-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vz45mYs/8qdcmpoF+HpECMvBHgep8d0U1y9o/y9ycN0tQsQfJRmrrTSK+1VQ/Wzg MtMAE5O5R43ZyMp3EYkdmQ== 0000898430-97-004780.txt : 19971114 0000898430-97-004780.hdr.sgml : 19971114 ACCESSION NUMBER: 0000898430-97-004780 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC POWER CO CENTRAL INDEX KEY: 0000090144 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 880044418 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00508 FILM NUMBER: 97714941 BUSINESS ADDRESS: STREET 1: 6100 NEIL RD STREET 2: P O BOX 10100 CITY: RENO STATE: NV ZIP: 89520-0400 BUSINESS PHONE: 7026895408 MAIL ADDRESS: STREET 1: 6100 NEIL ROAD STREET 2: P.O. BOX 10100 CITY: RENO STATE: NV ZIP: 89520 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1997 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 0-508 SIERRA PACIFIC POWER COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 88-0044418 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. BOX 10100 (6100 NEIL ROAD) RENO, NEVADA 89520-0400 (89511) (Address of principal executive office) (Zip Code) (702) 689-5400 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at November 4, 1997 Common Stock, $3.75 par value 1,000 Shares ================================================================================ SIERRA PACIFIC POWER COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 CONTENTS
PAGE ---- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS Report of Independent Accountants............................................ 3 Condensed Consolidated Balance Sheets - September 30, 1997 and December 31, 1996....................................................... 4 Condensed Consolidated Statements of Income - Three-Months and Nine-Months Ended September 30, 1997 and 1996....................................... 5 Condensed Consolidated Statements of Cash Flows - Nine-Months Ended September 30, 1997 and 1996....................................... 6 Notes to Condensed Consolidated Financial Statements......................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................ 9 PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS................................................................. 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 16 Signature Page.............................................................................. 17
2 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholder of Sierra Pacific Power Company Reno, Nevada We have reviewed the accompanying condensed consolidated balance sheet of Sierra Pacific Power Company and subsidiaries as of September 30, 1997, the related condensed consolidated statement of income for the three-month and nine-month periods then ended, and the condensed consolidated statement of cash flows for the nine-month period ended September 30, 1997. The condensed interim financial statements as of September 30, 1996, and for the three-month and nine-month periods then ended were reviewed by other accountants whose report dated October 28, 1996, stated that they were not aware of any material modifications that should be made to those statements in order for them to be in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and consolidated statement of capitalization of Sierra Pacific Power Company and subsidiaries as of December 31, 1996, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 14, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Reno, Nevada November 4, 1997 3 SIERRA PACIFIC POWER COMPANY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
September 30, December 31, 1997 1996 ------------- ------------- (Unaudited) ASSETS Utility Plant at Original Cost: Plant in service $2,037,204 $1,984,781 Less: accumulated provision for depreciation 649,117 606,406 ---------- ---------- 1,388,087 1,378,375 Construction work-in-progress 201,694 164,835 ---------- ---------- 1,589,781 1,543,210 ---------- ---------- Investments in subsidiaries and other property, net 22,847 22,394 ---------- ---------- Current Assets: Cash and cash equivalents 7,635 890 Accounts receivable less provision for uncollectible accounts $1,669 at September 30, 1997 and $2,196 at December 31, 1996 80,398 94,782 Materials, supplies and fuel, at average cost 24,248 27,586 Other 2,746 3,948 ---------- ---------- 115,027 127,206 ---------- ---------- Deferred Charges: Regulatory tax asset 67,528 67,667 Other regulatory assets 68,288 67,319 Other 15,292 14,832 ---------- ---------- 151,108 149,818 ---------- ---------- $1,878,763 $1,842,628 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity $ 627,631 $ 606,896 Preferred stock 73,115 73,115 Preferred stock subject to mandatory redemption: Company-obligated mandatory redeemable preferred securities of the Company's subsidiary Sierra Pacific Power Capital I, holding solely 