Friday, Oct. 18, 2002 | 6:56 a.m.
WEEKEND EDITION: Oct. 20, 2002
Editor's note: A clash between two strong-willed executives, Southern Nevada Water Authority general manager Pat Mulroy and Walt Higgins, chairman of Sierra Pacific Resources, has cast both of them in the spotlight. Mulroy's water authority is seeking to acquire Sierra Pacific subsidiary Nevada Power Co. for $3.2 billion. The water authority, which is Southern Nevada's biggest consumer of electricity, maintains that financially strapped Nevada Power is no longer reliable and must be replaced. Higgins argues that the water authority bid is not financially sound and that there is no evidence that the public agency can run a power utility. Against this backdrop, Clark County voters are being asked in Question 14, an advisory measure on the Nov. 5 general election ballot, whether they would like to operate a public power utility. The water authority bid and the ballot initiative have made Mulroy and Higgins two of the biggest newsmakers in Nevada, and they are profiled in the accompanying articles.
No high-profile corporate executive has faced more heat in Nevada this year than Sierra Pacific Resources Chairman Walt Higgins.
Considered by people who know him as a deep thinker on energy issues, he has no problem explaining the complexities of his industry in simple terms.
But Higgins, 58, finds himself struggling to save a corporation rocked by the Western energy crisis and faces a potential buyout of embattled subsidiary Nevada Power Co. by the Southern Nevada Water Authority.
"It has gotten considerably more complex to be a leader of an electric or gas utility," Higgins said in an interview at Nevada Power headquarters. "Electricity has particularly suffered in the West. In my view it has been a very challenging job, in part because we are an industry in which a lot of people get to have a say in what we're going to do and how we do it and there is a lot of politics associated with that.
"Actually, I think I've lived in a frying pan the last 10 years."
State Public Utilities Commission Chairman Don Soderberg said he has been impressed with how Higgins has run Sierra Pacific since the PUC ruling in March that granted Nevada Power only $485 million of the $922 million it was seeking from ratepayers for energy used last year.
The decision was financially devastating, but Soderberg said Higgins rolled up his sleeves and got personally involved in securing the energy Nevada Power needed to get through the summer. Soderberg said many utility chief executives would not have gotten so involved in energy contracts.
"Walt appears to be a guy who trusts his lieutenants and has faith in the people who work for him and that's a good trait," Soderberg said. "But when he has had to put his foot down and correct things he has done so. He has spent the past several months in candid conversations with myself and others to see what he could do to turn things around.
"I knew some of the things he did needed to be done, and I'm talking about personnel changes and other decisions."
But Nevada Power's chief critic, state Consumer Advocate Timothy Hay, said Higgins' management of Sierra Pacific over the past two years has been nowhere near the abilities he displayed during an earlier stint with the company in the mid-1990s.
"No matter what sort of trouble the company gets into they never acknowledge fault of their own," Hay said. "They either blame the regulators here or in Washington, D.C., or the Legislature for changing the rules. I assume that as the top dog in the organization it's a reflection of the chief executive officer or else he would be calling people in and telling them not to say that."
At 5-foot-9, the slim, bespectacled Sierra Pacific chief with thinning gray hair looks and talks like a corporate executive straight from central casting.
Higgins took a little time to warm up to an interview in a Nevada Power conference room. While he exudes warmth and is likable, he is hardly bubbly. When conducting meetings he normally sits at the center of the long conference table. For the interview, he wore a conservative business suit, which was typical for him, but agreed to sit at the end of the table, which was atypical.
Higgins, who is married and has three children and one grandchild, was born in Washington, D.C., and spent his youth in New York and Oregon. His father was a sales manager for a company that made typewriters and adding machines and became a chief executive overseeing retirement homes.
As a youngster, Higgins fell in love with science. He won numerous science competitions and took a liking to chemistry.
"Put yourself in the 1950s," he said. "Technology was advancing at a very rapid pace."
Higgins' parents couldn't afford to send him to college because they also had his three sisters to support. But he won a scholarship to the U.S. Naval Academy in Annapolis, Md., where he yearned to be a pilot.
In choosing the Navy, Higgins followed in the footsteps of his father, who had been a photographer's mate while working on the staff of the chief of naval operations in Washington during World War II.
"Another thing that influenced my decision to go to Annapolis was, believe it or not, a television show in the 1950s called 'Men of Annapolis,' " Higgins said. "It glorified and honored the Annapolis experience, the people who attended, what they went through, the rigors, the discipline, the honor code and so forth."
Emerging as a leader
Higgins soon emerged as a leader among classmates, but his dreams of becoming a Navy pilot were dashed the summer before his senior year. That's when he and 20 classmates he was leading were being trained on an aircraft carrier captained by a nuclear submariner.
"I had to meet with him regularly and he started working on me," Higgins said. "He said, 'You don't want to be a pilot, you want to be a nuclear submariner.' He told me the future of the United States is going to be tightly linked to nuclear power, and that there were going to be a lot of nuclear power plants and leadership opportunities."
