Nevada Power wants law on deregulation struck down

Wednesday, March 29, 2000 | 11 a.m.

Nevada Power and its Reno-based parent company want the law that deregulates the electrical power industry in the state declared unconstitutional.

In a surprising move by the parent company, Sierra Pacific Resources Inc., and the dominant utility serving Southern Nevada, the companies filed suit in U.S. District Court in Reno Tuesday to strike down Nevada Senate Bill 438, the law that set the restructuring of the industry in motion last year.

Deregulation was scheduled to begin March 1, but was delayed by Gov. Kenny Guinn, who said all the details of the law had not been completed.

The suit names the Public Utilities Commission of Nevada and commission members Donald Soderberg, Richard McIntire and Judy Sheldrew as defendants.

"The fact that we have had to write off two-thirds of our earnings for 1999 means something has gone off track," said Michael Niggli, chairman and chief executive officer of Sierra Pacific Resources. "We don't think anybody thought restructuring was going to go like that."

PUC Chairman Soderberg said the commission was served with the suit Tuesday afternoon. He said while the commission's legal counsel was reviewing the suit, he would have no comment. Sheldrew also had no comment.

Sen. Randolph Townsend, R-Reno, one of the engineers of the restructuring law, also declined comment, citing the possibility of being called as a witness to the case.

Company officials also helped draft the legislation, but they say it now is being interpreted differently than they had envisioned.

The company's decision to file the suit came a day after the Public Utilities Commission of Nevada voted 2-1 to cut power rates by more than $9 million. The company had sought a $44.3 million rate increase. Last month, the PUC rejected a $110 million rate case.

Company officials said publicly they planned to appeal the decisions. But the plan to strike down the state law in federal court was unexpected. The possibility of the federal suit was discussed in closed-door meetings involving PUC staff representatives, the utility and other business representatives earlier this month, Soderberg said.

The company believes the law is unfair because it doesn't give the utility an opportunity to recover "stranded costs" -- costs of doing business that would not be economical in a competitive marketplace.

Nevada Power also complained that the law freezes company rates for three years, but offers no rate increases if revenues are insufficient to earn a fair rate of return.

The company alleges that customers have benefitted from low power rates and quality service at the expense of shareholders.

Niggli said the company tried to get a rate increase in its last opportunity to do so -- the deferred energy case brought before the PUC in the last two months.

"We felt it was a pretty modest rate increase," Niggli said. "But we asked for an increase and got a rate decrease. That is unexplainable."

Niggli said in addition to filing the federal suit, the company plans to go forward with its appeal of the PUC decision. He said that couldn't be filed until the company received a final order from the PUC on the rate case, which he said was expected later this week.

Once that occurs, Niggli said a suit would be filed in state District Court in Carson City.

The company believes the PUC improperly dismissed the filing. The decision, the company believes, has contributed to a 25 percent drop in Sierra Pacific's stock price.

This morning, the issue was trading at $12.44, up 19 cents from its Tuesday closing price of $12.25. Earlier in the day, the stock dipped to a 52-week low price of $12.12.

State officials believe Sierra Pacific's poor stock performance was more the result of difficulties Sierra Pacific and Nevada Power had in merging the two companies last year and the company's proposal to acquire Portland General Electric, the main electrical utility serving western Oregon.

Niggli said Sierra Pacific is still planning to close on the $3.1 billion PGE deal by fall.

Bill Peterson, senior vice president and legal counsel for Sierra Pacific Resources Inc. and Nevada Power, said he expects the suit to be resolved by the end of the year.