-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pu9nRJPTEL1eCGIpSJKsoRSU9PU0cN9fYjITx9D3i9doii/kK9QKLZmrToMQ8l6i ni+6XUjkFZ7hrRLpve0qJg== 0000898430-00-001562.txt : 20000516 0000898430-00-001562.hdr.sgml : 20000516 ACCESSION NUMBER: 0000898430-00-001562 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC RESOURCES CENTRAL INDEX KEY: 0000741508 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 880198358 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08788 FILM NUMBER: 630843 BUSINESS ADDRESS: STREET 1: PO BOX 30150 STREET 2: 6100 NEIL RD CITY: RENO STATE: NV ZIP: 89511 BUSINESS PHONE: 7758344011 MAIL ADDRESS: STREET 1: P O BOX 30150 STREET 2: 6100 NEIL ROAD CITY: RENO STATE: NV ZIP: 89511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEVADA POWER CO CENTRAL INDEX KEY: 0000071180 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 880045330 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-28348 FILM NUMBER: 630844 BUSINESS ADDRESS: STREET 1: 6226 W SAHARA AVE CITY: LAS VEGAS STATE: NV ZIP: 89146 BUSINESS PHONE: 7023675000 MAIL ADDRESS: STREET 1: P O BOX 230 CITY: LAS VEGAS STATE: NV ZIP: 89151 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NEVADA POWER CO DATE OF NAME CHANGE: 19701113 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 3/31/00 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Registrant, State of Incorporation, Address of Commission File Principal Executive Offices and Telephone I.R.S. employer Number Number Identification Number 1-8788 SIERRA PACIFIC RESOURCES 88-0198358 P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (775) 834-4011 1-4698 NEVADA POWER COMPANY 88-0045330 6226 West Sahara Avenue Las Vegas, Nevada 89146 (702) 367-5000
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ ------ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at May 5, 2000 Common Stock, $1.00 par value 78,419,949 Shares of Sierra Pacific Resources Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding Common Stock, $1.00 stated value, of Nevada Power Company. This combined Quarterly Report on Form 10-Q is separately filed by Sierra Pacific Resources and Nevada Power. Information contained in this document relating to Nevada Power Company is filed by Sierra Pacific Resources and separately by Nevada Power Company on its own behalf. Nevada Power Company makes no representation as to information relating to Sierra Pacific Resources or its subsidiaries, except as it may relate to Nevada Power Company. ================================================================================ SIERRA PACIFIC RESOURCES NEVADA POWER COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 CONTENTS
PART I - FINANCIAL INFORMATION ------------------------------ Page No. -------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2000 and December 31, 1999............................................................ 2 Condensed Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999................................................ 3 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999................................................ 4 Balance Sheets for Nevada Power Company - March 31, 2000 and December 31, 1999............................................................ 5 Statements of Income for Nevada Power Company - Three Months Ended March 31, 2000 and 1999................................................ 6 Statements of Cash Flows for Nevada Power Company - Three Months Ended March 31, 2000 and 1999................................................ 7 Notes to Condensed Consolidated Financial Statements.................................. 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................... 15 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...................................................................... 23 PART II - OTHER INFORMATION --------------------------- ITEM 1. Legal Proceedings................................................................ 24 ITEM 4. Submission of Matters to a Vote of Security Holders.............................. 24 ITEM 5. Other Information................................................................ 24 ITEM 6. Exhibits and Reports on Form 8-K................................................. 25 Signature Page................................................................................. 26 Appendix....................................................................................... 27
1 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2000 1999 ------------- ------------ (Unaudited) ASSETS Utility Plant at Original Cost: Plant in service $ 5,405,356 $ 5,351,399 Less: accumulated provision for depreciation 1,611,138 1,571,102 ------------- ------------ 3,794,218 3,780,297 Construction work-in-progress 308,564 293,232 ------------- ------------ 4,102,782 4,073,529 ------------- ------------ Investments in subsidiaries and other property, net 114,948 105,880 ------------- ------------ Current Assets: Cash and cash equivalents 16,829 4,789 Accounts receivable less provision for uncollectible accounts: 2000-$4,934; 1999-$6,475 201,683 215,972 Materials, supplies and fuel, at average cost 74,361 73,621 Deferred energy costs 8,424 14,884 Other 13,023 7,003 ------------- ------------ 314,320 316,269 ------------- ------------ Deferred Charges: Goodwill 325,655 327,725 Regulatory tax asset 196,364 196,364 Other regulatory assets 104,534 105,242 Other 125,397 122,677 ------------- ------------ 751,950 752,008 ------------- ------------ $ 5,284,000 $ 5,247,686 ============= ============ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity $ 1,475,613 $ 1,477,129 Preferred stock 50,000 50,000 SPPC/ NVP obligated mandatorily redeemable preferred trust securities 237,372 237,372 Long-term debt 1,552,782 1,556,627 ------------- ------------ 3,315,767 3,321,128 ------------- ------------ Current Liabilities: Short-term borrowings 789,678 754,979 Current maturities of long-term debt 192,211 202,709 Accounts payable 110,274 138,448 Accrued interest 32,786 15,394 Dividends declared 20,961 20,850 Accrued salaries and benefits 16,536 15,410 Deferred taxes on deferred energy costs 3,080 5,683 Other current liabilities 47,039 29,773 ------------- ------------ 1,212,565 1,183,246 ------------- ------------ Commitments & Contingencies (Note 9) Deferred Credits: Deferred federal income taxes 417,884 413,964 Deferred investment tax credit 61,913 62,604 Regulatory tax liability 54,188 52,839 Customer advances for construction 110,445 109,422 Accrued retirement benefits 68,354 67,314 Other 42,884 37,169 ------------- ------------ 755,668 743,312 ------------- ------------ $ 5,284,000 $ 5,247,686 ============= ============
The accompanying notes are an integral part of the financial statements. 2 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts)
Three Months Ended March 31, 2000 1999 ---- ---- (unaudited) OPERATING REVENUES: Electric $ 353,652 $ 182,433 Gas 34,836 Water 10,249 Other 4,161 ---------- --------- 402,898 182,433 ---------- --------- OPERATING EXPENSES: Operation: Purchased Power 103,297 53,860 Fuel for power generation 66,923 30,603 Gas purchased for resale 22,851 - Deferral of energy costs-net 7,164 3,789 Other 66,566 31,714 Maintenance 14,306 15,011 Depreciation and amortization 40,633 19,704 Taxes: Income taxes 10,015 1,413 Other than income 10,443 5,378 ---------- --------- 342,198 161,472 ---------- --------- OPERATING INCOME 60,700 20,961 ---------- --------- OTHER INCOME: Allowance for other funds used during construction 848 2,253 Other income - net 156 (319) ---------- --------- 1,004 1,934 ---------- --------- Total Income Before Interest Charges 61,704 22,895 ---------- --------- INTEREST CHARGES: Long-term debt 25,822 14,706 Other 14,190 2,011 Allowance for borrowed funds used during construction and capitalized interest (2,297) (2,098) ---------- --------- 37,715 14,619 ---------- --------- INCOME BEFORE SPPC/NVP OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 23,989 8,276 Preferred dividend requirements of SPPC/NVP obligated mandatorily redeemable preferred trust securities 4,836 3,793 ---------- --------- INCOME BEFORE PREFERRED STOCK DIVIDENDS 19,153 4,483 Preferred stock dividend requirements of Subsidiary (975) (42) ---------- --------- NET INCOME $ 18,178 $ 4,441 ========== ========= Net Income Per Share- Basic $ 0.23 $ 0.09 ========== ========= - Diluted $ 0.23 $ 0.09 ========== ========= Weighted Average Shares of Common Stock Outstanding 78,416 51,265 ========== ========= Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250 ========== =========
The accompanying notes are an integral part of the financial statements. 3 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three-Months Ended March 31, ------------------------------ 2000 1999 --------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Income before preferred dividends $ 19,153 4,483 Non-cash items included in income: Depreciation and amortization 40,633 19,704 Deferred taxes and deferred investment tax credit (340) (1,630) AFUDC and capitalized interest (3,145) (4,351) Deferred energy costs 6,460 4,162 Early retirement and severance amortization 1,049 - Other non-cash 2,718 (1,122) Changes in certain assets and liabilities, net of acquisition: Materials, supplies and fuel (740) (5,731) Accounts receivable 14,289 13,483 Other current assets (6,020) (2,861) Accounts payable (28,174) (26,242) Other current liabilities 33,181 (1,077) Other - net 4,240 9,992 --------- --------- Net Cash Flows From Operating Activities 83,304 8,810 --------- --------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to utility plant (65,588) (42,561) Non-cash charges to utility plant 1,014 (516) Contributions in aid of construction 2,150 - Customer refunds for construction 1,022 557 --------- --------- Net cash used for utility plant (61,402) (42,520) --------- --------- Investments in subsidiaries and other property - net (9,985) (11) --------- --------- Net Cash Used In Investing Activities (71,387) (42,531) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 33,584 (82,635) Proceeds from issuance of long-term debt - 130,000 Retirement of long-term debt (12,661) (1,739) Change in funds held in trust - 10 Retirement of preferred stock - (50) Sale of common stock 5 - Dividends paid (20,805) (12,894) --------- --------- Net Cash Provided By Financing Activities 123 32,692 --------- --------- Net increase in Cash and Cash Equivalents 12,040 (1,029) Beginning balance in Cash and Cash Equivalents 4,789 1,770 --------- --------- Ending balance in Cash and Cash Equivalents $ 16,829 $ 741 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash Paid During Period For: Interest $ 22,559 $ 12,334 Income Taxes $ - $ -
The accompanying notes are an integral part of the financial statements 4 NEVADA POWER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2000 1999 --------------------- ------------------- (Unaudited) ASSETS Utility Plant at Original Cost: Plant in service $ 2,977,035 $ 2,928,973 Less: accumulated provision for depreciation 794,202 772,003 --------------------- ------------------- 2,182,833 2,156,970 Construction work-in-progress 185,640 195,671 --------------------- ------------------- 2,368,473 2,352,641 --------------------- ------------------- Investments in Sierra Pacific Resources (Note 2) 654,976 654,156 Investments in subsidiaries and other property, net 16,108 15,644 --------------------- ------------------- 671,084 669,800 --------------------- ------------------- Current Assets: Cash and cash equivalents 891 243 Accounts receivable less provision for uncollectible accounts: 2000-$2,016; 1999-$2,826 94,895 110,955 Materials, supplies and fuel, at average cost 44,626 43,108 Deferred energy costs 8,800 14,884 Other 6,634 3,573 --------------------- ------------------- 155,846 172,763 --------------------- ------------------- Deferred Charges: Regulatory tax asset 130,833 130,833 Other regulatory assets 27,374 28,190 Other 29,360 24,258 --------------------- ------------------- 187,567 183,281 --------------------- ------------------- $ 3,382,970 $ 3,378,485 ===================== =================== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity including $654,976 -2000; $654,156 -1999 of equity in Sierra Pacific Resources (Note 2) $ 1,475,613 $ 1,477,129 NVP obligated mandatorily redeemable preferred trust securities 188,872 188,872 Long-term debt 928,644 931,004 --------------------- ------------------- 2,593,129 2,597,005 --------------------- ------------------- Current Liabilities: Short-term borrowings 194,653 182,000 Current maturities of long-term debt 89,415 89,842 Accounts payable 51,992 75,088 Accrued interest 22,528 10,098 Dividends declared 24,128 24,126 Accrued salaries and benefits 7,865 7,025 Deferred taxes on deferred energy costs 3,080 5,683 Other current liabilities 24,695 18,536 --------------------- ------------------- 418,356 412,398 --------------------- ------------------- Commitments & Contingencies (Note 9) Deferred Credits: Deferred federal income taxes 235,092 236,139 Deferred investment tax credit 26,258 26,624 Regulatory tax liability 16,342 14,993 Customer advances for construction 69,226 69,341 Accrued retirement benefits 18,517 18,262 Other 6,050 3,723 --------------------- ------------------- 371,485 369,082 --------------------- ------------------- $ 3,382,970 $ 3,378,485 ===================== ===================
The accompanying notes are an integral part of the financial statements. 5 NEVADA POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts)
