Sierra Pacific shares down just moderately on dividend suspension

Monday, April 16, 2001 | 11:18 a.m.

Shares of Sierra Pacific Resources Inc. were falling moderately today in the first Wall Street session since the company announced it was suspending payment of a 25-cent quarterly dividend scheduled May 1.

Late this morning, the stock was down $1.12 to $13.38, a drop of 7.7 percent from Thursday's closing price. The New York Stock Exchange was closed for the Good Friday holiday.

An analyst concluded that sales activity hasn't been as bad as expected.

"There's a ton of volume involved here, so I think a lot of retail guys are getting out, but some institutional buyers are coming in right behind them, betting that the legislation is going to pass," said Ron Tanner, a utilities analyst with Legg Mason.

Tanner was referring to Assembly Bill 369, legislation that would reinstate deferred energy accounting in Nevada, giving Sierra Pacific, the parent company of Nevada Power Co., a means to recover fuel and purchased power costs that have crippled the company.

Deferred energy accounting was eliminated when Nevada geared to deregulate the electricity industry -- a move that never occurred because Gov. Kenny Guinn, who had authority to give deregulation the green light, was never convinced that it would be in the public interest in light of energy problems that surfaced in California.

Sierra Pacific officials said Friday morning that the company's board of directors met Thursday and decided to suspend payment of the dividend -- a move that would save the company about $18 million to $20 million. Company officials said that amount was "miniscule" when compared with the millions of dollars the company is losing with its inability to recover fuel and purchased power costs.

Fuel and purchased power costs have risen dramatically since last year because of skyrocketing natural gas prices.

The company has been allowed to recover a portion of those costs through monthly increases that have raised rates for some customers by more than 50 percent. A comprehensive energy plan that includes a rate increase of up to 28 percent is pending before the Nevada Public Utilities Commission.

The Sierra Pacific board of directors said it would review dividend policy at a board meeting scheduled May 21 in conjunction with the company's annual meeting. The board has approved payment of $1 a year in dividends since Sierra Pacific and Nevada Power merged in 1998.

The board also directed the company to continue a range of cost-control programs that have been undertaken to reduce expenses other than safety and customer-service concerns. Reductions have included a slowdown in hiring, reduced administrative expenses and elimination of incentive pay this year for executive staff.

Tanner said eliminating incentive pay sends the right message to the public and indicates the company is doing all it can to strengthen itself financially.

Still, he said the dividend cut was unexpected and the resulting stock selling today was bad news for the company as well as shareholders.

"I don't think investors were expecting this," Tanner said. "We had alerted investors that there was a small chance that they (Sierra Pacific) would cut the dividend to 75 or 80 cents."

He said, ironically, in Sierra Pacific's bid to distance itself from the California energy crisis, it may have drawn the company closer to it, since two California utilities -- PGE Corp. and Edison International -- also cut their dividends. PGE eventually filed for Chapter 11 bankruptcy protection.

"The company (Sierra Pacific) is in serious trouble because energy costs are high and revenues don't cover those energy costs," Tanner said. "When you need serious relief and you don't get it, you wind up like PGE Corp. And, as far as investors are concerned, losing the dividend will be the last straw for some and they'll be getting out."

Joyce Newman, president of the Utility Shareholders Association of Nevada, said Sierra Pacific's move should rally the state's lawmakers to pass needed legislation.

"We're concerned that the continuing uncertainty and instability in the energy markets have made it necessary to not pay the dividend at this time," Newman said in a statement issued today. "This action underscores the importance of Assembly Bill 369 being considered by the Nevada State Legislature. On behalf of its tens of thousands of members, USAN applauds the efforts of the Legislature and Gov. Guinn to address this crisis situation."

Tim Hay, the state's consumer advocate, said Sierra Pacific's decision was a sound one to help the company re-establish its financial abilities.

"We think it's an indication that the company has finally realized that the shareholders have to shoulder some of the burden that the ratepayers have been stuck with," said Hay.

He said before the two power companies merged, Sierra Pacific once lowered its dividends, taking a brief hit on the stock market, but allowing the company to return to financial health.