Thursday, Feb. 21, 2002 | 11 a.m.
The state consumer advocate, MGM MIRAGE and staff of the state Public Utilities Commission say Nevada Power Co. overpaid for energy last year in Southern Nevada, but they disagreed sharply by how much.
Nevada Power Co. wants to raise rates $922 million plus interest to reimburse it for energy bought on the wholesale market between March and September 2001.
But critics, in testimony filed Wednesday over the request, cited "imprudent" purchases the utility made.
The estimates varied widely:
"The company pursued an 'accelerated' strategy that resulted in purchasing power at a frantic pace at precisely the wrong time and purchased power in excess of its own targets," Pechman testified.
The wide range of estimates on overpayments did not escape the notice of Nevada Power spokesman Paul Heagen, who criticized MGM MIRAGE and the consumer advocate. The utility plans to argue in hearings that begin March 4 in Las Vegas that the company acted prudently, given California's energy crisis and a corresponding increase in wholesale electricity prices.
"This is such a wild range of responses to what is supposed to be evidence in the case," Heagen said. "That in itself is alarming and troubling. We expected a range of responses from people trying to politicize this issue to others who think it should just go away. But these numbers are all over the map, and that should be alarming to the consumers of this state."
MGM MIRAGE's testimony, given by energy consultant Douglas Burton of Acarus Group Inc. in Oklahoma City, made its allegations based on Nevada Power's wholesale electricity purchases from October 1999 to September 2000.
Burton alleged that Nevada Power could have purchased enough power on the wholesale market during that period to also have fulfilled its 2001 needs, otherwise known as its "open position." But he said the utility did not act quickly enough and therefore got caught paying higher prices.
"Nevada Power Company adopted a timed procurement strategy in November 1999 that failed to consider the risks of the company's open position beyond the next immediate summer season," Burton testified. "This strategy was proposed by company personnel who had no risk management experience and adopted by the company with little or no analysis by Nevada Power Co.'s outside risk management consultant."
Nevada Power has said it hesitated to lock in its 2001 energy needs earlier than it did because the utility was not sure how many customers it would have lost had the state allowed all consumers to buy retail electricity on the open market. State lawmakers last year put energy deregulation on hold for residential customers and small businesses. But Burton testified that the number of customers Nevada Power would have gained from population growth would have more than offset the consumers it would have lost through deregulation.
Pechman also argued that Nevada Power's attention toward future energy purchases was diverted in 1999 when the utility's parent, Sierra Pacific Resources of Reno, announced its intent to purchase Portland General Electric. That deal fell through last year.
"The excess cost of imprudently incurred power has continued and is expected to continue into 2003," Pechman testified.
The commission staff, which recommended an $80 million reduction in Nevada Power's request, reached that conclusion based on an opinion that the utility bought too much power on the wholesale market during February and April of last year.
However, the staff agreed with Nevada Power that the utility was adversely impacted by price caps that the Federal Energy Regulatory Commission placed on California's spot market purchases last year. Nevada Power has said that the price caps limited the amount of money the utility could have made when it sold spare energy back into the wholesale market.
"We readily respect the issues that the staff raised," Heagen said of the commission staff. "We certainly look forward to the opportunity to present our case."
Nevada Power initially sought to recover the $922 million over the next three years, which would have meant an increase of as much as 25 percent in consumers' bills. The utility has since proposed that the payment be spread out over six years, lowering the rate hike to roughly 12.5 percent. But state Consumer Advocate Timothy Hay has said that would result in an increase from $138 million to $285 million in interest payments from ratepayers.
archive
