Nevada utility in deal for $3.1 billion

Monday, Nov. 8, 1999 | 11:15 a.m.

Bloomberg News contributed to this report.

Sierra Pacific Resources Inc., the company that owns Nevada Power Co. of Las Vegas, is buying Portland General Electric from Enron Corp. for $3.1 billion.

"This particular transaction fits well strategically for our company," Michael Niggli, chairman and chief executive officer of Reno-based Sierra Pacific Resources, said after announcing the deal this morning. "PGE looks a whole lot like us."

PGE serves about 700,000 customers in northwest Oregon. By combining the two companies, the customer base would grow to 1.7 million, making it one of the largest utilities in the West. The combined companies would have $9 billion in assets.

Houston-based Enron, which is planning its own bid to serve commercial and industrial customers in Nevada, will sell PGE to Sierra Pacific for $2.1 billion. That includes $2.02 billion in cash and the assumption of an $80 million merger payment obligation Enron had when it acquired PGE two years ago.

Sierra Pacific also will assume $1 billion in PGE debt and preferred stock.

The transaction is expected to be completed in about a year. Five regulatory agencies -- the Securities and Exchange Commission, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, the Oregon Public Utility Commission and the Public Utilities Commission of Nevada -- must approve the deal.

The SEC is examining the deal because of the transfer of stock and FERC routinely reviews all utility transactions.

The Nuclear Regulatory Commission is involved because PGE used to operate the Trojan Nuclear Power Plant, 45 miles northwest of Portland. The plant was decomissioned in 1993 but the regulatory process of shutting the plant down is still under way.

Nevada's PUC must approve Sierra Pacific's registration as a public utility holding company, giving it authority to operate outside the state.

Commission Chairman Don Soderberg said today that Sierra Pacific officials apprised him of the deal Sunday night. He said the commission expects to receive the formal application in January or early February, but until then, will work with Sierra Pacific officials to get specifics.

"There's a tremendous amount of detail work prior to the application even being filed," Soderberg said.

Soderberg said he was not surprised because the deal is in conformance with Sierra Pacific's announced strategy.

Because the deal is a stock acquisition and not a merger, shareholder approval is not required.

Joyce Newman, president of the Utility Shareholders of Nevada, said she has been in contact with about half her 10 board members and all have been supportive of the deal.

Niggli said company shareholders will benefit from the transaction because the company will reinvest profits from the sale of its generation plants to acquire PGE. Nevada Power customers, meanwhile, will benefit from economies of scale associated with the deal.

"As part of restructuring, we are divesting a third of our business (the power plants)," Niggli said. "When we sell them, we'll have a proceed of about $1 billion. We're not going to let that cash sit in the bank, but invest it in a solid earning property."

While Sierra Pacific would have the ability to develop transmission contracts connecting Oregon and Nevada grids, the real benefit to local customers is the company's ability to leverage purchases. Sierra Pacific and PGE will be able to share strategic alliances and get favorable prices from vendors.

When the deal is completed, Sierra Pacific will grow from about the 35th largest to the 15th largest utility in the nation in terms of customers served and the higher volume is expected to give the company greater bargaining power and volume discounts.

Analysts say the deal was not a big surprise.

Ron Tanner, managing director of utilities research for Legg Mason, said the timing of the deal is favorable for Sierra Pacific because the divestiture of its power plants will occur at around the same time the acquisition is scheduled to close, giving the company an opportunity to invest the profits.

Edward Tirello, an analyst with Deutsche Banc Alex Brown, said he was not surprised Enron sold the utility because when it was bought for $3.1 billion in stock and assumed debt, it was assumed that the company would use it as a platform to enter the California market.

"I'm just surprised that they waited so long to sell," Tirello said.