Fund criticizes Sierra Pacific

The second-largest owner of Sierra Pacific Resources hopes the company's board snaps to attention after three board members faced opposition to their bid to win re-election last week.

The company's chairman and chief executive says, however, that he'll continue to do what he believes is right for the Reno-based utility no matter what critics may say.

Franklin Utility Fund, which owns 7.3 million shares of Sierra Pacific Resources stock, withheld its proxies from Walt Higgins, its chairman, president and chief executive, as well as incumbent directors James Donnelley and John O'Reilly.

Shareholders returned Higgins to the board by a 74 percent margin.

About 69 percent of the shares voting approved Donnelley and O'Reilly.

"Most politicians would be delighted with the results of our election," Higgins said after the company's annual meeting.

But John Kohli, manager of the $1.8 billion Franklin Utility Fund, said Higgins and other board members need to pay closer attention to the wishes of shareholders.

"I do think that a 30 percent dissatisfaction rate is pretty significant," Kohli said.

"We've seen a lot of deterioration in book value for this company over time."

Pushing Franklin Utility Fund into public opposition, he said, was the decision of cash-strapped Sierra Pacific Resources last year to issue about $300 million in debt that is convertible into stock.

"That was extremely painful to us and other shareholders," Kohli said.

"They did not have to go that way.

There were other options out there."

Better communication between Sierra Pacific's management and the 12 institutional investors who hold nearly 59 percent of its stock might have found a financial plan didn't dilute shareholders' interest so severely, he said.

Higgins said the utility's executives have conducted several meetings with Franklin Resources, but don't believe that other financing alternatives were any better than the $300 million convertible offering.

"We believe know how they feel.We'll continue to listen to what they have to say," Higgins said.

"But in the end, you have to do what you think is right."

Even though Franklin Utility Fund led opposition to the company's board last week, Kohli said the fund continues to believe the company's stock is attractively valued compared to its peers in the utility industry.

Who owns Sierra Pacific Resources? The 12 largest shareholders in the Reno-based utility company Owner No.

of shares Percent (millions) of total Fidelity 11.7 10.0 Franklin Resource 8.8 7.3 Boston Partners 7.7 6.6 Wellington Mgt.

7.3 6.2 Putnam Invest.

7.3 6.1 Donald Smith & Co.

4.2 3.5 Canyon Capital 4.1 3.5 Barclays Bank 3.7 3.2 Glenview Capital 3.6 3.0 Adage Capital 3.5 3.0 Copper Arch Cap 3.5 3.0 State Street Corp.

3.3 2.8 Source: Securities and Exchange Commission filings