-----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, NMNwSMLtBzvgH0xXKK/zud2K3eQyaPlvb+9S2ZegSr3MOJ6cUHRMO/WyLTKHncxa cBwJPQmP9XCXAjKzkp18xQ== 0000898430-01-500479.txt : 20010515 0000898430-01-500479.hdr.sgml : 20010515 ACCESSION NUMBER: 0000898430-01-500479 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: 1631382 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: 1631383 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC POWER CO CENTRAL INDEX KEY: 0000090144 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 880044418 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00508 FILM NUMBER: 1631384 BUSINESS ADDRESS: STREET 1: 6100 NEIL RD STREET 2: P O BOX 10100 CITY: RENO STATE: NV ZIP: 89520-0400 BUSINESS PHONE: 7026895408 MAIL ADDRESS: STREET 1: 6100 NEIL ROAD STREET 2: P.O. BOX 10100 CITY: RENO STATE: NV ZIP: 89520 10-Q 1 d10q.txt FORM 10-Q =============================================================================== 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, 2001 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 0-508 SIERRA PACIFIC POWER COMPANY 88-0044418 P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (775) 834-4011
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 7, 2001 Common Stock, $1.00 par value 78,485,261 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. Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding Common Stock, $1.00 stated value, of Sierra Pacific Power Company. This combined Quarterly Report on Form 10-Q is separately filed by Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company. 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. Information contained in this document relating to Sierra Pacific Power Company is filed by Sierra Pacific Resources and separately by Sierra Pacific Power Company on its own behalf. Sierra Pacific Power Company makes no representation as to information relating to Sierra Pacific Resources or its subsidiaries, except as it may relate to Sierra Pacific Power Company. ================================================================================ SIERRA PACIFIC RESOURCES NEVADA POWER COMPANY SIERRA PACIFIC POWER COMPANY QUARTERLY REPORTS ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Sierra Pacific Resources - Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000.................. 3 Condensed Consolidated Statements of Income - Three Months Ended March 31, 2001 and 2000................................................................. 4 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000................................................................. 5 Nevada Power Company - Condensed Balance Sheets - March 31, 2001 and December 31, 2000............................... 6 Condensed Statements of Income - Three Months Ended March 31, 2001 and 2000................... 7 Condensed Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000............... 8 Sierra Pacific Power Company - Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000.................. 9 Condensed Consolidated Statements of Income - Three Months Ended March 31, 2001 and 2000................................................................. 10 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000...... 11 Notes to Condensed Consolidated Financial Statements.............................................. 12 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 20 Sierra Pacific Resources Results of Operations............................................ 21 Nevada Power Company Results of Operations................................................ 24 Sierra Pacific Power Company Results of Operations........................................ 27 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................................ 33 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings......................................................................... 34 ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 34 ITEM 5. Other Information......................................................................... 34 ITEM 6. Exhibits and Reports on Form 8-K.......................................................... 34 Signature Page........................................................................................ 35
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SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) March 31, December 31, 2001 2000 ------------- ------------- (Unaudited) ASSETS Utility Plant at Original Cost: Plant in service $5,390,480 $5,269,724 Less: accumulated provision for depreciation 1,671,622 1,636,657 ---------- ---------- 3,718,858 3,633,067 Construction work-in-progress 273,675 348,067 ---------- ---------- 3,992,533 3,981,134 ---------- ---------- Investments in subsidiaries and other property, net 126,137 135,062 ---------- ---------- Current Assets: Cash and cash equivalents 79,830 51,503 Accounts receivable less provision for uncollectible accounts: 2001-$33,347; 2000-$13,194 398,439 336,361 Materials, supplies and fuel, at average cost 90,051 75,132 Deferred energy costs 34,902 16,370 Other 93,574 59,128 ---------- ---------- 696,796 538,494 ---------- ---------- Deferred Charges: Goodwill, net of amortization 318,745 320,256 Regulatory tax asset 175,509 175,509 Other regulatory assets 110,603 105,588 Risk management assets 2,023,159 - Other 118,291 116,965 ---------- ---------- 2,746,307 718,318 ---------- ---------- Net assets of discontinued operations (Note 6) 261,745 261,479 ---------- ---------- $7,823,518 $5,634,487 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity $1,266,899 $1,359,712 Accumulated other comprehensive income 5,156 - Preferred stock 50,000 50,000 SPPC/ NPC obligated mandatorily redeemable preferred trust securities 237,372 237,372 Long-term debt 2,130,209 2,133,679 ---------- ---------- 3,689,636 3,780,763 ---------- ---------- Current Liabilities: Short-term borrowings 445,895 213,074 Current maturities of long-term debt 472,881 472,527 Accounts payable 324,909 312,039 Accrued interest 50,770 30,184 Dividends declared 83 20,890 Accrued salaries and benefits 17,960 28,957 Other current liabilities 10,596 17,795 ---------- ---------- 1,323,094 1,095,466 ---------- ---------- Commitments & Contingencies (Note 9) Deferred Credits: Deferred federal income taxes 411,247 406,310 Deferred investment tax credit 54,431 55,252 Regulatory tax liability 51,170 50,994 Customer advances for construction 107,339 109,962 Accrued retirement benefits 82,142 80,027 Deferred energy 18,699 - Risk management liabilities 1,379,593 - Risk management regulatory liabilities 648,721 - Other 57,446 55,713 ---------- ---------- 2,810,788 758,258 ---------- ---------- $7,823,518 $5,634,487 ========== ==========
The accompanying notes are an integral part of the financial statements 3
SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts) Three months ended March 31, ----------------------------------------- 2001 2000 --------------- --------------- (unaudited) OPERATING REVENUES: Electric $671,131 $353,652 Gas 64,165 34,836 Other 2,630 4,161 -------- -------- 737,926 392,649 -------- -------- OPERATING EXPENSES: Operation: Purchased power 352,808 103,297 Fuel for power generation 217,906 66,923 Gas purchased for resale 70,543 22,851 Deferral of energy costs-net 185 7,164 Other 104,299 61,853 Maintenance 18,304 13,890 Depreciation and amortization 39,033 38,751 Taxes: Income taxes (45,276) 10,875 Other than income 10,611 9,852 -------- -------- 768,413 335,456 -------- -------- OPERATING (LOSS) INCOME (30,487) 57,193 -------- -------- OTHER (EXPENSE) INCOME: Allowance for other funds used during construction (536) 840 Other income - net 1,269 261 -------- -------- 733 1,101 -------- -------- TOTAL (LOSS) INCOME BEFORE INTEREST CHARGES (29,754) 58,294 -------- -------- INTEREST CHARGES: Long-term debt 40,222 23,601 Other 7,882 14,071 Allowance for borrowed funds used during construction and capitalized interest 398 (2,233) -------- -------- 48,502 35,439 -------- -------- (LOSS) INCOME BEFORE SPPC/NPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES (78,256) 22,855 Preferred dividend requirements of SPPC/NPC obligated mandatorily redeemable preferred trust securities (4,729) (4,729) -------- -------- (LOSS) INCOME BEFORE PREFERRED STOCK DIVIDENDS (82,985) 18,126 Preferred stock dividend requirements of subsidiary (875) (875) -------- -------- (LOSS) INCOME FROM CONTINUING OPERATIONS (83,860) 17,251 -------- -------- DISCONTINUED OPERATIONS: Income from operations of water business to be disposed of (net of income taxes of $478 and ($860) in 2001 and 2000, respectively) 381 927 -------- -------- NET (LOSS) INCOME $(83,479) $ 18,178 ======== ======== (Loss) Income per share - Basic (Loss) Income from continuing operations $ (1.07) $ 0.22 Income from discontinued operations 0.01 0.01 -------- -------- Net (loss) income $ (1.06) $ 0.23 ======== ======== (Loss) Income per share - Diluted (Loss) Income from continuing operations $ (1.07) $ 0.22 Income from discontinued operations 0.01 0.01 -------- -------- Net (loss) income $ (1.06) $ 0.23 ======== ======== Weighted Average Shares of Common Stock Outstanding (000's) 78,475 78,416 ======== ======== Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250 ======== ========
The accompanying notes are an integral part of the financial statements. 4 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, ------------------------------------ 2001 2000 --------- ---------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: (Loss) Income from continuing operations before preferred dividends $ (82,985) $ 18,126 Income from discontinued operations before preferred dividends 481 1,027 Non-cash items included in income: Depreciation and amortization 40,984 40,633 Deferred taxes and deferred investment tax credit 4,097 (340) AFUDC and capitalized interest 974 (3,145) Amortization of deferred energy costs - 6,460 Early retirement and severance amortization - 1,049 Other non-cash 7,114 2,718 Changes in certain assets and liabilities: Accounts receivable (61,627) 14,289 Materials, supplies and fuel (15,017) (740) Deferred energy costs (54) - Other current assets (30,455) (6,020) Accounts payable 12,870 (28,174) Other current liabilities 2,390 33,181 Other - net 3,160 4,240 --------- -------- Net Cash Flows From Operating Activities (118,068) 83,304 --------- -------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to utility plant (62,813) (65,588) AFUDC and other charges to utility plant (974) 1,014 Customer refunds for construction (2,623) 1,022 Contributions in aid of construction 6,768 2,150 --------- -------- Net cash used for utility plant (59,642) (61,402) --------- -------- Investments in subsidiaries and other property - net (2,855) (9,985) --------- -------- Net Cash Used In Investing Activities (62,497) (71,387) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 232,821 33,584 Retirement of long-term debt (3,116) (12,661) Sale of common stock - 5 Dividends paid (20,813) (20,805) --------- -------- Net Cash Provided By Financing Activities 208,892 123 --------- -------- Net Increase in Cash and Cash Equivalents 28,327 12,040 Beginning balance in Cash and Cash Equivalents 51,503 4,789 --------- -------- Ending balance in Cash and Cash Equivalents $ 79,830 $ 16,829 ========= ======== Supplemental Disclosures of Cash Flow Information: Cash Paid (Received) During Period For: Interest $ 31,086 $ 22,559 Income Taxes $ (33,842) $ -
