Sierra Pacific, Duke sign key Nevada power deal

SAN FRANCISCO, June 10 (Reuters) -

In a move that will help keep the lights burning along the Las Vegas strip this summer, Duke Energy said Monday it will sell 1,000 megawatts of electricity to cash-strapped Sierra Pacific Resources .

Sierra Pacific, the Reno-based parent of Nevada Power and Sierra Pacific Power Co., has been scrambling to line up electricity for its customers amid financial setbacks and the loss of major supply contracts.

The deal with Duke is for up to 1,000 megawatts an hour, enough electricity for about a million homes, to be delivered from June 15 to Sept. 15, when air conditioning to cope with the scorching Nevada desert heat drives power demand to its annual peak.

"This agreement ... ensures that Nevada consumers' power needs will be met during the summer," Jim Donnell, president and chief executive officer of Duke Energy North America, said in a statement.

Generators have been wary of selling to Sierra Pacific for fear of nonpayment after Nevada's Public Utilities Commission turned down the company's request to bill its customers for the full cost of power bought during the region's 2001 energy crisis, when wholesale prices soared tenfold.

The decision left Nevada Power with $437 million of uncovered debt and raised fears in the industry Nevada Power might be headed for bankruptcy.

BREATHING ROOM

The financial pinch eased a bit Friday, however, when the utility commission ruled Nevada Power could issue up to $300 million in bonds to pay off debt and cover operating costs.

In addition to the 1,000 megawatt sale, Duke Energy said it would conduct real-time power purchases and sales from June 15 through Dec. 31, 2002, to help Nevada Power and Sierra Pacific Power balance their energy requirements.

Duke also agreed to defer payment for some of its existing supply contracts with Nevada Power to ease the utility's short-term cash flow problems.

Financial terms of the deal were not disclosed.

In exchange, Nevada Power and Sierra Pacific Power said they agreed to drop a complaint they filed with federal energy regulators against Duke Energy that challenged the North Carolina-based company's market rate pricing of existing supply contracts in late 2001.

To point out just how dire the situation for Sierra Pacific had become, the North American Electric Reliability Council earlier this year cited southern Nevada as a likely trouble spot on the U.S. power grid this summer.

The council, which works to ensure a stable flow of electricity throughout the U.S. and Canada, warned the problems in Nevada stemmed not from an actual shortage of electricity in the region, but from Nevada Power's financial straits.