-----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, L2V5tmZjK/qnSQjrY0GoE6Qv/WRlmqSSKbpWQ9GRRmbzg6p0R0HnjQUq/hovlrcX 9WKH4bfe2M9xmeVQ9spTNg== 0000950135-02-003727.txt : 20020814 0000950135-02-003727.hdr.sgml : 20020814 20020814081214 ACCESSION NUMBER: 0000950135-02-003727 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIERRA PACIFIC RESOURCES /NV/ CENTRAL INDEX KEY: 0000741508 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 880198358 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08788 FILM NUMBER: 02731617 BUSINESS ADDRESS: STREET 1: PO BOX 30150 STREET 2: 6100 NEIL RD CITY: RENO STATE: NV ZIP: 89511 BUSINESS PHONE: 7758344011 MAIL ADDRESS: STREET 1: P O BOX 30150 STREET 2: 6100 NEIL ROAD CITY: RENO STATE: NV ZIP: 89511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 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: 1934 Act SEC FILE NUMBER: 000-00508 FILM NUMBER: 02731618 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEVADA POWER CO CENTRAL INDEX KEY: 0000071180 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 880045330 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-28348 FILM NUMBER: 02731619 BUSINESS ADDRESS: STREET 1: 6226 W SAHARA AVE CITY: LAS VEGAS STATE: NV ZIP: 89146 BUSINESS PHONE: 7023675000 MAIL ADDRESS: STREET 1: P O BOX 230 CITY: LAS VEGAS STATE: NV ZIP: 89151 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NEVADA POWER CO DATE OF NAME CHANGE: 19701113 10-Q 1 b43700spe10vq.txt SIERRA PACIFIC POWER COMPANY ================================================================================ 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 JUNE 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Registrant, State of Incorporation, Address Commission File of Principal Executive Offices and Telephone I.R.S. employer Number Number Identification Number 1-8788 SIERRA PACIFIC RESOURCES 88-0198358 P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (775) 834-4011 1-4698 NEVADA POWER COMPANY 88-0045330 6226 West Sahara Avenue Las Vegas, Nevada 89146 (702) 367-5000 0-508 SIERRA PACIFIC POWER COMPANY 88-0044418 P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (775) 834-4011
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at August 7, 2002 Common Stock, $1.00 par value 102,133,074 Shares of Sierra Pacific Resources Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding Common Stock, $1.00 stated value, of Nevada Power Company. Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding Common Stock, $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, 2002 CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (Unaudited) SIERRA PACIFIC RESOURCES - Condensed Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 ............. 3 Condensed Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2002 and 2001 ........................................................ 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 ........................................................ 5 NEVADA POWER COMPANY - Condensed Balance Sheets - June 30, 2002 and December 31, 2001 .......................... 6 Condensed Statements of Operations - Three Months and Six Months Ended June 30, 2002 and 2001 ........................................................ 7 Condensed Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 ............ 8 SIERRA PACIFIC POWER COMPANY - Condensed Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 ............. 9 Condensed Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 2002 and 2001 ........................................................ 10 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ......................................... 12 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 28 Sierra Pacific Resources Results of Operations ...................................... 33 Nevada Power Company Results of Operations .......................................... 36 Sierra Pacific Power Company Results of Operations .................................. 42 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk .............................. 52 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ....................................................................... 53 ITEM 4. Submission of Matters to a Vote of Security Holders ..................................... 53 ITEM 5. Other Information ....................................................................... 53 ITEM 6. Exhibits and Reports on Form 8-K ........................................................ 53 Signature Page ................................................................................... 56
2 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ ASSETS Utility Plant at Original Cost: Plant in service $ 5,778,360 $ 5,683,296 Less: accumulated provision for depreciation 1,861,615 1,777,517 ------------ ------------ 3,916,745 3,905,779 Construction work-in-progress 261,719 203,456 ------------ ------------ 4,178,464 4,109,235 ------------ ------------ Investments in subsidiaries and other property, net 130,371 128,892 ------------ ------------ Current Assets: Cash and cash equivalents 200,314 99,109 Accounts receivable less provision for uncollectible accounts: 2002-$40,662; 2001-$39,335 420,044 394,489 Deferred energy costs - electric 220,317 333,062 Deferred energy costs - gas 17,967 19,805 Income tax receivable -- 18,590 Materials, supplies and fuel, at average cost 96,916 94,167 Risk management assets (Note 10) 153,781 286,509 Other 34,865 14,071 ------------ ------------ 1,144,204 1,259,802 ------------ ------------ Deferred Charges and Other Assets: Goodwill (Note 12) 310,441 312,145 Deferred energy costs - electric 749,009 854,778 Deferred energy costs - gas 16,326 23,248 Income tax receivable 295,201 355,659 Regulatory tax asset 168,276 169,738 Other regulatory assets 138,335 102,959 Risk management assets (Note 10) 17,726 61,058 Risk management regulatory assets - net (Note 10) 234,986 664,383 Other 132,944 139,417 ------------ ------------ 2,063,244 2,683,385 ------------ ------------ $ 7,516,283 $ 8,181,314 ============ ============ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity $ 1,334,339 $ 1,702,322 Accumulated other comprehensive loss (Note 10) (4,878) (6,986) Preferred stock 50,000 50,000 NPC obligated mandatorily redeemable preferred trust securities 188,872 188,872 Long-term debt 3,168,406 3,376,105 ------------ ------------ 4,736,739 5,310,313 ------------ ------------ Current Liabilities: Short-term borrowings 350,000 177,000 Current maturities of long-term debt 221,447 122,010 Accounts payable 227,376 265,250 Accrued interest 43,680 37,565 Dividends declared 1,057 1,045 Accrued salaries and benefits 20,892 30,145 Deferred taxes on deferred energy costs 83,399 123,503 Risk management liabilities (Note 10) 330,675 855,301 Other current liabilities 30,785 15,678 ------------ ------------ 1,309,311 1,627,497 ------------ ------------ Commitments & Contingencies (Note 11) Deferred Credits and Other Liabilities: Deferred federal income taxes 405,262 412,658 Deferred investment tax credit 50,220 51,947 Deferred taxes on deferred energy costs 267,867 307,309 Regulatory tax liability 51,029 46,702 Customer advances for construction 109,400 108,179 Accrued retirement benefits 90,276 82,624 Risk management liabilities (Note 10) 67,177 163,636 Other (Note 11) 429,002 70,449 ------------ ------------ 1,470,233 1,243,504 ------------ ------------ $ 7,516,283 $ 8,181,314 ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 3 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ OPERATING REVENUES: Electric $ 673,685 $ 1,121,274 $ 1,254,254 $ 1,760,724 Gas 25,583 21,729 80,666 85,894 Other 1,586 5,070 4,341 7,700 ------------ ------------ ------------ ------------ 700,854 1,148,073 1,339,261 1,854,318 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Operation: Purchased power 660,228 1,088,147 941,711 1,440,955 Fuel for power generation 104,643 179,909 235,416 366,134 Gas purchased for resale 13,107 25,171 51,701 95,714 Deferred energy costs disallowed 53,101 -- 487,224 -- Deferral of energy costs - electric - net (253,537) (361,902) (267,778) (343,572) Deferral of energy costs - gas - net 2,176 (8,302) 10,368 (26,447) Other 63,408 62,204 135,438 166,504 Maintenance 17,015 20,154 33,922 38,458 Depreciation and amortization 37,560 40,562 85,759 79,594 Taxes: Income taxes (28,334) 13,223 (186,951) (32,054) Other than income 11,588 10,613 23,303 21,224 ------------ ------------ ------------ ------------ 680,955 1,069,779 1,550,113 1,806,510 ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) 19,899 78,294 (210,852) 47,808 ------------ ------------ ------------ ------------ OTHER (EXPENSE) INCOME: Allowance for other funds used during construction (3) (151) 654 (687) Other income (expense) - net 5,583 5,043 (1,544) 6,312 ------------ ------------ ------------ ------------ 5,580 4,892 (890) 5,625 ------------ ------------ ------------ ------------ Total Income (Loss) Before Interest Charges 25,479 83,186 (211,742) 53,433 ------------ ------------ ------------ ------------ INTEREST CHARGES: Long-term debt 55,439 43,310 114,239 83,532 Other 8,266 7,411 12,896 15,293 Allowance for borrowed funds used during construction and capitalized interest (1,078) (688) (2,581) (289) ------------ ------------ ------------ ------------ 62,627 50,033 124,554 98,536 ------------ ------------ ------------ ------------ (LOSS) INCOME BEFORE NPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES (37,148) 33,153 (336,296) (45,103) Preferred dividend requirements of NPC obligated mandatorily redeemable preferred trust securities 3,793 4,729 7,586 9,458 ------------ ------------ ------------ ------------ (LOSS) INCOME BEFORE PREFERRED STOCK DIVIDENDS (40,941) 28,424 (343,882) (54,561) Preferred stock dividend requirements of subsidiary 975 875 1,950 1,750 ------------ ------------ ------------ ------------ (LOSS) INCOME FROM CONTINUING OPERATIONS (41,916) 27,549 (345,832) (56,311) ------------ ------------ ------------ ------------ DISCONTINUED OPERATIONS: Income from operations of water business disposed of (net of income taxes of $410 and $888 in 2001, respectively) -- 641 -- 1,022 Gain on disposal of water business (net of income taxes of $18,237) -- 25,845 -- 25,845 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAX (Note 12) -- -- (1,566) -- ------------ ------------ ------------ ------------ NET (LOSS) INCOME $ (41,916) $ 54,035 $ (347,398) $ (29,444) ============ ============ ============ ============ Amounts per share - Basic and Diluted (Loss) income from continuing operations $ (0.41) $ 0.35 $ (3.39) $ (0.72) Income from discontinued operations -- 0.01 -- 0.01 Gain on disposal of water business -- 0.33 0.33 Cumulative effect of change in accounting principle (net of tax) -- -- (0.01) ------------ ------------ ------------ ------------ Net (loss) income $ (0.41) $ 0.69 $ (3.40) $ (0.38) ============ ============ ============ ============ Weighted Average Shares of Common Stock Outstanding 102,110,536 78,491,053 102,110,536 78,483,135 ============ ============ ============ ============ Dividends Paid Per Share of Common Stock $ -- $ -- $ 0.20 $ 0.25 ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Loss from continuing operations before preferred dividends $ (343,882) $ (54,561) Income from discontinued operations before preferred dividends -- 1,222 Gain on disposal of water business -- 25,845 Non-cash items included in income: Depreciation and amortization 86,671 83,055 Deferred taxes and deferred investment tax credit 68,289 111,696 AFUDC and capitalized interest (3,235) 389 Amortization of deferred energy costs - electric 59,976 -- Amortization of deferred energy costs - gas 7,661 -- Deferred energy costs disallowed (net of taxes) 317,977 -- Early retirement and severance amortization 1,458 3,121 Gain on disposal of water business -- (44,081) Other non-cash (23,462) (3,463) Changes in certain assets and liabilities: Accounts receivable (25,555) (320,191) Deferral of energy costs - electric (479) (347,467) Deferral of energy costs - gas 1,099 (28,111) Materials, supplies and fuel (2,749) (16,224) Other current assets (20,732) (48,903) Accounts payable (37,875) 410,396 Income tax receivable 79,048 -- Other current liabilities 11,971 (5,382) Other - net 36,906 15,938 ---------- ---------- Net Cash from Operating Activities 213,087 (216,721) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (181,384) (158,652) AFUDC and other charges to utility plant 3,235 (389) Customer refunds for construction 1,221 (3,537) Contributions in aid of construction 24,466 16,122 ---------- ---------- Net cash used for utility plant (152,462) (146,456) Proceeds from sale of assets of water business -- 318,882 Investments in subsidiaries and other property (1,640) (5,944) ---------- ---------- Net Cash from Investing Activities (154,102) 166,482 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 173,000 (113,054) Proceeds from issuance of long-term debt -- 670,000 Retirement of long-term debt (108,262) (353,160) Sale of common stock -- 433 Dividends paid (22,518) (21,780) ---------- ---------- Net Cash from Financing Activities 42,220 182,439 ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 101,205 132,200 Beginning Balance in Cash and Cash Equivalents 99,109 51,503 ---------- ---------- Ending Balance in Cash and Cash Equivalents $ 200,314 $ 183,703 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during period for: Interest $ 120,457 $ 98,650 Income taxes $ (185,011) $ (33,842)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS 5 NEVADA POWER COMPANY CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ ASSETS Utility Plant at Original Cost: Plant in service $ 3,442,405 $ 3,356,584 Less: accumulated provision for depreciation 977,161 928,939 ------------ ------------ 2,465,244 2,427,645 Construction work-in-progress 165,036 134,706 ------------ ------------ 2,630,280 2,562,351 ------------ ------------ Investment in Sierra Pacific Resources (Note 2) 236,605 309,259 Investments in subsidiaries and other property, net 13,502 12,721 ------------ ------------ 250,107 321,980 ------------ ------------ Current Assets: Cash and cash equivalents 59,877 8,505 Accounts receivable less provision for uncollectible accounts: 2002-$32,285; 2001-$30,861 292,282 210,333 Deferred energy costs - electric 167,923 281,555 Income tax receivable -- 18,590 Materials, supplies and fuel, at average cost 47,166 48,511 Risk management assets (Note 10) 100,092 200,829 Other 17,696 6,698 ------------ ------------ 685,036 775,021 ------------ ------------ Deferred Charges and Other Assets: Deferred energy costs - electric 569,760 698,510 Income tax receivable 264,549 295,818 Regulatory tax asset 108,912 109,859 Other regulatory assets 52,807 31,588 Risk management assets (Note 10) 15,000 49,493 Risk management regulatory assets - net (Note 10) 112,055 351,264 Other 24,678 29,485 ------------ ------------ 1,147,761 1,566,017 ------------ ------------ $ 4,713,184 $ 5,225,369 ============ ============ CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity including $236,605 and $309,259 of equity in Sierra Pacific Resources in 2002 and 2001 (Note 2) $ 1,334,339 $ 1,702,322 Accumulated other comprehensive income 415 520 NPC obligated mandatorily redeemable preferred trust securities 188,872 188,872 Long-term debt 1,605,777 1,607,967 ------------ ------------ 3,129,403 3,499,681 ------------ ------------ Current Liabilities: Short-term borrowings 200,000 130,500 Current maturities of long-term debt 19,047 19,380 Accounts payable 200,814 202,555 Accrued interest 25,658 19,310 Dividends declared 78 71 Accrued salaries and benefits 7,508 12,450 Deferred taxes on deferred energy costs 58,773 98,544 Risk management liabilities (Note 10) 181,760 522,508 Other current liabilities 21,475 17,710 ------------ ------------ 715,113 1,023,028 ------------ ------------ Commitments & Contingencies (Note 11) Deferred Credits and Other Liabilities: Deferred federal income taxes 203,389 223,641 Deferred investment tax credit 22,718 23,533 Deferred taxes on deferred energy costs 199,416 244,479 Regulatory tax liability 23,601 18,604 Customer advances for construction 61,234 61,454 Accrued retirement benefits 32,769 28,104 Risk management liabilities (Note 10) 33,225 78,558 Other (Note 11) 292,316 24,287 ------------ ------------ 868,668 702,660 ------------ ------------ $ 4,713,184 $ 5,225,369 ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 6 NEVADA POWER COMPANY CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- OPERATING REVENUES: Electric $ 477,059 $ 808,441 $ 833,331 $1,167,453 OPERATING EXPENSES: Operation: Purchased power 485,926 839,538 661,992 1,041,360 Fuel for power generation 73,474 102,258 157,196 217,610 Deferred energy costs disallowed -- -- 434,123 -- Deferral of energy costs-net (185,199) (281,145) (194,835) (269,837) Other 37,284 33,750 77,270 84,522 Maintenance 11,876 13,478 23,526 26,458 Depreciation and amortization 17,140 22,427 47,949 44,303 Taxes: Income taxes (57) 16,246 (156,480) (14,218) Other than income 6,453 5,847 13,187 11,897 ---------- ---------- ---------- ---------- 446,897 752,399 1,063,928 1,142,095 ---------- ---------- ---------- ---------- OPERATING INCOME (LOSS) 30,162 56,042 (230,597) 25,358 ---------- ---------- ---------- ---------- OTHER (EXPENSE) INCOME: Equity in losses of Sierra Pacific Resources (Note 2) (47,571) 20,985 (52,069) (7,152) Allowance for other funds used during construction 80 (122) 501 (473) Other income (expense) - net 5,585 2,747 (5,772) 3,168 ---------- ---------- ---------- ---------- (41,906) 23,610 (57,340) (4,457) ---------- ---------- ---------- ---------- Total (Loss) Income Before Interest Charges (11,744) 79,652 (287,937) 20,901 ---------- ---------- ---------- ---------- INTEREST CHARGES: Long-term debt 22,876 18,339 46,954 34,959 Other 4,352 3,750 6,882 7,713 Allowance for borrowed funds used during construction and capitalized interest (849) (265) (1,961) 87 ---------- ---------- ---------- ---------- 26,379 21,824 51,875 42,759 ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE NPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES (38,123) 57,828 (339,812) (21,858) Preferred dividend requirements of NPC obligated mandatorily redeemable preferred trust securities 3,793 3,793 7,586 7,586 ---------- ---------- ---------- ---------- NET (LOSS) INCOME $ (41,916) $ 54,035 $ (347,398) $ (29,444) ========== ========== ========== ========== Net (Loss) Income Per Share - Basic (Note 2) $ (0.41) $ 0.69 $ (3.40) $ (0.38) ========== ========== ========== ========== - Diluted (Note 2) $ (0.41) $ 0.69 $ (3.40) $ (0.38) ========== ========== ========== ========== Weighted Average Shares of Common Stock Outstanding (000's) (Note 2) 102,111 78,491 102,111 78,483 ========== ========== ========== ========== Dividends Paid Per Share of Common Stock (Note 2) $ -- $ -- $ 0.20 $ 0.25 ========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 7 NEVADA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (347,398) $ (29,444) Non-cash items included in income: Depreciation and amortization 47,949 44,303 Deferred taxes and deferred investment tax credit 51,987 89,758 AFUDC and capitalized interest (2,462) 560 Amortization of deferred energy costs 57,577 -- Deferred energy costs disallowed (net of taxes) 282,181 -- Other non-cash (13,782) (1,670) Equity in losses of SPR (Note 2) 52,069 7,152 Changes in certain assets and liabilities: Accounts receivable (81,949) (273,126) Deferral of energy costs (20,317) (272,777) Materials, supplies and fuel 1,345 (3,306) Other current assets (10,998) (75,578) Accounts payable (1,740) 414,458 Income tax receivable 49,859 -- Other current liabilities 5,170 (223) Other - net 31,946 4,971 ---------- ---------- Net Cash from Operating Activities 101,437 (94,922) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (139,634) (88,552) AFUDC and other charges to utility plant 2,462 (560) Customer refunds for construction (220) (3,739) Contributions in aid of construction 21,286 3,903 ---------- ---------- Net cash used for utility plant (116,106) (88,948) Investments in subsidiaries and other property (942) -- ---------- ---------- Net Cash from Investing Activities (117,048) (88,948) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in short-term borrowings 69,500 -- Proceeds from issuance of long-term debt -- 350,000 Retirement of long-term debt (2,523) (151,699) Investment of SPR 10,000 21,921 Dividends paid (9,994) -- ---------- ---------- Net Cash from Financing Activities 66,983 220,222 ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 51,372 36,352 Beginning balance in Cash and Cash Equivalents 8,505 43,858 ---------- ---------- Ending balance in Cash and Cash Equivalents $ 59,877 $ 80,210 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during period for: Interest $ 47,545 $ 40,910 Income taxes $ (102,904) $ (10,015)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 30, DECEMBER 31, 2002 2001 ---------- ---------- ASSETS Utility Plant at Original Cost: Plant in service $2,335,955 $2,326,712 Less: accumulated provision for depreciation 884,454 848,578 ---------- ---------- 1,451,501 1,478,134 Construction work-in-progress 96,683 68,750 ---------- ---------- 1,548,184 1,546,884 ---------- ---------- Investments in subsidiaries and other property, net 55,603 57,185 ---------- ---------- Current Assets: Cash and cash equivalents 112,196 11,772 Accounts receivable less provision for uncollectible accounts: 2002 - $8,377; 2001 - $8,474 230,652 194,698 Deferred energy costs - electric 52,394 51,507 Deferred energy costs - gas 17,967 19,805 Materials, supplies and fuel, at average cost 46,130 42,290 Risk management assets (Note 10) 53,689 85,680 Other 16,458 5,935 ---------- ---------- 529,486 411,687 ---------- ---------- Deferred Charges and Other Assets: Deferred energy costs - electric 179,249 156,268 Deferred energy costs - gas 16,326 23,248 Income tax receivable 12,289 41,040 Regulatory tax asset 59,364 59,879 Other regulatory assets 65,615 51,146 Risk management assets (Note 10) 2,726 11,565 Risk management regulatory assets - net (Note 10) 122,931 313,119 Other 11,811 13,886 ---------- ---------- 470,311 670,151 ---------- ---------- $2,603,584 $2,685,907 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity $ 657,797 $ 692,654 Accumulated other comprehensive income 416 247 Preferred stock 50,000 50,000 Long-term debt 917,561 923,070 ---------- ---------- 1,625,774 1,665,971 ---------- ---------- Current Liabilities: Short-term borrowings 150,000 46,500 Current maturities of long-term debt 2,400 2,630 Accounts payable 61,781 95,555 Accrued interest 10,364 8,408 Dividends declared 986 974 Accrued salaries and benefits 10,804 15,466 Deferred taxes on deferred energy costs 24,626 24,959 Risk management liabilities (Note 10) 148,915 332,793 Other current liabilities 7,513 3,387 ---------- ---------- 417,389 530,672 ---------- ---------- Commitments & Contingencies (Note 11) Deferred Credits and Other Liabilities: Deferred federal income taxes 191,529 178,533 Deferred investment tax credit 27,502 28,414 Deferred taxes on deferred energy costs 68,451 62,831 Regulatory tax liability 27,428 28,098 Customer advances for construction 48,166 46,725 Accrued retirement benefits 46,280 43,028 Risk management liabilities (Note 10) 33,952 77,324 Other (Note 11) 117,113 24,311 ---------- ---------- 560,421 489,264 ---------- ---------- $2,603,584 $2,685,907 ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 2002 2001 2002 2001 ---------- ---------- ---------- ---------- OPERATING REVENUES: Electric $ 196,626 $ 312,833 $ 420,923 $ 593,271 Gas 25,583 21,729 80,666 85,894 ---------- ---------- ---------- ---------- 222,209 334,562 501,589 679,165 ---------- ---------- ---------- ---------- OPERATING EXPENSES: Operation: Purchased power 174,302 248,608 279,719 399,595 Fuel for power generation 31,169 77,652 78,220 148,524 Gas purchased for resale 13,107 25,171 51,701 95,714 Deferred energy costs disallowed 53,101 -- 53,101 -- Deferral of energy costs - electric - net (68,338) (80,755) (72,943) (73,735) Deferral of energy costs - gas - net 2,176 (8,303) 10,368 (26,447) Other 22,876 23,174 50,623 50,868 Maintenance 5,139 6,676 10,396 12,000 Depreciation and amortization 20,153 17,859 37,269 34,708 Taxes: Income taxes (21,539) 1,464 (16,638) (656) Other than income 4,881 4,574 9,657 8,968 ---------- ---------- ---------- ---------- 237,027 316,120 491,473 649,539 ---------- ---------- ---------- ---------- OPERATING (LOSS) INCOME (14,818) 18,442 10,116 29,626 ---------- ---------- ---------- ---------- OTHER (EXPENSE) INCOME: Allowance for other funds used during construction (83) (30) 153 (214) Other income (expense) - net (293) 1,499 2,677 1,013 ---------- ---------- ---------- ---------- (376) 1,469 2,830 799 ---------- ---------- ---------- ---------- Total (Loss) Income Before Interest Charges (15,194) 19,911 12,946 30,425 ---------- ---------- ---------- ---------- INTEREST CHARGES: Long-term debt 16,020 12,529 32,465 23,099 Other 2,966 3,022 4,108 5,982 Allowance for borrowed funds used during construction and capitalized interest (229) (423) (620) (377) ---------- ---------- ---------- ---------- 18,757 15,128 35,953 28,704 ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE SPPC OBLIGATED MANDATORILY REDEEMABLE PREFERRED TRUST SECURITIES (33,951) 4,783 (23,007) 1,721 Preferred dividend requirements of SPPC obligated mandatorily redeemable preferred trust securities -- 936 -- 1,872 ---------- ---------- ---------- ---------- (LOSS) INCOME BEFORE PREFERRED DIVIDENDS (33,951) 3,847 (23,007) (151) Preferred dividend requirements 975 875 1,950 1,750 ---------- ---------- ---------- ---------- (LOSS) INCOME FROM CONTINUING OPERATIONS (34,926) 2,972 (24,957) (1,901) ---------- ---------- ---------- ---------- DISCONTINUED OPERATIONS: Income from operations of water business disposed of (net of income taxes of $410 and $888 in 2001, respectively) -- 641 -- 1,022 Gain on disposal of water business (net of income taxes of $18,237) -- 25,845 -- 25,845 ---------- ---------- ---------- ---------- NET (LOSS) INCOME $ (34,926) $ 29,458 $ (24,957) $ 24,966 ========== ========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 SIERRA PACIFIC POWER COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Loss from continuing operations before preferred dividends $ (23,007) $ (151) Income from discontinued operations before preferred dividends -- 1,222 Gain on disposal of water business -- 25,845 Non-cash items included in income: Depreciation and amortization 38,181 38,168 Deferred taxes and investment tax credits 16,304 21,932 AFUDC and capitalized interest (773) (171) Amortization of deferred energy costs - electric 2,399 -- Amortization of deferred energy costs - gas 7,661 -- Deferred energy costs disallowed (net of taxes) 35,796 -- Early retirement and severance amortization 1,458 3,121 Gain on disposal of water business -- (44,081) Other non-cash (8,975) (8,635) Changes in certain assets and liabilities: Accounts receivable (35,954) (60,552) Deferral of energy costs - electric 19,838 (74,692) Deferral of energy costs - gas 1,099 (28,110) Materials, supplies and fuel (3,840) (12,991) Other current assets (10,522) 26,728 Accounts payable (33,774) (814) Income tax receivable 28,752 -- Other current liabilities 1,421 5,569 Other-net 13,211 5,358 ---------- ---------- Net Cash from Operating Activities 49,275 (102,254) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant (41,750) (70,101) AFUDC and other charges to utility plant 773 171 Customer refunds for construction 1,441 203 Contributions in aid of construction 3,180 12,219 ---------- ---------- Net cash used for utility plant (36,356) (57,508) Proceeds from sale of assets of water business -- 318,882 Disposal of subsidiaries and other property - net 1,582 1,447 ---------- ---------- Net Cash from Investing Activities (34,774) 262,821 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in short-term borrowings 103,500 (108,942) Proceeds from issuance of long-term debt -- 320,000 Retirement of long-term debt (5,739) (201,450) Investment by parent company 10,000 4,948 Dividends paid (21,838) (77,950) ---------- ---------- Net Cash from Financing Activities 85,923 (63,394) ---------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 100,424 97,173 Beginning Balance in Cash and Cash Equivalents 11,772 5,348 ---------- ---------- Ending Balance in Cash and Cash Equivalents $ 112,196 $ 102,521 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during year for: Interest $ 33,997 $ 31,412 Income taxes (62,109) (18,071)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. MANAGEMENT'S STATEMENT (SPR, NPC, SPPC) In the opinion of the management of Sierra Pacific Resources (SPR), Nevada Power Company (NPC), and Sierra Pacific Power Company (SPPC), the accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the condensed consolidated financial position, condensed consolidated results of operations and condensed consolidated cash flows for the periods shown. These condensed consolidated financial statements do not contain the complete detail or footnote disclosure concerning accounting policies and other matters which are included in full year financial statements and therefore, they should be read in conjunction with the audited financial statements included in SPR's, NPC's, and SPPC's Combined Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements of SPR include the accounts of SPR and its wholly owned subsidiaries, Nevada Power Company, Sierra Pacific Power Company, (collectively, the "Utilities"), Tuscarora Gas Pipeline Company (TGPC), Sierra Gas Holding Company (SGHC), Sierra Energy Company dba e- three (e-three), Sierra Pacific Energy Company (SPE), Lands of Sierra (LOS), Sierra Pacific Communications (SPC), and Sierra Water Development Company (SWDC). All significant intercompany transactions and balances have been eliminated in consolidation. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The March 29, 2002 decision of the Public Utilities Commission of Nevada (PUCN) on NPC's deferred energy application to disallow $434 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and September 30, 2001 had a significant negative impact on the results of operations of SPR and NPC for the six months ended June 30, 2002. Several of the intervenors from NPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking additional disallowances ranging from $12.8 million to $488 million. The petitions for reconsideration were granted in part and denied in part by the PUCN on May 24, 2002, but no additional disallowances to the deferred energy balance resulted from that decision. The Bureau of Consumer Protection of the Nevada Attorney General's Office has since filed a petition in NPC's pending state court case seeking additional disallowances. Although the PUCN's March 29, 2002 decision on NPC's deferred energy application is being challenged by NPC in a lawsuit filed in Nevada state court, which is discussed in Note 9, Regulatory Events, the decision caused the two major national rating agencies to issue an immediate downgrade of the credit ratings on SPR's, NPC's and SPPC's debt securities (followed by further downgrades late in April). Following those events, the market price of SPR's Common Stock fell substantially, NPC and SPPC were obliged within 5 business days of the downgrades to issue general and refunding mortgage bonds to secure their bank lines of credit, NPC was obliged to obtain a waiver and amendment from its credit facility banks before it was permitted to draw down on the facility, NPC and SPPC were no longer able to issue commercial paper, a number of NPC's power suppliers contacted NPC regarding its ability to pay the purchase price of outstanding contracts, and several power suppliers, including an affiliate of Enron Corp., Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers, terminated their power supply agreements with one or both of the Utilities. As discussed below, Duke Energy Trading and Marketing ("Duke") has agreed to replace the amount of contracted power and natural gas that would have been supplied by the Utilities' terminating suppliers. The separate decision of the PUCN on May 29, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 had a significant negative impact on the results of operations of SPR and SPPC for the quarter ended June 30, 2002 and for the six months ended June 30, 2002. SPPC is currently evaluating its options regarding a possible court challenge to the PUCN order. Several of the intervenors from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. NPC is required to file its next deferred energy case in approximately mid-November 2002 and will request recovery and/or an affirmation of prudency for fuel and purchased power costs incurred and recorded in its deferred energy account for the period October 1, 2001, through September 30, 2002. The amount recorded is expected to approximate $400 million, which will include costs of approximately $229 million accrued for terminated suppliers. (See Note 11, Commitments and Contingencies.) These amounts are subject to whatever adjustments may be ordered by the FERC in NPC's Section 206 complaints. (See Note 9, Regulatory Events.) 