Nevada Power in no rush to leave consumer market

Thursday, March 2, 2000 | 11:10 a.m.

Residential customers of Nevada Power Co. don't have to start shopping for a new electricity provider right away, despite the company's announcement it is getting out of the retail energy business.

Southern Nevada's dominant electrical utility will continue to sell power at the retail level for months, even years, before consumers have to make a decision on what company from which to buy.

State government leaders were hopeful that deregulation of the industry would have started Wednesday. But Gov. Kenny Guinn announced Monday that the state wasn't ready to begin, primarily because several policies and regulations haven't been drafted and debated.

Guinn didn't announce a new target start-up date, but industry observers say they don't want competition to start in the summer or right before summer when fuel rates are volatile due to seasonable peak power usage. And politically, leaders probably won't want it to start during the legislative session, which will run from January through May.

So, instead of a handful of utility companies firing up their advertising campaigns in March, Nevada Power will continue to operate as Southern Nevada's regulated monopoly for a few more months. The delay was one factor in the decision to get out of retail power sales.

"What the decision means for the consumer is that when the markets do open up, there will be one less competitor out there selling power," said Steve Rigazio, senior vice president of energy delivery for Nevada Power.

Nevada Power's parent company, Sierra Pacific Resources Inc., had planned to operate an affiliate known as Nevada Power Services to sell retail power. That's the operation the company announced Tuesday it's shutting down. The move will cost 40 people their jobs and the shut-down is expected to be completed by the end of March.

The company is gearing to save $20 million this year after a rate increase was rejected.

The company's exit from the retail energy business was embraced by investors. The stock price closed Wednesday at $13.75, up 13 cents from Tuesday. This morning, the issue was trading at $13.81, up 6 cents.

"Nevada Power will still be offering the total package of energy products to everybody until the market opens up, whenever that is," Rigazio said.

And even after deregulation begins, Nevada Power will still be a player as the so-called "provider of last resort" -- the company that takes customers that don't choose a new electrical provider.

Nevada Power will be the provider of last resort at least until July 2001 when other companies can apply for the designation. Most utility experts don't expect many companies to want that status since it also means taking on a number of accounts that would have to be written off as uncollectable.

No one knows how long Nevada Power will be the provider of last resort since there's no ending date in regulations. In fact, a number of details about the provider of last resort haven't been resolved and will be discussed in hearings later this month.

Rigazio said the company has projected that it would keep all its current customers through 2000 because it anticipated the market wouldn't open on time and even if it did, alternative sellers' marketing campaigns wouldn't kick in until late in the year.

The company wasn't anticipating a rush of customers to alternative sellers since utility rates are comparatively low and the Nevada Legislature has mandated a three-year cap on Nevada Power's electrical rates.

Rigazio said the company hasn't projected the number of customers it would keep beyond 2000.

Reaction to the company's announcement has been favorable from most utility observers.

Public Utilities Commissioner Judy Sheldrew, usually a company adversary, said Sierra Pacific Resources appears to be returning to the mission it established when it merged with Nevada Power in July 1999 -- to be a transmission and distribution line company.

"It's a very positive move for the financial health of the utility," Sheldrew said.

Rigazio concurred that by focusing on transmission and distribution of power, Nevada Power will concentrate on what it does best.

But Joyce Newman, president of the Utility Shareholders Association of Nevada, said the company also has done a good job of serving retail customers by keeping rates down while providing a fair rate of return for shareholders. She said she is disappointed that the company decided against testing the waters in the competitive marketplace because she expected it would be a key player.

Consumer Advocate Fred Schmidt said he thought the decision was a good one in light of the current financial state of the company, but that he wouldn't be surprised if at some point, Nevada Power decided to jump into the competitive marketplace. But the chief executive of Nevada Power's parent company says that isn't likely.

"We always say 'never say never,"' said Michael Niggli, who was in New York discussing the decision with Wall Street analysts Wednesday. "But this was a decision that was reached after a lot of thought and I don't expect we'll be going back to the retail market."

Niggli added that Sierra Pacific Resources has no plans to use its status as parent company of Portland General Electric as a platform for serving retail customers. Sierra Pacific is is in the process of acquiring the utility, which has a retail customer base in Oregon, from Enron Corp.

Asked if Nevada Power will have diminishing public exposure as a wires company and how that would affect the company's philanthropic endeavors, Niggli said things would be worse if the company's revenues are decreased.

He explained that the Sierra Pacific Foundation, which contributes to charitable organizations, is funded by a formula of 0.5 percent of the company's net earnings. He reasoned that if net earnings are reduced, it would impact the money available to the foundation.

Sierra Pacific's decision to get out of the retail market is not without precedence. Enron, a Houston-based energy company, decided to leave the California retail market, citing razor-thin profit margins. Industry experts say those margins are what keep many of the large companies from applying for licensure in Nevada. Most of the big companies looking to enter the Nevada market -- Enron is one of them -- will not serve residents, but focus entirely on big electricity users, like casinos and mines.

That's why those industries have pressed hard to get competition started. They can negotiate directly with the energy companies to get a break in rates.

Residential users, meanwhile, will be approached by small companies that will come up with creative ways to cut costs. One of those competitors for example, Utility.com Inc. of Albany, Calif., won't have any offices in Las Vegas, but will conduct business via the Internet. The company says the lack of paperwork and mailings will cut costs enough for the company to offer competitive rates.

Nevada Power Services' strategy was to offer other services like satellite television, cellular telephones and computer leasing to customers in package deals, using the bundling of services as a means of saving money.

In the end, Sierra Pacific officials felt that strategy wasn't going to be enough to make retail sales lucrative for the company.

archive