The accompanying notes are an integral part of the financial statements 5 NEVADA POWER COMPANY CONDENSED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2001 2000 ---------------------- ---------------- (unaudited) ASSETS Utility Plant at Original Cost: Plant in service $3,181,923 $3,089,705 Less: accumulated provision for depreciation 877,766 855,599 ---------------------- ---------------- 2,304,157 2,234,106 Construction work-in-progress 177,844 228,856 ---------------------- ---------------- 2,482,001 2,462,962 ---------------------- ---------------- Investments in Sierra Pacific Resources (Note 2) 439,660 471,975 Investments in subsidiaries and other property, net 13,618 13,418 ---------------------- ---------------- 453,278 485,393 ---------------------- ---------------- Current Assets: Cash and cash equivalents 9,095 43,858 Accounts receivable less provision for uncollectible accounts: 2001-$28,116; 2000-$11,605 210,414 137,097 Materials, supplies and fuel, at average cost 49,518 45,573 Other 51,908 28,933 ---------------------- ---------------- 320,935 255,461 ---------------------- ---------------- Deferred Charges: Regulatory tax asset 113,647 113,647 Other regulatory assets 33,976 32,583 Risk management assets 1,504,867 - Other 27,140 25,912 ---------------------- ---------------- 1,679,630 172,142 ---------------------- ---------------- $4,935,844 $3,375,958 ====================== ================ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity including $439,660 and $471,975 of equity in Sierra Pacific Resources in 2001 and 2000 (Note 2) $1,272,055 $1,359,712 NPC obligated mandatorily redeemable preferred trust securities 188,872 188,872 Long-term debt 925,050 927,784 ---------------------- ---------------- 2,385,977 2,476,368 ---------------------- ---------------- Current Liabilities: Short-term borrowings 196,163 100,000 Current maturities of long-term debt 253,265 252,910 Accounts payable 168,834 126,015 Accrued interest 22,340 16,913 Dividends declared 92 86 Accrued salaries and benefits 6,767 12,297 Other current liabilities 17,014 16,450 ---------------------- ---------------- 664,475 524,671 ---------------------- ---------------- Commitments & Contingencies (Note 9) Deferred Credits: Deferred federal income taxes 210,516 216,753 Deferred investment tax credit 24,798 25,163 Regulatory tax liability 19,908 19,908 Customer advances for construction 64,345 65,588 Accrued retirement benefits 28,334 27,985 Deferred energy 11,403 - Risk management liabilities 1,164,309 - Risk management regulatory liabilities 340,557 - Other 21,222 19,522 ---------------------- ---------------- 1,885,392 374,919 ---------------------- ---------------- $4,935,844 $3,375,958 ====================== ================
The accompanying notes are an integral part of the financial statements. 6 NEVADA POWER COMPANY CONDENSED STATEMENTS OF INCOME (Dollars in Thousands, Except Per Share Amounts)
Three months ended March 31, ---------------------------------------- 2001 2000 ------------------ ------------------ (unaudited) OPERATING REVENUES: Electric $359,012 $196,030 OPERATING EXPENSES: Operation: Purchased power 201,822 53,817 Fuel for power generation 115,352 37,647 Deferral of energy costs-net 11,308 6,788 Other 50,772 29,151 Maintenance 12,980 9,821 Depreciation and amortization 21,876 21,416 Taxes: Income taxes (30,464) 3,627 Other than income 6,050 5,406 ------------------ ------------------ 389,696 167,673 ------------------ ------------------ OPERATING INCOME (30,684) 28,357 ------------------ ------------------ OTHER (EXPENSE) INCOME: Equity in earnings (losses) of Sierra Pacific Resources (Note 2) (28,137) 10,207 Allowance for other funds used during construction (351) 780 Other income - net 421 376 ------------------ ------------------ (28,067) 11,363 ------------------ ------------------ TOTAL (LOSS) INCOME BEFORE INTEREST CHARGES (58,751) 39,720 ------------------ ------------------ INTEREST CHARGES: Long-term debt 16,620 15,899 Other 3,963 3,665 Allowance for borrowed funds used during construction and capitalized interest 352 (1,815) ------------------ ------------------ 20,935 17,749 ------------------ ------------------ (LOSS) INCOME BEFORE NVP OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES (79,686) 21,971 Preferred dividend requirements of NPC obligated mandatorily redeemable preferred trust securities (3,793) (3,793) ------------------ ------------------ NET (LOSS) INCOME $(83,479) $ 18,178 ================== ================== Net (Loss) Income Per Share - Basic $ (1.06) $ 0.23 ================== ================== - Diluted $ (1.06) $ 0.23 ================== ================== Weighted Average Shares of Common Stock Outstanding (000's) 78,475 78,416 ================== ================== Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250 ================== ==================
The accompanying notes are an integral part of the financial statements. 7 NEVADA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, ------------------------------------ 2001 2000 ------------- ---------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: (Loss) Income before preferred dividends $(83,479) $ 18,178 Non-cash items included in income: Depreciation and amortization 21,876 21,416 Deferred taxes and deferred investment tax credit (6,602) (1,227) AFUDC and capitalized interest 704 (2,595) Amortization of deferred energy costs - 6,084 Other non-cash (6,317) 1,453 Equity in losses (earnings) of SPR (Note 2) 28,137 (10,207) Changes in certain assets and liabilities, net of acquisition: Accounts receivable (73,318) 16,060 Materials, supplies and fuel (3,945) (1,518) Deferred energy costs 11,403 - Other current assets (18,984) (3,061) Accounts payable 42,819 (23,096) Other current liabilities 462 16,826 Other - net 2,053 (1,072) ------------- ---------------- Net Cash Flows From Operating Activities (85,191) 37,241 ------------- ---------------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to utility plant (42,718) (38,348) AFUDC and other charges to utility plant (703) 406 Customer refunds for construction (1,243) (116) Contributions in aid of construction 1,309 - ------------- ---------------- Net cash used for utility plant (43,355) (38,058) Investments in subsidiaries and other property - net - (92) ------------- ---------------- Net Cash Used In Investing Activities (43,355) (38,150) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 96,163 12,653 Retirement of long-term debt (2,380) (1,098) Additional investment of Parent - 14,000 Dividends paid - (23,998) ------------- ---------------- Net Cash Provided By Financing Activities 93,783 1,557 ------------- ---------------- Net Increase (Decrease) in Cash and Cash Equivalents (34,763) 648 Beginning balance in Cash and Cash Equivalents 43,858 243 ------------- ---------------- Ending balance in Cash and Cash Equivalents $ 9,095 $ 891 ============= ================ Supplemental Disclosures of Cash Flow Information: Cash Paid (Received) During Period For: Interest $ 15,508 $ 7,134 Income Taxes $(10,015) $ -
The accompanying notes are an integral part of the financial statements. 8 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 2001 2000 ------------- ------------ (Unaudited) ASSETS Utility Plant at Original Cost: Plant in service $2,208,557 $2,180,019 Less: accumulated provision for depreciation 793,856 781,058 ------------- ------------ 1,414,701 1,398,961 Construction work-in-progress 95,831 119,210 ------------- ------------ 1,510,532 1,518,171 ------------- ------------ Investments in subsidiaries and other property, net 59,050 60,047 ------------- ------------ Current Assets: Cash and cash equivalents 10,809 5,348 Accounts receivable less provision for uncollectible accounts: 2001 - $5,231; 2000 - $1,589 172,679 133,369 Materials, supplies and fuel, at average cost 40,399 29,209 Deferred energy costs 34,902 16,370 Other 41,374 29,852 ------------- ------------ 300,163 214,148 ------------- ------------ Deferred Charges: Regulatory tax asset 61,862 61,862 Other regulatory assets 62,338 61,236 Risk management assets 518,292 - Other 14,110 12,036 ------------- ------------ 656,602 135,134 ------------- ------------ Net assets of discontinued operations (Note 6) 261,745 261,479 ------------- ------------ $2,788,092 $2,188,979 ============= ============ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity 601,278 604,795 Preferred stock 50,000 50,000 SPPC obligated mandatorily redeemable preferred trust securities 48,500 48,500 Long-term debt 605,080 605,816 ------------- ------------ 1,304,858 1,309,111 ------------- ------------ Current Liabilities: Short-term borrowings 199,620 108,962 Current maturities of long-term debt 219,616 219,616 Accounts payable 120,483 146,724 Accrued interest 14,599 6,992 Dividends declared 22,999 23,975 Accrued salaries and benefits 10,236 15,475 Other current liabilities 2,789 2,932 ------------- ------------ 590,342 524,676 ------------- ------------ Commitments & Contingencies (Note 9) Deferred Credits: Deferred federal income taxes 190,278 179,106 Deferred investment tax credit 29,632 30,088 Regulatory tax liability 31,263 31,087 Accrued retirement benefits 42,655 44,374 Customer advances for construction 42,994 41,776 Deferred energy 7,296 - Risk management liabilities 210,128 - Risk management regulatory liabilities 308,164 - Other 30,482 28,761 ------------- ------------ 892,892 355,192 ------------- ------------ $2,788,092 $2,188,979 ============= ============
The accompanying notes are an integral part of the financial statements. 9 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands)
Three Months Ended March 31, --------------------------------------- 2001 2000 ---------------- ---------------- (Unaudited) OPERATING REVENUES: Electric $312,119 $157,622 Gas 64,165 34,836 ---------------- ---------------- 376,284 192,458 ---------------- ---------------- OPERATING EXPENSES: Operation: Purchased power 150,987 49,480 Fuel for power generation 102,553 29,276 Gas purchased for resale 70,543 22,851 Deferral of energy costs - net (11,123) 376 Other 27,694 23,156 Maintenance 5,324 4,069 Depreciation and amortization 16,849 17,149 Taxes: Income taxes (2,121) 11,894 Other than income 4,394 4,371 ---------------- ---------------- 365,100 162,622 ---------------- ---------------- OPERATING INCOME 11,184 29,836 ---------------- ---------------- OTHER (EXPENSE) INCOME: Allowance for other funds used during construction (184) 60 Other expense - net (486) (273) ---------------- ---------------- (670) (213) ---------------- ---------------- TOTAL INCOME BEFORE INTEREST CHARGES 10,514 29,623 ---------------- ---------------- INTEREST CHARGES: Long-term debt 10,571 7,529 Other 2,960 3,092 Allowance for borrowed funds used during construction and capitalized interest 46 (418) ---------------- ---------------- 13,577 10,203 ---------------- ---------------- (LOSS) INCOME BEFORE SPPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES (3,063) 19,420 Preferred dividend requirements of SPPC obligated mandatorily redeemable preferred trust securities (936) (936) ---------------- ---------------- (LOSS) INCOME BEFORE PREFERRED DIVIDENDS (3,999) 18,484 Preferred dividend requirements (875) (875) ---------------- ---------------- NET (LOSS) INCOME FROM CONTINUING OPERATIONS (4,874) 17,609 ---------------- ---------------- DISCONTINUED OPERATIONS: Income from operations of water business to be disposed of (net of income taxes of $478 and ($860) in 2001 and 2000, respectively) 381 927 ---------------- ---------------- NET (LOSS) INCOME $ (4,493) $ 18,536 ================ ================
The accompanying notes are an integral part of the financial statements. 10 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, -------------------------------- 2001 2000 -------- -------- (Unaudited) Cash Flows From Operating Activities: (Loss) Income from continuing operations before preferred dividends $ (3,999) $ 18,484 Income from discontinued operations before preferred dividends 481 1,027 Non-Cash items included in income: Depreciation and amortization 18,800 19,031 Deferred taxes and investment tax credits 10,697 868 AFUDC and capitalized interest 271 (550) Early retirement and severance amortization - 1,049 Other non-cash 790 1,261 Changes in certain assets and liabilities: Accounts receivable (38,859) 7,848 Materials, supplies and fuel (11,289) 542 Deferred energy costs (11,456) 376 Other current assets (11,522) (2,842) Accounts payable (26,241) (8,748) Other current liabilities 2,225 16,513 Other-net 1,906 476 -------- -------- Net Cash Flows From Operating Activities (68,196) 55,335 -------- -------- Cash Flows From Investing Activities: Additions to utility plant (20,095) (27,239) AFUDC and other charges to utility plant (271) 608 Customer (refunds) advances for construction (1,380) 1,138 Contributions in aid of construction 5,459 2,150 -------- -------- Net cash used for utility plant (16,287) (23,343) Investment in subsidiaries and other non-utility property - net 997 842 -------- -------- Net Cash Used in Investing Activities (15,290) (22,501) -------- -------- Cash Flows From Financing Activities Increase (decrease) in short-term borrowings 90,658 (8,917) Retirement of long-term debt (736) (1,563) Additional investment by parent company - 7,000 Dividends paid and premiums on preferred redemption (975) (19,967) -------- -------- Net Cash Provided by (Used in) Financing Activities 88,947 (23,447) -------- -------- Net Increase in Cash and Cash Equivalents 5,461 9,387 Beginning Balance in Cash and Cash Equivalents 5,348 3,011 -------- -------- Ending Balance in Cash and Cash Equivalents $ 10,809 $ 12,398 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash Paid (Received) During Period For: Interest $ 9,139 $ 7,833 Income taxes $(18,071) $ -
