OFFICIALS SEEK $5 MILLION CUT
The attorney general's Bureau of Consumer Protection filed a petition on Friday asking state regulators to consider trimming the Nevada Power Co. rate increase by 4 percent, or $5 million.
The proposed rate case decrease would save the typical single-family residential customer about $1 a month during the summer.
"It wouldn't be a big improvement on rates, but we need to look at everything we can," said Eric Witkoski, the bureau chief and state consumer advocate.
The changes requested also would establish principles that could reduce rate increases in future Nevada Power cases, Witkoski said.
Nevada Power declined to comment on the petition.
The Public Utilities Commission raised rates for single-family residential rates 11.84 percent on June 1, causing observers to wonder if moderate and low-income families would have difficulties paying power bills for air conditioning this summer.
The petition focuses on one component of the rate adjustment, a decision to allow Nevada Power to earn a 10.7 percent return on equity. Return on equity is a measure of profitability. It is calculated by dividing annual profits by stockholder equity in the company. In the previous rate case, the commission authorized Nevada Power to earn a 10.25 percent return on equity.
A witness who testified for the bureau said the commission should not raise the return on equity any higher than 10.5 percent in the rate case this year. Limiting the return on equity to 10. 5 percent would reduce rates by about $4.8 million.
The commission reasoned that return on equity should be set high enough to help Nevada Power recover its investment grade bond rating, but the bureau said that commission's decision on profits was flawed for several reasons.
Raising customer rates to improve Nevada Power's bond ratings penalizes power customers for the utility's past imprudence.
The bureau recalled that Standard & Poor's and Moody's Investors Service downgraded Nevada Power to junk bond level in 2002 after the commission disallowed its recovery of hundreds of millions of dollars of wholesale power purchases. The commission concluded that those power purchases were imprudent.
In addition, the bureau wonders why the higher profit level is needed, given testimony that Nevada Power would soon regain its investment grade.
The bureau challenged the commission's argument that Nevada Power needed investment grade bond ratings for financing a $3.8 billion coal-fired power plant near Ely and a related transmission line.
The commission has approved only $155 million in expenditures on the project so far and should delay consideration the other potential financing needs until a later rate case, the bureau contended.
