VII. Assignment of Proceeding

Carl Wood is the Assigned Commissioner and Michael Galvin is the assigned Administrative Law Judge in this proceeding.

Findings of Fact

1. Sierra adopted FAS 133 and 138 on January 1, 2001.

2. FAS 133 and 138 require that all derivatives and certain embedded derivatives be reported on the balance sheet at fair market value.

3. Certain contracts, defined as derivatives by FAS 133 and 138, must be entered into by Sierra in order to purchase power, generation and transmission capacity, etc.

4. The fixed price components of these contracts can vary substantially from market prices at any one time.

5. FAS 133 and 138 require that the difference between the contract and the market price be recognized as a gain or loss every quarter, even though there is no associated cash flow.

6. Under Sierra's proposed accounting treatment, regulatory assets or liabilities using the same accounts would simultaneously offset the non-cash accounting entries.

7. When the contract is actually settled, the expense is recognized as the actual contract price, the net gains or losses previously recognized would be reversed, and the net offsetting regulatory assets or liabilities would be reversed resulting in no net gain or loss.

8. The proposed accounting treatment would reduce the volatility in Sierra's earnings caused by FAS 133 and 138.

9. Sierra's accounting proposal to offset differences between contract and market prices with regulatory assets or liabilities resulting from its adoption of FAS 133 and 138 will not affect its cost of service.

10. Under Sierra's proposal, potential adverse effects of earnings volatility caused by FAS 133 and 138 on the utility's ability to pay dividends and to attract capital would be eliminated and rates would not be affected.

Conclusions of Law

1. The application should be granted.

2. In order to avoid the potential adverse affects of FAS 133 and 138, the following order should be effective immediately.

ORDER

IT IS ORDERED that:

1. The request of Sierra Pacific Power Company (Sierra) to establish regulatory assets or liabilities accounts to offset the entries required by Financial Accounting Statements (FAS) 133 and 138 is granted for financial accounting entries beginning January 1, 2001 to the extent rates are not affected.

2. Application 01-08-030 is closed.

This order is effective today.

Dated October 24, 2002, at San Francisco, California.

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