Fitch Upgrades Sierra Pacific Resources and Subsidiaries.

NEW YORK -- Fitch has upgraded the ratings of Sierra Pacific Resources (SRP) and its utility subsidiaries, Nevada Power Co. (NPC) and Sierra Pacific Power Co. (SPPC) as outlined below. The Rating Outlook is Stable.

The rating upgrade reflects continuing evidence of a more supportive regulatory environment in Nevada, reduced litigation exposure, improved financial flexibility, adequate liquidity, and ongoing efforts to diminish reliance on the wholesale energy markets. The upgrade also reflects recent positive developments, including a Nevada Supreme Court decision that reversed a $180 million 2002 deferred energy disallowance by the Public Utilities Commission of Nevada (PUCN), as well as SRP's recent $280 million equity issuance. The Stable Rating Outlook assumes the continuation of constructive regulatory orders in Nevada and the issuance of adequate amounts of equity to support the company's large capital spending plans.

If the PUCN approves the company's pending integrated resource plan (IRP) filing, Fitch expects the credit ratios of SRP and its subsidiaries to weaken over the next several years as the company makes significant capital investments in the $3.7 billion Ely Energy Center and the expansion of its fast growing transmission and distribution system. Substantial external financing will be required beginning in 2008 for the Center's construction, and the first unit would not be operational until 2011, with the second coming on line in 2014.

The anticipated lag in regulatory recovery of these investments and other projects is expected to result in the deterioration of the company's financial profile over the intermediate term. However, Fitch recognizes that these expenditures are in line with the company's strategy to diversify its generation portfolio and reduce exposure to the wholesale energy markets. SRP is expected to finance these expenditures with a balanced mix of debt and equity to support credit quality. Approximately $200 million from SRP's August 2006 equity offering was contributed to NPC to reduce outstanding debt. Moreover, if the sale of its 50% interest in the Tuscarora Gas Transmission Co. is completed, proceeds may be used to reduce system debt or fund capital expenditures.

Regulatory support for the recovery of deferred energy costs and capital investments at the utilities will remain critical going forward. A change to the pattern of constructive regulatory orders demonstrated by the PUCN over the last several years would have negative rating implications for the company.

During 2006, SRP's utility subsidiaries have continued to demonstrate access to capital markets. Several debt financings have pushed out maturities and lowered interest expense. In response to elevated commodity prices, both NPC and SPPC increased the capacity of each of their revolving credit facilities by $100 million to $600 million and $350 million, respectively. As of July 28, 2006, NPC had $217 million in facility availability while SPPC had $340 million of facility capacity. Current liquidity is believed to be stronger, since these figures were prior to SRP's $280 million equity issuance and the historically robust late summer cash flow at the utilities.

SRP's ratings reflect its consolidated financial profile and structural subordination. Although the holding company's liquidity has improved, the parent relies on dividends from its subsidiaries to meet its obligations and certain limitations have been put in place. Currently, the most restrictive dividend limitation is from a February 2006 PUCN financing order that restricts the combined dividends from NPC and SPPC to the amount of SRP's debt service. Fitch believes that permitted dividends will be sufficient to meet parent needs over the next several years, but any further deterioration of the subsidiaries' financial results would affect parent cash flow. SRP also intends to hold $30 million in cash at the parent level.

Fitch has upgraded the following ratings:

Sierra Pacific Resources

--Issuer Default Rating (IDR) to 'BB-' from 'B+';

--Senior unsecured debt to 'BB-' from 'B+/RR4';

--Rating Outlook Stable.

Nevada Power Co.

--IDR to 'BB' from 'BB-';

--General and refunding mortgage bonds to 'BBB-' from 'BB+';

--Secured revolving bank facility rated to 'BBB-' from 'BB+';

--Senior unsecured debt to 'BB' from 'BB-';

--Rating Outlook Stable.

Sierra Pacific Power Co.

--IDR to 'BB' from 'BB-';

--First mortgage bonds to 'BBB-' from 'BB+';

--General and refunding mortgage bonds to 'BBB-' from 'BB+';

--Secured revolving bank facility to 'BBB-' from 'BB+';

--Rating Outlook Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.