Merged utilities to sell Nevada plants

Nevada's two major electrical utilities would sell their power plants if they merge as planned.

Officials with Nevada Power Co., Southern Nevada's primary provider of electricity, and Northern Nevada's Sierra Pacific Resources said they would sell off the 14 generating units in 11 power plants if the two companies are allowed to complete their $4 billion merger.

Merger plans were announced in April, but the companies didn't file the formal proposal with the Public Utilities Commission of Nevada until Tuesday afternoon. The joint merger application includes written testimony describing financial implications of the plan.

The PUC now has 180 days to make a decision on the proposal and will hold hearings.

Nevada Power and Sierra Pacific are expected to file the merger plan with federal regulators in the fall.

Nevada is in the midst of a restructuring that will turn the industry from a monopoly into a competitive environment. The transition is expected to be completed by Dec. 31, 1999.

The proposal to sell the power plants represents a shift in the priorities of Nevada Power and Sierra Pacific to energy services and transmission, but away from power generation. The divestiture of the generation side will allow the merged companies to invest in more high-voltage transmission, especially in Las Vegas, where Nevada Power currently is the fastest growing utility in the nation.

"But don't sell Reno short," said Dave Barneby, vice president of power delivery for Nevada Power. "Sierra Pacific is the fourth-fastest growing utility in the nation and the combined companies would still be tops in growth in the country.

"It's a conversion to a vertically integrated utility and gives us more focus in that area," Barneby said.

Sierra Pacific has five power generation facilities in Northern Nevada with depreciated book value of about $450 million. Three facilities near Reno include the Clark Mountain, Tracy and Pinon Pine generating stations. Sierra Pacific's annual report describes Pinon Pine as a 106-megawatt plant that can be fueled by natural gas or gasified coal, developed as a demonstration project under the Department of Energy's Clean Coal Technology Program.

Other Sierra Pacific facilities expected to be divested are generating stations at Fort Churchill and North Valmy.

In Southern Nevada, Nevada Power has full or partial ownership of six plants, one of which has four generating units. The depreciated value on the Southern Nevada plants: about $545 million.

The largest is the 697-megawatt gas- or oil-fired Clark station at U.S. 95 and Russell Road. Nevada Power also has full ownership of the gas- or oil-fueled Sunrise station near Hollywood Boulevard and Stephanie Street (149 megawatts) and the Harry Allen plant north of Las Vegas off Interstate 15 (72 megawatts).

Nevada Power also has full ownership of three units of the 605-megawatt coal-fired Reid Gardner plant at Moapa and a 32 percent stake in Unit No. 4 there. It also has small percentage ownerships in two other coal-fired plants, the 255-megawatt Navajo Generating Station near Page, Ariz. (11 percent) and the 196-megawatt Mohave station near Laughlin (14 percent).

Barneby said the timing is perfect to divest the power generating stations, since Nevada is converting to a competitive environment and eager buyers are expected to pay top dollar to enter the market.

While the combined value of all the plants is estimated at close to $1 billion, recent power plant sales have been sold for between 110 percent to 200 percent of book value, said Steve Oldham, vice president of transmission and strategic development for Sierra Pacific.

Oldham said proceeds from plant sales would be paid to shareholders and bondholders and, since capital gains are expected, to taxes. Other profits, however, would finance new transmission facilities across the state, he said.

Credit Suisse First Boston has been hired to assist with the design and implementation of an auction process to divest the power plants. Oldham said it is expected that more than one buyer will be sought for the plants in an effort to foster a competitive environment for that segment of the industry.

He explained that maximizing competition would be beneficial to current customers, some of which could negotiate directly with plant owners for their power needs. Large users -- hotels, casinos and mines -- could fall in that category or other associations of customers could form their own buying groups to negotiate cheaper rates for themselves.

While the merger plan has been publicized for more than two months, the announcement of the official filing was the first indication Nevada Power and Sierra Pacific planned to rid themselves of their power plants.

Barneby said a decision wasn't reached on that strategy until recently as it became apparent that the market was most favorable to divest the generation systems.

Early in the process, Nevada Power said it would cut its dividend to shareholders. Last week, the company declared its last 40 cent per share quarterly dividend payable Aug 3. After that, the company intends to adopt a new quarterly rate of 25 cents per share.

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