Friday, May 30, 2003 | 11:07 a.m.
Nevada's Bureau of Consumer Protection is concerned that remaining ratepayers could pay more for electricity now that more big companies are leaving the Nevada Power Co. system.
The state Public Utilities Commission on Thursday upheld two previous rulings that would allow 11 customers to leave the system and buy electricity from other sources.
Regulators used different methods in the treatment of revenue Nevada Power would lose as the departing customers stopped paying for costs already incurred to construct Nevada Power's generation and distribution system -- which was built in part to serve the departing customers.
Thursday's ruling drew fire from the Bureau of Consumer Protection (BCP), which had appealed the rulings.
"Our legal staff is going to be looking very carefully at the ruling," said Jim Polito, senior economist with the BCP. "This approach places perhaps unreasonable risk on remaining customers ... There is a likelihood that we would pursue this further."
In both cases, the commission determined that remaining customers would be unharmed because of the money Nevada Power would not be spending on power to serve those customers.
In a case involving the Imperial Palace and the Riviera, the PUC upheld its decision that Nevada Power would have to wait to recover those lost generation costs until its next general rate case. The utility had challenged the ruling, saying it placed undue hardship on its balance sheet.
In a separate case involving nine of the power company's largest users, including MGM MIRAGE and Park Place Entertainment Corp., the commission rejected a BCP challenge to its decision to allow Nevada Power to recover lost generation costs through a "regulatory asset account."
That will allow the company to recognize the lost revenue on its balance sheet until rates could be reset in a general rate case. Again, the commission determined that money saved purchasing power, particularly during peak summer months when prices soar, would offset any harm remaining customers would incur.
The BCP has maintained that while the lost generation revenue is a certainty, the savings to Nevada Power are based on projections and speculation.
If those forecasted savings do not materialize, the remaining customers would be left paying the departing customers' shares of the cost of building the Nevada Power system, Polito said. That would violate the state law enacted in 2001 that allows those users to exit the system.
Polito said the only way to ensure the remaining customers are protected is to have the departing customers pay exit fees.
"They should be required to show evidence of the cost savings and have it credited back to them," he said.
Exit fees, however, would prevent any customer from leaving the system, said Steve Boss, president of the Nevada Energy Buyers Network which represents several of the exiting customers.
The commission on Thursday also voted to allow the Palms hotel-casino to leave the system in a ruling that combines elements of both of the previous decisions.
If the company leaves the Nevada Power system before an upcoming general rate case, Nevada Power would recover lost generation costs through that case. If the departure is delayed beyond the rate case, the utility would establish a regulatory account to recover the lost revenue.
"We now have three orders handling the same situation and all three orders are different," said Matt Davis, Nevada Power's vice president for distribution services.
The Palms ruling should, however, serve as a guideline for future exit cases, Davis said.
"I think it sets in motion a procedure so that all the parties understand how it's going to be treated going forward," he said.
The question still remains whether or not any of the customers that now have approval to leave the system will actually go.
If all 12 users left, it would reduce Nevada Power's peak demand by 320 megawatts. Fluctuating natural gas prices, however, have made secure deals for the exiting users difficult to come by, Davis and Boss said.
The Imperial Palace and the Riviera must commit to their exit by June 9. Boss said that will not happen, and has asked for a 50-day extension for those companies to establish a deal with a power supplier. He said regulatory delays made it impossible for those customers to negotiate a deal.
Still, he predicted a departure for at least some of the customers that have filed to exit.
"We have a number of clients that are getting very, very close," he said, adding that all the customers are taking a cautious approach to the process. "It's a major financial commitment."
Davis said it will be difficult for the first customer to go it alone.
"The customer that takes that leap is taking a huge leap," he said. "It comes down to how much risk a customer is willing to take in the power markets."
If no one leaves the system, Davis said it will have been a lot of work for no return.
"Unfortunately, we've got all this activity and we haven't seen anybody leave," he said. "I am anxious to see what happens. We have put a lot of methodology into place ... I would like to see it tested."
In other utility news, Nevada Power has filed a request with the PUC to issue $350 million in long-term debt. The new issue would replace existing debt that will mature in September and October.
Also, the PUC voted to lower its mill assessment on public utilities it regulates across the state. The assessment will be reduced from 2.5 mills to 2 mills, saving ratepayers $1.7 million over the next year.
That assessment is passed on to customers by regulated utilities -- including Sprint Corp., Nevada Power and Southwest Gas Corp. The move marks the lowest rate levied on utilities in more than 18 years.
Revenue from the mill tax funds the annual operations of the PUC. Since 2000, the commission has spent an average of 9 percent less than its allowable budget.
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