Nevada utilities locked into high-price electricity contracts
LAS VEGAS (AP) – Nevadan residents could end up paying an extra $800 million for electricity over the next two years because the state’s two electric utility companies bet wrong last spring.
State regulators might have to approve a rate increase despite a recent decline in wholesale energy prices, the Las Vegas Review-Journal reported Thursday.
The increase would be in addition to a $1 billion rate increase the utilities already are seeking to cover the costs of meeting customers’ needs during the summer.
Las Vegas-based Nevada Power Co. and its Reno affiliate, Sierra Pacific Power Co., earlier this year locked in wholesale electricity prices for the next two years. Sierra Pacific serves customers in the Tahoe Basin.
At the time, prices were high as Western utilities struggled to meet customers’ needs. Since then, spot market prices have fallen for wholesale energy purchased an hour before it is needed.
Based on Sept. 20 wholesale energy prices, the utilities are committed to paying an extra $800 million for electricity through 2003, said Mike Smart, vice president of the two companies.
As of Sept. 20, Nevada Power’s so-called forward contracts exceeded market prices by $555.7 million, according to Smart. Sierra Pacific’s future contracts exceeded market prices by $243 million.
Wholesale power has been selling for about 3 cents a kilowatt hour in recent weeks. Smart said contracts signed when power supplies were tight and prices were near an all-time high set prices as low as 5 cents a kilowatt hour and as high as 14 cents.
Don Soderberg, chairman of the Public Utilities Commission, said he was dismayed that customers might be stuck with higher-than-market prices during a recession.
”Nevada has been hit as hard or harder than any state because it’s a tourism-based economy,” he said. ”To ask the public to pay high (retail) prices, when the (wholesale) price isn’t high anymore is just outrageous.”
The commission voted 3-0 to let staff members join Nevada Power and Sierra Pacific Power in urging federal regulators to permit price changes in the contracts because the power market has changed.
Gov. Kenny Guinn sent a letter to the Federal Energy Regulatory Commission on Friday asking for relief.
Tim Hay, state consumer advocate, commended the PUC for pushing the utilities to more aggressively seek adjustments in forward contracts.
In September, the two utilities said they need to recover an estimated $1.07 billion for increased power expenses over the past few months.
In addition, Nevada Power asked state regulators Oct. 2 to boost rates an additional $42.7 million yearly to reflect changes in the cost of service, investments and profitability.
The $800 million cost for future energy purchases would be in addition to those proposed increases and would be addressed in a future rate case, company and regulatory officials said.
Despite the outcome, Smart defended the utility’s forward contracts.
”If you looked at the (wholesale) prices prior to that time, they were going up and up and up,” he said, adding that not buying the contracts might have left the utility unable to obtain power on the spot market.
Smart and Soderberg also complained that federal price caps were set in June on spot-market wholesale prices, but not future contracts. The price cap has been around 9 cents a kilowatt hour, but market prices have dropped even lower.
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