Wednesday, Aug. 24, 2005 | 11:52 a.m.
Bad news has gotten worse for customers of Nevada Power Co.
In June the Las Vegas electric utility asked the state Public Utilities Commission for permission to raise rates by $62 million annually, citing higher natural gas costs as a leading culprit in rising expenses.
Testimony from PUC Financial Analyst David Chairez said increases in natural gas prices since the company's initial filing indicate that the company's original filing is as much as $84.8 million too low.
Natural gas is used by the electric utility to fuel power plants. The cost of the fuel -- as well as power purchased on the open market, most of which is generated at natural gas-fired plants -- is recovered through a base-tariff energy rate. If that rate is set too low, the unrecovered balance piles up in a deferred energy account and accumulates carrying costs, such as interest.
Should the company under-recover its expenses to the tune of $84.8 million, carrying charges on the balance would be $13.8 million, Chairez's testimony said. If the deferred balance was recovered over three years, as the commission has done in some large cases, the carrying charges could swell to $25 million.
Carrying charges are ultimately paid by the customer.
Nevada Power's June filing would raise the average residential customer's monthly electric bill by 3.8 percent, or $4.86, to more than $128. An $84.8 million adjustment could more than double that spike, meaning a possible monthly increase of about $10.
Nonresidential rates, under the original plan, would increase about 3.5 percent. The difference between residential and nonresidential rate movement is attributed to higher peak demand for residential air conditioning during the hottest summer months.
The company is seeking to put new rates in effect Oct. 1.
Additional testimony filed by Philip Williamson, technical staff manager of the state Bureau of Consumer Protection, also said that "in the past two weeks the market price for future deliveries of natural gas has increased substantially." He indicated, however, that the effect of those swings is unknown since the utility could already have a portion of its fuel needs locked in at lower prices, and future prices could drop again.
In March, the PUC allowed Nevada Power to recover $115.9 million in past fuel and purchased-power costs. That agreement raised the average residential customer's monthly bills by 93 cents, from $122.33 to $123.26. That amounts to a 0.76 percent jump. Nonresidential rates were cut by 1.71 percent.
Those rates went into effect April 1.
Amid turbulent natural gas markets, Nevada Power has received permission from the PUC to study the feasibility of building a new coal-fired power plant. Such plants fell out of favor due to pollution concerns, but industry experts now point to cleaner technology as an alternative amid higher natural gas prices.
Still, Nevada Power will be putting into service the massive 1,200-megawatt, natural gas-fired Chuck Lenzie Generating Station by next summer.
The Lenzie plant also will be key in replacing the coal-fired Mohave power plant near Laughlin that will be taken out of service Dec. 31 because of pollution concerns. Nevada Power owns a 14 percent stake in Mohave and receives about 10 percent of the power it needs to serve peak summer demand from the plant, Securities and Exchange Commission documents said.
The company said the first unit of the Lenzie plant would be fired for testing late this month and be complete by Dec. 31. The second unit would begin testing in October and be in service by March 31.
"Natural gas is the single most important variable that determines Nevada Power's fuel and purchased-power costs -- especially with the addition of the 1,200-megawatt Chuck Lenzie Generating Station that uses natural gas and the loss of the Mohave Generating Station that uses coal in 2006," Chairez's testimony said.
Despite the new power plant's thirst for expensive natural gas, the company has indicated that the new plant will use the fuel more efficiently.
Hearings on the rate case are scheduled to begin Tuesday at the PUC hearing room in Las Vegas, 101 Convention Center Drive, Suite 250.
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