Three Months Ended March 31, 2000 1999 ---- ---- (Unaudited) OPERATING REVENUES: Electric $ 196,030 $ 182,433 ----------------- ----------------- OPERATING EXPENSES: Operation: Purchased power 53,817 53,860 Fuel for power generation 37,647 30,603 Deferral of energy costs-net 6,788 3,789 Other 29,151 31,714 Maintenance 9,821 15,011 Depreciation and amortization 21,416 19,704 Taxes: Income taxes 3,627 1,413 Other than income 5,406 5,378 ----------------- ----------------- 167,673 161,472 ----------------- ----------------- OPERATING INCOME 28,357 20,961 ----------------- ----------------- OTHER INCOME: Equity in earnings of Sierra Pacific Resources (Note 2) 10,207 - Allowance for other funds used during construction 780 2,253 Other income - net 376 (319) ----------------- ----------------- 11,363 1,934 ----------------- ----------------- Total Income Before Interest Charges 39,720 22,895 ----------------- ----------------- INTEREST CHARGES: Long-term debt 15,899 14,706 Other 3,665 2,011 Allowance for borrowed funds used during construction and capitalized interest (1,815) (2,098) ----------------- ----------------- 17,749 14,619 ----------------- ----------------- INCOME BEFORE NVP OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 21,971 8,276 Preferred dividend requirements of NVP obligated mandatorily redeemable preferred trust securities 3,793 3,793 ----------------- ----------------- INCOME BEFORE PREFERRED STOCK DIVIDENDS 18,178 4,483 Preferred stock dividend requirements (42) ----------------- ----------------- NET INCOME $ 18,178 $ 4,441 ================= ================= Net Income Per Share - Basic $ 0.23 $ 0.09 ================= ================= - Diluted $ 0.23 $ 0.09 ================= ================= Weighted Average Shares of Common Stock Outstanding 78,416 51,265 ================= ================= Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250 ================= =================
The accompanying notes are an integral part of the financial statements. 6 NEVADA POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three-Months Ended March 31, --------------------------------------------- 2000 1999 ---------------- ---------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Income before preferred dividends $ 18,178 $ 4,483 Non-cash items included in income: Depreciation and amortization 21,416 19,704 Deferred taxes and deferred investment tax credit (1,227) (1,630) AFUDC and capitalized interest (2,595) (4,351) Deferred energy costs 6,084 4,162 Other non-cash 1,453 (1,122) Equity in earnings of SPR (Note 2) (10,207) - Changes in certain assets and liabilities, net of acquisition: Materials, supplies and fuel (1,518) (5,731) Accounts receivable 16,060 13,483 Other current assets (3,061) (2,861) Accounts payable (23,096) (26,242) Other current liabilities 16,826 (1,077) Other - net (1,072) 9,992 ---------------- ---------------- Net Cash Flows From Operating Activities 37,241 8,810 ---------------- ---------------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to utility plant (38,348) (42,561) Non-cash charges to utility plant 406 (516) Contributions in aid of construction - - Customer refunds for construction (116) 557 ---------------- ---------------- Net cash used for utility plant (38,058) (42,520) ---------------- ---------------- Investments in subsidiaries and other property - net (92) (11) ---------------- ---------------- Net Cash Used In Investing Activities (38,150) (42,531) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 12,653 (82,635) Proceeds from issuance of long-term debt - 130,000 Retirement of long-term debt (1,098) (1,739) Change in funds held in trust - 10 Retirement of preferred stock - (50) Additional investment of Parent 14,000 - Dividends paid (23,998) (12,894) ---------------- ---------------- Net Cash Provided By Financing Activities 1,557 32,692 ---------------- ---------------- Net increase in Cash and Cash Equivalents 648 (1,029) Beginning balance in Cash and Cash Equivalents 243 1,770 ---------------- ---------------- Ending balance in Cash and Cash Equivalents $ 891 $ 741 ================ ================ Supplemental Disclosures of Cash Flow Information: Cash Paid During Period For: Interest $ 7,134 $ 12,334 Income Taxes $ - $ -
The accompanying notes are an integral part of the financial statements 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- NOTE 1. MANAGEMENT'S STATEMENT - ------------------------------------- In the opinion of the management of Sierra Pacific Resources, hereafter known as SPR, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the condensed consolidated financial position, condensed consolidated results of operations and condensed consolidated cash flows for the periods shown. These condensed consolidated financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters which are included in full year financial statements and therefore, they should be read in conjunction with the audited financial statements included in SPR's Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the three-month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. Principles of Consolidation --------------------------- The condensed consolidated financial statements include the accounts of SPR and its wholly-owned subsidiaries, Nevada Power Company (NVP), Sierra Pacific Power Company (SPPC), Tuscarora Gas Pipeline Company, Sierra Gas Holding Company (formerly Sierra Energy Company), Sierra Energy Company dba eo three, Sierra Pacific Energy Company, Lands of Sierra, Sierra Pacific Communications, Nevada Electric Investment Company and Sierra Water Development Company. All significant intercompany transactions and balances have been eliminated in consolidation. Reclassifications ----------------- Certain items previously reported for years prior to 2000 have been reclassified to conform with the current year's presentation. Net income and shareholders' equity were not affected by these reclassifications. NOTE 2. FINANCIAL STATEMENTS OF NEVADA POWER COMPANY - ----------------------------------------------------- As described in Note 3 that follows, NVP is deemed to be the acquirer of SPR for accounting purposes and this is reflected in the SPR Consolidated Financial Statements. However, after the merger with SPR and as a result of the structure of the transactions, NVP is a separate legal entity, which is a wholly owned subsidiary of SPR. As a legal matter, NVP does not own any equity interest in SPR. The audited NVP Financial Statements accommodate the presentation of financial information of NVP on a stand-alone basis, without the benefit of the other SPR entities, by summarizing all non-NVP financial information into a few items on each of the Financial Statements. These summarized items are repeated below: Non-NVP Financial Items on the NVP Financial Statements NVP Balance Sheet: - ----------------- Investments in Sierra Pacific Resources $654,976 Equity in Sierra Pacific Resources $654,976 The Investment in Sierra Pacific Resources reflects the net assets, after deducting for all liabilities and preferred stock of Sierra Pacific Resources not related to NVP. The Equity in Sierra Pacific Resources reflects the sum of paid-in-capital and retained earnings of SPR, without the benefit of NVP. These line items are required by the rules of purchase accounting and do not represent any asset to which holders of NVP's securities may look for recovery of their investment. These items must be disregarded for determining the ability of NVP to satisfy its obligations or to pay dividends (preferred or common), for calculating NVP's ratios of earnings to fixed charges and preferred stock dividends and for all of NVP's financial covenants and earnings tests including those under its charter and mortgage. 8 NVP Income Statement: - -------------------- Equity in Earnings of Sierra Pacific Resources $ 10,207 The Equity in Earnings of Sierra Pacific Resources reflects three months of SPR net income, after SPPC preferred stock dividends. This line item is required by the rules of purchase accounting and does not represent any item of revenue or income to which holders of NVP's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NVP to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NVP's ratios of earnings to fixed charges and preferred dividends and for all of NVP's financial covenants and earnings tests including those under its charter and mortgage. NVP Statement of Cash Flow: - -------------------------- Equity in Earnings of Sierra Pacific Resources $ 10,207 As in the income statement, the Equity in Earnings of Sierra Pacific Resources reflects the three months of SPR net income, after SPPC preferred stock dividends. This line item is required by the rules of purchase accounting and does not represent any item of cash flow to which holders of NVP's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NVP to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NVP's ratios of earnings to fixed charges and preferred dividends and for all of NVP's financial covenants and earnings tests including those under its charter and mortgage. NOTE 3. SIERRA PACIFIC RESOURCES AND NEVADA POWER COMPANY MERGER - ----------------------------------------------------------------- On July 28, 1999 the merger between SPR and NVP was finalized. The merger was accounted for as a reverse purchase under generally accepted accounting principles, with NVP considered the acquiring entity even though SPR is the surviving legal entity. In addition, for accounting purposes the merger was deemed to have occurred on August 1, 1999. As a result of this reverse purchase accounting treatment; (i) the historical financial statements of SPR for periods prior to the date of the merger are no longer the financial statements of SPR, and therefore, are no longer presented; (ii) the historical financial statements of SPR for periods prior to the date of the merger are those of NVP. Through March 31, 2000, SPR incurred a total of $60.3 million in capitalized costs since merger work began. The capitalized merger amounts consist of $40.7 million of transaction and transition costs and $19.6 million of employee separation costs. For more information regarding the capitalization of merger costs, see Note 2 of "The Notes To Financial Statements" included in SPR's Annual Report on Form 10-K for the year ended December 31, 1999. Employee severance, relocation, and related costs for SPR were $15.1 million, of which $1.7 million remains unpaid as of March 31, 1999. Other costs incurred in connection with employee separations included pension and postretirement benefits net of curtailment gains of $4.5 million. In accordance with the terms of the merger, each outstanding share of SPR's common stock was converted into the right to receive either $37.55 in cash or 1.44 shares of newly issued SPR common stock. Each outstanding share of NVP common stock was converted to the right receive either $26.00 in cash or 1.00 share of newly issued SPR common stock. 4,037,000 shares of SPR and 11,716,611 shares of NVP common stock were exchanged for $151.6 million and $304.6 million, respectively. The remaining shares of each company were converted to newly issued shares of SPR common stock. SPR stockholders and NVP stockholders received 38,866,054 and 39,548,506 shares of newly issued SPR common stock, resulting in 78,414,560 outstanding shares of SPR on August 1, 1999. The total consideration paid to SPR common stockholders was equal to cash of $151.6 million and 38,866,054 shares of newly issued SPR common stock at a price of $24.18 per share based on the average closing price of NVP common stock between April 22, 1998 and May 6, 1998. The eleven day average price of NVP common stock used in determining the total stock consideration represents the market price over a reasonable period of time before and after the transaction was announced on April 29, 1998. As shown below, $331.2 million of goodwill was recorded in connection with the merger and is being amortized over 40 years. However, the Public 9 Utilities Commission's order approving the merger allowed SPR to defer merger costs (including goodwill) allocable to the regulated utilities for a three year period. At the end of the deferral period SPR will propose an amortization period for goodwill and other merger costs. Accordingly, goodwill amortization associated with the regulated utility companies is being reclassified to a regulatory asset during the three year period. Also, because SPR is deferring merger costs as regulatory assets the transaction costs included in the calculation of goodwill represent only costs allocable to SPR's non-regulated subsidiaries. Pro forma unaudited financial information for SPR on a consolidated basis, giving effect to the merger as if it had occurred at the beginning of all periods presented. The pro forma information presented below is not necessarily indicative of the results that would have occurred, or that will occur in the future. Three-Months ended (Dollars and shares in thousands March 31, except per share amounts) ------------------------------------ - --------------------------------- 2000 1999 ----------------- -------------- Operating Revenue $ 402,898 $ 377,219 Operating Income $ 60,700 $ 58,654 Income Applicable to Common Stock $ 18,178 $ 19,661 Net Income per share - basic and diluted $ 0.23 $ 0.25 Weighted Average Shares of Common Stock Outstanding 78,416 78,416 Total Assets $5,284,000 $5,101,900 NOTE 4. RECENT PRONOUNCEMENTS OF THE FASB - ------------------------------------------ In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, entitled "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position, and measure those instruments at fair value. In May 1999, members of the Financial Accounting Standards Board agreed to delay the effective date of Statement 133 to fiscal years beginning after June 15, 2000. In March 2000, FASB issued a proposed amendment to Statement 133 that, among other revisions, exempted from the fair value requirements normal purchases and normal sales (as defined by Statement 133) that contain settlement provisions, if it is probable that the contracts will not settle net and will result in physical delivery. SPR is still assessing the impact of SFAS 133 on its financial condition and results of operations. NOTE 5. SHORT-TERM BORROWINGS - ------------------------------ SPR's commercial paper balance increased by approximately $29.8 million since December 31, 1999. On March 31, 2000, SPR had $493.2 million of commercial paper outstanding at an average rate of 6.29%. NOTE 6. LONG-TERM DEBT - ----------------------- On March 31, 2000, SPR redeemed $10 million of Series E senior notes. 10 NOTE 7. EARNINGS PER SHARE - --------------------------- SPR follows SFAS No. 128, "Earnings Per Share". The difference between Basic EPS and Diluted EPS is due to common stock equivalent shares resulting from stock options, employee stock purchase plan, performance shares and a non-employee director stock plan. Common stock equivalents were determined using the treasury stock method. The following provides a reconciliation of Basic EPS andDiluted EPS.
