It's never a good sign when the chairman
of the board needs to reassure investors
that bankruptcy doesn't appear to be a
good option at the moment.
Still, executives of Las Vegas-based
Sierra Pacific Resources it provides
power to northern Nevada through its
Sierra Pacific Power subsidiary think
the company may weather the storm that
has threatened to sink it.
On the surface, the news last week
was bleak:
* The company reported a loss of $41. 9
million that's 41 cents a share in
the second quarter compared with a
profit of $54 million, or 69 cents a
share, in the same quarter last year.
* Its loss for the first half of the year
totaled $347.4 million compared
with a loss of $29.4 million in the
first half of 2001.
* Calpine Corp. said Nevada Power
Co., the Sierra Pacific Resources
subsidiary that serves Las Vegas,
underpaid it by $4.2 million in June
and July. Although Calpine said
Nevada Power and Sierra Pacific
Power are current with their
payments, it said the two companies
owe it about $55 million from
past purchases.
* To top it off, a survey by J.D. Power
and Associates found that the utility
company ranks last in the nation in
residential customer satisfaction.
So what's to feel positive about?
Some good news is developing, the Sierra
Pacific Resources management team told
investors even as executives also cautioned
that their company faces high hurdles in
coming months.
For starters, the company expects to be running
positive cash flows from operations by
the end of this year, said Dennis Schiffel, senior
vice president and chief financial officer.
Sierra Pacific Resources began rebuilding its
cash position this summer, Schiffel said, and
expects in October to make what he called a
"substantial" repayment to the wholesalers
who agreed to extend payment terms earlier
this year.
(The company's credit crunch arose after the
state Public Utilities Commission said Sierra
Pacific Resources acted imprudently during
the Western energy price crisis in 2001. The
PUC refused to allow Sierra Pacific
Resources to recover from shareholders $434
million of the $922 million it paid out in
higher wholesale costs.)
Walt Higgins, the company's chairman, president
and chief executive, acknowledged that
bankruptcy always is an option for financially
distressed companies. But he said Sierra
Pacific Resources sees "no current merit" in a
bankruptcy filing, particularly as its liquidity
improves.
The biggest challenge faced by the company
arrives on Nov. 28, the deadline for the company
to refinance $200 million in bank loans.
As another company filing with the
Securities and Exchange Commission
warned last week, failure to refinance the
bank loan could leave Sierra Pacific
Resources insolvent.
Another dark cloud is a $309 million claim
filed by Enron once, a wholesale supplier
to the Nevada utility. That claim, part of
Enron's bankruptcy filing in New York, could
drain cash from Sierra Pacific Resources or
require it to post collateral that could cripple
its efforts to recover. A hearing on the claim
is scheduled in early September.
Sierra Pacific Resources is battling back,
however, with a complaint to the Federal
Energy Regulatory Commission that suppliers
including Enron victimized it in a dysfunctional
marketplace for power.
The company is battling, too, a non-binding
measure before Clark County voters in
November asking whether they believe the
operations of Nevada Power Co. would be
better operated by a nonprofit organization.
Higgins said the company views that ballot
measure as a misleading attempt to get voters
to approve a government takeover of Nevada
Power Co.
And the ballot measure comes at a time that
Southern Nevada Water Authority says it's
preparing a bid to buy Nevada Power.
Higgins said Sierra Pacific Power's board will
exercise its fiduciary responsibility in examining
any bids on behalf of shareholders.
But he said the board's line so far is this: "The
Nevada Power subsidiary is not for sale."
