Nevada Power says proposed rate delay would mitigate effect of hike

Kevin Rademacher

Thursday, Feb. 17, 2005 | 10:39 a.m.

With hearings into a $115.9 million rate increase request just a week away, Nevada Power Co. is defending a plan to delay the increase by a year.

That strategy, critics argue, will lead to large interest charges ultimately paid by customers.

In testimony filed with the state Public Utilities Commission on Wednesday, Michael Yackira, chief financial officer for Nevada Power's parent company, Sierra Pacific Resources, said the plan will best serve customers.

"I believe that the company's proposals strike a reasonable balance by providing a long-awaited, albeit modest rate decrease in April 2005, while still ensuring the recovery of all existing balances within the timeframe established by the governing statute," his testimony said.

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.

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. Yackira said when the application was made in November that the actual interest rate applied will be about 8.5 percent, based on calculation anomalies.

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 his new testimony, Yackira said that the plan is still the best for customers.

"I agree that (the balance) will continue to accrue carrying charges until it is fully paid," the testimony said. "Those carrying charges will not fully compensate shareholders for the cost of capital that will be used to fund the balance. However, I believe that the costs for customer and for shareholders are a reasonable investment in providing rate stability."

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.

Yackira, however, said that a recent decision by the PUC to allow customers to use future projections in setting the going-forward rate -- instead of just historical costs -- should reduce large balances in the future.

"The company fully supports and appreciates the commission's actions ... to better match BTER costs and BTER revenues in an effort to reduce future deferred energy balances," his testimony said.

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. Nonresidential customers would see rates jump by 9.02 percent.