Three Months Ended March 31, --------------------------- 2000 1999 ------------ ------------- Basic EPS Numerator Income available to common stockholders ($000) 18,178 4,441 ----------- ------------ Denominator Weighted average number of shares outstanding 78,416,356 51,265,117 ----------- ------------ Per-Share Amount $ 0.23 0.09 =========== ============ Diluted EPS Numerator Income available to common stockholders ($000) 18,178 4,441 ----------- ------------ Denominator Weighted average number of shares outstanding before dilution 78,416,356 51,265,117 Stock options 1,153 - Executive long term incentive plan 56,403 - Non-Employee stock plan 5,736 - Employee stock purchase plan 929 - ----------- ------------ 78,480,577 51,265,117 ----------- ------------ Per-Share Amount $ 0.23 $ 0.09 =========== ============
11 NOTE 8. SEGMENT INFORMATION - ---------------------------- SPR operates three business segments providing regulated electric, natural gas and water service. Electric service is provided to Las Vegas and surrounding Clark County, northern Nevada and the Lake Tahoe area of California. Natural gas and water services are provided in the Reno-Sparks area of Nevada. Other segment information includes segments below the quantitative threshold for separate disclosure. Information as to the operations of the different business segments is set forth below based on the nature of products and services offered. SPR evaluates performance based on several factors, of which the primary financial measure is business segment operating income. Intersegment revenues are not material. Segment information for the three months ended March 31, 1999 includes only the operating results of NVP. Three Months Ended March 31, 2000 Electric Gas Water Other Consolidated - ------------------ --------- -------- -------- -------- ------------ Operating Revenues $ 353,652 $ 34,836 $ 10,249 $ 4,161 $ 402,898 ========= ======== ======== ======== ============ Operating income $ 54,356 $ 4,612 $ 2,732 $ (1,000) $ 60,700 ========= ======== ======== ======== ============ Three Months Ended March 31, 1999 Electric Gas Water Other Consolidated - ------------------ --------- -------- -------- -------- ------------ Operating revenues $ 182,433 $ - $ - $ - $ 182,433 ========= ======== ======== ======== ============ Operating income $ 20,961 $ - $ - $ - $ 20,961 ========= ======== ======== ======== ============ NOTE 9. COMMITMENTS AND CONTINGENCIES - -------------------------------------- The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S. District Court, District of Nevada, in February 1998, against the owners (including NVP) of the Mohave Generation Station ("Mohave"), alleging violations of the Clean Air Act regarding emissions of sulfur dioxide and particulates. An additional plaintiff, National Parks and Conservation Association, later joined the suit. The plant owners and plaintiffs have had numerous settlement discussions and filed a proposed settlement with the court on October 6, 1999. The consent decree, approved by the court in November, established emission limits for sulfur dioxide and opacity and required installation of air pollution controls for sulfur dioxide, nitrogen oxides and particulate matter. The new emission limits must be met by January 1, 2006 and April 1, 2006, for the first and second units, respectively. However, if the owners sell their entire ownership interest, with a closing date prior to December 30, 2002, then the new emission limits become effective 36 months and 39 months from the date of last closing for the two respective units. The estimated cost of new controls is $300 million. As a 14% owner in the Mohave Station, NVP's costs could be $42 million. Also, the United States Congress authorized the Environmental Protection Agency ("EPA") to study the potential impact Mohave may have on visibility in the Grand Canyon area. A final report of the study results was released in March 1999. The study acknowledges that sulfur dioxide emissions from Mojave are transported to the Grand Canyon. EPA has solicited information to determine whether visibility impairment in the Grand Canyon can be reasonably attributed to Mohave. If EPA determines that significant visibility impairment is reasonably attributable to the station, EPA could initiate a review for Best Available Retrofit Technology. Based upon indications from EPA and the National Park Service, the Plant owners believe that terms of the settlement of the suit discussed above are expected to be reflected in a State Implementation Plan for Nevada and resolve any concerns of EPA regarding visibility impairment. In 1991, the EPA published an order requiring the Navajo Generating Station ("Navajo") to install scrubbers to remove 90 percent of sulfur dioxide emissions beginning in 1997. As an 11.3% owner of Navajo, NVP was required to fund an estimated $48 million for installation of the scrubbers. The first of three scrubber units was placed in commercial operation in November 1997, the second scrubber in September 1998, with the last scrubber placed in operation in June 1999. NVP spent approximately $47.6 million on the scrubbers' construction. In 1992, NVP received resource-planning approval from the PUCN for its share of the cost of the scrubbers. 12 In May 1997, the Nevada Division of Environmental Protection (NDEP) issued an Order requiring NVP to submit a plan to eliminate the discharge of Reid Gardner Station wastewater to groundwater. The Order also required a hydrological assessment of groundwater impacts in the area. In June 1999, NDEP determined that wastewater ponds have degraded groundwater quality. In August 1999, NDEP issued a discharge permit to Reid Gardner Station and an Order that requires all wastewater ponds to be closed or lined with impermeable liners over the next 10 years. This Order also required NVP to submit a Site Characterization Plan to NDEP to ascertain impacts. Technical information from the Plan will be used to develop a corrective action plan and allow NVP to determine an estimate of remediation costs for cleanup. New pond construction and lining costs are estimated at $20 million. Additionally, SPPC has four wells which currently exceed the federal drinking water standard for naturally occurring arsenic concentrations. Production from three of these wells continues by blending treated water. The fourth well is out of service pending treatment. SPPC's water laboratory research staff is developing options to assure that SPPC is prepared to meet new arsenic standards. The new Arsenic regulations will be promulgated in 2000 and the proposed regulation is expected to require action on 17 of the 25 wells serving Sierra's system. Depending upon final rules from the EPA, SPPC may incur between $70 million and $98 million by 2004 to meet the new standards. As part of the Generation Divestiture process, Phase I and/or Phase II Environmental Assessments were conducted at NVP's Harry Allen, Clark, Sunrise and Reid Gardner facilities. Additional environmental assessments are being conducted to further characterize the sites. Remediation costs are unknown because characterization is not complete. Nevada Electric Investment Company (NEICO), a subsidiary of NVP in 1999, owns property in Wellington, Utah, which was the site of a coal washing and load out facility. The site now has a reclamation estimate supported by a bond of $4.9 million with the Utah Division of Oil and Gas Mining. The property was under contract for sale and the contract required the purchaser to provide $1.3 million in escrow towards reclamation. However, the sales contract was recently terminated and NEICO has taken title to the escrow funds. It is NEICO's intention to sell the property. In accordance with the revised Divestiture Plan stipulation approved by the PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be offering for sale generation assets with peak capacity of approximately 2,985 megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940 MW owned by NVP. Letters of interest were issued to potential bidders in February 2000. Upon response from the qualified potential bidders and execution of the confidentiality agreements, offering memoranda and materials were provided to the bidders. First Stage indicative bids are expected in early May 2000. A short list will be selected for each of the seven bundles being offered and the second stage due diligence process will begin later in May 2000. Final bids and the selection of winning bids will occur in late June or early July 2000. Close of sale and transfer of ownership should occur between December 2000 and mid-2001. NOTE 10. SUBSEQUENT EVENTS - --------------------------- On April 20, 2000, SPR issued an aggregate of $300 million floating rate notes, $200 million of which will mature on April 20, 2003 and the remaining $100 million will mature on April 20, 2002. Interest on the notes is payable quarterly commencing on July 20, 2000. The interest rate on the notes for each interest period will be a floating rate, subject to adjustment every three months, equal to the London InterBank Offered Rate (LIBOR) for three-month U.S. dollar deposits plus a spread of 0.60% for the notes maturing in 2003 and a spread of 0.65% for the notes maturing in 2002. These notes will not be entitled to any sinking fund. The notes due 2002 will be redeemable, in whole, without premium at the option of SPR beginning on April 20, 2001 and on each interest payment date thereafter. The net proceeds of the $200 million issue were used to retire an equal amount of commercial paper of SPR that was used as temporary funding for the cash portion of the NVP merger consideration. The net proceeds of the $100 million issue were used to make a capital contribution to NVP, which in turn was used to retire $85 million of maturing long-term debt on May 1, 2000 and the remaining proceeds were used to pay off its commercial paper. Upon issuance of these floating rate notes, SPR also reduced its bank credit facility to $300 million from the previous amount of $500 million in accordance with the terms of the credit agreement. On May 9, 2000, SPR issued $300 million of notes under its universal shelf registration. These notes bear interest at an annual rate of 8.75% and will mature on May 15, 2005. Interest on the notes is payable semi-annually 13 on May 15 and November 15 commencing on November 15, 2000. The notes will not be subject to any sinking fund and will be redeemable in whole or in part at any time upon payment of the principal amount of the notes being redeemed, accrued interest and a make-whole premium. The net proceeds from the issuance of these notes were used to retire an equal amount of commercial paper of SPR. On May 1, 2000 $85 million of NVP's First Mortgage Bonds matured. On May 10, 2000, in accordance with SPR's plan to sell the generation assets of NVP and SPPC, AES Corporation announced that it was the successful bidder for the purchase of a controlling interest in the 1,580 MW Mohave Generating Station in Laughlin, Nevada for approximately $667 million. AES executed Asset Sale Agreements with the sellers, NVP (14%) and Southern California Edison Company (56%), for a 70% undivided interest in the facility. The acquisition is subject to approval by the FERC and the California Public Utilities Commission, and review by the Public Utilities Commission of Nevada and is expected to close late in the 4/th/ Quarter of 2000. Mohave Generating Station is a 2-unit, coal-fired power plant located on 2,500 acres along the Colorado River, approximately 80 miles south of Las Vegas. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information in this Form 10-Q, and in the Form 10-Q of Sierra Pacific Power Company (SPPC) attached as an Appendix, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to anticipated financial performance, management's plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. Words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "objective" and other similar expressions identify those statements that are forward-looking. These statements are based on management's beliefs and assumptions and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such statements, factors that could cause the actual results of Sierra Pacific Resources (SPR), Nevada Power Company (NVP), or SPPC to differ materially from those contemplated in any forward-looking statement include, among others, the following: (1) the pace and extent of the ongoing restructuring of the electric and gas industries in Nevada and California; (2) the outcome of regulatory and legislative proceedings and operational changes related to industry restructuring; (3) the amount NVP and SPPC are allowed to recover from customers for certain costs that prove to be uneconomic in the new competitive market; (4) regulatory delays or conditions imposed by regulatory bodies in approving the acquisition of Portland General Electric; (5) the outcome of ongoing and future regulatory proceedings; (6) management's ability to integrate the operations of SPR, NVP, SPPC, and Portland General Electric and to implement and realize anticipated cost savings from the merger of SPR and NVP and the acquisition of Portland General Electric; (7) the results of the contemplated sales by NVP and SPPC of their Nevada generating assets; (8) industrial, commercial and residential growth in the service territories of NVP and SPPC; (9) fluctuations in electric, gas and other commodity prices and the ability to manage such fluctuations successfully; (10) changes in the capital markets and interest rates affecting the ability to finance capital requirements; (11) the loss of any significant customers; (12) the weather and other natural phenomena; and (13) changes in the business of major customers which may result in changes in the demand for services of NVP or SPPC. Other factors and assumptions not identified above may also have been involved in deriving these forward-looking statements, and the failure of those other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. SPR assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. RESULTS OF OPERATIONS - --------------------- Tuscarora Gas Pipeline Company - ------------------------------ The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three months ended March 31, 2000 include the operating results of Tuscarora Gas Pipeline Company (TGPC), a wholly-owned subsidiary of SPR. TGPC contributed $.6 million in net income for the three months ended March 31, 2000. Although not reflected in the SPR Condensed Consolidated Income Statement for the three months ended March 31, 1999 included in this report, TGPC contributed $.5 million in net income for that period. The Condensed Consolidated Income Statement for the three months ended March 31, 1999 includes only the operating results of NVP. See Note 2 for more information regarding the presentation of financial information included in this report. e-three - ------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three months ended March 31, 2000 include the operating results of e- three, a wholly-owned subsidiary of SPR. e-three contributed $.2 million in net income for the three months ended March 31, 2000. Although not reflected in the SPR Condensed Consolidated Income Statement for the three months ended March 31, 1999 included in this report, e-three incurred a net loss of $.7 million for that period due to start-up activities. 15 Sierra Pacific Energy Company - ----------------------------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three months ended March 31, 2000 include the operating results of Sierra Pacific Energy Company (SPE), a wholly-owned subsidiary of SPR. SPE incurred a net loss of $3.2 million for the three months ended March 31, 2000. The current period losses are the result of costs incurred to exit the retail energy-sales business. Although not reflected in the SPR Condensed Consolidated Income Statement for the three months ended March 31, 1999 included in this report, SPE incurred a net loss of $.4 million for that period. Sierra Pacific Communications - ----------------------------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three months ended March 31, 2000 include the operating results of Sierra Pacific Communications (SPC), a wholly-owned subsidiary of SPR. SPC incurred a net loss of $61,000 for the three months ended March 31, 2000. SPC began operations in the third quarter of 1999. SPC has finalized a partnership, called Sierra Touch America, LLC, with Touch America, a subsidiary of Montana Power Company. The partnership was formed to construct a fiber optic connection between Salt Lake City, Utah and Sacramento, CA. The construction of the route is for three parties, AT&T and PF Net corporations, and Sierra Touch America. SPC's share of the estimated $100 million total cost to the partnership is expected to be $25 million. Sierra Pacific Power Company - ---------------------------- Management's Discussion and Analysis of SPPC is contained in its Quarterly Report on Form 10-Q for the three months ended March 31, 2000, which is attached as an appendix. SPPC contributed $18.5 million in net income for the three months ended March 31, 2000, which is reflected in the SPR Condensed Consolidated Income Statement for that period. Although not reflected in the SPR Condensed Consolidated Income Statement for the three months ended March 31, 1999 included in this report, SPPC contributed $21.1 million in net income for that period. Nevada Power Company - -------------------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three months ended March 31, 2000 include the operating results of Nevada Power Company (NVP), another wholly-owned subsidiary of SPR, in addition to those of SPPC. The following Condensed Consolidated Statements of Income illustrate the operating results of NVP, SPPC and the combined results of all other operations. The results of operations discussion that follows is based on the NVP operating results included in these statements as the operating results of the other subsidiaries have already been discussed in this section. 16 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATING STATEMENTS OF INCOME (Dollars in Thousands)
Three-Months Ended March 31, 2000 Three-Months Ended March 31, 1999 ------------------------------------------------ ----------------------------------------------- Sierra Sierra Nevada Pacific Nevada Pacific Power Power Other Total Power Power Other Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) OPERATING REVENUES: Electric $ 196,030 $ 157,622 $ - 353,652 $ 182,433 $ - $ - 182,433 Gas - 34,836 34,836 - - - - Water - 10,249 - 10,249 - - - - Other - - 4,161 4,161 - - - - ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 196,030 202,707 4,161 402,898 182,433 - - 182,433 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES: Operation: Purchased power 53,817 49,480 - 103,297 53,860 - - 53,860 Fuel for power generation 37,647 29,276 - 66,923 30,603 - - 30,603 Gas purchased for resale - 22,851 22,851 - - - - Deferral of energy costs-net 6,788 376 7,164 3,789 - - 3,789 Other 29,151 27,869 9,546 66,566 31,714 - - 31,714 Maintenance 9,821 4,485 - 14,306 15,011 - - 15,011 Depreciation and amortization 21,416 19,031 186 40,633 19,704 - - 19,704 Taxes: - - - - - Income taxes 3,627 11,034 (4,646) 10,015 1,413 - - 1,413 Other than income 5,406 4,962 75 10,443 5,378 - - 5,378 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 167,673 169,364 5,161 342,198 161,472 - - 161,472 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME 28,357 33,343 (1,000) 60,700 20,961 - - 20,961 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- OTHER INCOME: Allowance for other funds used during construction 780 68 - 848 2,253 - - 2,253 Other income - net 376 (378) 158 156 (319) - - (319) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,156 (310) 158 1,004 1,934 - - 1,934 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Income 29,513 33,033 (842) 61,704 22,895 - - 22,895 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- INTEREST CHARGES: Long-term debt 15,899 9,750 173 25,822 14,706 - - 14,706 Other 3,665 3,211 7,314 14,190 2,011 - - 2,011 Allowance for borrowed funds used during construction and capitalized interest (1,815) (482) - (2,297) (2,098) - - (2,098) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 17,749 12,479 7,487 37,715 14,619 - - 14,619 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- INCOME BEFORE SPPC/NVP OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 11,764 20,554 (8,329) 23,989 8,276 - - 8,276 Preferred dividend requirements of mandatorily redeemable preferred trust securities (3,793) (1,043) (4,836) (3,793) - - (3,793) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- INCOME BEFORE PREFERRED STOCK DIVIDENDS 7,971 19,511 (8,329) 19,153 4,483 - - 4,483 Preferred stock dividend requirements - (975) - (975) (42) - - (42) ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- INCOME APPLICABLE TO COMMON STOCK $ 7,971 $ 18,536 $ (8,329) $ 18,178 $ 4,441 $ - $ - $ 4,441 =========== =========== =========== =========== =========== =========== =========== ===========
The causes for significant changes in specific lines comprising the results of operations for NVP are as follows (dollars in thousands):
Three Months Ended March 31, ------------------------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------- ------------- ------------- ------------ Electric Operating Revenues: Residential $ 83,573 $ 79,106 $ 4,467 5.6% Commercial 46,734 41,327 5,407 13.1% Industrial 55,121 49,395 5,726 11.6% ------------- ------------- ------------- ------------ Retail revenues 185,428 169,828 15,600 9.2% Other 10,602 12,605 (2,003) -15.9% ------------- ------------- ------------- ------------ Total Revenues $ 196,030 $ 182,433 $ 13,597 7.5% ============= ============= ============= ============ Total retail sales in thousands of megawatt-hours (MWH) 3,148 2,951 197 6.7% Average retail revenue per MWH $ 58.90 $ 57.55 $ 1.35 2.4%
Residential electric revenues increased due to a 5.8% increase in customers over the prior periods and rate increases related to deferred energy accounting that were effective in March 1999. These increases for three months were partially offset by lower use per customer due to milder weather in 2000. Commercial and industrial electric revenues increased due to a 5.0% and 5.4% increase in number of customers, respectively. Revenues for both categories were also higher because of rate increases related to deferred energy accounting and higher use per customer as a result of the expansion of existing customer operations and the opening of new resort casinos. Other electric revenues decreased due to the expiration of a wholesale contract and loss of one public authority customer during 2000.
Three Months Ended March 31, ---------------------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------- ------------- --------------- --------------- Purchased Power $ 53,817 $ 53,860 $ (43) -0.1% Purchased Power in thousands of MWHs 1,243 1,425 (182) -12.8% Average cost per MWH of Purchased Power $ 43.30 $ 37.80 $ 5.50 14.6%
Purchased power costs were only slightly lower despite a 12.8% decrease in the MWHs purchased compared to last year. The reduction in cost that resulted from lower volumes purchased was offset by higher average unit costs for short-term power purchases. In response to higher purchased power prices, NVP increased electric generation to supply the increase in electric sales described previously. 18
Three Months Ended March 31, --------------------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------ ------------ ------------- ------------- Fuel for Power Generation $ 37,647 $ 30,603 $ 7,044 23.0% Thousands of MWHs generated 2,264 1,969 295 15.0% Average cost per MWH of Generated Power $ 16.63 $ 15.54 $ 1.09 7.0%
Fuel costs increased due to greater electric sales, the replacement of more expensive purchased power with generation and higher gas prices in the current year.
