Debt costs hurt Nevada Power

Kevin Rademacher

Wednesday, May 7, 2003 | 11:11 a.m.

Sierra Pacific Resources today blamed higher interest costs and low sales for a first-quarter loss of $16.5 million or 15 cents a share.

Sierra Pacific, parent of Nevada Power Co. of Las Vegas, reported a loss of $303.9 million, $2.98 a share, in the same quarter one year ago. That loss was posted after writing off $465 million in energy costs the Nevada Public Utilities Commission refused to let Nevada Power and its Reno-based sister utility, Sierra Pacific Power Co., recover through rate increases.

That disallowance led to a downgraded credit rating for Sierra Pacific Resources and its subsidiaries, pushing interest costs higher on a $250 million December debt offering for Nevada Power and a $100 million debt offering for Sierra Pacific Power in October.

"We remain totally focused on restoring the company's financial health, but this cannot be achieved rapidly as we continue to face financial hurdles and related matters stemming from last year's power cost disallowances," said Walter Higgins, chairman and CEO of Sierra Pacific Resources.

"These challenges were seen quite clearly during the recent quarter as lower credit ratings resulted in substantial interest cost increases."

Jake Mercer, a utilities analyst with US Bancorp Piper Jaffray, said damage to the company's credit rating pushed interest expenses on long-term debt up about 17 percent over the first-quarter 2002, from $58.8 million to $68.6 million.

"The debt ratings downgrade has driven up costs," Mercer said. "When they did issue last year, it cost them. This is going to continue for this company if they are not allowed to receive those deferred costs."

On the recent debt offerings, Nevada Power is paying 10.88 percent in interest and Sierra Pacific Power is paying 10.5 percent. Prior to the credit downgrade, the companies were paying interest rates as low as 2 percent on long-term debt, the company said.

The company warned of a pending PUC ruling in Nevada Power's current rate case. The company has asked to recover $195 million over the next three years. In testimony before the commission, however, PUC staff and major customers asked for rate cuts of as much as $300 million. The date for a ruling has been moved four times and is currently scheduled for Monday, just hours after the annual Sierra Pacific Resources shareholders meeting.

The company also is waiting for a bankruptcy court ruling on a $300 million claim Enron has made against Nevada Power for cancelled energy contracts.

Sierra Pacific Resources reported first quarter revenue of $603 million, down from $639 million in the same 2002 quarter. The company's stock was up 11 cents to $3.99 this morning.