03/08/2002 12:00AM

Utility gambles with power - and loses

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On April 1, the sucking sound coming from Nevada could be more than $1 billion being taken out of the state's economy. It's an appropriate date, being April Fools' Day.

The Public Utilities Commission heard testimony last week concerning Nevada Power Company's proposed $922 million rate hike. The PUC must decide whether to allow it by April 1.

And that's not all. Nevada Power told the PUC it would need an additional rate increase of $260 million, based upon projected fuel costs. Nevada Power serves approximately 640,000 customers.

If the rate hike is approved, local electricity rates will have jumped 73 percent in two years.

Timothy Hay, state consumer advocate in the attorney general's office, said: "Nevada Power clearly purchased power in excess of its own approved purchasing policies and in excess of the amount required to meet demand. To make matters worse, they paid too much for it. To put ratepayers on the hook again belies the contempt Nevada Power exhibits for its customers."

Walt Higgins, president and chief executive officer of Sierra Pacific Resources, parent company of Nevada Power, has built a defense around the theme, "we've kept the lights on."

"Our job was to secure the most reliable supply for our state during the worst wholesale market meltdown in the industry's history," said Higgins. "Those who suggest we had the choice between high-priced power and low-cost power are just plain wrong. Keeping the lights on safely at the best possible prices was our main priority."

Smoking-gun evidence suggests otherwise. E-mails exchanged by Nevada Power principal trader Jon Perry and Merrill Lynch energy broker Dan Gordon from late 1999 were presented to the PUC. Merrill Lynch proposed a deal to sell half of Nevada Power's needs from 2000 to 2003 at $33.75 per megawatt hour. Nevada Power refused because it would not pay more than $33.50, a 25-cent difference.

Then during the California energy crisis, beginning May 2000, Nevada Power paid as high as $1,300 per megawatt hour and an average of $172 per megawatt hour through 2001. Currently the price of a megawatt hour is around $30.

If actions speak louder than words, consider that some of Nevada Power's biggest customers have filed separate applications to exit the system and buy power on their own. Among the filers are Las Vegas's biggest casino company, MGM Mirage, as well as Station Casinos, Coast Resorts Properties, the Sahara, and the Fashion Show Mall.

The intrigue goes beyond dollars and cents. Nevada Power hired two powerful consultants to promote the rate hike, Jones Vargas law firm and R&R Partners public relations.

Jones Vargas represents Reliant Energy, which is seeking permission to build power plants in Clark County, where Las Vegas is situated. Two members of Jones Vargas are politically entrenched: Pete Emaut is campaign chairman for Nevada Gov. Kenny Guinn and Bill Raggio, R-Reno, is Senate majority leader.

"The thing that bothers me as an economist the most," Dick Burdette, PUC resource and market analysis manager told the Las Vegas Review-Journal, "is that we're going to pull a couple billion dollars out of our economy over the next couple of years."

The $922 million proposed rate hike is more than the casino industry pays in taxes to the state, more than the state sales tax collection to the general fund. The casino industry will suffer too if it sits silent on this consumer issue.

Richard Eng is turf editor for the Las Vegas Review-Journal and host of the Race Day Las Vegas Wrap Up Show.