Sierra Pacific says it's bonds or bankruptcy

The financial drama surrounding Reno-based Sierra Pacific Resources is expected be heightened this week with a move that could push the company into bankruptcy.

It's possible, too, that this week's events ultimately might bring higher electric rates in northern Nevada.

Enron Power Marketing Inc.

is expected to demand in the next few days that the utility company pay about $287 million to cover the value of contracts lingering from the Western power crisis.

Sierra Pacific Resources bitterly opposes the Enron claim.

Enron terminated its contract with Sierra Pacific in early 2002, saying that the Nevada utility no longer had a sufficiently strong credit rating.

Sierra Pacific, however, contends that its weakened financial condition was the direct result of manipulation of the Western energy markets by Enron and other providers in the winter of 2000- 2001.

"We do not believe those who were largely responsible for the 2000-2001 western energy crisis should benefit in any way from the dysfunctional marketplace they helped create," said Walt Higgins, the company's chairman and chief executive officer.

A bankruptcy court in New York didn't see things that way.

Right before Labor Day, the court said Enron could come after Sierra Pacific Resources for the $287 million.

The utility has 10 days to respond, and Higgins has vowed to keep fighting in court.

In a filing with the Securities and Exchange Commission last week, Sierra Pacific Resources warned of dire consequences for itself and its two subsidiaries, Sierra Pacific Power in Reno and Nevada Power in Las Vegas.

A requirement that the companies pay up or provide more security for Enron's claims "could make it difficult [for the companies] to continue to operate outside of bankruptcy," Sierra Pacific Resources said in the filing.

One course of action available to the company would be an appeal to the Federal Energy Regulatory Commission, but a credit analyst said that's unlikely to be successful.

Swami Venkataraman, an analyst with Standard & Poors who has followed the unfolding of the Sierra Pacific drama, said federal regulators have generally upheld the sanctity of all contracts signed during the Western power crisis.

Venkataraman said the company's potential headaches are all the greater because it would need to ask the permission of the state's Public Utilities Commission to recover the cost of the Enron payments from its customers.

It's possible, he said, that the PUC won't allow Sierra Pacific to do that.

About $87 million of the Enron claims would be due from Sierra Pacific Power in Reno; the other $200 million would come from Nevada Power.

It's possible, Sierra Pacific Resources said in its SEC filing, that the company will raise the money to pay the Enron claim by selling secured bonds.

The company said Nevada Power has room to sell about $777 million in bonds and Sierra Pacific Power has the capacity to sell $364.9 million in bonds.

Those bonds, however, would require the PUC's OK.