NEVADA POWER CO
8-K, 2000-04-17
ELECTRIC SERVICES
Previous: ALLIANCE BALANCED SHARES INC/NJ, N-30D/A, 2000-04-17
Next: NEW BRUNSWICK SCIENTIFIC CO INC, DEF 14A, 2000-04-17



<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


        Date of Report (Date of earliest event reported): March 28, 2000
                                                          ---------------

                              NEVADA POWER COMPANY
                         ------------------------------
           (Exact name of the registrant as specified in its charter)


                                     Nevada
                                ----------------
                 (State or other jurisdiction of incorporation)

- --------------------------------------------------------------------------------
         1-8788                                     88-0045330
         ------                                     ----------
 (Commission File Number)             (IRS Employer Identification Number)
- --------------------------------------------------------------------------------

6226 West Sahara Avenue, Las Vegas, Nevada                  89146
- ------------------------------------------                  -----
 (Address of principal executive offices)                 (Zip Code)
- --------------------------------------------------------------------------------

                                 702-367-5000
                                 ------------
             (Registrant's telephone number, including area code)

                                      N/A
                                 ------------
          (Former name or former address, if changed since last report)
<PAGE>

Item 5. Other Events.

Recent Decisions in Nevada Power Company Deferred Energy Case

      In 1999, the Nevada Legislature passed Senate Bill 438, which amended
earlier restructuring legislation and, with one exception, froze for three years
the rates for Nevada Power Company (the "Company") at the levels that were in
effect on July 1, 1999. The legislation, however, mandated that the Public
Utilities Commission of Nevada (the "PUCN") modify those rates to reflect the
outcomes of deferred energy accounting cases filed by the Company prior to
October 1, 1999. The Company filed its annual deferred energy case on July 15,
1999, covering the period from June 1, 1998 through May 31, 1999. This filing
requested:

o     an increase in ongoing charges for fuel and purchased power to reflect
      increased costs during the applicable test period,
o     an increase in ongoing charges for fuel and purchased power to reflect the
      cost of purchased energy which was being imputed as "capacity" under a
      previous PUCN order,
o     an increase to recover accumulated deferred balances for fuel and
      purchased power, and
o     an increase to recover accumulated deferred "capacity" balances.

      In accordance with SB 438, on September 30, 1999, the Company filed an
amendment to its deferred energy filing covering charges through August 31,
1999. In the amended filing, the Company updated the earlier calculations of
ongoing fuel and purchased power costs so as to reflect the most recent 12
months historical data and updated the two categories of deferred balances to
reflect deferrals through August 31, 1999.

      On February 4, 2000 the PUCN issued an order that rejected the September
30 amendment. In addition, on March 28, 2000 the PUCN issued a decision on the
original deferred energy filing which:

o     confirmed the dismissal of the September 30th filing,
o     disallowed recovery of substantially all of the imputed capacity
      previously deferred,
o     stopped all purchased fuel and energy deferrals retroactive to May 31,
      1999, and
o     prohibited the recovery of any ongoing cost of imputed capacity deferrals.

      The PUCN decision had both an immediate and an ongoing financial impact on
the Company. The immediate impact was that the Company recognized a reserve for
previously deferred energy and imputed capacity costs of $80 million in 1999.
The ongoing impact results from the fact the decision reduced the Company's
request for ongoing rate increases by between 85 and 90 percent, just as the
Company is entering the three-year rate freeze imposed by Senate Bill 438. The
Company estimates that the resulting reduction in its revenue will equal
approximately $30 million over each of the next three years. The Company has
appealed the
<PAGE>

decisions, as discussed below under "Material Litigation".

Material Litigation

      On March 28, 2000, the Company and its parent, Sierra Pacific Resources,
together with the Company's sister subsidiary, Sierra Pacific Power Company,
filed a lawsuit in Federal District Court in Nevada asking the court to declare
certain aspects of the Nevada laws that created the framework for a deregulated
electric market in Nevada unconstitutional. These laws, which are described in
more detail in "Management's Discussion and Analysis of Results of Operations
and Financial Condition" contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, require that competitive services in the
electric power industry be available for Nevada customers beginning on March 1,
2000, unless otherwise ordered by the Governor of Nevada. The Governor has
deferred the effective date of these laws, but only for so long as may be
necessary to make a transition to a deregulated market for electric services.
The lawsuit alleges that the restructuring laws fail to provide an adequate
mechanism for the recovery by the utilities of the substantial costs incurred by
them to assure reliable electric power supplies to Nevada customers in the
historically regulated market. Specifically, the lawsuit states that the federal
Public Utility Regulatory Policies Act requires the utilities to purchase power
from certain non-utility generators but that the Nevada restructuring laws are
being carried out so as to prevent the utilities from recovering sufficient
revenues from customers to compensate the companies for all of these purchased
power costs. Therefore, the lawsuit alleges that Nevada's restructuring laws are
preempted by the federal Public Utility Regulatory Policies Act and the Federal
Power Act and that they violate the Contract Clause and the Fifth and Fourteenth
Amendments to the U.S. Constitution. The lawsuit requests that the court stay
the effectiveness of the Nevada restructuring laws until the PUCN adopts
implementing regulations that protect the utilities' rights under federal law.
The Company is not able at this time to predict how long it will take for this
lawsuit to be resolved and nor can it predict the outcome of the case.

      In response to the PUCN decisions described above under "Recent Decisions
in Nevada Power Company Deferred Energy Case", the Company filed a lawsuit
against the PUCN on March 30, 2000 in the First Judicial District of Nevada in
Carson City. The lawsuit alleges fourteen causes of action against the PUCN and
requests that the court:

o     set aside the PUCN's March 28, 2000 order,
o     reinstate the Company's September 30th filing, and
o     enter an order allowing the Company to recover deferrals of imputed
      capacity through March 28, 2000 and implement ongoing rates for fuel and
      purchased power that reflect the costs of purchased energy.

The Company is not able at this time to predict how long it will take for this
lawsuit to be resolved nor can it predict the outcome of the case.
<PAGE>

Item 7. Financial Statements and Exhibits.

(a)   Financial Statements of businesses acquired.

      None

(b)   Pro forma financial information.

      None

(c)   Exhibits.

      99.1  Petition for Judicial Review of an Order of the Public Utilities
            Commission of Nevada, Case No. 00-00416A, filed on March 30, 2000 in
            the case of Nevada Power Company, Petitioner v. Public Utilities
            Commission of Nevada, Defendant, in the First Judicial District
            Court of the State of Nevada in and for Carson City.

      99.2  Complaint for Declaratory and Injunctive Relief, filed on March 28,
            2000, in the case of Sierra Pacific Resources, Sierra Pacific Power
            Company and Nevada Power Company v. Public Utility Commission of
            Nevada et al., Civil Action No. CV-N-0157-DWH-VPC, in the United
            States District Court for the District of Nevada.
<PAGE>

                                   SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.

Dated: April 14, 2000
       ------------
                                    NEVADA POWER COMPANY


                                    By: /s/ William E. Peterson
                                        -----------------------
                                        William E. Peterson
                                        Title: Senior Vice President,
                                               General Counsel and
                                               Corporate Secretary
<PAGE>

                                  EXHIBIT INDEX

Exhibit                 Description
- -------                 -----------

99.1  Petition for Judicial Review of an Order of the Public Utilities
      Commission of Nevada, Case No. 00-00416A, filed on March 30, 2000 in the
      case of Nevada Power Company, Petitioner v. Public Utilities Commission of
      Nevada, Defendant, in the First Judicial District Court of the State of
      Nevada in and for Carson City.

99.2  Complaint for Declaratory and Injunctive Relief, filed on March 28, 2000,
      in the case of Sierra Pacific Resources, Sierra Pacific Power Company and
      Nevada Power Company v. Public Utility Commission of Nevada et al., Civil
      Action No. CV-N-0157-DWH-VPC, in the United States District Court for the
      District of Nevada.

<PAGE>

                                                                    Exhibit 99.1

Case No.:

Department No.:

              FIRST JUDICIAL DISTRICT COURT OF THE STATE OF NEVADA
                             IN AND FOR CARSON CITY

NEVADA POWER COMPANY,               )
                                    )
            Petitioner              )
                                    )
      vs.                           )     PETITION FOR JUDICIAL REVIEW
                                    )     OF AN ORDER OF THE PUBLIC
PUBLIC UTILITIES COMMISSION         )     UTILITIES COMMISSION OF
OF NEVADA,                          )     NEVADA
                                    )
            Defendant               )
- ------------------------------------)

      COMES NOW, the Nevada Power Company ("Nevada Power" or "Company" or
"Petitioner"), by and through its undersigned counsel, and petitions this Court
for judicial review of an order of the Public Utilities Commission of Nevada
("Commission" or "PUCN"). This petition is filed pursuant to NRS ss.703.373,
which provides, in part, that any aggrieved party to a proceeding before the
Commission is entitled to judicial review of a final decision. Such review is
initiated with a petition for judicial review that may be filed in the district
court in and for Carson City. NRS ss.703.373(2). Petitions for judicial review
of final orders of the Commission are afforded precedence over other civil
actions of a different nature. NRS ss.703.373(5).

            With this Petition, Nevada Power seeks to reverse Commission orders
in PUCN Docket No. 99-7035 which dismissed Petitioner's amended application to
initiate a new electric


                                      -1-
<PAGE>

rate schedule, and reduced rates in petitioner's original application.
Concurrent with this filing, Petitioner has filed a Motion, pursuant to NRS
ss.704.374, seeking a preliminary injunction staying the Commission's final
order, along with authority to put into effect the Company's filed and suspended
schedules of rates pending a final determination by this Court on the merits of
the petition.

                                  INTRODUCTION

      The Causes of Action Set forth in this Petition for Judicial Review relate
to two broad aspects of the Commission's Order in PUCN Docket No. 99-7035. In
that case, Nevada Power sought authority to change its electric rates to reflect
the changing costs of purchased fuel and purchased power. The issues raised in
this Petition for Judicial Review are admittedly complex. Therefore, Petitioner
has devoted substantial attention to providing the Court with additional
background regarding electric utility regulation, especially as it is impacted
by recent electric industry restructuring legislation. Petitioner has included
with its Petition several exhibits that reflect the law regarding the recovery
of purchased fuel and purchased power costs at various points in time up to and
through the enactment in June, 1999 of sweeping legislation restructuring the
electric industry in Nevada. These exhibits are provided here for ease of
reference and do not constitute supplements to the record in PUCN Docket No.
99-7035. In support of its Petition, Nevada Power alleges as follows:

                                   THE PARTIES

      1. Petitioner Nevada Power is a public utility providing retail electric
service to customers in and around Las Vegas, Nevada pursuant to a certificate
of public convenience and necessity granted and administered by the Commission.
Nevada Power is not a debtor in bankruptcy.


                                      -2-
<PAGE>

      2. Nevada Power is itself a Nevada corporation, and a wholly-owned
subsidiary of Sierra Pacific Resources, a publicly traded Nevada corporation and
utility holding company, which, through Nevada Power and its other wholly owned
subsidiary Sierra Pacific Power Company, conducts electric, gas and/or water
utility operations in fourteen Nevada Counties (Clark, Nye, Washoe, Douglas,
Storey, Lyon, Churchill, Lander, Esmerelda, Pershing, Elko, Mineral, Humboldt,
and Eureka), and Carson City.

      3. Defendant Commission is an administrative agency of the State of
Nevada, created by the legislature in NRS Chapter 703 to supervise and regulate
the operations, including rates, of public utilities as defined in NRS Chapter
704.

           REGULATORY FRAMEWORK FOR SETTING RATES FOR PUBLIC UTILITIES

      4. The legislature has declared (codified at NRSss.704.001), its purpose
and policy in enacting NRS Chapter 704:

      It is hereby declared to be the purpose and policy of the legislature in
      enacting this chapter:

      1.    To confer upon the commission power, and to make it the duty of the
            commission, to regulate public utilities to the extent of its
            jurisdiction.

      2.    To provide for fair and impartial regulation of public utilities.

      3.    To provide for the safe, economic, efficient, prudent and reliable
            operation and service of public utilities; and

      4.    To balance the interests of customers and shareholders of public
            utilities by providing public utilities with the opportunity to earn
            a fair return on their investments while providing customers with
            just and reasonable rates.

      5. Historically, the provision of electricity was considered a natural
monopoly in Nevada and a single utility was required to generate, transmit, and
distribute electricity for and to all consumers in a designated service area.
"Generation" refers to the process of producing electricity, whether through
nuclear units, fossil fuel plants, hydroelectric facilities or other sources.
"Generation" also refers to power purchased from third-party suppliers both
inside and


                                      -3-
<PAGE>

outside the state, that is then transmitted to load centers inside the state for
distribution and ultimate consumption by customers. The two largest components
of generation costs consist of cost of purchased power and cost of fuel (oil,
gas or coal) which the generating plants burn to produce steam for electric
generation. "Transmission" is the process of moving electricity at high voltage
from a generating source to load centers. "Distribution" refers to the process
of delivering high-voltage electricity to customers at lower voltage levels.

      6. Within this historic framework, Nevada Power has provided what has been
called "bundled" electric service, consisting of generation, transmission,
distribution, metering, and billing services, packaged into a single service,
provided to customers within its defined service territories and charged for in
a single bill.

      7. As a public utility subject to the jurisdiction of the Commission,
Nevada Power's retail electric rates for traditional bundled electric service
are subject to review and approval by the Commission.

      8. Prior to 1975, rates for electric utilities were set using a
long-established but semi-formal procedure wherein the utility filed an
application with the Commission in which it described the relief it sought, and
provided certain supporting documentation. Any and all costs associated with
providing electric service were reviewed in these applications, subject to
minimal regulation guided by a fairly comprehensive body of judicial common law
determinations regarding the rights and obligations of utilities and the
Commission.

                REGULATORY FRAMEWORK FOR RECOVERING THE COSTS OF
                       PURCHASED FUEL AND PURCHASED POWER

      9. In 1975 the Legislature enacted two bills, AB 707 and SB 267 (attached
hereto as Exhibits "A" and "B") that together created three distinct ratemaking
processes under which a


                                      -4-
<PAGE>

utility could recover its expenses for its two largest and most volatile
components of cost, purchased fuel and purchased power. The 1975 Legislature
also formalized procedures for changing rates for two of these procedures. With
A.B. 707, the Legislature created the "general rate case," in which the utility
was to file certain information in a certain format to recover all of its costs
of investments in plant and facilities, return on investment, and expenses
(including purchased fuel and purchased power) associated with operating the
utility. As codified at NRS ss.704.110(3), this provision reads in pertinent
part:

      Whenever there is filed with the commission any schedule stating an
      increased... rate or charge for service or equipment, the public utility
      shall submit with its application a statement showing the recorded results
      of revenues, expenses, investments and costs of capital for its most
      recent 12 months for which data were available when the application was
      prepared.

      10. Because of the cost, complexity, and time consumed by such large
cases, and the attendant burden imposed on the Commission in processing such
cases, the legislature also enacted a provision prohibiting a utility from
filing a general rate case while another case is still pending. This
"anti-stacking" provision required a general rate case to be finally decided by
the Commission before the utility could file another one.
NRSss.704.110(6)

      11. An exception was created for purchased fuel (oil, natural gas and
coal) and purchased power, which could be treated differently in recognition of
the susceptibility of these costs to frequent and dramatic price fluctuations,
and the burden on the utility of having to absorb these costs (which it could
not control) until another general rate case could be filed. This was the second
method made available to a utility to recover its fuel and purchased power
costs. With S.B. 267, codified at NRS ss.704.110(7), the 1975 Legislature
provided for "fuel cases," the generic term for a separate process pursuant to
which the ongoing costs of purchased fuel and purchased power could be
recovered. Where general rate cases could no longer be filed in quick


                                      -5-
<PAGE>

succession, with no more than one general rate case pending at a time, S.B. 267
provided an exception for cases involving just purchased fuel and purchased
power. "A public utility may not file an application to recover the increased
cost of purchased fuel, purchased power, or natural gas purchased for resale
more often than once every 30 days."

      12. With A.B. 707, the 1975 Legislature established a third method for
recovering the costs of purchased fuel and purchased power. A utility could
elect to use a special accounting procedure (termed "deferred accounting") to
separately account for the costs of fuel and purchased power, and to recover its
deferrals of purchased fuel and purchased power in a subset of a new kind of
"fuel case" now commonly referred to as the "deferred energy case." In other
words, the costs would be collected or entered into an account, the collection
of which would be delayed or deferred until a future date.

      13. AB 707, ss. 1, codified at NRS ss.704.185, Subsection (1) reads in
pertinent part: "[a] public utility which purchases fuel, including natural gas
for resale, or power may record upon its books and records all cost increases or
decreases in such fuels or purchased power in deferred accounts." AB 707, ss. 2,
codified at NRS ss.704.110(5), reads in pertinent part:

      Whenever an application is filed by a public utility for an increase in
      any rate, fare or charge based upon increased costs in the purchase of
      fuel or power, and the public utility has elected to use deferred
      accounting for costs of the purchase of fuel or power in accordance with
      commission regulations, the commission, by appropriate order after a
      public hearing, shall allow the public utility to clear the deferred
      account not more often than every 6 months by refunding any credit balance
      or recovering any debit balance over a period not to exceed 1 year as
      determined by the commission.

      14. The Commission adopted a separate body of regulations implementing "AB
707" deferred accounting pursuant to NRS ss.ss.704.185 and 704.110(5) on March
31, 1976. Designated as General Order No. 21, these regulations described how a
utility could elect to use deferred accounting, and the accounting and reporting
procedures it needed to follow once it elected to


                                      -6-
<PAGE>

use deferred accounting. General Order 21 also established the details of the
special accounting process by which purchased fuel and purchased power costs
were deferred and then recovered. Consistent with NRS ss.704.110(5), General
Order 21 provided for the clearing of deferred balances once every six months,
using a six-month amortization period. In other words, the balance in the
account would be recovered in monthly charges to customers over a six-month
period. The complete text of General Order 21 as it was originally implemented
is attached hereto as Exhibit "C".

      15. By its express terms, General Order 21 applied only to utilities
electing to use deferred accounting for purchased fuel and purchased power.
General Order 21 also provided that when a utility elected to use deferred
accounting, its ongoing (forward looking) as distinguished from its deferred
(past uncollected) costs of fuel and purchased power were to be set via the NRS
ss. 704.110(3) "general rate case" process, rather than the S.B. 267 or NRS
ss.704.110(7) "fuel case" process. In the SB 267 process, only going-forward
costs would be set, but there would be no tracking of over- or under-collections
in any deferred account. Rather, the utility would assume the risk of
underrecovery and retain the benefit of any overrecovery. Utilities opting to
recover the costs of fuel and purchased power in S.B. 267 "fuel cases" instead
of the AB 707 deferred accounting process, were not subject to the requirement
that ongoing forward-looking costs of fuel and purchased power be set via the
"general rate case" process.

      16. In 1981, the Commission revamped General Order 21. See Exhibit "D"
attached hereto, which contains pertinent excerpts. Among the more significant
changes made, the Commission eliminated the requirement that utilities using
deferred accounting set their ongoing forward-looking (as opposed to deferred
past uncollected) costs of fuel and purchased power in a "general rate case."
Instead, utilities electing to use deferred accounting were required to update


                                      -7-
<PAGE>

their ongoing costs of purchased fuel and purchased power in the deferred case
itself. "The base unit energy cost for fuels used in electric generation and for
purchased power must be established in a utility's application for deferred
energy relief...." General Order 21, Section 3.32. In later versions of the
regulation, this provision appeared at NAC ss.704.125. "Base unit energy costs"
is the regulatory nomenclature for the projected forward-looking ongoing costs
for fuel and purchased power.

      17. Later in 1981 the Commission further amended General Order 21
(pertinent excerpts attached hereto as Exhibit "E") in an attempt to make it
clear that despite the rather unequivocal language of Section 3.32, the
regulation should not be construed to prohibit the updating of ongoing purchased
fuel and purchased power costs more frequently than every six months, and that
such updating could occur in cases other than those involving deferred
accounting. As set forth in the preamble to the amendment: "the Commission
recognizes that situations may exist in which the public interest may be best
served by establishment of the base unit energy cost in a proceeding other than
a deferred energy proceeding and using a formula different from that contained
in General Order No. 21." The remedy established in this amendment (Section
1.33, later codified as NAC ss.704.080), acknowledges that the statutes, NRS
ss.ss.704.110(5) (A.B. 707 deferred energy) and NRS ss.ss.704.110(7) (S.B. 267
fuel and purchased power update), contemplate the updating of the ongoing costs
of fuel and purchased power in proceedings other than those involving NRS ss.
704.110(5) deferred accounting.

      18. In 1987 the Commission again conducted a sweeping modification of its
deferred accounting regulations, attached in its entirety as Exhibit "F." In
this amendment, all references to the deferred energy process as being the
exclusive forum for the setting of ongoing fuel and purchased power costs for
those utilities opting to use deferred accounting were eliminated from


                                      -8-
<PAGE>

the regulations. Former Section 3.32 (codified as NAC ss.704.125) was struck
from the NAC. Also in the 1987 amendment, the amortization period for deferred
fuel and purchased power expenditures was extended from six to twelve months. In
addition, the mandatory semi-annual deferred filing to clear six-months of
deferred balances using a six-month amortization period was changed to a
mandatory annual filing to clear twelve months of deferred balances using a
twelve month amortization period. The utility could make a semi-annual deferred
energy application if "the net change in revenue necessary to offset changes in
the cost of fuel for generation and purchased power... exceeds plus or minus 5
percent of total revenue at rates last authorized for the test period."

      19. Thereafter in any case involving recovery of the costs of purchased
fuel and purchased power where the electric utility had, pursuant to regulation,
elected to use deferred accounting, two rate elements were reviewed and set. The
forward-looking ongoing costs of purchased fuel and purchased power were
typically, but not exclusively, reviewed in a deferred accounting case, and
recovered in the "base tariff energy rate" or "BTER" (formerly termed the "base
unit energy cost"). The BTER (which estimates or predicts future costs) is
calculated based on an historical (backward looking) twelve month test period,
pursuant to a formula that is designed to establish the going-forward rate for
fuel and purchased power at rates which would be as close to projected actual
costs as possible. BTER rates must be reviewed at least annually. To the extent
that the BTER either under- or over-estimates the actual costs of fuel and
purchased power over the projected time period, the under- or over-collection is
tracked and deferred (collected for future recovery) in a special account called
the deferred energy account (DEA). At least once a year, the amount collected in
the DEA must be cleared. This is done via the third rate component, the
"deferred energy accounting adjustment" or "DEAA." The DEAA


                                      -9-
<PAGE>

is (usually) amortized and either collected from or refunded to (if an
over-collection occurred) from ratepayers on their monthly bills over one year.

              NEVADA POWER'S HISTORICAL USE OF DEFERRED ACCOUNTING
                     FOR PURCHASED FUEL AND PURCHASED POWER

      20. Prior to 1975, Nevada Power filed frequent rate cases driven for the
most part by the need to reflect and recover the rapidly increasing costs of
purchased fuel and purchased power. However, after enactment of the deferred
accounting statutes in 1975, Nevada Power did not immediately elect to use the
new (A.B. 707, ss.704.110(5)) deferred accounting procedures for its purchased
fuel and purchased power. From 1975 through 1979, Nevada Power updated is
purchased fuel and purchased power rates using a combination of AB 707, NRS ss.
704.110(3), "general rate case," and "fuel case" filings (S.B. 267, NRS ss.
704.110(7)).

      21. In an application made on April 30, 1979, pursuant to Section 1.21 of
General Order 21 (regarding the process to be followed in making an election to
use deferred accounting), Nevada Power elected to utilize deferred accounting.
For several years thereafter, Nevada Power normally filed deferred accounting
cases in April and October of each year. Later, Nevada Power started filing
cases in July and January. It also filed several other deferred accounting cases
in between.