Three Months Ended March 31, ----------------------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------ ------------ ------------- ------------- Deferral of energy costs-net $ 6,788 $ 3,789 $ 2,999 79.2% ============ ============ ============= =============
Deferred energy cost recognition has increased to match deferred energy rate increases granted in 1999. The rate increase was granted to increase NVP's fuel recovery.
Three Months Ended March 31, --------------------------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ---------------- ---------------- ----------------- --------------------- Allowance for other funds used during construction $ 780 $ 2,253 (1,473) -65.4% Allowance for borrowed funds used during construction 1,815 2,098 (283) -13.5% ---------------- ---------------- ----------------- --------------------- $ 2,595 $ 4,351 $ (1,756) -40.4% ================ ================ ================= =====================
Total allowance for funds used during construction (AFUDC) is lower primarily because the construction of the Crystal Transmission Project completed in May 1999. 19
Three Months Ended March 31, ----------------------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------ ------------ ------------- ------------- Other operating expense $ 29,151 $ 31,714 $ (2,563) -8.1% Maintenance expense 9,821 15,011 (5,190) -34.6% Depreciation and amortization 21,416 19,704 1,712 8.7% Income taxes 3,627 1,413 2,214 156.7% Interest charges- Long-term debt 15,899 14,706 1,193 8.1% Interest charges-other 3,665 2,011 1,654 82.2%
Other operating expense is lower due to reduced labor and benefit costs in 2000 as a result of merger efficiencies and other unfilled vacancies. Maintenance costs decreased from the prior year due to lower plant maintenance costs. Depreciation and amortization expense increased due to an 8.8% increase in electric plant over the prior year. Income taxes increased due to higher pre-tax income for the current year. Interest charges- Long-term debt, is greater due to higher average long-term debt balances in the current year. Interest charges- other is greater due to higher short-term borrowings in the current year. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ---------------------------------------------------- During the first three months of 2000, SPR earned $19.2 million in income before preferred dividends and declared $19.85 million in common stock dividends. NVP and SPPC, SPR's principal subsidiaries, declared common stock dividends to their parent, SPR, of $24 million and $19 million, respectively. SPPC also declared $475 thousand in dividends to holders of its preferred stock. SPR cash flows during the three months ended March 31, 2000 increased compared to the same period in 1999. A significant increase in cash flows from operating activities was offset in part by an increase in cash flows used in investing activities and a decrease in cash flows from financing activities. Cash flows from operating activities were greater in 2000 than in 1999 due primarily to 2000 including the operating results of the merged companies. For the same reason, cash flows used in investing activities were greater in 2000 than in 1999. Cash flows from financing activities decreased in 2000 as compared to 1999 due primarily to the 1999 issuance of long-term debt in excess of the decrease in short-term borrowings, the net effect of which exceeded the 2000 increase in short-term borrowings. Construction Expenditures and Financing - --------------------------------------- A description of construction expenditures and financing of SPPC is contained in its Quarterly Report Form 10-Q for the period ended March 31, 2000 attached as an appendix. NVP's construction program and capital requirements for the period 2000-2004 were originally discussed in the combined SPR/NVP Annual Report on Form 10-K for the year ending December 31, 1999. Of NVP's amount projected for 2000 ($190.5 million), $38.1 million (20%) was spent as of March 31, 2000. Internally generated funds equaled 34.7% of all construction expenditures. NVP may utilize internally generated cash and the proceeds from unsecured borrowings and preferred securities to meet capital expenditure requirements through 2000. 20 Financing - --------- On April 20, 2000, SPR issued an aggregate of $300 million floating rate notes, $200 million of which will mature on April 20, 2003 and the remaining $100 million will mature on April 20, 2002. Interest on the notes is payable quarterly commencing on July 20, 2000. The interest rate on the notes for each interest period will be a floating rate, subject to adjustment every three months, equal to the London InterBank Offered Rate (LIBOR) for three-month U.S. dollar deposits plus a spread of 0.60% for the notes maturing in 2003 and a spread of 0.65% for the notes maturing in 2002. These notes will not be entitled to any sinking fund. The notes due 2002 will be redeemable, in whole, without premium at the option of SPR beginning on April 20, 2001 and on each interest payment date thereafter. The net proceeds of the $200 million issue were used to retire an equal amount of commercial paper of SPR that was used as temporary funding for the cash portion of the NVP merger consideration. The net proceeds of the $100 million issue were used to make a capital contribution to NVP, which in turn was used to retire $85 million of maturing long-term debt on May 1, 2000 and the remaining proceeds were used to pay off its commercial paper. Upon issuance of these floating rate notes, SPR also reduced its bank credit facility to $300 million from the previous amount of $500 million in accordance with the terms of the credit agreement. On May 9, 2000, SPR issued $300 million of notes under its universal shelf registration. These notes bear interest at an annual rate of 8.75% and will mature on May 15, 2005. Interest on the notes is payable semi-annually on May 15 and November 15 commencing on November 15, 2000. The notes will not be subject to any sinking fund and will be redeemable in whole or in part at any time upon payment of the principal amount of the notes being redeemed, accrued interest and a make-whole premium. The net proceeds from the issuance of these notes were used to retire an equal amount of commercial paper of SPR. On May 1, 2000 $85 million of NVP's First Mortgage Bonds matured. Portland General Electric Acquisition - ------------------------------------- On November 8, 1999, SPR and Enron Corporation (Enron) announced that they had entered into a purchase and sale agreement for Enron's wholly owned electric utility subsidiary, Portland General Electric Company (PGE). PGE is an electric utility serving more than 700,000 retail customers in northwest Oregon. PGE will become a wholly owned subsidiary of SPR. The proposed transaction is subject to customary closing conditions, including, without limitation, the receipt of all necessary governmental approvals, including the Federal Energy Regulatory Commission (FERC), the Securities and Exchange Commission (SEC), the Oregon Public Utility Commission (OPUC) and the Nuclear Regulatory Commission. SPR completed its filings with the FERC, the Department of Justice, the OPUC and the SEC by March 3, 2000. As of May 3, 2000, the Department of Justice investigation had concluded and the waiting period under Hart-Scott-Rodino had expired. The remainder of the required approvals is expected to be received by the second half of 2000. Generation Divestiture - ---------------------- In accordance with the revised Divestiture Plan stipulation approved by the PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be offering for sale generation assets with peak capacity of approximately 2,985 megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940 MW owned by NVP. Letters of interest were issued to potential bidders in February 2000. Upon response from the qualified potential bidders and execution of the confidentiality agreements, offering memoranda and materials were provided to the bidders. First Stage indicative bids are expected in early May 2000. A short list will be selected for each of the seven bundles being offered and the second stage due diligence process will begin later in May 2000. Final bids and the selection of winning bids will occur in late June or early July 2000. Close of sale and transfer of ownership should occur between December 2000 and mid-2001. REGULATORY MATTERS ------------------ Substantially all of the utility operations of both NVP and SPPC are conducted in Nevada. As a result both companies are subject to utility regulation within the State and therefore deal with many of the same regulatory issues. Therefore, although the following regulatory discussion relates specifically to NVP, many of the same issues are discussed in the regulatory section of the current SPPC Form 10-Q, attached as an appendix 21 Nevada Electric Restructuring Activities - ---------------------------------------- Competition was due to start on March 1, 2000. However, in February 2000 the Governor of Nevada delayed the start date of competition indefinitely. Electric competition may begin later in 2000 or 2001. Generally, restructuring regulations and PUCN decisions during the first quarter of 2000 have proceeded slowly, with some decisions adversely positioned against the financial interests of NVP and SPPC. Currently, many important regulations, including the Universal Metering Service Tariff, Provider of Last Resort, and Past Costs, continue to be developed through regulatory hearings. In their present form several of the proposed regulations could have a negative financial risk exposure to NVP and SPPC. See the SPR's and NVP's 1999 Annual Report on Form 10-K. On March 28, 2000, SPR, NVP and SPPC filed a federal lawsuit challenging Nevada's laws providing for competition in the electric utility industry and the PUCN's implementation of competition. See SPR's and NVP's Forms 8-K, filed on April 17, 2000. The following are highlights of recent restructuring activity: Universal Meter Services Tariff The regulation is applicable to all licensed Alternative Sellers who supply meter services, meter reading services, and meter data management services. On January 18, 2000, the PUCN issued a Notice requesting comments and scheduling a workshop and a hearing on the proposed Meter Services rule. Several workshops and hearings were conducted in the first quarter of 2000. A final regulation is expected by mid 2000. Independent Scheduling Administrator (ISA) On March 21, 2000, the PUCN issued a Notice of Workshop on retail transmission issues including funding for the Mountain West Independent Scheduling Administrator. In a workshop held April 12, various parties advocated that the utilities provide funding and that the PUCN should provide cost recovery for the utilities. The PUCN and the parties will continue to explore this issue in the future workshops. Past Costs - ---------- Past costs, which are commonly referred to as stranded costs in other jurisdictions, will continue to be addressed in 2000. The restructuring law permits the recovery of past costs pursuant to specified legal criteria. In December 1999, the PUCN voted to adopt certain amendments to Chapter 704 of the Nevada Administrative Code as permanent regulations regarding past cost issues. The regulation was submitted to the Legislative Counsel Bureau (LCB) for review by the Legislative Commission to determine its conformity to statutory authority and faithfulness to the intent of the Legislature. In April 2000 the Legislative Counsel returned the regulation to the PUCN for revision and the Legislative Commission voted 12-0 to require the PUCN to revise the regulation and address issues raised by SPR. The PUCN has 90 days to revise this regulation and report back to the Legislative Commission. On April 12, 2000, the PUCN issued a Procedural Order directing the PUCN Staff to develop a revised proposed rule that incorporates the Legislative Commission's directive. The Staff's proposed rule will be discussed in a May workshop. Provider of Last Resort (PLR) The PLR will provide electric service to customers who do not select an electricity provider and to customers who are not able to obtain service from an alternative seller after the date competition begins. On May 3, 2000, the PUCN reissued the PLR regulation for comment. The current draft regulation continues to contain various provisions that could have negative financial ramifications for NVP and SPPC. See the 1999 Annual Report on Form 10-K. 22 FERC Matters - ------------ Independent Transmission Company On April 26, 2000, NVP, SPPC, Portland General Electric Company, Avista Corporation, The Montana Power Company, and Puget Sound Energy, Inc. agreed to study the formation of a for-profit Independent Transmission Company (ITC). While not yet defined, the ITC could own, lease or maintain transmission lines increasing efficiency and reliability. Open Access Transmission Rates In May 1999, NVP filed an application with the FERC to increase its Open Access Transmission rates. On March 30, 2000, the FERC approved the settlement filed on February 8, 2000 with rates becoming effective on March 1, 2000. Also on March 30, 2000, NVP filed a Loss Study that NVP agreed to provide in the settlement. Revised Generation Tariffs and Transitional Purchase Power Agreements On March 31, 2000, NVP filed for approval of revisions to its market-based tariff for generation to be divested. The filing included adding ancillary services to the tariffs and Transitional Purchase Power Agreements between NVP and the new owners. