Tuesday, May 13, 2003
Copyright © Las Vegas Review-Journal

Nevada Power wins most of its rate case in surprise vote

State regulators Monday voted to give Nevada Power Co. most of what it wanted in its latest rate case, while giving the utility's customers even more than they expected.

In a decision that stunned most rate case participants and that still needs to be formally approved during a Public Utilities Commission meeting today, the PUC agreed to reduce Nevada Power's request to recover $195 million in past fuel and energy costs by just $47 million.

At the same time, the commission decided to trim the company's overall rates by 6.3 percent, up from the 5.3 percent reduction the utility was proposing. That means typical residential customers, who use an average of 1,250 kilowatt hours a month, would see their bills drop to approximately $108, a monthly savings of $7.50, not $6.

Despite the rate reduction, intervenors who represented customers in the case were discouraged, having read a draft proposal issued Sunday that would have disallowed most of the $195 million the company spent last year on fuel for generating electricity and wholesale power.

Commissioner Adriana Escobar Chanos, who presided over the rate case, wrote the draft order which disallowed all but about $20 million of the $195 million in recovery costs because of what she said were imprudent power and fuel purchases.

The other two PUC members, however, disagreed with that conclusion and want Nevada Power to recover $148 million in past fuel and energy costs over the next three years.

In addition, the commission lowered part of the rates by reducing Escobar Chanos' projections for fuel and power expenses over the next year.

That could mean higher rates for customers in the future if fuel costs are higher than the new projections. Nevada Power will be able to seek to raise rates next year if that ends up being the case.

In arguing for allowing Nevada Power to recover most of its fuel costs, PUC Chairman Don Soderberg expressed concerns about bankrupting the company. He also questioned the credibility of a witness hired by the PUC staff and wondered how much of the rate cut was based on hindsight.

Commissioner Richard McIntire, who last year urged the PUC to deny granting any rate increase to Nevada Power, surprised many by supporting much of Nevada Power's rate case this year.

McIntire acknowledged that he called Nevada Power executives the "Keystone Kops" of utility managers last year in a decision he called "tough love."

Since then, however, he said the "Keystone Kops have been disbanded." He complimented the utility company for improvements in power and fuel purchasing since then.

Following the rate decision last year, McIntire said he explained his criticism in a private meeting with Walt Higgins, chairman and chief executive officer of Sierra Pacific Resources, parent of Nevada Power.

"I see that all the concerns that I expressed to them are being addressed," McIntire said. "They are very good crisis managers."

Higgins declined to comment on the PUC decision Monday, noting that the commission will make a final ruling today at 1:30 p.m. But he said he was receptive to commissioners' comments.

"I listened very intently to all the commissioners, the concerns that were raised and compliments that were paid," Higgins said. "I took them to heart."

State Consumer Advocate Tim Hay, however, said he was "exceptionally disappointed. It amounts to giving $125 million to the company. There's an absolute prohibition against passing (imprudent power and fuel purchase) costs on to the ratepayers."

He added: "It seems rather inconceivable that the commissioners reduced the recommendations of the presiding officer over the case by nearly 75 percent."

Soderberg said he was worried that disallowing more than $90 million to $100 million of the request could force Nevada Power into bankruptcy, which could disrupt power service and cause utility workers to lose their jobs.

Still, Escobar Chanos stood firm in her conviction that Nevada Power made imprudent power and fuel purchases.

"I think this (case) is replete with information on the imprudence of these actions," she said. "There was no check and balance. There was no direction from upper management."

One of the biggest changes to the draft order came when McIntire and Soderberg rejected Escobar Chanos' proposal to cut $70 million from rates. She based that proposal on the conclusion that Nevada Power passed up an opportunity to buy wholesale power from Merrill Lynch or another supplier at low prices before the Western energy crisis sent prices soaring. The commission disallowed a portion of the rate case last year, based on this conclusion but it changed its position in the current case.

Soderberg complained that the disallowance was based on an offer from energy trading executive Dan Gordon. The chairman pointed to a recent news story that Allegheny Energy fired Gordon for doing sham power transactions with Enron Corp.

"Can I find imprudence in this case based solely on e-mails from this individual?" Soderberg asked. "I think I need more."

Escobar Chanos also favored reducing Nevada Power's rates another $35.4 million related to natural gas hedging or risk reduction expenses. Over two days, the utility bought a number of financial hedges that locked in a part of the price when prices were high, rather than following its policy of buying over time, she said.

Soderberg, however, said Nevada Power was forced to move quickly, because it was relying on a regulatory order to sell its power plants. Nevada Power needed to buy fuel for its power plants when the Legislature stopped the plant sales, Soderberg said.

In a related matter, Sierra Pacific Power, another subsidiary of Sierra Pacific Resources, agreed to deduct about $45 million from the amount it recovers for fuel and power expenses.