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NV Energy seeks to merge subsidiaries, a move that sets back

The state’s largest utility company, NV Energy, is seeking to merge its two electric subsidiaries into a single entity, which could impact how the company finances projects in the future and how how the business is regulated.

State regulations dictate that utility mergers must benefit consumers to be approved by the Public Utilities Commission.

NV Energy says joining its subsidiaries – Nevada Power, which provides electricity to customers in southern Nevada, and Sierra Pacific Power, which serves northern Nevada – will create savings for consumers by preventing electricity tariffs. ‘increase. But it’s unclear how or when those savings would take effect, and testimony filed last week with the PUC by a number of companies such as Wynn Resorts Ltd. and Walmart Inc. as well as the Consumer Protection Bureau show many are skeptical.

“Wynn-SEA (Smart Energy Alliance) is concerned about the proposed transaction because it is not obvious, at least from a taxpayer’s perspective, why such a transaction is necessary at this stage,” said Bradley Mullins, consultant in energy and utilities, who testified on behalf of Wynn and Smart Energy Alliance.

Mark Garrett, president of Garrett Group Consulting, filed testimony on behalf of the Consumer Protection Bureau and said that “without a specific plan in place to protect taxpayers, the proposed transaction could create significant inequities between customers of Sierra and Nevada Power”.

Of the five testimonies filed with the PUC, only one was in favor of the merger. Walmart said it doesn’t oppose the merger because it would prefer to pay a uniform electric rate for its 43 stores statewide.

NV Energy’s director of corporate communications, Jennifer Schricht, said updating the company’s corporate structure will ultimately benefit taxpayers.

“The proposed merger will make our corporate legal structure more consistent with the way we operate on a day-to-day basis. Our customers will benefit from a simplified corporate structure, cost savings associated with operational efficiencies and NV Energy’s new combined financing activities,” Schuricht said in an email Friday. “We look forward to working with the parties to address their concerns and clearly demonstrate the benefits the merger will bring to our customers and to Nevada.”

The utility plans to provide a more detailed response by September 7, when its rebuttal testimony is due to the PUC.

Attractive interest rate

NV Energy argues that the merger would create savings for consumers by reducing the amount of debt incurred by the company. In its filings, the utility said getting better debt deals would improve NV Energy’s credit rating and prevent consumer rates from rising due to “credit measurement issues.”

“Merging Nevada Power and Sierra into a single entity will result in a single debt issuer and this increase in scale will result in better access to debt market capital markers and better pricing of debt issuances “, said Michael Cole, chief financial officer of NV Energy. said in the testimony provided to the PUC.

The merger is estimated to cost NV Energy $1.1 million in legal and administrative fees and could yield $4.1 million in annual savings to customers, according to Cole’s testimony.

NV Energy is focused on restructuring to secure more favorable interest rates with its debt offerings, as the company expects to have to refinance $2.1 billion in debt once it matures by 2032.

It also anticipates more than $17 billion in capital costs over the next 20 years with projects such as its $2.5 billion Greenlink Nevada transmission initiative, according to Schuricht. The massive project is split in two with Greenlink West, consisting of approximately 350 miles of new transmission lines and substations beginning in Las Vegas and spanning 13,600 acres of public and private land, and Greenlink North, which would stretch approximately 235 miles from Ely to Yerington.

According to Schuricht, the potential savings from this merger would not be seen by customers until NV Energy files its first post-merger General Rate Case in 2023. A General Rate Case Application is required every three years when a utility owned by an investor like NV Energy is seeking to change the rates it charges customers, a process that requires PUC approval.

Despite the potential savings touted by NV Energy, PUC staff raised questions about the need for the merger.

“Many of these claimed benefits already exist in the current structure, with Sierra and Nevada Power being separate companies, and it is difficult for staff to substantiate the existence of additional benefits that a merger would bring,” said Swetha Venkat, economist at PUC. said in the testimony filed. “The cost of issuing debt as separate entities after the merger would be unknown and a reduction in interest rates, if any, would be difficult to determine.”

PUC Senior Electrical Engineer Adam Danise also pointed to the “very different” geographic regions of northern and southern Nevada.

He said Sierra Pacific’s coverage area — northern Nevada — is more prone to wildfires than Nevada Power’s region in southern Nevada, and a situation could arise where Nevada’s insurance policy Power would increase due to wildfire risks in northern Nevada.

“A Legal Fiction”

Since the two subsidiaries have operated jointly since 1999 and have been under the NV Energy umbrella since 2008, the merger would primarily be a “legal definition”, according to Bradley Wimmer, an economics professor at UNLV.

But legal definitions can have a big impact on the programs and regulations NV Energy must follow, according to Danise.

“Many energy programs and policies legislated in [Nevada law] were created and have specific requirements defined around the definition of an electric utility,” Danise said.

Despite potential regulatory changes, Wimmer believes the merger will still be approved.

“For shareholders it’s one company, it’s kind of a legal fiction that there are different companies,” he said. “But I think they’re going to have a really hard time denying the merger because it doesn’t change the fundamentals of the business.”

The PUC will hold a hearing to consider NV Energy’s merger application on September 19-20.

The merger must also be approved by the Federal Energy Regulatory Commission; a federal decision could come by Nov. 1, according to NV Energy’s merger filing documents.

Contact Sean Hemmersmeier at [email protected] or on Twitter @seanhemmers34.