Friday, Nov. 1, 2002 | 5:17 a.m.
WEEKEND EDITION: Nov. 3, 2002
If you watch television regularly you have been bombarded by advertisements that, in effect, tell viewers it would be bad for the public if the Southern Nevada Water Authority ran the power company.
You probably have also noticed that there haven't been any ads from the water authority explaining why it might be good for the public agency to provide electricity to Southern Nevadans.
The reason for that is the water authority is prohibited by law from engaging in political campaigns. And it is an initiative on Tuesday's general election ballot, Question 14, that is the hook for all those ads.
The problem is that the ads blur the lines between the ballot measure -- which asks Clark County voters whether they want a nonprofit public agency to provide their electricity -- and a $3.2 billion bid by the water authority to acquire Nevada Power Co. from investor-owned parent Sierra Pacific Resources.
The ballot measure doesn't mention either the water authority or Nevada Power and says nothing about the $3.2 billion bid. But a figure close to the bid amount, $3 billion, has become a centerpiece of the ads that have been funded almost exclusively by Nevada Power.
Nevada Power spent $1.6 million from Sept. 30 through Oct. 24 to finance the campaign that has bombarded Southern Nevada with anti-Question 14 television, radio and direct mail advertisements. The Las Vegas utility believes the advisory measure is misleading and amounts to a referendum against the company.
But water authority General Manager Pat Mulroy said the ad campaign is "full of lies" as it relates to the bid.
The water authority in this instance is like a person strapped to a tree, forced to endure a swarm of blows without the ability to deflect them or fight back. The agency's inability to participate in a political campaign has given Citizens Against 14, the coalition financed by Nevada Power, the opportunity to make its arguments without having to defend them.
On KLAS-TV Channel 8, for instance, Citizens Against 14 will have aired more than 300 30-second spots between Oct. 8 and Monday at $500 to $9,000 a pop. The water authority cannot spend a dime and cannot get help from a citizens group that supports the ballot measure because they don't have money, either.
"I expected an ad campaign but I expected a level of integrity that addressed only the ballot question," Mulroy said.
"The latest mailer they did was about our offer and had nothing to do with the ballot issue. I am very curious how a company can tell its shareholders that they're meeting their fiduciary obligation when they were offered $100 million over book value for Nevada Power and then run a political campaign against the offer."
The water authority, the largest user of electricity in Southern Nevada, has argued that it could lower electricity rates by at least 20 percent immediately and provide reliable electric service at a time when Nevada Power is struggling financially. But Sierra Pacific has refused to negotiate, arguing that the water authority's financing plan is flawed and that they have no experience running an electric utility.
The Citizens Against 14 media campaign centers on four arguments: the public would be taking on more than $3 billion in "new debt"; a public power company would be run by "inexperienced bureaucrats"; electricity rates would go up in the long run because of the debt; and reliability would go down because of government's inexperience running an electric utility.
Carole Vilardo, president of the Nevada Taxpayers Association and chairwoman of Citizens Against 14, said the water authority would be taking on debt it currently doesn't have.
"The water authority will have to sell bonds to come up with the $3 billion," Vilardo said. "That effectively constitutes new debt, of which a portion covers the equity of Nevada Power. One of my concerns is that there is absolutely no financial information provided with the ballot question. The problem is that there has been a blurring of the question on the ballot and the buyout offer."
But Mulroy said the argument that the water authority would be taking on $3 billion in new debt is "a flat lie." She said the water authority would simply refinance existing debt that electric ratepayers would pay anyway by taking advantage of the water authority's "double A" credit rating compared to that of Nevada Power, which is in "junk" status. The result would be lower cost to ratepayers, she said.
"To say that we would be be saddling the public with $3 million in new debt, that's absolutely false," Mulroy said. "These are almost terrorist tactics. Nevada Power is a party to putting out the most confusing and misleading information they could put together but they won't debate me on the issue and that's cowardly."
