In a recent statement on Nevada Power Co.'s parent -- Sierra Pacific Resources -- A.G. Edwards & Sons' called the Public Utilities Commission's plan allowing the utility to buy and complete the Moapa power plant "constructive."

Similarly, Jake Mercer, a utilities analyst with Piper Jaffray & Co., said the PUC's move represents another positive development for the utility.

"I think, generally speaking, they are more or less on a positive credit trend," Mercer said.

PUC Chairman Don Soderberg wrote the order which approved Nevada Power Co.'s purchase and completion of a 1,200 megawatt power plant about 20 miles north of Las Vegas. The plant was abandoned two years ago by Duke Energy of North Carolina.

The utility has estimated that the total cost to buy the plant from Duke Energy of North Carolina and complete construction is $558 million.

The order was approved by the three-member commission last week and included a clause that provides financial rewards to the company for rapid completion of the plant. It would also penalize the company for construction delays.

Mercer said the ability to earn an incentive is particularly important for a company like Nevada Power that suffers from a junk credit rating.

"I think this is very favorable," he said. "You need to incent companies to take on that risk. Especially with companies like (Nevada Power) it's more pronounced."

During deliberations, Soderberg pointed out that many of the power plants currently under construction are being built by independent power providers, like Duke, who don't have to deal with regulatory constraints when projecting profitability.

The commission approved giving the utility an additional return on equity of 2 percent for costs associated completing construction on the plant. The utility had sought a 5 percent ROE incentive.

Soderberg's draft order had originally recommended a 3 percent ROE incentive. The statement from A.G. Edwards had said it would be disappointed if the incentive came in lower.

"We would consider a decision in line with the draft order constructive from an investor point of view as an indication of general regulatory support for SRP in addition to a boost to earnings power," the statement said.

In the order, Soderberg praised the company's effort to increase the level of power generated by the company. Nevada Power currently generates only about 40 percent of the power it needs to serve its customers. The massive new plant would increase that internal generation level to about 60 percent.

The balance of the power is purchased on the open market, a strategy that proved devastating during the Western energy crisis. Soderberg cited concerns over possible capacity shortages in 2006 as a motivation for bringing the new plant online quickly.

In order to maximize the benefit to customers, the commission also approved a provision to increase the 2 percent ROE incentive by as much as 1 percentage point if both of the plant's units are online early -- March 21, 2006, for the first unit and June 30, 2006, for the second unit. Also, for each month the company is late, the 2 percent inventive will be reduced by 0.085 percentage points.

The commission also cut the company's proposed construction cost estimate from $376 million to $367.6 million, eliminating $8.4 million from a $42 million contingency estimate. The order, however, allows the company to petition the commission for excess costs to be included in the incentive structure.

The order excludes the $182 million purchase price of the plant from the ROE incentive structure.

PUC chairman reappointed

Last week Gov. Kenny Guinn reappointed Soderberg to his position as PUC chairman.

The attorney was originally appointed to the commission in 1998 and took over as chairman in July 2003. In his position, he has presided over what must certainly be considered the state's most tumultuous period in energy regulation Nevada's two largest power companies faced bankruptcy amid soaring prices during the Western energy crisis.

While utility executives and financial industry observers, at times, criticized the PUC for decisions detrimental to the electric companies, Soderberg's reappointment has drawn praise from Nevada's top electric company executive.

"The governor's re-appointment confirms the strong, effective leadership Chairman Soderberg has demonstrated at the PUCN," said Walt Higgins, chief executive of Nevada Power's parent company, Sierra Pacific Resources. "We are pleased and look forward to working with the chairman for years to come."

Similarly, Southwest Gas Corp. of Las Vegas expressed support.

"We think the chairman has always been fair and balanced," said Roger Buehrer, spokesman for Southwest Gas. "He has educated himself on the issues, and to us that's invaluable experience in this growing market area."

Kevin Rademacher covers utilities and finance for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at (702) 259-4069 or by e-mail at kevinr@lasvegassun.com.