50,000 principal amount of 8.6% junior subordinated debentures of the Company, due 2036 48,500 48,500 Long-term debt 606,992 607,287 ---------- ---------- 1,356,238 1,335,798 ---------- ---------- Currant Liabilities: Short-term borrowings 66,000 38,000 Current maturities of long-term debt and preferred stock 452 15,434 Accounts payable 45,956 53,998 Accrued interest 12,689 6,178 Dividends declared 19,365 17,365 Accrued salaries and benefits 13,681 11,300 Other current liabilities 14,159 21,560 ---------- ---------- 172,302 163,835 ---------- ---------- Deferred Credits: Accumulated deferred federal income taxes 166,312 162,438 Accumulated deferred investment tax credit 40,358 41,835 Regulatory tax liability 41,163 42,870 Customer advances for construction 39,093 39,429 Other 63,307 56,423 ---------- ---------- 350,223 342,995 ---------- ---------- $1,878,763 $1,842,628 ========== ==========
The accompanying notes are an integral part of the financial statements. 4 SIERRA PACIFIC POWER COMPANY CONSOLIDATED STATEMENTS Of INCOME (Dollars in Thousands)
Three Months Ended Nine Months Ended September 30, September 30, ------------------- ---------------------- 1997 1996 1997 1996 -------- -------- --------- --------- (Unaudited) (Unaudited) OPERATING REVENUES: Electric $137,611 $136,353 $402,869 $388,712 Gas 7,690 8,196 47,670 44,530 Water 14,482 14,133 35,919 34,971 -------- -------- -------- -------- 159,783 158,682 486,458 468,213 -------- -------- -------- -------- OPERATING EXPENSES: Operation: Purchased power 32,279 29,687 93,757 89,014 Fuel for power generation 27,781 27,075 77,426 75,477 Gas purchased for resale 3,531 3,477 23,868 21,528 Other 28,946 30,178 90,619 94,825 Maintenance 4,827 4,344 16,304 13,431 Depreciation and amortization 16,746 14,664 47,572 43,014 Taxes: Income taxes 11,795 12,580 34,706 33,282 Other than income 4,684 4,588 14,084 13,708 -------- -------- -------- -------- 130,589 126,593 398,336 384,279 -------- -------- -------- -------- OPERATING INCOME 29,194 32,089 88,122 83,934 -------- -------- -------- -------- OTHER INCOME: Allowance for other funds used during construction 1,619 1,800 4,547 3,820 Other income (expense) - net 314 (428) 876 511 -------- -------- -------- -------- 1,933 1,372 5,423 4,331 -------- -------- -------- -------- Total Income 31,127 33,461 93,545 88,265 -------- -------- -------- -------- INTEREST CHARGES: Long-term debt 9,766 9,549 29,796 27,243 Other 1,459 1,215 3,421 3,613 Allowance for borrowed funds used during construction and capital interest (1,283) (1,492) (3,637) (2,791) -------- -------- -------- -------- 9,942 9,272 29,580 28,065 -------- -------- -------- -------- INCOME BEFORE OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 21,185 24,189 63,965 60,200 Preferred dividend requirements of Company-obligated mandatorily redeemable preferred securities (1,043) (707) (3,128) (707) -------- -------- -------- -------- INCOME BEFORE PREFERRED DIVIDENDS 20,142 23,482 60,837 59,493 Preferred dividend requirements (1,365) (1,679) (4,094) (4,969) -------- -------- -------- -------- INCOME APPLICABLE TO COMMON STOCK $ 18,777 $ 21,803 $ 56,743 $ 54,524 ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements. 5 SIERRA PACIFIC POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Nine Months Ended September 30 ----------------- 1997 1996 ------ ------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Income before preferred dividends $ 60,837 $ 59,493 Non-cash items included in income: Depreciation and amortization 47,572 43,014 Deferred taxes and deferred investment tax credit 818 (8,660) AFUDC and capitalized interest (8,184) (6,611) Early retirement and severance amortization 3,497 6,628 Other non-cash (2,039) 148 Changes in certain assets and liabilities: Accounts receivable 14,384 16,281 Materials, supplies and fuel 3,338 440 Other current assets 1,202 (1,132) Accounts payable (8,042) (46,686) Other current liabilities 1,491 18,610 Other - net 1,190 13,568 -------- -------- Net Cash Flows From Operating Activities 116,064 95,093 -------- -------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to utility plant (111,433) (153,332) Non-cash charges 8,063 7,497 Net customer refunds and contributions in aid construction 17,067 9,492 -------- -------- Net Cash Used In Investing Activities (86,303) (136,343) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 30,384 (28,468) Proceeds from issuance of long-term debt -- 60,031 Reduction of preferred stock -- (20,400) Reduction of long-term debt (15,306) (322) Proceeds from Company obligated mandatorily reedeemable preferred securities -- 48,500 Decrease in funds held in trust -- 9,175 Investment from the parent company 18,000 28,000 Dividends paid (56,094) (51,935) -------- -------- Net Cash (Used In) Provided From Financing Activities (23,016) 44,581 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 6,745 3,331 Beginning balance in Cash and Cash Equivalents 890 1,373 -------- -------- Ending balance in Cash and Cash Equivalents $ 7,635 $ 4,704 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During Period For: Interest $ 28,849 $ 23,599 Income Taxes $ 24,053 $ 28,907
