PUC ruling may help Nevada Power parent

Wednesday, May 29, 2002 | 11:04 a.m.

Whether cash-strapped Nevada Power Co. survives the summer now depends on how its energy suppliers interpret a rate case ruling that stung its sister utility but could have been much worse.

That's the consensus of Nevada Power observers following Tuesday's decision by the state Public Utilities Commission to grant Sierra Pacific Power Co. of Reno permission to collect $152.5 million of the $205 million it is seeking from Northern Nevada ratepayers for energy used last year.

One utility analyst said the disallowance of only $52.5 million was not as bad as some on Wall Street had feared and may help Nevada Power and parent Sierra Pacific Resources in the long run. But the consensus was that everything now depends on whether wholesale energy suppliers will want to continue dealing with the battered utilities and their poor credit ratings.

While the rate increase will directly impact only Northern Nevadans, Nevada Power's credit rating is often influenced by what happens to its parent company and fellow subsidiary. Nevada Power's credit rating, now in "junk" status, could still slip to a lower grade within that range.

But Standard & Poor's analyst Swami Venkataraman, who has downgraded Nevada Power in the past, said he did not expect his credit rating agency to issue a further adjustment based on the latest PUC ruling.

"It seems to be better than we thought would come from the commission based on their draft ruling," he said.

Instead, he said attention will turn to ongoing negotiations between the utilities and their energy suppliers. Nevada Power is attempting to work out deals that would enable the utility to get through the summer while allowing it to pay some of its bills.

"It is important to see the outcome of these negotiations," Venkataraman said.

Fellow utility analyst Ronald Tanner of Legg Mason Wood Walker Inc. also said the PUC disallowance was less than he expected and could help the utilities with cash flow.

"It increases the probability that they can hold off filing for bankruptcy," Tanner said. "But a lot of it depends on how much slack the suppliers cut them and whether others will want to do business with them."

The immediate reaction on Wall Street was mixed. Sierra Pacific stock, which trades on the New York Stock Exchange, fell from its previous close of $7.81 a share Friday to $6.66 in early morning trading Tuesday, only to rebound to $7.38 at the closing bell. That meant the stock declined 5.5 percent for the day.

The stock was trading just above $7.50 this morning.

Sierra Pacific Power President Jeffrey Ceccarelli said his company was still analyzing the ruling because of its complexities. But he also said he could not see how the ruling could impact Nevada Power, which has a separate financial ledger and electricity distribution system. However, he agreed that the two utilities have the same energy suppliers.

"It's going to take us a little while to go through all the details," Ceccarelli said. "Obviously, we're in disagreement with some of the issues surrounding our energy purchasing practices."

Ceccarelli said, however, that the PUC did not stray much from what the utility had considered the most viable alternative -- a recommendation by the commission's staff to disallow $38.1 million. Instead, the PUC went with the higher disallowance recommended by Sierra Pacific Power's gaming and mining customers.

Still, the $52.5 million disallowance was not nearly as severe as that sustained by Nevada Power on March 29, which got barely half the money it sought.

Commissioner Richard McIntire, who authored the draft order in the Sierra Pacific Power case, had wanted to go with a far steeper disallowance recommended by the state Bureau of Consumer Protection. The bureau, a branch of the attorney general's office, wanted a disallowance of between $126 million and the full $205 million. But McIntire was in the minority and agreed to join PUC Chairman Donald Soderberg and fellow Commissioner Adriana Escobar Chanos in the final decision.

"We're grateful to the commission for disallowing about $52 million," state Consumer Advocate Timothy Hay said. "We frankly are disappointed that they didn't go farther because we believe there was overwhelming evidence that many of the costs they had were imprudently incurred."

Hay said he was uncertain whether Nevada Power would still file for bankruptcy.

"All we can rely on are the public statements of the company, which are all over the ballpark," Hay said.

Nevada Power has argued that it was placed in financial jeopardy when the PUC ruled in March to give the utility only $485 million of the $922 million it is seeking from Southern Nevada ratepayers for energy used last year.

Nevada Power has also said that it did not lock in long-term, low-cost energy contracts before the Western power crisis struck in 2000 because it was uncertain of the number of customers it would have left had Nevada allowed all ratepayers to buy retail electricity on the open market. It turned out that deregulation was put on hold for everyone except large customers.

With Sierra Pacific Power making similar arguments to those made by Nevada Power in its earlier rate case, Soderberg expressed some sympathy.

"We have to recognize that there is a difference between imprudence and bad luck," he said. "We also have to recognize that the best run utilities on earth would have had deferred balances in this situation."

The PUC on Tuesday also agreed to reduce the general rates paid by Sierra Pacific Power customers for administrative costs by $13.7 million.