10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM            TO

	Registrant, Address of
Commission File	Principal Executive Offices and Telephone	I.R.S. employer	State of
Number	Number	Identification Number	Incorporation
1-08788	SIERRA PACIFIC RESOURCES	88-0198358	Nevada
	P.O. Box 10100
	(6100 Neil Road)
	Reno, Nevada 89520-0400 (89511)
	(775) 834-4011
2-28348	NEVADA POWER COMPANY	88-0420104	Nevada
	6226 West Sahara Avenue
	Las Vegas, Nevada 89146
	(702) 367-5000
0-00508	SIERRA PACIFIC POWER COMPANY	88-0044418	Nevada
	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  þ No o

Indicate by check mark whether any registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Sierra Pacific Resources Yes þ No o; Nevada Power Company            Yes o No þ; Sierra Pacific Power Company            Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Class
Common Stock, $1.00 par value
of Sierra Pacific Resources Outstanding at August 5, 2005
117,652,033 Shares

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, $3.75 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 JUNE 30, 2005

CONTENTS

PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
Sierra Pacific Resources -
Consolidated Balance Sheets — June 30, 2005 and December 31, 2004	3
Consolidated Statements of Operations — Three Months and Six Months Ended June 30, 2005 and 2004	4
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2005 and 2004	5
Nevada Power Company -
Consolidated Balance Sheets — June 30, 2005 and December 31,2004	6
Consolidated Statements of Operations — Three Months and Six Months Ended June 30, 2005 and 2004	7
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2005 and 2004	8
Sierra Pacific Power Company -
Consolidated Balance Sheets — June 30, 2005 and December 31, 2004	9
Consolidated Statements of Operations — Three Months and Six Months Ended June 30, 2005 and 2004	10
Consolidated Statements of Cash Flows — Six Months Ended June 30, 2005 and 2004	11
Condensed Notes to Consolidated Financial Statements	12
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Sierra Pacific Resources	35
Nevada Power Company	39
Sierra Pacific Power Company	46
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	57
ITEM 4. Controls and Procedures	57
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	58
ITEM 4. Submission of Matters to a Vote of Security Holders	65
ITEM 5. Other Information	66
ITEM 6. Exhibits	66
Signature Page and Certifications	67
EX-10.1 Purchase Agreement
EX-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

2

SIERRA PACIFIC RESOURCES

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

	June 30,		December 31,
	2005		2004
ASSETS
Utility Plant at Original Cost:
Plant in service	$	6,750,900	$	6,604,449
Less accumulated provision for depreciation		2,167,112		2,083,434
		4,583,788		4,521,015
Construction work-in-progress		609,920		405,911
		5,193,708		4,926,926
Investments and other property, net		65,373		64,596
Current Assets:
Cash and cash equivalents		393,437		266,328
Restricted cash and investments (Note 1)		76,310		88,452
Accounts receivable less allowance for uncollectible accounts:
2005-$38,425; 2004-$36,197		371,436		320,676
Deferred energy costs — electric (Note 1)		147,555		148,008
Deferred energy costs — gas (Note 1)		4,836		3,106
Materials, supplies and fuel, at average cost		83,261		76,193
Risk management assets (Note 6)		42,245		14,585
Deposits and prepayments for energy		51,819		54,767
Other		27,705		37,494
		1,198,604		1,009,609
Deferred Charges and Other Assets:
Goodwill (Note 9)		22,877		22,877
Deferred energy costs — electric (Note 1)		474,405		526,159
Deferred energy costs — gas (Note 1)		—		2,491
Regulatory tax asset		273,829		279,766
Other regulatory assets		479,150		487,762
Risk management regulatory assets — net (Note 6)		3,902		6,673
Unamortized debt issuance expense		63,610		67,204
Other		108,090		114,297
		1,425,863		1,507,229
Assets of Discontinued Operations		20,116		20,107
TOTAL ASSETS	$	7,903,664	$	7,528,467
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders’ equity	$	1,497,751	$	1,498,616
Preferred stock		50,000		50,000
Long-term debt		3,892,525		4,081,281
		5,440,276		5,629,897
Current Liabilities:
Short-term borrowings (Note 4)		240,000		—
Current maturities of long-term debt		248,699		8,491
Accounts payable		223,568		179,559
Accrued interest		74,489		69,246
Dividends declared		1,040		1,046
Accrued salaries and benefits		22,995		28,547
Deferred income taxes		30,137		54,501
Risk management liabilities (Note 6)		14,948		9,902
Accrued taxes		7,033		5,470
Contract termination liabilities (Note 7)		305,186		303,460
Other current liabilities		42,406		38,702
		1,210,501		698,924
Commitments and Contingencies (Note 7)
Deferred Credits and Other Liabilities:
Deferred income taxes		535,680		512,760
Deferred investment tax credit		40,434		42,064
Regulatory tax liability		39,133		40,575
Customer advances for construction		156,695		142,703
Accrued retirement benefits		74,142		67,907
Contract termination liabilities (Note 7)		37,299		36,753
Regulatory liabilities		267,088		257,495
Other		92,216		89,189
		1,242,687		1,189,446
Liabilities of Discontinued Operations		10,200		10,200
TOTAL CAPITALIZATION AND LIABILITIES	$	7,903,664	$	7,528,467

The accompanying notes are an integral part of the financial statements.

3

SIERRA PACIFIC RESOURCES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
OPERATING REVENUES:
Electric	$	668,583		$	652,350		$	1,249,727		$	1,180,724
Gas		32,136			21,879			99,674			81,355
Other		319			3,191			611			3,458
		701,038			677,420			1,350,012			1,265,537
OPERATING EXPENSES:
Operation:
Purchased power		298,619			263,266			518,771			456,757
Fuel for power generation		107,838			114,109			217,840			217,266
Gas purchased for resale		23,024			14,482			76,504			62,399
Deferred energy costs disallowed		—			—			—			1,586
Deferral of energy costs — electric — net		13,641			38,942			53,757			86,831
Deferral of energy costs — gas — net		1,332			1,376			1,004			(31	)
Impairment of goodwill		—			—			—			11,695
Other		87,199			90,162			174,789			163,251
Maintenance		24,157			22,216			47,103			47,104
Depreciation and amortization		53,298			52,129			106,087			102,066
Taxes:		—
Income tax benefit		(1,683	)		(5,835	)		(9,513	)		(27,897	)
Other than income		12,720			11,839			23,829			23,690
		620,145			602,686			1,210,171			1,144,717
OPERATING INCOME		80,893			74,734			139,841			120,820
OTHER INCOME (EXPENSE):
Allowance for other funds used during construction		4,889			1,192			8,698			2,565
Interest accrued on deferred energy		5,909			5,981			12,017			12,530
Disallowed merger costs		—			—			—			(5,890	)
Disallowed plant costs		—			(47,092	)		—			(47,092	)
Other income		9,204			8,405			19,343			17,044
Other expense		(4,036	)		(3,105	)		(8,302	)		(6,230	)
Income (taxes) / benefits		(7,668	)		12,356			(10,932	)		10,798
		8,298			(22,263	)		20,824			(16,275	)
Total Income Before Interest Charges		89,191			52,471			160,665			104,545
INTEREST CHARGES:
Long-term debt		78,579			85,719			157,006			161,179
Other		6,515			9,361			12,681			30,948
Allowance for borrowed funds used during construction		(5,928	)		(1,667	)		(10,531	)		(3,840	)
		79,166			93,413			159,156			188,287
INCOME / (LOSS) FROM CONTINUING OPERATIONS		10,025			(40,942	)		1,509			(83,742	)
DISCONTINUED OPERATIONS:
Income / (Loss) from discontinued operations (net of income taxes (benefits) of $0, $1,565, $(3) and $1,928 respectively)		1			(2,967	)		6			(3,642	)
NET INCOME / (LOSS)		10,026			(43,909	)		1,515			(87,384	)
Preferred stock dividend requirements of subsidiary		975			975			1,950			1,950
EARNINGS / (DEFICIT) APPLICABLE TO COMMON STOCK	$	9,051		$	(44,884	)	$	(435	)	$	(89,334	)
Amount per share basic and diluted — (Note 8)
Income / (Loss) from continuing operations	$	0.05		$	(0.35	)	$	0.01		$	(0.71	)
Earnings / (Deficit) applicable to common stock	$	0.05		$	(0.38	)	$	0.00		$	(0.76	)
Weighted Average Shares of Common Stock Outstanding — basic		183,338,153			117,279,506			117,569,589			117,259,726
Weighted Average Shares of Common Stock Outstanding — diluted		183,761,812			117,279,506			117,569,589			117,259,726

The accompanying notes are an integral part of the financial statements.

4

SIERRA PACIFIC RESOURCES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

	For the six months ended
	June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	1,515		$	(87,384	)
Non-cash items included in net income (loss):
Depreciation and amortization		106,087			102,066
Deferred taxes and deferred investment tax credit		1,393			(41,032	)
AFUDC and capitalized interest		(19,229	)		(6,405	)
Amortization of deferred energy costs — electric		88,720			124,122
Amortization of deferred energy costs — gas		(666	)		2,692
Deferred energy costs disallowed		—			1,586
Goodwill impairment		—			11,695
Loss on disposal of discontinued operations		—			2,346
Plant costs disallowed		—			47,092
Other non-cash		19,270			(44,410	)
Changes in certain assets and liabilities:
Accounts receivable		(50,759	)		(67,506	)
Deferral of energy costs — electric		(36,514	)		(49,803	)
Deferral of energy costs — gas		1,427			(2,742	)
Materials, supplies and fuel		(7,068	)		4,668
Other current assets		12,736			(14,353	)
Accounts payable		44,008			16,956
Escrow payment for terminating suppliers		—			(60,351	)
Other current liabilities		4,990			20,251
Change in net assets of discontinued operations		(8	)		2,267
Other assets		(28,082	)		12,900
Other liabilities		10,735			8,396
Net Cash from (used by) Operating Activities		148,555			(16,949	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant		(364,642	)		(184,615	)
AFUDC and other charges to utility plant		19,229			6,405
Customer advances for construction		13,992			8,011
Contributions in aid of construction		7,535			12,428
Net cash used for utility plant		(323,886	)		(157,771	)
Investments in subsidiaries and other property — net		3,452			3,814
Net Cash used by Investing Activities		(320,434	)		(153,957	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in short-term borrowings		240,000			(25,000	)
Change in restricted cash and investments		12,142			15,684
Proceeds from issuance of long-term debt		50,000			575,000
Retirement of long-term debt		(2,916	)		(525,371	)
Sale of common stock, net of issuance cost		1,727			650
Dividends paid		(1,965	)		(1,945	)
Net Cash from Financing Activities		298,988			39,018
Net Increase (Decrease) in Cash and Cash Equivalents		127,109			(131,888	)
Beginning Balance in Cash and Cash Equivalents		266,328			181,757
Ending Balance in Cash and Cash Equivalents	$	393,437		$	49,869
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Interest	$	162,253		$	183,908
Noncash Activities:
Transfer of Regulatory Asset	$	—		$	294,468

The accompanying notes are an integral part of the financial statements

5

NEVADA POWER COMPANY

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

	June 30,		December 31,
	2005		2004
ASSETS
Utility Plant at Original Cost:
Plant in service	$	4,127,274	$	4,015,125
Less accumulated provision for depreciation		1,158,584		1,112,335
		2,968,690		2,902,790
Construction work-in-progress		541,777		355,431
		3,510,467		3,258,221
Investments and other property, net		31,868		30,809
Current Assets:
Cash and cash equivalents		72,672		243,323
Restricted cash (Note 1)		50,311		50,311
Accounts receivable less allowance for uncollectible accounts:
2005-$32,850; 2004-$30,900		244,415		178,077
Deferred energy costs — electric (Note 1)		104,365		126,074
Materials, supplies and fuel, at average cost		45,965		44,858
Risk management assets (Note 6)		27,095		5,092
Deposits and prepayments for energy		26,768		23,091
Other		21,293		23,721
		592,884		694,547
Deferred Charges and Other Assets:
Deferred energy costs — electric (Note 1)		351,412		375,120
Regulatory tax asset		163,091		167,221
Other regulatory assets		274,011		277,450
Risk management regulatory assets — net (Note 6)		7,306		3,555
Unamortized debt issuance expense		41,376		43,802
Other		20,638		32,815
		857,834		899,963
TOTAL ASSETS	$	4,993,053	$	4,883,540
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder’s equity	$	1,423,125	$	1,436,788
Long-term debt		2,113,497		2,275,690
		3,536,622		3,712,478
Current Liabilities:
Current maturities of long-term debt		216,299		6,091
Accounts payable		156,609		114,242
Accounts payable, affiliated companies		3,311		3,920
Accrued interest		45,524		40,677
Dividends declared		397		399
Accrued salaries and benefits		9,949		12,780
Deferred income taxes		24,511		36,981
Risk management liabilities (Note 6)		9,738		3,555
Accrued taxes		3,601		2,441
Contract termination liabilities (Note 7)		212,825		211,620
Other current liabilities		31,588		27,651
		714,352		460,357
Commitments and Contingencies (Note 7)
Deferred Credits and Other Liabilities:
Deferred income taxes		323,911		308,302
Deferred investment tax credit		17,827		18,642
Regulatory tax liability		16,062		16,506
Customer advances for construction		88,688		79,243
Accrued retirement benefits		24,491		21,025
Contract termination liabilities (Note 7)		35,364		34,847
Regulatory liabilities		172,724		171,330
Other		63,012		60,810
		742,079		710,705
TOTAL CAPITALIZATION AND LIABILITIES	$	4,993,053	$	4,883,540

The accompanying notes are an integral part of the financial statements.

6

NEVADA POWER COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
OPERATING REVENUES:
Electric	$	451,384		$	449,925		$	805,518		$	776,458
OPERATING EXPENSES:
Operation:
Purchased power		228,254			191,508			369,682			319,039
Fuel for power generation		53,212			60,312			108,852			109,667
Deferred energy costs disallowed		—			—			—			1,586
Deferral of energy costs-net		8,111			38,808			43,934			82,126
Other		49,112			50,913			100,211			90,635
Maintenance		16,397			16,790			33,352			36,746
Depreciation and amortization		30,761			29,991			61,163			58,730
Taxes:
Income taxes / (benefit)		4,756			5,339			(2,038	)		(6,114	)
Other than income		6,750			6,794			13,066			13,573
		397,353			400,455			728,222			705,988
OPERATING INCOME		54,031			49,470			77,296			70,470
OTHER INCOME (EXPENSE):
Allowance for other funds used during construction		4,408			625			7,898			1,282
Interest accrued on deferred energy		4,216			4,798			8,741			10,193
Disallowed merger costs		—			—			—			(3,961	)
Other income		5,449			5,389			12,362			11,129
Other expense		(1,817	)		(1,487	)		(3,393	)		(2,928	)
Income taxes		(4,945	)		(3,057	)		(8,047	)		(5,045	)
		7,311			6,268			17,561			10,670
Total Income Before Interest Charges		61,342			55,738			94,857			81,140
INTEREST CHARGES:
Long-term debt		41,613			37,683			83,142			74,834
Other		4,239			5,241			8,571			9,828
Allowance for borrowed funds used during construction		(5,479	)		(776	)		(9,792	)		(1,706	)
		40,373			42,148			81,921			82,956
NET INCOME / (LOSS)	$	20,969		$	13,590		$	12,936		$	(1,816	)

The accompanying notes are an integral part of the financial statements.

7

NEVADA POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

	For the six months ended
	June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	12,936		$	(1,816	)
Non-cash items included in net income (loss):
Depreciation and amortization		61,163			58,730
Deferred taxes and deferred investment tax credit		6,010			2,089
AFUDC		(17,690	)		(2,988	)
Amortization of deferred energy costs		72,135			104,532
Deferred energy costs disallowed		—			1,586
Other non-cash		17,670			(27,425	)
Changes in certain assets and liabilities:
Accounts receivable		(66,339	)		(84,307	)
Deferral of energy costs		(26,718	)		(32,598	)
Materials, supplies and fuel		(1,107	)		(535	)
Other current assets		(1,249	)		(8,918	)
Accounts payable		41,758			25,236
Escrow payment for terminating suppliers		—			(49,637	)
Other current liabilities		7,113			13,263
Other assets		(25,544	)		5,968
Other liabilities		5,736			(5,803	)
Net Cash from (used by) Operating Activities		85,874			(2,623	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant		(305,793	)		(132,565	)
AFUDC and other charges to utility plant		17,690			2,988
Customer advances for construction		9,445			4,468
Contributions in aid of construction		295			5,224
Net cash used for utility plant		(278,363	)		(119,885	)
Investments in subsidiaries and other property — net		(917	)		(120	)
Net Cash used by Investing Activities		(279,280	)		(120,005	)
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES:
Change in restricted cash and investments		—			2,600
Proceeds from issuance of long-term debt		50,000			140,000
Retirement of long-term debt		(1,986	)		(131,303	)
Dividends paid		(25,259	)		(20,117	)
Net Cash from (used by) Financing Activities		22,755			(8,820	)
Net Decrease in Cash and Cash Equivalents		(170,651	)		(131,448	)
Beginning Balance in Cash and Cash Equivalents		243,323			144,897
Ending Balance in Cash and Cash Equivalents	$	72,672		$	13,449
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Interest	$	85,213		$	81,435
Noncash Activities:
Transfer of Regulatory Asset	$	—		$	197,998

The accompanying notes are an integral part of the financial statements

8

SIERRA PACIFIC POWER COMPANY

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

	June 30,		December 31,
	2005		2004
ASSETS
Utility Plant at Original Cost:
Plant in service	$	2,623,626	$	2,589,324
Less accumulated provision for depreciation		1,008,528		971,099
		1,615,098		1,618,225
Construction work-in-progress		68,143		50,480
		1,683,241		1,668,705
Investments and other property, net		975		999
Current Assets:
Cash and cash equivalents		80,981		19,319
Restricted cash (Note 1)		14,430		16,464
Accounts receivable less allowance for uncollectible accounts:
2005-$5,705; 2004-$5,296		126,693		142,359
Accounts receivable, affiliated companies		42,530		67,261
Deferred energy costs — electric (Note 1)		43,190		21,934
Deferred energy costs — gas (Note 1)		4,836		3,106
Materials, supplies and fuel, at average cost		37,285		31,335
Risk management assets (Note 6)		15,150		9,493
Deposits and prepayments for energy		25,052		31,676
Other		5,962		9,728
		396,109		352,675
Deferred Charges and Other Assets:
Deferred energy costs — electric (Note 1)		122,993		151,039
Deferred energy costs — gas (Note 1)		—		2,491
Regulatory tax asset		110,738		112,545
Other regulatory assets		205,139		210,312
Risk management regulatory assets — net (Note 6)		—		3,118
Unamortized debt issuance expense		12,711		13,564
Other		12,461		8,872
		464,042		501,941
TOTAL ASSETS	$	2,544,367	$	2,524,320
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder’s equity	$	719,795	$	705,395
Preferred stock		50,000		50,000
Long-term debt		962,801		994,309
		1,732,596		1,749,704
Current Liabilities:
Current maturities of long-term debt		32,400		2,400
Accounts payable		47,043		42,884
Accrued interest		9,638		9,604
Dividends declared		964		968
Accrued salaries and benefits		11,678		13,846
Deferred income taxes		12,603		17,138
Risk management liabilities (Note 6)		5,210		6,347
Accrued taxes		3,309		2,878
Contract termination liabilities (Note 7)		92,361		91,840
Other current liabilities		9,542		8,516
		224,748		196,421
Commitments and Contingencies (Note 7)
Deferred Credits and Other Liabilities:
Deferred income taxes		307,533		314,448
Deferred investment tax credit		22,607		23,422
Regulatory tax liability		23,071		24,069
Customer advances for construction		68,007		63,460
Accrued retirement benefits		40,444		41,558
Risk management regulatory liability — net (Note 6)		3,404		—
Contract termination liabilities (Note 7)		1,935		1,906
Regulatory liabilities		94,364		86,165
Other		25,658		23,167
		587,023		578,195
TOTAL CAPITALIZATION AND LIABILITIES	$	2,544,367	$	2,524,320

The accompanying notes are an integral part of the financial statements.

9

SIERRA PACIFIC POWER COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
OPERATING REVENUES:
Electric	$	217,199		$	202,425		$	444,209		$	404,266
Gas		32,136			21,879			99,674			81,355
		249,335			224,304			543,883			485,621
OPERATING EXPENSES:
Operation:
Purchased power		70,365			71,758			149,089			137,718
Fuel for power generation		54,626			53,797			108,988			107,599
Gas purchased for resale		23,024			14,482			76,504			62,399
Deferral of energy costs — electric — net		5,530			134			9,823			4,705
Deferral of energy costs — gas — net		1,332			1,376			1,004			(31	)
Other		33,769			32,891			68,538			63,702
Maintenance		7,760			5,426			13,751			10,358
Depreciation and amortization		22,537			22,138			44,924			43,336
Taxes:
Income taxes / (benefit)		2,751			(571	)		9,354			305
Other than income		5,931			4,981			10,679			9,996
		227,625			206,412			492,654			440,087
OPERATING INCOME		21,710			17,892			51,229			45,534
OTHER INCOME (EXPENSE):
Allowance for other funds used during construction		481			567			800			1,283
Interest accrued on deferred energy		1,693			1,183			3,276			2,337
Disallowed merger costs		—			—			—			(1,929	)
Plant costs disallowed		—			(47,092	)		—			(47,092	)
Other income		1,496			896			2,467			1,756
Other expense		(1,593	)		(1,242	)		(3,233	)		(2,555	)
Income (taxes) benefits		(763	)		15,035			(1,215	)		15,358
		1,314			(30,653	)		2,095			(30,842	)
Total Income / (Loss) Before Interest Charges		23,024			(12,761	)		53,324			14,692
INTEREST CHARGES:
Long-term debt		17,319			17,847			34,626			36,715
Other		1,255			2,470			2,401			4,627
Allowance for borrowed funds used during construction and capitalized interest		(449	)		(891	)		(739	)		(2,134	)
		18,125			19,426			36,288			39,208
NET INCOME / (LOSS)		4,899			(32,187	)		17,036			(24,516	)
Preferred Dividend Requirements		975			975			1,950			1,950
Earnings / (Deficit) applicable to common stock	$	3,924		$	(33,162	)	$	15,086		$	(26,466	)

The accompanying notes are an integral part of the financial statements.

10

SIERRA PACIFIC POWER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

	For the six months ended
	June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	17,036		$	(24,516	)
Non-cash items included in net income (loss):
Depreciation and amortization		44,924			43,336
Deferred taxes and deferred investment tax credit		(11,456	)		(18,772	)
AFUDC		(1,539	)		(3,417	)
Amortization of deferred energy costs — electric		16,585			19,591
Amortization of deferred energy costs — gas		(666	)		2,692
Plant costs disallowed		—			47,092
Other non-cash		3,511			(7,410	)
Changes in certain assets and liabilities:
Accounts receivable		40,396			13,105
Deferral of energy costs — electric		(9,796	)		(17,205	)
Deferral of energy costs — gas		1,427			(2,742	)
Materials, supplies and fuel		(5,950	)		5,189
Other current assets		10,390			(5,975	)
Accounts payable		4,158			(7,631	)
Escrow payment for terminating supplier		—			(10,715	)
Other current liabilities		(677	)		2,868
Other assets		(2,538	)		6,932
Other liabilities		2,783			13,699
Net Cash from Operating Activities		108,588			56,121
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant		(58,848	)		(52,050	)
AFUDC and other charges to utility plant		1,539			3,417
Customer advances for construction		4,547			3,543
Contributions in aid of construction		7,240			7,203
Net cash used for utility plant		(45,522	)		(37,887	)
Disposal of subsidiaries and other property — net		24			24
Net Cash used by Investing Activities		(45,498	)		(37,863	)
CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES:
Decrease in short-term borrowings		—			(25,000	)
Change in restricted cash and investments		2,034			2,141
Proceeds from issuance of long-term debt		—			100,000
Retirement of long-term debt		(1,508	)		(98,503	)
Dividends paid		(1,954	)		(1,945	)
Net Cash used by Financing Activities		(1,428	)		(23,307	)
Net Increase (Decrease) in Cash and Cash Equivalents		61,662			(5,049	)
Beginning Balance in Cash and Cash Equivalents		19,319			20,859
Ending Balance in Cash and Cash Equivalents	$	80,981		$	15,810
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for:
Interest	$	36,444		$	41,486
Noncash Activities:
Transfer of Regulatory Asset	$	—		$	96,470

The accompanying notes are an integral part of the financial statements

11

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The consolidated financial statements of Sierra Pacific Resources (SPR) include the accounts of SPR and its wholly-owned subsidiaries, Nevada Power Company (NPC) and Sierra Pacific Power Company (SPPC) (collectively, the “Utilities”), Tuscarora Gas Pipeline Company (TGPC), Sierra Gas Holding Company (SGHC), Sierra Pacific Energy Company (SPE), Lands of Sierra (LOS), Sierra Pacific Communications (SPC) and Sierra Water Development Company (SWDC). SPC is a discontinued operation, and as such, is reported separately in the financial statements. The consolidated financial statements of NPC include the accounts of NPC and its wholly-owned subsidiary, Nevada Electric Investment Company (NEICO). The consolidated financial statements of SPPC include the accounts of SPPC and its wholly-owned subsidiaries, GPSF-B, Piñon Pine Corporation (PPC), Piñon Pine Investment Company, Piñon Pine Company, L.L.C. and Sierra Pacific Funding L.L.C. All significant intercompany transactions and balances have been eliminated in consolidation.

     The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities. These estimates and assumptions also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from these estimates.

     In the opinion of the management of SPR, NPC, and SPPC, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows for the periods shown. These 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; therefore, they should be read in conjunction with the audited financial statements included in SPR’s, NPC’s, and SPPC’s Annual Reports on Form 10-K for the year ended December 31, 2004 (the “2004 10-K”).

     The results of operations and cash flows of SPR, NPC and SPPC for the three months and six months ended June 30, 2005, are not necessarily indicative of the results to be expected for the full year.

Reclassifications

     Certain items previously reported have been reclassified to conform to the current year’s presentation. Previously reported net income (loss) and shareholders’ equity were not affected by these reclassifications.

Deferral of Energy Costs

     NPC and SPPC implemented deferred energy accounting on March 1, 2001. Beginning January 2004, the California Public Utility Commission (CPUC) issued its decision which re-instituted the Energy Cost Adjustment (ECAC) mechanism for SPPC’s California electric business. The ECAC allows SPPC to file for periodic rate adjustments to reflect its actual costs for wholesale energy supplies. See Note 1, Summary of Significant Accounting Policies, of Notes to Financial Statements in NPC’s and SPPC’s 2004 10-K, for additional information regarding the implementation of deferred energy accounting by the Utilities.

12

     The following deferred energy costs were included in the consolidated balance sheets as of June 30, 2005 (dollars in thousands):

		NPC		SPPC		SPPC			SPR
Description	Recovery Periods	Electric		Electric		Gas			Total
Unamortized balances approved for collection in current rates(1)
Electric – NPC Period 2	(effective 5/03, 3 years)	$	1,381						$	1,381
Electric – NPC Period 3	(effective 1/05, 27 months)		76,614							76,614
Electric – NPC Period 4	(effective 4/05, 2 years)		100,197							100,197
Electric – SPPC Period 3	(effective 6/05, 25.5 months)				36,196					36,196
Electric – SPPC Period 4	(effective 6/05, 1 year)				25,102					25,102
Natural Gas – Period 3	(effective 11/03, 2 years)						(224	)		(224	)
Natural Gas – Period 4	(effective 11/04, 1 year)						126			126
LPG Gas – Period 2							(1	)		(1	)
LPG Gas – Period 3							44			44
Balances pending PUCN approval							6,288			6,288
Cumulative CPUC balance					4,291					4,291
Balances accrued since end of periods submitted for PUCN approval			37,546		16,562		(1,397	)		52,711
Claims for terminated supply contracts (2)			240,039		84,032					324,071
Total		$	455,777	$	166,183	$	4,836		$	626,796
Current Assets
Deferred energy costs — electric		$	104,365	$	43,190	$	—		$	147,555
Deferred energy costs — gas			—		—		4,836			4,836
Deferred Assets
Deferred energy costs — electric			351,412		122,993		—			474,405
Total		$	455,777	$	166,183	$	4,836		$	626,796

(1)	The references to electric/gas periods, effective dates and time periods represent the various annual filings, the date recovery began for each amount and the ordered recovery period. The recovery periods represent the original periods set by the PUCN. However, the actual recovery period may differ depending on actual sales.
(2)	Amounts related to claims for terminated supply contracts are discussed in Note 7 of the Condensed Notes to Consolidated Financial Statements, Commitments and Contingencies.

Restricted Cash and Investments

     At June 30, 2005, restricted cash primarily represents cash restricted for 1) $10.9 million debt service payments for SPR’s $300 million convertible notes, discussed in Note 7, Long-Term Debt, of Notes to Financial Statements in SPR’s 2004 10-K, and 2) the aggregate $60 million collateral payments made by NPC and SPPC into escrow in connection with the stay of the Enron Judgment, as described in Note 7, Commitments and Contingencies of the Condensed Notes to Consolidated Financial Statements. The remaining amount consists of cash balances that SPR, NPC and SPPC are required to maintain to support their cash management activities due to their financial condition.

13

Stock Compensation Plans

     At June 30, 2005, SPR had several stock-based compensation plans, which are described more fully in Note 13, Stock Compensation Plans, of Notes to Financial Statements in SPR’s 2004 10-K. SPR applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for its stock option plans and in accordance with the disclosure only provisions of Financial Accounting Standards Board’s Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” and the updated disclosure requirements set forth in SFAS No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure.” Accordingly, no compensation cost has been recognized for nonqualified stock options and the employee stock purchase plan. Had compensation cost for SPR’s nonqualified stock options and the employee stock purchase plan been determined based on the fair value at the grant dates for awards under those plans, consistent with the accounting provisions of SFAS No. 123, SPR’s earnings (deficit) applicable to common stock would have changed to the pro forma amounts indicated below (dollars in thousands, except per share amounts):

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2005			2004			2005			2004
Earnings (Loss) applicable to common stock, as reported	As reported	$	9,051		$	(44,884	)	$	(435	)	$	(89,334	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	As reported	$	(343	)	$	(56	)	$	(288	)	$	268
Less: Total stock employee compensation expense determined under fair value based methods, net of related tax effects	Pro forma		(132	)		(12	)		56			305
Pro forma earnings (loss) applicable to common stock	Pro forma		8,840			(44,928	)		(779	)		(89,371	)
Basic earnings (loss) per share	As reported	$	0.05		$	(0.38	)	$	—		$	(0.76	)
	Pro forma	$	0.05		$	(0.38	)	$	(0.01	)	$	(0.76	)
Diluted earnings (loss) per share	As reported	$	0.05		$	(0.38	)	$	—		$	(0.76	)
	Pro forma	$	0.05		$	(0.38	)	$	(0.01	)	$	(0.76	)

Recent Pronouncements

     The Securities and Exchange Commission (SEC) announced on April 14, 2005 that it was delaying implementation of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R). Under SFAS 123R, registrants would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005. The SEC’s new rule allows SPR to implement SFAS 123R at the beginning of the next fiscal year that begins after June 15, 2005, or periods beginning December 31, 2005. The SEC’s new rule does not change the accounting required by SFAS 123R. Amounts that were previously shown in footnote disclosure by SPR will now be recognized in the income statement. SPR intends to utilize the services of its actuaries to value share-based compensation.

     In March 2005, the FASB issued FASB Interpretation No. FIN 47 “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (FIN 47), which clarifies the term “conditional asset retirement obligation” as used in SFAS No. 143 “Accounting for Asset Retirement Obligations”. Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. Management is currently evaluating the effect that adoption of this interpretation will have on SPR’s and the Utilities’ financial position and results of operations.

14

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (SFAS 154) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SPR and the Utilities are currently evaluating the effect that the adoption of SFAS 154 will have on their results of operations and financial condition but do not expect it to have a material impact.

NOTE 2. SEGMENT INFORMATION

     SPR’s Utilities operate three regulated business segments (as defined by SFAS 131, “Disclosure about Segments of an Enterprise and Related Information”), which are NPC electric, SPPC electric and SPPC natural gas service. Electric service is provided to Las Vegas and surrounding Clark County by NPC, and to northern Nevada and the Lake Tahoe area of California by SPPC. Natural gas services are provided by SPPC in the Reno-Sparks area of Nevada. Other segment information includes segments below the quantitative threshold for separate disclosure.

     The net assets and operating results of SPC are reported as discontinued operations in the financial statements for 2005 and 2004. Accordingly, the segment information excludes financial information of SPC. SPR’s total assets changed significantly from the amounts reported in the 2004 10-K, mainly due to the cash received in SPR’s issuance of $240 million Floating Rate Notes, as discussed in Note 4, Short Term Borrowings. Of the proceeds, approximately $230.5 million was contributed to NPC in July 2005.

     Operational information 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. The accounting policies of the business segments are the same as those described in Note 1, Summary of Significant Accounting Policies of the Notes to Financial Statements in the 2004 10-K. Inter-segment revenues are not material (dollars in thousands).

Three Months Ended	NPC		SPPC		Total
June 30, 2005	Electric		Electric		Electric		Gas		Other		Consolidated
Operating Revenues	$	451,384	$	217,199	$	668,583	$	32,136	$	319	$	701,038
Operating Income	$	54,031	$	21,076	$	75,107	$	634	$	5,152	$	80,893

Three Months Ended	NPC		SPPC		Total
June 30, 2004	Electric		Electric		Electric		Gas			Other		Consolidated
Operating Revenues	$	449,925	$	202,425	$	652,350	$	21,879		$	3,191	$	677,420
Operating Income	$	49,470	$	17,933	$	67,403	$	(41	)	$	7,372	$	74,734

Six Months Ended	NPC		SPPC		Total
June 30, 2005	Electric		Electric		Electric		Gas		Other		Consolidated
Operating Revenues	$	805,518	$	444,209	$	1,249,727	$	99,674	$	611	$	1,350,012
Operating Income	$	77,296	$	44,939	$	122,235	$	6,290	$	11,316	$	139,841

Six Months Ended	NPC		SPPC		Total
June 30, 2004	Electric		Electric		Electric		Gas		Other		Consolidated
Operating Revenues	$	776,458	$	404,266	$	1,180,724	$	81,355	$	3,458	$	1,265,537
Operating Income	$	70,470	$	41,008	$	111,478	$	4,526	$	4,816	$	120,820

15

NOTE 3. REGULATORY ACTIONS

Nevada Matters

Nevada Power Company 2004 Deferred Energy Case

     On November 15, 2004, NPC filed an application with the PUCN seeking recovery for purchased fuel and power costs accumulated between October 1, 2003 and September 30, 2004, as required by law. The application sought to establish a rate to collect accumulated purchased fuel and power costs of $116 million, with a carrying charge. The application requested that the 2004 Deferred Energy Accounting Adjustment (DEAA) recovery begin with the expiration of the 2002 DEAA recovery, which was expected to occur in May 2006 and for the 2004 DEAA recovery period to be 22 months.

     The application also requested an increase to the going-forward base tariff energy rate (BTER).

     In concert with this 2004 DEAA filing, NPC filed a petition with the PUCN requesting that other pending DEAA rate changes be synchronized to change on April 1, 2005 in order to stabilize rates and reduce the number of rate changes. On December 28, 2004, the PUCN issued an order approving a stipulation reached by all parties that allows NPC to defer previously approved DEAA rate changes until April 1, 2005 coincident with the DEAA rate change that will result from the 2004 DEAA case.

     The combined effect of the requested synchronization of multiple rate changes (going forward BTER increase, 2001 DEAA expiration, and 2003 DEAA initiation) resulted in a request for an overall rate decrease of 2.4%.

     On February 22, 2005, a stipulation of the parties was filed with the PUCN resolving all issues in the case. The stipulation provides for an overall decrease of 0.6% in total rates with no disallowances. The PUCN approved the stipulation in total on March 16, 2005.

Nevada Power Company Amendments to its Integrated Resource Plan

     Long Term Power Exchange

     On April 18, 2005, NPC filed an application with the PUCN requesting authorization to enter into an agreement with the Southern Nevada Water Authority (SNWA) that will allow NPC to dispatch SNWA’s 25% capacity ownership in the Silverhawk generating plant. The eight year agreement gives NPC the ability to use 125MW of the Silverhawk capacity and in return NPC will supply 75MW of firm power to SNWA.

     On May 19, 2005, the PUCN approved the Power Exchange Agreement.

Sierra Pacific Power Company 2005 Electric Deferred Energy Case

     On January 14, 2005, SPPC filed an application with the PUCN seeking recovery for purchased fuel and power costs accumulated between December 1, 2003 and November 30, 2004, as required by law. The application sought to establish a rate to collect accumulated purchased fuel and power costs of $27.7 million, with a carrying charge. The application requested that the 2005 DEAA recovery begin on June 1, 2005 together with the commencement of recovery of the 2004 DEAA balance both of which are coincident with the expiration of the 2002 and 2003 DEAA recovery. SPPC has requested a 24-month recovery period for the 2005 DEAA balance.

     The application also requested an increase to the going-forward BTER.

     The combined effect of the proposed synchronization of multiple rate changes (going forward BTER increase, 2002 and 2003 DEAA expiration, 2004 and 2005 DEAA initiation) resulted in a request for an overall rate increase of approximately 1.85%.

     On March 30, 2005 SPPC filed an updated forecast of its going-forward BTER. If implemented, the new BTER, including the 2002 and 2003 DEAA expiration, and the 2004 and 2005 DEAA initiation, would result in an 8.73% overall rate increase.

     On April 6, 2005, the PUCN Staff and the Bureau of Consumer Protection (BCP) filed written direct testimony in this case. The testimony recommended full recovery of the deferred balance after a $576 thousand reduction to reflect an accounting adjustment mutually agreed to by the parties. The PUCN Staff recommended adoption of the higher BTER rate that SPPC filed on March 30, 2005 while the BCP opposed the implementation of the higher BTER.

16

     The PUCN issued its order on May 17, 2005 granting $27.1 million deferred expense recovery ($27.7 million requested less $.6 million), modifying the amortization period from the two years requested to one year and approving a BTER rate based on the historical costs methodology as provided for in the Nevada Administrative Code.

FERC Matters

Sierra Pacific Power Company 2004 Transmission Rate Case

     On October 1, 2004, the Utilities filed with the FERC revised rates for transmission service offered by SPPC under Docket No. ER05-14. The purpose of the filing was to update rates to reflect recent transmission additions and to improve rate design. The participants in the proceeding have filed a Settlement Agreement with the FERC which has been certified by the Settlement judge. On May 6, 2005, the FERC issued an order approving the negotiated settlement.

NOTE 4. SHORT-TERM BORROWINGS

     On June 20, 2005, SPR issued and sold $140,860,000 of its Series A Floating Rate Senior Notes, due November 16, 2005, and $99,140,000 of its Series B Floating Rate Senior Notes, due November 16, 2005 (the “Floating Rate Notes”). The Series A Floating Rate Notes will bear interest at a rate equal to 3-month LIBOR plus 2.00%, and the Series B Floating Rate Notes will bear interest at a rate equal to 3-month LIBOR plus 1.00%. The Floating Rate Notes were issued to Qualified Institutional Buyers under Rule 144A. Of the proceeds from this issuance, $230.5 million was used to make an equity contribution to NPC and the balance will be used for general corporate purposes. NPC used the equity contribution to redeem approximately $210 million of General and Refunding Mortgage Notes. See Note 5, Long-Term Debt for further discussion on the redemption by NPC.

     SPR may redeem, at any time, all or a part of the Floating Rate Notes, without premium or penalty, upon not less than three, nor more than thirty days’ notice. Subject to certain limitations, additional Floating Rate Notes may be issued from time to time; provided, however, that the aggregate principal amount of Floating Rate Notes outstanding at any time may not exceed $240,000,000.

NOTE 5. LONG-TERM DEBT

     As of June 30, 2005, NPC’s, SPPC’s and SPR’s aggregate annual amount of maturities for long-term debt (including obligations related to capital leases) for the balance of 2005, for the next four years and thereafter are shown below (dollars in thousands):

							SPR Holding Co.			SPR
	NPC			SPPC			and Other Subs.			Consolidated
2005	$	213,071	(2)	$	854		$	—		$	213,925
2006		6,509			52,400			—			58,909
2007		55,949	(3)		2,400			141,077			199,426
2008		7,066			322,400			—			329,466
2009		185,010			600			—			185,610
		467,605			378,654			141,077			987,336
Thereafter		1,871,005			617,250			734,141	(1)		3,222,396
		2,338,610			995,904			875,218			4,209,732
Unamortized (Discount Amount)		(8,814	)		(703	)		(5,436	)		(14,953	)
Total	$	2,329,796		$	995,201		$	869,782		$	4,194,779

(1) SPR’s “Thereafter” amount of $734 million includes the total amount of the 7.25% Convertible Notes due at maturity ($300 million). This differs from the carrying value of approximately $246 million included in the balance sheet amount of Long-term debt, which is being accreted to face value using the effective interest method.

(2) NPC’s “2005” amount of $213 million includes $210 million of debt that was paid subsequent to June 30, 2005. See Financing Transactions below for details.

(3) NPC’s “2007” amount of $55.9 million does not include an additional $50 million draw on the revolving credit facility made July 26, 2005.

     Substantially all utility plant is subject to the liens of NPC’s and SPPC’s indentures under which their respective First Mortgage bonds and General and Refunding Mortgage bonds are issued.

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Financing Transactions (SPR — Holding Company)

     On August 3, 2005, SPR announced an offer to pay a cash premium to induce holders of its $300 million outstanding 7.25% Convertible Notes (Notes) due 2010 to convert their Notes to shares of SPR common stock. Under the terms of the offer, for each $1,000 in liquidation amount of Notes tendered, holders will receive the conversion consideration and 219.1637 shares of common stock. The consideration offered is an amount paid in cash equal to $180 per $1,000 principal amount of Notes validly surrendered for conversion plus an amount equivalent to the interest that would have accrued thereon from and after August 14, 2005 (which is the last interest payment date on the Notes prior to the scheduled expiration of the offer). The offer will expire on August 31, 2005, unless extended or earlier terminated by SPR. In accordance with SFAS No. 84, “Induced Conversion of Convertible Debt,” an approximate $54 million cash payment will be expensed during the third quarter of 2005 which SPR expects to pay using the proceeds from long-term debt financing. This amount represents the cash consideration given beyond those required by the terms of the Notes. The amount of SPR common shares that would be issued if all the outstanding Notes are converted is 65,749,110 shares with an approximate $248 million increase to equity equal to the current carrying value of the Notes.

     SPR issued $240 million of additional debt on June 20, 2005, as discussed above in Short-Term Borrowings.

     On April 15, 2005, SPR commenced an offer to exchange its Premium Income Equity Securities (“old PIES”) for new Premium Income Equity Securities (“new PIES”) plus an exchange fee of $0.125 in cash for each old PIES tendered. On May 24, 2005, the tender offer was completed with 1,982,822 or about 41% of the 4,804,350 old PIES outstanding tendered for exchange. The remaining 2,821,528 old PIES will remain outstanding. SPR’s new PIES are similar to its old PIES except the new PIES (i) allow for the remarketing of the senior notes that are associated with the new PIES prior to the earliest remarketing date for the old PIES, (ii) provide for more flexible remarketing terms, and (iii) allow certain terms of the senior notes to be modified upon their remarketing, including the maturity date of the senior notes, the redemption provisions, the interest payment dates and the addition of covenants applicable to the senior notes.

     On May 24, 2005, as part of the new PIES, SPR issued $99,142,000 aggregate principal amount of 7.93% Senior Notes, due 2007. SPR successfully remarketed these notes on June 14, 2005. In connection with the remarketing, the interest rate of the Senior Notes was reset to 7.803% per annum, effective on and after June 14, 2005. The remarketed Senior Notes will mature on June 15, 2012. The proceeds of the remarketing of the Senior Notes were used to purchase treasury securities and to pay the fee of the remarketing agents. The treasury securities will serve as substitute collateral for the Senior Notes component of the new PIES to secure holders’ obligations under the related forward purchase contracts. The proceeds of the treasury securities upon or after maturity will be used to provide the consideration necessary to fulfill holders’ obligations under the related forward purchase contracts on November 15, 2005, and to pay the aggregate amount of remaining interest payments to the holders of the new PIES through November 15, 2005.

Financing Transactions NPC

     On July 14, 2005, NPC redeemed $87,500,000 aggregate principal amount of its 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009, and $122,500,000 aggregate principal amount of its 9% General and Refunding Mortgage Notes, Series G, due 2013. These redemptions constituted 35% of the principal amount outstanding of each of the Series E and Series G Notes. The Series E Notes were redeemed at a redemption price equal to $1,108.75 for each $1,000 note redeemed for a redemption premium in excess of the principal amount of approximately $9.5 million. The Series G Notes were redeemed at a redemption price equal to $1,090.00 for each $1,000 note redeemed for a redemption premium in excess of the principal amount of approximately $11 million. In accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation, the redemption premium to redeem the debt will be amortized over the original term of the debt. NPC paid for the redemptions through an equity contribution of approximately $230.5 million from SPR, as discussed in Note 4, Short-Term Borrowings.

     As of June 30, 2005 NPC had borrowed $50 million under its revolving credit facility. As of August 5, 2005, NPC had $100 million outstanding under the revolving credit facility. See Note 7, Long-Term Debt, of Notes to Financial Statements in the 2004 10-K for details of the revolving credit facility.

NOTE 6. DERIVATIVES AND HEDGING ACTIVITIES

     SPR, SPPC, and NPC apply SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” 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. SFAS No. 133 also provides a scope exception for contracts that meet the normal purchase and sales criteria specified in the standard.

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     SPR’s and the Utilities’ objective in using derivatives is to reduce exposure to energy price 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 from time to time may include forwards, options, and swaps. These contracts allow the Utilities to reduce the risks associated with volatile electricity and natural gas markets.

     The following table shows the fair value of the derivatives recorded on the Consolidated Balance Sheets of SPR, NPC, and SPPC, and the related regulatory assets/liabilities. Due to deferred energy accounting under which the Utilities operate, regulatory assets and liabilities are established to the extent that electricity and natural gas derivative gains and losses are recoverable or payable through future rates, once realized (dollars in millions):

	June 30, 2005							December 31, 2004
	SPR		NPC		SPPC			SPR		NPC		SPPC
Risk management assets	$	42.2	$	27.1	$	15.2		$	14.6	$	5.1	$	9.5
Risk management liabilities	$	14.9	$	9.7	$	5.2		$	9.9	$	3.6	$	6.3
Risk management regulatory assets (liabilities)	$	3.9	$	7.3	$	(3.4	)	$	6.7	$	3.6	$	3.1

     Also included in risk management assets were $31.9 million, $24.7 million, and $7.2 million in payments for electric and gas options by SPR, NPC, and SPPC, respectively, at June 30, 2005.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Environmental

Nevada Power Company

Mohave Generation Station

     The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S. District Court, District of Nevada in February 1998 against the owners (including NPC) of the Mohave Generation Station (Mohave), alleging violations of the Clean Air Act regarding emissions of sulfur dioxide and particulates. An additional plaintiff, National Parks and Conservation Association, later joined the suit. The plant owners and plaintiffs have had numerous settlement discussions and filed a proposed settlement with the court in October 1999. The consent decree, approved by the court in November 1999, established emission limits for sulfur dioxide and opacity and required installation of air pollution controls for sulfur dioxide, nitrogen oxides, and particulate matter. The new emission limits must be met by January 1, 2006 and April 1, 2006 for the first and second units, respectively. The estimated cost of new pollution controls and other capital investments is $1.2 billion. As a 14% owner in Mohave, NPC’s cost could be $168 million.

     Mohave obtains all of its coal supply from a mine in northeast Arizona on lands of the Navajo Nation and the Hopi Tribe (the “Tribes”). This coal is delivered from the mine to Mohave by means of a coal slurry pipeline, which requires water that is obtained from groundwater wells located on lands of the Tribes in the mine vicinity.

     Southern California Edison (SCE) is the operating partner of Mohave. On May 17, 2002, SCE filed with the CPUC an application to address the future disposition of SCE’s share of Mohave. On October 20, 2004, the CPUC issued a proposed decision which, among other things, directed SCE to continue negotiations with the Tribes regarding post-2005 coal and water supply, and directed SCE to conduct a study of potential alternatives to Mohave.

     NPC’s ownership interest in Mohave comprises approximately 10% of NPC’s peak generation capacity. Because coal and water supplies necessary for long-term operation of Mohave have yet to be secured, SCE and the other Mohave co-owners have been prevented from commencing the installation of extensive pollution control equipment that must be put in place if Mohave’s operations are extended past 2005. Due to the lack of resolution of these coal and water supply issues with the tribes, it is not the intention of SCE and other owners to proceed with the installation of required pollution control equipment at this time. The owners intend to cease operation of the plant by January 1, 2006, pending resolution of these issues. It is the owners’ intent to preserve their ability to restart the plant at a later date should these issues be resolved, and economic analysis at that time support such a decision. See further discussion of issues related to Mohave below in Regulatory Contingencies.

Reid Gardner Station

     In May 1997, the Nevada Division of Environmental Protection (NDEP) ordered NPC to submit a plan to eliminate the discharge of Reid Gardner Station wastewater to groundwater. The NDEP order also required a hydrological assessment of groundwater impacts in the area. In June 1999, NDEP determined that wastewater ponds had degraded groundwater quality

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In August 1999, NDEP issued a discharge permit to Reid Gardner Station and an order that requires all wastewater ponds to be closed or lined with impermeable liners over the next 10 years. This order also required NPC to submit a Site Characterization Plan to NDEP to ascertain impacts. This plan has been reviewed and approved by NDEP. In collaboration with NDEP, NPC has evaluated remediation requirements. In May 2004, NPC submitted a schedule of remediation actions to NDEP which included proposed dates for corrective action plans and/or suggested additional assessment plans for each specified area. Total new pond construction and lining costs are estimated at approximately $33 million, of which, approximately $20 million has been spent through 2004. Estimated total capital expenditures planned in 2005 and 2006 are approximately $6 million and $3 million, respectively. Year to date expenditures total approximately $.8 million.

     At the Reid Gardner Station, NDEP has determined that there is additional groundwater contamination that resulted from diesel oil spills at the facility. NDEP required NPC to submit a corrective action plan. A hydro-geologic evaluation of the current remediation has been completed, and a dual phase extraction remediation system, which was approved by NDEP, commenced operation in October 2003. The remediation system remains in operation and this effort has shown positive response to cleaning up the diesel oil.

     In August 2004, NDEP conducted a Facility Air Quality Operating Permit (Title V permit) inspection at the Reid Gardner Station. NDEP requested monitoring, recordkeeping and reporting items and information pertaining to the sources identified in the Title V permit. NPC complied with the request and any subsequent requests that followed. In September and October 2004, NPC met with NDEP to review the results of NDEP’s inspection. NDEP informed NPC of possible non-compliance with some elements of its Title V permit, and on December 2, 2004 issued Notices of Alleged Violation (NOAVs) relating to record-keeping, monitoring and other alleged administrative infractions. Discussions between NPC and NDEP ensued. On July 20, 2005, NDEP issued new Notices of Alleged Violations (NOAVs). In part, these NOAVs represent reissuance of the previously issued NOAVs dated December 2, 2004 and address additional monitoring and reporting issues for the period September 2002 through December 2004. Additional NOAVs were issued concerning intermittent opacity emissions and the monitoring, record-keeping and reporting of such emissions. All NOAVs are subject to an administrative hearing before the Nevada State Environmental Commission and then to judicial review. NPC is continuing to provide information to NDEP as requested and is engaged in an ongoing dialogue with NDEP, including settlement discussions. Because no penalty has been specified by NDEP and discussions are continuing, management cannot reasonably estimate the amount of any potential monetary penalties that may ultimately be assessed in connection with the alleged violations. On July 26, 2005 NPC received a letter from the EPA requiring submittal of information relating to compliance of Reid Gardner Station with opacity emission limits and reporting requirements. NPC is in the process of responding to the EPA information request.

Clark Station

     In July 2000, NPC received a request from the EPA for information to determine the compliance of certain generation facilities at NPC’s 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. On October 31, 2003, the EPA issued a violation regarding turbine blade upgrades, which occurred in July 1993. A conference between the EPA and NPC occurred in December 2003. NPC presented evidence on the nature and finding of the alleged violations. In March 2004, the EPA issued another request for information regarding the turbine blade upgrades, and NPC provided information responsive to this request in April and May 2004. NPC’s position is that a violation did not occur and management is presently involved in the discovery process to support this position. Monetary penalties and retrofit control cost, if any, cannot be reasonably estimated at this time.

NEICO

     NEICO, a wholly owned subsidiary of NPC, owns property in Wellington, Utah, which was the site of a coal washing and load-out facility. The site has a reclamation estimate supported by a bond of approximately $5 million with the Utah Division of Oil and Gas Mining, which management believes is sufficient to cover reclamation costs. Currently, management is continuing to evaluate various options including reclamation and sale.