12 SPPC is required to file its next deferred energy case in approximately mid-January 2003 and will request recovery and/or an affirmation of prudency for all costs for fuel and purchased power recorded in its deferred energy account over the period December 1, 2001, through November 30, 2002. That amount is expected to approximate $90 million, which will include costs of approximately $82 million accrued for terminated suppliers. (See Note 11, Commitments and Contingencies.) These amounts are subject to whatever adjustments may be ordered by the FERC in SPPC's Section 206 complaints. (See Note 9, Regulatory Events.) A significant disallowance in future deferred energy rate cases filed by either Utility could further weaken the financial condition, liquidity, and capital resources of SPR, NPC, and SPPC. In particular, such a decision or decisions could cause further downgrades of debt securities by the rating agencies, could make it impracticable to access the capital markets, and could cause additional power suppliers to terminate purchased power contracts and seek liquidated damages. Under such circumstances, there can be no assurance that SPR, NPC, or SPPC would be able to remain solvent or continue operations. Under such circumstances, there also can be no assurance that SPR, NPC, or SPPC would not seek protection under the bankruptcy laws. In response to the decisions by the PUCN in NPC's recent rate cases, SPR implemented certain measures that will positively impact cash flow by $125 million in 2002. Two major transmission construction projects, discussed in the Form 10-K for the year ended December 31, 2001, have been delayed for a total capital preservation impact of $80.8 million. The delay in NPC's Centennial Plan has an impact of $46.4 million and the delay of SPPC's Falcon to Gonder Project has an impact of $34.4 million. An additional $28.9 million was reduced from the Utilities' capital budgets by curtailing or delaying other projects. Management expects that the balance of the $125 million cash flow enhancement will be obtained from various land sales. Additional cost-cutting actions by SPR may be necessary. With respect to NPC's and SPPC's contracts for purchased power, NPC and SPPC purchase and sell electricity with their counterparties under the Western Systems Power Pool ("WSPP") agreement, which is an industry standard contract. The WSPP contract is posted on the WSPP website. These contracts provide that a material adverse change may give rise to a right to request collateral, which, if not provided within 3 business days, could cause a default. A default must be declared within 30 days of the event giving rise to the default becoming known. As the Utilities continue to negotiate arrangements with their suppliers, the Utilities have extended to all continuing suppliers their rights under the WSPP agreement, including the right to declare a default. A default will result in a termination payment equal to the present value of the net gains and losses for the entire remaining term of all contracts between the parties aggregated to a single liquidated amount due within 3 business days following the date the notice of termination is received. The mark-to-market value can be used to roughly approximate the termination payment at any point in time. The mark-to-market value as of July 31, 2002, for all suppliers continuing to provide power under a WSPP agreement was approximately $248 million and $108 million, respectively, for NPC and SPPC. Following the PUCN decisions, a number of power suppliers requested collateral from NPC and SPPC. On April 4, 2002, the Utilities sent a letter to their suppliers advising them that, assuming the Utilities could access the capital markets for secured debt and no other significant negative developments occurred, the Utilities expected to be able to honor their obligations under the power supply contracts. However, the Utilities noted that a simultaneous call for 100% mark-to-market collateral in the short-term would likely not be met. On April 24, 2002, the Utilities met with representatives of various suppliers to discuss SPR's and the Utilities' financial situation and plans, and indicated that they intended to propose extended payment terms for the above-market portions of NPC's existing power contracts. Such extended payment terms were proposed to NPC's suppliers in a letter dated May 2, 2002, and proposed paying less than contract prices, but more than market prices plus interest, for the period May 1 to September 15, 2002. NPC may pay any balances remaining prior to December 2003. NPC also agreed to extend the suppliers' rights under the WSPP agreement. In early May, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers notified NPC and SPPC that they would end power deliveries to NPC and SPPC based on what they believed to be their contractual right to end deliveries because of the Utilities' inability to provide adequate assurances of their ability to perform all of their outstanding material obligations. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages. As discussed in Note 11, Commitments And Contingencies, Enron has filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York seeking approximately $216 million and $93 million from NPC and SPPC, respectively. In connection with this suit, Enron has filed a motion to require the Utilities to post collateral equal to the amount of Enron's claims pending the outcome of the lawsuit. A hearing in this case has been scheduled for September 6, 2002. An adverse decision on the petition to require the Utilities to post collateral pending the outcome of Enron's lawsuit or an adverse decision in the lawsuit itself could have a material adverse affect on the financial condition and liquidity of SPR and the Utilities and could render their ability to continue to operate outside of bankruptcy uncertain. At this time, SPR and the Utilities are not able to predict the outcome of a decision in this matter. 13 On June 10, 2002, Duke Energy Trading and Marketing ("Duke") entered into an agreement with SPR and the Utilities to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to NPC and SPPC to fulfill customers' power requirements during the peak summer period. The effect of the Duke agreement was to replace the amount of contracted power and natural gas that would have been supplied by the various terminating suppliers, including Enron. Duke also agreed to accept deferred payment for a portion of the amount due under its existing power contracts with NPC for purchases made through September 15, 2002. Although the other continuing suppliers have not entered into formal agreements with NPC regarding deferred payments, NPC has been deferring a portion of the payments to such suppliers since May 1, 2002 and intends to continue to do so for charges incurred through September 15, 2002. SPR's future liquidity depends, in part, on SPPC's ability to continue to pay dividends to SPR, on a restoration of NPC to financial stability including a restoration of its ability to pay dividends to SPR, and on SPR's ability to access the capital markets or otherwise refinance debt that will be maturing in 2003 and thereafter. Further adverse developments at NPC or SPPC, including a material disallowance of deferred energy costs in future rate cases, an adverse decision in the pending lawsuit by Enron to collect liquidated damages (including its motion requesting the posting of collateral), a refusal by one or more of NPC's continuing power suppliers to continue to accept extended payment terms through the summer of 2002, or an inability of NPC or SPPC to renew, replace or refinance all or a portion of their respective credit facilities which expire on November 28, 2002, could cause SPR to become insolvent and would render SPR's ability to continue to operate outside of bankruptcy uncertain. NPC's short-term liquidity depends significantly on the willingness of NPC's power suppliers to continue to accept deferred payments for a portion of the amounts owed by NPC on purchased power contracts through the summer months of 2002. NPC's liquidity could also be significantly affected by an adverse decision in the pending lawsuit by Enron to collect liquidated damages (including its motion seeking the posting of collateral), by unfavorable rulings by the PUCN in future NPC or SPPC rate cases, by an inability to renew, replace or refinance all or a portion of its credit facility that expires on November 28, 2002, or by the PUCN's reconsideration of its compliance order authorizing NPC to issue up to $300 million in long-term debt. Both S&P and Moody's have NPC's credit ratings on "watch negative" or "possible downgrade", and any further downgrades could further preclude NPC's access to the capital markets. Adverse developments with respect to any one or a combination of the foregoing could cause NPC to become insolvent and would render NPC's ability to continue to operate outside of bankruptcy uncertain. SPPC's future liquidity could be significantly affected by unfavorable rulings by the PUCN in future SPPC or NPC rate cases, or by an inability to renew, replace or refinance all or a portion of SPPC's credit facility that expires on November 28, 2002. Both S&P and Moody's have SPPC's credit ratings on "watch negative" or "possible downgrade", and any further downgrades could further preclude SPPC's access to the capital markets and could adversely affect SPPC's ability to continue purchasing power and fuel. Adverse developments with respect to any one or a combination of the foregoing could cause SPPC to become insolvent and could render SPPC's ability to continue to operate outside of bankruptcy uncertain. The accompanying financial statements do not include any adjustments that might result from the outcome of the uncertainties discussed above. Also see Note 5, Dividend Restrictions, Note 9, Regulatory Events and Note 11, Commitments and Contingencies. RECLASSIFICATIONS Certain items previously reported for years prior to 2002 have been reclassified to conform to the current year's presentation. Net income and shareholders' equity were not affected by these reclassifications. RECENT PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board ("FASB") issued three new pronouncements, Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. See Note 12, Change in Accounting for Goodwill, for a discussion of SPR's implementation of SFAS No. 142. SFAS No. 143, effective for fiscal years beginning after June 15, 2002, requires an entity to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. Management does not expect the adoption of SFAS No. 143 to have a material effect on the financial position or results of operations of SPR, NPC, and SPPC. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This standard provides guidance on the impairment of long-lived assets and for long-lived assets to be disposed of. The 14 standard supersedes the current authoritative literature on impairments as well as disposal of a segment of a business and was adopted January 1, 2002. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". Among other things, this statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt" which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will now be used to classify those gains and losses. Management does not anticipate that adoption of this statement will have an impact on the financial position or results of operations of SPR, NPC or SPPC. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. A fundamental conclusion reached by the FASB in this statement is that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Management does not anticipate that adoption of this statement will have an impact on the financial position or results of operations of SPR, NPC or SPPC. NOTE 2. FINANCIAL STATEMENTS OF NEVADA POWER COMPANY (NPC) In accordance with Generally Accepted Accounting Principles, the 1999 merger between SPR and NPC was accounted for as a reverse purchase, with NPC deemed to be the acquirer of SPR as reflected in the SPR Consolidated Financial Statements. However, after the merger with SPR and as a result of the structure of the transactions, NPC is a separate legal entity, which is a wholly owned subsidiary of SPR. As a legal matter, NPC does not own any equity interest in SPR. The audited NPC Financial Statements accommodate the presentation of financial information of NPC on a stand-alone basis by summarizing all non-NPC financial information into a few items on each of the Financial Statements. These summarized items are repeated below (in 000's): Non-NPC Financial Items on the NPC Financial Statements
NPC Balance Sheets: June 30, 2002 December 31, 2001 - ------------------- ------------- ----------------- Investment in Sierra Pacific Resources $ 236,605 $ 309,259 Equity in Sierra Pacific Resources $ 236,605 $ 309,259
The Investment in Sierra Pacific Resources reflects the net assets, after deducting for all liabilities and preferred stock of Sierra Pacific Resources not related to NPC. The Equity in Sierra Pacific Resources reflects the sum of paid-in-capital and retained earnings of SPR, without the benefit of NPC. These line items do not represent any asset to which holders of NPC's securities may look for recovery of their investment. These items must be disregarded for determining the ability of NPC to satisfy its obligations or to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred stock dividends and for all of NPC's financial covenants and earnings tests including those under its charter and mortgage.
NPC Statements of Operations: Three Months Ended Three Months Ended June 30, 2002 June 30, 2001 ------------- ------------- Equity in (Losses) Earnings of Sierra Pacific Resources $(47,571) $20,985
Six Months Ended Six Months Ended June 30, 2002 June 30, 2001 ------------- ------------- Equity in Losses of Sierra Pacific Resources $ (52,069) $(7,152)
This line does not represent any item of revenue or income to which holders of NPC's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NPC to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred dividends and for all of NPC's financial covenants and earnings tests including those under its charter and mortgage. Excluding NPC's equity in the losses/earnings of its parent, SPR, NPC earned approximately $5.7 million and $33.1 million, respectively, for the three-month periods ended June 30, 2002, and 2001. Excluding NPC's equity in the losses 15 of its parent, SPR, NPC incurred losses of approximately $295.3 million and $22.3 million, respectively, for the six-month periods ended June 30, 2002, and 2001.
NPC Statements of Cash Flow: Six Months Ended Six Months Ended June 30, 2002 June 30, 2001 ------------- ------------- Equity in Losses of Sierra Pacific Resources $52,069 $7,152
As in the statement of operations, the Equity in Losses of Sierra Pacific Resources reflects the six months of SPR net losses, after SPPC preferred stock dividends. This line item does not represent any item of cash flow to which holders of NPC's securities may look for recovery of their investment. This item must be disregarded for determining the ability of NPC to satisfy its obligations or its ability to pay dividends (preferred or common), for calculating NPC's ratios of earnings to fixed charges and preferred dividends and for all of NPC's financial covenants and earnings tests including those under its charter and mortgage. NOTE 3. SHORT-TERM BORROWINGS (SPR, NPC, SPPC) SIERRA PACIFIC RESOURCES On April 3, 2002, SPR terminated its $75 million unsecured revolving credit facility in connection with the amendment of NPC's $200 million unsecured revolving credit facility, discussed below. NEVADA POWER COMPANY On November 29, 2001, NPC put into place a $200 million unsecured revolving credit facility for working capital and general corporate purposes, including commercial paper backup. As a result of NPC's rate case decisions (discussed in Note 9 - Regulatory Events) and the credit downgrades by Standard & Poors (S&P) and Moody's, which occurred on March 29 and April 1, 2002, respectively, the Banks participating in NPC's credit facility determined that a material adverse event had occurred with respect to NPC, thereby precluding NPC from borrowing funds under its credit facility. The Banks agreed to waive the consequences of the material adverse event in a waiver letter and amendment that was executed on April 4, 2002. As required under the waiver letter and amendment, on April 4, 2002, NPC issued and delivered its General and Refunding Mortgage Bond, Series C, due November 28, 2002, in the principal amount of $200 million, to the Administrative Agent for the credit facility. The waiver letter and amendment also provides that (i) NPC may not create or incur any liens on its properties to secure obligations to its power and/or commodity trading counterparties or power suppliers, (ii) in the event that NPC issues more than $250 million of its General and Refunding Mortgage Bonds, other than to secure NPC's 6.20% Senior Unsecured Notes, Series B due April 15, 2004, the principal amounts of such issuances will be applied as mandatory prepayments of the loans outstanding under the credit facility and the commitments under the facility will correspondingly be reduced, and (iii) the SPR credit facility be terminated. On June 25, 2002, NPC and the Banks executed Amendment No. 2 to NPC's Credit Agreement that prohibits NPC from paying any dividends and prohibits the voluntary prepayment or redemption of NPC's existing indebtedness, except in the ordinary course of business. Amendment No. 2 also modifies the restriction in the waiver letter and amendment with respect to creating or incurring liens to secure obligations to NPC's power and/or commodity trading counterparties or power suppliers. Under Amendment No. 2, NPC may create or incur liens on up to an aggregate total of $50 million of its deposit and investment accounts and its investment properties to support NPC's obligations to fuel or other energy suppliers, to secure NPC's cash management obligations and/or to secure purchase money liens on property or liens existing on such property at the time of purchase. As of May 2, 2002, NPC had borrowed the entire $200 million of funds available under its credit facility to pay off maturing commercial paper. As of June 30, 2002, NPC had $200 million outstanding under its credit facility at an average interest rate of 3.72%. In connection with the credit rating downgrades referenced above, NPC lost its A2/P2 commercial paper ratings and can no longer issue commercial paper. NPC's credit facility expires November 28, 2002. SIERRA PACIFIC POWER COMPANY On November 29, 2001, SPPC put into place a $150 million unsecured revolving credit facility for working capital and general corporate purposes, including commercial paper backup. Under this credit facility, SPPC was required, in the event of a ratings downgrade of its senior unsecured debt, to secure the facility with General and Refunding Mortgage Bonds. In satisfaction of its obligation to secure the credit facility, on April 8, 2002, SPPC issued and delivered its General and Refunding Mortgage Bond, Series B, due November 28, 2002, in the principal amount of $150 million, to the Administrative Agent for the credit facility. On June 25, 2002, SPPC and the Banks executed Amendment No. 1 to SPPC's Credit Agreement 16 that prohibits SPPC from paying any dividends in the event of a default under the Credit Agreement and prohibits the voluntary prepayment or redemption of SPPC's existing indebtedness, except in the ordinary course of business. Amendment No. 1 also allows SPPC to create or incur liens on up to an aggregate total of $50 million of its deposit and investment accounts and its investment properties to support SPPC's obligations to fuel or other energy suppliers, to secure SPPC's cash management obligations and/or to secure purchase money liens on property or liens existing on such property at the time of purchase. As of May 10, 2002, SPPC had borrowed the entire $150 million of funds available under its credit facility to, in part, pay off maturing commercial paper, and to maintain a cash balance at SPPC. As of June 30, 2002, SPPC had $150 million outstanding under its credit facility at an average interest rate of 3.69%. In connection with the credit ratings downgrades referenced above, SPPC lost its A2/P2 commercial paper ratings and can no longer issue commercial paper. SPPC's credit facility expires on November 28, 2002. NOTE 4. LONG-TERM DEBT (SPR, NPC, SPPC) NPC's, SPPC's and SPR's aggregate annual amount of maturities for long-term debt for the next five years is shown below (in thousands of dollars):
SPR Holding Co. SPR NPC SPPC and Other Subs. Consolidated ---------- ---------- --------------- ------------ 2002 $ 15,000 $ -- $ -- $ 15,000 2003 350,000 20,400 (1) 200,000 570,400 (1) 2004 130,000 2,400 -- 132,400 2005 -- 2,400 300,000 302,400 2006 -- 52,400 -- 52,400 ---------- ---------- ---------- ---------- Subtotal 495,000 77,600 500,000 1,072,600 Thereafter 1,129,824 842,361 345,068 2,317,253 ---------- ---------- ---------- ---------- Total $1,624,824 $ 919,961 $ 845,068 $3,389,853 ========== ========== ========== ==========
(1) In addition to the amounts shown in the table, on May 1, 2003, $80,000,000 aggregate principal amount of the Washoe County, Nevada, Water Facilities Refunding Revenue Bonds (Sierra Pacific Power Company Project) Series 2001, will be subject to remarketing. In the event that the Bonds cannot be successfully remarketed on that date, SPPC will be required to purchase the outstanding Bonds at a price of 100% of the principal amount, plus accrued interest. SIERRA PACIFIC RESOURCES On April 20, 2002, $100 million of SPR's floating rate notes matured and were paid in full. The notes had been issued on April 20, 2000, and the net proceeds used to make a capital contribution to NPC. NEVADA POWER COMPANY On May 13, 2002, NPC issued a General and Refunding Mortgage Bond, Series D, due April 15, 2004, in the principal amount of $130 million, for the benefit of the holders of NPC's 6.20% Senior Unsecured Notes, Series B, due April 15, 2004. The Senior Unsecured Notes Indenture required that in the event that NPC issued debt secured by liens on NPC's operating property, in excess of 15% of its Net Tangible Assets or Capitalization (as both terms are defined in the Senior Unsecured Notes Indenture), NPC would equally and ratably secure the Senior Unsecured Notes. NPC triggered this negative pledge covenant on April 23, 2002, when it borrowed certain amounts under its secured credit facility. NOTE 5. DIVIDEND RESTRICTIONS (SPR, NPC, SPPC) 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. The two Utilities are public utilities and are subject to regulation 17 by state utility commissions which may 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 SPR, NPC and SPPC set restrictions on the amount of dividends the Companies may declare and pay and restrict the circumstances under which such dividends may be declared and paid. SPPC's charter also contains a dividend restriction for the benefit of SPPC's preferred stock holders. Any of the provisions which restrict dividends payable by NPC or SPPC could adversely affect the liquidity of SPR. SIERRA PACIFIC RESOURCES The Master Amendment to Confirmation Agreements with Duke Energy Trading and Marketing L.L.C. (discussed below) prohibits SPR from using any amounts received from NPC to pay a dividend or to make any other payment on account of SPR's common stock until certain deferred payments are paid in full and certain energy and gas deliveries have been made and paid for under the Agreement. Under the Agreement, all deferred payments are due and payable on December 31, 2003, although NPC currently expects that such payments will be completed prior to that date. NEVADA POWER COMPANY The PUCN issued a Compliance Order, Docket No. 02-4037, on June 19, 2002, relating to NPC's request for authority to issue long-term debt. The PUCN order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. In addition, NPC's first mortgage indenture limits the cumulative amount of dividends that NPC may pay on its capital stock to the cumulative net earnings of NPC since 1953. At the present time, this restriction precludes NPC from making further payments of dividends on NPC's common stock and will continue to bar such payments unless the restriction is waived or removed by the consent of the first mortgage bondholders, the first mortgage bonds are redeemed or defeased, or until, over the passage of time, NPC generates sufficient earnings to overcome the shortfall created by the write-off of $465 million in connection with the March 2002 decision in NPC's deferred energy rate case. On June 4, 2002, NPC entered into a Master Amendment to Confirmation Agreements with Duke Energy Trading and Marketing L.L.C. which, among other things, limits the amount of dividends NPC may declare or pay on its equity securities until NPC completes certain deferred payments under the Agreement, which are due on December 31, 2003. Under the Agreement, until the deferred payments are paid in full, NPC may not declare any dividend or make any dividend payments other than (1) payments to SPR to enable SPR to pay its reasonable fees and expenses (including interest on SPR's debts and payment of obligations under SPR's PIES) incurred in the ordinary course of business in calendar year 2003, up to a maximum amount of $20,000,000 and (2) any currently scheduled payments to any of NPC's preferred trust vehicles on account of NPC's preferred trust securities. On June 25, 2002, NPC entered into Amendment No. 2 to its $200 million credit agreement. The amendment provides that NPC may not declare or pay any dividend on its capital stock for the duration of the credit facility which expires on November 28, 2002. Finally, the terms of NPC's preferred trust securities provide that no dividends may be paid on NPC's common stock if NPC has elected to defer payments on the junior subordinated debentures issued in conjunction with the preferred trust securities. At this time, NPC has not elected to defer payments on the junior subordinated debentures. SIERRA PACIFIC POWER COMPANY SPPC's Articles of Incorporation contain restrictions on the payment of dividends on SPPC's common stock in the event of a default in the payment of dividends on SPPC's preferred stock and prohibit SPPC from declaring or paying any dividends on any shares of common stock except from the net income of SPPC, and its predecessor, available for dividends on common stock accumulated subsequent to December 31, 1955, less preferred stock dividends plus the sum of $500,000. As of June 30, 2002, SPPC was not prohibited by these restrictions from paying dividends. In addition, on June 25, 2002, SPPC entered into Amendment No. 1 to its $150 million credit agreement. This amendment prohibits the payment of dividends on SPPC's capital stock if SPPC is in default under the terms of its credit facility. 18 NOTE 6. EARNINGS PER SHARE (SPR) SPR follows SFAS No. 128, "Earnings Per Share". The difference, if any, between Basic EPS and Diluted EPS would be due to common stock equivalent shares resulting from stock options, employee stock purchase plan, performance shares and a non-employee director stock plan. However, due to net losses for the three months ended June 30, 2002, and the six-month periods ended June 30, 2002 and 2001, these items are anti-dilutive. Common stock equivalents were determined using the treasury stock method.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------- ------------- ------------- ------------- BASIC EPS Numerator ($000) Income (Loss) from continuing operations $ (41,916) $ 27,549 $ (345,832) $ (56,311) Income from discontinued operations -- 641 -- 1,022 Gain on disposal of water business -- 25,845 -- 25,845 Cumulative effect of change in accounting principle -- -- (1,566) -- ------------- ------------- ------------- ------------- Net income (loss) $ (41,916) $ 54,035 $ (347,398) $ (29,444) ============= ============= ============= ============= Denominator Weighted average number of shares outstanding 102,110,536 78,491,053 102,110,536 78,483,135 ------------- ------------- ------------- ------------- Per-Share Amounts: Income (Loss) from continuing operations $ (0.41) $ 0.35 $ (3.39) $ (0.72) Income from discontinued operations -- 0.01 -- 0.01 Gain on disposal of water business -- 0.33 -- 0.33 Cumulative effect of change in accounting principle -- -- (0.01) -- ------------- ------------- ------------- ------------- Net income (loss) $ (0.41) $ 0.69 $ (3.40) $ (0.38) ============= ============= ============= ============= DILUTED EPS Numerator ($000) Income (Loss) from continuing operations $ (41,916) $ 27,549 $ (345,832) $ (56,311) Income from discontinued operations -- 641 -- 1,022 Gain on disposal of water business -- 25,845 -- 25,845 Cumulative effect of change in accounting principle -- -- (1,566) -- ------------- ------------- ------------- ------------- Net income (loss) $ (41,916) $ 54,035 $ (347,398) $ (29,444) ============= ============= ============= ============= Denominator Weighted average number of shares outstanding before dilution 102,110,536 78,491,053 102,110,536 78,483,135 Stock options(1) -- 22,160 15,806 11,605 Executive long term incentive plan- performance shares(1) 7,815 47,698 13,378 41,531 Non-Employee Director stock plan(1) 11,288 9,355 10,321 9,355 Employee stock purchase plan(1) 578 3,602 1,619 3,017 ------------- ------------- ------------- ------------- 102,130,217 78,573,868 102,151,660 78,548,643 ------------- ------------- ------------- ------------- Per-Share Amounts(1): Income (Loss) from continuing operations $ (0.41) $ 0.35 $ (3.39) $ (0.72) Income from discontinued operations -- 0.01 -- 0.01 Gain on disposal of water business -- 0.33 -- 0.33 Cumulative effect of change in accounting principle -- -- (0.01) -- ------------- ------------- ------------- ------------- Net income (loss) $ (0.41) $ 0.69 $ (3.40) $ (0.38) ============= ============= ============= =============
(1) Because of net losses for the three months ended June 30, 2002, and the six-month periods ended June 30, 2002 and 2001, stock equivalents would be anti-dilutive. Accordingly, Diluted EPS for those periods are computed using the weighted average number of shares outstanding before dilution. 19 NOTE 7. SEGMENT INFORMATION (SPR) SPR operates three business segments providing regulated electric and natural gas services. NPC provides electric service to Las Vegas and surrounding Clark County. SPPC provides electric service in northern Nevada and the Lake Tahoe area of California. SPPC also provides natural gas service in the Reno-Sparks area of Nevada. Other segment information includes segments below the quantitative threshold for separate disclosure. On June 11, 2001, SPPC sold its water utility business. Accordingly, the water business is not included in the segment information below. Information as to the operations of the different business segments is set forth below based on the nature of products and services offered. SPR evaluates performance based on several factors, of which the primary financial measure is business segment operating income. Intersegment revenues are not material. Financial data for business segments is as follows (in thousands):
Three Months Ended NPC SPPC Total June 30, 2002 Electric Electric Electric Gas Other Consolidated - ------------------ ------------ ------------ ------------ ------------ ------------ ------------ Operating Revenues $ 477,059 $ 196,626 $ 673,685 $ 25,583 $ 1,586 $ 700,854 ============ ============ ============ ============ ============ ============ Operating Income (Loss) $ 30,162 $ (18,342) $ 11,820 $ 3,524 $ 4,555 $ 19,899 ============ ============ ============ ============ ============ ============
Three Months Ended NPC SPPC Total June 30, 2001 Electric Electric Electric Gas Other Consolidated - ------------------ ------------ ------------ ------------ ------------ ------------ ------------ Operating Revenues $ 808,441 $ 312,833 $ 1,121,274 $ 21,729 $ 5,070 $ 1,148,073 ============ ============ ============ ============ ============ ============ Operating Income $ 56,042 $ 17,887 $ 73,929 $ 554 $ 3,811 $ 78,294 ============ ============ ============ ============ ============ ============
Six Months Ended NPC SPPC Total June 30, 2002 Electric Electric Electric Gas Other Consolidated - ---------------- ------------ ------------ ------------ ------------ ------------ ------------ Operating Revenues $ 833,331 $ 420,923 $ 1,254,254 $ 80,666 $ 4,341 $ 1,339,261 ============ ============ ============ ============ ============ ============ Operating Income (Loss) $ (230,597) $ 5,059 $ (225,538) $ 5,057 $ 9,629 $ (210,852) ============ ============ ============ ============ ============ ============
Six Months Ended NPC SPPC Total June 30, 2001 Electric Electric Electric Gas Other Consolidated - ---------------- ------------ ------------ ------------ ------------ ------------ ------------ Operating Revenues $ 1,167,453 $ 593,271 $ 1,760,724 $ 85,894 $ 7,700 $ 1,854,318 ============ ============ ============ ============ ============ ============ Operating Income (Loss) $ 25,358 $ 23,977 $ 49,335 $ 5,649 $ (7,176) $ 47,808 ============ ============ ============ ============ ============ ============
