Thursday, April 30, 1998 | 12:20 p.m.
Nevada Power Co., the Las Vegas Valley's primary electricity provider with more than 500,000 customers, is merging with the power company that serves Northern Nevada in a deal that would form a $2.3 billion utility offering water, gas and electric service.
How the deal would effect Southern Nevada electricity rates and Nevada Power Co. employees has yet to be spelled out in detail.
Executives with Nevada Power and Sierra Pacific Resources Inc., Reno, are making appearances in Reno and Las Vegas today to explain the details of the merger, which would create the fastest growing utility in the nation, serving 800,000 electric, 100,000 gas and 65,000 water customers in Nevada and the Lake Tahoe area of California.
The company proposed today would be a new holding company, Sierra Pacific Resources, to be based in Reno and headed by Michael Niggli, currently president and chief operating officer of Nevada Power.
The holding company would be parent to utility subsidiaries, including Nevada Power Co. and Sierra Pacific Power Co., which will be headquartered in Las Vegas, with gas and water operations in Reno.
That means customers will continue to be served by companies with which they are familiar in Southern Nevada and Northern Nevada. Las Vegans will continue to receive customer service from and make payments to Nevada Power.
Malyn Malquist, currently chairman and chief executive officer of Sierra Pacific Resources, will become president and chief operating officer of the new holding company and president and chief executive officer of Nevada Power and Sierra Pacific Power. Charles Lenzie, currently chairman and chief executive officer of Nevada Power, will retire upon completion of the merger.
The new board of directors of the holding company will consist of 14 members, seven each selected by Nevada Power and Sierra Pacific.
In statements issued this morning, executives indicated the restructuring of the utility industry nationwide is the primary reason for the deal.
"This combination offers us the opportunity to lower costs, increase operating efficiencies and take advantage of economies of scale, providing benefit for both customers and stockholders," Malquist said in a statement. "More than 1.5 million Nevada and California residents will see benefits from the merger in the form of stable prices and superior customer service."
"This merger is about growth, opportunity and maximizing shareholder value in the face of the dramatic changes taking place in the utility industry," Niggli said in a statement. "This combination will give us the ability to capitalize on the rapid customer growth in our service territory and convert it into bottom-line growth."
The structure outlined this morning appears to position the new company to meet the challenge of new utility companies preparing to enter the local market. Houston-based Enron is one of the major players investigating the prospect of serving the Nevada market when utility restructuring takes effect in the state on Jan. 1, 2000.
This morning's statement gave no indication of planned layoffs, other than to say, "The companies will seek to minimize the impact to the existing work force through a combination of a general hiring freeze, employee retraining, relocation and appropriate separation packages."
The statement said all union contracts would be honored.
The merged companies will have about $2.3 billion in common stock, $240 million in preferred stock, and $1.5 billion in debt.
The companies expect to close the transaction in about a year. Nevada regulators can approve utility mergers in 180 days, while other states and the Federal Energy Regulatory Commission can take much longer to review those transactions.
"We have not seen the details so we'll wait to see the proposal and how it deals with the emerging market," said Commission Chairman Judy Sheldrew. "This adds a new dynamic in what we're attempting to do to bring a competitive market and we have to assure it is complementary to those goals."
Sheldrew said the PUC would have 180 days to review the proposed merger after it is filed.
"The biggest concern we will have clearly is if it is in accord with the direction pointing to create a competitive electric market," Sheldrew said. "We expect efficiencies also and that's up to the applicant to demonstrate."
While Malquist promised stable prices and superior customer service, Sheldrew said it was too early to tell how rates would be affected by the merger.
"I have absolutely no idea before I see their application," said Sheldrew. "It's all relatively vague right now."
She said she would know more when she gets details, which she expects to receive within 45 days.
Fred Schmidt, the state's consumer advocate and the head of the Bureau of Consumer Protection for the attorney general's office, also said it's too early to tell how rates would be affected by the merger.
"It's an important event," Schmidt said. "Therefore, we will comprehensively review the proposal to see that it's in the best interest of Nevada utility customers. Because of the significance of the event, it would be premature to comment favorably or unfavorably without reviewing the proposal."
Schmidt said new federal rules should expedite the process in the current proposals. In addition to his office and the PUC, the merger is expected to be reviewed by the Federal Energy Regulatory Commission and the Securities and Exchange Commission on the federal level. California regulators may also review the deal since there are some affected customers in Truckee and on the California side of Lake Tahoe.
"There has been a trend toward electric mergers within the past few years and this proposal reflects that trend," Schmidt said. "All circumstances are somewhat different, but typically there are some cost savings associated with a merger."
Currently, commercial rates of Nevada Power and Sierra Pacific are comparable, Schmidt said. Residential rates, however, are higher for Sierra Pacific customers. Schmidt said he has heard of no proposals on if or how the company would attempt to equalize rates.
Under the agreement, a Nevada Power share can be exchanged for one share of the new company, or for $26 in cash, a 7 percent premium to the company's closing price of 24 1/4 on Wednesday. A Sierra Pacific share can be traded for 1.44 shares of the new company, or $37.55 in cash, 9 percent more than Wednesday's closing price of 34 7/16.
The companies had established the share price based on the companies' 10-day average trading price through Tuesday, establishing a 5 percent premium for holders of either stock.
At 2 p.m. on Wall Street, Nevada Power stock was up 7/16 to 24 11/16 while Sierra Pacific Resources was up 1/2 to 34 15/16.
The combined company expects to establish a dividend policy that would maintain a dividend payout ratio of between 50 percent and 55 percent of net income.
While the new board said it would continue to review the policy annually, it expects to adopt an initial annual dividend of $1 per share, the same amount both companies have paid recently.
PaineWebber Inc. acted as financial adviser to Nevada Power. SG Barr Devlin, and Merrill Lynch & Co. acted as financial advisers to Sierra Pacific.
In 1996, Washington Water Power Co. called off a planned merger with Sierra Pacific after federal regulators delayed approving the transaction for two years.
BLOOMBERG BUSINESS contributed to this report.
archive
