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Sierra Pacific Fights NV Power Deregulation Efforts

Sierra Pacific Fights NV Power Deregulation Efforts

Alleging the law that created the framework for a deregulated electric market in Nevada will be detrimental and unfair to their stockholders and their customers, Nevada Power and Sierra Pacific Power filed in federal court last week to have the law declared unconstitutional.

"Restructuring in the state of Nevada is a very complex issue," said Michael R. Niggli, CEO Sierra Pacific Resources. "From the beginning we have supported competition in our industry, but we want to make sure it is done right. Competition should benefit all customers, both large and small, provide a level playing field for all competitors, and not harm company shareholders."

The parent company for the utilities, Sierra Pacific Resources, said a host of issues led them to file against the legislation. Chief among these issues are two Public Utilities Commission of Nevada (PUCN) decisions, issued over the past two months, that went against Nevada Power in its attempt to recover fuel and purchased power costs through its rates.

The utility had filed cases with the PUCN in July and September of 1999 that sought to recover the costs already incurred by the utility to serve its customers and to set rates one last time before they are frozen until 2003 as the deregulation legislation mandates. The PUCN denied the company's request to recover these costs and ordered additional cuts to the company's rates. The two utilities said they have also filed a complaint in state court to appeal the PUCN decisions regarding their cases.

The companies expect to have decisions on both cases by the end of the year. The PUCN would not comment on the case. A spokesperson for the commission said it has not filed a answer to the lawsuit. It has 20 days from the March 28 filing to do so.

Sierra Pacific shareholders have lost 50% of the value of their investment over the past eight months, a significant portion of which is attributed to recent PUCN decisions, Sierra Pacific said. Since July 1999, the company's stock price has fallen from about $25 to $12. In addition, the company will take a $24 million hit against 1999 earnings. "This billion dollar reduction in market value of the company has tremendous negative consequences for all Nevadans, not just for those who work for the company or own stock," added Niggli.

According to Kathleen Drakulich, associate general counsel for Sierra Pacific and Nevada Power Co., the rejection of these cases demonstrates a real problem with the legislation. "Under the law, we were authorized to submit deferred energy cases in order to recover certain costs. Yet, the PUCN had a different interpretation of the law, and rejected our claims. As a result, our stock price has plunged and, in order to come up with the money, our service has been put under serious strain."

Sierra Pacific made it clear that it is not against deregulation as a whole. "Nevada Power was an active participant in the process to open the state's electric markets to competition. We always believed that if it were handled correctly, customers would benefit from competition, the legitimate rights of shareholders would be protected, employees would not be harmed, and the economic health of the state would not be jeopardized."

The start date for retail access in the state was supposed to be March 1. Governor Kenny Guinn put off the start earlier this month citing issues that need clarification such as PUCN cases on unbundling, stranded cost recovery and rate freezes. He has not replaced it with a new date. So far, 10 marketers have applied for a license to operate in the state.

John Norris

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