Southern Nevada electric customers can expect to pay about 9 percent more if a $180 million award issued Thursday by the Nevada Supreme Court in favor of Nevada Power Co. is collected over one year.
Analysts, however, say its impossible to determine exactly how much rates will increase and how long the rate increase will last based solely on the unanimous court decision.
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The state's high court ruled that Nevada Power Co. is entitled to recover $180 million in past expenses for fuel used in power generation and wholesale power expenses.
Nevada Power should recover the money, the court ruled, because the Public Utilities Commission was wrong to disallow or reject $180 million of a 2002 rate case based on Nevada Power's failure to buy power from Merrill Lynch or another supplier at low rates before the Western energy crisis sent prices soaring.
The commission could spread the increase over three years and reduce the rate shock.
However, the commission could also grant Nevada Power interest on the $180 million for the four years since the commission reached its decision in the case. That could bring the total to more than $260 million if the commission uses the interest rate it applies to most Nevada Power rate cases, said Eric Witkoski, chief of the attorney general's Bureau of Consumer Protection.
Witkoski maintained, however, the utility is not entitled to interest on the $180 million under the law.
Michael Yackira, chief financial officer of Nevada Power parent Sierra Pacific Resources, said he did not know whether Nevada Power would ask for interest rate expenses over the past four years.
In the 2002 utilities rate case decision, the utilities commission slashed a proposed $922 million Nevada Power rate increase to $486 million, concluding that Nevada Power made imprudent or unwise purchasing decisions on wholesale power and fuel for power plants. The court upheld the utilities commission's decision in all but $180 million of the $437 million in disallowances.
"We are pleased that in its review of a large and complex record that the Nevada Supreme Court unanimously found that the commission's decision is legally sound on all but one issue," PUC commission spokeswoman Kristy Wahl said in a statement.
Witkoski said it "was not a good decision" by the appeals court and called it "very unfair to ratepayers."
Yackira disagreed.
"We're pleased with the court decision on the Merrill Lynch (issue), and we're grateful for the court's careful consideration of all the issues," he said.
Richard McIntire, a commissioner who voted to reduce Nevada Power's rate increase in 2002, criticized the court ruling.
"I just think the Supreme Court got it wrong because they don't understand the legislative history," McIntire said.
He cited the court's comments on Senate Bill 438, which in 1999 deregulated electric utilities such as Nevada Power, and Assembly Bill 369, which restored regulation two years later. The court argued the second bill benefited consumers by restoring regulation.
The re-regulation bill "rescued the utility, not the consumer," McIntire said. Nevada Power faced a rate cap under the deregulation bill and failed to lock in its costs before the energy crisis pushed the costs far in excess of the rate cap, he said.
The electric utility had been speculating on power prices and saw its $1 billion paper gain turn into a potential $1 billion loss in a deregulated market, McIntire said.
Former Consumer Advocate Tim Hay said the court misinterpreted the law. The court decision puts the burden on rate increase opponents to prove Nevada Power was imprudent rather than requiring the utility to prove it was prudent, Hay said.
"Obviously, the monopoly is in the catbird seat in terms of data and analysis of what they did," Hay said. The court ruling "opens the door to much further mischief down the road on both gas and electric (cases)."
The Legislature easily could correct the decision by enacting a law making it clear that the utility must prove it made wise purchases of fuel and power, Hay said.
State Sen. Dina Titus, a Democratic candidate for governor, said voters are angry as they watch shares in Nevada Power parent Sierra Pacific Resources climb, executive compensation get richer and bills continue to rise.
"They don't think that's fair. I agree. I don't think it is either," Titus said.
The typical single-family residential customer using 1,250 kilowatt hours of electricity paid a monthly bill of $83.74 before taxes in 1999 but now pays $134.43 for the same amount of power, according to the Public Utilities Commission.
Yackira said Nevada Power wants to work with state officials and others to minimize the effect on customers.
Fred Schmidt, attorney for the Southern Nevada Water Authority, said the high court decision affirmed the adjustments recommended by the Southern Nevada Water Authority.
Jon Wellinghoff, an attorney for MGM Mirage, introduced the Merrill Lynch evidence in a surprise move during the 2002 rate case, provoking heated opposition from Nevada Power's attorney. Wellinghoff, one of President Bush's new appointments to the Federal Energy Regulatory Commission, declined comment on Thursday.
During rate case hearings, Wellinghoff introduced 1999 e-mails in which a Merrill Lynch broker and a Nevada Power energy trader discussed a long-term contract for wholesale power to the utility. The discussions failed to lead to a deal, and Nevada Power ultimately paid up to 10 times more than the 4 cents per kilowatt hour price quoted by Merrill Lynch.
Witkoski said the utility departed from prior practices by obtaining only a small backup power supply. He said the utility's parent, Sierra Pacific Resources, was focused on a since-abandoned plan to buy an Oregon utility from Enron and didn't pay enough attention to acquiring power at a low cost.
Shares of Sierra Pacific Resources rose 16 cents, or 1.16 percent, to $13.92 on the New York Stock Exchange.
