Thursday, Sept. 18, 2003 | 10:58 a.m.
Despite a $300 million court ruling against the struggling utility, Sierra Pacific Resources Chairman Walter Higgins said Wednesday he is confident that company can escape bankruptcy.
"We expect and intend, even in the worst case, to work through that," he said in an interview. Higgins and Nevada Power President Pat Shalmy also spoke to the Las Vegas Sun editorial board Wednesday.
The problems facing the parent company of Nevada's two biggest electric utilities are daunting.
A U.S. Bankruptcy Court judge on Monday upheld an Aug. 28 summary judgement ordering Sierra Pacific's subsidiaries -- Nevada Power Co. and Sierra Pacific Power Co. of Reno -- to pay Enron Corp. more than $300 million for cancelled power contracts.
Nevada Power is responsible for about $200 million of those contracts. Sierra Pacific Power owes about $87 million. The totals represent power that was never delivered. In December an additional $25 million was placed in an escrow account by the utilities to cover the cost of power delivered under the contracts in April.
Enron also has asked the court to include in its final order about $50 million in interest on the deals. A Sept. 25 hearing has been set for both companies to make claims for terms to be included in a final order. A final order will be issued following that hearing. The Nevada utilities will then have 10 days to file an appeal.
Higgins said the judge could order a bond to be posted by the utilities during an appeal, staying the execution of payment to Enron. Company executives are working on the details of such a bond, which would ultimately be backed by property owned by the companies.
"We think the bond would be sufficient to stay the execution," he said.
Higgins maintained that the company could keep operating out of bankruptcy if the judgment isn't stayed, but the future in that scenario is less clear.
"If he doesn't stay execution it's a very different and difficult situation," he said. "Then, presumably, Enron would be able to execute on a judgment against the company for $300 million. ... Because of our strained financial condition it would be very difficult for us to just pop $300 million out the door.
"We have the money we need to operate, but because our credit has suffered we no longer have traditional access, like utilities always have, to credit lines. ... You can imagine that we will be stressed if we get a judgment for the full amount that cannot be bonded -- therefore cannot be stayed -- and must be paid. We're looking at that scenario too. Even if we think it's unlikely."
Higgins also vowed to keep fighting the ruling by the bankruptcy court and a related ruling by the Federal Energy Regulatory Commission that upheld the Enron contracts despite findings of market manipulation and fraud.
"We do not believe there is any equity or any logic in Enron, which didn't deliver the power, receiving termination payments when they fraudulently induced us into the contract and manipulated the markets to get the prices up there in the first place," he said. "It can't be. That's just not OK. We have to fight that and we will fight that."
Despite the looming challenges, Higgins also said that the company is not entertaining a $3.2 billion offer the Southern Nevada Water Authority made for the purchase of Nevada Power Co.
"We have not had any official communication with the Water Authority about their interest since they sent a letter to us more than a year ago," Higgins said. "It's something that's not going on anymore."
Separately, the state Public Utilities Commission on Wednesday voted 2-0 to block the exit of four large power users from the Nevada Power system.
The PUC vote rescinded an earlier ruling by the commission that would have allowed MGM MIRAGE, Station Casinos, the Monte Carlo hotel-casino and the Fashion Show Mall to leave the system and buy electricity from Nevada Power competitors.
The commission cited the inability of those customers to finalize details in their contracts spelled out in the PUC's initial ruling.
Steve Boss, president of Nevada Energy Buyers Network, which is representing Station Casinos and Fashion Show, said he was disappointed by the ruling. He also indicated that the firms would likely try again to leave.
"We continue to learn," he said.
Higgins said the PUC's move was an illustration of a difficult process.
"We worked very hard with these large customers to do what the law allowed them to do," he said. "What's really clear is that this is a complex problem."
A law passed by the Nevada Legislature in the 2001 session allowed large electric customers to buy power from competitive providers based on the theory that it would reduce the peak summer demand on the state's utilities and allow them to purchase less expensive power on the open market.
Since then, a regulatory debate has raged over how to allow large customers to exit without increasing the financial burden of maintaining the existing generation on the remaining customers.
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