Nevada repeals electricity deregulation; stops power plant sale

Electric retail choice sometimes termed deregulation or restructuring was repealed Wednesday night by the Nevada legislature.

Assembly Bill 369 passed both houses with no opposition and Gov. Kenny Guinn has said he will sign the bill. The state’s largest investor-owned utility Sierra Pacific Power Co., which recently suspended its dividend and ordered spending cutbacks in all areas except safety and customer service, also supported the legislation.

“The bill is a return to traditional rate making,” said Karl Walquist, spokesman for the utility. “Things were looking grim for us. Any time it costs you more to provide the product than you can collect from customers, then finances are upside down.”

The bill also prohibits Sierra Pacific Resources from selling its power plants before July 1, 2003. The utility had been ordered by the state to divest its power plants as part of the merger approval with Nevada Power Co.

State regulators required the divestiture to prevent market power after the industry opened to competition. Seven of the nine power plants had contracts pending, said Walquist. Neither NRG Energy Inc. nor Dynegy Inc., two of the companies which had contracted to buy plants, would comment about the impact of the legislation or what, if any, action they will take.

Under the legislation, the company can sell the plants only if the Public Utilities Commission approves the sale. Any transaction must be in the public interest.

The bill essentially repealed all references in statutes to deregulation or electric competition in the state of Nevada and did not impose any time frame when deregulation would be reconsidered. It gives the utility the right to recover fuel and purchased power costs accumulated over a 12-month period from consumers. Expenses in excess of collections, if any, would accumulate in a deferred balancing account.

At the end of the 12-month period, the balancing account would be subject to a prudency review by the commission and then put into rates spread over 1-3 years. The deferred accounting mechanism will spread rate increases over time. The utility, a unit of Sierra Pacific Resources, said sticker shock for consumers can be avoided this way.

“The deferred accounting method eases fears of rate hikes during the summer but assures lenders, investors, and power suppliers the utilities will continue to meet their financial obligations,” the company said in a statement.

Although the utility termed the legislation “elegant, decisive and bold”, some parties were less thrilled.

“We begrudgingly went along,” said Timothy Hay, chief deputy attorney general and the state consumer advocate. “There were not a lot of good choices left.”

The western US is experiencing a severe and ongoing power crisis marked by critical supply shortages and extreme volatility in the wholesale and retail price of electricity, according to Assembly Bill 369.

“The severe crisis is both an immediate threat and a continuing danger to the economy of this state and to the health, safety, and welfare of the residents,” the bill stated.

Hay said he was working on some consumer safeguards to use during the prudency reviews.

The legislation doesn’t prohibit Sierra Pacific from completing its previously announced merger with Portland General Electric Co. But it makes the utility give up deferred accounting if a merger or similar type transaction is completed.

Most observers say the utility is in no position to give up deferred accounting and does not have the financial wherewithal to go forward with the merger. Sierra Pacific has a current book value of about $1 billion and Portland General’s book value is $3.1 billion.

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