Sierra Pacific Power Company

     In September 1994, Region VII of the EPA notified SPPC that it was being named as a potentially responsible party (PRP) regarding the past improper handling of Polychlorinated Biphenyls (PCB’s) by PCB Treatment, Inc., in two buildings, one located in Kansas City, Kansas and the other in Kansas City, Missouri (the Sites). Prior to 1994, SPPC sent PCB contaminated material to PCB Treatment, Inc. for disposal. Certificates of disposal were issued to SPPC by PCB Treatment, Inc.; however, the contaminated material was not disposed of, but remained on-site. A number of the largest PRP’s formed a steering committee, which has completed site investigations and with the EPA has determined that the Sites should be remediated by removing the buildings to the appropriate landfills. The EPA issued an administrative order on consent requiring the steering committee to oversee the performance of the work. The work to dismantle the buildings and dispose of

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the debris and impacted soil is currently underway, and is expected to be complete in mid-2006. While the final cost to complete the work is not yet definite, SPPC’s share of the cost is not expected to be material.

Litigation

Nevada Power Company and Sierra Pacific Power Company

Enron Litigation

     Brief Overview

     Currently the Utilities are involved in a number of court cases and hearings involving Enron Power Marketing, Inc. (Enron). The cases are as follows: U.S. Bankruptcy Court for the Southern District Court of New York (Bankruptcy Court), U.S. District Court for the Southern District of New York (U.S. District Court); FERC hearings consisting of the FERC Early Termination, FERC Revocation Show Cause Proceeding and the FERC Gaming and Show Cause Proceeding. See details of the court cases and hearings below.

     In 2003, based on the Judgment entered by the Bankruptcy Court (Judgment), NPC and SPPC recorded contract termination liabilities of $235 million and $103 million, including prejudgment interest of $27.8 million and $12.4 million, respectively. Additionally, in order to stay execution of the Judgment, NPC and SPPC have posted into escrow $186 million and $92 million, respectively, of General and Refunding Mortgage Bonds and $49 million and $11 million, respectively, in cash as of December 31, 2004. On October 10, 2004, in response to our appeal of the Judgment, the U.S. District Court rendered a decision vacating an earlier judgment by the Bankruptcy Court against the Utilities in favor of Enron, and remanded the case back to the Bankruptcy Court for fact-finding. Furthermore, the U.S. District Court held that the pre-judgment interest should have been calculated at the present value rate, rather than at the rate of 1% per month used by the Bankruptcy Court.

     Based on the U.S. District Court’s decision, the Utilities reversed the accrued interest included in contract termination liabilities by approximately $40 million for the year ended 2004. Although the Judgment entered by the Bankruptcy Court has been reversed, the terms of NPC’s and SPPC’s June 30, 2004 stipulation and agreement with Enron, discussed below, will remain in place through the pendency of all remands and appeals of the Judgment. If the Utilities are ultimately required to pay part or all of the amounts accrued, the Utilities will pursue recovery of the payments through future deferred energy filings. To the extent that the Utilities are not permitted to recover any portion of these costs through a deferred energy filing, the amount not permitted would be charged as a current operating expense.

     On August 8, 2005, President Bush signed the Domenici Barton Energy Policy Act into law (the “Energy Bill”). The Energy Bill contains language that relates to the Utilities’ disputes with Enron over termination payments Enron claims are owed to them arising from forward power purchase contracts terminated by Enron in 2002. The amendment grants FERC exclusive jurisdiction over the determination of whether any such payments are unjust, unreasonable or contrary to the public interest. The Utilities have not yet determined what impact the law will have on the status of the various ongoing legal proceedings at this time.

     A description of the legal proceedings leading up to the U.S. District Court’s order to vacate follows, along with a discussion of all pending matters related to the Enron litigation.

     Bankruptcy Court Judgment

     On June 5, 2002, Enron filed suit against the Utilities in its bankruptcy case in the U.S. Bankruptcy Court for the Southern District of New York asserting claims for termination payments Enron claimed it was owed under purchased power contracts with the Utilities. Enron sought liquidated damages in the amount of approximately $216 million from NPC and $93 million from SPPC based on assertions by Enron that it had contractual rights under the Western Systems Power Pool Agreement (WSPPA) to terminate deliveries to the Utilities. Enron based its assertion on a claim that the Utilities did not provide adequate assurance of the Utilities’ performance under the WSPPA. The Utilities dispute that they owe the monies sought by Enron and have denied liability on numerous grounds, including termination, deceit and fraud in the inducement, fraud, breach of contract, and unfair trade practices.

     On September 26, 2003, the Bankruptcy Court entered a summary judgment (the Judgment) in favor of Enron for damages related to the termination of Enron’s power supply agreements with the Utilities. The Judgment required NPC and SPPC to pay approximately $235 million and $103 million, respectively, to Enron for liquidated damages and pre-judgment interest for power not delivered by Enron under the power supply contracts terminated by Enron in May 2002 and approximately $17.7 million and $6.7 million, respectively, for power previously delivered to the Utilities. Based on the pre-judgment rate of 12%, NPC and SPPC recognized additional interest expense of $27.8 million and $12.4 million, respectively, in contract termination liabilities in the third quarter 2003. Also, NPC and SPPC recorded additional contract termination liabilities for liquidated damages of $6.6 million and $2.1 million, respectively, in the third quarter of 2003. The Bankruptcy Court’s order provided that until paid, the amounts owed by the Utilities will accrue interest post-Judgment at a rate of 1.21% per annum.

     In response to the Judgment, the Utilities filed a motion with the Bankruptcy Court seeking a stay pending appeal of the Judgment and proposing to issue General and Refunding Mortgage Bonds as collateral to secure payment of the Judgment. On November 6, 2003, the Bankruptcy Court ruled to stay execution of the Judgment conditioned upon NPC and SPPC posting

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into escrow $235 million and $103 million, respectively, of General and Refunding Mortgage Bonds plus approximately $282 thousand in cash by NPC for pre-judgment interest. On December 4, 2003, NPC and SPPC complied with the order of the Bankruptcy Court by issuing NPC’s $235 million General and Refunding Mortgage Bond, Series H plus SPPC’s $103 million General and Refunding Mortgage Bond, Series E into escrow along with the required cash deposit for NPC. Additionally, the Utilities were ordered to place into escrow $35 million, approximately $24 million and $11 million for NPC and SPPC, respectively, within 90 days from the date of the order, which would lower the principal amount of General and Refunding Mortgage Bonds held in escrow by a like amount. The Utilities made the payments as ordered on February 10, 2004. The Bankruptcy Court also ordered that during the duration of the stay, the Utilities (i) cannot transfer any funds or assets other than to unaffiliated third parties for ordinary course of business operating and capital expenses, (ii) cannot pay dividends to SPR other than for SPR’s current operating expenses and debt payment obligations, and (iii) shall seek a ruling from the PUCN to determine whether the cash payments into escrow trigger the Utilities’ rights to seek recovery of such amounts through the Utilities’ deferred energy rate cases.

     On November 21, 2003, the Utilities filed a Petition for Declaratory Order with the PUCN, as required by the Bankruptcy Court’s stay order seeking a determination as to whether payment of all or part of the Judgment into escrow would be subject to recovery through a deferred energy accounting adjustment. On February 6, 2004, the PUCN issued its final order indicating that posting or depositing money in escrow would not constitute payment of fuel or purchased power costs eligible for recovery in a deferred account.

     On April 5, 2004, Enron and the Utilities entered into a settlement whereby NPC agreed to post an additional cash sum of $25 million to be held in escrow pending the issuance of the U.S. District Court’s opinion and Enron agreed not to request any additional collateral from NPC or SPPC during the pendency of the Utilities’ appeal of the Judgment to the U.S. District Court for the Southern District of New York. NPC made the agreed-upon payment on April 16, 2004, which lowered the principal amount of NPC’s General and Refunding Mortgage Bond, Series H, currently held in escrow, by a like amount.

     The Utilities entered into a stipulation and agreement with Enron which was signed by the Bankruptcy Court on June 30, 2004 which provides that (1) the Utilities shall withdraw their objections to the confirmation of Enron’s bankruptcy plan, (2) the collateral contained in the Utilities’ escrow accounts securing their stay of execution of the Judgment shall not be deemed property of Enron’s bankruptcy estate or the Utilities’ estates in the event of a bankruptcy filing, and (3) the stay of execution of the Judgment, as previously ordered by the Bankruptcy Court, shall remain in place without any additional principal contributions by the Utilities to their existing escrow accounts during the pendency of any and all of their appeals of the Judgment, including to the United States Supreme Court, until a final non-appealable judgment is obtained. There can be no assurances that the U.S. District Court or any higher court to which the Utilities appeal the Judgment will accept the existing collateral arrangement to secure further stays of execution of the Judgment.

     On October 15, 2004, the Bankruptcy Court ruled that Enron was entitled to take the $17.7 million and $6.7 million deposited by NPC and SPPC, respectively, for power previously delivered to them, out of escrow for the benefit of Enron’s bankruptcy estate. The Utilities have challenged the Bankruptcy Court’s order with respect to these payments, and no final ruling has been made by the Bankruptcy Court.

     Appeal of Bankruptcy Court Judgment to U.S. District Court

     On October 1, 2003, the Utilities filed a Notice of Appeal from the Judgment with the U.S. District Court, Southern District of New York. In the Utilities’ appeal, the Utilities sought reversal of the Judgment and contended that Enron is not entitled to recover termination charges under the contracts on various grounds including breach of contract, breach of solvency representation, fraud, misrepresentation, and manipulation of the energy markets and that the Bankruptcy Court erred in holding that the filed rate doctrine barred various claims which were purported to challenge the reasonableness of the rate. Enron filed a cross-appeal on the grounds that the amount of post-judgment interest should have been 12% per year instead of 1.21% as ordered by the Bankruptcy Court.

     On October 10, 2004, the U.S. District Court rendered a decision in the Utilities’ appeal. The U.S. District Court’s decision vacated the judgment entered by the Bankruptcy Court against the Utilities in favor of Enron and remanded the case to the Bankruptcy Court for fact-finding on several issues including:

• whether Enron’s demand for assurances at the time of termination of its power supply contracts with NPC and SPPC was reasonable;

• whether the assurances offered by NPC and SPPC to Enron were “reasonably satisfactory assurances”; and

• whether Enron would have been able to perform all of its obligations under each of the power supply contracts at the time the contracts were terminated and following termination.

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     The U.S. District Court further held that the demand for assurances by Enron should have been limited to the amount of its actual loss. The U.S. District Court rejected Enron’s cross-appeal seeking a 12% per year post-judgment interest rate instead of the 1.21% interest rate ordered by the Bankruptcy Court. The U.S. District Court decision also provided that Enron could, if proper, renew its motion to enjoin the proceedings currently before the FERC addressing Enron’s termination of its power supply contracts with NPC and SPPC. Although the Judgment has been reversed, the terms of NPC’s and SPPC’s June 30, 2004 stipulation and agreement with Enron, discussed above, will remain in place through the pendency of all remands and appeals of the Judgment.

     The Utilities filed a motion seeking clarification of the U.S. District Court rulings with respect to the Utilities’ affirmative defenses and counterclaims regarding: fraud by Enron, violation of the Racketeer Influence Corrupt Organizations Act (RICO), anti-trust activities carried out by Enron, the constitutional power of a bankruptcy court to enter a final judgment in a “non-core matter,” and whether the Bankruptcy Court had properly determined the interest rate applicable to pre-judgment interest. This motion did not relate to Enron’s claims against the Utilities, which the U.S. District Court addressed in its October 10, 2004 decision described above. On December 23, 2004, the U.S. District Court ruled on this motion, affirming the dismissal of the Utilities’ affirmative defenses and counterclaims on the grounds that they were barred under the filed rate doctrine. However, the U.S. District Court ruled in favor of the Utilities on the calculation of pre-judgment interest.

     FERC Early Termination Case

     On October 6, 2003, the Utilities filed a Complaint with FERC requesting the opportunity to develop a record regarding three issues: (a) whether Enron exercised reasonable discretion in terminating its various purchased power contracts with the Utilities; (b) whether FERC should exercise its authority to find that Enron is not entitled to collect termination payment profits; and (c) whether Enron should be otherwise denied the authority to collect such payments because to do so would be contrary to the public interest.

     On July 22, 2004, the FERC issued an order granting the Utilities’ request to the FERC for an expedited hearing to review Enron’s termination of the energy contracts entered into between the Utilities and Enron under the WSPPA. Hearings were scheduled to begin on October 25, 2004 and an initial decision was expected from the FERC by December 31, 2004. However, on October 27, 2004, Enron filed a motion in the Bankruptcy Court to enjoin the Utilities from participating in the FERC Early Termination Case. The disposition of this motion is described below.

     Bankruptcy Court Injunction and Order Setting Trial

     After the U.S. District Court issued its October 10, 2004 ruling, Enron renewed its motion with the Bankruptcy Court seeking to enjoin the Utilities from proceeding in the FERC Early Termination Case. On December 3, 2004, the Bankruptcy Court enjoined the Utilities from further prosecution of the scheduled hearing in the FERC proceeding. The Utilities have appealed this decision and are seeking a stay of the trial in Bankruptcy Court pending the outcome of the FERC Early Termination Case. The trial was initially set for July 11, 2005, but the trial date has been changed to November 7, 2005. The Utilities are unable to predict the outcome of these proceedings at this time.

     FERC Revocation Show Cause Proceeding

     In March 2003, FERC instituted a “Show Cause” proceeding involving whether Enron’s market-based rate authority should be revoked in light of Enron’s engagement in illicit trading activities. The Utilities intervened in the FERC’s proceeding against Enron. On June 25, 2003, FERC removed Enron’s market-based rate authority, but only on a prospective basis. The Utilities filed a request for rehearing, along with certain other parties. On October 16, 2003, FERC changed the nature of the proceeding, thereby prohibiting further active participation by the interveners (including the Utilities). On December 15, 2003, the Utilities filed an appeal in the United States Circuit Court of Appeals for the District of Columbia (D.C. Circuit) concerning these two actions. The appeals have been consolidated with a number of other appeals of FERC’s decisions, and the matter is pending. The D.C. Circuit has yet to establish a briefing schedule and there is no current time line for argument or a decision in the case.

     FERC Gaming and Partnership Show Cause Proceeding

     On June 25, 2003, FERC issued orders in two separate cases involving Enron, among others, and potential gaming of power markets. The first was referred to as the “Gaming Show Cause Proceeding” and the second as the “Partnership Show Cause Proceeding”. The proceedings focused on Enron’s illicit trading activity in California with a variety of counterparties. On July 21, 2004, FERC consolidated the two proceedings and expanded the scope of its inquiry. FERC announced that it was revisiting its decision not to revoke Enron’s market-based rate authority retroactively and that “Enron potentially could be required to disgorge profits for all of its wholesale power sales in the Western Interconnect for the period January 16, 1997 to June 15, 2003.” Enron has sought rehearing of this order, challenging the expanded scope of the proceeding. The Utilities have joined a coalition of other Western Parties and on August 4, 2004, sought clarification that

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remedies other than disgorgement might be available. On March 11, 2005, the FERC issued an order clarifying issues to be covered in the administrative trial. In that order, the FERC stated that Enron’s profits under the terminated power contracts fell within the scope of that proceeding. On July 20, 2005, the FERC issued an order in the Gaming and Partnership Show Cause Proceeding involving Enron, among others, suspending the trial schedule, including the September 7, 2005 trial date, pending FERC review of a recent settlement agreement between the California parties and Enron. The order provides that the trial in this proceeding will convene within seven weeks following FERC’s review of the proposed settlement. FERC also ordered Enron not to take any action to move forward the Bankruptcy Court proceeding, and ordered it to join in any request for postponement of any filing or action in the Bankruptcy Court proceeding. In addition, FERC ordered the remaining parties, including NPC and SPPC, to participate in settlement negotiations.

     The FERC proceeding focuses on Enron’s illicit trading activity in California with various counterparties, including the People of the State of California, California state entities, California utilities and other non-Californian entities (including NPC and SPPC). NPC and SPPC are unable at this time to predict the outcome of the upcoming settlement negotiations, or, if settlement negotiations prove unsuccessful, the outcome of the trial.

FERC 206 Complaints

     In December 2001, the Utilities filed ten complaints with the FERC under Section 206 of the Federal Power Act seeking to reduce prices of certain forward wholesale power purchase contracts that the Utilities entered into prior to the price caps imposed by the FERC in June 2001 relating to the western United States energy crisis. The Utilities believe the prices under these purchased power contracts are unjust and unreasonable. The Utilities negotiated a settlement with Duke Energy Trading and Marketing, but were unable to reach agreement in bilateral settlement discussions with other respondents.

     The Utilities are contesting the amounts paid for power actually delivered by these suppliers as well as claims made by terminating power suppliers that did not deliver power, including Enron.

     On June 26, 2003, the FERC dismissed the Utilities’ Section 206 complaints finding that the strict public interest standard applied to the case and that the company had failed to satisfy the burden of proof required by that standard. On July 28, 2003, the Utilities filed a petition for rehearing at the FERC requesting that the FERC either reconsider or rehear the case. On November 10, 2003, the FERC reaffirmed the June 26, 2003, decision. That decision has been appealed to the United States Court of Appeals for the Ninth Circuit. Oral argument was held on December 8, 2004 and a decision is pending. The Utilities are unable to predict the outcome of this appeal at this time.

Reliant and Duke Antitrust Litigation

     Reliant Energy Services, Inc. (Reliant) served a cross-complaint against NPC and SPPC and Duke Energy Trading and Marketing, LLC (Duke) served a cross-complaint against Sierra Pacific Resources in the wholesale electricity antitrust cases on April 22, 2002 and April 23, 2002, respectively. These cases were consolidated in the Superior Court of the State of California. Plaintiffs (original plaintiffs consist of The People of the State of California, City and County of San Francisco, City of Oakland, and County of Santa Clara) seek damages and restitution from the named defendants for alleged fraud, misrepresentation, and anticompetitive conduct in manipulating the energy markets in California resulting in prices far in excess of what would otherwise have been a fair price to the plaintiff class in a competitive market.

     Reliant and Duke filed cross-complaints against all energy suppliers selling energy in California who were not named as original defendants in the complaint, denying liability but alleging that if there was liability, it should be spread among all energy suppliers. Despite efforts by various cross-defendants to remove the case to federal court and following an appeal with the Ninth Circuit Court of Appeals, the case was ultimately remanded back to the Superior Court of the State of California in May 2005. The case is currently active and a scheduling order has been set. SPR maintains that Duke agreed to dismiss its cross-complaint pursuant to settlement and release agreement dated June 4, 2002. SPR, NPC and SPPC believe they should have no liability regarding either matter, but at this time management is not able to predict either the outcome or timing of a decision.

Nevada Power Company

Morgan Stanley Proceedings

     On September 5, 2002, Morgan Stanley Capital Group (MSCG) initiated arbitration pursuant to arbitration provisions in various power supply contracts that were terminated by MSCG in April 2002. MSCG requested that the arbitrator award $25 million for termination payments, pending the outcome of the subject power supply contract disputes with NPC. NPC claimed it did not owe payment under the contracts on various grounds, including breach by MSCG in terminating the contracts and lack of jurisdiction by the arbitrator. In March 2003, the arbitrator dismissed MSCG’s demand for arbitration and agreed that the issues raised by MSCG and NPC’s contract defenses were not arbitrable.

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     NPC filed a complaint for declaratory relief in the U.S. District Court, District of Nevada seeking a declaration stating NPC is not liable for any damages resulting from MSCG’s termination of the power supply contracts. On April 17, 2003, MSCG filed an answer and a counterclaim seeking $25 million in termination payments. Furthermore, MSCG filed a complaint against NPC at the FERC seeking termination payments from NPC pending resolution of the civil case. In addition, MSCG filed a motion to intervene in the Section 206 action commenced by NPC against Enron at the FERC, which motion the FERC denied. On October 23, 2003, NPC filed a motion to stay the District Court proceedings seeking declaratory relief, pending guidance on applicable legal principles to be provided by the FERC in connection with NPC’s litigation against Enron regarding the exercise of default and early termination rights. In February, 2004, the District Court granted NPC’s motion. In August, 2004, upon motion by NPC, the District Court continued the stay. In February, 2005, the Judge ordered the case to go forward, at which time NPC filed a motion for summary judgment. In March, 2005, MSCG similarly filed for summary judgment. The District Court denied both summary judgment motions, stating that there are serious factual questions that must be addressed about the reasonableness of MSCG’s termination of the 28 contracts, which determination will be made upon completion of discovery (currently scheduled for November 30, 2005). A court ordered settlement conference is currently scheduled for the third quarter of 2005. A trial date is scheduled for January 10, 2006. The Court further ordered that NPC pay MSCG for the approximately $1.8 million (plus interest) for power delivered prior to the termination. NPC anticipates payment in the third quarter of 2005. At this time, NPC is unable to predict the outcome or timing of the matter.

El Paso Merchant Energy

     In September 2002, El Paso Merchant Energy (EPME) terminated all forward contracts for energy with NPC for alleged defaults under the WSPPA consisting of alleged failure to pay full contract price for power under NPC’s “delayed” payment program which extended from May 1 to September 15, 2002. In October 2002, EPME asserted a claim against NPC for $29 million in damages representing $19 million unpaid under contracts for delivered power during the period May 15 to September 15, 2002, together with approximately $10 million in alleged mark to market damages for future undelivered power. The amount presently claimed by EPME is $42 million, including interest. NPC alleges that EPME’s termination resulted in net payments due to NPC under the WSPPA for liquidated damages measured by the difference between the contract price and market price of energy EPME was to deliver from 2004 to 2012. The precise amount due would depend on the manner in which the termination payments are calculated.

     In June 2003, EPME demanded mediation of its claim for a termination payment arising out of EPME’s September 25, 2002, termination of all executory purchase power contracts between NPC and EPME. The mediation was unsuccessful, and on July 25, 2003, NPC commenced an action against EPME and several of its affiliates in the Federal District Court for the District of Nevada for damages and declaratory relief resulting from breach of these purchase power contracts. EPME filed a motion for summary judgment in April 2005. NPC opposed the motion which is now pending before the District Court. The case is set for trial to commence in September 2005. At this time, NPC is unable to predict either the outcome or timing of a decision in this matter.

Peabody Western Coal Company

     NPC owns an 11%, 255 MW interest in the Navajo Generating Station (Navajo) located in Northern Arizona. Besides NPC, the Salt River Project (Salt River), Arizona Public Service Company, Los Angeles Department of Water and Power, and Tucson Electric Power Company (together the Joint Owners), are participants in Navajo, which includes three coal-fired electrical generating units operated by Salt River.

     In January 2005, the Joint Owners were served with a complaint from Peabody Western Coal Co. (Peabody), filed in Missouri State Court in St. Louis (Cause No. 042-08561). Peabody asserts claims against the Joint Owners seeking reimbursement of royalties and other costs and breach of the coal supply agreement.

     As operating agent for the project, Salt River has engaged counsel and is defending the suit on behalf of the Joint Owners. On February 10, 2005, the Joint Owners filed Notice of Removal of the complaint to the U. S. District Court, Eastern District of Missouri. On March 17, 2005, Peabody filed a Motion to remand the case to state court in St. Louis, Missouri. The Joint Owners are presently conducting discovery in connection with the Motion. NPC believes Peabody’s claims are without merit and intends to contest them.

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Sierra Pacific Power Company

Farad Dam

     SPPC owns 4 hydro generating plants (10.3 MW capacity) located in California that were to be included in the sale of SPPC’s water business for $8 million to the Truckee Meadows Water Authority (TMWA) in June 2001.

     The contract with TMWA requires that SPPC transfer the hydro assets in working condition. However, one of the four hydro generating plants, Farad 2.8 MW, has been out of service since the summer of 1996 due to a collapsed flume. While planning the reconstruction, a flood on the Truckee River in January 1997 destroyed the diversion dam. SPPC filed a claim with the insurers for the flume and dam. In December 2003, SPPC sued the insurers in the U.S. District Court for the District of Nevada on a coverage dispute relating to potential rebuild costs. The insurers filed a motion for summary judgment on the coverage issue in May 2005. SPPC filed its opposition in June 2005 and the motion is currently pending before the District Court. The case is not yet set for trial. The current estimate to rebuild the diversion dam, if management decides to proceed, is approximately $20 million. Management believes that it has a valid insurance claim and is likely to recover the costs to rebuild the dam through the courts. Management has not recorded a loss contingency for the cost to rebuild the dam as it believes its overall exposure is insignificant.

Other Legal Matters

     SPR and its subsidiaries, through the course of their normal business operations, are currently involved in a number of other legal actions, none of which have had or, in the opinion of management, is expected to have a significant impact on their financial positions, results of operations, or cash flows.

Contract Termination Liabilities

     At June 30, 2005, included in NPC’s and SPPC’s Consolidated Balance Sheets as “Contract termination liabilities,” were approximately $248 million and $94 million, respectively, of charges for terminated power supply contracts and associated interest. Correspondingly, pursuant to deferred energy accounting provisions, included in NPC and SPPC deferred energy balances as of June 30, 2005, were approximately $240 million and $84 million, respectively, of charges for recovery in rates in future periods associated with the terminated power supply contracts. If NPC and SPPC are required to pay part or all of the amounts accrued, the Utilities will pursue recovery of the payments through future deferred energy filings. To the extent that the Utilities are not permitted to recover any portion of these costs through a deferred energy filing, the amounts not permitted would be charged as a current operating expense. A significant disallowance of these costs by the PUCN could have a material effect on the future financial position, results of operations, and cash flows of SPR, NPC, and SPPC.

Regulatory Contingencies

Nevada Power Company

Mohave Generation Station

     NPC’s ownership interest in Mohave comprises approximately 10% of NPC’s peak generation capacity. SCE is the operating partner of Mohave. On May 17, 2002, SCE filed with the CPUC an application to address the future disposition of SCE’s share of Mohave. Mohave obtains all of its coal supply from a mine in northeast Arizona on lands of the Tribes. This coal is delivered from the mine to Mohave by means of a coal slurry pipeline which requires water that is obtained from groundwater wells located on lands of the Tribes in the mine vicinity.

     Due to the lack of progress in negotiations with the Tribes and other parties to resolve several coal and water supply issues, SCE’s application states that it appears that it probably will not be possible for SCE to extend Mohave’s operations beyond 2005. Due to the uncertainty over a post-2005 coal supply, SCE and the other Mohave co-owners have been prevented from commencing the installation of extensive pollution control equipment that must be put in place if Mohave’s operations are extended past 2005. See the Environmental section above for further discussion on Mohave’s environmental issue.

     Because of the coal and water supply issues at Mohave, NPC is preparing for the shutdown of the facility by the end of 2005. NPC’s Integrated Resource Plan (IRP) accepted by the PUCN in November 2003, assumes the Plant will be unavailable after December 31, 2005. In addition, in its General Rate Case filed on October 1, 2003, NPC requested that the PUCN authorize a higher depreciation rate be applied to Mohave in order to recover the remaining book value to a regulatory asset account to be amortized over a period as determined by the PUCN. While the PUCN did not approve higher depreciation rates, they did authorize the use of a regulatory asset to accumulate the costs and savings associated with Mohave in the event of its

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shutdown with recovery of any accumulated costs in a future rate case proceeding. NPC continues to recover the cost of Mohave in rates.

     If the coal and water supply issues at Mohave are ultimately resolved, the owners, including NPC, would still be required to install the pollution control equipment, as discussed in the Environmental section, to operate the generating facility. The installation of this equipment would still require the temporary shutdown of the facility. Furthermore, the owners, including NPC, are evaluating the use of alternative fuels to operate the Mohave generating facility in the event the coal and water supply issues are not resolved. The use of alternative fuels would also cause the facility to be shutdown temporarily. NPC would seek recovery of any future costs to bring the facility into operation through a future rate case. Due to these factors, there is uncertainty as to whether Mohave will operate post December 31, 2005.

     In the event Mohave is permanently shutdown, NPC will have to evaluate the plant in accordance with SFAS No. 90, “Accounting for Abandonments and Disallowances of Plant Costs” (SFAS 90). If NPC is prohibited from continued recovery of Mohave in the future, the asset may be deemed impaired under SFAS 90. If the asset is deemed impaired there could be a material effect on NPC’s and SPR’s financial position, results of operations, and future cash inflows. As of June 30, 2005, the net book value of Mohave is approximately $36.6 million.

Clark Generating Station

     NPC has requested approval to retire and recover the associated retirement and cost of removal costs for the Clark Generating Station units 1, 2 and 3 (Clark Station). NPC requested approval to defer the expense by setting up regulatory asset accounts to capture the Clark retirement and cost of removal costs for future ratemaking treatment. In the event the PUCN authorizes the shut down of the Clark station and it is ultimately shut down, NPC will have to evaluate the plant in accordance with SFAS No. 90, “Accounting for Abandonments and Disallowances of Plant Costs.” If NPC elects to retire the station and is prohibited from continued recovery of Clark station in the future, the asset may be deemed impaired under SFAS 90. If the asset is deemed impaired there could be a material effect on NPC’s and SPR’s financial position, results of operations and future cash inflows. As of June 30, 2005 the net book value of Clark station is approximately $19.4 million.

NOTE 8. EARNINGS PER SHARE (EPS) (SPR)

     The difference, if any, between basic EPS and diluted EPS is due to potentially dilutive common shares resulting from stock options, the employee stock purchase plan, performance and restricted stock plans, the non-employee director stock plan and dividend participation rights associated with the convertible debt. Due to net losses for the six months ended June 30, 2005 and 2004, as well as the three month period ended June 30, 2004, these items were anti-dilutive. Accordingly, diluted EPS for these periods are computed using the weighted average shares outstanding before dilution.

     SPR currently has outstanding $300 million in 7.25% convertible notes due 2010, or Convertible Notes, that are entitled to receive (non-cumulative) dividend payments on a 1:1 basis for dividends paid to common shareholders without exercising the conversion option. These Convertible Notes meet the criteria of a participating security in the calculation of basic EPS, and are convertible at the option of the holders into 65,749,110 common shares. See the 2004 10-K, Note 7, Long-Term Debt, for Discussion of the Convertible Notes.

     Emerging Issues Task Force, Participating Securities and the Two-Class Method under FASB Statement No. 128, (EITF 03-6) requires using the “two-class” method to record the effect of participating securities in the computation of basic EPS, and the “if-converted” method in the computation of diluted EPS, if the effect is dilutive. SPR adopted EITF 03-6 for financial statements issued after June 30, 2004. The “two-class’ method was used to calculate basic EPS for the three months ended June 30, 2005. The “if-converted” method was not used to calculate diluted EPS for this period due to its anti-dilutive effect.

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     The following table outlines the calculation for earnings per share (EPS):

	Three Months					Six Months
	Ended June 30,					Ended June 30,
	2005		2004			2005			2004
Basic EPS
Numerator ($000)
Income / (loss) from continuing operations	$	10,025	$	(40,942	)	$	1,509		$	(83,742	)
Income / (loss) from discontinued operations	$	1	$	(2,967	)	$	6		$	(3,642	)
Earnings / (deficit) applicable to common stock	$	5,805	$	(44,884	)	$	(435	)	$	(89,334	)
Earnings applicable to convertible notes	$	3,246		—			—			—
Earnings / (deficit) used for basic calculation	$	9,051	$	(44,884	)	$	(435	)	$	(89,334	)
Denominator
Weighted average number of common shares outstanding		117,589,043		117,279,506			117,569,589			117,259,726
Shares from conversion of notes		65,749,110		—			—			—
		183,338,153		117,279,506			117,569,589			117,259,726
Earnings (Deficit) Per Share Amounts
Income / (loss) from continuing operations	$	0.05	$	(0.35	)	$	0.01		$	(0.71	)
Income / (loss) from discontinued operations(2)	$	0.00	$	(0.03	)	$	0.00		$	(0.03	)
Earnings / (deficit) applicable to common stock (2)	$	0.05	$	(0.38	)	$	0.00		$	(0.76	)
Earnings applicable to convertible notes	$	0.05	$	—		$	—		$	—
Diluted EPS
Numerator ($000)
Income / (loss) from continuing operations	$	10,025	$	(40,942	)	$	1,509		$	(83,742	)
Income / (loss) from discontinued operations	$	1	$	(2,967	)	$	6		$	(3,642	)
Earnings / (deficit) applicable to common stock	$	9,051	$	(44,884	)	$	(435	)	$	(89,334	)
Denominator(1)
Weighted average number of shares outstanding before dilution		117,589,043		117,279,506			117,569,589			117,259,726
Stock options		39,455		—			—			—
Executive long term incentive plan — restricted shares		345,551		—			—			—
Non-Employee Director stock plan		32,872		—			—			—
Employee stock purchase plan		5,781		—			—			—
Convertible Stock		65,749,110		—			—			—
		183,761,812		117,279,506			117,569,589			117,259,726
Earnings (Deficit) Per Share Amounts
Income / (loss) continuing operations	$	0.05	$	(0.35	)	$	0.01		$	(0.71	)
Income / (loss) from discontinued operations(2)	$	0.00	$	(0.03	)	$	0.00		$	(0.03	)
Earnings / (deficit) applicable to common stock(2)	$	0.05	$	(0.38	)	$	0.00		$	(0.76	)

1)

The denominator used for diluted EPS calculation does not include stock equivalents for stock options, restricted and performance shares issued under executive long-term incentive plan options under the non-employee Director stock plan and employee stock purchase plan, for periods ending June 30, 2005 and 2004, due to their anti-dilutive effect. The amounts for periods ending June 30, 2005 and 2004 that would be included in the calculation would be 412,041 and 185,882 shares, respectively.

The denominator also does not include stock equivalents resulting from the conversion of SPR’s PIES and options issued under the Nonqualified stock option plan for periods ending June 30, 2005 and 2004, due to conversion prices being higher than market prices for all periods. The amounts that would be included in the calculation, if the conversion and exercise prices were met, would be 17.3 million shares for SPR’s PIES for both periods, and 1.1 million and 1.3 million shares for options under the Nonqualified stock option plan for the periods ending June 30, 2005 and 2004, respectively.

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2)  Due to rounding to the nearest cent amounts less than $.01 are indicated by zero.

NOTE 9. GOODWILL AND OTHER MERGER COSTS

     SPR’s Consolidated Balance Sheet as of June 30, 2005 included approximately $4 million of goodwill assigned to SPR’s unregulated operations and approximately $19 million of goodwill assigned to SPPC’s regulated gas business. The goodwill assigned to the regulated gas business is subject to the provisions of SFAS 71, “Accounting for the Effects of Certain Types of Regulations”, which permits SPPC to capitalize certain costs that may be recovered through rates. SPPC expects to demonstrate in its next general rate case for the gas distribution business that savings from the merger allocable to the gas business exceed goodwill and other merger costs and, as a result, to recover goodwill and merger costs through future gas rates. Accordingly, management has not reviewed goodwill assigned to the gas business for impairment. If the PUCN were to disallow any portion of the $19 million of goodwill assigned to SPPC’s gas business, that portion would be subject to impairment testing under the provisions of SFAS No. 142, “Accounting for Goodwill, Other Intangible Assets” (SFAS No. 142).

     The approximate $4 million of goodwill assigned to SPR’s unregulated operations were subject to impairment review under the provisions of SFAS No. 142. SFAS No. 142 provides that an impairment loss shall be recognized if the carrying value of each reporting unit’s goodwill exceeds its fair value. For purposes of testing goodwill for impairment, a discounted cash flow model was developed for SPR’s unregulated businesses (TGPC and LOS) to determine the fair value of each reporting unit as of March 31, 2005. As a result, goodwill assigned to TGPC and LOS was determined not to be impaired.

NOTE 10. PENSION AND OTHER POST-RETIREMENT BENEFITS

     A summary of the components of net periodic pension and other postretirement costs for the three and six months ended June 30, 2005 and 2004 follows. This summary is based on a September 30 measurement date (dollars in thousands):

	Three Months Ended June 30,												Six Months Ended June 30,
	2005			2004			2005			2004			2005			2004			2005			2004
							Other Postretirement												Other Postretirement
	Pension Benefits						Benefits						Pension Benefits						Benefits
Service cost	$	4,620		$	4,497		$	820		$	779		$	9,241		$	8,994		$	1,641		$	1,559
Interest cost		8,062			7,568			2,465			2,382			16,124			15,137			4,929			4,764
Expected return on plan assets		(9,042	)		(7,658	)		(903	)		(1,034	)		(18,083	)		(15,316	)		(1,805	)		(2,067	)
Amortization of prior service cost		428			428			16			16			857			857			32			32
Amortization of Transition Obligation		—			—			242			242			—			—			485			485
Amortization of net (gain)/loss		1,614			2,243			1,059			1,157			3,227			4,486			2,118			2,313
Net periodic benefit cost	$	5,682		$	7,078		$	3,699		$	3,542		$	11,366		$	14,158		$	7,400		$	7,086

     As disclosed in Note 12, Retirement Plan and Post-retirement Benefits, of the combined SPR, NPC, and SPPC Annual Report 10-K, as of December 31, 2004, there is no employer contribution expected in 2005 for pension benefits. The amount previously disclosed for other postretirement benefits was $0.2 million; however, the employer contribution is now expected to be $15 million due to actuarial projections that show a favorable outcome for the plan year as a result of the additional funding. During the six months ended June 30, 2005, approximately $5 million was paid toward the employer contribution.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Risk Factors

     The information in this Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions and other matters. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “objective” and other similar expressions identify those statements that are forward-looking. These statements are based on management’s beliefs and assumptions and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with such statements, factors that could cause 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)	unseasonable weather and other natural phenomena, which, in addition to impacting NPC’s and SPPC’s (the “Utilities”) customers’ demand for power, 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;
(2)	whether the Utilities will be able to continue to obtain fuel, power and natural gas from their suppliers on favorable payment terms, particularly in the event of unanticipated power demands (for example, due to unseasonably hot weather), sharp increases in the prices for fuel, power and/or natural gas, or a ratings downgrade;
(3)	whether the Utilities will be successful in obtaining the Public Utilities Commission of Nevada (the “PUCN”) approval to recover the outstanding balance of their other regulatory assets and other merger costs recorded in connection with the 1999 merger between SPR and NPC in a future general rate case;
(4)	a requirement to pay Enron Power Marketing, Inc. (Enron) for amounts allegedly due under terminated purchase power contracts;
(5)	unfavorable rulings in rate cases filed and to be filed by the Utilities with the PUCN, including the periodic applications to recover costs for fuel and purchased power that have been recorded by the Utilities in their deferred energy accounts, and deferred natural gas recorded by SPPC for its gas distribution business;
(6)	the ability of SPR, NPC and SPPC to maintain access to the capital markets to support their requirements for working capital, including amounts necessary to finance deferred energy costs, construction costs, and acquisition costs, particularly in the event of additional unfavorable rulings by the PUCN, a downgrade of the current debt ratings of SPR, NPC, or SPPC and/or adverse developments with respect to the Utilities’ pending litigation with power and fuel suppliers;
(7)	whether the Utilities will be able to continue to pay SPR dividends under the terms of their respective financing and credit agreements, the Enron Bankruptcy Court’s order, their regulatory order from the PUCN, limitations imposed by the Federal Power Act and, in the case of SPPC, under the terms of SPPC’s restated articles of incorporation;
(8)	wholesale market conditions, including availability of power on the spot market, which affect the prices the Utilities have to pay for power as well as the prices at which the Utilities can sell any excess power;
(9)	the final outcome of SPPC’s pending lawsuit in Nevada state court seeking to reverse the PUCN’s 2004 decision on SPPC’s 2003 General Rate case disallowing the recovery of a portion of SPPC’s costs, expenses and investment in the Piñon Pine Project;
(10)	the final outcome of NPC’s pending lawsuit in Nevada state court seeking to reverse portions of the PUCN’s 2002 order denying the recovery of NPC’s deferred energy costs;

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(11)	the effect that any future terrorist attacks, wars, threats of war, or epidemics may have on the tourism and gaming industries in Nevada, particularly in Las Vegas, as well as on the economy in general;
(12)	industrial, commercial, and residential growth in the service territories of the Utilities;
(13)	the financial decline of any significant customers;
(14)	the effect of existing or future Nevada, California or federal legislation or regulations affecting electric industry restructuring, including laws or regulations which could allow additional customers to choose new electricity suppliers or change the conditions under which they may do so;
(15)	changes in the business or power demands of the Utilities’ major customers, including those engaged in gold mining or gaming, which may result in changes in the demand for services of the Utilities, including the effect on the Nevada gaming industry of the opening of additional Indian gaming establishments in California and other states;
(16)	changes in environmental regulations laws or regulation, including the imposition of significant new limits on mercury and other emissions from coal-fired power plants;
(17)	changes in tax or accounting matters or other laws and regulations to which the Utilities are subject;
(18)	future economic conditions, including inflation rates and monetary policy;
(19)	financial market conditions, including changes in availability of capital or interest rate fluctuations;
(20)	unusual or unanticipated changes in normal business operations, including unusual maintenance or repairs; and
(21)	employee workforce factors, including changes in collective bargaining unit agreements, strikes or work stoppages.

     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.

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EXECUTIVE OVERVIEW

     Management’s Discussion and Analysis of Financial Condition and Results of Operations explains the general financial condition and the results of operations for Sierra Pacific Resources (SPR) and its two primary subsidiaries, Nevada Power Company (NPC) and Sierra Pacific Power Company (SPPC), collectively referred to as the “Utilities” (references to “we,” “us” and “our” refer to SPR and the Utilities collectively), and includes the following for each of SPR, NPC and SPPC:

• Results of Operations

• Analysis of Cash Flows

• Liquidity and Capital Resources

• Regulatory Proceedings (Utilities)

• Recent Pronouncements

     SPR’s Utilities operate three regulated business segments: NPC electric, SPPC electric and SPPC natural gas service. Both Utilities provide electric service, and SPPC provides natural gas service. Other segment operations consist mainly of unregulated operations and the holding company operations. The Utilities are the principal operating subsidiaries of SPR and account for substantially all of SPR’s assets and revenues. SPR, NPC and SPPC are separate filers for SEC reporting purposes and accordingly, this discussion has been divided to reflect the individual filers (SPR, NPC and SPPC), except for discussions that relate to all three entities or the Utilities. SPR intends to continue to focus on improving earnings and operating cash flows, controlling costs and reducing debt while working to restore an investment grade credit rating.

     The population growth within the Utilities’ service territory has been and is projected to continue at a rapid rate. The population growth has been driven by economic expansion throughout the state, with the gaming industry in Las Vegas being the most significant component.

     The Utilities are exposed to a variety of risks inherent in their commercial operations, including risks from energy supply, credit, facilities, information and control systems, environmental, and accidental loss. The Utilities address these risks in a variety of ways. Energy risk is addressed through commitments to build or obtain generation, transmission and energy supply contracts. These commitments are subject to the approval of the Public Utilities Commission of Nevada (PUCN), in some cases the Federal Energy Regulatory Commission (FERC), and, additionally for SPPC, the California Public Utility Commission (CPUC) through resource planning regulations. Other multi-year risks are addressed, in part, through insurance policies as well as the Utilities’ strategic planning processes. Shorter-term risks are also addressed through insurance and through annual budgets, key performance indicators and prioritized objectives.

     In addition to customer growth, loads and resulting revenues are affected by weather, rate changes, and customer usage patterns. Energy sales by the Utilities fluctuate primarily as a result of seasonal weather conditions. NPC is a summer peaking utility experiencing its highest retail energy sales in response to the demand for air conditioning. SPPC’s electric system peak also typically occurs in the summer, but has a winter peak nearly as high as the summer peak. Therefore, the Utilities’ operating revenues and associated expenses are not generated or incurred evenly throughout the year.

     NPC’s revenues for the six months ended June 30, 2005 increased from the same period in 2004 primarily as a result of customer growth. This increase was partially offset by an energy rate decrease that went into effect April 1, 2005. NPC’s net income for the six months ended June 30, 2005 increased compared to the same period in 2004, primarily as a result of increased revenues, partially offset by higher operating expenses and interest charges.

     SPPC’s electric and gas revenues for the six months ended June 30, 2005 increased compared to the same period in 2004 primarily as a result of increased customer rates and growth. SPPC’s net income for the six months ended June 30, 2005 increased compared to the same period in 2004 primarily as a result of increased revenues and the disallowance of a portion of SPPC’s costs associated with Pinon Pine recorded in the second quarter of 2004.

     SPR’s net income from continuing operations for the six months ended June 30, 2005 increased compared to the same period in 2004 as a result of items recorded in the second quarter of 2004 that did not recur in 2005. These items were the write-off of goodwill associated with the 1999 merger of SPR and NPC, disallowed merger costs, tender fees paid in connection with extinguishment of certain debt and the disallowance of a portion of SPPC’s costs associated with Pinon Pine.

     As is the case with most regulated entities, the Utilities are frequently involved in various regulatory proceedings. In February 2005, the PUCN approved a settlement agreed to by all parties in NPC’s deferred energy case initially filed in November 2004. The settlement resolved all issues in the case and resulted in no disallowances. SPPC filed for recovery of its deferred energy costs in January 2005. In May 2005, the PUCN issued its order granting recovery of $27.1 million of the $27.7 million of deferred expenses requested. The Utilities are required to file for annual rate adjustments to provide recovery of their fuel and purchased power costs. They are also required to file rate cases every two years to adjust general rates that include its cost of service and return on investment in order to more closely align earned returns with those allowed by regulators. SPPC

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is scheduled to file a gas and electric general rate case in October 2005. The Utilities remain committed to maintaining a positive relationship with our regulators for the benefit of all stakeholders.

Significant Business Issues

     While SPR and the Utilities have addressed many issues that were facing us in past years, we continue to face a number of key business issues, including, among other things: the ongoing litigation involving Enron, improving our debt profile, managing of our energy risk, and pursuing strategic initiatives to reduce our reliance on external power supplies. Details relating to the discussion below can be found in the 2004 10-K Notes to the Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Enron Litigation

     Currently, the Utilities are involved in five court cases and hearings involving Enron Power Marketing, Inc (Enron) enumerated as follows: U.S. Bankruptcy Court for the Southern District Court of New York (Bankruptcy Court), U.S. District Court for the Southern District of New York (U.S. District Court); FERC hearings consisting of the FERC Early Termination, FERC Revocation Show Cause Proceeding and the FERC Gaming and Show Cause Proceeding. See details of the court cases and hearings in Note 7, Commitments and Contingencies of the Condensed Notes to Financial Statements.

     In 2003, based on the Judgment entered by the Bankruptcy Court (Judgment), NPC and SPPC recorded contract termination liabilities of $235 million and $103 million, including prejudgment interest of $27.8 million and $12.4 million, respectively. Additionally, in order to stay execution of the Judgment, NPC and SPPC have posted into escrow $186 million and $92 million, respectively, of General and Refunding Mortgage Bonds and $49 million and $11 million, respectively, in cash as of December 31, 2004. On October 10, 2004, in response to our appeal of the Judgment, the U.S. District Court rendered a decision vacating an earlier judgment by the Bankruptcy Court against the Utilities in favor of Enron, and remanded the case back to the Bankruptcy Court for fact-finding. Furthermore, the U.S. District Court held that the pre-judgment interest should have been calculated at the present value rate, rather than at the rate of 1% per month used by the Bankruptcy Court.

     Based on the U.S. District Court’s decision, the Utilities reversed the accrued interest included in contract termination liabilities by approximately $40 million for the year ended 2004. Although the Judgment entered by the Bankruptcy Court has been reversed, the terms of NPC’s and SPPC’s June 30, 2004 stipulation and agreement with Enron will remain in place through the pendency of all remands and appeals of the Judgment. If the Utilities are ultimately required to pay part or all of the amounts accrued, the Utilities will pursue recovery of the payments through future deferred energy filing. To the extent that the Utilities are not permitted to recover any portion of these costs through a deferred energy filing, the amount not permitted would be charged as a current operating expense.

     A trial date had initially been set for July 11, 2005 before the Bankruptcy Court but the trial date has been changed to November 7, 2005. A description of the legal proceedings leading up to the U.S. District Court’s order to vacate along with a discussion of all pending matters related to the Enron litigation are detailed in Note 7, Commitments and Contingencies of the Condensed Notes to Financial Statements.

     On August 8, 2005, President Bush signed the Domenici Barton Energy Policy Act into law (the “Energy Bill”). The Energy Bill contains language that relates to the Utilities' disputes with Enron over termination payments Enron claims are owed to them arising from forward power purchase contracts terminated by Enron in 2002. The amendment grants FERC exclusive jurisdiction over the determination of whether any such payments are unjust, unreasonable or contrary to the public interest. The Utilities have not yet determined what impact the law will have on the status of the various ongoing legal proceedings at this time.

Improved Debt Profile

     In 2005, management has sought and continues to seek opportunities to refinance existing debt at lower interest rates and to extend the maturity dates of certain indebtedness in order to obtain interest cost savings and to better manage SPR’s and the Utilities’ indebtedness profiles.

     On August 3, 2005, SPR announced an offer to pay a cash premium to induce holders of its $300 million outstanding 7.25% Convertible Notes (Notes) due 2010 to convert their Notes to shares of SPR common stock. In accordance with SFAS No. 84, “Induced Conversion of Convertible Debt,” an approximate $54 million cash payment will be expensed during the third quarter of 2005 which SPR expects to pay using the proceeds from long-term debt financing. The amount of SPR common shares that would be issued if all the outstanding Notes are converted is 65,749,110 shares with an approximate $248 million increase to equity equal to the current carrying value of the Notes. Details of conversion offer are discussed later under SPR Liquidity and Capital Resources.

     On June 20, 2005, SPR issued and sold $140,860,000 of its Series A Floating Rate Senior Notes, due November 16, 2005, and $99,140,000 of its Series B Floating Rate Senior Notes, due November 16, 2005 (the “Floating Rate Notes”). $230,500,000 of the proceeds from this issuance were used to make an equity contribution to NPC as detailed in Note 4, Short-Term Borrowings of the Condensed Notes to Financial Statements.

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     In May 2005, SPR completed a tender offer to exchange $99,142,000 of its existing Premium Income Equity Securities (“Old PIES”) for new Premium Income Equity Securities (“New PIES”). The amount exchanged equaled approximately 41% of the Old PIES securities. The Senior Notes associated with the New PIES were remarketed on June 14, 2005 at a rate of 7.803%, reduced from the 7.93% rate of the Senior Notes associated with the Old PIES. The remarketed Senior Notes will mature on June 15, 2012. Details of the PIES transaction are discussed later under SPR Liquidity and Capital Resources.

     In a continuing effort to improve NPC’s debt profile, on July 14, 2005 upon receipt of the equity contribution from SPR, discussed above, NPC redeemed $87,500,000 aggregate principal amount of its 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009, and $122,500,000 aggregate principal amount of its 9% General and Refunding Mortgage Notes, Series G, due 2013, in accordance with the redemption provisions of these securities. These redemptions constituted 35% of the principal amounts outstanding of each of the Series E and Series G Notes.

     These transactions are among those that are being executed in order to lead the companies toward achieving investment grade status.

Management of Energy Risk

     The Utilities buy coal, natural gas, and oil to operate generating plants as well as buy wholesale power to meet the energy requirements of their customers. The Utilities also have invested in and maintain extensive transmission systems that allow the Utilities to move energy to meet customers’ needs. The Utilities’ significant need to tap energy markets is necessary because the Utilities’ ownership and contractual call on power generating assets is insufficient to meet our customers’ energy needs. This situation exposes the Utilities to energy risk and uncertainty as to the Utilities’ cash flow requirements for fuel and wholesale power, the expense the Utilities will incur as a result of their energy procurement efforts, and the rates the Utilities need to recover those costs. Energy risk also encompasses reliability risk — the prospect that energy supplies will not be sufficient to fulfill customer requirements.

     The Utilities systematically manage and control each of the energy-related risks through three primary vehicles – organization and governance, energy risk management programs, and energy risk control practices.

     The Utilities, through the purchases and sale of specified financial instruments and physical products, maintain an energy risk management program that limits energy risk to levels consistent with an approved energy supply plan. The energy risk management program provides for the systematic identification, quantification, evaluation, and management of the energy risk inherent in the Utilities’ operations.

     The Utilities follow an approved energy supply plan that governs the purchase and sale of fuel and wholesale power and the associated transmission or transportation services in order to mitigate these risks. The process includes assessments of projected loads and resources, assessments of expected market prices, evaluations of relevant supply portfolio options available to the Utilities, and evaluations of the risk attributable to those supply portfolio options. Financial instruments for hedging in conjunction with energy purchases and sales are also used to mitigate these risks.

Strategic Initiatives to Reduce Reliance on External Power Supplies

     In 2004, the Utilities announced a strategy to continue reducing their exposure to volatile swings in power prices by investing in additional generating facilities.

     In October 2004, after PUCN approval, NPC purchased a partially constructed nominally rated 1,200 MW (megawatts) natural gas-fired combined cycle power plant from Duke Energy. NPC was able to finance the Chuck Lenzie Generating Station (Lenzie) project at lower rates than were forecast during the PUCN’s approval process. In addition, the PUCN approved an incentive return on equity (ROE) equal to 2% above the authorized ROE on construction costs of the facility, plus an additional 1% incentive for early completion and production. NPC entered into a contract with Fluor Enterprises to complete construction of the Lenzie project. The revised completion of Unit 1 of the facility is targeted for December 2005 and March 2006 is the targeted completion date for Unit 2. Total costs to acquire and complete construction of the facility are estimated at approximately $545 million, which includes $182 million paid to Duke for the facility.

