Analysts study merger plan

Analysts, investors and consumer advocates generally favor the merger plan by Nevada Power and Sierra Pacific Resources, based on initial reviews of the filing the company made Tuesday.

But there are a few snags that have to be resolved.

Consumer Advocate Fred Schmidt said while he's optimistic about the company's plan to divest itself of its power plants, he isn't sure ratepayers have been completely protected in the procedure and he's also leery about there being no rate cap in place in the period leading up to restructuring the industry.

"I think that the only concern I have is in the complexity of the conditions that they have place on the use of the funds (generated from the sale of the plants)," Schmidt said. "They've said the merger will not go forward if the funds cannot be used as they have proposed. Utility rateholders clearly have an interest in that."

Schmidt said there is a court precedent giving ratepayers a say in the process.

A research analyst who studies the utilities industry said the move to sell off power plants is commonplace in today's changing competitive environment.

"This is very commonplace in states that are in the process of deregulating," said Alan Lindstrom, senior vice president and director of research for utilities for San Francisco-based Redwood Securities Group. "In California, when deregulation took effect, many of the utilities sold off their generation plants. A number of states are requiring their utilities to sell off their plants, Massachusetts, Rhode Island and Connecticut among them."

Lindstrom said the plants operated by Sierra Pacific and Nevada Power have a solid reputation and because Nevada is such a growth market, the merged utility should have no problem attracting top dollar in an auction to sell off the plants.

"Electricity sales are growing at a rate of about 1.5 percent a year, but in Las Vegas, it's closer to 6 percent a year," Lindstrom said. "For the opportunity to get into Nevada, buyers should be paying well above the original cost of the plants."

Lindstrom said he's not surprised by the sell-off strategy, since it has been employed successfully elsewhere and in Nevada's case, it may help ease concerns from regulators who must consider merger issues involving the types of services the two companies will offer.

"I'm not surprised by this," Lindstrom said. "When the merger proposal came up, I suspected they would have to sell the plants. It makes a lot of sense."

An organization that monitors the utilities industry for investors applauded the plan for the merged company to divest itself of its power plants.

Joyce Newman, executive director of the Utility Shareholders Association of Nevada in Carson City, said reinvesting the proceeds of the sales to the distribution system would be a good thing for shareholders and customers.

"It sounds like a good response to whats going on in the competitive arena," Newman said. "It also sounds as if the combined company is focusing on being an electricity distribution company with some related energy services. I think it will be good to focus on one section of the industry."

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