Bill requiring utility ‘prudence’ signed

CARSON CITY -- A bill requiring utilities to prove they made intelligent business decisions in purchasing power or fuel before being granted rate increases was signed into law by Gov. Jim Gibbons.

Under Assembly Bill 7, electric or natural gas utilities would have the burden of proof to prove it used "reasonableness and prudence" in purchasing power and fuel. Without such proof, the Public Utilities Commission could not approve rate increases.

The new law, proposed by Assembly Speaker Barbara Buckley, D-Las Vegas, was introduced in response to a unanimous Nevada Supreme Court decision last summer that allowed Nevada Power Co. to raise its rates by $180 million.

"The issue was whether there was a presumption in favor of the consumer or a presumption in favor of the power company as far as the reasonableness of increased costs," Buckley said on Wednesday. "This bill protects the consumer."

During hearings, Buckley said the Supreme Court misinterpreted a 2001 law that put the burden of proof on utilities to show their rate requests are based on prudent business decisions. AB7 reaffirms provisions in that law.

In 2002, the Public Utilities Commission disallowed all but $485 million of a record $922 million rate increase for fuel and wholesale power purchases by Nevada Power. The utilities commission based its decision on a conclusion that the electric company was imprudent in making many of those purchases.

The utilities commission disallowed $180 million based on evidence that Nevada Power failed to buy wholesale power from Merrill Lynch or another supplier a few months before the Western energy crisis sent wholesale power prices soaring. But the Supreme Court directed the utilities commission to return that $180 million to the utility, saying state law required the opponents to prove Nevada Power acted imprudently in buying power.

The new law does not change that settlement, but applies to future requests for rate increases.

Gibbons signed the bill late Tuesday.