Opinion ID: 2631746
Heading Depth: 1
Heading Rank: 24

Heading: Prudence presumption

Text: Whether a utility applying for recovery of losses documented by deferred energy accounting enjoys a presumption that its energy costs were prudently incurred is an issue of first impression in Nevada. We hold that the rebuttable presumption analysis set forth in Re Nevada Power Co. [26] is the controlling procedure in deferred energy accounting proceedings. In Re Nevada Power Co., [27] the PUCN adopted and refined the rebuttable prudence presumption analysis previously stated in a Federal Energy Regulation Commission opinion. [28] Under the PUCN's presumption framework, a utility requesting a customer rate increase enjoys a presumption that the expenses reflected in its deferred energy application were prudently incurred and taken in good faith. [29] An intervener in the deferred energy proceeding may then rebut the prudence presumption by introducing evidence that `creates a serious doubt as to the prudence of an expenditure,' [30] because `the [PUCN] cannot approve the [rate increase] to jurisdictional ratepayers of costs incurred as a result of negligence, mismanagement, or inefficiency.' [31] Thus, the intervener bears the initial burden of overcoming the prudence presumption by presenting evidence that creates a serious doubt as to the prudence of the utility's expenditure. [32] Only then will the prudence presumption be rebutted and the burden of production shifted back to the utility. [33] Once an intervener presents evidence sufficient to create a serious doubt regarding whether the utility's expenditure was prudent, then the [utility] has the burden of dispelling [those] doubts by presenting additional evidence that demonstrates the prudence of the questioned expenditure. [34] The reasoning behind granting a utility a presumption of prudence is rooted in economics. Because a regulated utility is required, by law, to advance costs for purchased power before knowing whether any increased costs will be reimbursed through a rate increase, we recognize that this analytical approach protects a utility's economic interests. However, the customer's economic interests are protected as well, because the utility's prudence presumption is rebuttable, not conclusive. [35] Thus, the presumption approach strikes an equitable balance between the need to protect both the utility's and the customer's economic interests. Accordingly, we conclude that a utility enjoys a rebuttable prudence presumption as to its incurred costs in deferred energy accounting proceedings. In light of the rebuttable prudence presumption, we conclude that the PUCN properly allowed Nevada Power to recover the nearly $485 million of deferred energy costs from 1999-2000, except for the $180,082,532 disallowance due to Nevada Power's decision to forgo a Merrill Lynch-type transaction, and properly disallowed the remainder of Nevada Power's requested recoupment. The PUCN's decision to allow Nevada Power to recover nearly $485 million of its deferred energy costs comports with NRS 704.110(10) and is supported by substantial evidence in the record. Although the PUCN heavily criticized Nevada Power's practices and transactions from 1999 through the middle of 2000, it allowed Nevada Power to recover nearly $485 million in accumulated deferred energy costs. In allowing these costs, the PUCN concluded that the market conditions and the uncertainty surrounding the provider of last resort provision justified a finding that, except for the failure to enter into a Merrill Lynch-type contract, Nevada Power prudently incurred costs during that time period. The BCP contends that the PUCN erred in allowing Nevada Power to recover $485 million in purchased power costs, pointing to five PUCN findings that criticize Nevada Power's management practices, to wit: (1) Nevada Power knew that its financial risk in 1999 was very large, yet failed to take appropriate action; (2) the head of Nevada Power's resource management team was not experienced in power trading and risk management and no risk management meetings were held until it was too late; (3) Nevada Power failed to act on its knowledge; (4) as power costs were rising, Nevada Power's management lost focus because of its preoccupation with a proposed (but never consummated) merger with Portland General Electric; and (5) Nevada Power's conduct was not focused on customer service. The BCP argues that under NRS 704.110(10)'s requirement that only prudent costs be recouped, these five findings mandate a legal conclusion that Nevada Power imprudently incurred the total costs requested, and those mistakes set off a natural and continuous sequence of events that resulted in $922 million of purchased power costs. [36] Moreover, the BCP argues, the status of deregulation from 1999 through the middle of 2000 did not relieve Nevada Power from its obligation to prudently incur any costs associated with power purchases.