      22. In summary, general costs are determined in a general rate case and
recovered through the Base Tariff General Rate, or BTGR. These cases are large
and complex because they examine the totality of a utility's operations and
various aspects of the economy relevant to setting a fair rate of return on
investment. Such cases are now filed infrequently-- Nevada Power's last general
rate case was in 1992. Fuel and purchased power costs, which form a large part
of the need for rate relief, are susceptible to frequent and dramatic price
fluctuations,


                                      -10-
<PAGE>

however. Deferred accounting was instituted to ease the burden on the utility of
having to absorb swings in fuel and purchased power costs (which it could not
control), until another general rate case could be filed. Such cases are far
less complex and time consuming because they review only fuel and purchased
power costs as invoiced by third parties. Thus, while the ratemaking formula for
deferred accounting is somewhat complicated, with ongoing costs recovered via
the BTER and unrecovered past costs (deferred costs) collected via the DEAA, the
issues are limited and the process is relatively straightforward. With one
departure, Nevada Power has operated within this regulatory framework since
1979.

      23. The phrase "purchased power" is a term of art in the regulation of
public utilities. As it is bought and sold on the open market, a utility
purchasing "power" may incur costs for either or both "purchased capacity" and
"purchased energy." As it is commonly used in the electric industry, including
in Nevada's regulation of purchased power, "capacity costs" are charges imposed
by a seller of electric generation for making generating "capacity" or
capability available to the buyer (like a retainer fee), whether or not the
buyer ever actually calls on or uses that generator or "generation." "Energy
costs", on the other hand, are a function of the buyer's actual use and
consumption of energy produced by that generator or "generating capacity" over
time. Capacity is purchased in units of "kilowatts" or "kW", which represents
the generating capability or potential of the generating unit (like horsepower
in an engine). Energy is purchased in units of "kilowatt-hours" or "kWh" (a unit
of generating capacity (kW) multiplied by hours of actual usage or consumption).

      24. The calculation of ongoing costs of purchased power in the BTER
specifically recognizes and accounts for the difference between capacity and
energy. In the BTER formula, capacity is recovered as a fixed cost which, for
some classes of customers, do not vary with


                                      -11-
<PAGE>

actual use or consumption of the energy produced by that generator. Energy is
separately calculated as the product of the last experienced unit cost (price
charged by seller) of energy times the total kilowatt-hours purchased (or
consumed and paid for). The theory is that the latest price is the best estimate
or predictor of the future ongoing price.

      25. Prior to 1992, Nevada Power blended the capacity and energy costs
charged by third parties in calculating the BTER. The Commission rejected this
approach in 1992 (PUCN Docket Nos. 92-1029/1067), in favor a method whereby
purchased power would be classified as either capacity or energy based on how
the charges were actually incurred. "Purchased power" was to be differentiated
between "purchased capacity" and "purchased energy" as individually incurred,
and as separately stated on the seller's invoice. Excerpts from Commission's
Order in PUCN Docket Nos. 92-1029/1067 are attached hereto as Exhibit "G." It
was thereafter the explicit practice in all Nevada Power deferred accounting
cases to classify and charge for capacity and energy based on the seller's
invoice.

      26. In 1995, Nevada Power agreed to move its purchased power capacity out
of deferred energy (and therefore the BTER) and into general rates (BTGR). The
move was driven by the need to recognize the difference between how BTER costs
are allocated among different customer groups, and the manner in which BTGR
costs are allocated among different customer groups. In general rate cases, the
Commission undertakes an exercise called rate design, and attempts to set rates
among and between separate customer classes (residential, commercial,
industrial) based on the experienced cost of serving each class. Because of
economies of scale, geographical density, consumption patterns, and other
factors, it is cheaper to serve some customer groups than others.


                                      -12-
<PAGE>

      27. In other words, in a rate design exercise, the PUCN calculates the
revenues needed by the utility to recover its costs and expenses and obtain a
reasonable return on its investment and then assigns or allocates to different
customer groups the responsibility to pay those revenues based on that group"
pro-rata share of the utility's total cost of service. Rates are then set to
permit the utility to recover the estimated amount of revenues from each
customer group.

      28. Rate design is not performed in a deferred accounting case. In
deferred accounting cases, adjustments in rates are spread equi-proportionally,
based on the last-designed rate structure, which was set in the last general
rate case. In itself, this isn't problematic. However, while Nevada Power is
fortunate to serve a fast-growing service territory, all sectors of the economy
don't grow at the same pace. Thus, since Nevada Power had gone some time without
a general rate case, it did not have any recent review of the proprietary or
accuracy of its cost allocation methodology (rate design). Since growth in some
customer segments of Nevada Power's service territory (particularly the
mega-resort casinos), far outpaced growth in other customer segments
(particularly residential and small commercial), the imposition of rates versus
the allocation of costs among and between customer classes had become misaligned
and inequitable. In short, because the rapid growth of casinos reduced the unit
costs to serve them, and because the existing rates were fixed at an earlier
time when the unit costs were higher, they were being allocated a
disproportionate amount of the total costs of service for all customer segments.

      29. One way to mitigate this disproportionality was to move certain BTER
charges to BTGR and alter the allocation of total costs in general rates to
reflect or account for the lower unit costs necessary to serve casinos.


                                      -13-
<PAGE>

      30. In a Commission-approved stipulation (Exhibit "H" attached hereto),
Nevada Power agreed that in its next deferred energy filing or next general rate
case, whichever came first (emphasis added):

      Nevada Power's reasonably incurred purchased power capacity costs for the
      test year ended May 31, 1996 will be excluded from its base tariff energy
      rates ("BTER") and included in its base tariff general rates ("BTGR").

      31. Nevada Power's next-filed case was a July 15, 1996, deferred
accounting case (PUCN Docket No. 96-7020). Pursuant to the 1995 stipulation,
Nevada Power proposed to move $117 million in purchased power capacity costs
incurred during the test year and consumed by its customers and which ordinarily
would be used to calculate ongoing forward-looking BTERs, from the BTER to the
BTGR. The actual amount of the transfer of purchased capacity costs from the
BTER to the BTGR was resolved by stipulation. In its Order in PUCN Docket No.
96-7020 (Exhibit "I" attached hereto), the Commission approved this stipulation,
which provided in pertinent part that: "the purchased power capacity costs to be
hereafter excluded from BTER and included in BTGR ... will be $112,486,854."

      32. On July 15, 1997, Nevada Power filed another deferred accounting,
which became PUCN Docket No. 97-7030. In its application, Nevada Power sought
the usual authority to adjust its BTER to reflect changes in the ongoing costs
of fuel and purchased power, and to reset the DEAA to clear the deferred
balances it had accumulated prior to the filing. During hearings on the July 15,
1997 filing, the Commission's Staff and the Southern Nevada Water Authority
("SNWA"), argued that a portion of the Petitioner's purchased energy costs, as
depicted on the seller's invoices which had been incurred during the test period
and consumed by customers should be disallowed. Staff and SNWA argued that the
1995 stipulation, in which Nevada Power agreed to move the costs of incurred
purchased capacity from the BTER to the


                                      -14-
<PAGE>

BTGR, should include purchased energy that should be treated as if it were
actually capacity. These purchased energy costs transmogrified into capacity has
now become known as "imputed capacity."

      33. Nevada Power strenuously disagreed with the Staff and SNWA's
construction of the 1995 stipulation. Nevada Power pointed to the record in the
1995 and 1996, as well as to the explicit language of the 1995 stipulation as
evidence that imputation of purchased energy as "capacity" was never even
discussed-- let alone agreed to-- during those dockets. Nevada Power pointed out
that in the 1996 case only explicit-- i.e., actually invoiced-- capacity was
identified and moved from the BTER to the BTGR. Furthermore, not only were the
1995 or 1996 stipulations and orders silent as to whether purchased energy
should in future cases be imputed as if it were capacity, these documents did
not describe how any such an imputation could or would be accomplished. The
Attorney General's Consumer Advocate ("OCA"), the instigator and a primary
signator to the 1995 and 1996 stipulations, did not take a position on the SNWA
and Staff's proposals.

      34. On January 8, 1998, the Commission issued the first of three orders in
Docket No. 97-7030, attached hereto as Exhibit "J." The Commission began its
discussion of the imputed capacity issue by discussing the effect of the
transfer of explicit purchased capacity from the BTER to the BTGR as envisioned
in the 1995 stipulation:

      By transferring the purchased power capacity costs to the BTGR rates, the
      company was allowed to more properly align purchased power capacity costs
      to the appropriate rate classes [residential, commercial or industrial].
      The Commission finds that the reasons for transferring purchased power
      capacity costs to the BTGR rates are still sound.

      35. Finding that the reasoning behind the transfer of explicit purchased
capacity from the BTER to the BTGR, the Commission then found that:


                                      -15-
<PAGE>

      The Commission further finds that the stipulation executed in Docket No.
      95-7021 [the PUCN denominated the 1995 deferred case as the transition
      case] was meant to apply to the "Transition Case" and all subsequent
      deferred energy filings unless the Commission finds it in the public
      interest to do otherwise. Furthermore, it is not appropriate to transfer
      only a portion of Nevada Power's purchased power capacity costs into BTGR
      rates.
      ....
      Wholesale electric power markets have changed significantly since the
      introduction of competition. Electric power is now viewed as a commodity
      and is seldom described or transacted on the traditional demand and energy
      basis. Thus, the method of simply removing explicitly stated purchased
      power capacity costs from Nevada Power's BTER is not considered by the
      Commission to be a reasonable methodology by which to remove such costs.

      36. Without saying so directly, the Commission accepted the Staff and
SNWA's argument that the 1995 stipulation applied not only to incurred capacity,
but to energy which the PUCN and certain parties wanted to impute and treat as
if it were capacity. The Commission has thereafter construed the 1995
stipulation, which referred to "incurred purchased capacity costs" to include
"incurred purchased energy" which the Commission wished to impute and treat as
if it were purchased capacity. However, the Commission had to grapple with the
absence of any language in either the 1995 or 1996 stipulations or any order of
any statute or any rule or regulation that would tell Nevada Power whether, when
or how it was to transform or impute all or any portion of its purchased energy
as purchased capacity. Again, from the Commission's order:

            As a result of the stipulation executed in Docket No. 96-7020, an
      explicit amount of purchased power capacity costs was removed from BTER
      rates and included in BTGR rates, thereby removing them from Nevada
      Power's deferred energy accounting.
      ....
      Unfortunately, the stipulation provides no identifiable methodology for
      transferring the [imputed] purchased power capacity costs to the BTGR....
      This transaction in itself did not provide the Commission with the
      methodology necessary to continue to separate [i.e. impute] purchased
      power capacity costs in subsequent energy cases.


                                      -16-
<PAGE>

      37. Finding that it had no legal basis to actually disallow any purchased
energy costs that it now wished to impute as capacity, the Commission rejected
the outright disallowance of "imputed purchased capacity costs." The Commission
was forced to recognize that:

      The reasonableness of Nevada Power's purchased power expenses is
      unchallenged. The Commission also recognizes that Nevada Power does not
      earn a return on its purchased power contracts. Therefore, the Commission
      finds that such a disallowance would be grossly unfair to the company.
      ....
      The Commission therefore finds it necessary to order Nevada Power to
      refile its application in a manner that specifically applies and defines a
      methodology for removing all capacity costs from its purchased power
      expenses. The identified purchased power capacity costs should then be
      transferred to general rates in a revenue-neutral [no increase] BTGR
      adjustment.

      38. Because neither the 1995 nor the 1996 stipulations or orders described
when or how such an imputation should be accomplished, Nevada Power was ordered
to amend and refile its case. In the amended case, Nevada Power was to propose a
methodology for identifying and imputing energy as capacity. Contrary to the
wishes of the Staff and SNWA, however, the Commission determined that it would
be "grossly unfair" to Nevada Power to disallow imputed capacity costs. Instead,
using the procedure used in the 1996 case, once these imputed capacity costs
were identified, the Commission would presumably allow Nevada Power to shift the
costs of imputed capacity from the BTER to the BTGR.

      39. On April 23, 1998, in compliance with the PUCN's directive, Nevada
Power filed an amendment to its July 15, 1997 application. Nevada Power proposed
a methodology for imputing a portion of purchased energy costs as purchased
capacity, and filed proposed BTER and BTGR rate schedules that reflected the
anticipated transfer of imputed capacity from the BTER to the BTGR.

      40. In its second order in the 1997 deferred case (attached hereto as
Exhibit "K"), dated October 13, 1998, the Commission rejected Nevada Power's
proposed methodology for


                                      -17-
<PAGE>

imputing purchased energy costs as purchased capacity in favor of a method
proposed by the OCA. More importantly, the Commission determined that contrary
to its earlier order (and its action in the 1996 deferred accounting docket), it
had no authority to allow Nevada Power to move the costs of imputed capacity
from the BTER to the BTGR in a deferred accounting docket. The Commission
confirmed that it "stands behind its January 1998 Compliance Order in this
docket which stated that it would be unfair to disallow Nevada Power's purchased
power capacity costs whose reasonableness is unchallenged." However, the
Commission once again did not authorize the recovery of any imputed capacity
costs. Instead, the Commission ordered Nevada Power to once again amend and
refile its case, this time using the Consumer Advocate's methodology for
imputing capacity. The Commission then stated that as a result of the second
amended filing, Nevada Power would be authorized to collect its imputed capacity
costs in a wholly new set of rates that the Commission would establish and
denominate as the BTER-C for capacity.

      41. Following the October 13, 1998 order, several parties, including
Nevada Power sought reconsideration or rehearing. The Commission granted
rehearing on the following issues only:

      (1) The appropriate allocation of imputed purchased power capacity costs
      among customer classes;

      (2) The implementation of the BTER-C rate;

      (3) The appropriate rate structure for deferred energy rates;

      (4) Whether a separate deferred accounting mechanism should be established
      for each BTER-C rate;


                                      -18-
<PAGE>

      (5) The appropriate assignment of imputed purchased power capacity among
      classes of customers.

      42. On January 12, 1999, the Commission issued its third and final order
in the 1997 case (Docket No. 97-7020, Exhibit "L" attached hereto). There the
Commission disallowed any change in any rate (BTER, BTGR, or BTER-C), to reflect
either the ongoing costs or the growing deferred balances related to this
imputed capacity. The balances were growing because the costs were continuing to
be incurred and paid for by Nevada Power but the PUCN provided no mechanism or
basis for the company to recover these costs in any rates, BTGR, BTER, or
BTER-C. They continued to be collected in a separate deferred account. Instead,
the Commission ordered Nevada Power to establish another new deferred account
for imputed purchased capacity, and to amend its 1998 deferred accounting
application (which had been pending since July 15, 1998) to reflect the
Commission's new methodology for accounting for imputed purchased capacity.

      43. As to whether or how Nevada Power would recover the costs of imputed
purchased capacity reflected in this new deferred account, the Commission stated
that Nevada Power would have to wait for recovery until after the Commission
rendered a decision in Nevada Power's industry restructuring compliance case,
which was due to be filed in April, 1999. This was a case mandated by AB 366,
the predecessor to SB 438, which was conducted for the purpose of segregating
the various components of electric service (transmission, distribution,
generation) into separate products with separately stated costs or prices. Such
rates were to go into effect whenever the electric market would be opened to
competition from competing suppliers of such various components of electric
service to be determined by the PUCN.


                                      -19-
<PAGE>

      44. A similar order was issued a month later in Nevada Power's 1998
deferred accounting case, PUCN Docket No. 98-7035 (Exhibit "M" attached hereto),
except that Nevada Power was ordered to establish yet another "new, separate,
deferred account." The Commission then stated:

      When the Commission renders a decision on the compliance filing which NPC
      must make pursuant to NRS 704.986, it will address netting BTGR revenues
      with purchased power capacity costs, because at that time all implicit and
      explicit capacity costs will be reviewed and compared against the BTGR
      component which transferred as a result of the stipulation executed in
      Docket No. 96-7020.

      45. In other words, the PUCN suggested that it would consider subtracting
(netting) certain revenues generated in the Company's general rates (BTGR)
(which are meant to cover costs included in general rates such as costs of
investment in plant and facilities, and a return on investment) from the actual
out-of-pocket costs it incurred for "imputed purchased capacity" and as to which
it earns no return, now segregated in the newly created BTER-C account.

      46. Nevada Power sought Judicial Review of the Commission's establishment
and then treatment of imputed purchased capacity as was set forth in the final
orders in both the 1997 and 1998 deferred accounting dockets. These cases are
pending before this Court as Case Nos. 99-00470A and 99-00754A.

      47. Without prejudging its right to Judicial Review of the orders, Nevada
Power filed its restructuring compliance case as instructed, and included in its
application the costs of imputed purchased capacity. Pursuant to the
Commission's final orders in the 1997 and 1998 dockets, Nevada Power included in
its restructuring compliance plan a request to recover both the ongoing costs
and deferred balances related to imputed capacity. The Commission once again put
off ruling on the issue, this time moving it into the subject docket. From
paragraph 71 of the September 17, 1999 Interim Order in PUCN Docket No. 99-4005:


                                      -20-
<PAGE>

      The issues surrounding imputed capacity expenses arose out of a series of
      Deferred Energy Cases filed by the Company. Because only the BTER and not
      the BTGR can be changed in a Deferred Energy Case, this issue could never
      be completely dealt with. Docket No. 99-7035 will be the Company's last
      Deferred Energy Case. This docket presents a unique opportunity to resolve
      the imputed capacity issue once and for all since the Commission will have
      the ability to change the BTGR in this Deferred Energy Case. Therefore,
      the Commission will consider these issues in Docket No. 99-7035.

      48. In the subject docket, its most recent on the issue, the Commission
has denied any inclusion of imputed capacity in ongoing rates (a $37.9 million
disallowance using the September 30th filing presently under review in this
proceeding), finding that contrary to its order above and its past practice,
ongoing costs of imputed capacity aren't deferred accounting issues after all.
In dismissing the September 30th filing, the Commission has outright disallowed
recovery of all imputed capacity balances accumulated between June 1, 1999
through August 31, 1999, for energy already consumed by Nevada Power's customers
($30 million disallowance). Finally, the Commission has delayed recovery and
subjected all $20 million of the accumulated balances prior to June 1999 to a
"netting" of revenues in BTGR rates (again, for energy already purchased and
consumed by customers) pending the Commission's final adjudication of Nevada
Power's restructuring case for stranded costs. The amount of the netting or
deduction is approximately $7 million. Thus, out of $20 million in accumulated
balances, the PUCN will permit the utility to apply for approximately $3 million
of recovery in a stranded cost case where such costs will be subjected to yet
another netting exercise involving a host of other factors and variables.

                IMPACT OF SENATE BILL 438 ON DEFERRED ACCOUNTING
                     FOR PURCHASED FUEL AND PURCHASED POWER

      49. On June 9, 1999, the Governor signed into law S.B. 438. The bill, now
codified throughout NRS Chapters 703 and 704, generally addresses the
restructuring of Nevada's


                                      -21-
<PAGE>

electric utility industry, with the ultimate goal of providing retail electric
customers with a competitive alternative for various components of energy
service. Among its many provisions, S.B. 438 sets forth a rate plan that
dramatically alters the traditional regulatory framework for setting electric
rates.

      50. With one important exception, S.B. 438 provides that once retail
competition for energy begins, the rates charged by the surviving utility entity
(dubbed the "provider of last resort" or "PLR") will be set and then frozen for
three years on rates as they existed on June 1, 1999. The single exception to
the June 1 rate-setting provision mandates that the rates for the PLR utility
shall be modified "to account for the effects of any decisions by the commission
relating to any cases filed with the commission before October 1, 1999, which
involve the use of deferred accounting." NRS ss.704.9823. Once set based on
rates in place on July 1, 1999, as modified to reflect the results of any
deferred energy cases filed before October 1, 1999, rates for the PLR utility
are frozen through March 1, 2003.

      51. S.B. 438 also repealed the two deferred accounting provisions put in
place by the 1975 Legislature in A.B. 707 (NRS ss.ss. 704.185 and 704.110(5)).
It did not repeal SB 267 (ss. 704.110(7) fuel and purchased power cases). The
repeal was to be effective on October 1, 1999. Thus, unlike the rate freeze
provisions described above, S.B. 438's repeal of NRS ss.704.185 and
ss.704.110(5) was not timed to coincide with the commencement of retail
competition for energy. The repeal was effective October 1, 1999, regardless of
open access or anything else. Thus, the repeal of the deferred accounting
statutes, effective October 1, 1999, altered the ratemaking framework for Nevada
Power as it is currently structured -- i.e. the bundled electric utility--
regardless of whether or when industry restructure occurs and whether


                                      -22-
<PAGE>

or when Nevada Power takes on the role of the utility PLR. It affects Nevada
Power and its customers today.

                 NEVADA POWER'S 1999 DEFERRED ACCOUNTING FILINGS

      52. On July 15, 1999, Nevada Power filed the deferred accounting
application, which is the subject of this petition. The filing was docketed as
PUCN 99-7035. In this filing, Nevada Power requested authority to increase its
gross annual revenues by $44,283,306, or 4.9 percent. This request for relief
was made up of the following rate elements:

      As to going-forward costs:

      (1) An increase in the forward-looking ongoing charges for fuel and
      purchased power of $7,389,899 to reflect increased costs of fuel and
      purchased power (other than imputed capacity) as reflected in the twelve
      month historical test period ended May 31, 1999.

      (2) An increase in ongoing charges for fuel and purchased power of
      $12,787,353 to reflect the costs of purchased energy which was being
      imputed as capacity under the PUCN's "formula", as reflected in the twelve
      month historical test period ended May 31, 1999.

      As to recovery of accumulated balances:

      (3) An increase in the DEAA of $17,445,953 to recover deferred balances
      (other than imputed capacity balances) which had accumulated up to May 31,
      1999.

      (4) An increase in the DEAA of $6,660,101, to reflect the recovery of
      $19,980,300 in imputed capacity balances over an amortization period of
      three years ($19,980,300 /3 = $6,660,101).


                                      -23-
<PAGE>

      53. Nevada Power also notified the Commission that it had terminated
deferred accounting for its fuel and purchased power expenditures as of May 31,
1999. Depending on the future ongoing costs of energy, such termination would
eliminate any refund due customers (if costs were over-recovered), or avoid any
surcharge (if costs were under-recovered).

      54. A prehearing conference was held on the July 15 filing on September
14, 1999. At the prehearing conference, the then-Presiding Officer, Commissioner
Pitlock, asked Nevada Power whether it had filed a request to terminate deferred
accounting as required by NAC ss.704.090. As currently codified, NAC ss.704.090
states:

      1.    Any utility which uses deferred accounting pursuant to NAC 704.023
            to 704.195, inclusive, may apply to the commission for authority to
            terminate those accounting procedures. The utility may cease using
            those accounting procedures upon authorization from the commission.

      2.    An application must contain a report showing the Nevada
            jurisdictional earned rate of return for the specific operating
            department applying for termination for the most current 12 calendar
            months.

      3.    Within 45 days after the date on which the commission authorizes
            termination, the utility shall file for the specific operating
            department which applied for termination of a report containing:

            (1)   The Nevada jurisdictional earned rate of return for the 12
                  calendar months ending on the date of termination.
            (2)   A statement of the cumulative balance as of the termination
                  date. The commission will issue an appropriate order for
                  disposition of this balance.

            The commission may suspend an application in the same manner as used
            for the filing of a general increase in rates.

      55. On September 30, 1999 (prior to the SB 438 October 1 deadline for
making deferred filings), Nevada Power made another filing with the Commission
in which it updated the July 15th calculations of ongoing fuel and purchased
power costs to reflect the most recent twelve months historical data (August 31,
1999), and updated the DEAA deferred balances to reflect deferrals through
August 31, 1999. The net impact of the updates to both ongoing fuel


                                      -24-
<PAGE>

and purchased power costs and the deferred balances was an increase in the rate
increase request. In order to mitigate the impact on customers of the update to
fuel and purchased power costs, Nevada Power proposed a rate and recovery
schedule which would amortize all deferred balances (including imputed capacity)
over three years instead of one.

      56. Included in the September 30th filing was a request to discontinue
deferred accounting pursuant to NAC ss.704.090, along with all the information
required by NAC ss.704.090(2) to accomplish termination. Nevada Power also
informed the Commission that it had reversed the necessary accounting entries
and reinstated deferred accounting pending a decision by the Commission
authorizing termination. From the September 30th application:

            6. ....As pointed out by Presiding Commissioner Pitlock at the
      September 14, 1999 Pre-Hearing Conference in Docket No. 99-7035, Nevada
      Power had no authority to unilaterally terminate deferred accounting.
      Absent any express statutory provision to the contrary, only the
      Commission can confer such authority, and it has not done so.

