If plants are sold, Nevadans will pay

Erin Neff

Thursday, Feb. 22, 2001 | 11:29 a.m.

CARSON CITY -- If the state's utility holding company sells its power plants, consumers could be hit with anywhere from $915 million to $3.5 billion in increased costs over the next five years.

Two witnesses, including the state's consumer advocate, came up with those estimates while testifying Wednesday before continuing energy deregulation hearings in the Senate's Commerce and Labor Committee.

"If the plants are sold once their transitional purchase power contracts expire in February 2003, they'll have to buy power on the open market," said Tim Hay, director of the Bureau of Consumer Affairs in the attorney general's office.

Hay said his conservative analysis of a $915 million cost examines the period from 2001 to 2005 to address significant costs to the consumers after short-term benefits of divestiture occur in the first two years.

But a representative of Sierra Pacific Resources, the holding company for both Nevada Power and Sierra Pacific Power, had a very different story, estimating that divestiture would actually save consumers $872 million in the next two years.

Steven Oldham, senior vice president for Sierra Pacific Resources, told the committee the savings his company calculated is clearly short-term, admitting there were "possibly higher costs over the next five years."

Oldham said keeping the plants would actually cost consumers anywhere from $870 million to $1.1 billion because after February 2003, the company would have to purchase fuel to operate the plants.

Hay disagreed, saying the company's fuel-purchasing estimates are flawed because they only calculate prices in the short-term. If the company kept its plants, Hay argued, they would enter long-term contracts for coal, natural gas and other needed fuel sources.

Fred Schmidt, a former consumer advocate now lobbying on behalf of the Southern Nevada Water Authority, disagreed with Oldham's projections of huge costs to purchase fuel.

"I don't think it's going to be prudent for short-term gas contracts if you're still going to have plants for two years," Schmidt said.

Schmidt's analysis, which assumed natural gas prices closer to those currently charged in the California market, estimated between $1.7 and $3.5 billion in costs to customers if the plants are sold. "The Southern Nevada Water Authority believes it's incumbent on the PUC and the Legislature to take action," Schmidt said.

When Nevada Power and Sierra Pacific announced merger plans in 1998, they offered divestiture as a condition of their approval before both the Public Utilities Commission and the Federal Energy Regulatory Commission.

At the time nearly everyone agreed divestiture would help spur a robust energy market, and thus, lower prices for consumers. But three years later with an energy crisis forcing rolling blackouts in California and the threat of the same in Southern Nevada this summer, many believe divestiture must be halted.

Even as many Democratic legislators want to place a moratorium on divestiture, the PUC is already receiving applications to sell some of Sierra Pacific Resources' plants.

Neill Dimmick, staff director for the PUC, said Sierra Pacific Resources has received a bid to sell its Mojave generating plant near Laughlin to AES Corp. of Arlington, Va.

"More sales will be coming to the PUC in coming days," Dimmick said.

Oldham said Sierra Pacific Resources has contracts to sell two plants in northern Nevada and five, including Mojave, in southern Nevada.

Hay has filed a request with the PUC to reconsider divestiture given today's market climate. He said he thinks the PUC can make the decision on the state level. The Federal Energy Regulatory Commission order to divest could also be amended, Hay said.

And recent legislation in California - Assembly Bill 6 -- could actually delay the sale of Mojave and other plants. That legislation states that any company subject to California PUC regulations, can't sell their resources until 2005.

The Mojave plant's current majority owner is Southern California Edison.

Oldham testified Wednesday fresh off his company's announcement Tuesday of significant fourth quarter losses in 2000. Wholesale costs were up 115 percent for Nevada Power and 130 percent for Sierra Pacific, fueling a net loss of $18.2 million for the quarter ending Dec. 31, 2000.

For year-end 2000, the company reported a net loss of $39.8 million, or 51 cents per share for common stock.

Oldham subtly suggested the committee should allow Sierra Pacific to divest. In the two years since the merger was first announced, he said, Sierra Pacific Resources has spent $16 million on divestiture efforts.

The company had also planned to use proceeds for the sale of the power plants for other costs.

"Clearly we would have to spend more funds to close this process down," Oldham said of the current divestiture proceedings.

Union representatives also testified Wednesday against divestiture, claiming the sale of power plants would cost jobs and could result in the same troubles plaguing California.

Former state Sen. Ernie Adler, representing the International Brotherhood of Electric Workers, said retaining the plants could actually create an environment under which deregulation could occur.

"It's not necessary to abandon deregulation if you halt divestiture," Adler suggested.

But he said if the Legislature or PUC places a moratorium on divestiture, something would have to be instituted to help the company in the interim. He suggested repealing caps on energy prices to allow the company to recoup losses through rates.

After the testimony, Committee Chairman Randolph Townsend, R-Reno, said he has not decided whether he thinks divestiture should be halted.

During the hearing Townsend did say he thought several legislative possibilities have arisen so far during six days of hearings before his committee, including divestiture, constructing new plants, alternative energy, conservation and transmission.

This morning the committee heard more testimony from alternative energy producers. The committee will discuss the state's transmission problems Monday.