     NPC announced on June 21, 2005 that it has signed an agreement to acquire from Pinnacle West Capital Corporation (“Pinnacle West”), Pinnacle West Energy Corporation (“PWEC”), a wholly-owned subsidiary of Pinnacle West, and GenWest, LLC (“GenWest”), a 75 percent ownership interest in the Silverhawk Power Plant (“Silverhawk”). Silverhawk is a 570-megawatt, natural gas-fueled, combined-cycle electric generating facility located 20 miles northeast of Las Vegas. The purchase price of Silverhawk is approximately $208 million, subject to certain closing adjustments. The acquisition is subject

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to approval by the PUCN, the FERC and the Department of Justice through a Hart-Scott-Rodino filing. NPC currently plans to fund the acquisition of Silverhawk utilizing debt.

     SPPC received PUCN approval of the Integrated Resource Plan to move forward with permitting and conceptual engineering to build a 500-megawatt, natural gas-fired, combined cycle electric generating plant at the Tracy plant site (“Tracy”), east of Reno. There will be an assessment of coal-fired generation alternatives for the Valmy Generating Station, including expansion and possible construction of a future generating unit.

     On August 1, 2005, SPPC filed an amendment to its IRP previously approved by the PUCN on November 18, 2004. In the amendment SPPC is requesting approval to construct a 514 MW combined cycle unit at its Tracy Station. The estimated cost to construct the unit is $421 million and is scheduled to be in service by June 2008. The unit will provide needed generation within the Utilities’ control area to reliably serve the growing needs of Northern Nevada.

Nevada 2005 Legislative Session Impacts

     The 2005 Nevada Legislative Session and 22^nd Special Session ended on June 7, 2005. The Legislature passed several bills that will affect the Utilities’.

     Senate Bill 238 requires a natural gas utility to request approval from the PUCN to adjust its rates on a quarterly basis between annual rate adjustment applications based on changes in the costs of natural gas.

     Senate Bill 256 establishes a specific schedule for electric utilities to file general and deferred rate applications. SPPC is to file a general rate case on or before October 3, 2005, and at least once every 24 months thereafter. NPC is to file a general rate case on or before November 15, 2006, and at least once every 24 months thereafter. In addition, the filing dates for the annual deferred rate cases have been changed to December 1, 2005 for SPPC and January 17, 2006 for NPC. This bill also allows the PUCN 210 days to render a decision on rate cases.

     Assembly Bill 3 revises the provisions governing the portfolio standard for renewable energy and energy from a qualified energy recovery process. The portfolio standard requires each provider to generate, acquire or save electricity from portfolio energy systems or efficiency measures in an amount that is not less than 20% by calendar year 2015, which represents an increase from 15% under the current standard. Additionally, AB 3 allows a provider of electric service to receive one portfolio energy credit for each kilowatt-hour of electricity that the provider generates, acquires or saves from a portfolio energy system or efficiency measure.

SIERRA PACIFIC RESOURCES

RESULTS OF OPERATIONS

Sierra Pacific Resources (Consolidated)

     The operating results of SPR primarily reflect those of NPC and SPPC, discussed later. The Holding Company’s (stand alone) operating results included approximately $39.2 million and $49.6 million of interest costs for the six months ended June 30, 2005 and 2004, respectively.

     During the three months ended June 30, 2005, SPR had earnings applicable to common stock of approximately $9.1 million compared to an approximate $44.9 million deficit applicable to common stock for the same period in 2004. The change in SPR’s consolidated results for the three months ended June 30, 2005 compared to the same period in 2004 was primarily due to the following charges recorded during the three months ended June 30, 2004 (before income taxes):

• A charge of approximately $9.8 million during the second quarter of 2004 of interest expense costs and unamortized debt issuance costs associated with the early extinguishment of SPR’s 8 ³/4% Senior Unsecured Notes due 2005; and

• A charge of approximately $47 million recorded during the second quarter of 2004 as a result of the PUCN’s decision to disallow recovery of a portion of SPPC’s costs associated with Pinon Pine.

     During the six months ended June 30, 2005, SPR incurred a deficit applicable to common stock of approximately $435 thousand compared to an approximate $89.3 million deficit applicable to common stock for the same period in 2004. The

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decrease in SPR’s consolidated loss during the six months ended June 30, 2005 compared to the same period in 2004 was primarily due to the following charges recorded during the six months ended June 30, 2004 (before income taxes):

• a non-cash goodwill impairment charge of approximately $11.7 million;

• a non-cash charge to write-off disallowed merger costs of approximately $5.9 million; and

• a charge of approximately $23.7 million of tender fees, interest costs and unamortized debt issuance costs associated with the early extinguishment of SPR’s 8³/4% Senior Unsecured Notes due 2005.

• a charge of approximately $47 million as a result of the PUCN’s decision to disallow recovery of a portion of SPPC’s costs associated with Pinon Pine.

     See the 2004 10-K for additional discussion of the above items.

     As of August 5, 2005, NPC had paid $25.3 million in dividends to SPR and declared an additional dividend of approximately $1.8 million. As of August 5, 2005, SPPC declared dividends of $19.8 million to SPR. As of August 5, 2005, SPPC paid approximately $2.0 million in dividends and declared an additional $975 thousand in dividends to holders of its preferred stock.

ANALYSIS OF CASH FLOWS

     SPR’s consolidated net cash flows increased for the six months ended June 30, 2005 compared to the same period in 2004, primarily as a result of an increase in cash from operating and financing activities offset by an increase in cash used in investing activities. Cash flows for operating activities are higher in 2005 due to rate increases that became effective in the second quarter of 2004, which was the result of the Utilities’ General and Deferred Energy Rate Cases (refer to “Regulatory Proceedings” in the 2004 10-K). Also causing an increase in cash from operating activities was the $60 million escrow payment for Enron in 2004, and a reduction in prepayments and deposits for energy in 2005 due to the establishment of the revolving credit facilities. The increase in cash used by investing activities was mainly due to construction at NPC for the Chuck Lenzie project. The increase in cash from financing activities in 2005, when compared to 2004, was primarily due to the issuance of short term borrowings of $240 million at SPR and the $50 million draw on NPC’s revolving credit facility in 2005, and the repayment of $25 million in short-term borrowings in March 2004.

LIQUIDITY AND CAPITAL RESOURCES

     SPR, on a stand-alone basis, had cash and cash equivalents of approximately $239.3 million at June 30, 2005, which does not include restricted cash and investments of approximately $10.9 million representing collateral for payment of interest up to and including the August 14, 2005 payment in connection with SPR’s 7.25% Convertible Notes due 2010. This balance reflects the receipt of proceeds from the private placement of $240 million of short-term floating rate senior notes. On July 13, 2005, SPR made a capital contribution of $230.5 million to Nevada Power Company. SPR expects to repay its short-term floating rate senior notes with the $240 million of proceeds it will receive on November 15, 2005 from the settlement of the common stock purchase contracts associated with its old PIES and new PIES. Given the current balance of 4,804,350 PIES outstanding, approximately 17,344,184 SPR common shares are expected to be issued at the settlement date of November 15, 2005.

     SPR paid approximately $36.8 million of debt service obligations on its existing debt securities during the six months ended June 30, 2005. Included in these payments was approximately $10.9 million previously provided for at the time the Convertible Notes were issued as discussed above. Excluding interest on SPR’s 7.25% Convertible Notes, SPR has approximately $26.4 million payable of debt service obligations remaining during 2005, which SPR expects to meet through the payment of dividends by the Utilities to SPR.

     In the second quarter of 2005, SPR entered into certain financing transactions discussed below. There were no other material changes to contractual obligations as set forth in SPR’s 2004 10-K during the three months and six months ended June 30, 2005.

Dividends from Subsidiaries

     Since SPR is a holding company, substantially all of its cash flow is provided by dividends paid to SPR by NPC and SPPC on their common stock, all of which is owned by SPR. Since NPC and SPPC are public utilities, they are subject to regulation by state utility commissions, which impose limits on investment returns or otherwise impact the amount of dividends that the Utilities may declare and pay. In addition, certain agreements entered into by the Utilities set restrictions on the amount of dividends they may declare and pay and restrict the circumstances under which such dividends may be declared and paid. The specific agreements entered into by the Utilities, restrictions on dividends contained in agreements to which NPC and SPPC are party, as well as specific regulatory limitations on dividends, are discussed in detail in the 2004 10-K, Note 9, Dividend Restrictions of the Notes to Financial Statements, and remain unchanged from their description in the 2004 10-K.

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     As of June 30, 2005, each Utility was able to pay dividends, subject to a cap, under the most restrictive test in its financing agreements; however, the total amount of dividends that the Utilities can pay to SPR under their financing agreements does not currently significantly restrict their ability to pay dividends because the maximum amount of dividends that can be paid under their financing agreements is greater than the amount that the Utilities can pay under their other dividend restrictions. The Utilities have agreed, under the terms of a stipulation with Enron, that they will not pay dividends to SPR other than for SPR’s debt service obligations and current operating expenses, which amount (discussed above) is substantially less than the maximum amounts the Utilities can pay as dividends under their financing agreement dividend restrictions. As of August 5, 2005, NPC had paid $25.3 million in dividends to SPR and declared an additional dividend of approximately $1.8 million. As of August 5, 2005, SPPC declared dividends of $19.8 million to SPR. As of August 5, 2005, SPPC paid approximately $2.0 million in dividends and declared an additional $975 thousand in dividends to holders of its preferred stock.

Financing Transactions (SPR — Holding Company)

     On August 3, 2005, SPR announced an offer to pay a cash premium to induce holders of its $300 million outstanding 7.25% Convertible Notes (Notes) due 2010 to convert their Notes to shares of SPR common stock. Under the terms of the offer, for each $1,000 in liquidation amount of Notes tendered, holders will receive the conversion consideration and 219.1637 shares of common stock. The consideration offered is an amount paid in cash equal to $180 per $1,000 principal amount of Notes validly surrendered for conversion plus an amount equivalent to the interest that would have accrued thereon from and after August 14, 2005 (which is the last interest payment date on the Notes prior to the scheduled expiration of the offer). The offer will expire on August 31, 2005, unless extended or earlier terminated by SPR. In accordance with SFAS No. 84, “Induced Conversion of Convertible Debt,” an approximate $54 million cash payment will be expensed during the third quarter of 2005 which SPR expects to pay using the proceeds from long-term debt financing. This amount represents the cash consideration given beyond those required by the terms of the Notes. The amount of SPR common shares that would be issued if all the outstanding Notes are converted is 65,749,110 shares with an approximate $248 million increase to equity equal to the current carrying value of the Notes.

     On June 20, 2005, SPR issued and sold $140,860,000 of its Series A Floating Rate Senior Notes, due November 16, 2005, and $99,140,000 of its Series B Floating Rate Senior Notes, due November 16, 2005 (the “Floating Rate Notes”). The Series A Floating Rate Notes will bear interest at a rate equal to 3-month LIBOR plus 2.00%, and the Series B Floating Rate Notes will bear interest at a rate equal to 3-month LIBOR plus 1.00%. The Floating Rate Notes were issued to Qualified Institutional Buyers under Rule 144A. Of the proceeds from this issuance $230.5 million was used to make an equity contribution to NPC and the balance will be used for general corporate purposes. NPC used the equity contribution to redeem approximately $210 million of General and Refunding Mortgage Notes. See Note 5, Long-Term Debt for further discussion on the redemption by NPC.

     SPR may redeem, at any time, all or a part of the Floating Rate Notes, without premium or penalty, upon not less than three, nor more than thirty, days’ notice. Subject to certain limitations, additional Floating Rate Notes may be issued from time to time; provided, however, that the aggregate principal amount of Floating Rate Notes outstanding at any time may not exceed $240,000,000.

     On April 15, 2005, SPR commenced an offer to exchange its Premium Income Equity Securities (“old PIES”) for new Premium Income Equity Securities (“new PIES”) plus an exchange fee of $0.125 in cash for each old PIES tendered. On May 24, 2005, the tender offer was completed with 1,982,822 or about 41% of the 4,804,350 old PIES outstanding tendered for exchange. The remaining 2,821,528 old PIES will remain outstanding. SPR’s new PIES are similar to its old PIES except the new PIES (i) allow for the remarketing of the senior notes that are associated with the new PIES prior to the earliest remarketing date for the old PIES, (ii) provide for more flexible remarketing terms, and (iii) allow certain terms of the senior notes to be modified upon their remarketing, including the maturity date of the senior notes, the redemption provisions, the interest payment dates and the addition of covenants applicable to the senior notes.

     On May 24, 2005, as part of the new PIES, SPR issued $99,142,000 aggregate principal amount of 7.93% Senior Notes, due 2007. SPR successfully remarketed these notes on June 14, 2005. In connection with the remarketing, the interest rate of the Senior Notes was reset to 7.803% per annum, effective on and after June 14, 2005. The remarketed Senior Notes will mature on June 15, 2012. The proceeds of the remarketing of the Senior Notes were used to purchase treasury securities and to pay the fee of the remarketing agents. The treasury securities will serve as substitute collateral for the Senior Notes component of the new PIES to secure holders’ obligations under the related forward purchase contracts. The proceeds of the treasury securities upon or after maturity will be used to provide the consideration necessary to fulfill holders’ obligations under the related forward purchase contracts on November 15, 2005, and to pay the aggregate amount of remaining interest payments to the holders of the new PIES through November 15, 2005.

     Each of SPR’s short-term floating rate notes and the remarketed new PIES senior notes due June 15, 2012 limit SPR’s ability to make certain payments (including dividends on common stock, payments on subordinated indebtedness, certain investments and other payments in respect of any equity interests of SPR); provided, however, that SPR may make such payments if:

• there are no defaults or events of default with respect to the Floating Rate Notes or the Senior Notes, as applicable,

• the ratio of consolidated cash flow to fixed charges for SPR’s most recently ended four quarter period on a pro forma basis is at least 2.0 to 1, and

• the total amount of such payments is less than:

• the sum of 50% of SPR’s consolidated net income measured on a quarterly basis cumulative of all quarters from April 1, 2004, plus

• 100% of SPR’s aggregate net cash proceeds from contributions to its common equity capital or the issuance or sale of certain equity or convertible debt securities of SPR, plus

• the lesser of cash return of capital or the initial amount of certain restricted investments, plus

• the fair market value of SPR’s investment in certain subsidiaries.

     The terms of the short-term floating rate notes and the remarketed new PIES senior notes also permit SPR to make payments in excess of the amounts described above in an aggregate amount not to exceed $50 million from the date of the issuance of the applicable series of senior notes.

     In addition, the terms of the short-term floating rate notes and the remarketed new PIES senior notes restrict SPR and its restricted subsidiaries from incurring any additional indebtedness unless:

• at the time the debt is incurred, the ratio of consolidated cash flow to fixed charges for SPR’s most recently ended four quarter period on a pro forma basis is at least 2.0 to 1, or

• the debt incurred is specifically permitted under the terms of the applicable series of senior notes, which includes certain credit facility or letter of credit indebtedness, obligations incurred to finance property construction or improvement, indebtedness incurred to refinance existing indebtedness, certain intercompany indebtedness, hedging obligations, indebtedness incurred to support bid, performance or surety bonds, certain letters of credit issued to support SPR’s obligations with respect to energy suppliers, indebtedness incurred to finance capital expenditures pursuant to NPC’s 2003 Integrated Resource Plan, as amended, or Sierra Pacific Power Company’s 2004 Integrated Resource Plan, as amended, and additional indebtedness not to exceed $75 million at any time outstanding.

     Among other things, the short-term floating rate notes and the remarketed new PIES senior notes also contain restrictions on liens (other than permitted liens, which include liens to secure certain permitted debt) and certain sale and leaseback transactions. There are also limitations on certain fundamental structural changes to SPR and limitations on the disposition of property. In the event of a change of control of SPR, the holders of the applicable series of senior notes and the remarketed new PIES senior notes are entitled to require that SPR repurchase their applicable senior notes for a cash payment equal to 100% of the aggregate principal amount plus accrued and unpaid interest.

     If the short-term floating rate notes and the remarketed new PIES senior notes are upgraded to investment grade by both Moody’s Investors Service, Inc. and Standard & Poor’s Rating Group, Inc., certain restrictions applicable to such notes, including the covenants related to restricted payments, the incurrence of indebtedness and issuance of preferred stock, dividend and other payment restrictions affecting restricted subsidiaries, the designation of restricted and unrestricted subsidiaries, transactions with affiliates and restrictions on business activities, will be suspended and will no longer be in effect so long as such notes remain investment grade.

     Additional covenants applicable to SPR’s short-term floating rate notes and remarketed new PIES senior notes are discussed below.

     SPR expects to repay its short-term floating rate senior notes with the $240 million of proceeds it will receive on November 15, 2005 from the settlement of the common stock purchase contracts associated with its old PIES and new PIES. Given the current balance of 4,804,350 PIES outstanding, approximately 17,344,184 SPR common shares are expected to be issued at the settlement date of November 15, 2005.

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Limitations on Indebtedness

     The terms of SPR’s $335 million 8 5/8% Senior Unsecured Notes due March 15, 2014, $99.1 million 7.803% Senior Notes due June 15, 2012, $140.9 million Series A Floating Rate Senior Notes due November 16, 2005 and $99.1 million Series B Floating Rate Senior Notes due November 16, 2005, restrict SPR and any of its Restricted Subsidiaries (NPC and SPPC) from incurring any additional indebtedness unless:

     1. at the time the debt is incurred, the ratio of consolidated cash flow to fixed charges for SPR’s most recently ended four quarter period on a pro forma basis is at least 2 to 1, or

     2. the debt incurred is specifically permitted under the terms of the applicable series of notes, which permit the incurrence of certain credit facility or letter of credit indebtedness, obligations incurred to finance property construction or improvement, indebtedness incurred to refinance existing indebtedness, certain intercompany indebtedness, hedging obligations, indebtedness incurred to support bid, performance or surety bonds, and certain letters of credit supporting SPR’s or any Restricted Subsidiary’s obligations to energy suppliers, or

     3. the indebtedness is incurred to finance capital expenditures pursuant to NPC’s 2003 Integrated Resource Plan and SPPC’s 2004 Integrated Resource Plan.

     If the applicable series of notes are upgraded to investment grade by both Moody’s and S&P, these restrictions will be suspended and will no longer be in effect so long as the applicable series of notes remain investment grade. As of June 30, 2005, SPR, NPC and SPPC would have been able to issue approximately $592 million of additional indebtedness on a consolidated basis, assuming an interest rate of 7.00 %, per the requirement stated in number 1 above.

Cross Default Provisions

     None of the Utilities’ financing agreements contain a cross-default provision that would result in an event of default by that Utility upon an event of default by SPR or the other Utility under any of their respective financing agreements. Certain of SPR’s financing agreements, however, do contain cross-default provisions that would result in event of default by SPR upon an event of default by the Utilities under their respective financing agreements. In addition, certain financing agreements of each of SPR and the Utilities provide for an event of default if there is a failure under other financing agreements of that entity to meet payment terms or to observe other covenants that would result in an acceleration of payments due. Most of these default provisions (other than ones relating to a failure to pay other indebtedness) provide for a cure period of 30—60 days from the occurrence of a specified event, during which time SPR or the Utilities may rectify or correct the situation before it becomes an event of default. The primary cross-default provisions in SPR’s and the Utilities’ various financing agreements are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Resources – Liquidity and Capital Resources (SPR Consolidated),” SPR’s short-term floating rate notes and remarketed new PIES senior notes provide for an event of default if SPR or either of the Utilities fails to pay indebtedness in excess of $10 million or has any indebtedness of $10 million or more accelerated and declared due and payable for so long as SPR’s 7.25% Convertible Notes are outstanding.

Judgment Related Defaults

     Certain of the Utilities’ financing agreements contain judgment default provisions that provide for an event of default if a final, unstayed judgment is rendered against the Utility and remains undischarged after 60 days. The judgment default provisions in the Utilities’ various financing agreements and the consequences of a judgment default for either of the Utilities are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Resources — Liquidity and Capital Resources (SPR Consolidated).” There have been no changes to the Utilities’ judgment default provisions as described in the 2004 10-K. The terms of SPR’s senior notes including its 8 5/8% Senior Unsecured Notes due 2014, 7.25% Convertible Notes due 2010, short-term floating rate senior notes and remarketed new PIES senior notes provide for a default in the event that SPR or either of the Utilities fails to pay a final judgment in excess of $10 million or more for a period of 60 days.

Effect of Holding Company Structure

     As of June 30, 2005, SPR (on a stand-alone basis) has a substantial amount of outstanding debt and other obligations including, but not limited to: $141 million of its unsecured 7.93% Senior Notes due 2007; $99 million of its unsecured 7.803% Senior Notes due 2012; $240 million of short-term floating rate Senior Notes, due November 16, 2005; $300 million of its 7 1/4% Convertible Notes due 2010; and $335 million of its unsecured 8 5/8% Senior Notes due 2014.

     Due to the holding company structure, SPR’s right as a common shareholder to receive assets of any of its direct or indirect subsidiaries upon a subsidiary’s liquidation or reorganization is junior to the claims against the assets of such

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subsidiary by its creditors and preferred stockholders. Therefore, SPR’s debt obligations are effectively subordinated to all existing and future claims of the creditors of NPC and SPPC and its other subsidiaries, including trade creditors, debt holders, secured creditors, taxing authorities, guarantee holders, NPC’s preferred trust security holders, and SPPC’s preferred stockholders.

     As of June 30, 2005, SPR, NPC, SPPC, and their subsidiaries had approximately $4.4 billion of debt and other obligations outstanding, consisting of approximately $2.3 billion of debt at NPC, approximately $1 billion of debt at SPPC and approximately $1.1 billion of debt at the holding company and other subsidiaries. Additionally, SPPC had $50 million of outstanding preferred stock. Although the Utilities are parties to agreements that limit the amount of additional indebtedness they may incur, the Utilities retain the ability to incur substantial additional indebtedness and other liabilities.

NEVADA POWER COMPANY

RESULTS OF OPERATIONS

     During the three months ended June 30, 2005, NPC recognized net income of approximately $21 million compared to $13.6 million for the same period in 2004. During the six months ended June 30, 2005, NPC recognized net income of approximately $12.9 million compared to a net loss of approximately $1.8 million for the same period in 2004. NPC paid a common stock dividend of $ 25.3 million to SPR during the six months ended June 30, 2005 and declared a dividend of approximately $1.8 million on August 2, 2005.

     The components of gross margin were (dollars in thousands):

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from							Change from
	2005		2004		Prior Year %			2005		2004		Prior Year %
Operating Revenues:
Electric	$	451,384	$	449,925		0.3	%	$	805,518	$	776,458		3.7	%
Energy Costs:
Purchased power		228,254		191,508		19.2	%		369,682		319,039		15.9	%
Fuel for power generation		53,212		60,312		-11.8	%		108,852		109,667		-0.7	%
Deferral of energy costs-disallowed		—		—					—		1,586		-100.0	%
Deferral of energy costs-electric-net		8,111		38,808		-79.1	%		43,934		82,126		-46.5	%
		289,577		290,628		-0.4	%		522,468		512,418		2.0	%
Gross Margin
Electric	$	161,807	$	159,297		1.6	%	$	283,050	$	264,040		7.2	%

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     The causes for significant changes in specific lines comprising the results of operations for NPC are discussed below (in thousands, except per unit amounts):

Electric Operating Revenues

					Change							Change
	Three Months				from			Six Months				from
	Ended June 30,				Prior Year			Ended June 30,				Prior
	2005		2004		%			2005		2004		Year %
Electric Operating Revenues:
Residential	$	193,300	$	190,643		1.4	%	$	336,305	$	319,131		5.4	%
Commercial		98,490		97,811		0.7	%		181,245		173,066		4.7	%
Industrial		137,293		135,929		1.0	%		240,624		230,327		4.5	%
Retail revenues		429,083		424,383		1.1	%		758,174		722,524		4.9	%
Other1		22,301		25,542		-12.7	%		47,344		53,934		-12.2	%
Total Revenues	$	451,384	$	449,925		0.3	%	$	805,518	$	776,458		3.7	%
Retail sales in thousands of megawatt-hours (MWH)		4,814		4,727		1.8	%		8,602		8,488		1.3	%
Average retail revenue per MWH	$	89.13	$	89.78		-0.7	%	$	88.14	$	85.12		3.5	%

¹ Primarily wholesale, as discussed below.

     Nevada Power retail revenues were higher for the three months ended June 30, 2005, as compared to the same period in the prior year due to customer growth. The number of residential, commercial, and industrial customers increased by 5.7%, 5.6%, and 1.7%, respectively. These increases were slightly offset by an energy rate decrease of .6% overall which resulted from NPC’s Deferred Energy Rate Case effective April 1, 2005 (refer to Regulatory Proceedings).

     Retail revenues were higher for the six months ended June 30, 2005, as compared to the same period in 2004, due to customer growth and higher energy rates. The number of residential, commercial, and industrial customers increased by 5.6%, 5.7%, and 3.2%, respectively. Higher energy rates became effective April 1, 2004, which were the result of NPC’s General and Deferred Energy Rate Cases (refer to Regulatory Proceedings in the 2004 10-K). These increases were slightly offset by an overall decrease of .6% resulting from NPC’s Deferred Energy Rate Case effective April 1, 2005 and by cooler weather in 2005.

     Based on NPC’s projected customer forecast, NPC expects retail electric customers in the Clark County area to continue to grow. NPC has requested a Base Tariff Energy Rate increase starting on October 1, 2005, of which the final outcome is yet to be determined.

     Electric Operating Revenues – Other decreased for the three months and six months ended June 30, 2005 compared to the same periods in 2004, primarily due to a decrease in sales volumes for wholesale electric power to other utilities and certain types of transactions that were reported in revenues for 2004 which are now being netted in purchased power. Partially offsetting this decrease was a refund in 2004 of $5.9 million owed to transmission customers as a result of FERC’s approval of a tariff agreement on July 8, 2004 (refer to Regulatory Proceedings in the 2004 10-K), which decreased revenues in 2004. The tariff agreement also lowered the transmission rates which contributed to the decrease in 2005 revenues.

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Purchased Power

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from							Change from
	2005		2004		Prior Year %			2005		2004		Prior Year %
Purchased Power	$	228,254	$	191,508		19.2	%	$	369,682	$	319,039		15.9	%
Purchased Power in thousands of MWhs		3,457		3,137		10.2	%		5,697		5,498		3.6	%
Average cost per MWh of Purchased Power	$	66.03	$	61.05		8.2	%	$	64.89	$	58.03		11.8	%

     NPC’s purchased power costs increased for the three months ended June 30, 2005, compared to the same period in 2004, due to higher prices and increased volume. NPC’s energy contracts calculate prices using gas indexes. Therefore, higher natural gas prices in 2005 increased the price of purchased power. Additionally, NPC satisfied more of its load requirements through purchased power rather than generation.

     NPC’s purchased power costs increased for the six months ended June 30, 2005, compared to the same period in 2004, primarily due to higher prices and volumes as discussed above. Furthermore, in the first quarter of 2005, compared to the same time period in 2004, purchased power costs were higher primarily due to two gas tolling agreements entered into during the second quarter of 2004. These gas tolling agreements are purchased power agreements where NPC provides natural gas to the supplier who generates the energy for NPC. The gas tolling agreements are based on gas indexes, therefore, the increase in natural gas prices increased the cost of purchased power.

Fuel for Power Generation

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from							Change from
	2005		2004		Prior Year %			2005		2004		Prior Year %
Fuel for Power Generation	$	53,212	$	60,312		-11.8	%	$	108,852	$	109,667		-0.7	%
Thousands of MWhs generated		1,849		2,144		-13.8	%		3,735		3,932		-5.0	%
Average cost per MWh of Generated Power	$	28.78	$	28.13		2.3	%	$	29.14	$	27.89		4.5	%

     Fuel for power generation decreased for the three and six months ended June 30, 2005 compared to the same period in 2004 due to a decrease in volume. The decrease in volume was primarily due to NPC satisfying more of its native load requirements through purchased power rather than generation as a result of the increase of natural gas costs. The increase in the average unit fuel cost per megawatt-hour was due to higher natural gas prices.

Deferred Energy Costs — Net

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change
					from							Change
					Prior							from Prior
	2005		2004		Year %			2005		2004		Year %
Deferred energy costs disallowed	$	—	$	—		N/A		$	—	$	1,586		N/A
Deferred energy costs — net	$	8,111	$	38,808		-79.1	%	$	43,934	$	82,126		-46.5	%

     Deferred energy costs disallowed for the six months ended June 30, 2004, consisted of the write-off of $1.6 million of deferred energy costs incurred during the twelve months ended September 30, 2003, that were disallowed by the PUCN in

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NPC’s 2003 deferred energy rate case in March 2004. See, Regulatory, NPC’s 2003 Deferred Energy Rate Case in the 2004 10-K.

     Deferral of energy costs — net decreased for the three months and six months ended June 30, 2005 compared to the same periods in 2004 due to the decrease in amortization as a result of lower unamortized deferred energy balances and a decrease in the amortization rate. This was offset somewhat by actual fuel and purchased power costs exceeding revenues to a lesser extent in 2005. During periods when actual fuel and purchase power costs exceed amounts recovered through rates, the excess is shown as a reduction in costs.

     See “Critical Accounting Policies” and Note 1, Summary of Significant Accounting Policies, of Notes to Financial Statements in the 2004 10-K for more information regarding deferred energy accounting.

Allowance for Funds Used During Construction (AFUDC)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
					Change						Change
					from						from
					Prior						Prior
	2005		2004		Year %		2005		2004		Year %
Allowance for other funds used during construction	$	4,408	$	625		N/A	$	7,898	$	1,282		N/A
Allowance for borrowed funds used during construction	$	5,479	$	776		N/A	$	9,792	$	1,706		N/A
	$	9,887	$	1,401		N/A	$	17,690	$	2,988		N/A

     NPC’s AFUDC is higher for the three months and six months ended June 30, 2005 compared to the same periods in 2004 due to an increase in Construction Work in Progress (CWIP). The increase is primarily due to the purchase of the partially completed Chuck Lenzie Generation Plant in October 2004 and associated construction costs.

Other (Income) and Expenses

	Three Months									Six Months
	Ended June 30,									Ended June 30,
							Change									Change
							from									from
							Prior									Prior
	2005			2004			Year %			2005			2004			Year %
Other operating expense	$	49,112		$	50,913			-3.5	%	$	100,211		$	90,635			10.6	%
Maintenance expense	$	16,397		$	16,790			-2.3	%	$	33,352		$	36,746			-9.2	%
Depreciation and amortization	$	30,761		$	29,991			2.6	%	$	61,163		$	58,730			4.1	%
Income tax expense/(benefit)	$	4,756		$	5,339			-10.9	%	$	(2,038	)	$	(6,114	)		-66.7	%
Interest charges on long-term debt	$	41,613		$	37,683			10.4	%	$	83,142		$	74,834			11.1	%
Interest charges-other	$	4,239		$	5,241			-19.1	%	$	8,571		$	9,828			-12.8	%
Interest accrued on deferred energy	$	(4,216	)	$	(4,798	)		-12.1	%	$	(8,741	)	$	(10,193	)		-14.2	%
Disallowed merger costs	$	—		$	—			N/A		$	—		$	3,961			N/A
Other income	$	(5,449	)	$	(5,389	)		1.1	%	$	(12,362	)	$	(11,129	)		11.1	%
Other expense	$	1,817		$	1,487			22.2	%	$	3,393		$	2,928			15.9	%
Income taxes — other income and expense	$	4,945		$	3,057			61.8	%	$	8,047		$	5,045			59.5	%

     Other operating expense for the three month period ending June 30, 2005 was comparable to the same period in the prior year. The increase in Other operating expense for the six month period ending June 30, 2005 compared to the same period in 2004 was primarily due to increased advisory fees, amortization of regulatory assets and severance costs associated with the reorganization of NPC, SPPC and SPR.

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     Maintenance expense for the three month period ending June 30, 2005 was comparable to the same period in the prior year. The decrease in Maintenance expense for the six month period ending June 30, 2005 compared to the same period in the prior year is due to the timing of scheduled and unscheduled plant maintenance at Clark Station, Sunrise, Reid Gardner and Mohave during 2004.

     Depreciation and amortization expenses were higher for the three months and the six months ended June 30, 2005 compared to the same periods in 2004 primarily as a result of increases to plant-in-service.

     NPC’s Income tax expense for the three months ended June 30, 2005 is comparable to the same period in 2004. NPC’s income tax benefit for the six months ended June 30, 2005 decreased compared to the same period in 2004 as a result of an increase in the pretax net income.

     Interest charges on Long-Term Debt increased for the three months and six months ended June 30, 2005 compared to the same period in 2004 due to higher debt balances during the three months and six months ended June 30, 2005. See Note 7, Long-Term Debt of the Notes to Consolidated Financial Statements in the 2004 10-K and Note 5, Long-Term Debt for additional information regarding long-term debt.

     Interest charges-other decreased for the three months and six months ended June 30, 2005 compared to the same period in 2004 due to a reduction in fees for short-term financing.

     Interest accrued on deferred energy costs decreased for the three months and six months ended June 30, 2005 compared to the same period 2004 primarily due to lower deferred fuel and purchased power balances during 2005.

     NPC did not incur any disallowed merger costs for the six months ended June 30, 2005, nor does NPC expect to incur any disallowed merger costs in the remainder of 2005. Disallowed merger costs for the six months ended June 30, 2004 were a result of the PUCN decision in NPC’s 2003 General Rate Case. Disallowed merger costs expense includes the write-off of costs that resulted from the July 28, 1999 merger between SPR and NPC which were determined to be not recoverable through rates in the March 26, 2004, PUCN decision on NPC’s 2003 general rate case. The PUCN decision permitted substantially all of the merger costs that NPC requested recovery of except for a 20% reduction in merger costs that were to be amortized over the next two years. Also included in the write-off are merger costs allocable to non-Nevada jurisdictional sales that NPC has determined will not be recovered in rates. See “Regulatory Proceedings” — in the 2004 10-K.

     NPC’s Other income increased for the three months and six months ended June 30, 2005, compared to the same period in 2004 due to increased interest income from temporary investments and continuing amortization of gains from the disposition of non-utility property.

     NPC’s Other expense for the three and six months ended June 30, 2005 increased from the same periods in 2004 due to higher lobbying activities and the reclassification of costs associated with NPC’s Supplementary Executive Retirement Plan. These increases were partially offset by a decrease in corporate advertising.

     Income Taxes-Other Income and Expense increased for the three months and six months ended June 30, 2005 compared to the same periods in 2004 due to an increase in other non-operating income.

ANALYSIS OF CASH FLOWS

     NPC’s cash flows decreased during the six months ended June 30, 2005, compared to the same period in 2004, primarily as a result of an increase in cash used for investing activities offset by increases in cash flows from operating and financing activities. Cash used in investing activities increased mainly due to an increase in utility construction for the Chuck Lenzie project under construction in 2005. The increase in cash from operating activities is primarily due to rate increases that became effective in the second quarter of 2004, as a result of NPC’s General and Deferred Rate Cases (refer to “Regulatory Proceedings” in the 2004 10-K). Also causing an increase in cash from operating activities was the $50 million escrow payment for Enron in 2004, a reduction in prepayments and deposits for energy in 2005 due to the establishment of the revolving credit facility. Cash from financing activities increased due to the draw of $50 million on NPC’s revolving credit facility.

LIQUIDITY AND CAPITAL RESOURCES

     NPC had cash and cash equivalents of approximately $72.7 million at June 30, 2005, and additional liquidity in the amount of $244.6 million available under the company’s $350 million revolving credit facility. The total liquidity does not include restricted cash of $49 million which has been deposited into escrow in connection with the stay of the Enron Judgment. As of August 5, 2005, NPC has $100 million of direct borrowings and $65.1 million of letters of credit under the revolving credit facility.

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     NPC anticipates it will be able to meet fuel and purchased power costs through internally generated funds, including the recovery of deferred energy and if necessary the use of its revolving credit facility. As discussed in Construction Expenditures and Financing and Contractual Obligations in the 2004 10-K, NPC anticipates capital requirements for construction costs in 2005 will be approximately $629.8 million, which NPC expects to finance with internally generated funds and if necessary the use of its revolving credit facility. As of June 30, 2005, NPC has incurred approximately $286.8 million in construction expenditures.

     On June 21, 2005, Nevada Power Company entered into an agreement with GenWest LLC, a wholly owned subsidiary of Pinnacle West Capital Corporation, to acquire its 75% ownership of the Silverhawk Power Station. NPC has filed a financing application with the PUCN to issue new debt in connection with the Silverhawk acquisition. (See Regulatory Actions) There were no other material changes to contractual obligations as set forth in NPC’s 2004 10-K during the three months and six months ended June 30, 2005.

Financing Transactions

     On July 14, 2005, NPC redeemed $87,500,000 aggregate principal amount of its 10 7/8% General and Refunding Mortgage Notes, Series E, due 2009, and $122,500,000 aggregate principal amount of its 9% General and Refunding Mortgage Notes, Series G, due 2013. These redemptions constituted 35% of the principal amount outstanding of each of the Series E and Series G Notes. The Series E Notes were redeemed at a redemption price equal to $1,108.75 for each $1,000 note redeemed for a redemption premium in excess of the principal amount of approximately $9.5 million. The Series G Notes were redeemed at a redemption price equal to $1,090.00 for each $1,000 note redeemed for a redemption premium in excess of the principal amount of approximately $11 million. In accordance with SFAS 71, Accounting for the Effects of Certain Types of Regulation, the redemption premium to redeem the debt will be amortized over the original term of the debt. NPC paid for the redemptions through an equity contribution of approximately $230.5 million from SPR, as discussed in Note 4, Short-Term Borrowings.

     As of June 30, 2005 NPC had borrowed $50 million under its revolving credit facility. As of August 5, 2005, NPC had $100 million outstanding under the revolving credit facility. See Note 7, Long-Term Debt, of Notes to Financial Statements in the 2004 10-K for details of the revolving credit facility.

Mortgage Indentures

     NPC’s Indenture of Mortgage, dated as of October 1, 1953, between NPC and Deutsche Bank Trust Company Americas (the “First Mortgage Indenture”), creates a first priority lien on substantially all of NPC’s properties. As of June 30, 2005, $372.5 million of NPC’s first mortgage bonds were outstanding. In connection with the issuance of its Series E, Series G and Series I Notes, NPC agreed that it would not issue any more first mortgage bonds.

     NPC’s First Mortgage Indenture limits the cumulative amount of dividends and other distributions that NPC may pay on its capital stock. In February 2004, NPC amended this restriction in its First Mortgage Indenture to:

1.	change the starting point for the measurement of cumulative net earnings available for the payment of dividends on NPC’s capital stock from March 31, 1953 to July 28, 1999 (the date of NPC’s merger with SPR), and
2.	permit NPC to include in its calculation of proceeds available for dividends and other distributions the capital contributions made to NPC by SPR.

     NPC does not anticipate that the First Mortgage Indenture dividend restriction as amended, will materially limit the amount of dividends that it may pay to SPR in the foreseeable future.

     NPC’s General and Refunding Mortgage Indenture creates a lien on substantially all of NPC’s properties in Nevada that is junior to the lien of the first mortgage indenture. As of June 30, 2005, $1.3 billion of NPC’s General and Refunding Mortgage securities were outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of:

1.	70% of net utility property additions,
2.	the principal amount of retired General and Refunding Mortgage Bonds, and/or
3.	the principal amount of first mortgage bonds retired after October 19, 2001.

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     On the basis of (1), (2) and (3) above and on plant accounting records as of June 30, 2005 (which do not include additions to plant associated with the acquisition of the Lenzie Generating Station), NPC had the capacity to issue approximately $349 million of additional General and Refunding Mortgage securities. This amount does not include $210 million of capacity made available by the redemption of $87,500,000 aggregate principal amount of the Series E notes and $122,500,000 aggregate principal amount of the Series G notes on July 14, 2005 (see NPC Financing Transactions).

     Although NPC has substantial capacity to issue additional General and Refunding Mortgage securities on the basis of property additions and retired securities, the financial covenants contained in the Series E, Series G, Series I, and Series L Notes, the Series H Bond and the Revolving Credit Facility limit the amount of additional indebtedness that NPC may issue and the reasons for which such indebtedness may be issued.

     NPC also has the ability to release property from the liens of the two mortgage indentures on the basis of net property additions, cash and/or retired bonds. To the extent NPC releases property from the lien of its General and Refunding Mortgage Indenture, it will reduce the amount of securities issuable under that indenture.

Limitations on Indebtedness

     Certain of NPC’s financing agreements contain restrictions on NPC’s ability to issue additional indebtedness. The restrictions on issuing additional indebtedness in NPC’s various financing agreements are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Nevada Power Company — Liquidity and Capital Resources.” Under the terms of the limitations on issuing additional indebtedness, which remain unchanged from their description in the 2004 10-K, NPC would have been able to issue additional indebtedness. In addition, the terms of SPR’s $335 million 8 5/8% Senior Unsecured Notes due March 15, 2014, $99.1 million 7.803% Senior Notes due June 15, 2012, $140.9 million Series A Floating Rate Senior Notes due November 16, 2005 and $99.1 million Series B Floating Rate Senior Notes due November 16, 2005, contain restrictions on SPR’s, NPC’s and SPPC’s ability to issue additional indebtedness. As of June 30, 2005, SPR, NPC and SPPC are restricted to issuing no more than approximately $592 million of additional indebtedness on a consolidated basis, assuming an interest rate of 8 5/8% based upon SPR’s most recent debt issuance, unless the indebtedness being issued is specifically permitted under the terms of SPR’s 8 5/8% Senior Notes due 2014. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Resources — Liquidity and Capital Resources (SPR Consolidated) — Limitations on Indebtedness” for a description of the applicable restrictions.

Financial Covenants

     NPC’s Credit Agreement contains two financial maintenance covenants. The first requires that NPC maintain a ratio of consolidated indebtedness to consolidated capital, determined as of the last day of each fiscal quarter, not to exceed 0.68 to 1. The second requires that NPC maintain a ratio of consolidated cash flow to consolidated interest expense, determined as of the last day of each fiscal quarter for the period of four consecutive fiscal quarters, not to be less than 2.0 to 1. As of June 30, 2005, NPC was in compliance with both of the financial maintenance covenants.

Cross Default Provisions

     NPC’s financing agreements do not contain any cross-default provisions that would result in an event of default by NPC upon an event of default by SPR or SPPC under any of their respective financing agreements. Certain financing agreements of NPC provide for an event of default if there is a failure under other financing agreements of NPC to meet payment terms or to observe other covenants that would result in an acceleration of payments due. Most of these default provisions (other than ones relating to a failure to pay other indebtedness) provide for a cure period of 30-60 days from the occurrence of a specified event during which time NPC may rectify or correct the situation before it becomes an event of default. The primary cross-default provisions in NPC’s various financing agreements are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Nevada Power Company — Liquidity and Capital Resources,” and remain unchanged from their description in the 2004 10-K.

Judgment Related Defaults

     Certain of NPC’s financing agreements contain judgment default provisions that provide for an event of default if a final, unstayed judgment is rendered against NPC and remains undischarged after 60 days. The judgment default provisions in NPC’s various financing agreements and the consequences of a judgment default for NPC are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Nevada Power Company — Liquidity and Capital Resources.” There have been no changes to NPC’s judgment default provisions as described in the 2004 10-K.

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SIERRA PACIFIC POWER COMPANY

RESULTS OF OPERATIONS

     During the three months ended June 30, 2005, SPPC recognized net income of approximately $4.9 million compared to a net loss of approximately $32.2 million for the same period in 2004. During the six months ended June 30, 2005, SPPC recognized net income of approximately $17 million compared to a net loss of approximately $24.5 million for the same period in 2004. During the six months ended June 30, 2005, SPPC declared and paid approximately $2.0 million dividends to holders of its preferred stock. On August 2, 2005, SPPC declared an additional $975 thousand in dividends to holders of its preferred stock and declared $19.8 million of dividends on its common stock, all of which is held by its parent, SPR.

     Gross margin is presented by SPPC in order to provide information by segment that management believes aids the reader in determining how profitable the electric and gas businesses are at the most fundamental level. Gross margin provides a measure of income available to support the other operating expenses of the business and is utilized by management in its analysis of its business.

     The components of gross margin were (dollars in thousands):

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from								Change from
	2005		2004		Prior Year %			2005		2004			Prior Year %
Operating Revenues:
Electric	$	217,199	$	202,425		7.3	%	$	444,209	$	404,266			9.9	%
Gas		32,136		21,879		46.9	%		99,674		81,355			22.5	%
	$	249,335	$	224,304		11.2	%	$	543,883	$	485,621			12.0	%
Energy Costs:
Purchased Power	$	70,365	$	71,758		-1.9	%	$	149,089	$	137,718			8.3	%
Fuel for Power generation		54,626		53,797		1.5	%		108,988		107,599			1.3	%
Deferral of energy costs-electric-net		5,530		134		N/A			9,823		4,705			108.8	%
Gas purchased for resale		23,024		14,482		59.0	%		76,504		62,399			22.6	%
Deferral of energy costs-gas-net		1,332		1,376		-3.2	%		1,004		(31	)		N/A
	$	154,877	$	141,547		9.4	%	$	345,408	$	312,390			10.6	%
Energy Costs by Segment:
Electric	$	130,521	$	125,689		3.8	%	$	267,900	$	250,022			7.2	%
Gas		24,356		15,858		53.6	%		77,508		62,368			24.3	%
	$	154,877	$	141,547		9.4	%	$	345,408	$	312,390			10.6	%
Gross Margin by Segment:
Electric	$	86,678	$	76,736		13.0	%	$	176,309	$	154,244			14.3	%
Gas		7,780		6,021		29.2	%		22,166		18,987			16.7	%
	$	94,458	$	82,757		14.1	%	$	198,475	$	173,231			14.6	%

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     The causes of significant changes in specific lines comprising the results of operations are provided below (dollars in thousands, except for amounts per unit):

Electric Operating Revenues

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change							Change
					from Prior							from Prior
	2005		2004		year %			2005		2004		year %
Electric Operating Revenues:
Residential	$	58,559	$	49,676		17.9	%	$	132,132	$	112,636		17.3	%
Commercial		75,724		70,036		8.1	%		148,267		134,909		9.9	%
Industrial		77,302		70,568		9.5	%		150,638		137,124		9.9	%
Retail		211,585		190,280		11.2	%		431,037		384,669		12.1	%
Other1		5,614		12,145		-53.7	%		13,172		19,597		-32.8	%
Total Revenues	$	217,199	$	202,425		7.3	%	$	444,209	$	404,266		9.9	%
Retail sales in thousands of MWh		2,177		2,180		-0.1	%		4,472		4,413		1.34	%
Average retail revenue per MWh	$	97.19	$	87.28		11.4	%	$	96.39	$	87.17		10.6	%

¹ Primarily wholesale, as discussed below.

     SPPC’s retail revenues increased for the three months and six months ended June 30, 2005 as compared to the same periods in the prior year due to increases in customer rates, and customer growth, partially offset by cooler temperatures. Nevada customer rates increased as a result of SPPC’s General Rate Case, effective June 1, 2004, and an increase in Nevada customer energy rates as a result of SPPC’s Deferred Energy Cases effective July 15, 2004 and June 1, 2005. California customer energy rates increased effective December 1, 2004 (refer to “Regulatory Proceedings”). Also contributing to the increase was the growth in residential and commercial customers (3.1% and 3.7%, respectively).

     The decrease in Electric Operating Revenues — Other for the three and six months ended June 30, 2005 compared to the same periods in 2004, was primarily due to a decrease in the sales volumes for wholesale electric power to other utilities. Also contributing to the decrease was certain types of transactions that were reported in revenues for 2004 which are now being netted in purchased power under.

Gas Operating Revenues

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change							Change
					from Prior							from Prior
	2005		2004		year %			2005		2004		year %
Gas Operating Revenues:
Residential	$	16,575	$	10,692		55.0	%	$	54,094	$	42,078		28.6	%
Commercial		7,857		5,888		33.4	%		26,477		21,520		23.0	%
Industrial		3,399		2,222		53.0	%		9,122		6,268		45.5	%
Retail revenue		27,831		18,802		48.0	%		89,693		69,866		28.4	%
Wholesale revenue		3,588		2,389		50.2	%		8,608		10,001		-13.9	%
Miscellaneous		717		688		4.2	%		1,373		1,488		-7.7	%
Total Revenues	$	32,136	$	21,879		46.9	%	$	99,674	$	81,355		22.5	%
Retail sales in thousands of decatherms		2,753		1,926		42.9	%		9,152		7,487		22.2	%
Average retail revenues per decatherm	$	10.11	$	9.76		3.6	%	$	9.80	$	9.33		5.0	%

47

     Retail gas revenues increased for the three months and six months ended June 30, 2005 primarily due to cooler temperatures in 2005 as compared to the same periods of 2004. Also contributing to this increase was an increase in energy related rates that became effective November 1, 2004. This increase in the retail rates was the result of SPPC’s Purchased Gas Adjustment filing (see “Regulatory Proceedings” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2004 10-K). Also influencing this increase is the growth of retail customers of 4.5%.

     The wholesale revenues for the three months ended June 30, 2005 increased compared to the same period in 2004, primarily due to mild weather in June, which resulted in an increase in the availability of gas for wholesale sales. The decrease in wholesale revenues for the six months ended June 30, 2005 as compared to the same period in 2004 was due to the increase in retail usage in the first five months of 2005 as discussed above which decreased the availability of gas for wholesale sales.

     Based on SPPC’s projected customer forecast, SPPC expects retail gas customers to continue to grow.

Purchased Power

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from							Change from
	2005		2004		Prior Year %			2005		2004		Prior Year %
Purchased Power	$	70,365	$	71,758		-1.9	%	$	149,089	$	137,718		8.3	%
Purchased Power in thousands of MWhs		1,432		1,429		0.2	%		2,832		2,633		7.6	%
Average cost per MW of Purchased Power	$	49.13	$	50.22		-2.2	%	$	52.64	$	52.30		1.0	%

     Purchased power costs for the three months ended June 30, 2005 decreased slightly due to the effect of certain types of transactions that were reported in revenues for 2004 which are now being netted in purchased power. Purchased power costs for the six months ended June 30, 2005 compared to the same period in 2004 increased primarily due to higher volumes and higher prices of purchased power. The increase in volume was the result of SPPC relying more on purchased power to satisfy its native load requirements.

Fuel For Power Generation

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from							Change from
	2005		2004		Prior Year %			2005		2004		Prior Year %
Fuel for Power Generation	$	54,626	$	53,797		1.5	%	$	108,988	$	107,599		1.3	%
Thousands of MWh generated		1,018		1,060		-4.0	%		2,089		2,243		-6.9	%
Average fuel cost per MWh of Generated Power	$	53.66	$	50.75		5.7	%	$	52.17	$	47.97		8.8	%

     Fuel for power generation costs increased for the three months and six months ended June 30, 2005 as compared to the same period in 2004 primarily due to higher natural gas and coal prices. The decrease in the volume of generation was due to SPPC relying more on purchased power to satisfy its native load requirements.

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Gas Purchased for Resale

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change from							Change from
	2005		2004		Prior Year %			2005		2004		Prior Year %
Gas Purchased for Resale	$	23,024	$	14,482		59.0	%	$	76,504	$	62,399		22.6	%
Gas Purchased for Resale (in thousands of decatherms)		3,028		1,980		52.9	%		10,387		9,210		12.8	%
Average cost per decatherm	$	7.60	$	7.31		4.0	%	$	7.37	$	6.78		8.7	%

     The cost of gas purchased for resale increased for the three months and six months ended June 30, 2005 as compared to the same period in 2004 primarily due to increases in natural gas prices and the volume of gas purchased for resale. The volume of gas purchased for resale increased for the three and six months ended June 30, 2005 as compared to the same period in 2004 primarily due to the colder winter weather continuing through May of 2005.

Deferred Energy Costs

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change								Change
					from Prior								from Prior
	2005		2004		Year %			2005		2004			Year %
Deferred energy costs — electric — net	$	5,530	$	134		N/A		$	9,823	$	4,705			N/A
Deferred energy costs — gas — net	$	1,332	$	1,376		-3.2	%	$	1,004	$	(31	)		N/A
	$	6,862	$	1,510		N/A		$	10,827	$	4,674			N/A

     The increase in deferred energy costs — electric — net for the three months and six months ended June 30, 2005, compared to the same period in 2004, was due to actual fuel and purchased power costs exceeding recovery of fuel and purchased power costs through current rates at a lesser extent in 2005 than in 2004. During periods when actual fuel and purchase power costs exceed amounts recovered through rates, the excess is shown as a reduction in costs.

     SPPC’s Deferred energy costs — gas — net decreased for the three months ended June 30, 2005, as the result of lower amortization of prior deferred energy costs in 2005 as compared with 2004 due to lower rates. This was offset by an increase in the recovery of actual natural gas costs through rates in 2005 compared to the recovery of costs through rates in 2004. SPPC’s Deferred energy costs — gas — net increased for the six months ended June 30, 2005, as a result of an increase in the recovery of actual natural gas costs through rates in 2005 compared to the recovery of gas costs through rates in 2004. This was partially offset by a decrease in amortization of prior deferred energy costs in 2005 as compared with 2004 due to lower rates.

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Allowance for Funds Used During Construction (AFUDC)

	Three Months							Six Months
	Ended June 30,							Ended June 30,
					Change							Change
					from							from
					Prior							Prior
	2005		2004		Year %			2005		2004		Year %
Allowance for other funds used during construction	$	481	$	567		-15.2	%	$	800	$	1,283		-37.6	%
Allowance for borrowed funds used during construction	$	449	$	891		-49.6	%	$	739	$	2,134		-65.4	%
	$	930	$	1,458		-36.2	%	$	1,539	$	3,417		-55.0	%

     SPPC’s AFUDC is lower for the three months and six months ended June 30, 2005 compared to the same periods in 2004 due to the completion of the Falcon to Gonder transmission line, which was placed in service in May 2004.