            7. In light of the foregoing, Nevada Power's attempt to terminate
      deferred accounting without a prior Commission order granting it authority
      to do so was improper. Accordingly, Nevada Power has restated its
      accounting records to reflect the continued use of deferred accounting for
      fuel, purchased power and imputed capacity expenses until the Commission
      issues an order authorizing termination.

      57. Consistent with the Commission's Interim Order in PUCN Docket No.
99-4005 (the Compliance Filing), the September 30th deferred accounting filing
included requests to recover both the ongoing and deferred costs of all the
purchased energy which the Commission sought to impute and treat as purchased
capacity. A comparison of the annual impacts of the requested relief as set
forth in the July 15th and September 30th filings, identifying by component,
energy and purchased energy "imputed capacity," and showing both a standard
twelve-month amortization and the suggested thirty-six-month amortization of the
DEAA balance, is set forth in the following table:


                                      -25-
<PAGE>

                    July 15 and September 30 Filings Compared

- --------------------------------------------------------------------------------
                         July 15th       September 30th      September 30th
                      1-Year DEAA and   Using 1-Year DEAA  Using 3-Year DEAA
                      3-Year Imputed       and Imputed        and Imputed
                         Capacity       Capacity Recovery  Capacity Recovery
                     Recovery Periods        Period              Period
- --------------------------------------------------------------------------------
Ongoing
- --------------------------------------------------------------------------------
  Energy (BTER)        $7.4 million       $13.4 million      $13.4 million
- --------------------------------------------------------------------------------
  Imputed Capacity    $12.8 million       $37.9 million      $37.9 million
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Deferred Balances
- --------------------------------------------------------------------------------
      Energy (DEAA)   $17.4 million        $9.6 million     ($17.4 million)
- --------------------------------------------------------------------------------
  Imputed Capacity     $6.7 million       $49.7 million      $16.6 million
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Total                 $44.3 million      $110.7 million      $50.6 million
- --------------------------------------------------------------------------------

      58. The September 30th filing was not a second or additional deferred
accounting filing. Rather, Nevada Power asked that the September 30th filing
either be substituted for the July 15th filing, or considered an amendment to
the July 15th filing. From Paragraph 35 of the September 30th filing:

      The Proposed Rates filed with this Application are designed to replace
      Nevada Power's currently effective BTGRs, BTERs and DEAAs. Moreover, it is
      Nevada Power's intent that the instant Application be substituted for the
      1999 annual deferred energy application filed on July 15, 1999, which is
      the subject of pending proceedings in Docket No. 99-7035, and the Proposed
      Rates therefore supersede the proposed rates filed with the July 15
      Application. If for any reason, the Commission rejects or dismisses the
      instant Application, Nevada Power requests that it deem the relief sought
      herein as an amendment to the July 15th Application in Docket No. 99-7035
      and issue an amended notice thereof. Upon the Commission's acceptance of
      this Application, either in substitution for or as an amendment to its
      July 15th Application in Docket No. 99-7035, such July 15th Application
      may be deemed to be withdrawn.

      59. In its notice of the September 30th filing, the Commission determined:
"in order to avoid confusion, the Commission deems the instant application as an
amendment to the previously filed application that was designated as Docket No.
99-7035 (emphasis added)." The Commission noticed the September 30th filing as
an amendment to the July 15th filing, and


                                      -26-
<PAGE>

retained the Docket No. 99-7035 for the September 30th filing. The Commission's
Notice of Amended Application in Docket No. 99-7035, goes on to read:

      NPC failed to request authority to terminate deferred accounting in its
      application filed on July 15, 1999, in the instant docket. Accordingly,
      NPC has restated its accounting records to reflect the continued use of
      deferred accounting for fuel, purchased power and imputed capacity
      expenses until the Commission issues an order authorizing termination.

      60. On October 22, 1999, the Commission's Regulatory Operations Staff
("Staff") filed a Motion to Dismiss the September 30th amended filing. Nevada
Power timely responded in opposition to Staff's Motion on October 29, 1999, and
on November 5, 1999, Staff replied to Nevada Power's response. On November 15,
1999, Commissioner Pitlock issued an order denying Staff's Motion to Dismiss the
September 30th filing.

      The Presiding Officer finds that this final deferred energy docket is a
      crucial part of the deregulated electric market. The outcome of this
      docket may affect customer choice after the date the electric market opens
      to competition, currently scheduled for March 1, 2000, and, therefore,
      time is of the essence. Additionally, although the numbers in NPC's
      September 30, 1999, filing changed significantly, the issues remain
      basically the same. Therefore, Staff's Motion should be denied. Order
      Denying Motion, P. 6, pp. 3-4.

      61. On November 23, 1999, the Staff filed a motion challenging
Commissioner Pitlock's order denying its motions to dismiss the September 30th
filing. Staff asked that the full Commission vote on the matter.

      62. On December 1, 1999, Commissioner Pitlock was replaced on the
Commission by Richard McIntire, the former director of the Commission's Staff.
Because Commissioner McIntire was disqualified from participating in this docket
(he had been involved as a member of Staff in an investigatory rather than
deliberative capacity), the Chairman, Commissioner Soderberg, assumed the role
of Presiding Officer. He brought Staff's request for a vote of the full
Commission forward in December 1999, at a regular Agenda Meeting, and moved that
the Commission reaffirm former Commissioner Pitlock's order denying Staff's
Motion to Dismiss.


                                      -27-
<PAGE>

Commissioner Sheldrew opposed the Motion, and with Commissioner McIntire's
disqualification, the motion failed for lack of a second.

      63. The Governor appointed former PUCN Commissioner JoAnne Kelly as a
temporary Commissioner for purposes of hearing and ruling on all aspects of
Docket No. 99-7035, and the matter went to hearing. On the opening day of the
evidentiary hearings (January 24, 1999), Staff Counsel renewed its request for a
vote by the full Commission on its Motion to Dismiss. TR Vol. 1, at 10, lines 18
to 20 . The Chairman stated: "[w]e dealt with this issue in an agenda meeting. I
thought that Commissioner Pitlock's logic was correct." TR Vol. 1, at 22. After
pointing out there only two Commissioners present-- Commission Kelly was not in
attendance-- the Chairman denied the motion "as to today" and postponed its
consideration to a point later in the proceeding. TR Vol. 1, at 23. Transcripts
of this discussion are set forth in Exhibit "P" to the Affidavit attached
hereto. The Company went on to present its direct case on the September 30th
filing, and intervenors their direct cases, during hearings held from January
24, 2000, through January 31, 2000.

      64. On Friday, February 4, 2000, the Commission reconvened the hearing for
the purpose of hearing oral argument on all pending motions, most particularly
Staff's Motion to Dismiss the September 30 filing. Contrary to Staff Counsel's
representation that it was "renewing our motion in its entirety based on the
pleadings filed with the Commission earlier," Staff's oral argument relied on an
entirely new and novel argument as support for its Motion to Dismiss. Based on a
statutory construction argument, Staff asked the Commission to construe Section
4 of S.B. 438 in light of repealed statute ss.704.110(5) and a Commission
regulation, NAC ss.704.116(1), enacted pursuant to that statute and also
repealed by implication of the statute being repealed. Staff's "harmonization"
argument resulted in the nullification of S.B. 438's


                                      -28-
<PAGE>

express mandate that the Commission modify Nevada Power rates "to account for
the effects of any decisions by the commission relating to any cases filed with
the commission before October 1, 1999, which involve the use of deferred
accounting."

      65. Commissioner Sheldrew again voted in favor of Staff's Motion to
Dismiss. Commissioner Kelly voted to reject Staff's Motion to Dismiss. Chairman
Soderberg changed his position on the Staff Motion, and voted with Commissioner
Sheldrew to grant Staff's Motion to Dismiss the September 30th filing. Chairman
Soderberg explained his changed vote on the record (TR Vol. 7, February 4, 2000,
at pages 1567 to 1570):

            When I inherited this case from Commissioner Pitlock, he had made a
      ruling against the motion that staff had filed.... Based on Commissioner
      Pitlock's order in that motion I did not-- I did not see enough to dismiss
      the second [September 30th filing]. However, I think having the ability to
      do a portion of the direct case here was helpful. It was very helpful for
      me to flesh out these issues to go beyond the few pages of legal briefs
      that I had in front of me and an order.

            When I listened to staff's presentation today, quite frankly was
      much more expansive. [Sic] It really had a greater depth of legal research
      involved than the initial filing that was made last fall.

      ....

            Based on what I've heard today and based on what I've hears over the
      past few weeks in the hearing room, I pretty much have changed my mind. I
      know that this is one that might not be a hundred percent clear-cut as Mr.
      Parker [PUCN General Counsel] likes to tell me, Don, it's not bombproof,
      and we may be seeing this again.

      ....

            So at this point based on what I've heard and the legal arguments
      we've heard this morning, it is my intention to vote and support staff's
      motion.

      66. Later in the proceedings on February 4, 2000, counsel for Nevada Power
inquired of the Chairman whether the Commission would issue a written interim
order regarding the Commission vote to dismiss the September 30th filing. The
Chairman answered in the affirmative. TR Vol. 7, at 1616. Despite the Chairman's
statement, the Commission did not


                                      -29-
<PAGE>

thereafter issue a written interim order regarding the February 4, 2000
dismissal of the September 30th filing.

      67. On February 23, 2000, Nevada Power filed a motion to set aside the
vote dismissing the September 30th filing. As the Commission had yet to issue a
written order dismissing the September 30th filing, Nevada Power's motion
addressed the Commission's reasoning for granting the motion as set forth in the
record above. Staff and UCA responded to the Motion, and Nevada Power replied to
the responses. The Commission issued a written order denying Nevada Power's
Motion to Set Aside on March 9, 2000. The Commission issued a final written
order, addressing all issues raised during the proceeding on March 29, 2000. The
two most significant issues addressed by the Commission in its final order are
(1) the dismissal of the September 30th filing, and (2) the disallowance of all
purchased power energy costs that the Commission has imputed and treated as if
they were purchased power capacity costs. It is this order, and these findings
in particular, that Nevada Power seeks Judicial Review, as well as the denial of
the company's motion to set aside which is incorporated in the Commission's
final order.

      68. Commissioner Kelly wrote a vigorous dissent pointing out that SB 438
plainly permitted the September filing, and that notwithstanding SB 438,
Commission rules and practices routinely permitt amended filings, and that no
prejudice could occur from the PUCN considering more information rather than
less information. See Kelly Dissent, Exhibit "N", attached hereto.

                               STANDARD OF REVIEW

      69. NRS ss.703.373(6) describes the standard of review to be applied by
this Court in considering Nevada Power's Petition for Judicial Review. That
provision reads in its entirety:


                                      -30-
<PAGE>

      The court shall not substitute its judgment for that of the commission as
      to the weight of the evidence on questions of fact. The court may affirm
      the decision of the commission or set it aside in whole or in part if
      substantial rights of the appellant have been prejudiced because the
      administrative findings, inferences, conclusions or decisions are:

            (a)   In violation of constitutional or statutory provisions
            (b)   In excess of the statutory authority of the commission;
            (c)   Made upon unlawful procedure;
            (d)   Affected by other error of law;
            (e)   Clearly erroneous in view of the reliable, probative and
                  substantial evidence on the whole record; or
            (f)   Arbitrary or capricious or characterized by abuse of
                  discretion.

                              SEPTEMBER 30TH FILING
             APPLICATION WAS PROPER UNDER PLAIN READING OF S.B. 438

      70. Nevada Power's September 30th filing was appropriate because Section 4
of S.B. 438 (now codified at NRS ss.704.9823) plainly provides that the rates
for the PLR utility must not exceed the rates in effect on July 1, 1999, "except
that the commission shall modify the rates to account for the effects of any
decisions by the commission relating to any cases filed with the commission
before October 1, 1999, which involve the use of deferred accounting." Emphasis
added. The September 30th filing, being made with the Commission before October
1, 1999, and involving the use of deferred accounting, is proper under the plain
language of the statute. The Commission is without discretion to dismiss the
filing.

      71. The Commission has attempted to look behind the plain language of the
statute to derive and convey a different meaning. Based on a statutory
construction argument that had previously never been made, the Commission
construed Section 4 of S.B. 438 in light of repealed statute NRS ss.704.110(5)
and a Commission regulation, NAC ss.704.116(1), also repealed by implication.
The Commission's "harmonization" of S.B. 438 with NRS ss.704.110(5) and a
Commission regulation, NAC ss.704.116(1) resulted in the nullification of S.B.
438's express mandate that the Commission modify Nevada Power rates "to account
for the effects of


                                      -31-
<PAGE>

any decisions by the commission relating to any cases filed with the commission
before October 1, 1999, which involve the use of deferred accounting." In so
doing, the Commission has construed S.B. 438 in light of repealed statute NRS
ss.704.110(5), and NAC ss.704.116(1) of the Commission's regulations governing
deferred accounting, and accepted and relied on un-rebutted and unreliable
extrinsic evidence regarding legislative intent.

      72. The courts (and the PUCN) are prohibited from engaging in statutory
construction when the language of the subject statute is plain. The courts (and
the PUCN) cannot apply the tools of statutory construction, nor can they look to
extrinsic aids such as legislative history, when the language of the subject
statute is plain. As expressed by the Nevada Supreme Court in Cirac v. Lander
County, 95 Nev. 723, 602 P.2d 1012 (1979), [w]hen the language of a statute is
plain, its intention must be deduced from such language, and the court has no
right to go beyond it." Id at 729, quoting State ex rel. Hess v. Washoe County,
6 Nev. 104, 107 (1870).

      73. The Court reaffirmed this century-old and fundamental principle in
Randono v. CUNA Mutual Ins. Group, 106 Nev. 371, 793 P.2d 1324 (1990).

      Under long established principles of statutory construction, when a
      statute is susceptible to but one natural and honest construction, that
      alone is the construction that can be given. State v. Cal. M. Co., 13 Nev.
      203, 217 (1878). We have also consistently held that where there is no
      ambiguity in a statute, there is no opportunity for judicial construction
      and the law must be followed regardless of result. McKay v. Bd. of
      Supervisors, 102 Nev. 644, 648, 730 P.2d 438, 441 (1986); State v.
      Woodbury, 17 Nev. 337, 343, 30 P. 1006, 1008 (1883). [Citations in
      original]

      See also, State ex rel. Caughlin v. Alt, 22 Nev. 203, 37 P. 486 (where a
statute is plain, courts must suppose lawmakers intended just what they said);
Eddy v. State Bd. Of Embalmers, 40 Nev. 329, 163 P. 245 (1944) (where
legislature uses plain ordinary language which clearly expresses a definite
idea, courts should not go out of their way to construe language so as to


                                      -32-
<PAGE>

convey a different meaning). The Commission has looked beyond the plain ordinary
words of the statute to create an ambiguity that does not appear in the statute.

      74. The language of the statute is plain. "[T]he commission shall modify
the rates to account for the effects of any decisions by the commission relating
to any cases filed with the commission before October 1, 1999, which involve the
use of deferred accounting." S.B. 438 contemplates and mandates that the
commission modify rates to account for the effects of decisions related to any
cases filed before October 1, 1999, which involve the use of deferred
accounting. A contrary meaning, a contrary intent, can only be deduced by
ignoring the plain language of the statute.

      75. In dismissing the September 30th filing, the Commission has violated a
statutory provision, acted in excess of its statutory authority, rendered a
decision based on unlawful procedure that is both arbitrary and capricious and
characterized by abuse of discretion.

                              SEPTEMBER 30TH FILING
      COMMISSION IMPROPERLY CONSTRUED S.B. 438 IN LIGHT OF NRSss.704.110(5)

      76. Despite the plain language of S.B. 438, the Commission attempted to
construe S.B. 438 in light of repealed statute NRSss.704.110(5). The
Commission's basis for dismissing the September 30th filing in light of
NRSss.704.110(5) is somewhat unclear, but it appears that the Commission has
reasoned that:

      (1) Nevada Power filed two deferred accounting applications, the first on
      July 15, 1999 and the second on September 30, 1999.

      (2) NRS ss.704.110(5), states that a deferred account may not be cleared
      more than once every six months.


                                      -33-
<PAGE>

      (3) Nevada Power's September 30th filing is improper because as a second
      filing made within six months it seeks authority to clear the deferred
      account more often once every six months.

      77. The Commission began its statutory construction by mischaracterizing
the September 30th filing as a second (rather than amended) filing. Ironically,
Nevada Power was careful in its application to ask that the September 30th
either completely replace or amend the July 15th filing in order to avoid this
very mischaracterization. In making its September 30th filing, Nevada Power
asked that the Commission treat the September 30th filing as either a substitute
for, or an amendment of, the July 15th annual deferred filing. Under either of
the scenarios proposed by Nevada Power, the Commission could proceed on the
September 30th filing as a single request for relief. The Commission noticed the
September 30th filing as an amendment to the July 15th filing, and accepted and
noticed the September 30th filing in the same docket, 99-7035. Most importantly,
the request for relief set forth in the September 30th filing was in lieu of,
not in addition to, the request for relief in the July 15th filing.

      78. As set forth in paragraph 12 above, NRS ss.704.110(5) does not
preclude filings more frequently than six months. It merely provides that a
utility must be allowed to clear its deferred account at least annually, but not
more often than every 6 months. Nevada Power did not, with its September 30th
filing, seek authority to clear its deferred account more often than every 6
months. With the September 30th filing, Nevada Power sought to clear its
deferred balances once, using the data presented in the September 30th filing,
rather than the data presented in the July 15th filing. The September 30th
filing requested relief in lieu of, not in addition to, the request for relief
in the July 15th filing.


                                      -34-
<PAGE>

      79. Even if the Commission could have reasonably characterized the
September 30th filing as (1) a second filing, (2) seeking authority to clear
deferred balances more often than once every six months, the September 30th
filing would have been proper. In attempting to construe S.B. 438 in light of
NRS ss.704.110(5), the Commission ignored the whole of the 1999 Legislature's
actions with regard to Nevada Power's ability to seek recovery of purchased fuel
and purchased power expenditures. With S.B. 438, the 1999 Legislature:

      (1) Mandated that the commission shall modify Nevada Power's rates "to
      account for the effects of any decisions by the commission relating to any
      cases filed with the commission before October 1, 1999, which involve the
      use of deferred accounting."

      (2) Repealed all of NRS ss.704.110(5), including the prohibition against
      clearing deferred balances more often than once every six months; and

      (3) Left in tact all of NRS ss.704.110(7), which provides that a utility
      "may not file an application to recover the increased cost of purchased
      fuel, purchased power, or natural gas purchased for resale more often than
      once every 30 days (emphasis added)."

      These three consistent legislative acts, read in harmony with one another,
demonstrate conclusively that the September 30th filing was proper.

      80. Finally, notwithstanding the plain language of S.B. 438, the
Commission has attempted to construe S.B. 438 in light of NRSss.704.110(5),
which was itself repealed by Section 7 of S.B. 438. The Commission does not cite
to any authority describing whether or how a newly enacted statute is to be read
in harmony with a statute that it explicitly repeals.

      81. Section 4 of S.B. 438 is clear and unambiguous. Nevada Power's
September 30 filing was properly made pursuant to a statute that mandates
Commission action on any cases involving the use of deferred accounting filed
before October 1, 1999. The Commission cannot


                                      -35-
<PAGE>

apply any tool of statutory construction to achieve a result that is contrary to
the clear, express language of the statute.

      82. The Commission unlawfully dismissed the September 30th filing finding
that despite its plain language, S.B. 438 should be read in light of NRS
ss.704.110(5). The Commission unlawfully determined that the September 30th
filing constituted a second deferred filing, and as a second deferred filing,
the September 30th filing constituted a request by Nevada Power to clear its
deferred balances more often than every 6 months, in violation of NRS
ss.704.110(5). The Commission unlawfully determined that S.B. 438 should be
construed in light of a statute that was repealed by S.B. 438, ignoring a
statutory provision that S.B. 438 affirmed. The Commission's dismissal of the
September 30th filing is contrary to the plain language of S.B. 438, Nevada
Power's application, the Commission's own treatment of the September 30th
filing, and the whole treatment of purchased fuel and purchased power by the
1999 Legislature.

      83. Furthermore, NRS ss. 704.110(5) itself nowhere prevents, precludes, or
prohibits deferred applications from being filed whenever and as often as an
applicant desires. It merely prohibits deferred balances from being cleared more
often than once every six months.

      84. In dismissing the September 30th filing based on mischaracterizations
of the Commission's own orders and circular attempt at statutory construction,
the Commission has violated a statutory provision, acted in excess of its
statutory authority, committed other errors of law, and rendered a decision
based on unlawful procedure, that is clearly erroneous in view of the reliable,
probative and substantial evidence of record, and that is both arbitrary and
capricious and characterized by abuse of discretion.


                                      -36-
<PAGE>

                              SEPTEMBER 30TH FILING
      COMMISSION IMPROPERLY CONSTRUED S.B. 438 IN LIGHT OF NACss.704.116(1)

      85. The Commission has relied on NAC ss.704.116(1) as authority for
dismissing the September 30th filing. NAC ss.704.116(1) mandates an annual
deferred accounting filing and prohibits multiple or stacked deferred accounting
filings.

      86. As set forth above, the September 30th filing is not a filing in
addition to the Company's annual filing. In order to avoid the very
characterization relied upon by the Commission, Nevada Power was careful to ask
that the September 30th either completely replace or amend the July 15th filing.
Under either procedural scenario, the Commission could proceed on a single
request for relief, avoiding the stacking of cases disfavored by NAC ss.704.116.
The Commission itself determined how the September 30th filing would be treated,
deeming it an amendment to the July 15th filing, and noticing it under the same
docket number as an "amended application." As an amendment to the July 15th
filing, rather than an additional filing, the September 30th filing complies
with both aspects of NAC ss.704.116: the mandatory annual filing and the
limitation on multiple or stacked requests for rate relief.

      87. Had the Commission not already deemed the September 30th filing to be
an amendment to the July 15th filing, Nevada Power would have argued that given
the specific deferred accounting-related directives in S.B. 438, the Commission
allow deviation from the strict requirements of NAC ss.704.116. Such deviation
would be appropriate pursuant to NAC ss.704.080 in order to allow the
implementation of the three consistent legislative acts set forth in S.B. 438:

      1) The express requirement in Section 4 that "the commission shall modify
      the rates to account for the effects of any decisions by the commission
      relating to any cases filed


                                      -37-
<PAGE>

      with the commission before October 1, 1999, which involve the use of
      deferred accounting";

      2) The express repeal in Section 7 of NRS ss.704.110(5), which prohibited
      the public utility from clearing its deferred balances more often than
      every 6 months; and

      3) The reenactment of Section 7 of NRS ss.704.110(6), which allows the
      public utility to file an application to increase rates to reflect
      increases in the costs of purchased power every thirty days.

      88. In fact, assuming that the Commission hadn't already deemed the
September 30th filing as an amendment to the July 15th filing, refusal by the
Commission to allow such a deviation would be unlawful. "Administrative
regulations cannot contradict or conflict with the statute they are intended to
implement." Clark County Social Services Department v. Newkirk, 106 Nev. 177,
179, 789 P.2d 227, 228 (1990); Roberts v. State, 104 Nev. 33, 752 P.2d 221
(1988). Furthermore, a regulation that was valid when promulgated becomes
invalid upon the enactment of a statute in conflict with the regulation. 2
AmJur2dss.227 citing Scofield v. Lewis, 251 F.2d 128 (CA5 Tex), 58-1 USTCP. 9212
and Sherman v. Higgins, 272 NY 286, 5 NE2d 822. Finally, where a statute and a
regulation are in conflict with one another, "an administrative agency is not
required to promulgate a regulation where regulatory action is taken to enforce
or implement the necessary requirements of an existing statute." It merely
enforces the statute in lieu of the regulation. State Gaming Comm'n v. GNLV
Corp., 108 Nev. 456, 458, 834 P.2d 411 (1992).


