Nevada regulators seek allies in battle with FERC

Kevin Rademacher

Wednesday, Dec. 31, 2003 | 11:33 a.m.

The state Public Utilities Commission will seek the support of other Western states in its effort to help Nevada Power Co. overturn disputed contracts signed during the Western energy crisis.

The commission voted unanimously on Tuesday to intervene in Nevada Power Co.'s appeal of a recent Federal Energy Regulatory Commission ruling to uphold expensive long-term contracts with several energy suppliers, including now-bankrupt Enron Corp.

At issue in the appeal is a FERC decision, and a subsequent refusal to review its decision, that was handed down despite findings by its own staff that the prices set by those contracts were inflated due to market manipulation during the energy crisis.

Nevada Power, along with its Reno-based sister utility, Sierra Pacific Power Co., last month asked the 9th U.S. Circuit Court of Appeals in San Francisco to reverse the FERC ruling. With its vote on Monday, Nevada regulators will be a formal party to the appeal.

While refusing to release staff briefs on the issue, PUC attorney Richard Hinckley said the legal strategy will be based on an effort to encourage regulators in other Western states to join in the appeal.

He said it should make little difference to other regulators whether utilities in their states were damaged by the Western energy crisis when determining their interest in the case.

"The wholesale rates charged under market manipulation do not pass the just and reasonable test," Hinckley said. "Many states should be concerned that FERC make sure that wholesale power prices are just and reasonable."

Nevada Consumer Advocate Tim Hay said his office also will intervene in the appeal and that a similar strategy will be employed.

"We are talking informally with other consumer groups and advocates' offices about joining with us," Hay said.

Hinckley said no formal alliance has been established with Nevada regulators and declined to comment on which states have been approached.

"I'd rather not put them on the spot at this point," he said.

PUC Chairman Don Soderberg said he expected regional support for the appeal.

"There has been a certain level of interest in these cases from other states in my conversations with fellow commissioners," he said. "A number of state commissioners expressed to me a level of concern over (the FERC) decision."

Still, Heather Murphy, a spokeswoman for the Arizona Corporation Commission's Utilities Division, said such a request could be difficult for that state's regulators.

"We have other battles at the FERC right now," she said. "I think this might be an issue we would take a pass on right now, but only the commissioners can make that decision."

Murphy said it was unclear if Arizona commissioners have talked to Nevada regulators about the case, but at this point ACC staff has not been directed to craft a legal position on the issue.

Marilyn Meehan, spokeswoman for the Washington Utilities and Transportation Commission, said regulators in that state have not been approached by Nevada regulators.

"I guess we will make that decision when and if we are approached," she said.

More than $300 million is at stake in the Nevada utilities' appeal.

In August, a U.S. Bankruptcy Court judge ruled that contracts between Enron and the Nevada companies, which were terminated in 2002, are valid. The court also ruled that Enron is entitled to $336 million in termination payments from the Nevada utilities, representing the difference between the contract price for the electricity and the market price at the time of cancellation.

Bankruptcy Court Judge Arthur Gonzalez, siding with Enron, based his decision on FERC's existing ruling that the deals were valid.

In a separate appeal, Nevada Power also has asked FERC to review Enron's actions in cancelling the contracts, claiming that the energy trader violated market rules when it ended the deals based on credit downgrades for Nevada Power and its parent company, Sierra Pacific Resources.

Enron had filed for bankruptcy protection months before the deals were cancelled, and the Nevada utilities have argued that the company no longer had the financial stability to fulfill the contracts.

The Nevada companies also are expected to file a formal legal challenge to the bankruptcy court's ruling.