Lawmakers stall utility deregulation-based rule

Brendan Riley

Tuesday, April 4, 2000 | 10:36 a.m.

CARSON CITY - A legislative panel has given Nevada's biggest utilities and their investors a break, stalling a deregulation rule seen as a threat in the utilities' struggle to stop tumbling stock prices.

The Legislative Commission voted unanimously Monday to tell the state Public Utilities Commission to revise its rule on "stranded costs." The lawmakers also called for open meetings as a new rule is written over the next few months.

"Stranded costs" are expenses that have been or will be incurred under existing contracts - but might not be fully recoverable from ratepayers after deregulation.

The bid by Las Vegas-based Nevada Power Co. and Reno-based Sierra Pacific Power Co. and their parent Sierra Pacific Resources comes after last week's federal court lawsuit against the state's 1999 law on electricity deregulation.

The utilities also filed a state court lawsuit in Carson City against the PUC's decisions on deferred energy cases.

Representatives of the utilities and their stockholders told state lawmakers they have been unable to convince the PUC its rule on stranded costs goes beyond deregulation laws.

PUC members countered that the rule is appropriate, and what the utilities really want is a guarantee that they can recover all costs.

Harvey Whittemore of the Nevada Resort Association - whose hotel-casino members are major power users - termed the utilities' maneuver to stall the rule a "bootstrap" ploy to buttress the idea that the deregulation law is unconstitutional.

Fred Schmidt, who just stepped down as Nevada's consumer advocate for utility customers, also said lawmakers should let the PUC rule take effect.

Senate Commerce and Labor Chairman Randolph Townsend, R-Reno, who played a major role in winning legislative approval for deregulation, said it's inappropriate to blame the PUC for the whims of the investing public or the utilities' business decisions.

Investors have been hard on Sierra Pacific Resources. Its stock was valued at about $27 last July but closed Monday at $12.31.

That's a $1 billion loss in value, Joyce Newman of the Utility Shareholders Association of Nevada said in urging legislators to insist that the PUC revise its rules on stranded costs.

There's no estimate from the utilities on the total in stranded costs, which stem mainly from long-term contracts the utilities have with other power suppliers.

Power companies fear the cost of such contracts could exceed market rates in the future, and under deregulation they may not be able to pass along the difference to customers.

The PUC's rule was designed to get an estimate of total costs and then determine what's appropriate for consumers to pay.

"The statute is crystal-clear that utilities must be allowed to recover past costs," said Malyn Malquist, Sierra Pacific's president and chief operating officer. "But the regulation is indefinite and does not guarantee recovery of appropriate past costs in several ways."