NV Energy looks to merge subsidiaries, a move drawing pushback

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

State regulations mandate that utility mergers need to benefit consumers in order to be approved by the Public Utility 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 keeping rates from rising. But it’s unclear how or when these 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 Bureau of Consumer Protection show many are skeptical.

“Wynn-SEA (Smart Energy Alliance) is concerned with the proposed transaction because it is not apparent, at least from a ratepayer perspective, why such a transaction is necessary at this time,” said Bradley Mullins, energy and utilities consultant, who filed testimony on behalf of Wynn and Smart Energy Alliance.

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

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

NV Energy Director of Corporate Communications Jennifer Schuricht said updating the company’s corporate structure will ultimately benefit ratepayers.

“The proposed merger will make our legal corporate structure more consistent with how we operate day-to-day. Our customers will benefit from a simplified corporate structure, cost savings associated with operating 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 to clearly demonstrate the benefits the merger will bring to our customers and Nevada.”

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

Favorable interest rates

NV Energy contends the merger would create savings for consumers by reducing the amount of debt taken on by the company. In its filings, the utility said that getting better debt offerings would improve the credit rating of NV Energy and keep consumer rates from rising due to “credit metric issues.”

“The merging of Nevada Power and Sierra into a single entity will result in a single debt issuer and this increase in scale will result in improved access to the debt market capital markers and better pricing on debt issuances,” NV Energy Chief Financial Officer Michael Cole said in testimony provided to the PUC.

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

NV Energy is focused on restructuring to get more favorable interest rates with its debt offerings since the company anticipates needing to refinance $2.1 billion in debt once it matures by 2032.

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

Any potential savings from this merger wouldn’t be seen by customers until after NV Energy files its first post-merger general rate case in 2023, according to Schuricht. A general rate case application is required every three years when an investor-owned utility like NV Energy seeks to change the rates it charges customers, a process that requires approval from the PUC.

Despite potential savings touted by NV Energy, staff at the PUC have raised questions about the necessity of the merger.

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

PUC Senior Electrical Engineer Adam Danise also pointed to the “vastly different” geographic regions of Northern and Southern Nevada.

He said Sierra Pacific’s coverage area — Northern Nevada — is more prone to damaging wildfires than Nevada Power’s region in Southern Nevada, and a situation could occur where Nevada Power’s insurance policy increases because of the wildfire risks in Northern Nevada.

‘A legal fiction’

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

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

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

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

“To the stockholders, they are a single company, it’s kind of a legal fiction that there are different companies,” he said. “But I would think they are going to have a very 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 request on Sept. 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 shemmersmeier@reviewjournal.com or on Twitter @seanhemmers34.