Other (Income) and Expense

	Three Months									Six Months
	Ended June 30,									Ended June 30,
							Change									Change
							from									from
							Prior									Prior
	2005			2004			Year %			2005			2004			Year %
Other operating expense	$	33,769		$	32,891			2.7	%	$	68,538		$	63,702			7.6	%
Maintenance expense	$	7,760		$	5,426			43.0	%	$	13,751		$	10,358			32.8	%
Depreciation and amortization	$	22,537		$	22,138			1.8	%	$	44,924		$	43,336			3.7	%
Income tax expense/(benefit)	$	2,751		$	(571	)		N/A		$	9,354		$	305			N/A
Interest charges on long-term debt	$	17,319		$	17,847			-3.0	%	$	34,626		$	36,715			-5.7	%
Interest charges—other	$	1,255		$	2,470			N/A		$	2,401		$	4,627			-48.1	%
Interest accrued on deferred energy	$	(1,693	)	$	(1,183	)		43.1	%	$	(3,276	)	$	(2,337	)		40.2	%
Other income	$	(1,496	)	$	(896	)		67.0	%	$	(2,467	)	$	(1,756	)		40.5	%
Disallowed merger costs	$	—		$	—			N/A		$	—		$	1,929			N/A
Plant costs disallowed	$	—		$	47,092			N/A		$	—		$	47,092			N/A
Other expense	$	1,593		$	1,242			28.3	%	$	3,233		$	2,555			26.5	%
Income taxes — other income and expense	$	763		$	(15,035	)		N/A		$	1,215		$	(15,358	)		N/A
Taxes other than income	$	5,931		$	4,981			19.1	%	$	10,679		$	9,996			6.8	%

     Other operating expense increased for the three month and six month periods ending June 30, 2005 compared to the same period in 2004 primarily due to increased legal fees, amortization of regulatory assets and severance costs associated with the reorganization of SPPC, NPC and SPR.

     Maintenance costs for the three and six month periods ending June 30, 2005 increased from the prior year due to the timing of scheduled and unscheduled plant maintenance at Ft. Churchill, Valmy and Tracy.

     Depreciation and amortization expenses were higher for the three months and the six months ended June 30, 2005 compared to the same periods in 2004 primarily as a result of increases to plant-in-service. The major contributor to this increase was the addition of the Falcon to Gonder transmission line, which was placed in service May 2004.

     SPPC’s Income tax expense for the three months and six months ended June 30, 2005, increased compared to the same period in 2004, as a result of an increase in pretax net income.

     SPPC’s interest charges on long-term debt for the three months and six months ended June 30, 2005 decreased from the same period in 2004 due to lower rates of interest on new and existing debt. See Note 7, Long-Term Debt of the Notes to Financial Statements in the 2004 10-K and Note 5, Long-Term Debt for additional information regarding long-term debt.

50

     SPPC’s interest charges-other for the three months and six months ended June 30, 2005 decreased compared to the same period in 2004 due primarily to the absence of charges related to the accounts receivable facility and short-term debt. See Note 6, Short-Term Borrowings, of the Notes to Financial Statements in the 2004 10-K for additional information.

     Interest accrued on deferred energy costs increased for the three months and six months ended June 30, 2005 compared to the same period in 2004 due to higher deferred fuel and purchased power balances and rates during 2005.

     SPPC’s Other income for the three months and six months ended June 30, 2005 increased primarily due to increased interest income.

     SPPC did not incur any disallowed merger costs for the six months ended June 30, 2005, nor does SPPC expect to incur any disallowed merger costs in 2005. Disallowed merger costs for the six months ended June 30, 2004 was a result of the PUCN decision in SPPC’s 2004 General Rate Case. Disallowed merger costs expense includes the 2004 write-off of costs that resulted from the July 28, 1999 merger between SPR and NPC, allocable to non-Nevada jurisdictional electricity sales, which were determined not to be recoverable in future rates. See “Regulatory Proceedings” — in the 2004 10-K.

     SPPC’s plant costs disallowed for the three months ended and six months ended June 30, 2004 was the result of the decision of the PUCN to disallow recovery of a portion of the costs associated with the Pinon Pine power plant project. See the 2004 10-K, Note 3, Regulatory Actions for further discussion.

     SPPC’s Other expense increased for the three months and six months ended June 30, 2005 compared to the same period in 2004, due to various charges, all of which were not individually significant.

     Income taxes — other income and expense recorded income tax expense for the three months and six months ended June 30, 2005 compared to an income tax benefit recognized during the same period in 2004. The 2004 tax benefit was recognized primarily as a result of an impairment charge associated with the Pinon Pine generating facility during the second quarter of 2004. See Note 3, Regulatory Actions in the 2004 10-K for additional information regarding the impairment charge.

     The increase in taxes other than income for the three months and six months ended June 30, 2005, compared to the same periods in 2004 were caused by the settlement of a sales tax audit during the second quarter and an increase in franchise fees based on net income.

ANALYSIS OF CASH FLOWS

     SPPC’s cash flows increased during the six months ended June 30, 2005, when compared to the same period in 2004, as a result of an increase in cash flows from operating activities and a decrease in cash used by financing activities partially offset by an increase in cash used in investing activities. Cash flows from operating activities were higher in 2005 due to rate increases that became effective in the second quarter of 2004, which was the result of SPPC’s General and Deferred Rate Cases (refer to “Regulatory Proceedings” in the 2004 10-K). Also causing an increase in cash flow from operations was the $11 million escrow payment for Enron in 2004, a reduction in prepayments and deposits for energy in 2005 due to the establishment of the revolving credit facility and changes in accounts receivables for tax sharing agreements. Cash flows used by financing activities decreased in 2005, when compared to 2004, due to the repayment of $25 million in short-term borrowing in March 2004. Cash flows used in investing activities increased primarily as a result of construction activity related to growth.

LIQUIDITY AND CAPITAL RESOURCES

     SPPC had cash and cash equivalents of approximately $81 million at June 30, 2005, and additional liquidity in the amount of $72.5 million available under the company’s $75 million revolving credit facility. On October 20, 2005, the maximum availability under SPPC’s revolving credit facility will be reduced to $50 million. The total liquidity does not include restricted cash of $11 million which has been deposited into escrow in connection with the stay of the Enron Judgment. As of August 8, 2005, SPPC has no direct borrowings and $2.9 million of letters of credit outstanding under the revolving credit facility.

     SPPC anticipates it will be able to meet fuel and purchased power costs through internally generated funds, including the recovery of deferred energy. As discussed in Construction Expenditures and Financing and Contractual Obligations in the 2004 10-K, SPPC anticipates capital requirements for construction costs during 2005 totaling approximately $176.6 million, which SPPC expects to finance with internally generated funds and, if necessary, the use of its revolving credit facility. As of June 30, 2005, SPPC has incurred approximately $48.7 million in construction expenditures.

     During the three months and six months ended June 30, 2005, there were no material changes to contractual obligations as set forth in SPPC’s 2004 10-K.

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Mortgage Indentures

     SPPC’s First Mortgage Indenture creates a first priority lien on substantially all of SPPC’s properties in Nevada and California. As of June 30, 2005, $487.3 million of SPPC’s first mortgage bonds were outstanding. SPPC agreed in its General and Refunding Mortgage Indenture that it would not issue any additional first mortgage bonds.

     SPPC’s General and Refunding Mortgage Indenture creates a lien on substantially all of SPPC’s properties in Nevada that is junior to the lien of the first mortgage indenture. As of June 30, 2005, there were $420 million of SPPC’s General and Refunding Mortgage securities outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of:

1.	70% of net utility property additions,
2.	the principal amount of retired General and Refunding Mortgage Bonds, and/or
3.	the principal amount of first mortgage bonds retired after April 8, 2002.

     On the basis of (1), (2) and (3) above, as of June 30, 2005, SPPC had the capacity to issue approximately $360 million of additional General and Refunding Mortgage securities. Although SPPC has substantial capacity to issue additional General and Refunding Mortgage securities on the basis of property additions and retired securities, the financial covenants contained in the Revolving Credit Agreement limit the amount of additional indebtedness that SPPC may issue and the reasons for which such indebtedness may be issued.

     SPPC also has the ability to release property from the liens of the two mortgage indentures on the basis of net property additions, cash and/or retired bonds. To the extent SPPC releases property from the lien of its General and Refunding Mortgage Indenture, it will reduce the amount of bonds issuable under that indenture.

Limitations on Indebtedness

     Certain of SPPC’s financing agreements contain restrictions on SPPC’s ability to issue additional indebtedness. The restrictions on issuing additional indebtedness in SPPC’s various financing agreements are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Power Company — Liquidity and Capital Resources.” Under the terms of the limitations on issuing additional indebtedness, which remain unchanged from their description in the 2004 10-K, SPPC would have been able to issue additional indebtedness. In addition, the terms of SPR’s $335 million 8 5/8% Senior Unsecured Notes due March 15, 2014, $99.1 million 7.803% Senior Notes due June 15, 2012, $140.9 million Series A Floating Rate Senior Notes due November 16, 2005 and $99.1 million Series B Floating Rate Senior Notes due November 16, 2005, contain restrictions on SPR’s, NPC’s and SPPC’s ability to issue additional indebtedness. As of June 30, 2005, SPR, NPC and SPPC are restricted to issuing no more than approximately $592 million of additional indebtedness on a consolidated basis, assuming an interest rate of 8 5/8% based upon SPR’s most recent debt issuance, unless the indebtedness being issued is specifically permitted under the terms of SPR’s 8 5/8% Senior Notes due 2014. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Resources — Liquidity and Capital Resources (SPR Consolidated) — Limitations on Indebtedness” for a description of the applicable restrictions.

Financial Covenants

     SPPC’s Credit Agreement contains two financial maintenance covenants. The first requires that SPPC maintain a ratio of consolidated indebtedness to consolidated capital, determined as of the last day of each fiscal quarter, not to exceed 0.68 to 1. The second requires that SPPC maintain a ratio of consolidated cash flow to consolidated interest expense, determined as of the last day of each fiscal quarter for the period of four consecutive fiscal quarters, not to be less than 2.0 to 1. As of June 30, 2005, SPPC was in compliance with both of the financial maintenance covenants.

Cross Default Provisions

     SPPC’s financing agreements do not contain any cross-default provisions that would result in an event of default by SPPC upon an event of default by SPR or NPC under any of their respective financing agreements. Certain financing agreements of SPPC provide for an event of default if there is a failure under other financing agreements of SPPC to meet payment terms or to observe other covenants that would result in an acceleration of payments due. Most of these default provisions (other than ones relating to a failure to pay other indebtedness) provide for a cure period of 30-60 days from the occurrence of a specified event during which time SPPC may rectify or correct the situation before it becomes an event of default. The primary cross-default provisions in SPPC’s various financing agreements are briefly summarized in the 2004 10-K

52

in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Power Company — Liquidity and Capital Resources,” and remain unchanged from their description in the 2004 10-K.

Judgment Related Defaults

     Certain of SPPC’s financing agreements contain judgment default provisions that provide for an event of default if a final, unstayed judgment is rendered against SPPC and remains undischarged after 60 days. The judgment default provisions in SPPC’s various financing agreements and the consequences of a judgment default for SPPC are summarized in the 2004 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Sierra Pacific Power Company — Liquidity and Capital Resources.” There have been no changes to SPPC’s judgment default provisions as described in the 2004 10-K.

REGULATORY PROCEEDINGS (UTILITIES)

     The Utilities are subject to the jurisdiction of the PUCN and, in the case of SPPC, the CPUC with respect to rates, standards of service, siting of and necessity for, generation and certain transmission facilities, accounting, issuance of securities and other matters with respect to electric distribution and transmission operations. NPC and SPPC submit Integrated Resource Plans (IRPs) to the PUCN for approval.

     Under federal law, the Utilities and TGPC are subject to certain jurisdictional regulation, primarily by the FERC. The FERC has jurisdiction under the Federal Power Act with respect to rates, service, interconnection, accounting and other matters in connection with the Utilities’ sale of electricity for resale and interstate transmission. The FERC also has jurisdiction over the natural gas pipeline companies from which the Utilities take service.

     As a result of regulation, many of the fundamental business decisions of the Utilities, as well as the rate of return they are permitted to earn on their utility assets, are subject to the approval of governmental agencies. The following regulatory proceedings have affected, or are expected to affect the Utilities’ financial positions, results of operations and cash flows.

Nevada Matters

Nevada Power Company 2004 Deferred Energy Case

     On November 15, 2004, NPC filed an application with the PUCN seeking recovery for purchased fuel and power costs accumulated between October 1, 2003 and September 30, 2004, as required by law. The application sought to establish a rate to collect accumulated purchased fuel and power costs of $116 million, with a carrying charge. The application requested that the 2004 Deferred Energy Accounting Adjustment (DEAA) recovery begin with the expiration of the 2002 DEAA recovery, which was expected to occur in May 2006 and for the 2004 DEAA recovery period to be 22 months.

     The application also requested an increase to the going-forward base tariff energy rate (BTER).

     In concert with this 2004 DEAA filing, NPC filed a petition with the PUCN requesting that other pending DEAA rate changes be synchronized to change on April 1, 2005 in order to stabilize rates and reduce the number of rate changes. On December 28, 2004, the PUCN issued an order approving a stipulation reached by all parties that allows NPC to defer previously approved DEAA rate changes until April 1, 2005 coincident with the DEAA rate change that will result from the 2004 DEAA case.

     The combined effect of the requested synchronization of multiple rate changes (going forward BTER increase, 2001 DEAA expiration, and 2003 DEAA initiation) resulted in a request for an overall rate decrease of 2.4%.

     On February 22, 2005, a stipulation of the parties was filed with the PUCN resolving all issues in the case. The stipulation provides for an overall decrease of 0.6% in total rates with no disallowances. The PUCN approved the stipulation in total on March 16, 2005.

Nevada Power Company Updated Going Forward Base Tariff Energy Rate (BTER)

     On June 3, 2005, pursuant to newly adopted regulations allowing more frequent energy cost adjustments, NPC filed a request to increase its BTER tariff’s to reflect forecasted energy costs. The requested increase to the BTER is expected to increase revenue by $62.4 million for the period November 1, 2005 to October 31, 2006, which would reduce deferred energy expenses during the same period. The proposed increase will not affect NPC’s operating income. The increase is intended to recoup, on a more current basis, actual fuel and purchased power costs that NPC will incur during the rate effective period.

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     The request represents an increase of 3.74% for the average residential customer and 3.53% for all other customer classes. NPC requested the new rates to become effective on October 1, 2005.

     The PUCN has scheduled a hearing for late August 2005 and has scheduled a decision for September 21, 2005.

Nevada Power Company Amendments to its Integrated Resource Plan

Long Term Power Exchange

     On April 18, 2005, NPC filed an application with the PUCN requesting authorization to enter into an agreement with the Southern Nevada Water Authority (SNWA) that will allow NPC to dispatch SNWA’s 25% capacity ownership in the Silverhawk generating plant. The eight year agreement gives NPC the ability to use 125MW of the Silverhawk capacity and in return NPC will supply 75MW of firm power to SNWA.

     On May 19, 2005, the PUCN approved the Power Exchange Agreement.

Silverhawk Plant Acquisition

     On June 29, 2005, NPC filed an application for approval to purchase a 75% interest in the 560MW gas fired Silverhawk power plant from Pinnacle West Capital Corp, Pinnacle West Energy Corp and GenWest, LLC. The Silverhawk generating plant is located 25 miles northeast of Las Vegas and is near to NPC’s Lenzie Power plant. NPC made concurrent filings requesting approval of an interim Silverhawk power purchase agreement and approval to issue $210 million of debt financing.

Clark Generating Unit Retirements

     NPC has requested approval to retire and recover the associated retirement and cost of removal costs for the Clark Generating Station units 1, 2 and 3. NPC requested approval to defer the expense by setting up regulatory asset accounts to capture the Clark retirement and cost of removal costs for future ratemaking treatment. In the event the PUCN authorizes the shut down of the Clark station, NPC will have to evaluate the plant in accordance with SFAS No. 90, “Accounting for Abandonments and Disallowances of Plant Costs.” For further discussion see Note 7, Commitments and Contingencies, Regulatory Contingencies of the Condensed Notes to Financial Statements.

     NPC asked the Commission to issue its decision before September 30, 2005. The PUCN held a pre-hearing conference on July 27, 2005 and set hearing dates for September 28-30, 2005.

Sierra Pacific Power Company 2005 Electric Deferred Energy Case

     On January 14, 2005, SPPC filed an application with the PUCN seeking recovery for purchased fuel and power costs accumulated between December 1, 2003 and November 30, 2004, as required by law. The application sought to establish a rate to collect accumulated purchased fuel and power costs of $27.7 million, with a carrying charge. The application requested that the 2005 DEAA recovery begin on June 1, 2005 together with the commencement of recovery of the 2004 DEAA balance both of which are coincident with the expiration of the 2002 and 2003 DEAA recovery. SPPC has requested a 24-month recovery period for the 2005 DEAA balance.

     The application also requested an increase to the going-forward BTER.

     The combined effect of the proposed synchronization of multiple rate changes (going forward BTER increase, 2002 and 2003 DEAA expiration, 2004 and 2005 DEAA initiation) resulted in a request for an overall rate increase of approximately 1.85%.

     On March 30, 2005 SPPC filed an updated forecast of its going-forward BTER. If implemented, the new BTER, including the 2002 and 2003 DEAA expiration, and the 2004 and 2005 DEAA initiation, would result in an 8.73% overall rate increase.

     On April 6, 2005, the PUCN Staff and the BCP filed written direct testimony in this case. The testimony recommended full recovery of the deferred balance after a $576 thousand reduction to reflect an accounting adjustment mutually agreed to by the parties. The PUCN Staff recommended adoption of the higher BTER rate that SPPC filed on March 30, 2005 while the BCP opposed the implementation of the higher BTER.

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     The PUCN issued its order on May 17, 2005 granting $27.1 million deferred expense recovery ($27.7 million requested less $.6 million), modifying the amortization period from the two years requested to one year and approving a BTER rate based on the historical costs methodology as provided for in the Nevada Administrative Code.

     For further detail of deferred energy cases see Note 3, Regulatory Actions of the Notes to Financial Statements in the 2004 10-K.

Sierra Pacific Power Company Updated Going Forward Energy Rate (BTER)

     On July 1, 2005, SPPC filed a request to increase its BTER tariffs to reflect forecasted energy costs. The requested increase to the BTER is expected to increase revenue by $32.3 million for the period October 1, 2005 to September 30, 2006 and would reduce future deferred energy expenses during the same period. The proposed increase will not affect SPPC’s operating income. The increase is intended to recoup, on a more current basis, actual fuel and purchased power costs that SPPC will incur during the rate effective period.

     The request represents an increase of 3.7% for the average customer and the requested effective date is October 1, 2005.

Sierra Pacific Power Company 2005 Gas Deferred Energy Rate Case and Gas BTER Filing

     Newly enacted regulations require SPPC to account for gas purchases to serve its gas customers in the same manner as it does for its electric customer fuel and power purchases. On May 13, 2005, SPPC filed a gas deferred energy rate case requesting recovery of $6.9 million of deferred energy costs. The filing requests a two-year amortization of the deferred energy balance which represents a 3.2% average increase for all customers.

     On July 1, 2005 SPPC filed a proposed gas BTER rate, which represents an average increase of 19.5% for all customer classes. The estimated BTER revenue will not change the Company’s operating income.

     Hearings for the above two filings are expected to begin in the latter part of September 2005. SPPC expects a decision will be rendered in this docket by November 2005.

Sierra Pacific Power Company 2005 Electric and Gas General Rate Cases

     In early October 2005, SPPC will be filing general rate cases for its gas and electric operations. SPPC’s last gas general rate case was filed in 1994 and the last electric general rate case was filed in 2003.

Sierra Pacific Power Company Amendment to its 2004 Integrated Resource Plan

     On August 1, 2005, SPPC filed an amendment to its IRP previously approved by the PUCN on November 18, 2004. In the amendment SPPC is requesting approval to construct a 514 MW combined cycle unit at its Tracy Station located 16 miles East of Reno. The estimated cost to construct the unit is $421 million and is scheduled to be in service by June 2008. The unit will provide needed generation within the Utilities' control area to reliably serve the growing needs of Northern Nevada. SPPC has requested that the unit be designated as a Critical Facility under Nevada regulations, and as such, has requested the following cost recovery mechanisms: 1) an incentive return of 2% above the company authorized rate of return on equity and 2) include the project’s construction work in progress (CWIP) in rate base for all general rate cases prior to the facility being placed into service. SPPC is expecting a decision by the PUCN by mid-December.

Nevada Power Company/Sierra Pacific Power Company Quality of Service Investigation

     In compliance with the order issued in NPC’s 2003 General Rate case, NPC and SPPC jointly filed with the PUCN, on July 1, 2004, their recommended quality of service and customer service measurements. In the filing, the Utilities outlined their proposed methodologies for measuring the quality of service and customer service measurements, pre and post merger. More specifically the companies identified the quality of service and customer service measurements to be used in a future rate case, proposed methodology for comparing pre-merger and post-merger performance, and proposed consequences and rewards for under- or over- performance in a future test year. On March 2, 2005, the Interveners in the case, the staff of the PUCN and the BCP, filed testimony regarding their proposed methodologies for measuring quality of service and customer service measurements. The Utilities filed rebuttal testimony on April 18, 2005. The hearing officer issued a draft order for comment by the parties and the PUCN. The parties filed comments and the PUCN discussed the proposed order during its July 12, 2005 agenda meeting. The PUCN is expected to vote on a revised order in the 3^rd quarter of 2005.

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California Matters

Sierra Pacific Power Company

     On June 3, 2005, SPPC filed a California general rate case requesting $8.1 million of new revenue from approximately 40,000 California customers. The request represents a 12.7% average increase. The Company has requested that the new rates become effective on January 1, 2006.

FERC Matters

Sierra Pacific Power Company 2004 Transmission Rate Case

     On October 1, 2004, the Utilities filed with the FERC revised rates for transmission service offered by SPPC under Docket No. ER05-14. The purpose of the filing was to update rates to reflect recent transmission additions and to improve rate design. The participants in the proceeding have filed a Settlement Agreement with the FERC which has been certified by the Settlement judge. On May 6, 2005, the FERC issued an order approving the negotiated settlement.

RECENT PRONOUNCEMENTS

     The Securities and Exchange Commission (SEC) announced on April 14, 2005 that it was delaying implementation of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R). Under SFAS 123R, registrants would have been required to implement the standard as of the beginning of the first interim or annual period that begins after June 15, 2005. SPR would have been permitted to follow the pre-existing accounting literature for the first and second quarters of 2005, but required to follow SFAS 123R for third quarter reports and thereafter. The SEC’s new rule allows SPR to implement SFAS 123R at the beginning of the next fiscal year that begins after June 15, 2005, or periods beginning December 31, 2005. The SEC’s new rule does not change the accounting required by SFAS 123R. Amounts that were previously shown in footnote disclosure by SPR will now be recognized in the income statement. SPR intends to utilize the services of its actuaries to value share-based compensation.

     In March 2005, the FASB issued FASB Interpretation No. FIN 47 “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143” (FIN 47), which clarifies the term “conditional asset retirement obligation” as used in SFAS No. 143 “Accounting for Asset Retirement Obligations”. Specifically, FIN 47 provides that an asset retirement obligation is conditional when either the timing and (or) method of settling the obligation is conditioned on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal years ending after December 15, 2005. Management is currently evaluating the effect that adoption of this interpretation will have on SPR’s and the Utilities’ financial position and results of operations.

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (SFAS 154) which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SPR and the Utilities are currently evaluating the effect that the adoption of SFAS 154 will have on its results of operations and financial condition but does not expect it to have a material impact.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

     As of June 30, 2005, SPR, NPC and SPPC have evaluated their risk related to financial instruments whose values are subject to market sensitivity. Such instruments are fixed and variable rate debt and preferred trust securities. Fair market value is determined using quoted market price for the same or similar issues or on the current rates offered for debt of the same remaining maturities (dollars in thousands).

Expected Maturity Date

																						Fair
	2005			2006			2007			2008			2009			Thereafter			Total			Value
Long-term Debt
SPR
Fixed Rate	$	—		$	—		$	141,077		$	—		$	—		$	734,141		$	875,218		$	1,400,165
Average Interest Rate		—			—			7.93	%		—			—			7.95	%		7.97	%
NPC
Fixed Rate	$	210,008		$	15		$	17		$	13		$	162,500		$	1,741,048		$	2,113,601		$	2,238,647
Average Interest Rate		9.78	%		8.17	%		8.17	%		8.17	%		10.88	%		7.20	%		7.74	%
Variable Rate							$	50,000					$	15,000		$	100,000		$	165,000		$	165,000
Average Interest Rate								5.5	%					1.74	%		1.74	%		2.88	%
SPPC
Fixed Rate	$	854		$	52,400		$	2,400		$	322,400		$	600		$	617,250		$	995,904		$	1,026,365
Average Interest Rate		6.10	%		6.71	%		6.10	%		7.99	%		6.10	%		6.52	%		7.00	%
Total Debt	$	210,862		$	52,415		$	193,494		$	322,413		$	178,100		$	3,192,439		$	4,149,723		$	4,830,177

Commodity Price Risk

     See the 2004 10-K, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, Commodity Price Risk, for a discussion of Commodity Price Risk. No material changes in commodity risk have occurred since December 31, 2004.

Credit Risk

     The Utilities monitor and manage credit risk with their trading counterparties. Credit risk is defined as the possibility that a counterparty to one or more contracts will be unable or unwilling to fulfill its financial or physical obligations to the Utilities because of the counterparty’s financial condition. The Utilities’ credit risk associated with trading counterparties was approximately $43 million as of June 30, 2005, which increased significantly from December 31, 2004 due to an increase in trading transactions to meet the demand of the summer months and a general increase in power market prices of approximately $5 — $7 per MWh. In the event that the trading counterparties are unable to deliver under their contracts, it may be necessary for the Utilities to purchase alternative energy at a higher market price.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

     SPR, NPC and SPPC’s principal executive officers and principal financial officers, based on their evaluation of the registrants’ disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) have concluded that, as of June 30, 2005, the registrants’ disclosure controls and procedures were adequate and effective.

(b) Change in internal controls over financial reporting.

     There were no changes in internal controls over financial reporting in the second quarter of 2005 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

Nevada Power Company and Sierra Pacific Power Company

Enron Litigation

     On October 10, 2004, the U.S. District Court for the Southern District of New York (U.S. District Court) rendered a decision vacating an earlier judgment by the Bankruptcy Court (also for the Southern District of New York) against the Utilities in favor of Enron Power Marketing, Inc. (Enron), and remanded the case back to the Bankruptcy Court for fact-finding. A description of the legal proceedings leading up to the District Court’s order to vacate follows, along with a discussion of all pending matters related to the Enron litigation.

     On August 8, 2005, President Bush signed the Domenici Barton Energy Policy Act into law (the “Energy Bill”). The Energy Bill contains language that relates to the Utilities' disputes with Enron over termination payments Enron claims are owed to them arising from forward power purchase contracts terminated by Enron in 2002. The amendment grants FERC exclusive jurisdiction over the determination of whether any such payments are unjust, unreasonable or contrary to the public interest. The Utilities have not yet determined what impact the law will have on the status of the various ongoing legal proceedings at this time.

Bankruptcy Court Judgment

     On June 5, 2002, Enron filed suit against the Utilities in its bankruptcy case in the U.S. Bankruptcy Court for the Southern District of New York (Bankruptcy Court), asserting claims for termination payments Enron claimed it was owed under purchased power contracts with the Utilities. Enron sought liquidated damages in the amount of approximately $216 million from NPC and $93 million from SPPC based on assertions by Enron that it had contractual rights under the Western Systems Power Pool Agreement (WSPPA) to terminate deliveries to the Utilities. Enron based its assertion on a claim that the Utilities did not provide adequate assurance of the Utilities’ performance under the WSPPA. The Utilities dispute that they owe the monies sought by Enron and have denied liability on numerous grounds, including termination, deceit and fraud in the inducement, fraud, breach of contract, and unfair trade practices.

     On September 26, 2003, the Bankruptcy Court entered a summary judgment (the Judgment) in favor of Enron for damages related to the termination of Enron’s power supply agreements with the Utilities. The Judgment required NPC and SPPC to pay approximately $235 million and $103 million, respectively, to Enron for liquidated damages and pre-judgment interest for power not delivered by Enron under the power supply contracts terminated by Enron in May 2002 and approximately $17.7 million and $6.7 million, respectively, for power previously delivered to the Utilities. Based on the pre-judgment rate of 12%, NPC and SPPC recognized additional interest expense of $27.8 million and $12.4 million, respectively, in contract termination liabilities in the third quarter 2003. Also, NPC and SPPC recorded additional contract termination liabilities for liquidated damages of $6.6 million and $2.1 million, respectively, in the third quarter of 2003. The Bankruptcy Court’s order provided that until paid, the amounts owed by the Utilities will accrue interest post-Judgment at a rate of 1.21% per annum.

     In response to the Judgment, the Utilities filed a motion with the Bankruptcy Court seeking a stay pending appeal of the Judgment and proposing to issue General and Refunding Mortgage Bonds as collateral to secure payment of the Judgment. On November 6, 2003, the Bankruptcy Court ruled to stay execution of the Judgment conditioned upon NPC and SPPC posting into escrow $235 million and $103 million, respectively, of General and Refunding Mortgage Bonds plus approximately $282 thousand in cash by NPC for pre-judgment interest. On December 4, 2003, NPC and SPPC complied with the order of the Bankruptcy Court by issuing NPC’s $235 million General and Refunding Mortgage Bond, Series H and SPPC’s $103 million General and Refunding Mortgage Bond, Series E into escrow along with the required cash deposit for NPC. Additionally, the Utilities were ordered to place into escrow $35 million, approximately $24 million and $11 million for NPC and SPPC, respectively, within 90 days from the date of the order, which lowered the principal amount of General and Refunding Mortgage Bonds held in escrow by a like amount. The Utilities made the payments as ordered on February 10, 2004. The Bankruptcy Court also ordered that during the duration of the stay, the Utilities (i) cannot transfer any funds or assets other than to unaffiliated third parties for ordinary course of business operating and capital expenses, (ii) cannot pay dividends to SPR other than for SPR’s current operating expenses and debt payment obligations, and (iii) shall seek a ruling from the PUCN to determine whether the cash payments into escrow triggered the Utilities’ rights to seek recovery of such amounts through the Utilities’ deferred energy rate cases.

     On November 21, 2003, the Utilities filed a Petition for Declaratory Order with the PUCN, as required by the Bankruptcy Court’s stay order seeking a determination as to whether payment of all or part of the Judgment into escrow would be subject to recovery through a deferred energy accounting adjustment. On February 6, 2004, the PUCN issued its final order indicating that posting or depositing money in escrow would not constitute payment of fuel or purchased power costs eligible for recovery in a deferred account.

     On April 5, 2004, Enron and the Utilities entered into a settlement whereby NPC agreed to post an additional cash sum of $25 million to be held in escrow pending the issuance of the U.S. District Court’s opinion and Enron agreed not to request any additional collateral from NPC or SPPC during the pendency of the Utilities’ appeal of the Judgment to the U.S.

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District Court for the Southern District of New York. NPC made the agreed-upon payment on April 16, 2004, which lowered the principal amount of NPC’s General and Refunding Mortgage Bond, Series H, currently held in escrow, by a like amount.

     The Utilities entered into a stipulation and agreement with Enron which was signed by the Bankruptcy Court on June 30, 2004 which provides that (1) the Utilities shall withdraw their objections to the confirmation of Enron’s bankruptcy plan, (2) the collateral contained in the Utilities’ escrow accounts securing their stay of execution of the Judgment shall not be deemed property of Enron’s bankruptcy estate or the Utilities’ estates in the event of a bankruptcy filing, and (3) the stay of execution of the Judgment, as previously ordered by the Bankruptcy Court, shall remain in place without any additional principal contributions by the Utilities to their existing escrow accounts during the pendency of any and all of their appeals of the Judgment, including to the United States Supreme Court, until a final non-appealable judgment is obtained. There can be no assurances that the U.S. District Court or any higher court to which the Utilities appeal the Judgment will accept the existing collateral arrangement to secure further stays of execution of the Judgment.

     On October 15, 2004, the Bankruptcy Court ruled that Enron was entitled to take the $17.7 million and $6.7 million deposited by NPC and SPPC, respectively, for power previously delivered to them, out of escrow for the benefit of Enron’s bankruptcy estate. The Utilities have challenged the Bankruptcy Court’s order with respect to these payments, and no final ruling has been made by the Bankruptcy Court.

     Appeal of Bankruptcy Court Judgment to U.S. District Court

     On October 1, 2003, the Utilities filed a Notice of Appeal from the Judgment with the U.S. District Court, Southern District of New York. In the Utilities’ appeal, the Utilities sought reversal of the Judgment and contended that Enron is not entitled to recover termination charges under the contracts on various grounds including breach of contract, breach of solvency representation, fraud, misrepresentation, and manipulation of the energy markets and that the Bankruptcy Court erred in holding that the filed rate doctrine barred various claims which were purported to challenge the reasonableness of the rate. Enron filed a cross-appeal on the grounds that the amount of post-judgment interest should have been 12% per year instead of 1.21% as ordered by the Bankruptcy Court.

     On October 10, 2004, the U.S. District Court rendered a decision in the Utilities’ appeal. The U.S. District Court’s decision vacated the judgment entered by the Bankruptcy Court against the Utilities in favor of Enron and remanded the case to the Bankruptcy Court for fact-finding on several issues including:

• whether Enron’s demand for assurances at the time of termination of its power supply contracts with NPC and SPPC was reasonable;

• whether the assurances offered by NPC and SPPC to Enron were “reasonably satisfactory assurances”; and

• whether Enron would have been able to perform all of its obligations under each of the power supply contracts at the time the contracts were terminated and following termination.

     The U.S. District Court further held that the demand for assurances by Enron should have been limited to the amount of its actual loss. The U.S. District Court rejected Enron’s cross-appeal seeking a 12% per year post-judgment interest rate instead of the 1.21% interest rate ordered by the Bankruptcy Court. The U.S. District Court decision also provided that Enron could, if proper, renew its motion to enjoin the proceedings currently before the FERC addressing Enron’s termination of its power supply contracts with NPC and SPPC. Although the Judgment has been reversed, the terms of NPC’s and SPPC’s June 30, 2004 stipulation and agreement with Enron, discussed above, will remain in place through the pendency of all remands and appeals of the Judgment.

     The Utilities filed a motion seeking clarification of the U.S. District Court rulings with respect to the Utilities’ affirmative defenses and counterclaim regarding: fraud by Enron, violation of the Racketeer Influence Corrupt Organizations Act (RICO), anti-trust activities carried out by Enron, the constitutional power of a bankruptcy court to enter a final judgment in a “non-core matter,” and whether the Bankruptcy Court had properly determined the interest rate applicable to pre-judgment interest. This motion did not relate to Enron’s claims against the Utilities, which the U.S. District Court addressed in its October 10, 2004 decision described above. On December 23, 2004, the U.S. District Court ruled on this motion, affirming the dismissal of the Utilities’ affirmative defenses and counterclaims on the grounds that they were barred under the filed rate doctrine. However, the U.S. District Court ruled in favor of the Utilities on the calculation of pre-judgment interest.

     FERC Early Termination Case

     On October 6, 2003, the Utilities filed a Complaint with FERC requesting the opportunity to develop a record regarding three issues: (a) whether Enron exercised reasonable discretion in terminating its various purchased power contracts with the Utilities; (b) whether FERC should exercise its authority to find that Enron is not entitled to collect termination

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payment profits; and (c) whether Enron should be otherwise denied the authority to collect such payments because to do so would be contrary to the public interest.

     On July 22, 2004, the FERC issued an order granting the Utilities’ request to the FERC for an expedited hearing to review Enron’s termination of the energy contracts entered into between the Utilities and Enron under the WSPPA. Hearings were scheduled to begin on October 25, 2004 and an initial decision was expected from the FERC by December 31, 2004. However, on October 27, 2004, Enron filed a motion in the Bankruptcy Court to enjoin the Utilities from participating in the FERC Early Termination Case. The disposition of this motion is described below.

     Bankruptcy Court Injunction and Order Setting Trial

     After the U.S. District Court issued its October 10, 2004 ruling, Enron renewed its motion with the Bankruptcy Court seeking to enjoin the Utilities from proceeding in the FERC Early Termination Case. On December 3, 2004 the Bankruptcy Court enjoined the Utilities from further prosecution of the scheduled hearing in the FERC proceeding. The Utilities have appealed this decision and are seeking a stay of the trial in Bankruptcy Court pending the outcome of the FERC Early Termination Case. The trial was initially set for July 11, 2005, but the trial date has been changed to November 7, 2005. The Utilities are unable to predict the outcome of these proceedings at this time.

     FERC Revocation Show Cause Proceeding

     In March 2003, FERC instituted a “Show Cause” proceeding involving whether Enron’s market-based rate authority should be revoked in light of Enron’s engagement in illicit trading activities. The Utilities intervened in the FERC’s proceeding against Enron. On June 25, 2003, FERC removed Enron’s market-based rate authority, but only on a prospective basis. The Utilities filed a request for rehearing, along with certain other parties. On October 16, 2003, FERC changed the nature of the proceeding, thereby prohibiting further active participation by the interveners (including the Utilities). On December 15, 2003, the Utilities filed an appeal in the United States Circuit Court of Appeals for the District of Columbia (D.C. Circuit) concerning these two actions. The appeals have been consolidated with a number of other appeals of FERC’s decisions, and the matter is pending. The D.C. Circuit has yet to establish a briefing schedule and there is no current time line for argument or a decision in the case.

     FERC Gaming and Partnership Show Cause Proceeding

     On June 25, 2003, FERC issued orders in two separate cases involving Enron Power Marketing, Inc. (Enron), among others, and potential gaming of power markets. The first was referred to as the “Gaming Show Cause Proceeding” and the second as the “Partnership Show Cause Proceeding”. The proceedings focused on Enron’s illicit trading activity in California with a variety of counterparties. On July 21, 2004, FERC consolidated the two proceedings and expanded the scope of its inquiry. FERC announced that it was revisiting its decision not to revoke Enron’s market-based rate authority retroactively and that “Enron potentially could be required to disgorge profits for all of its wholesale power sales in the Western Interconnect for the period January 16, 1997 to June 15, 2003.” Enron has sought rehearing of this order, challenging the expanded scope of the proceeding. The Utilities have joined a coalition of other Western Parties and on August 4, 2004, sought clarification that remedies other than disgorgement might be available. On March 11, 2005, the FERC issued an order clarifying issues to be covered in the administrative trial. In that order, the FERC stated that Enron’s profits under the terminated power contracts fell within the scope of that proceeding. On July 20, 2005, the FERC issued an order in the Gaming and Partnership Show Cause Proceeding involving Enron, among others, suspending the trial schedule, including the September 7, 2005 trial date, pending FERC review of a recent settlement agreement between the California parties and Enron. The order provides that the trial in this proceeding will convene within seven weeks following FERC’s review of the proposed settlement. FERC also ordered Enron not to take any action to move forward the Bankruptcy Court proceeding, and ordered it to join in any request for postponement of any filing or action in the Bankruptcy Court proceeding. In addition, FERC ordered the remaining parties, including NPC and SPPC, to participate in settlement negotiations.

     The FERC proceeding focuses on Enron’s illicit trading activity in California with various counterparties, including the People of the State of California, California state entities, California utilities and other non-Californian entities (including NPC and SPPC). NPC and SPPC are unable at this time to predict the outcome of the upcoming settlement negotiations, or, if settlement negotiations prove unsuccessful, the outcome of the trial.

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FERC 206 complaints

     In December 2001, the Utilities filed ten complaints with the FERC under Section 206 of the Federal Power Act seeking to reduce prices of certain forward wholesale power purchase contracts that the Utilities entered into prior to the price caps imposed by the FERC in June 2001 relating to the western United States energy crisis. The Utilities believe the prices under these purchased power contracts are unjust and unreasonable. The Utilities negotiated a settlement with Duke Energy Trading and Marketing, but were unable to reach agreement in bilateral settlement discussions with other respondents.

     The Utilities are contesting the amounts paid for power actually delivered by these suppliers as well as claims made by terminating power suppliers that did not deliver power, including Enron.

     On June 26, 2003, the FERC dismissed the Utilities’ Section 206 complaints finding that the strict public interest standard applied to the case and that the Utilities had failed to satisfy the burden of proof required by that standard. On July 28, 2003, the Utilities filed a petition for rehearing at the FERC requesting that the FERC either reconsider or rehear the case. On November 10, 2003, the FERC reaffirmed the June 26, 2003, decision. That decision has been appealed to the United States Court of Appeals for the Ninth Circuit. Oral argument was held on December 8, 2004 and a decision is pending. The Utilities are unable to predict the outcome of this appeal at this time.

Reliant and Duke Antitrust Litigation

     Reliant Energy Services, Inc. (Reliant) served a cross-complaint against NPC and SPPC and Duke Energy Trading and Marketing, LLC (Duke) served a cross-complaint against Sierra Pacific Resources in the wholesale electricity antitrust cases on April 22, 2002 and April 23, 2002, respectively. These cases were consolidated in the Superior Court of the State of California. Plaintiffs (original plaintiffs consist of The People of the State of California, City and County of San Francisco, City of Oakland, and County of Santa Clara) seek damages and restitution from the named defendants for alleged fraud, misrepresentation, and anticompetitive conduct in manipulating the energy markets in California resulting in prices far in excess of what would otherwise have been a fair price to the plaintiff class in a competitive market.

     Reliant and Duke filed cross-complaints against all energy suppliers selling energy in California who were not named as original defendants in the complaint, denying liability but alleging that if there was liability, it should be spread among all energy suppliers. Despite efforts by various cross-defendants to remove the case to federal court and following an appeal with the Ninth Circuit Court of Appeals, the case was ultimately remanded back to the Superior Court of the State of California in May 2005. The case is currently active and a scheduling order has been set. SPR maintains that Duke agreed to dismiss its cross-complaint pursuant to settlement and release agreement dated June 4, 2002. SPR, NPC and SPPC believe they should have no liability regarding either matter, but at this time management is not able to predict either the outcome or timing of a decision.

Nevada Power Company

Morgan Stanley Proceedings

     On September 5, 2002, Morgan Stanley Capital Group (MSCG) initiated arbitration pursuant to arbitration provisions in various power supply contracts that were terminated by MSCG in April 2002. MSCG requested that the arbitrator award $25 million for termination payments, pending the outcome of the subject power supply contract disputes with NPC. NPC claimed it did not owe payment under the contracts on various grounds, including breach by MSCG in terminating the contracts and lack of jurisdiction by the arbitrator. In March 2003, the arbitrator dismissed MSCG’s demand for arbitration and agreed that the issues raised by MSCG and NPC’s contract defenses were not arbitrable.

     NPC filed a complaint for declaratory relief in the U.S. District Court, District of Nevada seeking a declaration stating NPC is not liable for any damages resulting from MSCG’s termination of the power supply contracts. On April 17, 2003, MSCG filed an answer and a counterclaim seeking $25 million in termination payments. Furthermore, MSCG filed a complaint against NPC at the FERC seeking termination payments from NPC pending resolution of the civil case. In addition, MSCG filed a motion to intervene in the Section 206 action commenced by NPC against Enron at the FERC, which motion the FERC denied. On October 23, 2003, NPC filed a motion to stay the District Court proceedings seeking declaratory relief, pending guidance on applicable legal principles to be provided by the FERC in connection with NPC’s litigation against Enron regarding the exercise of default and early termination rights. In February, 2004, the District Court granted NPC’s motion. In August, 2004, upon motion by NPC, the District Court continued the stay. In February, 2005, the Judge ordered the case to go forward, at which time NPC filed a motion for summary judgment. In March, 2005, MSCG similarly filed for summary judgment. The District Court denied both summary judgment motions, stating that there are serious factual questions that must be addressed about the reasonableness of MSCG’s termination of the 28 contracts, which determination will be made upon completion of discovery (currently scheduled for November 30, 2005). A court ordered settlement conference is currently scheduled for the third quarter of 2005. A trial date is scheduled for January 10, 2006. The Court further ordered that NPC pay

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MSCG for the approximately 1.8 million (plus interest) for power delivered prior to the termination. NPC anticipates payment in the third quarter of 2005. At this time, NPC is unable to predict the outcome or timing of the matter.

El Paso Merchant Energy

     In September 2002, El Paso Merchant Energy (EPME) terminated all forward contracts for energy with NPC for alleged defaults under the WSPPA consisting of alleged failure to pay full contract price for power under NPC’s “delayed” payment program which extended from May 1 to September 15, 2002. In October 2002, EPME asserted a claim against NPC for $29 million in damages representing $19 million unpaid under contracts for delivered power during the period May 15 to September 15, 2002, together with approximately $10 million in alleged mark to market damages for future undelivered power. The amount presently claimed by EPME is $42 million, including interest. NPC alleges that EPME’s termination resulted in net payments due to NPC under the WSPPA for liquidated damages measured by the difference between the contract price and market price of energy EPME was to deliver from 2004 to 2012. The precise amount due would depend on the manner in which the termination payments are calculated.

     In June 2003, EPME demanded mediation of its claim for a termination payment arising out of EPME’s September 25, 2002, termination of all executory purchase power contracts between NPC and EPME. The mediation was unsuccessful, and on July 25, 2003, NPC commenced an action against EPME and several of its affiliates in the Federal District Court for the District of Nevada for damages and declaratory relief resulting from breach of these purchase power contracts. EPME filed a motion for summary judgment in April 2005. NPC opposed the motion which is now pending before the District Court. The case is set for trial to commence in September 2005. At this time, NPC is unable to predict either the outcome or timing of a decision in this matter.

Nevada Power Company 2001 Deferred Energy Case

     On November 30, 2001, NPC filed an application with the PUCN seeking recovery for purchased fuel and power costs accumulated between March 1, 2001, and September 30, 2001, as required by law. The application sought to establish a rate to repay accumulated purchased fuel and power costs of $922 million and spread the recovery of the deferred costs, together with a carrying charge, over a period of not more than three years.

     On March 29, 2002, the PUCN issued its decision on the deferred energy application, allowing NPC to recover $478 million over a three-year period, but disallowing $434 million of deferred purchased fuel and power costs and $30.9 million in carrying charges consisting of $10.1 million in carrying charges accrued through September 2001 and $20.8 million in carrying charges accrued from October 2001 through February 2002. The order stated that the disallowance was based on alleged imprudence in incurring the disallowed costs. NPC and the Bureau of Consumer Protection (BCP) both sought individual review of the PUCN Order in the First District Court of Nevada. The District Court affirmed the PUCN’s decision. Both NPC and the BCP filed Notices of Appeal to the Nevada Supreme Court.

     Supreme Court rules mandate settlement talks before a matter is set for briefing and argument. As a result of that mandatory process, NPC filed a motion with the Nevada Supreme Court seeking remand of the matter back to the PUCN to consider evidence uncovered after the PUCN’s final decision. On November 2, 2004, the Nevada Supreme Court issued an order denying the motion for remand.

     A briefing schedule on the underlying appeal has since been established. A decision is expected within twelve months. At this time NPC is unable to predict either the outcome or timing of a decision in this matter.

Environmental Matters

Nevada Power Company

Mohave Generation Station

     The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S. District Court, District of Nevada in February 1998 against the owners (including NPC) of the Mohave Generation Station (Mohave), alleging violations of the Clean Air Act regarding emissions of sulfur dioxide and particulates. An additional plaintiff, National Parks and Conservation Association, later joined the suit. The plant owners and plaintiffs have had numerous settlement discussions and filed a proposed settlement with the court in October 1999. The consent decree, approved by the court in November 1999, established emission limits for sulfur dioxide and opacity and required installation of air pollution controls for sulfur dioxide, nitrogen oxides, and particulate matter. The new emission limits must be met by January 1, 2006 and April 1, 2006 for the first and second units, respectively. The estimated cost of new pollution controls and other capital investments is $1.2 billion. As a 14% owner in Mohave, NPC’s cost could be $168 million.

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     Mohave obtains all of its coal supply from a mine in northeast Arizona on lands of the Navajo Nation and the Hopi Tribe (the Tribes). This coal is delivered from the mine to Mohave by means of a coal slurry pipeline, which requires water that is obtained from groundwater wells located on lands of the Tribes in the mine vicinity.

     Southern California Edison (“SCE”) is the operating partner of Mohave. On May 17, 2002, SCE filed with the CPUC an application to address the future disposition of SCE’s share of Mohave. On October 20, 2004, the CPUC issued a proposed decision which, among other things, directed SCE to continue negotiations with the Tribes regarding post-2005 coal and water supply, and directed SCE to conduct a study of potential alternatives to Mohave.

     Because coal and water supplies necessary for long-term operation of Mohave have yet to be secured, SCE and the other Mohave co-owners have been prevented from commencing the installation of extensive pollution control equipment that must be put in place if Mohave’s operations are extended past 2005. Due to the lack of resolution of these coal and water supply issues with the tribes, it is not the intention of Southern California Edison (SCE) and other owners to proceed with the installation of required pollution control equipment. The owners intend to cease operation of the plant by January 1, 2006, pending resolution of these issues. It is the owners’ intent to preserve their ability to restart the plant at a later date should these issues be resolved, and economic analysis at that time support such a decision.

     NPC’s ownership interest in Mohave comprises approximately 10% of NPC’s peak generation capacity.

Reid Gardner Station

     In May 1997, the Nevada Division of Environmental Protection (NDEP) ordered NPC to submit a plan to eliminate the discharge of Reid Gardner Station wastewater to groundwater. The NDEP order also required a hydrological assessment of groundwater impacts in the area. In June 1999, NDEP determined that wastewater ponds had degraded groundwater quality. In August 1999, NDEP issued a discharge permit to Reid Gardner Station and an order that requires all wastewater ponds to be closed or lined with impermeable liners over the next 10 years. This order also required NPC to submit a Site Characterization Plan to NDEP to ascertain impacts. This plan has been reviewed and approved by NDEP. In collaboration with NDEP, NPC has evaluated remediation requirements. In May 2004, NPC submitted a schedule of remediation actions to NDEP which included proposed dates for corrective action plans and/or suggested additional assessment plans for each specified area. Total new pond construction and lining costs are estimated at approximately $33 million, of which, approximately $20 million has been spent through 2004. Estimated total capital expenditures planned in 2005 and 2006 are approximately $6 million and $3 million, respectively. Year to date expenditures total approximately $1 million.

     At the Reid Gardner Station, NDEP has determined that there is additional groundwater contamination that resulted from diesel oil spills at the facility. NDEP required NPC to submit a corrective action plan. A hydro-geologic evaluation of the current remediation has been completed, and a dual phase extraction remediation system, which was approved by NDEP, commenced operation in October 2003. The remediation system remains in operation and this effort has shown positive response to cleaning up the diesel oil.

     In August 2004, NDEP conducted a Facility Air Quality Operating Permit (Title V permit) inspection at the Reid Gardner Station. NDEP requested monitoring, recordkeeping and reporting items and information pertaining to the sources identified in the Title V permit. NPC complied with the request and any subsequent requests that followed. In September and October 2004, NPC met with NDEP to review the results of NDEP's inspection. NDEP informed NPC of possible non-compliance with some elements of its Title V permit, and on December 2, 2004 issued Notices of Alleged Violation (NOAVs) relating to record-keeping, monitoring and other alleged administrative infractions. Discussions between NPC and NDEP ensued. On July 20, 2005, NDEP issued new Notices of Alleged Violations (NOAVs). In part, these NOAVs represent reissuance of the previously issued NOAVs dated December 2, 2004 and address additional monitoring and reporting issues for the period September 2002 through December 2004. Additional NOAVs were issued concerning intermittent opacity emissions and the monitoring, record-keeping and reporting of such emissions. All NOAVs are subject to an administrative hearing before the Nevada State Environmental Commission and then to judicial review. NPC is continuing to provide information to NDEP as requested and is engaged in an ongoing dialogue with NDEP, including settlement discussions. Because no penalty has been specified by NDEP and discussions are continuing, management cannot reasonably estimate the amount of any potential monetary penalties that may ultimately be assessed in connection with the alleged violations. On July 26, 2005 NPC received a letter from the EPA requiring submittal of information relating to compliance of Reid Gardner Station with opacity emission limits and reporting requirements. NPC is in the process of responding to the EPA information request.

Clark Station

     In July 2000, NPC received a request from the EPA for information to determine the compliance of certain generation facilities at NPC’s 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. On October 31, 2003, the EPA

63

issued a violation regarding turbine blade upgrades, which occurred in July 1993. A conference between the EPA and NPC occurred in December 2003. NPC presented evidence on the nature and finding of the alleged violations. In March 2004, the EPA issued another request for information regarding the turbine blade upgrades, and NPC provided information responsive to this request in April and May 2004. NPC’s position is that a violation did not occur and management is presently involved in the discovery process to support this position. Monetary penalties and retrofit control cost, if any, cannot be reasonably estimated at this time.

NEICO

     NEICO, a wholly owned subsidiary of NPC, owns property in Wellington, Utah, which was the site of a coal washing and load-out facility. The site has a reclamation estimate supported by a bond of approximately $5 million with the Utah Division of Oil and Gas Mining, which management believes is sufficient to cover reclamation costs. Currently, management is continuing to evaluate various options including reclamation and sale.