The accompanying notes are an integral part of the financial statements. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- NOTE 1. MANAGEMENT'S STATEMENT - --------------------------------- In the opinion of the management of Sierra Pacific Power Company, hereafter known as the Company, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the condensed consolidated financial position, condensed consolidated results of operations and condensed consolidated cash flows for the periods shown. These condensed consolidated financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters which are included in full year financial statements and therefore, they should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Deloitte & Touche LLP, the Company's independent accountants, have performed a review of the unaudited condensed consolidated financial statements and their report has been included in this report. The results of operations for the three-month and nine-month periods ended September 30, 1997 are not necessarily indicative of the results to be expected for the full year. Principles of Consolidation --------------------------- The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sierra Pacific Power Capital I, Pinon Pine Corp., and Pinon Pine Investment Co. All significant intercompany transactions and balances have been eliminated in consolidation. Reclassifications ----------------- Certain items previously reported for years prior to 1997 have been reclassified to conform with the current year's presentation. Net income and shareholder's equity were not affected by these reclassifications. NOTE 2. RECENT PRONOUNCEMENTS OF THE FASB - ------------------------------------------ In February 1997, the FASB issued SFAS 129 entitled "Disclosure of Information about Capital Structure". This statement establishes standards for disclosing information about an entity's capital structure. The Company already complies with SFAS 129 and foresees no material impact on the financial statements in adopting the statement for periods ending after December 15, 1997. On June 30, 1997, the FASB issued SFAS 130 entitled "Reporting Comprehensive Income". This statement requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position, and is effective for financial statements issued for fiscal years beginning after December 15, 1997. Management does not believe this new statement will have a material impact on the financial statements of the Company. On June 30, 1997, the FASB issued SFAS 131 entitled "Disclosure About Segments of an Enterprise and Related Information". This statement establishes additional standards for segment reporting in the financial statements and is effective for fiscal years beginning after December 15, 1997. Management does not believe this new statement will have a material impact on the Company. 7 NOTE 3. REGULATORY ACCOUNTING - ------------------------------ The Company's rates are currently subject to the approval of the Public Utilities Commission of Nevada (PUCN) and are designed to recover the cost of providing generation, transmission and distribution services to its customers. As a result, the Company qualifies for the application of SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation". This statement recognizes that the rate actions of a regulator can provide reasonable assurance of the existence of an asset and requires the capitalization of incurred costs that would otherwise be charged to expense where it is probable that future revenue will be provided to recover these costs. SFAS No. 101, "Regulated Enterprises-Accounting for the Discontinuation of Application of FASB Statement No. 71" requires that an enterprise whose operations cease to meet the qualifying criteria of SFAS 71 should discontinue the application of that statement by eliminating the effects of any actions of regulators that had been previously recognized. As discussed under Regulatory Proceedings, legislation has been passed in California and Nevada which will effectively define electric generation as a competitive service. As a result of this legislation the generation operations of the Company may in the future no longer qualify for application of SFAS 71. The total impact of the new legislation on the Company's reporting practices is not currently determinable because only general guidelines exist. However, the Company believes that it continues to qualify for application of SFAS 71. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- The Company's net income for the three months ended September 30, 1997 was $18.8 million, a decrease of 13.8% from the same period of 1996. The $3.0 million decrease resulted from a rate reduction discussed below, slightly higher energy costs, cooler weather, increased depreciation applicable to new plant, and the recognition in the third quarter of the revenue sharing mechanism established through the PUCN stipulation originally discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Net income for the nine months ended September 30, 1997 increased 4.0% ($2.2 million) over the same period of 1996. Total operating revenues for the three-months and nine-months ended September 30, 1997 increased 1.0% and 3.8% ($1.1 million and $18.2 million) over the comparable periods in 1996 due to increased sales and customer growth. Specifically, the kWh sold for the three month period increased approximately 5%, primarily as a result of increases in lower priced industrial sales. kWh sold in the nine month period decreased slightly in total, however sales increased in the higher priced residential, commercial and industrial markets while decreasing significantly in the low priced wholesale market. Listed below are the revenues and revenue margin (in thousands) by division:
Three-Months Nine-Months Ended Ended September 30, September 30, ------------------- ------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Operating Revenues: Electric $137,611 $136,353 $402,869 $388,712 Gas 7,690 8,196 47,670 44,530 Water 14,482 14,133 35,919 34,971 -------- -------- -------- -------- Total Revenues $159,783 $158,682 $486,458 $468,213 -------- -------- -------- -------- Energy Costs: Electric $ 60,060 $ 56,762 $171,183 $164,491 Gas 3,531 3,477 23,868 21,528 -------- -------- -------- -------- Total Energy Costs $ 63,591 $ 60,239 $195,051 $186,019 -------- -------- -------- -------- Revenue Margin by Division: Electric $ 77,551 $ 79,591 $231,686 $224,221 Gas 4,159 4,719 23,802 23,002 Water 14,482 14,133 35,919 34,971 -------- -------- -------- -------- Total $ 96,192 $ 98,443 $291,407 $282,194 ======== ======== ======== ========
9 Energy costs are comprised of purchased power, fuel for power generation and gas purchased for resale. Average energy costs for the three-months and nine-months ended September 30, 1997 and 1996 are set forth below.
Three-Months Nine-Months Ended Ended September 30, September 30, --------------- ------------------ 1997 1996 1997 1996 ------ ------ ------ ------- Average cost per KWH of purchased power 3.42c 3.37c 3.43c 2.99c Average fuel cost per KWH of generated power 2.05c 2.08c 2.10c 2.20c Average costs per therm of gas purchased for resale 14.59c 19.12c 25.14c 25.52c
For the three months ended September 30, 1997, megawatt-hours (MWH) purchased increased 7.3% (64,607 MWH) over the same period in 1996. While this reversed the downward trend established during the first two quarters of 1997, total megawatt-hours purchased during the nine months ended September 30, 1997 remained 9.9% (301,431 MWH) lower than the comparable period of 1996. The total cost of purchased power increased 8.7% and 5.3% ($2.6 million and $4.7 million) for the three- and nine-months ended September 30, 1997, compared to the same periods in 1996, reflecting not only increased customer growth and demand, but also higher unit costs of purchased power. The cost per KWH for the three- and nine-months ended September 30, 1997 increased 1.5% (0.05c) and 14.1% (0.44c) compared to the same periods of 1996. In addition to increasing its purchases of power, the Company increased its MWH generated by 3.9% and 7.5% (50,773 MWH and 257,889 MWH) for the three- and nine-months ended September 30, 1997, over the comparable 1996 periods. This reflects customer growth and an incremental shift from more expensive purchased power. The total cost of fuel for power generation during the same periods increased 2.6% ($.7 million and $1.9 million), while the cost per KWH generated decreased 1.5% and 4.5%(.03c and .10c) for the three- and nine-months ended September 30, 1997 compared to the same periods in 1996. For the three-months and nine-months ended September 30, 1997, the Company increased the therms of gas purchased for resale 33.4% and 12.8% (6,059,209 and 10,782,477) over the comparable periods in 1996. Following customer growth, the total cost during the same period increased 1.6% and 10.9% ($.1 million and $2.3 million). Lower natural gas prices during the three months ended September 30, 1997, however, contributed to reductions in per-therm costs of 23.7% and .4% (4.53c and .38c) for the comparable three- and nine-month periods ended September 30, 1997. Other operations expenses decreased 4.1% ($1.2 million) for the three- months ended September 30, 1997, compared to