Upon graduation with a nuclear science degree, Higgins spent most of the next five years on nuclear submarines armed with ballistic missiles in the Atlantic Ocean and Mediterranean Sea. He would leave the Navy in 1971 as a lieutenant but would serve the next 24 years in the Naval Reserve, retiring as a captain.
After leaving the Navy, Higgins spent six years working in the prviate and government sector on work related to nuclear reactors.
His initial foray into the world of investor-owned utilities occurred in 1977 when he was recruited to be an assistant to a vice president at Portland General Electric Co.
"If you want to be a senior executive in any company, it probably starts with needing to have vision and drive, understanding the big picture, and being able to get people to be willing to capture, endorse, buy into, embrace that vision and work hard toward achieving it," he said.
His relatively low corporate profile changed in 1989 when his former employer, the Nuclear Regulatory Commission, levied a $280,000 fine against Portland General for serious safety violations at the company's Trojan Nuclear Plant in Rainier, Ore.
Higgins at the time had been vice president of electric distribution and had nothing to do with the nuclear energy side of the business. But he was called in by his boss to oversee the plant and clean up the mess, which threw him in the media spotlight for the first time.
"The first thing I had to figure out was, 'What in the world is going on here?' " Higgins said. "As I investigated and visited other power plants and learned how good companies were managing their nuclear power operations, it became clear to me that more changes were needed and I made some more changes."
Despite personnel changes made by Higgins, Portland General ultimately shut the plant down permanently in 1995.
Higgins became a senior vice president at Portland General but left the company in 1991 to join Louisville Gas and Electric Co. in Kentucky, where he became president. But the Louisville job would be only the first of four company changes he would make in nine years.
In November 1993, Higgins was recruited by Sierra Pacific Resources of Reno and two months later became its chairman and chief executive officer, succeeding Austin Stedham, who retired.
At the time, Sierra Pacific served only Northern Nevadans. Higgins quickly developed a reputation for being willing to work with government officials and neighborhoods. Scott Craigie, who chaired the PUC when it was called the Public Service Commission, said he was impressed with how Higgins guided the 164-mile Alturas transmission line project from Reno to Alturas, Calif.
"There were problems with neighborhoods and with state and federal agencies but he went to the public hearings and worked out the compromises that needed to be worked out," Craigie said. "He's very much a hands-on manager and he is a person who listens to input. He's very straightforward so there's not a lot of hyperbole."
An ironic twist in the water authority's bid to acquire Nevada Power is that Higgins was overseer of a Sierra Pacific subsidiary that sold water to Northern Nevadans.
In that capacity he helped engineer a truce in a water war between Washoe County and the water subsidiary. The agreement allowed the subsidiary to provide water to a development north of Sparks in exchange for allowing the county to have input into the decision-making process.
He also expanded Sierra Pacific's portfolio of power plants, water treatment facilities and transmission lines. By the time AGL Resources of Atlanta came calling for Higgins' services in late 1997, he had taken Sierra Pacific's stock from $20 a share to nearly $38 a share.
Higgins came to AGL in February 1998 as president and chief executive officer to oversee the company's plans to compete in deregulation of natural gas. This was a promotion for him because AGL was much larger than Sierra Pacific.
But Higgins said the move to deregulation was stormy because it was tough to set a fair price for natural gas when the company didn't know how many customers would stay. He said death threats were phoned into his office.
"We charged fixed costs even if somebody didn't use much gas," Higgins said. "And when it got very warm and people didn't even turn their gas on and yet still got a bill that was much higher than they expected, they got very angry. We made a mistake on how we priced it."
One of the hardest things Higgins said he had to endure in Atlanta -- and something that affects him to this day -- is negative publicity.
"To see your name in the paper regularly, especially with some sort of comment that questions your motives or your integrity or your competence, is very hard because I know who I am and I know what I'm trying to do," Higgins said.
Major changes
While Higgins was in Atlanta, several major changes were occurring to Nevada's electric utilities. Sierra Pacific merged with Nevada Power in 1999 and then began experiencing severe financial problems as a result of the energy crunch that struck the West in the spring of 2000.
The way for Higgins' return to Sierra Pacific was cleared in August 2000 following the resignation of company chairman Michael Niggli. Higgins, who had become chairman of AGL, said he felt he had completed its transition to compete in a deregulated market. So he returned to a financially battered Sierra Pacific, whose stock had plummeted to $14 a share.
Craigie said he didn't think Nevada Power would be in the financial bind it is in today had Higgins remained at the helm of Sierra Pacific Resources rather than gone to Atlanta.
"He is one of the most effective and charismatic leaders I've ever worked with," Craigie said. "I truly believe that if Walt Higgins had remained chairman and chief executive officer of the company, we would never have gone through this crisis. He has saved this company from collapse."
But Hay said Higgins made the company's problems worse by concentrating on a proposed acquisition of Portland General, a deal that eventually collapsed in April 2001.
"A good manager would have taken steps to correct what were obvious problems in management at that time," Hay said.
