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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Mark_Haedicke_Jun2001\Notes Folders\Notes inbox X-Origin: Haedicke-M X-FileName: mhaedic.nsf Today's IssueAlert Sponsors:=20 [IMAGE] Southeastern Electric Exchange=20 2001 Utility Odyssey: Engineering & Operation/Accounting, Customer Billing and Finance Conference= =20 and Trade Show The Doral Resort Miami, FL =20 Featured speakers include Wall Street Analysts Ed Tirello and Dan Ford and= =20 SEE Company Utility Executives Donald Hintz, Entergy Corp., Dennis Wraase,= =20 Pepco, and Bill Coley, Duke Power=20 For full details: www.theexchange.org=20 Learn more about SCIENTECH'S newest InfoGrid: Venture Capital Firms, Emergi= ng=20 Technology Companies and Services in the Electric Industry. Get the latest= =20 news and information available today regarding technologies in distributed= =20 generation, fuel cell, solar, wind and energy information services. Over 1= 10=20 companies and over 42 investors are featured in this intelligence product. = =20 Download a sample at www.ConsultRCI.com or contact Chris Vigil, toll free a= t=20 (888) 972-8676 for more information.=20 [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. The Wall Map measures 42" x= =20 72"; the Executive Map Set consists of 18 11" x 17" maps. Visit our website= =20 at www.ConsultRCI.com for a detailed description of these valuable maps and= =20 complete ordering instructions.=20 [IMAGE] IssueAlert for April 4, 2001=20 Nevada Blocks Sale of Generation Plants;=20 Re-Regulation Now Likely for State by Will McNamara=20 Director, Electric Industry Analysis [News item from California Energy Markets] Nevada officials rushed through= =20 measures designed to stop the sale of power plants by Sierra Pacific Power= =20 and Nevada Power with a total value estimated at $1.7 billion. The Nevada= =20 Assembly voted to pass Assembly Bill 369, which halts the plant sales and= =20 stops restructuring in the state. =20 Analysis: For the last several weeks, Nevada officials monitoring the energ= y=20 industry in the state have oscillated between assisting the financially=20 strapped utilities under parent company Sierra Pacific Resources, or=20 preventing what they fear will be a repeat of the California energy crisis.= =20 The measure taken late last week by the Nevada Assembly is essentially an= =20 attempt to ensure cost-based rates in the state, reduce the potential risk = of=20 summer blackouts and wait out the uncertainty surrounding power supply and= =20 electricity prices in the West. However, the measure does little to allevia= te=20 the financial burden weighing on Nevada's major utility companies, and in= =20 fact raises the possibility for further debts that Sierra Pacific and Nevad= a=20 Power may have to carry to comply with several of the measure's related=20 requirements. =20 The key provision of Assembly Bill 369 blocks the sale of power plants befo= re=20 July 1, 2007, although Nevada utilities will be allowed to apply to the=20 Public Utilities Commission of Nevada (PUCN) for plant sales that include a= =20 state of "substantial financial emergency" after July 1, 2003. The measure= =20 directly impacts a pending sale to AES Corp. of a 14-percent interest (220= =20 MW) in the Mohave Generating Station, located in Laughlin, Nev., that is=20 presently owned by Nevada Power. AES had agreed to pay $133.5 million for t= he=20 14-percent interest in the plant. Under terms of the state's restructuring= =20 legislation, Nevada Power and Sierra Pacific Power were ordered to sell the= ir=20 power plants to alleviate concerns about market power. Toward that end, the= =20 holding company and its wholly owned utility subsidiaries commenced a publi= c=20 auction of approximately 2,900 MW of power generation facilities. =20 Of Sierra Pacific Resources' nine power plants, which are mostly fired by= =20 natural gas and coal, seven had been entered into sales agreements and were= =20 awaiting final approval when this Assembly measure was passed. The PUCN had= =20 actually approved the sale of the Mohave plant last year, representing the= =20 first sales transactions of one of the utilities' plants. However, since th= e=20 PUCN granted its approval of the Mohave plant, Nevada officials have grown= =20 increasingly concerned about instability in the Western power markets and t= he=20 power supply problems in California. =20 Tom Hay, chief of the Nevada Attorney General's Bureau of Consumer=20 Protection, initiated the block against the sale out of concern about power= =20 supply in the state. Specifically, Hay proposed that the Mohave plant shoul= d=20 remain under the control of Nevada Power for the time being because it burn= s=20 coal, a low-cost fuel that can be relied upon to stave off blackouts in the= =20 state. In addition, Hay raised the concern that, should the sale of the pla= nt=20 be approved, the new owner AES could decide to sell the power produced by t= he=20 plant outside of the state after a two-year buy back agreement expires in= =20 2003. By keeping the Mohave and other generating plants under the ownership= =20 of Nevada utilities, state officials believe that they can retain regulator= y=20 control over the price of power. =20 Nevada Governor Kenny Guinn agreed that the plants should not be sold at th= is=20 time and said that keeping the plants would protect Nevadans against high= =20 prices on the wholesale power markets. Guinn also expressed his intention t= o=20 block restructuring in the state throughout his term as governor, which end= s=20 in 2003. If he is elected for a second term and can see that the markets ha= ve=20 stabilized in the West, Guinn said he would consider allowing competition i= n=20 the state sometime after 2003.=20 For its part, AES says that it will seek legal action to force the sale of= =20 the plant to proceed. AES argues that the Nevada Assembly's measure is not= =20 constitutional and violates the sales contract already approved by the PUCN= .