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the information previously disclosed regarding quantitative and qualitative market risk in Annual Report for on Form 10-K for the year ended December 31, 1999. 23 PART II ITEM 1. LEGAL PROCEEDINGS NVP filed a deferred energy case on July 15, 1999, covering the period from June 1, 1998 through May 31, 1999. Nevada Senate Bill 438 froze the rates for NVP at the level that was in effect on July 1, 1999, except that the PUCN was authorized to modify those rates in decisions related to deferred accounting cases filed by NVP prior to October 1, 1999. Accordingly, on September 30, 1999, NVP filed an update through August 31, 1999. On February 4, 2000 the PUCN issued an order that rejected NVP's updated September 30, 1999 deferred energy filing. In addition, on March 27, 2000, the PUCN issued an order that substantially reduced NVP's requested rate relief on the remaining $44 million included in the case. As a result of these decisions, NVP recognized a pre-tax reserve against 1999 earnings of $80 million for previously deferred energy and imputed capacity costs. On March 28, 2000, SPR, NVP, and SPPC filed a lawsuit in Federal District Court in Nevada asking the court to declare unconstitutional certain aspects of the Nevada laws that created the framework for a deregulated electric market in Nevada. These laws are described in more detail in "Management's Discussion and Analysis of Results of Operations and Financial Condition" contained in SPR's Annual Report on Form 10-K for the year ended December 31, 1999. The lawsuit alleges that the restructuring laws fail to provide an adequate mechanism for the recovery by NVP and SPPC of the substantial costs incurred by them to assure reliable electric power supplies to Nevada customers in the historically regulated market. The lawsuit requests that the court stay the effectiveness of the Nevada restructuring laws until the PUCN adopts implementing regulations that protect the utilities' rights under federal law. SPR is not able at this time to predict how long it will take for this lawsuit to be resolved and nor can it predict the outcome of the case. In response to the PUCN decisions described above, NVP filed a lawsuit against the PUCN on March 30, 2000 in the First Judicial District of Nevada in Carson City. The lawsuit requests that the court set aside the PUCN's March 28, 2000 order, reinstate NVP's September 30, 1999 filing, and enter an order allowing NVP to recover deferrals of imputed capacity through March 28, 2000 and implement ongoing rates for fuel and purchased power that reflect the costs of purchased energy. SPR is not able at this time to predict how long it will take for this lawsuit to be resolved nor can it predict the outcome of the case. See the Form 8-K filed April 17, 2000 for additional details. Although SPR is involved in other ongoing litigation on a variety of matters, it is management's opinion that none individually or collectively are material to SPR's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On May 10, 2000, in accordance with SPR's plan to sell the generation assets of NVP and SPPC, AES Corporation announced that it was the successful bidder for the purchase of a controlling interest in the 1,580 MW Mohave Generating Station in Laughlin, Nevada for approximately $667 million. .AES executed Asset Sale Agreements with the sellers, NVP (14%) and Southern California Edison Company (56%), for a 70% undivided interest in the facility. The acquisition is subject to approval by the FERC and the California Public Utilities Commission, and review by the Public Utilities Commission of Nevada and is expected to close late in the 4th Quarter of 2000. Mohave Generating Station is a 2-unit, coal-fired power plant located on 2,500 acres along the Colorado River, approximately 80 miles south of Las Vegas. 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q: (27) The Financial Data Schedule containing summary financial information extracted from the condensed consolidated financial statements on Form 10-Q for the three month period ended March 31, 2000, for Sierra Pacific Resources, and is qualified in its entirety by reference to such financial statements. (b) Reports on Form 8-K: Form 8-K filed on February 25, 2000 - Item 5, Other Events Described, and included as exhibits, SPR's press releases dated February 4, 2000 and February 16, 2000, regarding the PUCN's February 4, 2000 decision described above in Part II, Item 1, Legal Proceedings. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sierra Pacific Resources -------------------------------- (Registrant) Date: May 15, 2000 By: /s/ Mark A. Ruelle ------------------ ------------------------------ Mark A. Ruelle Senior Vice President Treasurer Chief Financial Officer (Principal Financial Officer) Date: May 15, 2000 By: /s/ Mary O. Simmons ------------------- ---------------------------- Mary O. Simmons Controller (Principal Accounting Officer) 26 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 0-508 SIERRA PACIFIC POWER COMPANY (Exact name of registrant as specified in its charter) NEVADA 88-0044418 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 10100 (6100 Neil Road) 89520-0400 Reno, Nevada (89511) (Address of principal executive office) (Zip Code) (775) 834-4011 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at May 15, 2000 Common Stock, $3.75 par value 1,000 Shares ================================================================================ SIERRA PACIFIC POWER COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 CONTENTS PART I - FINANCIAL INFORMATION ------------------------------
Page ---- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2000 and December 31, 1999.................................................................. 3 Condensed Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999...................................................... 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999...................................................... 5 Notes to Condensed Consolidated Financial Statements.................................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................... 8 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............................................................................. 15 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings....................................................................... 16 ITEM 5. Other Information....................................................................... 16 ITEM 6. Exhibits and Reports on Form 8-K........................................................ 16 Signature Page......................................................................................... 17 Appendix............................................................................................... 18
2 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2000 1999 ---------------- --------------- (Unaudited) ASSETS Utility Plant at Original Cost: Plant in service $ 2,420,066 $ 2,420,728 Less: accumulated provision for depreciation 816,935 799,099 ----------- ----------- 1,603,131 1,621,629 Construction work-in-progress 122,924 97,561 ----------- ----------- 1,726,055 1,719,190 ----------- ----------- Investments in subsidiaries and other property, net 61,773 62,704 ----------- ----------- Current Assets: Cash and cash equivalents 12,398 3,011 Accounts receivable less provision for uncollectible accounts: $2,918 -2000 and $3,649 -1999 105,847 113,695 Materials, supplies and fuel, at average cost 29,528 30,070 Deferred energy costs (376) -- Other 5,945 3,103 ----------- ----------- 153,342 149,879 ----------- ----------- Deferred Charges: Regulatory tax asset 65,531 65,531 Other regulatory assets 71,732 73,660 Other 25,109 25,512 ----------- ----------- 162,372 164,703 ----------- ----------- $ 2,103,542 $ 2,096,476 =========== =========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity $ 680,274 $ 673,738 Preferred stock 50,000 50,000 SPPC Obligated mandatorily redeemable preferred trust securities 48,500 48,500 Long-term debt 623,946 625,430 ----------- ----------- 1,402,720 1,397,668 ----------- ----------- Current Liabilities: Short-term borrowings 101,782 109,584 Current maturities of long-term debt 102,685 102,755 Accounts payable 69,743 78,491 Accrued interest 10,238 5,110 Dividends declared 19,983 19,974 Accrued salaries and benefits 8,672 8,385 Other current liabilities 21,771 10,673 ----------- ----------- 334,874 334,972 ----------- ----------- Commitments & Contingencies (Note 4) Deferred Credits: Deferred federal income taxes 171,455 170,261 Deferred investment tax credit 35,655 35,980 Regulatory tax liability 37,846 37,846 Accrued Retirement Benefits 49,837 49,052 Customer advances for construction 41,219 40,081 Other 29,936 30,616 ----------- ----------- 365,948 363,836 ----------- ----------- $ 2,103,542 $ 2,096,476 =========== ===========
The accompanying notes are an integral part of the financial statements. 3 SIERRA PACIFIC POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands)
Three Months Ended March 31, ------------------------ 2000 1999 ----------- --------- (Unaudited) OPERATING REVENUES: Electric $ 157,622 $ 144,303 Gas 34,836 38,027 Water 10,249 10,281 ----------- ---------- 202,707 192,611 ----------- ---------- OPERATING EXPENSES: Operation: Purchased power 49,480 40,668 Fuel for power generation 29,276 26,470 Gas purchased for resale 22,851 24,717 Deferral of energy costs -net 376 -- Other 27,869 23,782 Maintenance 4,485 5,496 Depreciation and amortization 19,031 19,094 Taxes: Income taxes 11,034 11,812 Other than income 4,962 4,799 ----------- ---------- 169,364 156,838 ----------- ---------- OPERATING INCOME 33,343 35,773 ----------- ---------- Other Income: Allowance for other funds used during construction 68 -- Other income - net (378) 7 ----------- ---------- (310) 7 ----------- ---------- Total Income Before Interest Changes 33,033 35,780 ----------- ---------- INTEREST CHARGES: Long-term debt 9,750 9,861 Other 3,211 2,603 Allowance for borrowed funds used during construction and capitalized interest (482) (198) ----------- ---------- 12,479 12,266 ----------- ---------- INCOME BEFORE SPPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES 20,554 23,514 Preferred dividend requirements of SPPC-obligated mandatorily redeemable trust preferred securities (1,043) (1,043) ----------- ---------- INCOME BEFORE PREFERRED STOCK DIVIDENDS 19,511 22,471 Preferred stock dividend requirements (975) (1,365) ----------- ---------- INCOME APPLICABLE TO COMMON STOCK $ 18,536 $ 21,106 =========== ==========
The accompanying notes are an integral part of the financial statements. 4 SIERRA PACIFIC POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, ---------------------- (Unaudited) 2000 1999 ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Income before preferred dividends $ 19,511 $ 22,471 Non-cash items included in income: Depreciation and amortization 19,031 19,094 Deferred taxes and deferred investment tax credit 868 983 AFUDC and capitalized interest (550) (198) Deferred energy costs - net 376 -- Early retirement and severance amortization 1,049 1,047 Other non-cash 1,261 760 Changes in certain assets and liabilities: Accounts receivable 7,848 7,746 Materials, supplies and fuel 542 (2,112) Other current assets (2,842) (2,769) Accounts payable (8,748) (3,343) Other current liabilities 16,513 16,798 Other - net 476 (8,344) ---------- -------- Net Cash Flows From Operating Activities 55,335 52,133 ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (27,239) (18,909) Non-cash charges to utility plant 608 258 Net customer refunds and contributions in aid construction 3,288 3,684 ---------- -------- Net cash used for utility plant (23,343) (14,967) Investments in subsidiaries and other property - net 842 (30,068) ---------- -------- Net Cash Used in Investing Activities (22,501) (45,035) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: (Decrease) increase in short-term borrowings (8,917) 6,293 Reduction of long-term debt (1,563) (116) Additional investment by parent company 7,000 8,000 Dividends paid (19,967) (20,365) ---------- -------- Net Cash Used In Financing Activities (23,447) (6,188) ---------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 9,387 910 Beginning balance in Cash and Cash Equivalents 3,011 15,197 ---------- -------- Ending Balance in Cash and Cash Equivalents $ 12,398 $ 16,107 ========== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During Period For: Interest $ 7,833 $ 7,793 Income Taxes $ -- $ 1,716
