Draft plan would hike NV Energy rates

By Alexandra Berzon

Published Thursday, June 18, 2009 | 2:26 p.m.

Updated Thursday, June 18, 2009 | 7:55 p.m.

Under the draft of a plan released Wednesday evening by the Nevada Public Utilities Commission, the average family would end up paying an additional $10 a month on electricity bills averaged out over the year.

Commissioner Sam Thompson found that the utility NV Energy should initially be allowed to raise its rates for Southern Nevada residential customers by 9.3 percent, down from the 16.7 percent the utility requested. Eventually the utility would be allowed to raise rates a total of 12.3 percent for residential customers.

The proposal followed weeks of hearings in May to hash out whether the request from NV Energy was justified.

At a PUC meeting on Wednesday, Thompson and commissioner Rebecca Wagner will have to concur before a final order is issued and a decision is made on rate adjustments.

The third PUC Commissioner, Jo Ann Kelly, has recused herself from the case.

If accepted, the order would translate into a revenue increase of $217.8 million for the company, down from the company's original request of $323.9 million, which it later reduced to $306 million.

NV Energy's request prompted something of a public outcry. At a hearing in April, a diverse group of ratepayers insisted the increase would place a sharp burden on already-stretched families and pleaded with the Commission to reject the increase.

Representing small ratepayers, consumer advocate Eric Witkoski had argued the company should be allowed to earn increased revenues of $175.2 million from ratepayers instead of what the company wanted. He proposed chopping executive salaries, among other initiatives. He could not be reached for comment Thursday.

Many large casino companies and other ratepayers had also filed their own objections.

If the PUC had accepted all of the adjustments suggested by all of the parties objecting to the increase, it could have found that NV Energy should receive as low as $106 million, former consumer advocate Timothy Hay calculated.

As proposed by Thompson, the increases would allow NV Energy to earn a 10.4 percent profit for its shareholders on $1.5 billion in recent capital investments that are the outcome of an aggressive plan to buy and build power plants in the last few years. The utility had asked the PUC to approve an 11 percent return on investment.

In his draft order, Thompson said that a 10.4 percent return on investment "is sufficient to allow [the utility] sufficient capital to meet its needs prospectively."

At a meeting with journalists in April, NV Energy CEO Michael Yackira acknowledged that the company asked for a higher rate of return than it expected to receive in order to start negotiations in a good position.

In the draft order issued Wednesday, Thompson suggested an unusual action designed to mitigate the rate jump. In a move first proposed by the U.S. Department of Energy, he collapsed a future reduction in rates from fuel costs into this case to show customers that their energy bills will actually only increase 6.8 percent overall.

Natural gas costs have come down dramatically since a fast rise last summer.

Normally, rates are adjusted four times a year to reflect fuel costs, while general rate cases based on capital costs arise every few years. The two processes are normally separate.

Natural gas prices are currently unusually low due to the recession and other factors, and are likely to remain volatile. The DOE estimates that costs will decrease $292 million by the end of next summer.

NV Energy spokesman Adam Grant said the company did not wish to comment on the case until the order is finalized. PUC spokesman Sean Sever said that factoring in the expected fuel cost decrease is designed to make the rate increase appear more palatable.

"It's somewhat disguised from consumers," said Hay, the former consumer advocate. "It protects the public image of the utility and the PUC."

In the order, Thompson recommends that the rate increases come in phases in order to protect customers from a jump during the summer. The utility had asked the commission to delay the increase until the fall for the same reason.

Under Thompson's plan, beginning July 1 rates will increase 3 percent for all customers. The average family residential rates will rise $7.68 a month. Then, in January 2010 when energy bills are typically much lower, rates will increase an additional 3.8 percent - going up $8.31 for the average family.

That increase will carry into the following summer, when energy use will pick up again.

Witkoski, the consumer advocate, has said he expects the utility to ask for an equally large rate increase in a couple years. That's based on several expected projects, including the $750 million Harry Allen plant, a $600 to $1 billion transmission line project, and the purchase of the Apex Plant.