Nevada Power weighs options

Monday, April 1, 2002 | 10:52 a.m.

The plot thickens now that the state Public Utilities Commission has granted Nevada Power Co. slightly more than half of the money it was seeking for energy used last year.

It is a sure bet that Friday's ruling to give Nevada Power only $485 million of the record $922 million it requested will be met with a swift legal response. Among the options are motions to have the commission reconsider its decision, lawsuits in District Court or possibly a decision by Nevada Power to file for bankruptcy.

Nevada Power President Mark Ruelle isn't ready to tip his hand. Calling the commission decision "profound," he said after the ruling that it will set off a course of events but "I don't know where it's going." He then refused to answer questions from the media as he walked off with other Nevada Power executives.

The stock of Nevada Power's parent company, Sierra Pacific Resources, dropped Monday morning, the first day of trading since the PUC's decision. The stock closed Thursday at $15.09 and by midday on the New York Stock Exchange the stock was trading at $9.75.

That is the lowest level Sierra Pacific stock has reached since its merger with Nevada Power in July 1999.

Joyce Newman, president of the Utility Shareholders Association of Nevada, said today she was not surprised by the stock's downward spiral. The association had advocated that Nevada Power get the full $922 million, arguing that all its purchases from other power generators were prudent.

"It's probably expected," Newman said of Wall Street's reaction. "I really don't know what else to say right now.

Merrill Lynch, AG Edwards and Goldman Sachs all downgraded Sierra Pacific's stock today and Standard & Poor's downgraded the utility's debt rating. The trading by midday was heavy, involving 14.6 million shares. That compares to an average trading volume of 537,772 shares a day for Sierra Pacific stock.

PUC Chairman Don Soderberg said he expects Nevada Power will sue over the commission's ruling.

"It is clear the utility will consider its legal rights through a reconsideration or by going to court," he said after the ruling.

State Consumer Advocate Timothy Hay said Nevada Power is the most likely party to challenge the ruling in district court. His office, the state Bureau of Consumer Protection, is unlikely to initiate a lawsuit even though he sought a $950 million reduction in the rate case, Hay said.

"We certainly haven't foreclosed on the option of going to court, but the decision from the commission is a substantial improvement from our viewpoint," Hay said. "My guess is that the company will be the moving party in any challenge to the order and that we might assert our challenges in that process."

But the Nevada Coalition of Commercial Energy Consumers, which represents hospitals, UNLV and businesses and sought a $506.5 million reduction, might ask the commission to reconsider, even though the group welcomed the decision, consultant Scott Craigie said.

The coalition had recommended a $304 million reduction for the utility's failure to enter into a long-term energy contract with Merrill Lynch in 1999. The commission allowed a $180 million reduction on the proposed deal.

"I thought it was a very strong ruling by the commission but we may file a motion for reconsideration on the $180 million," Craigie said. "We are considering recommending that they make that reduction $304 million."

The coalition and other critics claimed the Merrill Lynch deal would have protected ratepayers from the skyrocketing wholesale prices Nevada Power ended up paying for energy used last March through September. Those costs were the subject of the $922 million rate case. The company blamed them on the Western power crisis.

The company argued that it did not enter into long-term energy contracts in 1999, because it was uncertain how many customers it would have in the future. A state law at the time was intended to allow all Nevadans to purchase retail electricity on the open market, but that law was ultimately challenged in court by Nevada Power and never implemented.

Critics argued that Nevada Power never properly analyzed the number of customers it would have lost to deregulation.

One such critic, gaming giant MGM MIRAGE, sought reductions of $670 million to $701.6 million in Nevada Power's request. MGM MIRAGE spokesman Alan Feldman said the resort company has not yet determined whether it would appeal the commission's ruling, but he praised the PUC.

"First and foremost in the face of an intense lobbying and public relations campaign staged by the management of Nevada Power, the Public Utilities Commission clearly did what was in the best interests of ratepayers," Feldman said.

"I'm not going to rule out anything, but we were clearly impressed with the way the PUC handled itself."

A group representing utility shareholders planned to meet this week to decide what it would do, said Joyce Newman, president of the Utility Shareholders Association of Nevada.

"We're very unhappy and surprised and discouraged by the decision," Newman said. "The company acted prudently. I don't see any evidence of imprudence. I don't understand the decision, frankly."

Requests for reconsideration must be filed 15 calendar days from Friday. The PUC rule within 40 days of a filing.

Soderberg said it is not uncommon for motions of reconsideration to be filed in rate cases, and some decisions have been amended as a result. But he said it is rare that a district court judge will overturn the PUC, he said.

"There is a judicial presumption in favor of the agency," he said.

The new rates go into effect today and will increase or decrease slightly in the coming year for residential customers, depending on how much electricity they use each month. The more electricity one uses in a home, the greater the chance the rates will decrease.

Under the current tiered rate system, a residential customer paid 7.4 cents per kilowatt hour for using up to 400 kilowatt hours a month, 8.9 cents per kilowatt hour for 400 to 675 kilowatts, and 9.4 cents per kilowatt hour for more than 675 kilowatts.

The commission's ruling eliminated the tiers so that the per-kilowatt hour rate will remain the same regardless of the amount of electricity used. That rate could be revealed as early as today by Nevada Power.

Consequently the typical ratepayers who use 2,300 kilowatt hours a month in a single-family home will see their bills go up from $212.12 to $214.58, or 1.1 percent. A typical apartment dweller who uses 1,100 kilowatt hours a month will see his bill increase from $99.17 to $101, a 1.8 percent increase. But a typical residential customer who uses 4,900 kilowatt hours in a single-family home will see a 1.1 percent decrease, from $456.86 to $451.49

The three-member commission had harsh criticism for the way Nevada Power conducted its business. The harshest words came from Commissioner Richard McIntire, who said he wanted the entire $922 million request denied. He described the company as the "Keystone Cops of risk management."

"I would disallow what they filed for in their entirety," he said. "They don't have their act together."

Commissioner Adriana Escobar Chanos, who recommended the reduction for the Merrill Lynch deal, also called for an investigation of Nevada Power's energy purchasing and risk management practices.

"I have been extremely concerned with the risk management procedures or lack thereof," Chanos said.

"Perhaps there was a resource plan in place but I didn't see it followed," she said. "There was a significant lack of record keeping. Part of the problem is we don't know what occurred, because there were no records."

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