View from the fray
Sierra Pacific’s junk bonds
Given our society’s electric addictions to TVs, PCs, strip lighting and PlayStation 2, it’d be easy to feel powerless.
This week an investment firm downgraded the bonds of Sierra Pacific Resources (parent company of Nevada Power in Las Vegas and Sierra Pacific Power Co. in Reno) to junk status. Sierra Pacific’s stock dropped a mind-boggling 40 percent on Monday. The power company may file for bankruptcy protection.
That’s what the power officials threatened to do if Nevada’s Public Utilities Commission—a supposed watchdog over Sierra Pacific Resources—didn’t approve $922 million in rate hikes for southern Nevada.
The power company’s troubles date back to some decisions that, using the incredible clarity of hindsight, seem now to be pretty stupid. A few examples: An energy deal with Merrill Lynch back in September 1999 would have saved Nevada Power about $430 million—if it hadn’t fallen through for whatever reason. And during seven months of energy trading with Houston-based Enron Corp. last year, Nevada Power sold power to Enron for an average of 9.8 cents per kilowatt hour—while purchasing back power from Enron at an average of 18 cents per kilowatt hour.
Also, after being forced last April to terminate a deal to buy Portland General Electric from Enron, Sierra Pacific had to pay the Texas power moguls $7 million.
Wasn’t it handy that Nevada legislators had cooked up a deal that allowed the utility to recoup money lost by increasing our rates by huge sums? The power company and state officials agreed to incremental monthly increases in power rates back in July 2000. The company sought and received approval for a 17 percent hike to northern Nevadans in March 2001. The company appealed to the PUC for $922 million in rate hikes for southern Nevada.
This time, though, the PUC succumbed to pressure from stressed ratepayers, like senior citizens on fixed incomes faced with the choice of paying the power bill or buying luxuries like food and prescription medications. On Friday, the PUC gave the company approval to soak consumers for only about half of the dough, $485 million.
Here in the north, cases are still pending—Sierra Pacific wants to hit Renoites up for another $222 million. And it’s asking California regulators for a 26 percent rate hike ($10.2 million) for 45,000 juice addicts in the Lake Tahoe area.
What happens if the power company goes bankrupt? Nevada’s consumer advocate Tim Hay has said that forcing the company to reorganize could actually help rates go down for a change.
At any rate, the public probably won’t have to invest in candles. Three other utility companies, including California’s Pacific Gas & Electric, have filed for bankruptcy protection without having to turn off power to the people.