Nevada Power set to close on merger

Wednesday, July 28, 1999 | 11:06 a.m.

Nevada's two largest electric utilities were to become one today in the $2.5 billion merger the companies have been working to complete since April 1998.

Nevada Power Co. of Las Vegas and Sierra Pacific Resources, Reno, planned to close the deal today.

For Nevada Power customers, the merger has little impact. The company will continue to be known as Nevada Power and customers will continue to write their checks to that company name. Nevada Power will be the Southern Nevada subsidiary of Reno-based Sierra Pacific and services. Rates and billing procedures will remain the same.

The companies are in the process of identifying procedures at both ends of the state that they can use now that the merger has been completed.

One of the changes that could be on the horizon for local customers is the offering of new products and services. Sierra Pacific offers its customers S.P. Simple Choice, a bundling and reselling of a number of products making it possible to get home security, satellite television service and other services that can be monitored or metered by utility company equipment.

"It's a conduit for services," said Malyn Malquist, chief operating officer of the new company and the head of Northern Nevada's operations. "We simply resell other companies' products."

Malquist said S.P. Simple Choice has been well received by Sierra Pacific customers, just as he expects some of Nevada Power's programs will be when the new company's "best practices" reviews are completed. In the meantime, Malquist and Chief Executive Officer Michael Niggli have made their top goal making the transition from two companies to one as seamless as possible.

For the most part, the two executives said, they have been successful. But there have been a few plans implemented that haven't made everybody happy.

The merger is eliminating about 300 jobs, mostly technical, management, professional and administrative positions. With the new company in place, all nonunion employees must reapply for their jobs.

The new company is doing that through a bid process. Each employee can bid for up to three positions.

"That means most people will be applying for their own job and probably their boss's job," Niggli said.

Malquist said that means that while not every employee is going to get the job he or she wants, "the reality is that about 90 percent of them end up in the same position and we're going to get the best people in every job."

"We think it's a fair process," Malquist said. "In some places when there is a merger, you get a pink slip and that's it."

And as far as the elimination of the 300 jobs, Niggli and Malquist said that process has gone smoother than they had anticipated. The process started with a job freeze that began when the merger was announced. About 100 jobs already have been eliminated through attrition.

Then, slightly more than 200 are signed up for the company's voluntary severance program. Under the severance program, which will remain open through Aug. 9, long-term employees are eligible for up to one year's salary. Employees with less time with the company will get up to $10,000. The companies also are either cashing them out of their pension programs or rolling them into individual retirement accounts or new 401(k) programs.

The cost to the company for the severance package: about $12 million. But the company quickly points out that merger is expected to save $350 million over 10 years.

Another aspect of the merger that has caused some consternation is the company's decision to cash out investors with fewer than 100 shares of stock.

Small investors have complained that they'll have to deal with tax consequences if Nevada Power or Sierra Pacific issues them a check.

Niggli said the decision to cash out shareholders with fewer than 100 units was announced early in the merger process "so that those small investors could make a decision about whether they wanted to up their shares to avoid a cash-out."

Niggli said the practice of cashing out small investors is not uncommon in mergers and Joyce Newman, executive director of the Utility Shareholders of Nevada, endorsed the plan.

Malquist said shareholders with fewer than 100 units would get the share price at today's close. Starting Thursday the new Sierra Pacific Resources Inc. will trade under a new symbol, SRP.

Fewer than 5,000 of the more than 50,000 investors will be affected and the move is expected to result in some savings in accounting.

Another issue of the merger isn't expected to be reconciled until next year. The new company's power generation plants are being sold as part of the merger agreement.

Niggli said next month, the company would refile a divestiture plan with the Public Utilities Commission of Nevada and the Federal Energy Regulatory Commission. By October, the company is expecting to receive the initial offerings from hundreds of utility companies from across the United States.

The field will be narrowed by the first of the year and the first quarter is expected to be a due diligence period for the top bidders. By March, the company hopes to announce the winning bidders and buyers of the plants that are solely owned by the new company.

When those sales are completed, the company will go through the same process with five plants -- two in the northern part of the state and three in the south -- that are partially owned by Sierra Pacific.

The sale of the solely owned plants will come at time when Sierra Pacific will be busy with another high-profile event.

March 1 is the date when the utility industry is to become deregulated in Nevada. The original Jan. 1 restructuring date was pushed back by the Nevada Legislature, which feared a transition when the Y2K computer bug could be creating problems for businesses.

The simultaneous attention to the merger and restructuring were what Niggli and Malquist believe resulted in the lengthy approval process for the merger. Most utility mergers, Niggli said, take 18 to 24 months to complete. So, by industry standards, the 15-month wait wasn't bad, Malquist said.

"There were a lot of agencies that had to look at this and approve it," Niggli said. "But we feel like we got it done right."

In addition to the PUC and the FERC, the merger was reviewed by the Securities and Exchange Commission. The utilities garnered support early and had little opposition to the plan.

Through the review, Niggli said Nevada Power employees kept the business of running the company with good customer relations in the forefront. The company's efforts paid off: J.D. Power & Associates rated Nevada Power seventh in the nation and third in the West for customer service earlier this month.

Niggli and Malquist also said the new utility company will continue to take a lead role in its community service efforts.