Plug may be pulled on power projects

Thursday, April 4, 2002 | 11:08 a.m.

A decision Wednesday by the parent of Nevada Power Co. to delay construction of two major transmission projects has critics of the utility seething.

Sierra Pacific Resources announced that it will be forced to slash $125 million in capital costs this year and is reviewing other possible reductions. The company placed blame on Friday's ruling by the state Public Utilities Commission that granted Nevada Power only $485 million of the $922 million it was seeking for energy used last year.

Nevada Power also announced that it intends to file with the PUC a motion for reconsideration by the April 15 deadline, which came as no surprise to critics. Asking for reconsideration is a way for the company to exhaust administrative remedies before deciding whether to appeal the ruling in district court.

But critics such as state Consumer Advocate Timothy Hay and Fred Schmidt, an attorney representing the Southern Nevada Water Authority, blasted Sierra Pacific for opting to delay construction of Nevada Power's Centennial transmission grid near Las Vegas and Sierra Pacific Power Co.'s Falcon-Gonder transmission project in Northern Nevada. Sierra Pacific Power is the Reno subsidiary of Sierra Pacific Resources.

"What they're attempting to do is to hold Southern Nevada hostage by delaying essential infrastructure," Hay said. "What is implied is that it will delay hookups for new customers. It's an overt mechanism to get the commission to reconsider its decision. It amount to regulatory blackmail.

"Certainly, cutting dividends should be a higher priority than cutting expenditures for necessary projects."

Company spokesman Paul Heagen conceded that delay of the two projects would make it harder for the state to take advantage of increased electricity generating capacity. But he said the company had no choice. That sentiment was echoed in a prepared statement from Walt Higgins, chairman and chief executive officer of Sierra Pacific Resources.

"We continue to actively consider a variety of actions to protect our shareholders and customers as this situation develops," Higgins said. "One of these steps is to realign our priorities and projects to preserve our financial condition and meet our basic obligations to our customers, investors and suppliers."

Because Sierra Pacific listed last year's energy costs as an asset it had intended to recover from ratepayers, the company must find ways to come up with $437 million -- the amount of its $922 million request disallowed by the PUC -- in order to help balance its financial ledger. One way to do that is to cut costs for construction projects such as new transmission lines.

Joyce Newman, president of the Utility Shareholders Association of Nevada, said the announcement to delay transmission construction projects did not surprise her.

"I'm not sure they had any choice," she said. "They have to cut costs somewhere."

But Fred Schmidt agreed with Hay that the company is making the wrong move.

"That shows disrespect for the customers and unmitigated arrogance," Schmidt said. "Their job is to provide power for customers and if they can't, maybe we can find someone else who can.

"They're lucky the disallowance from the commission wasn't larger."

The Centennial project was announced with much fanfare, including a glossy brochure with an endorsement from Gov. Kenny Guinn. The intent was to double the amount of energy available to the Las Vegas Valley by 2005 by constructing 100 miles of new transmission lines. That plan is now on hold.

Whether the company decides to reduce its workforce of 1,800 employees, reduce its quarterly divided of 20 cents per share or take other drastic measures such as a bankruptcy filing remains to be seen.

"Everything is on the table," Heagen said. "Our No. 1 objective is the health and safety of our customers. Our next objective is that we have reliable service."

In its ruling affecting energy used last March through September, the PUC criticized Nevada Power's risk management practices and said it purchased too much power last year. The PUC also said Nevada Power cost ratepayers $180 million by failing to negotiate a proposed long-term low-cost energy contract in 1999 with Merrill Lynch.

Heagen said Nevada Power plans to argue that it made prudent energy purchases and followed a state law that was intended to shield ratepayers as much as possible from the Western power crisis. Heagen said Nevada Power followed that law, Assembly Bill 369 passed last year, by purchasing enough power to keep the lights on in Southern Nevada.

"We think the commission erred in terms of what evidence they considered and how it was treated," Heagen said. "We don't think their decision reflects the intent of the law. We have felt all along that the consequence of failing to have power in Southern Nevada would have been catastrophic."

The shareholders association board has also agreed to ask the PUC for reconsideration, either with its own motion or by joining the one to be filed by Nevada Power, Newman said.

"We'll have to see how it plays out," she said.

The PUC ruling caused Sierra Pacific's stock to dive nearly 40 percent Monday to $9.11 a share, its lowest closing since Nevada Power merged into Sierra Pacific in July 1999. Wall Street analysts were universally shocked that the commission disallowed $437 million, saying that reduction was too punitive.

"I can't comment on the stock price but it reflects the surprise of a lot of people about the severity of the order," Heagen said.

Hay, Schmidt and fellow critic Steve Boss, a Las Vegas attorney representing the Nevada Energy Buyers Group, all said they will file responses to Nevada Power's motion for reconsideration if necessary.

"The commission exercised careful deliberation throughout the proceeding," Boss said. "There's always a chance for a reversal but the commission considered what it felt were sound legal facts."

Hay said it is also possible that he and other critics of Nevada Power will file a joint motion of reconsideration to have the commission reconsider the value of the collapsed Merrill Lynch deal. Hay said he may argue that at least an additional $100 million should be subtracted from the $485 million granted to the utility.