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October 25, 2014

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PUC chief backs bulk of utility’s rate-hike request

A draft order written by Public Utilities Commission Chairman Don Soderberg recommends approval of most of Nevada Power Co.'s $173 million deferred energy rate case. Soderberg recommends it be trimmed by just $4 million.

Nevada Power is seeking $93 million in unrecovered expenses for higher fuel and purchased power incurred over the past year. The company also is seeking an $80 million annual increase to the so-called base tarrif energy rate for higher costs it expects to pay for fuel and power in the future.

The draft order is not final, and is expected to be debated by the full commission at a Wednesday hearing.

The recommended disallowances include a $1.6 million charge for higher contract prices due to the company's poor credit quality -- the product of previous rate case disallowances based on imprudence. Also included was a $1.7 million disallowance for an incorrect revenue adjustment and a $688,041 disallowance because of a billing dispute with Southwest Gas Corp. that is still being contested.

The draft order also recommends that only the base tariff energy rate portion of the request go into effect this year. That move would raise the average residential customer's bill by $4.69 beginning April 1. The deferred energy portion of the request would begin to go into effect Jan. 1 with much of that increase offset by the expiration of a previous rate case collection.

Stock for Nevada Power's parent company, Sierra Pacific Resources, was down 16 cents this morning, trading at $8.37 per share.

The low recommended disallowance is a significant improvement from recent rate cases. In 2002 regulators disallowed $437 million of a $922 million request based on the utility's imprudent practices during the Western energy crisis. That ruling caused Wall Street analysts to cut the company's debt rating to junk status and sparked a financial tailspin.

Last year, a draft order called for the disallowance of $180 million in a $195 million deferred energy case increase request. In deliberations, the PUC ultimately trimmed the disallowance to $47 million.

In the current case, intervenors recommended a moderate approach. Dennis Peseau, a witness testifying on behalf of the Southern Nevada Water Authority and a critic of the company in past cases, indicated that the circumstances were different this year.

"I think the commission is charged with taking a higher ground," he testified. "That is, let's not let the company suffer for a short-term outlook to keep rates down for political or any other reasons. ... You've got to allow them a fair rate of return and give them an opportunity to do it."

The company also is waiting for a ruling on a $133.5 million general rate increase request. A draft order has not yet been issued in that case, and the results are not expected to be as positive for the company.

Nevada Consumer Advocate Tim Hay, who had not seen the draft order yet this morning, said the small deferred disallowance was not a surprise. He added that the "more significant" disallowances were expected in the general rate case.

During testimony in the general rate case, PUC staff said the increase request should be trimmed to about $17 million. Intervenors including the state Bureau of Consumer Protection and the MGM MIRAGE said the utility should actually be refunding money to customers.

In that case, the utility requested 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 requested a higher return for shareholders.

The general rate case also is expected to be decided Wednesday, and Wall Street analysts are watching closely. Analysts have indicated that frequent large disallowances could indicate a "hostile regulatory environment" in Nevada.

In issuing its rating on the company's recent debt issue, Standard & Poor's indicated concern over the rate cases as it affirmed its negative outlook.

"The negative outlook reflects the risks of unfavorable rulings on the general rate and deferred cost cases that could be a major setback to the gradually improving regulatory environment in Nevada,' said Standard & Poor's credit analyst Swami Venkataraman.

If both cases are approved as proposed by the company, 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.

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