Water board plans bid for Nevada Power

Monday, July 15, 2002 | 11:06 a.m.

The Southern Nevada Water Authority announced today that it is proposing to make an offer to buy privately held Nevada Power Co.

Authority General Manager Pat Mulroy said this morning that she will ask the authority's board Thursday to hire a financial consultant and an investment firm to study and develop an offer to buy the utility from parent company Sierra Pacific.

Mulroy said her agency will pursue a buyout if it "will significantly reduce (electricity) rates, will be good for Sierra Pacific shareholders and is generally good for the economy of Southern Nevada."

Sonya Headen, a Nevada Power spokeswoman, said the company would not have a comment until it studied the offer in more detail.

"At this point in time, we're not for sale," she said.

Nevada Power, which provides electricity to the southern half of Nevada -- almost 2 million people, has been plagued by problems and controversies over the last year. A year ago, residential customers saw blackouts as electricity was cut in rolling blackouts affecting the Las Vegas region.

In April, the Nevada Public Utilities Commission cut a Nevada Power request for a $922 million rate increase in half. The rate issue was followed by the resignations of three of the company's top executives.

Mulroy said this morning that any acquisition of Nevada Power would be friendly -- and so would avoid a state law that restricts public agencies from making hostile takeovers of a company. The water authority, the public agency responsible for wholesale delivery of water to about 1.5 million people in Clark County, is Nevada Power's biggest single customer.

On Thursday Mulroy and the authority staff will ask the agency's board to approve $270,000 for consultants Hobbs, Ong and Associates "to assist the Southern Nevada Water Authority in any negotiations with Nevada Power Co., and to serve as financial advisers to the authority in any resulting financing."

Mulroy also will seek $200,000 to hire Morgan Stanley and Co. to actually develop an offer to purchase the power company.

Hobbs, Ong is a leading tax and financial consulting firm based in Nevada. Morgan Stanley is a multinational investment firm with significant experience in mergers and acquisitions.

Mulroy called a buyout, which would undo a 1999 merger with Sierra Pacific Resources, a "good solution" for power customers hit by escalating rates and shareholders battered by plummeting share prices.

"Our preliminary analysis shows that there is a clear opportunity out there," she said. "It would be irresponsible not to explore that opportunity."

Although the authority has analyzed the issue of a buyout, Mulroy said she could not discuss a purchase price because it would affect eventual negotiations.

Joyce Newman, president of the Nevada Utility Shareholders Association, said members of the group will be interested in what the authority have to say.

"We hope that whatever offer is made is in the best interests of the shareholders," she said.

Shareholders have seen Nevada Power stock price tumble since the merger with Sierra Pacific in 1999. Prices that were at around $17 a share then are now trading at about $7, Newman said.

Mulroy said the water authority was in the process of letting Nevada Power executives know of their plans Monday morning.

But those executives knew that some at the water authority and in county government favored such a move.

Clark County Commissioner Myrna Williams, who is one of seven regional representatives on the water authority board, said the buyout needs to be explored.

"It's something that we've obviously been thinking about," she said. "It's friendly offer. We want to have a reliable source of energy because it's so critical to us in the desert. We want it to be reliable and we want it to be stable."

On July 2, the Clark County Commission voted to put a nonbinding referendum on the November election ballot asking Southern Nevada voters if they favored a public utility taking over the power company.

Mulroy said any offer would be made only if it did not affect the water supply side of her agency's operations.

State Consumer Advocate Timothy Hay, who has been critical of the power company, said a buyout would have significant benefits for power consumers and for Nevada Power shareholders.

"Obviously there would be a lot of issues relative to the valuation of the assets," Hay said. "But I believe that a structure like that, essentially a buyout, could be the light at the end of the tunnel for both shareholders and ratepayers."

"We'll want to take a careful look at the numbers, but I think this is a very beneficial step forward," Hay said.

Sun reporters Steve Kanigher and Stephen Curran contributed to this story.