Nevada Power files lawsuit against PUC

Cy Ryan and Steve Kanigher

Friday, April 12, 2002 | 11:12 a.m.

CARSON CITY -- Nevada Power Co. filed a lawsuit against the state Public Utilities Commission on Thursday, alleging that the regulators erred by approving barely half of the $922 million in rate increases the company sought for energy used last year.

The 69-page complaint, filed Thursday in Carson City District Court, said the impact of the March 29 PUC decision was "swift and severe." The utility's unsecured debt was downgraded by credit-rating agencies to "junk status" and its market value fell by more than 40 percent.

The suit, assigned to District Judge William Maddox, urged the court to send the case back to the PUC to grant the full $922 million. Nevada Power alleged that the commission made numerous procedural errors having to do with testimony in the case. The utility also alleged that one unnamed commissioner "expressed bias against Nevada Power Company" that affected the deliberations.

The three-member commission, which approved only $485 million of the $922 million Nevada Power wanted, said it did so because the company displayed poor risk management, blew an opportunity to accept a low-cost, long-term energy contract in 1999 and bought too much power last year. The harshest comments came from Commissioner Richard McIntire, who said he wanted the entire $922 million disallowed but voted with the others to subtract $437 million from the rate case.

Commission spokeswoman Cynthia Messina said the PUC received notice of the lawsuit late Thursday afternoon and had no comment.

Nevada Power spokesman Paul Heagen said the company still may file a motion for reconsideration with the PUC by Monday's filing deadline.

"We want to pursue every legal option we have," Heagen said. "We have said all along that the order from the commission has been damaging to the financial health of the company."

The lawsuit caught Nevada Power critics by surprise, however. They said they had expected the company to exhaust its administrative options first by filing a motion for reconsideration with the PUC.

"I'm surprised because in a press release last week they said they would file a motion for reconsideration," Fred Schmidt, an attorney representing the Southern Nevada Water Authority, said. "It's not clear to me why they are ignoring that opportunity. The procedure is you normally file for administrative remedies before you go to court. That's sound legal principle."

Fellow critic Timothy Hay, the state consumer advocate, expressed disappointment that Nevada Power filed the lawsuit in Carson City and not in Las Vegas.

"It's curious since all the parties to this action are Las Vegas residents and Las Vegas businesses," Hay said. "They didn't have the courage to file in district court in Las Vegas. I'd view it as a strategy to get the matter before a judge who is not a Clark County judge. They don't want to have 300 Las Vegas residents in the courtroom while they try to get the entire $922 million."

But Steve Boss, a Las Vegas attorney who represents the Nevada Energy Buyers Group, said Nevada Power also may have chosen to file in Carson City because that is close to the Reno headquarters of parent Sierra Pacific Resources.

"Most of the people involved in their case were out of the Reno office," Boss said. "Their general counsel is from Reno and a lot of their analytical people are in Reno. It was probably a matter of convenience that they filed in Carson City."

Utility attorneys William Peterson and Elizabeth Elliot urged the judge to grant an expedited hearing and to allow them to introduce evidence of irregularities during the proceedings before the PUC.

The lawsuit said the company was denied "full and fair opportunity to cross-examine witnesses." The complaint also said the state Bureau of Consumer Affairs headed by Hay misused its subpoena power to obtain evidence that was shuttled to a private party.

This accusation was related to a series of e-mails between Nevada Power principal trader Jon Perry and Merrill Lynch energy broker Dan Gordon involving a potential low-cost, long-term energy contract in 1999. The e-mails indicated that Merrill Lynch was prepared to offer the contract to Nevada Power at $33.75 per megawatt hour, but that the utility was prepared to spend no more than $33.50 per megawatt hour.

Company officials told the PUC that the deal fell through not only because of the price difference but because of other factors, such as the reliability of the contract. Instead, Nevada Power got swept into the power crisis that struck the West in 2000 and wound up paying $172 per megawatt hour for energy from wholesalers last year. The commission punished the company by disallowing $180 million of the $922 million request based on the failed Merrill Lynch deal alone.

Hay, meantime, defended the subpoena from his office, stating it was necessary because the company had withheld most of the e-mails during discovery. The subpoena was withdrawn when the company voluntarily provided the remaining e-mails, Hay said.

"We clearly didn't violate our subpoena powers," he said. "We drafted the subpoena under our deceptive trade practices act."

Nevada Power alleged in the lawsuit that the PUC "erroneously struck portions of pre-filed testimony" from Sierra Pacific chief financial officer Dennis Schiffel about the utilities' present financial condition.

The lawsuit also alleged the PUC improperly disallowed pre-filed rebuttal testimony from a company expert who said Nevada Power was prudent in the way it purchased energy last year.

Boss said the commission correctly struck testimony related to Nevada Power's financial condition because it wasn't relevant to the rate case. He also said the PUC was correct in striking some rebuttal testimony from the company because much of it came from new witnesses who did not offer rebuttal to arguments made in the case.

"They filed nearly 500 pages of rebuttal, including testimony from three or four new witnesses," Boss said. "Rebuttal is supposed to be addressing direct issues raised in the case and not new areas."

The Las Vegas utility said it spent almost $2 billion between March 1, 2001 and Sept. 30 "buying electricity and fuel to keep the lights on in Southern Nevada. Just half of the amount spent was covered in Nevada Power's existing energy rates."

The company said it had to go into debt to pay the energy suppliers with the promise the utility would recover the money in the rate case. The PUC ruling was effective April 1.

The lawsuit said the utility was "not imprudent" in buying power supplies in February and April 2001 to be delivered to the Las Vegas area last summer. Those purchases came when there were expected energy shortages in the Western United States, the company stated.

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