Nevada Power’s struggle for survival

Friday, April 26, 2002 | 5:12 a.m.

WEEKEND EDITION: April 28, 2002

Despite its precarious financial outlook and tattered image, Nevada Power Co. has history on its side.

One of Las Vegas' oldest companies, Nevada Power has survived despite suffering major crises every 20 to 30 years since its formation in 1906, when it was known as Consolidated Power and Telephone.

Now faced with possible insolvency that it blames on state regulators and the Western energy crisis, Nevada Power is again fighting for its life.

Observers say the company has handled its ongoing rate case poorly, particularly in the area of public relations. But they say the company should survive even if it is forced to file for bankruptcy. That, they say, is because of the company's history of dealing with crises and the nature of utilities.

Only three other investor-owned U.S. electric utilities have ever filed for bankruptcy, according to Edison Electric Institute, a trade association in Washington. All three stayed in business.

Public Service Co. of New Hampshire, which filed in 1988, survived as a subsidiary of another utility. El Paso Electric Co., which filed in 1992, is still serving customers. And Pacific Gas and Electric Co., the California utility that declared bankruptcy last year, is on its way to recovery.

"Utilities are a pretty safe investment, and there's a disinclination to have them go out of business," Edison Electric spokesman Jim Owen said. "With PG&E, things are probably looking better than they were a year ago. The worst seems to be over."

But Nevada Power is not out of danger. Veteran local image maker Kent Oram's opinion polls in the past month show Nevada Power has negative-image ratings of 59 percent to 65 percent among those polled, he said. Compared to local politicians and government agencies, Oram said Nevada Power had by far the highest negatives, a problem he attributed to bad publicity.

"I don't see anybody standing up defending (it)," Oram said.

He also placed some of the blame on energy traders employed by Nevada Power.

"They have had rookies and amateurs buying their power and that put them in a financial bind," he said. "Utilities are easy to bash. I wouldn't take on the assignment of representing them. But you tend to think they will stay in business because monopolies tend to survive. I would be shocked if they couldn't make it."

Fellow political operatives Tom Letizia and Dan Hart also said they believed Nevada Power has suffered from poor public relations.

"From an image point of view everyone likes to bash the power company," Letizia said. "It's a popular message for politicians, but in a sense it's unfair.

"I kind of sympathize with Nevada Power's position, but from an image standpoint they (executives) have a lot of work to do. They have to step up their public relations effort to another level. They have to reach out to the community."

Hart said one of Nevada Power's biggest problems is that it attacked its critics more than enhanced its own image. Its chief critics have been the state Public Utilities Commission -- which granted the company only $485 million of the $922 million it was seeking from ratepayers for energy used last year -- the Bureau of Consumer Protection and MGM MIRAGE.

"I would not have recommended to (Nevada Power officials) that they conduct themselves the way they have in the past couple of months," Hart said. "They have been pretty aggressive in criticizing the PUC. I don't think this has served them well.

"They could have made a stronger case and a more direct case to their customers, explaining more dramatically how they've kept the lights on and how hospital respirators kept operating. There's definitely a sense that they feel entitled to this rate increase. But I don't think ratepayers have been convinced of that entitlement."

Hart, a ex-consultant to former Las Vegas Mayor Jan Laverty Jones, said he would have advised executives take a "warmer and fuzzier" approach.

"Their approach wasn't humanized at all," he said. "It was about numbers. It wasn't about the 70-year-old woman living alone whose lights they kept on. If they do survive financially, I think it's absolutely necessary to rebuild their image because it has been extremely hurt during this process."

It is not too late to repair that image, Letizia said. He said Nevada Power could do a better job of breaking down the complexities of its financial situation into simple concepts that the public can grasp. He said he would recommend a media blitz using those concepts along with charts and graphs.

"They have to get their message out in a simple way that people can understand," Letizia said. "You almost have to design the message where a 10-year-old kid could understand. That's where they have failed. They have failed to boil it down to layman's terms."

Despite suggestions that the Southern Nevada Water Authority or another government agency replace Nevada Power, University of Nevada, Las Vegas political science Chairman Ted Jelen said he doesn't believe the utility's problems will be much of a factor in the November elections.

"My sense at this point is that it's too complicated," Jelen said. "Election issues have to be pretty simple."

Same side

Another reason Nevada Power would not carry much weight in a political campaign is that "everyone is on the same side of the issue," he said.

"No one wants higher electric rates," he said. "It's different than a position like gay marriages, where there are two sides."

The only candidates who would tend to latch onto an issue such as Nevada Power are those behind in the polls who are acting out of desperation, Jelen said.

"Gov. Kenny Guinn would prefer not to think about anything like this between now and November," Jelen said of the governor, a prohibitive favorite to gain re-election.

