The Public Utilities Commission of Nevada (PUC), has approved electric utility deregulation settlement agreements with Nevada Power Company (NPC), Sierra Pacific Power Company (SPPC), and Sierra Pacific Resources (SPR). The settlements came as a result of the PUC’s approval of a $48 million dollar rate increase for NPC. The new rates translate into an overall increase of 5.3% for the utility’s customers; about 4.7% for customers who use less than 1,100 kilowatt hours and between 5% and 6% for commercial and industrial users. In exchange for the increase in rates, NPC agreed to drop its civil suits in federal district court and state court. Under the agreements NPC and SPPC will be obligated to function as the "provider of last resort," providing electric service to customers who do not choose an alternative electricity provider or to customers who are not able to obtain service from an alternative seller after the date competition begins.
The civil suits in federal and state courts began as a rate increase dispute between the utilities and the PUC. NPC had filed two applications with the PUC to recover its stranded costs associated with its qualifying facility ("QF"), contracts from ratepayers, seeking $110.7 million for these stranded costs. The PUC dismissed the filing and limited NPC’s stranded cost recovery to $41.5 million. NPC, SPPC and SPR then filed suit against the PUC in both state court and federal district court, primarily claiming that NPC’s actions were preempted by PURPA and the Federal Power Act, 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.
The settlement agreements outline procedures for beginning competition in state retail electric markets. Beginning September 1, and August 1, 2000 respectively both SPPC and NPC will establish mandatory monthly rate adjustments, called fuel and purchased power riders. The monthly change in the riders is calculated as the difference between the ratio of the Nevada jurisdictional total fuel and purchased power cost for the twelve month period beginning fifteen months prior to the adjustment month over the Nevada jurisdictional total fuel and purchase power costs for that period, and the ratio of the total fuel and power costs over the Nevada jurisdictional kWh sales during the period sixteen months prior to the adjustment month. The level of allowable changes from month to month, will be limited to 0.95 mils per kWh in each of the first six monthly filing, 1.15, 1.35, 1.55 and 1.75 kWh in each of the filings in subsequent six month segments. Each utility is required to file the riders every month. General rates, those for nonfuel and nonpurchased power, for SPPC and NPC will remain capped until March 1, 2003.
Restructuring will be phased in for different customer groups. Beginning November 1, 2000, the largest commercial customers will be charged the settlement rates. On April 1, 2001, medium sized commercial customers will be charged settlement rates, and the last group, the residential customers, will receive the settlement rate increase on December 21, 2001.
To facilitate open access on the retail sale of electricity NPC will divest its generation capacity. Under the settlement agreements, gains from the sale of this divested generation are equal to the net proceeds of each plant (after tax), less the cost of sale plus the sum of recorded book values. NPC and SPPC are permitted to recover the value of their common and general plant as allocated to the generation function from the gain on the sale of the generation assets. The utilities must make comparable reductions to the common and general plant rate base reflecting this recovery amount.
After reducing the common and general plant rate base, SPPC and NPC will receive up to $9 million and $16 million, respectively, from the gains on the sale of generation assets. All remaining gain will be placed into escrow accounts and may be used to fund the permanent and annual auctions of power purchase agreements ("PPA"). The fund may also be used for payments associated with the buyout of any PPA’s. All remaining surplus from the gains will be returned to the customers.
NPC and SPPC are required to mitigate costs associated with PPAs by conducting a permanent or annual auction of the contracts. A permanent auction will be permitted if approved by the PUC and to the extent that there are tax and market advantages. The auction will be held within two months of the divestiture of 50% or more of the respective Company’s generation capacity. NPC and SPPC will hold a permanent auction at least every two years for any remaining PPAs. The Companies are allowed to use the funds from the gains in escrow to conduct these auctions. Any PPAs that are not divested in the permanent auction shall be sold in an annual auction. Revenue from the annual auction will be used to fund obligations under the PPA’s. Costs that are not mitigated through these auctions will be collected through a nonbypassable wires charge collected from all customers. The amount of the wire charge will be credited with an annuity based on the value of the principal and interest of the escrowed portion of the gains.
Under the agreement, the NPC and SPPC are also required to file modifications to their transmission tariffs with FERC to facilitate retail open access. NPC and SPPC are also required to pursue compliance with FERC order 2000 and the formation of a regional transmission organization. The companies are not permitted to form a separate affiliate of their own to create this organization.
Further agreements between the utilities, the PUC and intervenors are still being considered by the PUC and will be heard some time in August, including the agreements involving the state civil case between the utilities and the PUC. This settlement agreement must also be approved by the Nevada District Court.