Embattled utility sees bright spots in dark clouds

It's never a good sign when the chairman

of the board needs to reassure investors

that bankruptcy doesn't appear to be a

good option at the moment.

Still, executives of Las Vegas-based

Sierra Pacific Resources it provides

power to northern Nevada through its

Sierra Pacific Power subsidiary think

the company may weather the storm that

has threatened to sink it.

On the surface, the news last week

was bleak:

* The company reported a loss of $41. 9

million that's 41 cents a share in

the second quarter compared with a

profit of $54 million, or 69 cents a

share, in the same quarter last year.

* Its loss for the first half of the year

totaled $347.4 million compared

with a loss of $29.4 million in the

first half of 2001.

* Calpine Corp. said Nevada Power

Co., the Sierra Pacific Resources

subsidiary that serves Las Vegas,

underpaid it by $4.2 million in June

and July. Although Calpine said

Nevada Power and Sierra Pacific

Power are current with their

payments, it said the two companies

owe it about $55 million from

past purchases.

* To top it off, a survey by J.D. Power

and Associates found that the utility

company ranks last in the nation in

residential customer satisfaction.

So what's to feel positive about?

Some good news is developing, the Sierra

Pacific Resources management team told

investors even as executives also cautioned

that their company faces high hurdles in

coming months.

For starters, the company expects to be running

positive cash flows from operations by

the end of this year, said Dennis Schiffel, senior

vice president and chief financial officer.

Sierra Pacific Resources began rebuilding its

cash position this summer, Schiffel said, and

expects in October to make what he called a

"substantial" repayment to the wholesalers

who agreed to extend payment terms earlier

this year.

(The company's credit crunch arose after the

state Public Utilities Commission said Sierra

Pacific Resources acted imprudently during

the Western energy price crisis in 2001. The

PUC refused to allow Sierra Pacific

Resources to recover from shareholders $434

million of the $922 million it paid out in

higher wholesale costs.)

Walt Higgins, the company's chairman, president

and chief executive, acknowledged that

bankruptcy always is an option for financially

distressed companies. But he said Sierra

Pacific Resources sees "no current merit" in a

bankruptcy filing, particularly as its liquidity

improves.

The biggest challenge faced by the company

arrives on Nov. 28, the deadline for the company

to refinance $200 million in bank loans.

As another company filing with the

Securities and Exchange Commission

warned last week, failure to refinance the

bank loan could leave Sierra Pacific

Resources insolvent.

Another dark cloud is a $309 million claim

filed by Enron once, a wholesale supplier

to the Nevada utility. That claim, part of

Enron's bankruptcy filing in New York, could

drain cash from Sierra Pacific Resources or

require it to post collateral that could cripple

its efforts to recover. A hearing on the claim

is scheduled in early September.

Sierra Pacific Resources is battling back,

however, with a complaint to the Federal

Energy Regulatory Commission that suppliers

including Enron victimized it in a dysfunctional

marketplace for power.

The company is battling, too, a non-binding

measure before Clark County voters in

November asking whether they believe the

operations of Nevada Power Co. would be

better operated by a nonprofit organization.

Higgins said the company views that ballot

measure as a misleading attempt to get voters

to approve a government takeover of Nevada

Power Co.

And the ballot measure comes at a time that

Southern Nevada Water Authority says it's

preparing a bid to buy Nevada Power.

Higgins said Sierra Pacific Power's board will

exercise its fiduciary responsibility in examining

any bids on behalf of shareholders.

But he said the board's line so far is this: "The

Nevada Power subsidiary is not for sale."