Power company says it could go broke

Tuesday, June 4, 2002 | 10:58 a.m.

A Nevada Power Co. executive said the utility could run out of cash by the end of the month but added that it could remain solvent for at least the next six months if state regulators approve its request to carry more long-term debt.

Company treasurer Richard Atkinson, testifying Monday before the state Public Utilities Commission, said Nevada Power has slightly less than $64 million cash on hand.

But in testimony that was often vague, based on repeated claims of confidentiality, Atkinson declined to say what the chances are that the utility could run out of cash this summer.

"There is clearly a scenario where June 20 to the beginning of July could be a problem," Atkinson said. "I can't tell you we will be out of cash by July 1, but I can't tell you that we won't."

The Wall Street Journal reported Friday that Nevada Power parent Sierra Pacific Resources had retained bankruptcy counsel, but Nevada Power attorney David Norris refused to discuss the possibility of reorganization Monday, telling the commission the issue of bankruptcy was a matter of attorney-client privilege.

The testimony was part of a hearing on Nevada Power's request to issue up to $450 million in equity-secured long-term bonds to help pay off debts that come due in November and in fall 2003. The hearing was scheduled to continue today. The PUC intends to vote on the bonding request on Friday in Las Vegas.

If approved, the bonding authority would not have an immediate effect on ratepayers. But the utility could ask for a general rate increase effective in April 2004 to reflect the increased debt.

Under normal circumstances, having relatively small amounts of cash on hand would not be unusual for the utility, because it could borrow the short-term cash it needs to buy energy and operate the company. But because of the company's poor credit rating, Atkinson said, Nevada Power has been told that it could not get any more short-term debt.

"We have no access to short-term markets of any kind," he said.

Atkinson said the company believes it still has access to long-term debt markets, however. He said such debt, secured by equity such as company property, would be paid off over a five- to 10-year period and carry interest of 10 to 14 percent. That is considerably higher than the 6 to 8.5 percent interest Nevada Power is paying on much of its existing debt.

"I believe the authority granted would be more than enough to cover potential liquidity problems in the next six months," he said of the bonding request.

Atkinson said it is still possible Nevada Power could run out of cash if unusually hot weather forces the company to spend more money than planned on wholesale energy or if the utility experiences an unforeseen event such as a power plant shutdown.

He said Nevada Power's cash flow would only be marginally improved by the announcement last month that a subsidiary of Enron Corp. was discontinuing delivery of high-priced energy to the utility. Nevada Power hopes to replace that power with less expensive energy from other suppliers.

But he also said that approval of the bonding request would likely be viewed favorably by the energy suppliers, who are worried about whether Nevada Power will still be able to pay its bills.

"Comments we've received indicate a higher degree of confidence than we've had in quite some time," Atkinson said.

Atkinson said part of the reason Nevada Power requested confidentiality on some of its financial information is that it is concerned about traders of Sierra Pacific stock, which sells on the New York Stock Exchange.

Cash flow information "is incredibly sensitive at present, and we are concerned about selective disclosure of that information," he said.

James Williamson, a financial analyst for the state Bureau of Consumer Protection, testified that the Nevada Power application should be denied or delayed because the reason for the bonding request remains vague.

He said that because the earliest the company could likely generate revenue from the bonds would be in September, that would do nothing to relieve the company's summer liquidity problems. Williamson also suggested that the PUC, Gov. Kenny Guinn and the Nevada Legislature formulate a contingency plan to provide power to Southern Nevada in the event Nevada Power is unable to do so.

"The company has not shown it needs this money," Williamson said. "It's time that the company steps up to the plate, that they provide good solid analysis for their requests."