Alleging the law that created the framework for a deregulatedelectric market in Nevada will be detrimental and unfair to theirstockholders and their customers, Nevada Power and Sierra PacificPower filed in federal court yesterday to have the law declaredunconstitutional.

“Restructuring in the state of Nevada is a very complex issue,”said Michael R. Niggli, CEO Sierra Pacific Resources. “From thebeginning we have supported competition in our industry, but wewant to make sure it is done right. Competition should benefit allcustomers, both large and small, provide a level playing field forall 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 ofNevada (PUCN) decisions, issued over the past two months, that wentagainst Nevada Power in its attempt to recover fuel and purchasedpower costs through its rates.

The utility had filed cases with the PUCN in July and Septemberof 1999 which sought to recover the costs already incurred by theutility to serve its customers and to set rates one last timebefore they are frozen until 2003 as the deregulation legislationmandates. The PUCN denied the company’s request to recover thesecosts and ordered additional cuts to the company’s rates. The twoutilities said they will file a complaint in state court to appealthe PUCN decisions regarding their cases.

Sierra Pacific shareholders have lost 50% of the value of theirinvestment over the past eight months, a significant portion ofwhich is attributed to recent PUCN decisions, Sierra Pacific said.Since July of 1999, the company’s stock price has fallen from the$25-range to the $12-range. “This billion dollar reduction inmarket value of the company has tremendous negative consequencesfor all Nevadans, not just for those who work for the company orown stock,” added Niggli.

Following the release of the draft order relating to NevadaPower’s case earlier this month and after final decisions anddiscussions with the company’s external auditors, Sierra Pacificwill take a $24 million hit against 1999 earnings.

According to Kathleen Drakulich, associate general counsel forSierra Pacific and Nevada Power Co., the rejection of these casesdemonstrates a real problem with the legislation. “Under the law,we were authorized to submit deferred energy cases in order torecover certain costs. Yet, the PUCN had a different interpretationof the law, and rejected our claims. As a result, our stock pricehas plunged and, in order to come up with the money, our servicehas been put under serious strain.”

The welfare of the two utilities is paramount for successfulderegulation, Sierra Pacific argued. “[Sierra Pacific Power andNevada Power] provide a backbone of infrastructure and servicesthat are vital to prosperous growth in the areas they serve. It iscritical the transition to a competitive electricity industryoccurs in a manner that ensures these infrastructure and serviceneeds will continue to be met in the future. Clearly, none of theseproblems were anticipated when competition was first envisioned forNevada,” Niggli said.

Sierra Pacific made it clear that it is not against deregulationas a whole. “Nevada Power was an active participant in the processto open the state’s electric markets to competition. We alwaysbelieved that if it were handled correctly, customers would benefitfrom competition, the legitimate rights of shareholders would beprotected, employees would not be harmed, and the economic healthof the state would not be jeopardized.”

Sierra Pacific’s actions yesterday puzzled Cynthia Messina, aPUCN spokeswoman. “They were there when the original legislationwas put together, and they even wanted to be the provider of lastresort (PLR). They’ve definitely changed their mind about the wholething, though.”

Carl Walquist, a Sierra Pacific spokesman, said the company hassoured on the legislation since its approval. “When the law waspassed, we thought we had the best bill we could get. To call us’supporters’ of the legislation is going a bit too far. Since then,however, events have transpired that have made us realize that thislegislation is seriously flawed. The deferred energy cases were abig part of that, as were some of the other rules required by thelaw. We’re also unhappy with the PUCN’s interpretation of thelegislation. They were handed a framework, but their handling ofthat framework has not been in the best interest of energycustomers.”

The filings come as another blow to Nevada’s attempts toimplement electric deregulation. The restructuring legislation(SB438) was passed in April of 1999, and had an original date ofMarch 2000 for complete retail access. Yet it gave governor of thestate, not the PUCN, the authority to select another date if hedeems it in the best interest of consumers.

Earlier this month, Governor Kenny Guinn said the delay would beindefinite as issues such as funding for the Mountain WestIndependent Scheduling Administrator and decisions on a series ofmajor cases before the PUCN regarding unbundling, stranded costrecovery, and rate freezes were settled.

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