Nevada Power’s parent company looking to grow

David Strow

Saturday, Oct. 7, 2000 | 3:05 a.m.

By the end of next year, Nevada Power Co. of Las Vegas hopes to be out of the business of generating electricity, a business it's been in for decades.

But while Nevada Power is getting smaller, its parent company, Sierra Pacific Resources of Reno, is growing considerably larger. Even while its subsidiaries are trying to sell more than $1 billion in power plants, Sierra is trying to buy Portland General Electric (PGE), one of the largest utilities in Oregon, for $3.1 billion. Proceeds from the plant sales will help pay for the Portland company.

Sierra Pacific is also sending strong signals that it may try to buy Southwest Gas Corp. of Las Vegas, the dominant natural gas supplier in Las Vegas, Phoenix and Tucson.

Such deals might not make any sense to a casual observer. But in the strange new world of deregulated utilities, you either get larger or get swallowed.

"If you don't get bigger in this economy, you won't survive," said Nevada Power President Steve Rigazio.

The Portland General buyout is rooted in Sierra's re-creation of itself as a "wires" company. Nevada Power and Sierra Pacific Power won't own power plants, but they will own the wires that transmit power to customers. The two companies have wires leading to 1 million Nevada customers; adding PGE will throw another 700,000 customers into that mix.

Deregulation won't touch this business. Rates for transmitting and distributing power will continue to be set by federal and state regulators, creating stable revenues for the company and stable dividends for shareholders.

That can't be said for generation, where market forces rule and profits can be cut by mild weather. In that business, the amount of generation you control -- and the amount of cash you have in the bank -- determines how well a company can ride through those market swings. That business is becoming the domain of a small group of huge companies.

Sierra Pacific's subsidiaries control 3,000 megawatts of power, "but we would be competing with people with 50,000 megawatts (of generation capability) in their portfolio," Rigazio said. "They're willing to accept and handle risks when the market goes up and down. Our expertise is in the wires business."

Investors, of course, demand earnings growth from their investments. Acquisitions are one way to do it.

One element of the Portland General acquisition that has enraged many Nevada officials is Sierra Pacific's promise that some rates will be frozen for PGE customers for the next six years, and that consumers in Oregon will receive $95 million in price credits over the next seven years. The promise comes at a time when Sierra Pacific has been raising rates for Nevada consumers each month to make up for increased fuel costs.

But Rigazio says Sierra Pacific isn't being hypocritical. While some rates will be frozen, Rigazio said PGE has filed to raise rates by $135 million on Oregon customers to recover fuel costs.

But why would an electric company want to acquire a natural gas company like Southwest Gas?

One reason is the same as it would be for buying an electric company -- earnings growth and cost savings through merged operations. But another is the trend of electric companies to position themselves as energy suppliers, rather than just electric companies.

Sierra Pacific Power Co., a subsidiary of Sierra Pacific Resources, already supplies natural gas to 110,000 customers in the cities of Reno and Sparks, making it the second-largest natural gas utility in the state. Picking up Southwest Gas would give it Carson City, Fallon and the Lake Tahoe area, as well as control of the primary interstate natural gas pipeline leading into the Reno area.

In Southern Nevada, meanwhile, Southwest and Nevada Power both serve the Las Vegas Valley. A merger would place both utilities under a single company.

Combining electricity and natural gas into a single package would not be unprecedented in Nevada. Since initiating natural gas service to Reno in 1963, Sierra Pacific has billed customers for both natural gas and electricity on the same bill.