Nevada Power, PUC differ on firm’s financial outlook

Malcolm Hall

Tuesday, Feb. 5, 2002 | 11:07 a.m.

Nevada Power Co.'s shaky credit rating was at issue Monday during the first round of the company's $22.9 million general rate case before the Public Utilities Commission of Nevada.

While Nevada Power witnesses say a massive infusion of equity is necessary for it to maintain a solid footing in the financial community, opponents of the rate case downplayed the company's credit situation and said the utility is poised for a comeback.

In pre-filed testimony, Richard Atkinson, treasurer of Nevada Power parent Sierra Pacific Resources, said the company's current financial situation is "precarious" at best.

"The company has endured significant financial distress during the past year primarily due to extreme price volatility in wholesale power markets," he said. "On more than one occasion over the last 12 months, this volatility has driven the company to the brink of insolvency."

Atkinson said Nevada Power's debt ratings have been downgraded to just one step above the minimum investment grade level and the company's current ratings have been assigned a negative outlook by the rating agencies.

He also cited a Standard & Poors statement from last July, which said Nevada Power's weak financial condition resulted from its inability to fully recover elevated fuel and purchased power costs in a timely fashion.

But Ron Knecht, staff economist for the Public Utilities Commission of Nevada, countered during cross-examination that the investment firm Lehman Brothers has been putting out weekly "strong buy" recommendations on Sierra Pacific Resources stock.

And while Knecht pointed out that Standard & Poors' BBB- credit rating indicates the security is on credit watch and could possibly be downgraded, he said the rating agency also notes the near-term expectation of a "substantial infusion" of equity.

"That kind of language says to me that Nevada Power has suffered severe setbacks but that its forward-looking prospects are much better and with reasonable regulatory treatment on its deferred energy balance, is back on its way to financial health," he said.

At issue in this phase of the case determining a fair rate of return on equity, with Nevada Power asking for 12.5 percent and opponents countering with rates from 8.6 percent to 10.5 percent.

Interested parties also say Nevada Power's general rates should be reduced by as much as $107 million instead of increased by $22.9 million a year.

Under cross-examination from Fred Schmidt, an attorney representing the Southern Nevada Water Authority, Atkinson agreed that the percentage rate of return on equity is the highest of all rates in the company's capital structure.

Atkinson said the percentage can fluctuate up or down over time, but the company's goal is to "increase that percentage to support a more solid credit rating" without which the company's ability to buy fuel and power is in danger.

Hearings on the $922 million case begin March 4.

The current portion of the hearing is expected to continue over the next three days, followed by sessions covering revenue requirements and depreciation rates. The commission has reserved Feb. 7-22 for these issues, including prepared rebuttal by Nevada Power that is expected to begin late Wednesday. 0000.01