the same period in 1996. During the quarter ended September 30, 1997 expenses of $1.2 million by the Company's subsidiary operations at the Pinon Pine plant were more than offset by reductions in other operations expenses at the Company's various operating plants, from the same period of 1996. While the net decrease in the nine-months ended September 30, 1997 over the same period of 1996 totaled $4.2 million (4.4%), changes in certain specific operations accounts, both increases and decreases, were notable. The Company's Pinon Pine subsidiary incurred $4.1 million in expense in its first nine months of operation. This was offset primarily by pension and benefits accruals reflected in the nine month period ended September 30, 1996 for merger related retirement and severance plans which did not reoccur in the comparable period in 1997 10 Maintenance expenses increased 11.1% and 21.4% ($.5 million and $2.9 million) for the three- and nine-months ended September 1997 over 1996 due, primarily, to flood-related expenses and increased labor for planned maintenance at the Valmy Plant in 1997. Depreciation and amortization expenses for the three-months and nine- months ended September 30, 1997 increased 14.2% and 10.6% ($2.1 million and $4.6 million) due to increases in utility plant; most notably, the Chalk Bluff water treatment facility and the Pinon Pine combined cycle combustion turbine generator. Income taxes decreased 6.2% ($.8 million) for the three-months and increased 4.3% ($1.4 million) for the nine-months ended September 30, 1997, following income before income taxes during the periods. While 1997 operating income continued higher for the nine-months ended September 30, 1997, compared to the same period in 1996, the decrease in taxes during the third quarter of 1997 resulted, primarily, from the Company's provision for the stipulation previously established through an agreement with the PUCN. The charge, attributed to year-to-date earnings, was recognized during the quarter. Income taxes reflected in operating income and other income-net are summarized below, (in thousands).
Three-Months Nine-Months Ended Ended September 30, September 30, ------------------ ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ Currently payable $ 7,758 $12,354 $32,438 $40,622 Deferred taxes - net 3,820 (56) 2,295 (7,182) Investment tax credit - net (493) (493) (1,478) (1,478) ------- ------- ------- ------- Total income taxes $11,085 $11,805 $33,255 $31,962 ======= ======= ======= ======= Income taxes charged to: Operations $11,795 $12,580 $34,706 $33,282 Other income - net (710) (775) (1,451) (1,320) ======= ======= ======= ======= Total income tax expanse $11,085 $11,805 $33,255 $31,962 ======= ======= ======= ======= Income before income taxes and preferred dividend requirements $31,228 $35,287 $94,093 $91,455 ======= ======= ======= ======= Effective tax rate 35.5% 33.5% 35.3% 34.9% ======= ======= ======= =======
Allowance for funds used during construction (AFUDC) and capitalized interest decreased 11.8% ($.4 million) for the three-months, and increased 23.8% ($1.6 million) for the nine-months ended September 30, 1997, compared to the corresponding periods of 1996. For the year-to-date ended September 30, 1997 CWIP increased from the prior year. Most notable is the CWIP associated with construction expenditures for the Alturas Intertie of $78.0 million at September 30, 1997 compared to $63.7 million at September 30, 1996. Interest on long-term debt increased 9.4% ($2.5 million) for the nine- months ended September 30, 1997, over the same period in 1996, reflecting the effect of interest on debt issued in 1996 for the full period. Other interest expense increased 20.1% ($.2 million) for the three-months and decreased 5.3% ($.2 million) for the nine-months ended September 30, 1997 compared to the same periods in 1996, primarily as a result of changes in levels of short-term borrowings. 11 Due to the issuance in the third quarter of 1996 of 8.6% trust originated preferred securities by the Company's subsidiary, Sierra Pacific Power Capital I, preferred dividends on mandatorily redeemable preferred securities increased $.3 million and $2.4 million for the three-months and nine- months ended September 30, 1997. Preferred dividend requirements for all other preferred securities decreased 18.7% and 17.6% ($.3 million and $.9 million) for the three-months and nine-months ended September 30, 1997 compared to the same periods in 1996, due to the redemption of Series G preferred stock in June 1996. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ---------------------------------------------------- During the first nine months of 1997, the Company earned $60.8 million in income before preferred dividends, declared $4.1 million in dividends to holders of its preferred stock and declared $54.0 million in common stock dividends to its parent, Sierra Pacific Resources. As originally discussed in the Company's 1996 Annual Report on Form 10-K, in February 1997, the PUCN approved a settlement with the Company which resulted in a decrease of $7.1 million in the Company's annual electric rates. Construction Expenditures and Financing - --------------------------------------- The Company's construction program and capital requirements for the period 1997-2001 were originally discussed in the Company's 1996 Annual Report on Form 10-K. Of the amount projected for 1997, as of September 30, 1997, $86.3 million (59.3%) had been spent. Of this amount, approximately 69.5% was provided by internally generated funds. 12 ALTURAS INTERTIE - ---------------- The Company is constructing the Alturas Intertie transmission line to better serve existing native load, new customers and to significantly increase the Company's access to lower cost resources. On August 12, 1997, the PUCN issued a compliance order for the project approving the issuance of the Utility Environmental Protection Act Permit (UEPA). The compliance order requires the Company to fulfill certain requirements which the Company is in the process of completing. Upon evidence of completion of these requirements, the PUCN is expected to issue the UEPA permit. The California Public Utility Commission (CPUC) is currently reviewing the adequacy of the Company's environmental mitigation and monitoring plan and is expected to finalize approval of the plan in the upcoming months. In July 1997, the Modoc National Forest issued a positive record of decision for segment A, the northern most portion of the project, which would interconnect with Bonneville Power Administration transmission system near Alturus, California. This decision relieves the Company from pursuing the off- forest alternative route B segment which would have required a modification to the original order issued by the CPUC. In September 1997, the Nevada Attorney General's Office of Advocate for Customers of Public Utilities and an individual plaintiff filed a lawsuit against the Company and the Federal Bureau of Land Management (BLM) in Federal District Court requesting that a supplemental Environmental Impact Statement (EIS) be prepared under the National Environmental Protection Act for the twelve mile reroute of the transmission line in Washoe County. The parties agreed to suspend the action until the BLM completed an analysis on whether there exists a need for a supplemental EIS. The BLM completed its analysis on November 4, 1997, indicating that it found no need for a supplemental EIS. Pursuant to a stipulation among the parties, the Plaintiffs have fifteen days from November 4 to decide whether or not to pursue this litigation. The Company issued invitations to bid to qualified contractors on July 22, 1997, and subsequently awarded the contract to Union Power on October 16, 1997. Physical construction is expected to begin later this year or in the first quarter of 1998 provided approvals are received on schedule, with project completion anticipated in late 1998. For further discussion, refer to the Company's 1996 Annual Report on Form 10-K. PINON PINE POWER PROJECT - ------------------------ In August 1992, the Company executed a cooperative agreement with the U.S. Department of Energy (DOE) for the construction of a coal gasification power plant. This clean coal integrated gasification combined-cycle power plant will be capable of operating on syngas produced from coal, natural gas, and, potentially, other solid fuels. The project consists of a coal gasification facility, a power island and post-gasification facilities to clean and partially cool the syngas produced by the gasifier. Estimated construction, start-up and commissioning costs for Pinon, including the DOE portion are approximately $287.4 million, which includes permitting, taxes, start-up, commissioning, operator training, capitalized interest and AFUDC. Expected DOE funding for construction, start-up and commissioning costs is $130.0 million. Construction began on the project in February 1995 with the natural gas fired portion (combined cycle combustion turbine) completed and placed in service December 1996. The balance of the plant is expected to be placed in service by April 1998. The Company now estimates that the gasifier portion of the project will overrun the contract price by approximately 10.0% ($9.2 million) primarily due to costs associated with resolving start-up technical issues and other costs due to the later than anticipated in-service date. Based on the anticipated in-service date, contractual obligations are expected and are currently reserved for 1997 at $2.8 million. It is possible that the Company will incur additional contractual