Nevada Power Co. linemen Matt Ortwein and John Oliver ready cable that will power new housing in the Las Vegas Valley. The utility proposes to raise rates starting June 1. Photo by Gary Thompson.

Hearings started Monday on Nevada Power Co.'s request for a general rate increase with witnesses discussing the maximum profits regulators should allow the utility to earn.

Nevada Power proposes to raise residential rates by 13.3 percent starting June 1. That would mean the average monthly residential bill would increase by $18.23 to $155.21.

The utility previously was seeking a lower adjustment in residential rates, but the price of natural gas used in power plants has increased and projected costs have been updated in a separate energy rate case, said Michael Yackira, president and chief operating officer of Nevada Power parent Sierra Pacific Resources. Other numbers have changed, too.

The general rate case decision is only one factor that will affect the rates Southern Nevada residential customers pay. Also pending is a deferred energy rate case. The commission last week approved a settlement in disputes over how much customers will pay for settling disputes stemming from the Western energy crisis and for a rate increase ordered by the Nevada Supreme Court in a rate case appeal last summer.

Nevada Power is seeking a 7.4 percent overall rate increase, but the percentage increase would be lower for nonresidential customers. Some analysts say nonresidential customers have been subsidizing residential rates.

At the hearing before the Public Utilities Commission Monday, expert witnesses focused on Nevada Power's request for a 11.4 percent return on equity. Return on equity is a measure of profitability and is calculated by dividing a company's net income over a year by the stockholders' equity in the company.

The attorney general's Bureau of Consumer Protection recommends the utility receive a 10.25 percent return on equity, the same as allowed under the last rate case. The difference between the two represents millions of dollars in rate revenue every year for Nevada Power, but other variables also could affect Nevada Power's rates.

The utilities commission staff suggests that Nevada Power be allowed to earn a 10.66 percent return on equity.

State regulators around the country allowed the average electric utility to earn a 10.36 percent return on equity last year, according to testimony from David Parcell, a witness for the bureau.

Another witness, Roger Morin, however, testified that the most recent return on equity granted electric utilities around the country was 10.98 percent. That figure includes return on equity set for utilities that have not had rate increase cases for several years.

William Rogers, utility company treasurer, acknowledged that the average interest rate the company pays on debt decreased about 0.8 percent since the last rate case in 2003.

"The company has done a good job of managing its debt since that case," said David Parcell, an economist testifying for the bureau.

Parcell opposed suggestions that Nevada Power be allowed to earn a higher rate of return to help it get higher bond ratings. The bureau's witness said Nevada Power's low bond ratings stemmed from a 2002 commission finding that Nevada Power management made imprudent power purchases during the Western energy crisis. Customers should not bear the burden of that expense, Parcell said.

Nevada Power outlined its rate increase case in written testimony filed earlier by Michael Yackira, president and chief operating officer of Nevada Power parent Sierra Pacific Resources.

"Since 2003, Nevada Power has been executing a strategy to reduce dependence on price-volatile energy markets through investment, construction and ultimate ownership of generating assets in Nevada," Yackira said in the written testimony.

The company, with encouragement from commission Chairman Don Soderberg, has been trying to build up its power generation capacity to avoid having to rely on wholesale power suppliers.

Nevada Power wants to avoid a repeat of problems it encountered during 2000 and 2001 when it was forced to buy large quantities of power at high prices.

Over the last three years, the company has bought and built 1,600 megawatts of power generation capacity, including the Chuck Lenzie Generating Station, Silverhawk Power Station and a new power plant at the Harry Allen site.

The commission previously decided that Lenzie was a critical facility for which Nevada Power could earn higher profits. The added profit totals $4.5 million yearly. Deputy Attorney General Michael Saunders, who represents the bureau, suggested the commission reconsider that decision.

But Rogers told Commissioner Jo Ann Kelly that Wall Street would react negatively if the commission reduced the $4.5 million in added profit for the Lenzie plant.

"Not only do I think (investors) would be surprised," Rogers said, "I think they would be taken aback by that decision."

Soderberg asked that the company to provide information about their savings from starting up the new and efficient Lenzie plant ahead of schedule.

Another key consideration is Southern Nevada's explosive population growth.