State demands answers from merging Nevada utility firms

The Public Utilities Commission of Nevada ordered the state's two merging electricity companies to appear at a hearing to explain merger details they disclosed to the federal government -- but not to the state.

Nevada Power Co. and Sierra Pacific Resources Inc. were ordered by the PUC Monday to appear at a show-cause hearing to explain tariffs filed with the Federal Energy Regulatory Commission.

The PUC voted unanimously on Monday to order the companies to a hearing on May 10 to show how they have attempted to comply with the terms of a Jan. 4 PUC order in the filings they have made with FERC.

The state's Jan. 4 order gave the companies conditional approval to merge.

The PUC action is the second time one of the utilities' filings with federal agencies has resulted in additional questions from regulators. Last month, Nevada Power and Sierra Pacific refiled their merger application with the Department of Justice and the Federal Trade Commission because the Justice Department said it needed more time to study the deal and more information on some of the issues.

The Justice Department routinely reviews mergers and their effects on competition.

At issue in the FERC application cited by the PUC are questions on wholesale generation tariffs associated with the companies' power plants.

Commissioners are concerned that the tariffs do not conform to the PUC's order on the merger.

One of the conditions of the merger is for the utilities to divest their power plants. Potential buyers of the plants need to know the regulatory rules under which they would supply power before submitting bids.

Commission Chairwoman Judy Sheldrew explained that the PUC specified in January that it would review the tariffs when they were filed with FERC. When the PUC didn't receive information from the utilities in the FERC filing, state regulators became concerned and began reviewing the information that went to the federal agency.

That's the information that commissioners want to review and ask questions about.

Ultimately, the PUC said it wants to be certain that when the power plants change hands, consumers will not be placed in jeopardy of being gouged by rates charged by the new owners, particularly during peak use times. That's when Nevadans are most vulnerable to price variations, since the state's utilities can't produce enough power to meet their needs and have to rely on contracts with other providers.

At the PUC's agenda review meeting prior to the vote, commissioners agreed that requesting a show-cause hearing is the only mechanism available to initiate communication.

"It's the only procedural mechanism available to get the parties together to open up lines of communication," Commissioner Michael Pitlock said. "Once we hear more detailed explanation, we may all agree. It's critical that we have no misunderstanding based on a lack of communication."

A spokesman for Nevada Power said the company has received no other specifics on Monday's order but would comply.

Meanwhile, more details emerged on a Senate bill that would establish a three-year rate freeze on utilities beginning March 1.

The Senate Commerce and Labor Committee agreed last week to a plan by its chairman, Sen. Randolph Townsend, R-Reno, that takes effect only if the merger of Nevada Power and Sierra Pacific is completed.

The proposal will be melded into SB428 and the committee will take another look at the bill sometime this week before it is sent to the floor for final passage.

Competition in the electrical industry was scheduled to start on Jan. 1, 2000, but that has been pushed back by two months. The bill says starting on that date, consumer rates will not be permitted to increase until March 1, 2003.

The last rate increase to be allowed between now and March 2003 would probably be this summer when Nevada Power files its request to recover an estimated $40 million it has paid in the past in purchasing power. The Las Vegas utility says that will mean an increase of 4 percent to 5 percent for customers.

This would not increase the profit rate of the utility but permit it to be reimbursed for its costs in buying energy.

Consumer Advocate Fred Schmidt said the new bill protects electric customers better than the current law. The present law calls for a cap on rates until Jan. 1, 2002, so the new bill extends that price ceiling another 14 months.

The present law, he said, also covers only homeowners and not small businesses. The new bill includes small businesses, he said. The current law, despite the cap, would have permitted increases to cover higher costs to utilities in their purchase of power. With the exception of the upcoming Nevada Power case, there won't be any fuel adjustments during the three years.

A second protection in the bill, Townsend said, is that customers will not be assigned or auctioned off to power suppliers immediately.

It means the consumer may shop around for lower electric rates and change companies. But if he or she decides to do nothing, they will remain with Nevada Power or Sierra Pacific at the same rate.

Schmidt said the Townsend plan will allow an auction or assignment of customers after July 1, 2001, if a new company comes in and offers to reduce rates by 5 percent or more. The new company would have to bid for 10 percent or more of the customers of Nevada Power or Sierra Pacific.

Schmidt said senators were concerned about customers, without their knowledge, being assigned to another power company, if they did not specify they want to remain with the two major companies in Nevada.

Representatives of both Nevada Power and Sierra Pacific endorsed the Townsend plan.

The bill also overturns the decision of the PUC that would have stopped Nevada Power and Sierra Pacific Power from using their names on affiliates they may form to offer services when competition arrives.

The PUC feared the two Nevada giants would have too great a name-recognition advantage when the market is opened. Both utilities filed suit in Washoe County, saying the rules adopted by the PUC violate the utilities' right of free speech by prohibiting use of the name and logo by affiliates.

That suit is pending.

archive