State Consumer Advocate Timothy Hay, a frequent critic of Nevada Power, also said the ads amount to distortions. He said his staff calculated that ratepayers would save 20 to 25 percent in the short run and 45 percent within five years if the water authority buys Nevada Power. That's mostly because the water authority can borrow money at about 5 percent interest, roughly half as much as Nevada Power on average.
Last week, Sierra Pacific sold $250 million in bonds to service debt at 12.125 percent interest over seven years. On Tuesday, the water authority sold $200 million worth of bonds at 4.82 percent interest. Applying that interest to the Sierra Pacific bond sale would have saved ratepayers $130 million, Mulroy said.
"The statement about taking on debt is unfair because it would be paid out of utility revenues," Hay said of the water authority bid. "Taxpayers would not be responsible in terms of affecting tax rates. Essentially, Nevada Power is already collecting money in the rates to pay off its debt. But because much of its debt can be refinanced by the water authority at much lower rates, that is where the water authority will be able to reduce rates."
But Nevada Power President Pat Shalmy said that two of the nation's largest public utilities, Los Angeles Department of Water and Power and Long Island Power Authority in New York, have raised their electricity rates over time. That is why Citizens Against 14 argues that rates would eventually go up with a public takeover of Nevada Power, he said.
"History has proven that in other municipal takeovers," Shalmy said. "The record is clear on that. There is no reason to believe that that wouldn't be the case here."
Mulroy said that taxpayers would not be placed in jeopardy through a buyout of Nevada Power because the acquisition would be accomplished through taxable bonds paid back in the rates and not through tax increases.
But Shalmy, a former Clark County manager hired by Nevada Power in May with no prior background in the electric industry, said that any type of municipal takeover would "put taxpayers in jeopardy."
"No matter what you do in public life, if you take on a lot of debt and can't pay it off, you will turn to taxpayers in one form or another to balance the books," Shalmy said.
Local supporters of public power also argue that the water authority could hire experienced people to run an electrical utility and provide reliable service based on its track record with water. One supporter is Michael Lavine, who runs a Las Vegas events management company and is president of Consumers for the Protection of the People.
"The Southern Nevada Water Authority is the best-run, best managed utility in Southern Nevada and they have proven it over a long period of time," Lavine said. "They would bring in the proper managers with expertise to run the power company. They're not stupid. They're already in the electrical market to help pump their water so they have a lot of expertise with electric power."
But Shalmy said it would be difficult for any public utility to handle electricity with as much reliability as Nevada Power has done for nearly 100 years.
"Through the Depression and wars and disasters we've kept the lights on," he said.
Nevada Power fell into financial disarray after it began paying high prices for wholesale energy in 2000 as a result of the Western energy crisis. A series of rate hikes ensued, the latest of which was $485 million approved in March by the state Public Utilities Commission for energy used last year.
But the PUC disallowed $437 million of Nevada Power's $922 million request, arguing that the company could have bought long-term energy contracts at lower cost in 1999 and bought too much energy last year. The decision caused Sierra Pacific's stock price to plunge more than 60 percent and lowered the credit rating of the parent company and Nevada Power from investment grade to "junk" status.
The water authority's plan to purchase Nevada Power was announced in July, two weeks after the Clark County Commission placed Question 14 on the ballot. The commission made that decision after Southern Nevadans complained about the electricity rate hikes.
The ballot measure does not mention the water authority or its bid. That means the water authority offer will remain on the table regardless of the election's outcome. But the Citizens Against 14 ads attack the bid insofar as the $3 billion is mentioned.
The outcome of Question 14 may dictate whether Sierra Pacific chooses to negotiate with the water authority or instead lobby the Nevada Legislature next year to retain a state law that prevents government agencies from engaging in hostile takeovers of investor-owned utilities. The law expires on July 1.
Conventional wisdom is that an overwhelming vote in favor of Question 14 would pressure legislators not to renew the law if Sierra Pacific continues to reject the water authority bid. Conversely, if the vote is close or if Question 14 is defeated, that could help the company convince legislators to renew the law.