The Nevada Legislature last year passed a law that allowed Sierra Pacific to seek additional rate hikes to recoup the cost of energy purchased through wholesalers. But Higgins and his company complained to federal regulators that Nevada was being treated unfairly in terms of the prices it was forced to pay for wholesale power.
Late last year Nevada Power filed a request with the PUC seeking $922 million from Southern Nevada ratepayers for energy used last year. But on March 29 the PUC granted only $485 million of that request, arguing that the Las Vegas utility could have locked in long-term contracts at much lower costs than they paid and did a poor job keeping their energy-purchasing risks to a minimum.
Hay said Higgins must shoulder blame for management decisions that led to the PUC decision. Indeed, of the $437 million the PUC deducted from Nevada Power's request, more than half was blamed on purchases of too much energy in 2001, when Higgins was at the helm. Nevada Power sold back much of that spare energy for far less than it paid.
But Jon Wellinghoff, a Las Vegas attorney who specializes in utility issues, said that when Higgins returned to Sierra Pacific he took over a ship "pointed at an iceberg."
"He had nothing to do with the errors that cost the company $922 million," Wellinghoff said. "Those were the result of policies and procedures he had no part in. He's done an excellent job with the shattered pieces that he has. If he had been at Sierra Pacific in 1999, we probably wouldn't be in this mess now."
The PUC decision plunged Sierra Pacific and its subsidiaries into "junk" status among credit-rating agencies and caused its already battered stock to continue its free fall on the New York Stock Exchange. Talk of a possible Nevada Power bankruptcy abounded.
But Sierra Pacific and Nevada Power have since parted ways with five top executives and renegotiated energy contracts to get Southern Nevada through the summer without a blackout. Talk of insolvency, if not eliminated, has died down over the past seven months.
"If you are facing a set of challenges that seem to emanate from the way you were doing business, you better change the way you think about those problems in order to be able to get new and better solutions to the problems," Higgins said.
"There's a huge disconnect between what the public perceives about what we're trying to do and what it actually takes to do it. We are trying very hard not to whine about the challenges we have and to simply make it easy for our customers to use the product."
Hay said "the jury is still out" on the way Higgins has steered Sierra Pacific and Nevada Power recently. But Joyce Newman, president of the Utility Shareholders Association of Nevada, said of Higgins, "I don't know anyone who could hold up any better."
"He's a very thoughtful man and has a way of keeping the big picture in mind," Newman said. "It has to be frustrating for him to be in this situation."
Higgins, who made a base salary of $590,000 last year plus $70,970 in other compensation, takes up snow skiing, golfing or boating when he can break away from work.
But those diversions cannot compensate for the challenge of saving Sierra Pacific and Nevada Power.
Victimized
Higgins suggested that Nevada Power has been victimized by shifting state energy priorities in recent years, such as whether or not to deregulate retail electricity or build more plants.
"We need to get more power plants and more contracts in place so that we in Nevada are not subject to the vagaries of a volatile power market, which is having power plants cancelled all over the place," Higgins said. "I say that in two to three years the company ought to be stable but it depends on all of us as a state coming to grips with what caused the instability."
Higgins has said there was good reason why Nevada Power decided in 1999 not to lock in what could have been low-cost, long-term energy contracts covering 2000 and beyond -- the period of skyrocketing wholesale energy prices caused by the power crisis. That's because of uncertainty over whether Nevada Power would lose customers to competitors had the state implemented plans to allow retail electricity to be sold on the open market, he has said.
"When the market melted down we either had to have the prescience to know that it was going to melt down and lock in (wholesale energy) in advance or we had to have the ability to not have that affect us, such as some entities that have all the power plants they need for all their power," he said. "Since we were subject to volatility because of policies we all contributed to creating, we were in a situation where this could go wrong for us and it did."
Having said that, Higgins continues to run Sierra Pacific as if it will continue to own Nevada Power, rather than sell it to the water authority for its proposed offer of $3.2 billion.
"Right now, long-term vision for this company is, how do we get the company back to a position of financial strength where there is no doubt about our ability to access fuel and power markets and get new power plants built that are needed in Nevada?" he said.
Higgins and his company have rejected the water authority offer, questioning the water authority's financing plan and its ability to run a power company. Critics, including the water authority, have countered that their deal is structured similarly to the deal enabling Sierra Pacific to sell its water subsidiary to a public agency representing Northern Nevadans.
While deciding for now not to negotiate with water authority general manager Pat Mulroy, Higgins said that "she's politically very saavy."
"I don't really have an opinion about how she runs it, although there's every appearance that the Las Vegas Valley Water District does its job," he said. "The water comes on when I turn it on. I admire the progress that has been made on settling some of the political issues that surround the Colorado River and its uses."
But he also said he remains concerned about whether there is enough water for the valley.
"We've made some progress on settling disputes among various parties and we've got a lot of work left to do on that," Higgins said. "I hope we don't get distracted from that, which is vital to Las Vegas as well."
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