Boss of utility parent says dividends may return

Walt Higgins, Sierra chairman and chief executive officer for Nevada Power Co.'s parent company, made the prediction during an annual meeting attended by 110 people at the new Chuck Lenzie Generating Station north of Las Vegas.

Sierra Pacific Resources stopped paying a dividend to shareholders in 2002 after state regulators denied $437 million of the company's $922 million rate increase request.

Before restoring the dividend, Higgins said the company needs to recover its investment-grade bond rating, but he suggested that may be accomplished in 18 months. Rating agencies downgraded Nevada Power and Sierra Pacific Power Co. to junk-bond levels after the rate case decision.

Finally, Higgins said, the company must be profitable, as it has been recently, before it pays some of those profits in dividends.

Higgins said one of the biggest challenges the Nevada utilities face is the high price of natural gas, the fuel used in the 1,200- megawatt Lenzie plant and in most other power plants in the Southwest.

After the meeting, Higgins was asked about the possibility of using so-called financial hedges, such as option contracts, to lock in natural gas prices for longer than the six months, as is the current practice. Some analysts, thinking that gas prices are in a long-term uptrend, argue that Sierra Pacific Resources should enter long-term agreements now to lock in natural-gas prices.

Higgins didn't like the idea of locking in prices for periods longer than six months.

"It's not clear that any amount of money will lock in gas for the long term in the quantity we need," Higgins said.

Higgins compared locking in prices through hedging to a gambler putting all his money on one roulette wheel number.

"Bet wrong and you're stuck with a horrible, high-priced product," Higgins said.

State consumer advocate Eric Witkoski, however, said the company could lock in prices for part of its needed supply of natural gas. Witkoski said that excess supplies of gas in storage and a mild weather are temporarily depressing prices.

Natural gas delivered by the Kern River Pipeline sold for $5.68 per million British thermal units on Monday, thanks to the surplus. The same amount of gas sold for more than $13 for five days in December, according to the Intercontinental Exchange.

A British thermal unit is defined as the amount of heat required to raise the temperature of a pound of water by 1 degree Fahrenheit.

Some observers believe that locking in contracts for gas would delay Sierra's recovery of its investment-grade bond rating, which will reduce borrowing costs when it occurs. Witkoski said that the hedging strategy might not affect bond ratings, however.

Higgins said: "There are other ways to get the same protection," rather than using financial hedges to lock in gas prices.

Nevada's electric utilities could diversify their power sources to include other kinds of power plants, such as coal-fired power plants and wind farms, he said.

The utilities plan to build 1,500 megawatt, coal-fired power plant at Ely with the first of two units scheduled to come on line in 2011. The second unit at the proposed Ely Energy Center is slated to open two years later. The company also plans to build a 250-mile transmission line, linking Nevada Power and Sierra Pacific Power for the first time, and bringing total cost to $3 billion.

Although the Lenzie plant burns gas, it produces electricity using one-quarter less gas than the amount used on average by other Southwest power plants, Higgins said.

The proxy statement for the annual meeting shows that Sierra paid Higgins a salary of $690,000 last year, a $633,000 bonus, $1.35 million in long-term payouts and $94,000 for a foregone vacation and other costs. All other compensation totaled $444,000.

The shareholders also voted to authorize an increase in common stock to 350 million shares, up from the present limit of 250 million shares and the current count of about 200 million shares.

Shareholders also re-elected Mary Lee Coleman, T.J. Day, Jerry Herbst and Donald Snyder to the board.