Nevada Power seeks financial incentives for buying power plant
Las Vegas Review-Journal --Aug. 5
Regulatory analysts support Nevada Power Co.'s proposed purchase of a partially complete 1,200-megawatt, gas-fired power plant. But they object to financial incentives that Nevada Power wants for investing in the Moapa Energy Facility, documents filed Wednesday with regulators show.
Under the deal, the local electric company would pay Duke Energy Corp., which
developed the plant, $182 million and would spend additional sums completing the
project and bringing the total cost to $558 million.
Participants in the case on Wednesday filed written testimony backing the
power-plant purchase but objecting to the size of the financial incentives
Nevada Power wants for the project.
They point to a PUC decision earlier this year that allowed Nevada Power to
earn up to 10.25 percent return on equity, which is profits divided by
stockholders' equity. The same decision allowed Nevada Power to seek designation
of a project as a "critical" facility and to earn a higher return on
equity as a result of the designation. The utility proposes that it be allowed
to earn 5 percentage points more on the Moapa project for a 15.25 percent return
on equity.
The PUC staff recommended the incentive be reduced to 3 percentage points and
be allowed only if the project is completed on time. If completion is early, the
incentive could be raised; if late, it could be lowered, staff economist Ronald
Knecht suggested.
The Attorney General's Bureau of Consumer Protection, called the 5 percentage
points excessive and worried that Nevada Power would use the precedent to get
higher profits from other projects.
If half of Nevada Power's planned power plant projects are deemed critical
over the next 20 years, the 5 percentage-point incentive would cost utility
customers $1.2 billion more in rates, concluded James Philip Williamson, manager
of BCP's analysts.
Dennis Peseau, an economist retained by the Southern Nevada Water Authority,
calculated that giving Nevada Power 5 percentage points more in return on equity
would add $18 million to rates each year.
If the PUC decides Moapa is critical, Peseau recommended the PUC only allow
Nevada Power to earn between 0.75 of a percent and 1.75 percentage points above
the 10.25 percent cap.
Peseau and Williamson also opposed Nevada Power's request to allow it to earn
a return on investment in Moapa before the completion of the power plant. The
water authority economist said Nevada Power shouldn't be allowed to earn money
on its Moapa plant until it is operational. Otherwise, the company has no an
incentive to complete the project on time, he argued.
The PUC has scheduled an Aug. 25 hearing on the Moapa plant.
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