PUC releases draft order for Nevada Power plant purchase

Kevin Rademacher

Wednesday, Sept. 15, 2004 | 11 a.m.

Nevada's top utility regulator on Tuesday recommended the approval of Nevada Power Co.'s $558 million plan to purchase and complete an electric power plant started by Duke Energy.

The draft order -- which will be voted on by the three-member Public Utilities Commission on Friday -- also proposes an incentive plan that gives financial rewards to the company for rapid completion of the plant. It would also penalize the company for construction delays.

In the order, PUC Chairman Don Soderberg recommends a giving the utility an additional return on equity of 3 percent for some costs associated with the new plant.

The utility had sought a 5 percent ROE incentive.

In the draft order, Soderberg praised the plan for the 1,200 megawatt power plant, located about 20 miles north of Las Vegas, for increasing the level of power generated by the company. Nevada Power currently generates only about 40 percent of the power it needs to serve its customers.

The balance of the power is purchased on the open market, a strategy that proved devastating during the Western energy crisis. Soderberg cited concerns over possible capacity shortages in 2006 as a motivation for bringing the new plant online quickly.

In order to maximize the benefit to customers, Soderberg also proposed increasing the 3 percent ROE incentive by as much as 1 percent if both of the plant's units are online early -- March 21, 2006, for the first unit and June 30, 2006, for the second unit. Also, for each month the company is late, the 3 percent inventive will be reduced by 0.125 percent.

Soderberg also cut the company's proposed construction cost estimate from $376 million to $367.6 million, eliminating $8.4 million from a $42 million contingency estimate. The order, however, allows the company to petition the commission for excess costs to be included in the incentive structure.

The draft order also recommends that the $182 million purchase price of the plant be excluded from the ROE incentive structure.

"The commission believes an incentive is warranted for the construction costs of the facility to encourage on-time construction of the facility," the draft order said. "There is no such rationale for providing an incentive on the acquisition cost of the facility."