Nevada Power parent calls fuel costs ‘crippling’

Tuesday, Feb. 20, 2001 | 11:18 a.m.

Nevada Power Co.'s parent company reported worse-than-expected losses today as high wholesale prices for fuel and purchased power continued to hurt the state's top electricity producer.

Sierra Pacific Resources Inc., Reno, reported a loss of $18.2 million or 23 cents a share for the quarter ending Dec. 31. That compares with a profit of $26.8 million, 39 cents a share, excluding a $56 million write-off a year ago. Including the write-off, the company lost $29.2 million, 42 cents a share, in the fourth quarter of 1999.

"Your utility is causing me a great deal of stress," said Ron Tanner, managing director of utilities research for Legg Mason Inc., Baltimore, who follows the company.

Tanner said the biggest problem Sierra Pacific faces is its inability to collect from its customers the expense of fuel it must pay to suppliers.

"This is a risk that should not be borne by the shareholders," Tanner said.

Tanner said ratepayers are being subsidized by policies approved by the Public Utilities Commission of Nevada. He said the situation is "very comparable to California," and that customers don't know how much energy really costs and, as a result, are not conserving it.

In a statement accompanying today's earnings announcement, Mark Ruelle, senior vice president and chief financial officer of Sierra Pacific, said the company needs a major rate increase to offset expenses.

"This loss is clear evidence that this problem is real and growing," Ruelle said. "Our employees have done a magnificent job keeping the lights on in Nevada and reducing expenses throughout our operations during this extraordinary period. However, without some rate relief, the cost of fuel and power is close to crippling our ability to serve the needs of our customers."

Ruelle said the company has reduced operational expenses by nearly 10 percent as a result of the 1999 merger of Nevada Power Co. and Sierra Pacific Power Co. But those savings have had little impact on the company's bottom line in light of fuel and purchased power costs that are up 115 percent in 2000 over the previous year.

Ruelle said the company was hurt by nearly $258 million in unanticipated fuel and purchased power costs during the quarter and $889 million for the year.

Experts expected the losses reported today, with the only question being how vast the sea of red ink would be.

A year ago, the company filed suit against the state, calling its electricity deregulation law unconstitutional.

A court settlement between the company, the Public Utilities Commission and the state's consumer advocate enables the company to make monthly requests for rate increases to recover the cost of fuel. But the level of increase the company can seek is capped and the cost of fuel has risen faster than the maximum amount the company could collect.

Since August, the company has sought and received rate increases monthly. A rate increase request for March is on Thursday's PUC agenda. Last month, the company unveiled a comprehensive energy plan that included a record $300 million-a-year rate increase, which would raise an average customer's bill by $12.63 a month, or 17 percent.

Consumer Advocate Tim Hay says he'll move to block the increase.

There have been other indications that earnings would be off.

In numerous public appearances, Sierra Pacific Chief Executive Officer Walt Higgins has emphasized how critical rate increases are to the economic health of the company and that in its weakened state, Sierra Pacific would soon have its ability to borrow money affected.

Earlier this month, Sierra Pacific's stock fell to a 52-week low of $10.56 a share. Today, it was trading at $11.76, down 7 cents from Friday's closing price. Earlier in today's session, the stock was up 14 cents.

The company did pay its 25-cents-per-share quarterly dividend to shareholders on Feb. 1.

Of five analysts following the company's stock, three have a "hold" position, one suggested a "strong buy" while one had no opinion.