Nevada Power bond sale rests on vote by PUC

Friday, June 7, 2002 | 9:27 a.m.

The state Public Utilities Commission was scheduled to vote today on a recommendation from its chairman that Nevada Power Co. be granted permission to issue $300 million in secured long-term bonds.

PUC Chairman Donald Soderberg, in a draft order released Thursday, made the recommendation based on a request the utility hopes will help its cash flow and relieve some of its debt that comes due in November and next year.

Nevada Power, which did not have a comment on the draft order, initially requested authority to issue up to $450 million in bonds secured by equity such as company property. The cash-strapped utility has indicated that its credit rating is so poor that it no longer has the ability to borrow money from short-term lenders who require repayment within a year.

Wall Street's reaction to the draft order was mild, with the stock of parent company Sierra Pacific Resources going up 14 cents in early trading, to $6.94 a share.

Soderberg wrote in his draft order that it was because of the commission's concerns about increasing the debt level of Nevada Power that he recommended only $300 million be added to existing debt. His recommendation gives Nevada Power authority to issue the bonds by Dec. 31, 2003.

"The commission is aware that NPC (Nevada Power Co.) is currently experiencing some financial difficulties, and these financial difficulties could seriously impact the reliability of service provided by NPC," Soderberg stated.

"During the hearing, NPC's witness conceded that $300 million would be sufficient to meet NPC's needs."

Nevada Power Treasurer Richard Atkinson testified Tuesday that the company could still run out of money by the end of the month if forced to deal with harsh weather or an unexpected power plant outage. But he also said that a favorable ruling from the PUC could help the company remain solvent for at least the next six months.

Atkinson also predicted that a favorable ruling would be viewed positively by the utility's energy suppliers. Nevada Power has been attempting to renegotiate long-term contracts so that the utility can spread out payments to help it get through the summer.

Atkinson testified that the bonds would be paid off over 5 to 10 years at interest rates of 10 to 14 percent. The issuance of such bonds would not have an immediate impact on ratepayers. But there is a possibility Nevada Power could ask for an increase in the general rates that show up in monthly bills beginning April 2004 to help pay for the increased debt.

The state Bureau of Consumer Protection had urged the PUC to reject the bonding request or at least delay its decision until Nevada Power provided more information about why it was making its request. But the PUC staff recommended approval, as did the Southern Nevada Water Authority, which is Nevada Power's largest customer.

Soderberg recommended that Nevada Power issue $50 million to $100 million of the bonds as soon as possible to help guarantee reliability of electricity service and the company's liquidity. He also said Nevada Power should do all it can to issue the remaining $50 million in short-term bonds that the PUC has already given the utility permission to pursue.

"The commission believes that issuance of short-term debt is preferable to long-term debt," Soderberg stated. "If this situation changes, wherein NPC is able to issue the remaining $50 million in short-term debt, NPC shall do that prior to issuing any additional long-term debt under the instant authority."

The chairman also recommended, based on a request from the Water Authority, that Nevada Power use its earnings to pay down debt and improve its financial situation rather than transfer those earnings to parent Sierra Pacific Resources.

Nevada Power has argued that it was placed in financial jeopardy when the PUC ruled on March 29 to give the utility permission to collect only $485 million of the $922 million it is seeking from ratepayers for energy used last year. The utility sued the PUC in Carson City District Court in an effort to get the full $922 million and a trial is scheduled for October.

But the PUC in recent weeks has shown signs that it wants to help Nevada Power avoid bankruptcy. One such signal occurred last month when the commission agreed to a one-cent per kilowatt hour rate increase to be applied on this month's bills. The temporary increase is expected to raise $16 million for the company that otherwise would have been spread out over the next three years.