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<title>April 2000: Nevada Power Companies File Court Actions</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="75%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
April 2000</u><br>
<font face="Arial" size="5">Nevada Power Companies File Court
Actions in Response To PUC Order Denying Rate Increases To Cover Fuel And
PURPA Power Obligations <br>
</font></b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/05</em>)</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Nevada utilities were slated to
begin electric competition on March 1, 2000; however, because of legal and
technical obstacles, that date has been indefinitely delayed by Governor
Guinn, under the authority vested him by the restructuring law. The two
major utilities serving Nevada are Nevada Power Company (NPC) and Sierra
Pacific Power Company (SPPC), which are both wholly owned by Sierra
Pacific Resources (SPR). Nevada’s restructuring legislation provides
that NPC and SPPC are providers of last resort, meaning they would provide
default service to retail customers who do not elect a competitive
supplier. The restructuring act also contains a provision pertaining to
recovery by investor owned utilities of their stranded costs. In addition,
the act calls for a three year rate freeze, ending on February 28, 2003.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">NPC has four contracts with
qualifying facilities (QFs), which it entered into under the federal
Public Utility Regulatory Policies Act (PURPA). These four contracts
comprise 305 megawatts in total, and terminate between the years 2022 and
2024. SPPC has fifteen QF contracts, totaling 110 megawatts, which
terminate between 2014 and 2039. The prices in these contracts escalate
each year under the terms of the contracts. SPPC also has a wholesale
power contract, containing rates approved by the Federal Energy Regulatory
Commission. NPC and SPPC have deferred recovery of a portion of these QF
charges from ratepayers. Historically, recovery of these deferred amounts
took place in rate cases and, more frequently, in fuel and purchased power
adjustment cases, which provide for changes in the costs of these
contracts and for recovery of the deferred accounts.</font></p>
<font FACE="Palatino" SIZE="1"></font>
<p ALIGN="JUSTIFY"><font face="Arial">NPC filed two applications with the
Public Utilities Commission of Nevada ("PUCN") to recover from
ratepayers the amounts in the deferred accounts from these contracts and
the future obligations under the contracts. In its July 15, 1999
application, NPC sought recovery of $44.3 million for these amounts, using
a May 31, 1999 test year end date. On September 30, 1999, NPC submitted a
second application, filed as a substitute for the July filing. The
September application, reflecting a September 30, 1999 test year end date
and additions to the deferred accounts since the July filing, sought
recovery of $110.7 million for a one year period, which would be reduced
to $50.6 million in a three year recovery period.<br>
<br>
On March 28, 2000, the PUCN, by a 2-1 decision, dismissed NPC’s
September filing and limited NPC’s stranded cost recovery to its
deferred accounts as of May 31, 1999 (set at $41.5 million, to be offset
by $5.6 million in other disallowed costs), and directed NPC to write-off
deferrals after that date. NPC sought judicial review of this order. In
that action, NPC asked the court to reverse the March 28, 2000 order of
the PUCN, to permit NPC to recover the deferred accounts, and to increase
rates to pay for fuel and purchased power obligations. NPC alleged that
the PUCN decision deprived it of deferred accounts from June 1, 1999 to
August 31, 1999, and further claimed such action was contrary to the
requirements of the restructuring act. NPC also contested the PUCN’s
three year rate freeze and its use of the May 31, 1999 test year
information to determine rates for collection of the energy portion of
future QF contract obligations. Because of increased power and fuel costs
and expansion of service, the total stranded costs sought by NPC increased
from $44.3 million under a May 31, 1999 test year to $110.7 million under
an August 31, 1999 test year, although these amounts reflect different
recovery periods.<br>
<br>
In addition, SPR, NPC, and SPPC filed an action in federal court on March
28, 2000 seeking a declaration that the PUCN’s actions and the
restructuring act are preempted by PURPA and the Federal Power Act (FPA),
constitute an unconstitutional taking of property, impair contractual
obligations in violation of the constitution, deny the companies
substantive due process, and deprive the companies of their civil rights.
According to the companies’ complaint, PUCN administrative rules enacted
in 1991 require that the PUCN approve all purchase power contracts
containing terms greater than three years and for more than five
megawatts. The companies further allege that they make no profit on any QF
contracts, and are precluded from making any such profit by statute. The
companies have requested the establishment of a surcharge mechanism to
assure a dollar-for-dollar recovery of QF contract costs. The complaint
alleges that the restructuring act violates PURPA by including additional
criteria for the recovery of QF costs (the additional criteria being to
show that reasonable efforts have been made to reduce the obligation) and
by including a rate freeze. They also allege that the PUCN’s
interpretation of the act precluded recovery of QF costs in violation of
PURPA. In another count, SPPC complains that the restructuring act
(including the rate freeze) and the PUCN’s administration of the act
violate the FPA by failing to assure SPPC recovery of its wholesale power
contract obligations.<br>
<br>
The PUCN’s actions with regard to recovery of stranded costs prompted an
April 6, 2000 letter from the Legislative Commission, a twelve member body
which takes actions on behalf of the Nevada legislature when the
legislature is not in session. The Commission objected to PUCN regulations
concerning stranded costs. In its letter, the Legislative Commission
stated the PUCN regulations fail to carry out the intent of the
Legislature. In particular, the PUCN regulations ask electric utilities to
submit stranded cost applications to the PUCN containing details on their
assets, contracts, obligations, and expenses, and a proposed mechanism for
recovery of the stranded costs. The regulations further state that the
PUCN is not required to use any particular method for determining
recoverable costs. The Legislative Commission indicated that the
uncertainty created by the regulations did not comport with the
legislative intent in granting the PUCN authority to assure electric
utility shareholders full compensation for recoverable past costs. The
Legislative Commission further directed the PUCN to revise the regulation
and return it within ninety days.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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