The accompanying notes are an integral part of the financial statements. 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- NOTE 1. MANAGEMENT'S STATEMENT (SPR, NPC, SPPC) - -------------------------------------------------- In the opinion of the management of Sierra Pacific Resources (SPR), Nevada Power Company (NPC), and Sierra Pacific Power Company (SPPC), 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, NPC's, and SPPC's Combined Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year. Principles of Consolidation --------------------------- The condensed consolidated financial statements of SPR include the accounts of SPR and its wholly owned subsidiaries, Nevada Power Company, Sierra Pacific Power Company, (collectively, the "Utilities"), Tuscarora Gas Pipeline Company, Sierra Gas Holding Company (formerly Sierra Energy Company), Sierra Energy Company dba e-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 2001 have been reclassified to conform to the current year's presentation. Net income and shareholders' equity were not affected by these reclassifications. NOTE 2. FINANCIAL STATEMENTS OF NEVADA POWER COMPANY (NPC) - ------------------------------------------------------------- In accordance with Generally Accepted Accounting Principles, the 1999 merger between SPR and NPC was accounted for as a reverse purchase, with NPC deemed to be the acquirer of SPR as reflected in the SPR Consolidated Financial Statements. However, after the merger with SPR and as a result of the structure of the transactions, NPC is a separate legal entity, which is a wholly owned subsidiary of SPR. As a legal matter, NPC does not own any equity interest in SPR. The audited NPC Financial Statements accommodate the presentation of financial information of NPC on a stand-alone basis by summarizing all non-NPC financial information into a few items on each of the Financial Statements. These summarized items are repeated below (in 000's): Non-NPC Financial Items on the NPC Financial Statements
NPC Balance Sheet: March 31, 2001 December 31, 2000 - ------------------ -------------- ----------------- Investment in Sierra Pacific Resources $439,660 $471,975 Equity in Sierra Pacific Resources $439,660 $471,975
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 NPC. The Equity in Sierra Pacific Resources reflects the sum of paid-in-capital and retained earnings of SPR, without the benefit of NPC. These line items do not represent any asset to which holders of NPC's securities may look for recovery of their investment. These items must be disregarded for determining the ability of NPC to satisfy its obligations or to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred stock dividends and for all of NPC's financial covenants and earnings tests including those under its charter and mortgage. 12
NPC Income Statement: Three Months Ended Three Months Ended - --------------------- ------------------ ------------------ March 31, 2001 March 31, 2000 -------------- -------------- Equity in (Losses) Earnings of Sierra Pacific Resources $(28,137) $10,207
This line does not represent any item of revenue or income to which holders of NPC's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NPC to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred dividends and for all of NPC's financial covenants and earnings tests including those under its charter and mortgage.
NPC Statement of Cash Flow: Three Months Ended Three Months Ended - --------------------------- ------------------ ------------------ March 31, 2001 March 31, 2000 -------------- -------------- Equity in (Losses) Earnings of Sierra Pacific Resources $(28,137) $(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 does not represent any item of cash flow to which holders of NPC's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NPC to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred dividends and for all of NPC's financial covenants and earnings tests including those under its charter and mortgage. NOTE 3. SHORT-TERM BORROWINGS (SPR, NPC, SPPC) - ------------------------------------------------ As of January 16, 2001, SPR had eliminated its December 31, 2000, commercial paper balance of $4 million. On March 9, 2001, SPR discontinued its commercial paper program as a result of the placement of a credit facility, which had an outstanding balance of $50 million at March 31, 2001. NPC, which had no commercial paper outstanding at December 31, 2000, issued approximately $96.2 million of commercial paper during February and March 2001, at a weighted average interest rate of 6.02%. SPPC's commercial paper balance increased from $108.9 million at December 31, 2000, to approximately $149.1 million at March 31, 2001, at an average rate of 6.32%. In addition, under regulatory authority obtained pursuant to the 1999 merger of SPR and NPC allowing the Utilities to borrow from each other, at March 31, 2001, SPPC had a balance of $50.5 million owed to NPC, including $13 million at 6.3%, $12 million at 5.45%, and $25.5 million at 5.6%. 13 NOTE 4. EARNINGS PER SHARE (SPR) - ----------------------------------- 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.
Three Months Ended March 31, -------------------------------------- 2001 2000 ----------- ----------- Basic EPS Numerator (Loss) Income from continuing operations ($000) $ (83,860) $ 17,251 Income from discontinued operations ($000) 381 927 ----------- ----------- Net (loss) income ($000) $ (83,479) $ 18,178 =========== =========== Denominator Weighted average number of shares outstanding 78,475,217 78,416,356 ----------- ----------- Per-Share Amounts: (Loss) Income from continuing operations $ (1.07) $ 0.22 Income from discontinued operations 0.01 0.01 ----------- ----------- Net (loss) income $ (1.06) $ 0.23 =========== =========== Diluted EPS Numerator (Loss) Income from continuing operations ($000) $ (83,860) $ 17,251 Income from discontinued operations ($000) 381 927 ----------- ----------- Net (loss) income ($000) $ (83,479) $ 18,178 =========== =========== Denominator Weighted average number of shares outstanding before dilution 78,475,217 78,416,356 Stock options/1/ 1,050 1,153 Executive long term incentive plan- performance shares/1/ 35,363 56,403 Non-Employee Director stock plan/1/ 5,885 5,736 Employee stock purchase plan/1/ 2,433 929 ----------- ----------- 78,519,948 78,480,577 =========== =========== Per-Share Amounts/1/: (Loss) Income from continuing operations $ (1.07) $ 0.22 Income from discontinued operations 0.01 0.01 ----------- ----------- Net (loss) income $ (1.06) $ 0.23 =========== =========== /1/ Because of a net loss for the three months ended March 31, 2001, stock equivalents would be anti-dilutive. Accordingly, Diluted EPS for that period is computed using the weighted average number of shares outstanding before dilution.
14 NOTE 5. SEGMENT INFORMATION (SPR) - ----------------------------------- SPR operates two business segments providing regulated electric and natural gas services. NPC provides electric service to Las Vegas and surrounding Clark County. SPPC provides electric service in northern Nevada and the Lake Tahoe area of California. SPPC also provides natural gas service in the Reno-Sparks area of Nevada. Other segment information includes segments below the quantitative threshold for separate disclosure. In September 2000, SPR and SPPC adopted a plan to sell SPPC's water utility business. Accordingly, the water business is not included in the segment information below. 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. Financial data for business segments is as follows (in thousands):
Three Months Ended March 31, 2001 Electric Gas Other Consolidated - ----------------------- ----------- ---------- ------------ ------------- Operating Revenues $671,131 $64,165 $ 2,630 $737,926 =========== ========== ============ ============= Operating Income $(24,595) $ 5,095 $(10,987) $(30,487) =========== ========== ============ ============= Three Months Ended March 31, 2000 Electric Gas Other Consolidated - ----------------------- ----------- ---------- ------------ ------------- Operating Revenues $353,652 $34,836 $ 4,161 $392,649 =========== ========== ============ ============= Operating Income $ 53,580 $ 4,612 $ (999) $ 57,193 =========== ========== ============ =============
NOTE 6. DISCONTINUED OPERATIONS (SPR, SPPC) - --------------------------------------------- On September 7, 2000, SPR and SPPC adopted a plan to sell SPPC's water utility business. Accordingly, the water business is reported as a discontinued operation as of September 30, 2001, and the consolidated financial statements have been reclassified to report separately the net assets and operating results of the water business. SPR's and SPPC's prior year operating results have been restated to reflect continuing operations. On January 15, 2001, SPPC's Board of Directors approved a definitive agreement to sell SPPC's water business to the Truckee Meadows Water Authority for $350 million. On April 5, 2001, the PUCN issued an order approving the cancellation of SPPC's certificate of public convenience and necessity to serve water. On April 27, 2001, the PUCN completed the Nevada regulatory approval process by approving a stipulation regarding the gain on the sale of the net assets of the water business. The stipulation provides that SPPC refund to customers $21.5 million of the gain. The refund will be credited on the bills of SPPC's electric customers over a fifteen-month period after the expected close of the sale later in the second quarter of 2001. Management anticipates using the remaining proceeds from the sale after payment of taxes and expenses of the transaction to reduce debt and for other corporate purposes. Revenues from operations of the water business to be disposed of were $11.5 million and $10.2 million for the three-month periods ended March 31, 2001, and March 31, 2000, respectively. The income from operations of the water business, as shown in the Condensed Consolidated Statements of Income of SPR and SPPC, includes preferred dividends of approximately $100,000 for each of the three- month periods ended March 31, 2001 and 2000. Net income from operations of the water business during the period September 7 through December 31, 2000, was approximately $704,000. Net income from operations of the water business for the three months ended March 31, 2001, was approximately $381,000. These amounts are not included in the revenues and income (loss) from continuing operations shown in the accompanying income statements. Included in the sale are water storage and supply, transmission, treatment and distribution facilities. Also included in the sale are four hydroelectric generation plants on the Truckee River. Accounts receivable consist of amounts due from developers for distribution facilities. Regulatory assets included for sale consist primarily of costs incurred in connection with the Truckee River negotiated water settlement. SPPC has historically received regulatory treatment to permit these costs to be recovered through its water rates. Other unallocated regulatory assets, that may be in part included in the sale, are not reflected in the table of net assets that follows. Assets and liabilities of the water utility business consist of the following: 15
Amounts in thousands March 31, 2001 December 31, 2000 --------------------------- --------------------------- Plant in service $341,173 $338,199 Less: Accumulated provision for depreciation 89,989 88,056 -------- -------- Net Plant 251,184 250,143 Construction work-in-progress 11,313 11,861 Accounts receivable 2,069 2,520 Materials 452 353 Regulatory tax asset 3,609 3,609 Other regulatory assets 4,604 4,674 -------- -------- Total Assets $273,231 $273,160 -------- -------- Deferred federal income taxes 4,113 4,275 Deferred investment tax credit 3,904 3,937 Regulatory tax liability 3,469 3,469 -------- -------- Net assets of discontinued operations $261,745 $261,479 ======== ========
