To raise rates, Sierra Pacific needs to look desperate; to buy a Portland power company, it needs to look financially stable

This pole’s for you. Power bills are going up and up.

This pole’s for you. Power bills are going up and up.

Photo By David Robert

When it comes right down to it, it’s all about coffee makers. And computers. And TVs, microwave ovens, furnaces, air-conditioning units and your new PlayStation 2.

Power. We need it. We’ll pay just about anything we’ve got to keep it. That gives the companies that make it, sell it and bring it to your home in residential Reno or Sparks some leverage, some guaranteed demand. It gives them what they want. Power.

Thus the highest rate raise in Nevada’s electrifying history kicked in last week, barely raising the hair on the backs of our necks.

“It’s five or six times larger than the largest rate hike in the state’s history,” said Tim Hay, Nevada consumer advocate and chief deputy attorney general. “And the [Public Utilities Commission] didn’t hold a hearing, didn’t take public comment. They accepted it and decided to hold a hearing [to see if the rate hike is needed] on March 23.”

The attorney general’s office filed for a restraining order to flip the switch on a $311 million rate increase requested by Sierra Pacific Resources. After all, a Nevada statute intended to protect consumers ensures the utility companies won’t raise rates more than once every 30 days. The recent huge hike came only 17 days after the January increase, Hay said.

“This is an illegal filing,” Hay said. “By our rough calculations, there will have been collected some $20 million [before the March 23 hearing]. We’re talking about some substantial monies piling up very quickly.”

But a district judge in Carson City refused to grant the restraining order last week. And Hay dropped the request, citing a change of strategy.

So starting last week, Sierra Pacific customers were paying an average of 17.7 percent more for electricity, a figure that skews higher for larger electricity consumers and lower for the efficient, thrifty power consumer. The increase comes on top of the power company’s incremental monthly hikes, approved last year. If the monthly rate hikes occur as allowed every month for the next two years—and barring any more surprises—Nevadans’ electric bills will nearly double by 2003, Hay said.

“In vulnerable populations, some of the retirees are living on fixed incomes or on their social security,” Hay said. “They really don’t have the ability to adjust their budget."Hay questioned whether Sierra Pacific really needed the latest, largest rate hike. He pointed to Sierra Pacific’s paying out of $19.25 million to shareholders in February.

“That would indicate to me that their cash flow problems were not as severe as they claimed at the time they filed,” he said.

But Sierra Pacific Resources’ Jan. 29 filing must have convinced Nevada’s Public Utilities Commission that the situation was desperate. In fact, the argument was so convincing that the rate hike went into effect before hearings could be set, bypassing the usual process.

“It was an exceptional case, an emergency,” said Karl Walquist, a Sierra Pacific spokesman. “The PUC granted the filing because of the seriousness of the financial situation.”

Why the rush?

Sierra Pacific Resources, the parent company of Reno-based Sierra Pacific Power Co. and Las Vegas-based Nevada Power Co., said it can’t afford the skyrocketing costs of importing energy—about half of the power in Northern Nevada comes from afar—let alone buying fuel to make energy here.

But the state consumer advocate argued that the company tapped into the public’s collective fear over specters like rolling blackouts.

“The company has manipulated the hysteria surrounding the publicity over [utility deregulation problems] in California,” Hay said. The company could have filed for a rate increase the “ordinary” way, he said, and saved itself the possible hassle down the road of legal liability and a need to refund money to rate-payers.

The Utilities Commission, though, decided that waiting for a hearing was just too risky, said Kirby Lampley, manager of policy analysis for the Commission.

“The Commission decided that was the riskiest approach because of problems with cash flow and a decline in credit worthiness,” Lampley said. “There’s a lot going on all around. All you’ve got to do is look over the hill to see what happens if you don’t pay attention."Sierra Pacific officials agreed that, yes, the rate hike is largely about California. But the need isn’t being hyped, they said.

“What’s going on in the West is the result of poor planning on the part of the state of California,” said Steven Oldham, Sierra Pacific Resources senior vice president. “That’s what is driving up the price to our customer.”

Sierra Pacific needs to restore its financial health, Oldham said, to better serve Nevada’s power users. The utility’s market viability will also come in handy in other ways, like in jumping through the last regulatory hoop before Sierra Pacific can buy a large Oregon utility.

In 1999, after the Reno and Las Vegas power companies merged to form Sierra Pacific Resources, the company made an agreement to buy an Oregon-based utility, Portland General Electric, from the mega-utility Enron Corp. for $3.1 billion. The acquisition of PGE (not to be confused with California’s Pacific Gas & Electric, or PG&E) would make Sierra Pacific one of the largest power moguls on the West Coast, according to wire service reports.

By November, Sierra Pacific had won approval from federal and state regulators to buy PGE. It had been an uphill battle.

Oregon groups weren’t thrilled about Sierra Pacific stepping in at first, according to reports by John G. Edwards in the Las Vegas Review-Journal. During regulatory hearings, Edwards reported that questions were raised about the Nevada company’s finances, its “combative tactics in regulatory cases” and whether or not it would support storage of nuclear waste from an Oregon nuclear power plant at the proposed nuclear storage site in Yucca Mountain.

Edwards quoted the remarks of Bob Jenks, executive director of the Citizen’s Utility Board of Oregon, a consumer advocacy group.

“Is Sierra Pacific ready to take control of nuclear waste?” Jenks said. “Is Sierra Pacific willing to place the waste in Nevada if a waste storage facility is placed on Yucca Mountain. … [Or] do Oregonians run the risk of continuing to maintain a nuclear waste storage facility upwind from our largest metropolitan area?"While working to secure the deal to buy PGE, Sierra Pacific gave the ratepayers of Oregon some assurances, like a $95 million credit toward their bills over the next seven years. The Oregon Public Utility Commission ordered a freeze on customer service rates for six years following the sale. The utility could seek rate adjustments, however, for fluctuations in fuel costs or wholesale power rates.

The only agency that hasn’t approved Sierra Pacific’s acquisition of PGE is the U.S. Securities and Exchange Commission.

Some have expressed concern that a rate hike for Nevadans could be a strategic move to make Sierra Pacific’s financial ledgers appear more impressive, thus working indirectly to secure the Portland deal.

Oldham said that there’s no direct relationship between the rate hike and the acquisition of PGE.

“There’s no question that we’d have great difficulty buying Oregon if we are having financial distress in Nevada,” he said. “But we have to get out of financial distress here anyway … whether Portland’s in the mix or not.”

So is Sierra Pacific almost broke—or are they financially healthy enough to acquire Portland’s power?

“We’ve been given a reprieve," Oldham said. "And there’s no question about future [utility rate] increases down the road, more modest increases."