Moody’s upgrades utility to investment grade status

Sierra Pacific Resources, after 51/2 years with junk bond ratings, has persuaded a prominent bond rating agency to return its debt ratings to investment grade.

The upgrade will reduce financing expenses for the electric utility company.

The agency, Moody's Investors Service, also returned Nevada Power Co. and Sierra Pacific Power Co. bonds to investment grade. Sierra Pacific Resources is the holding company for Nevada Power, which serves Southern Nevada and Sierra Pacific Power, which serves Northern Nevada.

"Moody's believes that (the utility holding company) and its subsidiaries can generate more predictable and sustainable profitability over the near term to intermediate term, provided that there is no material reversal in the level of regulatory support evidenced over the last few years," analyst Kevin Rose said in a statement.

The Moody's analyst referred to recent rate case increase decisions by the Public Utilities Commission as evidence of the utility's improved financial picture.

Moody's underscored the importance of the rating by pointing to an estimated $7.8 billion the utilities are expected to spend over the next five years building new power plants and transmission lines.

Notably, the company plans to invest $3.8 billion building the coal-fired Ely Energy Center and a transmission line that will connect the plant to the two utility subsidiaries.

"The total cost of capital should be lower (for that project)," said Michael Yackira, CEO of the holding company.

The interest rates for new bonds and some debt, including a revolving line of credit, will be lower as a result of the rating upgrade, he said. Yackira said the credit rating upgrade also boosts Sierra Pacific common stock.

Customers also will benefit from lower rates, he said, because the utilities will be able to borrow money at lower interest rates. Some institutional investors are prohibited from buying junk bonds, debt instruments with below investment grade.

Moody's and other rating companies slashed the utilities' and parent company's ratings to junk bond levels in 2002 in the wake of a Public Utilities Commission decision to disallow almost half of Nevada Power's $922 million rate increase.

The commission had concluded that Nevada Power made imprudent purchases of fuel and power during the Western energy crisis of 2000-2001 that sent wholesale power prices soaring.

Since then, company officials worked to regain investment grade ratings by seeking better relations with state regulators and improving the company's financial results.

Returning to investment grade has "been an important goal for the company for the past five and one-half years," Yackira said.

Fitch Ratings returned the Nevada utility company to investment grade in September 2006. Standard & Poor's has yet to upgrade the ratings for Sierra Pacific Resources.

"It normally takes them a longer period of time (at S&P) than Moody's, and we expected that," Yackira said.

Prior to the announcement from Moody's Thursday, Sierra Pacific shares gained 4 cents, closing at $15.80 on the New York Stock Exchange.