Nevada Power may borrow to cover judgment

Kevin Rademacher

Tuesday, Sept. 2, 2003 | 11:07 a.m.

Nevada Power Co. could be forced deeper into debt in order to meet a court judgment issued against the utility and its parent company last week, prompting Standard & Poor's to place the company on credit watch this morning.

A U.S. Bankruptcy Court judge on Friday ruled that Sierra Pacific Resources, parent of Nevada Power of Las Vegas and Sierra Pacific Power of Reno, must pay $309 million to Enron Corp. for power contracts cancelled in 2002.

Nevada Power held $216 million of those contracts. The balance were held by sister company Sierra Pacific Power Co. of Reno.

"Making termination payments or posting cash collateral would mean an added debt service burden to Sierra Pacific Resources and its subsidiaries and would weaken financial measures," said Swami Venkataraman, a utilities analyst with Standard & Poor's.

Sierra Pacific Resources this morning notified the U.S. Securities and Exchange Commission that it would issue debt to cover the ruling in the event that it is upheld or collateral is demanded during the appeal process.

Sierra Pacific has indicated that it will appeal.

"The utilities are evaluating their options and will consider all possible courses of action," today's SEC filing said.

Based on property owned by the utilities, the company could issue as much as $1.14 billion in mortgage-secured debt, the filing said. The filing added, however, that any debt issuance would require the approval of state regulators, and the company made no assurances of its financial health in the event that payment or collateral is ordered by the court.

"Any requirement to pay or provide security for (Enron's) claims for termination payments could adversely affect Sierra Pacific Resources', Nevada Power Co.'s and Sierra Pacific Power Co.'s cash flow, financial condition and liquidity, and could make it difficult for one or more ... to continue to operate outside of bankruptcy," the filing said.

Nevada Consumer Advocate Tim Hay said ratepayers should not be held responsible for any costs associated with the judgment, including interest expenses that would be associated with the contemplated debt issuance.

"It's pretty outrageous to force customers to pay for power that was never delivered," he said.

Sierra Pacific Resources, in its latest quarterly report, listed about $3.6 billion in long-term debt, double the amount of debt reported by the company at year-end 1999.

At the center of the bankruptcy court ruling are contracts between Enron Power Marketing and Nevada Power and Sierra Pacific Power.

About $22 million worth of electricity was delivered to the utilities in April 2002, before Enron exercised a clause in the contracts allowing it to terminate the deals if the companies lost credit worthiness. That happened after the state Public Utilities Commission disallowed $437 million of a proposed $922 million rate increase Nevada Power sought in 2002 in order cover the cost of buying power during the Western energy crisis.

Nevada Power and Sierra Pacific had their credit ratings cut to junk status shortly after the PUC's March 2002 ruling.

PUC Chairman Don Soderberg said Friday that Sierra Pacific still has a good chance to see the order overturned. Bankruptcy Court Judge Arthur Gonzalez based his ruling on the Federal Energy Regulatory Commission's move to uphold the contested contracts despite findings of market manipulation by Enron and other energy traders during the energy crisis.

Soderberg pointed out that on Aug. 25, FERC agreed to reconsider Sierra Pacific's arguments against the contracts.

"(Judge Gonzalez) did not make a conclusive ruling," Soderberg said. "He deferred to FERC."

Even if FERC upholds the contracts, Soderberg said the appeals process could take years to reach a conclusion.

Soderberg has frequently criticized the FERC ruling that upheld the contracts despite findings of manipulation that distorted the prices.

"It's frustrating because FERC has made two rulings that appear to contradict themselves," he said. "It appears to be that they sided with the wrongdoers."

After falling 37 cents on news of the ruling Friday, Sierra Pacific stock was off 5.4 percent this morning, down 27 cents to $4.76 a share.