Utility gets breathing room

Sierra Pacific Resources remains in deep

financial trouble, but a credit-rating service

reports that the Reno-based utility is managing

to keep itself afloat.

Moody's Investors Service cautions that

Sierra Pacific Resources faces some daunting

challenges. Most serious among them

is repaying $200 million in notes that

come due next April.

Even so, Moody's said it's not ready to

cut the credit rating of Sierra Pacific

Resources further. And that amounts to a

small flicker of good news for the utility.

A Moody's review of the company a

review intended to determine if its credit

rating should be downgraded found

some positive news:

* The company's two operating subsidiaries,

Sierra Pacific Power in northern

Nevada and Nevada Power in the Las

Vegas area, managed to meet peak summer

demands while still building up cash.

* The wholesale suppliers of electricity sold

by Nevada Power have accepted delayed

payments, but the company expects to be

caught up by the end of this month.

* Sierra Pacific Resources is developing

accounts receivable strategies that will

reduce its need to rely on banks for liquidity.

"SPR and its subsidiaries have weathered

some very difficult times," a

Moody's analyst wrote.

The next step in the company's effort

to stave off bankruptcy comes this

month. Sierra Pacific Resources is privately

offering $250 million in notes, and

the proceeds would pay off bank loans.

The deal is expected to be completed by

the end of October.

If the financial package can be put into

effect, Moody's said it would consider

preserving Sierra Pacific Resource's credit

rating, although it would maintain a

negative outlook on the company.

That will provide a little breathing

room to Sierra Pacific Resources, but

Moody's cautioned that the $200 million

in notes that come due in April are likely

to present a tougher challenge.

The problem, the credit-rating agency

said, is this:

To repay the notes, Sierra Pacific

Resources needs cash to flow upstream

from Nevada Power and Sierra Pacific

Power. But lenders to financially pressed

Nevada Power have forbidden the utility

to pay dividends to its parent company.

"We believe that some of these limitations

will be addressed very shortly,

assuming [Nevada Power Co.] repays the

delayed payments to its current suppliers

and repays its bank debt," the Moody's

analyst wrote.

While the notes that come due in

April are among the most difficult issues

faced by Sierra Pacific Resources,

Moody's said other challenges include:

* Claims on behalf of the now-bankrupt

Enron Corp. for power purchased during

the sharp spike in energy prices in

late 2000 and early 2001.

* The company's ability to convince the

state Public Utilities Commission to

provide rate relief. Nevada Power will

make its pitch in November; Sierra

Pacific Power in January.

* A court case in which the company

seeks to reverse the PUC decision that

set off the current crisis.

In April, the PUC said Nevada Power

could charge its customers for only $485

million of the extra $922 million the

company paid for electricity in 2001. The

remainder, the PUC said, would be borne

by Sierra Pacific Resources shareholders.

Moody's said, too, it's following the

progress of an offer from Southern

Nevada Water Authority to buy Nevada

Power for $3.2 million, including debt it

would assume. The bond-rating agency

didn't provide a hint, however, about the

course it expects or prefers in the water

authority bid.