                                      -38-
<PAGE>

                              SEPTEMBER 30TH FILING
COMMISSION IMPROPERLY RELIED ON UNRELIABLE AND UN-REBUTTED EXTRINSIC EVIDENCE IN
                         DETERMINING LEGISLATIVE INTENT

      89. In its written order denying Nevada Power's Motion to Set Aside the
February 4th vote dismissing the September 30th filing, the Commission devotes
over a page of its decision to an explanation that the February 4th vote was
based on legal argument rather than on the weighing of any testimony received
during the direct portion of the evidentiary hearings. As described above, the
Commission's written order of March 9, 2000 is exactly contrary to the
on-the-record reasoning of both the Chairman and Commissioner Sheldrew, during
deliberations on February 4th. Contrary to the March 9, 2000 written order
(which was written after Nevada Power's Motion to Set Aside, in which Nevada
Power raised this issue), it is abundantly clear from the record of February 4th
that the Commission's vote to dismiss the September 30th filing was, to some
degree, based on evidence that the Commission evaluated and weighed.

      90. The Chairman and Presiding Officer stated that while he had originally
felt it was proper of Commissioner Pitlock to deny Staff's Motion "based on what
I've heard over the past few weeks in the hearing room, I pretty much have
changed my mind." TR Vol. 7, at 1569. The evidence to which the Chairman was
apparently referring is prefiled and oral direct testimony (which Nevada Power
had yet to have an opportunity to rebut) offered by the intervenors regarding
their second and third-hand accounts of the legislative history of S.B. 438, and
their opinions regarding the meaning and intent of SB 438.

      91. Elsewhere, the record confirms that the Chairman was considering and
weighing un-rebutted evidence in reaching his conclusion to dismiss the
September 30th filing. See TR, pp. 1554-55 (considering the companies'
motivations and thought processes in making the September 15, 1999, filing;
questioning its ability to make such a filing in just 15 days


                                      -39-
<PAGE>

[suggesting the decision may have been made earlier thereby constituting an
admission of some sort]; see TR, pp. 1556-59 (squaring the Chairman's personal
recollection of the legislative session [which, of course, cannot be
cross-examined by Nevada Power but only rebutted with a witness] with the
testimony of Mr. Garrett, and accepting the moving party's explanation of an
inconsistency in his testimony: "I'm glad that I had an opportunity to question
Ms. Ashcraft on what appeared to me initially to be an inconsistency in her
client's position and her witnesses testimony because she did point out October
1 is not some magic date"); see TR, pp. 1568-69 ["having the ability to do a
portion of the direct case here was helpful"]).

      92. The record shows that Commissioner Sheldrew likewise based her
decision in part on the evidence presented. TR, p. 1551 [weighing the statements
of the Nevada Power representative in front of the legislature]; TR, p. 1550
[weighing the statement made in the application regarding the filing]; TR, p.
1552 [questioning whether there was any evidence presented inconsistent with an
acknowledgement of a commitment]; TR, p. 1564 [acknowledging that she originally
deferred ruling to consider evidence]; TR, p. 1564 [rendering judgements on
credibility: "We have heard shifting sands as to why the second filing was
submitted"]; TR, p. 1564 [disparaging and thereby weighing the credibility of
the Company. "I guess the company is asking us to believe" and then speculating
as to the motives for the Company's filing]; TR, p. 1565 [concluding the motive
was a "money grab by the utility"]; TR, p. 1565 [weighing the statement of Mr.
Rigazio]; TR, p. 1566 [inferring away the significance of the October 1, 1999,
date]; TR, p. 1567 [I was hoping to hear and get more information that would
justify the reasons].

      93. Nevada Power maintained from the opening day of hearing that this
"expert testimony", this extrinsic evidence regarding the Legislature's intent
in enacting S.B. 438, was


                                      -40-
<PAGE>

not evidence at all, but rather legal argument proffered through "expert"
witnesses. This testimony was given by third parties based at best on their
cursory review of the transcripts of legislative hearings. The Staff's "expert
witness" on the legislative intent and the legislative history of S.B. 438
admitted that he never once reviewed even the written record of S.B. 438, and
instead had based his "expert testimony" on the accounts of others made during
the proceedings. TR Vol. 9, at 1931. Nevada Power made repeated objections as to
the admissibility of such evidence, the lacking qualifications of the "experts"
to offer their testimony, and the witness' unfamiliarity with the legislative
process generally, and S.B. 438's enactment specifically. The Chairman and
Presiding Officer never the less allowed the testimony, offering Nevada Power
the opportunity to rebut it after close of the direct case. The vote to dismiss
the September 30th filing was held at the close of the direct case, however,
prior to Nevada Power's rebuttal case.

      94. The outright dismissal of a claim or an application based on evidence
presented during a hearing is extraordinary. It is absolutely unlawful where, as
here, a claim is dismissed based on evidence, without affording a party an
opportunity to rebut the evidence presented. Taft v. Steinberg, 97 Nev. 598, 637
P.2d 533 (1981). Even then, on a motion to dismiss a tribunal exercising
judicial functions (as the PUCN is doing here) is prohibited from weighing the
evidence or evaluating credibility, must draw all inferences and intendments in
favor of the party opposing the motion and against the moving party, and must
assume the truth of all of the evidence presented by the opposing party. First
National Bank v. Ron Rudin Realty, 97 Nev. 20, 623 P.2d 558 (1981). Even after a
full presentation of the evidence, and proper application of the foregoing
principles, dismissal would be warranted only "if it appears to a certainty that
the


                                      -41-
<PAGE>

plaintiff is not entitled to relief under any set of facts presented." Zalk
Josephs Co. v. Wells Cargo, 81 Nev. 163, 400 P.2d 621 (1965).

      95. The principles governing motions to dismiss established above are so
universal and commonplace as to be incontrovertible. Taft v. Steinberg, 97 Nev.
598 (1982) ("The court is not authorized to dismiss the action without hearing
all of the plaintiff's evidence"); First National Bank v. Ron Rudin Realty, 97
Nev. 20, 22 (1981) (the standard of review on a motion to dismiss is "the
plaintiff's evidence must be accepted as true, both the trial court and this
court must draw all possible inferences in his favor, and not pass upon the
credibilities of witnesses nor weigh the evidence"). The Commission's actions
would not be sustainable even if it considered some evidence on both sides of
the issue, because Nevada Power did not have an opportunity to rebut this
portion of the opposition's direct case prior to the Commission's vote to
dismiss the September 30th filing, and also because dismissal on such basis is
tantamount to a directed verdict or a directed judgment on the issue and the
standards of law governing such motions are precisely the same as for a
dismissal after plaintiff's case. Lehtula v. Brown Nev. Corp., 82 Nev. 132, 412
P.2d 972 (1966).

      96. The PUCN also erred under principles of law set forth in the Nevada
Administrative Procedures Act. NRS ss.233B.121 provides that in a contested
case, "[o]pportunity must be afforded all parties to respond and present
evidence and argument on all issues involved." NRS ss.233B.123, further provides
that in contested cases "[e]ach party may call and examine witnesses, introduce
exhibits, cross-examine opposing witnesses on any matter relevant to the issues
even though the matter was not covered in the direct examination, impeach any
witness regardless of which party first called him to testify, and rebut the
evidence against him."


                                      -42-
<PAGE>

      97. In Bivins Construction v. State Contractor's Board, 107 Nev. 281, 809
P.2d 1268 (1991), the Nevada Supreme Court set aside a decision as a violation
of due process, when a party was denied the rights afforded by
NRSss.233B.123(5):

            The minimum procedural requirements established by the NAPA [Nevada
            Administrative Procedures Act] may not be ignored. Gibson Co. v.
            Archie, 92 Nev. 234, 235, 548 P.2d 1366, 1367 (1976). The rudiments
            of fair play must be observed in administrative hearings. Checker,
            Inc. v. Public Service Commission, 84 Nev. 623, 634, 446 P.2d 981,
            988 (1968).

                             REGARDLESS OF S.B. 438,
                       SEPTEMBER 30TH AMENDMENT WAS PROPER

      98. Even if the Commission was correct in finding that S.B. 438 did not
authorize the September 30th filing, Nevada Power had every right under the
then-existing statute and regulations to amend its July 15th filing. As is clear
from the discussion above, amendments to deferred accounting filings have become
routine in the last five years. Nevada Power's 1997 filing was amended twice,
and its 1998 filing amended once. In neither case did the Commission question
its authority to order and accept these amendments.

      99. Under PUCN rules of practice, a deferred application is a pleading.
NAC ss. 703.530. Under NAC ss. 703.530(2), if not otherwise prohibited by law
and if substantial rights of the parties will not be prejudiced, the Commission
will allow any pleading to be amended or corrected or any omission in the
pleading to be cured. NRCP 15, incorporated in Commission procedures at NAC ss.
703.105, also provides that pleadings may be amended as a matter of right when
no response has been filed, and may thereafter be freely amended when justice so
requires. NAC ss. 704.080 also specifically provides for deviation from deferred
accounting regulations if found to be in the in public interest.


                                      -43-
<PAGE>

      100. Because Nevada Power filed the September 30th filing as an amendment,
and because the Commission in noticing the filing deemed and accepted it as in
amendment, NRS ss.704.110(5) required that the Commission process the case, both
as to the setting of the BTER based on the most recent twelve months of data,
and the clearing of the DEAA balances through August 31, 1999. Having been set
pursuant to the then-existing statute and regulations (rather than S.B. 438),
these rates would have remained in effect until the commencement of retail open
access.

      101. In dismissing the September 30th filing even as to the currently
structured utility, the Commission has violated a statutory provision, acted in
excess of its statutory authority, committed other errors of law, abused its
discretion and rendered a decision based on unlawful procedure, that is both
arbitrary and capricious and characterized by abuse of discretion.

                                IMPUTED CAPACITY

      102. In its order in the subject docket, the Commission denied recovery of
some $87 million in ongoing and deferred costs of purchased energy that the
Commission has transmogrified and imputed as if it were purchased capacity.
Consistent with its arguments in Case Nos. 99-00470A and 99-00754A, Nevada Power
steadfastly challenges the Commission's initial determination that all or any
portion of Nevada Power's purchased energy costs could or should be imputed and
treated as if they were purchased capacity.

                                IMPUTED CAPACITY
               PARTIES TO 1995 STIPULATION DID NOT AGREE TO IMPUTE
                AND TREAT PURCHASED ENERGY COSTS AS IF THEY WERE
                            PURCHASED CAPACITY COSTS.

      103. The Commission's reliance on the 1995 stipulation as support for its
imputation and treatment of purchased energy as if it were purchased capacity
ignores the express language


                                      -44-
<PAGE>

of the 1995 agreement (that Nevada Power would move "reasonably incurred
purchased power capacity costs" from the BTER to the BTGR). As witnesses for
Staff and the SNWA confirmed during cross examination, the term "incurred" is
significant and means "as experienced." TR Vol. 3, p. 848. The costs of
purchased capacity "as experienced" cannot reasonably construed to include the
costs of purchased energy which are imputed and treated as if they were
capacity.

      104. Extrinsic evidence regarding the parties' negotiation of the 1995
stipulation was offered during cross examination by the SNWA's witness and
confirmed that the parties to the 1995 stipulation never even discussed whether
or how to impute and treat purchased energy as if it were capacity. TR Vol. 3,
p. 837. The parties to the 1995 stipulation could not have agreed that the
phrase "reasonably incurred purchased power capacity costs," really meant
"reasonably incurred purchased power capacity costs, as well as incurred
purchased power energy costs that the parties agree should be treated as if they
were capacity," because the matter was never even contemplated.

      105. A stipulation is an agreement made before a judicial tribunal which
requires, as does a contract, the assent of the parties to its terms. Taylor v.
SIIS, 107 Nev. 595 (1991); citing Palmer v. City of Long Beach, 199 P.2d 952
(Cal. 1948). A stipulation between a private party and an administrative agency
is a contract, "imposing upon the State the moral and legal duty to abide by its
agreement." Cohen v. State of Nevada, 113 Nev. 180, 184 (1997). As a contract, a
stipulation is subject to the rules of construction governing all written
obligations. Taylor v. SIIS, at 597, and can only be construed if it is unclear
or ambiguous, on its face. Renshaw v. Renshaw, 96 Nev 541 (1980). An agreement
is ambiguous when it is capable of more than one meaning when viewed objectively
by a reasonably intelligent person who has examined the


                                      -45-
<PAGE>

context of the entire agreement and who is cognizant of the customs, practices,
usages and terminology as generally understood in the particular trade of
business. 17A AmJur2d ss.338.

      106. The parties to the 1995 stipulation, themselves cognizant of the
customs, practices, usages and terminology as generally understood by those in
the business of regulating electric utilities did not draft the phrase
"reasonably incurred purchased power capacity costs," to mean "reasonably
incurred purchased power capacity costs, as well as incurred purchased power
energy costs that the parties agree should be treated as if they were capacity."

                                IMPUTED CAPACITY
                 ABSENT AGREEMENT, TREATMENT OF PURCHASED ENERGY
     AS IF IT WERE PURCHASED CAPACITY IS CONTRARY TO STATUTE AND REGULATION

      107. Absent a finding of imprudence, a Commission order denying recovery
of a component of purchased power is contrary to statute and regulation.

      108. In the July 15th filing, Nevada Power estimated the ongoing annual
cost of purchased energy, which was to be imputed and treated as if it were
imputed capacity, as being $12.8 million. By the September 30th filing, the
annual ongoing cost of purchased energy, which was to be imputed and treated as
if it were imputed capacity, had grown to $37.9 million. The dramatic increase
in the ongoing costs of imputed capacity can be attributed to at least three
circumstances.

      (1) Pursuant to Commission-approved expansion plans, Nevada Power
      continues to meet its growing requirements with purchased power, rather
      than with internally generated power.

      (2) Purchased power costs are rising, based on the shrinking availability
      of excess generation, the lifting of price constraints in the California
      energy market, and increased costs of fuel, most particularly natural gas.


                                      -46-
<PAGE>

      (3) Under the Commission's "methodology" for imputing capacity, the higher
      the price of purchased energy, the greater the imputation of the cost of
      purchased energy as purchased capacity.

      109. In the July 15th filing, the deferred balance for imputed capacity
was $20 million. Even though NRS ss.704.110(5) requires that deferred balances
be cleared over only one year, Nevada Power sought authority to mitigate the
impact on customers of the deferred balance for imputed capacity and recover the
$20 million balance over three years, impacting annual rates by $6.7 million. By
the September 30th filing, the deferred balance for "imputed" capacity had grown
to $49.7 million, which Nevada Power also sought to recover over three years,
rather than one. Because the Commission has yet to provide a means for reducing
the deferred balances for imputed capacity, the balance can only grow.

      110. The Commission is duty-bound to balance the interests of shareholders
and ratepayers by providing public utilities with the opportunity to earn a fair
return on their investments and setting rates that are both just and reasonable.
NRS ss.704.001. Prior to its repeal, NRS ss.704.110(5) provided that the
Commission was obligated to allow Nevada Power to periodically clear its
deferred accounts. Ongoing costs of fuel and purchased power, including
purchased energy and capacity, are to be set according to the Commission's
deferred accounting regulations, which are clear and unequivocal. Purchased
energy is to be accounted for and recovered in the BTER, according to a formula
originating with General Order 21. From NAC ss.704.130 (emphasis added):

      The base tariff energy rate (BTER) for fuels used in electric generation
      and for purchased power must be established in a utility's application for
      deferred energy relief and must be based on the following formula:...


                                      -47-
<PAGE>

      In the formula, the quantity of firm purchased energy for the year (termed
"PPF") is multiplied by the latest unit cost for firm energy (termed "UPF"), and
recovered in the BTER.

      111. The Commission's order would stop all purchased fuel and energy
deferrals retroactive to May 31, 1999, in violation of NAC ss.704.116(5). It
also prohibits recovery of any ongoing costs of imputed capacity, based on a
claim that, notwithstanding long prior practice, imputed capacity costs are not
deferred accounting issues. The Commission's order also disallows recovery of
all but $325,000 of the $49.7 million of imputed capacity deferrals, and leaves
it to Nevada Power to attempt to recover the $325,000 in a future restructuring
proceeding. The Commission's retroactive termination of deferred accounting and
then outright disallowance of some $87 million in purchased energy costs that
the Commission has determined to impute and treat as if they were purchased
capacity costs, is contrary to both statute and regulation, and must be set
aside.

                                IMPUTED CAPACITY
                          TREATMENT OF PURCHASED ENERGY
           AS IF IT WERE PURCHASED CAPACITY IS CONTRARY TO REGULATION
                        AND CONSTITUTES AD HOC RULEMAKING

      112. A generalized imputation and treatment of all or a portion of
purchased energy costs as purchased capacity costs constitutes rulemaking which
the Commission is without authority to conduct without complying with rulemaking
procedures. Prior to its repeal, NRS ss.704.185 allowed Nevada Power to use
deferred accounting for all of its purchased power costs, whether capacity or
energy. Prior to its repeal, NRS ss.704.110(5) allowed Nevada Power to recover
all of its purchased power costs, whether capacity or energy. The Commission's
regulations are clear and unequivocal. As set forth above, purchased power is to
be accounted for and recovered in the BTER, according to a formula originating
with General Order 21.


                                      -48-
<PAGE>

      113. The Commission cannot modify or deviate from a regulation or other
rule of generally applicability without conducting formal rulemaking. The Nevada
Supreme Court has stated: "An agency makes a rule when it does nothing more than
state its official position on how it interprets a requirement already provided
by statute and how it proposes to administer the statute." K-Mart Corp. v. State
Indus. Ins. Sys., 101 Nev. 12, 17, 693 P.2d 562 (1985) (citations omitted). The
Nevada Administrative Procedures Act ("NAPA") establishes the "minimum
procedural requirements for regulation-making and adjudication procedure of all
agencies...." NRSss.233B.020. Further, NRSss.233B.040(1) states that the
Commission "shall adopt such regulations as are necessary to the proper
execution of" the functions assigned to it by law.

      114. Furthermore, the Commission is duty-bound to balance the interests of
shareholders and ratepayers by providing public utilities with the opportunity
to earn a fair return on their investments and setting rates that are both just
and reasonable. NRS ss.704.001.

      115. As a ruling of general applicability, affecting other utilities and
their customers, conducted without benefit of the protections of the NAPA, the
Commission's decision to remove from the BTER calculation (which was established
in previous formal rulemaking procedures) the costs of purchased energy that the
Commission wishes to impute and treat as if it were capacity, constitutes ad hoc
rulemaking and is void. Coury v. Whittlesea-Bell, 102 Nev. 302, 721 P.2d 375
(1986); Public Serv. Comm'n v. Southwest Gas, 99 Nev. 268, 272 to 273, 662 P.2d
624 (1983). Nevada Power has been prejudiced by the Commission's findings,
inferences, conclusions and decision to impute and treat purchased energy as
purchased capacity, without engaging in rulemaking. Thus the Commission's orders
in this and Case Nos. 99-00470A and 99-00754A should be set aside as they are
(1) in violation of the statute mandating balanced treatment of investor and
customer interests and providing electric utilities an opportunity to earn


                                      -49-
<PAGE>

a fair return through the setting of just and reasonable rates; (2) in excess of
the commission's statutory authority; (3) made upon unlawful procedure; (4)
effected by error of law; and (5) arbitrary and capricious and characterized by
abuse of discretion.

                                IMPUTED CAPACITY
            DISALLOWANCE OF ONGOING COSTS OF IMPUTED CAPACITY BECAUSE
          SUCH COSTS ARE NOT DEFERRED ACCOUNTING ISSUES IS CONTRARY TO
              AND CONSTITUTES A COLLATERAL ATTACK ON A PRIOR ORDER
                    PROHIBITED BY ADMINISTRATIVE RES JUDICATA

      116. As set forth above, in its final orders in PUCN Docket Nos. 97-7030
and 98-7035, the Commission transferred the recovery of imputed capacity to
Nevada Power's restructuring compliance plan case. Then in its Interim Order in
the compliance plan case, the Commission put the recovery of imputed capacity
issue off again, this time transferring to the deferred accounting filing
presently before the court. Then, its order in the subject case, the Commission
outright denied recovery of the ongoing costs of purchased energy, which the
Commission has imputed and treated as if it were purchased capacity. As
justification for its outright denial of the ongoing costs of imputed capacity,
the Commission states that, contrary to its September 17, 1999 ruling in the
compliance plan case, "the going-forward imputed costs are not a deferred
accounting issue."

      117. The Commission's denial of recovery of the ongoing costs of imputed
capacity, because these costs aren't related to deferred accounting, is in
direct contravention of the Commission's determination just months ago to put
these costs into this deferred accounting proceeding, violates the principles of
administrative res judicata, as well as the prohibition against collateral
attacks on rate orders and retroactive ratemaking. In Britton v. City of North
Las Vegas, 106 Nev. 690, 799 P.2d 568 (1990), the Nevada Supreme Court
established that res judicata generally applies to administrative proceedings.
Thus "a decision of an administrative


                                      -50-
<PAGE>

agency which neither adheres to its own prior precedent nor indicates its
reasons for reaching a different result on essentially the same facts is
arbitrary and capricious." E.g., Field Delivery Service v. Roberts, 66 N.Y. 2d.
516, 516-517, 488 N.E. 2d 1223, 498 NYS 2d 101 (1985). An agency's decisions may
be considered arbitrary if they represent unexplained or unjustified departures
from prior agency findings under the same or similar circumstances. Atchison, T.
& S.F.R.Co. v. Wichita Board of Trade, 412 U. S. 800, 808, 93 S.Ct. 2367, 2376,
37 L.Ed. 2d 350, 362 (1973); NRLB v. Mall Tool Co., 119 F.2d 700, 702 (7th Cir.
1941); Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (DC Cir. 1971),
cert. denied, 403 U. S. 923; and NRLB v. Silver Bay Local Union, 498 F. 2d 26
(9th Cir. 1974).

      118. Furthermore, the Commission is duty-bound to balance the interests of
shareholders and ratepayers by providing public utilities with the opportunity
to earn a fair return on their investments and setting rates that are both just
and reasonable. NRS ss.704.001. The Commission's denial of recovery of the
ongoing costs of imputed capacity, because these costs aren't related to
deferred accounting, in direct contravention of the Commission's determination
just months ago to put these costs into this deferred accounting proceeding, is
unjust and unreasonable.

                                IMPUTED CAPACITY
               NETTING OF DEFERRED PURCHASED ENERGY COSTS AGAINST
           BTGR REVENUES CONSTITUTES UNLAWFUL SINGLE-ISSUE RATEMAKING

      119. In its Order the Commission has outright disallowed recovery of all
but $325,000 of Nevada Power's $49.7 million in imputed capacity balances. As
justification for this disallowance the Commission has attempted to net
(subtract from) imputed capacity costs (i.e. purchased energy costs) BTGR
revenues which the PUCN has hypothetically attributed or allocated "imputed" to
the $112 million of express capacity, transferred to BTGRs in 1996.


                                      -51-
<PAGE>

BTGR revenues are designed to cover a myriad of costs (investment in plant,
labor, supplies) and a return on investment. Revenues are not allocated or
attributed to specific elements. In the simplest of terms, the Commission's
netting scheme would have Nevada Power (1) imputing energy as capacity, (2)
imputing revenues received since 1996 to capacity, (3) offsetting that amount
from the cost energy purchased in 1998 and 1999 that has been deemed imputed as
capacity. This is contrary to law and statute.

      120. The Commission cannot by order deny a utility a right it has been
given pursuant to statute and regulation. Nor can the Commission modify or
deviate from a regulation or other rule of general applicability without
conducting formal rulemaking. Furthermore, the Commission is duty-bound to
balance the interests of shareholders and ratepayers by providing public
utilities with the opportunity to earn a fair return on their investments and
setting rates that are both just and reasonable.

      121. The Commission's decision to deny recovery of Nevada Power's
prudently incurred but deferred costs of purchased energy, which the Commission
wishes to impute and treat as if it were capacity, is contrary to statute and
regulation. Nevada Power has been prejudiced by the Commission's findings,
inferences, conclusions and decisions to impute and treat purchased energy as
purchased capacity, without engaging in rulemaking.