NOTE 7. REGULATORY EVENTS (SPR, NPC, SPPC) - -------------------------------------------- On April 18, 2001, the Governor of Nevada signed into law Assembly Bill 369 (AB369). The provisions of AB369 include a moratorium on the sale of generation assets by electric utilities, the repeal of electric industry restructuring, and a reinstatement of deferred accounting for fuel and purchased power costs ("deferred energy accounting") for electric utilities. The stated purposes of this emergency legislation were, among others, to control volatility in the price of electricity in the retail market in Nevada and to ensure that the Utilities have the necessary financial resources to provide adequate and reliable electric service under present market conditions. To achieve these purposes, AB369 allows the Utilities to recover in future periods their costs for wholesale power and fuel, which have risen dramatically over the past year. Deferred energy accounting will have the effect of delaying additional rate increases to consumers until early next year while, at the same time, providing a method for the Utilities to recover their increasing costs for fuel and purchased power. Set forth below is a summary of key provisions of AB369. Generation Divestiture Moratorium - --------------------------------- AB369 prohibits all divestiture of generation assets by electric utilities until July 2003. After January 1, 2003, NPC or SPPC may seek Public Utilities Commission of Nevada (PUCN) permission to sell one or more generation assets with the sale to be effective on or after July 1, 2003. The PUCN may approve the request to divest only if it finds the transaction to be in the public interest. The PUCN may base its approval of the request upon such terms, conditions, or modifications as it deems appropriate and that divestiture would satisfy the public policy criteria set forth in the statute. AB369 directs the PUCN to take all steps necessary to obtain federal approval for the prohibition on divestiture and to vacate any of its own orders that had previously approved generation divestiture transactions. Deferred Energy Accounting - -------------------------- AB369 requires both Utilities to use deferred energy accounting for their respective electric operations beginning on March 1, 2001. The intent of deferred energy accounting is to ease the effect of fluctuations in the cost of purchased power and fuel. Deferred energy accounting provides that an asset is recorded on the books of the Utility to the extent actual fuel and purchased power costs exceed fuel and purchased power costs recoverable through current rates. Conversely, a liability is recorded to the extent fuel and purchased power costs recoverable through current rates exceed actual fuel and purchased power costs. These excess amounts are reflected in adjustments to rates in future time periods, subject to PUCN review. In 16 reference to deferred energy accounting, AB369 specifies that fuel and purchased power costs include all costs incurred to purchase fuel, to purchase capacity and to purchase energy. The Utilities also record in these accounts a carrying charge on such deferred balances. AB369 requires that each Utility file an application to clear its deferred energy account balances after the end of each 12-month period, but allows the balances from each 12-month period to be recovered over an adjustment period of up to three years in order to reduce the volatility of rate changes. In addition, after the initial deferred energy case, each Utility is allowed to file an application to clear its deferred energy account balances after the end of a six-month period if the proposed net increase or decrease in fuel and purchased power revenues for the six-month period is more than 5%. If a Utility using deferred energy accounting realizes a rate of return greater than the rate authorized by the PUCN, the portion that exceeds the authorized rate of return will be transferred to the next deferred energy adjustment period. In addition, AB369 requires that the PUCN determine (1) whether costs for purchased power and fuel have been prudently incurred, (2) whether those costs recorded in deferred accounts are recoverable, and (3) whether the amounts have been properly reflected in the deferred accounts. Transition of Rates to Deferred Energy Accounting - ------------------------------------------------- All rates in effect on April 1, 2001, including the cumulative increases under the Global Settlement and the CEP Riders, remain in effect until the PUCN issues final orders on future general and initial deferred energy rate applications. (See "Required Filings," below). No further applications can be made for the Fuel and Purchased Power (F&PP) riders that were part of the July 2000 Global Settlement described in the Utilities' Annual Report on Form 10-K for the year ended December 31, 2000. The Utilities will not be permitted to recover any shortfall incurred before March 1, 2001, resulting from the difference between actual fuel and purchased power costs and the rates permitted by the Global Settlement. Although the F&PP riders were in effect during this period, the riders were based on trailing 12- month average costs and were subject to caps and therefore did not allow the Utilities full recovery for fuel and purchased power costs due to the rapid rise in energy prices. AB369 prohibits the PUCN from taking any further action on the Comprehensive Energy Plan (CEP) described in the Utilities' Annual Report on Form 10-K for the year ended December 31, 2000, and provides that, except for the CEP Rider rate increases put into effect on April 1, 2001, the CEP will be deemed to have been withdrawn by the Utilities. Additionally, approximately $20 million of revenue collected by the Utilities based on the CEP before April 1, 2001, was credited to the deferred energy accounts, which caused the accounts to start in an over- collected position. Required Filings - ---------------- NPC is required to file a general rate application on or before October 1, 2001. In addition, NPC must file an application to clear its deferred energy accounts on or before December 1, 2001. In connection with clearing NPC's deferred energy accounts, the PUCN must investigate and determine whether NPC's rates that went into effect on March 1, 2001, pursuant to the CEP, are just and reasonable and reflect prudent business practices. The rates in effect on April 1, 2001, remain in effect until the PUCN issues a final order on the general and initial deferred energy rate application. The PUCN is prohibited from adjusting rates during this time period unless an adjustment is absolutely necessary to avoid a finding that the rates are confiscatory and therefore in violation of the United States or Nevada Constitutions. If adjustments are necessary, they may only be made to the extent necessary to avoid an unconstitutional result. SPPC is required to file a general rate application on or before December 1, 2001, and an application to clear its deferred energy accounts on or before February 1, 2002. In connection with clearing SPPC's deferred energy accounts, the PUCN must investigate and determine whether SPPC's rates that went into effect on March 1, 2001, pursuant to the CEP, are just and reasonable and reflect prudent business practices. The rates in effect on April 1, 2001, remain in effect until the PUCN issues a final order on the general and initial deferred energy rate application. The PUCN is subject to the same constraints on adjustment of SPPC's rates as described above for NPC. After the initial general rate applications described above, each Utility will be required to file future general rate applications at least every 24 months. 17 Restrictions on Mergers and Acquisitions - ---------------------------------------- AB369 imposes certain restrictions on mergers and acquisitions involving Nevada electric utilities. In particular, the PUCN may not approve a merger or acquisition involving an electric utility unless the utility complies with the generation divestiture provisions of AB369. In addition, AB369 includes provisions that would have significantly affected the required regulatory approvals for SPR's proposed acquisition of Portland General Electric Company (PGE) from Enron Corp. On April 26, 2001, Enron Corp. and SPR terminated, by mutual agreement, the proposed purchase and sale of PGE. Repeal of Electric Industry Restructuring - ----------------------------------------- AB369 repeals all statutes authorizing retail competition in Nevada's electric utility industry and voids any license issued to an alternative seller in connection with retail electric competition. Other Pending Legislation - ------------------------- Various legislation with implications for the electric utility industry are still pending before the Nevada Legislature. The current biennial legislative session ends on June 4, 2001. One of the measures being considered would increase the renewable energy portfolio requirements to 15% by 2012. Both SPPC and NPC would be required to meet these requirements. Current law caps renewable energy at 1% and allows an exemption for SPPC's existing renewable portfolio that provides for about 9% of SPPC's resource requirements. Other legislation may be introduced that would allow certain customers to choose new energy suppliers. The Governor of Nevada has stated that he would support a plan that allows major power users, such as casinos and mines, to purchase power on the open market provided that such a plan would bring more power to the state. NOTE 8. DERIVATIVES AND HEDGING ACTIVITIES (SPR, NPC, SPPC) - ------------------------------------------------------------- Effective January 1, 2001, SPR, SPPC, and NPC adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, both issued by the Financial Accounting Standards Board. As amended, SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position, measure those instruments at fair value, and recognize changes in the fair value of the derivative instruments in earnings in the period of change unless the derivative qualifies as an effective hedge. The adoption of this standard did not have a material impact on the earnings of SPR or the Utilities. SPR and the Utilities did, however, recognize all derivatives as assets or liabilities in the condensed consolidated balance sheets upon adoption and measured those instruments at fair value. This resulted in SPR, NPC, and SPPC recording $0, $678 million and $303 million of risk management assets, respectively, and $2.9 million ($1.9 million net of taxes), $722 million, and $97 million of risk management liabilities, respectively, at January 1, 2001. On April 18, 2001, AB 369 was signed into law in Nevada. AB 369 reinstated electric deferred energy accounting by the Utilities effective March 1, 2001. (See Note 7 - Regulatory Events, above.) As a result, fuel and purchased power expenses, including gains and losses on derivative instruments, are recoverable or payable through future rates. In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," regulatory assets and liabilities are established to the extent that such derivative gains and losses are recoverable or payable through future rates. Because of this accounting treatment, the Utilities will not apply hedge accounting to their electricity and natural gas derivatives. However, SPR and the Utilities have adopted cash flow hedge accounting for other derivative instruments not subject to regulatory treatment. The transition adjustments resulting from adoption of SFAS No. 133 related to the other derivative instruments not subject to regulatory treatment was reported as the cumulative effect of a change in accounting principle in Other Comprehensive Income of SPR and the Utilities. SPR's and the Utilities' objective in using derivatives is to reduce exposure to energy price risk and interest rate risk. Energy price risks result from activities that include the generation, procurement and marketing of power and the procurement and marketing of natural gas. Derivative instruments used to manage energy price risk include forwards and swaps. These contracts allow the Utilities to reduce the risks associated with volatile electricity and natural gas markets. Derivatives used to manage interest rate risk include interest rate swaps designed to moderate exposure to interest rate changes and lower the overall cost of borrowing. At March 31, 2001 SPR had one interest rate swap related to $200 million of SPR floating rate notes maturing April 20, 2003. This interest rate swap is considered a completely effective cash flow hedge At March 31, 2001, the fair value of the derivatives resulted in the recording of $0, $1.5 billion, and $518 million in risk management assets and $5.1 million (net of taxes), $1.2 billion, and $210 million in risk management liabilities in the Consolidated Balance Sheets of SPR, NPC, and SPPC, respectively. Due to the regulatory environment in which the Utilities operate, regulatory assets and liabilities were established to the extent that derivative gains and losses are recoverable or 18 payable through future rates. Accordingly, $341 million and $308 million in net regulatory liabilities were recorded in the Consolidated Balance Sheets of NPC and SPPC, respectively. In addition, for the three months ended March 31, 2001, the unrealized losses resulting from the change in the fair value of derivatives designated and qualifying as cash flow hedges of $3.2 million (net of taxes) for SPR was recorded in Other Comprehensive Income. Such amounts will be reclassified into earnings when the related transactions are settled or terminate. No amounts were reclassified into earnings during the three months ended March 31, 2001. The effects of the adoption of SFAS No. 133 on comprehensive income and the components thereof at March 31, 2001, are as follows:
