Nevada Power news bad for everyone

Kevin Rademacher

Thursday, March 25, 2004 | 11:14 a.m.

After weeks of hearings earlier this year and more than four hours of deliberations on Wednesday, both customers and utility executives got bad news as final orders were issued on two Nevada Power Co. rate cases.

The state Public Utilities Commission approved the utility's recovery of $89 million in a deferred energy case. That amount is for past fuel and purchased power expenses -- about $4 million less than the company requested. The PUC also allowed Nevada Power to raise rates by $80 million annually for higher costs going forward.

That ruling will make up the bulk of an April 1 residential rate increase of about $12, pushing the average bill to more than $116 a month.

At the same time the financially struggling utility saw the commission throw out about $90 million of a $133 million rate increase request that the utility had made in a separate general rate case.

In implementing the deferred energy rate case, only the going forward cost increase will go into effect next month. The balance of the case will be implemented on Jan. 1, when a previous rate case collection expires. At that point, residential rates should fall by about $6.30.

"The commission made some tough choices on the future of electric rates in Southern Nevada," PUC Chairman Don Soderberg said. "We hope that with these orders and a relatively stable wholesale market, electric rates will begin a downward trend in January.

"We also hope that these orders will put Nevada Power on the road to continued financial recovery."

In the meantime, customers are unhappy.

"If Nevada Power is really ailing, why do we have to provide the medication?" asked Ted Mendalski, a Las Vegas resident who spoke at the conclusion of the hearing. "Must we continue to pay for bad management and probably greed?"

Nevada Power has been struggling financially since the PUC disallowed $437 million of a $922 million rate case in 2002. That move caused the company's debt rating to be slashed to junk status. During testimony in the current general rate case, Michael Yackira, chief financial officer of Nevada Power's parent company, Sierra Pacific Resources, said the company required a return on equity of 12.4 percent to attract new investors.

The PUC ruled that the return would be increased from its current 10.1 percent level to 10.25 percent. Yackira this morning said the increase would slow recovery.

"It is a step in the right direction, just not as fast a recovery as we had hoped," he said.

During deliberations on Wednesday, Soderberg had pointed to a return to investment grade in 2007. The company had hoped to see the investment grade debt rating return in 2005. Yackira pointed out that the low rating does bring with it higher costs.

Interest charges on long-term debt for Nevada Power Co. were $142.1 million in 2003, up more than 24 percent from the previous year, the company reported in recent financial reports.

"This (request) was for nothing more than lowering costs to our customers," Yackira said.

The other major disallowance was the refusal to allow the company to include more than $100 million in cash balances in its rate base. By throwing out that request, it trimmed about $15 million from the company's revenue request.

Jake Mercer, an analyst for Piper Jaffray & Co., agreed with Yackira that the move by the commission will slow the utility's recovery.

"While I can agree with some of the rationale on the part of the commission, it is to the long-term detriment of the company," he said.

Stock in Sierra Pacific was down more than 6 percent this morning, trading at $7.55, off 50 cents.

Commissioners appeared to be looking for an additional disallowance in the deferred case, pointing to the testimony of Paul Wieglus, a consultant hired by PUC staff to examine the utility's gas purchasing strategies. Wieglus had recommended disallowing between $13 million and $30 million based on potentially imprudent practices on the part of the company.

Commissioners Adriana Escobar Chanos and Carl Linvill asked if a solid disallowance number could be extracted from Wieglus' testimony. Policy advisers for the commission, however, indicated that his numbers were difficult to support.

That fact drew harsh criticism from Soderberg, who referenced staff's use of unqualified experts.

"I mentioned experts who were not experts. This is one of those individuals," he said, pointing out that during testimony the witness admitted to inexperience in the Western markets and that he failed to make key calculations. "We cannot take recommendations of somebody who does not know what's going on."

Nevada Consumer Advocate Tim Hay said his Bureau of Consumer Protection is now reviewing the orders and could contest the missing a disallowance on the gas strategy.

Overall, he said the outcome of the case was "generally favorable to the company."

Hay will have 15 days to file for a reconsideration of any contested items in the case.