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<title>August 2000: Public Utilities Commission of Nevada Approves Settlement Agreements With Utilities</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<td width="69%" valign="top"><img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" WIDTH="375" HEIGHT="75"><p><b><u><br>
August 2000</u><br>
<font face="Arial" size="5">Public Utilities Commission of Nevada
Approves Settlement Agreements with Utilities <br>
</font>
</b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/08</em>)</font></p>
<p><font face="Arial" color="#000000">The Public Utilities Commission of
Nevada (PUC), has approved electric utility deregulation settlement
agreements with Nevada Power Company (NPC), Sierra Pacific Power Company (SPPC),
and Sierra Pacific Resources (SPR). The settlements came as a result of
the PUC’s approval of a $48 million dollar rate increase for NPC. The
new rates translate into an overall increase of 5.3% for the utility’s
customers; about 4.7% for customers who use less than 1,100 kilowatt hours
and between 5% and 6% for commercial and industrial users. In exchange for
the increase in rates, NPC agreed to drop its civil suits in federal
district court and state court. Under the agreements NPC and SPPC will be
obligated to function as the "provider of last resort,"
providing electric service to customers who do not choose an alternative
electricity </font> <font face="Arial" color="#000000">provider or to
customers who are not able to obtain service from an alternative seller
after the date competition begins. </font></p>
<p><font face="Arial" color="#000000">The civil suits in federal and state
courts began as a rate increase dispute between the utilities and the PUC.
NPC had filed two applications with the PUC to recover its stranded costs
associated with its qualifying facility ("QF"), contracts from
ratepayers, seeking $110.7 million for these stranded costs. The PUC
dismissed the filing and limited NPC’s stranded cost recovery to $41.5
million. NPC, SPPC and SPR then filed suit against the PUC in both state
court and federal district court, primarily claiming that NPC’s actions
were preempted by PURPA and the Federal Power Act, constitute an
unconstitutional taking of property, impair contractual obligations in
violation of the constitution, deny the companies substantive due process,
and deprive the companies of their civil rights.</font></p>
<p><font face="Arial" color="#000000">The settlement agreements outline
procedures for beginning competition in state retail electric markets.
Beginning September 1, and August 1, 2000 respectively both SPPC and NPC
will establish mandatory monthly rate adjustments, called fuel and
purchased power riders. The monthly change in the riders is</font> <font face="Arial" color="#000000">calculated
as the difference between the ratio of the Nevada jurisdictional total
fuel and purchased power cost for the twelve month period beginning
fifteen months prior to the adjustment month over the Nevada
jurisdictional total fuel and purchase power costs for that period, and
the ratio of the total fuel and power costs over the Nevada jurisdictional
kWh sales during the period sixteen months prior to the adjustment month.
The level of allowable changes from month to month, will be limited to
0.95 mils per kWh in each of the first six monthly filing, 1.15, 1.35,
1.55 and 1.75 kWh in each of the filings in subsequent six month segments.
Each utility is required to file the riders every month. </font> <font face="Arial" color="#000000">General
rates, those for nonfuel and nonpurchased power, for SPPC and NPC will
remain capped until March 1, 2003. </font></p>
<p><font face="Arial" color="#000000">Restructuring will be phased in for
different customer groups. Beginning November 1, 2000, the largest
commercial customers will be charged the settlement rates. On April 1,
2001, medium</font> <font face="Arial" color="#000000">sized commercial
customers will be charged settlement rates, and the last group, the
residential customers, will receive the settlement rate increase on
December 21, 2001.</font></p>
<p><font face="Arial" color="#000000">To facilitate open access on the
retail sale of electricity NPC will divest its generation capacity. Under
the settlement agreements, gains from the sale of this divested generation
are equal to the net proceeds of each plant (after tax), less the cost of
sale plus the sum of recorded book values. NPC and SPPC are permitted to
recover the value of their common and general plant as allocated </font>
<font face="Arial" color="#000000">to the generation function from the
gain on the sale of the generation assets. The utilities must make
comparable reductions to the common and general plant rate base reflecting
this recovery amount. </font></p>
<p><font face="Arial" color="#000000">After reducing the common and
general plant rate base, SPPC and NPC will receive up to $9 million and
$16 million, respectively, from the gains on the sale of generation
assets. All remaining gain will be placed into escrow accounts and may be
used to fund the permanent and annual auctions of power purchase
agreements ("PPA"). The fund may also be used for payments
associated with the buyout of any PPA’s. All remaining surplus from the
gains will be returned to the customers. </font></p>
<p><font face="Arial" color="#000000">NPC and SPPC are required to
mitigate costs associated with PPAs by conducting a permanent or annual
auction of the contracts. A permanent auction will be permitted if
approved by the PUC and to the extent that there are tax and market
advantages. The auction will be held within two months of the divestiture
of 50% or more of the respective Company’s generation capacity. NPC and
SPPC will hold a permanent auction at least every two years for any
remaining PPAs. The Companies are allowed to use the funds from the gains
in escrow to conduct these auctions. Any PPAs that are not divested in the
permanent auction shall be sold in an annual auction. Revenue from the
annual auction will be used to fund obligations under the PPA’s. Costs
that are not mitigated through these auctions will be collected through a
nonbypassable wires charge collected from all customers. The amount of the
wire charge will be credited with an annuity based on the value of the
principal and interest of the escrowed portion of the gains.</font></p>
<p><font face="Arial" color="#000000">Under the agreement, the NPC and
SPPC are also required to file modifications to their transmission tariffs
with FERC to facilitate retail open access. NPC and SPPC are also required
to pursue compliance with FERC order 2000 and the formation of a regional
transmission organization. The companies are not permitted to form a
separate affiliate of their own to create this organization.</font></p>
<p><font face="Arial" color="#000000">Further agreements between the
utilities, the PUC and intervenors are still being considered by the PUC
and will be heard </font> <font face="Arial" color="#000000">some
time in August, including the agreements involving the state civil case
between the utilities and the PUC. This settlement agreement must also be
approved by the Nevada District Court.</font></p>
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<blockquote>
<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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