Editorial: Companies feel bigger is better

Saturday, May 2, 1998 | 4:32 a.m.

The past year has seen sweeping mergers in nearly every sector of the economy, including gaming, banking, health care and retail. The latest merger affecting Nevada is in the utilities sector. Nevada Power, which serves Southern Nevada, announced Thursday its intent to merge with Sierra Pacific Resources, which serves much of Northern Nevada.

Unlike some of the other mergers, which are limited in scope and impact because the companies don't have a monopoly in their market, this one is much different. What's interesting is that you have two regulated monopolies seeking to have a nearly statewide monopoly on electric service (much of rural Nevada will be unaffected because it is served by electric cooperatives).

But each company's monopoly is soon to come to an end, prompting the merger. By the end of 1999, consumers will be able to choose their electric provider. So Thursday's announcement that the state's two investor-owned electric companies will merge was not unexpected. Since these Nevada utilities are relatively small, it is anticipated that some international energy companies might seek to capture Nevada's market once competition occurs. In an attempt to better position themselves to compete against these conglomerates, Sierra Pacific and Nevada Power were looking for partners to succeed in the new environment.

This is an intriguing marriage, however. Much in the way that Southern Nevada and Northern Nevada have dissimilar views on politics and society, the two utilities have displayed differing corporate cultures in the past. During the 1997 Legislature, Sierra Pacific embraced competition while Nevada Power was hesitant. And while corporate executives were enthusiastic about the merger's potential, these engagements don't always end in marriage. Sierra Pacific originally attempted a merger with Washington Water Power but ended its bid in 1996 after delays by federal regulators.

Company executives and analysts say it's a good deal for the utilities, shareholders and the state. Nevada Power and Sierra Pacific also say very few visible changes will be in store for customers. But at this early stage it's too soon to say with certainty whether the merger will benefit Nevada, especially in lower rates. Fred Schmidt, Nevada's state consumer advocate, said the merger should be investigated to see what it means for service, rates and competition. "Something of this magnitude for the state ought to be comprehensively reviewed," Schmidt said.

For almost all of this century, utilities have had monopolies in their service areas and have been strictly regulated by government to make sure they provide adequate service at reasonable rates. Previously, monopolies weren't regulated but abuses prompted state legislatures around the nation to impose controls on them.

Now the trend is toward deregulating utilities in the hope that competition will flourish, bringing better service and lower prices for consumers. But some critics worry, with justification, that as deregulation arrives more mergers will occur, resulting in a situation where you're right back where you started: monopolies with no meaningful regulation.

It's imperative that Nevada's Public Utilities Commission and federal regulators scrutinize this merger carefully, making sure that this isn't a one-way street. Wall Street often celebrates these mergers because they boost the new company's bottom line. But there is another bottom line that regulators will need to consider: How will it affect the average household budget?