Comprehensive Income (in $000's) SPR NPC SPPC --------------- --------------------- -------------- Net loss at March 31, 2001 $(83,479) $(83,479) $(4,493) Cumulative effect upon adoption of change in Accounting principle, January 1, 2001, net of taxes (1,923) 444 212 Change in market value of risk management assets and Liabilities as of March 31, 2001, net of taxes (3,233) (444) (212) --------------- --------------------- -------------- Accumulated Other Comprehensive (Loss) (5,156) - - --------------- --------------------- -------------- Total Comprehensive loss at March 31, 2001 $(88,635) $(83,479) $(4,493) =============== ===================== ==============
NOTE 9. COMMITMENTS AND CONTINGENCIES (SPR, NPC) - --------------------------------------------------- In July 2000, NPC received from the United States Environmental Protection Agency (EPA) a request for information to determine the compliance of certain generation facilities at the Clark Station with the applicable State Implementation Plan. In November 2000, NPC and the Clark County Health District entered into a Corrective Action Order requiring, among other steps, capital expenditures at the Clark Station totaling approximately $3 million. In March 2001, the EPA issued an additional request for information that could result in remediation beyond that specified in the November 2000 Corrective Action Order. If the EPA prevails, capital expenditures and temporary outages of four of Clark Station's generation units could be required. Additionally, depending on the time of year that the compliance activity and corresponding generation outage would occur, the incremental cost to purchase replacement energy could be substantial. NOTE 10. SUBSEQUENT EVENTS (SPR, SPPC) - ---------------------------------------- On April 26, 2001, SPR and Enron Corp. announced that they had mutually agreed to terminate their agreement for SPR's purchase of Enron's wholly owned subsidiary, Portland General Electric (PGE). In negotiating the mutual termination, SPR agreed to share certain expenses which Enron Corp and PGE had incurred for the proposed transaction. The Condensed Consolidated Statement of Income of SPR for the three months ended March 31, 2001, reflects a charge in connection with the planned purchase of PGE of $22 million, including approximately $7.5 million representing a termination payment for sharing expenses. On April 27, 2001, Washoe County, Nevada issued for SPPC's benefit $80 million of Water Facilities Refunding Revenue Bonds, Series 2001, due March 1, 2036 ("the Bonds"). The Bonds will bear interest at a Term Rate of 5.75% per annum from their date of issuance to April 30, 2003. Beginning May 1, 2003, the method of determining the interest rate on the Bonds may be converted from time to time in accordance with the related Indenture so that such bonds would, thereafter, bear interest at a daily, weekly, flexible, term or auction rate. The Bonds were issued to refund $80 million of Washoe County variable rate Water Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1990 on April 30, 2001. SPPC's obligations in respect of the Series 1990 bonds were supported by a letter of credit that was terminated in connection with the redemption of those bonds. 19 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, pending or future Nevada, California or federal legislation, 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 (NPC), or Sierra Pacific Power Company (SPPC) to differ materially from those contemplated in any forward-looking statement include, among others, the following: (1) a continuation of the current shortage of supply of electricity in the western United States and the adverse effect that such shortage is having on the availability of purchased power throughout the region and on the price of such purchased power (to the extent that the Utilities are not permitted to pass such higher costs on to their respective customers); (2) a continuation of the high prices for natural gas in the western United States, as those affect both the cost of generated and purchased electricity and the cost of acquiring gas for SPPC's retail gas customers (in either case, to the extent that the Utilities are not permitted to pass such higher costs on to their respective customers); (3) the extent to which high energy prices and the financial difficulties of electric utilities and power exchanges in the western United States cause any counterparties to NPC's or SPPC's power purchase contacts to default on their obligations, thus requiring the Utilities to seek to replace the power at then current market prices; (4) the ability of SPR, NPC and SPPC to access the capital markets to finance their capital requirements for construction costs and the repayment of maturing debt, which are estimated for the balance of 2001 to total approximately $449 million for NPC and approximately $419 million for SPPC; (5) unforeseen delays in completing the sale of SPPC's water business to Truckee Meadows Water Authority; (6) the outcome and timing of rate cases to be filed by NPC and SPPC with the Public Utilities Commission of Nevada (PUCN), including the periodic applications authorized by recent Nevada legislation to permit the Utilities to recover costs for fuel and purchased power which have been recorded by the Utilities in their deferred energy accounts and deferred natural gas recorded by SPPC for its gas distribution business; (7) future Nevada, California or federal legislation or regulations affecting electric industry restructuring, including laws or regulations which could allow certain customers to chose new electricity suppliers, which could affect the amount the Utilities would be allowed to recover from customers for certain costs that prove to be uneconomic or which could have other unforeseen effects on the Utilities; (8) whether the PUCN will issue favorable orders in a timely manner to permit the Utilities to borrow money and issue additional securities to finance the Utilities' operations and to purchase power and fuel necessary to serve their respective customers; (9) unseasonable weather and other natural phenomena, which can have potentially serious impacts on the Utilities' ability to procure adequate supplies of fuel or purchased power to serve their respective customers and on the cost of procuring such supplies; (10) industrial, commercial and residential growth in the service territories of the Utilities; (11) the loss of any significant customers; and (12) changes in the business of major customers, including those engaged in gold mining or gaming, which may result in changes in the demand for services of NPC or SPPC. 20 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, NPC and SPPC assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward- looking statements. Sierra Pacific Resources - ------------------------ During the first three months of 2001, SPR incurred a loss of $83.0 million from continuing operations before preferred stock dividend requirements. During the first quarter of 2001, SPR declared no common stock dividends, and NPC and SPPC, SPR's principal subsidiaries, declared no common stock dividends to their parent, SPR. As discussed in the results of operations sections that follow, operating results for the first three months of 2001 continued to be negatively affected by the significantly higher and extremely volatile fuel and purchased power costs that developed in the western United States in May 2000 and have continued since. In an effort to mitigate the effects of higher fuel and purchased power costs, during 2000 NPC and SPPC (collectively, the "Utilities") entered into the Global Settlement, which established a mechanism that initiated incremental rate increases for each Utility. However, because the mechanism for adjusting rates lagged changes in actual energy costs and was subject to certain caps, increases were insufficient to cover fuel and purchased power costs. Cumulative electric rate increases under the Global Settlement for NPC and SPPC, respectively, are $200 million and $65 million per year. Noting the insufficiency of the rate increases under the Global Settlement, the Utilities on January 29, 2001 filed a Comprehensive Energy Plan (CEP). The plan included a request for emergency rate increases (CEP Riders). On March 1, 2001, the PUCN permitted the requested CEP Riders to go into effect subject to later review. The CEP Riders provided for NPC and SPPC respectively, further rate increases of $210 million and $104 million per year. Notwithstanding the increases under the Global Settlement and the CEP Riders, the Utilities' revenues for fuel and purchased power recovery are below the related expenses. Accordingly, the Utilities sought additional relief pursuant to legislation. As described in more detail below, in April 2001 the State of Nevada enacted AB369, the provisions of which include the use of deferred energy accounting by the Utilities beginning March 1, 2001. Deferred energy accounting allows the Utilities to recover in future periods that portion of their costs for fuel and purchased power not covered by current rates and defers to future periods' the expense associated with the amounts by which fuel and purchased power costs exceed the costs to be recovered in current rates. However, as a result of other provisions of AB369, the financial benefits of deferred energy accounting are not expected to begin until the second quarter of 2001. NEVADA ENERGY LEGISLATION ------------------------- On April 18, 2001, the Governor of Nevada signed into law AB369. The provisions of AB369 include a moratorium on the sale of generation assets by electric utilities, the repeal of electric industry restructuring, and a reinstatement of deferred accounting for fuel and purchased power costs ("deferred energy accounting") for electric utilities. The stated purposes of this emergency legislation were, among others, to control volatility in the price of electricity in the retail market in Nevada and to ensure that the Utilities have the necessary financial resources to provide adequate and reliable electric service under present market conditions. To achieve these purposes, AB369 allows the Utilities to recover in future periods their costs for wholesale power and fuel, which have risen dramatically over the past year. Deferred energy accounting will have the effect of delaying additional rate increases to consumers until early next year while, at the same time, providing a method for the Utilities to recover their increasing costs for fuel and purchased power. Set forth below is a summary of key provisions of AB369. Generation Divestiture Moratorium - --------------------------------- AB369 prohibits all divestiture of generation assets by electric utilities until July 2003. After January 1, 2003, NPC or SPPC may seek Public Utilities Commission of Nevada (PUCN) permission to sell one or more generation assets with the sale to be effective on or after July 1, 2003. The PUCN may approve the request to divest only if it finds the transaction to be in the public interest. The PUCN may base its approval of the request upon such terms, conditions, or modifications as it deems appropriate and that divestiture would satisfy the public policy criteria set forth in the statute. AB369 directs the PUCN to take all steps necessary to obtain federal approval for the prohibition on divestiture and to vacate any of its own orders that had previously approved generation divestiture transactions. 