Sierra Pacific stock slumps on Nevada Power rate ruling

Nevada Power says it will appeal the Public Utilities Commission of Nevada's rejection of a $110 million rate increase, a ruling that hurt the stock price of Nevada Power's parent company today.

Commissioners voted 2-1 Friday to reject the utility's request for an increase to offset higher fuel costs and purchased power the company anticipates over the next three years during a rate freeze.

Following the decision, Nevada Power's parent company, Sierra Pacific Resources Inc., said the additional expenses the company would bear would lead to a pre-tax charge of $20 million to $60 million against 1999 earnings and could lead to a reduction in future revenues of about $30 million a year.

Sierra Pacific Resource's stock fell 62.5 cents to $15.375, the issue's 52-week low, in early trading today. The stock closed Friday at $16.

An analyst predicted Nevada Power would prevail in its appeal.

Ron Tanner, managing director of utilities research for Legg Mason Inc., Baltimore, said the company is within its rights to recover higher fuel expenses and the cost of power purchased from other suppliers by passing that on to consumers.

"The case is intended to allow the utility to recover the expenses and the request doesn't include any profit to the company on this," Tanner said. "You have terrible regulators out in Nevada."

Joyce Newman, president of the Utility Shareholders Association of Nevada Inc., said her group was "shocked and stunned" by the PUC decision.

"We're exploring our legal options right now, but there's no doubt we will appeal this in some way," Newman said. "It's just too big a hit (for shareholders)."

Newman said the decision was contrary to what the Legislature intended. The association participated in the hearing as an intervenor in the case and Newman said she was surprised that casino interests opposed the rate case even after some of their experts testified that Nevada Power should be allowed to file for the increase.

Following Friday's vote, Commission Chairman Don Soderberg set hearings for Feb. 21-24 for a $44.3 million rate increase proposal filed by the company in July. The rejected $110 million proposal, which would have raised residential rates by 15 percent, was filed by the company in September as an amendment to the July filing.

The proposed increase, billed as the final bump in rates Nevada Power would get before the deregulation of the electrical industry in the state, was opposed by the state's Bureau of Consumer Protection, the Southern Nevada Water Authority and representatives of three of the state's largest casino companies.

Malyn Malquist, chief operating officer of Nevada Power, said the company would appeal the PUC vote in a petition for judicial review expected to be filed in Carson City.

The 2-1 vote was no surprise; the way it was split was. Soderberg said testimony from the PUC staff and the opposing parties convinced him to change his mind on the request.

The opponents argued that the Nevada Legislature, when it enacted the law setting March 1 as the date competition begins among electricity providers, intended for Nevada Power to use June 1, 1998, through May 31, 1999, as the time frame to establish an accounting base for the new rate.

But Nevada Power amended its filing and changed the base year from Sept. 1, 1998, to Aug. 31, 1999.

The utility determined that its earlier filing under-recovered the costs of purchased power. In its second filing, the company said the new test year more accurately portrayed the actual costs it was attempting to recover.

But critics said the Legislature intended for Nevada Power to make its final cost recovery request by July 15, 1999.

Nevada Power said it could make an amended request since the legislation did not take effect until Oct. 1, 1999.

Commissioner Judy Sheldrew said the plan "looked like a money grab by the utility."

Soderberg joined Sheldrew in opposing the increase while Commissioner Jo Ann Kelly voted in favor of it. Kelly said she sought a rate that didn't overrecover or underrecover the amount the utility pays for fuel.

Legg Mason's Tanner said he was surprised by the turnaround by Soderberg, calling his decision "wimpy."

"Sheldrew has had a history of being punitive against the company, so her vote wasn't a surprise," Tanner said. "But I'm very confident the ruling will be overturned by the courts because the deregulation legislation allows them (Nevada Power) to recover these expenses."

Following the vote, commissioners unanimously denied a motion for sanctions against Nevada Power, filed by attorneys representing Mirage Resorts Inc., Park Place Entertainment Corp. and Mandalay Resort Group.

Under Nevada's regulations, large utility customers are permitted to intervene in rate cases and file motions related to rates.

The casinos asked the PUC to fine Nevada Power $100,000, alleging the utility had deliberately disobeyed commission rulings on the case.

Attorney Martha Ashcraft said the company's decision to change the dates of the base year for the rate case, the attempt to recover costs three years in advance and Nevada Power's accounting procedure to define the rates demonstrated the company's disregard for the PUC.

Ashcraft said she had never before filed a motion for sanctions, but the casinos figured "there comes a time that you have to draw a line in the sand."

Large power users, like casinos, tend to gain the most with the arrival of a competitive market because they'll be able to negotiate rates with a number of providers.

Elizabeth Elliot, co-counsel for Nevada Power, said the company raised good-faith legal arguments related to the commission's orders and the fact that many of the votes related to the rate cases and the deregulation process haven't been unanimous shows that there's plenty of disagreement on the issues.

"The fact that the company has a dispute with the commission does not justify being sanctioned," Elliot said.

The commission sided with Nevada Power in a unanimous vote.

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