Nevada Power profit level at issue

Kevin Rademacher

Monday, Jan. 19, 2004 | 10:45 a.m.

The staff of the state Public Utilities Commission and an economist for the state Bureau of Consumer Protection on Friday recommended pruning Nevada Power Co.'s $142 million rate increase request.

The company, which asked for the increase as part of a general rate case, had sought a return on equity of 12.4 percent, up from the 10.1 percent it currently earns.

Ronald Knecht, an economist for the PUC, recommended a smaller 10.7 percent rate of return. That would cut the Las Vegas electric company's request by $23.3 million.

David Parcell, an economist hired by the BCP to analyze Nevada Power's case, said the utility should be allowed a rate of return of between 9.25 percent and 10.5 percent.

A general rate case allows the utility to request from regulators additional revenue for the cost of building and maintaining power plants and transmission lines as well as construction costs associated with meeting customer growth. The company also is allowed to request a return for shareholders.

If approved by regulators, Nevada Power's general rate case request would increase the average residential bill by 9.8 percent over the next two years. The company has proposed collecting $50 million this year, beginning April 1, and the balance in 2005.

Chief among the criticisms cited by Parcell are the higher interest costs Nevada Power is paying since its credit rating was cut to junk status in 2002, following the PUC's move to bar the utility from recovering $437 million in fuel and power purchases deemed imprudent.

Parcell said the utility is paying 10.88 percent for $250 million in long-term debt. He said higher-rated utilities are paying just 8 percent for similar debt.

"The increase in capital costs should not be borne by ratepayers since the downgrading resulted largely from the Commission's determination that the company acted 'imprudently."' Parcell said in his testimony. "If the commission were to allow Nevada Power to pass along these costs to ratepayers it would be tantamount to a reversal of its decision in the deferred energy dockets."

The testimony on return on equity is one of three components to the general rate case. Parties in the case also will respond to Nevada Power's request to increase its revenue requirement and modify its rate design.

Also on Friday, PUC Commissioner Adriana Escobar Chanos ruled in favor of Nevada Consumer Advocate Tim Hay's objection that Nevada Power erred in a recent notification about the rate case sent to customers in their bills.

That notice spelled out only the $50 million rate increase planned for this year and did not explain the additional $92 million coming in 2005. Under Nevada Power's plan, most residential customers will pay an additional $4 per month this year. The increase next year would be offset by the expiration of a previously approved rate case collection.

With Chanos' ruling, Nevada Power must now inform customers through new mailings and newspaper advertisements prior to the Feb. 3 opening of the PUC's hearings into the rate case.

In a separate case, Nevada Power is seeking an additional $173 million increase of so-call deferred rates to cover higher cost of past and future fuel and power purchases.

If both cases are approved the average customer's monthly bill would rise from $103.81 to $114.18 on April 1. Based on the phase-in strategy for the rate increases proposed by the utility, rates would rise again in April 2005 to $116.51.