NOTE 8. DISCONTINUED OPERATIONS (SPR, SPPC) As previously reported, SPPC closed the sale of its water business to the Truckee Meadows Water Authority for $341 million on June 11, 2001. Accordingly, the water business is reported as a discontinued operation for the three- and six-month periods ending June 30, 2001. SPPC recorded a $25.8 million gain on the sale, net of income taxes, for the same periods. Revenues from operations of the water business were $11.8 million and $23.2 million for the three- and six-month periods ended June 30, 2001, respectively. The net income from operations of the water business, as shown in the Condensed Consolidated Statements of Operations of SPR and SPPC, includes preferred dividends of approximately $100,000 and $200,000 for the three- and six-month periods ended June 30, 2001, respectively. These amounts are not included in the revenues and income (loss) from continuing operations shown in the accompanying statements of operations. NOTE 9. REGULATORY EVENTS (SPR, NPC, SPPC) NEVADA MATTERS (NPC, SPPC) NEVADA POWER COMPANY GENERAL RATE CASE (NPC) On October 1, 2001, NPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369, which was enacted by the Nevada legislature in April 2001. On December 21, 2001, NPC filed a Certification to its general rate filing updating costs and revenues pursuant to Nevada regulations. In the certification filing, NPC requested an increase in its general rates charged to all classes of electric customers designed to 20 produce an increase in annual electric revenues of $22.7 million, which is an overall 1.7% rate increase. The application also sought a return on common equity ("ROE") for Nevada Power's total electric operations of 12.25% and an overall rate of return ("ROR") of 9.30%. On March 27, 2002, the PUCN issued its decision on the general rate application, ordering a $43 million revenue decrease with an ROE of 10.1% and ROR of 8.37%. The effective date for the decision was April 1, 2002. The decision also resulted in adverse adjustments to depreciation aggregating $7.9 million, and the adverse treatment of approximately $5 million of revenues related to SO2 Allowances. On April 15, 2002, NPC filed a petition for reconsideration with the PUCN. In the petition, NPC raised six issues for reconsideration: the treatment of revenues related to SO2 Allowances, in particular the calculation of the annual amortization amount, which appeared to be in error; the adjustment for "excess" capital investment related to common facilities at the Harry Allen generating station; the rejection of adjustments to accumulated depreciation reserves related to the establishment of revised depreciation rates for transmission, distribution and common facilities; the delay in allowing NPC to recover its merger costs without the benefit of carrying charges; the finding that NPC has no need for, and is entitled to, zero funds cash working capital; and the establishment of a 10.1% ROE. On May 24, 2002, the PUCN issued an order on the petition for reconsideration. In its order the PUCN reaffirmed its findings in the original order for the issues related to "excess" capital investment at the Harry Allen generating station, merger costs, cash working capital, and the 10.1% ROE. The commission, however, did modify its original order to include adjustments related to SO2 Allowances and depreciation issues. Revised rates for these changes went into effect on June 1, 2002. NEVADA POWER COMPANY DEFERRED ENERGY CASE (NPC) On November 30, 2001, NPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 through September 30, 2001. This application was mandated by AB 369. The application sought to establish a Deferred Energy Accounting Adjustment ("DEAA") rate to clear accumulated purchased fuel and power costs of $922 million and spread the cost recovery 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 three years to collect $488 million but disallowing $434 million of deferred purchased fuel and power costs. On April 11, 2002, NPC filed a lawsuit in First District Court of Nevada seeking to reverse portions of the decision of the PUCN denying the recovery of deferred energy costs incurred by NPC on behalf of its customers in 2001 on the grounds that such power costs were not prudently incurred. NPC asserts that, as a result of the PUCN's decision, NPC's credit rating was reduced to below investment grade, SPR suffered a reduction in its equity market capitalization by approximately 41%, and the disallowed costs are effectively imposed upon SPR's shareholders. In its lawsuit, NPC alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; made upon unlawful procedure; affected by other error of law; clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; arbitrary and capricious and characterized by abuse of discretion. NPC's lawsuit requests that the District Court reverse portions of the order of the PUCN and remand the matter to the PUCN with direction that the PUCN authorize NPC to immediately establish rates that would allow NPC to recover its entire deferred energy balance of $922 million, with a carrying charge, over three years. A hearing has been scheduled for October 17, 2002. At this time, NPC is not able to predict the outcome or the timing of a decision in this matter. Various intervenors in NPC's deferred energy case before the PUCN filed petitions with the PUCN for reconsideration of the order, seeking additional disallowances of between $12.8 million and $488 million. On May 24, 2002, the PUCN issued an order denying any further disallowances. In its order the PUCN granted NPC the authority to increase the deferred energy cost recovery charge for the month of June 2002 by one cent per kilowatt-hour. This increase accelerated the recovery of the deferred balance by approximately $16 million for the month of June 2002 only. The Bureau of Consumer Protection of the Nevada Attorney General's Office has since filed a petition in NPC's pending state court case seeking additional disallowances. SIERRA PACIFIC POWER COMPANY GENERAL RATE CASE (SPPC) On November 30, 2001, SPPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369. On February 28, 2002, SPPC filed a certification to its general rate filing, updating costs and revenues pursuant to Nevada regulations. In the certification filing, SPPC requested an increase in its general rates charged to all classes of electric customers, which were designed to produce an increase in annual electric revenues of $15.9 million representing an overall 2.4% rate increase. The application also sought an ROE for SPPC's total electric operations of 12.25% and an overall ROR of 9.42%. Public hearings for SPPC's general rate case began on April 8, 2002, and concluded on April 18. Various parties intervened in SPPC's general rate case including the Staff of the PUCN, the Bureau of Consumer Protection from the Nevada Attorney General's office, and Barrick Goldstrike Mines ("Barrick"), among others. The reduction of SPPC's revenue requirements proposed by the intervenors ranged from $8.0 million to $33.1 million. 21 On May 28, 2002, the PUCN issued its decision on the general rate application, ordering a $15.3 million revenue decrease with an ROE of 10.17% and ROR of 8.61%. The effective date of the decision was June 1, 2002. Various parties to the case had filed petitions for reconsideration of the order. On July 18, 2002, the PUCN issued a final decision on the petitions for reconsideration, clarifying issues contained its original order. As a result of the clarifications, SPPC was ordered to change the total annual electric revenue decrease from $15.3 million to $15.8 million. SIERRA PACIFIC POWER COMPANY DEFERRED ENERGY (SPPC) On February 1, 2002, SPPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001. This application was mandated by AB 369. The application sought to establish a DEAA rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years. It also sought to recalculate the Base Tariff Energy Rate to reflect anticipated ongoing purchased fuel and power costs. The total rate increase resulting from the requested DEAA would have amounted to 9.8%. Various parties intervened in SPPC's deferred energy rate case including the Staff of the PUCN, the Bureau of Consumer Protection from the Nevada Attorney General's office, and Barrick, among others. Intervenors proposed disallowances ranging from $40.4 million to $361 million. On May 28, 2002, the PUCN issued its decision on the deferred energy application, allowing SPPC three years to collect $152 million but disallowing $53 million of deferred purchased fuel and power costs. SPPC is currently evaluating its options regarding a possible court challenge to the PUCN order. Several of the intervenors from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. CUSTOMERS FILE UNDER AB661 (NPC, SPPC) AB 661, passed by the Nevada legislature in 2001, allows commercial and governmental customers with an average demand greater than 1 MW to select new energy suppliers. The Utilities would continue to provide transmission, distribution, metering and billing services to such customers. AB 661 requires customers wishing to choose a new supplier to receive the approval of the PUCN and meet public interest standards. In particular, departing customers must secure new energy resources that are not under contract to the Utilities, remaining customers or the Utility cannot be negatively impacted by the departure, and the departing customers must pay any deferred energy balances. The PUCN adopted regulations prescribing the criteria that will be used to determine if there will be negative impacts to remaining customers or the Utility. Certain limits are placed upon the departure of NPC customers until 2003; most significantly, the amount of load departing is limited to approximately 1100 MW in peak conditions. Customers must provide 180-day notice to the Utilities. AB 661 permitted customers to file applications with the PUCN beginning in the fourth quarter of 2001, and customers could begin to receive service from new suppliers by mid-2002. On January 10, 2002, Barrick, an approximately 130 MW SPPC customer, filed an application with the PUCN to exit the system of SPPC and to purchase energy, capacity and ancillary services from a provider other than SPPC. A stipulation filed on March 8, 2002 by SPPC and Barrick was rejected by the PUCN on March 29, 2002. The PUCN indicated a desire for more information regarding transmission access, the definition of a new electric resource, and the computation of exit fees. Subsequently, a second application was filed and later withdrawn by Barrick. At this point it is not known whether Barrick intends to refile its application. During May 2002, Rouse Fashion Show Management LLC, Coast Hotels and Casinos Inc., Station Casinos, Inc., Gordon Gaming Corporation, MGM Mirage, and Park Place Entertainment filed separate applications with the PUCN to exit the system of NPC and to purchase energy, capacity and ancillary services from a provider other than NPC. The loads of these customers aggregate 260 MW on peak. Hearings on the applications of all the customers except Park Place Entertainment were completed on July 19, and the PUCN issued its decision on July 31, 2002. In its decision, the PUCN approved the applications of these customers to choose an energy supplier other than NPC. The earliest any of these customers could begin taking energy from an alternative provider would be November 1, 2002. If all five customers whose applications were approved were to leave its system, NPC would incur an annual loss in revenue of $48 million, which would be offset by a reduction in costs, primarily for fuel and purchased power, of $46 million with the difference being paid by exit fees from the departing customers. These customers will also be responsible for their share of balances in NPC's deferred energy accounts up until the time they leave and must continue to pay their share of these balances after they leave. For example, if all five customers whose applications were approved leave the system on November 1, 2002, their remaining share of NPC's previously approved deferred energy balance is estimated to be $27 million. Additionally, these departing customers would be responsible for paying their share of yet to be approved accumulated deferred energy balances from October 1, 2001 to their date of departure. They will also remain accountable to any rulings made by the District Court on legal actions brought in NPC's past deferred energy case. They could also benefit from any refunds that might be granted on power contracts under review with the FERC. Additionally, if any departed customers return to NPC as their energy provider, they will be charged 22 for their energy at a rate equivalent to NPC's incremental cost of service. The incremental cost of service tariff is scheduled for hearing before the PUCN in the first week of September 2002. A hearing on the application of Park Place Entertainment was held on August 2, 2002, and on August 12, 2002, the PUCN approved the application with terms and conditions similar to those described above for the aforementioned five customers. NEVADA POWER COMPANY ADDITIONAL FINANCE AUTHORITY (NPC) On April 26, 2002, Nevada Power filed with the PUCN an application seeking additional finance authority. In the application NPC asked for authority to issue secured long-term debt in an aggregate amount not to exceed $450 million through the period ending 2003. A hearing was held on June 3, 2002, and the PUCN issued an order on June 19, 2002, authorizing the issuance of $300 million of the requested authority. Other provisions of the PUCN's order are discussed in NPC's "Financial Condition, Liquidity, and Capital Resources." CALIFORNIA MATTERS (SPPC) RATE STABILIZATION PLAN SPPC serves approximately 44,500 customers in California. On June 29, 2001, SPPC filed with the California Public Utility Commission (CPUC) a Rate Stabilization Plan, which includes two phases. Phase One, which was also filed June 29, 2001, is an emergency electric rate increase of $10.2 million annually or 26%. If granted, the typical residential monthly electric bill for a customer using 650 kilowatt-hours would increase from approximately $47.12 to $60.12. On August 14, 2001, a pre-hearing conference was held, and a procedural order was established. On September 27, 2001, the Administrative Law Judge issued an order stating that no interim or emergency relief could be granted until the end of the "rate freeze" period mandated by the California restructuring law for recovery of stranded costs. In accordance with the judge's request, on October 26, 2001, SPPC filed an amendment to its application declaring the rate freeze period to be over. On December 5 and 11, 2001, hearings were held and on January 11, 2002 and January 25, 2002 opening briefs and reply briefs were filed. On July 17, 2002, the CPUC approved the requested 2-cent per kilowatt-hour surcharge, subject to refund and interest pending the outcome of Phase Two. The increase of $10 million or 26% is applicable to all customers except those eligible for low-income and medical-needs rates and is effective July 18, 2002. Phase Two of the Rate Stabilization Plan was filed with the CPUC on April 1, 2002, and includes a general rate case and requests the CPUC to reinstate the Energy Cost Adjustment Clause, which would allow SPPC to file for periodic rate adjustments to reflect its actual costs for wholesale energy supplies. Phase Two also includes a proposal to terminate the 10% rate reduction mandated by AB 1890, but does not include a performance - based rate-making proposal. This request was for an additional overall increase in revenues of 17.1%, or $8.9 million annually. Hearings are scheduled for February 25 through March 3, 2003, and a decision by the CPUC is expected the third quarter of 2003. FERC MATTERS (SPPC, NPC) FERC 206 COMPLAINTS In December 2001, the Utilities filed ten FERC 206 complaints with the FERC seeking their review of the long-term contracts the Utilities entered into prior to the FERC price caps. The Utilities believe the contract prices are unjust and unreasonable. The FERC ordered the case set for hearing and assigned an administrative law judge ("ALJ"). A primary issue is whether or not the dysfunctional short-term market, which was previously declared by the FERC, impacted the long-term market. Written direct testimony was filed by the parties on June 28, 2002. The ALJ's schedule calls for hearings to be held in October 2002 and for a draft decision in December 2002. The Utilities have engaged in bilateral discussions with respondents in this matter. At this time, the Utilities are not able to predict the outcome of a decision in this matter. NOTE 10. DERIVATIVES AND HEDGING ACTIVITIES (SPR, NPC, SPPC) Effective January 1, 2001, SPR, SPPC, and NPC adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, both issued by the Financial Accounting Standards Board. As amended, SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position, measure those instruments at fair value, and recognize changes in the fair value of the derivative instruments in earnings in the period of change unless the derivative qualifies as an effective hedge. SPR's and the Utilities' objective in using derivatives is to reduce exposure to energy price risk and interest rate risk. Energy price risks result from activities that include the generation, procurement and marketing of power and the procurement 23 and marketing of natural gas. Derivative instruments used to manage energy price risk include forwards, options, and swaps. These contracts allow the Utilities to reduce the risks associated with volatile electricity and natural gas markets. Derivatives used to manage interest rate risk include interest rate swaps designed to moderate exposure to interest-rate changes and lower the overall cost of borrowing. On April 1, 2002, SPR paid $9.5 million to terminate an interest rate swap related to $200 million of SPR floating rate notes maturing April 20, 2003. At June 30, 2002, the fair value of the derivatives resulted in the recording of $172 million, $115 million and $57 million in risk management assets and $398 million, $215 million and $183 million in risk management liabilities in the Consolidated Balance Sheets of SPR, NPC and SPPC, respectively. 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. Accordingly, at June 30, 2002, $235 million, $112 million and $123 million in net risk management regulatory assets were recorded in the Consolidated Balance Sheets of SPR, NPC, and SPPC, respectively. In addition, for the six months ended June 30, 2002, the unrealized gains and losses resulting from the change in the fair value of derivatives designated and qualifying as cash flow hedges for SPR, NPC, and SPPC were recorded in Other Comprehensive Income. Such amounts are reclassified into earnings when the related transactions are settled or terminate. Accordingly, $3.8 million relating to SPR's terminated interest rate swap were reclassified into earnings during the six months ended June 30, 2002. The effects of the adoption of SFAS No. 133 on comprehensive income and the components thereof at June 30, 2002, and 2001, are as follows (in thousands):
SPR NPC SPPC ---------- ---------- ---------- Net Loss for the six months ended June 30, 2002 $ (347,398) $ (295,329)(1) $ (24,957) Change in market value of risk management assets and liabilities as of June 30, 2002, net of taxes 2,108 (105) 169 ---------- ---------- ---------- Total Comprehensive Loss for the six months ended June 30, 2002 $ (345,290) $ (295,434) $ (24,788) ========== ========== ========== Net (Loss) Income for the six months ended June 30, 2001 $ (29,444) $ (22,292)(2) $ 24,966 Cumulative effect upon adoption of change in accounting principle, January 1, 2001, net of taxes (1,923) 444 212 Change in market value of risk management assets and liabilities as of June 30, 2001, net of taxes (1,540) 617 293 ---------- ---------- ---------- Total Comprehensive (Loss) Income for the six months ended June 30, 2001 $ (32,907) $ (21,231) $ 25,471 ========== ========== ==========
(1) Does not include NPC's equity in SPR's losses of $(52,069). (2) Does not include NPC's equity in SPR's losses of $(7,152). NOTE 11. COMMITMENTS AND CONTINGENCIES (SPR, NPC, SPPC) NEVADA POWER COMPANY AND SIERRA PACIFIC POWER COMPANY In early May, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers notified NPC and SPPC that they would end power deliveries to the Utilities based on what they believed to be their contractual right to end deliveries because of the Utilities' inability to provide adequate assurances of their ability to perform all of their outstanding material obligations. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages. Enron has filed suit in its Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages of approximately $216 million and $93 million against NPC and SPPC, respectively. Enron's claim is subject to the Utilities' defense that Enron's claims are already at issue in the FERC proceeding challenging the contract prices, and to other defenses that the Utilities intend to pursue in a timely manner. In connection with the lawsuit filed by Enron in Bankruptcy Court, Enron has filed a motion to require the Utilities to post collateral equal to the amount of Enron's 24 claims pending the outcome of the lawsuit. A hearing in this case has been scheduled for September 6, 2002. An adverse decision on the petition to require the Utilities to post collateral pending the outcome of Enron's lawsuit or an adverse decision in the lawsuit itself could have a material adverse affect on the financial condition and liquidity of SPR and the Utilities and could render their ability to continue to operate outside of bankruptcy uncertain. At this time, SPR and the Utilities are not able to predict the outcome of a decision in this matter. In connection with the claims by these energy suppliers, the Utilities established reserves, included in their Balance Sheets in "Deferred Credits and Other Liabilities, Other," totaling approximately $316 million, and, pursuant to the deferred energy accounting provisions of AB 369, NPC and SPPC added approximately $229 million and $82 million, respectively, to their deferred energy balances for recovery in rates in future periods. NEVADA POWER COMPANY 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. However, if the owners sell their entire ownership interest with a closing date prior to December 30, 2002, the new emission limits become effective 36 months and 39 months from the date of last closing for the two respective units. The estimated cost of new controls is $395 million. As a 14% owner in the Mohave Station, NPC's cost could be $55 million. 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 is under review by NDEP. After approval, an estimate of remediation costs will be determined by NPC. New pond construction and lining costs are estimated at $15 million. At the Reid Gardner Station, the NDEP has determined that there is additional groundwater contamination that resulted from oil spills at the facility. NDEP has required submitting a corrective action plan. The extent of contamination has been determined and remediation is occurring at a modest rate. A hydro-geologic evaluation of the current remediation technology will occur in 2002 to verify efficiency and to expedite remediation. Remediation modifications are not expected to materially affect the financial position of SPR or NPC. In May 1999, NDEP issued an order to eliminate the discharge of NPC's Clark Station wastewater to groundwater. The order also required a hydrological assessment of groundwater impacts in the area. This assessment, submitted to NDEP in February 2001, warranted a Corrective Action Plan, which was approved in June 2002. Remediation costs are expected to be approximately $100,000. In addition to remediation, NPC will spend $789,000 to line existing ponds. After review and approval of the Corrective Action Plan by NDEP, NPC will implement remediation. In July 2000, NPC received a request from the EPA for information to determine the compliance of certain generation facilities at the Clark Station with the applicable State Implementation Plan. In November 2000, NPC and the Clark County Health District entered into a Corrective Action Order requiring, among other steps, capital expenditures at the Clark Station totaling approximately $3 million. In March 2001, the EPA issued an additional request for information that could result in remediation beyond that specified in the November 2000 Corrective Action Order. If the EPA prevails, capital expenditures and temporary outages of four of Clark Station's generation units could be required. Additionally, depending on the time of year that the compliance activity and corresponding generation outage would occur, the incremental cost to purchase replacement energy could be substantial. Nevada Electric Investment Company (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 now has a reclamation estimate supported by a bond of $4 million with the Utah Division of Oil and Gas Mining. The property was under contract for sale and the contract required the purchaser to provide $1.3 million in escrow towards reclamation. However, the sales contract was terminated and NEICO took title to the escrow funds. The property is currently leased with the intention to reclaim coal fines with subsequent reduction to the reclamation bond. 25 SIERRA PACIFIC POWER COMPANY In September 1994, Region VII of EPA notified SPPC that it was being named as a potentially responsible party (PRP) regarding the past improper handling of Polychlorinated Biphenyls (PCBs) by PCB Treatment, Inc., located in Kansas City, Kansas, and Kansas City, Missouri (the Sites). The EPA is requesting that SPPC voluntarily pay an undefined, pro rata share of the ultimate clean-up costs at the Sites. A number of the largest PRP's formed a steering committee, which is chaired by SPPC. The responsibility of the Committee is to direct clean-up activities, determine appropriate cost allocation, and pursue actions against recalcitrant parties, if necessary. The EPA issued an administrative order on consent requiring signatories to perform certain investigative work at the Sites. The steering committee retained a consultant to prepare an analysis regarding the Sites. The Site evaluations have been completed. EPA is developing an allocation formula to allocate the remediation costs. SPPC has recorded a preliminary liability for the Sites of $650,000 of which approximately $136,000 has been spent through June 30, 2002. Once evaluations are completed, SPPC will be in a better position to estimate and record the ultimate liabilities for the Sites. OTHER SUBSIDIARIES OF SPR LOS, a wholly owned subsidiary of SPR, owns property in North Lake Tahoe, California, which is leased to independent condominium owners. The property has both soil and groundwater petroleum contaminate resulting from an underground fuel tank that has been removed from the property. Additional contaminate from a third party fuel tank on the property has also been identified and is undergoing remediation. A closure request is pending Lahontan Regional Water Quality Control Board approval. Estimated future remediation costs are not expected to be significant. NOTE 12. CHANGE IN ACCOUNTING FOR GOODWILL (SPR, NPC, SPPC) SFAS No. 142, adopted January 1, 2002, changed the accounting for goodwill from an amortization method to one requiring at least an annual review for impairment. Upon adoption, SPR ceased amortizing goodwill. SPR's Consolidated Balance Sheet as of June 30, 2002, includes approximately $325.6 million of goodwill resulting from the July 28, 1999 merger between SPR and NPC. Approximately $19.6 million of amortization of this goodwill has been deferred as a regulatory asset. The PUCN stipulation approving the merger allows for future recovery of this goodwill in rates charged to customers of SPR's regulated utility subsidiaries, NPC and SPPC, provided that NPC and SPPC demonstrate that merger savings exceed merger costs. The amount and timing of the recovery of this goodwill will be determined by the outcome of general rate cases to be filed by the Utilities with the PUCN. SPR's Consolidated Balance Sheet as of December 31, 2001, also included approximately $6.2 million of goodwill related to unregulated operations. 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 used to determine the fair value of each reporting unit of SPR's unregulated operations. The reporting units included in SPR's unregulated operations evaluated for goodwill impairment were Lands of Sierra (LOS), Sierra Pacific Communications (SPC), Tuscarora Gas Pipeline Company (TGPC), and "Energy" (a reporting unit consisting of Sierra Energy Company dba e- three, Nevada Electric Investment Company, and Sierra Pacific Energy Company). As a result of the impairment testing, which included revenue forecasts and appraisal of assets, SPR recorded a transitional goodwill impairment charge of approximately $1.7 million ($1.6 million, net of applicable taxes) as a cumulative effect of a change in accounting principle on SPR's Condensed Consolidated Statements of Operations for the six months ended June 30, 2002. The goodwill impairment recognized by reporting unit was approximately $600,000, $40,000 and $1.5 million for LOS, SPC and "Energy," respectively. Goodwill assigned to TGPC was determined not to be impaired. The changes in the carrying amount of goodwill for the six-month period ended June 30, 2002 are as follows:
REGULATED UNREGULATED (IN $000'S) OPERATIONS OPERATIONS TOTAL ---------- ---------- ---------- Balance as of January 1, 2002 $ 305,982 $ 6,163 $ 312,145 Impairment loss -- (1,704) (1,704) ---------- ---------- ---------- Balance as of June 30, 2002 $ 305,982 $ 4,459 $ 310,441 ========== ========== ==========
A reconciliation of SPR's previously reported net (losses) income and (losses) earnings per share to the amounts adjusted for the adoption of SFAS No. 142 net of the related income tax effect follows: 26 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- NET (LOSSES) EARNINGS: Reported net (loss) earnings $ (41,916) $ 54,035 $ (347,398) $ (29,444) Add back amortization of goodwill, net of tax -- 48 -- 96 ---------- ---------- ---------- ---------- Adjusted net (losses) earnings (41,916) 54,083 (347,398) (29,348) Add back cumulative effect of change in accounting principle, net of tax -- - 1,566 -- ---------- ---------- ---------- ---------- Adjusted (losses) earnings before cumulative effect of change in accounting principle $ (41,916) $ 54,083 $ (345,832) $ (29,348) ========== ========= ========== ========== BASIC AND DILUTED (LOSSES) EARNINGS PER SHARE: Reported (losses) earnings per share $ (0.41) $ 0.69 $ (3.40) $ (0.38) Add back amortization of goodwill, net of tax -- -- -- -- ---------- ---------- ---------- ---------- Adjusted (losses) earnings per share (0.41) 0.69 (3.40) (0.38) Add back cumulative effect of change in accounting principle, net of tax -- -- 0.01 -- ---------- ---------- ---------- ---------- Adjusted (losses) earnings per share before cumulative effect of change in accounting principle $ (0.41) $ 0.69 $ (3.39) $ (0.38) ========== ======== ========= ==========
NOTE 13. PINON PINE (SPR, SPPC) SPPC, through its wholly owned subsidiaries, Pinon Pine Corp., Pinon Pine Investment Co., and GPSF-B, owns Pinon Pine Company, L.L.C. (the "LLC"). The LLC was formed to take advantage of federal income tax credits associated with the alternative fuel (syngas) produced by the coal gasifier available under Section 29 of the Internal Revenue Code. The entire project, which includes an LLC-owned gasifier and an SPPC-owned power island and post-gasification facility to partially cool and clean the syngas, is referred to collectively as the Pinon Pine Power Project ("Pinon Pine"). Construction of Pinon Pine was completed in June 1998. Pinon Pine is a project co-funded by the Department of Energy (DOE) under an agreement between SPPC and DOE that expired December 31, 2000. Through December 31, 2001, the DOE funded $167 million for construction, operation, and maintenance of the project. Included in the Consolidated Balance Sheets of SPR and SPPC is the net book value of the gasifier and related assets, which is approximately $105 million as of December 31, 2001, of which $50 million is included in Utility Plant, and $55 million is included in Investments in subsidiaries and other property. To date, SPPC has not been successful in obtaining sustained operation of the gasifier. In 2001 SPPC retained an independent engineering consulting firm, to complete a comprehensive study of the Pinon Pine gasification plant by mid-2002. The scope of the study includes evaluation of the potential modifications required to make the facility operational and reliable using several technology scenarios. The evaluation of each scenario is to include an estimate of the additional capital expenditures necessary for reliable operation of the facility, and the risks associated with that technology. SPPC has received a preliminary report on the results of the study, which indicates that Pinon Pine will not operate as a demonstration plant for the production of syngas by a coal gasifier, as originally intended. The final report is not expected to differ significantly. Accordingly, in its next general rate case, SPPC intends to pursue recovery of Pinon Pine, net of salvage, through regulated rates based, in part, on the PUCN's approval of Pinon Pine as a demonstration project in an earlier resource plan. However, if SPPC is unsuccessful in obtaining recovery, there could be a material adverse effect on SPPC's and SPR's financial condition and results of operations. NOTE 14. SUBSEQUENT EVENTS (SPPC) On July 23, 2002, a dividend of $975,000 ($0.4875 per share) was declared on SPPC's preferred stock. The dividend is payable on September 1, 2002, to holders of record as of August 9, 2002. 27 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) UNFAVORABLE RULINGS IN RATE CASES TO BE FILED BY NPC AND SPPC (THE "UTILITIES") WITH THE PUBLIC UTILITIES COMMISSION OF NEVADA (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; (2) THE OUTCOME OF NPC'S PENDING LAWSUIT IN NEVADA STATE COURT SEEKING TO REVERSE PORTIONS OF THE PUCN'S MARCH 29, 2002 ORDER DENYING THE RECOVERY OF $434 MILLION OF DEFERRED ENERGY COSTS, INCLUDING THE OUTCOME OF THE PETITION FILED BY THE BUREAU OF CONSUMER PROTECTION OF THE NEVADA ATTORNEY GENERAL'S OFFICE SEEKING ADDITIONAL DISALLOWANCES; (3) THE ABILITY OF SPR, NPC AND SPPC TO ACCESS THE CAPITAL MARKETS TO SUPPORT THEIR REQUIREMENTS FOR WORKING CAPITAL, INCLUDING AMOUNTS NECESSARY TO FINANCE DEFERRED ENERGY COSTS, CONSTRUCTION COSTS AND THE REPAYMENT OF MATURING DEBT, PARTICULARLY IN THE EVENT OF ADDITIONAL UNFAVORABLE RULINGS BY THE PUCN, A FURTHER DOWNGRADE OF THE CURRENT DEBT RATINGS OF SPR, NPC OR SPPC AND/OR ADVERSE DEVELOPMENTS WITH RESPECT TO NPC'S OR SPPC'S POWER AND FUEL SUPPLIERS; (4) WHETHER SUPPLIERS, SUCH AS ENRON, WHICH HAVE TERMINATED THEIR POWER SUPPLY CONTRACTS WITH NPC AND/OR SPPC WILL BE SUCCESSFUL IN PURSUING THEIR CLAIMS AGAINST THE UTILITIES FOR LIQUIDATED DAMAGES UNDER THEIR POWER SUPPLY CONTRACTS, AND WHETHER ENRON WILL BE SUCCESSFUL IN REQUESTING THAT COLLATERAL BE POSTED IN THE AMOUNT OF ITS CLAIMS PENDING RESOLUTION OF ITS LAWSUIT AGAINST NPC AND SPPC; (5) WHETHER SPR, NPC AND SPPC WILL BE ABLE TO MAINTAIN SUFFICIENT STABILITY WITH RESPECT TO THEIR LIQUIDITY AND RELATIONSHIPS WITH SUPPLIERS TO BE ABLE TO CONTINUE TO OPERATE OUTSIDE OF BANKRUPTCY; (6) WHETHER CURRENT SUPPLIERS OF PURCHASED POWER, NATURAL GAS OR FUEL TO NPC OR SPPC WILL CONTINUE TO DO BUSINESS WITH NPC OR SPPC OR WILL TERMINATE THEIR CONTRACTS AND SEEK LIQUIDATED DAMAGES FROM THE RESPECTIVE UTILITY; (7) WHETHER CURRENT SUPPLIERS OF PURCHASED POWER TO NPC WILL CONTINUE TO ACCEPT DELAYED PAYMENT OF A PORTION OF THE PURCHASE PRICE UNDER THEIR CONTRACTS WITH NPC DURING THE PERIOD FROM MAY 1 THROUGH SEPTEMBER 15, 2002; (8) WHETHER NPC AND SPPC WILL BE ABLE, EITHER THROUGH FEDERAL ENERGY REGULATORY COMMISSION ("FERC") PROCEEDINGS OR NEGOTIATION, TO OBTAIN LOWER PRICES ON THEIR LONGER-TERM PURCHASED POWER CONTRACTS WHICH ARE PRICED ABOVE CURRENT MARKET PRICES FOR ELECTRICITY; (9) WHETHER THE PUCN WILL ISSUE FAVORABLE ORDERS IN A TIMELY MANNER TO PERMIT THE UTILITIES TO BORROW MONEY AND ISSUE ADDITIONAL SECURITIES TO FINANCE THE UTILITIES' OPERATIONS AND TO PURCHASE POWER AND FUEL NECESSARY TO SERVE THEIR RESPECTIVE CUSTOMERS; AND, IN PARTICULAR, THE PUCN'S DECISION ON THE PETITION OF THE BUREAU OF CONSUMER PROTECTION OF THE NEVADA ATTORNEY GENERAL'S OFFICE TO RECONSIDER THE PUCN'S RECENT ORDER AUTHORIZING THE ISSUANCE BY NPC OF ADDITIONAL LONG-TERM DEBT; 28 (10) WHETHER THE UTILITIES WILL NEED TO PURCHASE ADDITIONAL POWER ON THE SPOT MARKET TO MEET UNANTICIPATED POWER DEMANDS (FOR EXAMPLE, DUE TO UNSEASONABLY HOT WEATHER) AND WHETHER SUPPLIERS WILL BE WILLING TO SELL SUCH POWER TO THE UTILITIES IN LIGHT OF THEIR WEAKENED FINANCIAL CONDITION; (11) THE EFFECT OF PRICE CONTROLS PROMULGATED FROM TIME TO TIME BY THE FERC ON THE PRICE AT WHICH THE UTILITIES CAN SELL EXCESS POWER IN THE WHOLESALE MARKETS AND ON THE OVERALL AVAILABILITY OF PURCHASED POWER ON THE SPOT MARKET; (12) THE EFFECT OF A NON-BINDING REFERENDUM TO BE INCLUDED ON THE BALLOT IN CLARK COUNTY, NEVADA IN NOVEMBER 2002 ASKING VOTERS TO INDICATE WHETHER THEY WOULD FAVOR THE ESTABLISHMENT OF A NON-PROFIT ENTITY TO PROVIDE ELECTRICITY SERVICES IN SOUTHERN NEVADA; (13) THE EFFECT THAT ANY FUTURE TERRORIST ATTACKS MAY HAVE ON THE TOURISM AND GAMING INDUSTRIES IN NEVADA, PARTICULARLY IN LAS VEGAS, AS WELL AS ON THE ECONOMY IN GENERAL; (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) UNSEASONABLE WEATHER AND OTHER NATURAL PHENOMENA, WHICH CAN HAVE POTENTIALLY SERIOUS IMPACTS ON THE UTILITIES' ABILITY TO PROCURE ADEQUATE SUPPLIES OF FUEL OR PURCHASED POWER TO SERVE THEIR RESPECTIVE CUSTOMERS AND ON THE COST OF PROCURING SUCH SUPPLIES; (16) INDUSTRIAL, COMMERCIAL AND RESIDENTIAL GROWTH IN THE SERVICE TERRITORIES OF THE UTILITIES; (17) THE LOSS OF ANY SIGNIFICANT CUSTOMERS; (18) CHANGES IN THE BUSINESS OF MAJOR CUSTOMERS, PARTICULARLY 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; (19) CHANGES IN ENVIRONMENTAL REGULATIONS, TAX OR ACCOUNTING MATTERS OR OTHER LAWS AND REGULATIONS TO WHICH THE UTILITIES ARE SUBJECT; (20) FUTURE ECONOMIC CONDITIONS, INCLUDING INFLATION OR DEFLATION RATES AND MONETARY POLICY; (21) FINANCIAL MARKET CONDITIONS, INCLUDING CHANGES IN AVAILABILITY OF CAPITAL OR INTEREST RATE FLUCTUATIONS; (22) UNUSUAL OR UNANTICIPATED CHANGES IN NORMAL BUSINESS OPERATIONS, INCLUDING UNUSUAL MAINTENANCE OR REPAIRS; AND (23) 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. CRITICAL ACCOUNTING POLICIES The following items represent critical accounting policies that under different conditions or using different assumptions could have a material effect on the financial condition, liquidity and capital resources of SPR and the Utilities. Regulatory Accounting The Utilities' rates are currently subject to the approval of the PUCN and are designed to recover the cost of providing generation, transmission and distribution services. As a result, the Utilities qualify for the application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation", issued by the Financial Accounting Standards Board (FASB). 