Review of how utility will recover 180 million dollars begins

LAS VEGAS, NEVADA - State regulators opened a case to review how Nevada Power Co. of Las Vegas will be allowed to recover $180 million through a rate increase.

The Public Utilities Commission took the action as the result of a Nevada Supreme Court decision earlier this year that requires the commission to restore $180 million that was stripped from a 2002 energy rate case.

At the time, the commission cut the $180 million from the $922 million rate case based on the conclusion that e-mails suggested the utility had an opportunity to lock in low-cost wholesale power supplies with Merrill Lynch, as well as from other power suppliers, but failed to do so.

Instead, Nevada Power let its future power needs go unfilled until after the Western energy crisis sent prices soaring. The commission decided the failure to lock in low power prices was imprudent.

As a result of the $180 million disallowance and others, Nevada Power was permitted to recover only $486 million over three years.

Commissioner Jo Ann Kelly asked if the commission could add the $180 million court-ordered increase to the pending $172 million, 8 percent general rate increase being sought by Nevada Power. Commission General Counsel Richard Hinckley said that was possible.

Analysts also have suggested the utility could be directed to recover the $180 million, plus interest dating back to 2002, through an energy rate case that Nevada Power is required to file in January. Both the general rate increase and the energy rate adjustment are expected to take effect June 1.

The commission may decide to spread the $180 million rate increase over several years, reducing the initial rate impact on customers.

Utilities Commission Chairman Don Soderberg won approval for a bill draft in the 2007 Legislature that would require Nevada Power and its affiliate, Sierra Pacific Power Co. of Reno, to file general rate adjustment cases every three years, instead of every two years.

The Public Utilities Commission approved a cost- sharing arrangement between MGM Mirage and Nevada Power Co. for a $107 million substation.

MGM Mirage needed a substation for power that will be delivered to its $7 billion Project CityCenter, a mixed-use project. The substation, dubbed the Sinatra Substation, will be west of New York- New York.

However, Nevada Power also needed a substation in the area to provide better reliability to existing customers and meet anticipated future customer needs along the Strip. Rather than building two separate substations, the casino company and Nevada Power agreed to build one large one. Nevada Power will pay about two- thirds of the substation cost and MGM Mirage will pay the rest.

The companies needed commission approval because it would deviate from a rule on those kinds of projects. Commission Chairman Don Soderberg suggested the decision might provide a good framework for dealing with power supply costs for other redevelopment projects.

"This is the first redevelopment project we've had, and there's probably going to be more," Soderberg said.