Monday, Aug. 19, 2002 | 11:19 a.m.
The Southern Nevada Water Authority is scheduled to vote Thursday on whether to give general manager Pat Mulroy authority to make an offer to purchase Nevada Power Co. from Sierra Pacific Resources.
The seven-member authority, made up of elected officials from Clark County and the cities of Las Vegas, North Las Vegas, Henderson and Boulder City, will hear a presentation from financial adviser Morgan Stanley of New York.
If the board gives its approval, Mulroy could make an offer "within a day or two," said Dick Wimmer, deputy general manager of the water authority.
"This is still a work in progress," Wimmer said of the Morgan Stanley recommendations.
Authority spokesman Vince Alberta said today that the presentation will include a recommendation on a purchase price for Nevada Power, along with estimated savings for electricity ratepayers. Those figures will not be released until Thursday, however.
"If there is a savings for customers, we will go forward with this request," Alberta said. "Any potential agreement would have to produce significant savings for electricity customers while not affecting the water rates."
The water authority is Nevada Power's largest customer largely because of the amount of electricity it takes to pump water from Lake Mead to Southern Nevada customers.
Sierra Pacific Chairman Walt Higgins told Wall Street analysts as late as last week that Nevada Power was not for sale. Sierra Pacific spokesman Jack Leone said today that the company has not yet seen Morgan Stanley's recommendations.
"If an offer is presented, obviously we would look at it," Leone said. "If it's a reasonable offer, it is the fiduciary responsibility of the directors to look at it."
If Mulroy is given the authority to proceed, Morgan Stanley would be retained to help with the negotiations, Wimmer said.
Water authority board members reached this morning said that they have not had time to review the agenda item, but characterized the move as a necessary step. All seven, who represent governments from throughout Clark County, approved the initial step to hire Morgan Stanley Co. to investigate the value of Nevada Power.
The board will meet at 9 a.m. Thursday to discuss the issue.
Clark County Commission Chairman Dario Herrera said that if the promised savings on power rates for the consumers can be backed up, negotiations should commence as soon as possible.
"It's critical that we follow up on the Water Authority's plan to buy Nevada Power," Herrera said. The buyout would "provide lower power rates for our constituents and have a power company responsible to ratepayers and not to stockholders and corporate executives."
He said the need for additional rate hikes, including an increase the company is now seeking, would evaporate "because of the advantages of a not-for-profit, publicly owned company."
Boulder City Councilman Bryan Nix said it makes sense to open negotiations now, but added that any deal will have to come back before the seven-member water authority board for approval.
He said Thursday's presentation by Morgan Stanley consultants will be an important one for the board members.
"We aren't going to do this unless it makes sense for the customers," he said. "If they come back and it looks like the offer makes sense, we'll authorize Pat to begin negotiations.
"Anything that happens there will have to come back to the board," Nix said. "Making an offer at this point is not a blank check."
Henderson City Councilwoman Amanda Cyphers said board members will look carefully for actual savings to the customers.
"Morgan Stanley is still going over the numbers right now," Cyphers said. "I couldn't even tell you the numbers yet.
"If the numbers look good, if there could be a significant savings to the citizens of the valley, then we could make a motion to move forward. Or not -- This is not about making a power play," she said.
"There's obviously a cost savings. We just want to make sure it's enough."
Nevada Power's future was placed in doubt in March when the state Public Utilities Commission granted the Las Vegas utility only $485 million of the $922 million it was seeking for energy used last year. The decision caused parent Sierra Pacific's stock to plunge 60 percent on the New York Stock Exchange and downgraded the company's credit rating to "junk" status.
In morning trading today, Sierra Pacific stock was trading at $6.36 a share and its outstanding shares were worth a combined $649.4 million. Before the PUC decision, Sierra Pacific's stock was worth about $1.5 billion.
With net assets of $1.092 billion as of March 31, some analysts have speculated that a fair price for Nevada Power would be in at least the $10 to $12 per share range.
Proponents of public power say that utilities run by government usually charge lower rates for electricity than is true of the private sector. They also argue that local control gives ratepayers more of a say over electricity decisions.
The water authority also happens to have a "double A" bond rating, meaning it can borrow money at much cheaper rates than is true of Nevada Power.
Opponents of public power argue, however, that private utilities often are more efficient and do a better job allocating money for capital purchases.
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