Letizia, a former campaign consultant to Las Vegas Mayor Oscar Goodman, also said he would advise against using Nevada Power as a campaign issue since "a lot of things are still pending." The utility, for instance, has filed a lawsuit in Carson City District Court against the PUC to get the full $922 million. The Bureau of Consumer Protection conversely has asked the PUC to reject the $485 million it granted to the utility.

"They are fighting for their survival," Letizia said of Nevada Power executives. "You can no longer look at them as the bad guys making money if they go bankrupt. A bankruptcy is not good for anybody. I hope they do survive. I'd rather keep what we've got. I'd be rather leery about changing right now."

After the PUC's March 29 decision to disallow $437 million of Nevada Power's request, the credit rating of parent Sierra Pacific Resources was downgraded by Wall Street, and the company's stock plummeted more than 40 percent.

Unlike other companies faced with possible bankruptcy, however, Nevada Power has unique business characteristics that can be used to its advantage.

"As a utility (it's) different from almost any other type of business," Joseph Gilbert, UNLV associate professor of management, said. "They can't pick their customers and they can't set their own prices. But with most other companies you can go to another provider. You can't go away from Nevada Power.

"I can't imagine Southern Nevada without Nevada Power. There's no substitute. There's no competition for electrical power in Southern Nevada. It would be hard for anyone to knock it out. If you want to be a new power company, what you would have to build would be incredible."

Gilbert said that Nevada Power, to its credit, has kept the lights on in Southern Nevada and has kept up with growth.

"To some degree power companies are like food in the Army," he said. "People complain about them all the time."

That the company has been able to survive for nearly 100 years is partly because of what it sells, Gilbert said.

"Nevada Power is selling something everybody has to have," he said. "It's hard for anything to survive in Las Vegas for 100 years. You may have different managers take over, but I think the company will go on and on."

That has been its pattern. It is a company that at various times has been led by some of the most powerful men in Southern Nevada. It is also a company of firsts.

It was the first utility served by Hoover Dam and the first Nevada company to have its common stock listed on the New York Stock Exchange. It was also Clark County's No. 1 property taxpayer before the emergence of Strip megaresorts.

Nevada Power, which has been known by that name since 1961, encountered its first major community crisis in 1935. That was the year Leonard Arnett was elected Las Vegas mayor. Arnett ran on an anti-establishment platform that included turning the utility into a municipal power company.

Inadequate power

"The feeling was that there was inadequate power and that the rates were too high," UNLV history professor Eugene Moehring said. "The whole community was in a tizzy over this."

The city formed Las Vegas Power Board, and residents passed a bond issue to take over the company. But the company's powerful backers, including banker Ed Clark, and a group of anti-tax advocates convinced the board to reject the municipal utility idea. A frustrated Arnett resigned before his term expired, Moehring said.

The next crisis occurred in the early 1950s, when the city and the federal government both threatened to put the company out of business. The city was frustrated over the utility's failure to keep up with growth. The government, engaged in the Korean War, expressed concern over whether the utility could provide enough power to Southern Nevada chemical companies that participated in the war effort.

"The problem the local power company has always had is keeping up with our rate of growth," said Michael Green, Community College of Southern Nevada history professor. "It's like the story of the little boy who has his finger in a dam to keep it from busting. Nevada Power has had (its) finger in every dike."

Green said the upshot of the threats from local and federal officials was that the utility replaced one president, Samuel Lawson, who was unwilling to spend company profits on expansion with another, Reid Gardner, who led efforts to build new generating plants in the 1950s.

Nevada Power suffered yet another public relations disaster in the early 1980s when its rates began skyrocketing, a situation it blamed on attempts to keep up with growth. During his successful 1982 gubernatorial bid, Richard Bryan urged angry ratepayers to honk their horns when they passed Nevada Power's headquarters.

Ratepayers formed a protest group, questioning the utility's spending practices. The Nevada Legislature also passed a law that forced the company to submit periodic resource plans to the PUC in which it has had to justify expenditures to build or expand generating plants, transmission line substations and power lines. Nevada Power again persevered.

"They always reacted when threatened," Green said. "They know when to hold them and when to fold them. The history lesson is that Nevada Power and its predecessors adapted. They have adapted to change."

The need to adapt

But Green also said that Nevada Power, which merged with Sierra Pacific in 1999 and has since undergone radical management changes, has not yet shown it can adapt to its current crisis. One of the biggest complaints against Nevada Power is that it has displayed poor judgment in the way it has purchased energy.

"Have they managed their corporate structure well?" Green said. "The answer now is no.

"If Nevada Power survives, and I think it will, it figures to survive in some form. If that form is greatly altered, such as if the merger is taken apart or if they serve only a certain group of customers, the differences will be apparent. But if they come out of this looking much the same as they do now, this will be a topic guys like me will be talking about in history books but no one else will care."

Moehring doesn't see Nevada Power's dissolution anytime soon.

"What keeps them afloat is they have maintained their monopoly," he said. "They definitely have the lobbyists. I've got news for you. They'll work it out."

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