Deregulation delayed due to legal obstacles

Electric deregulation is on hold in Nevada because major pieces of the puzzle can't be worked out by Wednesday.

Gov. Kenny Guinn has called for a summit to figure out how to get past "legal and technical obstacles of deregulation."

Local power companies and the gaming and mining industries which stand to benefit most from deregulation will attend along with the governor's office, Public Utilities Commission staff and the Consumer Advocate's Office.

No date has been set for the meeting.

Guinn said he postponed deregulation because "I am absolutely opposed to proceeding with deregulation before we are ready."

"We're not ready," he said. "I'm hopeful we will be able to solve some of the problems when we get everyone in the same room, addressing the same issues at the same time."

Major power users such as casinos and mines have argued for years they are subsidizing small users under rules that impose one rate schedule for all. In a deregulated, competitive market, utilities could offer those customers much lower prices to get their business without being required to offer the same cost to all.

"Many of the problems currently standing in the way of electrical deregulation are out of our hands and must be decided by the courts or the federal government, so there are certainly limits on what we can achieve at this meeting," Guinn admitted.

The problems on that list include all of the most contentious issues involved in deregulation. While the governor didn't set a new deadline for the official start of deregulation, Cook said he thinks it will take "until next fall at the earliest" - and most likely longer.

The biggest problem outside state control is regulating how the Mountain West Independent System Administrator will operate. Described as the "traffic cop" of deregulation, the administrator will control the actual transmission of wholesale electric power from one place to another and across state lines throughout the west.

That means the independent administrator controls who gets to send their power from one place to another through interstate transmission lines and when.

Since transmission of electric power is regulated by the Federal Energy Regulatory Commission, the regulations governing the independent administrator are up to Congress and federal officials.

State Sen. Randolph Townsend, R-Reno, who shepherded the deregulation legislation through the Nevada Legislature, said the independent administrator is crucial to making deregulation work. But he said the federal government is nowhere near finished debating it.

"We got another bill introduced in Congress today," he said Monday.

State regulators are involved in one part of that issue: how to pay for the independent administrator, its board of directors and staff. Those issues can't be resolved until the federal government decides how the independent administrator operate.

Greg Cook, an economist with the Consumer Advocate, said there are other major pieces of the puzzle not yet finished as well, including regulation of the "provider of last resort." That means making sure there is some utility to serve those customers - primarily small businesses and residential users - who can't get a special contract or discount rate.

"Somebody's got to serve them," said Cook. "It'll be Sierra Pacific Power in the north until at least July 2001 but the details still have to be worked out."

In addition, the Nevada Public Utility Commission must set distribution rates for outside competitors who use power lines belonging to Nevada utilities to get their power to their contract customers. Cook said when outside companies use a utility's lines, that utility is entitled to compensation. But those companies are entitled to fair treatment and rates that don't soak up all their profits.

Finally, the issue of "stranded investment costs" has not been resolved.

Stranded costs are the investment existing utilities have made in generating facilities and in signed, long term contracts for power from other utilities, which they argue will cost them millions once deregulation is a reality. The problem is some of those generating plants may not be competitive in a deregulated market where customers can shop for cheaper providers. But the debt the utility owes on huge generating stations won't go away. They want compensation for those investments arguing that they wouldn't have built them in the first place except that utility commissioners ordered them to.

"The issue is whether it was their bad decision to build them or those bad decisions were forced on them," said Cook.