Sierra Pacific Power Company

     In September 1994, Region VII of the EPA notified SPPC that it was being named as a potentially responsible party (PRP) regarding the past improper handling of Polychlorinated Biphenyls (PCB’s) by PCB Treatment, Inc., in two buildings, one located in Kansas City, Kansas and the other in Kansas City, Missouri (the Sites). Prior to 1994, SPPC sent PCB contaminated material to PCB Treatment, Inc. for disposal. Certificates of disposal were issued to SPPC by PCB Treatment, Inc.; however, the contaminated material was not disposed of, but remained on-site. A number of the largest PRP’s formed a steering committee, which has completed site investigations and with the EPA has determined that the Sites should be remediated by removing the buildings to the appropriate landfills. The EPA issued an administrative order on consent requiring the steering committee to oversee the performance of the work. The work to dismantle the buildings and dispose of the debris and impacted soil is currently underway, and is expected to be complete in mid-2006. While the final cost to complete the work is not yet definite, SPPC’s share of the cost is not expected to be material.

Sierra Pacific Power Company

Piñon Pine

     In its 2003 General Rate Case, SPPC sought to recover all of its unreimbursed costs associated with the Piñon Pine Coal Gasification Demonstration Project from the PUCN. The coal gasifier represented an experimental technology that was being tested pursuant to a Department of Energy (DOE) Clean Coal Technology initiative. Under the terms of a cooperative agreement with the DOE, SPPC agreed to fund 50% of the costs of constructing the Piñon Pine unit, with the DOE funding the remaining 50% of the costs of the project. SPPC’s participation in the Coal Gasification Demonstration Project was permitted and constructed with PUCN approval as part of SPPC’s 1993 integrated electric resource plan. While the conventional portion of the plant, a gas-fired combined cycle unit, was installed and performed as planned, the coal gasification unit was never fully operational. After numerous attempts to re-engineer various components of the coal gasifier, the technology has been determined to be unworkable. In its order of May 25, 2004, the PUCN disallowed $43 million of unreimbursed costs associated with the Piñon Pine Coal Gasification Demonstration Project. SPPC filed a Petition for Judicial Review with the Second Judicial District Court of Nevada in June 2004 (CV04-01434). SPPC filed its opening brief in early October 2004. Answering and Reply briefs were filed in November and December and oral argument was presented on April 29, 2005. SPPC expects the Court to rule within the third quarter of 2005, but cannot predict the outcome of the case.

Sierra Pacific Resources and Nevada Power Company

Merrill Lynch/Allegheny Lawsuit

     In May 2003, SPR and NPC filed suit against Merrill Lynch & Co., Inc. and Merrill Lynch Capital Services, Inc. (collectively, Merrill Lynch) and Allegheny Energy, Inc. and Allegheny Energy Supply Co., LLC (collectively, Allegheny) in the United States District Court, District of Nevada, for compensatory and punitive damages of $850 million for causing the Public Utilities Commission of Nevada to disallow a $180 million rate adjustment for NPC in its 2001 deferred energy case (as discussed in Part II of this report under Nevada Power Company 2001 Deferred Energy Case). The PUCN held that NPC acted imprudently when it refused to enter into an electricity supply contract with Merrill Lynch and subsequently paid too much for electricity from another source. SPR and NPC allege that Merrill Lynch and Allegheny’s fraudulent testimony and wrongful conduct caused the PUCN disallowance. Merrill Lynch filed motions to dismiss on May 6, 2003 and June 23, 2003. The court has yet to rule on the motions to dismiss and the case is currently stayed pending resolution of NPC’s appeal of the 2001 deferred energy case currently pending before the Nevada Supreme Court.

64

Lawsuit Against Natural Gas Providers

     On April 21, 2003, SPR and NPC filed a complaint in the U.S. District Court for the District of Nevada against several natural gas providers and traders. On July 3, 2003, SPR and NPC filed a First Amended Complaint. Motions to dismiss were filed by all of the defendants and were heard by the court on January 27, 2004. The motions to dismiss were granted based on a filed rate defense asserted by the defendants. SPR and NPC filed a Motion to Reconsider, which was heard by the court on April 20, 2004. The court granted the Motion to Reconsider and allowed SPR and NPC to amend the complaint. A Second Amended Complaint was filed on June 4, 2004.

     The Second Amended Complaint names three different groups of defendants: (1) El Paso Corporation, El Paso Natural Gas Company, El Paso Merchant Energy, L.P., El Paso Merchant Energy Company, El Paso Tennessee Pipeline Company, El Paso Merchant Energy-Gas Company (El Paso); (2) Dynegy Marketing and Trade; and (3) Sempra Energy, Sempra Energy Trading Corporation, Southern California Gas Company (SoCal), and San Diego Gas and Electric (SDG&E) (collectively Sempra). New motions to dismiss were filed by all of the defendants and a hearing was held on November 29, 2004. The District Court granted the defendants’ motions to dismiss. The case has been appealed to the Ninth Circuit Court of Appeals and a briefing schedule has been set. At this time, management cannot predict the timing or outcome of a decision on this matter.

Investment Banker Complaint

     On November 19, 2004, SPR and NPC filed suit in United States District Court, District of Nevada, against Citigroup, Inc., Solomon Smith Barney, Inc., J.P. Morgan Chase Bank and numerous other investment banks and financial institutions asserting claims for damages arising out of the defendants’ conduct in acting in concert with Enron to falsely portray Enron’s financial condition and induce the reliance of business counterparties, including NPC, upon the statements and representations of Enron regarding its financial health in the 1990s and early 2000 time period. The suit alleges, among other things, that the defendants aided and abetted Enron’s fraud through financial transactions with so-called Special Purpose Entities, which were designed to conceal Enron liabilities or artificially inflate revenues and reported financial condition. The complaint seeks damages in excess of $500 million.

     Effective January 10, 2005, the suit was transferred to MDL-1446, In re Enron Corp. Securities, Derivative and Erisa Litigation, pending in the U.S.D.C. in Houston, Texas. At this time the Utilities are unable to predict the outcome or the timing of future proceedings related to the complaint.

     SPR and it subsidiaries through the course of their normal business operations, are currently involved in a number of other legal actions, none of which has had or, in the opinion of management, is expected to have a significant impact on their financial positions or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The 2005 Annual Meeting of the Stockholders of Sierra Pacific Resources was held at 10:00 a.m., Pacific Daylight Time, on Monday, May 2, 2005, at Texas Station Gambling Hall & Hotel, 2101 Texas Star Lane, Las Vegas, Nevada.

     Two proposals were presented for stockholder consideration: (1) election of four members of the Board of Directors to serve until the Annual Meeting in 2008, and until their successors are elected and qualified; and (2) to consider whether to adopt a shareholder proposal requesting Directors to redeem any active poison pill unless such poison pill is approved by the affirmative vote of the holders of a majority of shares present and voting as a separate ballot item, to be held as soon as may be practicable.

     Four Directors, Joseph B. Anderson, Jr, Krestine M. Corbin, Philip G. Satre, and Clyde T. Turner, were elected to serve three year terms expiring at the 2008 Annual Meeting of Stockholders. The shareholder proposal was approved by the required affirmative vote of the stockholders. Directors whose term expires in 2006: Mary Lee Coleman, T.J. Day, Jerry E. Herbst. Directors whose term expires in 2007: James R. Donnelley, Walter M. Higgins, John F. O’Reilly.

     The certified voting results are shown below:

Election of Directors	For		Withheld
Joseph B. Anderson, Jr.		95,271,773		6,135,259
Krestine M. Corbin		95,165,186		6,241,846
Philip G. Satre		95,230,229		6,176,803
Clyde T. Turner		88,313,941		13,093,091

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							Broker
	For		Against		Abstain		Non-Votes
To consider whether to adopt a shareholder proposal requesting Directors to redeem any active poison pill unless such poison pill is approved by the affirmative vote of the holders of a majority of shares present and voting as a separate ballot item, to be held as soon as may be practicable.		52,800,821		24,709,726		1,345,506		22,550,979

ITEM 5. OTHER INFORMATION

On August 1, 2005, the Compensation Committee of the Board of Directors awarded Walter M. Higgins, CEO, 50,000 shares of SPR common stock pursuant to achievement of performance criteria consistent with his employment agreement dated September 26, 2003. The performance award is to be paid no later than August 11, 2005 in either SPR common stock or a combination of equivalent cash and SPR common stock.

ITEM 6. EXHIBITS

     (a) Exhibits filed with this Form 10-Q:

Nevada Power Company

     Exhibit 10.1       Purchase Agreement for the Silverhawk Power Station dated as of June 21, 2005 by and among Pinnacle West Capital Corporation, Pinnacle West Energy Corporation, GenWest, LLC and Nevada Power Company.

Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company

     Exhibit 31.1       Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     Exhibit 31.2       Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     Exhibit 32.1       Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     Exhibit 32.2       Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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: August 8, 2005	By:	/s/ Michael W. Yackira
		Michael W. Yackira
		Executive Vice President
		Chief Financial Officer
		(Principal Financial Officer)
Date: August 8, 2005	By:	/s/ John E. Brown
		John E. Brown
		Controller
		(Principal Accounting Officer)
	Nevada Power Company
	(Registrant)
Date: August 8, 2005	By:	/s/ Michael W. Yackira
		Michael W. Yackira
		Executive Vice President
		Chief Financial Officer
		(Principal Financial Officer)
Date: August 8, 2005	By:	/s/ John E. Brown
		John E. Brown
		Controller
		(Principal Accounting Officer)
	Sierra Pacific Power Company
	(Registrant)
Date: August 8, 2005	By:	/s/ Michael W. Yackira
		Michael W. Yackira
		Executive Vice President
		Chief Financial Officer
		(Principal Financial Officer)
Date: August 8, 2005	By:	/s/ John E. Brown
		John E. Brown
		Controller
		(Principal Accounting Officer)

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EX-10.1

                                                                    EXHIBIT 10.1

                                                               EXECUTION VERSION

                               PURCHASE AGREEMENT

                                  BY AND AMONG

                        PINNACLE WEST CAPITAL CORPORATION

                        PINNACLE WEST ENERGY CORPORATION

                                       AND

                                  GENWEST, LLC,

                                   as Sellers,

                                       AND

                              NEVADA POWER COMPANY,

                                  as Purchaser

                                  JUNE 21, 2005

                             SILVERHAWK POWER PLANT

                              Clark County, Nevada



                                TABLE OF CONTENTS



                                                                                                                     PAGE
                                                                                                                     ----
                                                                                                                  
ARTICLE I DEFINITIONS; USAGE.....................................................................................      1

   Section 1.1    Definitions....................................................................................      1

   Section 1.2    Rules as to Usage..............................................................................     20

   Section 1.3    Schedules and Exhibits.........................................................................     21

ARTICLE II SALE AND PURCHASE; PRICE; CLOSING.....................................................................     21

   Section 2.1    Sale and Purchase; Definition of Purchased Assets; Assumed Liability...........................     21

   Section 2.2    Purchase Price.................................................................................     22

   Section 2.3    Allocation of Purchase Price...................................................................     25

   Section 2.4    The Closing....................................................................................     26

   Section 2.5    Further Assurances; Post-Closing Cooperation...................................................     28

ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................     31

   Section 3.1    Representations and Warranties of Sellers......................................................     31

   Section 3.2    Representations and Warranties of Purchaser....................................................     41

ARTICLE IV COVENANTS.............................................................................................     42

   Section 4.1    Efforts to Close and Fulfillment of Conditions.................................................     42

   Section 4.2    Operation and Maintenance of Purchased Assets..................................................     47

   Section 4.3    Purchaser's Inspection Right...................................................................     49

   Section 4.4    Intentionally Omitted..........................................................................     49

   Section 4.5    Cooperation with Facility Takeover and Transition of Operations................................     49

   Section 4.6    Interim PPA....................................................................................     50

   Section 4.7    Cooperation in Fault Current Upgrade Proceedings...............................................     50

   Section 4.8    Employees......................................................................................     50

   Section 4.9    Risk of Loss...................................................................................     50

   Section 4.10   Interim Reports................................................................................     50

ARTICLE V CONDITIONS TO CLOSING..................................................................................     53

   Section 5.1    Purchaser's Conditions Precedent...............................................................     53

   Section 5.2    Sellers' Conditions Precedent..................................................................     54

ARTICLE VI TERMINATION...........................................................................................     55

   Section 6.1    Termination Prior to Closing...................................................................     55

   Section 6.2    Effect of Termination or Breach Prior to Closing...............................................     56


                                       ii


                                                                                                                   
ARTICLE VII INDEMNIFICATION......................................................................................     56

   Section 7.1    Indemnification by Sellers.....................................................................     56

   Section 7.2    Indemnification by Purchaser...................................................................     57

   Section 7.3    Method of Asserting Claims.....................................................................     57

   Section 7.4    Limitations of Liability.......................................................................     58

   Section 7.5    Indemnification in Case of Strict Liability or Indemnitee Negligence...........................     59

ARTICLE VIII TAX MATTERS.........................................................................................     60

   Section 8.1    Representations and Warranties.................................................................     60

   Section 8.2    Transfer Taxes.................................................................................     60

   Section 8.3    Property Taxes.................................................................................     61

   Section 8.4    Sellers' Tax Indemnification...................................................................     61

   Section 8.5    Purchaser Tax Indemnification..................................................................     61

   Section 8.6    Refunds........................................................................................     61

   Section 8.7    Contests.......................................................................................     62

   Section 8.8    Assistance and Cooperation.....................................................................     62

   Section 8.9    Information....................................................................................     63

   Section 8.10   Tax Returns....................................................................................     63

   Section 8.11   Survival of Obligations........................................................................     63

   Section 8.12   Adjustments to Purchase Price..................................................................     63

ARTICLE IX SURVIVAL; NO OTHER REPRESENTATIONS....................................................................     63

   Section 9.1    Survival of Representations, Warranties, Covenants and Agreements..............................     63

   Section 9.2    No Other Representations.......................................................................     64

ARTICLE X DISPUTE RESOLUTION.....................................................................................     64

   Section 10.1   Dispute Resolution.............................................................................     64

   Section 10.2   Submission to Jurisdiction.....................................................................     64

ARTICLE XI LIMITED REMEDIES AND DAMAGES..........................................................................     65

   Section 11.1   Exclusive Remedies.............................................................................     65

   Section 11.2   Limitation of Liability........................................................................     65

   Section 11.3   Specific Performance...........................................................................     65

ARTICLE XII MISCELLANEOUS........................................................................................     65

   Section 12.1   Notices........................................................................................     65

   Section 12.2   Payments.......................................................................................     67

   Section 12.3   Entire Agreement...............................................................................     67



                                      iii


                                                                                                                   
   Section 12.4   Expenses.......................................................................................     67

   Section 12.5   Public Announcements...........................................................................     67

   Section 12.6   Confidentiality................................................................................     68

   Section 12.7   Waivers........................................................................................     68

   Section 12.8   Amendment......................................................................................     69

   Section 12.9   No Construction Against Drafting Party.........................................................     69

   Section 12.10  No Third Party Beneficiary.....................................................................     69

   Section 12.11  Headings.......................................................................................     69

   Section 12.12  Invalid Provisions.............................................................................     69

   Section 12.13  Governing Law..................................................................................     69

   Section 12.14  No Assignment; Binding Effect..................................................................     70

   Section 12.15  Counterparts...................................................................................     70

   Section 12.16  Time of Essence................................................................................     70



                                       iv



SCHEDULES:

Schedule I              Assumed Agreements

                              Part A: Assumed Joint Facility Agreements

                              Part B: Assumed GenWest Agreements

                              Part C: Assumed PWCC Agreements

                              Part D: Assumed PWEC Agreements

                              Part E: Prorated Assumed Agreements

Schedule II             Materials and Equipment

                              Part A: Non-Shared Materials and Equipment

                              Part B: Shared Materials and Equipment

                              Part C: Stores and Inventory

                              Part D: Information to be Downloaded

Schedule III            Real Property

Schedule IV             Transferred Permits

                              Part A: Transferred Permits

                              Part B: Prorated Transferred Permits

                              Part C: Transferred Permits to be Transferred at
                              Closing

Schedule V              Excluded Assets and Excluded Liabilities

                              Part A: Excluded Assets

                              Part B: Excluded Liabilities

Schedule VI             Sellers' Disclosure Schedule

                              Section 1.1.1(a): Contemplated Assumed Agreement
                              Amendments

                              Section 1.1.1(b): Permitted Liens

                                       v


                              Section 1.1.1(c): Purchaser's Knowledge Persons

                              Section 1.1.1(d): Sellers' Knowledge Persons

                              Section 3.1.4: Consents and Actions

                              Section 3.1.5: Approvals and Filings

                              Section 3.1.6: Sellers' Known Liabilities

                              Section 3.1.8: Sellers' Legal Proceedings

                              Section 3.1.9: Compliance with Laws

                              Section 3.1.11 Part A: Real Property - Lease,
                              assignment or similar arrangement

                              Section 3.1.11 Part B: Real Property - Insurance
                              notices

                              Section 3.1.11 Part C: Real Property - Licenses,
                              easements and rights of way

                              Section 3.1.11 Part D: Real Property - Compliance
                              with subdivision, zoning, land parcelization and
                              local governmental taxation or separate assessment
                              requirements.

                              Section 3.1.11 Part E: Real Property - Commitments
                              to or agreements with any Governmental Authority
                              affecting the use or ownership of the Real
                              Property.

                              Section 3.1.11 Part F: Real Property - Agreements
                              for the sale, exchange, encumbrance, lease or
                              transfer of any of the Real Property or any
                              portion of the same.

                              Section 3.1.11 Part G: Real Property - Compliance
                              with all applicable conditions, covenants and
                              restrictions that encumber the Real Property.

                              Section 3.1.12 Part A: Location of Materials and
                              Equipment

                              Section 3.1.12 Part B: Disposition of Assets

                              0: Warranty Matters

                              Section 3.1.13 Part A: List of Facility Agreements

                                       vi


                              Section 3.1.13 Part B: Status of Assumed
                              Agreements

                              Section 3.1.13 Part C: Non-Compliance under
                              Assumed Agreements

                              Section 3.1.14 Part A: Facility Permits

                              Section 3.1.14 Part B: Permit Parties

                              Section 3.1.14 Part C: Accuracy of Facility Permit
                              Application Information.

                              Section 3.1.14 Part D: Modifications and
                              Amendments to Facility Permits

                              Section 3.1.14 Part E: Compliance with and Status
                              of Facility Permits

                              Section 3.1.14 Part F: Notices and Filings for
                              Transfer of Interests in Transferred Permits

                              Section 3.1.14 Part G: Modifications to Facility

                              Section 3.1.15: List of all insurance policies

                              Section 3.1.16 Part A: Environmental Reports,
                              Studies and Documents Provided

                              Section 3.1.16 Part B: Claims, Actions,
                              Proceedings, Investigations

                              Section 3.1.16 Part C: Environmental Permits

                              Section 3.1.16 Part D: Sufficiency of Facility
                              Permits

                              Section 3.1.16 Part E: Renewal of Permits

                              Section 3.1.16 Part F: Failure to comply with
                              applicable Environmental Law

                              Section 3.1.16 Part G: Environmental Releases

                              Section 3.1.16 Part H: Facts and Circumstances

                              Section 3.1.17: Labor Matters

                                      vii


                              Section 3.1.20 Part A: Intellectual Property

                              Section 3.1.20 Part B: Sufficiency of Intellectual
                              Property

                              Section 8.1: Tax Matters

Schedule VII            Purchaser's Disclosure Schedule

                              Section 1.1.1(b): Purchaser's Knowledge Persons

                              Section 3.2.6: Purchaser's Legal Proceedings

EXHIBITS:

Exhibit A       Form of Hamon Consent
Exhibit B       Form of Kern River Consent
Exhibit C       Form of Las Vegas Valley Water District Consent
Exhibit D       Form of Mirant Consent
Exhibit E       Form of Reliant Consent
Exhibit F       Form of SCE Consent
Exhibit G       Form of Siemens Consent
Exhibit H       Form of SNWA Consent
Exhibit I       Form of Assignment Agreement
Exhibit J       Form of Deed
Exhibit K       Form of Interim PPA

                                      viii


                               PURCHASE AGREEMENT
                             Silverhawk Power Plant

      THIS PURCHASE AGREEMENT is made and entered into effective as of June 21,
2005 (the "Effective Date"), by and among PINNACLE WEST CAPITAL CORPORATION, an
Arizona corporation ("PWCC"), PINNACLE WEST ENERGY CORPORATION, an Arizona
corporation ("PWEC"), GENWEST, LLC, a Delaware limited liability company
("GenWest"), and NEVADA POWER COMPANY, an electric utility organized under the
laws of the State of Nevada ("Purchaser"). PWCC, PWEC and GenWest are also each
referred to herein individually as a "Seller" and collectively as the "Sellers".
PWCC, PWEC and GenWest, on the one hand, and Purchaser, on the other hand, are
also each referred to herein as a "Party" and collectively as the "Parties".

                                    RECITALS

      A. GenWest owns an undivided 75% interest in an operating natural
gas-fueled combined-cycle generation plant located at the APEX Industrial Park,
approximately 25 miles northeast of Las Vegas, Nevada, known as the Silverhawk
Power Plant. SNWA owns an undivided 25% interest in the Silverhawk Power Plant.

      B. PWEC is a wholly owned subsidiary of PWCC. PWEC owns all the
outstanding membership interests in GenWest.

      C. Purchaser desires to purchase substantially all the assets of GenWest.

      D. The Parties have determined to set forth in this Agreement the terms
and conditions of their agreements regarding the foregoing.

                                   AGREEMENTS

      For and in consideration of the Recitals set forth above, the respective
covenants and agreements of the Parties herein set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Parties, the Parties, intending to be legally bound, do
hereby agree as follows:

                                   ARTICLE I

                               DEFINITIONS; USAGE

      Section 1.1 Definitions. Unless the context shall otherwise require,
capitalized terms used in this Agreement shall have the meanings assigned to
them in this Section 1.1.



      "2003 Settlement Agreement" means the Settlement Agreement, dated as of
January 31, 2003, among Purchaser, SCE, Duke Energy Moapa, LLC, GenWest, Las
Vegas Cogeneration II, Mirant Las Vegas, LLC and Reliant Energy Bighorn, LLC, by
which they resolved issues set for hearing in FERC Docket No. ER02-2344-000 and
certain SCE-related issues set for hearing in FERC Docket Nos. ER02-1741-000 and
ER02-1742-000, 25% of the rights and obligations of GenWest under which were
assigned to and assumed by SNWA pursuant to the Bill of Sale.

      "2005 Settlement Agreement" means the settlement agreement filed with FERC
on May 23, 2005 among Purchaser, Purchaser's Chuck Lenzie Generating Station,
Valley Electric Association, Inc., SCE, GenWest, Las Vegas Cogeneration II,
Mirant Las Vegas, LLC, Reliant Energy Wholesale Generation, LLC and SNWA, which
attached the Amended and Restated 2003 Settlement Agreement and is intended to
resolve the issues set for hearing in FERC Docket Nos. ER02-1741-000 and
ER02-1742-000 that were not resolved in the 2003 Settlement Agreement, among
other issues.

      "Acquisition Proposal" shall mean any proposal or offer made by any Person
other than Purchaser to acquire all or a substantial part of the Project, the
assets owned solely by GenWest, any equity interest in GenWest, or any interest
of PWCC or PWEC in the Assumed Agreements.

      "Additional Pre-Closing Permitted Mechanics Liens" means any mechanics',
carriers', workers', repairers' and other similar Liens, other than liens
described in item (vii) of the definition of Permitted Liens, arising or
incurred in the ordinary course of business, and not in violation of the
Co-Tenancy Agreement or the O&M Agreement relating to obligations which are not
yet due and payable or the validity of which are being contested in good faith
by appropriate proceedings, which in all cases shall be removed prior to Closing
without any cost to or liability of Purchaser or adverse effect on the Purchased
Assets.

      "Adjustment Amount" has the meaning given to it in Section 2.2.4(a) of
this Agreement.

      "Adjustment Statement" has the meaning given to it in Section 2.2.4(a) of
this Agreement.

      "Affiliate" of any Person means any other Person directly or indirectly
Controlling, directly or indirectly Controlled by or under direct or indirect
common Control with such Person.

      "Agency Agreement" means the Agency Agreement, dated July 1, 2004, among
SNWA, GenWest and PWEC.

      "Agreement" means this Purchase Agreement by and between Sellers and
Purchaser.

      "Amended and Restated 2003 Settlement Agreement" means the amendment and
restatement of the 2003 Settlement Agreement, entered into among Purchaser,
Purchaser's Chuck Lenzie Generating Station, SCE, GenWest, Las Vegas
Cogeneration II, Mirant Las Vegas, LLC, Reliant Energy Wholesale Generation, LLC
and SNWA, which is attached to the 2005 Settlement Agreement and was filed with
FERC on May 23, 2005.

      "APS" means Arizona Public Service Company.

                                        2


      "APS Switchyard Agreement" means the Agreement for Engineering,
Procurement and Construction for Facility Switchyard (Agreement No. 760200017),
dated December 16, 2002, between GenWest and APS, 25% of the rights and
obligations under which were assigned to and assumed by SNWA pursuant to the
Bill of Sale, as amended by Change Order No. 1 dated December 12, 2003 and
Change Order No. 2 dated June 30, 2004.

      "Assignment Agreement" has the meaning given to it in Section 2.4.1(a)(iv)
of this Agreement.

      "Assumed Agreements" means the Assumed Joint Facility Agreements, the
Assumed GenWest Agreements, the Assumed PWCC Agreements, and the Assumed PWEC
Agreements.

      "Assumed GenWest Agreements" means those GenWest Agreements which are
listed on Schedule I, Part B attached hereto.

      "Assumed Joint Facility Agreements" means those Joint Facility Agreements
which are listed on Schedule I, Part A attached hereto and the Post-Effective
Date Assumed Joint Facility Agreements.

      "Assumed PWCC Agreements" means the Transmission Services Agreement and
the Reliant Agreement.

      "Assumed PWEC Agreements" means the TSA 100 Assignment Agreement, the TSA
101 Assignment Agreement, the O&M Agreement, and the Agency Agreement.

      "Bill of Sale" means the Bill of Sale, Assignment and Assumption
Agreement, dated May 17, 2004, between GenWest and SNWA.

      "BLM" means the Bureau of Land Management.

      "Books and Records" means all drafts of the Co-Tenancy Agreement, the O&M
Agreement and the Well Development Agreement that can be reasonably and
practically provided, books, records, files, documents, instruments, papers,
correspondence that can be reasonably and practically provided, journals, deeds,
licenses, supplier, contractor and subcontractor lists, supplier design
interface information, computer files and programs, other than PWCC's or APS'
enterprise-wide computer programs, retrieval programs, the information listed on
Part D of Schedule II of this Agreement to the extent in existence,
environmental studies, environmental reports, construction reports, annual
operating plans, monthly operating reports, operating logs, operations and
maintenance records, purchase orders, safety and maintenance manuals, incident
reports, injury reports, engineering design plans, blue prints and as-built
plans, records drawings, drawings, specifications, test reports, quality
documentation and reports, hazardous waste disposal records, procedures and
similar items, in each case, in all formats in which they are available,
including electronic; provided, however, that any such data currently contained
in computer systems shall be provided in electronic format as either fixed form
or character delimited data and shall include record descriptions, to the extent
the computer systems of Purchaser and the Sellers are compatible in allowing
such data provision, in each case excluding documents subject to attorney-client
privilege.

                                        3


      "Business Day" means any day except Saturday, Sunday or a weekday that
banks in Las Vegas, Nevada, Phoenix, Arizona or New York, New York are closed.

      "Closing" has the meaning given to it in Section 2.4 of this Agreement.

      "Closing Date" has the meaning given to it in Section 2.4 of this
Agreement.

      "Code" means the Internal Revenue Code of 1986, as amended.

      "Construction and Equipment Supply Contracts" means (i) the Equipment
Supply Agreement (Contract No. 750200136), dated February 16, 2001, between
GenWest and Siemens Westinghouse Power Corporation for Combustion Turbine
Equipment, as amended by Change Orders Nos. 1 through 8, 25% of the rights and
obligations under which were assigned to and assumed by SNWA pursuant to the
Bill of Sale; (ii) the Equipment Supply Agreement (Contract No. 760200010),
dated March 21, 2002, between GenWest and Alstom, as amended by Change Orders
Nos. 1 through 3 (the "Alstom Agreement"), 25% of the rights and obligations
under which were assigned to and assumed by SNWA pursuant to the Bill of Sale,
(iii) Contract (Contract No. 750200434), dated as of October 12, 2001, between
GenWest and General Electric Company, as amended by Change Orders Numbers 1
through 6, 25% of the rights and obligations under which were assigned to and
assumed by SNWA pursuant to the Bill of Sale, (iv) Agreement for Engineering,
Procurement and Construction of the Silverhawk Facility (Contract No.
760200009), dated as of June 11, 2002, between GenWest and LG Constructors,
Inc., as amended by Contract Amendment No. 1, dated March 13, 2003, Contract
Amendment No. 2, dated March 17, 2003, Contract Amendment No. 3, dated April 30,
2004, and by Change Orders Nos. 1 through 12, 25% of the rights and obligations
under which were assigned to and assumed by SNWA pursuant to the Bill of Sale,
(v) the APS Switchyard Agreement, and (vi) Silverhawk Combined Cycle Equipment
Supply Agreement (Contract No. 760200013), dated March 7, 2002, between GenWest
and Hamon Cooling Towers, Inc., as amended by Change Order No. 1 and the
Settlement Agreement dated May 12, 2004, 25% of the rights and obligations under
which were assigned to and assumed by SNWA pursuant to the Bill of Sale.

      "Contemplated Assumed Agreement Amendments" means the contemplated
amendments to certain Assumed Agreements, which are listed on Section 1.1.1(a)
of Sellers' Disclosure Schedule (i) substantially in the form provided to
Purchaser prior to the Effective Date, or (ii) otherwise within the relevant
scope described in Section 1.1.1(a) of Sellers' Disclosure Schedule and, in the
case of this clause (ii), will otherwise have no adverse effect on the rights or
obligations of Purchaser under such Assumed Agreements or on the other Purchased
Assets.

      "Continued Employee Books and Records" means the Books and Records related
to Project Employees that are to be hired by Purchaser following the Closing,
regarding skill and development training; seniority histories; disciplinary
histories; salary and benefit information; Occupational Safety and Health
Administration reports and records; and active medical restriction forms.

      "Control" of any Person means the possession, directly or indirectly, of
the power either to (a) vote fifty percent (50%) or more of the securities or
interests having ordinary voting power for the election of directors (or other
comparable controlling body) of such Person or (b) direct or

                                        4


cause the direction of management or policies of such Person, whether through
the ownership of voting securities or interests, by contract or otherwise,
excluding in each case, any secured lender of such Person.

      "Co-Tenancy Agreement" means the Silverhawk Power Plant Co-Tenancy
Agreement, dated January 17, 2002, by and between GenWest and SNWA.

      "Deed" has the meaning given to it in Section 2.4.1(b)(v) of this
Agreement.

      "Default Rate" has the meaning given to it in Section 12.2 of this
Agreement.

      "Designated Assumed Agreements" means each of the following Assumed
Agreements: the Co-Tenancy Agreement, the Kern River Contracts, the O&M
Agreement, the Reliant Agreement, the Water Supply Agreement, the Mirant Master
Agreement, and the Real Property Documents.

      "Dry Lake Documents" shall mean the Contemplated Assumed Agreement
Amendments in respect of the Real Property Purchase Agreement and the Well
Development Agreement.

      "Easements" shall mean (i) that certain Grant of Easement from HDL 8, LLC
to GenWest for the access road, recorded on July 23, 2002 in Book 20020723,
Instrument No. 02463 of the Official Records of Clark County, Nevada, (ii) that
certain Grant of Easement from GDL 7, LLC to GenWest for the access road,
recorded on July 24, 2002 in Book 20020724, Instrument No. 03124 of the Official
Records of Clark County, Nevada, and (iii) that certain Grant of Easement from
Mirant Las Vegas to GenWest for the access road, recorded on July 31, 2002 in
Book 20020731, Instrument No. 01299 of the Official Records of Clark County,
Nevada, 25% of the rights and obligations under each of which was assigned to
SNWA pursuant to the SNWA Deed.

      "Effective Date" has the meaning given to it in the preamble of this
Agreement.

      "Environmental Condition" means the presence or Release to the environment
of Hazardous Materials, including any migration of Hazardous Materials through
air, soil or water.

      "Environmental Law" means (i) the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., (ii) the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., (iii)
the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., (iv)
the Clean Air Act, 42 U.S.C. Section 7401 et seq., (v) the Hazardous Materials
Transportation Authorization Act of 1994, 49 U.S.C. Section 5101 et seq., (vi)
the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., (vii) the
Toxic Substances Control Act, 15 U.S.C. Sections 2601 through 2629, (viii) the
Oil Pollution Act, 33 U.S.C. Section 2701 et seq., (ix) the Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq., (x) the Safe
Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and (xi) and all other
Laws of any Governmental Authority having jurisdiction over the assets in
question addressing pollution or protection of human health, safety or the
environment.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

                                        5


      "ERISA Affiliate" means any entity that, together with any Seller would be
deemed a single employer within the meaning of Code Section 414 or ERISA Section
4001(b).

      "Estimated Adjustment" has the meaning given to it in Section 2.2.3 of
this Agreement.

      "Estimated Closing Statement" has the meaning given to it in Section 2.2.3
of this Agreement.

      "Estimated Hot Gas Path Parts Expenditures Amount" has the meaning given
to it in Section 2.2.3.

      "Estimated Post-April RRSU Payment Amount" has the meaning given to it in
Section 2.2.3 of this Agreement.

      "Estimated Post-September Capital Expenditures Amount" has the meaning
given to it in Section 2.2.3 of this Agreement.

      "Estimated Purchase Price" has the meaning given to it in Section 2.2.2 of
this Agreement.

      "Estimated Stores and Inventory Amount" has the meaning given to it in
Section 2.2.3 of this Agreement.

      "Excluded Assets" has the meaning given to it in Section 2.1.3 of this
Agreement.

      "Excluded Liabilities" has the meaning given to it in Section 2.1.4 of
this Agreement.

      "Existing Letters of Credit" mean (i) Letter of Credit No. NZS507752
issued by Wells Fargo Bank N.A. for benefit of GenWest, on behalf of CH2M Hill
Companies, Ltd., in the amount of $500,000, 25% of the rights and obligations
under which were assigned to and assumed by SNWA pursuant to the Bill of Sale,
and (ii) Letter of Credit No. SM206052W dated December 11, 2003, issued by
Wachovia Bank National Association, in the amount of $2,479,236, in favor of
GenWest, on behalf of Alstom Power Inc., 25% of the rights and obligations under
which were assigned to and assumed by SNWA pursuant to the Bill of Sale.

      "Facility" or "Silverhawk Power Plant" means the Silverhawk Power Plant
consisting of an operating natural gas-fired, combined cycle, electric
generation plant, and the pipeline interconnections, electrical interconnections
and all other related equipment and other associated property located within the
Site as described in Schedule II, Part B, Item 1.

      "Facility Agreements" means the GenWest Agreements and the Joint Facility
Agreements.

      "Facility Permits" has the meaning given to it in Section 3.1.14(a) of
this Agreement.

      "Fault Current Upgrade MOUs" means (i) the Revised MOU I, and (ii) the
Regional Required System Upgrades Western Memorandum of Understanding, dated
November 3, 2003, between Purchaser and GenWest, as amended by the Memorandum of
Understanding between

                                        6


Purchaser and GenWest, dated March 24, 2005, attached to the Western Settlement
Agreement and approved by FERC on June 1, 2005 (also known as MOU II).

      "Federal Power Act" means the Federal Power Act of 1935.

      "FERC" means the Federal Energy Regulatory Commission.

      "FERC Approval" means the final approval to be issued by FERC under
Section 203 of the Federal Power Act with respect to the transactions
contemplated hereby, provided that the terms of the approval imposing
obligations on a Party or in respect of its assets shall be satisfactory to such
Party in its sole discretion.

      "Financing" means financing which makes available funds to Purchaser in
connection with the acquisition of the Purchased Assets, on terms substantially
similar to those currently available in the capital markets to Purchaser on the
Effective Date and in a principal amount equal to the Purchase Price, and
otherwise on terms satisfactory to Purchaser, in its sole discretion.

      "GAAP" means generally accepted accounting principles in the United States
of America applied on a consistent basis.

      "GenWest" has the meaning given to it in the preamble to this Agreement.

      "GenWest Agreements" means any agreements, leases, licenses, indentures,
security agreements, deeds of trust or other contracts entered into by GenWest
for its own benefit, and not in common with or for the benefit of SNWA,
including in connection with GenWest's Interest in the Project, excluding any
agreements between GenWest and any of its Affiliates other than the O&M
Agreement and excluding any agreements that are fully performed except for
customary surviving provisions, including those relating to confidentiality,
indemnification, dispute resolution, audit rights, and limitation on
liabilities, in each case that do not have an adverse effect on the Purchased
Assets.

      "Governmental Authority" means any federal, state or local governmental
entity, authority or agency, court, tribunal, regulatory commission or other
body, whether legislative, judicial or executive (or a combination or
permutation thereof), provided; however, that SNWA shall not be considered a
Governmental Authority for purposes of this definition.

      "Hamon Consent" shall mean the consent obtained from Hamon Cooling Towers,
Inc., consenting to the assignment of the Silverhawk Combined Cycle Equipment
Supply Agreement (Contract No. 760200013), dated March 7, 2002, between GenWest
and Hamon Cooling Towers, Inc., 25% of the rights and obligations under which
were assigned to and assumed by SNWA pursuant to the Bill of Sale, as amended by
Change Order No. 1 and the Settlement Agreement dated May 12, 2004, in the form
attached hereto as Exhibit A or otherwise in form and substance reasonably
satisfactory to Purchaser and Sellers.

      "Hazardous Materials" means (i) any substance, emission or material
including asbestos, now or hereafter defined as, listed as or specified in a Law
as a "regulated substance," "hazardous substance," "toxic substance,"
"pesticide," "hazardous waste," "hazardous material"

                                        7


or any similar or like classification or categorization under any Law including
by reason of ignitability, corrosivity, reactivity, carcinogenicity or
reproductive or other toxicity of any kind, (ii) any products or substances
containing petroleum, asbestos, or polychlorinated biphenyls or (iii) any
substance, emission or material determined to be hazardous or harmful by a
Governmental Authority with appropriate jurisdiction.

      "HMH Letter" means the Letter from HMH, Inc. dated May 13, 2004, with the
following subject: "GBS from GENWEST, LLC to SOUTHERN NEVADA WATER AUTHORITY AT
APEX."

      "Hot Gas Path Parts Adjustment Amount" has the meaning given to it in
Section 2.2.4(a) of this Agreement.

      "Hot Gas Path Parts Expenditures Amount" means 75% of any expenditures for
the purchase of parts required for the hot gas path parts inspection scheduled
to take place during the spring and fall outages in 2007 under the Long Term
Maintenance Agreement.

      "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

      "Indemnified Party" has the meaning given in Section 7.3.1 of this
Agreement.

      "Indemnifying Party" has the meaning given in Section 7.3.1 of this
Agreement.

      "Independent Accounting Firm" means such nationally recognized,
independent accounting firm as is mutually appointed by Purchaser and Sellers
for purposes of this Agreement.

      "Intellectual Property" means (i) patents and industrial designs
(including any continuations, divisionals, continuations-in-part, renewals,
reissues, and applications for any of the foregoing), (ii) copyrights (including
any registrations and applications for any of the foregoing), (iii) software
(whether in source code or object code form), (iv) information technology and
information systems, or (v) technology, trade secrets or other confidential
information, know-how, proprietary processes, formulae, algorithms, models, or
methodologies, and licenses or other rights to the foregoing.

      "Interconnection and Operation Agreement" means the Interconnection and
Operation Agreement, Third Revised Service Agreement No. 02-00107 under Sierra
Pacific Resources Operating Companies' Open Access Transmission Tariff, dated
January 15, 2004 (effective from May 30, 2002), between GenWest and Purchaser,
25% of the rights and obligations under which were assigned to and assumed by
SNWA pursuant to the Bill of Sale.

      "Interconnection Contracts" means (i) the Interconnection and Operation
Agreement, (ii) the Fault Current Upgrade MOUs, (iii) the Settlement Agreements,
and (iv) the SCE Tax Agreement.

      "Interest" has the meaning assigned to it in the Co-Tenancy Agreement.

                                        8


      "Interim PPA" means the Power Purchase Agreement, dated as of the date
hereof, between GenWest and Purchaser.

      "Joint Facility Agreements" means any agreements, leases, licenses,
indentures, security agreements, deeds of trust or other contracts relating to
the development, construction, ownership, operation or maintenance of the
Facility entered into by GenWest or an Affiliate of GenWest, in each case for
the joint benefit of GenWest and SNWA, excluding any agreements that are fully
performed except for customary surviving provisions, including those relating to
confidentiality, indemnification, dispute resolution, audit rights, and
limitation on liabilities, in each case that do not have an adverse effect on
the Purchased Assets.

      "Kern River Consent" shall mean the consent obtained from Kern River Gas
Transmission Company consenting to the assignment of the Kern River Contracts,
in the form attached hereto as Exhibit B or otherwise in form and substance
reasonably satisfactory to Purchaser and Sellers.

      "Kern River Contracts" shall mean: (i) Power Supply Agreement, dated
November 20, 2003, between Kern River Gas Transmission Company and GenWest, 25%
of the rights and obligations under which were assigned to and assumed by SNWA
pursuant to the Bill of Sale, (ii) the Facilities Agreement, dated March 13,
2003, between Kern River Gas Transmission Company and GenWest, as amended by
Revised Exhibit C, which was assigned to PWEC, as Operating Agent on June 6,
2005, and (iii) the Signal Letter Agreement, dated May 8, 2003, between Kern
River Gas Transmission Company and GenWest, 25% of the rights and obligations
under which were assigned to and assumed by SNWA pursuant to the Bill of Sale.

      "Las Vegas Valley Water District Consent" shall mean the consent obtained
from Las Vegas Valley Water District consenting to the assignment of the Water
Supply Agreement, in the form attached hereto as Exhibit C or otherwise in form
and substance reasonably satisfactory to Purchaser and Sellers.

      "Law" means any statute, law, treaty, rule, code, common law, ordinance,
regulation, permit, interpretation, certificate or order of any Governmental
Authority, or any judgment, decision, decree, injunction, writ, order or like
action of any court, arbitrator or other Governmental Authority including each
Environmental Law.

      "Liability" means any indebtedness, obligations and other liabilities of a
Person (whether absolute, accrued, contingent, fixed or otherwise, or whether
due or to become due).

      "Lien" shall mean any mortgage, pledge, deed of trust, hypothecation,
assignment, deposit arrangement, charge, security interest, encumbrance, defect
in title, lien (statutory or other), or preference, priority or other security
agreement of any kind or nature whatsoever, including without limitation any
conditional sale or other title retention agreement, any financing lease having
substantially the same effect as any of the foregoing, or the filing of any
financing statement or similar instrument under the Uniform Commercial Code as
in effect in any relevant jurisdiction or comparable Law of any jurisdiction,
domestic or foreign.

      "Long Term Maintenance Agreement" or "LTMA" means the Program Parts, Shop
Repairs and Scheduled Outage Services Contract for a 2X1 501F Combined Cycle
Project for the

                                        9


Silverhawk Power Plant Project (Contract No. 760200022), dated as of August 8,
2000, between PWEC, as Operating Agent, and Siemens Westinghouse Power
Corporation.

      "Loss" means any damage, fine, penalty, deficiency, Liability, loss or
expense (including interest, court costs, reasonable fees of attorneys,
accountants and other experts or other reasonable expenses of litigation or
other proceedings or of any claim, default or assessment).

      "Lube Oil Storage Facility" means the facility to be constructed for the
storage of lube oil pursuant to the Engineering, Procurement and Construction
Agreement for Construction of Pre-Engineered Steel Buildings (Agreement No.
760200205), dated December 2, 2004, between Gillard Construction, Inc. and PWEC,
as Operating Agent.

      "Lugo Capacitor Work" has the meaning given to it in 0.

      "Master Declaration" means Declaration of Covenants, Conditions and
Restrictions for APEX Industrial Park, dated April 6, 2001, and recorded on
April 10, 2001, in Book 20010410 as Document No. 01425 of Official Records of
Clark County, Nevada, as amended by the Second Amendment to the Declaration of
Covenants and Restrictions for APEX Industrial Park, recorded on July 9, 2002,
in Book 20020709 as Document No. 00078 of Official Records of Clark County,
Nevada.

      "Material Adverse Effect" means a material adverse effect on (i) the
Facility or the Purchased Assets or the operation or condition thereof, (ii) the
ability of Sellers to perform their obligations under this Agreement or any of
the other Transaction Agreements or (iii) the validity or enforceability of this
Agreement or any of the other Transaction Agreements, or the rights or remedies
of Purchaser hereunder or thereunder, provided, however, that the term Material
Adverse Effect shall not include (x) any change resulting from changes in
general international or national economic, financial or market conditions, or
(y) any effect having a disproportionate impact on the Facility compared to
other generating facilities in Purchaser's control area, to the extent resulting
from the voluntary action of Purchaser relating to the transmission of power
from the Facility.

      "Materials and Equipment" means the Non-Shared Materials and Equipment and
the Shared Materials and Equipment.

      "Mirant Back-Up Well Arrangements" shall mean the Contemplated Assumed
Agreement Amendment in respect of the Mirant Master Agreement.

      "Mirant Consent" shall mean the consent obtained from Mirant Las Vegas,
LLC consenting to the assignment of the Mirant Master Agreement, in the form
attached hereto as Exhibit D or otherwise in form and substance reasonably
satisfactory to Purchaser and Sellers.

      "Mirant Master Agreement" means the Master Project Development and
Operating Agreement, dated September 26, 2001, as amended on March 19, 2003,
between GenWest and Mirant Las Vegas, LLC (Contract No. 750200436), as
supplemented by Supplement Nos. 1 through 7, 25% of the rights and obligations
under which was assigned to and assumed by SNWA pursuant to the Bill of Sale.

                                       10


      "Moenkopi Capacitor Work" has the meaning given to it in 0.

      "New Warehouse" means the warehouse being constructed at the Site pursuant
to the Engineering, Procurement and Construction Agreement for Construction of
Pre-Engineered Steel Buildings (Agreement No. 760200205), dated December 2,
2004, between Gillard Construction, Inc. and PWEC, as Operating Agent.

      "Non-Shared Assets" means the Non-Shared Materials and Equipment,
Non-Shared Books and Records, Continued Employee Books and Records (to the
extent they may be provided to Purchaser in accordance with Law), Assumed
GenWest Agreements, Assumed PWCC Agreements, Assumed PWEC Agreements, Non-Shared
Intellectual Property, and all third-party warranties and related assignments
and other assets owned separately by GenWest and not in common with or for the
benefit of SNWA, whether or not located on the Real Property.

      "Non-Shared Books and Records" means Books and Records owned separately by
GenWest, and not in common with or for the benefit of SNWA, in connection with
GenWest's Interest in the Project, or by PWEC in connection with its role as
Operating Agent under the Co-Tenancy Agreement, excluding any such Non-Shared
Books and Records constituting or relating solely to Excluded Assets; provided,
however, that if such Non-Shared Books and Records contain information related
to the Purchased Assets and Excluded Assets, the portion relating to the
Excluded Assets may be redacted.

      "Non-Shared Intellectual Property" means Intellectual Property owned
separately by GenWest and not in common with or for the benefit of SNWA, in
connection with GenWest's Interest in the Project.

      "Non-Shared Materials and Equipment" shall include the equipment,
machinery, apparatus, furniture, computer hardware, vehicles, Stores and
Inventory, tools, dies, construction in progress, and other tangible personal
property, including such additional items of tangible personal property as
acquired prior to the Closing Date, owned separately by GenWest and not in
common with or for the benefit of SNWA, in connection with GenWest's Interest in
the Project, including the Non-Shared Materials and Equipment listed in Schedule
II, Part A.

      "O&M Agreement" means the Facility Operating and Maintenance Agreement,
dated as of April 18, 2002, among PWEC, as Operating Agent, and GenWest and SNWA
as Participants in the Silverhawk Power Plant.

      "Objectionable Survey Matters" has the meaning given to it in Section
4.1(g) of this Agreement.

      "Objectionable Title Matters" has the meaning given to it in Section
4.1(g) of this Agreement.

      "Operating Agent" has the meaning given to it in the Co-Tenancy Agreement.

      "Other Transfer Taxes" has the meaning given to it in Section 8.2 of this
Agreement.

                                       11


      "Overlap Period" has the meaning given to it in Section 8.4 of this
Agreement.

      "Overlap Period Taxes" has the meaning given to it in Section 8.4 of this
Agreement.

      "Participant" has the meaning given to it in the Co-Tenancy Agreement.

      "Party" or "Parties" has the meaning given to it in the preamble to this
Agreement.

      "Permits" means permits, licenses, approvals, certificates, letter
rulings, orders, decrees, judgments, writs, injunctions or similar actions of
any Governmental Authority.

      "Permitted Liens" means (i) those exceptions to title to the Purchased
Assets set forth in Section 1.1.1(b) of the Sellers' Disclosure Schedule, (ii)
zoning, entitlement, conservation restriction and other land use and
environmental regulations by any Governmental Authority, (iii) Liens for Taxes
not yet delinquent, (iv) items 3 through 25, and items 27 through 28 set forth
in Schedule B of that certain Title Report dated as of June 2, 2005, Order
Number 05-02-1673-CLB 2nd Amendment, of Nevada Title Company, (v) Liens created
under Section 3.6, Section 3.8.1, Section 3.8.2, Section 10.2, Section 11.3, and
Section 14.2(h) of the Co-Tenancy Agreement, (vi) any Lien expressly applying
only to SNWA's interest in the Project, (vii) mechanics', carriers', workers',
repairers' and other similar Liens arising or incurred under Assumed Agreements
in the ordinary course of business and not in violation of the Co-Tenancy
Agreement or the O&M Agreement relating to obligations (x) which are not yet due
and payable or (y) which do not exceed $500,000 in the aggregate and the
validity of which is being contested in good faith by appropriate proceedings,
and (viii) prior to Closing only, Additional Pre-Closing Permitted Mechanics
Liens.

      "Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization, Governmental Authority or any other form of entity.

      "Post-April RRSU Payment Amount" means amounts of payments by GenWest
pursuant to the Fault Current Upgrade MOUs beginning on May 1, 2005 and ending
on the Closing Date, less (a) any refunds received by GenWest in respect of such
payments prior to Closing, and (b) any amounts paid by GenWest beginning on May
1, 2005 and ending on the Closing Date attributable to SNWA's Interest.

      "Post-Effective Date Assumed Joint Facility Agreements" has the meaning
given to it in 0 of this Agreement.

      "Post-Effective Date Permits" has the meaning given to it in 0 of this
Agreement.

      "Post-September Capital Expenditures Adjustment Amount" has the meaning
given to it in Section 2.2.4(a) of this Agreement.

      "Post-September Capital Expenditures Amount" means 75% of the aggregate
amount of all funds expended on the following capital expenditures for the
Project, beginning on October 1, 2005 and ending on the Closing Date: (a)
capital expenditures made in the ordinary course of business, pursuant to the
Co-Tenancy Agreement, and not exceeding $500,000 in the aggregate,

                                       12


(b) unscheduled capital expenditures made with the prior written consent of
Purchaser, and (c) capital expenditures made at Purchaser's request, but
excluding in each case any expenditures for construction of the New Warehouse or
the Lube Oil Storage Facility, expenditures for Stores and Inventory, Hot Gas
Path Parts Expenditures and such capital expenditures included in payments made
by Purchaser under the Interim PPA.

      "Pre-Closing Books and Records" has the meaning given to it in Section
2.5.2 of this Agreement.

      "Pre-Closing Taxes" has the meaning given to it in Section 8.4 of this
Agreement.

      "Pre-Closing Tax Period" shall mean any taxable period ending on or before
the Closing Date, or with respect to any taxable period that begins on or before
the Closing Date and ends after the Closing Date, the portion of such taxable
period ending on the Closing Date.

      "Project" means the Facility and all Real Property, Shared Materials and
Equipment, Shared Books and Records, Assumed Joint Facility Agreements,
Transferred Permits, Shared Intellectual Property, and all third-party
warranties and related assignments and other assets owned jointly by GenWest and
SNWA or by either of GenWest or SNWA, in each case for their joint benefit,
whether or not located on the Real Property.

      "Project Employee Books and Records" means the Books and Records related
to Project Employees regarding skill and development training; seniority
histories, disciplinary histories, salary and benefit information, Occupational
Safety and Health Administration reports and records, and active medical
restriction forms.

      "Project Employees" means individuals employed by PWEC at the Facility.

      "Property Taxes" has the meaning given to it in Section 8.3 of this
Agreement.

      "PUCN" means the Public Utilities Commission of Nevada.

      "PUCN Approval" means the final order to be issued by PUCN approving (i)
Purchaser's acquisition of the Purchased Assets on terms consistent with this
Agreement, (ii) the Interim PPA in the form executed by Purchaser and GenWest,
(iii) the financing of the Purchased Assets, and (iv) any long-term firm gas
transportation arrangements and electric transmission and related upgrades
required in connection with such acquisition, in each case on terms satisfactory
to Purchaser, in its sole discretion.

