Utilities’ merger cost debated

Kevin Rademacher

Wednesday, Feb. 11, 2004 | 11:19 a.m.

Higher electric bills since the merger of Nevada Power Co. and Sierra Pacific Power Co. of Reno were the focus of testimony on Tuesday before the state Public Utilities Commission.

Mark Garrett, a utility analyst testifying on behalf of the MGM MIRAGE, pointed to rates that have climbed past all other Western states, except California, since the companies merged in 1999.

Nevada Power -- which is defending a $133.5 million annual general rate increase request -- responded that the higher rates can be blamed on instability in the market created by the Western energy crisis.

Garrett presented figures from the federal Energy Information Administration showing that Nevada, which had cheaper power than Arizona, New Mexico and Colorado before the merger, now topped all of those states in per-megawatt hour prices.

The analysis showed that rates increased from less than $60 per megawatt hour to more than $80 since 1999.

"From my perspective it is hard for the company to make the argument that merger savings have occurred when rates actually soared to unprecedented levels in the years following the merger," Garrett said in testimony filed with the PUC prior to the hearings.

He said the details of the merger distracted management and the subsequent purchasing mistakes drove up prices.

Michael Yackira, chief financial officer with Nevada Power's parent company, Sierra Pacific Resources, aggressively refuted the connection between the merger and higher rates.

"To suggest it is because of the merger ... it is a false statement," Yackira said outside of the hearings this morning.

He said the timing of the merger was coincidental with a push by lawmakers toward deregulation. Those lawmakers later changed their minds but the Western energy crisis created by turmoil in California took their toll on prices.

The ensuing chaos turned a once profitable Nevada regulatory policy -- building fewer plants to save construction in favor of buying cheap power on the wholesale market -- into a costly proposition.

"The comparison to California is much more appropriate because we were buying power from California," Yackira said.

Merger costs are expected to be a key component in the commission's final ruling on the general rate case.

Phil Williamson, an economist for the Bureau of Consumer Protection, said Nevada Power is trying to recover $38 million in transaction costs related to the merger and another $200 million in goodwill costs. That would come at a rate of $8.8 million per year for 10 years and an additional $6.5 million a year over the following 30 years.

While the recovery was approved in the commission's original order approving the merger, it contained a stipulation that costs could only be recovered to the point that they were offset by savings resulting of the deal.

In the hearing, Nevada Power officials pointed to, among other savings, the reduction of 251 jobs and the related savings associated with a smaller workforce.

Those claims of higher efficiency, however, were met with opposition. "We don't believe there were any net merger savings," Williamson said.