Water board pushes its bid for Nevada Power

Friday, Sept. 20, 2002 | 10:49 a.m.

A day after the region's public water agency and private electricity provider traded salvos, little substantive appears to have changed in the proposal to buy out and take public the electric company.

The Southern Nevada Water Authority swore once again Thursday morning that it can shave 20 percent off current electricity rates and avoid future increases for consumers by buying the company, and that it has the financing, the legal authority and the will to complete a deal.

But hours later executives with Nevada Power Co. and its parent company, Sierra Pacific Resources, dug in their heels -- repeating their rejection of the water authority's offer from last month.

Sierra Pacific Chairman Walter Higgins essentially released an abbreviated version of the company's earlier rejection letter.

"So far we have not had a chance to review anything because nothing has been communicated," he said. "As soon as something is communicated to us we will review it."

Vince Alberta, water authority spokesman, said the agency could have a revised offer -- one that will still look a lot like the earlier one -- to the company by early next week. The authority board, after criticizing the company for failing to take the agency's previous $3.2 billion offer seriously, approved repeating and revising the offer.

The authority's consultants promised "clarifications" of some points, but said they had little to expand upon unless they can open up negotiations with the company.

The board action came after members, elected representatives from across Clark County, sharply criticized the company for failing to open negotiations and its books for the authority's analysts.

A bevy of eight authority consultants in black and gray suits disputed, point by point, the issues raised by Higgins in his rejection of the earlier offer.

The consultants joined board members and water authority general manager Pat Mulroy in contesting Higgins' point that funding a takeover with municipal bonds was "leveraging debt" and inappropriate.

Bonds are the typical instrument for public agencies to fund any large project, Morgan Stanley's Lyle Miller said. And Sierra Pacific had no trouble last year in accepting $450 million in bond money when the company sold off its water utility business to the Truckee Meadows Water Authority.

"Sierra Pacific's claim that the financing plan is unrealistic is unsupported by expert opinion," Morgan Stanley Ray Spitzley said.

Spitzley said the reason the water authority can fund a buyout and reduce rates is that the cost for the agency to borrow money is much less than Sierra Pacific's, which has seen its credit rating sink into junk-bond territory in the last year.

"It is highly ironic that they are questioning the bona fides of the water authority, which enjoys a double-A rating" for municipal bonds, close to the best available, he said. As such a trusted borrower, the authority pays much less interest than the power company.

And taking the profit motive out of the company's finances would provide even greater savings, Spitzley told the board.

The analysts also warned that the only way the power company can dig its way out of its financial problems would be to raise rates another 15 to 20 percent over today's levels.

"That situation will not change without significant rate increases," Miller said.

The water authority board approved the takeover bid Aug. 22. Almost immediately, Sierra Pacific executives expressed skepticism about the move, saying that Nevada Power "was not for sale."

Sierra Pacific Resources more formally rejected the $3.2 billion offer last week.

The offer included $1.2 billion for Nevada Power's assets and cash to cover the utility company's $2 billion in debt.

In both the rejection letter and his brief statement Thursday, Higgins said the offer lacked sufficient detail. He did not answer questions.

Miller, however, said details for how a takeover would be handled will mostly wait until the analysts have a better idea of what is happening inside the company.

"We could have been more definitive but Sierra Pacific Resources refused dialogue," he said. "It would be unreasonable for anybody at this state to receive a binding, definitive offer."

He said the letter containing the offer to the company "was highly definitive as to the offered price, financing plan, legal authority" and was in line with similar offers in the industry.

The takeover bid is the latest chapter in a bad year for the electric company. The state Public Utilities Commission cut a $922 million rate increase in half last March, eight months after Las Vegas experienced a short blackout.

Sierra Pacific share values plummeted 60 percent on the New York Stock Exchange after the PUC decision and the company's credit rating reached junk bond status. The company lost about 75 cents a share Thursday, down to about $6.20.

The buyout offer outlined in the water authority proposal would provide about $12 a share of value to Sierra Pacific stockholders. Some authority board members said the offer was more than fair.

Las Vegas Mayor Oscar Goodman called the rejection of the authority's offer arrogant.

Boulder City Councilman Bryan Nix, another board member, said the rejection appeared amateurish.

"There must be something under the cover that they don't want us to see," Nix said. "It is inexplicable that they wouldn't take us seriously."

And Henderson Councilwoman Amanda Cyphers called the rejection "very flippant and arrogant."

Goodman and Clark County Commissioner Mary Kincaid-Chauncey, both authority board members, said they believe the authority should offer less money to Sierra Pacific. Reducing the offer would push the company to take action sooner, they said.

"I think we need to press forward and really put on the pressure," Kincaid-Chauncey said.

Higgins, however, has said the company's financial outlook is improving and that Sierra Pacific could crawl out of the junk-bond cellar next year. If that happens, the value of the company would increase.

State law prohibits any government entity from taking over a for-profit utility without the company's consent. Voters in November, however, will consider a non-binding question that asks if public agencies should be able to acquire private utilities.