21 Deferred Energy Accounting - -------------------------- AB369 requires both Utilities to use deferred energy accounting for their respective electric operations beginning on March 1, 2001. The intent of deferred energy accounting is to ease the effect of fluctuations in the cost of purchased power and fuel. Deferred energy accounting provides that an asset is recorded on the books of the Utility to the extent actual fuel and purchased power costs exceed fuel and purchased power costs recoverable through current rates. Conversely, a liability is recorded to the extent fuel and purchased power costs recoverable through current rates exceed actual fuel and purchased power costs. These excess amounts are reflected in adjustments to rates in future time periods, subject to PUCN review. In reference to deferred energy accounting, AB369 specifies that fuel and purchased power costs include all costs incurred to purchase fuel, to purchase capacity and to purchase energy. The Utilities also record in these accounts a carrying charge on such deferred balances. AB369 requires that each Utility file an application to clear its deferred energy account balances after the end of each 12-month period, but allows the balances from each 12-month period to be recovered over an adjustment period of up to three years in order to reduce the volatility of rate changes. In addition, after the initial deferred energy case, each Utility is allowed to file an application to clear its deferred energy account balances after the end of a six-month period if the proposed net increase or decrease in fuel and purchased power revenues for the six-month period is more than 5%. If a Utility using deferred energy accounting realizes a rate of return greater than the rate authorized by the PUCN, the portion that exceeds the authorized rate of return will be transferred to the next deferred energy adjustment period. In addition, AB369 requires that the PUCN determine (1) whether costs for purchased power and fuel have been prudently incurred, (2) whether those costs recorded in deferred accounts are recoverable, and (3) whether the amounts have been properly reflected in the deferred accounts. Transition of Rates to Deferred Energy Accounting - ------------------------------------------------- All rates in effect on April 1, 2001, including the cumulative increases under the Global Settlement and the CEP Riders, remain in effect until the PUCN issues final orders on future general rate applications. (See "Required Filings," below). No further applications can be made for the Fuel and Purchased Power (F&PP) riders that were part of the July 2000 Global Settlement described in the Utilities' Annual Report on Form 10-K for the year ended December 31, 2000. The Utilities will not be permitted to recover any shortfall incurred before March 1, 2001, resulting from the difference between actual fuel and purchased power costs and the rates permitted by the Global Settlement. Although the F&PP riders were in effect during this period, the riders were based on trailing 12- month average costs and were subject to caps and therefore did not allow the Utilities full recovery for fuel and purchased power costs due to the rapid rise in energy prices. AB369 prohibits the PUCN from taking any further action on the Comprehensive Energy Plan (CEP) described in the Utilities' Annual Report on Form 10-K for the year ended December 31, 2000, and provides that, except for the CEP Rider rate increases put in effect on April 1, 2001, the CEP will be deemed to have been withdrawn by the Utilities. Additionally, approximately $20 million of revenue collected by the Utilities based on the CEP before April 1, 2001, was credited to the deferred energy accounts, which caused the accounts to start in an over- collected position. Required Filings - ---------------- NPC is required to file a general rate application on or before October 1, 2001. In addition, NPC must file an application to clear its deferred energy accounts on or before December 1, 2001. In connection with clearing NPC's deferred energy accounts, the PUCN must investigate and determine whether NPC's rates that went into effect on March 1, 2001, pursuant to the CEP, are just and reasonable and reflect prudent business practices. The rates in effect on April 1, 2001, remain in effect until the PUCN issues a final order on the general rate application. The PUCN is prohibited from adjusting rates during this time period unless an adjustment is absolutely necessary to avoid a finding that the rates are confiscatory and therefore in violation of the United States or Nevada Constitutions. If adjustments are necessary, they may only be made to the extent necessary to avoid an unconstitutional result. SPPC is required to file a general rate application on or before December 1, 2001, and an application to clear its deferred energy accounts on or before February 1, 2002. In connection with clearing SPPC's deferred energy accounts, the PUCN must investigate and determine whether SPPC's rates that went into effect on March 1, 2001, pursuant to the CEP, are just and reasonable and reflect prudent business practices. The rates in effect on April 1, 2001, remain in effect until the PUCN issues a final order on the general rate application. The PUCN is subject to the same constraints on adjustment of SPPC's rates as described above for NPC. 22 After the initial general rate applications described above, each Utility will be required to file future general rate applications at least every 24 months. Restrictions on Mergers and Acquisitions - ---------------------------------------- AB369 imposes certain restrictions on mergers and acquisitions involving Nevada electric utilities. In particular, the PUCN may not approve a merger or acquisition involving an electric utility unless the utility complies with the generation divestiture provisions of AB369. In addition, AB369 includes provisions that would have significantly affected the required regulatory approvals for the proposed acquisition of Portland General Electric Company (PGE) from Enron Corp. On April 26, 2001, Enron Corp. and SPR terminated, by mutual agreement, the proposed purchase and sale of PGE. Repeal of Electric Industry Restructuring - ----------------------------------------- AB369 repeals all statutes authorizing retail competition in Nevada's electric utility industry and voids any license issued to an alternative seller in connection with retail electric competition. Other Pending Legislation - ------------------------- Various legislation with implications for the electric utility industry are still pending before the Nevada Legislature. The current biennial legislative session ends on June 4, 2001. One of the measures being considered would increase the renewable energy portfolio requirements to 15% by 2012. Both SPPC and NPC would be required to meet these requirements. Current law caps renewable energy at 1% and allows an exemption for SPPC's existing renewable portfolio that provides for about 9% of SPPC's resource requirements. Other legislation may be introduced that would allow certain customers to choose new energy suppliers. The Governor of Nevada has stated that he would support a plan that allows major power users, such as casinos and mines, to purchase power on the open market provided that such a plan would bring more power to the state. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ---------------------------------------------------- SPR, SPPC and NPC have short-term credit facilities in the amounts of $50 million, $150 million and $150 million, respectively. The short-term credit facilities of SPPC and NPC serve primarily as liquidity backup for the commercial paper programs used by each Utility to fund working capital and general corporate needs. SPR has drawn the full amount of its $50 million credit facility to provide extra cash to meet unanticipated liquidity needs. As of March 31, 2001, SPR's cash investments on hand totaled $57 million. SPR anticipates renewing or extending the credit facility on or before the expiration date of June 30, 2001. As of March 31, 2001, SPPC and NPC had commercial paper balances outstanding of $149 million and $96 million, respectively, and have not drawn on their credit facilities. These credit facilities expire on August 27, 2001, and the Utilities anticipate renewing or extending these facilities on or before the expiration date. Set forth below is a schedule showing the current maturities of debt in 2001 (in $000's):
SPPC NPC ------------- ------------- June 12, 2001 $200,000 $150,000 August 20, 2001 100,000 December 1, 2001 17,000 December 17, 2001 100,000 ------------- ------------- $217,000 $350,000 ============= =============
The Utilities expect to pay the principal amounts of these maturing debt obligations, to pay their current obligations and to finance the anticipated deferred energy regulatory assets with a combination of the proceeds from the sale of SPPC's water business sale (scheduled to close in June), ongoing cash flows from operations and the proceeds from the sale of additional securities. The Utilities expect that their working capital financing needs will grow with the restoration of deferred energy. To the extent that current revenues are less than current expenses, the recovery of those costs will be delayed until the completion of the next deferred rate cases. 23 Nevada Power Company - --------------------- The causes for significant changes in specific lines comprising the results of operations for NPC are as follows (dollars in thousands):
Three Months Ended March 31, -------------------------------------------------- Change from 2001 2000 Prior Year % ---------------- ---------------- ------------ Electric Operating Revenues ($000): Residential $103,179 $ 83,573 23.5% Commercial 55,556 46,734 18.9% Industrial 72,222 55,121 31.0% ------------ ------------ Retail revenues 230,957 185,428 24.6% Other 128,055 10,602 1107.8% ------------ ------------ Total Revenues $359,012 $196,030 83.1% ============ ============= Retail sales in thousands of megawatt-hours (MWH) 3,316 3,148 5.3% Average retail revenue $ 69.65 $ 58.90 18.2% per MWH
Residential electric revenues increased for the three months ended March 31, 2001, over the same period in 2000 due to a combination of factors. Higher rates resulted from cumulative monthly rate increases pursuant to the 2000 Global Settlement and an increase in rates effective March 1, 2001, pursuant to the CEP. A 5% increase in customers and an increase in heating degree-days in the first quarter of 2001 as compared to 2000 also contributed to higher residential revenues. Higher commercial and industrial electric revenues for the three months ended March 31, 2001, over the prior year were the result of rate increases corresponding to those experienced for residential revenues as well as increases in customers of 4.4% and 8.2%, respectively, over the same period of 2000. The increase in other electric revenues for the three-month period ended March 31, 2001, over the same period in 2000 was mainly due to large increases in risk management activities and wholesale power sales at much higher prices. NPC purchases fixed cost energy at a delivery point where the energy can either be delivered to its control area or sold, should NPC not require the energy. The energy is also sold if replacement energy can be obtained less expensively than transporting the energy to the control area. Historically, fewer of these sales have taken place. NPC seeks neither to purchase nor sell energy on a speculative basis.
Three Months Ended March 31, ------------------------------------------------- Change from 2001 2000 Prior Year % ------------- ------------- ---------------- Purchased Power ($000) $201,822 $53,817 275.0% Purchased Power in thousands of MWHs 2,468 1,243 98.6% Average cost per MWH of Purchased Power $ 81.78 $ 43.30 88.9%
24 Purchased power costs were significantly higher for the three months ended March 31, 2001, than for the prior year as Short-Term Firm and Economy Energy prices increased substantially. In addition, volumes purchased increased to accommodate growth in wholesale sales and system load.
Three Months Ended March 31, ------------------------------------------------- Change from 2001 2000 Prior Year % --------------- -------------- --------------- Fuel for Power Generation ($000) $115,352 $37,647 206.4% Thousands of MWHs generated 2,501 2,264 10.5% Average cost per MWH of Generated Power $ 46.12 $ 16.63 177.3%
Fuel for generation costs for the three months ended March 31, 2001, were significantly higher than the prior year due to substantial increases in natural gas prices. In addition, volumes generated were higher to accommodate system load.
Three Months Ended March 31, -------------------------------------------------- Change from 2001 2000 Prior Year % --------------- -------------- --------------- Deferral of energy costs-net ($000) $11,308 $6,788 66.6% =============== ==============
Deferral of energy costs-net increased for the three months ended March 31, 2001, due to provisions of AB369 reflected in the current year amount and the implementation of deferred energy accounting beginning March 1, 2001. The current balance includes a charge of approximately $12.5 million, equivalent to the March 2001 CEP revenues, consistent with the provisions of AB369. This charge was offset by a $1.2 million credit representing the amount by which March 2001 purchased power and fuel costs exceeded the amounts collected through rates. Deferral of energy costs-net for 2000 represents energy costs that had been deferred in prior periods and were then recognized in the three months ended March 31, 2000, as a result of deferred energy rate increases granted in 1999. Pursuant to the Global Settlement with the PUCN, NPC ceased utilizing deferred energy accounting effective August 1, 2000.
