Official: Phasing in power rate increase could increase cost

Kevin Rademacher

Wednesday, Feb. 2, 2005 | 10:53 a.m.

Intervenors participating in Nevada Power Co.'s proposal to raise rates by $115.9 million sounded off in regulatory filings on Tuesday.

Drawing fire from the likes of the Southern Nevada Water Authority and the state Bureau of Consumer Protection was the Las Vegas electric company's proposal to phase in the rate increase.

As part of the company's proposal, it asked for permission to delay the collection of the $115.9 million until April 2006 in an effort to "mitigate the impact of increasing fuel prices on customers," the company's original application said. That means that during the yearlong delay, a portion of the $115.9 million -- about $40 million -- will accrue interest, which also will be paid by customers.

Philip Williamson, technical staff manager for the BCP, recommended that the Public Utilities Commission reject the utility's plan to delay the rate increase, citing recent concerns from regulators that consumers are paying too much interest.

"Delaying the implementation ... for almost 14 months ignores this concern and increases costs to ratepayers," Williamson's testimony said, adding that speeding up the recovery of the $115.9 million "saves ratepayers in excess of $12 million in carrying charges."

Interest will pile up at a rate based on the company's overall rate of return, which was set by the PUC this year at 9.03 percent. Michael Yackira, chief financial officer for Nevada Power's parent company, Sierra Pacific Resources, said when the application was made in November that the actual interest rate applied will be about 8.5 percent, based on calculation anomalies.

At the time, Yackira said the interest charges over the year would likely be about $3 million.

Testimony from David Chairez, a financial analyst with the PUC staff, said the delay would cost ratepayers about $15.1 million in carrying charges. Normalizing the collection time, Chairez said would save ratepayers about $8.2 million.

In its rate case request, which incorporates an earlier petition the company made with the PUC, Nevada Power asked to have an old rate case balance extended from January to March. At that point, the old balance would expire and be replaced with another previously approved, but smaller, balance, providing a 1 to 2 percent rate decrease for all customer classes on April 1.

That would reduce average residential monthly bills from $122.33 to $121.18 until the newly requested balance is instituted in April 2006.

Included in those rates is a requested $85 million increase in the base-tariff energy rate (BTER) -- which is designed to cover future costs for fuel and power needed to serve customers. If that rate is set accurately, it would mean little or no need to collect additional revenue next year.

Yackira said soaring natural gas prices have made setting the BTER difficult in recent years.

Each of the parties intervening in the case have expressed concern that Nevada Power is setting the rate too low, which would lead to another large unrecovered balance to be collected next year, along with corresponding interest charges.

Dennis Peseau, a consultant for the Southern Nevada Water Authority, said that the utility should be required to set the going-forward rate to collect $135.7 million.

If the plan to delay recovery of $115.9 million is rejected by regulators, and the recovery begins in April 2005, residential rates are expected to jump 7.56 percent, the company's filing said. Non-residential customers would see rates jump by 9.02 percent.