Power acquisition dead in water

What, the Zen masters might have

asked, is the sound of one-handed

negotiations?

They could get a hint by listening to

the unsolicited offer made by Southern

Nevada Water Authority to buy

Nevada Power, which serves the Las

Vegas area.

Reno-based Sierra Pacific

Resources, which owns Nevada Power,

has taken a straightforward stance: It

told the water authority that the proposal

is absolutely, positively a

non-starter.

In fact, Sierra Pacific's board has said

there's not enough in the water authority's

bid to even justify talking about what

it would take to make it better.

Not surprisingly, that deeply frustrates

officials of the water authority,

who have been trying since August to

get the electric utility to talk.

"We feel it's a very viable offer," said

Vince Alberta, the water authority's

spokesman, last week. "Why wouldn't

they sit down and talk at this point?

What would it hurt to sit down and

discuss the offer?"

Sierra Pacific Resources officials

gave no hint last week, however, that

they were willing to give so much as

the time of day to the water authority.

Although Sierra Pacific Resources is

based in Reno, the water authority's

proposed acquisition of Nevada Power

wouldn't have any direct effects on

Sierra Pacific customers in northern

Nevada.

Sierra Pacific Power which serves

the Reno area operates separately,

and its rates are handled separately

from those of Nevada Power.

Together, the two companies serve

about 843,000 electric customers. In

northern Nevada, Sierra Pacific Power

also has about 110,000 natural-gas customers.

Northern Nevada shareholders in

Sierra Pacific Resources, however, have

a significant stake in the outcome.

Southern Nevada Water Authority

has said its proposal is worth $12 a

share. The water authority said it

would pay $1.2 billion in cash for

Nevada Power and would assume $2.01

billion in debt issued by the utility.

With Sierra Pacific Resources stock

trading at about $6 a share last, the $12

a share offer is an attention-getter.

But that's assuming that the water

authority can come up with the money

an assumption that Sierra Pacific

Resources doubts.

When Walter Higgins, Sierra

Pacific Resources' chairman and chief

executive, told the

water authority on

Sept. 12 that his

directors didn't see

any reason to even

begin talking, Sierra

Pacific Resources

made these arguments:

* The water authority would rely

entirely on debt to make the acquisition

creating a 100 percent leveraged

buyout with no equity.

* Even at that, the water authority

hasn't shown that it has the financing

in place to buy the utility.

* The water authority's annual revenues

are about $70 million; the power

company's revenues are $1.5 billion.

That raises concerns over Southern

Nevada Water Authority's ability to

manage the electric utility even if its

bid were accepted.

The entire proposition, Sierra

Pacific Resources warned, is "highly

risky" for shareholders, customers and

employees alike.

That drew a snort from Morgan

Stanley, which is advising the water

district.

The financial house noted that

Sierra Pacific Resources' debt is graded

by Standard and Poor's as B-, a level

considered to be speculative, while

Southern Nevada Water Authority's

debt is graded AA-.

Thus, Morgan Stanley said, it's

"highly ironic (at best)" for Sierra

Pacific to characterize the deal as risky.

Morgan Stanley noted, too, that the

creation of the Truckee Meadows

Water Authority an agency that

resulted from Sierra Pacific Power's sale

of its water service to a public agency

was funded entirely by debt.

The water agency has committed to

cut Nevada Power's rates by at least

20 percent if it's allowed to buy

Nevada Power.