Utility’s directors survive dissident shareholder move

Tuesday, May 4, 2004 | 11:03 a.m.

RENO -- Despite a loss of $140 million last year, shareholders of Nevada Power Co. owner Sierra Pacific Resources Corp. voted Monday to retain three directors, including president and chief executive officer Walter Higgins.

Higgins told the about 100 stockholders who attended the annual meeting the results in 2003 were "very disappointing to all of us," but he added he felt the firm was on the road to recovery. The corporation is also the parent of Nevada Sierra Pacific Power Co. in Reno.

Higgins received 73.7 percent of the 106.4 million shares of common stock that were voted. Directors John F. O'Reilly, a Las Vegas lawyer, and James Donnelley, retired chairman of the board of R. R. Donnelley & Son Company, both gathered 69 percent of the vote.

Shareholders narrowly approved by 51.3 percent the company plan to authorize issuance of 7.75 million shares in the next 10 years.

Franklin Resources Inc., which holds 8.8 million shares, withheld its votes for company directors, saying it was not satisfied with management. It said the book value stock price when Higgins took over in August 2000 was $18.29 per share on 78.4 million shares. At year-end 2003, the book value stock price had fallen to $9.87 on 200.2 million shares.

It criticized a decision to issue $300 million in convertible debt that can be converted to stock. That diluted the interest of existing shareholders.

Shareholders also approved with 52.9 percent a plan to give shareholders a greater voice in proposals for purchases of company assets. The plan by shareholder Chris Rossi of Boonville, Calif., would give shareholders the right to vote on proposed takeovers opposed by management.

Rossi, in his statement in the proxy statement, said, "Poison pills entrench current management, even when it's going a poor job. Pills water down shareholders' vote and deprive them of a meaningful voice in corporate affairs."

Sierra Pacific opposed the Rossi plan and said the company presently has an agreement to protect the stockholders against unwelcome takeover attempts. The agreement permits the directors to "carefully and rationally evaluate a takeover offer and to determine whether that offer adequately reflects the value of the company and is in the best interests of its shareholders."

The new clause would not have any affect on a $3.2 billion bid the Southern Nevada Water Authority made to purchase Nevada Power, officials said today. Sierra Pacific executives said when the bid was made in 2001 that the Las Vegas electric company was not for sale. Water Authority officials maintain the the bid is still available.

Executives for both parties, however, said the shareholder clause would have no effect because the Water Authority's bid was not considered hostile.

Commenting on his re-election after the meeting, Higgins said "most politicians would be delighted" with getting 73.7 percent. He said he has met with officials of Franklin Resources three times and other company executives had had more frequent sessions with Franklin.

Higgins told reporters after the meeting, "Nobody that owned the stock liked the decision in terms of the share price. But on the other hand, it (the debt offering) was a perfectly correct decision with the respect to the liquidity of the company, that we had to have.

"We could not have afforded the cash outflow in other solutions or to have a solution fail. As you recall that was a very low point for the company in its financial fortunes. If you had a failed offering or a high priced offering -- remember the cost of junk bond debt at that point was extremely high -- we didn't have the ability to get cash up from Nevada Power. We didn't have the ability to sell more debt at the parent (company).

"We had to do what we did to have the company survive to fight for the next day," he said.

The goal of the firm is to improve its credit worthiness and to increase the value of its shares, he told the shareholder meeting.

Higgins said that a federal court hearing is set for later this month in New York on its appeal of a $338 million judgment against it by Enron. He said it was "inconceivable" how Enron could have manipulated the western energy market and then receive a judgment in its favor against Sierra Pacific.

If Sierra loses, it intends to go all the way to the U.S. Supreme Court.

A goal of the company is to reduce the amount of outside power it must purchase. It now generates 46 percent and buys 54 percent. Higgins said he hoped to have the company generate 70-80 percent of the power it needs in 10 years and then take advantage of low-cost hydropower that is available on the market.

Sierra Pacific will not follow the lead of southern utilities that generate 120 percent of their needs.

Under its 20-year plan approved by the state Public Utilities Commission, two new gas powered plants would be built in Southern Nevada in 2006 and 2007, delivering 600 megawatts. And it is looking at a possible coal-fired plant in Clark County to be built around 2010, he said.

The Mohave generating plant, from which it receives 200 megawatts or four percent of its power, will be closed at the end of 2005 and Nevada Power must fill that hole for electrical power.

There has been criticism of the company over its capital costs. But Higgins defended its decisions, saying it has been forced to build additional facilities because of the growing population in Nevada.

In Las Vegas last year, it installed 40,000 electric connections and there were 10,000 new meters in Reno. But he said the firm has held down costs for customers.

"There are fewer employees than three years ago and we have 116,000 new customers over the same time," he said.

Higgins also said there was an improved relationship with the Public Utilities Commission that regulates prices for Nevada Power and Sierra Pacific. The commission earlier rejected requests of more than $400 million spent by the company during the energy crisis -- contributing to its financial problems.

Higgins said the PUC set a rate of return on equity at a recent rate hearing at 10.25 percent, up from 10.1 percent. The company had hoped for a higher rate, he said.

Higgins earned a salary of $640,385 in 2003, up from $590,000 in 2002 and he had other benefits including $31,154 for tax, memberships and an automobile and $60,599 cash in lieu of vacation.

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