5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- NOTE 1. MANAGEMENT'S STATEMENT - ------------------------------- In the opinion of the management of Sierra Pacific Power Company (the Company or SPPC), a wholly owned subsidiary of Sierra Pacific Resources (SPR), the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the condensed consolidated financial position, condensed consolidated results of operations and condensed consolidated cash flows for the periods shown. These condensed consolidated financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters which are included in full year financial statements and therefore, they should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the three-month period ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sierra Pacific Power Capital I, Pinon Pine Corp., and Pinon Pine Investment Co. The Company accounts for its ownership of GPSF-B, a Delaware corporation acquired in February 1999, using the equity method because the Company intends to own the entity temporarily. All significant intercompany transactions and balances have been eliminated in consolidation. Reclassifications ----------------- Certain items previously reported for years prior to 1999 have been reclassified to conform to the current year's presentation. Net income and shareholder's equity were not affected by these reclassifications. NOTE 2. RECENT PRONOUNCEMENTS OF THE FASB - ------------------------------------------ In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, entitled "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position, and measure those instruments at fair value. In May 1999, members of the Financial Accounting Standards Board agreed to delay the effective date of Statement 133 to fiscal years beginning after June 15, 2000. In March 2000, FASB issued a proposed amendment to Statement 133 that, among other revisions, exempted from the fair value requirements normal purchases and normal sales (as defined by Statement 133) that contain settlement provisions, if it is probable that the contracts will not settle net and will result in physical delivery. The Company is still assessing the impact of SFAS 133 on its financial condition and results of operations. NOTE 3. SEGMENT INFORMATION - ---------------------------- The Company operates three business segments providing regulated electric, natural gas and water service. Electric service is provided to northern Nevada and the Lake Tahoe area of California. Natural gas and water services are provided in the Reno-Sparks area of Nevada. Information as to the operations of the different business segments is set forth below based on the nature of products and services offered. The Company evaluates performance based on several factors, of which the primary financial measure is business segment operating income. Intersegment revenues are not material. Financial data for business segments is as follows (in thousands). 6 March 31, 2000 Electric Gas Water Consolidated - ------------------- ---------- ---------- --------- ------------ Operating Revenues $ 157,622 $ 34,836 $ 10,249 $ 202,707 ========== ========= ========= ============ Operating income $ 25,999 $ 4,612 $ 2,732 $ 33,343 ========== ========= ========= ============ March 31, 1999 Electric Gas Water Consolidated - ------------------- ---------- ---------- --------- ------------ Operating Revenues $ 144,303 $ 38,027 $ 10,281 $ 192,611 ========== ========= ========= ============ Operating income $ 26,685 $ 6,289 $ 2,799 $ 35,773 ========== ========= ========= ============ NOTE 4. COMMITMENTS AND CONTINGENCIES - -------------------------------------- The Company has four wells which currently exceed the federal drinking water standard for naturally occurring arsenic concentrations. Production from three of these wells continues by blending water treated at the Glendale Water Treatment Plant. The fourth well is out of service pending treatment. The Company's water laboratory research staff is developing options to assure that the Company is prepared to meet new arsenic standards. The new Arsenic regulations will be promulgated in 2000 and the proposed regulation is expected to require action on 17 of the 25 wells serving the Company's system. Depending upon final rules from the EPA, the Company may incur between $70 million and $98 million by 2004 to meet the new standards. In accordance with the revised Divestiture Plan stipulation approved by the PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be offering for sale generation assets with peak capacity of approximately 2,985 megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940 MW owned by NVP. Letters of interest were issued to potential bidders in February 2000. Upon response from the qualified potential bidders and execution of the confidentiality agreements, offering memoranda and materials were provided to the bidders. First Stage indicative bids are expected in early May 2000. A short list will be selected for each of the seven bundles being offered and the second stage due diligence process will begin later in May 2000. Final bids and the selection of winning bids will occur in late June or early July 2000. Close of sale and transfer of ownership should occur between December 2000 and mid-2001. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information in this Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to anticipated financial performance, management's plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. Words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "objective" and other similar expressions identify those statements that are forward-looking. These statements are based on management's beliefs and assumptions and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such statements, factors that could cause Sierra Pacific Power Company's (SPPC's) actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following: (1) the pace and extent of the ongoing restructuring of the electric and gas industries in Nevada and California; (2) the outcome of regulatory and legislative proceedings and operational changes related to industry restructuring; (3) the amount SPPC is allowed to recover from customers for certain costs that prove to be uneconomic in the new competitive market; (4) the outcome of ongoing and future regulatory proceedings; (5) management's ability to integrate the operations of Nevada Power Company (NVP) and SPPC, and to implement and realize anticipated cost savings from the merger of SPR and NVP; (6) the results of the contemplated sales by SPPC of its Nevada generating assets; (7) industrial, commercial and residential growth in the service territory of SPPC; (8) fluctuations in electric, gas and other commodity prices and the ability to manage such fluctuations successfully; (9) changes in the capital markets and interest rates affecting the ability to finance capital requirements; (10) the loss of any significant customers; (11) the weather and other natural phenomena; and (12) changes in the business of major customers that may result in changes in the demand for services of SPPC. Other factors and assumptions not identified above may also have been involved in deriving these forward-looking statements, and the failure of those other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. SPPC assumes no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. RESULTS OF OPERATIONS The components of gross margin are set forth below (dollars inthousands):
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ----------- ---------- ---------------- -------------- Operating Revenues: Electric $157,622 $144,303 $ 13,319 9.2% Gas 34,836 38,027 (3,191) -8.4% Water 10,249 10,281 (32) -0.3% -------- -------- -------- ---- Total Revenues 202,707 192,611 10,096 5.2% Energy Costs: Electric 78,756 67,138 11,618 17.3% Gas 23,227 24,717 (1,490) -6.0% -------- -------- -------- ---- Total Energy Costs 101,983 91,855 10,128 11.0% -------- -------- -------- ---- Gross Margin $100,724 $100,756 $ (32) 0.0% ======== ======== ======== ==== Gross Margin by Segment: Electric $ 78,866 $ 77,165 $ 1,701 2.2% Gas 11,609 13,310 (1,701) -12.8% Water 10,249 10,281 (32) -0.3% -------- -------- -------- ---- Total $100,724 $100,756 $ (32) 0.0% ======== ======== ======== ====
8 The causes for significant changes in specific lines comprising the results of operations are as follows (dollars in thousands):
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------- ------------- --------------- --------------- Electric Operating Revenues: Residential $ 47,911 $ 47,525 $ 386 0.8% Commercial 44,799 43,405 1,394 3.2% Industrial 45,114 45,367 (253) -0.6% ------------- ------------- --------------- --------------- Retail revenues 137,824 136,297 1,527 1.1% Other 19,798 8,006 11,792 147.3% ------------- ------------- --------------- --------------- Total Revenues $157,622 $144,303 $ 13,319 9.2% ============= ============= =============== =============== Total retail sales in thousands of megawatt-hours (MWH) 2,117 2,094 23 1.1% Average retail revenue per MWH $ 65.10 $ 65.09 $ 0.01 0.0%
Residential electric revenues increased slightly due to a 2.2% increase in customers that was mostly offset by lower use per customer as a result of milder weather in 2000. Commercial electric revenues increased primarily due to a 3.0% increase in customers over the prior period. Industrial electric revenues were comparable with the prior period. Other electric revenues were higher ($7.9 million over 1999) primarily because of increased wholesale electric revenues that resulted from more wholesale opportunities. Other revenues were also higher because of the reclassification of a reserve to revenues of $4.3 million from operating expense in 1999, that was made in order to reflect a refund resulting from an agreement with the Public Utilities Commission of Nevada to refund a share of earnings.
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ------------- -------------- --------------- -------------- Gas Operating Revenues: Residential $ 16,726 $ 16,943 $ (217) -1.3% Commercial 8,424 8,838 (414) -4.7% Industrial 3,346 3,727 (381) -10.2% Miscellaneous 413 531 (118) -22.2% ------------- -------------- --------------- -------------- Total retail revenue 28,909 30,039 (1,130) -3.8% Wholesale revenue 5,927 7,988 (2,061) -25.8% ------------- -------------- --------------- -------------- Total Revenues $ 34,836 $ 38,027 $ (3,191) -8.4% ============= ============== =============== ============== Sales (Decatherms): Retail 5,128,696 5,399,835 (271,139) -5.0% Wholesale 2,381,207 3,750,936 (1,369,729) -36.5% ------------- -------------- --------------- -------------- Total 7,509,903 9,150,771 (1,640,868) -17.9% ------------- -------------- --------------- -------------- Average revenues per decatherm Retail $ 5.64 $ 5.56 $ 0.07 1.3% Wholesale $ 2.49 $ 2.13 $ 0.36 16.9%
Residential, commercial and industrial gas revenues were lower due to lower use per customer as a result of warmer weather in 2000. The reduction in residential and commercial revenues due to lower use per customer was partially offset by customer increases of 4.9% and 3.2%, respectively. 9 Wholesale gas revenues were lower primarily because of the expiration of three short-term gas contracts that were included in 1999 revenues.
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % -------------- -------------- --------------- --------------- Water Operating Revenues $ 10,249 $ 10,281 $ (32) -0.3% ============== ============== =============== ===============
Water revenues were comparable when compared to the prior period.
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ---------------- --------------- ----------------- ------------------ Purchased Power $ 49,480 $ 40,668 $ 8,812 21.7% Purchased Power in thousands of MWHs 1,593 1,325 268 20.2% Average cost per MWH of Purchased Power $ 31.06 $ 30.6 $ 0.37 1.2%
Purchased power costs were higher primarily because of increased purchases associated with higher wholesale electric sales as discussed previously.
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % --------------- --------------- --------------- -------------- Fuel for Power Generation $ 29,276 $ 26,470 $ 2,806 10.6% Thousands of MWHs generated 1,200 1,173 27 2.3% Average cost per MWH of Generated Power $ 24.40 $ 22.57 $ 1.83 8.1%
Fuel for generation costs were greater because of higher gas unit prices and to a lesser extent, increased electric generation required to meet increased retail electric demand in 2000. 10
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % ---------------- ---------------- ---------------- ---------------- Gas Purchased for Resale Retail $ 17,138 $ 17,561 $ (423) -2.4% Wholesale 5,713 7,156 (1,443) -20.2% ---------------- ---------------- ---------------- ---------------- Total $ 22,851 $ 24,717 $ (1,866) -7.5% ================ ================ ================ ================ Gas Purchased for Resale (decatherms) Retail 4,640,365 5,403,541 (763,176) -14.1% Wholesale 2,381,207 3,750,936 (1,369,729) -36.5% ---------------- ---------------- ---------------- ---------------- Total 7,021,572 9,154,477 (2,132,905) -23.3% ================ ================ ================ ================ Average cost per decatherm Retail $ 3.69 $ 3.25 $ 0.44 13.5% Wholesale $ 2.40 $ 1.91 $ 0.49 25.7%
Consistent with the decrease in residential, commercial and industrial gas revenues discussed previously, retail gas purchases were also lower. The reduction in retail gas purchases was partially offset by higher average gas unit prices. Also, wholesale gas purchases were lower than in the prior year due to lower wholesale sales as previously discussed.
Three Months Ended March 31, ---------------- Change from Change from 2000 1999 Prior Year $ Prior Year % -------------- -------------- --------------- --------------- Deferral of energy costs-net $ 376 $ - $ 376 - ============== ============== =============== ===============
The Company began deferring energy costs in January 2000 for its natural gas business.