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 29 expense where it is probable that future revenue will be provided to recover these costs. SFAS No. 71 prescribes the method to be used to record the financial transactions of a regulated entity. The criteria for applying SFAS No. 71 include the following: (i) rates are set by an independent third party regulator, (ii) approved rates are intended to recover the specific costs of the regulated products or services, and (iii) rates that are set at levels that will recover costs can be charged to and collected from customers. Deferred Energy Accounting On April 18, 2001, the Governor of Nevada signed into law Assembly Bill (AB) 369. The provisions of AB 369, which are described in greater detail in "Regulation and Rate Proceedings," later, include, among others, a reinstatement of deferred energy accounting for fuel and purchased power costs incurred by electric utilities. In accordance with the provisions of SFAS No. 71, the Utilities implemented deferred energy accounting on March 1, 2001, for their respective electric operations. Under deferred energy accounting, to the extent actual fuel and purchased power costs exceed fuel and purchased power costs recoverable through current rates, that excess is not recorded as a current expense on the statement of operations but rather is deferred and recorded as an asset on the balance sheet. Conversely, a liability is recorded to the extent fuel and purchased power costs recoverable through current rates exceed actual fuel and purchased power costs. These excess amounts are reflected in adjustments to rates and recorded as revenue or expense in future time periods, subject to PUCN review. AB 369 provides that the PUCN may not allow the recovery of any costs for purchased fuel or purchased power "that were the result of any practice or transaction that was undertaken, managed or performed imprudently by the electric utility." In reference to deferred energy accounting, AB 369 specifies that fuel and purchased power costs include all costs incurred to purchase fuel, to purchase capacity, and to purchase energy. The Utilities also record, and are eligible under the statute to recover, a carrying charge on such deferred balances. As described in more detail under "Regulatory Matters - Nevada Matters - - Nevada Power Company Deferred Energy Case" below, on November 30, 2001, NPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and September 30, 2001. The application sought to establish a rate to clear accumulated purchased fuel and power costs of $922 million and spread the cost recovery over a period of not more than three years. On March 29, 2002, the PUCN issued its decision on the deferred energy application, disallowing $434 million of deferred purchased fuel and power costs and allowing NPC to collect the remaining $488 million over three years beginning April 1, 2002. As a result of this disallowance, NPC wrote off $434 million of deferred energy costs, the two major national rating agencies immediately downgraded the credit rating on SPR's, NPC's and SPPC's debt securities (followed by further downgrades late in April), and the market price of SPR's Common Stock fell substantially. As described in more detail under "Regulatory Matters - Nevada Matters - - Sierra Pacific Power Company Deferred Energy Case" below, SPPC filed an application with the PUCN seeking to clear its deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001. The application sought to establish a rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years. On May 28, 2002, the PUCN issued its decision on SPPC's deferred energy application, disallowing $53 million of deferred purchased fuel and power costs and allowing SPPC to collect the remaining $152 million over three years beginning June 1, 2002. As a result of this decision, SPPC wrote off the $53 million of disallowed deferred energy costs. In the meantime, both Utilities have continued to be entitled under AB369 to utilize deferred energy accounting for their electric operations. Because of contracts entered into during the Western energy crisis in 2001 to assure adequate supplies of electricity for their customers, the Utilities are continuing to incur fuel and purchased power costs in excess of amounts they are permitted to recover in current rates. As a result, during the six months ended June 30, 2002, both Utilities continued to record additional amounts in their deferral of energy costs accounts. If not for deferred energy accounting during the first six months of 2002, SPR's, NPC's and SPPC's results of operations, financial condition, liquidity and capital resources would have been adversely affected. For example, without the deferred energy accounting provisions of AB 369, the reported net losses of SPR, NPC, and SPPC for the six months ended June 30, 2002 of ($347.4) million, ($295.3) million(1), and ($25.0) million would have been (net of income tax) reported as net losses of ($521.5) million, ($422) million(1), and ($72.4) million, respectively. Similarly, the reported net income of NPC for the quarter ended June 30, 2002 of 5.7 million(1) would have been (net of income tax) reported as a net loss of ($114.7) million(1), and the reported net losses of SPR and SPPC for the quarter ended June 30, 2002 of ($41.9) million and ($34.9) million would have been (net of income tax) reported as net losses of ($206.7) million and ($79.3) million, respectively. As demonstrated with respect to the Utilities' recent deferred energy cases, a significant disallowance by the PUCN of costs currently deferred could have a material adverse affect on the future results of operations of SPR, NPC and SPPC. See the Form 10-K for the year ended December 31, 2001 for a more detailed discussion of deferred energy accounting. - -------- (1) Excludes equity in losses of SPR 30 Derivatives and Hedging Activities Effective January 1, 2001, SPR, SPPC, and NPC adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138. As amended, SFAS No. 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure the instruments at fair value. In order to manage loads, resources and energy price risk, the Utilities buy fuel and power under forward contracts. In addition to forward fuel and power purchase contracts, the Utilities also use options and swaps to manage price risk. All of these instruments are considered to be derivatives under SFAS No. 133. The risk management assets and liabilities recorded in the balance sheets of the Utilities and SPR are primarily comprised of the fair value of these forward fuel and power purchase contracts and other energy related derivative instruments. Fuel and purchased power costs are subject to deferred energy accounting. Accordingly, the energy related risk management assets and liabilities and the corresponding unrealized gains and losses (changes in fair value) are offset with a regulatory asset or liability rather than recognized in the statements of income and comprehensive income. Upon settlement of a derivative instrument, actual fuel and purchased power costs are recognized if they are currently recoverable or deferred if they are recoverable or payable through future rates. The fair values of the forward contracts and swaps are determined based on quotes obtained from independent brokers and exchanges. The fair values of options are determined using a pricing model which incorporates assumptions such as the underlying commodity's forward price curve, time to expiration, strike price, interest rates, and volatility. The use of different assumptions and variables in the model could have a significant impact on the valuation of the instruments. SPR and the Utilities have other non-energy related derivative instruments such as interest rate swaps. The transition adjustment resulting from the adoption of SFAS No. 133 related to these types of derivative instruments was reported as the cumulative effect of a change in accounting principle in Other Comprehensive Income. Additionally, the changes in fair values of these non-energy related derivatives are also reported in the statements of comprehensive income until the related transactions are settled or terminate, at which time the amounts will be reclassified into earnings. $3.8 million relating to a terminated interest rate swap were reclassified into earnings during the quarter ended June 30, 2002. No other amounts were reclassified into earnings during the three- and six-month periods ended June 30, 2002 and 2001. See Note 22 of "Notes to Financial Statements" in the Form 10-K for the year ended December 31, 2001, and "Item 3 - Quantitative and Qualitative Disclosures about Market Risk" in this Report for additional information regarding derivatives and hedging activities. Provision for Uncollectible Accounts The Utilities reserve for doubtful accounts based on past experience writing off uncollectible customer accounts. The collapse of the energy markets in California, and the subsequent bankruptcy of the California Power Exchange and the financial difficulties of the Independent System Operator, resulted in the Utilities reserving for outstanding receivables for power purchases by these two entities of $19.9 million and $1.5 million (before taxes) for NPC and SPPC, respectively. The weakening economy and the disruption to the leisure travel industry after September 11th also impacted the Utilities' customer delinquencies in 2001. As of December 31, 2001, additional amounts of $14.8 million and $6.1 million were reserved for delinquent retail customer accounts of NPC and SPPC, respectively. During the six months ended June 30, 2002, $2.9 million and $1.5 million were added to the provisions for uncollectible retail customer accounts of NPC and SPPC, respectively. The adequacy of these reserves will vary to the extent that future collections differ from past experience. Uncollectible retail customer accounts amounting to $2.3 million and $1.9 million, respectively, for NPC and SPPC, were written off against these provisions during the six months ended June 30, 2002. Significant collection efforts are underway to recover portions of the rest of the delinquent accounts. MAJOR FACTORS AFFECTING RESULTS OF OPERATIONS As discussed in the results of operations sections that follow, operating results for the six months ended June 30, 2002 were severely affected by the PUCN's March 29, 2002 decision in NPC's deferred energy rate case to disallow $434 million of deferred purchased fuel and power costs. As a result of this disallowance, NPC wrote off $465 million of deferred energy costs and related carrying charges during that quarter. In addition, the decision of the PUCN on May 29, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 had a significant negative impact on the results of operations of SPR and SPPC for the quarter and the six-month period ended June 30, 2002. As a result of this disallowance, SPPC wrote off $55.1 million of deferred energy costs 31 and related carrying charges during that quarter. The discussion below provides the context in which these decisions were made. In an effort to mitigate the effects of higher fuel and purchased power costs that developed in the Western United States in 2000,the Utilities entered into the Global Settlement with the PUCN in July 2000, which established a mechanism that initiated incremental rate increases for each Utility. Cumulative electric rate increases under the Global Settlement were $127 million and $65 million per year for NPC and SPPC, respectively. However, because the rate adjustment mechanism of the Global Settlement was subject to certain caps and could not keep pace with the continued escalation of fuel and purchased power prices, on January 29, 2001, the Utilities filed a Comprehensive Energy Plan (CEP) with the PUCN. The CEP included a request for emergency rate increases (CEP Riders). On March 1, 2001, the PUCN permitted the requested CEP Riders to go into effect subject to later review. The CEP Riders provided further rate increases of $210 million and $104 million per year, respectively, for NPC and SPPC. Notwithstanding the increases under the Global Settlement and the CEP Riders, the Utilities' revenues for fuel and purchased power recovery continued to be less than the related expenses. Accordingly, the Utilities sought additional relief pursuant to legislation. On April 18, 2001, the Governor of Nevada signed into law AB 369. The provisions of AB 369 include a moratorium on the sale of generation assets by electric utilities until 2003, the repeal of electric industry restructuring, and, beginning March 1, 2001, a reinstatement of deferred energy accounting for fuel and purchased power costs incurred by electric utilities. The stated purposes of this emergency legislation included, among others, to control volatility in the price of electricity in the retail market in Nevada and to ensure that the Utilities have the necessary financial resources to provide adequate and reliable electric service under present market conditions. As discussed above in "Critical Accounting Policies," deferred energy accounting allows the Utilities an opportunity to recover in future periods that portion of their costs for fuel and purchased power not covered by current rates and defers to future periods the expense associated with the amounts by which fuel and purchased power costs exceed the costs to be recovered in current rates. Recovery is subject to PUCN review as to prudency and other matters. AB 369 requires each Utility to file general rate applications and deferred energy applications with the PUCN by specific dates. NPC's deferred energy application, filed on November 30, 2001, sought to establish a Deferred Energy Accounting Adjustment ("DEAA") rate, effective on April 1, 2002, to clear accumulated purchased fuel and power costs of $922 million and spread the cost recovery over a period of not more than three years, resulting in an average net increase of 21%. SPPC's deferred energy application, filed on February 1, 2002, sought to establish a DEAA rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years, resulting in an average net increase of 9.8%. See "Regulatory Matters," later, for a discussion of the Utilities' general rate case filings and decisions. The March 29, 2002 decision of the PUCN on NPC's deferred energy application to disallow $434 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and September 30, 2001 had a significant negative impact on the results of operations of SPR and NPC for the six months ended June 30, 2002. Several of the intervenors from NPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking additional disallowances ranging from $12.8 million to $488 million. The petitions for reconsideration were granted in part and denied in part by the PUCN on May 24, 2002, but no additional disallowances to the deferred energy balance resulted from that decision. The Bureau of Consumer Protection of the Nevada Attorney General's Office has since filed a motion in NPC's pending state court case seeking additional disallowances. Although the PUCN's March 29, 2002 decision on NPC's deferred energy application is being challenged by NPC in a lawsuit filed in Nevada state court, which is discussed below under "Regulatory Matters", the decision caused the two major national rating agencies to issue an immediate downgrade of the credit ratings on SPR's, NPC's and SPPC's debt securities (followed by further downgrades late in April). Following those events, the market price of SPR's common stock fell substantially, NPC and SPPC were obliged within 5 business days of the downgrades to issue general and refunding mortgage bonds to secure their bank lines of credit, NPC was obliged to obtain a waiver and amendment from its credit facility banks before it was permitted to draw down on the facility, NPC and SPPC were no longer able to issue commercial paper, a number of NPC's power suppliers contacted NPC regarding its ability to pay the purchase price of outstanding contracts, and several power suppliers, including an affiliate of Enron Corp., terminated their power supply agreements with one or both of the Utilities. The separate decision of the PUCN on May 29, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 had a significant negative impact on the results of operations of SPR and SPPC for the quarter and the six months ended June 30, 2002. SPPC is currently evaluating its options regarding a possible court challenge to the PUCN order. Several of the intervenors from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional 32 disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. A significant disallowance in future deferred energy rate cases filed by either Utility could further weaken the financial condition, liquidity, and capital resources of SPR, NPC, and SPPC. In particular, such a decision or decisions could cause further downgrades of debt securities by the rating agencies, could make it impracticable to access the capital markets, and could cause additional power suppliers to terminate purchased power contracts and seek liquidated damages. Under such circumstances, there can be no assurance that SPR, NPC, or SPPC would be able to remain solvent or continue operations. Under such circumstances, there also can be no assurance that SPR, NPC, or SPPC would not seek protection under the bankruptcy laws. SIERRA PACIFIC RESOURCES During the first six months of 2002, SPR incurred a loss of $345.4 million before preferred stock dividend requirements, and paid $20.6 million in common stock dividends on March 15, 2002. NPC and SPPC, SPR's principal subsidiaries, paid common stock dividends of $10 million and $19.9 million, respectively, to their parent, SPR. SPPC also paid $1.95 million in dividends to holders of its preferred stock. During the first six months of 2002, NPC and SPPC each received a capital contribution of $10 million from SPR. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES 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 these two subsidiaries are public utilities, they are subject to regulation by state utility commissions which may impose limits on investment returns or otherwise impact the amount of dividends which may be paid by those companies. In addition, certain agreements entered into by NPC and SPPC set restrictions on the amount of dividends the Utilities may declare and pay and restrict the circumstances under which such dividends may be declared and paid. The specific restrictions on dividends contained in agreements to which NPC and SPPC are party, as well as specific regulatory limitations on dividends, are summarized below. - NPC's first mortgage indenture limits the cumulative amount of dividends that NPC may pay on its capital stock to the cumulative net earnings of NPC since 1953. At the present time, this restriction precludes NPC from making further payments of dividends on NPC's common stock and will continue to bar such payments unless the restriction is waived or removed by the consent of the first mortgage bondholders, the first mortgage bonds are redeemed or defeased, or until, over the passage of time, NPC generates sufficient earnings to overcome the shortfall created by the write-off of $465 million in connection with the March 2002 decision in NPC's deferred energy rate case. - NPC's Credit Agreement, as amended on June 25, 2002, prohibits the payment of dividends on NPC's common stock for the duration of that facility, which expires on November 28, 2002. - On June 4, 2002, NPC entered into a Master Amendment to Confirmation Agreements with Duke Energy Trading and Marketing L.L.C. which, among other things, limits the amount of dividends NPC may declare or pay on its equity securities until NPC completes certain deferred payments under the Agreement, which are due on December 31, 2003. Under the Agreement, until the deferred payments are paid in full, NPC may not declare any dividend or make any dividend payments other than (1) payments to SPR to enable SPR to pay its reasonable fees and expenses (including interest on SPR's debts and payment of obligations under SPR's PIES) incurred in the ordinary course of business in calendar year 2003, up to a maximum amount of $20,000,000 and (2) any currently scheduled payments to any of NPC's preferred trust vehicles on account of NPC's preferred trust securities. - The PUCN issued a Compliance Order, Docket No. 02-4037, on June 19, 2002, relating to NPC's request for authority to issue long-term debt. The PUCN order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. - The terms of NPC's preferred trust securities provide that no dividends may be paid on NPC's common stock if NPC has elected to defer payments on the junior subordinated debentures issued in conjunction with the preferred trust securities. At this time, NPC has not elected to defer payments on the junior subordinated debentures. - SPPC's Credit Agreement, which was also amended on June 25, 2002, prohibits dividends on SPPC's capital stock if there is a default or an event of default under the Credit Agreement. The Agreement expires November 28, 2002. 33 - SPPC's Articles of Incorporation contain restrictions on the payment of dividends on SPPC's common stock in the event of a default in the payment of dividends on SPPC's preferred stock and prohibit SPPC from declaring or paying any dividends on any shares of common stock except from the net income of SPPC, and its predecessor, available for dividends on common stock accumulated subsequent to December 31, 1955, less preferred stock dividends, plus the sum of $500,000. Any of these provisions which restrict dividends payable by NPC or SPPC could adversely affect the liquidity of SPR. On March 29 and April 1, 2002, S&P and Moody's lowered the unsecured debt ratings of SPR, NPC and SPPC to below investment grade in response to the decision of the PUCN with respect to NPC's rate cases. On April 23 and 24, 2002, the unsecured debt ratings of SPR and the Utilities were further downgraded by both rating agencies and the Utilities' secured debt ratings were downgraded to below investment grade. The downgrades have affected SPR's, NPC's and SPPC's liquidity primarily in two principal areas: (1) their respective financing arrangements and (2) NPC's and SPPC's contracts for fuel, for purchase and sale of electricity and for transportation of natural gas. As a result of the ratings downgrades, SPR's ability to access the capital markets to raise funds is severely limited. On April 3, 2002, SPR terminated its $75 million unsecured revolving credit facility as a condition to the banks agreeing to an amendment of NPC's $200 million unsecured revolving credit facility that would permit NPC to draw down funds under that facility. See "Nevada Power Company - Financial Condition, Liquidity and Capital Resources" for more information. In response to the decisions by the PUCN in NPC's recent rate cases, SPR has implemented certain measures that will positively impact cash flow by $125 million in 2002. Two major transmission construction projects, discussed in the Form 10-K for the year ended December 31, 2001, have been delayed for a total capital preservation impact of $80.8 million. The delay in NPC's Centennial Plan has an impact of $46.4 million and the delay of SPPC's Falcon to Gonder Project has an impact of $34.4 million. An additional $28.9 million was reduced from the Utilities' capital budgets by curtailing or delaying other projects. Management expects that the balance of the $125 million cash flow enhancement will be obtained from various land sales. Additional cost-cutting actions by SPR may be necessary. With respect to NPC's and SPPC's contracts for purchased power, NPC and SPPC purchase and sell electricity with their counterparties under the Western Systems Power Pool ("WSPP") agreement, which is an industry standard contract. The WSPP contract is posted on the WSPP website. These contracts provide that a material adverse change may give rise to a right to request collateral, which, if not provided within 3 business days, could cause a default. A default must be declared within 30 days of the event giving rise to the default becoming known. As the Utilities continue to negotiate arrangements with their suppliers, the Utilities have extended to all continuing suppliers their rights under the WSPP agreement, including the right to declare a default. A default will result in a termination payment equal to the present value of the net gains and losses for the entire remaining term of all contracts between the parties aggregated to a single liquidated amount due within 3 business days following the date the notice of termination is received. The mark-to-market value can be used to roughly approximate the termination payment at any point in time. The mark-to-market value as of July 31, 2002, for all suppliers continuing to provide power under a WSPP agreement was approximately $248 million and $108 million, respectively, for NPC and SPPC. Following the PUCN decisions, a number of power suppliers requested collateral from NPC and SPPC. On April 4, 2002, the Utilities sent a letter to their suppliers advising them that, assuming the Utilities could access the capital markets for secured debt and no other significant negative developments occurred, the Utilities expected to be able to honor their obligations under the power supply contracts. However, the Utilities noted that a simultaneous call for 100% mark-to-market collateral in the short-term would likely not be met. On April 24, 2002, the Utilities met with representatives of various suppliers to discuss SPR's and the Utilities' financial situation and plans, and indicated that they intended to propose extended payment terms for the above-market portions of NPC's existing power contracts. Such extended payment terms were proposed to NPC's suppliers in a letter dated May 2, 2002, and proposed paying less than contract prices, but more than market prices plus interest, for the period May 1 to September 15, 2002. NPC may pay any balances remaining prior to December 2003. NPC also agreed to extend the suppliers' rights under the WSPP agreement. In early May, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers notified NPC and SPPC that they would end power deliveries to the Utilities based on what they believed to be their contractual right to end deliveries because of the Utilities' inability to provide adequate assurances of their ability to perform all of their outstanding material obligations. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages. As discussed in Note 11, Commitments And Contingencies, Enron has filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages of approximately $216 million and $93 million against NPC and SPPC, respectively. Enron's claim is subject to the Utilities' defense that Enron's claims are already at issue in the FERC proceeding challenging the contract prices, and to other defenses that the Utilities intend to pursue in a timely manner. In connection with the lawsuit filed by Enron in Bankruptcy Court, Enron has filed a motion to require the Utilities to post collateral equal to the amount of Enron's claims pending the outcome of the lawsuit. A hearing in this case has been scheduled for September 6, 2002. An adverse decision on 34 the petition to require the Utilities to post collateral pending the outcome of Enron's lawsuit or an adverse decision in the lawsuit itself could have a material adverse affect on the financial condition and liquidity of SPR and the Utilities and could render their ability to continue to operate outside of bankruptcy uncertain. At this time, SPR and the Utilities are not able to predict the outcome of a decision in this matter. On June 10, 2002, Duke Energy Trading and Marketing ("Duke") entered into an agreement with SPR and the Utilities to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to NPC and SPPC to fulfill customers' power requirements during the peak summer period. The effect of the Duke agreement was to replace the amount of contracted power and natural gas that would have been supplied by the various terminating suppliers, including Enron. Duke also agreed to accept deferred payment for a portion of the amount due under its existing power contracts with NPC for purchases made through September 15, 2002. Although the other continuing suppliers have not entered into formal agreements with NPC regarding deferred payments, NPC has been deferring a portion of the payments to such suppliers since May 1, 2002 and intends to continue to due so for charges incurred through September 15, 2002. With respect to the purchase and sale of natural gas, NPC and SPPC use several types of contracts. Standard industry sponsored agreements include: - the Gas Industry Standards Board ("GISB") agreement which is used for physical gas transactions, - the GasEDI Base Contract for Short Term Sale and Purchase of Natural Gas which is also used for physical gas transactions, - the International Swap Dealers Association (ISDA) agreement which is used for financial gas transactions. Alternatively, the gas transactions might be governed by a non-standard bilateral master agreement negotiated between the parties, or by the confirmation associated with the transaction. The natural gas contract terms and conditions are more varied than the electric contracts. Consequently, some of the contracts contain language similar to that found in the WSPP agreement and other agreements have unique provisions dealing with material adverse changes. Gas transmission services are provided under the FERC Gas Tariff or a custom agreement. These contracts require the entities to establish and maintain creditworthiness to obtain service. These contracts are subject to FERC approved tariffs which, under certain circumstances, require the Utilities to provide collateral to continue receiving service. To date, a letter of credit has been provided to one of SPPC's gas suppliers. In March 2002, NPC received a federal income tax refund of $79.3 million. Additionally, SPR and the Utilities received $105.7 million of refunds in the second quarter of 2002. These refunds were the result of income tax losses generated in 2001. Federal legislation passed in March 2002 changed the allowed carry-back of these losses from two years to five years. This change permitted SPR and the Utilities to accelerate the receipt of a portion of their income tax receivables sooner than expected. The remaining receivable of $300.5 million will be utilized in future periods to reduce taxes payable when SPR and the Utilities recognize taxable income. At June 30, 2002, SPR had cash investments of approximately $27.7 million. At July 31, 2002, SPR had cash investments of approximately $20.7 million. SPR's future liquidity depends, in part, on SPPC's ability to continue to pay dividends to SPR, on a restoration of NPC to financial stability including a restoration of its ability to pay dividends to SPR, and on SPR's ability to access the capital markets or otherwise refinance debt that will be maturing in 2003 and thereafter. Further adverse developments at NPC or SPPC, including a material disallowance of deferred energy costs in future rate cases, an adverse decision in the pending lawsuit by Enron to collect liquidated damages (including its motion requesting the posting of collateral), a refusal by one or more of NPC's continuing power suppliers to continue to accept extended payment terms through the summer of 2002, or an inability of NPC or SPPC to renew, replace or refinance all or a portion of their respective credit facilities which expire on November 28, 2002, could cause SPR to become insolvent and would render SPR's ability to continue to operate outside of bankruptcy uncertain. 35 NEVADA POWER COMPANY During the quarter ended June 30, 2002, NPC earned approximately $5.7 million (excluding NPC's equity in the losses of its parent, SPR) and paid no dividends on its common stock. During the six months ended June 30, 2002, NPC incurred a loss of approximately $295.3 million (excluding NPC's equity in the losses of its parent, SPR), and paid $10 million in dividends on its common stock, all of which was reinvested in NPC as a contribution to capital. The causes for significant changes in specific lines comprising the results of operations for NPC are as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------- -------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ---------- ---------- ------------ ELECTRIC OPERATING REVENUES ($000): Residential $ 166,825 $ 172,520 -3.3% $ 297,931 $ 275,699 8.1% Commercial 90,367 83,573 8.1% 160,058 139,129 15.0% Industrial 135,402 118,603 14.2% 224,162 190,825 17.5% ---------- ---------- ---------- ---------- Retail revenues 392,594 374,696 4.8% 682,151 605,653 12.6% Other 84,465 433,745 -80.5% 151,180 561,800 -73.1% ---------- ---------- ---------- ---------- TOTAL REVENUES $ 477,059 $ 808,441 -41.0% $ 833,331 $1,167,453 -28.6% ========== ========== ========== ========== Retail sales in thousands of megawatt-hours (MWH) 4,315 4,440 -2.8% 7,885 7,756 1.7% Average retail revenue per MWH $ 90.98 $ 84.39 7.8% $ 86.51 $ 78.09 10.8%
Residential electric revenues decreased for the three months ending June 30, 2002 in contrast to the previous period last year. This decrease was a result of several factors, including, cooler weather (10% decrease in cooling degree days) in 2002 compared to 2001. However, residential electric revenues increased for the six months ended June 30, 2002 due to an overall increase in the number of customers and rates. The milder second quarter 2002 weather resulted in a minimal revenue impact for the six months ending June 30, 2002. Higher rates resulted from an increase in rates effective March 1, 2001, pursuant to the Comprehensive Energy Plan (CEP) and a rate change effective April 1, 2002, that included a new DEAA (Deferred Energy Accounting Adjustment) rate. See NPC's Annual Report on Form 10-K for the year ended December 31, 2001 for a discussion of the Global Settlement and the CEP, and the Regulatory Matters section of this second quarter Form 10-Q for more detailed DEAA and rate information. Voluntary energy conservation by residential customers resulted in lower sales per residential customer. The PUCN mandated a one-time rate increase of $0.01 per kilowatt-hour for the DEAA for only the month of June 2002. This allowed NPC to accelerate the recovery from all customer classes of approximately $16 million of the deferred energy balance. Both commercial and industrial electric revenues increased for the three and six months period, due, in part, to increases to the number of customers and rates. There was also a one-time rate increase of $0.01 per kilowatt-hour for the DEAA for only the month of June 2002 as discussed above. The decreases in Electric Operating Revenues - Other for the three- and six-month periods ended June 30, 2002, compared to the same periods in 2001 were due to a decrease in prices and sales volumes of wholesale electric power to other utilities, as a result of changing market conditions. See NPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of NPC's purchased power procurement strategies.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------- -------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ---------- ---------- ------------ PURCHASED POWER ($000) $ 485,926 $ 839,538 -42.1% $ 661,992 $1,041,360 -36.4% Purchased Power in thousands of MWHs 3,594 5,217 -31.1% 5,782 7,685 -24.8% Average cost per MWH of Purchased Power(1) $ 71.49 $ 160.92 -55.6% $ 74.89 $ 135.51 -44.7%
- --------- (1) Not including contract termination costs, discussed below 36 NPC's purchased power costs and volume were lower for both the three- and six-month periods ended June 30, 2002 than for the same period of the prior year. These decreases were the result of lower volumes and prices of Short-Term Firm energy purchased. The decreases were offset, in part, by a $229 million reserve recorded in the current quarter for terminated contracts, which are part of the power portfolio costs and which are described in more detail in "Financial Condition, Liquidity, and Capital Resources." Purchases associated with risk management activities, which are included in Short-Term Firm energy, also decreased significantly in 2002, for both the current quarter and year-to-date. Risk management activities include transactions entered into for hedging purposes and to minimize purchased power costs. See NPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of NPC's purchased power procurement strategies.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------- -------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ---------- ---------- ------------ FUEL FOR POWER GENERATION ($000) $ 73,474 $ 102,258 -28.1% $ 157,196 $ 217,610 -27.8% Thousands of MWHs generated 2,415 2,573 -6.1% 4,656 5,074 -8.2% Average cost per MWH of Generated Power $ 30.42 $ 39.74 -23.5% $ 33.76 $ 42.89 -21.3%