      "Purchase Price" has the meaning given to it in Section 2.2.1 of this
Agreement.

      "Purchased Assets" has the meaning given to it in Section 2.1.1 of this
Agreement.

      "Purchaser" has the meaning given to it in the preamble of this Agreement.

      "Purchaser Consent Representative" means the person appointed by Purchaser
and notified to Sellers with appropriate contact information for the purpose of
giving consents and receiving notices required pursuant to 0 of this Agreement.

                                       13


      "Purchaser Indemnified Party" has the meaning given to it in Section 7.1
of this Agreement.

      "Purchaser's Disclosure Schedule" means the schedule delivered to Sellers
by Purchaser herewith and dated as of the Effective Date, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Purchaser pursuant to this Agreement, attached hereto as
Schedule VII.

      "Purchaser's Knowledge" means the actual knowledge of the Persons listed
on Section 1.1.1(c) of the Purchaser's Disclosure Schedule; provided, however,
each such Person shall be deemed to have knowledge of a matter of which such
Person has received written notice.

      "Purchaser's RRSU Refund Portion" has the meaning given to it in Section
2.5.4.

      "PWCC" has the meaning given to it in the preamble of this Agreement.

      "PWEC" has the meaning given to it in the preamble of this Agreement.

      "Real Property" means the Site (including all buildings, structures and
other improvements located thereon) and the Easements.

      "Real Property Documents" means (i) the Real Property Purchase Agreement,
(ii) the Easements, (iii) the Well Development Agreement, (iv) the Master
Declaration, (v) Grant of Easement from GenWest in favor of Kern River Gas
Transmission Company, for right of way easement, recorded December 20, 2002, in
Book 20021220 as Document No. 01148 of Official Records of Clark County, Nevada,
and (vi) the Grant of Easement from GenWest to Nevada Power Company and Central
Telephone Company, for electrical and communication facilities, recorded
September 25, 2003, in Book 20030925 as Document No. 00111 of Official Records
of Clark County, Nevada.

      "Real Property Purchase Agreement" means the Real Property Purchase
Agreement, dated August 23, 2001, between GDL 7, LLC and GenWest for the
purchase of the real property comprising the Site, 25% of the rights and
obligations under which were assigned to and assumed by SNWA pursuant to the
Bill of Sale.

      "Real Property Transfer Taxes" has the meaning given to it in Section 8.2
of this Agreement.

      "Related Person" means (i) with respect to Sellers and Purchaser, their
respective Affiliates, and the employees, officers, directors, agents,
representatives, licensees and invitees of Sellers, Purchaser and their
respective Affiliates, and (ii) with respect to Purchaser, the employees,
officers, directors, agents, representatives, licensees and invitees of its
lenders, advisors and subcontractors.

      "Release" shall mean any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater, and surface

                                       14


or subsurface strata) or into or out of any property, including the movement of
Hazardous Materials through or in air, soil, surface water, groundwater or
property.

      "Reliant Agreement" means the Agreement Regarding Exchange and Assignment
of Transmission Services Agreements, dated August 26, 2002, between PWEC and
Reliant Energy Services, Inc., which was assigned to PWCC pursuant to the
Assignment and Assumption Agreement between PWEC and PWCC dated April 9, 2003.

      "Reliant Consent" shall mean the consent obtained from Reliant Energy
Services, Inc. consenting to the assignment of the Reliant Agreement, in the
form attached hereto as Exhibit E or otherwise in form and substance reasonably
satisfactory to Purchaser and Sellers.

      "Remediation" means actions undertaken to address a Release of Hazardous
Materials to the environment, including the following activities: (i)
monitoring, investigation, assessment, treatment, cleanup, containment, removal,
mitigation, response or restoration work, (ii) obtaining any Permits, consents,
approvals or authorizations of any Governmental Authority necessary to conduct
any such activity, (iii) preparing and implementing any plans or studies for any
such activity, (iv) obtaining a written notice from a Governmental Authority
that no material additional work is required by such Governmental Authority, (v)
the use, implementation, application, installation, operation or maintenance of
remedial technologies applied to the surface or subsurface soils, excavation and
treatment or disposal of soils at off-site locations, systems for long-term
treatment of surface water or groundwater, engineering controls or institutional
controls, and (vi) any other activities reasonably determined to be necessary or
appropriate or required under Environmental Laws to address a Release of
Hazardous Materials.

      "Required Consents" shall mean the following: the SNWA Consent, the Kern
River Consent, the Las Vegas Valley Water District Consent, the Siemens Consent,
the SCE Consent, the Reliant Consent, the Mirant Consent, the Hamon Consent, and
any other consents required pursuant to 0 of this Agreement.

      "Restrictions Declaration" means Use Restrictions Declaration dated as of
July 8, 2002, between GDL 7, LLC and GenWest, as recorded on July 9, 2002, in
Book 20020709 as Document No. 00079 of Official Records of Clark County, Nevada.

      "Retained Information" has the meaning given to it in 0 of this Agreement.

      "Revised MOU I" means the Revised RRSU Memorandum of Understanding between
Purchaser and GenWest filed as Attachment B to the 2003 Settlement Agreement
("MOU I"), as amended by the revised memorandum of understanding between
Purchaser and GenWest entered into pursuant to the 2005 Settlement Agreement and
the Amended and Restated 2003 Settlement Agreement, conforming MOU I with the
revisions agreed to in the 2005 Settlement Agreement and the Amended and
Restated 2003 Settlement Agreement.

      "RRSU" means Regional Required System Upgrades.

      "RRSU Adjustment Amount" has the meaning given to it in Section 2.2.4(a)
of this Agreement.

                                       15


      "SCE" means Southern California Edison Company.

      "SCE Consent" shall mean the consent obtained from SCE consenting to the
assignment of the Settlement Agreements, excluding the Western Settlement
Agreement, and the SCE Tax Agreement in the form attached hereto as Exhibit F,
or otherwise in form and substance reasonably satisfactory to Purchaser and
Sellers.

      "SCE RRSU Refund" means any service credits and cash refunds provided by
SCE with respect to the payments made under the Revised MOU I and SCE Tax
Agreement relating to the Silverhawk Power Plant, pursuant to paragraphs 26
through 33 of the 2003 Settlement Agreement and the Amended and Restated 2003
Settlement Agreement.

      "SCE Tax Agreement" means the Tax Agreement, dated effective January 31,
2003, among GenWest, SCE and Purchaser, 25% of the rights and obligations under
which were assigned to and assumed by SNWA pursuant to the Bill of Sale, as such
is modified by the revised SCE Tax Agreement included as Attachment C to the
Amended and Restated 2003 Settlement Agreement.

      "Section 4.2(d) Action" has the meaning given to it in 0.

      "Seller" and "Sellers" each has the meaning given to it in the preamble to
this Agreement.

      "Sellers' Disclosure Schedule" means the schedule delivered to Purchaser
by Sellers herewith and dated as of the Effective Date, containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein by Sellers pursuant to this Agreement attached hereto as
Schedule VI.

      "Sellers' Indemnified Party" has the meaning given to it in Section 7.2 of
this Agreement.

      "Sellers' Knowledge" means the actual knowledge of the Persons listed on
Section 1.1.1(d) of the Sellers' Disclosure Schedule; provided, however, each
such Person shall be deemed to have knowledge of a matter of which such Person
received written notice.

      "Sellers' Releases" means releases to be sought by Sellers from (i) SNWA
under the Co-Tenancy Agreement, the O&M Agreement, and the Agency Agreement,
(ii) Reliant Energy Services, Inc. under the Reliant Agreement, (iii) Siemens
Westinghouse Power Corporation under the Long Term Maintenance Agreement, (iv)
Purchaser with respect to any obligations of SNWA under the Interconnection and
Operation Agreement, each of which releases shall be from all liability for
actions taken after the Closing Date, except for clause (iv), which shall be
from all liability for actions taken after the effective date of the Bill of
Sale.

      "Sellers' Releases Deadline" has the meaning given to it in Section
4.1(i).

      "Sellers' RRSU Refund Portion" has the meaning given to it in Section
2.5.4.

      "Sellers' Support Obligations" means (i) the Irrevocable Letter of Credit
No. P-243249, dated November 26, 2003, issued by JPMorgan Chase Bank on behalf
of GenWest, (ii) the Irrevocable Letter of Credit No. P-226706, dated June 18,
2002, issued by JPMorgan Chase

                                       16


Bank on behalf of GenWest, (iii) the Irrevocable Letter of Credit No.
TS-07001845 dated January 2, 2002, issued by Credit Suisse First Boston on
behalf of PWEC, and (iv) the Irrevocable Letter of Credit No. P-230876 dated
October 11, 2002, issued by JPMorgan Chase Bank on behalf of PWEC..

      "Settlement Agreements" means the 2003 Settlement Agreement, the Amended
and Restated 2003 Settlement Agreement, the 2005 Settlement Agreement, and the
Western Settlement Agreement.

      "Shared Books and Records" means Books and Records relating specifically
to the construction, ownership, operation or maintenance of the Facility that
are not Non-Shared Books and Records, excluding any such Shared Books and
Records constituting or relating solely to Excluded Assets; provided, however,
that if such Books and Records contain information related to the Purchased
Assets and Excluded Assets, the portion relating to the Excluded Assets may be
redacted.

      "Shared Intellectual Property" means Intellectual Property owned jointly
by GenWest and SNWA or by either of GenWest or SNWA, in each case for their
joint benefit.

      "Shared Materials and Equipment" shall include the equipment, machinery,
apparatus, furniture, computer hardware, vehicles, Stores and Inventory, tools,
dies, construction in progress, and other tangible personal property required,
including such additional items of tangible personal property as acquired prior
to the Closing Date, used, or to be used for or in the operation or maintenance
of the Facility that are not Non-Shared Materials and Equipment, including the
Shared Materials and Equipment listed in Schedule II, Part B, which schedule
does not include Stores and Inventory.

      "Siemens Consent" shall mean the consent obtained from Siemens
Westinghouse Power Corporation consenting to the assignment of (i) the Equipment
Supply Agreement (Contract No. 750200136), dated February 16, 2001, between
GenWest and Siemens Westinghouse Power Corporation for Combustion Turbine
Equipment, as amended by Change Orders Nos. 1 through 8, 25% of the rights and
obligations under which were assigned to and assumed by SNWA pursuant to the
Bill of Sale, (ii) the Contract, dated April 20, 2004, between Siemens
Westinghouse and PWEC, as Operating Agent, for water injection equipment, as
amended by Change Order No. 1, dated July 8, 2004, and (iii) the Long Term
Maintenance Agreement, in the form attached hereto as Exhibit G or otherwise in
form and substance reasonably satisfactory to Purchaser and Sellers.

      "Site" means that certain real property located in Clark County, Nevada,
upon which the Facility is located, within Lot 23 of the APEX Industrial Park,
as further described in Schedule III.

      "Site Description Error" means the errors in the legal description of the
Site, and in the legal description of the access road easement over a portion of
APEX Industrial Park, Assessor's Parcel Number 103-04-010-002, granted pursuant
to that Grant of Easement, dated July 23, 2002 by HDL 8, LLC to GenWest, which
errors are to be corrected as identified in the markups attached as Exhibit 2
and Exhibit 3 to Schedule III.

                                       17


      "SNWA" means the Southern Nevada Water Authority.

      "SNWA Consent" shall mean the consent obtained from SNWA consenting to the
Transfer of GenWest's Interest and amending the Co-Tenancy Agreement and the O&M
Agreement, in the form attached hereto as Exhibit H or otherwise in form and
substance reasonably satisfactory to Purchaser and Sellers.

      "SNWA Deed" means the Grant, Bargain, Sale Deed dated May 14, 2004,
between GenWest and SNWA.

      "Stores and Inventory" means supplies, inventories, materials, lubricants,
chemicals, filters, fittings, connectors, seals, gaskets, repair and replacement
parts, which are located at the Site or in transit, or deliverable to the
Facility pursuant to the Assumed Agreements, as of the Closing Date, and used,
or to be used, in connection with the operation and maintenance of the Facility.
Certain items of Stores and Inventory as of the Effective Date are listed on
Schedule II, Part C.

      "Stores and Inventory Adjustment Amount" has the meaning given to it in
Section 2.2.4(a) of this Agreement.

      "Stores and Inventory Amount" means an amount equal to 75% of the value of
Stores and Inventory, which amount shall not exceed the Stores and Inventory Cap
Amount. For purposes of determining value, new Stores and Inventory shall be
valued at the original delivered cost, while used Stores and Inventory shall be
valued at a portion of the original delivered costs based on the remaining
useable life of such Stores and Inventory. In the case of used Stores and
Inventory that are supplied under the Long Term Maintenance Agreement, value
shall be determined by reference to the parts life list set forth in Exhibit B
of the Long Term Maintenance Agreement. The "Stores and Inventory Amount" (i)
shall include amounts for Stores and Inventory to the extent such Stores and
Inventory have been paid for before or after Closing by GenWest and SNWA and
(ii) shall exclude in all cases any amounts for Stores and Inventory included in
Post-September Capital Expenditures or included in payments made by Purchaser
under the Interim PPA and any amounts included in the Hot Gas Path Parts
Expenditures Amount.

      "Stores and Inventory Cap Amount" means an amount equal to $5,460,000.

      "Survey" has the meaning given to it in Section 4.1(g) of this Agreement.

      "Tax" or "Taxes" means any and all taxes, including any interest,
penalties, or other additions to tax that may become payable in respect thereof,
imposed by any federal, state or local government or any agency or political
subdivision of any such government, which taxes shall include all income taxes,
profits taxes, taxes on gains, alternative minimum taxes, estimated taxes,
payroll and employee withholding taxes, unemployment insurance taxes, social
security taxes, welfare taxes, disability taxes, severance taxes, license
charges, taxes on stock, sales and use taxes, ad valorem taxes, value added
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real or personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation taxes, and other
taxes, fees, duties,

                                       18


levies, customs, tariffs, imposts, assessments, obligations and charges of the
same or of a similar nature to any of the foregoing.

      "Tax Claim" has the meaning given to it in Section 8.7 of this Agreement.

      "Tax Returns" means any return, report, information return, claim for
refund or other document (including any related or supporting information)
supplied to or required to be supplied to any Taxing Authority with respect to
Taxes, including any attachments, amendments and supplements thereto.

      "Taxing Authority" means, with respect to any Tax, the governmental entity
or political subdivision thereof that imposes such Tax, and the agency (if any)
charged with the collection of such Tax for such entity or subdivision.

      "Title Insurance Commitment" has the meaning given to it in Section 4.1(g)
of this Agreement.

      "Title Insurance Policy" has the meaning given to it in Section 4.1(g) of
this Agreement.

      "Transaction Agreements" means the following agreements:

      (a)   this Agreement;

      (b)   the Deed;

      (c)   the Assignment Agreement;

      (d)   the Interim PPA; and

      (e)   the Required Consents.

      "Transfer" has the meaning assigned to it in the Co-Tenancy Agreement.

      "Transfer Taxes" has the meaning given to it in Section 8.2 of this
Agreement.

      "Transferred Intellectual Property" means the Non-Shared Intellectual
Property and GenWest's undivided seventy-five percent (75%) interest in the
Shared Intellectual Property.

      "Transferred Permits" means those Permits set forth in Schedule IV,
interests in which are to be conveyed by the Sellers to Purchaser as part of the
Purchased Assets.

      "Transmission Services Agreement" means the Service Agreement for
Long-Term Firm Point-To-Point Transmission Service, Service Agreement No. 101A,
dated December 12, 2002, as amended December 19, 2003, and effective July 31,
2003, between Purchaser and PWCC, which was originally assigned to PWEC by
Reliant Energy Services, Inc. pursuant to the TSA 101 Assignment Agreement and
later assigned to PWCC pursuant to the Assignment and Assumption Agreement,
dated April 9, 2003, between PWEC and PWCC.

                                       19


      "TSA 100 Assignment Agreement" means the Assignment and Assumption
Agreement (TSA-100), dated as of September 17, 2002, between PWEC and Reliant
Energy Services, Inc.

      "TSA 101 Assignment Agreement" means the Assignment and Assumption
Agreement (TSA-101), dated as of September 17, 2002, between PWEC and Reliant
Energy Services, Inc.

      "Water Permit" means the Permanent Point of Diversion Permit for the
Facility to be issued by State of Engineer of Nevada, an application for which
was filed on May 12, 2005, as such application may be amended or modified as may
be agreed to by Purchaser and Sellers.

      "Water Supply Agreement" means the Water Supply Agreement, effective
August 7, 2001, between the Las Vegas Valley Water District and GenWest, 25% of
the rights and obligations under which were assigned to and assumed by SNWA
pursuant to the Bill of Sale.

      "Well Development Agreement" means the Well Development Agreement, dated
May 17, 2002, between GenWest and Dry Lake Water, LLC, 25% of the rights and
obligations under which were assigned to and assumed by SNWA pursuant to the
Bill of Sale.

      "Western Settlement Agreement" means the Settlement Agreement, dated as of
March 21, 2005, entered into among Purchaser, Valley Electric Association, Inc.,
Purchaser's Chuck Lenzie Generating Station, GenWest, Las Vegas Cogeneration II,
LLC, Mirant Las Vegas, LLC, Reliant Energy Wholesale Generation, LLC, and SNWA,
which resolves issues in FERC Docket No. ER04-152-000.

      Section 1.2 Rules as to Usage. Except as otherwise expressly provided
herein, the following rules shall apply to the usage of terms in this Agreement:

                  (a) The terms defined above have the meanings set forth above
for all purposes, and such meanings are equally applicable to both the singular
and plural forms of the terms defined. If a term is defined as one part of
speech (such as a noun), it shall have a corresponding meaning when used as
another part of speech (such as a verb).

                  (b) "Include," "includes" and "including" shall be deemed to
be followed by "without limitation" whether or not they are in fact followed by
such words or words of like import.

                  (c) "Writing," "written" and comparable terms refer to
printing, typing, and other means of reproducing in a visible form.

                  (d) Any Law defined or referred to herein means such Law as
from time to time amended, modified or supplemented, including by succession of
comparable successor Law and any rules and regulations promulgated thereunder.

                  (e) References to a Person are also to its permitted
successors and assigns.

                  (f) Any term defined above by reference to any agreement,
instrument or Law has such meaning whether or not such agreement, instrument or
Law is in effect.

                                       20


                  (g) "Hereof," "herein," "hereunder" and comparable terms
refer, unless otherwise expressly indicated, to the entire agreement or
instrument in which such terms are used and not to any particular article,
section or other subdivision thereof or exhibit or schedule or other attachment
thereto. References in an instrument to "Article," "Section," or another
subdivision or to an exhibit or schedule or other attachment are, unless the
context otherwise requires, to an article, section, subsection or subdivision of
or an exhibit or schedule or other attachment to such agreement or instrument.

                  (h) Pronouns, whenever used in any agreement or instrument
that is governed by this Agreement and of whatever gender, shall include all
Persons. References to any gender include, unless the context otherwise
requires, references to all genders.

                  (i) The word "or" will have the inclusive meaning represented
by the phrase "and/or." "Shall" and "will" have equal force and effect.

                  (j) Whenever the consent or approval of any Party is required
pursuant to this Agreement, unless expressly stated that such consent or
approval is to be given in the sole discretion of such Party, such consent or
approval shall not be unreasonably withheld or delayed.

                  (k) Whenever this Agreement refers to a number of days, such
number shall refer to calendar days unless Business Days are specified. Whenever
any action must be taken hereunder on or by a day that is not a Business Day,
then such action may be validly taken on or by the next day that is a Business
Day.

                  (l) All accounting terms used herein and not expressly defined
herein shall have the meanings given to them under GAAP.

      Section 1.3 Schedules and Exhibits. This Agreement consists of the
Articles contained herein and the Schedules and Exhibits attached hereto, all of
which comprise part of one and the same agreement with equal force and effect.

                                   ARTICLE II

                        SALE AND PURCHASE; PRICE; CLOSING

      Section 2.1 Sale and Purchase; Definition of Purchased Assets; Assumed
Liability.

            Section 2.1.1 Purchased Property. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, the Sellers shall sell,
transfer, convey, assign and deliver to Purchaser, free and clear of all Liens
(other than Permitted Liens), and Purchaser or its designated Affiliate will
purchase and pay for (a) an undivided seventy-five percent (75%) interest in the
Project and (b) a 100% interest in the Non-Shared Assets, excluding the Excluded
Assets (sub-clauses (a) and (b) collectively, the "Purchased Assets").

            Section 2.1.2 Assignment and Assumption of Assumed Agreements. On
the terms and subject to the conditions set forth in this Agreement, effective
as of the Closing, Sellers shall assign to Purchaser and Purchaser shall assume
all of Sellers' rights under the Assumed Agreements, and (a) in the case of
Assumed Agreements other than the Interconnection

                                       21


Contracts, all of Sellers' obligations arising after the Closing under such
Assumed Agreements, and (b) in the case of Interconnection Contracts, all of
Sellers' obligations under the Interconnection Contracts, other than (x) any
refund liability of GenWest in connection with the proceedings on remand from
the United States Court of Appeals for the D.C. Circuit in FERC Docket No.
ER02-1913 or a subsequent ruling by FERC or a court on this issue, except for
that portion of such liability for which SNWA is responsible under the
Co-Tenancy Agreement, and (y) any refund liability of GenWest to SCE pursuant to
paragraph 31 of the 2003 Settlement Agreement and the Amended and Restated 2003
Settlement Agreement, with respect to refunds received by GenWest, except for
that portion of such liability for which SNWA is responsible under the
Co-Tenancy Agreement. For the avoidance of doubt, (i) with respect to indemnity
obligations under Assumed Agreements, other than Interconnection Contracts as
provided above, Purchaser shall only assume liability for events that occur
after the Closing, and (ii) Purchaser shall not be deemed to assume any
Liabilities of Sellers pursuant to this Agreement or the transactions
contemplated hereby, except as set forth in this Section 2.1.2.

            Section 2.1.3 Retention of Certain Assets. Sellers shall have no
obligation to transfer any interest or rights in those agreements, assets and
properties described in Schedule V, Part A attached hereto (the "Excluded
Assets") and Purchaser shall have no Liability with respect thereto. The Parties
acknowledge and agree that Sellers shall have the right on or prior to the
Closing Date to retain or to transfer and assign to one or more of Sellers'
Affiliates, their interests in the Excluded Assets.

            Section 2.1.4 Excluded Liabilities. On and after the Closing, and
without further Liability or obligation of Purchaser, Sellers or their
Affiliates, as the case may be, shall retain the duties, obligations and
Liabilities, direct or indirect, known or unknown, absolute or contingent, under
those agreements and other matters set forth in Schedule V, Part B attached
hereto (the "Excluded Liabilities").

      Section 2.2 Purchase Price.

            Section 2.2.1 Amount. In consideration of the sale, assignment,
conveyance, transfer and delivery to Purchaser as of the Closing of the Sellers'
right, title and interest in the Purchased Assets, Purchaser shall pay to
GenWest an amount equal to the sum of (a) $207,620,000, (b) the Stores and
Inventory Amount, (c) the Post-September Capital Expenditures Amount, (d) the
Post-April RRSU Payment Amount and (e) the Hot Gas Path Parts Expenditures
Amount (collectively, the "Purchase Price").

            Section 2.2.2 Payment of Estimated Purchase Price. At the Closing,
Purchaser shall pay or cause to be paid to GenWest an amount which shall be the
sum of the following (the "Estimated Purchase Price"): (i) $207,620,000, and
(ii) the undisputed portions of the Estimated Stores and Inventory Amount, the
Estimated Post-September Capital Expenditures Amount, the Estimated Post-April
RRSU Payment Amount, and the Estimated Hot Gas Path Parts Expenditures Amount.

            Section 2.2.3 Estimated Adjustment. At least ten (10) Business Days
prior to the Closing Date, Sellers in consultation with Purchaser shall conduct
an inventory survey, which may be observed by Purchaser, and prepare and deliver
to Purchaser an estimated closing

                                       22


statement certified to be a good faith estimate by a duly authorized officer of
GenWest (the "Estimated Closing Statement"). The Estimated Closing Statement
shall set forth in reasonable detail: (i) Sellers' best estimate of the Stores
and Inventory Amount (the "Estimated Stores and Inventory Amount"), which
statement shall include a description, part number, quantity on hand, average
unit cost (adjusted for remaining useable life, if used) and extended value
(quantity times average unit cost) with respect to each class of inventory,
including the assumptions and calculations used by Sellers in such estimate,
(ii) Sellers' best estimate of the Post-September Capital Expenditures Amount,
including the assumptions and calculations used by Sellers in such estimate (the
"Estimated Post-September Capital Expenditures Amount"), (iii) Sellers' best
estimate of the Post-April RRSU Payment Amount, including the assumptions and
calculations used by Sellers in such estimate (the "Estimated Post-April RRSU
Payment Amount"), and (iv) Sellers' best estimate of the Hot Gas Path Parts
Expenditures Amount, including the assumptions and calculations used by Sellers
in such estimate (the "Estimated Hot Gas Path Parts Expenditures Amount",
together with the Estimated Stores and Inventory Amount, the Estimated
Post-September Capital Expenditures Amount, and the Estimated Post-April RRSU
Payment Amount, the "Estimated Adjustment"). Within five (5) Business Days
following the delivery of the Estimated Closing Statement by Sellers to
Purchaser, Purchaser may object in good faith to the Estimated Adjustment in
writing. If Purchaser objects to the Estimated Adjustment, the Parties shall
attempt to resolve their differences by negotiation. If the Parties are unable
to do so within two (2) Business Days prior to the Closing Date (or if Purchaser
does not object to the Estimated Adjustment), the amount of the Estimated
Adjustment not in dispute shall be included in the Estimated Purchase Price. The
disputed portion shall be paid as a post-Closing adjustment to the extent
required by Section 2.2.4.

            Section 2.2.4 Purchase Price Adjustment.

                  (a) Within 60 days after the Closing, Purchaser in
consultation with Sellers shall prepare and deliver to the Sellers a statement
(the "Adjustment Statement"), which reflects (i) the difference between (A) the
Stores and Inventory Amount as of the Closing Date, based on an inventory survey
conducted by Purchaser within 30 days after the Closing Date, which may be
observed by Sellers, and (B) the undisputed Estimated Stores and Inventory
Amount (such difference is referred to as the "Stores and Inventory Adjustment
Amount"), (ii) the difference between (A) the Post-September Capital
Expenditures Amount and (B) the undisputed Estimated Post-September Capital
Expenditures Amount (such difference is referred to as the "Post-September
Capital Expenditures Adjustment Amount"), (iii) the difference between (A) the
Post-April RRSU Payment Amount and (B) the undisputed Estimated Post-April RRSU
Payment Amount (such difference is referred to as the "RRSU Adjustment Amount"),
and (iv) the difference between (A) the Hot Gas Path Parts Expenditures Amount
and (B) the undisputed Estimated Hot Gas Path Parts Expenditures Amount (such
difference is referred to as the "Hot Gas Path Parts Adjustment Amount"). The
Stores and Inventory Adjustment Amount, the Post-September Capital Expenditures
Adjustment Amount, the RRSU Adjustment Amount, and the Hot Gas Path Parts
Adjustment Amount are referred to collectively as the "Adjustment Amount." The
Adjustment Statement shall be prepared using GAAP and the methodologies set
forth in the definition of Stores and Inventory Amount. The Parties agree to
cooperate in connection with the preparation of the Adjustment Statement and
related information, and shall provide each other with such books, records and
information as may be

                                       23


reasonably requested from time to time in connection therewith and in connection
with Sellers' review thereof.

                  (b) Sellers may dispute the Adjustment Amount; provided,
however, that Sellers shall notify Purchaser in writing of the disputed amount,
and the basis of such dispute, within ten (10) Business Days of Sellers' receipt
of the Adjustment Statement. In the event of a dispute with respect to any part
of the Adjustment Amount, Purchaser and Sellers shall attempt to reconcile their
differences and any resolution by them as to any disputed amounts shall be
final, binding and conclusive on the Parties. If Purchaser and Sellers are
unable to reach a resolution of such differences within 30 days of receipt of
Sellers' written notice of dispute to Purchaser, Purchaser and Sellers shall
submit the amounts remaining in dispute for determination and resolution to the
Independent Accounting Firm, which shall be instructed to determine and report
to the Parties, within 30 days after such submission, and such report shall be
final, binding and conclusive on the Parties hereto with respect to the amounts
disputed. The fees and disbursements of the Independent Accounting Firm shall be
shared equally by Purchaser and Sellers.

                  (c) Within ten (10) Business Days after Sellers' receipt of
the Adjustment Statement, the Party owing the Adjustment Amount shall pay all
undisputed amounts. If there is a dispute with respect to any amount of the
Adjustment Statement, within five (5) Business Days after the final
determination of any amounts on the Adjustment Statement, the Party owing the
Adjustment Amount shall pay to the other Party an amount equal to the disputed
Adjustment Amount as finally determined to be payable with respect to the
Adjustment Statement. Any amount paid under this Section 2.2.4 shall be paid
with interest for the period from, and including, the Closing Date to, but
excluding, the date of payment, calculated at the lesser of (a) the prime rate
under "Money Rates" as reported in the Wall Street Journal on the first business
day of the month during which interest is payable plus two percent (2%) or (b)
the maximum rate of interest permitted to be charged by applicable Law.

            Section 2.2.5 Amounts in Respect of Mechanics' Liens.
Notwithstanding anything in this Section 2.2 or Section 2.4.1 to the contrary,
Purchaser may withhold from the Estimated Purchase Price an amount equal to the
value of all mechanics', carriers', workers', repairers' and other similar Liens
in existence at Closing on the Purchased Assets, other than those arising or
incurred under Assumed Agreements in the ordinary course of business, not in
violation of the Co-Tenancy Agreement or the O&M Agreement relating to
obligations which are not yet due and payable. To the extent such Liens are not
remedied by Sellers within 90 days after Closing or such earlier date notified
at least five (5) Business Days in advance by Purchaser to Sellers as is
reasonably necessary for Purchaser, Purchaser shall be entitled to apply the
portion of the Estimated Purchase Price so withheld to remedy any such Liens, in
satisfaction of payment to Sellers of such portion of the Purchase Price. Upon
all such Liens having been remedied by Sellers or by Purchaser pursuant to the
preceding sentence, Purchaser shall pay to GenWest any remaining amounts of the
Purchase Price retained by Purchaser under this Section 2.2.5.

            Section 2.2.6 Method of Payment of Purchase Price. Payment of the
Estimated Purchase Price and the Adjustment Amount shall be made in United
States dollars, by wire

                                       24


transfer of immediately available federal funds to an account located in the
United States as GenWest or, if applicable, Purchaser may specify by notice.

            Section 2.2.7 Proration.

                  Purchaser and Sellers agree that the following items relating
to the Purchased Assets shall be prorated as of the Closing Date, with Sellers
liable to the extent such items relate to any time period through the Closing
Date, and Purchaser liable to the extent such items relate to periods commencing
after the Closing Date (measured in the same units used to compute the item in
question, otherwise measured by calendar days):

                        (i) any real and personal property ad valorem taxes
imposed on tangible or intangible property with respect to the Purchased Assets
as provided in Section 8.3, Section 8.4 and Section 8.5;

                        (ii) any costs or assessments imposed by the Master
Declaration or Restrictions Declaration;

                        (iii) any assessment by any Governmental Authority for
paving, roadways, sidewalk or other improvements or maintenance costs related to
the Site; and

                        (iv) any rent payments made after the Effective Date in
respect of BLM grants;

                        (v) any charges for water, telephone, electricity and
other utilities;

                        (vi) (1) any annual Permit, license and registration
fees with respect to the Transferred Permits listed on Part B of Schedule IV and
(2) any prepayments under the Assumed Agreements listed on Part E of Schedule I;
provided, however, that any payments owing by Purchaser with respect to the
prorated amounts under this Section 2.2.7(a)(vi)(2) shall not exceed $100,000 in
the aggregate.

                  In connection with the prorations referred to in (a) above, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the amounts accrued through the Closing Date or
paid for the most recent year (or other appropriate period) for which actual
amounts paid are available. Such prorated amounts shall be re-prorated and paid
to the appropriate Party within 60 days of the date that the previously
unavailable actual figures become available. Sellers and Purchaser agree to
furnish each other with such documents and other records as may be reasonably
requested in order to confirm all adjustment and proration calculations made
pursuant to this Section 2.2.7. Prorated amounts shall be based on GenWest's
share of the amount to be prorated, as determined under the O&M Agreement.

      Section 2.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets as of the Closing Date in accordance with a
schedule to be prepared by Purchaser, subject to the consent of Sellers, using
the allocation method provided by Section 1060 of the Code and the regulations
thereunder. The Parties shall cooperate to comply with all substantive and
procedural requirements of Section 1060 of the Code and the regulations

                                       25


thereunder, and except for any adjustment to the Purchase Price, the allocation
shall be adjusted only if and to the extent necessary to comply with such
requirements. Purchaser and Sellers agree that they will not take nor will they
permit any Affiliate to take, for Tax purposes, any position inconsistent with
such allocation; provided, however, that (i) Purchaser's cost may differ from
the total amount allocated hereunder to reflect the inclusion in the total cost
of items (for example, capitalized acquisition costs) not included in the total
amount so allocated, and (ii) the amount realized by Sellers may differ from the
amount allocated to reflect transaction costs that reduce the amount realized
for federal income Tax purposes.

      Section 2.4 The Closing. The closing of the transactions contemplated
herein (the "Closing") will take place at Purchaser's offices in Las Vegas,
Nevada, at 10:00 a.m. local time on the date as soon as practicable (but in no
event longer than ten (10) Business Days, subject to an additional ten (10)
Business Day extension at the election of Purchaser in the event of an amendment
or update to the Sellers' Disclosure Schedule pursuant to Section 4.11(b)(iii)
which occurs less than 10 days prior to the Closing Date) after the conditions
to the Closing set forth in Section 5.1 and Section 5.2 have been satisfied or
waived, or at such other place, time or date as Purchaser and Sellers mutually
agree (the "Closing Date"). The Closing shall be deemed effective as of 12:01
A.M. Las Vegas time on the day after the Estimated Purchase Price has been paid
to GenWest and the Deed and the Assignment Agreement have been executed and
delivered to Purchaser.

            Section 2.4.1 Closing.

                  (a) At the Closing, Purchaser will (x) pay to GenWest the
Estimated Purchase Price in accordance with Section 2.2 and (y) execute and
deliver (as applicable) the following items to Sellers:

                        (i) True and complete copies of the PUCN Approval;

                        (ii) True and complete copies of the FERC Approval;

                        (iii) True and complete copies of evidence of the
expiration or early termination of the waiting period under the HSR Act;

                        (iv) A bill of sale, assignment and assumption agreement
in the form of Exhibit I (the "Assignment Agreement");

                        (v) The originals of the Sellers' Support Obligations;

                        (vi) A State of Nevada Declaration of Value in the form
required by Nevada Revised Statutes Section 375.060;

                        (vii) A Certificate of Good Standing with respect to
Purchaser, as of a recent date, issued by the Secretary of State of the State of
Nevada;

                        (viii) Copies, certified by the Secretary or Assistant
Secretary of Purchaser, of corporate resolutions authorizing the execution and
delivery of this Agreement and

                                       26


all of the other agreements and instruments, in each case, to be executed and
delivered by Purchaser in connection herewith;

                        (ix) A certificate of the Secretary or Assistant
Secretary of Purchaser identifying the name and title and bearing the signatures
of the officers of Purchaser authorized to execute and deliver this Agreement
and the other agreements and instruments contemplated hereby;

                        (x) A certificate addressed to Sellers dated the Closing
Date executed by the duly authorized officer of Purchaser to the effect that the
conditions set forth in Section 5.2.1 and Section 5.2.2 have been satisfied by
Purchaser; and

                        (xi) Any amounts for which Purchaser is liable pursuant
to Section 2.2.7 of this Agreement.

                  (b) At the Closing, Sellers will execute and deliver (as
applicable) to Purchaser the following items:

                        (i) The Required Consents;

                        (ii) True and complete copies of the FERC Approval;

                        (iii) True and complete copies of evidence of the
expiration or the early termination of the waiting period under the HSR Act;

                        (iv) The Assignment Agreement;

                        (v) A grant, bargain and sale deed (the "Deed") in the
form of Exhibit J and any memorandum of documents or other documents necessary
to convey title to the Real Property, including the indemnity described in
Section 4.1(g) hereto;

                        (vi) A certification of non-foreign status for PWEC in
the form and manner which complies with the requirements of Section 1445 of the
Code and the regulations promulgated thereunder;

                        (vii) A state of Nevada Declaration of Value in the form
required by Nevada Revised Statutes Section 375.060;

                        (viii) Certificates of Good Standing with respect to the
Sellers, as of a recent date, issued by the Secretary of State of the State of
Arizona in the case of PWCC and PWEC, and by the Secretary of State of the State
of Delaware in the case of GenWest;

                        (ix) Copies, certified by the Secretary or Assistant
Secretary of each Seller, of resolutions authorizing the execution and delivery
of this Agreement and all of the other agreements and instruments, in each case,
to be executed and delivered by Sellers in connection herewith;

                                       27


                        (x) A certificate of the Secretary or Assistant
Secretary of each Seller identifying the name and title and bearing the
signatures of the officers of each Seller authorized to execute and deliver this
Agreement and the other agreements and instruments contemplated hereby;

                        (xi) A certificate addressed to Purchaser dated the
Closing Date executed by the duly authorized officers of each Seller to the
effect that the conditions set forth in Section 5.1.1 and Section 5.1.2 have
been satisfied by Sellers;

                        (xii) updated record drawings that include the as-built
or redlined drawing changes reflecting the design of the Facility as of ten (10)
days prior to Closing;

                        (xiii) any amounts for which the Sellers are liable
pursuant to Section 2.2.7 and Section 4.2(i)(z) of this Agreement; and

                        (xiv) letters of credit in favor of Purchaser replacing
the Existing Letters of Credit, to the extent such letters of credit are
required under the applicable Assumed Agreement.

                  (c) If requested by Purchaser or Sellers, the Closing shall be
consummated through an escrow with Purchaser's title company acting as escrow
holder, which may include delivery to the escrow holder of the items in Sections
2.4.1(a) and 2.4.1(b) of this Agreement and payment to the escrow holder of the
Estimated Purchase Price, Transfer Taxes and any amounts owing under Section
2.2.7 and Section 4.1(g), notwithstanding other provisions in this Agreement to
the contrary. Escrow shall close once all conditions to Closing have been
satisfied or waived and the escrow holder shall have recorded the Deed.

      Section 2.5 Further Assurances; Post-Closing Cooperation.

            Section 2.5.1 Further Assurances. Subject to the terms and
conditions of this Agreement, at any time or from time to time after the
Closing, at either Party's request and without further consideration, the other
Party shall execute and deliver to such Party such other instruments of sale,
transfer, conveyance, assignment and confirmation, provide such materials and
information and take such other actions as such Party may reasonably deem
necessary or desirable in order more effectively (a) to transfer, convey and
assign to Purchaser, and to confirm Purchaser's title to, the Purchased Assets,
(b) to effectuate the assumption by Purchaser of the Assumed Agreements, and (c)
otherwise to consummate the transactions contemplated by this Agreement.
Purchaser shall provide to GenWest all invoices and supporting documentation
received with respect to Assumed Agreements, which relate to any obligations
arising thereunder prior to the Closing Date or any other obligation that
remains with Sellers. In the event that either Party receives a payment from
SNWA due to the other Party, such Party will promptly remit such payment to the
other Party and advise SNWA thereof in writing.

            Section 2.5.2 Pre-Closing Books and Records.

                  Following Closing, each Party will afford the other Party, its
counsel and its accountants, during normal business hours, reasonable access to
the Shared Books and

                                       28


Records and the Non-Shared Books and Records with respect to periods prior to
Closing (the "Pre-Closing Books and Records") and the right to make copies and
extracts therefrom, to the extent that such access may be reasonably required by
the requesting Party in connection with (i) the preparation of Tax Returns, (ii)
compliance with the requirements of any Governmental Authority, (iii) any
Excluded Liabilities or (iv) any rights and obligations arising under Article
VII, Article VIII or Article X hereof; provided, however, that nothing in this
Agreement shall be deemed to obligate either Party to maintain the Pre-Closing
Books and Records.

                  Purchaser acknowledges and consents to the retention by
Sellers of information made available to Purchaser relating to the Purchased
Assets (the "Retained Information"). From and after the Closing Date, Sellers
shall, and shall cause their representatives to, treat the Retained Information
as strictly confidential (except to the extent compelled to disclose by judicial
or administrative process or by other requirements of Law, any stock exchange or
any other self-regulatory organization); provided, however, that in no event
shall the foregoing restrict any Seller from using or disclosing any Retained
Information in connection with any claim arising under or in connection with
this Agreement or any Excluded Liabilities.

            Section 2.5.3 Delivery of Books and Records. No later than the
Closing Date (or in the case of Books and Records not immediately required for
the operation and maintenance of the Facility that cannot be reasonably and
practicably delivered at the Closing, as soon as reasonably practicable
thereafter, but no later than 30 days after the Closing Date), Sellers shall
deliver any Shared Books and Records, Non-Shared Books and Records, and
Continued Employee Books and Records (to the extent they may be provided to
Purchaser in accordance with Law) that are not located at the Site to Purchaser
at Purchaser's offices in Las Vegas, Nevada, the Site or another location as
designated by Purchaser in or near Las Vegas, Nevada. As soon as reasonably
practicable after the Closing, Sellers shall deliver to Purchaser updated record
drawings that include the as-built or redlined drawing changes reflecting the
design of the Facility as of the Closing.

            Section 2.5.4 RRSU Payments Refunds. At any time after Closing, in
the event any SCE RRSU Refund is received by any Party, Sellers shall be
entitled to receive the Sellers' RRSU Refund Portion of such SCE RRSU Refund,
and Purchaser shall be entitled to receive the Purchaser's RRSU Refund Portion
of such SCE RRSU Refund as set forth below:

                  For any SCE RRSU Refund associated with the Eldorado 500kV
substation breaker upgrades, "Sellers' RRSU Refund Portion" shall be 75% and
"Purchaser's RRSU Refund Portion" shall be 25%, which portion Purchaser shall
pay to SNWA pursuant to the terms of the Co-Tenancy Agreement; provided,
however, that if at any time SCE shall separately remit to SNWA its portion of
any SCE RRSU Refund, the "Sellers' RRSU Refund Portion" shall be 100% with
respect to such SCE RRSU Refund.

                  For any SCE RRSU Refund associated with the Moenkopi 500 kV
series capacitor upgrades ("Moenkopi Capacitor Work"):

                        "Sellers' RRSU Refund Portion" shall be equal to the
product of (1) the amount of the SCE RRSU Refund in respect of the Moenkopi
Capacitor Work,

                                       29


and (2) the amount of payments by GenWest under Revised MOU I prior to May 1,
2005 in respect of the Moenkopi Capacitor Work (other than amounts attributable
to SNWA's Interest prior to May 1, 2005), less any SCE RRSU Refunds received by
GenWest prior to Closing in connection with such payments, divided by the sum of
the payments made by GenWest or Purchaser under Revised MOU I before, on or
after May 1, 2005 in respect of the Moenkopi Capacitor Work (including amounts
attributable to SNWA's Interest), less any SCE RRSU Refunds received by GenWest
prior to Closing in connection with such payments made by it (including refunds
in respect of SNWA's Interest).

                        "Purchaser's RRSU Refund Portion" shall be equal to the
product of (1) the amount of the SCE RRSU Refund in respect of the Moenkopi
Capacitor Work, and (2) the sum of payments by GenWest or Purchaser under
Revised MOU I on or after May 1, 2005 in respect of the Moenkopi Capacitor Work
(including amounts attributable to SNWA's Interest), plus payments by GenWest
under Revised MOU I prior to May 1, 2005 in respect of the Moenkopi Capacitor
Work solely attributable to SNWA's Interest, less any SCE RRSU Refunds received
by GenWest prior to Closing in connection with any such payments made by it
(including refunds in respect of SNWA's Interest), divided by the sum of the
payments made by GenWest or Purchaser under Revised MOU I before, on or after
May 1, 2005 in respect of the Moenkopi Capacitor Work (including amounts
attributable to SNWA's Interest), less any SCE RRSU Refunds received by GenWest
prior to Closing in connection with such payments made by it (including refunds
in respect of SNWA's Interest). Sellers' RRSU Refund Portion and Purchaser's
RRSU Refund Portion shall be determined on the later of the Closing Date or the
date upon which refunds in respect of the Moenkopi Capacitor Work commence.

                  For any SCE RRSU Refund associated with the Lugo 500 kV series
capacitor upgrades ("Lugo Capacitor Work"):

                        "Sellers' RRSU Refund Portion" shall be equal to the
product of (1) the amount of the SCE RRSU Refund in respect of the Lugo
Capacitor Work, and (2) the amount of payments by GenWest under Revised MOU I
prior to May 1, 2005 in respect of the Lugo Capacitor Work (other than amounts
attributable to SNWA's Interest prior to May 1, 2005), less any SCE RRSU Refunds
received by GenWest prior to Closing in connection with such payments, divided
by the sum of the payments made by GenWest or Purchaser under Revised MOU I
before, on or after May 1, 2005 in respect of the Lugo Capacitor Work (including
amounts attributable to SNWA's Interest), less any SCE RRSU Refunds received by
GenWest prior to Closing in connection with such payments made by it (including
refunds in respect of SNWA's Interest).

                        "Purchaser's RRSU Refund Portion" shall be equal to the
product of (1) the amount of the SCE RRSU Refund in respect of the Lugo
Capacitor Work, and (2) the sum of payments by GenWest or Purchaser under
Revised MOU I on or after May 1, 2005 in respect of the Lugo Capacitor Work
(including amounts attributable to SNWA's Interest), plus payments by GenWest
under Revised MOU I prior to May 1, 2005 in respect of the Lugo Capacitor Work
solely attributable to SNWA's Interest, less any SCE RRSU Refunds received by
GenWest prior to Closing in connection with any such payments made by it
(including refunds in respect of SNWA's Interest), divided by the sum of the
payments made by GenWest or Purchaser under Revised MOU I before, on or after
May 1, 2005 in respect of the

                                       30


Lugo Capacitor Work (including amounts attributable to SNWA's Interest), less
any SCE RRSU Refunds received by GenWest prior to Closing in connection with
such payments made by it (including refunds in respect of SNWA's Interest).
Sellers' RRSU Refund Portion and Purchaser's RRSU Refund Portion shall be
determined on the later of the Closing Date or the date upon which refunds in
respect of the Lugo Capacitor Work commence.

                  In the event that the SCE RRSU Refunds for the Moenkopi
Capacitor Work and the Lugo Capacitor Work are not separated as contemplated
above, the Parties shall cooperate in good faith to allocate the SCE RRSU
Refunds on the same principles as provided above. Each Party shall pay over to
the other Party a portion of the amount received by such Party to effect the
foregoing. Purchaser shall pay any refund received by it attributable to SNWA's
Interest to SNWA in accordance with the Co-Tenancy Agreement. Payments under
this Section 2.5.4 shall be made within ten (10) days of the receipt of such SCE
RRSU Refunds.

            Section 2.5.5 Site Description Error Indemnity. Sellers shall
indemnify Purchaser for any Losses incurred by Purchaser arising from or in
connection with any failure of Sellers to correct the Site Description Error
prior to Closing, and reimburse Purchaser for any costs incurred by Purchaser
following Closing in connection with remedying such failure. Purchaser shall
consult with Sellers about any remedial action to be taken by Purchaser in
connection with correcting the Site Description Error following Closing and
shall use commercially reasonable efforts to remedy the Site Description Error
in a cost-effective manner.

            Section 2.5.6 Drainage Encroachment Indemnity. Sellers shall
indemnify Purchaser for any Losses incurred by Purchaser arising from or in
connection with any failure of Sellers to correct the matters described in
Section 4.1(n) hereto prior to Closing, and reimburse Purchaser for any costs
incurred by Purchaser following Closing in connection with remedying such
failure. Purchaser shall consult with Sellers about any remedial action to be
taken by Purchaser in connection with correcting such matters following Closing
and shall use commercially reasonable efforts to remedy the matters in a
cost-effective manner.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      Section 3.1 Representations and Warranties of Sellers. Except as
specifically set forth in the Sellers' Disclosure Schedule attached hereto as
Schedule VI, each of the Sellers, jointly and severally, represents and warrants
to Purchaser that all of the statements contained in this Section 3.1 with
respect to the Sellers are true and correct as of the Effective Date, and will
be true and correct as of the Closing Date as though made on and as of the
Closing Date. Each exception and other response to this Agreement set forth in
the Sellers' Disclosure Schedule is identified by reference to, or has been
grouped under a heading referring to, a specific individual section of this
Agreement, and, except as otherwise specifically stated with respect to such
exception, relates only to such section. The inclusion of an exception or other
response to this Agreement set forth in the Sellers' Disclosure Schedule does
not necessarily mean that such disclosure would otherwise constitute a breach of
this Agreement; rather, such disclosure is made for the purposes of
comprehensively informing Purchaser of matters it should consider in connection
with the purchase of the Purchased Assets.

                                       31


            Section 3.1.1 Existence. PWCC is a corporation duly formed, validly
existing and in good standing under the Laws of the State of Arizona. PWEC is a
corporation duly formed, validly existing and in good standing under the Laws of
the State of Arizona and is licensed to do business as a corporation in the
State of Nevada. GenWest is a limited liability company duly qualified, validly
existing and in good standing under the Laws of the State of Delaware, is
licensed to do business as a limited liability company in the State of Nevada,
and has full limited liability company power and authority to own and use the
Purchased Assets.

            Section 3.1.2 Authority. Each Seller has full corporate or limited
liability company power and authority to execute and deliver this Agreement and
the Transaction Agreements to which it is or will be a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by each Seller of
this Agreement and the Transaction Agreements to which it is or will be a party,
and the performance by such Seller of its obligations hereunder and thereunder,
have been duly and validly authorized by all necessary corporate or company
action.

            Section 3.1.3 Binding Agreement. This Agreement and the Transaction
Agreements to which it is or will be a party have been or will be when delivered
duly executed and delivered by each Seller and, assuming due and valid
authorization, execution and delivery thereof by Purchaser and each other party
thereto, this Agreement and the Transaction Agreements to which it is or will be
a party are or will be when delivered valid and binding obligations of such
Seller enforceable against such Seller in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar Laws of general application affecting
enforcement of creditors' rights generally, and (ii) general equitable
principles, including that the availability of the remedy of specific
performance or injunctive or other forms of equitable relief may be subject to
equitable defenses and would be subject to the discretion of the court before
which any proceeding therefor may be brought.

            Section 3.1.4 No Conflicts. Subject to the receipt of the Required
Consents, FERC Approval, the expiration or early termination of the waiting
period under the HSR Act, and receipt of the other consents and actions listed
in Section 3.1.5 of Sellers' Disclosure Schedule, the execution and delivery by
each Seller of this Agreement do not, and the execution and delivery by such
Seller of the Transaction Agreements to which it is or will be a party, the
performance by such Seller of its obligations under this Agreement and such
Transaction Agreements and the consummation of the transactions contemplated
hereby and thereby shall not:

                  (a) Conflict with or result in a violation or breach of any of
the terms, conditions or provisions of such Seller's organizational documents;

                  (b) Result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any Assumed Agreement, note, bond, deed of trust, indenture,
license, agreement, lease or other instrument or obligation to which such Seller
is party or by which such Seller, or any of the Purchased Assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as

                                       32


to which requisite waivers or consents have been obtained in writing (true and
correct copies of which waivers or consents have been furnished to Purchaser);

                  (c) Conflict with or result in a violation or breach of any
term or provision of any Law applicable to such Seller or the Purchased Assets;
or

                  (d) Result in the imposition or creation of any Lien upon any
of the Purchased Assets, other than in favor of Purchaser.

            Section 3.1.5 Approvals and Filings. Except for the Required
Consents, FERC Approval and expiration or early termination of the waiting
period under the HSR Act and as set forth in Section 3.1.5 of Sellers'
Disclosure Schedule, no consent or approval of, filing with or notice to any
Governmental Authority or other Person by any Seller is required in connection
with the execution, delivery and performance by any Seller of this Agreement or
any of the Transaction Agreements to which it is a party or the consummation of
the transactions contemplated hereby or thereby.

            Section 3.1.6 Sellers' Known Liabilities. Except as set forth in
Section 3.1.6 of Sellers' Disclosure Schedule, to Sellers' Knowledge none of the
Sellers has any Liability that has, or could be reasonably likely to have, a
Material Adverse Effect.

            Section 3.1.7 Reports. Since the date of its formation and except
with respect to electronic quarterly reporting of its transactions to FERC,
GenWest has filed or caused to be filed with the applicable state or local
utility commissions or regulatory bodies and the FERC, all material forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by it with respect to the Project
under each of the applicable state public utility laws and the Federal Power Act
and the respective rules and regulations thereunder.

