Nevada Power unsure about rate hike

Thursday, Aug. 15, 2002 | 11:10 a.m.

SUN STAFF AND WIRE REPORTS

Sierra Pacific Resources, owner of Nevada Power Co. in Las Vegas and Sierra Pacific Power in Reno, said Wednesday it's gaining financial strength during the summer months after setbacks in the spring and isn't sure if it will have to request a rate increase for Las Vegas consumers in November.

The two utilities have been building up cash reserves since June 1, Sierra Pacific Chief Executive Officer Walter M. Higgins said on a conference call with investors after the company reported a loss of $41.9 million after writing off $53.1 million in the Reno utility's power-purchase costs that couldn't be passed on to consumers.

Nevada Power posted a profit of $5.66 million in the second quarter ending June 30.

"There is no current merit in a bankruptcy filing," Higgins said, easing fears of a bankruptcy that arose in the first quarter when Nevada Power had to write off $311 million in power costs that were disallowed by regulators.

The company expects to pay all overdue bills to suppliers by the end of next year because power costs have fallen, Higgins said.

Shares of Sierra Pacific rose 39 cents Wednesday to $6.50. They have fallen 60 percent in the past year.

Nevada Power could seek a rate increase in November to recover $400 million in purchased-power costs from Oct. 1, 2001, through Sept. 30, partly to pay overdue bills from suppliers, the company said in a regulatory filing. Sierra Pacific Power expects to seek a $92 million rate increase in January.

The utilities, however, are negotiating with some suppliers for lower prices and have asked federal regulators to order refunds, Sierra Pacific spokesman Karl Walquist said. It's also fighting a $300 million claim by Enron Corp. for power the bankrupt trader didn't deliver. The results will determine the size of the rate-increase request, Walquist said.

"At this point, we really don't know if we will file for a rate increase and it's possible that we won't," Walquist said. "There are issues pending for a large amount of that deferred balance."

"A significant disallowance" of those costs by regulators might trigger a debt downgrade and lead to insolvency, the filing said.

Sierra Pacific Power in Reno spent about $205 million more for power from December 2000 to November 2001 than it could charge customers under state law. Nevada regulators allowed the utility to raise rates to recover $149.2 million beginning June 1.

Sierra Pacific incurred the losses during an energy crisis in neighboring California, when some electricity prices soared as much as 100-fold above year-earlier levels.

Since June, lower power costs helped Nevada Power build up $80 million in cash, and Sierra Pacific has $110 million, Chief Financial Officer Dennis D. Schiffel said on the call.

"The issue is what regulators are going to do," said Legg Mason Wood Walker analyst Ronald Tanner, who rates the stock "hold" and doesn't own any.

Sierra Pacific can shed debt by selling Nevada Power, he said. The Southern Nevada Water Authority, which supplies water to Las Vegas, has proposed buying the unit. Refinancing the utility with tax-exempt debt would lower interest costs, savings that the authority to pass on to consumers, Tanner said.

The authority hired Morgan Stanley last month to advise on a bid for the power company. Sierra Pacific has hired UBS Warburg as financial adviser, Higgins said.

"The Nevada Power subsidiary is not for sale," he said.