Fuel for generation costs for both the three and six months ended June 30, 2002, were significantly lower than the prior year due to substantial decreases in natural gas prices and volume.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------- -------------------------------------- Change from Change from DEFERRAL OF ENERGY COSTS-NET ($000) 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ---------- ---------- ------------ Deferred energy costs $ (185,199) $ (281,145) -34.1% $ (194,835) $ (269,837) -27.8% Deferred energy costs disallowed -- -- N/A 434,123 -- N/A ---------- ---------- ---------- ---------- $ (185,199) $ (281,145) -34.1% $ 239,288 $ (269,837) N/A ========== ========== ========== ==========
Deferral of energy costs - net for the three- and six-month periods ended June 30, 2002, reflects the deferral in the second quarter of 2002 of approximately $229 million for contract termination costs, as described in more detail in "Financial Condition, Liquidity, and Capital Resources." Deferral of energy costs - net also reflects the amortization of prior deferred costs resulting from an increase in rates beginning April 1, 2002, pursuant to the PUCN's March 29, 2002, decision on NPC's deferred energy rate case, and the one-time rate increase of $0.01 per kilowatt-hour for the month of June 2002. The amortization is offset, in part, by the recording of additional deferrals of electric energy costs, reflecting the extent to which actual fuel and purchased power costs exceeded the fuel and purchased power costs recovered through current rates. Deferral of energy costs - net for the six-months ended June 30, 2002, also reflects the write-off of $434 million of deferred energy costs for the seven months ended September 30, 2001, that were disallowed by the PUCN in their decision on NPC's deferred energy rate case. For both the three- and six-month periods ended June 30, 2001, NPC recorded large deferrals of electric energy costs, as shown in the table above.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------- -------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ---------- ---------- ------------ ALLOWANCE FOR OTHER FUNDS USED DURING CONSTRUCTION ($000) $ 80 $ (122) $ 501 $ (473) ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION ($000) $ 849 $ 265 $ 1,961 $ (87) ---------- ---------- ---------- ---------- $ 929 $ 143 549.7% $ 2,462 $ (560) N/A ========== ========== ========== ==========
37 NPC's total allowance for funds used during construction (AFUDC) is higher for the three- and six-month periods ended June 2002 as a result of an increase in capital expenditures for the Centennial Plan and adjustments in 2001 to refine amounts assigned to specific components of facilities that were completed in different periods. The increase is offset by a decrease in the AFUDC rate in 2002 as a result of an increase in short-term debt.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------------- -------------------------------------- Change from Change from ($000) 2002 2001 Prior Year % 2002 2001 Prior Year % ---------- ---------- ------------ ---------- ---------- ------------ OTHER OPERATING EXPENSE $ 37,284 $ 33,750 10.5% $ 77,270 $ 84,522 -8.6% MAINTENANCE EXPENSE $ 11,876 $ 13,478 -11.9% $ 23,526 $ 26,458 -11.1% DEPRECIATION AND AMORTIZATION $ 17,140 $ 22,427 -23.6% $ 47,949 $ 44,303 8.2% INCOME TAXES $ (57) $ 16,246 -100.4% $ (156,480) $ (14,218) 1000.6% TAXES OTHER THAN INCOME TAXES $ 6,453 $ 5,847 10.4% $ 13,187 $ 11,897 10.8% INTEREST CHARGES ON LONG-TERM DEBT $ 22,876 $ 18,339 24.7% $ 46,954 $ 34,959 34.3% INTEREST CHARGES-OTHER $ 4,352 $ 3,750 16.1% $ 6,882 $ 7,713 -10.8% OTHER INCOME (EXPENSE) - NET $ 5,585 $ 2,747 103.3% $ (5,772) $ 3,168 -282.2%
Other operating expense for the three-month period ending June 30, 2002 was higher, compared with the same period in the prior year, due to increased expenses related to a new Credit and Collections Action Plan, higher reserve rates for uncollectible accounts, costs associated with obtaining a tax refund and legal fees associated with the PUCN's Deferred Energy Rate Case decision. These increases were partially offset by credits associated with the reversal of a $3 million reserve provision established in 2001 as a result of the conclusion of electric industry restructuring in Nevada and a $2.7 million reversal of NPC's Short-term Incentive Plan accrual. Other operating expense for the six-month period ending June 30, 2002 was less, compared with the same period in the prior year. In addition to the previously mentioned items, the decrease reflects a $16.1 million increase in the provision for uncollectible accounts in 2001 related to the California Power Exchange, and the original $3 million reserve provision established in 2001 as a result of the conclusion of electric industry restructuring. These reductions in 2002 were partially offset by increased expenses in 2002 related to insurance premiums, a Mill Tax rate increase, and the delayed outage and adjustments at Reid Gardner. Maintenance costs for the three- and six-month periods ending June 30, 2002, decreased from the prior year due to delayed outages at Reid Gardner and Clark Station. The 2001 costs are higher due to engineering costs associated with a major turbine overhaul on Reid Gardner. Depreciation and amortization is lower for the three-month period ended June 2002 as a result of a successful petition for reconsideration of a PUCN decision, which reversed $8.7 million of additional depreciation recorded in the first quarter of 2002. This decrease is partly offset by an increase in the computer depreciation rate and additions to plant-in-service. Depreciation and amortization increased in the six-month period ending June 2002 as a result of additions to plant-in-service offset in part by plant-in-service asset reconciliations pursuant to a PUCN order. NPC recorded a small income tax benefit for the three months ended June 30, 2002, compared to income tax expense for the same period in 2001, as a result of a net pre-tax loss in the current year compared to pre-tax net income in the prior year. For the six months ended June 30, 2002, NPC recorded a significantly increased income tax benefit compared to 2001, reflecting a much higher pre-tax loss in the current year compared to the prior year. Taxes other than income increased for the three- and six-month periods ending June 30, 2002, due to increased property taxes related to an increase in plant-in-service, and due to higher payroll taxes. Interest charges on long-term debt for the three- and six-month periods ending June 30, 2002, increased over the same periods in 2001 due to $446 million and $246 million net increases, respectively, in long-term debt outstanding between the same periods. Interest charges-other for the three-months ended June 30, 2002, increased from the prior year due to $1.3 million in interest expense on delayed payments not applicable to the same period, 2001. For the six months ended June 30, 2002, the $1.3 million partially offset the reduction in interest expense that resulted from lower commercial paper and short-term debt balances carried forward from the first quarter of the year. 38 Other income (expense) - net for the three months ended June 30, 2002, increased compared to the same period in the prior year primarily due to a $5.0 million increase in carrying charges for deferred energy. Other income (expense) - - net for the six months ended June 30, 2002, reflects the first quarter write-off of approximately $20.1 million, net of taxes, of carrying charges on deferred energy costs that were disallowed by the PUCN in their March 29, 2002 decision on NPC's deferred energy rate case. The write-off was offset in part by the recording of current year carrying charges on deferred energy costs. ANALYSIS OF CASH FLOWS NPC's cash flows during the six months ended June 30, 2002, improved slightly compared to the same period in 2001, resulting primarily from an increase in cash flows from operating activities offset, in part, by a decrease in cash flows from financing activities. Although NPC recorded a substantially larger loss for the six months ended June 30, 2002 than the same period in 2001, the increase in the current year's loss resulted largely from the write-off of disallowed deferred energy costs for which the cash outflow had occurred in 2001. Current year cash flows from operating activities also benefited from a smaller increase in accounts receivable compared to the prior year and from lower energy prices, which necessitated a smaller deferral of energy costs. These 2002 cash flow benefits were, however, largely offset by a much smaller increase in accounts payable than in 2001. Cash flows from operating activities in the current year also reflect the receipt of an income tax refund resulting from a tax law change that took effect in March 2002. Cash flows from financing activities were lower because of a decrease in net long-term debt issued during the six months ended June 30, 2001 offset, in part, by an increase in short-term borrowings during the six months ended June 30, 2002. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002, NPC had cash investments of approximately $23.9 million. At July 31, 2002, NPC had cash investments of approximately $51.9 million. As discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Nevada Power Company - Construction Expenditures and Financing" and " - Capital Structure" in the Annual Report on Form 10-K for the year ended December 31, 2001, NPC anticipated external capital requirements for construction costs and for the repayment of maturing short-term and long-term debt during 2002 totaling approximately $403 million, which NPC planned to fund through a combination of (i) internally generated funds, (ii) the issuance of short-term debt and preferred stock, and (iii) capital contributions from SPR. On March 29 and April 1, 2002, following the decision by the PUCN in NPC's deferred energy rate case, S&P and Moody's lowered NPC's unsecured debt ratings to below investment grade. On April 23 and 24, 2002, NPC's unsecured debt ratings were further downgraded and its secured debt ratings were downgraded to below investment grade. As a result of these downgrades, NPC's ability to access the capital markets to raise funds is severely limited. Since SPR's credit ratings were similarly downgraded, SPR's ability to make capital contributions to NPC also became severely limited. In connection with the credit downgrades by S&P and Moody's, NPC lost its A2/P2 commercial paper ratings and can no longer issue commercial paper. NPC had a commercial paper balance outstanding of $198.9 million at the time with a weighted average interest rate of 2.52%. Since NPC was no longer able to roll over its commercial paper, it paid off its maturing commercial paper with the proceeds of borrowings under its credit facility and terminated its commercial paper program on May 28, 2002. NPC does not expect to have direct access to the commercial paper market for the foreseeable future. NPC's $200 million unsecured revolving credit facility was also affected by the decision in the deferred energy rate case. Following the announcement of that decision, the Banks participating in NPC's credit facility determined that a material adverse event had occurred with respect to NPC, thereby precluding NPC from borrowing funds under its credit facility. The Banks agreed to waive the consequences of the material adverse event in a waiver letter and amendment that was executed on April 4, 2002. As required under the waiver letter and amendment, NPC issued and delivered its General and Refunding Mortgage Bond, Series C, due November 28, 2002, in the principal amount of $200 million, to the Administrative Agent as security for the credit facility. The waiver letter and amendment also provided that (i) NPC may not create or incur any liens on its properties to secure obligations to its power and/or commodity trading counterparties or power suppliers, (ii) in the event that NPC issues more than $250 million of its General and Refunding Mortgage Bonds, other than to secure NPC's 6.20% Senior Unsecured Notes, Series B due April 15, 2004, the principal amounts of such issuances will be applied as mandatory prepayments of the loans outstanding under the credit facility and the commitments under the facility will correspondingly be reduced, and (iii) the SPR credit facility be terminated. On June 25, 2002, NPC and the Banks executed Amendment No. 2 to NPC's Credit Agreement that prohibits NPC from paying any dividends and prohibits the voluntary prepayment or redemption of NPC's existing indebtedness, except in the 39 ordinary course of business. Amendment No. 2 also modifies the restriction in the waiver letter and amendment with respect to creating or incurring liens to secure obligations to NPC's power and/or commodity trading counterparties or power suppliers. Under Amendment No. 2, NPC may create or incur liens on up to an aggregate total of $50 million of its deposit and investment accounts and its investment properties to support NPC's obligations to fuel or other energy suppliers, to secure NPC's cash management obligations, and/or to secure liens on property securing all or part of the purchase price of the property or liens existing in such property at the time of purchase. By May 2, 2002, NPC had borrowed the entire $200 million of funds available under its credit facility to pay off maturing commercial paper. The borrowing costs under the credit agreement are at a variable interest rate consisting of a spread over LIBOR or an alternate base rate that is based upon a pricing grid tied to the credit rating on NPC's senior unsecured long-term debt. NPC's credit agreement contains financial covenants requiring that NPC maintain a ratio of (i) Total Indebtedness to (ii) the sum of Total Indebtedness and Shareholders Equity that does not exceed 0.60:1 as of the last day of each fiscal quarter and a Consolidated Interest Coverage Ratio of not less than 2.0:1 calculated as of the last day of each fiscal quarter for the preceding four consecutive fiscal quarters. As of June 30, 2002, NPC was in compliance with these financial covenants. NPC's credit facility expires on November 28, 2002. NPC is currently evaluating various options to renew, replace or refinance the credit facility. If NPC is unable to renew, replace or refinance all or a portion of the credit facility prior to its expiration date, there would be a material adverse effect on NPC's liquidity and NPC could become insolvent. NPC is also currently negotiating a receivables purchase facility, in a principal amount not to exceed $125 million. Under the proposed facility, NPC would sell receivables in a true sale to special purpose entities that would in-turn sell those assets or interests in those assets to a commercial paper conduit or directly to a financial institution. This facility would be used to provide additional liquidity for working capital and general corporate purposes in addition to NPC's existing credit facility. If completed, NPC expects the facility to be accounted for in compliance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The special purpose entities would be wholly owned subsidiaries and their financial positions and results of operations would be reflected in the consolidated financial statements of SPR and NPC. Completion of this facility is dependent on the negotiation of mutually satisfactory terms and the satisfaction of customary closing conditions, and no assurance can be given at this time that the facility will in fact be completed. NPC's first mortgage indenture creates a first priority lien on substantially all of NPC's properties. As of June 30, 2002, 272.5 million of NPC's first mortgage bonds were outstanding. Although the first mortgage indenture allows NPC to issue additional mortgage bonds on the basis of (i) 60% of net utility property additions and/or (ii) the principal amount of retired mortgage bonds, NPC agreed in the waiver letter and amendment to its credit agreement that it would not issue any more first mortgage bonds. 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, 2002, $820 million 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 delivery to the indenture trustee of the initial expert's certificate under the General and Refunding Mortgage Indenture. At June 30, 2002, NPC had the capacity to issue approximately $861 million of additional General and Refunding Mortgage bonds. However, the financial covenants contained in the credit agreement described above may limit NPC's ability to issue additional general and refunding bonds or other debt. In addition, the waiver letter and amendment to the credit agreement entered into on April 4, 2002 requires that, in the event that NPC issues more than $250 million of its General and Refunding Mortgage Bonds, the principal amounts of such issuances will be applied as mandatory prepayments of the loans outstanding under the credit facility and the commitments under the facility will correspondingly be reduced. The Duke agreement, referenced below, also requires prepayments of certain deferred payments established under the agreement in the event that NPC receives excess financing proceeds from issuances of General and Refunding Mortgage Bonds. 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 bonds issuable under that indenture. On May 13, 2002, NPC issued a General and Refunding Mortgage Bond, Series D, due April 15, 2004, in the principal amount of $130 million, for the benefit of the holders of NPC's 6.20% Senior Unsecured Notes, Series B, due April 15, 2004. The Senior Unsecured Notes Indenture required that, in the event that NPC issued debt secured by liens on NPC's operating property in excess of 15% of its Net Tangible Assets or Capitalization (as both terms are defined in the Senior 40 Unsecured Notes Indenture), NPC would equally and ratably secure the Senior Unsecured Notes. NPC triggered this negative pledge covenant on April 23, 2002. On June 19, 2002, the PUCN issued a Compliance Order, Docket No. 02-4037, authorizing NPC to issue $300 million of long-term debt. Authority for $450 million had been requested by NPC. The PUCN order requires NPC, if it is able, to issue the $50 million of remaining authorized short-term debt, before it issues any long-term debt authorized by the order. Moreover, the order provides that, if NPC is able to issue short-term debt at any point prior to September 1, 2002 (whether or not the issuance of short-term debt actually occurs), the amount of long-term debt authorized by the order will be automatically reduced to $250 million. In addition, the PUCN ordered that NPC immediately issue $50 million to $100 million of debt, using its best efforts to expedite the process in a prudent manner. The PUCN order also provides that NPC will bear the burden of demonstrating that any financings undertaken pursuant to the order, including any determination made regarding the length of such commitment, the type of security or rate, is reasonable. Finally, the order requires that, until such time as the order's authorization expires (December 31, 2003), NPC must either receive the prior approval of the PUCN or reach an equity ratio of 42% before paying any dividends to SPR. If NPC achieves a 42% equity ratio prior to December 31, 2003, the dividend restriction ceases to have effect. On July 3, 2002, the Bureau of Consumer Protection of the Nevada Attorney General's Office filed a petition with the PUCN requesting that the hearing in Docket No. 02-4037 be reopened to allow for the introduction of additional evidence or for the PUCN to reconsider its decision granting NPC authority to issue long-term debt. No assurance can be given as to the outcome or timing of a decision by the PUCN on this petition. In early May, Enron Power Marketing Inc. ("Enron"), Morgan Stanley Capital Group Inc., Reliant Energy Services, Inc. and several smaller suppliers notified NPC that they would end power deliveries to NPC based on what they believed to be their contractual right to end deliveries because of the Utility's inability to provide adequate assurances of its ability to perform all of its outstanding material obligations. Each of these terminating suppliers has asserted, or has indicated that it will assert, a claim for liquidated damages. As discussed in Note 11, Commitments And Contingencies, Enron has filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages of approximately $216 million and $93 million against NPC and SPPC, respectively. Enron's claim is subject to the Utilities' defense that Enron's claims are already at issue in the FERC proceeding challenging the contract prices, and to other defenses that the Utilities intend to pursue in a timely manner. In connection with the lawsuit filed by Enron in Bankruptcy Court, Enron has filed a motion to require the Utilities to post collateral equal to the amount of Enron's claims pending the outcome of the lawsuit. A hearing in this case has been scheduled for September 6, 2002. An adverse decision on the petition to require the Utilities to post collateral pending the outcome of Enron's lawsuit or an adverse decision in the lawsuit itself could have a material adverse affect on the financial condition and liquidity of NPC and could render its ability to continue to operate outside of bankruptcy uncertain. At this time, SPR and the Utilities are not able to predict the outcome of a decision in this matter. On June 10, 2002, Duke Energy Trading and Marketing ("Duke") entered into an agreement with SPR and the Utilities to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to NPC and SPPC to fulfill customers' power requirements during the peak summer period. The effect of the Duke agreement was to replace the amount of contracted power and natural gas that would have been supplied by the various terminating suppliers, including Enron. Duke also agreed to accept deferred payment for a portion of the amount due under its existing power contracts with NPC for purchases made through September 15, 2002. Although the other continuing suppliers have not entered into formal agreements with NPC regarding deferred payments, NPC has been deferring a portion of the payments to such suppliers since May 1, 2002 and intends to continue to due so for charges incurred through September 15, 2002. NPC's short-term liquidity depends significantly on the willingness of NPC's power suppliers to continue to accept deferred payments for a portion of the amounts owed by NPC on purchased power contracts through the summer months of 2002. NPC's liquidity could also be significantly affected by an adverse decision in the pending lawsuit by Enron to collect liquidated damages (including its motion seeking the posting of collateral), by unfavorable rulings by the PUCN in future NPC or SPPC rate cases, by an inability to renew, replace or refinance all or a portion of its credit facility that expires on November 28, 2002, or by the PUCN's reconsideration of its compliance order authorizing NPC it issue up to $300 million in long-term debt. Both S&P and Moody's have NPC's credit ratings on "watch negative" or "possible downgrade", and any further downgrades could further preclude NPC's access to the capital markets. Adverse developments with respect to any one or a combination of the foregoing could cause NPC to become insolvent and would render NPC's ability to continue to operate outside of bankruptcy uncertain. 41 SIERRA PACIFIC POWER COMPANY During the quarter ended June 30, 2002, SPPC incurred a loss of approximately $34.0 million before preferred stock dividends. During this period, SPPC paid $975,000 in dividends to holders of its preferred stock and paid $9.9 million in dividends on its common stock, all of which is held by its parent, SPR. During the six months ended June 30, 2002, SPPC incurred a loss of approximately $23.0 million before preferred stock dividends. During this period, SPPC paid $1.95 million in dividends to holders of its preferred stock and paid $19.9 million in dividends on its common stock, $10 million of which was reinvested in SPPC as a contribution to capital. The components of SPPC's gross margin are set forth below (dollars in thousands):
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------ ------------------------------------------ Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---- ---- ------------ ---- ---- ------------ Operating Revenues: Electric $196,626 $312,833 -37.1% $420,923 $593,271 -29.1% Gas 25,583 21,729 17.7% 80,666 85,894 -6.1% -------- -------- -------- -------- Total Revenues 222,209 334,562 -33.6% 501,589 679,165 -26.1% -------- -------- -------- -------- Energy Costs: Electric 190,234 245,505 -22.5% 338,097 474,384 -28.7% Gas 15,283 16,868 -9.4% 62,069 69,267 -10.4% -------- -------- -------- -------- Total Energy Costs 205,517 262,373 -21.7% 400,166 543,651 -26.4% -------- -------- -------- -------- Gross Margin $ 16,692 $ 72,189 -76.9% $101,423 $135,514 -25.2% ======== ======== ======== ======== Gross Margin by Segment: Electric $ 6,392 $ 67,328 -90.5% $ 82,826 $118,887 -30.3% Gas 10,300 4,861 111.9% 18,597 16,627 11.8% -------- -------- -------- -------- Total $ 16,692 $ 72,189 -76.9% $101,423 $135,514 -25.2% ======== ======== ======== ========
The causes for significant changes in specific lines comprising the results of operations for SPPC are as follows:
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------ ------------------------------------------ Change from Change from 2002 2001 Prior year % 2002 2001 Prior year % ---- ---- ------------ ---- ---- ------------ ELECTRIC OPERATING REVENUES ($000): Residential $ 45,050 $ 46,965 -4.1% $105,453 $ 98,474 7.1% Commercial 58,639 60,120 -2.5% 121,355 111,294 9.0% Industrial 59,994 65,323 -8.2% 123,126 119,908 2.7% -------- -------- -------- -------- Retail revenues 163,683 172,408 -5.1% 349,934 329,676 6.1% Other 32,943 140,425 -76.5% 70,989 263,595 -73.1% -------- -------- -------- -------- TOTAL REVENUES $196,626 $312,833 -37.1% $420,923 $593,271 -29.1% ======== ======== ======== ======== Retail sales in thousands of megawatt-hours (MWH) 2,144 2,096 2.3% 4,280 4,229 1.2% Average retail revenue per MWH $ 76.34 $ 82.26 -7.2% $ 81.76 $ 77.96 4.9%
Retail electric revenues were lower for the three months ending June 30, 2002, in contrast to the same period the previous year. This decrease was a result of cooler weather in May 2002 and an overall rate decrease that was effective June 1, 2002 (refer to Note 9, Regulatory Events). Retail electric revenues increased for the six months ended June 30, 2002, compared to the prior year primarily due to rate increases resulting from the 2001 Global Settlement and 2001 Comprehensive Energy Plan (CEP). During the first quarter 2001, these rate increases were being phased in on a monthly basis whereas retail revenues for the first quarter of 2002 reflect the cumulative impact of those increases. The second quarter 2002 weather effects resulted in a minimal revenue impact for the six months ending June 30, 2002. The decrease in Other electric revenues for the three and six month periods ended June 30, 2002, compared to the same period in 2001 were due to the decrease in prices and sales volume of wholesale electric power to other utilities, as a 42 result of changing market conditions. See SPPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of SPPC's purchased power procurement strategies.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------------------------- --------------------------------------- Change from Change from 2002 2001 Prior year % 2002 2001 Prior year % ---- ---- ------------ ---- ---- ------------ GAS OPERATING REVENUES ($000): Residential $13,636 $10,130 34.6% $43,108 $31,754 35.8% Commercial 5,081 5,423 -6.3% 22,085 16,064 37.5% Industrial 3,896 1,998 95.0% 11,560 6,629 74.4% Miscellaneous 1,012 111 811.7% 1,408 628 124.2% ------- ------- ------- ------- Total retail revenue 23,625 17,662 33.8% 78,161 55,075 41.9% Wholesale revenue 1,958 4,067 -51.9% 2,505 30,819 -91.9% ------- ------- ------- ------- TOTAL REVENUES $25,583 $21,729 17.7% $80,666 $85,894 -6.1% ======= ======= ======= ======= Retail sales in thousands of decatherms 2,233 2,190 2.0% 8,239 7,483 10.1% Average retail revenues per decatherm $ 10.58 $ 8.06 31.3% $ 9.49 $ 7.36 28.9%
Retail gas revenues for the three- and six-month periods ended June 30, 2002 were significantly higher than the same period in the prior year primarily due to PUCN-authorized rate increases effective on February 1 and November 5, 2001. These rate increases were granted as a result of higher gas costs that SPPC had incurred. Wholesale gas revenues for the three- and six-month periods ended June 30, 2002 were significantly lower than the same period in 2001, primarily due to lower wholesale sales.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------- ------------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---- ---- ------------ ---- ---- ------------ PURCHASED POWER ($000): $174,302 $248,608 -29.9% $279,719 $399,595 -30.0% Purchased Power in thousands of MWHs 1,621 1,703 -4.8% 3,324 3,150 5.5% Average cost per MWH of Purchased Power(1) $ 53.99 $ 145.98 -63.0% $ 58.04 $ 126.86 -54.2%
- ---------- (1) Not including contract termination costs, discussed below Purchased power costs were lower for the three- and six-month periods ended June 30, 2002, than the prior year because the majority of SPPC's total energy requirements utilize Short-Term Firm purchased power for which costs have significantly decreased from those a year ago. The decreases were offset, in part, by an $86.8 million reserve recorded in the current quarter for terminated contracts, which are described in more detail in "Financial Condition, Liquidity, and Capital Resources." Prices for SPPC's risk management activities also decreased substantially. Risk management activities include transactions entered into for hedging purposes and to minimize purchased power costs. See SPPC's Annual Report on Form 10-K for the year ended December 31, 2001, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, Purchased Power Procurement, for a discussion of SPPC's purchased power procurement strategies.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------------------- ------------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---- ---- ------------ ---- ---- ------------ FUEL FOR POWER GENERATION ($000) $ 31,169 $ 77,652 -59.9% $ 78,220 $148,524 -47.3% Thousands of MWHs generated 1,129 1,492 -24.3% 2,341 3,075 -23.9% Average fuel cost per MWH of Generated Power $ 27.61 $ 52.05 -47.0% $ 33.41 $ 48.30 -30.8%
43 Fuel for Power Generation costs for the three- and six-month periods ended June 30, 2002 were significantly lower than the same period of the prior year as both volumes generated and natural gas prices decreased significantly. Volumes were lower because it was more economical to purchase power than to generate power.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------------------------- ---------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---- ---- ------------ ---- ---- ------------ GAS PURCHASED FOR RESALE ($000) $13,107 $25,171 -47.9% $51,701 $95,714 -46.0% Gas Purchased for Resale (thousands of decatherms) 2,542 3,450 -26.3% 8,502 9,950 -14.6% Average cost per decatherm $ 5.16 $ 7.30 -29.3% $ 6.08 $ 9.62 -36.8%
Gas Purchased for Resale decreased significantly for the three- and six-month periods ended June 30, 2002 compared to the prior year because of much lower gas prices and reduced volumes of wholesale gas sales.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------------------------- ---------------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---- ---- ------------ ---- ---- ------------ DEFERRAL OF ENERGY COSTS-NET ($000) Deferred energy costs - electric $(68,338) $(80,755) -15.4% $(72,943) $ (73,735) -1.1% Deferred energy costs disallowed - electric 53,101 -- N/A 53,101 -- N/A Deferred energy costs - gas 2,176 (8,303) N/A 10,368 (26,447) N/A -------- -------- -------- --------- Total $(13,061) $(89,058) -85.3% $ (9,474) $(100,182) -90.5% ======== ======== ======== =========
Deferral of energy costs - net for the three- and six-month periods ended June 30, 2002, reflects the write-off of $53 million of electric deferred energy costs incurred in the nine months ended November 30, 2001, that were disallowed by the PUCN in their May 28, 2002, decision on SPPC's deferred energy rate case. The write-off was more than offset by the deferral in the second quarter of 2002 of approximately $82 million for contract termination costs, as described in more detail in "Financial Condition, Liquidity, and Capital Resources." For the three months ended June 30, 2002, this deferral of contract termination costs was offset, in part, by the recording of additional energy expense incurred from two sources. Consistent with the provisions of deferred energy accounting, additional expense was recorded to the extent fuel and purchased power costs recovered through current rates exceeded actual fuel and purchased power costs, which had decreased significantly. And, pursuant to the PUCN's decision on SPPC's deferred energy rate case, rates were increased beginning June 1, 2002, resulting in the amortization of prior deferred costs. For the six months ended June 30, 2002, SPPC recorded deferrals of electric energy costs, reflecting the extent to which actual fuel and purchased power costs exceeded the fuel and purchased power costs recovered through current rates. For both the three- and six-month periods ended June 30, 2001, SPPC recorded large deferrals of electric energy costs, as shown in the table above. SPPC's deferred energy costs gas - net for the three- and six-month periods ended June 30, 2002 reflects the amortization of prior deferred costs due to the PUCN-authorized recovery of those costs. Deferral of energy costs-net for gas for the three months ended June 30, 2001 reflects undercollections of such costs because revenue received from 2001 base purchased gas rates did not cover the increased cost of natural gas experienced by SPPC.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------------------- -------------------------------- Change from Change from 2002 2001 Prior Year % 2002 2001 Prior Year % ---- ---- ------------ ---- ---- ------------ ALLOWANCE FOR OTHER FUNDS USED DURING CONSTRUCTION ($000) $ (83) $ (30) $ 153 $(214) ALLOWANCE FOR BORROWED FUNDS USED DURING CONSTRUCTION ($000) 229 423 620 377 ----- ----- ----- ----- $ 146 $ 393 -62.8% $ 773 $ 163 374.2% ===== ===== ===== =====
Total allowance for funds used during construction (AFUDC) decreased for the three months ended June 30, 2002, compared to the prior year due to decreases in Construction Work-in-Progress (CWIP) and in the AFUDC rate. Total AFUDC 44 for the six months ended June 30, 2002, increased over the prior year because AFUDC in 2001 reflected an adjustment to refine amounts assigned to specific components of facilities that were completed in different periods. This increase was offset, in part, by a decrease in CWIP and the second quarter AFUDC rate reduction.
