Friday, August 08, 2003
Copyright © Las Vegas Review-Journal

UTILITIES: Advocate to appeal rate increase

Nevada Power case to be challenged in court

State Consumer Advocate Tim Hay is preparing to file an appeal in state District Court of regulators' May 13 approval of a $148 million rate increase for Nevada Power Co.

When the Public Utilities Commission approved the rate increase it let the utility recover the $148 million in anticipated power and fuel costs over three years. The PUC offset the increase in the initial year through an adjustment for anticipated lower power and fuel costs this year, reducing rates temporarily by 6.3 percent.

In the May rate case, Nevada Power had sought to recover $195 million for past wholesale power and fuel it purchased for its own generation plants. The PUC trimmed $47 million of that amount.

In his lawsuit, Hay, chief of the attorney general's Bureau of Consumer Protection, will argues that the PUC violated state law and should have disallowed another $106 million, thus cutting the rate increase to $42 million.

Representatives of the PUC and Nevada Power declined to comment on Hay's planned appeal, saying they hadn't seen the lawsuit.

A copy of Hay's lawsuit, which is scheduled to be filed today in state District Court in Las Vegas, argues that the PUC didn't follow the law and failed to limit Nevada Power's recovery to fuel and power purchases that were prudent.

"The commission has no discretion to allow imprudent costs to be passed on to ratepayers," Hay says in the lawsuit. "Thus, any commission decision which results in placing imprudently incurred costs in rates is unlawful and constitutes an abuse of discretion."

In the May rate case, the PUC reversed a decision reached last year. In that decision, regulators trimmed $180 million from Nevada Power's request, saying the utility missed an opportunity to buy electricity at favorable wholesale prices from Merrill Lynch or other suppliers.

The Merrill Lynch contract, had it been signed, would have continued into the period covered in this year's Nevada Power rate case, the lawsuit states.

Yet, the commission this May decided to depart from its earlier decision and to reject arguments to disallow expenses related to the Merrill Lynch issue.

State District Judge William Maddox upheld that PUC ruling, but his ruling has been appealed to the Nevada Supreme Court.

Yet, PUC Chairman Don Soderberg and Commissioner Richard McIntire reversed positions on the Merrill Lynch issue, Hay said. The two commissioners rejected a proposal from Commissioner Adriana Escobar Chanos which would have disallowed $70.7 million from the rate increase this year because of a Merrill Lynch adjustment.

Hay said the commission should have accepted the proposed decision written by Escobar Chanos, who presided over hearings in the rate case.

"We clearly think that the evidence in the record overwhelmingly supports Adriana Escobar Chanos's draft (order), which was very well-reasoned and very well-written," Hay said.

Hay also cites Soderberg's statements that a big cut in the rate increase could cause Nevada Power to file for bankruptcy.

The law doesn't allow the commission to consider the financial impact on the company in setting rates for power and fuel purchases, only whether purchases were prudent, Hay said.

During the PUC meeting in May, Soderberg also cited a news story about Dan Gordon, the Merrill Lynch trader who proposed the contract to Nevada Power. The story stated that Allegheny Energy, which bought Merrill Lynch's power trading operations, fired Gordon because of bogus trades. Soderberg said that hurt Gordon's credibility as a power trader.

Hay argues that the information about Gordon was not part of the record in the hearing and that Soderberg was prohibited from going beyond evidence from the hearing.

During the rate case meeting, McIntire mentioned an earlier private meeting with Walt Higgins, chairman of Nevada Power's parent, Sierra Pacific Resources. McIntire said he was impressed with the way Nevada Power had improved its fuel and power purchasing practices this year.

Hay argues the commissioner shouldn't consider information about changes after the rate case was filed.

The consumer advocate said Nevada Power filed its appeal of the 2002 rate case in Carson City, but Hay said he is filing his appeal of this year's decision in Las Vegas.

"We want to give the Clark County ratepayers the ability to be in the courtroom when the case is argued," Hay said. "That seems only fair to us."