Utility to pay stock dividend

Sierra Pacific Resources is restoring its common stock, marking the first payout to stockholders since March 2002, the company announced.

Sierra Pacific, the holding company for Nevada Power Co. of Las Vegas and Sierra Pacific Power Co. of Reno, suspended its common stock dividend five years ago in the wake of the financially devastating Western energy crisis.

The utility holding company will end the drought for shareholders on Sept. 12 wth a distribution of 8 cents a share.

Michael Yackira, who takes over as chief executive officer on Wednesday, said this weekend’s announcement is good news for shareholders and customers.

Shareholders will get a total of $17.7 million in dividends for the quarter. Both shareholders and customers will benefit from the better access Sierra Pacific will have to financial markets, a key factor given the company’s planned development of a $3.8 billion coal-fired power plant at Ely and a related transmission line.

“It should lower our cost of capital, and that should all be good for our customers,” he said.

“We’re one of the very few electric utilities in the United States that don’t pay dividends,” Yackira explained. Some institutional investors could not invest in Sierra, because it did not pay a dividend.

“More people in Nevada will invest (in Sierra Pacific) as well,” Yackira said.

The dividend yield, while not as high as it was in 2002, will be about 2 percent, about the average for the Standard & Poor’s 500 index of the nation’s largest public companies, Yackira said.

Sierra Pacific suspended a 20-cent quarterly common stock dividend in 2002 as it struggled with the aftermath of skyrocketing wholesale power prices. During the Western energy crisis, California’s experiment with deregulated retail electric power ended with rolling blackouts around the state. Companies including Enron Corp. were accused of manipulating wholesale prices in the Southwest to gouge bigger profits from customers.

Sierra Pacific was losing money and had no profits to share with stockholders in 2002, Yackira said.

At the time, the Public Utilities Commission was preparing to decide how much of a $922 million energy rate increase to grant Nevada Power, the utility serving Southern Nevada when the dividend was suspended.

The utilities commission disallowed $437 million of e Nevada Power’s rate increase request, based on findings that the utility made imprudent power purchases during the energy crisis.

Bond rating agencies downgraded the utilities to junk-bond level, which increased their borrowning costs.

Enron and other wholesale power suppliers terminated long-term contracts with Nevada Power and Sierra Pacific Power because of the lower bond ratings.

When wholesale energy prices dropped, Enron and others energy suppliers sued, arguing that they were entitled to recover damages from the Nevada utlities for the difference between the prices quoted in the terminated contracts and lthe lower market power prices..

Walt Higgins, chairman and CEO, said at the time that the company might be forced into bankruptcy.

If that happens, “I think all of you should be very concerned about whether your lights are going to stay on,” warned Doug Fischer, an analyst with A.G. Edwards & Sons.

Higgins, a former Navy captain, did not need to go down with the ship.

The company was able to negotiate new wholesale power contracts with several suppliers, and the power supply remained reliable. Bankruptcy was avoided.

Since then, Higgins has focused on restoring the company’s financial health. The utilities commission granted a series of rate increases that helped the company financially but led to consumer complaints about sharply higher power bills.

Last summer, the Nevada Supreme Court ordered the utilities commission to restore $180 million of the money disallowed in the 2002 rate case. The utility started recovering that money as part of 11.8 percent rate increases that became effective June 1.

Dominion Bond Rating Service of Toronto and Fitch Ratings of New York both have raised the company’s bond ratings to investment grade levels recently. Standard & Poor’s and Moody’s Investors Service, both of New York, continue to rate the Nevada utilities at junk-bond levels but have positive outlooks for the utilities.

The utilities commission in June allowed the utilities to start making dividend payments to the parent, Sierra Pacific Resources, which was necessary in order to make common stock dividends.

Yackira said the board met on Saturday and decided to make the dividend announcement the same day in part because of a scheduled second-quarter earnings report for today, the last while Higgins is CEO.

Higgins will continue as board chairman of the holding company’s board.

Yackira on Saturday said he could not comment on whether earnings results will be good, but it appears they will be.