obligations if the plant does not meet its operating targets. For additional information regarding the Pinon Pine Power Project, refer to the Company's 1996 Annual Report on Form 10-K. 13 REGULATORY PROCEEDINGS ---------------------- CALIFORNIA MATTERS - ------------------ On May 6, 1997, the California Public Utilities Commission (CPUC) issued an order implementing portions of the California restructuring bill signed into law in September 1996. Beginning January 1, 1998, all investor-owned utilities, including SPPC, must offer all customers direct access. Under the order, customers may choose to continue to take service from their incumbent utility at tariffed rates, purchase energy from marketers or contract directly with a generator. On October 1, 1997, the Company filed supplemental testimony to its June 27, 1997 transmission plan which distinguished its position from that of other utilities. Hearings were held October 8-10, 1997 and a decision from the CPUC is expected late November 1997. The Company is still reviewing the compliance requirements associated with this law. At this time, management cannot fully predict how these requirements will impact the Company's electric business in California which represent approximately 6.3% of the Company's kWh retail sales. For further discussion of regulatory actions, please refer to California Matters in the ------------------ Company's 1996 Annual Report on Form 10-K. NEVADA MATTERS - -------------- On September 19, 1997, the Company filed an application with the PUCN to increase water rates by $15.2 million. The increase is required primarily to recover the cost of facilities built to comply with the federally mandated Safe Drinking Water Act. If approved, the increase will result in approximately a 33% increase in annual water revenues. The PUCN is expected to rule on the application prior to March 18, 1998. The Nevada Legislature passed Assembly Bill 366 during the 1997 legislative session. This law provides for restructuring the electric utility industry in the State of Nevada. On August 7, 1997, the PUCN opened two dockets under which it will determine how to implement the electric and natural gas provisions of AB 366. Hearings and workshops are being held to address the implementation process. The Company expects the PUCN to reach final decisions on implementing the natural gas and electric provisions of AB 366 by the first half of 1999. FEDERAL ENERGY REGULATORY COMMISSION - ------------------------------------ As a result of FERC's Omnibus Compliance Order dated September 2, 1997, the Company filed forms of service agreements placing itself under its own open access tariff for non-firm and short-term firm point-to-point transmission service and for network integration transmission service. On July 18, 1997, SPPC filed changes to its Open Access tariffs with FERC clarifying how its limited import capacity should be allocated among network transmission customers. On October 2, 1997, the Company filed changes to accommodate retail transmission access. On October 15, 1997, FERC approved a settlement agreement between Paiute Pipeline (Paiute), the Company, FERC staff and other customers. On July 22, 1997, Paiute filed to place the settlement rates into effect on August 1, 1997 and on July 28, 1997 the Administrative Law Judge certified the settlement to the Commission. A refund of approximately $1.0 million for January through July 1997 is forthcoming. On October 31, 1997 the FERC issued an order requiring that limited transmission capacity be allowed on a first in time basis rather than on a pro- rata share basis as proposed by the company. The FERC also stated that the company could allow its first in time priority to its customers on a pro-rata share basis voluntarily, but would have to file a new tariff to do so. The FERC also determined that the company's firm transmission usage had priority over shippers using the first in time allocation procedure. However, the FERC did set two factual issues for hearing: a. Is the Sierra Pacific transmission system limited to 360 mWh? b. Do all of the network reserves claimed by the company qualify as network reserves? The company expects to resolve these issues during 1998. 