Sierra Pacific eyes Southwest Gas as potential target

Wednesday, Sept. 20, 2000 | 11:37 a.m.

Nevada's dominant electric utility may be interested in acquiring Southwest Gas Corp. of Las Vegas.

If Sierra Pacific Resources can improve its financial position and Southwest Gas is not encumbered by litigation from a failed acquisition attempt, Sierra Pacific might consider courting the gas company, said Walter Higgins, newly appointed chief executive officer of the Reno-based Sierra Pacific.

Sierra Pacific is the parent company of Nevada Power Co. of Las Vegas.

Higgins made the remark in response to a question in a luncheon of the Utility Shareholders of Nevada Tuesday. Higgins addressed about 400 shareholders in a speech explaining what the company is doing to regain its financial footing during a turbulent period while Nevada presses toward deregulation of the electrical industry.

Asked if Sierra Pacific would consider buying the gas company, Higgins said his company would think about it after improving existing finances and finalizing the deal to acquire Portland General Electric in Oregon.

"It's actually a trend for one utility to have both gas and electric," Higgins said. "But they (Southwest Gas) have to want to be sold. Right now, they're dealing with litigation involving a deal with a company called ONEOK and I'm sure that's going to take some time to resolve."

Sierra Pacific operates a natural gas subsidiary in Northern Nevada.

ONEOK, a Tulsa, Okla., regional natural gas company, announced plans to buy Southwest last year, but the deal collapsed in January.

A spokesman for Southwest Gas said there are no plans involving Sierra Pacific.

"It's way too premature to even think about that," said Southwest Gas spokesman Roger Buehrer. "We have too much on our plate right now."

Higgins, who replaced Michael Niggli as the top company executive of Sierra Pacific last month and will be based in Las Vegas, spoke for more than an hour Tuesday, reassuring shareholders that one of his goals is to boost the company's stock price.

Higgins said he believes the stock is undervalued, plummeting by more than 100 percent after Sierra Pacific merged with Nevada Power Co. last summer and state utility regulators did not allow Nevada Power to raise rates to pay for rising fuel costs in early 2000.

When fuel costs skyrocketed -- just as they did at the gasoline pump this year, Higgins said -- the company began struggling financially and filed suit against the state to recover costs from ratepayers as they had for years under a regulated industry.

In the transition to deregulation, the state prohibited recovering fuel costs, which Higgins said rose more than anyone anticipated. The settlement reached in the lawsuits enables Nevada Power to request rate increases monthly at capped levels.

That doesn't sit well with the Nevada Legislature, which passed a law freezing rates. Now, lawmakers are reconsidering deregulation and plan to reconsider it at its next session.

Higgins told shareholders he's still a proponent of deregulation and is pressing ahead with the utility company's plan to sell its power plants, which was a condition of the Sierra Pacific-Nevada Power merger. An auction is planned next year and he said several buyers have expressed interest.

He said the company is protecting itself from the skyrocketing utility rates experienced in California by incorporating long-term power buy-back deals in the power plant sales. That, he said, would help shareholders as well as ratepayers.

Higgins said California utilities are buying power on the open market at dizzying rates, leading to utility bills that are three times higher than they were a year ago in the San Diego area.

Higgins warned that if Nevada lawmakers derail the settlement agreement reached with large utility users and the state consumer advocate's office, it "would strongly affect the financial stability of our company."

He said the agreement balances the needs of residential customers as well as large users.