Las Vegas Sun

March 28, 2024

Water board renews offer for utility

The Southern Nevada Water Authority is awaiting response from Sierra Pacific Resources to a letter that the authority hopes will shed more light on its bid to purchase Nevada Power Co. for $3.2 billion.

The letter was hand-delivered this morning to the Reno headquarters of Sierra Pacific, parent company of Nevada Power. But Sierra Pacific spokesman Jack Leone said the company had no immediate comment.

In a cover letter to Sierra Pacific Chairman Walt Higgins with a lengthy attachment, water authority general manager Pat Mulroy wrote that the "SNWA has put forth a realistic and credible offer that forms a solid basis for discussions."

"The offer provides real and significant benefits to ratepayers, your investors and the Southern Nevada community. The SNWA has publicly committed to deliver at least a 20% (percent) rate reduction to customers, while providing $12 of benefit for each Sierra Pacific share compared to a substantially depressed current share price for all of Sierra Pacific of $6/share. Additionally, SNWA is committed to retaining virtually all of the Nevada Power employees."

Morgan Stanley, the New York financial advisor retained by the water authority, indicated in one of the attachments that it "clearly" believes the offer for Nevada Power is legitimate "and we do not see how there could be any ambiguity as to the SNWA's intent."

The water authority announced its bid last month but it was initially rejected by Sierra Pacific, which did not consider the offer credible. Higgins, in a written response, raised concerns about how the deal would be financed and whether the water authority would be equipped to make the transaction.

This response did not sit well with Mulroy and the seven-member water authority board, which is made up of elected officials. The board last week reaffirmed its desire to purchase Nevada Power but Higgins remained equally steadfast in rejection of that offer.

But Morgan Stanley managing directors Lyle Miller and Ray Spitzley wrote: "The assertion (by Nevada Power) that an acquisition as we have proposed would be dangerously leveraged, 'funded entirely by debt, creating a capital structure with no equity whatsoever,' is not consistent with a thorough analysis of the fundamentals of municipal finance.

"Over 2,000 communities in the United States are served by municipal power utilities and by definition, municipal utilities are not funded with equity by shareholders. Instead, the benefits that ordinarily accrue to shareholders are returned to ratepayers in the form of reduced rates."

The attachment also included examples of public entities that took over investor-owned utilities throughout the United States. Included was last year's acquisition by the Truckee Meadows Water Authority of a water division owned by Sierra Pacific that served Northern Nevada customers. That acquisition was financed by $452.4 million in bonds, the attachment stated.

On Wednesday Mulroy said in an interview on "Face to Face with Jon Ralston" on Las Vegas ONE, a joint partnership of the Las Vegas Sun, Cox Communications and KLAS-TV, that Higgins' complaint that the transaction would be financed without the use of equity "is founded on a complete misunderstanding."

"To me, that whole assertion was mind-boggling because first of all there is no such thing as equity in a municipal structure," Mulroy told Ralston. "There are no shareholders."

The water authority's plan is to use taxable bonds to finance the acquisition and pass on a 20 percent electricity rate cut to consumers.

"The minute Nevada Power turns over the keys to the Southern Nevada Water Authority the rates would go down," Mulroy said.

Mulroy said the savings would come from two areas: The water authority, with its "double A" credit rating, can pay 5 percent interest to refinance Nevada Power's debt and equity whereas Nevada Power, with its battered credit status, pays higher interest rates; and the water authority, as a public utility, would not have to pay $69 million annually in federal income taxes as is the case with Nevada Power.

"To the layman it's like refinancing your house," Mulroy told Ralston. "You get a mortgage at 10 percent. If you go and you refinance that house for 5 percent you've made money."

Water authority deputy general manager Richard Wimmer said today that he hopes the latest letter will encourage Sierra Pacific to "come to the table."

"We would hope that after they evaluate our response that we could have discussions," Wimmer said.

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