Friday, Nov. 7, 2003 | 9:40 a.m.
The immediate future of Nevada Power Co. and its sister company, Sierra Pacific Power Co. of Reno, got a little more stable on Thursday when a New York bankruptcy stayed the execution of a $336 million judgment against the companies.
The companies will be allowed to place $338 million in asset-backed bonds in an escrow account while they appeal the ruling in favor of bankrupt energy trader Enron Corp. It's the latest development in a battle between the Nevada companies and Enron over power contracts that were cancelled in 2002.
The Nevada companies also must place into escrow $280,000 in cash to cover prejudgment interest and another $35 million in cash within 90 days of the judge's final order on the stay.
"The judge's ruling now allows us to move forward with our appeal," said Walter Higgins, chief executive of the utilities' parent company, Sierra Pacific Resources.
Sierra Pacific executives declined further comment until after the judge issues a final order, which could come as early as today.
The move to hold off the judgment alleviates immediate concerns that Sierra Pacific Resources or its subsidiaries could face bankruptcy.
"Besides not having to pay anything, this is probably the best it could have been for Sierra Pacific," said Jake Mercer, a utilities analyst with US Bancorp Piper Jaffray.
Swami Venkataraman, a utilities analyst with Standard & Poor's, agreed.
"It's not very adverse for the company," he said. "We think things could have been a lot worse."
Venkataraman, however, indicated that the company would remain at a negative credit watch status until the outcome of the appeals are certain.
"The key thing going forward is should they have to pay this judgment eventually, it would cause them financial difficulty," he said.
Higgins has promised to exhaust all legal options in the case and estimated that the appeals process could take years.
The Nevada companies had proposed posting bonds alone as collateral. Enron argued that it needed more secure collateral from the companies that had warned of bankruptcy. With that, the judge added the $35 million in cash. The court also will review the conditions related to the order two weeks after the $35 million payment is made. Adjustments to the mix of cash and bonds could be made at that time.
"The judge today basically improved the quality of the Nevada companies' collateral," said Mark Palmer, an Enron spokesman. "It gives us a little bit of security. ... We have never been opposed to the stay, but we wanted additional security."
Palmer also said the ruling gives Enron access to Sierra Pacific's financial records for the purpose of protecting the judgment.
Wall Street reacted positively to the news of the stay. Sierra Pacific's stock advanced 2.2 percent this morning, trading at $6.40, up 14 cents. It's the highest trading price for the stock since January.
The original dispute arose when Enron, which filed for bankruptcy in December 2001, cancelled its contracts with the Sierra Pacific subsidiaries in May 2002 after their credit was downgraded following a $437 million regulatory recovery disallowance. Enron then demanded more than $300 million in termination penalties.
In August, bankruptcy court judge Arthur Gonzalez deferred to a June ruling by the Federal Energy Regulatory Commission that the contracts were valid and that the Nevada companies must pay. The utilities have appealed again to FERC, claiming that Enron violated market rules when it invoked the termination clause in the contract.
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