Opinion ID: 362370
Heading Depth: 1
Heading Rank: 2

Heading: Nevada Power's Claims

Text: 9 In contesting the Commission's rate determinations, Nevada Power challenges as improper (A) the methodolgy used by the Commission in determining the cost of power supplied to Cal-Pac by Nevada Power; (B) the allocation of demand costs between jurisdictional sales (those subject to the Commission's jurisdiction) and nonjurisdictional sales (those subject to the jurisdiction of the Nevada Public Service Commission); (C) the rate of return allowed on Nevada Power's common equity; (D) the assignment of costs associated with facilities used to serve Cal-Pac; and (E) compensation for wheeling services provided to Cal-Pac by Nevada Power. 10 A. Nevada Power based its computation of the cost of electric energy sold to Cal-Pac solely on Nevada Power's cost of production of steam-generated electrical energy. Claiming that legal restrictions prevented it from selling hydroelectric power to Cal-Pac, Nevada Power did not consider the lower cost of hydroelectric power in calculating power supply costs to Cal-Pac. The Commission, however, in accordance with its standard practice, determined that the costs of all of Nevada Power's sources of supply steam and hydroelectric should be averaged (rolled-in) in computing the cost of energy supplied to Cal-Pac by Nevada Power. Nevada Power claims that the effect of the Commission's rolling-in is to understate the cost of supplying energy to Cal-Pac and to deprive Nevada Power's retail customers of the lower cost of the hydroelectric energy they receive. 11 B. In allocating demand costs 3 between jurisdictional and nonjurisdictional sales, Nevada Power employed a peak responsibility method of calculation, based on the average of the coincident peaks of five working days of the peak week during the test period. 4 The Commission instead adopted a method based on the average of twelve monthly coincident peaks. The Commission found it necessary to consider not only installed generation capacity, as contended by Nevada Power, but also maintenance and overhaul schedules, unscheduled and scheduled outages, diversity interchanges of capacity, and reliance upon interconnection for reserve capacity. Nevada Power claims that the adoption of the Commission's methodology had the effect of denying Nevada Power recovery of a substantial portion of the demand costs it incurred to render service to Cal-Pac. Nevada Power argues, Inter alia, that since the ratio of the average of Nevada Power's monthly peaks to its annual peak is greater than the ratio of the average of Cal-Pac's demands at Nevada Power's monthly peaks to its highest demand at such a peak, Cal-Pac received an undue discount. 12 C. Nevada Power requested that it be permitted a 21.4% Rate of return on common equity. The Commission allowed a 14% Rate of return, noting that an allowed rate must be both commensurate with return on investments in other enterprises having a corresponding degree of risk and sufficient to assure confidence in the financial integrity of the enterprise so as to maintain its credit and attract capital. The Commission noted: 13 A fair rate of return for a public utility is not a matter which is to be determined by the mechanical application of a mathematical formula, but rather such a determination requires the exercise of informed judgment based upon an evaluation of the particular facts presented in each proceeding. There is no one precise answer to the question of what constitutes a proper rate of return. Rather, there is a zone of reasonableness within which the Commission is free to fix a rate of return. The interests of the company are to be considered along with those of the wholesale customers and the ultimate consumers, all to the end of assuring adequate service to the public and the financial integrity of the utility involved. 14 Nevada Power Co., 10 F.P.S. 5-211, 5-220 (1976). Nevada Power contends that the Commission's allowance of 14% Is confiscatory, unreasonable, and therefore illegal. 15 D. Nevada Power assigned the capital and operating costs of its Mohave substation to the cost of service for Cal-Pac. Nevada Power claimed that since the Mohave substation is used exclusively for Cal-Pac's service, the costs associated with such service should be borne solely by Cal-Pac. The Commission, however, reasoned that since Nevada Power operates an integrated transmission system that serves all customers, such transmission costs should be rolled-in with all other system-wide costs and then allocated to jurisdictional and nonjurisdictional service on the basis of demand cost allocation factors. The Commission also found that Nevada Power had contracted to install the Mohave substation at its own expense. Nevada Power claims that the Commission incorrectly interpreted the Nevada Power-Cal-Pac agreement. 16 E. Nevada Power requested compensation for providing transmission (wheeling) services to Cal-Pac for purchases of energy by Cal-Pac from the United States Bureau of Reclamation. The Commission, however, contrary to Nevada Power's interpretation, found that Nevada Power had contracted with Cal-Pac to wheel such power at no cost to Cal-Pac, and therefore disallowed compensation. The Commission also determined that a wheeling charge was unwarranted because Nevada Power avoided the expense of having to transmit its own power from the Mohave plant to the Mead substation. The Commission concluded lastly that Nevada Power did not meet its burden of proving the propriety of the charge.