Water board to pursue purchase of Nevada Power Co.

Friday, July 19, 2002 | 10:56 a.m.

Clark County moved a step closer to having a publicly owned and operated power system Thursday as the Southern Nevada Water Authority board unanimously approved a plan to explore the purchase of Nevada Power Co.

The hard work for the water authority and its financial consultants now begins: putting a hard number to the value of the company, wooing company shareholders and selling the proposition to the public. If it happens, the deal will involve billions of dollars and would affect every person in Southern Nevada who flips a light switch.

Bryan Nix, Boulder City councilman and one of the seven elected regional representatives on the water authority board, said it would not be hard to sell the prospect to the millions who depend on Nevada Power for electricity.

Nix's Boulder City residents already have a municipal power system, blending low-cost energy from Hoover Dam with electricity purchased from Nevada Power. He said it works well in his town and could work for the region.

"Power, like water, is a commodity essential for survival, especially in the desert," Nix said. The water authority "is the perfect entity to at least consider this option."

A handful of citizens spoke for the acquisition at Thursday's board meeting, which was uncharacteristically packed with observers. Ratepayers have been hammered by rising power rates.

"This company and the stockholders don't have any kind of record here," said John Biatti, who said he would like the days of 5-cent kilowatt-hours a few years ago to come back. The rate now is about 10 cents per kilowatt-hour, and according to water authority officials is likely to go up more.

"We don't care that Nevada Power says they're not for sale. We don't care about fair negotiating," Biatti said. "We don't care about anything except to find a way out of this mess."

Also speaking for the proposal was state Sen. Joe Neal, a North Las Vegas Democrat who is running for governor.

"We can do no greater service to the citizens of this county than to let this deal go forward," he said.

Pat Mulroy, water authority general manager, said that ever-increasing costs for electricity and questions of reliability forced the water authority to first consider the idea of running a power company three years ago.

The water authority is the biggest single consumer of Nevada Power electricity, spending about $100 million a year to pump water uphill from Lake Mead and to the regional distributors who bring the water to residences and businesses.

"Obviously we have for some time felt that public power was an option that should be explored," Mulroy said.

She stressed that the same rate hikes that have hit consumers in Southern Nevada have also hit the water authority. Reliability issues, such as the prospect of a repeat of the rolling blackouts that affected the Las Vegas Valley last year, also could affect both the authority's ability to deliver water and the residential consumers.

"You cannot discuss the large utility power users without talking about residential users. ... It is one big picture," Mulroy said. "The situation regarding the energy supply in Southern Nevada has been extremely precarious."

Despite the costs of acquiring the company, Mulroy said ratepayers would receive almost immediate reductions in the cost of power if the water authority takes over the company.

The savings would come in several ways. Shareholders would no longer have to receive a 10 percent or so return on equity -- the profit margin that drives private businesses. Also, a public utility would save various federal and local taxes -- although Mulroy and other water authority officials said they would phase out property taxes over decades to avoid a revenue shock to local governments.

Water authority officials and their consultants believe one of the biggest savings would occur immediately because the cost to the public agency to borrow money, for long-term capital construction or short-term purchases of energy off the grid, is far lower for the water authority than it is for the financially troubled Nevada Power.

The board authorized spending up to about $1 million for financial consultants, including multinational Morgan Stanley and Nevada-based Hobbs, Ong and Associates, to look into the feasibility of buying Nevada Power from parent company Sierra Pacific Resources.

Mulroy, Deputy General Manager Richard Wimmer, other water authority officials and the consultants said they could not reveal the estimated total price they could pay for the company, a price tag they would cover by issuing bonds to be paid back over years through ratepayer revenue. Putting out a number now would affect negotiations down the road, they said.

But Andrea Smith, Sierra Pacific spokeswoman, said the "book value" of the company -- defined as assets minus liabilities, including debt, is $1.092 billion.

Lyle Miller, a Morgan Stanley managing director, said any purchase would almost certainly involve a premium to Sierra Pacific shareholders.

Miller said company management could, if it wanted, make the acquisition difficult. But an "open and honest" dialogue between the company and the water authority should avert that impediment, he said.

Miller, Mulroy and allies have consistently said that among the winners in any sale would be Sierra Pacific shareholders -- the men and women who actually own Nevada Power. Stock value for the parent company has tumbled from about $17 a share earlier this year to less than $7 today. The stock opened Thursday at $6.92 and closed virtually unchanged, down 2 cents.

Questions about share value, however, were not on the minds of the water authority board members. Shari Buck, a board member and North Las Vegas councilwoman, said she is "cautiously supportive of the process," but worries about the impact it could have on Nevada Power employees.

Mulroy said if an acquisition occurs, most company employees will keep their jobs, contracts and unions. There are huge problems at the company, she said, but "the problem has never been the employees."

"The employees are not the problem," Mulroy said. "You would want those employees in place."

Smith said Nevada Power has 1,800 employees in Southern Nevada.

Although Mulroy said any deal has to make sense for both Sierra Pacific shareholders and the ratepayers of the region, the company is clearly leery of the proposal.

"We still feel, as was pointed out at the meeting, that there are a lot of unanswered questions about the viability of a public utility," Smith said.