Three Months Ended March 31, --------------------------------------------------- Change from 2001 2000 Prior Year % --------------- -------------- --------------- Allowance for other funds used during construction ($000) $ (351) $ 780 -145.0% Allowance for borrowed funds used during construction $ (352) $ 1,815 -119.4% ---------- -------- $ (703) $ 2,595 -127.1% ========== ========
Total allowance for funds used during construction (AFUDC) for the three months ended March 31, 2001, reflects an adjustment to refine amounts assigned to specific components of facilities that were completed in different periods. 25
Three Months Ended March 31, --------------------------------------------------- Change from ($000) 2001 2000 Prior Year % --------------- -------------- --------------- Other operating expense $ 50,772 $29,151 74.2% Maintenance expense $ 12,980 $ 9,821 32.2% Income taxes $(30,464) $ 3,627 -939.9% Taxes other than income taxes $ 6,050 $ 5,406 11.9%
Other operating expense for the three-month period ending March 31, 2001, increased compared to the same period in 2000 primarily due to a $16.1 million increase in the provision for uncollectible accounts related to the California Power Exchange and a $3 million reserve provision established as a result of AB369. Maintenance costs for the three-month period ending March 31, 2001, increased from the prior year primarily as a result of planned outages at the Reid-Gardner and Clark stations. The increase was offset in part by crews performing required activities of a capital nature, thereby reducing the amount of maintenance expense. Income taxes decreased for the three months ended March 31, 2001, due to net pre-tax losses in the current year. Taxes other than income for the three months ended March 31, 2001, were higher due primarily to higher property and payroll taxes. Financial Condition, Liquidity And Capital Resources During the first three months of 2001, NPC incurred a loss of approximately $55.3 million (excluding NPC's equity in the losses of its parent, SPR), and declared no dividends on its common stock, all of which is held by SPR. Cash flows during the three months ended March 31, 2001, decreased compared to the same period in 2000. The decrease resulted from a reduction in cash flows from operating activities, due to a decrease in operating income, and to a lesser extent increased cash used in investing activities that was partially offset by an increase in cash flows from financing activities. The increase in cash used for investing activities resulted from an increase in cash used for utility plant. The increase in cash flows from financing activities was due to an increase in short-term borrowings and no common dividend payment in 2001. Construction Expenditures and Financing NPC's construction program and capital requirements for the period 2001- 2005 were originally discussed in its Annual Report on Form 10-K for the year ended December 31, 2000. Of NPC's amount projected for 2001 ($175 million), $43.4 million (24.8%) was spent as of March 31, 2001. Construction expenditures were funded from sources other than internally generated funds. NPC may utilize internally generated cash and the proceeds from secured and unsecured borrowings and preferred securities to meet capital expenditure requirements through 2001. 26 Sierra Pacific Power Company - ---------------------------- The components of gross margin are set forth below (dollars in thousands):
Three Months Ended March 31, -------------------------------------------------- Change from 2001 2000 Prior Year % -------------- -------------- ------------- Operating Revenues: Electric $312,119 $157,622 98.0% Gas 64,165 34,836 84.2% -------------- -------------- Total Revenues 376,284 192,458 95.5% -------------- -------------- Energy Costs: Electric 260,561 78,756 230.8% Gas 52,399 23,227 125.6% -------------- -------------- Total Energy Costs 312,960 101,983 206.9% -------------- -------------- Gross Margin $ 63,324 $ 90,475 -30.0% ============== ============== Gross Margin by Segment: Electric $ 51,558 $ 78,866 -34.6% Gas 11,766 11,609 1.4% -------------- -------------- Total $ 63,324 $ 90,475 -30.0% ============== ==============
The causes for significant changes in specific lines comprising the results of operations for SPPC are as follows (dollars in thousands):
Three Months Ended March 31, ------------------------------------------------ Change from 2001 2000 Prior year % --------------- --------------- ------------ Electric Operating Revenues ($000): Residential $ 51,509 $ 47,911 7.5% Commercial 51,174 44,799 14.2% Industrial 54,585 45,114 21.0% --------------- --------------- Retail revenues 157,268 137,824 14.1% Other 154,851 19,798 682.2% --------------- --------------- Total Revenues $312,119 $157,622 98.0% =============== =============== Retail sales in thousands of megawatt-hours (MWH) 2,133 2,117 0.8% Average retail revenue per MWH $73.73 $65.10 13.3%
Retail electric revenues increased for the three months ended March 31, 2001, over the same period in 2000 due to a combination of factors. Higher rates resulted from cumulative monthly rate increases pursuant to the 2000 Global Settlement and an increase in rates effective March 1, 2001, pursuant to the CEP. Continued growth in the number of customers and a 10% increase in heating degree-days in the first quarter of 2001 as compared to 2000 also contributed to higher retail revenues. Other electric revenues were significantly higher in the three-month period ended March 31, 2001, compared to the prior year primarily due to large increases in risk management activities and wholesale electric revenues. SPPC purchases fixed cost energy at a delivery point where the energy can either be delivered to its control area or sold, should SPPC not require the energy. The energy is also sold if replacement energy can be obtained less expensively than transporting the energy 27 to the control area. Historically, fewer of these sales have taken place. SPPC seeks neither to purchase nor sell energy on a speculative basis.
Three Months Ended March 31, -------------------------------------------- Change from Prior 2001 2000 year % ------------- ------------- ------------ Gas Operating Revenues ($000): Residential $21,624 $16,726 29.3% Commercial 10,641 8,424 26.3% Industrial 4,631 3,346 38.4% Miscellaneous 517 413 25.2% ------------- ------------- Total retail revenue 37,413 28,909 29.4% Wholesale revenue 26,752 5,927 351.4% ------------- ------------- Total Revenues $64,165 $34,836 84.2% ============= ============= Retail sales in thousands of decatherms 5,293 5,129 3.2% Average retail revenues per $7.07 $5.64 25.4% decatherms
The three months ended March 31, 2001, reflected increased gas revenues among all classes of retail customers compared to the prior year, primarily as a result of the rate increase approved by the PUCN that took effect February 1, 2001. The increase in retail revenues was due to a lesser extent to an increase in heating-degree days. SPPC's wholesale gas revenues increased significantly for the three-month period ended March 31, 2001, over the same period in 2000 in response to risk management activities. SPPC seeks neither to purchase nor sell gas on a speculative basis.
Three Months Ended March 31, ------------------------------------------------------------------------ Change from 2001 2000 Prior Year % ------------------- ----------------------- ----------------- Purchased Power ($000): $150,987 $49,480 205.1% Purchased Power in thousands of MWHs 1,447 1,593 -9.2% Average cost per MWH of Purchased Power $ 104.34 $ 31.06 235.9%
Purchased power costs were higher for the three months ended March 31, 2001, than the prior year because SPPC fulfilled more of its total energy requirements with more expensive Short-Term Firm energy purchased power. SPPC also took advantage of additional risk management opportunities although the overall price was substantially higher. 28
Three Months Ended March 31, ------------------------------------------------------------------ Change from 2001 2000 Prior Year % ----------------- ------------------- ----------------- Fuel for Power Generation ($000) $102,553 $29,276 250.3% Thousands of MWHs generated 1,583 1,200 31.9% Average fuel cost per MWH of Generated Power $ 64.78 $ 24.40 165.5%
Fuel for generation costs for the three-month period ended March 31, 2001, were substantially higher than for the prior year as natural gas prices increased significantly and volumes generated were higher to accommodate greater system load.
Three Months Ended March 31, --------------------------------------------------------------------- Change from 2001 2000 Prior Year % ------------------ --------------------- ----------------- Gas Purchased for Resale ($000) Retail $51,685 $17,138 201.6% Wholesale 18,858 5,713 230.1% ------------------ --------------------- Total $70,543 $22,851 208.7% ================== ===================== Gas Purchased for Resale - retail (thousands of decatherms) 5,716 4,640 23.2% Average cost per retail decatherm $ 9.04 $ 3.69 144.8%
The cost of retail gas purchased for resale increased for the three months ended March 31, 2001, compared to the prior year due to substantially higher gas prices. The increase in the cost of wholesale gas purchased over the prior year reflects higher prices as well as costs associated with risk management activities.
Three Months Ended March 31, -------------------------------------------- Change from Prior 2001 2000 Year % ------------ ------------- ------------ Deferral of energy costs-net ($000) Purchased Power and Fuel for Power Generation 7,021 - N/A Gas Purchased for Resale (18,144) 376 -4925.5% ------------ ------------- Total $(11,123) $ 376 -3058.2% ============ =============
Deferral of energy costs-net for purchased power and fuel for generation increased for the three months ended March 31, 2001, due to provisions of AB369 reflected in the current year amount and the implementation of deferred energy accounting beginning March 1, 2001. The current balance includes a charge of approximately $7.3 million, equivalent to the March 2001 CEP revenues, consistent with the provisions of AB369. This charge was offset by a $.3 million credit representing the amount by which March 2001 purchased power and fuel costs exceeded the amounts collected through rates. SPPC did not utilize deferred energy accounting for its electric operations in 2000. 29 Deferral of energy costs-net for gas purchased for resale decreased for the three months ended March 31, 2001, substantially over the prior year because SPPC is recording higher undercollections of such costs than in the prior year. Revenue received from the base purchased gas rates did not cover the increased cost of natural gas experienced by SPPC. SPPC anticipates recovery of these costs through the deferred energy accounting mechanism.
Three Months Ended March 31, -------------------------------------------------------- Change from 2001 2000 Prior Year % -------------- -------------- -------------- Allowance for other funds used during construction ($000) $(184) $ 60 -406.7% Allowance for borrowed funds used during construction ($000) (46) 418 -111.0% -------------- -------------- $(230) $ 478 -148.1% ============== ==============
Total allowance for funds used during construction (AFUDC) for the three months ended March 31, 2001, reflects an adjustment to refine amounts assigned to specific components of facilities that were completed in different periods.