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, --------------------------------------- ------------------------------------------ Change from Change from (000'S) 2002 2001 Prior Year % 2002 2001 Prior Year % ------- ---- ---- ------------ ---- ---- ------------ OTHER OPERATING EXPENSE $ 22,876 $23,174 -1.3% $ 50,623 $ 50,868 -0.5% MAINTENANCE EXPENSE $ 5,139 $ 6,676 -23.0% $ 10,396 $ 12,000 -13.4% DEPRECIATION AND AMORTIZATION $ 20,153 $17,859 12.8% $ 37,269 $ 34,708 7.4% INCOME TAXES $(21,536) $ 1,464 -1571.0% $(16,638) $ (656) 2436.3% TAXES OTHER THAN INCOME TAXES $ 4,881 $ 4,574 6.7% $ 9,657 $ 8,968 7.7% INTEREST CHARGES ON LONG-TERM DEBT $ 16,020 $12,529 27.9% $ 32,465 $ 23,099 40.5% INTEREST CHARGES - OTHER $ 2,966 $ 3,022 -1.9% $ 4,108 $ 5,982 -31.3% OTHER INCOME (EXPENSE) - NET $ (293) $ 1,499 -119.5% $ 2,677 $ 1,013 164.3%
Other operating expense for the three-month period ending June 30, 2002 was slightly lower than the same period in the prior year due to the reversal of a $3.5 million reserve provision established in 2001 as a result of the conclusion of electric industry restructuring in Nevada and the $2.6 million reversal of SPPC's Short-term Incentive Plan accrual. These decreases were offset by increased expenses related to a new Credit and Collections Action Plan and insurance premiums. Additionally, there were increased costs associated with obtaining a tax refund and legal fees associated with the PUCN's Deferred Energy Rate Case decision. Other operating expense for the six-month period ending June 30, 2002 was also slightly less, compared with the same period in the prior year. In addition to the previously mentioned items, there was a $2.7 million increase in the provision for uncollectible accounts in 2001 related to the California Power Exchange, the original $3.5 million reserve provision established in 2001 as a result of the conclusion of electric industry restructuring, and a $1.1 million reserve in 2002 for legal fees. Maintenance costs for the three- and six- month periods ended June 30, 2002 were less than the same period last year as the 2001 costs included turbine repairs on Unit 1 at Valmy. Depreciation and amortization increased for the three- and six- month periods ended June 30, 2002, compared to the same periods in 2001 as a result of additions to plant-in-service assets and an increase to depreciation of $1.8 million to reflect an adjustment to depreciation rates related to combustion turbines. These increases were offset in part by a PUCN-ordered reduction in depreciation rates that was implemented in the three-month period ended June 30, 2002. SPPC recorded a large income tax benefit for the three months ended June 30, 2002, compared to income tax expense for the same period in 2001, as a result of a net pre-tax loss in the current year compared to pre-tax net income in the prior year. For the six months ended June 30, 2002, SPPC recorded a significantly increased income tax benefit compared to 2001, reflecting a much higher pre-tax loss in the current year compared to the prior year. Taxes other than income increased for the three- and six- month periods ended June 30, 2002 due to an increase in franchise and payroll tax expenses. Interest charges on long-term debt for the three-month period ending June 30, 2002, increased over the same period in 2001 due, primarily, to a $320 million increase in long-term debt at the end of May 2001. The increased level of long-term debt was also responsible for the increase in interest for the six months ended June 30, 2002, over the comparable period, 2001. Interest charges-other was comparable between the three-month periods ending June 30, 2002 and 2001. The decrease during the six months ended June 30, 2002, as compared to the same period in 2001 was attributable to lower commercial paper and short-term debt balances during 2002. Other income (expense) - net for the three months ended June 30, 2002, reflects the write-off of approximately $2 million, net of taxes, of carrying charges on deferred energy costs that were disallowed by the PUCN in their May 28, 2002 decision on SPPC's deferred energy rate case. The increase for the six months ended June 30, 2002, compared to 2001 reflects the recording of current year carrying charges on deferred fuel and purchased power costs, more than offsetting the second quarter write-off. ANALYSIS OF CASH FLOWS SPPC's cash flows during the six months ended June 30, 2002, improved slightly compared to the same period in 2001, as increases in cash flows from operating and financing activities were largely offset by decrease in cash flows from 45 investing activities. Although SPPC recorded a substantially larger loss for the six months ended June 30, 2002 than the same period in 2001, the increase in the current year's loss resulted largely from the write-off of disallowed deferred energy costs for which the cash outflow had occurred in 2001. Other factors contributing to 2002's improved cash flows from operating activities include lower energy prices, which necessitated a smaller deferral of energy costs, and improved cash positions in accounts receivable. Also, cash flows from operating activities in the current year reflect the receipt of an income tax refund resulting from a tax law change that took effect in March 2002. Cash flows from investing activities decreased in 2002 because 2001 investing activities included cash provided from the sale of the assets of SPPC's water business. Cash flows from financing activities increased due to an increase in short-term borrowings and a decrease in common dividends paid in 2002 offset, in part, by a decrease in long-term debt issued in 2002. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At June 30, 2002, SPPC had cash investments of approximately $111.4 million. At July 31, 2002, SPPC had cash investments of approximately $115.6 million. As discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Sierra Pacific Power Company - Construction Expenditures and Financing" and " - Capital Structure" in the Annual Report on Form 10-K for the year ended December 31, 2001, SPPC anticipated having capital requirements for construction costs and for the repayment of maturing short-term and long-term debt during 2002 totaling approximately $189 million, which SPPC would need to fund through a combination of (i) internally generated funds, (ii) the issuance of short-term debt, and (iii) capital contributions from SPR. On March 29 and April 1, 2002, following the decision by the PUCN in NPC's deferred energy rate case, S&P and Moody's lowered SPPC's unsecured debt ratings to below investment grade. On April 23 and 24, 2002, SPPC's unsecured debt ratings were further downgraded and its secured debt ratings were downgraded to below investment grade. The decision of the PUCN on May 29, 2002 on SPPC's deferred energy application to disallow $53.1 million of deferred purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001 did not result in any further downgrades of SPPC's securities. However, as a result of the downgrades following NPC's deferred energy decision, SPPC's ability to access the capital markets to raise funds has been severely limited. In connection with the credit ratings downgrades referenced above, SPPC lost its A2/P2 commercial paper ratings and can no longer issue commercial paper. At the time, SPPC had a commercial paper balance outstanding of $47.7 million with a weighted average interest rate of 2.49%. SPPC paid off its maturing commercial paper with the proceeds of borrowings under its credit facility and terminated its commercial paper program on May 28, 2002. SPPC does not expect to have direct access to the commercial paper market for the foreseeable future. SPPC's $150 million unsecured revolving credit facility was also affected by the downgrade in SPPC's credit rating. Under this facility, SPPC was required, in the event of a ratings downgrade of its senior unsecured debt, to secure the facility with General and Refunding Mortgage Bonds. In satisfaction of its obligation to secure the credit facility, on April 8, 2002, SPPC issued and delivered its General and Refunding Mortgage Bond, Series B, due November 28, 2002, in the principal amount of $150 million, to the Administrative Agent for the credit facility. As of May 10, 2002, SPPC had borrowed the entire $150 million of funds available under its credit facility to, in part, pay off maturing commercial paper, maintaining a cash balance at SPPC. SPPC's credit facility expires on November 28, 2002. The borrowing costs under the Credit Agreement are at a variable interest rate consisting of a spread over LIBOR or an alternate base rate that is based upon a pricing grid tied to the credit rating on SPPC's senior unsecured long-term debt. The Credit Agreement contains a number of restrictive covenants including restrictions on liens, sales of assets, mergers, and sale and leaseback transactions. The Credit Agreement also contains financial covenants requiring that SPPC maintain a ratio of (i) Total Indebtedness to (ii) the sum of Total Indebtedness and Shareholders Equity that does not exceed 0.60:1 as of the last day of each fiscal quarter and a Consolidated Interest Coverage Ratio of not less than 2.0:1 calculated as of the last day of each fiscal quarter for the preceding four consecutive fiscal quarters. On June 25, 2002, SPPC and the Banks executed Amendment No. 1 to SPPC's Credit Agreement that prohibits the voluntary prepayment or redemption of SPPC's existing indebtedness, except in the ordinary course of business, and prohibits the payment of dividends on SPPC's capital stock if SPPC is in default under the terms of its credit facility. Under Amendment No. 1, SPPC may create or incur liens on up to an aggregate total of $50 million of its deposit and investment accounts and its investment properties to support SPPC's obligations to gas or other energy suppliers, to secure SPPC's cash management obligations, and/or to secure liens on property securing all or part of the purchase price of the property or liens existing in such property at the time of purchase. SPPC is currently negotiating a receivables purchase facility in a principal amount not to exceed $125 million. Under the proposed facility, SPPC would sell receivables in a true sale to special purpose entities that would in-turn sell those assets 46 or interests in those assets to a commercial paper conduit or directly to a financial institution. This facility would be used to provide additional liquidity for working capital and general corporate purposes in addition to SPPC's existing credit facility. If completed, SPPC expects the facility to be accounted for in compliance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The special purpose entities would be wholly owned subsidiaries and their financial positions and results of operations would be reflected in the consolidated financial statements of SPR, NPC, and SPPC. Completion of this facility is dependent on the negotiation of mutually satisfactory terms and the satisfaction of customary closing conditions, and no assurance can be given at this time that the facility will in fact be completed. 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, 2002, $505.3 million of SPPC's first mortgage bonds were outstanding. Although the first mortgage indenture allows SPPC to issue additional mortgage bonds on the basis of (i) 60% of net utility property additions and/or (ii) the principal amount of retired mortgage bonds, 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, 2002, $470 million of SPPC's General and Refunding Mortgage bonds were outstanding. Additional securities may be issued under the General and Refunding Mortgage Indenture on the basis of (i) 70% of net utility property additions, (ii) the principal amount of retired General and Refunding Mortgage bonds, and/or (iii) the principal amount of first mortgage bonds retired after delivery to the indenture trustee of the initial expert's certificate under the General and Refunding Mortgage Indenture. At June 30, 2002, SPPC had the capacity to issue approximately $356 million of additional General and Refunding Mortgage bonds. However, the financial covenants contained in the credit agreement described above may limit SPPC's ability to issue additional general and refunding bonds or other debt. 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. On May 1, 2002, Enron Power Marketing Inc. notified NPC and SPPC that it would end power deliveries to the Utilities effective May 7. Enron advised the Utilities that it was taking this action in line with its recently announced new business configuration that does not include arrangements such as its existing contracts with the Utilities. Enron also indicated that it had exercised what it believes to be its contractual right to end deliveries because of the recent downgrade in the credit ratings of the Utilities and their failure to provide mark-to-market collateral. The Enron contracts covered approximately 10% of purchased power supplies for the combined Utilities for the remainder of 2002. As discussed in Note 11, Commitments And Contingencies, Enron has filed suit in its bankruptcy case in the Bankruptcy Court for the Southern District of New York asserting claims for liquidated damages of approximately $216 million and $93 million against NPC and SPPC, respectively. Enron's claim is subject to the Utilities' defense that Enron's claims are already at issue in the FERC proceeding challenging the contract prices, and to other defenses that the Utilities intend to pursue in a timely manner. In connection with the lawsuit filed by Enron in Bankruptcy Court, Enron has filed a motion to require the Utilities to post collateral equal to the amount of Enron's claims pending the outcome of the lawsuit. A hearing in this case has been scheduled for September 6, 2002. An adverse decision on the petition to require the Utilities to post collateral pending the outcome of Enron's lawsuit or an adverse decision in the lawsuit itself could have a material adverse affect on the financial condition and liquidity of SPPC and could render its ability to continue to operate outside of bankruptcy uncertain. At this time, SPR and the Utilities are not able to predict the outcome of a decision in this matter. SPPC's future liquidity could be significantly affected by unfavorable rulings by the PUCN in future SPPC or NPC rate cases, or by an inability to renew, replace or refinance all or a portion of SPPC's credit facility that expires on November 28, 2002. Both S&P and Moody's have SPPC's credit ratings on "watch negative" or "possible downgrade", and any further downgrades could further preclude SPPC's access to the capital markets and could adversely affect SPPC's ability to continue purchasing power and fuel. Adverse developments with respect to any one or a combination of the foregoing could cause SPPC to become insolvent and could render SPPC's ability to continue to operate outside of bankruptcy uncertain. SIERRA PACIFIC RESOURCES (HOLDING COMPANY) The Condensed Consolidated Statements of Operations of SPR include the operating results of the holding company. The holding company recognized higher interest costs, $36.7 million in 2002 compared to $27.8 million in 2001, due primarily to the issuance of $345 million of additional debt associated with its issuance of Premium Income Equity Securities in November of 2001. 47 TUSCARORA GAS PIPELINE COMPANY The Condensed Consolidated Statements of Income of Sierra Pacific Resources include the operating results of Tuscarora Gas Pipeline Company (TGPC), a wholly owned subsidiary of SPR. For the three-and six-month periods ended June 30, 2002, TGPC contributed $.7 million and $1.6 million, respectively, in net income. For the three-and six-month periods ended June 30, 2001, TGPC contributed $.6 million and $1.3 million, respectively, in net income. E-THREE The Condensed Consolidated Statements of Income of Sierra Pacific Resources include the operating results of e-three, a wholly owned subsidiary of SPR. For the three- and six-month periods ended June 30, 2002, e-three incurred net losses of $.6 million and $.8 million, respectively. For the three months ended June 30, 2001, e-three contributed $.2 million in net income; e-three incurred a net loss of $.1 million for the six months ended June 30, 2001. SIERRA PACIFIC COMMUNICATIONS The Condensed Consolidated Statements of Income of Sierra Pacific Resources include the operating results of Sierra Pacific Communications (SPC), a wholly owned subsidiary of SPR. For the three- and six-month periods ended June 30, 2002, SPC incurred net losses of $.6 million and $1.3 million, respectively. SPC incurred net losses of $.4 million and $.8 million, respectively, for the three- and six-month periods ended June 30, 2001. REGULATORY MATTERS Substantially all of the utility operations of both NPC and SPPC are conducted in Nevada. As a result both companies are subject to utility regulation within Nevada and therefore deal with many of the same regulatory issues. NEVADA MATTERS NEVADA POWER COMPANY GENERAL RATE CASE (NPC) On October 1, 2001, NPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369, which was enacted by the Nevada legislature in April 2001. On December 21, 2001, NPC filed a Certification to its general rate filing updating costs and revenues pursuant to Nevada regulations. In the certification filing, NPC requested an increase in its general rates charged to all classes of electric customers designed to produce an increase in annual electric revenues of $22.7 million, which is an overall 1.7% rate increase. The application also sought a return on common equity ("ROE") for Nevada Power's total electric operations of 12.25% and an overall rate of return ("ROR") of 9.30%. On March 27, 2002, the PUCN issued its decision on the general rate application, ordering a $43 million revenue decrease with an ROE of 10.1% and ROR of 8.37%. The effective date for the decision was April 1, 2002. The decision also resulted in adverse adjustments to depreciation aggregating $7.9 million, and the adverse treatment of approximately $5 million of revenues related to SO2 Allowances. On April 15, 2002, NPC filed a petition for reconsideration with the PUCN. In the petition, NPC raised six issues for reconsideration: the treatment of revenues related to SO2 Allowances, in particular the calculation of the annual amortization amount, which appears to be in error; the adjustment for "excess" capital investment related to common facilities at the Harry Allen generating station; the rejection of adjustments to accumulated depreciation reserves related to the establishment of revised depreciation rates for transmission, distribution and common facilities; the delay in allowing NPC to recover its merger costs without the benefit of carrying charges; the finding that NPC has no need for and is entitled to zero funds cash working capital; and the establishment of a 10.1% ROE. On May 24, 2002, the PUCN issued an order on the petition for reconsideration. In its order the PUCN reaffirmed its findings in the original order for the issues related to "excess" capital investment at the Harry Allen generating station, merger costs, cash working capital, and the 10.1% ROE. The commission, however, did modify its original order to include adjustments related to SO2 Allowances and depreciation issues. Revised rates for these changes went into effect on June 1, 2002. NEVADA POWER COMPANY DEFERRED ENERGY CASE (NPC) On November 30, 2001, NPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 through September 30, 2001. This application was mandated by AB 369. The application sought to establish a Deferred Energy Accounting Adjustment ("DEAA") rate to clear accumulated purchased fuel and power costs of $922 million and spread the cost recovery 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 three years to collect $488 million but disallowing $434 million of deferred purchased fuel and power costs. On April 11, 2002, NPC filed a 48 lawsuit in First District Court of Nevada seeking to reverse portions of the decision of the PUCN denying the recovery of deferred energy costs incurred by NPC on behalf of its customers in 2001 on the grounds that such power costs were not prudently incurred. NPC asserts that, as a result of the PUCN's decision, NPC's credit rating was reduced to below investment grade, SPR suffered a reduction in its equity market capitalization by approximately 41%, and the disallowed costs are effectively imposed upon SPR's shareholders. In its lawsuit, NPC alleges that the order of the PUCN is: in violation of constitutional and statutory provisions; made upon unlawful procedure; affected by other error of law; clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; arbitrary and capricious and characterized by abuse of discretion. NPC's lawsuit requests that the District Court reverse portions of the order of the PUCN and remand the matter to the PUCN with direction that the PUCN authorize NPC to immediately establish rates that would allow NPC to recover its entire deferred energy balance of $922 million, with a carrying charge, over three years. A hearing has been scheduled for October 17, 2002. At this time, NPC is not able to predict the outcome or the timing of a decision in this matter. Various intervenors in NPC's deferred energy case before the PUCN filed petitions with the PUCN for reconsideration of the order, seeking additional disallowances of between $12.8 million and $488 million. On May 24, 2002, the PUCN issued an order denying any further disallowances. In its order the PUCN granted NPC the authority to increase the deferred energy cost recovery charge for the month of June 2002 by one cent per kilowatt-hour. This increase accelerated the recovery of the deferred balance by approximately $16 million for the month of June 2002 only. The Bureau of Consumer Protection of the Nevada Attorney General's Office has since filed a petition in NPC's pending state court case seeking additional disallowances. SIERRA PACIFIC POWER COMPANY GENERAL RATE CASE (SPPC) On November 30, 2001, SPPC filed an application with the PUCN seeking an electric general rate increase. This application was mandated by AB 369. On February 28, 2002, SPPC filed a certification to its general rate filing, updating costs and revenues pursuant to Nevada regulations. In the certification filing, SPPC requested an increase in its general rates charged to all classes of electric customers, which were designed to produce an increase in annual electric revenues of $15.9 million representing an overall 2.4% rate increase. The application also sought an ROE for SPPC's total electric operations of 12.25% and an overall ROR of 9.42%. Public hearings for SPPC's general rate case began on April 8, 2002, and concluded on April 18. Various parties intervened in SPPC's general rate case including the Staff of the PUCN, the Bureau of Consumer Protection from the Nevada Attorney General's office, and Barrick Goldstrike Mines ("Barrick"), among others. The reduction of SPPC's revenue requirements proposed by the intervenors ranged from $8.0 million to $33.1 million. On May 28, 2002, the PUCN issued its decision on the general rate application, ordering a $15.3 million revenue decrease with an ROE of 10.17% and ROR of 8.61%. The effective date of the decision was June 1, 2002. Various parties to the case had filed petitions for reconsideration of the order. On July 18, 2002, the PUCN issued a final decision on the petitions for reconsideration, clarifying issues contained its original order. As a result of the clarifications, SPPC was ordered to change the total annual electric revenue decrease from $15.3 million to $15.8 million. SIERRA PACIFIC POWER COMPANY DEFERRED ENERGY (SPPC) On February 1, 2002, SPPC filed an application with the PUCN seeking to clear deferred balances for purchased fuel and power costs accumulated between March 1, 2001 and November 30, 2001. This application was mandated by AB 369. The application sought to establish a DEAA rate to clear accumulated purchased fuel and power costs of $205 million and spread the cost recovery over a period of not more than three years. It also sought to recalculate the Base Tariff Energy Rate to reflect anticipated ongoing purchased fuel and power costs. The total rate increase resulting from the requested DEAA would have amounted to 9.8%. Various parties intervened in SPPC's deferred energy rate case including the Staff of the PUCN, the Bureau of Consumer Protection from the Nevada Attorney General's office, and Barrick, among others. Intervenors proposed disallowances ranging from $40.4 million to $361 million. On May 28, 2002, the PUCN issued its decision on the deferred energy application, allowing SPPC three years to collect $152 million but disallowing $53 million of deferred purchased fuel and power costs. SPPC is currently evaluating its options regarding a possible court challenge to the PUCN order. Several of the intervenors from SPPC's deferred energy rate case filed petitions with the PUCN for reconsideration of its decision, seeking an additional disallowance of $126 million. On July 18, 2002, the petitions for reconsideration were granted in part and denied in part by the PUCN, but no additional disallowances to the deferred energy balance resulted from that decision. CUSTOMERS FILE UNDER AB661 (NPC, SPPC) AB 661, passed by the Nevada legislature in 2001, allows commercial and governmental customers with an average demand greater than 1 MW to select new energy suppliers. The Utilities would continue to provide transmission, distribution, 49 metering and billing services to such customers. AB 661 requires customers wishing to choose a new supplier to receive the approval of the PUCN and meet public interest standards. In particular, departing customers must secure new energy resources that are not under contract to the Utilities, remaining customers or the Utility cannot be negatively impacted by the departure, and the departing customers must pay any deferred energy balances. The PUCN adopted regulations prescribing the criteria that will be used to determine if there will be negative impacts to remaining customers or the Utility. Certain limits are placed upon the departure of NPC customers until 2003; most significantly, the amount of load departing is limited to approximately 1100 MW in peak conditions. Customers must provide 180-day notice to the Utilities. AB 661 permitted customers to file applications with the PUCN beginning in the fourth quarter of 2001, and customers could begin to receive service from new suppliers by mid-2002. On January 10, 2002, Barrick, an approximately 130 MW SPPC customer, filed an application with the PUCN to exit the system of SPPC and to purchase energy, capacity and ancillary services from a provider other than SPPC. A stipulation filed on March 8, 2002 by SPPC and Barrick was rejected by the PUCN on March 29, 2002. The PUCN indicated a desire for more information regarding transmission access, the definition of a new electric resource, and the computation of exit fees. Subsequently, a second application was filed and later withdrawn by Barrick. At this point it is not known whether Barrick intends to refile its application. During May 2002, Rouse Fashion Show Management LLC, Coast Hotels and Casinos Inc., Station Casinos, Inc., Gordon Gaming Corporation, MGM Mirage, and Park Place Entertainment filed separate applications with the PUCN to exit the system of NPC and to purchase energy, capacity and ancillary services from a provider other than NPC. The loads of these customers aggregate 260 MW on peak. Hearings on the applications of all the customers except Park Place Entertainment were completed on July 19, and the PUCN issued its decision on July 31, 2002. In its decision, the PUCN approved the applications of these customers to choose an energy supplier other than NPC. The earliest any of these customers could begin taking energy from an alternative provider would be November 1, 2002. If all five customers whose applications were approved were to leave its system, NPC would incur an annual loss in revenue of $48 million, which would be offset by a reduction in costs, primarily for fuel and purchased power, of $46 million with the difference being paid by exit fees from the departing customers. These customers will also be responsible for their share of balances in NPC's deferred energy accounts up until the time they leave and must continue to pay their share of these balances after they leave. For example, if all five customers whose applications were approved leave the system on November 1, 2002, their remaining share of NPC's previously approved deferred energy balance is estimated to be $27 million. Additionally, these departing customers would be responsible for paying their share of yet to be approved accumulated deferred energy balances from October 1, 2001 to their date of departure. They will also remain accountable to any rulings made by the District Court on legal actions brought in NPC's past deferred energy case. They could also benefit from any refunds that might be granted on power contracts under review with the FERC. Additionally, if any departed customers return to NPC as their energy provider, they will be charged for their energy at a rate equivalent to NPC's incremental cost of service. The incremental cost of service tariff is scheduled for hearing before the PUCN in the first week of September 2002. A hearing on the application of Park Place Entertainment was held on August 2, 2002, and on August 12, 2002, the PUCN approved the application with terms and conditions similar to those described above for the aforementioned five customers. NEVADA POWER COMPANY ADDITIONAL FINANCE AUTHORITY (NPC) On April 26, 2002, Nevada Power filed with the PUCN an application seeking additional finance authority. In the application NPC asked for authority to issue secured long-term debt in an aggregate amount not to exceed $450 million through the period ending 2003. A hearing was held on June 3, 2002, and the PUCN issued an order on June 19, 2002, authorizing the issuance of $300 million of the requested authority. Other provisions of the PUCN's order are discussed in NPC's "Financial Condition, Liquidity, and Capital Resources." ANNUAL PURCHASED GAS COST ADJUSTMENT (SPPC) On July 1, 2002, SPPC filed a Purchased Gas Cost adjustment application for its natural gas local distribution company. In the application SPPC has asked for a reduction of $0.05421 to its Base Purchased Gas Rate (BPGR) and an increase in its Balancing Account Adjustment charge (BAA) by the same amount. This request would result in no change to revenues or customer rates. A pre-hearing conference has been scheduled for August 20, 2002. 50 LIQUID PETROLEUM GAS COST ADJUSTMENT (SPPC) On July 1, 2002, SPPC filed an application to adjust rates for its liquid petroleum gas (LPG) distribution company. In the application SPPC has asked for an increase of $0.04133 to its current LPG rate and a decrease in its Balancing Account Adjustment charge (BAA) by the same amount. This request would result in no change to revenues or customer rates. A pre-hearing conference has been scheduled for August 20, 2002. CALIFORNIA MATTERS (SPPC) RATE STABILIZATION PLAN SPPC serves approximately 44,500 customers in California. On June 29, 2001, SPPC filed with the California Public Utility Commission (CPUC) a Rate Stabilization Plan, which includes two phases. Phase One, which was also filed June 29, 2001, is an emergency electric rate increase of $10.2 million annually or 26%. If granted, the typical residential monthly electric bill for a customer using 650 kilowatt-hours would increase from approximately $47.12 to $60.12. On August 14, 2001, a pre-hearing conference was held, and a procedural order was established. On September 27, 2001, the Administrative Law Judge issued an order stating that no interim or emergency relief could be granted until the end of the "rate freeze" period mandated by the California restructuring law for recovery of stranded costs. In accordance with the judge's request, on October 26, 2001, SPPC filed an amendment to its application declaring the rate freeze period to be over. On December 5 and 11, 2001, hearings were held and on January 11, 2002 and January 25, 2002 opening briefs and reply briefs were filed. On July 17, 2002, the CPUC approved the requested 2-cent per kilowatt-hour surcharge, subject to refund and interest pending the outcome of Phase Two. The increase of $10 million or 26% is applicable to all customers except those eligible for low-income and medical-needs rates and is effective July 18, 2002. Phase Two of the Rate Stabilization Plan was filed with the CPUC on April 1, 2002, and includes a general rate case and requests the CPUC to reinstate the Energy Cost Adjustment Clause, which would allow SPPC to file for periodic rate adjustments to reflect its actual costs for wholesale energy supplies. Phase Two also includes a proposal to terminate the 10% rate reduction mandated by AB 1890, but does not include a performance - based rate-making proposal. This request was for an additional overall increase in revenues of 17.1%, or $8.9 million annually. Hearings are scheduled for February 25 through March 3, 2003, and a decision by the CPUC is expected in the third quarter of 2003. FERC MATTERS (SPPC, NPC) FERC 206 COMPLAINTS In December 2001, the Utilities filed ten FERC 206 complaints with the FERC seeking their review of the long-term contracts the Utilities entered into prior to the FERC price caps. The Utilities believe the contract prices are unjust and unreasonable. The FERC ordered the case set for hearing and assigned an administrative law judge ("ALJ"). A primary issue is whether or not the dysfunctional short-term market, which was previously declared by the FERC, impacted the long-term market. Written direct testimony was filed by the parties on June 28, 2002. The ALJ's schedule calls for hearings to be held in October 2002 and for a draft decision in December 2002. The Utilities have engaged in bilateral discussions with respondents in this matter. At this time, the Utilities are not able to predict the outcome of a decision in this matter. 51 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK SPR has evaluated its risk related to financial instruments whose values are subject to market sensitivity, such as fixed and variable rate debt and preferred trust securities obligations. As shown in SPR's Form 10-K for the year ended December 31, 2001, the fair market value of SPR's consolidated long-term debt and preferred trust securities was $3.684 billion, as of December 31, 2001. Due to the credit ratings downgrades by S&P and Moody's, SPR's valuations for its market-sensitive financial instruments show a decline of approximately 14% in the fair market value of these financial instruments to $3.151 billion from December 31, 2001 to June 30, 2002, as shown in the table below. 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. Long-term debt (dollars in thousands):
Expected Maturity Date Expected Maturities Amounts Weighted Avg Int Rate* Fair Market Value Fixed Rate NPC SPPC SPR Consolidated Consolidated Consolidated - ---------- --- ---- --- ------------ ------------ ------------ 2002 $ 15,000 $ -- $ -- $ 15,000 7.63% 2003 210,000 20,400 -- 230,400 5.97% 2004 130,000 2,400 -- 132,400 6.10% 2005 -- 2,400 300,000 302,400 8.73% 2006 -- 52,400 -- 52,400 6.71% Thereafter 938,835 843,285 345,000 2,127,120 6.87% ---------- -------- -------- ---------- ------------- Total Fixed Rate $1,293,835 $920,885 $645,000 $2,859,720 $ 2,598,937 ---------- -------- -------- ---------- ------------- Variable Rate 2002 $ -- $ -- $ -- $ -- 2003 140,000 -- 200,000 340,000 3.43% 2004 -- -- -- -- 2005 -- -- -- -- 2006 -- -- -- -- Thereafter 115,000 -- -- 115,000 1.82% ---------- -------- -------- ---------- ------------- $ 255,000 $ -- $200,000 $ 455,000 $ 410,800 ---------- -------- -------- ---------- ------------- Preferred securities (fixed rate) After 2006 $ 188,872 $ -- $ -- $ 188,872 8.03% ---------- -------- -------- ---------- ------------- $ 188,872 $ -- $ -- $ 188,872 $ 141,466 ---------- -------- -------- ---------- ------------- Total $1,737,707 $920,885 $845,000 $3,503,592 $ 3,151,203 ========== ======== ======== ========== =============
