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FERC Tells Two Nevada Utilities To Negotiate Supply-Pact Issues Scott Kilman, Staff Reporter The Wall Street Journal, April 11, 2002

WASHINGTON -- In a decision that could have far-reaching implications for California and the West, federal energy regulators ordered two Nevada utilities to negotiate their differences with power generators over high-cost, long-term power contracts signed during the height of the region's energy crisis last year.

At the same time, though, the Federal Energy Regulatory Commission made clear it wouldn't easily buy arguments by Nevada Power Co. and Sierra Pacific Power Co. that the costs and terms of the contracts violate federal laws requiring power prices to be just and reasonable. The utilities, units of Sierra Pacific Resources Inc., have asked FERC to modify or void the contracts. In an order, FERC warned the utilities their "burden is a heavy one" to prove their case and reminded them that it has been the commission's longstanding policy to "recognize the sanctity of contracts."

Instead, the federal regulators directed the utilities and 10 power suppliers, including units of Duke Energy Corp., to seek mediation. The FERC ordered two other utilities, Southern California Water Co. and the Public Utility District No. 1 in Snohomish County, Wash., to do the same.

California officials are watching the developments in these cases because they have filed similar complaints with FERC, asking the federal regulators to void some of the nearly $43 billion in long-term contracts the state has signed with nearly two dozen power suppliers.

The average power price under those contracts is $69 a megawatt hour, compared with today's spot-market price of around $30 a megawatt hour. For the Nevada utilities, the contract prices go as high as $290 a megawatt hour.