C. The Settlement Agreement (Appendix A)

Sierra, ORA, and CSAA move to have approved a settlement agreement to settle all issues in this proceeding pertaining to Sierra's revenue requirement. The settlement agreement proposes that the increase to Sierra's revenue requirement should be increased $3.02 million (or 5.8%). The settlement agreement includes a comparison exhibit that shows the forecasted results of operations for the twelve months ended December 31, 2003. It shows a summary of the results of operations change by unbundled component; it details the results of operations by unbundled component after the stipulated revenue requirement; and it details the results of operations by unbundled component before the stipulated revenue requirement. The proposed settlement does not resolve the revenue allocation and rate design issues applicable to the increase in Sierra's revenue requirement.

1. The Settlement Agreement is supported by the Record

In phase 2, the initial revenue requirement increase request for Sierra and ORA was $4.767 million and $1.604 million, respectively. Both Sierra and ORA agreed to several adjustments and by the end of the hearings, the adjusted revenue requirement increase request for Sierra and ORA was $3.871 million and $2.662 million, respectively. Settlement discussions were held following the hearings and ORA agreed to accept Sierra's water division reallocation adjustment in the amount of $.358 million. In turn Sierra accepted ORA's remaining adjustments related to: Merger cost amortization - $.191 million; Customer Service and Information Expenses - $.190 million; Administrative and General Expenses - $.176 million; and Transmission Plant Additions - $.294 million. The result of those adjustments is the settlement revenue requirement proposed increase of $3.020 million.

Sierra has agreed to accept ORA's adjustment of $.191 million pertaining to costs associated with its merger with Nevada Power Company. Sierra and ORA agree that Sierra's acceptance of this adjustment is strictly for settlement purposes and does not constitute a waiver of Sierra's right to seek recovery of merger costs in a proceeding before the Public Utilities Commission of Nevada. ORA agrees that Sierra may recover its costs for the implementation of its new billing system in the amount of $2,420,000 amortized over 5 years and that ECAC should be reinstated either as a result of adoption of Resolution E-3817 or as a result of the final decision in this proceeding.

The record contains all the information necessary for the Commission to find the settlement agreement reasonable. We have before us the prepared testimony of the parties, the additional testimony of the hearing, the exhibits, and the tables attached to the settlement agreement. The revenue, expenses, and rate base agreed to by the parties in the settlement agreement are consistent with the evidence and Commission decisions.

2. The Settlement Agreement is Consistent with Law

The terms of the settlement agreement comply with all statutes and prior Commission decisions.

3. The Settlement Agreement is in the Public Interest

The settlement agreement is a reasonable compromise of the parties' respective positions. It resolves contentious issues raised by ORA representing residential and small business ratepayers, and by CSAA representing large electric users. It provides a rate of return of 9.04%, which is well within the parameters of electric utility service ( Pacific Gas and Electric Company (PG&E) - 9.24%: SCE-9.75%) and conforms to D.02-11-027 where Sierra Pacific's rate of return was set at 9.04%.