Editorial: Utility has a bad week at hearings

Nevada Power's case before the Public Utilities Commission for a $922 million rate hike increase was damaged during hearings last week. Opponents of the rate hike contended that a series of e-mails demonstrated that the utility in fact had the opportunity in 1999 to lock in low rates for a lengthy period of time. The e-mails in fall of 1999 between Nevada Power principal trader Jon Perry and Merrill Lynch energy broker Dan Gordon indicated that Nevada Power could have paid $33.75 per megawatt hour for power from 2000 to 2003 -- a rate substantially less than the average of $172 per megawatt hour the company paid in 2001.

Utility officials acknowledged that if a deal could have been made, the purchase could have covered 25 percent of the company's total needs during that time frame. But negotiations broke down because Nevada Power insisted it would only pay $33.50 per megawatt hour instead of the $33.75 asked for by Merrill Lynch. Nevada Power now wants its customers to pay for its failure to grab that low-cost purchase agreement when it had a chance.

Nevada Power executives defended passing up the Merrill Lynch deal for two reasons. First, they thought they could buy electricity cheaper later in the year. Second, they said the possibility of deregulation starting in 2001 resulted in them passing up opportunities in the summer and fall of 2000 to buy long-term contracts to supply part of their electricity needs. Under deregulation, Nevada Power noted, there would be no guarantee that Nevada Power would still have all its customers -- some might have ended up going to other retail electricity companies. And when deregulation was postponed by Gov. Kenny Guinn in October 2000, electricity prices already had begun to skyrocket by the time Nevada Power sought long-term contracts.

But if in fact company officials were so worried they would be stuck with excess energy that couldn't be sold, why were they even negotiating in the first place? One e-mail from Perry, the Nevada Power trader, suggests deregulation wasn't too big a factor to prevent a deal from being made. "Believe it or not, a $0.25 (25-cent) decrease might get us there," Perry responded in a Dec. 15, 1999 e-mail to Merrill Lynch. "We're running production models and it's getting damn close. Give me a quarter and it could work."

This sounds very much like a company that was serious about making a purchase -- if it thought the price was right. What we gleaned from last week's hearing doesn't paint a flattering picture of how the company was run, particularly how it missed an opportunity for Southern Nevadans to escape much of the hardship that they will feel if they are required to absorb the costs of the utility's mistakes.

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