Nevada Power threatens suit over state’s rate-cut ruling

Tuesday, March 21, 2000 | 10:59 a.m.

Stock falls

Investors punished Sierra Pacific Resources stock this morning, pushing it down $1, or 7 percent, to $13.25.

The stock fell after state regulators indicated they will cut the rates of Sierra Pacific subsidiary Nevada Power Co. Merrill Lynch downgraded Sierra Pacific stock on the news from near term accumulate to near term neutral.

CARSON CITY -- Nevada Power Co., which wanted to boost rates by $110 million, learned Monday it may be ordered to cut electric rates for its more than 581,000 customers in the Las Vegas area.

This represents a dramatic turnaround in a hard-fought rate increase case involving the state Public Utilities Commission (PUC), its staff, the state Bureau of Consumer Protection, Las Vegas Strip casinos and Nevada Power.

Karl Walquist, spokesman for Sierra Pacific Resources Co., the parent of Nevada Power, said Monday, "We're disappointed by the draft order that was issued today because we believe it will have a negative impact on the company, our customers and shareholders."

PUC Chairman Don Soderberg has been the presiding officer over the case and released his draft recommendation Monday.

The commission was supposed to vote on the recommendation, but Soderberg delayed a final decision until March 27 to allow the parties to continue to negotiate a settlement involving the broader subject of deregulation.

He said there may be "fruitful" discussions between the parties that could change the final outcome of the rate case. He stressed the commission has not yet voted on his proposal and it could be modified before it becomes final.

Walquist said if Soderberg's draft order is approved by the three-member commission "We will need to pursue legal remedies." He said the proposed decision was "contrary to the intent" of the 1999 law that deregulated Nevada's electric utilities.

Walquist said a preliminary study of the draft order shows Nevada Power would have to reduce rates between $9 million and $10 million.

But Eric Witkoski, a deputy attorney general for the consumer protection bureau, said, "We think the commission made a good decision. It's fair to the company and it's fair to the consumer." He said each party was interpreting the draft decision a little differently.

According to a PUC analysis of Soderberg's draft, Nevada Power would be able to collect $17 million over the next year in the deferred energy accounting rate. But the utility is now receiving $30.2 million this year. So the receipts in this category could go down by an estimated $13 million to the utility. But it would be allowed to increase rates by $3.7 million a year in another category.

So the utility could end up collecting $9 million less for the next year than it is now taking in.

In a statement today, Nevada Power said: "It is the company's opinion that the PUCN's final order will substantially reflect the draft order and lead to a write-off of approximately $20 million against first quarter 2000 earnings and a reduction in expected future revenues."

Nevada Power said that if the draft order is approved in its current form, it will pursue legal remedies to recover the costs already incurred by the company.

This rate case is important to the Las Vegas utility because it will not be able to raise its prices for three years, under the deregulation law.

The 1999 Legislature, in the bill to allow open competition among power suppliers, permitted Nevada Power one last chance to increase rates to offset its higher fuel costs before deregulation kicks in. The utility initially asked for $44.3 million, then boosted it to $110 million.

But the commission, on a 2-1 vote, disallowed the $110 million on Feb. 4. The hearings continued on the $44.3 million, which would have meant a rate increase for homeowners by 8 percent and a 4.2 percent increase for commercial customers.

The staff of the PUC suggested an across-the-board increase of about 1.5 percent; Strip casinos recommended Nevada Power reduce its rates by $11.5 million rather than increase them and the consumer protection agency wanted the rate increase reduced to $3.2 million or lower.

During the controversy over deregulation and the orders by the PUC rejecting the $110 million rate increase, the stock of the parent Sierra Pacific Resources has fallen from a 52-week high of $27 a share down to a closing price Monday of $14.25 a share.

Joyce Newman, president of the Utility Shareholders Association of Nevada Inc., said she was "not very encouraged" by the draft decision. But she said it was only a preliminary recommendation and "I'm withholding judgment until the final decision."

As the price has slumped, Newman believes a lot of people have sold their shares in the utility company.

Walquist said the company is still considering what action to take, if any, on the denial of the PUC of the $110 million rate rejection.

The Legislature allowed open competition to begin March 1 with approval of Gov. Kenny Guinn. But the governor delayed the start-up date, saying there were too many unsettled issues. He has called the parties together in an attempt to reach agreement.

There have been two closed door meetings -- one in Carson City and one in Las Vegas. The participants included the staff of the PUC, the consumer bureau, casinos, mines and Guinn's Chief of Staff Scott Scherer. Guinn's press secretary Jack Finn said there were no more sessions scheduled at this time.