony attention was largely diverted away from the Las Vegas utility.

Instead of debating the company's request to increase its revenue, several interveners in the case argued against what has become known as the residential subsidy. Those interveners -- mostly large commercial customers -- pointed to a rate structure that shifts a disproportionate burden on commercial customers.

If the proposed rate case is approved in its current form, commercial customers would pay an additional $106 million a year that would otherwise be paid by residential customers if rates were based on the cost of service incurred by the utility.

Witnesses for the Department of Energy, MGM MIRAGE and the Southern Nevada Water Authority all testified that steps should be taken to reduce the subsidy.

Anne Marie Bellard, an analyst for the Public Utilities Commission, also testified that rates should be normalized.

"As a matter of policy ... I believe we should move toward cost-of-service based rates," she said. "But that is a matter for the commission."

Those testifying against the subsidy expressed concern that the amount being shifted from residential to commercial bills was growing at a rapid pace.

Mark Garrett, a utilities expert testifying on behalf of MGM MIRAGE, said over the last three general rate cases the subsidy climbed from $42 million to $62 million to $83.4 in the 2001 rate case.

"The subsidy is the highest it has ever been in the 15 years I have been testifying here," said Dennis Pessau, an economist testifying on behalf of the SNWA.

Nevada Power said it proposes rates based on current policy trends dictated by the PUC.

"We are fairly neutral on the issue," she said, adding that the commission takes many factors into account when allocating rate increases, including the state of the local economy.

The shift of focus away from the utility in the hearing's final day was in contrast to tense testimony Wednesday evening when interveners grilled a company executive on a sensitive report that found its way into the utility's filings.

The report, a forecast for credit rating agencies prepared in June 2003, appeared to undercut the company's current rate case. In that report, Nevada Power told the agencies that it only expected to gain $37 million in additional revenue and a return on equity of 11 percent through the current rate case.

The company has asked for $133.5 million in additional revenue and a 12.4 percent return on equity.

"In hindsight, we shouldn't have produced this document without asking for confidentiality," said Michael Yackira, chief financial officer for Nevada Power's parent company, Sierra Pacific Resources.

He went on to point out that the document was prepared well in advance of the rate case and prior to receiving approval of a resource plan that called for the construction of two new power plants.