Thursday, March 18, 2004 | 10:53 a.m.
Nevada Power Co. on Wednesday filed a federal lawsuit claiming that the Colorado River Commission and the Southern Nevada Water Authority conspired to damage the utility and its ratepayers during the Western energy crisis.
The lawsuit claims that the agencies, along with bankrupt energy trader Enron Corp., deceived Nevada Power about the commission's energy needs. That scheme led the utility to buy and sell energy based on false information, causing "Nevada Power and its customers significant economic losses," the lawsuit said.
Also named as defendants in the lawsuit are individuals George Caan, executive director of the commission; Gail Bates, the commission's deputy director; William D. Miller, the commission's chief energy trader; Timothy Clemens, Miller's assistant; John M. Evans, the water authority's chief electrical engineer; and Paul Choi, an Enron employee during the energy crisis.
The lawsuit does not seek specific financial damages.
Earlier this week, J. Russell Campbell, an attorney for Nevada Power, said the company has not fully digested the scope of the damages caused by the alleged conspiracy. He did, however, question payments made by the utility during the crisis.
"We paid (the commission) $10.5 million over a year and a half (in 2000 and 2001)," he said. "We don't think we should have paid them anything."
Officials at the Colorado River Commission could not be reached for comment on the lawsuit.
The complaint claims that the defendants profited at Nevada Power's expense.
"It's a free country," said Vince Alberta, a spokesman for the water authority. "Anyone can file a lawsuit for anything. It proves nothing."
He said the new legal action follows a growing trend of lawsuits on the part of the utility.
"This seems typical of Nevada Power's strategy of the last couple of years," Alberta said. "They filed approximately 10 lawsuits since their unsuccessful attempt to raise customers' power rates by more than $1 billion. They have yet to prevail in any of those lawsuits. They are trying to blame anyone and everyone for their own imprudence."
The legal filing is the latest move in an increasingly hostile battle. At the root of the dispute, the commission and Nevada Power have an agreement to give and take power in order to keep the local distribution system in balance.
Caan said earlier this week that during a five-week period in April and May of 2000, a commission trader -- Miller -- was draining Nevada Power's system in order to sell power through Enron into the California market. He added that the actions were discovered in May 2000 and halted immediately. In October 2000, the commission and Nevada Power agreed to a settlement, he said.
Nevada Power has since reviewed additional documents related to the commission's trading practices as an intervenor in a Federal Energy Regulatory Commission inquiry into the energy crisis.
Campbell said the utility now has evidence showing that, after the settlement, the commission began dumping excess power into the system, causing a positive imbalance.
That damaged the company by causing Nevada Power to sell off energy below market costs, he said. Campbell played tapes allegedly from August 2000 and January 2001 that contained comments from Miller boasting about overloading the system.
Caan, however, has said that the utility's tariff agreement protects Nevada Power from such actions.
"Nevada Power has the option of taking the energy or telling us to take it back," Caan said.
Nevada Consumer Advocate Tim Hay agreed that the utility's tariff should protect it from attempts to overload the system.
"I'm not sure there is any damage from that second scenario," he said.
Hay said motive behind the utility's entire probe of the commission remains unclear.
"All of the pieces don't seem to make sense to me," he said.
Separately, the state Public Utilities Commission on Wednesday voted to oppose a motion Nevada Power filed last week with the Nevada Supreme Court to have a 2002 rate case reviewed by regulators.
In the 2002 case, the PUC disallowed the recovery of more than $400 million that the utility spent during the Western energy crisis. Nevada Power's motion said at least a portion should now be allowed because of a Merrill Lynch energy trader's guilty plea on fraud charges. That trader's testimony was cited in the disallowance of about $180 million.
Characterizing the utility's motion as vague and lacking grounds for compromise on a final settlement of the case, PUC Chairman Don Soderberg and Commissioner Carl Linvill voted to file opposition with the Supreme Court.
Also, Standard & Poor's Rating Services on Wednesday assigned its "B-" rating to the pending $300 million 10-year, senior unsecured note issue by Nevada Power parent Sierra Pacific Resources.
The notes will refinance the company's March 2005 maturity of senior unsecured notes. The outlook is negative, Standard & Poor's said.
"Although Sierra Pacific's rating and outlook are being affirmed in view of this upcoming issue, Standard & Poor's notes that near-term events could have a material impact on Sierra Pacific's credit profile, specifically, the (pending) general rate case and deferred cost proceedings for the two utility subsidiaries Nevada Power Co. and Sierra Pacific Power Co., and ongoing legal proceedings regarding Enron's claims for over $336 million in termination payments for contracts that it terminated in May 2002. These claims are currently collateralized by general & refunding (G&R) bonds pending resolution of the legal dispute," the rating agency said.
"The negative outlook reflects the risks of unfavorable rulings on the general rate and deferred cost cases that could be a major setback to the gradually improving regulatory environment in Nevada," said Standard & Poor's credit analyst Swami Venkataraman. "The outlook also incorporates the risk of a negative outcome in the Enron litigation that would require Sierra Pacific to make $336 million in termination payments, or provide additional cash collateral, prior to a final ruling, and the prospect of a partial or complete disallowance of these costs during a subsequent prudence review by the Public Utilities Commission of Nevada."
In its general rate case filing, Nevada Power is asking for a 12.4 percent rate of return and a phased-in $133 million (9 percent) increase, with $50 million to become effective April 1 and the remainder on Jan. 1, 2005, upon expiration of an existing deferred energy balance. Nevada Power's current return on equity is 10.1 percent, S&P said.
In its intervenor testimony, the staff of the Public Utilities Commission of Nevada (PUCN) has proposed a significantly smaller $17.1 million electric rate increase.
Nevada Power has also requested recovery of $91.3 million in deferred fuel and purchased power costs over a three-year period.
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