                              FIRST CAUSE OF ACTION
           DISMISSAL OF SEPTEMBER 30TH FILING WAS CONTRARY TO S.B. 438

      122. Petitioner incorporates by reference Paragraphs 1 through 120 above
as though fully set forth herein.

      123. Nevada Power's September 30th filing was made pursuant to Section 4
of S.B. 438 (now codified at NRS ss.704.9823), which plainly provides that the
rates for the PLR utility


                                      -52-
<PAGE>

must not exceed the rates in effect on July 1, 1999, "except that the commission
shall modify the rates to account for the effects of any decisions by the
commission relating to any cases filed with the commission before October 1,
1999, which involve the use of deferred accounting." Emphasis added. The
September 30th filing, being made with the Commission before October 1, 1999,
and involving the use of deferred accounting, is proper under the plain language
of the statute. The Commission is without discretion to dismiss the filing.

      124. The Commission's order dismissing the September 30th filing is
contrary to the plain language of S.B. 438 and has prejudiced Nevada Power,
because its findings, inferences, conclusions and decisions (1) violate the
plain language of the statute; (2) are in excess of the Commission's statutory
authority; (3) are affected by error of law; and (4) are characterized by abuse
of discretion. The Commission's dismissal of the September 30th filing must be
set aside.

                             SECOND CAUSE OF ACTION
      COMMISSION IMPROPERLY CONSTRUED S.B. 438 IN LIGHT OF NRSss.704.110(5)

      125. Petitioner incorporates by reference Paragraphs 1 through 123 above
as though fully set forth herein.

      126. Despite the plain language of S.B. 438, the Commission attempted to
construe S.B. 438 in light of repealed statute NRSss.704.110(5). The Commission
began its statutory construction by mischaracterizing the September 30th filing
as a second (rather than amended) filing. Then the Commission mischaracterized
the September 30th filing as seeking authority to clear Nevada Power's deferred
balances more than every six months, in violation of NRS.ss.704.110(5). Then the
Commission attempted to "harmonize" S.B. 438 with only a portion ofss.704.110.
The Commission has determined that S.B. 438 should be construed in light of a
statute that was repealed by S.B. 438, ignoring a statutory provision that S.B.
438 affirmed.


                                      -53-
<PAGE>

      127. The Commission's dismissal of the September 30th filing is contrary
to the plain language of S.B. 438, Nevada Power's application, the Commission's
own treatment of the September 30th filing, and the whole treatment of purchased
fuel and purchased power by the 1999 Legislature. Nevada Power is prejudiced
because the Commission's findings, inferences, conclusions and decision are (1)
in violation of statutory provisions of S.B. 438; (2) in excess of the
commission's statutory authority; (3) affected by an error of law; (4) clearly
erroneous in view of the reliable, probative and substantial evidence on record;
and (5) arbitrary and capricious and characterized by abuse of discretion. The
Commission's dismissal of the September 30th filing must be set aside.

                              THIRD CAUSE OF ACTION
      COMMISSION IMPROPERLY CONSTRUED S.B. 438 IN LIGHT OF NACss.704.116(1)

      128. Petitioner incorporates by reference Paragraphs 1 through 126 above
as though fully set forth herein.

      129. The Commission has relied on NAC ss.704.116(1) as authority for
dismissing the September 30th filing. NAC ss.704.116(1) mandates an annual
deferred accounting filing and prohibits multiple or stacked deferred accounting
filings. As set forth above, the September 30th filing is not a filing in
addition to the Company's annual filing. Even assuming that the Commission
hadn't already deemed the September 30th filing as a proper amendment to the
July 15th filing, refusal by the Commission to allow such a deviation would be
unlawful, because administrative regulations cannot contradict or conflict with
the statute they are intended to implement. Furthermore, a regulation that was
valid when promulgated becomes invalid upon the enactment of a statute in
conflict with the regulation.


                                      -54-
<PAGE>

      130. Nevada Power is prejudiced because the Commission's findings,
inferences, conclusions and decision to dismiss the September 30th filing
because S.B. 438 conflicts with and thus must be harmonized to the Commission's
regulations, are (1) in violation of statutory provisions of S.B. 438; (2) in
excess of the commission's statutory authority; (3) affected by an error of law;
(4) clearly erroneous in view of the reliable, probative and substantial
evidence on record; and (5) arbitrary and capricious and characterized by abuse
of discretion. The Commission's dismissal of the September 30th filing must be
set aside.

                             FOURTH CAUSE OF ACTION
COMMISSION IMPROPERLY RELIED ON UNRELIABLE AND UNREBUTTED EXTRINSIC EVIDENCE TO
                          DETERMINE LEGISLATIVE INTENT

      131. Petitioner incorporates by reference Paragraphs 1 through 129 above
as though fully set forth herein.

      132. It is abundantly clear from the record that the February 4th vote to
dismiss the September 30th filing was, to some degree, based on evidence that
the Commission evaluated and weighed. The Commission relied, at least in part,
on the un-rebutted and unreliable testimony of "expert" witnesses, with no
experience or expertise in statutory construction, and only second or third-hand
knowledge of proceedings regarding S.B. 438.

      133. The outright dismissal of a claim or an application based on evidence
presented during a hearing is extraordinary. It is absolutely unlawful where, as
here, a claim is dismissed based on unreliable hearsay evidence, without
affording a party an opportunity to rebut the evidence presented. NRS
ss.233B.121 provides that in a contested case, "[o]pportunity must be afforded
all parties to respond and present evidence and argument on all issues
involved," and have the opportunity to rebut the evidence against him.


                                      -55-
<PAGE>

      134. Nevada Power is prejudiced because the Commission's findings,
inferences, conclusions and decision to dismiss the September 30th filing were
based, in part, on a weighing of the un-rebutted and unreliable evidence offered
by intervenors during their direct presentation, and are (1) in violation of the
due process clause of the state constitution, as well as the statutory
provisions of the NAPA; (2) in excess of the commission's statutory authority;
(3) made upon unlawful procedure; (4) affected by an error of law; and (5)
arbitrary and capricious and characterized by abuse of discretion. The
Commission's dismissal of the September 30th filing must be set aside.

                              FIFTH CAUSE OF ACTION
                1995 STIPULATION IMPROPERLY CONSTRUED TO APPLY TO
                    PURCHASED ENERGY [IMPUTED CAPACITY] COSTS

      135. Petitioner incorporates by reference Paragraphs 1 through 133 above
as though fully set forth herein.

      136. The Commission's reliance on the 1995 stipulation as support for its
imputation and treatment of purchased energy as if it were purchased capacity
ignores the express language of the 1995 agreement (that Nevada Power would move
"reasonably incurred purchased power capacity costs" from the BTER to the BTGR).

      137. The parties to the 1995 stipulation, themselves cognizant of the
customs, practices, usages and terminology as generally understood by those in
the business of regulating electric utilities did not draft the phrase
"reasonably incurred purchased power capacity costs," to mean "reasonably
incurred purchased power capacity costs, as well as later incurred purchased
power energy costs that the parties agree should be treated as if they were
capacity." Nevada Power has been prejudiced by the Commission's findings,
inferences, conclusions and decision to construe the 1995 stipulation as
applying to purchased energy as well as purchased capacity.


                                      -56-
<PAGE>

The Commission's orders in this and Case Nos. 99-00470A and 99-00754A should be
set aside as they are (1) in excess of the commission's statutory authority; (2)
made upon unlawful procedure; (3) affected by an error of law; (4) clearly
erroneous in view of the reliable, probative and substantial evidence on the
whole record; and (5) arbitrary and capricious and characterized by abuse of
discretion. The Commission's disallowance of the prudently incurred costs of
purchased energy must be set aside.

                              SIXTH CAUSE OF ACTION
           REGARDLESS OF S.B. 438, SEPTEMBER 30TH AMENDMENT WAS PROPER

      138. Petitioner incorporates by reference Paragraphs 1 through 136 above
as though fully set forth herein.

      139. Even if the Commission was correct in finding that S.B. 438 did not
authorize the September 30th filing, Nevada Power had every right under the
then-existing statute and regulations to amend its July 15th filing. As is clear
from the discussion above, amendments to deferred accounting filings have become
routine in the last five years. Nevada Power's 1997 filing was amended twice,
and its 1998 filing amended once. In neither case did the Commission question
its authority to order and accept these amendments. Furthermore, under PUCN
rules of practice and procedure, amendments are freely allowed.

      140. Because Nevada Power filed the September 30th filing as an amendment,
and because the Commission in noticing the filing deemed it an amendment, NRS
ss.704.110(5) required that the Commission process the case, both as to the
setting of the BTER based on the most recent twelve months of data, and the
clearing of the DEAA balances through August 31, 1999. Having been set pursuant
to the then-existing statute and regulations (rather than S.B. 438), these rates
would have remained in effect until the commencement of retail open access.


                                      -57-
<PAGE>

      141. In dismissing the September 30th filing even as to the currently
structured utility, the Commission has violated a statutory provision, acted in
excess of its statutory authority, committed other errors of law, and rendered a
decision based on unlawful procedure, that is both arbitrary and capricious and
characterized by abuse of discretion.

              SEVENTH CAUSE OF ACTION TREATMENT OF PURCHASED ENERGY
           AS IF IT WERE PURCHASED CAPACITY IS CONTRARY TO STATUTE AND
                                   REGULATION

      142. Petitioner incorporates by reference Paragraphs 1 through 140 above
as though fully set forth herein.

      143. Nevada Power has consistently and steadfastly maintained that its
consent in 1996 to move explicit purchased capacity from the BTER to the BTGR
did not extend to purchased energy. Absent a finding of imprudence, a Commission
order denying recovery of a component of purchased power is contrary to statute
and regulation.

      144. The Commission is duty-bound to balance the interests of shareholders
and ratepayers by providing public utilities with the opportunity to earn a fair
return on their investments and setting rates that are both just and reasonable.
Prior to its repeal, NRS ss.704.110(5) provided that the Commission was
obligated to allow Nevada Power to periodically clear its deferred accounts.
Termination of deferred accounting for purchased energy fuel cannot be ordered
retroactively. Ongoing costs of fuel and purchased power, including purchased
energy and capacity, are to be set according to the Commission's deferred
accounting regulations, which are clear and unequivocal. Purchased energy is to
be accounted for and recovered in the BTER, according to a formula originating
with General Order 21.

      145. The Commission's disallowance of imputed capacity costs is contrary
to both statute and regulation. Nevada Power has been prejudiced by the
Commission's findings,


                                      -58-
<PAGE>

inferences, conclusions and decision to impute purchased energy as purchased
capacity, and then deny recovery of any of its reasonable and prudent costs.
Thus the Commission's orders in this and Case Nos. 99-00470A and 99-00754A
should be set aside as they are (1) in violation of the statute mandating
balanced treatment of investor and customer interests and providing electric
utilities an opportunity to earn a fair return through the setting of just and
reasonable rates; (2) in excess of the commission's statutory authority; (3)
made upon unlawful procedure; (4) effected by error of law; and (5) arbitrary
and capricious and characterized by abuse of discretion. The Commission's
disallowance of the prudently incurred costs of purchased energy must be set
aside.

                             EIGHTH CAUSE OF ACTION
                   TREATMENT OF PURCHASED ENERGY AS IF IT WERE
                PURCHASED CAPACITY CONSTITUTES AD HOC RULEMAKING

      146. Petitioner incorporates by reference Paragraphs 1 through 144 above
as though fully set forth herein.

      147. Nevada Power has consistently and steadfastly maintained that its
consent in 1996 to move explicit purchased capacity from the BTER to the BTGR
did not extend to purchased energy. The Commission is without authority to
impute energy as capacity without engaging in rulemaking. Prior to its repeal,
NRS ss.704.185 allowed Nevada Power to use deferred accounting for all of its
purchased power costs, whether capacity or energy. Prior to its repeal, NRS
ss.704.110(5) allowed Nevada Power to recover all of its purchased power costs,
whether capacity or energy. The Commission's regulations are clear and
unequivocal. All purchased energy is to be accounted for and recovered in the
BTER, according to a formula originating with General Order 21.


                                      -59-
<PAGE>

      148. The Commission cannot by order deny a utility a right it has been
given pursuant to statute and regulation. Nor can the Commission modify or
deviate from a regulation or other rule of generally applicability without
conducting formal rulemaking. Furthermore, the Commission is duty-bound to
balance the interests of shareholders and ratepayers by providing public
utilities with the opportunity to earn a fair return on their investments and
setting rates that are both just and reasonable.

      149. As a ruling contrary to both statute and regulation, of general
applicability, affecting other utilities and their customers, conducted without
benefit of the protections of the NAPA, the Commission's decision to remove from
the BTER calculation the costs of purchased energy that the Commission wishes to
impute and treat as if it were capacity, constitutes unauthorized and ad hoc
rulemaking. Nevada Power has been prejudiced by the Commission's findings,
inferences, conclusions and decision to impute and treat purchased energy as
purchased capacity, without engaging in rulemaking. Thus the Commission's orders
in this and Case Nos. 99-00470A and 99-00754A are appropriately set aside as
they are (1) in violation of the statute mandating balanced treatment of
investor and customer interests and providing electric utilities an opportunity
to earn a fair return through the setting of just and reasonable rates; (2) in
excess of the commission's statutory authority; (3) made upon unlawful
procedure; (4) effected by error of law; and (5) arbitrary and capricious and
characterized by abuse of discretion. The Commission's disallowance of the
prudently incurred costs of purchased energy must be set aside.


                                      -60-
<PAGE>

                              NINTH CAUSE OF ACTION
            DISALLOWANCE OF ONGOING COSTS OF IMPUTED CAPACITY BECAUSE
          SUCH COSTS ARE NOT DEFERRED ACCOUNTING ISSUES IS CONTRARY TO
              AND CONSTITUTES A COLLATERAL ATTACK ON A PRIOR ORDER
                    PROHIBITED BY ADMINISTRATIVE RES JUDICATA

      150. Petitioner incorporates by reference Paragraphs 1 through 148 above
as though fully set forth herein.

      151. As set forth above, in its final orders in PUCN Docket Nos. 97-7030
and 98-7035, the Commission deferred the recovery of imputed capacity to Nevada
Power's restructuring compliance plan case. Then in its Interim Order in the
compliance plan case, the Commission put the recovery of imputed capacity issue
off again, this time into the subject deferred accounting filing. Then, its
order in the subject case, the Commission has denied recovery of the ongoing
costs of purchased energy, which the Commission has imputed and treated as if it
were purchased capacity. As justification for its outright denial of the ongoing
costs of imputed capacity, the Commission states that, contrary to its September
17, 1999 ruling in the compliance plan case, "the going-forward imputed costs
are not a deferred accounting issue."

      152. The Commission's denial of recovery of the ongoing costs of imputed
capacity, because these costs aren't related to deferred accounting, in direct
contravention of the Commission's determination just months ago to put these
costs into this deferred accounting proceeding, violates the principles of
administrative res judicata, as well as the prohibition against collateral
attacks on rate orders and retroactive ratemaking. Furthermore, the Commission
is duty-bound to balance the interests of shareholders and ratepayers by
providing public utilities with the opportunity to earn a fair return on their
investments and setting rates that are both just and reasonable. NRS ss.704.001.

      153. Nevada Power has been prejudiced by the Commission's findings,
inferences, conclusions and decision to place the recovery of ongoing costs of
imputed capacity into this


                                      -61-
<PAGE>

deferred accounting docket, then claim that the ongoing costs of imputed
capacity are not properly recovered as deferred accounting costs, are (1) in
violation of the statute mandating balanced treatment of investor and customer
interests and providing electric utilities an opportunity to earn a fair return
through the setting of just and reasonable rates; (2) made upon unlawful
procedure; (3) affected by an error of law; and (4) arbitrary and capricious and
characterized by abuse of discretion. The Commission's disallowance of the
prudently incurred costs of purchased energy must be set aside.

                              TENTH CAUSE OF ACTION
             NETTING OF PURCHASED ENERGY COSTS AGAINST BTGR REVENUES
                  CONSTITUTES UNLAWFUL SINGLE-ISSUE RATEMAKING

      154. Petitioner incorporates by reference Paragraphs 1 through 152 above
as though fully set forth herein.

      155. In its Order the Commission has outright disallowed recovery of all
but $20 million of Nevada Power's $49.7 million in imputed capacity balances. Of
the remaining $22 million in imputed capacity deferrals, the Commission seeks to
offset and reduce the balance by approximately $17 million. As justification for
this disallowance the Commission has attempted to net imputed capacity costs
(i.e. purchased energy costs) against a 1996 calculation of revenues received
for explicit capacity. In the simplest of terms, the Commission's netting scheme
would have Nevada Power (1) imputing energy as capacity, (2) hypothetically
allocated BTGR revenues to express capacity moved to BTGR in 1996, and (3)
offsetting (subtracting) those revenues from energy purchased in 1998 and 1999.
This is contrary to law and statute.

      156. The Commission cannot by order deny a utility a right it has been
given pursuant to statute and regulation. Nor can the Commission modify or
deviate from a regulation or other rule of generally applicability without
conducting formal rulemaking. Furthermore, the


                                      -62-
<PAGE>

Commission is duty-bound to balance the interests of shareholders and ratepayers
by providing public utilities with the opportunity to earn a fair return on
their investments and setting rates that are both just and reasonable.

      157. The Commission's decision to deny recovery of Nevada Power's
prudently incurred but deferred costs of purchased energy, which the Commission
wishes to impute and treat as if it were capacity, is contrary to statute and
regulation. Nevada Power has been prejudiced by the Commission's findings,
inferences, conclusions and decision to impute and treat purchased energy as
purchased capacity, without engaging in rulemaking. Thus the Commission's orders
in this and Case Nos. 99-00470A and 99-00754A are appropriately set aside as
they are (1) in violation of the statute mandating balanced treatment of
investor and customer interests and providing electric utilities an opportunity
to earn a fair return through the setting of just and reasonable rates; (2) in
excess of the commission's statutory authority; (3) made upon unlawful
procedure; (4) effected by error of law; and (5) arbitrary and capricious and
characterized by abuse of discretion. The Commission's disallowance of the
prudently incurred costs of purchased energy must be set aside.

                            ELEVENTH CAUSE OF ACTION
                DELAY OF RESOLUTION OF PRE-JUNE BALANCES VIOLATES
                 STATUTES AND REGULATIONS REQUIRING CLEARING OF
                                DEFERRED BALANCES

      158. Petitioner incorporates by reference Paragraphs 1 through 156 above
as though fully set forth herein.

      159. With the dismissal of the September 30th filing, some $30 million in
imputed capacity deferrals (from June 1 through September 30, 1999), were
outright disallowed. For the remaining $20 million in imputed capacity deferrals
(for energy purchases through May 31,


                                      -63-
<PAGE>

1999), the Commission has once again put off their recovery, this time to yet
another restructuring-related filing in which it proposes to net (subtract)
approximately $17 million and expose the balance to yet further netting in
unrelated matters. That filing, which has yet to be made, is to address the
extent to which Nevada Power is eligible for compensation of "past costs." How
the regulation and the Commission would treat deferrals of imputed capacity in
determining Nevada Power's eligibility for past costs is impossible to determine
at this point.

      160. Thus the Commission's order is in violation of statute in excess of
the Commission's statutory authority, based upon unlawful procedure, with other
errors of law, is contrary to reliable, probative and substantial evidence on
the whole record, that is in its result arbitrary and capricious and
characterized by abuse of discretion. The Commission's disallowance of the
prudently incurred costs of purchased energy must be set aside.

                             TWELFTH CAUSE OF ACTION
                           SEPTEMBER FILING PERMITTED
                              UNDER NRS ss. 704.110

      161. Petitioner incorporates by reference Paragraphs 1 through 159 above
as though fully set forth herein.

      162. Even if the September filing were deemed to be a separate second
filing, as opposed to an amended filing, such filing is permitted under NRS ss.
704.110(5) since that statute does not prevent or preclude filings whenever an
applicant desires to make one. It only precludes the clearing of deferred
accounts more often than every six months.


                                      -64-
<PAGE>

                           THIRTEENTH CAUSE OF ACTION
                           PUCN ABUSED ITS DISCRETION
                       IN DISMISSING THE SEPTEMBER FILING

      163. Petitioner incorporates by reference Paragraphs 1 through 161 above
as though fully set forth herein.

      164. Even if the September filing contravened NRS ss. 704.110 and NAC ss.
703.116, the PUCN possessed authority to deviate from regulations and allow
amended pleadings to do substantial justice among the parties.

      165.  In dismissing the September filing, the PUCN acted arbitrarily and
capriciously and abused its discretion.

                           FOURTEENTH CAUSE OF ACTION
                  PUCN ABUSED ITS DISCRETION IN FAILING TO DEEM
               THE SEPTEMBER FILING AS A NRS ss. 704.110(7) FILING

      166. Petitioner incorporates by reference Paragraphs 1 through 164 above
as though fully set forth herein.

      167. NRSss. 704.110(7) allows fuel and purchased power applications to be
made monthly. NRSss. 704.110(7) was not repealed by SB 438. In fact, it was
reenacted.

      168. The PUCN is statutorily mandated to ignore technicalities in
pleadings, to construe pleadings liberally, and accomplish substantial justice.

      169. In failing to deem Petitioner's September filing as an NRS ss.
704.110(7) purchased power and fuel application, the PUCN acted in violation of
statute and abused its discretion.


                                      -65-
<PAGE>

                              CONCLUSION AND PRAYER

      170. With its March 28, 2000 order in PUCN Docket No. 99-7035, the
Commission has denied Nevada Power recovery of tens of millions of dollars in
annual revenues. Nearly $30 million in reasonable and prudent expenditures for
purchased energy consumed by Nevada Power's customers between June 1 and August
31, 1999, have been disallowed outright. Nearly $20 million in reasonable and
prudent expenditures for purchased energy consumed by customers prior to June 1,
1999 have again been ordered deferred and recovery denied, this time to Nevada
Power's restructuring-related past cost filing. All ongoing costs of imputed
capacity have been disallowed outright. What is more, the ongoing costs of
energy other than imputed capacity have been set based on outdated information,
virtually guaranteeing a long-term under-recovery for fuel and purchased power
costs of nearly $10 million. Absent the grant of injunctive relief, these
revenues can never be recouped.

      171. This devastation of Nevada Power's last deferred accounting filing,
was not based on any questions of fact or findings of imprudence. The harm
described above is entirely attributable to the Commission's findings on two
legal issues: whether the Company's September 30th filing was proper, and
whether the Commission can impute and treat purchased energy as if it were
purchased capacity.

      WHEREFORE, Nevada Power prays that the Court:

      (1) Enter a judgment on this Petition for Judicial Review that reverses,
vacates and sets aside the Order issued March 28, 2000 in PUCN Docket No.
99-7035.

      (2) Reinstate Petitioner's September 30th filing in its entirety and enter
an order allowing Nevada Power to recover deferrals of imputed capacity through
March 28, 2000, and to


                                      -66-
<PAGE>

implement ongoing rates for fuel and purchased power that reflect the costs of
purchased energy as set forth therein.

      (3) Grant such other and further relief as the Court deems just and
reasonable.

      Dated at Reno, Nevada this ___ day of March, 2000.

                                  Respectfully submitted,

                                  NEVADA POWER COMPANY


                                  By____________________________________________
                                    William E. Peterson, General Counsel


                                  By____________________________________________
                                    Elizabeth Elliot, Associate General Counsel


                                      -67-

<PAGE>

                                                                    Exhibit 99.2

                                     IN THE
                          UNITED STATES DISTRICT COURT
                           FOR THE DISTRICT OF NEVADA

- ------------------------------------------------
                                                :
SIERRA PACIFIC RESOURCES,                       :
SIERRA PACIFIC POWER COMPANY and                :
NEVADA POWER COMPANY,                           :
all Nevada Corporations,                        :
                                                :
                        Plaintiffs,             :
                                                :
            v.                                  :
                                                :     Civil Action No. _______
PUBLIC UTILITY COMMISSION OF NEVADA             :
Capital Plaza                                   :
1150 E. William Street                          :
Carson City, Nevada  89701-3109                 :
                                                :
      and                                       :
                                                :
HON. DONALD L. SODERBERG, Chairman of the       :
Public Utility Commission of Nevada             :
HON. RICHARD M. McINTIRE, Commissioner of the   :
Public Utility Commission of Nevada,            :
and HON. JUDY M. SHELDREW, Commissioner         :
of the Public Utility Commission of Nevada      :
Capital Plaza                                   :
1150 E. William Street                          :
Carson City, Nevada  89701-3109,                :
                                                :
                        Defendants.             :
- ------------------------------------------------:

                 COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

            Plaintiffs Sierra Pacific Resources, Sierra Pacific Power Company,
and Nevada Power Company (collectively, "plaintiffs"), by way of their Complaint
for Declaratory and Injunctive Relief against defendants Public Utility
Commission of Nevada ("PUCN" or "Commission"), the Hon. Donald L. Soderberg,
Chairman of the PUCN, the Hon. Richard M.


