Sierra Pacific shareholders bitter over big decline in stock price

Thursday, Feb. 17, 2000 | 11:04 a.m.

Few telephones have been busier the past few days than that of the investment relations officer for Sierra Pacific Resources Inc.

Sierra Pacific, parent company of Nevada Power Co., Southern Nevada's primary electricity provider, has seen its stock price plummet after the Public Utilities Commission of Nevada dismissed a $110 million deferred energy rate increase earlier this month.

"The shareholder services area has been inundated with questions about the stock price drop," said Richard Atkinson, executive director of finance for Sierra Pacific. "They want to know what management is doing about it. They're worried about their dividends."

After the stock price dipped to $12.50 in Wednesday trading, the stock closed at $13.06. The previous 52-week low had been $12.75. This morning, the issue was trading at $13.12, up 6 cents. This compares to the 52-week high of $27.

Many retirees that are heavily invested in the utility depend on dividends as a source of income.

"The only thing we can tell people," Atkinson said, "is that we plan to pursue all legal avenues available to us."

Investors chatting about the stock on Internet bulletin boards are calling to have executives' salaries reduced -- or for the executives to be replaced.

Institutional investors also have been frustrated.

Analysts blame the PUC -- especially Chairman Don Soderberg -- for not letting Nevada Power recover deferred energy and purchased power costs the company says it is entitled to. Soderberg said he was persuaded in testimony presented to the commission on the $110 million rate case to oppose the proposal.

Nevada law has allowed utilities to balance accounts on fuel and power it buys and pass those expenses on to consumers. Often, that means a rate increase. Occasionally, it's a decrease.

Allowing utilities the opportunity to recover those expenses comes to an end when the electrical industry is restructured. Deregulation is scheduled to start March 1, but most concede it will be delayed. The Nevada Legislature has given the utilities one last deferred energy rate increase before capping rates for three years, during which competition would hopefully take hold.

But differing interpretations of the deadline for filing for that final increase and what time frame could be used to establish the final rate have led to disputes between the utilities, the state's largest power users, the regulators and the state's consumer advocate.

Consumer Advocate Fred Schmidt often opposes utility rate increases. Recently, he suggested that Sierra Pacific has gotten itself in trouble when expectations were set too high on the utility's stock performance.

Now, the parties are turning their attention to the next step.

Once the $110 million rate proposal was dismissed, regulators began looking at Nevada Power's original rate case -- a filing for a $44.3 million increase.

The original filing had always been considered Nevada Power's final rate increase before competition begins. The $110 million request was described by the company as an amended version of the original.

But those believing the $44.3 million rate increase is a slam dunk with the dismissal of the $110 million case could be in for a surprise.

Testimony filed this week in advance of next week's hearings on the rate increase include comments from the PUC staff, the consumer advocate's office and experts representing the casino industry -- all of whom call for a reduction in the proposed rate increase.

In fact, the casino industry experts are suggesting not just a reduction in the rate hike -- but an outright reduction in rates from current levels.

The PUC staff proposal is for a $12 million rate increase. The consumer advocate's expert suggests a rate increase of $3.2 million.

PUC officials said the company, the PUC and the consumer advocate are using different interpretations of accounting measures to arrive at what is fair for the company to recover. Those issues will be a part of the debate when the hearing opens next week.

Meanwhile, utility experts representing three large casino companies, Mirage Resorts Inc., Park Place Entertainment Corp. and the Mandalay Resort Group, say Nevada Power should reduce rates by $11.5 million.

The reason for the vast difference: The casino companies believe the utility is incorrect in its interpretation of legislation on deferred energy cost recovery. The casinos believe Nevada Power has overrecovered deferred energy and purchased power costs.