Sierra Pacific stock up on big rate hike

Monday, Feb. 26, 2001 | 11:09 a.m.

The Public Utilities Commission of Nevada has approved a controversial rate increase for Sierra Pacific Resources Inc. that would raise the average Nevada Power Co. residential bill by 17 percent.

The company announced in January its plans to seek the increase to cover the skyrocketing cost of fuel and purchased power.

The proposed increase was a part of a "comprehensive energy plan," which also includes establishing a fund to help low-income customers pay their bills, seeking permission to enter long-term contracts for power and gas and the acceleration of power plant and transmission system construction.

Wall Street reacted favorably to the news this morning, boosting the company's stock by nearly 14 percent in early trading. This morning, the issue was trading at $13.54, up $1.64 from Friday's closing price. The PUC decision occurred after markets closed Friday.

Meanwhile, the state's Bureau of Consumer Protection, led by Consumer Advocate Tim Hay, said it is exploring all legal and regulatory options to block the increase, which he said is illegal.

The PUC approved the record $300 million-a-year increase in a 3-0 vote Friday, citing its staff's financial analysis. That analysis showed that not approving an increase could have pushed Southern Nevada's primary utility company and its Reno-based parent company to the brink of financial disaster.

Kirby Lampley, a senior policy adviser for the PUC, said the commission had two choices: It could raise the rates now and reduce them later if the increase proved to be too great, or it could do nothing and watch the company's creditworthiness collapse.

Commissioner Richard McIntire, who is presiding over the case, said California's inattention to its utilities' financial woes ultimately resulted in rolling blackouts for customers, which he said was unacceptable for Nevada.

"We need to keep the lights on (in Nevada)," McIntire said, "or we'll be conducting the hearing by candlelight."

Hay, meanwhile, was furious with the decision and said he is considering a number of strategies, including filing for a District Court injunction to stop the implementation of the rates.

"I believe the company has manufactured hysteria and manipulated the commission into approving a record rate increase without even one word of public comment," Hay said after the PUC decision.

"The company entered into a 'global settlement' that addressed many of the concerns they say are affecting them," Hay said. "I think they are far more concerned with acquiring Portland General (Electric, an Oregon utility Sierra Pacific has negotiated to acquire) than they are about local residents and through the commission, they are forcing hard-working Nevadans to bail them out."

Hay was referring to the settlement reached by his office, the utility company and the governor's office after Sierra Pacific sued the state, alleging its laws establishing deregulation were unconstitutional. Sierra Pacific agreed to drop the suit in exchange for the ability to raise rates a capped amount monthly to account for rising fuel and purchased power costs.

Sierra Pacific Chief Operating Officer Walter Higgins has repeatedly said the company's $3.1 billion acquisition of Portland General Electric from Enron Corp., Houston, is a separate transaction that has nothing to do with the company's Nevada operations.

Hay also said the company isn't as bad off as executives say, taking aim at a 25 cents-per-share dividend the company paid to shareholders earlier this month.

"The utilities division (of Sierra Pacific) reported a net loss of $5.8 million and the global settlement will enable them to recover their losses due to fuel and purchased power, yet the company was able to pay nearly $20 million to shareholders," Hay said.

Higgins has said the quarterly dividend is what has kept some investors with the company through a collapse in the stock price that occurred between July 1999 and February 2000. Cutting or eliminating the dividend, he said, would chase some investors away, further reducing stock price and destabilizing the company's finances, making it less creditworthy.

Hay is concerned about how much consumers are being asked to pay, but he's even more worried about what the rate increase will mean next summer when Southern Nevadans use more electricity to run air conditioners.

Hay's office prepared an analysis of what the average residential customer would pay based on month-to-month climate changes with the rate that was in effect last July, adding monthly fuel and purchased-power increases and the increase approved Friday.

Projecting continued purchased power increases, Hay said the average bill would peak at $232 in August and, by August 2002, would reach $275.

Still, Sierra Pacific officials say their rates aren't any worse than those of other utilities serving the West. The company says its rates per kilowatt hour are greater than those offered by Arizona Public Service Co., which serves most of Phoenix, but less than those of PG&E, Southern California Edison and San Diego Gas & Electric.

Higgins said the PUC's action rescued the utility company, which he said was "two weeks from having the checkbook run dry."

But while the PUC authorized the rate increase to take effect March 1, the debate over its implementation is far from over. The procedural order approved by the PUC Friday also set in motion a proceeding process to justify the increase.

Hay's office filed a motion to dismiss Sierra Pacific's application for the comprehensive energy plan on Feb. 15. That motion is still pending.

Commissioners ordered a prehearing conference on the plan for March 23. At that time, commissioners will consider Hay's motion to dismiss. In the meantime, the PUC has asked the company, the consumer advocate and 25 intervenors to file legal briefs on a wide range of issues involving the rate increase.

Among the issues: whether the comprehensive energy plan complies with Nevada law, whether it violates the terms of the global settlement, its relationship with the fuel and purchased power increases and whether the dismissal of the filing is in the public interest.