=20 AES also pointed out that the Mohave plant is 30 years old and will require= =20 significant repairs and improvement, an investment that it was willing to= =20 make but one that would cause an unnecessary financial burden on Nevada=20 Power.=20 Moreover, the negative financial impact that the Nevada Assembly's measure= =20 might cause is a major point of contention for Nevada Power and Sierra=20 Pacific (along with the two Assembly members who voted against the measure)= .=20 A spokesperson for the utilities said pending sales of power plants would= =20 provide the two companies with about $1 billion in cash, which "would go a= =20 long way to help us buy fuel and purchase power." As I discussed in my 3/8/= 01 IssueAlert the utilities' parent company Sierra Pacific Resources continues= =20 to struggle financially, so much so that a pending acquisition of Portland= =20 General has now been scrapped. Sierra Pacific Resources reported a=20 significant fourth-quarter loss ($18.2 million) as a result of soaring cost= s=20 of power in the western United States. The company incurred losses as a=20 direct result of "the growing and unrecovered cost of purchased power in th= e=20 volatile wholesale market." The company attributed the latest quarter's los= s=20 to nearly $258 million of unanticipated fuel and purchased power costs.=20 Although the Nevada Assembly's measure passed with a 9-2 vote, one assembly= =20 member recognized the fact that if "we weaken [the utilities] to the point= =20 where they can't borrow to purchase fuel, we won't have power." Consequentl= y,=20 the state could still find itself with a compromised power supply, despite= =20 its efforts to retain state control over existing power plants.=20 Additional financial burden could be placed on Nevada Power and Sierra=20 Pacific as a result of other requirements that are included in related=20 Assembly measures. For instance, AB 418 calls for gradually increasing the= =20 amount of green power used by the utilities to 15 percent (from its current= =20 0.2 percent). The bill allows for the PUCN to fine the utilities $10,000 a= =20 day or a total of $3 million for failing to buy the required amount of=20 renewable energy. Although a representative of Sierra Pacific Resources sai= d=20 that the company supports the use of renewable power, the Assembly measure'= s=20 requirement was considered "so much, so quick, so fast."=20 The block on the power sales and indefinite delay in the start of competiti= on=20 essentially returns Nevada to a re-regulated state. This is another example= =20 of the continuing fallout that has resulted from the California energy=20 crisis, especially among neighboring states in the West. As another example= ,=20 New Mexico recently decided to also delay the start of competition until=20 2007. Western states, which in one way or another have felt the direct impa= ct=20 of the power crunch in California, have become more cautious about=20 deregulation and seemingly are in no hurry to open their markets to=20 competition (despite the fact that deregulation proceeds in other areas of= =20 the country).=20 However, unlike California, where the state government now has an active ro= le=20 in purchasing power and may take over the utilities' transmission assets,= =20 Nevada Gov. Guinn has expressed no interest in having the state or local=20 governments take over the jobs of electric utility companies. Rather, Guinn= =20 merely wants to retain the control that the state traditionally has had ove= r=20 setting utility cost-based rates, an authority that would become diluted if= =20 out-of-state power companies own generation assets located in Nevada.=20 Further, Guinn wants to return to deferred energy rates (also known as=20 fuel-adjustment clauses), in which a utility is allowed to seek=20 dollar-for-dollar adjustments in rates to recover costs associated with=20 purchasing power on the wholesale market. As opposed to monthly rate=20 increases, Guinn believes that an annual rate increase=01*which Nevada Powe= r and=20 Sierra Pacific would have to request and justify=01*would "smooth out the u= ps=20 and downs of power and fuel costs over the year." In addition, Guinn believ= es=20 that the combination of state regulation and cost-based rates offers a bett= er=20 strategy for the state than attempting retail competition at this time. To= =20 supplement power supply, Guinn believes that Nevada should promote the use = of=20 merchant plants rather than relying on the incumbent utilities to build=20 additional generation. =20 Moreover, the Nevada Assembly measure brings competition in the state to a= =20 screeching halt (at least for the next few years). However, the larger issu= e=20 at hand presently is the precarious financial state of Sierra Pacific=20 Resources and its utilities. Without the cash that would have been gained= =20 from the sales of its power plants, it is unclear how Sierra Pacific=20 Resources will be able to pull itself out of debt. The utility already=20 received an emergency rate increase last month, so any attempt to secure=20 additional increases would surely be politically unpopular. Gov. Guinn's=20 proposal regarding deferred energy rates may provide a mechanism to bring= =20 Sierra Pacific's rates more in line with its costs, but most likely such a= =20 rate increase would take effect only once a year. Meanwhile, Sierra Pacific= =20 must still procure some power on the wholesale market, where prices remain= =20 high (a situation that could get ever worse this summer if warm temperature= s=20 drive up demand). Thus, ironically, as much as state officials have tried t= o=20 avoid the energy crisis found in its western neighbor, Nevada is increasing= ly=20 exhibiting some of the same fundamental problems found in California. =20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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