See the combined Form 10-K of SPR, NPC, and SPPC for the year ended December 31, 2001, for a discussion of Commodity Price Risk. 52 PART II ITEM 1. LEGAL PROCEEDINGS Refer to SPR's, NPC's, and SPPC's Combined Annual Report on Form 10-K for the year ended December 31, 2001, and to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operation, in this Quarterly Report on Form 10-Q, for a discussion of current legal matters. Although SPR, NPC, and SPPC are involved in ongoing litigation on a variety of other matters, in management's opinion, none individually or collectively are material to SPR's, NPC's, or SPPC's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q: * - Confidential Material omitted and filed separately with the Securities and Exchange Commission NEVADA POWER COMPANY Exhibit 4.1 Officer's Certificate establishing the terms of Nevada Power Company's General and Refunding Mortgage Bonds, Series D, due April 15, 2004. Exhibit 4.2 Form of Nevada Power Company's General and Refunding Mortgage Bonds, Series D, due April 15, 2004. SIERRA PACIFIC RESOURCES Exhibit 10.1 Severance and Release Agreement, dated May 24, 2002, among Sierra Pacific Resources, its affiliates Nevada Power Company and Sierra Pacific Power Company, and Mark A. Ruelle. Exhibit 10.2 Severance and Release Agreement, dated May 18, 2002, among Sierra Pacific Resources, its affiliates Nevada Power Company and Sierra Pacific Power Company, and Steven C. Oldham. NEVADA POWER COMPANY Exhibit 10.3* Master Amendment to Confirmation Agreements (Power), dated as of June 4, 2002, by and between Nevada Power Company and Duke Energy Trading and Marketing, L.L.C. Exhibit 10.4 Amendment No. 2 to Credit Agreement, dated as of June 25, 2002, by and among Nevada Power Company, the banks listed on the signature pages thereto as Lenders, and Union Bank of California, N.A., as administrative agent for the Lenders. SIERRA PACIFIC POWER COMPANY Exhibit 10.5* Master Amendment to Confirmation Agreements (Power), dated as of June 4, 2002, by and between Sierra Pacific Power Company and Duke Energy Trading and Marketing, L.L.C. Exhibit 10.6 Amendment No. 1 to Credit Agreement, dated as of June 25, 2002, by and among Sierra Pacific Power Company, the banks listed on the signature pages thereto as Lenders, and Union Bank of California, N.A., as administrative agent for the Lenders. SIERRA PACIFIC RESOURCES, NEVADA POWER COMPANY AND SIERRA PACIFIC POWER COMPANY Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 53 (b) Reports on Form 8-K: Form 8-K dated April 3, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated April 3, 2002, announcing that NPC plans to file a petition for rehearing and/or reconsideration of the PUCN order denying recovery of a portion of NPC's deferred energy expenses. Form 8-K dated April 4, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated April 4, 2002, announcing the decision of a bank syndicate, headed by Union Bank of California, to confirm NPC's $200 million credit facility and SPPC's $150 million credit facility. Form 8-K dated April 4, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, NPC's and SPPC's letters sent to the counterparties to the Utilities' fuel and purchased power contracts providing an update as to the consequences of the PUCN order denying recovery of NPC's deferred energy expenses. Form 8-K dated April 11, 2002, filed by SPR and NPC - Item 5, Other Events Disclosed, and included as an exhibit, the petition for judicial review filed on April 11, 2002, by NPC in District Court in Nevada seeking to reverse portions of the recent decision of the PUCN denying the recovery of $437 million of deferred energy costs incurred by NPC on behalf of its customers in 2001. Form 8-K dated April 15, 2002, filed by SPR and NPC - Item 5, Other Events Disclosed, and included as an exhibit, a Petition for Reconsideration filed on April 15, 2002, by NPC with the PUCN seeking reconsideration of the recent decisions of the PUCN with respect to NPC's general rate case and NPC's application for approval of new revised depreciation rates. Form 8-K dated April 23, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated April 23, 2002, announcing that SPR will not be paying a common stock dividend during the quarter ended June 30, 2002. Form 8-K dated May 2, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated May 2, 2002, announcing that Enron Power Marketing Inc. will end power deliveries to SPR's two electric utilities effective May 7, 2002. Form 8-K dated May 20, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated May 20, 2002, announcing the departure of four executives. Form 8-K dated May 28, 2002, filed by SPR, and SPPC - Item 5, Other Events Disclosed that on May 28, 2002, the PUCN voted to allow SPPC to recover approximately $150 million of deferred energy costs over a three-year period beginning June 1, 2002. SPPC had originally sought to recover approximately $205 million in fuel and power purchases SPPC made on behalf of its customers in 2001. As a result of the PUCN's decision, SPPC will write-off approximately $55 million of the deferred energy balance, plus approximately $3 million in subsequent carrying charges. SPPC had also sought an increase in its general rates of approximately $16 million; however, the PUCN approved a decrease of approximately $14 million to SPPC's current rates, also effective June 1, 2002. 54 Form 8-K dated June 10, 2002, filed by SPR, NPC and SPPC - Item 5, Other Events Disclosed, and included as an exhibit, SPR's press release dated June 10, 2002, announcing that Duke Energy North America, a subsidiary of Duke Energy Corporation, has agreed to supply up to 1,000 megawatts of electricity per hour, as well as natural gas, to NPC and SPPC to fulfill customers' power requirements during the peak summer period. Duke Energy also agreed to accept a deferred payment program for a portion of the summer costs under its existing power-supply contracts with NPC. Concurrently, NPC and SPPC agreed to drop their Federal Energy Regulatory Commission Section 206 complaint proceedings against Duke Energy. 55 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 14, 2002 By: /s/ Dennis D. Schiffel --------------- ---------------------------------- Dennis D. Schiffel Senior Vice President Chief Financial Officer (Principal Financial Officer) Date: August 14, 2002 By: /s/ John E. Brown --------------- ---------------------------------- John E. Brown Controller (Principal Accounting Officer) NEVADA POWER COMPANY (Registrant) Date: August 14, 2002 By: /s/ Dennis D. Schiffel --------------- ---------------------------------- Dennis D. Schiffel Senior Vice President Chief Financial Officer (Principal Financial Officer) Date: August 14, 2002 By: /s/ John E. Brown --------------- ---------------------------------- John E. Brown Controller (Principal Accounting Officer) SIERRA PACIFIC POWER COMPANY (Registrant) Date: August 14, 2002 By: /s/ Dennis D. Schiffel --------------- ---------------------------------- Dennis D. Schiffel Senior Vice President Chief Financial Officer (Principal Financial Officer) Date: August 14, 2002 By: /s/ John E. Brown --------------- ---------------------------------- John E. Brown Controller (Principal Accounting Officer)
56 EX-4.1 3 b43700spexv4w1.txt OFFICER'S CERTIFICATE Exhibit 4.1 NEVADA POWER COMPANY OFFICER'S CERTIFICATE May 13, 2002 I, the undersigned officer of Nevada Power Company (the "Company"), do hereby certify that I am an Authorized Officer of the Company as such term is defined in the Indenture (as defined herein). I am delivering this certificate pursuant to the authority granted in the Board Resolutions of the Company dated May 13, 2002, and Sections 1.04, 2.01, 3.01, 4.01(a) and 4.02(b)(i) of the General and Refunding Mortgage Indenture dated as of May 1, 2001, as heretofore amended and supplemented to the date hereof (as heretofore amended and supplemented, the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"). Terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Indenture, unless the context clearly requires otherwise. Based upon the foregoing, I hereby certify on behalf of the Company as follows: 1. The terms and conditions of the Securities of the series described in this Officer's Certificate are as follows (the lettered subdivisions set forth in this Paragraph 1 corresponding to the lettered subdivisions of Section 3.01 of the Indenture): (a) The Securities of the fourth series to be issued under the Indenture shall be designated "General and Refunding Mortgage Bond, Series D, due April 15, 2004" (the "Bond"). (b) The Bond shall be authenticated and delivered in the aggregate principal amount of $130,000,000. (c) Not applicable. (d) The principal of the Bond shall be payable by the Company in whole or in installments on such date or dates as the Company has any obligations to the holders of the Series B Notes (as defined in the Senior Note Indenture defined below) under the terms therein (whether upon scheduled maturity, required prepayment, acceleration, demand or otherwise), but not later than April 15, 2004. The amount of principal of the Bond payable by the Company on any such date shall equal the aggregate outstanding principal amount of the Series B Notes due and payable on such date (but, in no event, shall exceed the aggregate principal amount of the Bond). The obligation of the Company to make any payment of the principal on the Bond shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has redeemed any part of the Series B Notes. (e) The Bond shall bear interest from the time hereinafter provided at such rate per annum as shall cause the amount of interest payable on each Interest Payment Date (as hereinafter defined) on the Bond to equal the amount of interest payable on such Interest Payment Date on the Series B Notes. Such interest on the Bond shall be payable on the 3390272 same dates as interest is payable from time to time on the Series B Notes (each such date herein called an "Interest Payment Date"), until the maturity of the Bond, or, in the case the Senior Note Trustee (as defined below) shall demand redemption of the Bond, until the redemption date, or, in the case of any default by the Company in the payment of the principal due on the Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture. The amount of interest payable from time to time on the Series B Notes and the dates on which such interest is payable are set forth in the Senior Note Indenture (as defined below). Each Bond shall bear interest from the later of the date of initial authentication of such Bond or the most recent Interest Payment Date to which interest has been paid. The obligation of the Company to make any payment of interest on the Bond shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid the interest on the Series B Notes. (f) The Corporate Trust Office of The Bank of New York in New York, New York shall be the place at which (i) the principal of and interest on the Bond shall be payable, (ii) registration of transfer of the Bond may be effected, (iii) exchanges of the Bond may be effected and (iv) notices and demands to or upon the Company in respect of the Bond and the Indenture may be served; and The Bank of New York shall be the Security Registrar for the Bond; PROVIDED, HOWEVER, that the Company reserves the right to change, by one or more Officer's Certificates, with the consent of the Administrative Agent, any such place or the Security Registrar; and provided, further, that the Company reserves the right to designate, by one or more Officer's Certificates, its principal office in Las Vegas, Nevada as any such place or itself as the Security Registrar; PROVIDED, HOWEVER, that there shall be only a single Security Registrar for the Bond. The principal of the Bond shall be payable without the presentment or surrender thereof. (g) Not applicable. (h) Not applicable. (i) The Bond is issuable only in denominations of $130,000,000. (j) Not applicable. (k) Not applicable. (l) Not applicable. (m) See subsection (d) above. (n) Not applicable. (o) Not applicable. (p) Not applicable. 3390272 2 (q) The Bond shall be evidenced by a single registered Bond in the principal amount and denomination of One Hundred Thirty Million Dollars ($130,000,000). The Bond shall be dated May 13, 2002, shall mature no later than April 15, 2004, unless sooner paid, and shall bear interest at the rate specified in subsection (e) above. The Bond may be executed by the Company and delivered to the Trustee for authentication and delivery. The principal of and interest on the Bond shall be payable at the Corporate Trust Office of the Trustee in New York, New York. The single Bond shall be identified by the number D-1 and shall upon issuance be delivered by the Company to, and registered in the name of The Bank of New York (as successor to IBJ Whitehall Bank & Trust Company), as trustee under the Senior Note Indenture defined below (the "Senior Note Trustee"), and shall be transferable only as required to effect an assignment thereof to a successor or an assign of the Senior Note Trustee under the Senior Note Indenture. The Bond is to be issued to the Senior Note Trustee to (i) secure the Company's obligations to make payments under the terms of the Series B Notes issued under the Senior Unsecured Note Indenture, dated as of March 1, 1999, as supplemented by Supplemental Indenture No. 1, dated as of March 1, 1999, and Supplemental Indenture No. 2, dated as of April 1, 1999 (as heretofore or hereafter supplemented, modified or amended from time to time, the "Senior Note Indenture"), and (ii) provide to the holders of the Series B Notes the benefits of the security provided for the Bond pursuant to the Indenture. The single Bond shall be held by the Senior Note Trustee subject to the terms of the Pledge Agreement, dated as of May 13, 2002, between the Company and the Senior Note Trustee. Bonds issued upon transfer shall be numbered consecutively from D-2 upwards and issued in the same $130,000,000 denomination but, to the extent that the aggregate outstanding principal amount of the Series B Notes shall have theretofore been reduced, the registered holder thereof shall duly note on the Bonds like reduction in such amount in the principal in the Schedule of Prepayments to such Bond and upon any transfer of said Bond, such Schedule of Prepayments shall transfer to the subsequently issued Bond. See also subsection (s) below. (r) Not applicable. (s) The holder of the Bond by acceptance of the Bond agrees to restrictions on transfer and to waivers of certain rights of exchange as set forth herein. In addition, the Bond has not been registered under the Securities Act of 1933 and the Bond may not be transferred without compliance with applicable securities laws. The Bond is not transferable except to a successor to the Senior Note Trustee under the Senior Note Indenture. (t) For purposes of the Bond, "Business Day" shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to remain closed. 3390272 3 (u) The Trustee may conclusively presume that the obligation of the Company to pay the principal of and interest on the Bond shall have been fully satisfied and discharged unless and until it shall have received a written notice from the Senior Note Trustee, stating that the payment of principal of or interest on the Bond has not been fully paid when due and specifying the amount of funds required to make such payment. The Bond shall have such other terms and provisions as are provided in the form thereof attached hereto as EXHIBIT A, and shall be issued in substantially such form. 2. The undersigned has read all of the covenants and conditions contained in the Indenture, and the definitions in the Indenture relating thereto, relating to the issuance of the Bond and in respect of compliance with which this certificate is made. The statements contained in this certificate are based upon the familiarity of the undersigned with the Indenture, the documents accompanying this certificate, and upon discussions by the undersigned with officers and employees of the Company familiar with the matters set forth herein. In the opinion of the undersigned, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenants and conditions have been complied with. In the opinion of the undersigned, such conditions and covenants have been complied with. IN WITNESS WHEREOF, the undersigned has executed this Officer's Certificate as of the date first written above. By: ---------------------------------------- Name: Dennis D. Schiffel Title: Senior Vice President and Chief Financial Officer Acknowledged and Received on May __, 2002 THE BANK OF NEW YORK, as Trustee By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- 3390272 4 EXHIBIT A --------- FORM OF BOND See Exhibit 4.2 3390272 5 EX-4.2 4 b43700spexv4w2.txt FORM OF NEVADA POWER COMPANY'S GENERAL AND REFUND Exhibit 4.2 NOTE: THE HOLDER OF THIS BOND BY ACCEPTANCE HEREOF AGREES TO RESTRICTIONS ON TRANSFER, TO WAIVERS OF CERTAIN RIGHTS OF EXCHANGE, AND TO INDEMNIFICATION PROVISIONS AS SET FORTH BELOW. IN ADDITION, THE BOND REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND SUCH BOND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE WITH APPLICABLE SECURITIES LAWS. THIS BOND IS NOT TRANSFERABLE EXCEPT TO A SUCCESSOR OR ASSIGN OF THE SENIOR NOTE TRUSTEE UNDER THE SENIOR NOTE INDENTURE REFERRED TO HEREIN. NEVADA POWER COMPANY General and Refunding Mortgage Bond, Series D, due April 15, 2004 Original Interest Accrual Date: May 13, 2002 Redeemable by Company: Yes__ No_X_ Stated Maturity: April 15, 2004 Redemption Date: N/A Interest Rate: See below Redemption Price: N/A Interest Payment Dates: See below Regular Record Dates: N/A
This Security is not a Discount Security within the meaning of the within-mentioned Indenture. ------------------------------------ Principal Amount $130,000,000 No. D-1 NEVADA POWER COMPANY, a corporation duly organized and existing under the laws of the State of Nevada (herein called the "Company," which term includes any successor corporation under the Indenture referred to below), for value received, hereby promises to pay to THE BANK OF NEW YORK, (successor to IBJ Whitehall Bank & Trust Company), as Trustee (the "Senior Note Trustee"), or its registered assigns, under the Senior Unsecured Note Indenture dated as of March 1, 1999, as supplemented by Supplemental Indenture No. 1, dated as of March 1, 1999, and Supplemental Indenture No. 2, dated as of April 1, 1999 ("Supplemental Indenture No. 2) (as heretofore or hereafter supplemented, modified or amended from time to time, the "Senior Note Indenture"), the principal sum of ONE HUNDRED THIRTY MILLION DOLLARS, or such lesser principal amount as shall be equal to the aggregate outstanding principal amount of the Series B Notes (as defined in the Senior Note Indenture), in whole or in installments on such date or dates as the Company has any obligations of payment under the Senior Note Indenture (whether upon scheduled maturity, required prepayment, acceleration, demand or otherwise), but not later than the Stated Maturity specified above. The amount of principal of this Bond payable by the Company on any such date shall equal the aggregate outstanding principal amount of the Series B Notes due and payable on such date pursuant to the Senior Note Indenture (but, in no event, shall exceed the principal amount of this Bond). The obligation of the Company to make any payment of the principal on this Bond shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has 3390226 paid the principal then due and payable on the Series B Notes made pursuant to the Senior Note Indenture. Interest shall be payable on this Bond on each Interest Payment Date (as hereinafter defined) at such rate per annum as shall cause the amount of interest payable on such Interest Payment Date on this Bond to equal the amount of interest payable on such Interest Payment Date on the Series B Notes. Such interest shall be payable on the same dates as interest is payable from time to time on the Series B Notes (each such date herein called an "Interest Payment Date"), until the maturity of this Bond, or, if the Senior Note Trustee shall demand redemption of this Bond, until the redemption date, or, if the Company shall default in the payment of the principal due on this Bond, until the Company's obligation with respect to the payment of such principal shall be discharged as provided in the Indenture. The amount of interest payable from time to time on the Series B Notes, the basis on which such interest is computed and the dates on which such interest is payable are set forth in the Senior Note Indenture. This Bond shall bear interest (a) from the Interest Payment Date next preceding the date of this Bond to which interest has been paid, or (b) if the date of this Bond is an Interest Payment Date to which interest has been paid, then from such date, or (c) if no interest has been paid on this Bond, then from the date of initial authentication of this Bond. The obligation of the Company to make any payment of interest on this Bond shall be fully or partially, as the case may be, deemed to have been paid or otherwise satisfied and discharged to the extent that the Company has paid the interest on the Series B Notes. This Bond is issued to the Senior Note Trustee by the Company pursuant to the Company's obligations under Section 3.01 of Supplemental Indenture No. 2. This Bond shall be held by the Senior Note Trustee subject to the terms of the Pledge Agreement, dated as of May 13, 2002, between the Company and the Senior Note Trustee. Any capitalized terms used herein and not defined herein shall have the meanings specified in the Indenture (as defined below), unless otherwise noted. If an Event of Default (as defined in the Senior Note Indenture) shall have occurred under Section 7.01 of the Senior Note Indenture by reason of a failure by the Company to make a payment of principal of the Series B Notes when the same shall be due and payable pursuant to the Senior Note Indenture, it shall be deemed to be a default, for purposes of Section 10.01 of the Indenture, in payment of an amount of principal of this Bond equal to the amount of such unpaid principal of the Series B Notes (but, in no event, in excess of the principal amount of this Bond). If an Event of Default (as defined in the Senior Note Indenture) shall have occurred under Section 7.01 of the Senior Note Indenture by reason of a failure by the Company to make a payment of interest on the Series B Notes when the same shall be due and payable pursuant to the Senior Note Indenture, it shall be deemed to be a default, for purposes of Section 10.01 of the Indenture, in payment of an amount of interest on this Bond equal to the amount of such unpaid interest on the Series B Notes. The Senior Note Trustee shall surrender this Bond to the Trustee when all of the principal of and interest on the Series B Notes shall have been duly paid and the Series B Notes shall have been cancelled. Payments of the principal of and interest on this Bond shall be made at the Corporate Trust Office of The Bank of New York located at 101 Barclay Street, New York, New York 10286 or at such other office or agency as may be designated for such purpose by the Company from time to time. Payment of the principal of and interest on this Bond, as aforesaid, shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. This Bond is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and issuable in one or more series under and equally secured by a General and Refunding Mortgage Indenture, dated as of May 1, 2001 (such Indenture as originally executed and 3390226 2 delivered and as supplemented or amended from time to time thereafter, together with any constituent instruments establishing the terms of particular Securities, being herein called the "Indenture"), between the Company and The Bank of New York, as trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the property mortgaged, pledged and held in trust, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities of the Company, the Trustee and the Holders of the Securities thereunder and of the terms and conditions upon which the Securities are, and are to be, authenticated and delivered and secured. The acceptance of this Bond shall be deemed to constitute the consent and agreement by the Holder hereof to all of the terms and provisions of the Indenture. This Bond is one of the series designated above. The Bonds of this series will not be entitled to the benefit of any sinking fund or voluntary redemption provisions. If an Event of Default, as defined in the Indenture, shall occur and be continuing, the principal of this Bond may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the Trustee to enter into one or more supplemental indentures for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, the Indenture with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of all series then Outstanding under the Indenture, considered as one class; PROVIDED, HOWEVER, that if there shall be Securities of more than one series Outstanding under the Indenture and if a proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such series, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all series so directly affected, considered as one class, shall be required; and PROVIDED, FURTHER, that if the Securities of any series shall have been issued in more than one Tranche and if the proposed supplemental indenture shall directly affect the rights of the Holders of Securities of one or more, but less than all, of such Tranches, then the consent only of the Holders of a majority in aggregate principal amount of the Outstanding Securities of all Tranches so directly affected, considered as one class, shall be required; and PROVIDED, FURTHER, that the Indenture permits the Trustee to enter into one or more supplemental indentures for limited purposes without the consent of any Holders of Securities. The Indenture also contains provisions permitting the Holders of a majority in principal amount of the Securities then Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be conclusive and binding upon such Holder and upon all future Holders of this Bond and of any Security issued upon the registration of transfer hereof or in exchange therefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Bond. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Bond is registrable in the Security Register, upon surrender of this Bond for registration of transfer at the Corporate Trust Office of The Bank of New York in New York, New York or such other office or agency as may be designated by the Company from time to time, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Bonds of this series of authorized denominations and of like tenor and aggregate principal amount, will be issued to the designated transferee or transferees. This Bond has been issued by the Company to the Senior Note Trustee to (i) secure the Company's obligations to make payments of principal of and interest on the Series B Notes, and (ii) 3390226 3 provide to the holders of the Series B Notes the benefits of the security provided for this Bond pursuant to the Indenture. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the person in whose name this Bond shall be registered upon the Security Register for the Bonds of this series as the absolute owner of such Bond for the purpose of receiving payment of or on account of the principal of and interest on this Bond and for all other purposes, whether or not this Bond be overdue, and neither the Company nor the Trustee shall be affected by any notice to the contrary; and all such payments so made to such registered owner or upon his order shall be valid and effectual to satisfy and discharge the liability upon this Bond to the extent of the sum or sums paid. The Trustee may conclusively presume that the obligation of the Company to pay the principal of and interest on this Bond shall have been fully satisfied and discharged unless and until it shall have received a written notice from the Senior Note Trustee, stating that the payment of principal of or interest on this Bond has not been fully paid when due and specifying the amount of funds required to make such payment. Before any transfer of this Bond by the registered holder or his or its legal representative will be recognized or given effect by the Company or the Trustee, the registered holder shall note the amounts of reductions, if any, in the aggregate outstanding principal amount of the Series B Notes, and shall notify the Company and the Trustee of the name and address of the transferee and shall afford the Company and the Trustee the opportunity of verifying the notation as to such reductions. By acceptance hereof the holder of this Bond and each transferee shall be deemed to have agreed to indemnify and hold harmless the Company (other than the initial holder) and the Trustee against all losses, claims, damages or liability arising out of any failure on part of the holder or of any such transferee to comply with the requirements of the preceding sentence. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in any indenture supplemental thereto, or in any Bond or coupon thereby secured, or because of any indebtedness thereby secured, shall be had against any incorporator, or against any past, present or future stockholder, officer or director, as such, of the Company or any successor corporation, either directly or through the Company or of any successor corporation under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise; it being expressly agreed and understood that the Indenture, any indenture supplemental thereto and the obligations thereby secured, are solely corporate obligations, and that no personal liability whatsoever shall attach to, or be incurred by, such incorporators, stockholders, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the incurring of the indebtedness thereby authorized, or under or by reason of any of the obligations, covenants or agreements contained in the Indenture or in any indenture supplemental thereto or in any of the Bonds or coupons thereby secured, or implied therefrom. This Bond shall be governed by and construed in accordance with the laws of the State of New York. Unless the certificate of authentication hereon has been executed by the Trustee or an Authenticating Agent by manual signature, this Bond shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. [The remainder of this page is intentionally left blank.] 3390226 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. NEVADA POWER COMPANY By: ------------------------------------- Name: Dennis D. Schiffel Title: Senior Vice President and Chief Financial Officer CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: May __, 2002 THE BANK OF NEW YORK, AS TRUSTEE By: -------------------------------------- Authorized Signatory EX-10.1 5 b43700spexv10w1.txt SEVERANCE AND RELEASE AGREEMENT Exhibit 10.1 SEVERANCE AND RELEASE AGREEMENT PARTIES The parties to this Severance and Release Agreement ("Agreement") are Sierra Pacific Resources and its affiliates Nevada Power Company and Sierra Pacific Power Company (collectively referred to as "Company"), and Mark A. Ruelle ("Employee"). BASIS (a) Employee currently holds the position of President, Nevada Power Company, with Company. This Agreement is not based upon any change in control or in the ownership of a substantial portion of the Company's assets. (b) Employee has had access to Confidential Information, as hereinafter defined. Employee has occupied a position of trust and confidence with respect to such Confidential Information. (c) This Agreement is intended as a final settlement of any and all claims, known or unknown, that Employee may have against Company arising out of or related to his employment with Company or the termination of that employment, including, but not limited to all rights Employee may have pursuant to the Employment Agreement as defined below. This Agreement provides Employee with benefits that exceed the benefits contained in the Employment Agreement and is adequate consideration for this Agreement. TERMS OF AGREEMENT 1. DEFINED TERMS 1.1 "CONFIDENTIAL INFORMATION" means any plan, specification, pattern, procedure, profile, design, device, list, compilation, data, or information relating to the present or planned business of Company which has not been released publicly by authorized representatives of Company, or which is not common to industry practice, including, but not limited to trade secrets as defined in NRS 600A.010, et seq. Confidential Information may include inventions; marketing and sales plans or programs; customer and supplier information; financial data; purchasing, pricing, or supply information; product engineering information; technological know-how; designs, plans or specifications regarding products and materials; manufacturing processes and techniques; regulatory approval strategies; computer programs, data, formulae and compositions; service techniques and protocols; and new product strategies, plans and designs. Confidential Information also includes information that if disclosed, could negatively affect the Company's reputation and it's relationship with business, governmental agencies and customers. Confidential Information includes all information received by Company under an obligation of confidentiality to a third party. 1.2 "EMPLOYMENT AGREEMENT" means all previous agreements, express or implied, between Company and Employee, including change in control or letter agreements. 1.3 "STIP" means short-term cash incentive payment. 1.4 "SERP" means Supplemental Executive Retirement Plan. 2. TERMINATION OF EMPLOYMENT 2.1 Company shall terminate Employee's employment with Company effective May 31, 2002 ("Termination Date"). Any accrued and unused Paid Time Off will be included in Employee's final paycheck. Employee agrees not to seek re-employment with Company or any of its subsidiaries or affiliates. 3. BENEFITS TO EMPLOYEE 3.1 Company shall pay to Employee severance in the amount of $450,000.00 ("Severance"), payable, on the condition that Employee is in full compliance with the confidentiality and non-disparagement provisions of this Agreement, one-half on the date of separation, one-quarter 90 days after the date of separation, and one-quarter on the first anniversary of the date of separation.. The Severance shall be subject to withholding, deductions, assessments and taxes, if applicable. 3.2 Commencing on the Termination Date, the Company shall continue to cover Employee and Employee's dependants as defined in the Health Plan under its medical, prescriptive drugs, dental, vision and EAP employee welfare benefit plans ("Health Plans") to the same extent as Employee and his dependents are covered immediately prior to the Termination Date until May 31, 2005, or until Employee becomes employed with an entity which provides health and medical benefits, whichever is earlier. Company shall pay all costs incurred in providing the above-described coverage for Employee. Employee shall be eligible to participate in open enrollment and is subject to any amendments or changes that would apply to other covered employees. If Employee becomes eligible for similar coverage through another employer or disability, then Employee shall notify Company of such coverage and 2 Company shall be entitled to terminate coverage under this Agreement and/or offer Employee COBRA in the form and manner required by law. 3.3 On the Termination Date, Employee shall be paid in cash the amount of his vested benefit in the SERP calculated to include new provisions in the Plan, which include in the SERP payment of the 2000 and 2001 STIPs, as though said STIPs had been paid, and will thereafter have no SERP benefits. 3.4 Because your employment is terminated for reasons other than cause, retirement, death or disability, you will have rights with respect to your Non-Qualified Stock Option grants as follows, in accordance with the grant letter you received. Any vested shares are exercisable within three months of the Termination Date. Shares which are not vested as of the Termination Date shall immediately terminate and shall be forfeited to the Company. 3.5 Employee is covered under Supplemental Executive Life insurance. Employee shall continue to be covered under such insurance until May 31, 2005, or until Employee becomes reemployed with an entity that provides life insurance benefits, whichever is earlier, at which time Employee shall have the option of converting such insurance in strict accordance with the terms of such policy and paying the premiums thereon. 3.6 If ever in the future any of the Company's officers are paid a STIP for the year 2000 ("2000 STIP"), then the Employee shall be paid the 2000 STIP at the same time and in the form and manner paid to the other officer(s). The 2000 STIP shall be subject to withholding, deductions, assessments, and taxes, if applicable. If ever any of the Company's officers are paid a STIP for the year 2001 ("2001 STIP"), then the Employee shall be paid the 2001 STIP at the same time and in the form and manner paid to the other officer(s). The 2001 STIP shall be subject to withholding, deductions, assessments, and taxes, if applicable. If ever any of the Company's officers are paid a STIP for the year 2002 ("2002 STIP"), then the Employee shall be paid a prorated portion of the 2002 STIP at the same time and in the form and manner paid to the other officer(s). Employee's prorated portion of the 2002 STIP shall be calculated by dividing the number of hours credited to Employee during 2002 (1/1/02 through Termination Date) by 2080, and Employee shall be entitled to receive the resulting percentage of the 2002 STIP. The 2002 STIP shall be subject to withholding, deductions, assessments, and taxes, if applicable. 2000 and 2001 STIPs, if ever paid, shall be in the amounts used in calculating the STIP adjustments to the SERP in 3.3 unless such different amount(s) are reflective of like adjustments to other officer(s)' STIPs. 3 3.7 If requested by Employee, Company shall provide Employee with outplacement assistance. The Company shall determine who will provide the outplacement assistance and the nature and extent of such assistance. Employee shall have 18 months after the Termination Date to begin receiving such assistance. 3.8 Company has granted Employee a Special Restricted Stock Grant of 4,000 shares of Company stock in June 2001. Employee has fully vested in said stock and Company shall issue such stock to Employee within 30 days of the Termination Date. Employee may elect to receive a combination of stock and cash to provide for tax liabilities. 3.9 Employee's June 2001 agreement relating to real property owned at Eagle Lake, California, shall continue for a period of 18 months following the date of separation in order to compensate and reimburse Employee for the cost of sale and closing expenses relating to such property should such sale occur. 4. CONFIDENTIALITY 4.1 Employee shall preserve as confidential all Confidential Information. Employee shall not use Confidential Information for the benefit of Employee or any third party. Employee shall not disclose to others any Confidential Information or any copy or notes made from any Item embodying Confidential Information. If Employee is required to disclose Confidential Information pursuant to a valid order of a court or other governmental entity or any political subdivision thereof; then Employee shall first give notice to Company so that Company shall have a reasonable opportunity to interpose an objection or obtain a protective order requiring that the Confidential Information and/or documents so disclosed be used only for the purposes for which the order was issued. The confidentiality provisions herein shall expire 36 months from the date of this agreement. 5. MUTUAL NON-DISPARAGEMENT 5.1 Employee agrees to not make disparaging statements about the Company or its officers and/or directors to third parties such as the news media, governmental officials, or governmental agencies. This section does not apply to testimony made under oath before a court or governmental entity. This section does not apply to statements of opinion made to family and friends so long as they are not news media, governmental officials, or governmental agencies. 4 5.2 Company, its officers and/or directors agree to not make disparaging statements about Employee to third parties, including employees. This section does not apply to testimony made under oath before a court or governmental entity. 6. NON-COMPETITION 6.1. Employee agrees that the restrictions set forth in paragraphs 7.1 and 7.2 are fair and reasonable and are reasonably required for the protection of the interests of the Company. Employee agrees that compliance with the provisions of paragraphs 7.1 and 7.2 will not cause Employee undue hardship nor unreasonably interfere with Employee's ability to earn a livelihood. 7. RELEASE 7.1 Employee hereby waives and releases Company and its officers, directors, agents, and employees (collectively referred to as "Company Agents") from any claims, rights, contracts or causes of action existing or accrued as of the date this Agreement is signed that Employee may have against Company or Company Agents (collectively referred to as "Claims") which arise out of or are related to Employee's employment with Company (collectively referred to as "Release") or the termination of said employment. This Release includes, but is not limited to, the following: 7.1.1 Claims which are known or unknown at the time of the signing of this Agreement; 7.1.2 Claims which arise under any state or federal laws, including, but not limited to, the Civil Rights Act of 1964, as amended, and the Age Discrimination in Employment Act of 1967, as amended, which have arisen on or before the date of execution of this Agreement; and 7.1.3 Claims based upon any contract of employment, including but not limited to, the Change in Control Agreement, except as set forth herein. 7.2 Employee shall not commence any action against Company or Company Agents in violation of this Release. 7.3 Employee does not waive any Claim which arises after the effective date of this Agreement. 5 7.4 Employee further expressly acknowledges and agrees that: 7.4.1 In consideration for this Waiver, Employee shall receive compensation beyond that which Employee was otherwise entitled to receive before entering into this Agreement; 7.4.2 Employee has been advised to consult with an attorney before signing this Agreement; 7.4.3 This Agreement is being offered only to Employee at this time. 7.4.4 Employee was given a copy of the Agreement on or about May 10, 2002. Employee was informed that Employee had 21 days within which to consider the Agreement. If Employee fails to execute this Agreement within said 21-day period, then the terms and conditions contained in this Agreement are automatically withdrawn without further action or notice by Company. 