Opinion ID: 2631746
Heading Depth: 1
Heading Rank: 7

Heading: Nevada Power's 1999-2000 practices and transactions

Text: Before the enactment of S.B. 438, Nevada Power utilized annual and monthly requests for proposals when purchasing energy. However, the energy market's structure and competitive changes in the market had an adverse effect on the responsiveness of potential energy suppliers. Thus, in late 1999, while continuing to use the request for proposals process, Nevada Power also began to explore options for forward purchases in the broker market. In response to changes in the electricity market, Nevada Power hired an individual to serve as a risk manager and prepare a risk management policy. The individual selected to head Nevada Power's resource management team, however, was not experienced in power trading or risk management. The first risk management meeting was not held until March 27, 2000, and only four individuals were assigned to staff the entire risk management team. Moreover, from late 1999 to early 2000, New York Mercantile Exchange futures prices rose from $120 to over $400 per megawatt hour. Evidence presented to the PUCN demonstrated that, in late 1999, Nevada Power entered into negotiations with Merrill Lynch, seeking to secure approximately 25 percent of its expected purchased power load to cover the upcoming summer months. The negotiations consisted of a series of e-mails between a Merrill Lynch employee and a Nevada Power employee. The e-mails detailed price offers ranging from $32.75 to $39.25 per megawatt hour during a period when the average cost of wholesale power purchases was around $40.68 per megawatt hour. The negotiations ultimately failed. Around the time the Merrill Lynch negotiations failed, Nevada Power completely abandoned its request for proposals strategy. Further, Nevada Power modified its broker market purchasing strategy to a timed procurement strategy, which involved targeting predetermined percentages of power for purchase in the forward markets on a monthly basis. Essentially, Nevada Power's goal was to procure 95 percent of its required year 2000 power, in incremental stages only, by July 2000. In the past, Nevada Power had procured significant volumes of energy years before delivery. In May 2000, Nevada Power began purchasing power at Palo Verde. [12] Those purchases primarily consisted of 6X16 product for the second and third quarter of 2001. [13] Because the Palo Verde purchases could not be used directly within Nevada Power's system, Nevada Power was inevitably faced with a choice: either swap the Palo Verde power for power deliverable at a transfer point within Nevada Power's system (Mead) or sell the power to another party. In October 2000, Nevada Power purchased power for delivery to Mead. The following month, Nevada Power purchased about 800 megawatts of on-peak power for the third quarter of 2001. [14] Nevada Power then incrementally purchased another 800 megawatts of power beginning in November 2000, through January 2001. By January 2001, Nevada Power had acquired approximately enough power to meet a newly developed above average acquisition goal of 107 percent of its average daily energy load requirements.