Analysts: Weak economy could hurt NV Energy rating

By Steve Green (contact)

Published Thursday, June 25, 2009 | 12:39 p.m.

Updated Thursday, June 25, 2009 | 3:50 p.m.

One day after receiving a 6.9 percent rate hike in Southern Nevada, NV Energy was on Wall Street's radar Thursday because of the weak Nevada economy and the company's debt load.

Stock traders didn't seem disappointed in Wednesday's ruling granting NV Energy $221 million in extra annual revenue in Southern Nevada -- less than it requested. The energy company's stock closed Thursday at $10.70, up 12 cents per share.

But CreditSights, a company that analyzes publicly traded debt, said NV Energy will remain on its monitor list for a possible move downward to "under weight" from "market weight."

NV Energy and its subsidiaries are carrying about $5.5 billion in debt, which CreditSights indicated is a manageable amount as long as the senior debt issued by subsidiaries Nevada Power Co. and Sierra Pacific Power Co. retains its investment grade.

But CreditSights said the potential loss of an investment grade rating presents some risk to debt investors as NV Energy refinances hundreds of millions of dollars in debt later this year and in 2010.

The challenge facing NV Energy and its utilities is the weak Nevada economy and its reliance on purchased power, CreditSights said.

"The company was hurt by both the housing market meltdown and the difficulties of the gaming industry," CreditSights said in its report. "In addition, because of the uncertainties relating to the ultimate impact of federal carbon legislation, the company canceled construction of the coal-fired Ely Energy Center."

CreditSights noted Nevada's soaring employment rate -- now at 11.3 percent -- is hurting NV Energy and that the utility has reduced the number of hotel rooms it expects to open because of project delays and cancellations.

The weak economy was reflected in NV Energy's first quarter performance.

It said in April that for the quarter ended March 31, revenue of $775 million was down from $805 million in the same quarter of 2008. The utility reported a quarterly loss of $22.2 million, or 9 cents per share compared to a profit of $24 million or 10 cents in the year-ago quarter.

NV Energy has been busy lining up solar and other renewable energy sources.

But CreditSights analysts Dot Matthews, Adam Cohen and Scott Greenstein said in their report they are concerned that the utility still lacks enough of its own electrical generating capacity.

"NV Energy remains short of power, particularly in the south, where it is only expected to generate 60 percent of its peak demand with its own assets in 2009. NV Energy remains to some extent at the mercy of power markets," CreditSights said.