V. Sierra's Amended Application

In an amendment to the initial application, Sierra explains that although it continues to believe an exemption from Section 851 is appropriate for this divestiture, it now requests the Commission consider in the alternative whether to grant approval for the auction and divestiture under Section 851. The amended application requests that in either case, the Commission should extend substantial comity to the PUCN which regulates approximately 95% of Sierra's operations and which has adopted a comprehensive electric restructuring process similar to AB 1890.

To support Sierra's request for approval under Section 851, the amended application provides further information explaining two significant terms of the auction. First, Sierra contends that the divestiture complies with the reliability requirements of Section 362 because of two features -- a "recourse tariff" and "transition power purchase contracts" (TPPCs). According to the amended application, Sierra will retain obligations known as "Transitional Resource Requirements" after the divestiture. To fulfill these transitional requirements, Sierra must serve as "provider of last resort" of retail service in its service territory. In addition, Sierra will retain its wholesale requirements obligations and the obligation to provide ancillary services under its open access transmission tariff. To meet these obligations, Sierra will require the purchasers of its generation to enter into TPPCs that will expire no later than March 1, 2003. The TPPCs will give Sierra the first call on divested generation and will entitle Sierra to purchase up to its entire "Transitional Resource Requirements" from divested generation. The contracts will cap Sierra's purchase price at the embedded cost of generation, with a floor equal to the 1998 marginal fuel cost of generation. Ancillary service prices under the TPPCs will be cost-based. Sierra is prohibited from reselling any energy or ancillary services except to satisfy its transitional obligations.

The "recourse tariff" is a tariff that Sierra has filed with FERC under which the purchasers of Sierra's divested plants will be obligated to sell power to Sierra and others at a rate determined by FERC after the TPPCs expire. FERC has accepted this tariff for filing, subject to future determination of the proposed rates. The recourse tariff is required because Sierra's service area is considered a "load pocket," that is, an area subject to shortages of supply because of transmission constraints. Sierra contends that the recourse tariff will allow customers to obtain cost based monthly recourse service and thereby protect them from any abuse of market power by new generation owners.

Second, Sierra contends the terms of the auction meet Section 363(a) requirements with regard to continued operation and maintenance of the divested plants. Specifically, purchasers of the divested plants must assume Sierra's collective bargaining agreements with the relevant union for two years from the close of the sale, must recognize the union as the bargaining representative of the covered plant employees, and must offer to retain all non-union employees and key management personnel involved with the plants. According to Sierra, this element of the auction allows it to comply with Nevada electric restructuring legislation that does not permit Sierra to continue to operate its electric generation facilities after divestiture, except through an affiliate. Sierra concludes that since the terms of the auction will lead to the plants being operated nearly the same as today, Sierra has complied with the intent, policies, and goals underlying Section 363(a).

The amended application also requests the Commission leave this proceeding open to make the findings necessary under Section 32(c) of the Public Utilities Holding Company Act (PUHCA) so that the purchasers of Sierra's generation facilities may obtain status as "Exempt Wholesale Generators" (EWGs) from FERC.

Finally, the amended application contains further information on the disposition of Sierra's hydroelectric plants. Sierra explains that its four small hydroelectric plants on the Truckee River, amounting to just over 10 MW in capacity, will be transferred to the company's water division so it can "self-generate" to meet its electric pumping needs to provide retail water services to customers in the Reno metropolitan area. Sierra clarifies that it does not intend to create a separate affiliate to sell output from its hydroelectric plants into the electric market, and that the company will make a separate filing with the Commission when the transfer becomes imminent.