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California

Sierra Pacific Shares Fall on Nevada's PUC Claim Ruling

Energy: The utility commission will allow $485 million to be collected. Moody's cuts credit rating to junk.

April 02, 2002|GENE LAVERTY | BLOOMBERG NEWS

Shares of Sierra Pacific Resources, the owner of Nevada's two biggest utilities, plummeted 40% on Monday after the state denied the company's claim to recover $437 million in costs triggered by California's energy crisis.

Sierra Pacific fell $5.98 to $9.11 in New York Stock Exchange trading of 20.3 million shares, 34 times the daily average over the last three months. The stock touched a record low of $7.50.

Moody's Investors Service cut the company's credit rating to junk, after a similar move by Standard & Poor's Friday.

The company had sought to recoup $922 million it had spent buying power last year, when electricity prices in the West rose more than ninefold in the 2001 first quarter from the same time a year earlier, driven by shortages in California.

But the Nevada Public Utilities Commission agreed to allow Sierra Pacific to collect just $485 million, over three years.

Douglas Fischer, an analyst at brokerage A.G. Edwards & Sons Inc., said the company's quarterly cash dividend may be cut, and the firm might have to file for bankruptcy protection. "They have contracted to buy power for this summer at prices that are well above the level they're recovering in rates," he said.

The energy crisis drove PG&E Corp.'s Pacific Gas & Electric unit into bankruptcy last year.

Sierra Pacific, the parent of Nevada Power and Sierra Pacific Power, said it is evaluating its options and declined to say whether it is considering a bankruptcy filing. "Obviously we would like to stay away from things that are most extreme but we have to look at everything, and that's part of what we're doing here in the next few days," said spokesman Paul Heagan.

Fischer, who owns some shares of Reno-based Sierra Pacific shares, reduced his rating on the stock to "sell" from "hold."

The company paid a 20-cent-a-share dividend in the first quarter. A year ago it canceled its May 2001 dividend because it needed the cash to buy power.

Sierra Pacific's 8.75% coupon notes maturing in 2005 fell about 10 cents to 90 cents on the dollar, traders said. That pushed up the yield on the debt to 12.7% from 8.74%.

Moody's lowered Sierra Pacific's corporate credit ratings two notches to Ba2, its second-highest junk rating, from Baa3, its lowest investment-grade rating. Moody's changes affect about $3.9 billion in debt owed by Sierra Pacific and its utilities.

The ruling "comes up well short of what Nevada Power needed to help stabilize its debt protection measurements, and sets the stage for a significant write-down which would weaken its balance sheet," Moody's said.

Moody's called the ruling by the Public Utilities Commission a "stark contrast" to previous actions. "Previous regulatory support was a significant factor in the prior ratings of Sierra Pacific Resources and its subsidiaries," Moody's said.

Williams Cos. said Monday it will continue to negotiate a long-term power contract with Sierra Pacific. That's positive news, said Ronald Tanner, a Legg Mason Wood Walker analyst, who lowered his rating on the stock to "market perform" from "buy" and doesn't own the stock.

Sierra Pacific agreed March 22 to buy long-term power from Tulsa, Okla.-based Williams and Reliant Energy Inc. The transaction might mean an 8.8% rate increase for customers, below the 20% originally requested.

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