April 2000
Nevada Power Companies File Court Actions in Response To PUC Order Denying Rate Increases To Cover Fuel And PURPA Power Obligations  
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 2000/05)

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.

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.

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.

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.

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.

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.

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:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301

rolson@bowlaw.com | (603) 225-9716