Enron pulling out of Nevada market

Friday, May 3, 2002 | 11:11 a.m.

A subsidiary of fallen Houston energy giant Enron Corp. has decided to stop selling power to Sierra Pacific Resources and its subsidiaries, including Nevada Power Co.

Enron Power Marketing Inc., which was to have supplied Nevada Power and Sierra Pacific Power Co. of Reno with a combined 10 percent of their energy needs for the rest of the year, will end those power deliveries Tuesday.

But Walt Higgins, chairman and chief executive officer of Sierra Pacific, said Thursday that his utilities are working to replace those supplies so that electrical service will not be interrupted. He also said the decision by Enron could improve the short-term cash flow of financially strapped Nevada Power.

"There is power in the market and there are people able to supply it," Higgins said. "Under our current credit circumstances, however, it will be more of a challenge than it ought to be."

Enron was a dominant wholesale supplier in the Western energy market and considered a clever trader by industry observers until the company declared bankruptcy last year. Enron Power sold $504 million worth of energy to Nevada Power last year and bought back $114 million worth. But critics of Nevada Power said the Las Vegas utility took a 50 percent loss on the amount of energy it sold back to Enron.

Higgins said Enron informed his company late Wednesday that it was pulling out of the contracts because of concerns about the worsening credit ratings of Sierra Pacific and its subsidiaries. The credit ratings of the utilities were downgraded from investment grade to junk status after the state Public Utilities Commission ruled March 29 to give Nevada Power only $485 million of the $922 million it is seeking for energy used last year.

Enron, however, has also had highly publicized financial problems that have affected its ability to remain a player in the Western power market.

"I believe their stated intent is to get out of the power market altogether," Higgins said.

The sticking point in the relationship between Enron Power and Sierra Pacific is that Enron is demanding that the Nevada company pay it $305 million. Higgins said that represents the difference in value between Enron contracts with Sierra Pacific that were to run through next year and current market prices. But Higgins said his company does not believe it owes Enron any money.

"We will vigorously resist that claim," he said.

He said that dispute should be resolved in a pending case that his company filed with the Federal Energy Regulatory Commission. Sierra Pacific is arguing that it should be released from certain long-term power contracts that have locked the company into paying more for energy than current wholesale prices. Among Sierra Pacific's arguments is that federal regulators should have placed caps on wholesale prices paid by Nevada utilities when caps were applied last year to spot market prices to benefit Californians.

The silver lining in the Enron pullout is Higgins' belief that Nevada Power will now have more cash to buy energy elsewhere, though he said he could not specify an amount.

Nevada Power continues to work with its other power suppliers to obtain extended payment terms that will help the company overcome its short-term cash flow problems.

"I believe we'll be able to work our way through this," Higgins said. "I'm confident we will work this out with suppliers who are concerned about our creditworthiness."