Three Months Ended March 31, ------------------------------------------------------------------- Change from (In 000's) 2001 2000 Prior Year % ----------------- ------------------- ----------------- Other operating expense $27,694 $23,156 19.6% Maintenance expense 5,324 4,069 30.8% Income taxes (2,251) 11,894 -118.9% Interest charges on long-term debt 10,571 7,529 40.4%
Other operating expense for the first quarter of 2001 increased compared to the same period in 2000 primarily due to a $3.5 million reserve provision established as a result of AB369 and a $2.7 million increase in the provision for uncollectible accounts related to the California Power Exchange. The increase was offset, in part, by reductions in labor costs, and consulting and legal fees. Maintenance costs for the three-month period ended March 31, 2001 were higher compared to the same period in 2000 due to increased expenses related to the combustion turbines at the Winnemucca and Clark Mountain generation facilities. Income taxes decreased for the three months ended March 31, 2001, due to net pre-tax losses in the current year. Interest charges on long-term debt increased for the three months ended March 31, 2001, due to higher average long-term debt balances compared to 2000. Financial Condition, Liquidity And Capital Resources During the first three months of 2001, SPPC incurred a loss of approximately $4.0 million from continuing operations before preferred stock dividends. SPPC declared $975,000 in dividends to holders of its preferred stock but declared no dividends on its common stock, all of which is held by its parent, SPR. 30 Cash flows during the three months ended March 31, 2001 decreased slightly compared to the same period in 2000. The decrease resulted from a reduction in cash flows from operating activities, mainly due to a decrease in operating income, partially offset by less cash used in investing activities and more cash provided by financing activities. The decrease in cash used for investing activities was due to less cash used for utility plant. The increase in cash provided by financing activities was due to an increase in short-term borrowings and no common dividend paid in 2001. Construction Expenditures and Financing - --------------------------------------- SPPC's construction program and capital requirements for the period 2001- 2005 were originally discussed in its Annual Report on Form 10-K for the year ended December 31, 2000. Of SPPC's amount projected for 2001 ($125 million), $16.3 million (13.0%) was spent as of March 31, 2001. Construction expenditures were funded from sources other than internally generated funds. SPPC may utilize internally generated cash and the proceeds from secured and unsecured borrowings and preferred securities to meet capital expenditure requirements through 2001. Sierra Pacific Resources (Holding Company) - ------------------------------------------ The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three months ended March 31, 2001, include the operating results of the holding company. The holding company operating results included a charge of approximately $22 million recognized as a result of the termination of the PGE acquisition. The holding company also recognized higher interest costs, $14.0 million in 2001 and $8.0 million in 2000, due to the issuance of additional debt in April and May of 2000. Tuscarora Gas Pipeline Company - ------------------------------ The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three-month periods ended March 31, 2001, and March 31, 2000, include the operating results of Tuscarora Gas Pipeline Company (TGPC), a wholly owned subsidiary of SPR. TGPC contributed $.7 million and $.6 million, respectively, in net income for the three-month periods ended March 31, 2001, and March 31, 2000. e.three - ------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three-month periods ended March 31, 2001, and March 31, 2000, include the operating results of e.three, a wholly owned subsidiary of SPR. e.three incurred a loss of $.2 million for the three months ended March 31, 2001, and contributed $.2 million in net income for the three-month period ended March 31, 2000. Sierra Pacific Energy Company - ----------------------------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three-month periods ended March 31, 2001, and March 31, 2000, include the operating results of Sierra Pacific Energy Company (SPE), a wholly owned subsidiary of SPR. SPE incurred net losses of $87,000 and $3.2 million, respectively, for the three-month periods ended March 31, 2001, and March 31, 2000. The losses are the result of costs incurred to exit the retail energy- sales business. Sierra Pacific Communications - ----------------------------- The Condensed Consolidated Statements of Income of Sierra Pacific Resources for the three-month periods ended March 31, 2001, and March 31, 2000, include the operating results of Sierra Pacific Communications (SPC), a wholly owned subsidiary of SPR. SPC incurred net losses of $373,000 and $61,000, respectively, for the three-month periods ended March 31, 2001, and March 31, 2000. PORTLAND GENERAL ELECTRIC ACQUISITION ------------------------------------- On April 26, 2001, SPR and Enron Corp. announced that they had mutually agreed to terminate their agreement for SPR's purchase of Enron's wholly owned subsidiary, Portland General Electric (PGE). In negotiating the mutual termination, SPR agreed to share certain expenses which Enron Corp and PGE had incurred for the proposed transaction. The Condensed Consolidated Statement of Income of SPR for the three months ended March 31, 2001, reflects a charge in connection with the 31 planned purchase of PGE of $22 million, including approximately $7.5 million representing a termination payment for sharing expenses. GENERATION DIVESTITURE ---------------------- The PUCN approved the revised Divestiture Plan stipulation in February 2000. In May 2000 an agreement was announced for the sale of NPC's 14% undivided interest in the Mohave Generating Station ("Mohave"). In the fourth quarter of 2000 the Utilities announced agreements to sell six additional bundles of generation assets described in the approved Divestiture Plan. The sales are subject to approval and review by various regulatory agencies. For additional information, see the Annual Report on Form 10-K for the year ended December 31, 2000. As described above, AB369, which was signed into Nevada law on April 18, 2001, prohibits until July 2003, the sale of generation assets and directs the PUCN to vacate any of its orders that had previously approved generation divestiture transactions. In January 2001, California enacted a law that prohibits until 2006 any further divestiture of generation properties by California utilities, including SPPC, and could affect the sale of NPC's interest in Mohave since the majority owner of that project is Southern California Edison. In addition SPPC's request for an exemption from the requirements of a separate California law requiring approval of the California Public Utilities Commission (CPUC) to divest its plants was denied, subject to future refiling. As a result of these legislative and regulatory developments, the Utilities are engaged in discussions with the buyers of the generation assets regarding the termination of the sales agreements and the related energy buyback contracts and interconnection agreements. As of March 31, 2001, NPC and SPPC had incurred costs of $9.2 million and $12.3 million, respectively, in order to prepare for the sale of generation assets. NPC and SPPC plan to request recovery of these costs. SALE OF WATER BUSINESS ---------------------- As discussed in the Annual Report on Form 10-K for the year ended December 31, 2000, on January 15, 2001, SPPC's Board of Directors approved a definitive agreement to sell SPPC's water business to the Truckee Meadows Water Authority for $350 million. On April 5, 2001, the PUCN issued an order approving the cancellation of SPPC's certificate of public convenience and necessity to serve water. On April 27, 2001, the PUCN completed the Nevada regulatory approval process by approving a stipulation regarding the gain on the sale of the net assets of the water business. The stipulation provides that SPPC refund to customers $21.5 million of the gain. The refund will be credited on the bills of SPPC's electric customers over a fifteen-month period after the expected close of the sale later in the second quarter of 2001. Transfer of the hydroelectric facilities included in the sale will require action by the CPUC. The sale agreement contemplates a second closing for the hydroelectric facilities to accommodate the CPUC's review of the transaction. REGULATORY MATTERS ------------------ Substantially all of the utility operations of both NPC and SPPC (collectively the "Utilities") are conducted in Nevada. As a result both companies are subject to utility regulation within Nevada and therefore deal with many of the same regulatory issues. Nevada Matters - -------------- Optional Conservation Service (SPPC, NPC) On April 19, 2001, the PUCN approved new NPC and SPPC electric rates for Optional Conservation Service (Schedule OC). Schedule OC allows the Utilities to request customers with demand greater than 1 MW to voluntarily curtail their load when there is an economic or system need for capacity and energy. Customers who curtail load will receive a billing credit. California Matters (SPPC) - ------------------------- Distribution Performance-based Rate-making (PBR) Hearings on SPPC's distribution PBR proposal were held on April 2, 2001. An outline of the settlement reached by SPPC, the CPUC Office of Ratepayer Advocates, and The Utility Reform Network resolving all issues was presented during the hearing. On May 11, 2001, a formal joint settlement will be submitted to the CPUC. 32 FERC Matters (SPPC, NPC) - ------------------------ Regional Transmission Organization and Independent Transmission Company As reported in the 2000 Annual Report on Form 10-K, NPC and SPPC are members of a proposed regional transmission organization (RTO West) and a proposed independent transmission company (TransConnect). On April 25, 2001, FERC gave preliminary approval for both RTO West and TransConnect. Both organizations remain subject to approvals from state regulators and the board of directors of each member company. See the Utilities' 2000 annual report on Form 10-K for additional information about RTO West and TransConnect. Wholesale Sales Tariffs On March 13, 2001, SPPC and NPC each filed an application for an order approving market-based rates. The market-based authority would apply to sales of electric energy and capacity outside of the Utilities' control areas. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Utilities' 2000 Annual Report on Form 10-K for quantitative and qualitative disclosures about market risk. There have been no material changes to the information previously disclosed in that report, except as described in the following discussion. The Utilities described in their 2000 Annual Report on Form 10-K that they were primarily exposed to commodity price risk for changes in the market price of electricity as well as changes in fuel costs incurred to generate electricity. However, on April 18, 2001, the Governor of Nevada signed into law AB369, which provides, among other requirements, a reinstatement of deferred energy accounting for electric utilities. AB369 requires both Utilities to utilize deferred energy accounting for their respective electric operations beginning on March 1, 2001. The intent of deferred energy accounting is to ease the effect of fluctuations in the cost of purchased power and fuel. To the extent actual fuel and purchased power costs exceed amounts collected through rates, deferred energy accounting provides a mechanism to collect the excess amounts through adjustments to rates in future time periods. The Utilities are also permitted to record a carrying charge on uncollected deferred balances. Deferred energy accounting substantially relieves the Utilities from the commodity price risk associated with purchased power and fuel costs. See "Nevada Energy Legislation" in Item 2, Management's Discussion And Analysis Of Financial Condition And Results Of Operations, above, for more information regarding deferred energy accounting and AB369. Also See Item 2, Management's Discussion And Analysis Of Financial Condition And Results Of Operations, above, for a discussion of rate increases permitted under the Global Settlement and the CEP, and the estimated future revenues that will be provided by those increases. 33 PART II ITEM 1. LEGAL PROCEEDINGS Although SPR, NPC, and SPPC are involved in ongoing litigation on a variety of matters, in management's opinion none individually or collectively are material to SPR's, NPC's, or SPPC's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q: None (b) Reports on Form 8-K: Form 8-K filed on January 22, 2001 by SPR, NPC, and SPPC- Item 5, Other Events Disclosed that on January 18, 2001, the legislature of the State of California passed a law that would "prohibit a facility for the generation of electricity owned by a public utility from being disposed of prior to January 1, 2006". Form 8-K filed on February 1, 2001, by SPR, NPC, and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated January 29, 2001, announcing the filing of an emergency Comprehensive Energy Plan. Form 8-K filed on February 21, 2001 by SPPC - Item 5, Other Events Disclosed that Sierra Pacific Power Company had successfully completed its consent solicitation of the holders of its Class A, Series 1 Preferred Stock. Form 8-K filed on February 26, 2001, by SPR, NPC, and SPPC - Item 5, Other Events Disclosed that on February 23, 2001, the Public Utilities Commission of Nevada voted to approve the implementation of the Comprehensive Energy Plan Rate Rider effective March 1, 2000, as filed on January 29, 2001. Form 8-K/A filed on February 27, 2001, by SPR, NPC, and SPPC - Item 5, Other Events Amended the Current Reports on Form 8-K filed on February 26, 2001. The original filing incorrectly stated that the Comprehensive Energy Plan (CEP) Rate Rider was approved by the Public Utilities Commission of Nevada effective March 1, 2000. The CEP Rate Rider was effective March 1, 2001. 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. Sierra Pacific Resources ------------------------ (Registrant) Date: May 14, 2001 By: /s/ Mark A. Ruelle ------------ ------------------------------ Mark A. Ruelle Senior Vice President Treasurer Chief Financial Officer (Principal Financial Officer) Date: May 14, 2001 By: /s/ Mary O. Simmons ------------- ------------------------------ Mary O. Simmons Controller (Principal Accounting Officer) Nevada Power Company ------------------------------ (Registrant) Date: May 14, 2001 By: /s/ Mark A. Ruelle ------------ ------------------------------ Mark A. Ruelle Senior Vice President Treasurer Chief Financial Officer (Principal Financial Officer) Date: May 14, 2001 By: /s/ Mary O. Simmons ------------- ------------------------------- Mary O. Simmons Controller (Principal Accounting Officer) Sierra Pacific Power Company ------------------------------ (Registrant) Date: May 14, 2001 By: /s/ Mark A. Ruelle ------------ ----------------------------- Mark A. Ruelle Senior Vice President Treasurer Chief Financial Officer (Principal Financial Officer) Date: May 14, 2001 By: /s/ Mary O. Simmons ------------- ------------------------------ Mary O. Simmons Controller (Principal Accounting Officer) 35 -----END PRIVACY-ENHANCED MESSAGE-----