Spending defended by utility as necessary to meet growth

Kevin Rademacher

Wednesday, April 2, 2003 | 11:02 a.m.

Wall Street analysts today questioned Sierra Pacific Resources' $345 million 2003 capital expenditure plan in a conference call with company executives this morning.

Walter Higgins, Sierra Pacific's president and CEO, said the number is as low as possible while enabling the company to effectively serve customers.

"Certainly you could cut that number further," Higgins said. "But we would, in a very fast growing electric system, be taking risks."

That capital budget includes $223 million for Nevada Power Co. of Las Vegas and $122 million for Sierra Pacific Power Co. in Reno, the company's recently filed annual report said.

Nevada Power spent $294 million on construction in 2002, and the Las Vegas utility plans to spend $1.1 billion on construction over the next five years, the report said.

Recent construction costs have been driven up by work on the company's Centennial Project to improve transmission services related to new power plants coming online in Southern Nevada, company executives said.

Higgins said the current capital expenditure plan has been built around a "just-in-time" improvement plan that allows for system upgrades before experiencing any failures in service. Additionally, he said a large part of that budget goes to hooking up new customers.

"As part of out franchise agreement, we are obligated to hook up new customers," he said.

As questions persisted, Higgins said, any savings in adjusting that figure lower had already been realized.

"Most of the discretionary spending has long been taken out of this budget," Higgins said.

Paul Debbas, an analyst with Value Line Inc., said such a budget was reasonable considering the pace of growth in Nevada.

"Really, for any utility growing as fast as this utility a lot of spending is going to be necessary," he said. "I think the company has done everything they could to keep spending down without compromising reliability."

On questions of managing liquidity, Higgins and Sierra Pacific Chief Financial Officer Richard Atkinson said the company is taking steps to prepare a refinancing plan for $350 million in Nevada Power debt that will mature in the fall.

"We plan to refinance 100 percent of that with new debt," Atkinson said.

Higgins added that as the company's financial situation allows, efforts would be made to retire some of that debt with cash.

Analysts also questioned the company on regulatory issues ranging from a $195 million deferred energy rate case pending with the Public Utilities Commission to a pending decision on long-term contracts with the Federal Energy Management Commission.

Higgins said the company is encouraged by a recent findings by FERC that long-term contracts were tainted by manipulation of the energy markets during the Western energy crisis. The company is seeking to have $300 million in contracts voided or modified due to manipulation in the market the inflated prices paid by the utility.

"We believe the finding made by FERC staff, combined with recent indictments, combined with admissions of traders, could be a positive development," he said.

Analysts also questioned Higgins on what they called inadequate efforts to improve Sierra's stock price. The chief executive said that, to this point, all of the company's attention had been focused on ensuring the survival of the company.

"I share the severe dislike of the stock price of the company," Higgins said. "We believe steps have been and are being taken that will result, as time goes on, in stock prices that will return."

Higgins said efforts, such as a stock repurchase program, would not be the best use of available capital.

"The things that have been done are things that will help the company survive," he said. "If those thing had not been done, the stock price wouldn't matter.

"Using the liquidity we have today to buy back stock would not be consistent with what the board has told us to do. It's not on the table right now."

Sierra Pacific shares traded at $3.68 this morning, up 24 cents.