Editorial: Blocking a power play

Sunday, March 11, 2007 | 7:43 a.m.

A n Assembly committee has passed legislation that would require utilities to prove that fuel purchases are financially sound decisions before being allowed to pass on the costs of such purchases to consumers.

Assembly Speaker Barbara Buckley, D-Las Vegas, told members of the Assembly Commerce and Labor Committee on Wednesday that the legislation is designed to prevent the repeat of a Nevada Power rate increase in 2006. That increase was caused by a Nevada Supreme Court decision that allowed the utility to charge customers for $180 million of $922 million in fuel purchases that it made during an energy crisis that hit the West a few years ago. That crisis, some may recall, resulted in rolling blackouts and allegations of shady market dealings by such companies as the now-bankrupt Enron.

Nevada Power already had recovered $486 million of the money it spent during the crisis, which had been passed on to the power company's customers with the state Public Utilities Commission's approval in 2001. In allowing the power company to recoup an additional $180 million last year, the high court ruled that there is a presumption that utility companies are acting in good faith and being prudent in filing rate increases, a recent Associated Press story reports.

But Buckley said that line of reasoning doesn't reflect the intent of a 2001 state law, which prohibits the state utilities commission from allowing rate hikes for fuel purchases that were "managed or performed imprudently by the electric utility." The measure approved by the Assembly committee last week is designed to make it clear that utility companies must prove that they are being judicious in making fuel purchases for which they are going to ask the public to pay.

As the Enron scandal clearly illustrated, it would be naive to simply assume that utility companies' purchases and the resulting rate increases are always penny-wise and in the best interests of customers. Sometimes, they are just plain bad decisions. And when a utility makes a poor financial decision, the utility - not its customers - should have to pay.