Three Months Ended March 31, --------------- Change from Change from 2000 1999 Prior Year $ Prior Year % -------------- -------------- --------------- --------------- Allowance for other funds used during construction $ 68 $ -- 68 -- Allowance for borrowed funds used during construction 482 198 284 143.4% -------------- -------------- --------------- --------------- $ 550 $ 198 $ 352 177.8% ============== ============== =============== ===============
Total allowance for funds used during construction (AFUDC) is higher because of greater construction work in progress balances in 2000. 11
Three Months Ended March 31, Change from Change from 2000 1999 Prior Year $ Prior Year % -------------- -------------- --------------- --------------- Other operating expense $27,869 $23,782 $ 4,087 17.2% Maintenance expense 4,485 5,496 (1,011) -18.4% Income taxes 11,034 11,812 (778) -6.6% Interest charges-other 3,211 2,603 608 23.4% Preferred stock dividend requirements 975 1,365 (390) -28.6%
Other operating expense was higher because of a reclassification of a reserve to revenues of $4.3 million from operating expense in 1999, that was made in order to reflect a refund resulting from an agreement with the Public Utilities Commission of Nevada to refund a share of earnings. Maintenance expense was lower than the prior year due to lower plant maintenance costs. Operating income taxes were lower due to lower pre-tax income during the current year. Interest charges-other were higher because of interest expense on $100 million floating rate notes issued in September 1999. Preferred stock dividend requirements were lower because of the redemption of Series A preferred stock in November 1999. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ---------------------------------------------------- During the first three months of 2000, the Company earned $19.5 million in income before preferred dividends. It declared $975,000 in dividends to holders of its preferred stock and declared $19.0 million in common stock dividends to its parent, Sierra Pacific Resources. The overall increase in cash flows during the first three months of 2000 was greater than 1999 due to less cash used for investing which was partially offset by an increase in cash used for financing activities. The decrease in cash used for investing activities was due to the Company's 1999 acquisition of General Electric Capital Corporation's interest in Pinon Pine Company L.L.C. Financing activities utilized more cash because of a decrease in short-term borrowings. Construction Expenditures and Financing - --------------------------------------- The Company's construction program and capital requirements for the period 2000-2004 were originally discussed in the Company's 1999 Annual Report on Form 10-K. Of the amount projected for 2000 ($137.7 million), $23.3 million (16.9%) had been spent as of March 31, 2000. Internally generated funds exceeded all construction expenditures. REGULATORY MATTERS ------------------ Generation Divestiture - ---------------------- In accordance with the revised Divestiture Plan stipulation approved by the PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be offering for sale generation assets with peak capacity of approximately 2,985 megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940 MW owned by NVP. Letters of interest were issued to potential bidders in February 2000. Upon response from the qualified potential bidders and execution of the confidentiality agreements, offering memoranda and materials were provided to the bidders. First Stage indicative bids are expected in early May 2000. A short list will be selected for each of the seven bundles being offered and the second stage due diligence process will begin later in May 2000. Final bids and the selection of winning 12 bids will occur in late June or early July 2000. Close of sale and transfer of ownership should occur between December 2000 and mid-2001. Nevada Electric Restructuring Activities - ---------------------------------------- Competition was due to start on March 1, 2000. However, in February 2000 the Governor of Nevada delayed the start date of competition indefinitely. Electric competition may begin later in 2000 or 2001. Generally, restructuring regulations and PUCN decisions during the first quarter of 2000 have proceeded slowly, with some decisions adversely positioned against the financial interests of the Company. Currently, many important regulations, including the Universal Metering Service Tariff, Provider of Last Resort, and Past Costs, continue to be developed through regulatory hearings. In their present form several of the proposed regulations could have a negative financial risk exposure to the Company. See the Company's 1999 Annual Report on Form 10-K. On March 28, 2000, the Company and its parent, Sierra Pacific Resources, together with Nevada Power Company, filed a federal lawsuit challenging Nevada's laws providing for competition in the electric utility industry and the PUCN's implementation of competition. See SPR's Form 8-K, filed on April 17, 2000. The following are highlights of recent restructuring activity: Universal Meter Services Tariff The regulation is applicable to all licensed Alternative Sellers who supply meter services, meter reading services, and meter data management services. On January 18, 2000, the PUCN issued a Notice requesting comments and scheduling a workshop and a hearing on the proposed Meter Services rule. Several workshops and hearings were conducted in the first quarter of 2000. A final regulation is expected by mid 2000. Independent Scheduling Administrator (ISA) On March 21, 2000, the PUCN issued a Notice of Workshop on retail transmission issues including funding for the Mountain West Independent Scheduling Administrator. In a workshop held April 12, various parties advocated that the utilities provide funding and that the PUCN should provide cost recovery for the utilities. The PUCN and the parties will continue to explore this issue in the future workshops. Past Costs Past costs, which are commonly referred to as stranded costs in other jurisdictions, will continue to be addressed in 2000. The restructuring law permits the recovery of past costs pursuant to specified legal criteria. In December 1999, the PUCN voted to adopt certain amendments to Chapter 704 of the Nevada Administrative Code as permanent regulations regarding past cost issues. The regulation was submitted to the Legislative Counsel Bureau (LCB) for review by the Legislative Commission to determine its conformity to statutory authority and faithfulness to the intent of the Legislature. In April 2000 the Legislative Counsel returned the regulation to the PUCN for revision and the Legislative Commission voted 12-0 to require the PUCN to revise the regulation and address issues raised by SPR. The PUCN has 90 days to revise this regulation and report back to the Legislative Commission. On April 12, 2000, the PUCN issued a Procedural Order directing the PUCN Staff to develop a revised proposed rule that incorporates the Legislative Commission's directive. The Staff's proposed rule will be discussed in a May workshop. Provider of Last Resort (PLR) The PLR will provide electric service to customers who do not select an electricity provider and to customers who are not able to obtain service from an alternative seller after the date competition begins. On May 3, 2000, the PUCN reissued the PLR regulation for comment. The current draft regulation continues to contain various provisions that could have negative financial ramifications for the Company. See the 1999 Annual Report on Form 10-K. 13 Additional Nevada Matters - ------------------------- Unbundling of Utility Services On April 21, 2000, the PUCN approved a final order ("the Order") that was consistent with its September 1999 interim order. See the Company's 1999 Annual Report on Form 10-K for additional information on the interim order. The Order reduces the Company's revenue requirement and return on equity for distribution service for those customers who choose to leave the Company upon the start of retail competition. The Company intends to file a Petition for Reconsideration with the PUCN. SB438 provides for the electric distribution utility (EDU) to provide the provider of last resort (PLR) services from the start of competition until July 1, 2001. Currently, the date for the start of competition has not been established and the PLR service period ends July 1, 2001. Consequently, the Company anticipates very little change. However, the Company is seeking to modify the PLR regulation. If the Company does not provide PLR services, then the Order could result in a reduction of revenues. Earnings Sharing On May 1, 2000, the Company filed an earnings sharing refund request, based on 1999 earnings of $471,000, for gas customers. The Company's filing provides for no electric earnings sharing refund. California Matters - ------------------ Generation Divestiture On March 2, 2000, the Company filed a new application requesting exemption from California Public Utility Commission (CPUC) approval of the Nevada-based generation divestiture transaction. The Company cited several reasons for the exemption including that the Nevada and FERC oversight of the generation divestiture will assure reliability and market power mitigation as required by California's electric restructuring legislation. Distribution Performance-Based Rate-making (PBR) On May 4, 2000, the CPUC dismissed without prejudice the Company's January 3, 2000, distribution PBR proposal (see the Company's 1999 Annual Report on Form 10-K). The order accepted the application as meeting the compliance requirement but directed the Company to re-file it when the cost of capital and cost of service studies are available. The Company plans to re-submit the PBR proposal along with the Cost of Service Application on June 30, 2000. FERC Matters - ------------ Independent Transmission Company On April 26, 2000, the Company, together with Nevada Power Company, Portland General Electric Company, Avista Corporation, The Montana Power Company, and Puget Sound Energy, Inc. agreed to study the formation of a for-profit Independent Transmission Company (ITC). While not yet defined, the ITC could own, lease or maintain transmission lines increasing efficiency and reliability. Transmission Rate Case In March 1999, the Company filed an application with the FERC to increase its Open Access Transmission rates. See the Company's 1999 Annual Report on Form 10-K. On March 30, 2000, the Company filed a Loss Study that the Company agreed to provide in the partial settlement that was approved in January 2000. On April 27, 2000, a pre-hearing conference was held to set a procedural schedule for remaining issues. 14 Generation Tariffs In March 1999, the Company filed with the FERC for approval of generation tariffs that contain the rates, terms and conditions under which the new owners of the Company's generation would operate after divestiture. The tariffs permit market-based rates after the offering of capacity under a cost-based recourse approach. On November 1, 1999 the FERC dismissed the tariffs, and on November 22, 1999, the Company filed a request for rehearing of the order dismissing the tariffs. On March 21, 2000, the FERC denied the Company's request for rehearing. Generation Tariffs and Transitional Purchase Power Agreements On March 31, 2000, the Company filed for approval of generation tariffs that contain the rates, terms and conditions under which the new owners of divested generation would operate after divestiture. Included in the filing are the Transitional Purchase Power Agreements between the Company and the new owners. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the information previously disclosed regarding quantitative and qualitative market risk in the Company's Annual Report on Form 10K for the year ended December 31, 1999. 15 PART II ITEM 1. LEGAL PROCEEDINGS On March 28, 2000, SPR, NVP, and SPPC filed a lawsuit in Federal District Court in Nevada asking the court to declare unconstitutional certain aspects of the Nevada laws that created the framework for a deregulated electric market in Nevada. These laws are described in more detail in "Management's Discussion and Analysis of Results of Operations and Financial Condition" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The lawsuit alleges that the restructuring laws fail to provide an adequate mechanism for the recovery by NVP and SPPC of the substantial costs incurred by them to assure reliable electric power supplies to Nevada customers in the historically regulated market. The lawsuit requests that the court stay the effectiveness of the Nevada restructuring laws until the PUCN adopts implementing regulations that protect the utilities' rights under federal law. The Company is not able at this time to predict how long it will take for this lawsuit to be resolved and nor can it predict the outcome of the case. Although the Company is involved in other ongoing litigation on a variety of matters, it is management's opinion that none individually or collectively are material to the Company's financial position. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q. (27) The Financial Data Schedule containing summary financial information extracted from the condensed consolidated financial statements filed on Form 10-Q for the three month period ended March 31, 2000, for Sierra Pacific Power Company and is qualified in its entirety by reference to such financial statements. (b) Reports on Form 8-K None 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Sierra Pacific Power Company ---------------------------------- (Registrant) Date: May 15, 2000 By /s/ Mark A. Ruelle -------------------------- ---------------------------------- Mark A. Ruelle Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 15, 2000 By /s/ Mary O. Simmons -------------------------- ---------------------------------- Mary O. Simmons Controller (Principal Accounting Officer)
17 EX-27 2 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPR'S FINANCIAL RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. SIERRA PACIFIC RESOURCES 0000741508 3-MOS DEC-31-2000 MAR-31-2000 PER-BOOK 4,102,782 114,948 314,320 751,950 0 5,284,000 78,420 1,294,231 102,962 1,475,613 0 50,000 1,472,724 100,000 0 689,678 188,055 0 80,058 4,156 1,223,716 5,284,000 402,897 10,015 332,183 342,198 60,699 1,004 61,703 37,715 23,988 975 18,178 19,850 25,822 83,304 0.23 0.23
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