Regulatory environment worries CEO of SW Gas

Kevin Rademacher

Friday, May 9, 2003 | 11:14 a.m.

Minutes before addressing Southwest Gas Corp.'s annual shareholders meeting Thursday, the company's top executive expressed concern over the state Public Utilities Commission's pending decision on Nevada Power Co.'s $195 million rate case.

Regulators are scheduled to hand down a ruling in the electric rate case on Monday, and Michael Maffie, president and CEO of Southwest Gas, said a negative ruling could affect the Las Vegas-based gas company.

"There is no question that Wall Street is very concerned with Nevada's regulatory climate," he said. "Unfortunately, bad news with respect to Nevada Power splatters over on to us."

Maffie's concern comes a year after the PUC disallowed the recovery of $437 million Nevada Power spent on electric purchases amid the Western energy crisis in 2000 and 2001. The ruling caused the electric company's credit rating to be slashed, and Wall Street analysts have since suggested Nevada has a difficult regulatory climate.

"For this state to be successful, we need healthy utilities and infrastructure," Maffie said. "When one of our utilities gets beat up so bad by the state, it sends a bad message to other people. 'If they will do it to them, then what about me?"'

Jake Mercer, a utilities analyst with US Bancorp Piper Jaffray, said a negative perception could raise the cost of capital for for the gas company.

"If the PUC is unfriendly ... people are going to see it as an unfriendly state to operate," he said. "It could have an impact on Southwest Gas."

In its shareholders meeting at the Rio All-Suite Hotel and Casino, Southwest Gas shareholders re-elected all 11 members of the company's board of directors. The move did not come without some dispute from the company's largest shareholder.

Michael Smith, speaking on behalf of Gabelli Asset Management Co., protested the rejection of efforts to nominate Michael Melarkey to the board of directors.

The meeting was delayed about 10 minutes as Smith and executives from Southwest Gas debated the nomination. The meeting proceeded and the existing directors were quickly approved. Later, during a call for audience questions after the vote, Smith threatened legal action.

"If we can't resolve it here, we will resolve it in court," he said.

New York investor Mario Gabelli, through Gabelli Asset Management and other holdings, controls 9.51 percent of Southwest Gas Corp.'s stock, filings with the U.S. Securities and Exchange Commission said.

Gabelli has been a frequent critic, charging that the utility's leadership has not done enough to improve stock value. In 2000, Gabelli successfully nominated Mark Feldman to the board of directors. Feldman was re-elected to a fourth term Thursday.

Gabelli, reached at his New York office, would not outline specific changes or moves he wanted the company to make, but leveled a general criticism at Maffie.

"Within the framework of the shareholders, Mike Maffie has dome some uninspired things there," he said. "We want another perspective on the board."

Gabelli said, however, that Melarkey would not be given instructions on how to proceed if seated as a director.

"To the degree that that individual comes to the table, they will have their own mandate," he said, emphasizing that "we are going to fight" the rejection of the nomination.

After the meeting, Thomas Sheets, Southwest Gas' senior vice president for legal affairs, said Melarkey's nomination was filed late and incomplete by the standards the gas company's directors established last year.

"The company's position is that it did not meet the requirements," Sheets said. "Consequently, we did not recognize the nomination."

Additionally, Gabelli's voting power would have been exhausted re-electing Feldman, Sheets said.

In other comments at the meeting, Maffie said the increasing number of gas-fired power plants springing up across the West will present an increasing challenge for the utility.

"We have never been a big promoter of natural gas power plants," he said. "That's because of what has happened with plants soaking up capacity. ... It's a big problem."

Thomas Hartley, chairman of Southwest's board of directors, also restated the company's willingness to consider mergers.

"Our fiduciary responsibility would be to entertain and evaluate any viable offer," he said.

Last year, the company settled the last of its litigation involving a failed 1999 merger attempt with Oneok Inc. Southwest Gas shareholders accepted a bid from Oneok despite the presence of a higher bid made by Southern Union. The Oneok deal fell apart amid a flurry of lawsuits.

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