California style shock threatens Nevada, Sierra Pacific chief says

Sierra Pacific Resources Inc. and Nevada Power Co. proposed raising electric rates an average 17% Monday in an emergency filing with the Nevada Public Utilities Commission. Sierra Pacific Resources CEO said action is needed to correct imbalances between wholesale power costs and retail prices. The utilities say they have lost over $125 million on fuel and purchased power transactions.


Sierra Pacific Resources Inc. and Nevada Power Co. proposed raising electric rates an average 17% Monday in an emergency filing with the Nevada Public Utilities Commission.

Sierra Pacific and Nevada Power Co. CEO Walt Higgins warned regulators need to act rapidly to avoid being "engulfed by the financial and operational chaos" of the California energy market. He said action is needed to correct imbalances between wholesale power costs and retail prices.

The emergency proposal includes long-term contracts, tiered price increases, low income assistance, and conservation programs to stabilize the state's energy markets. The companies are proposing short-term emergency price increases ranging from zero for certain low-usage customers to as much as 29% for the state's largest energy users to correct serious imbalances between the cost of wholesale power and retail prices. The average increase is 17%.

Even with the July 2000 global settlement, which requires Nevada Power and Sierra Pacific to file monthly rate adjustments for fuel and purchased power , the utilities say they have lost over $125 million on fuel and purchased power transactions.

"We are losing millions and millions of dollars now and it will get much worse if this plan is not adopted," Higgins said. "We stand to lose hundreds of millions more because the caps on price increases are keeping rates artificially low. When the settlement was negotiated, no one expected prices for fuel and purchased power would continue to skyrocket to unheard of levels."

He said the companies have saved over $30 million in operating efficiencies since the Sierra Pacific�Nevada Power merger, but they do not have the same ability to control $1.5 billion annually of fuel and purchased power expenses.

In the plan filed today, Sierra Pacific said it mapped out an emergency, comprehensive plan to meet the state's short- and long-term energy needs, focusing on new mechanisms to recover the skyrocketing cost of wholesale power and including automatic price reductions as wholesale prices eventually fall.

The plan also calls for accelerated approval of new long-term power contracts and encourages new power plant development.

Higgins noted the pending sale of generation assets required as part of the merger of Sierra Pacific Resources and Nevada Power will allow the companies to buy power from the new plant owners at discounted prices for 2 years. However, he said, the California turmoil has slowed sales and put at risk these protective contracts.

Sierra Pacific and Nevada Power are proposing the rate increases take effect March 1, 2001. They have asked for an adjustment March 1, 2002, or sooner if wholesale prices fall and if divestiture of the utilities' Nevada power plants is completed. The also want assurances contracts are in place guaranteeing the company can purchase power from those plants for 2 years at 1998 prices.

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