On the heels of an unfavorable decision on a $44 million rate case, Nevada's electric utilities filed suit Tuesday in U.S. District Count in Reno challenging the constitutionality of the state's electric deregulation law.
Sierra Pacific Power Co. and Nevada Power Co., both owned by Sierra Pacific Resources, alleged that the deregulation plan will be detrimental to some customers while giving unfair advantages to others, and harmful to the companies' shareholders.
The power industry had been gearing up for Nevada's deregulation, which was set to start March 1 but was postponed by Gov. Kenny Guinn because preparations were incomplete.
Sierra Pacific Resources had agreed to sell its generating facilities and had made a deal to purchase Portland General Electric, the utility serving the Portland, Ore., area.
But concern about how state regulators were implementing SB 438, the law requiring deregulation, prompted the company to file Tuesday's action.
"From the beginning we have supported competition in our industry, but we want to make sure it is done right," Michael R. Niggli, chairman and chief executive officer of Sierra Pacific Resources, said Tuesday. "Competition should benefit all customers, both big and small, provide a level playing field for all competitors and not harm company shareholders."
The Public Utilities Commission of Nevada voted Monday not to grant a $44 million rate increase requested by Nevada Power Co. A $5.1 increase was granted in the energy rate, but projected charges to be collected for deferred costs were cut by about $15 million in the decision.
"If the company says its overall rates are going down an estimated $10 million, that's true," Grant Siwinski, a policy adviser for the commission, said Tuesday.
An attempt by Nevada Power in September to replace the $44 million rate increase request with a $110 million request was denied by the commission as well.
Under the deregulation law, electric rates would be capped for the first three years. The utilities maintain they were to have until last Oct. 1 to apply for rates that would carry them through that period.
"The commission's interpretation was that the deferred filing was only to concern costs before May 31, 1999," Siwinski said. He said that the commission has yet to decide about the other cost issues the utilities are raising and that he could not comment on how that may be handled.
"The Legislature produced the best bill it could. The basic idea was that no one would be harmed by deregulation, not the customers or the utilities or their shareholders," SPPC spokesman Karl Walquist said Tuesday. "Instead, the way the rules are being formulated by state regulators, we are being handicapped.
"We would be required to spend more money to do business, our prices would be frozen and we wouldn't be able to recover any of that money.
"It's up to the regulators to come up with specific tools and regulations to implement the law. We feel they've gotten away from the intent of the legislature," Walquist said.
Company shareholders have lost 50 percent of the value of their stock in the past eight months, 25 percent of it since the commission decided in February not to consider the $110 million request.
When a utility faces uncertainty about its revenues, it becomes harder and more expensive to raise capital for long-term investments like transmission lines, Walquist said. Reduced revenues can also affect the ability to maintain the utilities' equipment and infrastructure, he said.
"Our management team sat down and figured out how to cut our budgets by $25.6 million. We've cut as much as we can without affecting services."
The utilities are mounting another challenge to the state's utility regulators. Once Monday's commission decision on Nevada Power's rates is in final form, Sierra pacific Resources will appeal it in First Judicial District Court in Carson City, Walquist said. He pointed out that those two rate requests only affected Nevada Power's customers in Southern Nevada.
Nancy Wenzel, a senior deputy assistant attorney general assigned to the state bureau of Consumer Protection, which speaks for utility consumers
in rate cases, said Tuesday that no one there had seen the federal suit filing and so they were unable to comment.
