A client made a QNEC during the first year of the plan (2002). They are on prior year testing in 2003, so does the QNEC that they made last year increase the NHCE percentages for this year's test?

I think so. If you substitute your years for the language in Notice 98-1, I think that it says "If the prior year testing method is used for the 2003 testing year, QNECs that are allocated to the accounts of NHCEs for the 2002 plan year must be contributed by the end of the 2003 plan year to be treated as elective contributions for purposes of the ADP test for the 2003 testing year."

http://www.unclefed.com/Tax-Bulls/1998/not98-01.pdf