14 OTHER BUSINESS -------------- UNION CONTRACT - -------------- The Company and the International Brotherhood of Electrical Workers (IBEW) have reached a tentative agreement on the collective bargaining agreement. The Company's current contract with the IBEW expires December 31, 1997. The new agreement, subject to ratification in November 1997 by local union membership, would be effective for the period January 1, 1998 through December 31, 2000. ELECTRIC BUSINESS - ----------------- The Company's contract with Black Butte Coal Company for coal shipments from the Black Butte Mine in Wyoming to the Valmy Power Station is in effect until June 30, 2007, or until all commitments required by the contract are delivered or canceled. In keeping with the Company's intent to amortize the contract more rapidly, the Company paid $3.7 million in June 1997 to Black Butte to buy out the purchase commitment for the period July 1996 through June 1997. Also, for each month from July through December 1997, the Company is paying approximately $0.2 million per month to buy out the contract for that period. The present value of SPPC's remaining purchase commitments under the contract as of September 30, 1997 is approximately $9.3 million. For further discussion of the Black Butte Coal buy out, refer to the company's 1996 Annual Report on Form 10-K. The Company operates a portion of its electric system as a lessee under agreement with the Truckee-Carson Irrigation District (TCID). Under the terms of the lease, the Company is obligated to pay an annual lease payment of $108,000 plus 2% of gross revenues from operations within the leasehold area. The lease expires in July 1998 and TCID is currently exploring options with respect to operation and maintenance of its distribution system and alternative power suppliers. It is estimated that the Company generates approximately $2.0 million of net income from serving TCID. The Company has added approximately $21.0 million in upgrades and other improvements to the TCID electric system. If TCID does not renew the lease, it will be obligated to reimburse the Company for upgrades and improvements made by the Company. 15 PART II ------- ITEM 1. LEGAL PROCEEDINGS ENVIRONMENTAL - -------------- For a discussion of environmental issues see "Item 1. Business - Environment" in the Company's 1996 Annual Report on Form 10-K. The Company is assessing potential environmental issues at two additional sites. One location is the site of a former manufactured gas facility which was owned by the Company. The second location is a vehicle salvage yard. The Company has not fully evaluated the cost to remediate these facilities, if required. The Company has reserved $1.0 million for environmental remediation costs. OTHER - ------ Although the Company is involved in other ongoing litigation on a variety of matters, it is management's opinion that none individually or collectively is deemed material to the Company's financial condition. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q are denoted with an asterisk (*). The other listed exhibits have been filed with the Securities and Exchange Commission during the period covered by this report and are incorporated herein by reference. *(15) Letter of independent accountants acknowledging awareness regarding interim financial information of the Company. *(27) The Financial Data Schedule containing summary financial information extracted from the condensed consolidated financial statements filed on Form 10-Q for the nine-month period ended September 30, 1997, for Sierra Pacific Power Company and is qualified in its entirety by reference to such financial statements. (b) Reports on Form 8-K None 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sierra Pacific Power Company --------------------------------- (Registrant) Date: 11/12/97 By /s/ Mark A. Ruelle ----------------------- --------------------------------- Mark A. Ruelle Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: 11/12/97 By /s/ Mary Simmons ------------------------ --------------------------------- Mary Simmons Controller (Principal Accounting Officer) 17 EX-15 2 REPORT OF DELOITTE & TOUCHE LLP EXHIBIT 15 Sierra Pacific Power Company 6100 Neil Road Reno, Nevada 89511 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited condensed interim financial information of Sierra Pacific Power Company and subsidiaries for the period ended September 30, 1997, as indicated in our report dated November 4, 1997; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is incorporated by reference in Registration Statement No. 333-17041 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Reno, Nevada November 11, 1997 19 EX-27 3 FINANCIAL DATA SCHEDULE
UT THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FILED ON FORM 10-Q FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 FOR SIERRA PACIFIC POWER COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 SEP-30-1997 PER-BOOK 1,589,781 22,847 115,027 151,108 0 1,878,763 4 536,434 91,193 627,631 48,500 73,115 606,992 0 0 66,000 452 0 0 0 456,073 1,878,763 486,458 34,706 363,630 398,336 88,122 5,423 93,545 29,580 63,965 7,222 56,743 54,000 0 116,064 0 0 SIERRA PACIFIC POWER COMPANY IS A WHOLLY OWNED SUBSIDIARY OF SIERRA PACIFIC RESOURCES AND, AS SUCH, ITS COMMON STOCK IS NOT PUBLICALLY TRADED. SPPC DOES NOT REPORT EPS INFORMATION.
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