New Nevada Law Stops Restructuring, Threatens Merger

Although its $2 billion acquisition of Portland General Electric is in doubt, Reno-based Sierra Pacific Resources likes the law passed last Wednesday by the Nevada legislature because it promises to protect Sierra's two electric utilities from the soaring western wholesale electricity prices that have eroded the finances of California's two largest utilities.

The Nevada legislature passed a comprehensive energy law (AB 369) and Gov. Kenny Guinn quickly signed it last Wednesday night, stopping the state's previous efforts to restructure the electricity industry and providing assurances that Nevada Power Co. and Sierra Pacific Power can recover all of their future costs among other provisions. The new law also places a moratorium on the utilities' selling their interests in nine power plants, seven of which had been targeted for sale for $1.7 billion collectively.

"This was a bold move by the legislature and the governor to focus on the real problem that threatened every consumer and business in Nevada," said Walt Higgins, Sierra Pacific Resources CEO, noting that many industry stakeholders were waiting to see if Nevada would deal with the western energy price crisis and "they now have their answer."

Higgins said the law provides "an elegant solution that protects consumers from sticker shock by delaying and spreading any increases out over time," while helping assure the utilities' creditworthiness will remain strong.

Moody's Investors Service last Wednesday noted that it was continuing to review the Sierra Pacific Resources ratings for the holding company and utilities, but it did not consider Sierra's decision to suspend the dividend "to be material enough to warrant a rating action at this time."

Moody's assessed the prospect of the new state law as being a positive step, indicating that it would "shore up the credit quality" of Sierra Pacific Resources.

Sierra Pacific reported a full-year loss of $39.8 million in 2000 after wholesale power price spikes saddled its utilities with $889 million in unanticipated power costs. The suspension of the quarterly dividend will provide an extra $20 million.

The legislation also includes a provision to give Nevada regulators more oversight on the proposed Portland General acquisition and any future mergers and acquisitions involving either or both of the two utilities. "We know it is going to be real tough to obtain approval, but the legislation doesn't have any direct impact on it," said Sierra Pacific spokesman Karl Walquist.

In preventing the sale of the power plant, the new law makes "it far less likely" that the acquisition will be completed, Moody's said in its latest public comments. If required regulatory approvals are not in place by May 5, either company is free to terminate the deal, which dates back to 1999.

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