Avista, Yes; Sierra Pacific, No

by Pia K. Hansen


Last year's volatile energy market impacted not only Avista Utilities here in Spokane, but utility companies across the nation -- especially in the West. Just like Avista, many are currently asking for rate hikes or other legislative bailouts to help them pay their mounting bills from last year.


Many times they get what they ask for and consumers end up footing the bill for what, in some cases, was simply energy market speculation gone bad.


But sometimes they don't.


Earlier this week, the Public Utilities Commission (PUD) of Nevada denied Sierra Pacific Resources -- the parent company of Nevada Power Company and Sierra Pacific Power Co. -- its request to be reimbursed for deferred energy costs the company had accumulated from March 1 through September 20, 2001. The utility had asked for $922 million to clear the fuel and power bills but was granted "only" $485 million. At the same time, Nevada Power was asked to lower its base tariffs to adequately reflect the PUD's estimate that fuel would become less expensive in the near future.


In April 2001, Sierra Pacific secured a guarantee from the Nevada Legislature that the company would be reimbursed for any losses it would face while electricity prices were extremely high. That solution was expected to hike consumer prices as much as 30 percent, and to keep prices up for several years -- until the debt was paid off.


So the April 1 denial of reimbursement came as quite a surprise, following which Sierra Pacific saw its stock price drop precipitously.


In the aftermath of the energy debacle of last spring and early summer, critics have emerged to say that ratepayers should not have to foot the bill for the mess. Denying bailout requests, they say, is just the way it should be -- normal companies can't get bailed out of poor management decisions, so why should utilities? If utilities want to speculate in the energy markets, gains and losses should belong to shareholders, not ratepayers. While circumstances do need to be factored in, it appears at first glance that the PUD in Nevada is more sympathetic to this line of reasoning than the similar entity in Washington state, the Utilities and Transportation Commission (UTC).


The story is almost eerily familiar to that of Avista -- except that in Avista's case, some rate hikes have already been granted. And there are more to be decided. At the end of summer 2001, Avista was looking at a loss of $350 million, and its bond rating was downgraded to "high-risk." Avista, like many utilities, was "caught short," meaning it didn't have enough power to cover its load and it had to buy off the then-sky-high open market. While the drought explains some of the shortfall, decisions to sell what was once seen as excess generation-capacity also put Avista in the position of having to buy on the spot market.


In the fall, Avista requested a 37.5 percent permanent increase to its base rates from the Washington UTC. So far, it has been granted emergency and interim rate increases totaling 31.25 percent.


Currently pending is Avista's request to increase general electricity rates by 6.25 percent. According to the UTC, just because someone said no in Nevada doesn't necessarily mean they'll say no in Washington.


"Yes, there are similarities in these two cases, but what happens in one state doesn't have any impact on the decisions made by the PUD in another state," says Marilyn Meehan, spokeswoman for the UTC. "The company in Nevada may have purchased power differently or traded at a different time than Avista. Many aspects to their case can be very different from what we are looking at with Avista."


In Sierra Pacific's case, the Nevada PUD said that the company had behaved imprudently when purchasing some of the $922 million worth of power.


That's not the case with Avista.


"We settled on that 90 percent of the power we purchased last summer was deemed prudent [by the UTC]," said Scott Morris, president of Avista Utilities earlier this year. "The 10 percent that's left over that we are going to have to let the shareholders eat."


The Washington UTC is expected to make a decision in Avista's remaining rate increase case by late summer or early fall.


"There will be a public hearing on June 27 in Spokane," says Meehan. "No, there is no way of knowing yet how it's going to go. We'll have to wait and see."