            Section 3.1.8 Legal Proceedings. Except as set forth in Section
3.1.8 to Sellers' Disclosure Schedule, there are no actions or proceedings
(including orders, judgments and writs), and to Sellers' Knowledge, no claims or
investigations, outstanding or pending in any Governmental Authority to which a
Seller is a party or, to Sellers' Knowledge, (a) outstanding or pending in any
Governmental Authority to which any counterparty to a Designated Assumed
Agreement is a party, or (b) threatened against a Seller or any of its assets
and properties, in each case which could be reasonably expected to (x) result in
the issuance of an order restraining, enjoining or otherwise prohibiting or
making illegal the consummation of the transactions contemplated by this
Agreement or any of the Transaction Agreements, (y) adversely affect the
ownership, construction, operation or maintenance of the Facility or the use of
the Real Property, or (z) individually or in the aggregate, have a Material
Adverse Effect.

            Section 3.1.9 Compliance with Laws. Each of the Sellers, and to
Sellers' Knowledge, its contractors, agents and representatives, is not in
violation of or in default under any Law applicable to it, the Project or the
Purchased Assets, the effect of which, individually or in the aggregate, could
be reasonably expected to have a Material Adverse Effect. Except as set forth in
Section 3.1.9 of Sellers' Disclosure Schedule, none of the Sellers has received
notification alleging that it is in violation of any Law, in the case of
GenWest, applicable to it,

                                       33


the Project or the Purchased Assets, and in the case of PWCC and PWEC,
applicable to the Project or the Purchased Assets.

            Section 3.1.10 Title to Personal Property. GenWest owns, possesses
and will be conveying good and valid title to all the Purchased Assets (tangible
and intangible) constituting personal property, free and clear of all Liens,
except Permitted Liens.

            Section 3.1.11 Real Property.

                  (a) Schedule III contains a legal description of the Real
Property subject to the errors described in the HMH Letter. GenWest owns,
possesses and will be conveying good, valid and marketable fee title to an
undivided seventy-five percent (75%) interest in the Site, free and clear of all
Liens other than Permitted Liens. GenWest holds good and valid title to an
undivided seventy-five percent (75%) interest in the Easements, free and clear
of all Liens other than (i) encumbrances of record or that would be revealed by
an accurate survey and (ii) Permitted Liens.

                  (b) Neither the whole nor any portion of the Real Property is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to Sellers' Knowledge, has any such condemnation,
expropriation or taking been proposed. Except as provided in the agreements
listed in Section 3.1.11 Part A of Sellers' Disclosure Schedule, none of the
Sellers is a party to any lease, assignment or similar arrangement under which
any of the Sellers is a lessor, assignor or otherwise makes available for use by
any third party any portion of the Real Property. Except as set forth in Section
3.1.11 Part B of Sellers' Disclosure Schedule, none of the Sellers has received
any notice of, or other writing referring to, any requirements or
recommendations by any insurance company that has issued a policy covering any
part of the Real Property or by any board of fire underwriters or other body
exercising similar functions, requiring or recommending any repairs or work to
be done on any part of the Real Property, which repair or work has not been
completed and accepted. Sellers have not consented to the lease of, or creation
of any Lien on, any of the Project by SNWA, except as described in clause (v) of
the definition of Permitted Liens.

                  (c) Except as set forth in Section 3.1.11 Part C of Sellers'
Disclosure Schedule, Sellers have obtained all real estate licenses, easements
and rights of way, including proofs of dedication, required to use the Real
Property in the manner in which the Real Property is currently being used and
required for the ownership, construction, operation and maintenance of the
Facility.

                  (d) To Sellers' Knowledge, there is no action, proceeding or
litigation pending or threatened (i) to modify the zoning of, or other
governmental rules or restrictions applicable to, the Real Property or the use
or development thereof, or (ii) for any street widening or changes in highway or
traffic lanes or patterns in the immediate vicinity of the Real Property, in
each case, except for such actions, proceedings or litigations which,
individually or in the aggregate, could not be reasonably likely to have a
Material Adverse Effect.

                                       34


                  (e) The parcels constituting the Site are assessed separately
from all other adjacent property not constituting the Site for purposes of real
property taxes assessed to, or paid by, GenWest. Except as set forth in Section
3.1.11 Part D of Sellers' Disclosure Schedule, to Sellers' Knowledge, the Site
complies with all applicable subdivision, zoning, land parcelization and local
governmental taxation or separate assessment requirements.

                  (f) Other than Permitted Liens and as set forth in Section
3.1.11 Part E of Sellers' Disclosure Schedule, there are no commitments to or
agreements by Sellers with any Governmental Authority affecting the use or
ownership of the Real Property and to Sellers' Knowledge, there are no
commitments to or agreements with any Governmental Authority by any other party
affecting the use or ownership of the Real Property.

                  (g) Except as set forth in Section 3.1.11 Part F of Sellers'
Disclosure Schedule, none of the Sellers is a party to any agreement for the
sale, exchange, encumbrance, lease or transfer of any of the Real Property or
any portion of the same.

                  (h) Except as set forth in Section 3.1.11 Part G of Sellers'
Disclosure Schedule, Sellers are in compliance with all applicable conditions,
covenants and restrictions that encumber the Real Property.

            Section 3.1.12 Condition of Materials and Equipment. Except as set
forth in Section 3.1.12 Part A of Sellers' Disclosure Schedule, all Materials
and Equipment are currently located on the Real Property and no Materials and
Equipment intended for the Facility are being held by third parties pending
payment by Sellers. To Sellers' Knowledge, Sellers have not failed to disclose
to Purchaser any fact relating to the operation or condition of the Facility or
the Site that could be reasonably likely to have a Material Adverse Effect. To
the Sellers' Knowledge, the Facility has been operated in accordance with Good
Electric Operating Practices as such term is defined in the O&M Agreement.
Except for the Excluded Assets, the Purchased Assets are sufficient to own,
operate and maintain the Project as currently owned, operated and maintained by
the Sellers. Except as listed in Section 3.1.12 Part B of Sellers' Disclosure
Schedule and except for the Excluded Assets and assets replaced by assets of
comparable or superior quality and value, to Sellers' Knowledge, none of the
Sellers have sold, transferred or otherwise disposed of any assets used by any
of the Sellers solely in the operation or maintenance of the Facility.

                  Warranty Matters. 0 of the Sellers' Disclosure Schedule
identifies all warranties by any vendor, materialman, supplier, contractor or
subcontractor relating to the Purchased Asset or any component thereof with a
value of $50,000 or more and specifies the following information with respect to
each such warranty: (a) each of the Purchased Assets or any component thereof to
which the warranty is applicable but only to the extent such item has a value of
$50,000 or more, (b) the contract or agreement pursuant to which the warranty
was given or made (a true and complete copy of each such contract or agreement
has been provided to Purchaser), (c) a description of any warranty work done
under the applicable warranty, the date thereof and the applicable warranty
period for the warranty work, and (d) whether such warranty is transferable to
Purchaser. To Sellers' Knowledge, there are no events that have occurred or
conditions applicable that constitute or may constitute a defense to the
continuing effectiveness of each such warranty.

                                       35


            Section 3.1.13 Facility Agreements; Assumed Agreements. Section
3.1.13 Part A of Sellers' Disclosure Schedule contains a list of all Facility
Agreements in effect, true and complete copies of which (together with all
amendments, supplements, schedules and exhibits) have heretofore been furnished
to Purchaser, other than item 40b on Schedule I. Except as set forth in Section
3.1.13 Part B of Sellers' Disclosure Schedule, each Assumed Agreement is in full
force and effect and constitutes a legal, valid and binding agreement of the
applicable Seller and to Sellers' Knowledge, of each other party thereto,
enforceable in accordance with its terms (subject to applicable bankruptcy,
insolvency or other similar Laws relating to or affecting the enforcement of
creditors' rights generally and to general principles of equity), and no
material term or condition thereof has been amended from the form thereof
delivered to Purchaser or waived. Except as set forth in Section 3.1.13 Part C
of Sellers' Disclosure Schedule and except with respect to Assumed Agreements to
which Purchaser is party, (a) none of Sellers is in violation or breach of or
default under, or with notice or lapse of time or both, would be in violation or
breach of or default under, any Assumed Agreement and, (b) to Sellers'
Knowledge, no other party to any Assumed Agreement with a contingent liability
or payment obligation in excess of $1,000, is in violation or breach of or
default under, or with notice or lapse of time or both, would be in violation or
breach of or default under, any such Assumed Agreement. Other than the Required
Consents, FERC Approval, the expiration or early termination of the waiting
period under the HSR Act, or as set forth in Section 3.1.5 of Sellers'
Disclosure Schedules, no consent or approval of, filing with or notice to any
Governmental Authority or other Person by any Seller is required which has not
been duly obtained or made for the assignment of the Assumed Agreements to
Purchaser as contemplated hereby, true and correct copies of such consents have
been provided to Purchaser.

            Section 3.1.14 Permits.

                  (a) Section 3.1.14 Part A of the Sellers' Disclosure Schedule
sets forth all Permits that Sellers are required to obtain under applicable Law
in connection with the ownership, operation, maintenance or use of the Facility
(the "Facility Permits").

                  (b) Except as set forth in Section 3.1.14 Part B of Sellers'
Disclosure Schedule, Facility Permits are properly in the name of the Facility,
GenWest, GenWest and SNWA jointly, or PWEC. Except as set forth in Section
3.1.14 Part C of Sellers' Disclosure Schedule, the information set forth in each
application submitted by or on behalf of any of the Sellers and, to Sellers'
Knowledge, any other Person, in connection with each such Facility Permit was
accurate and complete in all material respects at the time of the last
submission. Except as set forth in Section 3.1.14 Part D of Sellers' Disclosure
Schedule, all modifications to Facility Permits required to remain in compliance
with Law have been made for the ownership, operation, maintenance or use of the
Facility. Except as set forth in Section 3.1.14 Part E of Sellers' Disclosure
Schedule, GenWest and PWEC are in full compliance with each Facility Permit and
each Facility Permit (i) is in full force and effect, (ii) is not subject to any
legal proceeding or to any unsatisfied condition that (x) is not reasonably
expected to be satisfied or (y) could reasonably be expected to allow material
modification or revocation thereof, and (iii) is final and all applicable appeal
periods have expired or terminated.

                  (c) Except for the approvals, notices and filings set forth in
Section 3.1.14 Part F of Sellers' Disclosure Schedule, GenWest's and PWEC's
interests in each Transferred

                                       36


Permit may be transferred to Purchaser or Purchaser as Operating Agent, as the
case may be, as contemplated by this Agreement without the consent or approval
of, filing with or notice to any Governmental Authority or other Person by any
of the Sellers other than those that have been duly obtained or made, true and
correct copies of which have been provided to Purchaser. Upon the effectiveness
of the notices and other filings set forth in Section 3.1.14 Part F of Sellers'
Disclosure Schedule and as otherwise set forth in such Section 3.1.14 Part F of
Sellers' Disclosure Schedule, (i) Purchaser's interest in each Transferred
Permit will be properly in the name of Purchaser or Purchaser as Operating
Agent, as the case may be, (ii) each Transferred Permit will be in full force
and effect, (iii) each Transferred Permit will not be subject to any legal
proceeding or to any unsatisfied condition that (x) is not reasonably expected
to be satisfied or (y) could reasonably be expected to allow material
modification or revocation thereof, and (iv) each Transferred Permit will be
final and have all applicable appeal periods expired or terminated. Upon the
effectiveness of the notices and other filings set forth in Section 3.1.14 Part
F of the Sellers' Disclosure Schedule, the transfer of GenWest's or PWEC's
interests in each Transferred Permit to Purchaser or Purchaser as Operating
Agent, as the case may be, shall not breach the terms thereof or result in the
forfeiture or impairment of any rights thereunder.

                  (d) Other than as provided in Section 3.1.14 Part G of
Sellers' Disclosure Schedule, Sellers have not made any modifications, and are
not aware of any modifications to the Facility by any Person, that could
reasonably be expected to cause the Facility to violate any applicable Law or
Permit.

            Section 3.1.15 Insurance. Section 3.1.15 of Sellers' Disclosure
Schedule sets forth a true and complete list and description of all insurance
policies in force on the Effective Date with respect to the Purchased Assets,
together with a statement of the aggregate amount of claims paid out and claims
pending, under each such insurance policy, in each case relating to the
Purchased Assets. All policies are in full force and effect, all premiums due
thereon have been paid and the Sellers are otherwise in compliance in all
material respects with the terms and provisions of such policies. Furthermore,
as they relate to the Purchased Assets, (a) Sellers have not received any notice
of cancellation or non-renewal of any such policy nor is the termination of any
such policies threatened, (b) there is no claim pending under any of such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies, (c) Sellers have not received any notice from any
of its insurance carriers that any insurance premiums in respect of such
policies will be increased in the future or that any insurance coverage
presently provided for will not be available to the Sellers in the future on
substantially the same terms as now in effect, and (d) Sellers have not received
notice that the Facility or any Materials and Equipment or the operation thereof
will not be insurable or will be subject to exclusions arising from actual or
potential defects in the Purchased Assets.

            Section 3.1.16 Environmental Matters.

                  (a) Sellers have made available to Purchaser all of the
environmental site assessment reports and studies that were obtained by or in
the possession of Sellers, which relate to environmental matters in connection
with ownership, construction, operation or maintenance of the Facility. All such
reports and studies are listed in Section 3.1.16 Part A of Sellers' Disclosure
Schedule.

                                       37


                  (b) Except for the Facility Permits, none of the Sellers has
entered into or agreed to any judicial or administrative consent decree or
order, and is not subject to any outstanding judgment, decree, or judicial or
administrative order relating to compliance with any Environmental Law or to
investigation or cleanup of Hazardous Materials under any Environmental Law, in
each case relating to the Facility or the Real Property.

                  (c) Except as disclosed in Section 3.1.16 Part B of Sellers'
Disclosure Schedule, there are no claims, actions, proceedings (including
orders, judgments and writs) or investigations pending in any Governmental
Authority to which a Seller is a party and with respect to such claims and
investigations, of which a Seller has Knowledge or, to Sellers' Knowledge, (x)
outstanding or pending in any Governmental Authority to which any counterparty
to a Designated Assumed Agreement is a party or (y) threatened against a Seller
or any of its assets and properties, under any Environmental Law relating to the
Facility or the Real Property.

                  (d) All Permits related to the Purchased Assets issued to any
Seller and in effect under any Environmental Law are set forth in Section 3.1.16
Part C of Sellers' Disclosure Schedule. Except as set forth in Section 3.1.16
Part D of Sellers' Disclosure Schedule, Sellers and, to Sellers' Knowledge,
their contractors, agents or representatives have obtained all Permits required
under the Environmental Laws for the ownership, construction, operation,
maintenance or use of the Facility, all such Permits are in effect to the extent
required under any Environmental Law, no appeal nor any other action is pending
to revoke any such Permit and Sellers and, to Sellers' Knowledge, their
contractors, agents and representatives are in full compliance with all terms
and conditions of all such Permits. Except as set forth in Section 3.1.16 Part E
of Sellers' Disclosure Schedule, Sellers, and to Sellers' Knowledge, their
contractors, agents and representatives, have filed for a renewal on a timely
basis of any Facility Permits required pursuant to applicable Environmental Law.

                  (e) Except as set forth in Section 3.1.16 Part F of Sellers'
Disclosure Schedule, Sellers, and to Sellers' Knowledge, their contractors,
agents and representatives, have been and are in compliance with all applicable
Environmental Laws with respect to the Facility or the Real Property. To
Sellers' Knowledge, except for matters described in the reports listed in
Section 3.1.16 Part A of Sellers' Disclosure Schedule, any former owners of or
tenants on the Real Property, and their contractors, agents or representatives,
did not violate applicable Environmental Laws with respect to their ownership,
construction, operation or maintenance of the Facility or the Real Property.

                  (f) Except as set forth in Section 3.1.16 Part G of Sellers'
Disclosure Schedule, none of the Sellers, or to Sellers' Knowledge, its
contractors, agents or representatives, or to Sellers' Knowledge, any other
Person, has Released, discharged, or otherwise disposed, of any Hazardous
Materials on, beneath or adjacent to the Real Property, except for Releases of
Hazardous Materials that could not reasonably be expected to result in a claim
or a requirement to engage in a material Remediation.

                  (g) Except as set forth in Section 3.1.16 Part H of the
Sellers' Disclosure Schedule, to Sellers' Knowledge, there are no facts,
circumstances or conditions related to the Facility that exist now or as of the
Closing Date that would make it reasonably likely that the

                                       38


Facility will not be able to comply with applicable Environmental Law, including
but not limited to, the terms and conditions of Permits issued with respect to
the Facility pursuant to applicable Environmental Law.

            Section 3.1.17 Labor Matters. Except as specifically set forth in
Section 3.1.17 of Sellers' Disclosure Schedule:

                  (a) All of the Project Employees are employees of PWEC.

                  (b) GenWest is neither party to, nor bound by, any labor
agreement, collective bargaining agreement, work rules or practices, or any
other labor-related agreements or arrangements with any labor union or labor
organization. There are no labor agreements, collective bargaining agreements,
work rules or practices, or any other labor-related agreements or arrangements
that pertain to any Project Employee and no Project Employee is represented by
any labor organization.

                  (c) No labor union, labor organization, Project Employees or
group of employees of GenWest has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. To Sellers' Knowledge, there have
been no labor union organizing activities with respect to any Project Employees
or any employees of GenWest.

                  (d) From May 17, 2004, there has been no actual or, to
Sellers' Knowledge, threatened, arbitrations, grievances, labor disputes,
strikes, lockouts, slowdowns or work stoppages against or affecting GenWest or
the Project.

                  (e) With respect to the Project Employees, none of Sellers, or
their respective employees, agents or representatives have committed any
material unfair labor practice as defined in the National Labor Relations Act.

                  (f) With respect to the Project Employees, Sellers are in
compliance in all material respects with all applicable Laws relating to
employment and employment practices, including, without limitation, all Laws
respecting terms and conditions of employment, health and safety, wages and
hours, child labor, immigration, employment discrimination, disability rights or
benefits, equal opportunity, plant closures and layoffs, affirmative action,
workers' compensation, labor relations, employee leave issues and unemployment
insurance.

                  (g) With respect to the Project Employees, none of the Sellers
are or have been: (i) a "contractor" or "subcontractor" (as defined by Executive
Order 11246), (ii) required to comply with Executive Order 11246, or (iii)
required to maintain an affirmative action plan.

                  (h) With respect to the Project Employees, Sellers are and
have been in compliance in all material respects with all notice and other
requirements under the Workers' Adjustment and Retraining Notification Act and
any similar state or local law relating to plant closings and layoffs.

                                       39


            Section 3.1.18 Employee Matters. No claim is pending, or to Sellers'
Knowledge threatened, in which any individual or Governmental Authority asserts,
or in the case of any threatened claim, may assert, that any individual is or
was an employee of GenWest. Neither Purchaser nor any of its Affiliates will
incur any Liability under or otherwise in respect of any employee compensation
or benefit plan, program, agreement or arrangement (including any employee
benefit plan within the meaning of ERISA Section 3(3)) established or maintained
by Sellers or their ERISA Affiliates. Each such plan, program, agreement or
arrangement maintained in respect of any individual performing services in
respect of the Facility or otherwise in respect of the Purchased Assets has been
maintained substantially in accordance with its terms and applicable Law,
including ERISA and the Code.

            Section 3.1.19 Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by Sellers
directly with Purchaser without the intervention of any Person on behalf of
Sellers in such manner as to give rise to any valid claim by any Person against
Purchaser for a finder's fee, brokerage commission or similar payment.

            Section 3.1.20 Intellectual Property. Section 3.1.20 Part A of
Sellers' Disclosure Schedule sets forth a complete list of all Shared
Intellectual Property and all Non-Shared Intellectual Property. GenWest owns all
interest or has non-exclusive use rights in the Non-Shared Intellectual Property
and an undivided 75% interest in such ownership in or rights to the Shared
Intellectual Property. Except as set forth in Section 3.1.20 Part B of Sellers'
Disclosure Schedule, none of the Sellers owns or otherwise has, and has not
acquired specifically for the purposes of the Facility or the Purchased Assets,
any right to use any Intellectual Property that is used in or is necessary,
required or in the case of GenWest, beneficial for the ownership, operation or
maintenance of the Facility as currently owned, operated and maintained, other
than such as may be included in the Purchased Assets. Except as set forth in
Section 3.1.20 of Sellers' Disclosure Schedule and except for the Excluded
Assets that constitute Intellectual Property, the Intellectual Property conveyed
to Purchaser pursuant hereto ("Transferred Intellectual Property") includes any
and all Intellectual Property necessary for the ownership, operation or
maintenance of the Facility as currently owned, operated and maintained. To
Sellers' Knowledge, the ownership, operation and maintenance of the Facility as
currently owned, operated and maintained does not infringe upon, misappropriate,
or otherwise violate either directly or indirectly (such as through contributory
infringement or inducement to infringe) any Intellectual Property rights of any
third Person, and the Sellers have not received written notice by any Person of
any pending or threatened claims, suits, actions, mediations, arbitrations,
orders or other adversarial proceedings (a) alleging infringement,
misappropriation or other violation by the Sellers of Intellectual Property
rights of any Person or (b) challenging the Sellers' ownership or use of, or the
validity, enforcement, registrability or maintenance of, any Transferred
Intellectual Property. To Sellers' Knowledge, except as provided in the Assumed
Agreements, none of the Sellers has entered into any consents, judgments,
orders, indemnifications, forbearances to sue, settlement agreements, licenses
or other arrangements which (i) restrict GenWest's right to use any Transferred
Intellectual Property, (ii) restrict the transfer or licensing by GenWest of the
Transferred Intellectual Property, (iii) restrict GenWest's business as it
pertains to the Facility in order to accommodate a third Person's Intellectual
Property rights, or (iv) permit any third Person to use any Transferred
Intellectual Property. The intended use by the Sellers of any Transferred
Intellectual Property is in accordance with any and all applicable

                                       40


grants, licenses, agreements, instruments or other arrangements pursuant to
which the Sellers acquired the right to use such Transferred Intellectual
Property. Service and all other fees to be paid by Sellers with respect to the
Transferred Intellectual Property have been paid as required to any Person.

      Section 3.2 Representations and Warranties of Purchaser. Except as
specifically set forth in the Purchaser's Disclosure Schedule attached hereto as
Schedule VII, Purchaser hereby represents and warrants to Sellers that all of
the statements contained in this Section 3.2 are true and correct as of the
Effective Date (unless another date is expressly indicated), and will be true
and correct as of the Closing Date as though made on and as of the Closing Date.
Each exception and other response to this Agreement set forth in the Purchaser's
Disclosure Schedule is identified by reference to, or has been grouped under a
heading referring to, a specific individual section of this Agreement, and,
except as otherwise specifically stated with respect to such exception, relates
only to such section.

            Section 3.2.1 Existence. Purchaser is a corporation, duly formed,
validly existing and in good standing under the Laws of the State of Nevada and
has full power and authority to conduct its business as it is now being
conducted and to own, lease and operate its assets and properties.

            Section 3.2.2 Authority. Purchaser has full power and authority to
execute and deliver this Agreement and the Transaction Agreements to which it is
or will be a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by Purchaser of this Agreement and the Transaction Agreements to which
it is or will be a party, and the performance by Purchaser of its obligations
hereunder and thereunder, have been duly and validly authorized by all necessary
corporate action.

            Section 3.2.3 Binding Agreement. This Agreement and the Transaction
Agreements to which Purchaser is or will be a party have been or will be when
delivered duly and validly executed and delivered by Purchaser and, assuming due
and valid authorization, execution and delivery thereof by Sellers and each
other party thereto, this Agreement and the Transaction Agreements to which
Purchaser is or will be a party are or will be when delivered valid and binding
obligations of Purchaser enforceable against Purchaser in accordance with their
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar Laws of
general application affecting enforcement of creditors' rights generally and,
(b) general equitable principles, including that the availability of the remedy
of specific performance or injunctive or other forms of equitable relief may be
subject to equitable defenses and would be subject to the discretion of the
court before which any proceeding therefor may be brought.

            Section 3.2.4 No Conflicts. Subject to the receipt of the Required
Consents, PUCN Approval, FERC Approval, and the expiration or early termination
of the waiting period under the HSR Act, the execution and delivery by Purchaser
of this Agreement do not, and the execution and delivery by Purchaser of the
Transaction Agreements to which it is or will be a party, the performance by
Purchaser of its obligations under this Agreement and such

                                       41


Transaction Agreements and the consummation of the transactions contemplated
hereby and thereby shall not:

                  (a) Conflict with or result in a violation or breach of any of
the terms, conditions or provisions of Purchaser's articles of incorporation and
by-laws;

                  (b) Result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, deed of trust, indenture, license, agreement,
lease or other instrument or obligation to which Purchaser or any of its
Affiliates is a party or by which any of their respective assets and properties
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained in
writing (true and correct copies of which waivers and consents have been
furnished to Sellers); or

                  (c) Conflict with or result in a violation or breach of any
term or provision of any Law applicable to Purchaser or any of its Affiliates or
any of their respective assets and properties.

            Section 3.2.5 Approvals and Filings. Except for the Required
Consents, PUCN Approval, FERC Approval, and the expiration or early termination
of the waiting period under the HSR Act, no consent or approval of, filing with
or notice to any Governmental Authority or other Person is required in
connection with the execution, delivery and performance by Purchaser of this
Agreement or any of the Transaction Agreements to which it is a party or the
consummation by Purchaser of the transactions contemplated hereby or thereby.

            Section 3.2.6 Legal Proceedings. Except as set forth in Section
3.2.6 of Purchaser's Disclosure Schedule, there are no actions or proceedings
(including orders, judgments and writs), and to Purchaser's Knowledge, no claims
or investigations, outstanding or pending in any Governmental Authority to which
Purchaser is a party or, to Purchaser's Knowledge, threatened against Purchaser
or any of its assets and properties, which would be reasonably expected to
result in the issuance of an order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of the transactions contemplated
by this Agreement or any of the Transaction Agreements.

            Section 3.2.7 Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried out by Purchaser
directly with Sellers without the intervention of any Person on behalf of
Purchaser in such manner as to give rise to any valid claim by any Person
against Sellers for a finder's fee, brokerage commission or similar payment.

                                   ARTICLE IV

                                    COVENANTS

      Section 4.1 Efforts to Close and Fulfillment of Conditions. After the
Effective Date and prior to Closing:

                                       42


                  (a) Each Party shall use commercially reasonable efforts and
proceed diligently and in good faith to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable under
Law to consummate and make effective the purchase, sale, assignment, conveyance,
transfer and delivery of the Purchased Assets, the assumption of the Assumed
Agreements pursuant to this Agreement, and the effectiveness of the Interim PPA.
Such actions shall include each Party using its commercially reasonable efforts
to ensure satisfaction of the conditions precedent to its obligations hereunder,
as soon as practicable after the Effective Date.

                  (b) Each Party shall provide reasonable cooperation to the
other Party in obtaining consents, approvals or actions of, making all filings
with and giving all notices to Governmental Authorities or other Persons
required of the other Party to consummate the transactions contemplated hereby
and by the Transaction Agreements. The Parties shall use their commercially
reasonable efforts to respond promptly and accurately to any requests for
additional information made by any such Governmental Authority. The Parties
agree that they shall consult with each other with respect to the transfer to
Purchaser or the obtaining by Purchaser or the Sellers of FERC Approval, PUCN
Approval, Permits, consents, approvals and authorizations of all third parties
and Governmental Authorities, including the HSR Act filing.

                  (c) As promptly as practicable and, in any event, within 30
days after the Effective Date, Purchaser shall file with the PUCN all documents
reasonably required to obtain the PUCN Approval. Purchaser shall use its
commercially reasonable efforts to respond promptly and accurately to any
requests for additional information made by the PUCN, and Sellers shall use its
commercially reasonable efforts to cooperate with Purchaser in connection
therewith. Purchaser shall consult with Sellers on all principal filings
submitted by Purchaser to the PUCN in connection with the PUCN Approval. For the
avoidance of doubt, Sellers shall not be entitled to receive any proprietary
data related to current and forecasted operations of Purchaser, including
production models, operating costs, and other similar information in connection
with the preparation of the filing to the PUCN. Each Party shall bear its own
costs and expenses of the preparation of such filing.

                  (d) At a time mutually agreed between Purchaser and Sellers,
the Parties shall file with the FERC all documents reasonably required to obtain
the FERC Approval. Each Party will bear its own costs and expenses of the
preparation of such filing.

                  (e) At a time mutually agreed between Purchaser and Sellers,
the Parties shall file or cause to be filed with the Federal Trade Commission
and the United States Department of Justice all notifications required to be
filed under the HSR Act and the rules and regulations promulgated thereunder, as
amended from time to time, with respect to the transactions contemplated hereby.
Each Party will bear its own costs and expenses of the preparation of such
filing.

                  (f) Purchaser shall use commercially reasonable efforts to
obtain the Financing. After the Effective Date and prior to Closing, Sellers
shall use commercially reasonable efforts to assist Purchaser in connection with
Purchaser's efforts to secure the Financing as follows: (i) by making all
engineering and design materials related to the Facility or the Real Property
available to Purchaser and its Related Persons as Purchaser reasonably

                                       43


requests, (ii) by providing Purchaser and its Related Parties with access to the
Facility, the Real Property, the Shared Books and Records and the Non-Shared
Books and Records at all reasonable times, (iii) by making Sellers' personnel
available to Purchaser and its Related Parties to provide information related to
the Facility or the Real Property, including responding to questions and
attending meetings as reasonably requested by Purchaser or its Related Parties,
and (iv) by providing Purchaser and its Related Parties reasonable support with
Sellers' suppliers, vendors and contractors to resolve technical and scope of
supply issues related to the Facility by providing to Purchaser, when requested
to do so by Purchaser, such existing information in connection with this
Agreement and the Facility as may be reasonably required for any potential
lender to Purchaser under a proposed financing arrangement; provided, however,
that (A) any investigation shall be conducted after reasonable advance notice to
Sellers and in such a manner as not to interfere unreasonably with the operation
of the Purchased Assets, (B) Purchaser shall require each Person conducting or
participating in any such investigation, including any Related Person, to comply
with reasonably adopted procedures relating to safety and security, (C)
Purchaser shall be required to indemnify Sellers for any damage to property or
persons resulting from any such investigation to the extent that is the result
of gross negligence or willful misconduct of Purchaser or its Related Persons
and is not covered by insurance, (D) Sellers shall be entitled to have a
representative present during the course of any such investigation, (E) the
Sellers shall not be required to take any action which would constitute a waiver
of the attorney-client privilege, and (F) Purchaser shall reimburse Sellers for
any reasonable, out-of-pocket costs pre-approved by Purchaser and demonstrated
to Purchaser's reasonable satisfaction that are incurred by Sellers in providing
such assistance.

                  (g) Purchaser, at the cost and expense of the Sellers, in an
amount not to exceed $350,000, shall use commercially reasonable efforts to
receive (i) on or before 30 days before the Closing Date, from the title company
of Purchaser's choice a commitment for title insurance reasonably satisfactory
to Purchaser (the "Title Insurance Commitment") and an ALTA/ACSM survey (the
"Survey") of the Site prepared by a licensed professional surveyor selected by
Purchaser, and (ii) on the Closing Date, a prepaid title insurance policy
reasonably satisfactory to Purchaser (the "Title Insurance Policy"). Purchaser
shall be responsible for the cost of the Title Insurance Commitment, resulting
Title Insurance Policy, and the Survey in excess of such amount. Sellers shall
remove or rectify prior to Closing as requested by Purchaser (i) any exceptions
that appear in the Title Insurance Commitment (other than Permitted Liens and
the standard pre-printed exceptions) that adversely affect the title to, or the
proposed use and enjoyment of, the Site (the "Objectionable Title Matters"), or
(ii) any easements, rights-of-way, encroachments, or other matters affecting the
Site as shown by the Survey (other than Permitted Liens as shown by the Survey)
that adversely affect the title to, or the proposed use and enjoyment of, the
Site ("Objectionable Survey Matters"), which request must be provided within 15
Business Days of the later of the receipt of the Title Insurance Commitment or
the Survey and be accompanied by the Title Insurance Commitment, the Survey and
copies of any Objectionable Title Matters. In removing or rectifying such
Objectionable Title Matters or Objectionable Survey Matters, Sellers shall not
be obligated to expend an aggregate amount in excess of $20,000,000 less the
amount of any indemnities paid or payable by Sellers pursuant to Sections
4.2(d), 4.2(e) and 4.11(b)(iii); provided, however, that if the cost of removing
or rectifying such Objectionable Title Matters or Objectionable Survey Matters
exceeds $20,000,000 less the amount of Losses described in Sections 4.2(d),
4.2(e) and 4.11(b)(iii) and such Objectionable Title Matters or Objectionable
Survey Matters are not

                                       44


removed or rectified, Sellers shall provide notice to Purchaser of such fact and
Purchaser shall have the right to terminate this Agreement upon notice to
Sellers, which right must be exercised within 20 Business Days following
Purchaser's receipt of such notice from Sellers. Sellers agree to provide an
indemnity in favor of Purchaser's title company for any Liens first appearing in
public record or attaching subsequent to the effective date of the Title
Insurance Commitment or related preliminary report which are caused by Sellers
or within Sellers' Knowledge.

                  (h) Sellers shall use commercially reasonable efforts to
obtain certificates, acknowledgements or undertakings reasonably requested by
Purchaser from the following counterparties to the Assumed Agreements: SNWA,
Kern River Transmission Company; Las Vegas Valley Water District; Siemens
Westinghouse Power Corporation; Reliant Energy Services, Inc.; LG Constructors,
Inc.; CH2M Hill Companies, Inc.; Southern California Edison Company; General
Electric Company; Alstom Power, Inc.; Hamon Cooling Towers, Inc.; Hamon & Cie,
S.A.; APS; Dry Lake Water, LLC; Mirant Las Vegas, LLC, and Gillard Construction,
Inc. and any counterparty to a Post-Effective Date Assumed Joint Facility
Agreement having a value exceeding $100,000. Purchaser shall reimburse Sellers
for any reasonable, out-of-pocket costs pre-approved by Purchaser and
demonstrated to Purchaser's reasonable satisfaction that are incurred by Sellers
in making such efforts.

                  (i) Sellers shall use commercially reasonable efforts to
secure the Sellers' Releases as promptly as practicable after the Effective
Date, but in any event within 45 days after the Effective Date ("Sellers'
Releases Deadline"). If Sellers have not obtained the Sellers' Releases by the
Sellers' Releases Deadline, Sellers shall have the right to terminate this
Agreement by notice to Purchaser, which right must be exercised within 20
Business Days after the Sellers' Releases Deadline or it shall be deemed to be
waived. If the Sellers' Releases are included in the Required Consents delivered
at Closing, Purchaser shall not object to the Required Consents on the basis of
such inclusion.

                  (j) Sellers shall use commercially reasonable efforts to
execute the Dry Lake Documents as promptly as practicable after the Effective
Date. If Sellers have not executed the Dry Lake Documents within 45 days after
the Effective Date, Purchaser shall have the right to terminate this Agreement
by notice to Sellers, which right must be exercised within 20 Business Days
after the 45 days after the Effective Date, or it shall be deemed to be waived.

                  (k) Sellers shall use commercially reasonable efforts to
obtain the SNWA Consent by September 30, 2005. If the SNWA Consent is not
obtained by September 30, 2005, either Party shall have the right to terminate
this Agreement by notice to the other Party, which right must be exercised
within 20 Business Days after September 30, 2005 or it shall be deemed to be
waived.

                  (l) Sellers, at the sole cost and expense of Sellers, shall
use commercially reasonable efforts to obtain an ALTA/ACSM survey of the Site
prepared by a licensed professional surveyor selected by Sellers as promptly as
practicable following the Effective Date. The Parties shall consult with one
another to determine whether a mutually acceptable surveyor could be used for
such survey to also satisfy Purchaser's requirement to obtain a Survey pursuant
to Section 4.1(g)(ii). If, following Sellers' review of such survey, Sellers
conclude that the cost of removing or rectifying any easements, rights-of-way,
encroachments, or other matters

                                       45


affecting the Site that adversely affect the title to, or the proposed use and
enjoyment of, the Site is reasonably expected by Sellers to exceed $5,000,000,
Sellers shall have the right to terminate this Agreement by notice to Purchaser,
which right must be exercised within 60 days after the Effective Date. During
such 60-day period, the Parties will consult regarding the extent of, and the
potential remedies associated with, any adverse title matters reflected on the
survey. The matters disclosed in the letter from HMH, Inc. dated May 13, 2004,
attached as Exhibit 1 to Schedule III, shall be permitted exceptions to the
survey obtained pursuant to this Section 4.1(1), as well as to the Survey to be
obtained pursuant to Section 4.1(g)(ii), and shall not be deemed to be
Objectionable Title Matters or Objectionable Survey Matters.

                  (m) Sellers shall use commercially reasonable efforts to
correct the Site Description Error prior to Closing.

                  (n) To the extent that any portion of the as-built drainage
improvements or rip-rap relating to the drainage improvements on the Site made
pursuant to that certain Grant of Public Underground Drainage Easement in favor
of County of Clark, recorded August 6, 2002, in Book 20020806 as Document No.
01065 of Official Records, is outside the Real Property, Sellers shall use
commercially reasonable efforts to obtain an easement or other appropriate
authorization for the same or to remove the encroachment. To the extent that any
portion of such as-built drainage improvements or rip-rap within the Easements
is not permitted by the Easements, Sellers shall use commercially reasonable
efforts to either amend the Easements or to obtain new easements or other
appropriate authorization to allow the as-built drainage improvements or rip-rap
to remain within the Easements.

                  (o) Sellers shall use commercially reasonable efforts to
execute the cover letter to BLM and submit to BLM the Request for Assignment of
BLM Right of Way Grant Serial No. N-75607, issued by the BLM to GenWest on May
9, 2002 and BLM Right of Way Grant Serial No. N-75840, issued by BLM to GenWest
on May 9, 2002, as soon as reasonably practicable after the Effective Date, in a
form mutually agreed to by the Parties.

                  (p) Each Party shall give notice to the other promptly after
becoming aware of (i) the occurrence or non-occurrence of any event whose
occurrence or non-occurrence would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the Effective Date to the Closing Date and (ii) any
failure of a Party to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this section shall not limit or
otherwise affect the remedies available hereunder to the Party receiving such
notice.

                  (q) Each of the Sellers and Purchaser agree to use reasonable
endeavors to refrain from taking any action which could reasonably be expected
to materially delay the consummation of the transactions contemplated by this
Agreement.

                  (r) No separate consent by Purchaser under any agreement to
which Purchaser and any Seller is party that is required to consummate the
transactions contemplated by this Agreement and the assignment and assumption of
the Assumed Agreements shall be required from Purchaser and by its execution and
delivery of this Agreement, Purchaser hereby

                                       46


grants each such consent. To the extent that at the Closing Purchaser assumes
obligations of Sellers to Purchaser under Assumed Agreements to which Purchaser
is a counterparty, Purchaser hereby releases Sellers from such obligations
effective as of the Closing.

      Section 4.2 Operation and Maintenance of Purchased Assets.

                  After the Effective Date and prior to Closing, the Sellers
shall operate and maintain the Facility in accordance with Sections 4.1, 4.2,
4.3, 4.5.2, 4.6, and 9.1 of the Co-Tenancy Agreement and otherwise in the
ordinary course, consistent with past practices, methods, techniques and
standards; provided, however, that with respect to Section 4.3.1 and Section
4.5.2 of the Co-Tenancy Agreement, the Sellers shall only be required to comply
in all material respects.

                  After the Effective Date and prior to Closing, the Sellers
shall not, without the written consent of Purchaser:

                        (i) dispose of or assign any of the Purchased Assets,
except to the extent permitted by the Co-Tenancy Agreement and the O&M
Agreement; provided, however, that (y) the original value of such Purchased
Assets, other than such Purchased Assets suffering loss, damage, other casualty
or breakage, to which Section 4.9 applies, and other than assets replaced as
part of routine maintenance or under the Long Term Maintenance Agreement by
assets of comparable or superior quality and value, does not exceed $6,000,000
in the aggregate and (z) Sellers' share of any consideration received by the
Sellers in connection with such disposition or assignment shall be paid to
Purchaser at Closing;

                        (ii) incur or permit to exist any Lien on any of the
Purchased Assets, other than the Permitted Liens and Liens on the Easements
permitted by Section 3.1.11(a);

                        (iii) enter into, amend, modify, terminate, grant any
waiver under or give any consent or settle or compromise any claim with respect
to (A) any Designated Assumed Agreement except for amendments constituting the
Contemplated Assumed Agreement Amendments, or (B) any other Facility Agreements,
except in the case of this clause (B), for any agreements, amendments,
modifications, terminations, waivers, consents, settlements or compromises (w)
necessary or appropriate to close out and settle any matters under the
Construction and Equipment Supply Contracts, including any release or reduction
in the Existing Letters of Credit, to the extent consistent with the Co-Tenancy
Agreement and the O&M Agreement, other than any modification of paragraphs SC3
and SC4 in the Supplemental Terms and Conditions to the Alstom Agreement, (x)
required by Law, in which event Section 4.2(e) shall apply, (y) entered into or
made in the ordinary course of business, consistent with past practices, the
Co-Tenancy Agreement and the O&M Agreement and that (1) do not require payments
or have contingent liabilities, other than customary indemnity obligations,
after Closing in the aggregate in excess of $100,000, or (2) are terminated by
the Sellers prior to Closing without any cost to or Liability of Purchaser or
adverse effect on the Purchased Assets, or (z) with respect to modifications to
GenWest Agreements existing as of the Effective Date, other than Assumed GenWest
Agreements, entered into or made in the ordinary course of business and that do
not adversely affect the Purchased Assets;

                                       47


                        (iv) permit to lapse any rights to any Transferred
Intellectual Property, except to the extent such rights are not required to
fulfill Sellers' obligations pursuant to this Section 4.2;

                        (v) make any material modification to the Facility or
the Real Property;

                        (vi) adopt a plan of complete or partial liquidation,
dissolution, merger or consolidation, or with respect to PWCC and GenWest, sell
or convey all or substantially all of its assets to any Person or with respect
to PWCC and PWEC transfer its interest in GenWest; provided, however, that PWCC
or PWEC may merge or consolidate with, and PWCC may sell or convey all or
substantially all of their assets to any Person, provided that PWCC or PWEC, as
the case may be, shall be the continuing corporation, or the successor
corporation (if other than PWCC or PWEC, as the case may be) or the purchaser or
assignee of all or substantially all of PWCC's assets shall be an entity
organized and existing under the Laws of the United States of America or a state
thereof, or the District of Columbia and such entity shall expressly assume the
due and punctual performance and observance of all of the covenants and
conditions to be performed by PWCC or PWEC, as the case may be, hereunder, by
supplemental agreement in form reasonably satisfactory to Purchaser;

                        (vii) settle or compromise any litigation which could
result in any cost to or liability of Purchaser or adverse effect on the
Purchased Assets;

                        (viii) make any material change in the levels of Stores
and Inventory maintained at the Facility for the applicable time of the year,
except in the ordinary course of business, consistent with past practices and
pursuant to the Co-Tenancy Agreement and the O&M Agreement; provided, however,
that nothing in this provision shall require Sellers to maintain Stores and
Inventory with a cost in excess of the Stores and Inventory Cap Amount;

                        (ix) modify or amend any Transferred Permit except as
required by Law, in which event Section 4.2(e) shall apply; or

                        (x) enter into any agreement to do or engage in any of
the foregoing.

                  Notwithstanding anything in Section 4.20, Sellers may take any
action (x) required to comply with the Co-Tenancy Agreement and the O&M
Agreement or (y) that in Sellers' reasonable judgment is required or appropriate
in connection with the ownership, operation and maintenance of the Project and
that is in accordance with the Co-Tenancy Agreement and the O&M Agreement. With
respect to any such actions taken outside the ordinary course of business or
which may result in any non-compliance with Section 4.2(a) or (b) or any other
provision of this Agreement (each a "Section 4.2(d) Action"), the provisions of
Section 4.2(d) shall apply. Subject to compliance with Section 4.2(d), no action
taken in accordance with this Section 4.2(c) shall be deemed to be a breach of
this Agreement, including for purposes of Section 5.1.2.

                  If Sellers take any Section 4.2(d) Action, Sellers shall
promptly give notice thereof to Purchaser, which notice shall describe the
action taken in detail. Sellers shall

                                       48


indemnify Purchaser for all Losses including any adverse impact on, or any
diminution in value of, the Purchased Assets attributable to such Section 4.2(d)
Action, up to an aggregate amount equal to $20,000,000 less any amounts paid or
payable by Sellers pursuant to Sections 4.1(g), 4.2(e) and 4.11(b)(iii). If
Purchaser reasonably expects such Losses, including such adverse impact or
diminution in value, to exceed an amount equal to $20,000,000 less the amount of
Losses described in Sections 4.1(g), 4.2(e) and 4.11(b)(iii), Purchaser shall
have the right to terminate this Agreement, which right must be exercised within
20 Business Days of receipt of notice of such action from the Sellers or such
right shall be deemed waived.

                  If any action is taken by Sellers which is expressly permitted
by Section 4.2(b)(iii)(B)(x), or Section 4.2(b)(ix), Sellers shall promptly give
notice thereof to Purchaser, which notice shall describe the action taken in
detail. Sellers shall indemnify Purchaser for all Losses including any adverse
impact on, or any diminution in value of, the Purchased Assets attributable to
such action, up to an aggregate amount equal to $10,000,000 less any amounts
paid or payable by Sellers pursuant to Sections 4.1(g), 4.2(d) and 4.11(b)(iii).
If Purchaser reasonably expects such Losses, including such adverse impact or
diminution in value, to exceed an amount equal to $10,000,000 less the amount of
Losses described in Sections 4.1(g), 4.2(d) and 4.11(b)(iii), Purchaser shall
have the right to terminate this Agreement upon notice to Sellers, which right
must be exercised within 20 Business Days of receipt of notice of such action
from the Sellers or such right shall be deemed waived.

                  All notices of Sellers and requests by Sellers for consent or
other action by Purchaser pursuant to this Section 4.2, other than pursuant to
Section 4.2(d) and 4.2(e), and all responses of Purchaser pursuant thereto shall
be made in writing to or by a Purchaser Consent Representative.

      Section 4.3 Purchaser's Inspection Right. After the Effective Date and
prior to Closing, Purchaser and its Related Persons shall have access, upon
reasonable prior notice, to the Site and, if requested, to the Shared Books and
Records and the Non-Shared Books and Records, all for purposes of inspection and
review; provided, however, that (a) any investigation shall be conducted in such
manner as not to interfere unreasonably with the operation of the Purchased
Assets and with reasonable advance notice to Sellers, (b) Purchaser shall
require each Person conducting or participating in any such investigation to
comply with reasonably adopted procedures relating to safety and security, (c)
Purchaser shall indemnify Sellers for any damage to property or persons
resulting from any such investigation that is the result of gross negligence or
willful misconduct of Purchaser or its Related Person and is not covered by
insurance, (d) Sellers shall be entitled to have a representative present during
the course of any such investigation, (e) the Sellers shall not be required to
take any action that would constitute a waiver of the attorney-client privilege,
and (f) Purchaser shall reimburse Sellers for the reasonable out-of-pocket costs
pre-approved by Purchaser and demonstrated to Purchaser's reasonable
satisfaction that are incurred by Sellers in providing such assistance.

      Section 4.4 Intentionally Omitted.

      Section 4.5 Cooperation with Facility Takeover and Transition of
Operations. Within 30 days after the Effective Date, Purchaser shall deliver to
Sellers a list of its proposed representatives to the joint transition team.
Sellers will add its representatives to such team

                                       49


within five Business Days after receipt of Purchaser's list. Such team will be
responsible for preparing as soon as reasonably practicable after the Effective
Date, and timely implementing, a transition plan which will identify and
describe substantially all of the various transition activities that the Parties
will cause to occur before and after the Closing and any other transfer of
control matters that any Party reasonably believes should be addressed in such
transition plan. Purchaser and Sellers shall use commercially reasonable efforts
to cause their representatives on such transition team to cooperate in good
faith and take all reasonable steps necessary to develop a mutually acceptable
transition plan no later than 60 days after the Effective Date.

      Section 4.6 Interim PPA. Concurrent with the execution and delivery of
this Agreement, GenWest and Purchaser shall enter into the Interim PPA,
substantially in the form of Exhibit K.

      Section 4.7 Cooperation in Fault Current Upgrade Proceedings. During the
period after the Effective Date and until Closing, Sellers shall consult with
Purchaser regarding positions taken in proceedings involving the Fault Current
Upgrade MOUs, including in FERC Dockets TX03-1, ER02-1741, ER02-1742, ER04-152,
ER04-424, and ER02-2344.

      Section 4.8 Employees. Purchaser may, but shall not be required to, offer
employment to some, all or none of the Project Employees effective immediately
after the Closing on terms and conditions determined by Purchaser in its sole
discretion. Sellers shall provide Purchaser and its representatives reasonable
access to the Project Employees to assist Purchaser in determining to which
Project Employees, if any, it shall make such offers of employment, and, not
less than 30 days before the Closing, to the extent permitted by applicable Law,
Sellers shall provide Purchaser with the Project Employee Books and Records (to
the extent they may be provided to Purchaser in accordance with Law and with
respect to such Project Employees who consent thereto) to assist Purchaser in
such determination.

      Section 4.9 Risk of Loss. Prior to the effectiveness of Closing, all risk
of loss, damage or other casualty to the Purchased Assets shall be borne by
Sellers and Sellers shall promptly notify Purchasers of any such loss, damage or
casualty or any other change in condition of the Purchased Assets that may lead
to such loss, damage or other casualty. Sellers shall repair prior to the
Closing Date to the previous condition of the Purchased Assets any such damage,
loss or casualty to the Purchased Assets, or breakage of any component or
components of the Purchased Assets in an aggregate amount up to $20,000,000 less
the amount of any indemnities paid or payable by Sellers under Section
4.11(b)(iii); provided, however, that any such event of damage, loss, casualty,
or breakage less than $500,000 shall not be counted towards such limit; provided
further, however that if the aggregate amount of such damage, loss or breakage
exceeds $6,000,000 or an amount equal to $20,000,000 less the amount of any
indemnities paid or payable by Sellers under Section 4.11(b)(iii), and the
Parties are unable to reach an agreement on a remedy for such damage, loss or
breakage after 30 days of the occurrence of such loss, damage or breakage,
Purchaser shall have the right to terminate this Agreement upon notice to
Sellers, which right must be exercised within 20 Business Days of the end of
such 30 day period or such right shall be deemed waived.

      Section 4.10 Interim Reports. In connection with the continuing operation
of the Facility, the Sellers shall use reasonable endeavors between the
Effective Date and Closing to

                                       50


consult in good faith on a regular and frequent basis with Purchaser and its
representatives to report material operational developments and the general
status of ongoing operations pursuant to procedures reasonably requested by
Purchaser or such representatives. The Sellers acknowledge that any such
consultation shall not constitute a waiver by Purchaser of any rights it may
have under this Agreement or any other Transaction Agreement, and that Purchaser
shall not have any Liability or responsibility for any actions of any Seller, or
any of their respective officers, directors, employees or agents with respect to
matters that are the subject of such consultations.

      Section 4.11 Notification of Actions Taken; Update of Schedules.

                  Sellers shall promptly notify Purchaser in the event Sellers
enter into, amend, modify, terminate, grant any waiver under or give any consent
or settle or compromise any claim with respect to any Facility Agreement or
Permit after the Effective Date. Sellers shall provide Purchaser with copies of
any such revised Facility Agreements or Permits as requested by Purchaser. Each
Facility Agreement or amendment thereto that (i) is executed after the Effective
Date, (ii) meets the requirements of Section 4.2(iii)(A), 0(iii)(B)(w), (x), or
(y) or 0, (iii) has a term extending beyond the Closing Date, and (iv)
constitutes a Joint Facility Agreement shall be an Assumed Agreement (the
"Post-Effective Date Assumed Joint Facility Agreements"); provided, however,
that Sellers shall pay prior to Closing, to the extent reasonably practicable,
or otherwise as soon as reasonably practicable after Closing, for any Materials
and Equipment purchased and delivered or services rendered prior to Closing. Any
consent required to assign any such Post-Effective Date Assumed Joint Facility
Agreement to Purchaser shall be a Required Consent. Sellers shall provide
Purchaser with any new Permit obtained by Sellers after the Effective Date (the
"Post-Effective Date Permits") promptly after receipt thereof. Each such Permit
that (i) is entered into for the joint benefit of GenWest and SNWA and (ii) is
requested by Purchaser to be transferred or is required by Law shall be a
Transferred Permit to the extent permitted by Law. Prior to Closing or upon the
request of either Party, the Parties shall update Schedule I (Assumed
Agreements), Schedule II (Materials and Equipment) and Schedule IV (Transferred
Permits) to reflect any changes in Assumed Agreements, Materials and Equipment
and Transferred Permits pursuant to this Section 4.11.

