PUC consultants claim utility purchases imprudent

Kevin Rademacher

Thursday, Feb. 19, 2004 | 11:18 a.m.

A pair of consultants hired by the state Public Utilities Commission came under fire on Wednesday as hearings into Nevada Power Co.'s $173 million general rate increase request moved into its second day.

Paul Wieglus and Arturo Vivar were hired by the PUC to examine the utility's risk management practices associated with electric and natural gas purchases.

Wieglus has recommended disallowing from $13.7 million to $30.1 million for questionable natural gas purchases. Vivar recommended disallowing $9.2 million for similar electric buys.

Nevada Power attorney Elizabeth Elliot was quick to point out that both consultants were former employees of the notorious energy trader Enron Corp. While noting that neither were involved in the Western energy crisis, the point hung over their testimony.

Elliot also pointed out that Vivar had never testified in a regulatory hearing prior to arriving in Nevada this week. She also delivered harsh criticism over Wieglus' apparent lack of cooperation in turning over background information on himself and his associates as well as work papers supporting his testimony.

A PUC spokeswoman declined comment on the performance of the commission's witnesses or their ties to Enron at this time.

In testimony filed prior to the hearings, Wieglus said that while the company put in place adequate risk management controls, it exceeded those purchasing control limits by as much as 150 percent.

He also said Nevada Power was denying that its weak credit position affected its ability to enter into financial hedging transactions. That "resulted in the company imprudently managing its natural gas risks and costs."

He concluded that the company's failure to execute and comply with its own risk management controls was an "inappropriate action and imprudent management, causing ratepayer cost increases as a result of a failure to effectively manage risks."

Elliot pointed out in the hearing, however, that the company could have taken actions contrary to Wieglus' opinion and still been prudent.

"Do you believe that there may be more than one prudent option?" she asked.

Wieglus said, "Yes."

Nevada law allows utilities only to recover costs that were prudently incurred.

Also on Wednesday, intervenors concerns over Nevada Power's proposal to phase in the rate case over three years began to materialize. In testimony filed prior to the hearing, participants criticized the company for asking to collect this year only $14 million the company is seeking for fuel and power costs during the 12 months ended Sept. 30, 2003.

The balance of the $93 million request will be collected in 2005 and 2006.

Also criticized was the company's request for an additional $80 million a year for expected increases in future fuel and power costs. If the company had used standard regulatory calculations, the annual request would have been $171 million.

As testimony progressed, intervenors implied that delaying the recovery of past costs and under-recovery of future expenses will create higher bills for customers later. Those costs, intervenors said, are incurring additional "carrying costs," which include interest and other expenses the company is saddled with while maintaining the balances.

Fred Schmidt, an attorney representing the Southern Nevada Water Authority, said the current $93 million deferred energy balance includes $23 million in carrying charges.