                                      -1-
<PAGE>

McIntire, Commissioner of the PUCN, and the Hon. Judy M. Sheldrew, Commissioner
of the PUCN, each in his or her official capacity as Commissioner of the PUCN
and individually (collectively, "defendants"), allege and complain:

                              PRELIMINARY STATEMENT

      1. As a result of a new state law that deregulates the electric power
market in Nevada, plaintiffs have begun to sustain a significant diminution in
the value of its stock and other property, and also face the prospect of losses
of revenue associated with contracts which the plaintiff utilities entered into
pursuant to federal mandate. The state law impairs and frustrates rights
guaranteed plaintiffs under the Public Utility Regulatory Policies Act, 16
U.S.C. ss.ss. 796 and 824a-3 ("PURPA") and the Federal Power Act, 16 U.S.C. ss.
824d. This law is therefore invalid and preempted by the Supremacy Clause of the
U.S. Constitution. Plaintiffs' loss in revenues will also cause immediate,
substantial and irrevocable harm and constitutes an unconstitutional deprivation
of property under the Fifth and Fourteenth Amendments of the U.S. Constitution.
This law is further unconstitutional insofar as it mandates a three-year rate
freeze, at July 1999 levels, without any recourse or relief from confiscatory
rates.

      2. Deregulation of the electric power market has been temporarily stayed
by the Governor, but only until it can be effectively implemented rather than by
reason of its unconstitutionality and unlawfulness. Even if this law were
construed as constitutional on its face, no regulatory structure is in place by
which plaintiffs may recover costs incurred as a result of state and federal
mandates. The absence of such a regulatory full-cost recovery structure renders
the new law unconstitutional as applied. Accordingly, this action seeks to
restrain its operation until such time as the defendant PUCN has enacted
regulations which it may lawfully enact under state law and which are required


                                      -2-
<PAGE>

by the U.S. Constitution to ensure that plaintiffs recover all costs incurred
under federal and state mandates and approvals for the benefit of plaintiffs'
customers. If no mechanism is put in place to ensure that plaintiffs will
recover costs incurred under these federally and state mandated and approved
obligations, plaintiffs will sustain significant, irrevocable losses that
constitute an unconstitutional deprivation of property.

                              NATURE OF THE ACTION

      3. This is an action for injunctive, declaratory, and other relief arising
out of Nevada Assembly Bill No. 366 and Senate Bill No. 438, enacted as Nev.
Rev. Stat. ss. 703.130 et seq. (the "Restructuring Act" or "the Act"), by which
the State of Nevada has authorized and directed the PUCN to effectuate a
competitive market for the sale and distribution of electricity in Nevada. The
Restructuring Act requires that competitive services in the electric power
industry be available for Nevada customers commencing on March 1, 2000, unless
otherwise ordered by the Governor of Nevada. The Governor has deferred the
effective date of the Act, but only so long as may be necessary to effectuate
the transition to a deregulated market for electric service.

      4. The Restructuring Act acknowledges that plaintiffs have incurred
substantial costs to assure reliable electric power supplies to Nevada customers
in the historically regulated market which, as a matter of constitutional and
statutory law, must be recoverable in the new competitive market. The statute
nevertheless fails to provide an adequate mechanism for the recovery of these
costs. Moreover, although directed to adopt and implement regulations assuring a
recovery of these costs, the Commission has failed to do so in a manner that
assures this recovery.

      5. The gravamen of plaintiffs' claims is that the Restructuring Act, as
enacted and as administered by the Commission, is preempted by PURPA and the
Federal Power Act, and violates


                                      -3-
<PAGE>

plaintiffs' rights under the Contract Clause and Fifth and Fourteenth Amendments
to the Constitution of the United States, insofar as the Act fails to assure
plaintiffs a full cost recovery for those costs plaintiffs have already
incurred, or which plaintiffs are contractually obligated to pay, to provide
electric power to the public in a regulated market, whose recovery has
previously been approved and guaranteed by the Commission.

      6. By deregulating the market for the generation of electric power and
related services, the Restructuring Act has fundamentally changed the structure
and regulation of electric power in Nevada. Both as enacted by the Legislature
and as administered by the Commission, however, the Act violates plaintiffs'
statutory and constitutional rights, eliminating a full recovery of these
incurred costs and future obligations long ago approved by the PUCN. This denial
will violate plaintiffs' rights under federal and state law, weaken them
financially and place them at a competitive disadvantage compared to new market
entrants. Plaintiffs have therefore brought this action to vindicate their
rights under applicable federal and state law as follows:

            a.    With respect to their claims arising under the Supremacy
                  clause of the United States Constitution, plaintiffs seek
                  declaratory and injunctive relief barring implementation of
                  the Restructuring Act as in violation of the Federal Power Act
                  and PURPA.

            b.    With respect to their claims under the Takings Clause of the
                  Fifth Amendment to the Constitution of the United States as
                  applied to the state of Nevada by the Fourteenth Amendment to
                  the Constitution of the United States, plaintiffs seek
                  injunctive and declaratory relief that will enable them to
                  obtain just compensation.


                                      -4-
<PAGE>

            c.    With respect to the other claims plaintiffs raise in this
                  action, plaintiffs seek other declaratory and injunctive
                  relief.

            d.    Plaintiffs have no adequate remedy at law for the injuries
                  that they seek to redress in this action. Plaintiffs have a
                  right to seek redress of their federal rights in federal
                  court, and cannot obtain redress in this Court in any way
                  other than by an order enjoining implementation of the
                  Restructuring Act or, alternatively, requiring defendants to
                  remedy their unlawful conduct by official action that stays
                  the effectiveness of the Restructuring Act until defendants
                  have adopted implementing regulations that secure plaintiffs'
                  rights under federal law.

            e.    With respect to all claims raised in this action, plaintiffs
                  also seek such other further and proper relief, including the
                  award of costs and attorneys' fees, which this Court may deem
                  just and proper.

                                   THE PARTIES

      7. Sierra Pacific Power Company and Nevada Power Company are Nevada
corporations and public utilities regulated by the PUCN. Sierra Pacific Power
and Nevada Power are wholly-owned subsidiaries of Sierra Pacific Resources, a
publicly traded Nevada corporation, which is not regulated by the PUCN.

      8. Sierra Pacific Power and Nevada Power are engaged in, among other
things, the generation, transmission and distribution of electricity in the
state of Nevada and in interstate commerce.


                                      -5-
<PAGE>

      9. The principal place of business and headquarters of Nevada Power are
located at 6226 W. Sahara Avenue, Las Vegas, Clark County, Nevada. The principal
places of business and headquarters of Sierra Pacific Resources and Sierra
Pacific Power are located at 6100 Neil Road, Reno, Washoe County, Nevada.

      10. Defendant PUCN is charged with enforcing the laws of Nevada regulating
public utilities, including plaintiffs Sierra Pacific Power and Nevada Power,
that provide electric service in the state of Nevada. The Commission's place of
business is Capital Plaza, 1150 E. William Street, Carson City, Nevada
89701-3109.

      11. Defendant Donald L. Soderberg is the Chairman of the PUCN and
defendants Richard M. McIntire and Judy M. Sheldrew are Commissioners of the
PUCN. Defendants Soderberg, McIntire and Sheldrew are sued in the their official
capacities and, only insofar as may be deemed legally required, in their
individual capacities.

      12. The defendant Commission and its defendant members have performed the
actions of which plaintiffs complain herein by purporting to act pursuant to
administrative or regulatory authority delegated to them by the state of Nevada
by which defendants regulate electric utility companies in the state of Nevada.

                             JURISDICTION AND VENUE

      13. This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C.ss.ss.1331 and 1343, and 42 U.S.C.ss.1983.

      14. Venue in this district is proper pursuant to 28 U.S.C.ss.1391(b).


                                      -6-
<PAGE>

                        THE REGULATORY FRAMEWORK PRIOR TO
                    ENACTMENT OF THE NEVADA RESTRUCTURING ACT

                            PROVISION OF ELECTRICITY

      15. Historically, the provision of electricity was considered a natural
monopoly in Nevada and one utility was required to generate, transmit, and
distribute electricity for all consumers in a designated service area.
"Generation" refers to the process of producing electricity, whether through
nuclear units, fossil fuel plants, hydroelectric facilities, or other sources.
"Transmission" is the process of moving electricity at high voltage from the
generating source to other areas in the utility's service territory.
"Distribution" refers to the process of delivering high-voltage electricity to
customers at lower voltage levels.

      16. Within this historic framework, both Sierra Pacific Power and Nevada
Power have provided electric services to retail customers within their defined
service territories. This electric service has been a "bundled" product,
consisting of generation, transmission, distribution, metering, billing, and
customer service, all of which is provided at a bundled rate. The provision of
these "bundled" services, including the approved rate, is regulated by the PUCN.

                DIVISION OF JURISDICTION UNDER FEDERAL POWER ACT

      17. Under the historical division of authority between the states and the
Federal Government, established and codified by the Federal Power Act, 16 U.S.C.
ss. 791a et seq., the Federal Energy Regulatory Commission ("FERC") has been
granted exclusive jurisdiction over the transmission of electric energy in
interstate commerce, including the rates, terms, and conditions for the
provision of that service. FERC has also been given exclusive jurisdiction over
the wholesale sale of electricity, including the rates, terms, and conditions in
contracts for the purchase of power


                                      -7-
<PAGE>

at wholesale. Historically, the state of Nevada, like other states, has asserted
regulatory jurisdiction over the local distribution of electric power and the
sale of electric power at retail. Nevada has not asserted, and may not lawfully
exercise, regulatory jurisdiction over the rates, terms, and conditions for the
transmission of electric power in interstate commerce, or the wholesale sale of
electricity, which are exclusively federally regulated.

      18. The transmission service provided by plaintiffs within the state of
Nevada constitutes transmission of electric energy in interstate commerce within
the meaning of Section 201(b) of the Federal Power Act. The wholesale purchase
and sale of electric power by plaintiffs, both within and outside the state of
Nevada, constitutes the wholesale sale of electricity within the meaning of
Section 201(b) of the Federal Power Act.

                                STATE REGULATION

      19. For decades prior to the enactment of the Restructuring Act, the PUCN
arranged for the provision of electricity by establishing a regulatory regime
under which electric utilities, including plaintiffs, were required to assume
substantial burdens to ensure reliable electric service within the state of
Nevada. In return, the utilities received what the PUCN determined to be just
and reasonable compensation. This arrangement constituted a regulatory compact
between the state (through the Commission) and the plaintiff utilities.
Plaintiffs' investors relied upon the protections and benefits promised by the
state in this regulatory compact when they provided capital necessary to build
the facilities needed to serve plaintiffs' customers. The obligations and
benefits of this regulatory compact include the following:


                                      -8-
<PAGE>

            a.    The plaintiff utilities were obligated to provide universal
                  service within their designated service areas. That is,
                  plaintiffs were required to provide electrical service to all
                  current and future consumers of electricity within those
                  service areas, regardless of whether providing that service
                  was economically efficient.

            b.    In fulfilling this universal service obligation, plaintiffs
                  were held to high standards of "reliability," requiring them
                  to build and maintain sufficient generating capacity,
                  including reserve capacity (in the event a generating unit
                  fails), or to purchase generating capacity and energy to
                  ensure that electricity would be available to any consumer
                  whenever needed and would meet projected growth in demand.

            c.    The plaintiff utilities have also been the vehicle for
                  implementing various social and public benefit programs, such
                  as energy efficiency, renewable energy, and other such
                  programs that do not directly relate to the generation,
                  transmission, or distribution of electricity.

            d.    The plaintiff utilities have been required to invest billions
                  of dollars to construct, maintain, and upgrade the systems and
                  infrastructure and to procure energy and capacity needed to
                  fulfill and sustain these electric service and related
                  obligations.


                                      -9-
<PAGE>

            e.    In exchange for fulfilling these obligations, the regulatory
                  compact assures plaintiffs a recovery of, and fair return
                  upon, their prudently-incurred investments.

      20. The regulatory scheme under which public utilities are defined,
certificated and regulated in Nevada is set forth in Nev. Rev. Stat. Chapters
703 and 704 and the corresponding chapters of the Nevada Administrative Code.

      21. The legislature of Nevada has declared the purpose and policy of Nev.
Rev. Stat. 704 in Section 704.001 as follows:

            a.    To confer upon the Commission the power and duty to regulate
                  public utilities to the extent of its jurisdiction;

            b.    To provide for fair and impartial regulation of public
                  utilities;

            c.    To provide for the safe, economic, efficient, prudent and
                  reliable operation and service of public utilities; and

            d.    To balance the interests of customers and shareholders of
                  public utilities by providing public utilities with the
                  opportunity to earn a fair return on their investments, while
                  providing customers with just and reasonable rates.

      22. To achieve these statutory purposes and implement its authority, the
Commission is empowered under Nev. Rev. Stat.ss.703.150 to "supervise and
regulate the operation and maintenance of public utilities . . . ." The
Commission is further empowered by Nev. Rev. Statss. 703.151(2) and (3) to
"[m]aintain, to the extent possible, even and fair competition among


                                      -10-
<PAGE>

providers of electric service" and to "[e]nsure the flexibility necessary for
existing utilities that provide energy to enter into a deregulated market."

      23. Duplication of service by public utilities is prevented by the
issuance of a certificate of public convenience and necessity pursuant to Nev.
Rev. Stat.ss.704.330(6) that assigns a specific service territory to each
utility. In return for the exclusive right to provide service within its service
territory, a public utility is obligated to provide such service. This
obligation is defined by Nev. Rev. Stat.ss.704.040(1) as the requirement that
the utility "shall furnish reasonably adequate service and facilities, and the
charges made for any service rendered or to be rendered, or for any service in
connection therewith or incidental thereto, must be just and reasonable."

      24. Years ago, plaintiffs Sierra Pacific Power and Nevada Power applied to
the PUCN for certificates of public convenience and necessity under Nevada law
to operate as electric public utilities, each serving customers within a defined
service area. In approving these applications, the PUCN determined that the
future public convenience and necessity required the plaintiff utilities to
commence and/or continue their operations to electric customers within their
service territories. Accordingly, the plaintiff utilities have had an ongoing
obligation to construct or obtain the facilities, and procure energy, as needed
to meet customer demand. Nev. Rev. Stat.ss.704.630.

      25. Under Nevada law, the plaintiff utilities may not discontinue, modify
or restrict service in the absence of an order by the Commission permitting them
to do so. Nev. Rev. Stat.ss. 704.390. Pursuant to Nev. Rev. Stat.ss.704.630, the
Commission is empowered to compel compliance with all provisions of Nev. Rev.
Stat. Ch. 704, including, but not limited to, the obligation of the plaintiff
utilities to serve customers. In addition, the Commission is empowered


                                      -11-
<PAGE>

to regulate service by the plaintiff utilities so that service provided is just,
reasonable, sufficient, non-preferential, not unjustly discriminatory and
adequate. Nev. Rev. Stat.ss.704.120(2).

      26. As part of the aforementioned regulatory scheme, the PUCN has
traditionally prescribed the rates that each plaintiff utility may charge for
its services. See Nev. Rev. Stat. ss.ss. 704.100 through 704.120. In the course
of regulating these rates, the PUCN has required the plaintiff utilities to
defer recovery of certain investments normally expensed by non-utilities, so
that recovery of the utility's reasonable costs would be amortized over time for
the benefit of their customers. In this way, the PUCN was able to spread out
over time recovery from customers of capital costs (e.g. the cost of building a
generation facility) and "regulatory asset" costs (e.g., the costs associated
with transitioning to a competitive market) incurred by plaintiffs. Under the
regulatory compact, however, the plaintiff utilities were nevertheless assured
that they would have an opportunity to recover such deferred costs in the
future, which enabled plaintiffs to capitalize those costs and account for them
to investors and lenders as "regulatory assets." These capitalized costs are
deemed, under customary regulatory accounting principles, to constitute
"regulatory assets" because the full balance will be recovered over time from
ratepayers. Accordingly, each plaintiff utility's rates are regulated by the
PUCN, but the PUCN has the obligation to set rates so that the utility recovers
its costs as well as a reasonable return on its investments over time. See Rev.
Nev. Stat. ss.S 704.100 through 704.110.

      27. Thus, in return for assuming their varied service obligations,
necessitating enormous investment in the construction, maintenance, and
upgrading of generation, transmission and distribution systems, and procuring
energy and capacity from third parties, the PUCN granted plaintiffs Sierra
Pacific Power and Nevada Power a service franchise protected by regulation, and


                                      -12-
<PAGE>

permitted each utility to charge rates for its services that assured it a
reasonable opportunity, over time, to earn income sufficient to recover, and to
earn a fair rate of return on, its invested capital and to recover its costs for
purchased power and capacity.

      28. The return on investment permitted by the PUCN for the plaintiff
utilities is based upon the recoverable cost of each asset the plaintiff
utilities have constructed or acquired to service their customers. As each
utility asset is constructed or acquired and placed in service, it is added to
the utility's rate base. The PUCN reviews each addition to the rate base to
ensure that the utility asset is "used and useful" and that the cost incurred to
construct or acquire the asset was prudent. The utility is allowed the
opportunity to earn a fair return on the value of its prudent investment in this
asset. See Nev. Rev. Stat. ss. 704.040 through 704.120. The plaintiff utilities'
investments in utility assets were closely scrutinized and reviewed in earlier
PUCN proceedings, and their opportunity to earn a recovery of, and fair return
on, those investments was approved.

            PUCN APPROVAL OF PLAINTIFFS' COST RECOVERY FOR GENERATION
                    FACILITIES AND PURCHASE POWER AGREEMENTS

      29. In 1971, the PUCN began determining, prior to construction, the need
for electric facilities to provide service to customers. See Utility
Environmental Protection Act, Nev. Rev. Stat.ss.ss. 704.820 to 704.3900. Utility
facilities, including generating plant and transmission lines designed to
operate at 200 KV or more, could not be constructed unless a permit to construct
had been issued by the Commission. Nev. Rev. Stat.ss. 704.865(1). Before issuing
a permit, the Commission has been required to determine that construction of the
facility would serve the public interest, conform to applicable laws and
minimize adverse environmental effects. Nev. Rev. Stat.ss. 704.890(2). The


                                      -13-
<PAGE>

regulations adopted by the Commission, i.e., Nev. Admin. Codess.703.420, require
that a utility applicant for a permit to construct a new facility satisfy these
requirements.

      30. Regulatory review and construction approval were expanded by the
Nevada Legislature in 1983. See Nev. Rev. Stat.ss.ss.704.741 to 704.751. This
comprehensive legislation and the implementing regulations adopted by the
Commission, Nev. Admin. Code ss.ss.704.9005 to 704.9525, required the utility to
file an electric resource plan every two years, later changed to every three
years.

      31. Pursuant to Nev. Rev. Stat.ss. 704.110(7), a utility facility
identified in a three-year plan submitted pursuant to Nev. Rev. Stat.ss.704.741,
and accepted by the Commission for acquisition or construction pursuant to Nev.
Rev. Stat.ss.704.751 and implementing regulations, shall be deemed to be a
prudent investment. The utility may thereafter recover all just and reasonable
costs of planning and construction of such a facility. See Nev. Rev.
Stat.ss.704.110(7).

      32. In 1991, the Commission amended the electric resource planning
regulations to require like PUCN approval of purchase power contracts, which
included "Qualifying Facilities" contracts, which are explained below. See Nev.
Admin. Codess.ss.704.9113 and 704.939(2). Thereafter, PUCN approval of all
purchase power contracts greater than five megawatts and a term of more than
three years was required in the utility resource planning process.

      33. Pursuant to and in reliance upon the regulatory compact that included
this resource planning and PUCN approval process, plaintiffs have assumed the
universal service obligations in their respective service territories discussed
above. In addition, pursuant to and in reliance upon the regulatory compact,
plaintiffs have invested billions of dollars in the construction, maintenance,
upgrading, and operation of generation capacity, and in securing energy and
capacity, sufficient to


                                      -14-
<PAGE>

satisfy their service obligations, all in return for the reasonable opportunity
to recover a return of, and return on, its massive investments. Plaintiffs'
investments in generation assets were closely scrutinized and reviewed in prior
PUCN proceedings, and their opportunity to earn a recovery of, and return on,
those investments was approved. Likewise, plaintiffs' purchased power contracts
were closely scrutinized and reviewed in prior PUCN proceedings, and cost
recovery was approved there as well.

      34. Because PUCN-mandated ratemaking provides for recovery over time, a
substantial portion of plaintiffs' investment in their existing facilities and
purchased power contracts has not yet been recovered. As explained above, the
recovery of a significant portion of this investment will be impeded or
prevented by the advent of competition created by the new Restructuring Act
because those costs have been built into rates that will no longer apply to
customers in plaintiffs' traditional service areas who elect to obtain
electricity from plaintiffs' competitors. These recoverable costs may therefore
become "stranded" inasmuch as the customer base supporting recovery will be
substantially reduced with competition. Costs that may become stranded as a
result of the advent of competition include assets used for electricity
generation, regulatory assets consisting of expenses whose recovery has been
deferred, purchase power costs, and outlays required of plaintiffs by regulators
to meet universal service obligations. Such costs are expenditures, approved or
mandated by regulators, that plaintiffs incurred in fulfilling their obligations
to serve all customers in their respective service territories.

      35. Plaintiffs' rights under their regulatory compact with the state of
Nevada constitute vested rights under a valid and binding compact with the
state. The regulatory compact aside, plaintiffs' performance of their
obligations in reliance on the regulatory compact, through the


                                      -15-
<PAGE>

massive investments and other actions described above, have created in
plaintiffs reasonable and legitimate investment-backed expectations that
constitute vested property interests.

      36. Also, in preparing for the newly created competitive electric market
created by the Restructuring Act, the plaintiff utilities have incurred and will
continue to incur substantial transition costs. These expenses arise from
participation in the regulatory process to develop implementing regulations, the
hiring of consultants and experts for compliance with proposed PUCN regulations
governing market transitions, actions to mitigate the cost of generation assets
and purchase power agreements, and the purchase/implementation of utility-wide
systems necessary for the transition to a competitive environment. As noted,
Nev. Rev. Stat. ss. 704.983 authorizes utility recovery of all such costs
associated with transitioning to a competitive market. The Restructuring Act,
however, provides no mechanism for the recovery of such transition costs.
Moreover, the PUCN has denied the request of the plaintiff utilities to allow
such cost recovery under its proposed regulations, leaving plaintiffs' with no
mechanism by which to recover these transition costs once the market opens on
March 1, 2000.

               COST RECOVERY FOR "QUALIFYING FACILITIES" UNDER THE
                     PUBLIC UTILITY REGULATORY POLICIES ACT

      37. Qualifying Facilities ("QFs") provide alternative sources of
electrical production which, pursuant to federal law, utilities such as
plaintiffs here are required to purchase. In 1978, Congress enacted the Public
Utilities Regulatory Policy Act of 1978, 16 U.S.C. ss.ss. 796 and 824a-3 et seq.
("PURPA"), to promote development and use by public utilities of "small power
production facilities" and "cogeneration facilities" as alternative sources of
electrical production. A "small power production facility" has a production
capacity not greater than 80 megawatts (MW) and


                                      -16-
<PAGE>

generates electricity by using solar, wind, waste, or geothermal energy, biomass
(organic material not derived from fossil fuels), or renewable resources,
including water. 16 U.S.C. ss. 796(17). A "cogeneration facility" produces
electrical energy as well as steam or forms of useful energy (such as heat)
which are used for industrial, commercial, heating, or cooling purposes. 16.
U.S.C. ss. 796(18)(A).

