Shareholders may benefit from sale of Nevada electricity plants

Investors in Nevada's two electric utilities should benefit from a plan to sell their power plants after they merge.

An organization that monitors the utilities industry for investors applauded the plans of Nevada Power Co. of Las Vegas and Sierra Pacific Resources of Reno to divest themselves of their 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 what's 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."

A utilities analyst also said the bid to sell off power plants is a popular move by utility companies as states move toward competitive markets from monopolies.

"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 nationwide, 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."

Nevada Power and Sierra Pacific have estimated their 11 plants to have a depreciated value of close to $1 billion. Analysts have said an auction of the plants could generate between 110 percent and 200 percent of face value.

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."

Newman said while investors should be pleased with the power plant sales, the initial surprise about Nevada Power's plan to cut its dividend as part of the merger plan apparently has died down. She said she hasn't heard much consternation about dividends from her association's 25,000 Nevada members.

"We haven't heard too much about it lately," she said. "There were some people who spoke out at Nevada Power's annual meeting, but there were just as many who supported the merger. It depends upon the individual."

Many senior citizens had counted on the high dividend level of 40 cents per share per quarter as a source of income. The company declared the last 40-cent dividend payable Aug. 3 before expecting to drop it to 25 cents in the next quarter.

"The dividend ratio had been pretty high and a lot of folks felt it was just a matter of time before it would come down," Newman said. "But most investors understand that the industry is changing and at least Nevada Power has given them a warning that it was coming down. A lot of companies wouldn't do that."

On Wednesday, the first full day following the official filing of the merger, Nevada Power's stock closed unchanged at 25 3/8. Sierra Pacific's stock price was down 1/8 to 36 7/8.

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