UNLV political science department chairman Ted Jelen said he believes the ballot measure could succumb to Nevada's "libertarian anti-government" streak. Jelen also said low voter participation for the general election would hurt Question 14 because such turnout often is swayed by anti-government sentiment.
"The ads seem to be using the symbolism of anti-government, which is very powerful in Nevada," Jelen said. "It's a simple message, 'Private enterprise good, government bad.' But I think those ads have been drowned out by a lot of other stuff."
Joining Vilardo over the airwaves are former Gov. Bob Miller, whose law firm represents Nevada Power and the Citizens Against 14 coalition, Nevada Seniors Coalition President Ken Mahal, UNLV marketing professor Jack Schibrowsky, Las Vegas Chamber of Commerce President Kara Kelley and nationally recognized self-proclaimed consumer advocate David Horowitz.
"I'm not for anything that leads to larger government," Schibrowsky said. "I moved from Wisconsin, which has extremely high taxes because the government provides a lot of services. Nevada has always stood for smaller government."
The ads, prepared by political consultant Winner and Mandabach Campaigns of Santa Monica, Calif., are low-key compared to the mudslinging TV spots used in some of the high-profile races for elected office.
One ad with Vilardo dissolves into a shot of Nevada's Capitol. The ad then tries to explain that it would cost more for government to take over the electric utility than the amount of money available in the state's general fund budget, which is $1.969 billion this year.
The ad then displays a list of organizations that support the coalition, including Nevada Power, Nevada Taxpayers Association, Las Vegas Chamber of Commerce, International Brotherhood of Electrical Workers Local 396, Nevada Development Authority and Retail Association of Nevada.
But Mulroy said part of what is misleading about the coalition opposing the ballot initiative is that some of its members, such as the Las Vegas Chamber of Commerce and Nevada Development Authority, are neutral on the issue of whether Nevada Power should be sold to the water authority.
Another ad shows Mahal and then symbols of reliable electric service, such as air conditioning, lights and heaters, along with Mahal's proclamation that Question 14 is "well over a $3 billion gamble by politicians with our money."
"It puts inexperienced bureaucrats in charge of running the electric system and keeping our lights on," Mahal said in the ad. "That puts us all at risk."
Mulroy objected to the way Citizens Against 14 uses the word "bureaucrats," saying it was a form of name calling used to "incite an emotional response."
"What they're trying to do is tap into what they perceive as public sentiment against all forms of government and people who work in government," Mulroy said. "It is a personal attack on those people. The men and women who work in local government don't deserve to be labeled as bureaucrats."
But Shalmy said municipalization of utilities "leads to government bureaucracy."
"We don't think experts exist at the county to run the power company," he said.
As for the issue of reliability of electric service, Mulroy said that the water authority would hire the 1,800 employees who work for Nevada Power.
"The same people who run electricity would run it tomorrow," she said.
Horowitz, who is based in Los Angeles and is known for his "Fight Back!" television and radio shows, is being paid an undisclosed sum for his participation.
Unlike fellow consumer advocate Ralph Nader, who rails against corporations, Horowitz said he has long backed investor-owned utilities because of his support of the free enterprise system and his belief that retail electricity would be best sold on the open market. He said government's role should be limited to functions that cannot be provided by private enterprise.
"This has nothing to do with me and Nevada Power," Horowitz said. "I am vehemently opposed to government being involved in power generation. I'm a free enterprise person. I'm not one of those guys who throws hatchets at everything the way Ralph Nader does."
But Hay said that Horowitz, who appears in his ad on the "Fight Back!" set, and others who oppose Question 14 are wrong when they suggest that prices would go up and reliability would go down over time if Nevada Power is replaced by the water authority.
"That's misinformation because the water authority's debt would be significantly cheaper than it is with Nevada Power," Hay said. "The water authority is also the largest electricity customer in the Las Vegas Valley. Certainly the last thing they want to do is decrease the reliability of the system. There is nothing to indicate that they have been unreliable in delivering water, which in many cases is harder than dealing with electricity."
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