      38. To qualify for coverage under PURPA, a small power production or
cogeneration facility must meet FERC requirements, including that it be owned by
an entity not primarily engaged in the generation or sale of electric power. 18
C.F.R. ss.ss. 292.202B, 292.206. A qualifying small power production or
cogeneration facility that meets FERC requirements is therefore a qualifying
facility ("QF") under PURPA. A QF typically produces and sells electric power in
the wholesale market to a regulated public utility, which in turns sells and
distributes the QF power to its retail customers. Under Section 210(a) of PURPA,
Congress directed FERC to prescribe regulations to encourage development of
small power production and cogeneration facilities, specifically including a
mandate that electric utilities offer to purchase electric energy from QFs. 16
U.S.C. ss. 824a-3(a).

      39. Pursuant to PURPA, the PUCN adopted General Order 32 in 1981, which
applies to all public utilities that supply electric service. General Order 32
establishes "procedures to encourage cogeneration and production of power by
small facilities in Nevada by requiring public electric utilities to sell
electric energy to and purchase electric energy from qualifying facilities."
These procedures are codified at Nev. Admin. Code ss. 704.690 et seq.

      40. Section 210(b) of PURPA provides that regulations promulgated by FERC
under Section 210(a) shall ensure that the rates for utility power purchases
from a QF shall be "just and reasonable to the electric consumers of the
utility," and shall not exceed the incremental costs to the


                                      -17-
<PAGE>

utility of obtaining power from alternative sources. 16 U.S.C. ss. 824a-3(b).
Section 210(d) of PURPA defines the "incremental cost of alternative electric
energy," commonly known as a utility's "avoided cost," as "the cost to the
electric utility of the electric energy which, but for the purchase from such
cogenerator or small power producer, such utility would generate or purchase
from another source." 16 U.S.C. ss. 824a-3(d). In other words, a utility's
"avoided cost" is that cost which the utility would have incurred if it had
generated the same electric power itself or purchased that power from another
supplier.

      41. FERC has implemented Section 210(a) of PURPA by providing that the
rate at which a utility is required to purchase QF power shall be equal to the
utility's "full avoided cost." 18 C.F.R.ss.ss.292.101(b)(6), 292.304(b)(2). This
"full avoided cost" recovery is "just and reasonable" to electric power
consumers and therefore satisfies the requirements of Sections 210(a) and (b) of
PURPA. American Paper Institute, Inc. v. American Electric Power Service Corp.,
461 U.S. 402, 415-18 (1983).

      42. PURPA and FERC regulations dictate that QFs have the right to provide
capacity and energy pursuant to a legally enforceable obligation over a
specified term (usually under a long-term contract of 20 to 30 years), based on
a calculation of the purchasing utility's avoided costs at the time that
obligation is incurred. 18 C.F.R.ss. 292.304(d)(2). The federal rule has the
force of federal law. Fidelity Federal Sav. & Loan Ass'n v. De La Cuesta, 458
U.S. 141 (1982); Ayers v. Philadelphia Housing Authority, 908 F.2d 1184, 1189
(3d Cir. 1990), cert. denied, 498 U.S. 1103 (1991).

      43. Congress has provided under Section 210(f) of PURPA that each state
regulatory authority shall implement FERC's avoided cost rules for each electric
utility over which the state


                                      -18-
<PAGE>

regulatory authority has rate-making power. 16 U.S.C.ss.824a-3(f); FERC v.
Mississippi, 456 U.S. 742 (1982). This federal statutory and regulatory mandate
means that states must require utilities to purchase QF power at avoided cost
rates. The federal mandate includes the corresponding obligation that state
regulatory commissions permit the purchasing utility to recover its QF avoided
cost payments in retail electric rates. Freehold Cogeneration Associates v.
Board of Regulatory Comm'rs, 44 F.3d 1178 (3d Cir.), cert. denied, 516 U.S. 815
(1995). These federally mandated costs "must be given binding effect by state
utility commissions in determining intrastate rates." Nantahala Power & Light
Co. v. Thornburg, 476 U.S. 953, 962 (1986). Inasmuch as the QF costs are passed
through to consumers, plaintiffs make no profit on electric power produced by
the QF, but merely act as conduits transferring payments from their customers to
the QF.

      44. Section 210(e) of PURPA authorizes FERC to promulgate rules exempting
QFs from both federal and state utility regulation. Hence, QFs are statutorily
spared the regulatory regimen of "public utilities." Pursuant to Section 210(e),
FERC has issued rules exempting QFs from most federal utility regulation and
from all state utility laws and regulations governing rates, as well as
financial and organizational regulation of utilities. 16 U.S.C. ss. 824a-3(e);
18 C.F.R. ss.ss. 292.601-02. By shielding QFs from rate regulation, Congress
intended to encourage the development of these facilities. FERC v. Mississippi,
456 U.S. at 750. Once the state regulatory commission has approved a QF's rates
for the sale and purchase of electricity by the utility under Section 210(f) as
consistent with the utility purchaser's avoided costs, the state's jurisdiction
over the rates for that amount of electricity is at an end. Freehold, 44 F.3d at
1194.

      45. Any attempt by a state regulatory authority to revisit its approved
avoided cost determination for the sale of electric power by a QF to a utility,
or any failure to provide for assured


                                      -19-
<PAGE>

retail rate recovery by the utility of its QF payments, violates the FERC rule
exempting QFs from state rate regulation pursuant to PURPA Section 210(e) and
FERC guarantees that the utility will recover costs incurred pursuant to such
contracts. Freehold, 44 F.3d at 1194. Pursuant to PUCN General Order 32 and
PURPA, plaintiffs were required to enter into the QF contracts that the PUCN
subsequently approved as prudent. Accordingly, plaintiffs were assured that they
would recover the full cost of these contracts in retail rates, which was only
reasonable inasmuch as plaintiff have not been allowed to profit from these
obligations. The Restructuring Act, however, unlawfully conditions recovery of
these PUCN-approved and federally mandated costs upon plaintiffs' satisfaction
of the statutory criteria set forth in Nev. Rev. Stat. ss. 704.9865(2), and
hence interferes with plaintiffs' legal right to dollar-for-dollar recovery of
these costs.

                          THE NEVADA RESTRUCTURING ACT
                             RECOVERY OF PAST COSTS

      46. The statutory basis for restructuring the electric power industry in
Nevada, codified at Nev. Rev. Stat.ss.ss.704.965-704.999, was completed with
passage of Senate Bill 438 by the Nevada Legislature on July 1, 1999. Passage of
Senate Bill 438 effected a landmark change in the regulation of the electric
industry in Nevada.

      47. Under the Restructuring Act, as implemented by the PUCN, electric
power generation, metering, billing, and customer support services will be
competitively available in the market from alternative sellers of those
services. Nev. Rev. Stat.ss. 704.976. Transmission and distribution services are
not open for competition, and will continue to be provided by plaintiffs Sierra
Pacific Power and Nevada Power, subject to PUCN and FERC regulatory oversight,
as applicable. As the local utility for their respective customers, Sierra
Pacific Power and Nevada


                                      -20-
<PAGE>

Power are obligated to be the provider of last resort, acting as a default
provider responsible for delivering the traditional "bundled" electric service
to customers who elect to remain with these utilities or who are unable to
obtain service from an alternative seller. Nev. Rev. Stat.ss.704.982.

      48. In enacting the Restructuring Act, the Nevada Legislature acknowledged
that public utilities have made massive investments and incurred substantial
costs in reliance upon the regulatory compact in prior laws and regulations.
Pursuant to the regulatory compact and federal law, the PUCN has approved the
construction of Sierra Pacific Power and Nevada Power's generation facilities as
well as their commitment to long-term purchase power agreements, including "QF
power." The PUCN determined in each instance approving recovery of these costs
that the utility expense was necessary and prudent. In the absence of proof that
management acted in bad faith or abused its managerial discretion at the time a
cost is incurred, shareholders can expect to recover prudently-incurred costs.
Public Service Comm'n v. Ely Light & Power, 80 Nev. 312, 323-25, 393 P.2d 305
(1964). Failure to allow full recovery of costs in the absence of a showing that
the costs were unreasonable when incurred would be arbitrary and confiscatory.
Id.

      49. Costs found prudent by the PUCN when incurred are not fully recovered
immediately because they are amortized in the rate base. With the passage of the
Restructuring Act, costs not yet recovered are deemed "stranded" because it is
anticipated that, once the electric market is open to competition, the
unrecovered costs of these assets (e.g., generation plants) and other
obligations (e.g., power purchase agreements, including QF agreements) will
exceed market price for these assets and obligations.

      50. Accordingly, the Restructuring Act provides that "[t]he Commission
shall determine the recoverable costs associated with assets and obligations
that are documented in the accounting


                                      -21-
<PAGE>

records of a . . . utility . . . and that are properly allocable to a particular
potentially competitive service as of the date on which alternative sellers of
similar potentially competitive services begin providing such service to
customers in this state." Nev. Rev. Stat.ss.704.983(1). "Shareholders of the
vertically integrated electric utility must be compensated fully for all such
costs. . . ." Nev. Rev. Stat.ss.704.983(1) (emphasis added).

      51. If the Commission determines that costs are recoverable pursuant to
Nev. Rev. Stat.ss. 704.983(1), "the commission shall . . . adopt by regulation
procedures to provide for the direct and unavoidable recovery from ratepayers of
the portion of the past costs which are determined by the commission to be owed
by the ratepayers." Nev. Rev. Stat.ss. 704.983(2). However, the regulations
adopted by Commission Order do not effectuate Nev. Rev. Stat.ss. 704.983 by
permitting a recovery of such past costs.

      52. The past cost charge to be determined under Nev. Rev. Stat.ss. 704.983
will be collected from every customer, including those who elect to leave the
utility to take service from an alternative seller once competition in the
deregulated market commences. If the past cost charge is not in place and
capable of being assessed to each present customer, the plaintiff utilities will
be unable to collect revenue (i.e., recover costs) guaranteed them by Nev. Rev.
Stat. ss. 704.983 from each departing customer when competition commences.
Regulations adopted by Commission Order thus do not allow full recovery of the
plaintiff utilities' past costs.

      53. The right of the utilities to recover past costs is an essential part
of the process of restructuring. As explained, the plaintiff utilities have
constructed or acquired assets at significant cost to meet their obligation to
serve their customers in exchange for the promise that they would recover the
costs of such assets. Allowing certain service components to be assumed and
provided


                                      -22-
<PAGE>

by competitors terminates the plaintiff utilities' ability to recover such costs
through normal rates. Some mechanism to recover past costs is the only way in
which the existing obligation to the utilities can be satisfied. If plaintiffs
cannot timely and fully recover such past costs immediately upon initiation of
competition, they will be placed at a severe and irreparable competitive
disadvantage by new market entrants.

      54. The Restructuring Act directs the PUCN to determine recoverable costs,
and further directs that each electric utility "must be compensated fully for
all such costs." Rev. Nev. Statss. 704.983(l). The Act further directs that "the
commission shall . . . provide for the direct and unavoidable recovery from
ratepayers of the portion of the past costs which are determined by the
commission to be owed by the ratepayers." Rev. Nev. Stat.ss.704.983(2). The
Nevada Legislature explicitly authorized and directed the PUCN to recover such
past (i.e., stranded) costs from "those customers on whose behalf the vertically
integrated electric utility [e.g., plaintiffs here] incurred costs who are no
longer receiving transmission or distribution service, or both" from such
utility. Id.

      55. Notwithstanding its statutory mandate to assure full cost recovery of
the cost of transitioning to competitive market of the sale of electric power,
the PUCN has issued an Order adopting a "past costs" regulation that fails to
assure that plaintiffs will fully recover such "past costs" once competition
commences.

      56. In addition to the illegality of the PUCN regulations on their face,
the statute fails to assure sufficient lead time for the plaintiffs to assert
through normal agency procedures their entitlement to a full cost recovery from
customers in the new competitive market. For example, the utilities would need
time to file their applications for recovery, conduct discovery, and obtain a


                                      -23-
<PAGE>

hearing and final decision on the application. The hearing and decisional
process for such recovery would take several months or more. Additionally, any
reasonable period for implementation of a new past costs charge must allow a
reasonable opportunity for dissatisfied utilities to exercise their legal right
to appeal. See Nev. Rev. Stat. ss. 233B.110. Accordingly, although the
competitive electric market will open upon order of the Governor, the newly
adopted PUCN regulations are inadequate to assure that the past costs charge
required by the Restructuring Act will be collected from electric power
customers, and the statute fails to permit sufficient lead time to challenge
this inadequacy.

      57. Under these circumstances, the state of Nevada, through the PUCN, has
failed to assure plaintiffs' recovery of rates guaranteed by federal law.
Specifically, the Restructuring Act, as administered by the PUCN, illegally
interferes with FERC's exclusive jurisdiction under the Federal Power Act over
the purchase power contract rates. Likewise, absent a regulatory mechanism to
recover costs to meet the plaintiffs' existing obligations for QF generating
contracts, the Restructuring Act is preempted by PURPA.

      58. To satisfy current obligations and retain the confidence of their
shareholders and investors, the plaintiff utilities must be able to rely upon
the steady stream of revenues produced from its currently bundled services for
Nevada customers. Plaintiffs will suffer irreparable harm if the competitive
market opens and the utilities cannot simultaneously begin collecting "past
costs" charges from departing customers. By providing for a full cost recovery,
the Restructuring Act acknowledges that utilities must be permitted to collect
past cost charges from departing customers once competition commences. Without
anticipated revenue from "past costs" charges, the plaintiff utilities' bond
ratings and stock prices will be irreparably damaged.


                                      -24-
<PAGE>

                                 THE RATE FREEZE

      59. As a significant and essential part of the regulatory compact, the
state of Nevada has authorized the PUCN, acting pursuant to Nev. Rev.
Stat.ss.704.110, to review and approve requested utility rate increases, based
upon the increased costs of producing electric power. While this authority
remains nominally in place, the Restructuring Act establishes a rate freeze
effective through February 28, 2003.

      60. In particular, Nev. Rev. Stat.ss.704.9823 provides that the PUCN
"shall, for each class of customers of electric service in this state, establish
a total rate for the components of electric service that are necessary to
provide electric service to customers in this state," and that the total rate
for each class "must be established at and must not exceed the total rate for
each class of customers of electric service in this state which is in effect on
July 1, 1999," except for certain charges that involve deferred accounting in
any cases filed with the Commission on or before October l, 1999.

      61. The consequence of this total rate freeze, effective through February
28, 2003, is that utilities may not lawfully, in the soon-to-be unregulated
market, increase their customer charges based upon increased costs. Yet, the
plaintiffs retain the statutory obligation to serve, irrespective of cost or
efficiency. The state of Nevada may not constitutionally deprive plaintiffs of a
mechanism by which they may apply for relief from potentially confiscatory rates
created by a rate freeze. Guaranty Nat'l Ins. Co. v. Gates, 916 F.2d 508 (9th
Cir. 1990). Nonetheless, Nev. Rev. Stat.ss. 704.9823 unconstitutionally fails to
provide any means by which the plaintiff utilities may seek relief from frozen
rates that do not provide a "fair and reasonable return." Id. at 515, citing FPC
v. Hope Natural Gas. Co., 320 U.S. 52l (1944).


                                      -25-
<PAGE>

      62. At this point, neither the plaintiff utilities, their shareholders,
their bondholders and other creditors, nor others can predict whether the total
base rate established and frozen by Nev. Rev. Stat. ss. 704.9823 will permit the
plaintiff utilities to recover fully the cost of producing electricity and
providing it to their customers, and provide plaintiffs with a fair and
reasonable return on investment. This unpredictability has created extraordinary
risks for the plaintiff utilities as well as their investors and creditors. The
mere existence of this uncertainty and associated risk will cause plaintiffs
irreparable financial injury at the outset of the rate freeze, whether or not
the rates eventually prove to be fair and reasonable or otherwise. As
demonstrated by Nevada Power's deferred energy filing with the PUCN, plaintiff
is underearning its authorized rate. The authorized rate is per se "fair."
Therefore, the Restructuring Act as applied to Plaintiff Nevada Power will
result in severe losses from these confiscatory rates. The law is not only
unconstitutional on its face, but is unconstitutional as applied to Plaintiff
Nevada Power.

      63. Further, implementation of the rate freeze prevents the plaintiff
utilities' full cost recovery of QF avoided cost payments in retail electric
rates. Inasmuch as QF contracts contain built-in escalator clauses for fuel
price increases, it is certain that these costs will not be passed on to retail
consumers if the rate freeze remains in effect. PURPA and federal precedent,
however, prohibit any attempt by a state regulatory authority to revisit its
approved avoided cost determination regarding the sale of electric power by a QF
to a utility. The total rate freeze through February 28, 2003, effected by Nev.
Rev. Stat. ss. 704.9823 therefore violates federal law.

                            RECOVERY OF ENERGY COSTS
                          TO BE INCURRED PROSPECTIVELY


                                      -26-
<PAGE>

      64. Under the regulatory compact, a utility in Nevada is permitted to
recover its costs in the purchase of fuel (coal, natural gas and the like) for
its own generating facilities as well as the cost of purchasing power from other
utilities. Because these ongoing operational expenses cannot be predicted with
exactitude, they have traditionally been recovered each year on the basis of the
previous year's expenses and adjusted annually on a deferred accounting basis.

      65. Prior to the Restructuring Act, Nev. Rev. Stat.ss.704.110(5)
explicitly provided for a public utility to file for an increase in any rate or
charge based upon "increased costs" in the purchase of fuel or power," where the
utility "has elected to use deferred accounting for costs of the purchase of
fuel or power..." Costs accounted for are recovered pursuant to this statute are
therefore known as "deferred energy costs". The Restructuring Act, however,
amended Nev. Rev. Stat.ss.704.110 to delete subsection (5), thereby eliminating
the utility's recovery of deferred energy costs.

      66. In establishing the aforementioned rate freeze through February 28,
2003, Nev. Rev. Stat.ss.704.9823 provides a single exception, permitting the
PUCN to modify rates to be charged by the utility pursuant to applications filed
before October 1, 1999 for deferred energy costs. Inasmuch as applications for
deferred energy costs must be filed before October 1, 1999, the utilities are
precluded from seeking recovery of increased energy costs incurred after that
date.

      67. As a result of the limitation upon recovery by the utility of deferred
energy costs after October 1, 1999, Nev. Rev. Stat. ss. 704.9823 denies the
plaintiff utilities an opportunity to seek increases in the base tariff energy
rate (i.e., the rate that predicts fuel and power costs for the following year,
subject to adjustments) established by the PUCN as of October 1, 1999 for each
utility, even though subsequent energy costs during the rate freeze will exceed
those allowed by the


                                      -27-
<PAGE>

rate because contract prices automatically escalate each year as a function of
the contract. This denial is confiscatory and violates PURPA and the regulatory
compact between the state of Nevada and Nevada utilities.

      68. Plaintiffs and others affected by plaintiffs' financial well-being
know that actual energy costs incurred through February 28, 2003 will exceed the
base tariff energy rate established by the PUCN as of October 1, 1999. The
knowledge that the plaintiff utilities will not recover a substantial portion of
energy costs to be incurred through the period of the rate freeze ending on
February 28, 2003 places the plaintiff utilities and their investors,
bondholders and creditors at financial risk. This risk has caused and will
continue to cause substantial financial harm to the plaintiff utilities because
their investors, bondholders and creditors have discounted and will continue to
discount the value of plaintiffs' stock and obligations to account for the
anticipated loss inasmuch as the plaintiff utilities will recover less than
their full energy costs throughout the rate freeze.

      69. The denial of an opportunity for the plaintiff utilities for a full
recovery of prospectively incurred energy costs conflicts with PURPA and federal
precedent, as it constitutes a denial of previously approved avoided costs which
the QF may pass through the plaintiff utilities to their retail customers.
Inasmuch as Nev. Rev. Stat.ss. 704.9823 impermissibly adjusts the PUCN's
previous determination of the plaintiff utilities' avoided cost payments to QF
power producers, it is preempted by PURPA.

                        RECOVERY OF DEFERRED ENERGY COSTS
                         INCURRED BEFORE OCTOBER 1, 1999

      70. In eliminating prospective recovery of energy costs, Nev. Rev.
Stat.ss.704.9823 provides that the PUCN "shall modify the rates to account for
the effects of any decisions by the


                                      -28-
<PAGE>

commission relating to any cases filed with the commission before October 1,
1999, which involve the use of deferred accounting," i.e., deferred energy
costs.

      71. On July 15, 1999, plaintiff Nevada Power filed an application with the
PUCN to recover its deferred annual energy costs for the period of June 1, 1998
through May 30, 1999. On September 30, 1999, plaintiff Nevada Power filed
another deferred energy costs application to reflect updated calculations of
ongoing fuel and purchased power costs for the most recent 12 months (up to
August 31, 1999), pursuant to the authority of Nev. Rev. Stat. ss. 704.9823. The
Company asked that the September 30th filing either supplant or amend the July
15th filing. The Commission ordered the September 30th filing treated as an
amendment to July 15th filing.

      72. On October 22, 1999, the PUCN Regulatory Operations Staff ("Staff")
moved to dismiss Nevada Power's September 30, 1999 amended filing. On February
4, 2000, following a hearing and oral argument, the PUCN granted Staff's motion
to dismiss Nevada Power's September 30, 1999 amended filing. The effect of this
ruling is to set the ongoing energy rate based on old (and much lower) fuel and
purchase power costs and to deny plaintiff Nevada Power a recovery of its fuel
and purchase power costs incurred and deferred from June 1 through September 30,
1999.

      73. The state of Nevada may not lawfully disallow recovery of
prudently-incurred costs under the previous framework in which the plaintiff
utilities were obligated to serve their customers. Hence, Nev. Rev.
Stat.ss.704.9823, as construed and applied by the PUCN, is confiscatory and
violates the regulatory compact between the state of Nevada and Nevada utilities
because it disallows recovery of energy costs prudently-incurred by plaintiff
Nevada Power under the regulatory framework in place prior to enactment of the
Nevada Restructuring Act, and violates PURPA by denying recovery of revenue
guaranteed by federal law.


                                      -29-
<PAGE>

                                CAUSES OF ACTION

                                     Count I

        FEDERAL PREEMPTION OF JURISDICTION OVER POWER PURCHASE CONTRACTS
                     WITH NON-UTILITY GENERATION FACILITIES

      74. Plaintiffs incorporate by reference Paragraphs 1 through 73 as though
fully set forth herein.

      75. In this count, plaintiffs seek declaratory and injunctive relief to
prevent a violation by defendants of the federal mandate under PURPA. Plaintiffs
seek a declaration that the Restructuring Act is preempted by PURPA to the
extent that it fails to provide for assured dollar-for-dollar retail rate
recovery of payments made by plaintiffs to QFs pursuant to PURPA-mandated (and
PUCN-approved) contracts. Plaintiffs also seek an injunction barring enforcement
of the Act to the extent that it is preempted by PURPA, and such other relief as
the Court deems necessary, just, and proper.

      76. Plaintiffs have never made any profit on any QF contract and are
statutorily foreclosed from a profit. 16 U.S.C. ss. 824a-3(b). Inasmuch as
plaintiffs have no investment in the PURPA regulatory scheme, the obligated
expenses incurred under federal law by plaintiffs in their QF contracts must be,
and were intended by PUCN rate-making orders to be, completely compensated for,
by a timely dollar-for-dollar recovery, in retail rates approved by the PUCN.

      77. The PUCN has earlier authorized plaintiffs to recover under their
respective energy cost rates, on a timely dollar-for-dollar basis in retail
rates, all payments to QFs for purchase of the capacity and energy of QF
projects for the duration of plaintiffs' QF purchase power agreements.


                                      -30-
<PAGE>

      78. Specifically, plaintiff Nevada Power's four existing QF contracts, for
the purchase of 305 MW capacity and associated energy, were found to be in the
public interest and approved by the Commission:

            o     The QF Agreement with Saguaro Power Company was approved by
                  PUCN Order on October 4, 1989. The Saguaro project is a
                  gas-fired combined cycle cogeneration facility with a base
                  loaded contract capacity of 90 MW. The Agreement expires April
                  30, 2022.

            o     Two QF Agreements with Bonneville Nevada Corporation were
                  executed and submitted to the PUCN for approval, which was
                  granted by PUCN Orders dated November 15, 1989 and August 23,
                  1990, respectively. The Bonneville project consists of
                  gas-fired combined cycle cogeneration facilities with a base
                  loaded contract capacity of 85 MW each. Both Agreements expire
                  on April 30, 2023.

            o     The QF Agreement with Las Vegas Cogeneration Limited
                  Partnership was approved by the Commission on August 12, 1992.
                  This is a 45 MW capacity gas-fired combined cycle cogeneration
                  project. The Agreement expires on May 31, 2024.

