Sierra Pacific stock falls on new woes

Wednesday, April 24, 2002 | 11:12 a.m.

Nevada Power Co. parent Sierra Pacific Resources announced Tuesday that it's suspending payment of its quarterly stock dividend because of its shaky financial situation.

Sierra Pacific stock fell 7 percent on the news this morning, declining 66 cents to $8.66.

The decision by Sierra Pacific's board of directors Tuesday came on the same day the company learned that its credit ratings were further downgraded by Standard & Poor's.

"Because of the company's weakened financial condition, we had no choice but to suspend the common stock dividend," Walt Higgins, Sierra Pacific's chairman, president and chief executive officer, said in a statement.

The suspension of the dividend payment for the quarter ending June 30 will save the company an estimated $20.4 million. If the suspension continues beyond that point, the company would save a similar amount of money in subsequent quarters.

The quarterly dividend was 25 cents per share after Nevada Power merged with Sierra Pacific in 1999. After the company suspended a quarterly dividend payment last spring, it resumed by paying 20 cents per share per quarter in August. The last quarterly dividend of 20 cents per share was paid by the company on Feb. 20. Sierra Pacific, whose stock is traded on the New York Stock Exchange, had 25,019 shareholders of record as of last month.

Joyce Newman, president of the Utility Shareholders Association of Nevada, said suspension of the dividend was to be expected given the March 29 ruling by the state Public Utilities Commission that granted Nevada Power only $485 million of the $922 million it was seeking from ratepayers for energy used last year.

"I'm not sure what will happen to the stock price," Newman said. "But for investors it's a pretty significant event. It will hurt those who depend on the dividends."

State Consumer Advocate Timothy Hay, a critic of the utilities, also said suspension of the dividend was understandable.

"It appears to be an appropriate move for a business that is undergoing the financial concerns they've expressed," Hay said.

Standard & Poor's on Tuesday reduced the utilities' rating for secured debt -- that which is secured by company assets -- from investment-grade triple B minus to double B, which is speculative or "junk" status. The overall corporate credit rating of Sierra Pacific and its subsidiaries, already at junk status, was also lowered from double B to single B plus.

The rating downgrades could make it more difficult and expensive for the embattled utilities to borrow money to pay for energy contracts. The announcements on the dividend suspension and credit rating downgrades came on the heels of a scheduled meeting today between Sierra Pacific and its power suppliers during which the utility planned to discuss its financial status.

Nevada Power spokeswoman Andrea Smith said the company received notification of the credit downgrades and "we're studying its effect on our financial situation."

Standard & Poor's initially downgraded the utilities' corporate credit rating from triple B to double B following the PUC ruling. Wall Street analysts, as well as Standard & Poor's, expressed shock over the severity of the PUC decision and Sierra Pacific's stock took a nosedive.

"The rating actions follow a detailed review of the liquidity situation of the Nevada-based Sierra Pacific by Standard & Poor's and reflect the considerable short-term challenges that the company faces in 2002," Standard & Poor's credit analyst Swami Venkataraman said in a prepared statement.

The agency stated that Nevada Power is "unlikely to meet any level of collateral calls related to its purchased power obligations; it faces serious challenges in renegotiating purchased power contracts, even in the event that counterparties' collateral concerns are sufficiently allayed; and any incremental exposure to peak power prices would require access to the capital markets, which would not be ensured, to meet working capital requirements."

In noting the possibility that Sierra Pacific could default on its energy contracts, Standard & Poor's also stated its concerns that the utility may not be able to recover a sufficient amount of money from ratepayers for energy used this year. Nevada Power has already stated that it may have to seek as much as $260 million more from ratepayers for energy used this year.

Nevada Power also has said it hoped to absorb the $260 million by negotiating long-term energy contracts provided it had received the full $922 million for energy used last year. But when the PUC disallowed $437 million of that request, Nevada Power said the ruling placed the company in financial jeopardy and also put future long-term contracts at risk. The company has sued the PUC in Carson City District Court in an effort to receive the full $922 million.

Sierra Pacific has purchased enough energy to meet 107 percent of average peak demand for this summer in accordance with state regulations. But Standard & Poor's expressed concern that a hot summer could force the company to make additional energy purchases at high prices and impose "an additional liquidity burden" because maximum summer peaks can reach 120 percent of the average.

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