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Today's IssueAlert Sponsors:=20
[IMAGE] The CIS Conferencec provides utility management personnel unequaled insight= =20 and current information on Customer Relationship Management (CRM),=20 E-Commerce, Technologies and Marketing. Fifty-four sessions conducted by=20 utility industry representatives will focus on issues facing the industry.= =20 Over 100 companies will exhibit the latest technologies and services.=20 Former President George Bush is our Honored Keynote Speaker=20 www.cisconference.org=20 e-ProCom Europe for Utilities and Energy e-Business Conference & Exhibition= =01)=20 May 22-23, 2001, Amsterdam, The Netherlands e-Commerce/e-Business/Integrating the Digital Utility/ Pan-European=20 attendance from the major utilities and energy players can be found at the= =20 e-ProCom Europe: for Utilities & Energy e-Business. Call 31-346-590901 or= =20 email jhh@synergy-events.com or visit our web site at:=20 www.e-procomseries.com.=20 Learn more about SCIENTECH'S newest InfoGrid: Venture Capital Firms, Emergi= ng=20 Technology Companies and Services in the Electric Industry. Get the latest= =20 news and information available today regarding technologies in distributed= =20 generation, fuel cell, solar, wind and energy information services. Over 1= 60=20 companies and over 111 investors are featured in this intelligence product.= =20 Purchase your InfoGrid today at www.scientech.com or contact Chris Vigil,= =20 toll free at (888) 972-8676 for more information.=20 [IMAGE] [IMAGE] April 17, 2001 Nevada Governor Warns of Possible Bankruptcy for Sierra Pacific=20 by Will McNamara=20 Director, Electric Industry Analysis [News item from California Energy Markets] Nevada Governor Kenny Guinn said= =20 the state's investor-owned utility companies could fail in a month without = a=20 deferred energy rate increase mechanism. Guinn said Nevada Power and Sierra= =20 Pacific Power "could be moving toward bankruptcy in 30 days" if the=20 Legislature fails to quickly approve deferred energy rate increases. Withou= t=20 approval, the utilities will have difficulty borrowing money to buy power o= n=20 the wholesale market and to buy natural gas for use in their own power=20 plants, the governor said. =20 Analysis: The prognosis appears to be getting increasingly worse for Sierra= =20 Pacific Resources (NYSE: SRP) and its two utility subsidiaries, Sierra=20 Pacific Power and Nevada Power. At issue at the present time is the company= 's=20 ability to secure significant rate increases that will cover its growing=20 costs for securing power on the wholesale market, which reportedly reached= =20 $889 million for year-end 2000. The timeline for a rate increase approval,= =20 and the specific amount of the rate increase, should be the deciding factor= s=20 that determine whether or not Sierra Pacific Resources becomes the next maj= or=20 utility operation to file bankruptcy.=20 Along with this new warning from Gov. Guinn, Sierra Pacific Resources' boar= d=20 of directors also just announced that it will not pay the dividend that is= =20 historically paid on May 1. The board cited "continued uncertainty over how= =20 Nevada will resolve its energy crisis." The company's CEO Walt Higgins=20 acknowledged that the dividend is "vitally important in retaining investor= =20 confidence in Nevada," but also said that it is equally important that the= =20 dividend reflect the company's current financial condition. The company=20 typically has paid a quarterly dividend of 25 cents, and the suspension of= =20 paying this quarter's dividend will save the company "less than $20 million= ."=20 In addition, Sierra Pacific Resources is engaged in cost-cutting measures= =20 that are focused on reducing "all expenses other than those associated with= =20 safety and customer service." =20 The various news surrounding Sierra Pacific Resources played a direct role = in=20 the sharp decline in the company's stock on April 16. Shares of the company= =20 dropped $1.24, or 8.6 percent, to $13.26. This is down from a 52-week high = of=20 $19.43 and book value of $17.82.=20 I have been tracking the growing financial problems of Sierra Pacific=20 Resources for several weeks. For background information, please reference m= y=20 IssueAlerts from 3/26/01 and 4/8/01. As a brief summary, Sierra Pacific=20 Resources has found itself in a similar predicament to that experienced by= =20 the California utilities, which has led Pacific Gas & Electric Co. to=20 bankruptcy court. Essentially, Sierra Pacific Resources reported a=20 fourth-quarter 2000 loss of $18.2 million, or 23 cents a share, as a result= =20 of soaring costs of power in the western United States. The company incurre= d=20 losses as a direct result of "the growing and unrecovered cost of purchased= =20 power in the volatile wholesale market." The situation has grown increasing= ly=20 worse for the company over the last month. "Without some rate relief, the= =20 cost of fuel and power is close to crippling our ability to serve the needs= =20 of our customers," said Mark Ruelle, the company's chief financial officer.= =20 The company attributed the financial losses to nearly $258 million of=20 unanticipated fuel and purchased power costs.