                  If Sellers become aware at any time before the Closing Date
that a Sellers' Disclosure Schedule previously delivered by Sellers was
inaccurate or incomplete when delivered or has become inaccurate or incomplete
as a result of subsequent events, Sellers shall promptly deliver to Purchaser no
later than 10 Business Days after such discovery an amendment or supplement to
such schedule and any related documents; provided, however, that:

                        if such amendment or supplement is based on events or
matters that arose on or before the Effective Date, such amendment or supplement
shall not be given effect for the purposes of determining the fulfillment of the
condition precedent set forth in Section 5.1.1 or liability as set forth in
Section 7.1(a) and (b) and the Sellers' Disclosure Schedule shall not be read
for any purposes as so amended or supplemented;

                        if such amendment or supplement is based on events or
matters that arise after the Effective Date and that are expressly permitted to
occur under 0, or 0, such amendment or supplement shall be given effect for the
purposes of determining the

                                       51


fulfillment of the condition precedent set forth in Section 5.1.1 or determining
liability as set forth in Section 7.1(a) and (b) and the Sellers' Disclosure
Schedule shall be read for all purposes as so amended or supplemented;

                        if such amendment or supplement is based on events or
matters that arise after the Effective Date, such events or matters are not
expressly permitted under 0, or 0, and such events or matters result in Losses
to the Purchaser Indemnified Parties, including any adverse impact on, or
diminution in value of, the Purchased Assets, equal to or less than an aggregate
amount equal to $20,000,000 less any amounts paid or payable by Sellers pursuant
to Sections 4.1(g), 4.2(d), 4.2(e), and 4.9, Sellers shall indemnify the
Purchaser Indemnified Parties for all such Losses with respect to such events or
matters and such amendment or supplement shall be given effect for purposes of
determining the fulfillment of the condition precedent set forth in Section
5.1.1 or determining liability as set forth in Section 7.1(a) and (b) and the
Sellers' Disclosure Schedule shall be read for all purposes as so amended or
supplemented; provided, however, that if the amount of such Loss exceeds or is
reasonably expected by Purchaser to exceed an aggregate amount equal to
$20,000,000 less the amount of Losses described in Sections 4.1(g), 4.2(d),
4.2(e) and 4.9, Purchaser shall have the right to terminate this Agreement upon
notice to Sellers, which right must be exercised within 20 Business Days of
receipt of such amendment or supplement from the Sellers or such right shall be
deemed waived; provided further, if such right is waived, Sellers shall
indemnify the Purchaser Indemnified Parties for all such Losses with respect to
such events or matters, up to an amount equal to $20,000,000 less any amounts
paid or payable by Sellers pursuant to Sections 4.1(g), 4.2(d), 4.2(e) and 4.9,
and such amendment or supplement shall be given effect for purposes of
determining the fulfillment of the condition precedent set forth in Section
5.1.1 or determining liability as set forth in Section 7.1(a) and (b) and the
Sellers' Disclosure Schedule shall be read for all purposes as so amended or
supplemented.

            Exercise of Discretion. Promptly upon receipt of the PUCN Approval
and the FERC Approval, but in each case no later than 15 Business Days after
such receipt, Purchaser or Sellers, as applicable, shall give notice to the
other of its approval or disapproval of the PUCN Approval or the terms of the
FERC Approval that impose obligations on such Party or in respect of its assets,
as the case may be. If no notice of disapproval is given within the time period
specified above, Purchaser or Sellers, as applicable, will be deemed to have
approved the PUCN Approval or the FERC Approval, as the case may be. In the
event that any such Party shall give notice of disapproval of any such matter,
as applicable, either Party hereto may give notice of the termination of this
Agreement within ten (10) Business Days after such notice of disapproval is
received.

            Cure of Material Adverse Effect. If a Material Adverse Effect shall
have occurred and Sellers shall give notice to Purchaser that such Material
Adverse Effect has been cured, Purchaser shall have 20 Business Days to
determine whether such Material Adverse Effect has been cured to its sole
satisfaction. If Purchaser has not given written notice to Sellers of its
dissatisfaction with such cure within the time period specified above, Purchaser
shall be deemed to be satisfied with such cure.

            No Solicitation of Competing Transaction. After the Effective Date
and prior to Closing, Sellers shall not, directly or indirectly, solicit,
initiate or participate in discussions or

                                       52


negotiations with, any Person or group (other than Purchaser, any of its
Affiliates or representatives) concerning any Acquisition Proposal. The Sellers
shall not, and shall cause each Affiliate not to, enter into any agreement with
respect to any Acquisition Proposal. The Sellers shall immediately notify, and
shall cause the Affiliates to notify, Purchaser of any unsolicited proposal or
inquiry, or amendment to any existing proposal or inquiry, received by Sellers
and the Sellers shall immediately communicate to Purchaser, or cause the
Affiliates to communicate to Purchaser, the terms of any unsolicited proposal or
inquiry, or amendment to any existing proposal or inquiry, which any of them may
receive in connection with such unsolicited proposal or inquiry or amendment to
such existing proposal or inquiry.

                                   ARTICLE V

                              CONDITIONS TO CLOSING

      Section 5.1 Purchaser's Conditions Precedent. The obligations of Purchaser
hereunder to execute or deliver the items it is required to deliver pursuant to
Section 2.4.1(a) are subject to the fulfillment to the reasonable satisfaction
of Purchaser, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by Purchaser in its sole
discretion):

            Section 5.1.1 Representations and Warranties. Each of the
representations and warranties made by Sellers in this Agreement and qualified
by materiality or Sellers' Knowledge, shall be true and correct on and as of the
Closing Date as though made on and as of the Closing Date. Each of the
representations and warranties made by Sellers in this Agreement and not
qualified by materiality or Sellers' Knowledge shall be true in all material
respects on and as of the Closing Date as though made on and as of the Closing
Date.

            Section 5.1.2 Performance. Sellers shall have performed and complied
with the agreements, covenants and obligations required by this Agreement to be
so performed or complied with by Sellers at or before the Closing.

            Section 5.1.3 Law. There shall not be in effect on the Closing Date
any Law restraining, enjoining or otherwise prohibiting or making illegal the
consummation of the transactions contemplated by this Agreement.

            Section 5.1.4 PUCN Approval; FERC Approval; HSR Act Filing. The PUCN
Approval and the FERC Approval shall have been duly obtained, made or given and
shall be in full force and effect, and all terminations or expirations of the
waiting period under the HSR Act necessary for the consummation of the
transactions contemplated by this Agreement shall have occurred.

            Section 5.1.5 Required Consents. The Required Consents shall have
been duly obtained, made or given and shall be in full force and effect.

            Section 5.1.6 Deliveries. Sellers shall have executed and delivered
to Purchaser, or shall be standing ready to execute and deliver to Purchaser at
the Closing the items set forth in Section 2.4.1(b) of this Agreement.

                                       53


            Section 5.1.7 Financing. On or before the Closing Date, Purchaser
shall have obtained Financing.

            Section 5.1.8 Material Adverse Effect. No Material Adverse Effect
shall have occurred, which has not been cured by Sellers prior to the Closing
Date to Purchaser's sole satisfaction.

            Section 5.1.9 Title Insurance, Survey and Title Insurance Policy.
Purchaser shall have received the Title Insurance Commitment, the Survey, and
the Title Insurance Policy as contemplated by Section 4.1(g) and Sellers shall
have remedied all Objectionable Title Matters and all Objectionable Survey
Matters to Purchaser's satisfaction.

            Section 5.1.10 Transferred Permits. Sellers shall have taken all
actions to properly transfer to Purchaser their interest in the Transferred
Permits, and Sellers' interests in the Transferred Permits listed on Part C of
Schedule IV shall have been transferred to Purchaser. None of the Transferred
Permits shall be subject to any conditions or stipulations that did not exist as
of the Effective Date which could reasonably be expected to have an adverse
effect on Purchaser or the ownership, operation or maintenance of the Facility
or the Real Property.

            Section 5.1.11 Mirant Back-Up Well Arrangements. The Sellers and
Mirant Las Vegas, LLC shall have executed the Mirant Back-Up Well Arrangements.

            Section 5.1.12 Water Permit. The Water Permit shall have been duly
obtained if the Closing Date occurs after June 16, 2006.

      Section 5.2 Sellers' Conditions Precedent. The obligations of Sellers
hereunder to execute or deliver the items they are required to deliver pursuant
to Section 2.4.1(b) of this Agreement are subject to the fulfillment, to the
reasonable satisfaction of Sellers at or before the Closing, of each of the
following conditions (all or any of which may be waived in whole or in part by
Sellers in their sole discretion):

            Section 5.2.1 Representations and Warranties. Each of the
representations and warranties made by Purchaser in this Agreement and qualified
by materiality or Purchaser's Knowledge, shall be true and correct on and as of
the Closing Date as though made on and as of the Closing Date. Each of the
representations and warranties made by Purchaser in this Agreement and not
qualified by materiality or Purchaser's Knowledge shall be true in all material
respects on and as of the Closing Date as though made on and as of the Closing
Date.

            Section 5.2.2 Performance. Purchaser shall have performed and
complied with the agreements, covenants and obligations required by this
Agreement to be so performed or complied with by Purchaser at or before the
Closing.

            Section 5.2.3 Law. There shall not be in effect on the Closing Date
any Law restraining, enjoining or otherwise prohibiting or making illegal the
consummation of the transactions contemplated by this Agreement.

            Section 5.2.4 PUCN Approval; FERC Approval; HSR Act Filing. The PUCN
Approval and the FERC Approval shall have been duly obtained, made or given and
shall be in

                                       54


full force and effect, and all terminations or expirations of waiting period
imposed under the HSR Act necessary for the consummation of the transactions
contemplated by this Agreement shall have occurred.

            Section 5.2.5 Required Consents. The Required Consents shall have
been duly obtained, made or given and shall be in full force and effect.

            Section 5.2.6 Deliveries. Purchaser shall have executed and
delivered to Sellers, or shall be standing ready to execute and deliver to
Sellers at the Closing, the items set forth in Section 2.4.1(a) of this
Agreement.

                                   ARTICLE VI

                                   TERMINATION

      Section 6.1 Termination Prior to Closing. This Agreement may be
terminated, and the transactions contemplated hereby may be abandoned:

                  (a) At any time before the Closing, by Sellers or Purchaser
upon notice to the other Party, in the event that any non-appealable Law becomes
effective restraining, enjoining, or otherwise prohibiting or making illegal the
consummation of the transactions contemplated by this Agreement;

                  (b) At any time before Closing as provided in Section 4.1(g),
Section 4.1(i), Section 4.1(j), Section 4.1(k), Section 4.1(l), 0, 0, Section
4.9, 0, or 0;

                  (c) At any time before the Closing, by Sellers or Purchaser
upon notice to the other Party, in the event (i) of a breach hereof by the
non-terminating Party which gives rise to (A) a Material Adverse Effect or (B) a
material adverse effect on (1) the ability of Purchaser to perform its
obligations under this Agreement or (2) the validity or enforceability of the
rights and remedies of any Seller under this Agreement or under any of the other
Transaction Agreements if, in the case of both clause (A) and (B), the
non-terminating Party fails to cure such breach within 30 days following
notification thereof by the terminating Party; provided, however, that if, at
the end of such 30-day period, the non-terminating Party is endeavoring in good
faith, and proceeding diligently, to cure such breach, the non-terminating Party
shall have an additional 30 days in which to effect such cure; or (ii) that any
condition to such Party's obligations under this Agreement (other than the
payment of money to the other Party) becomes impossible or impracticable to
satisfy with the use of commercially reasonable efforts if such impossibility or
impracticability is not caused by a breach hereof by such Party; provided,
however, that if it is reasonably possible that the circumstances giving rise to
the impossibility or impracticality may be removed prior to the expiration of
the time period provided in this Section 6.1(c) of this Agreement, then such
notification may not be given until such time as the removal of such
circumstances is no longer reasonably possible within such time period;

                  (d) At any time following September 30, 2006, by Sellers or
Purchaser upon notice to the other Party if the Closing shall not have occurred
on or before such date and such failure to consummate is not caused by a breach
of this Agreement by the terminating Party; or

                                       55


                  (e) At any time following November 1, 2005, by Sellers or
Purchaser upon notice to the other Party if the PUCN Approval has not been
obtained permitting the Service Term (as defined in the Interim PPA) of the
Interim PPA to commence.

      Section 6.2 Effect of Termination or Breach Prior to Closing.

                        If this Agreement is validly terminated pursuant to
Section 6.1(a), Section 6.1(b), Section 6.1(c)(ii), Section 6.1(d), or Section
6.1(e) of this Agreement, there shall be no liability or obligation on the part
of Sellers or Purchaser (or any of their respective Related Persons), except
that the provisions of clause (C) of Section 4.1(f), clause (c) of Section 4.3,
ARTICLE X (Dispute Resolution), ARTICLE XI (Limited Remedies and Damages),
Section 12.1 (Notices), Section 12.2 (Payments), Section 12.3 (Entire
Agreement), Section 12.4 (Expenses), Section 12.5 (Public Announcements),
Section 12.6 (Confidentiality), Section 12.9 (No Construction Against Drafting
Party), Section 12.10 (No Third Party Beneficiary), Section 12.11 (Headings),
Section 12.12 (Invalid Provisions), Section 12.13 (Governing Law), Section 12.14
(No Assignment; Binding Effect), and this Section 6.2 shall continue to apply
following any such termination.

                        If this Agreement is validly terminated pursuant to
Section 6.1(c)(i) of this Agreement, by Purchaser or Sellers as a result of a
breach by the non-terminating Party, such termination shall be the sole remedy
of the terminating Party; provided that if such breach results from a material
and willful breach by the non-terminating Party of this Agreement, then subject
to Section 11.2 and notwithstanding any other provision of this Agreement to the
contrary, the non-terminating Party and the terminating Party shall be entitled
to all rights and remedies available to it.

                                  ARTICLE VII

                                 INDEMNIFICATION

      Section 7.1 Indemnification by Sellers. Subject to the limitations set
forth in Section 6.2 (Effect of Termination or Breach Prior to Closing), Section
7.4 (Limitations of Liability), Section 8.4 (Sellers' Tax Indemnification),
Section 9.1 (Survival), and Section 11.2 (Limitation of Liability) of this
Agreement, Sellers agree to indemnify and hold Purchaser and its Related Persons
specified in clause (i) of the definition of such term (each, a "Purchaser
Indemnified Party"), harmless from and against (and to reimburse each Purchaser
Indemnified Party as the same are incurred for) any and all Losses incurred by
any Purchaser Indemnified Party resulting from any of the following:

                  (a) any inaccuracy or breach of a representation or warranty
made by Sellers in this Agreement;

                  (b) the breach by Sellers of, or default in the performance by
Sellers of, any covenant, agreement or obligation to be performed by Sellers
pursuant to this Agreement or any of the other Transaction Agreements; or

                  (c) the Excluded Assets or the Excluded Liabilities.

                                       56


      Section 7.2 Indemnification by Purchaser. Subject to the limitations set
forth in Section 6.2 (Effect of Termination or Breach Prior to Closing), Section
7.4 (Limitations of Liability), Section 8.5 (Purchaser's Tax Indemnification),
Section 9.1 (Survival), and Section 11.2 (Limitation of Liability) of this
Agreement, Purchaser hereby agrees to indemnify and hold Sellers and their
Related Persons (each, a "Sellers' Indemnified Party"), harmless from and
against (and to reimburse each Sellers' Indemnified Party as the same are
incurred for) any and all Losses incurred by any Sellers' Indemnified Party
resulting from any of the following:

                  (a) any inaccuracy or breach of a representation or warranty
made by Purchaser in this Agreement;

                  (b) the breach by Purchaser of, or default in the performance
by Purchaser of, any covenant, agreement or obligation to be performed by
Purchaser pursuant to this Agreement or any of the other Transaction Agreements;
or

                  (c) liability assumed by Purchaser under Assumed Agreements
pursuant to Section 2.1.2.

      Section 7.3 Method of Asserting Claims.

            Section 7.3.1 Notification of Claims. If any Purchaser Indemnified
Party or Sellers' Indemnified Party (each, an "Indemnified Party") asserts that
a Party has become obligated to the Indemnified Party pursuant to Section
4.1(f)(C), 0, 0, Section 4.3(c), 0, Section 7.1 or Section 7.2 (as so obligated,
an "Indemnifying Party"), or if any suit, action, investigation, claim or
proceeding is begun, made or instituted as a result of which the Indemnifying
Party may become obligated to the Indemnified Party hereunder, the Indemnified
Party shall notify the Indemnifying Party promptly and shall cooperate with the
Indemnifying Party, at the Indemnifying Party's expense, to the extent
reasonably necessary for the resolution of such claim or in the defense of such
suit, action or proceeding, including making available any information,
documents and things in the possession of the Indemnified Party. Notwithstanding
the foregoing notice requirement, the right to indemnification hereunder shall
not be affected by any failure to give, or delay in giving, notice unless, and
only to the extent that, the rights and remedies of the Indemnifying Party shall
have been materially prejudiced as a result of such failure or delay. Any
assertion by an Indemnified Party that an Indemnifying Party is liable to the
Indemnified Party for indemnification pursuant to Section 7.1 or Section 7.2
above must be delivered to the Indemnifying Party prior to the expiration date
(if applicable) of the representation, warranty, covenant, or agreement giving
rise to such indemnification obligation, as provided in Section 9.1.

            Section 7.3.2 Defense of Claims. In fulfilling its obligations under
this Section 7.3, after the Indemnifying Party has provided each Indemnified
Party with a written notice of its agreement to indemnify each Indemnified Party
under this Section 7.3, as between such Indemnified Party and the Indemnifying
Party, the Indemnifying Party shall have the right to investigate, defend,
settle or otherwise handle, with the aforesaid cooperation, any claim, suit,
action or proceeding, brought by a third party in such manner as the
Indemnifying Party may reasonably deem appropriate; provided, that (i) counsel
retained by the Indemnifying Party is reasonably satisfactory to the Indemnified
Party, (ii) the Indemnifying Party will not consent to

                                       57


any settlement or entry of judgment imposing any obligations on any Indemnified
Parties, other than financial obligations for which such Person will be
indemnified hereunder, unless such Person has consented in writing to such
settlement or judgment (which consent may be given or withheld in its sole
discretion), and (iii) the Indemnifying Party will not consent to any settlement
or entry of judgment unless, in connection therewith, the Indemnifying Party
obtains a full and unconditional release of the Indemnified Party from all
liability with respect to such suit, action, investigation, claim or proceeding.
Notwithstanding the Indemnifying Party's election to assume the defense or
investigation of such claim, action or proceeding, the Indemnified Party shall
have the right to employ separate counsel and to participate in the defense or
investigation of such claim, action or proceeding, which participation shall be
at the expense of the Indemnifying Party, if (a) on the advice of counsel to the
Indemnified Party use of counsel of the Indemnifying Party's choice could
reasonably be expected to give rise to a material conflict of interest, (b) the
Indemnifying Party shall not have employed counsel reasonably satisfactory to
the Indemnified Party to represent the Indemnified Party within a reasonable
time after notice of the assertion of any such claim or institution of any such
action or proceeding, (c) if the Indemnifying Party shall authorize the
Indemnified Party to employ separate counsel at the Indemnifying Party's
expense, or (d) such action shall seek relief other than monetary damages
against the Indemnified Party.

            Section 7.3.3 Real Property Title Claims. Purchaser shall join the
title insurance company and the title insurance underwriter providing insurance
with respect to the Purchased Assets in any claim, action or proceeding against
the Sellers with respect to the Sellers' indemnification obligations arising in
connection with Section 3.1.11(a) (Real Property); provided, however, that
Purchaser, in its sole discretion, shall have a claim against said title
insurance company and title insurance underwriter.

      Section 7.4 Limitations of Liability.

            Section 7.4.1 Claim Threshold. Notwithstanding anything to the
contrary contained in this Agreement, (a) Sellers shall have no liability for
their obligations under 0, 0, 0 or Section 7.1 until the aggregate amount of all
Losses incurred by the Purchaser Indemnified Parties equals or exceeds $500,000
(the "Claim Threshold"), in which event Sellers shall be liable for all such
Losses in excess of the Claim Threshold; it being understood and agreed that the
Claim Threshold shall not apply in the event of fraud, gross negligence or
willful misconduct or to (i) claims for indemnification relating to Excluded
Liabilities or Excluded Assets, or (ii) claims for indemnification relating to
Section 3.1.1 (Existence), Section 3.1.2 (Authority), Section 3.1.3 (Binding
Agreement), Section 3.1.4 (No Conflicts), Section 3.1.5 (Approvals and Filings),
Section 3.1.10 (Title to Personal Property), Section 3.1.11(a) (Real Property),
or Section 3.1.19 (Brokers), in each case for which Sellers shall be responsible
from dollar one, whether or not the Claim Threshold has been reached, and (b)
Purchaser shall have no liability for its obligations under Section 4.1(f)(C),
Section 4.3(c), or Section 7.2 until the aggregate amount of all Losses incurred
by the Sellers' Indemnified Parties equals or exceeds the Claim Threshold, in
which event Purchaser shall be liable for all such Losses in excess of the Claim
Threshold; it being understood and agreed that the foregoing Claim Threshold
shall not apply in the event of fraud, gross negligence or willful misconduct or
to (i) claims for indemnification relating to Liabilities assumed by Purchaser
under Section 2.1.2, or (ii) claims for indemnification relating to Section
3.2.1 (Existence), Section 3.2.2 (Authority), Section 3.2.3 (Binding Agreement),

                                       58


Section 3.2.4 (No Conflicts), Section 3.2.5 (Approvals and Filings) or Section
3.2.7 (Brokers), in each case for which Purchaser shall be responsible from
dollar one, whether or not the Claim Threshold has been reached.

            Section 7.4.2 Cap Amount. In no event shall (i) Sellers' aggregate
liability arising out of their indemnification obligations under 0, 0, 0, 0, or
Section 7.1 exceed 50% of the Purchase Price; it being understood and agreed
that the foregoing limitation shall not apply in the event of fraud or willful
misconduct, or to claims for indemnification relating to Excluded Liabilities or
Excluded Assets or arising under any of Section 3.1.1 (Existence), Section 3.1.2
(Authority), Section 3.1.3 (Binding Agreement), Section 3.1.4 (No Conflicts),
Section 3.1.5 (Approvals and Filings), Section 3.1.10 (Title to Personal
Property), Section 3.1.11(a) (Real Property), or Section 3.1.19 (Brokers), and
any such excluded indemnifiable Losses shall not be deemed to count against or
otherwise reduce such limitation on Sellers' aggregate liability; and (ii)
Purchaser's aggregate liability arising out of its indemnification obligations
under Section 4.1(f)(C), Section 4.3(c), Section 6.2(b), or Section 7.2 exceed
50% of the Purchase Price; it being understood and agreed that the foregoing
limitation shall not apply in the event of fraud or willful misconduct or to (a)
claims for indemnification relating to Liabilities assumed by Purchaser under
Section 2.1.2, or (b) claims for indemnification arising under any of Section
3.2.1 (Existence), Section 3.2.2 (Authority), Section 3.2.3 (Binding Agreement),
Section 3.2.4 (No Conflicts), Section 3.2.5 (Approvals and Filings) or Section
3.2.7 (Brokers), and any such excluded indemnifiable Losses shall not be deemed
to count against or otherwise reduce such limitation on Purchaser's aggregate
liability. For the avoidance of doubt, Sellers aggregate obligations under
Sections 4.1(g), 4.2(d), 4.2(e), 4.9, and 4.11(b)(iii) shall not exceed
$20,000,000.

      Section 7.5 Indemnification in Case of Strict Liability or Indemnitee
Negligence. THE INDEMNIFICATION PROVISIONS IN ARTICLE IV, ARTICLE VIII AND IN
THIS ARTICLE VII SHALL BE ENFORCEABLE REGARDLESS OF WHETHER THE LIABILITY IS
BASED ON PAST, PRESENT OR FUTURE ACTS, CLAIMS OR LAWS (INCLUDING ANY PAST,
PRESENT OR FUTURE ENVIRONMENTAL LAW, FRAUDULENT TRANSFER ACT, OCCUPATIONAL
SAFETY AND HEALTH LAW, OR PRODUCTS LIABILITY, SECURITIES OR OTHER LAW), AND
REGARDLESS OF WHETHER ANY PERSON (INCLUDING THE PERSON FROM WHOM INDEMNIFICATION
IS SOUGHT) ALLEGES OR PROVES THE SOLE, JOINT, CONCURRENT, CONTRIBUTORY OR
COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION, OR THE SOLE,
JOINT, OR CONCURRENT STRICT LIABILITY IMPOSED ON THE PERSON SEEKING
INDEMNIFICATION.

                                  ARTICLE VIII

                                   TAX MATTERS

      Section 8.1 Representations and Warranties. Sellers represent and warrant
to Purchaser, except as set forth in Section 8.1 of Sellers' Disclosure Schedule
that:

                  (a) (i) GenWest has filed or will file when due all Tax
Returns that are required to be filed on or before the Closing Date and paid or
will pay in full all Taxes required

                                       59


to be paid; (ii) PWEC has filed or will file when due all Tax Returns that are
required to be filed on or before the Closing Date, which filings, if not so
made, could reasonably be expected to have an adverse effect on the Purchased
Assets, and has paid or will pay in full all Taxes on such returns required to
be paid; and (iii) such Tax Returns were prepared or will be prepared in the
manner required by applicable Laws. Neither GenWest nor, with respect to the
Purchased Assets, PWEC has received any notice that any Taxes relating to any
period prior to Closing are owing that have not been paid.

                  (b) True and complete copies of all Tax Returns (other than
Federal and State income and franchise tax returns) and all schedules thereto
filed by, or on behalf of, GenWest and copies of all written communications to
or from any Taxing Authority for all prior taxable years have been made
available to Purchaser for inspection.

                  (c) Since the date of its inception, GenWest has qualified as
and been treated as a disregarded entity for U.S. federal income Tax purposes.

                  (d) Neither GenWest nor PWEC has extended or waived the
application of any statute of limitations of any jurisdiction regarding the
assessment or collection of any Tax of GenWest or, with respect to the Purchased
Assets, PWEC.

                  (e) There are no audits, claims, assessments, levies,
administrative or judicial proceedings pending, or to Sellers' Knowledge,
threatened, proposed or contemplated against GenWest or with respect to the
Purchased Assets by any Taxing Authority.

                  (f) Each of GenWest and, with respect to the Purchased Assets,
PWEC and PWCC has withheld and paid all Taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, member or other third party.

                  (g) Neither GenWest nor, with respect to the Purchased Assets,
PWEC is a party to any joint venture, partnership or other arrangement or
contract which is or has been qualified as, and treated as, a partnership for
United States federal and state income Tax purposes.

      Section 8.2 Transfer Taxes. Other than the Tax on transfers of real
property under chapter 375 of the Nevada Revenue and Taxation Code ("Real
Property Transfer Taxes"), which shall be borne 50% by Purchaser and 50% by
Sellers, Sellers shall bear all sales, use, transfer, and other similar taxes
and fees ("Other Transfer Taxes"), if any, arising out of or in connection with
the sale of the Purchased Assets by Sellers pursuant to this Agreement. GenWest
shall file all necessary documentation and Tax Returns with respect to the Other
Transfer Taxes and the Real Property Transfer Taxes (collectively, the "Transfer
Taxes") and cause such Taxes, if any, to be paid to the relevant Taxing
Authorities on or prior to the Closing Date. The Parties shall cooperate to
comply with all Tax Return requirements for any and all Transfer Taxes and shall
provide such documentation and take such other reasonable actions as may be
necessary to minimize the amount of any Transfer Taxes.

      Section 8.3 Property Taxes. Real and personal property ad valorem taxes
with respect to the Purchased Assets ("Property Taxes") for the taxable period
that includes the Closing Date

                                       60


shall be prorated on a daily basis to the Closing Date. Sellers shall be liable
only for the portion of such Property Taxes attributable to the portion of such
taxable period ending on the Closing Date. Following the Closing, Sellers and
Purchaser shall cooperate and consult with each other with respect to the
determination of such Property Taxes and Sellers shall have the right to
participate in any proceedings or disputes with the applicable Taxing Authority
concerning the determination of the amount of such Property Taxes (including the
determination of the value of the property with respect to which such Property
Taxes are assessed).

      Section 8.4 Sellers' Tax Indemnification. Sellers shall indemnify and hold
harmless Purchaser from and against (a) any and all Taxes imposed on or incurred
in respect of the income, business, assets and properties or operations of
GenWest or PWEC with respect to the Purchased Assets, attributable to any
taxable period ending on or prior to the Closing Date ("Pre-Closing Taxes"), (b)
with respect to any taxable period beginning before and ending after the Closing
Date (the "Overlap Period"), any and all Taxes imposed on or incurred in respect
of the income, business, assets and properties or the operations of GenWest or
PWEC with respect to the Purchased Assets, attributable to the period ending on
the Closing Date ("Overlap Period Taxes"), (c) any and all Transfer Taxes for
which Sellers are responsible pursuant to Section 8.2 of this Agreement, and (d)
any Liabilities arising from a breach by Sellers of their covenants in this
Article VIII. For purposes of the Overlap Period, Taxes shall be attributable to
the period ending on the Closing Date: (A) in the case of Taxes imposed on a
periodic basis or otherwise measured by the level of any item, deemed to be the
amount of such Taxes for the entire period (or, in the case of such Taxes
determined on an arrears basis, the amount of such Taxes for the immediately
preceding period), multiplied by a fraction the numerator of which is the number
of days in the Pre-Closing Tax Period and the denominator of which is the number
of days in the entire taxable period; and (B) in the case of all other Taxes, to
the extent of any Taxes that would be payable if the taxable year ended on the
Closing Date. Notwithstanding anything to the contrary in this agreement, no
claim for Taxes shall be permitted under this Section 8.4 unless such claim is
first made not later than 30 days after the expiration of the applicable statute
of limitations (including extensions) with respect to such Taxes.

      Section 8.5 Purchaser Tax Indemnification. Purchaser shall indemnify and
hold harmless Sellers from and against (a) any Taxes with respect to the
Purchased Assets attributable to the time period after the Closing Date, (b) any
and all Transfer Taxes for which Purchaser is responsible pursuant to Section
8.2 of this Agreement, and (c) any liability arising from a breach by Purchaser
of its covenants set forth in this Article VIII.

      Section 8.6 Refunds. If, after the Closing Date, Purchaser receives a
refund or utilizes a credit of any Tax attributable to a Pre-Closing Tax Period
or an Overlap Period, Purchaser shall pay to GenWest within 15 Business Days
after such receipt or utilization an amount equal to such refund received or
credit utilized (or so much of such refund or credit as relates to the portion
of the taxable period ending on or before Closing Date), together with any
interest received or credited thereon. Purchaser shall take such action to
obtain a refund or credit attributable to a Pre-Closing Tax Period or to
mitigate, reduce or eliminate any Taxes that could be imposed for a Pre-Closing
Tax Period (including with respect to the transactions contemplated hereby) as
is reasonably requested by Sellers. Sellers shall reimburse Purchaser for any
reasonable, out-of-pocket costs pre-approved by Sellers and demonstrated to
Sellers' reasonable satisfaction that are incurred by Purchaser in providing
such assistance.

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      Section 8.7 Contests. In the event Purchaser or Sellers receives written
notice of any examination, claim, settlement, proposed adjustment,
administrative or judicial proceeding, or other matter ("Tax Claim") related to
any Pre-Closing Taxes, Transfer Taxes or Overlap Period Taxes, Purchaser or
Sellers, as the case may be, shall notify the other Parties in writing as soon
as reasonably practical (but in no event more than ten (10) Business Days) after
receipt of such notice. If Sellers notify Purchaser in writing within thirty
(30) Business Days following receipt of such written notice they intend to
exercise their rights pursuant to this Section 8.7, they shall be entitled to
control the defense, prosecution, settlement or compromise of such Tax Claim, at
their own expense. Purchaser shall take such action in contesting such Tax Claim
as Sellers shall reasonably request from time to time, including the selection
of counsel and experts and execution of powers of attorney. Purchaser shall (a)
not make any payments of such Tax Claim for at least thirty (30) days (or such
shorter period as may be required by applicable Law) after giving the notice
required by this Section 8.7, (b) give the Sellers any information requested
relating to such Tax Claim, (c) give any Tax Authority any information requested
by Sellers relating to such Tax Claim, and (d) otherwise cooperate with and make
internal resources available to the Sellers in good faith in order to
effectively contest any such Tax Claim. Sellers shall reimburse Purchaser for
any reasonable, out-of-pocket costs pre-approved by Sellers and demonstrated to
Sellers' reasonable satisfaction that are incurred by Purchaser in providing
such assistance. Purchaser shall not settle or otherwise compromise any such Tax
Claim with any Taxing Authority or prosecute such contest to a determination in
court or other tribunal or initial or appellate jurisdiction unless instructed
to do so by the Sellers. Any of the Sellers may settle or otherwise compromise
any such Tax Claim without Purchaser's prior written consent, except that if as
a result of such settlement or compromise the Taxes payable by Purchaser would
be materially increased, none of Sellers may settle or compromise such matter
without Purchaser's prior written consent, which consent shall not be
unreasonably withheld. In connection with any proceeding taken with respect to
such matters, (i) Sellers shall keep Purchaser informed of all material
developments and events relating to such matters if involving a material
liability for Taxes and (ii) Purchaser shall have the right, at its sole
expense, to participate in any such proceedings. Purchaser shall cooperate with
Sellers by giving them and their representatives, on prior reasonable notice,
reasonable access and cooperation during normal business hours to all
information, books and records pertaining to Transfer Taxes, Pre-Closing Taxes
and Overlap Period Taxes. Sellers shall reimburse Purchaser for any reasonable,
out-of-pocket costs pre-approved by Sellers and demonstrated to Sellers'
reasonable satisfaction that are incurred by Purchaser in providing such
assistance.

      Section 8.8 Assistance and Cooperation. After the Closing Date, each of
Sellers and Purchaser shall (and shall cause their respective Affiliates to) (i)
assist the other Party in preparing any Tax Returns which such other Party is
responsible for preparing and filing in accordance with the terms of this
Agreement, and (ii) cooperate fully in preparing for any audits of, or disputes
with any Taxing Authority regarding, any Tax Returns of GenWest, PWEC or PWCC,
or with respect to the Purchased Assets.

      Section 8.9 Information. After the Closing, Sellers and Purchaser will
make available to each other as reasonably requested, all information, records,
or documents relating to liability or potential liability for Pre-Closing Taxes,
Overlap Taxes and Transfer Taxes and will preserve such information, records or
documents until 30 days after the expiration of the applicable statute of
limitations (including extensions) with respect to such Taxes.

                                       62


      Section 8.10 Tax Returns. Sellers shall be responsible for preparing and
filing all Tax Returns with respect to the Purchased Assets relating to Tax
periods ending on or prior to the Closing Date. Purchaser shall be responsible
for preparing and filing all Tax Returns with respect to the Purchased Assets
relating to Tax periods ending after the Closing Date.

      Section 8.11 Survival of Obligations. The obligations of the Parties set
forth in this Article VIII shall be unconditional and absolute and shall remain
in effect until 30 days after expiration of the applicable statutes of
limitation (giving effect to any extensions or waivers thereof) relating to the
Tax or Tax Return in question.

      Section 8.12 Adjustments to Purchase Price. The Parties hereby agree that
any and all indemnity payments made pursuant to this Agreement shall, to the
maximum extent permitted by applicable Law, be treated for all Tax purposes as
an adjustment to the Purchase Price.

                                   ARTICLE IX

                       SURVIVAL; NO OTHER REPRESENTATIONS

      Section 9.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of Sellers
and Purchaser contained in this Agreement shall survive the Closing and shall
expire two (2) years from the Closing Date. Notwithstanding the preceding
sentence, (i) the representations and warranties contained in Section 3.1.1
(Existence), Section 3.1.2 (Authority), Section 3.1.3 (Binding Agreement),
Section 3.1.10 (Title to Personal Property), Section 3.1.11(a) (Real Property),
Section 3.1.19 (Brokers), Section 3.2.1 (Existence), Section 3.2.2 (Authority),
Section 3.2.3 (Binding Agreement), Section 3.2.4 (No Conflicts), Section 3.2.5
(Approvals and Filings) and Section 3.2.7 (Brokers), the covenants in Section
2.1.2 (Assignment and Assumption of Agreements), Section 2.1.4 (Excluded
Liabilities), 0 (Pre-Closing Books and Records), Section 2.5.5 (Site Description
Error), and Section 2.5.6 (Drainage Encroachment Indemnity) shall survive
indefinitely after the Closing, (ii) the covenants in 0 (Pre-Closing Books and
Records), with respect to Retained Information, shall survive for so long as
Sellers retain the Retained Information, (iii) the covenants in Section 2.5.4,
with respect to SCE RRSU Refunds, shall survive until all SCE RRSU Refunds have
been paid, (iv) the representations, warranties, covenants and agreements
contained in Article VIII (Tax Matters) and Section 12.6 (Confidentiality) shall
be governed solely by the terms therein, (v) the representations and warranties
contained in Section 3.1.16 (Environmental Matters) shall survive the Closing
and shall expire on the date that is five (5) years after the Closing Date, and
(vi) the representations and warranties contained in Section 3.1.20
(Intellectual Property) shall survive the Closing and shall expire on the date
that is seven (7) years after the Closing Date.

      Section 9.2 No Other Representations. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, IT IS THE EXPLICIT INTENT OF EACH PARTY
HERETO THAT NONE OF THE PARTIES IS MAKING ANY REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
REPRESENTATION OR

                                       63


WARRANTY AS TO CONDITION, MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE WITH RESPECT TO THE FACILITY, OR ANY PART THEREOF, EXCEPT
THOSE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE III AND ARTICLE VIII
OF THIS AGREEMENT OR IN ANY CERTIFICATE, INSTRUMENT OR DOCUMENT EXECUTED AND
DELIVERED PURSUANT TO THIS AGREEMENT.

                                   ARTICLE X

                               DISPUTE RESOLUTION

      Section 10.1 Dispute Resolution. Any dispute or claims arising under this
Agreement which is not resolved in the ordinary course of business shall be
referred to a panel consisting of a senior executive (President or a Vice
President) of Purchaser and PWCC, with authority to decide or resolve the matter
in dispute, for review and resolution. Such senior executives shall meet and in
good faith attempt to resolve the dispute within 30 days. If the Parties are
unable to resolve a dispute pursuant to this Section 10.1, either Party may
enforce its rights at law or in equity subject to the provisions of this
Agreement, including Section 10.2 below.

      Section 10.2 Submission to Jurisdiction. Each Party hereto irrevocably
submits to the exclusive jurisdiction of the federal court in the State of
Nevada for the purposes of any action arising out of or based upon this
Agreement or relating to the subject matter hereof. If, for any reason, the
Parties fail to qualify for the jurisdiction of the federal court in the State
of Nevada, then each Party hereto irrevocably submits to the exclusive
jurisdiction of the state courts of the State of Nevada for the purposes of any
action arising out of or based on this Agreement or relating to the subject
matter hereof. Each Party hereto irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding in the state
or federal court in Nevada, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum. Each of GenWest and PWEC hereby appoints PWCC as its agent for service of
process.

                                   ARTICLE XI

                          LIMITED REMEDIES AND DAMAGES

      Section 11.1 Exclusive Remedies. THE EXPRESS REMEDIES AND MEASURES OF
DAMAGES PROVIDED FOR IN THIS AGREEMENT SHALL BE THE SOLE AND EXCLUSIVE REMEDIES
FOR A PARTY HEREUNDER AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE
WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY HEREIN PROVIDED, A PARTY
MAY, SUBJECT TO THE LIMITATIONS OF SECTION 7.4 AND SECTION 11.2, PURSUE SUCH
REMEDIES, INCLUDING DAMAGES AND FEES AND EXPENSES OF ATTORNEYS AS MAY BE
AVAILABLE AT LAW OR IN EQUITY.

      Section 11.2 Limitation of Liability. NOTWITHSTANDING THE FOREGOING,
HOWEVER, NO PARTY SHALL, UNDER ANY CIRCUMSTANCES, BE LIABLE FOR

                                       64


SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES,
WHETHER BY STATUTE, IN TORT OR CONTRACT OR OTHERWISE. THE LIMITATIONS HEREIN
IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES SHALL BE WITHOUT REGARD TO THE
CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY. THIS
PROVISION SHALL SURVIVE ANY TERMINATION, CANCELLATION OR SUSPENSION OF THIS
AGREEMENT.

      Section 11.3 Specific Performance. EACH PARTY AGREES THAT DAMAGE REMEDIES
SET FORTH IN THIS AGREEMENT MAY BE DIFFICULT OR IMPOSSIBLE TO CALCULATE OR
OTHERWISE INADEQUATE TO PROTECT ITS INTERESTS AND THAT IRREPARABLE DAMAGE MAY
OCCUR IN THE EVENT THAT PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED BY THE
PARTIES IN ACCORDANCE WITH THE SPECIFIC TERMS OF THIS AGREEMENT. ANY PARTY MAY
SEEK TO REQUIRE THE PERFORMANCE OF ANY OTHER PARTY'S OBLIGATIONS UNDER THIS
AGREEMENT THROUGH AN ORDER OF SPECIFIC PERFORMANCE RENDERED BY THE FEDERAL COURT
IN THE STATE OF NEVADA OR THE STATE COURTS IN THE STATE OF NEVADA AS PROVIDED IN
SECTION 10.2 OF THIS AGREEMENT.

                                  ARTICLE XII

                                  MISCELLANEOUS

      Section 12.1 Notices.

            Section 12.1.1 Notice Addresses. Unless this Agreement specifically
requires otherwise, any notice, demand or request provided for in this
Agreement, or served, given or made in connection with it, shall be in writing
and shall be deemed properly served, given or made if delivered in person or
sent by fax or sent by registered or certified mail, postage prepaid, or by a
nationally recognized overnight courier service that provides a receipt of
delivery, in each case, to a Party at its address specified below:

      If to Purchaser, to:

      Nevada Power
      P.O. Box 98910, Las Vegas, NV 89151
      Facsimile No.: (702) 367-5869
      Attn: Corporate Senior Vice President,
      Generation and Energy Supply

      with a copy to:

      Nevada Power
      P.O. Box 98910, Las Vegas, NV 89151
      Facsimile No.: (702) 367-5869
      Attn: General Counsel

                                       65


      If to Sellers, to:

      GenWest, LLC
      400 North Fifth Street
      Mail Station: 9068
      Phoenix, Arizona 85004
      Facsimile No.: (602) 250-3002
      Attn: Secretary
      Pinnacle West Capital Corporation
      400 North Fifth Street
      Mail Station: 9042
      Phoenix, Arizona 85004
      Facsimile No.: (602) 250-3002
      Attn: Chief Financial Officer

      Pinnacle West Energy Corporation
      400 North Fifth Street
      Mail Station: 9068
      Phoenix, Arizona 85004
      Facsimile No.: (602) 250-3002
      Attn: Secretary

      with a copy to:

      Diane Wood, Senior Attorney
      Pinnacle West Capital Corporation
      Law & Business Practices Department
      400 North Fifth Street
      Mail Station: 8695
      Phoenix, Arizona 85004
      Facsimile No.: (602) 250-3393

      with a copy to:

      Snell & Wilmer L.L.P.
      One Arizona Center
      Phoenix, AZ  85004
      Facsimile No.: (602) 382-6070
      Attn:  Matthew P. Feeney

            Section 12.1.2 Effective Time. Notice given by personal delivery,
mail or overnight courier pursuant to this Section 12.1 shall be effective upon
physical receipt. Notice given by fax pursuant to this Section 12.1 shall be
effective as of (i) the date of confirmed delivery if delivered before 5:00 p.m.
local time on any Business Day, or (ii) the next succeeding Business Day if
confirmed delivery is after 5:00 p.m. local time on any Business Day or during
any non-Business Day.

                                       66


      Section 12.2 Payments. Except for Payments due at Closing, if either Party
is required to make any payment under this Agreement on a day other than a
Business Day, the date of payment shall be extended to the next Business Day. In
the event a Party does not make any payment required or approved by the Parties
under this Agreement on or before the due date, interest on the unpaid amount
shall be due and paid at a rate that is the lesser of (a) the prime rate under
"Money Rates" as reported in the Wall Street Journal on the first business day
of the month during which interest is payable plus two percent (2%) or (b) the
maximum rate of interest permitted to be charged by applicable Law (such lesser
rate, the "Default Rate") from the date such payment is due until the date such
payment is made in full. Any payment of such interest at the Default Rate
pursuant to this Agreement shall not excuse or cure any default hereunder. All
payments shall first be applied to the payment of accrued but unpaid interest.

      Section 12.3 Entire Agreement. This Agreement and the Transaction
Agreements supersede all prior discussions and agreements between the Parties
with respect to the subject matter hereof and thereof, including, in each case,
all schedules and exhibits thereto, and contain the sole and entire agreement
between the Parties hereto with respect to the subject matter hereof and
thereof.

      Section 12.4 Expenses. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated hereby are consummated,
each Party will pay its own costs and expenses incurred in connection with the
negotiation, execution and performance under this Agreement and the Transaction
Agreements and the transactions contemplated hereby and thereby.

      Section 12.5 Public Announcements. Prior to the Closing, Sellers and
Purchaser will not issue or make any press releases or similar public
announcements concerning the transactions contemplated hereby without the
consent of the other. If either Party is unable to obtain the approval of its
press release or similar public statement from the other Party and such press
release or similar public statement is, in the opinion of legal counsel to such
Party, required by Law in order to discharge such Party's disclosure
obligations, then such Party may make or issue the legally required press
release or similar public statement and promptly furnish the other Party with a
copy thereof. Sellers and Purchaser will also obtain the other Party's prior
approval of any press release to be issued immediately following the execution
of this Agreement or the Closing announcing either the execution of this
Agreement or the consummation of the transactions contemplated by this
Agreement.

      Section 12.6 Confidentiality. Each Party hereto will hold, and will use
commercially reasonable efforts to cause its Related Persons to hold, in strict
confidence from any Person (other than any such Related Persons), unless (i)
compelled to disclose by judicial or administrative process (including in
connection with obtaining the necessary approvals of this Agreement and the
transactions contemplated hereby of Governmental Authorities) or by other
requirements of Law or necessary or desirable to disclose in order to obtain the
PUCN Approval, the FERC Approval, or in connection with the HSR Act filing, or
(ii) disclosed in an action or proceeding brought by a Party hereto in pursuit
of its rights or in the exercise of its remedies hereunder, all documents and
information concerning the other Party or any of its Related Persons furnished
to it by the other Party or such other Party's Related Persons in connection
with this Agreement or the transactions contemplated hereby and in the case of
Purchaser, any

                                       67


information relating to the Purchased Assets, except to the extent that such
documents or information can be shown to have been (a) previously known by the
Party receiving such documents or information, (b) in the public domain (either
prior to or after the furnishing of such documents or information hereunder)
through no fault of such receiving Party or (c) later acquired by the receiving
Party from another source if the receiving Party is not aware after reasonable
inquiry that such source is under an obligation to another Party hereto to keep
such documents and information confidential. In the event this Agreement is
terminated, upon the request of the other Party, each Party hereto will, and
will use commercially reasonable efforts to cause its Related Persons to,
promptly (and in no event later than five (5) Business Days after such request)
destroy or cause to be destroyed all copies of confidential documents and
information furnished by the other Party in connection with this Agreement or
the transactions contemplated hereby and destroy or cause to be destroyed all
notes, memoranda, summaries, analyses, compilations and other writings related
thereto or based thereon prepared by the Party furnished such documents and
information or its Related Persons. The obligations contained in this Section
12.6 shall not survive Closing or, if this Agreement is terminated pursuant to
ARTICLE VI, such obligations shall survive for one (1) year following the
termination of this Agreement. The obligations in this Section 12.6 shall
supersede the provisions of the Mutual Confidentiality Agreement, dated February
1, 2005, between Sierra Pacific Resources and Pinnacle West Energy, Inc (which
party the Parties hereby acknowledge was intended to have been PWEC).
Notwithstanding Section 12.10, this Section 12.6 is for the benefit of Sierra
Pacific Resources.

      Section 12.7 Waivers.

      Section 12.7.1 Grant of Waivers. Any term or condition of this Agreement
may be waived at any time by the Party that is entitled to the benefit thereof,
but no such waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the Party waiving such term or condition. No
waiver by any Party of any term or condition of this Agreement, in any one or
more instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by Law or otherwise afforded, will be
cumulative and not alternative.

            Section 12.7.2 Exercise of Remedies. No failure or delay of any
Party, in any one or more instances, (i) in exercising any power, right or
remedy (other than failure or unreasonable delay in giving notice of default)
under this Agreement or (ii) in insisting upon the strict performance by the
other Party of such other Party's covenants, obligations or agreements under
this Agreement, shall operate as a waiver, discharge or invalidation thereof,
nor shall any single or partial exercise of any such right, power or remedy or
insistence on strict performance, or any abandonment or discontinuance of steps
to enforce such a right, power or remedy or to enforce strict performance,
preclude any other or future exercise thereof or insistence thereupon or the
exercise of any other right, power or remedy. The covenants, obligations, and
agreements of a defaulting Party and the rights and remedies of the other Party
upon a default shall continue and remain in full force and effect with respect
to any subsequent breach, act or omission.

      Section 12.8 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
Party hereto.

                                       68


      Section 12.9 No Construction Against Drafting Party. The language used in
this Agreement is the product of both Parties' efforts, and each Party hereby
irrevocably waives the benefits of any rule of contract construction that
disfavors the drafter of a contract or the drafter of specific words in a
contract.

      Section 12.10 No Third Party Beneficiary. Except as provided in Section
12.6, the terms and provisions of this Agreement are intended solely for the
benefit of each Party hereto and their respective successors or permitted
assigns, and it is not the intention of the Parties to confer third-party
beneficiary rights upon any other Person.

      Section 12.11 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.

      Section 12.12 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any Party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) Purchaser and Sellers shall
negotiate an equitable adjustment in the provisions of the Agreement with a view
toward effecting the purposes of the Agreement, and the validity and
enforceability of the remaining provisions, or portions or applications thereof,
shall not be affected thereby.

      Section 12.13 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA APPLICABLE TO A
CONTRACT EXECUTED AND PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.

      Section 12.14 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned by any Party hereto
without the prior written consent of the other Party hereto and any attempt to
do so will be void, except for assignments and transfers by operation of Law.
This Agreement is binding upon, inures to the benefit of and is enforceable by
the Parties and their respective successors and assigns.

      Section 12.15 Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.

      Section 12.16 Time of Essence. Time is of the essence with respect to all
obligations of the Parties hereunder.

                            [Signature Page Follows.]

                                       69


      IN WITNESS WHEREOF, this Purchase Agreement has been executed by the
Parties as of the Effective Date.

                                   PINNACLE WEST CAPITAL CORPORATION

                                   By: _________________________________________
                                   Name: Donald E. Brandt
                                   Title: Executive Vice President and Chief
                                   Financial Officer

                                   PINNACLE WEST ENERGY CORPORATION

                                   By: _________________________________________
                                   Name: James M. Levine
                                   Title: President

                                   GENWEST, LLC

                                   By: _________________________________________
                                   Name: Warren C. Kotzmann
                                   Title: Vice President

                                   NEVADA POWER COMPANY

                                   By: _________________________________________
                                   Name: Roberto R. Denis
                                   Title: Corporate Senior Vice President,
                                   Generation and Energy Supply

EX-31.1

Exhibit 31.1

QUARTERLY CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

I, Walter M. Higgins III, certify that:

1.	I have reviewed the combined quarterly reports on Form 10-Q of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company;
2.	Based on my knowledge, the combined quarterly reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the combined quarterly reports;
3.	Based on my knowledge, the financial statements, and other financial information included in the combined quarterly reports, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in the combined quarterly reports;
4.	The chief financial officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-a5(f)) for the registrants and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the combined quarterly reports are being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in the combined quarterly reports our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the combined quarterly reports based on such evaluation; and
(d)	Disclosed in the combined quarterly reports any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and

5. The chief financial officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of registrants’ board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

August 8, 2005
	/s/ Walter M. Higgins, III
	Walter M. Higgins III
	Chief Executive Officer

68

EX-31.2

Exhibit 31.2

QUARTERLY CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REQUIRED BY
SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002

I, Michael W. Yackira, certify that:

1.	I have reviewed the combined quarterly reports on Form 10-Q of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company;
2.	Based on my knowledge, the combined quarterly reports do not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the combined quarterly reports;
3.	Based on my knowledge, the financial statements, and other financial information included in the combined quarterly reports, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in the combined quarterly reports;
4.	The chief executive officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-a5(f)) for the registrants and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the combined quarterly reports are being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in the combined quarterly reports our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the combined quarterly reports based on such evaluation; and
(d)	Disclosed in the combined quarterly reports any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and

5. The chief executive officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of registrants’ board of directors:

(a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.

August 8, 2005
	/s/ Michael W. Yackira
	Michael W. Yackira
	Chief Financial Officer

69

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the combined quarterly report of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company (the “Companies”) on Form 10-Q for the fiscal quarter ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Walter M. Higgins, III, Chief Executive Officer of the Companies, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.	the combined quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	the information contained in the combined quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Companies.

/s/ Walter M. Higgins, III

Walter M. Higgins, III

Chief Executive Officer

August 8, 2005

This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent the Companies specifically incorporate it by reference.

A signed original of this written statement required by Section 906 has been provided to the Companies and will be retained by the Companies and furnished to the Securities and Exchange Commission or its staff upon request.

70

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the combined quarterly report of Sierra Pacific Resources, Nevada Power Company and Sierra Pacific Power Company (the “Companies”) on Form 10-Q for the fiscal quarter ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael W. Yackira, Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1.	the combined quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.	the information contained in the combined quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Companies.

/s/ Michael W. Yackira

Michael W. Yackira

Chief Financial Officer

August 8, 2005

This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent the Companies specifically incorporate it by reference.

A signed original of this written statement required by Section 906 has been provided to the Companies and will be retained by the Companies and furnished to the Securities and Exchange Commission or its staff upon request.

71