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News Analysis

Fortnightly Magazine - May 15 2000

the governor would put the rate question in play in an informal meeting held in closed session. Yet the governor's office apparently found it a logical topic. At the time of the closed meetings, a draft decision already had been released by the PUC that proposed a rate cut of about $10 million, vs. an increase of about $44 million requested by Nevada Power. Then, at the meeting, sources say that a settlement was put on the table that would have allowed a $30 million energy surcharge to continue - the same surcharge that the PUC proposed to cut in the draft rate order.

But Nevada Power, the sources say, still refused to deal.

The PUC Rate Orders

As the utility saw it, the rate orders were so low that it felt it would not be able to continue to provide default retail service once competition started in Nevada.

Under the state's restructuring law, Nevada Power had filed cases at the PUC in July and September 1999 that sought recovery of fuel and purchased power costs previously incurred, and sought to set rates one last time before the mandated freeze became effective. But the PUC on Feb. 4 voted 2-1 to reduce the amount of Nevada Power's $110 million rate increase request to $44 million. Temporary commissioner Jo Ann Kelly dissented.

This news prompted the two utilities to say they would stay out of the market, and would serve only as a supplier of last resort. But things got worse. On March 27, the PUC voted 3-1 not just to trim the rate request, but to cut Nevada Power's rates by a net $10 million, starting May 1. Kelly dissented again. This latest setback led the company on April 17 to ask a state district court in Carson City for an injunction. If granted, it would block the rate cut and allow Nevada Power to raise its rates by $110 million, the amount of its original rate request.

State Law Unconstitutional?

Among other points, the federal lawsuit targets the state's three-year rate freeze (a typical provision in state laws for electric restructuring) claiming it is unconstitutional as a taking of property.

The utilities argue that even if the law were construed constitutional, no regulatory structure is in place by which plaintiffs may recover stranded costs. So at the very least, they want deregulation suspended until the PUC enacts regulations to ensure that the utilities recover all costs incurred under federal and state mandates.

(Note: The PUC did issue final rules for stranded cost recovery on March 1, but those rules afford no guarantees. They only allow the utilities to seek recovery of "past costs" associated with providing individual services identified as subject to competition including aggregation, generation, billing, metering, and customer service. )

On April 3, in a surprising twist, a bipartisan group of six state senators and six assemblymen (formed to take care of legislative business between sessions) voted unanimously to direct the PUC to review its final rule on stranded costs, telling the PUC to come back within 90 days.