=20 Sierra Pacific Resources already received an emergency rate increase of 17= =20 percent ($311 million) on March 1. Clearly that increase has not been deeme= d=20 sufficient by the company or the governor to pay down the reported $3.7=20 billion in debt that the company currently carries. In an effort to save=20 Sierra Pacific Resources from financial insolvency, Gov. Guinn has proposed= =20 the use of deferred energy rate cases, which the state's Senate Commerce an= d=20 Labor Committee passed on April 6 (the full Senate must still approve the= =20 measure). The motion is being attached as an amendment to the previously=20 approved Assembly Bill 369, which prohibited the pending sale of Sierra=20 Pacific Resources' power plants and essentially returned Nevada to a=20 regulated market. The Nevada Assembly has yet to approve the measure, which= =20 has prompted Gov. Guinn's warnings about a possible bankruptcy for Sierra= =20 Pacific Resources. The State Assembly is scheduled to review the amendment= =20 this week.=20 Up to this point, the operating utilities of Sierra Pacific Resources have= =20 been raising rates on a monthly basis to accommodate wholesale power=20 purchases that they must make to supply power to customers. Essentially, a= =20 deferred rate increase would allow Sierra Pacific Power and Nevada Power to= =20 recover any fuel and power purchase costs that exceed current rates. Under= =20 the amendment, the utilities' increased cost of purchasing wholesale power= =20 and natural gas would be factored into the once-a-year rate increase, calle= d=20 "deferred" because it takes effect after the power purchases have been made= =20 rather than immediately. The rate increase(s) could also be spread out over= =20 three years to minimize impact on customers. In other words, customers woul= d=20 not be exposed to the anticipated high cost for power that is expected to= =20 occur this summer in Nevada, but instead would incur the increase(s) a year= =20 from now (or possibly spread over a three-year program). =20 The benefit for the utilities is that their creditworthiness would be=20 maintained, which would allow them to continue to buy wholesale power and= =20 support various other projects. Lenders allow the utilities to use accounts= =20 for unrecovered cost increases as a security for loans because they expect= =20 the utilities will be able to collect the money later through deferred ener= gy=20 rate cases. Sierra Pacific Resources officially supports the move toward=20 deferred energy rate increases (as opposed to monthly increases) for two=20 reasons: 1) Sierra Pacific Resources believes further rate increases are=20 desperately needed; and 2) a once-a-year rate increase would be less=20 detrimental to the company's customers. It has been estimated that the=20 increase could be as much as $500 million next year, based on Sierra Pacifi= c=20 Resources' projections that its power purchase costs could increase by=20 $0.02/kWh, or about 25 percent. If the deferred rate increase method is=20 approved, Sierra Pacific would no longer receive monthly rate increases.=20 Also, the company would be required to forfeit any unrecovered power costs= =20 that have not been recouped through monthly rate increases that have taken= =20 place to date, which reportedly would save customers about $215 million.=20 Further, Sierra Pacific Resources has agreed to credit customers for the=20 first month of collections that occurred with regard to the 17-percent, $31= 1=20 million rate increase that took effect March 1. This reportedly should save= =20 customers an additional $18 million, rounding off total savings to=20 approximately $233 million. After providing the customer credit for the one= =20 month, Sierra Pacific Power and Nevada Power would continue to collect the= =20 additional 17-percent until next year when their rates are formally adjuste= d.=20 Another provision of the pending amendment stipulates that Sierra Pacific= =20 Resources cannot participate in a deferred energy rate case if it completes= =20 the proposed sale of Portland General to Enron by July 1 (a deal that has= =20 been troubled due to Sierra Pacific Resources' financial problems).=20 Along with the volatility of the western wholesale markets, Sierra Pacific= =20 Resources has also been financially impacted by the recent restriction=20 against the sale of its power plants. Assembly Bill 369, to which the=20 amendment regarding the deferred rate increases is being added, blocks the= =20 sale of Nevada power plants before July 1, 2007. Nevada utilities will be= =20 allowed to apply to the Public Utilities Commission of Nevada for plant sal= es=20 that include a state of "substantial financial emergency" after July 1, 200= 3.=20 Nevada regulators passed the measure out of concern about the state's=20 existing power supply and whether or not out-of-state companies would sell= =20 power from the plants back into the state. The measure has impacted Sierra= =20 Pacific Power and Nevada Power because they were counting on receiving=20 approximately $1.7 billion from pending sales of their power plants. =20 There is a rather striking parallel between what is happening in Nevada and= =20 what has been well documented as the California energy crisis. Interestingl= y,=20 the California utilities began to experience their financial difficulties= =20 after deregulation had already been in effect for about two years. The Neva= da=20 utilities are experiencing financial problems, which are also related to th= e=20 costs of procuring wholesale power, in advance of the start of deregulation= .=20 Wisely, Nevada regulators have postponed the start of competition until=20 market stability can be achieved within the state. Key to achieving this=20 stability will be the financial solvency of Sierra Pacific Resources' two= =20 operating utilities. Whether or not bankruptcy proceedings in Nevada can be= =20 averted remains to be seen, but the sole determining factor appears to lie = in=20 what the State Assembly will soon decide with regard to deferred energy rat= e=20 increases. =20 An archive list of previous IssueAlerts is available at www.scientech.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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