Utility’s stock falls on rate ruling

Tuesday, April 29, 2003 | 11:06 a.m.

CARSON CITY -- A ruling by a district judge who rejected the plea of Nevada Power Co. to raise its rates another $437 million will probably be appealed to the Nevada Supreme Court.

District Judge Bill Maddox ruled Monday that the Las Vegas utility acted imprudently when it purchased power at high rates during an energy crisis and then failed to sell its excess electricity until the rates decreased.

The stock of Nevada Power parent Sierra Pacific Resources fell this morning on the news, trading at $3.68, down 31 cents or nearly 8 percent.

The judge upheld the decision of the state Public Utilities Commission, which allowed only $485 million of the $922 million the company sought. Maddox, in a 15-page ruling, said the PUC examined the case and "reasonably concluded that for the common good Nevada Power cannot shift its $922 million burden entirely to the backs of consumers."

Michael Yackira, executive vice president for strategy and policy for Nevada Power, said the utility is reviewing the decision.

"At first glance we are extremely disappointed with the judge's ruling. Once we have conducted a thorough review, we will evaluate our options going forward," he said.

State Consumer Advocate Tim Hay lauded the decision, saying it upholds his contention that Nevada Power was guilty of "colossal mismanagement" in its power purchasing practices.

Hay said it is "fairly likely" the company will decide to appeal to the Supreme Court.

Hay had asked the District Court to reject the full $922 million. In his ruling, Maddox said there was substantial evidence that various practices by the utility were imprudent and the money spent to buy power could not be recovered from ratepayers.

The PUC disallowed $180 million of the requested $922 million because the utility did not go through with a proposed purchase of power from Merrill Lynch. Maddox said Nevada Power could have purchased the Merrill Lynch power in October 1999 for $33.75 per megawatt. At the time the utility was paying $40.85 per megawatt.

The judge said the utility and Merrill Lynch got into a price squabble over less than 1 percent of the purchase price. He said Nevada Power pulled out of the deal despite signs that turmoil in the California energy market would drive prices higher in the Southwest.

"Instead, Nevada Power speculated on being able to buy cheaper power at a future date with the ratepayers covering losses," Maddox wrote. "Nevada Power claims that there were factors besides price for not finalizing a contract, but none are readily apparent."

In the spring of 2001, Nevada Power had excess power to get Las Vegas through the summer months. Instead of selling the power when the prices were "relatively high, Nevada Power opted to hold onto the excess power for a September sale," when the rates fell, Maddox said.

"While it would be reasonable, if not desirable, to have some excess power available for those times when power consumption in Southern Nevada is above normal, it was not prudent for Nevada Power to purchase additional power when it already had contracts for 107 percent of expected power needs," the judge wrote.

Maddox said if the company bought the excess power, hoping to sell it at a higher price, "then the company was engaging in imprudent energy price speculation at a time when prices were extremely volatile."

The PUC is expected to rule May 9 on another Nevada Power deferred costs case in which it is seeking to recover $195 million for power and fuel costs.

PUC staff is recommending $111.1 million of that request be disallowed.