Tuesday, May 27, 2003 | 11:16 a.m.
The Southern Nevada Water Authority has not abandoned its bid for Nevada Power Co., but its pursuit of the electric company could be slowed by a recent regulatory decision.
Nevada Power has seen its stock price rise since the state Public Utilities Commission threw out a proposal to disallow the recovery of $180 million Nevada Power spent on fuel and purchased power. Instead, the commission issued a comparably modest $47 million disallowance.
The regulatory decision marked a significant change from a $437 million disallowance ordered in 2002. After that ruling the electric company had its credit rating slashed and slipped into financial turmoil. The Water Authority responded with a $3.2 billion offer to buy Nevada Power.
While the smaller disallowance this year came with a vote of confidence from some state regulators, Pat Mulroy, general manager of the SNWA, said there is no concrete evidence that Nevada Power is on the mend.
"I don't know whether the company's financial position will improve or not," she said in an interview published this week in In Business Las Vegas, a sister newspaper to the Las Vegas Sun. "The decision of the PUC chairman (Don Soderberg) was pretty direct. He did not want the Public Utilities Commission to be the one to force the company into bankruptcy.
"That does not change their financial reality. They are still borrowing money at extraordinarily high interest rates. They are still stretched to be able the meet the capital demands that are facing them in this community. Those that they are building come at an exorbitant price."
While Nevada Power recently paid 10.88 percent on a $250 million debt offering, Mulroy said the Water Authority paid 4.7 percent on $2 billion in capital construction projects.
"The purpose of the Water Authority's offer was to be out there as a safety net (for Nevada Power)," she said. "That safety net is still out there. The offer is still on the table. We don't see the company being financially sound enough at this point that one would comfortably say the company has turned the corner and the power situation in Southern Nevada looks like it has turned the corner."
Even if the financial climate improves for Nevada Power and its parent company, Sierra Pacific Resources, it is not likely to happen soon.
"It turned out not to be as bad as it could be for Nevada Power," said Swami Venkataraman, a utilities analyst with Standard & Poor's. "But certainly $50 million disallowed is $50 million disallowed. It's money spent that they are not going to get back."
With that, he said Nevada Power's credit rating would remain at junk status until a comprehensive analysis could be completed. That process could take months.
Jake Mercer, a utilities analyst with the US Bancorp Piper Jaffray, agreed it will take time change the image of the company and the state.
"You had a large disallowance last year and still had a disallowance this year," he said. "I still think investors are going to view it as a tough state to operate. ... You're working through that."
While the disallowance will count against the company in the Standard & Poor's analysis, the PUC's improved attitude toward the company will be a benefit, Venkataraman said.
"A few week's ago when the PUC approved several long-term contracts for Nevada Power, they made some positive statements about the direction of the company," he said.
"Regulation is the key risk factor for us when it comes to utilities," Venkataraman added. "How good the relationship is with regulators and how good the regulators are is a key factor."
While the Water Authority has no plans to drop its offer to buy the utility, Soderberg's comments during the rate case could slow the process.
"I think the PUC chairman made it very clear," Mulroy said. "He essentially gave them one last chance. That's the way I read it. They have one last chance to get their financial house in order and put the company back on track.
"After all the decades that the company has served Nevada residents, there was probably a sense of obligation there. Why would we not want them to have that chance? I think this is a much longer discussion. I don't think it's over."
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