      79. Plaintiff Sierra Pacific Power currently has 15 long-term purchase
power agreements with QFs for 110 MW approved by the PUCN as follows:

            o     The Amor II facility is a 3.1 MW capacity geothermal project.
                  The PUCN approved this Agreement on May 1, 1987. The contract
                  expires on December 1, 2017.

            o     The Brady Power facility is a 19.9 MW capacity geothermal
                  project. The Agreement was approved by the PUCN on December 2,
                  1986, and will expire August 1, 2022.

            o     The Steamboat II geothermal project provides 10.4 MW. The
                  Agreement was approved by the PUCN on May 23, 1991 and expires
                  December 1, 2022.

            o     The Steamboat III geothermal project provides 13.4MW. The
                  Agreement was approved by the PUCN on May 23, 1991 and expires
                  December 1, 2022.


                                      -31-
<PAGE>

            o     The Steamboat (Yankee Caithness) geothermal project provides
                  12.43 MW. The Agreement was approved by the PUCN on February
                  17, 1987 and expires on February 1, 2018.

            o     The Sierra Pacific Industries biomass project provides 10 MW.
                  The Agreement was approved by the PUCN on February 23, 1989
                  and expires January 1, 2019.

            o     The Soda Lake geothermal project provides 10.9 MW. The
                  Agreement was approved by the PUCN on November 6, 1987 and
                  expires June 1, 2021.

            o     The Stillwater/Constellation facility is a 13 MW geothermal
                  project. The Agreement was approved by the PUCN on October 18,
                  1989 and expires May 1, 2019.

            o     The TADS I and TADS II geothermal projects provide .69 and .76
                  MW, respectively. These Agreements were approved by the PUCN
                  in 1986, and modified and finally approved on June 24, 1987.
                  TADS I Agreement expires September 1, 2014 and the TADS II
                  Agreement expires September 1, 2017.

            o     The New Lahontan facility is a 4 MW hydroelectric project. The
                  Agreement was approved by the Commission on March 31, 1988,
                  and expires June 1, 2039.

            o     The Steamboat I geothermal project provides 5 MW. The
                  Agreement was approved by the Commission on December 9, 1988,
                  and expires December 5, 2006.

            o     The Steamboat IA geothermal project provides .037 MW. The
                  Agreement was approved by the Commission on April 3, 1989, and
                  expires December 14, 2018.

      80. Section 210 of PURPA, 16 U.S.C. " 824a"3, confers on FERC exclusive
jurisdiction over the terms of power purchase contracts with the operators of
qualifying non-utility generation facilities such as those described in
Paragraphs 62 and 63. FERC required state utility commissions to implement and
enforce PURPA pursuant to FERC regulations.

      81. Under PURPA, the PUCN is obligated to allow full and timely
dollar-for-dollar recovery of plaintiffs' expenses throughout the term of their
PURPA Agreements, as the PUCN has


                                      -32-
<PAGE>

itself recognized. Accordingly, under the Restructuring Act, the state of
Nevada, through the PUCN, is obligated to provide a full, timely recovery of any
"stranded costs" associated with these power purchase agreements.

      82. Nevertheless, the regulations adopted by the PUCN do not assure the
timely and certain retail rate recovery of PURPA mandated costs. Even if full
cost recovery regulations were adopted, plaintiffs have no assurance that those
regulations would permit plaintiffs to recover substantial PURPA-related
revenues lost between the opening of competition and the addition of new charges
to the retail rate for plaintiffs' customers, many of which will have left
plaintiffs' customer base in the interim.

      83. The absence of an implementing PUCN Order under the Restructuring Act
allowing a full cost recovery places plaintiffs at considerable risk of failing
to recover, on a dollar-for-dollar basis, their expenses under the
aforementioned federally-mandated PURPA Agreements.

      84. In petitioning the PUCN before filing this Complaint, plaintiffs
pointed out that the PUCN must assure recovery by plaintiffs of stranded
capacity and energy costs for purchases from QFS at the avoided cost rates
previously approved by the PUCN for rate recovery for the duration of the QF
agreements. In petitioning, plaintiffs specifically requested that the PUCN
establish a surcharge mechanism to provide an assured, timely dollar-for-dollar
recovery of the expense associated with their PURPA Agreements. The PUCN has not
adopted regulations to meet plaintiffs' request.

      85. The failure of the PUCN to create and implement a full cost recovery
mechanism under the Restructuring Act violates plaintiffs' rights under PURPA,
and related federal precedents


                                      -33-
<PAGE>

to have the PUCN set rates which provide them with an assurance of a
dollar-for-dollar recovery of the purchase power expense associated with
plaintiffs' obligated purchase.

      86. PUCN inaction to date under the Restructuring Act will therefore
unlawfully reduce or interfere with plaintiffs' recovery of stranded costs
incurred in connection with their purchase power contracts with PURPA QF's in
violation of FERC's exclusive jurisdiction over the terms of power purchase
contracts with non-utility generation facilities under PURPA. Accordingly, the
Restructuring Act, as administered by the PUCN, conflicts with Section 210(b) of
PURPA and is therefore preempted.

      87. The Restructuring Act is invalid and preempted on its face because it
purports to condition recovery of federally mandated and previously
PUCN-approved PURPA costs upon plaintiffs' satisfaction of the additional
statutory criteria stated in Nev. Rev. Stat. ss. 704.9865(2). This provision
provides that, "[t]o recover any costs associated with an obligation for the
purchase of power, a vertically integrated electric utility [e.g., plaintiffs] .
 . . must demonstrate to the commission that it has made reasonable efforts to
reduce the cost or increase the value of the [purchase power] obligation,
including, without limitation" (emphasis added), five enumerated methods.

      88. Nev. Rev. Stat.ss. 704.9865(2) interferes with the obligation of a
state and its regulatory commissions to permit a purchasing utility to recover
fully its QF avoided cost payments in retail electric rates. Freehold
Cogeneration Associates v. Board of Regulatory Comm'rs, 44 F.3d 1178 (3d Cir.),
cert. denied, 516 U.S. 815 (1995). Inasmuch as these mandated costs "must be
given binding effect by state utility commissions in determining intrastate
rates," they may not be decreased by state law. Nantahala Power & Light Co. v.
Thornburg, 476 U.S. 953, 962 (1986).


                                      -34-
<PAGE>

Accordingly, the state of Nevada and its regulatory commissions are prohibited
by federal law from requiring the plaintiff utilities to justify recovery of
their previously approved avoided PURPA costs. Nor may the regulatory
commissions, by any statutory mechanism such as Nev. Rev. Stat. ss. 705.9865(2),
inquire into, adjust or in anyway revisit their previous determination of the QF
power purchaser's avoided cost payments. Freehold, 44 F.3d at 1194. Accordingly,
Nev. Rev. Stat.ss. 704.9865(2), on its face, violates these federal limitations
and is preempted by PURPA.

      89. Nev. Rev. Stat.ss.704.9823 creates a statutory rate freeze, effective
through February 28, 2003, which likewise interferes with the obligation of a
state and its regulatory commissions to permit a purchasing utility to recover
fully its QF avoided cost payments in retail electric rates, insofar as the
freeze precludes plaintiffs from recovering previously approved QF avoided costs
passed through the plaintiff utilities to their retail customers. Accordingly,
Nev. Rev. Stat.ss.704.9823, on its face, violates federal law and is preempted
by PURPA.

      90. Likewise, Nev. Rev. Stat.ss.704.9823 unlawfully denies the plaintiff
utilities a full recovery of previously incurred energy costs as well as future
energy costs composed in part of QF avoided costs payments that the plaintiff
utilities are entitled to recover under PURPA. The statute therefore interferes
with the obligation of a state and its regulatory commissions to permit a
purchasing utility to recover these payments. As construed by the PUCN, no such
recovery may be had after May 30, 1999. Accordingly, Nev. Rev. Stat.ss.704.9823,
on its face and as construed by the PUCN, violates federal law and is preempted
by PURPA.


                                      -35-
<PAGE>

                                    Count II

                FEDERAL PREEMPTION OF JURISDICTION OVER WHOLESALE
                POWER PURCHASE CONTRACTS UNDER FEDERAL POWER ACT

      91. Plaintiffs incorporate by reference Paragraphs 1 through 90 as though
fully set forth herein.

      92. In this count, plaintiffs seek declaratory and injunctive relief to
prevent a violation of plaintiffs' rights under the Federal Power Act.
Plaintiffs seek a declaration that the Restructuring Act is preempted by the
Federal Power Act to the extent that it fails to give "binding effect" in retail
ratemaking to the expense plaintiffs will incur under federally-regulated
purchase power contracts. Plaintiffs also seek an injunction barring enforcement
of the Restructuring Act to the extent that it is preempted by federal law, and
such other relief as the Court deems necessary, just, and proper.

      93. On February 9, 1989 plaintiff Sierra Pacific Power entered into a
contract with PacifiCorp under which it agreed to purchase 25 MW firm capacity
and energy, and increased that supply to 50 MW on June 1, 1990. The contract
terminates February 20, 2009.

      94. Because the PacifiCorp contract is for the sale at wholesale rates of
electric energy in interstate commerce, it is subject to the exclusive
jurisdiction of FERC, and the price which plaintiff pays for the capacity and
energy purchased from PacifiCorp is regulated by FERC. The most recent rate
fixed by FERC, reset annually, was set on May 1, 1999.

      95. Since the inception of the PacifiCorp purchase power contract, the
PUCN has authorized the recovery of the expense of purchasing power from
PacifiCorp in setting retail rates for plaintiff Sierra Pacific Power, as it is
required to do under federal law. Nantahala, supra;


                                      -36-
<PAGE>

Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S. 354 (1988).
The recovery of these amounts was permitted through the energy cost rate.

      96. As administered by the PUCN, the Restructuring Act fails to assure
plaintiff Sierra Pacific Power's recovery of these wholesale power costs
throughout the remaining life of the purchase contract. Nor has the PUCN yet
specified or defined a stranded cost amount associated with individual
generating units or purchase commitments to be recovered by any rate after the
opening of competition on March 1, 2000.

      97. The absence of a PUCN Order under the Restructuring Act assuring this
recovery violates plaintiff's rights under the Federal Power Act and Nantahala
and Mississippi, supra, to have the PUCN set retail rates which give "binding
effect" (Nantahala, 476 U.S. at 962) to the expenses approved by FERC under the
Federal Power Act's regulatory scheme.

      98. The Restructuring Act, as a result of PUCN inaction, will therefore
cause an illegal reduction of plaintiff's recovery of stranded costs incurred in
connection with plaintiff's purchase power contract with PacifiCorp, in
violation of FERC's exclusive jurisdiction over the terms of federally-regulated
purchase power contracts. Accordingly, the Restructuring Act, as administered by
the PUCN, conflicts with the Federal Power Act and is preempted.

      99. The rate freeze created by Nev. Rev. Stat.ss. 704.9823, on its face,
denies plaintiff Sierra Pacific Power an opportunity to recover in full its
energy costs under its purchase power contract with PacifiCorp. The rate freeze
therefore denies "binding effect" to future rate increases to be allowed by
FERC, and violates FERC's exclusive jurisdiction over the terms of
federally-regulated purchase power contracts. Further, Nev. Rev. Stat.ss.
704.9823, as construed by the PUCN, precludes Nevada Power from recovering
purchase power costs prudently-incurred from June 1


                                      -37-
<PAGE>

through September 30, 1999. As such, Nev. Rev. Stat.ss.704.9823 conflicts with
the Federal Power Act and is preempted.

                                    Count III

                  TAKING OF PROPERTY WITHOUT JUST COMPENSATION

      100. Plaintiffs incorporate by reference Paragraphs 1 through 99 as though
fully set forth herein.

      101. The Fifth Amendment to the Constitution of the United States, as
applied to the states through the Fourteenth Amendment to the Constitution of
the United States, provides that private property shall not be taken for public
use without just compensation. Regulatory proceedings that do not provide a just
and reasonable end result can constitute such unlawful confiscation under the
Constitution. See Eastern Enterprises v. Apfel, 524 U.S. 498 (1998); First
English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304
(1987); Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591 (1944).

      102. By denying plaintiffs the opportunity to earn a full recovery of, and
fair return on, all of its prudently-incurred investments and costs, including
its "stranded" historical costs, the Restructuring Act, as administered by the
PUCN, violates plaintiffs' reasonable investment backed expectations and effects
a taking without just compensation of plaintiffs' property in violation of the
Fifth and Fourteenth Amendments to the United States Constitution.

      103. By interfering with the terms of plaintiffs' PURPA agreements, the
Restructuring Act, as administered by the PUCN, also deprives plaintiffs of
their reasonable investment-backed expectation of full recovery of non-utility
generating costs, and has thus taken plaintiffs' property without just
compensation in violation of the Fifth and Fourteenth Amendments to the
Constitution


                                      -38-
<PAGE>

of the United States. The Act as applied by the PUCN fails to create a full cost
recovery mechanism and thus deprives plaintiffs of their contractual entitlement
to full and timely recovery of the non-utility generating costs under the PURPA
agreements and denies plaintiffs assurance that the costs it is required by
federal law to pay to the QFs will be recovered from their customers under rates
pursuant to the Restructuring Act. Accordingly, the Act results in a taking of
plaintiffs' property in violation of the Fifth and Fourteenth Amendments to the
Constitution of the United States.

      104. Similarly, by interfering with plaintiffs' right to retail rates that
give binding effect to the wholesale power purchase expenses approved by FERC
under the Federal Power Act's regulatory scheme, the Restructuring Act, as
administered by the Commission, has deprived plaintiffs of their reasonable
investment-backed expectation of full recovery of expenses, and has thus taken
plaintiffs' property without just compensation in violation of the Fifth and
Fourteenth Amendments to the Constitution of the United States.

      105. By imposing a rate freeze upon plaintiffs, the Restructuring Act has
deprived plaintiffs of their reasonable investment-backed expectation of a fair
and just return on their investment, and has thus taken plaintiffs' property
without just compensation in violation of the Fifth and Fourteenth Amendments to
the Constitution of the United States. Even if retail rates at frozen levels
through February 28, 2003 ultimately provide a just and reasonable return to
plaintiffs, the mere existence of uncertainty in the interim creates a risk to
plaintiffs, their shareholders, bondholders and creditors, with the effect of
presently diminishing the value of plaintiffs' stock and obligations. This
diminution in value created by the rate freeze imposed by Nev. Rev. Stat. ss.
704.9823 constitutes an unlawful taking of plaintiffs' property without just
compensation in violation of the Fifth and Fourteenth Amendments to the
Constitution of the United States.


                                      -39-
<PAGE>

Moreover, inasmuch as Plaintiff Nevada Power is not earning a fair and
reasonable rate of return, the Restructuring Act as applied to Nevada Power is
unconstitutional.

      106. Nev. Rev. Stat.ss.704.9823, as construed and applied by the PUCN,
denies recovery of deferred energy costs prudently-incurred by plaintiff Nevada
Power Company between June 1 and September 30, 1999. Under the regulatory
framework prior to the enactment of the Restructuring Act, plaintiffs held a
reasonable investment-backed expectation of full recovery of these expenses.
This denial of prudently-incurred deferred energy costs is confiscatory and
constitutes an unlawful taking of plaintiffs' property without just compensation
in violation of the Fifth and Fourteenth Amendments to the Constitution of the
United States.

                                    Count IV

                SUBSTANTIAL IMPAIRMENT OF CONTRACTUAL OBLIGATIONS

      107. Plaintiffs incorporate by reference Paragraphs 1 through 106 as
though fully set forth herein.

      108. The Contract Clause of the Constitution of the United States, Art. I,
ss. 10, cl. 1, provides that, "No state shall . . . pass any . . . law impairing
the obligations of contracts." The Restructuring Act, of its own force and as
administered by the defendants, violates the Contract Clause of the United
States Constitution.

      109. The regulatory compact is a valid contract that is binding on
plaintiffs, defendants and the state of Nevada.

      110. Under this regulatory compact, plaintiffs undertook substantial
service obligations in exchange for assurance from the Commission, on behalf of
the state of Nevada, that plaintiffs would have an opportunity to recover the
costs incurred in meeting those service obligations.


                                      -40-
<PAGE>

Although plaintiffs have fulfilled their service obligations under the
regulatory compact, plaintiffs have been denied an opportunity to recover
substantial costs associated with meeting these service obligations.

      111. Without a full cost recovery mechanism for costs incurred by
plaintiffs under the regulatory compact, the Restructuring Act repudiates the
state of Nevada's obligation to allow plaintiffs full recovery for
prudently-incurred investments, thereby abridging plaintiffs' reasonable
investment-backed expectations as well as materially breaching the regulatory
compact. In administering the Act, defendants have substantially impaired the
regulatory compact. This substantial impairment of the regulatory compact was
not necessary to achieve any legitimate policy objective of the state.

      112. In addition, defendants have impaired the obligations of plaintiffs'
PURPA agreements. An essential condition of requests for the Commission's
approval of plaintiffs' PURPA agreements was that the Commission authorize full
pass-through to and recovery from plaintiffs' customers of all costs incurred
under the PURPA agreements. By agreeing to this condition and inducing
plaintiffs to enter into those agreements in reliance upon a pass-through
recovery, the Commission bound itself to assure full and timely recovery of the
non-utility generating costs incurred by plaintiffs. The Commission's unlawful
actions or inactions under the Act renege on this assurance. In so doing, the
Commission has substantially impaired the obligation of contracts between
plaintiffs and the QFs in violation of the Contract Clause of the Constitution
of the United States. This substantial impairment was not necessary to achieve
any legitimate policy objective of the state.


                                      -41-
<PAGE>

      113. Similarly, by interfering with plaintiffs' right to retail rates that
give binding effect to the wholesale power rates approved by FERC under the
Federal Power Act's regulatory scheme, the Act, on its face and as administered
by the Commission, has caused a substantial impairment of the obligations of
plaintiffs' wholesale purchase power agreements. The Commission bound itself to
assure full and timely recovery of the FERC-approved expenses by plaintiffs. The
Act, on its face and as administered by the Commission, reneges on this
assurance and materially breaches this contract. In so doing, the Commission has
substantially impaired the obligation of contracts with plaintiffs in violation
of the Contract Clause of the Constitution of the United States. This
substantial impairment was not necessary to achieve any legitimate policy
objective of the state.

      114. By freezing the rates that may be charged plaintiffs' retail
customers, Nev. Rev. Stat. ss. 704.9823 has caused a substantial impairment of
the obligations of plaintiffs' wholesale purchase power agreements and QF
agreements, including, but not limited to, plaintiffs' ability to recover energy
costs for which they are contractually liable with their wholesale power sellers
and QF power producers. By enacting the rate freeze, the state of Nevada has
substantially impaired the obligation of contracts with plaintiffs in violation
of the Contract Clause of the Constitution of the United States. This
substantial impairment was not necessary to achieve any legitimate policy
objective of the state.

      115. By denying plaintiffs prospective recovery of prudently-incurred
energy costs after May 30, 1999 by enactment of Nev. Rev. Stat.ss.704.9823, as
construed and applied by the PUCN, the state of Nevada has repudiated and
thereby substantially impaired the regulatory compact. The substantial
impairment of the regulatory compact was not necessary to achieve any legitimate
policy objective of the state.


                                      -42-
<PAGE>

                                     Count V

                          DENIAL OF DUE PROCESS OF LAW

      116. Plaintiffs incorporate by reference Paragraphs 1 through 115 as
though set forth fully herein.

      117. The Fourteenth Amendment to the Constitution of the United States
provides that no state shall deprive a person of property without due process of
law.

      118. The Restructuring Act, on its face and as administered by the PUCN,
results in an arbitrary denial of plaintiffs' right to a reasonable opportunity
to earn a recovery of, and a fair return on, all of its prudently-incurred
investments and costs, and results in an arbitrary transfer of property from
plaintiffs' and its shareholders and investors to plaintiffs' competitors and
electric power consumers.

      119. The Restructuring Act, on its face and as administered by the PUCN,
deprives plaintiffs of their property without substantive due process of law in
that it does so without just compensation and for no legitimate or compelling
justification.

      120. The Restructuring Act, on its face and as administered by the PUCN,
deprives plaintiffs of their property without procedural due process of law in
that it does so in violation of principles of fundamental fairness and without
regard to the evidence presented by plaintiffs to the Commission in rulemaking
proceedings.

      121. The rate freeze imposed upon the plaintiff utilities by Nev. Rev.
Stat. ss. 704.9823, on its face, deprives plaintiffs of their property without
substantive due process of law in that it does so without just compensation and
for no legitimate or compelling justification. In particular, the rate freeze
creates substantial uncertainty as to whether the frozen rates will produce
sufficient revenues


                                      -43-
<PAGE>

for plaintiffs to recover the full ongoing costs of providing electric service
to customers as well as a just and reasonable return on investment. The statute
thereby impermissibly creates a substantial risk that such a recovery may not be
achieved, inducing plaintiffs' shareholders, bondholders, and creditors to
discount the value of plaintiffs' stock and other obligations. The statutory
rate freeze denies plaintiffs substantive due process by creating this
diminution in value, without just compensation and for no legitimate or
compelling justification. The Act as applied to Plaintiff Nevada Power results
in unconstitutional taking of property.

      122. By precluding recovery of prudently-incurred energy costs after May
30, 1999, Nev. Rev. Stat.ss. 704.9823, on its face and as construed and applied
by the PUCN, deprives plaintiffs of the property without substantive due process
of law in that it denies such recovery without just compensation and for no
legitimate or compelling justification.

                                    Count VI

                           DEPRIVATION OF CIVIL RIGHTS

      123. Plaintiffs incorporate by reference Paragraphs 1 through 122 as
though set forth fully herein.

      124. Defendants have acted under color of state law with respect to all
actions or inactions alleged herein.

      125. As set forth in Counts I through V above, defendants have deprived
plaintiffs of rights, privileges, or immunities secured by the Constitution and
laws of the United States, all in violation of the Civil Rights Act, 42 U.S.C.
ss. 1983.


                                      -44-
<PAGE>

                                PRAYER FOR RELIEF

            WHEREFORE, plaintiffs pray that this Court enter judgment in their
favor and grant them relief as follows:

            a.    For an Order declaring that the Restructuring Act, on its face
                  and as administered by the Commission, and as applied is
                  repugnant to the Constitution and laws of the United States
                  and is therefore null and void;

            b.    For an Order declaring that the Restructuring Act, on its face
                  and as administered by the Commission, and as applied is
                  preempted by the Federal Power Act and PURPA under the
                  Supremacy Clause of the Constitution of the United States;

            c.    For a preliminary and permanent injunction prohibiting
                  defendants from taking any action to implement the
                  Restructuring Act;

            d.    For a preliminary and permanent injunction prohibiting
                  defendants from taking plaintiffs' property without just
                  compensation or, in the alternative, an award of monetary
                  relief constituting just compensation for the taking of
                  plaintiffs' property;

            e.    For reasonable attorneys fees pursuant to 42 U.S.C.ss.1988;
                  and

            f.    For such other and further relief as this Court deems just and
                  proper.


                              ---------------------------------------------
                              William E. Peterson


                                      -45-
<PAGE>

                              Kathleen M. Drakulich
                              Donald Brookhyser
                              Sierra Pacific Resources
                              Sierra Pacific Power Company
                              Nevada Power Company
                              P.O. Box 10100
                              6100 Neil Road
                              Reno, Nevada 89520
                              (775) 834-5900

                              Donald K. Dankner
                              Frederick J. Killion
                              Robert M. Rader
                              Winston & Strawn
                              1400 L Street, N.W.
                              Washington, D.C. 20005-3502
                              (202) 371-5701

                              Counsel for Plaintiffs.

Dated:  March 28, 2000


                                      -46-


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission