NV Energy revenue rising without rate hike

For the first time in company history, NV Energy has proposed a rate plan that calls for no increase in power costs for residential ratepayers.

But that doesn't mean the company won't be making more money.

In a general rate case filing Monday, the company asked the Public Utilities Commission of Nevada to grant it
$246 million a year in increased revenue, on its current $2.2 billion annual revenue base, to cover construction costs and return on equity.

That would equal an 11.5 percent rate increase, but NV Energy also asked the commission to offset the impact by re-setting how much it can pass on costs for buying natural gas for generation plants and purchasing power.

The bottom line: The average single-family household's bill would stay at $143 per month.

"With the economy where it is, we would like to offer ways to mitigate the effects of rate increases," said Michael Yackira, president and chief executive officer of NV Energy. "Deferring any net increases to the customers is the right thing to do until some time in the future, when we expect the economy to recover."

NV Energy hasn't filed a general rate case that would result in no effect on ratepayers' bills since its formation in 1999.

Still, state consumer advocate Eric Witkoski called NV Energy's request for bigger equity returns "very concerning and not justified."

"It appears that the company's request for increased profit is excessive, especially in today's market and economy," Witkoski said.

About half of the $246 million revenue increase would pay for the 484-megawatt expansion of its Harry Allen generating station just north of Las Vegas, which came online in May.

The remainder would go to returns on equity, including the difference between the 10.5 percent return the commission allowed NV Energy in its 2008 general rate case and the 7 percent it actually made. NV Energy also seeks $25 million in new revenue to boost that return to 11.25 percent going forward.

Here's how NV Energy would increase profits without increasing your power bill:

Start with a rapid drop in the cost of natural gas, which NV Energy buys for its generating stations. The utility over-collected on purchased power and fuel costs in 2010, as natural gas prices slumped below rates set by the commission. Prices for the commodity have fallen from around $12 per million British thermal units in mid-2008 to about $4 today.

Add in anticipated reductions in fuel and purchased power prices come January, plus additional rate adjustments, and the company said it has $182 million in approved or pending pass-through rate decreases. That helps offset the
$246 million increase in operating revenues.

The company says it needs the remaining $64 million for the new plant and return on equity, but it won't ask for it now. Instead, it will come up again, perhaps its next general rate case in 2014. State law requires the utility to file general rate cases every three years.

The company could reimburse over-collected fuel costs and still take in more operating revenue because fuel expenses and revenue are two separate rate components.

General rates such as those in Monday's filing cover the cost of doing business, including maintenance, labor expenses, depreciation of assets, taxes, interest on debt and returns on equity. Operating costs make up about half of a power bill.

The remainder is the direct pass-through to ratepayers of the cost of purchased power and fuel for generating stations. NV Energy isn't allowed to profit from those deals.

So if the commission adjusts general rates upward but pushes fuel rates downward by the same amount, the net effect on power bills would be zero.

But that part of the equation rankles Witkoski.

"It is a disappointing day for consumers. Their rates should be coming down because of falling natural gas prices," he said.

"Instead, the company is attempting to mask a substantial rate increase with the customers' own money -- with over-collected fuel prices."

Witkoski said he and the state Bureau of Consumer Protection would give the commission options to reduce the filing's impact on consumers.

There is precedent for the commission to balance or defer rate adjustments to reduce the effects of general rate increases.

In NV Energy's last general rate case, the utility requested a 16.7 percent rate hike to cover a revenue increase of
$311 million. The commission granted a 6.9 percent increase, paring the revenue jump to $221 million and factoring in expected drops in fuel costs to help offset higher revenue.

Commissioners also held back $90 million to include in the current general rate case, but the deferral never made it this far: The commission allowed NV Energy to offset it with over-collected fuel costs about a year ago.

The commission has 210 days to make a decision. The agency won't schedule hearings until it has taken testimony in the case, but consumer-comment sessions could happen in late summer, with hearings in the fall.

The new rate structure would take effect in early January.

Yackira also noted Monday that NV Energy has cut roughly $30 million from its operating budget, mostly through reducing pension costs and consolidating maintenance contracts.

And with the completion of Harry Allen, the utility finished a $1.5 billion capital-investment plan launched in 2003 to build most of its own generating capacity, rather than buy power from other companies, Yackira said. That should mean substantially smaller general rate cases beginning in 2014, he said.

Contact reporter Jennifer Robison at jrobison@review
journal.com or 702-380-4512.