7.4.5 Employee was informed and understands that Employee has seven days following the date Employee executes this Agreement in which to revoke this Agreement. Any revocation of the Agreement must be in writing and delivered to the Acting Vice-President of Human Resources of Company during the revocation period. This Agreement will become effective and enforceable seven days following execution by Employee, unless it is revoked during the seven-day period. 8. MISCELLANEOUS PROVISIONS 8.1. AGREEMENT IS CONFIDENTIAL: Unless and until the terms of this Agreement, and the amount of any payment eligible to be paid or actually paid under this Agreement, are disclosed in writing to the public by Company pursuant to any applicable legal duty to disclose such information, it shall be a condition of eligibility to receive or retain any payment pursuant to this Agreement that Employee hold the terms of this Agreement and the amount of any payment hereunder in strict confidence. Employee may disclose such information on a confidential basis to Employee's family and to any financial counselor, tax advisor or legal counsel retained by Employee. 8.2 ASSIGNMENT BY COMPANY: The obligations of Company hereunder shall be the obligations of any and all successors and assigns of Company. Company may assign this Agreement without Employee's consent to any affiliate or subsidiary of Company, provided that such assignment does not relive the Company's obligations hereunder. Company may assign this Agreement without Employee's consent to any company that 6 acquires all or substantially all of the stock or assets of Company, or into which or with which Company is merged or consolidated. The Employee may not assign the Agreement, and no person other than Employee or Employee's estate may enforce the rights of Employee under this Agreement. 8.3 Mutual WAIVER: The waiver by Employee or Company of a violation respectively by Company or by Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent violation. 8.4 SEVERABILITY: The provisions of this Agreement shall be severable, and in the event that any portion or provision of it is found by any court to be unenforceable, in whole or in part, the remainder of this Agreement shall nevertheless be enforceable and binding on the parties. In the event that any restriction set forth in this Agreement shall be declared by a court of competent jurisdiction to exceed the maximum restriction such court deems reasonable and enforceable, the restriction deemed reasonable and enforceable by the court shall become and thereafter be the maximum restriction hereunder. 8.5 REVIEW OF AGREEMENT: Employee acknowledges that Employee had sufficient opportunity to review this Agreement with an attorney or, if Employee did not do so, it is because Employee read and understands this Agreement and did not believe that legal advice was necessary. Employee agrees that the restrictions contained in this Agreement are fair and appropriate under the circumstances. 8.6 DISPUTE RESOLUTION: Any dispute between the parties which is covered by, arises out of, or is based upon this Agreement shall be settled by final and binding arbitration. Any award or determination rendered by the arbitrator may be entered as a judgment in any court having jurisdiction thereof. The arbitration is subject to the following: 8.6.1 The arbitration shall be administered by the American Arbitration Association ("AAA") in accordance with its Employment Dispute Resolution Rules ("Rules") in effect at the time of the arbitration. 8.6.2 The arbitration shall be heard by one neutral arbitrator. The arbitrator shall be an attorney admitted to the practice of law in at least one state. 8.6.3 The arbitrator shall have the authority to award any remedy or relief that a state or federal court having jurisdiction over the persons and subject matter is authorized to grant. 7 8.6.4 The Company shall pay all of the costs and/or fees charged by AAA and the arbitrator. The arbitrator shall have the authority to award attorney's fees and costs pursuant to sub-section 8.6.3 above. 8.7 JURISDICTION: This Agreement shall be construed under the laws of the State of Nevada except where Federal laws are applicable. Venue for any arbitration or action to enforce the arbitration provisions of this Agreement shall be in the State of Nevada. 8.8 EFFECTIVE DATE: This Agreement shall become effective on the date it is signed by the Employee. 8.9 FINAL AGREEMENT: This Agreement supercedes all prior understandings, statements or agreements concerning the subject matter of this Agreement, including the Employment Agreement or Change in Control Agreement. Any amendment to this Agreement shall be in writing and signed by both parties. This Agreement contains all of the terms and conditions agreed upon by the parties. There are no understandings or agreements which conflict or modify the terms of this Agreement. Company has made no representations or promises upon which Employee relies in signing this Agreement except the terms set forth herein. Company has made no representations upon which Employee relies concerning the tax characteristics or status of the benefits described in this Agreement. COMPANY MARK A. RUELLE By: ------------------------------ -------------------------------- Date: May __, 2002 Date: May __, 2002 MAR-SEVAGRMT02 EX-10.2 6 b43700spexv10w2.txt SEVERANCE AND RELEASE AGREEMENT Exhibit 10.2 SEVERANCE AND RELEASE AGREEMENT PARTIES The parties to this Severance and Release Agreement ("Agreement") are Sierra Pacific Resources and its affiliates Nevada Power Company and Sierra Pacific Power Company (collectively referred to as "Company"), and Steven C. Oldham ("Employee"). BASIS (a) Employee currently holds the position of Senior Vice President, Energy Supply, with the Company. (b) Employee has had access to Confidential Information, as hereinafter defined. Employee has occupied a position of trust and confidence with respect to such Confidential Information. (c) This Agreement is intended as a final settlement of any and all claims, known or unknown, that Employee may have against Company arising out of or related to his employment with Company and the termination of that employment, including, but not limited to all rights Employee may have pursuant to any express or implied Employment Agreement or any Change In Control Agreement or severance plan or agreement. This Agreement provides Employee with benefits that exceed the benefits contained in the Employment Agreement, as defined below, and is adequate consideration for this Agreement. TERMS OF AGREEMENT 1. DEFINED TERMS 1.1 "COMPETING ORGANIZATION" means persons or organizations, including Employee, engaged in, or who may become engaged in, research or development, production, distribution, marketing, providing or selling of a Competing Product or Service. 1.2 "COMPETING PRODUCTS OR SERVICES" means products, processes, or services of any person or organization, other than Company, in existence or under development, which are substantially the same as or which compete with the products, processes, or services being developed, manufactured, or sold by Company during the time of Employee's employment with Company, including, but not limited to, products, processes, and services related to the generation, transmission, or distribution of electric energy and/or the buying, selling, scheduling of electric energy or capacity, or any risk management activities associated therewith. 1.3 "CONFIDENTIAL INFORMATION" means any plan, specification, pattern, procedure, profile, design, device, list, compilation, data, or information relating to the present or planned business of Company which has not been released publicly by authorized representatives of Company, including, but not limited to trade secrets as defined in NRS 600A.010 et seq. Confidential Information may include inventions; marketing and sales plans or programs; customer and supplier information; financial data; purchasing, pricing, or supply information; product engineering information; technological know-how; designs, plans or specifications regarding products and materials; manufacturing processes and techniques; regulatory approval strategies; computer programs, data, formulae and compositions; service techniques and protocols; and new product strategies, plans and designs. Confidential Information also includes information that if disclosed, could negatively affect the Company's reputation and it's relationship with business, governmental agencies and customers. Confidential Information includes all information received by Company under an obligation of confidentiality to a third party. 1.4 "EMPLOYMENT AGREEMENT" means all previous agreements, express or implied, between Company and Employee. 1.5 "RESTRICTED AREA" means the State of Nevada and the service territories of the Company. 2. TERMINATION OF EMPLOYMENT 2.1 Company shall terminate Employee's employment with Company effective May 20, 2002 ("Termination or Separation Date"). Any accrued and unused Paid Time Off will be included in Employee's final paycheck. Employee agrees not to seek re-employment with Company or any of its subsidiaries or affiliates. 3. BENEFITS TO EMPLOYEE 3.1 Company shall pay to Employee severance in the amount of $245,000.00 ("Severance"), payable on the condition that in Company's reasonable judgment Employee is in full compliance with the confidentiality, non-competition, and non-disparagement provisions of the Agreement, one-half at separation, one-quarter 90 days after the date of separation, and 2 one-quarter on the first anniversary of his date of separation. The Severance shall be subject to withholding, deductions, assessments and taxes, if applicable. 3.2 Commencing on the Termination Date, the Company shall continue to cover Employee and Employee's dependants as defined in the Health Plan under its medical, prescriptive drugs, dental, vision and EAP employee welfare benefit plans ("Health Plans") to the same extent as Employee and his dependents are covered immediately prior to the Termination Date until July 31, 2005, to the same extent as Employee and his dependents are covered immediately prior to the Termination Date. Company shall pay all costs incurred in providing the above-described coverage for Employee. Employee shall be eligible to participate in open enrollment and is subject to any amendments or changes that would apply to other covered employees. If Employee becomes eligible for similar coverage through another employer or disability, then Employee shall notify Company of such coverage and Company shall be entitled to terminate coverage under this Agreement and/or offer Employee COBRA in the form and manner required by law. 3.3 On July 9, 2005, Employee shall be 55 years old. As of that date, Employee is eligible with 30 years of service to receive benefits under vested pension under the Sierra Pacific Resources Retirement Plan ("Retirement Plan"). Beginning August 1, 2005, the Company shall provide Employee with coverage under its Medical Plans in the same form and manner as employees who elect retiree medical coverage with 30 years of service. Employee shall be required to reimburse the Company for Employee's portion of the costs of coverage in the form and manner as employees who elect retiree medical coverage with 30 years of service. Medical benefits provided to Employee pursuant to this section may be subject to federal taxes and the Company must report premium payments and paid claims to the IRS. Coverage and benefits are subject to any and all changes in said plans and benefits as may be made by Company after the date of Termination. 3.4 Employee's accrued Supplemental Executive Retirement Plan ("SERP") benefits shall be fully vested as of the Termination Date, and Employee may elect to be paid, in cash, the present value of his vested SERP within seven days of his Termination Date as allowed by the Plan. Alternatively, Employee may elect to begin receiving the appropriate annuity when he reaches age 55. The SERP payment shall include new provisions in the Plan which includes the 2000 and 2001 STIPs as though said STIPs had been paid and, in addition, shall include a payment which will grant Employee additional years of service under the SERP from the Termination Date to the date Employee reaches the age of 55. After 3 payment, Employee shall have no further claims or benefits under the SERP. 3.5 All Non-Qualified Stock Options ("Options") will automatically vest on Employee's Termination Date, and Employee shall have the right to exercise said options in accordance with the terms of their original grant and the terms of the Executive Long-Term Incentive Plan. 3.6 Employee is covered under Supplemental Executive Life insurance. Employee shall continue to be covered under such insurance until May 31, 2002, at which time Employee shall have the option of converting such insurance in strict accordance with the terms of such policy and paying the premiums thereon. 3.7 If ever in the future the Company's officers are paid a STIP for the year 2000 ("2000 STIP"), then the Employee shall be paid the 2000 STIP at the same time and in the form and manner paid to the other officers. The 2000 STIP shall be subject to withholding, deductions, assessments, and taxes, if applicable. If ever the Company's officers are paid a STIP for the year 2001 ("2001 STIP"), then the Employee shall be paid the 2001 STIP at the same time and in the form and manner paid to the other officers. The 2001 STIP shall be subject to withholding, deductions, assessments, and taxes, if applicable. If ever the Company's officers are paid a STIP for the year 2002 ("2002 STIP"), then the Employee shall be paid a prorated portion of the 2002 STIP at the same time and in the form and manner paid to the other officers. Employee's prorated portion of the 2002 STIP shall be calculated by dividing the number of hours credited to Employee during 2002 (1/1/02 through Termination Date) by 2080, and Employee shall be entitled to receive the resulting percentage of the 2002 STIP. The 2002 STIP shall be subject to withholding, deductions, assessments, and taxes, if applicable. 3.8 Subject to the express condition that in Company's reasonable judgment at the time of each payment that Employee is in full compliance with the confidentiality, non-competition, and non-disparagement provisions of this Agreement, beginning on the first day of the month after the Termination Date and on the first day of each month thereafter, ending on the first day of the month in which Employee reaches age 55, Employee shall be paid a monthly payment of $4,300.00. 4. CONFIDENTIALITY 4.1 Employee shall preserve as confidential all Confidential Information. Employee shall not use Confidential Information for the benefit of Employee or any third party. Employee shall not disclose to others any Confidential Information or any copy or notes made from any Item 4 embodying Confidential Information. If Employee is required to disclose Confidential Information pursuant to a valid order of a court or other governmental entity or any political subdivision thereof; then Employee shall first give notice to Company so that Company shall have a reasonable opportunity to interpose an objection or obtain a protective order requiring that the Confidential Information and/or documents so disclosed be used only for the purposes for which the order was issued. 5. NON-DISPARAGEMENT 5.1 Employee agrees to not make disparaging statements about the Company or its officers and/or directors to third parties such as the news media, governmental officials, or governmental agencies. This section does not apply to testimony made under oath before a court or governmental entity. This section does not apply to statements of opinion made to family and friends so long as they are not news media, governmental officials, or governmental agencies. 6. NON-COMPETITION 6.1 Without express consent of the Company's CEO for a period of one year after Employee's Termination Date, Employee shall not, directly or indirectly, assist, provide services or consultation to, enter into, engage in or acquire any ownership interest in, or become employed by or associated with, any Competing organization doing business or seeking to commence doing business in the Restricted Area. This includes, but is not limited to, services rendered to such Competing organization in an executive, managerial, administrative, or consulting capacity in connection with Competing Products or Services in support of actual competition in geographic areas other than where the services are performed and thus may fall within the prohibition of this Agreement, regardless of where such services physically are rendered. This limitation includes, but is not limited to, any contact or solicitation, either for Employee's benefit or for the benefit of any other person or entity, and Employee will not in any manner assist any person or entity in making any such contact or solicitation. 6.2 Employee shall not solicit any employee of Company to terminate his or her employment or relationship with Company or to perform any service for Employee or for any Competing Organization. 6.3 Employee agrees that the restrictions set forth in paragraphs 6.1 and 6.2 are fair and reasonable and are reasonably required for the protection of the interests of the Company. Employee agrees that compliance with the provisions of paragraphs 6.1 and 6.2 will not cause Employee undue 5 hardship nor unreasonably interfere with Employee's ability to earn a livelihood. 7. RELEASE 7.1 Employee hereby waives and releases Company and its officers, directors, agents, and employees (collectively referred to as "Company Agents") from any claims, rights, contracts or causes of action existing or accrued as of the date this Agreement is signed that Employee may have against Company or Company Agents (collectively referred to as "Claims") which arise out of or are related to Employee's employment with Company (collectively referred to as "Release") or the termination of said employment. This Release includes, but is not limited to, the following: 7.1.1 Claims which are known or unknown at the time of the signing of this Agreement; 7.1.2 Claims which arise under any state or federal laws, including, but not limited to, the Civil Rights Act of 1964, as amended, and the Age Discrimination in Employment Act of 1967, as amended, which have arisen on or before the date of execution of this Agreement; and 7.1.3 Claims based upon any contract of employment, including but not limited to, the Change in Control Agreement, except as set forth herein. 7.2 Employee shall not commence any action against Company or Company Agents in violation of this Release. 7.3 Employee does not waive any Claim which arises after the effective date of this Agreement. 7.4 Employee further expressly acknowledges and agrees that: 7.4.1 In consideration for this Waiver, Employee shall receive compensation beyond that which Employee was otherwise entitled to receive before entering into this Agreement; 7.4.2 Employee has been advised to consult with an attorney before signing this Agreement; 7.4.3 This Agreement is being offered only to Employee at this time. 6 7.4.4 Employee was given a copy of the Agreement on or about May 10, 2002. Employee was informed that Employee had 21 days within which to consider the Agreement. If Employee fails to execute this Agreement within said 21-day period, then the terms and conditions contained in this Agreement are automatically withdrawn without further action or notice by Company. 7.4.5 Employee was informed and understands that Employee has seven days following the date Employee executes this Agreement in which to revoke this Agreement. Any revocation of the Agreement must be in writing and delivered to the Acting Vice-President of Human Resources of Company during the revocation period. This Agreement will become effective and enforceable seven days following execution by Employee, unless it is revoked during the seven-day period. 8. MISCELLANEOUS PROVISIONS 8.1. AGREEMENT IS CONFIDENTIAL: Unless and until the terms of this Agreement, and the amount of any payment eligible to be paid or actually paid under this Agreement, are disclosed in writing to the public by Company pursuant to any applicable legal duty to disclose such information, it shall be a condition of eligibility to receive or retain any payment pursuant to this Agreement that Employee hold the terms of this Agreement and the amount of any payment hereunder in strict confidence. Employee may disclose such information on a confidential basis to Employee's spouse and to any financial counselor, tax advisor or legal counsel retained by Employee. 8.2 ASSIGNMENT BY COMPANY: The obligations of Company hereunder shall be the obligations of any and all successors and assigns of Company. Company may assign this Agreement without Employee's consent to any affiliate or subsidiary of Company. Company may assign this Agreement without Employee's consent to any company that acquires all or substantially all of the stock or assets of Company, or into which or with which Company is merged or consolidated. The Employee may not assign the Agreement, and no person other than Employee or Employee's estate may enforce the rights of Employee under this Agreement. 8.3 WAIVER: The waiver by Company of a violation by Employee of any provision of this Agreement shall not be construed as a waiver of any subsequent violation. 8.4 SEVERABILITY: The provisions of this Agreement shall be severable, and in the event that any portion or provision of it is found by any court to be 7 unenforceable, in whole or in part, the remainder of this Agreement shall nevertheless be enforceable and binding on the parties. In the event that any restriction set forth in this Agreement shall be declared by a court of competent jurisdiction to exceed the maximum restriction such court deems reasonable and enforceable, the restriction deemed reasonable and enforceable by the court shall become and thereafter be the maximum restriction hereunder. 8.5 REVIEW OF AGREEMENT: Employee acknowledges that Employee had sufficient opportunity to review this Agreement with an attorney or, if Employee did not do so, it is because Employee read and understands this Agreement and did not believe that legal advice was necessary. Employee agrees that the restrictions contained in this Agreement are fair and appropriate under the circumstances. 8.6 DISPUTE RESOLUTION: Any dispute between the parties which is covered by, arises out of, or is based upon this Agreement shall be settled by final and binding arbitration. Any award or determination rendered by the arbitrator may be entered as a judgment in any court having jurisdiction thereof. The arbitration is subject to the following: 8.6.1 The arbitration shall be administered by the American Arbitration Association ("AAA") in accordance with its Employment Dispute Resolution Rules ("Rules") in effect at the time of the arbitration. 8.6.2 The arbitration shall be heard by one neutral arbitrator. The arbitrator shall be an attorney admitted to the practice of law in at least one state. 8.6.3 The arbitrator shall have the authority to award any remedy or relief that a state or federal court having jurisdiction over the persons and subject matter is authorized to grant. 8.6.4 The Company shall pay all of the costs and/or fees charged by AAA and the arbitrator. The arbitrator shall have the authority to award attorney's fees and costs pursuant to sub-section 8.6.3 above. 8.7 JURISDICTION: This Agreement shall be construed under the laws of the State of Nevada except where Federal laws are applicable. Venue for any arbitration or action to enforce the arbitration provisions of this Agreement shall be in the State of Nevada. 8.8 EFFECTIVE DATE: This Agreement shall become effective on the date it is signed by the Employee. 8 8.9 FINAL AGREEMENT: This Agreement supercedes all prior understandings, statements or agreements concerning the subject matter of this Agreement, including the Employment Agreement or Change in Control Agreement. Any amendment to this Agreement shall be in writing and signed by both parties. This Agreement contains all of the terms and conditions agreed upon by the parties. There are no understandings or agreements which conflict or modify the terms of this Agreement. Company has made no representations or promises upon which Employee relies in signing this Agreement except the terms set forth herein. Company has made no representations upon which Employee relies concerning the tax characteristics or status of the benefits described in this Agreement. COMPANY STEVEN C. OLDHAM By: -------------------------------- ---------------------------------- Date: May __, 2002 Date: May __, 2002 SCO-SEVAGRMT02 9 EX-10.3 7 b43700spexv10w3.txt MASTER AGREEMENT TO CONFIRMATION AGREEMENTS Exhibit 10.3 CONFIDENTIAL TREATMENT Nevada Power Company has requested that the marked portions of this document be accorded confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. MASTER AMENDMENT TO CONFIRMATION AGREEMENTS (NPC - POWER) Dated as of June 4, 2002 This Master Amendment to Confirmation Agreements (this "Confirmation Amendment") provided pursuant to and in accordance with the Western Systems Power Pool Agreement (the "WSPP Agreement") is made by and between the Nevada Power Company, a Nevada corporation ("Nevada Power") and wholly owned subsidiary of Sierra Pacific Resources, a Nevada corporation ("Sierra Pacific"), and Duke Energy Trading and Marketing, L.L.C., a Delaware limited liability company ("DETM"). WHEREAS, Nevada Power and DETM are currently parties to certain Confirmation Agreements (as defined in the WSPP Agreement) and the transactions thereunder including, but not limited to, those listed on Schedule A attached hereto and made a part hereof (collectively, the "Existing Confirmation Agreements"); WHEREAS, Nevada Power is currently in default with respect to certain of its obligations under the Existing Confirmation Agreements; WHEREAS, Nevada Power and DETM desire to set forth in this Confirmation Amendment certain payment and other terms that will amend and supplement the Existing Confirmation Agreements and all Confirmation Agreements executed with respect to future transactions between the parties under the WSPP Agreement (the "New Confirmation Agreements"); and WHEREAS, in consideration of the agreement of DETM to temporarily waive the effect of Nevada Power's default under the Existing Confirmation Agreements as set forth herein, and in consideration of Nevada Power's agreement to be bound by the terms hereof, Nevada Power and DETM have agreed to execute this Confirmation Amendment. NOW THEREFORE, the parties hereto agree as follows: 1. Payment Terms Under Existing Confirmation Agreements During Delay Period. (a) Continued Supply. Each of Nevada Power and DETM agree to continue to deliver energy to the other under the Existing Confirmation Agreements. (b) Delay Period. All amounts payable by Nevada Power to DETM and by DETM to Nevada Power under the Existing Confirmation Agreements for energy delivered during the period May 1, 2002 through September 15, 2002 (the "Delay Period") shall be subject to the payment terms and conditions set forth in Sections 1 through 3 of this Confirmation Amendment and all other provisions relating to the Delay Amount. (c) Payment Amounts For Delay Period Deliveries. Nevada Power shall pay DETM and DETM shall pay Nevada Power, as applicable, for energy deliveries under the Existing Confirmation Agreements during the Delay Period an amount in cash equal to the Adjusted Net Cash Payment Price per megawatt hour, as set forth on Schedule B attached hereto and made a part hereof (each such payment being a "Delay Period Payment"). Such payments from Nevada Power and from DETM shall be netted on each applicable Delay Period Payment date, such that Nevada Power shall pay to DETM the net amount outstanding from Nevada Power to DETM remaining on each such date. Except as otherwise set forth in this Confirmation Amendment, the terms and conditions of each Delay Period Payment shall be as set forth in the Existing Confirmation Agreements. 2. Delay Amount Payment Terms. (a) Delay Amount. The "Delay Amount" is $**********, calculated as the difference between (i) the aggregate amount of all payments due from Nevada Power to DETM (after netting the payments due from DETM to Nevada Power) required during the Delay Period under the Existing Confirmation Agreements and (ii) the aggregate amount of all Delay Period Payments scheduled to be received by the DETM under Section 1(c). (b) Maturity and Interest. The Delay Amount, including any accrued and unpaid interest in respect thereof, shall be due and payable on December 31, 2003, Interest shall accrue on the unpaid portion of the Delay Amount beginning on June 20, 2002 at an annual rate of **********. Accrued and unpaid interest shall be payable semi-annually in cash in arrears on each December 31 and June 30, beginning December 31, 2002. If the Delay Amount is not paid in full on or before December 31, 2003, interest shall accrue on the unpaid portion of the Delay Amount from and after January 1, 2004 at an annual rate of **********. Interest shall be calculated on the basis of a year of 365 days and charged for the actual number of days elapsed through and including the date of repayment, provided that in no event shall interest paid, charged or received exceed the maximum rate of interest allowed by applicable law. (c) Manner of Payment. All Delay Amount payments and payments of interest thereon shall be made by wire transfer of immediately available funds. If any Delay Amount payment, including any interest payment in respect thereof, is due on a day that is not a Business Day, the payment shall be due on the next succeeding Business Day, and the extension of time shall be included in the period of time used for purposes of calculating the amount of interest payable under this Confirmation Amendment. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. (d) Mandatory Prepayments. (i) DETM's Pro Rata Portion. In this Section 2(d), "DETM's Pro Rata Portion" means a fraction, the numerator of which is equal to the Delay Amount and the denominator of which is equal to the aggregate amount of the Delay Amounts of all existing energy suppliers ("Continuing Suppliers") who are parties to a master agreement with Nevada Power and who have not terminated their respective master agreements and who continue to deliver energy to Nevada Power under the existing terms and conditions thereof (except for any amendments permitted under Section 3 (a)(ii) hereof) (the "Aggregate Delay Amount A"). (ii) October Mandatory Prepayment. On or before October 25, 2002, Nevada Power shall make a mandatory prepayment of the Delay Amount to DETM equal to DETM's Pro Rata Portion of Nevada Power's September Excess Cash. "September Excess Cash" means unrestricted cash and cash equivalents of Nevada Power on September 30, 2002 in excess of $75,000,000 (which amount is currently estimated to be not less than $30,000,000). (iii) Mandatory Prepayment from Available Cash. Until the Delay Amount has been paid in full, Nevada Power shall make additional mandatory prepayments of the Delay Amount each February 15, May 15, August 15 and November 15, beginning February 15, 2003, in an amount equal to DETM's Pro Rata Portion of an amount equal to 50% of Nevada Power's Available Cash (defined below) for the prior calendar quarter. Mandatory prepayments shall be applied first to any accrued and unpaid interest on the amount of the Delay Amount to be prepaid, then to prepayment of the unpaid Delay Amount. "Available Cash" for a calendar quarter means an amount equal to Nevada Power's earnings before deduction of interest, taxes on or measured by income or gross receipts, depreciation, and amortization (as those terms are used in Generally Accepted Accounting Principles) and adjusted for deferred energy accounting as provided in Section 704.187 of the Nevada Revised Statutes, plus the aggregate net cash amount of all Asset Sale Proceeds (defined below) not previously included in the calculation of Available Cash in any prior calendar quarter, less the sum of (A) Nevada Power's cash interest expense, including the amount of any scheduled interest payments from Nevada Power to NVP Capital I and NVP Capital III (each a "Trust Preferred Vehicle"); (B) scheduled principal payments by Nevada Power of its indebtedness, including any scheduled maturities arising from a refinancing and excluding any maturities, or any portion thereof, that are refinanced or extended); (C) income taxes paid by Nevada Power (less any tax refunds received); (D) capital expenditures of Nevada Power; (E) other cash disbursements of Nevada Power required in the ordinary course of business; and (F) an amount equal to the amount of cash that is required to maintain a $50,000,000 balance of cash available to Nevada Power as of the last day of the quarter. "Asset Sale Proceeds" means the amount in excess of $25,000,000 in aggregate net proceeds received by Nevada Power from sales of its assets, individually or in the aggregate from the date of this Confirmation Amendment, excluding the net proceeds received by Nevada Power from any asset sale resulting in $5,000,000 or less of net cash proceeds to Nevada Power and excluding the net proceeds received by Nevada Power from any sale of accounts receivable that is reasonably necessary for Nevada Power to effectuate at such time to have sufficient funds to prudently operate its business. (iv) Mandatory Prepayment from Excess Financing Proceeds. Nevada Power shall, within 7 Business Days after it receives any Excess Financing Proceeds, prepay the Aggregate Delay Amount A by an amount equal to any Excess Financing Proceeds and shall pay DETM an amount equal to DETM's Pro Rata Portion of the amount of the Aggregate Delay Amount A. "Excess Financing Proceeds" means, with respect to any financing (including any sale of accounts receivable that is excluded from the definition of Asset Sale Proceeds) other than a refinancing, exchange, defeasance or modification of existing indebtedness limited to an amount equal to such existing indebtedness, an amount equal to the excess of (A) the net proceeds of any financing that Nevada Power receives over (B) the sum of (I) the total amount of all indebtedness (including principal and interest) of Nevada Power with a scheduled maturity, without acceleration, within 75 days of the date on which Nevada Power receives the financing proceeds (unless such indebtedness is reasonably anticipated to be paid with other sources of funds or extended or refinanced within such 75-day period), (II) an amount equal to Nevada Power's total actual capital expenditures for the 12 months immediately preceding the month during which Nevada Power receives the financing proceeds and (III) an amount equal to the amount of such cash proceeds required by the Revolver (as defined below) to be used to prepay Revolving Indebtedness (as defined below). "Indebtedness" shall have the meaning assigned to such term in the Revolver. "Revolver" means the amount of Indebtedness that is outstanding pursuant to the Credit Agreement, dated as of November 30, 2001, by and among the Nevada Power, the Lenders parties thereto from time to time (the "Lenders"), Union Bank of California, N.A., as Sole Bookrunner and Administrative Agent for the Lenders, Wells Fargo Bank, N.A., as Syndication Agent, Bank One, NA, BNP Paribas and Mellon Bank, N.A., as Co-Documentation Agents, and Union Bank of California, N.A. and Wells Fargo Bank, N.A., as Co-Lead Arrangers, as amended, replaced or refinanced in whole or in part from time to time. "Revolving Indebtedness" means the amount of Indebtedness that is outstanding pursuant to the Revolver. (e) Restriction on Prepayment of Other Debt. Nevada Power shall not (i) prepay any of its indebtedness (other than a refinancing, exchange, defeasance or modification of its existing indebtedness limited to an amount equal to such existing indebtedness or any prepayment of the Aggregate Delay Amount A) or (ii) repay or prepay any of its Revolving Indebtedness unless it prepays the Aggregate Delay Amount A on a pro rata basis based on the amounts outstanding at such time. "Prepay" means pay any indebtedness more than 45 days prior to the scheduled maturity date of the indebtedness. Notwithstanding the foregoing, Nevada Power may repay any Revolving Indebtedness in the ordinary course of business so long as the current amount available for borrowing thereunder (whether or not drawn) is not reduced. (f) Optional Prepayment of Delay Amount. Nevada Power may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding Delay Amount due under this Confirmation Amendment. Any optional prepayment shall be applied first to accrued and unpaid interest on the amount of the prepayment, calculated as of the date of the prepayment, and then to the Delay Amount. (g) Distribution of Payments. Any payment (whether optional or mandatory) of the Delay Amount or any portion of the Aggregate Delay Amount A shall be distributed pro rata among all Continuing Suppliers based on each Continuing Supplier's Pro Rata Portion of the Aggregate Delay Amount A. 3. Covenants During Delay Period. (a) Nevada Power. Nevada Power covenants and agrees with DETM: (i) Limitation on Dividends. For as long as any portion of the Delay Amount remains unpaid, Nevada Power shall not declare any dividends or make any dividend payments or other payments on account of any of its equity securities except: (A) payments to Sierra Pacific to enable Sierra Pacific to pay its reasonable fees and expenses (including, but not limited to, interest on Sierra Pacific's indebtedness and payment obligations on account of Sierra Pacific's premium income equity securities) incurred in the ordinary course of business in the calendar year 2003, which fees and expenses for calendar year 2003 shall not be greater than $20,000,000; and (B) currently scheduled payments to any Trust Preferred Vehicle. (ii) Limitation on Other Agreements and Payments. For as long as any portion of the Delay Amount remains unpaid, Nevada Power shall not enter into any agreement with or make any payments to any Continuing Supplier of energy to Nevada Power (whether or not the supplier is a party to an amendment to the applicable master agreement with Nevada Power in a form substantially similar to the provisions of this Confirmation Amendment relating to the Delay Amount) on any terms more advantageous to the Continuing Supplier than the terms set forth in this Confirmation Amendment (other than with respect to documentation of or payment for energy or gas transactions in addition to existing contractual quantities supplied to Nevada Power after May 1, 2002, which documentation shall not contain terms with respect to the Delay Amount more advantageous to the Continuing Supplier than the terms set forth in this Confirmation Amendment with respect thereto). (iii) Best Efforts. Nevada Power represents that it is not legally necessary to obtain the approval of the Public Utility Commission of Nevada to this Confirmation Amendment, provided that Nevada Power agrees to use its reasonable best efforts to obtain such approval if DETM requests, and, if DETM requests such approval, DETM shall reasonably cooperate with Nevada Power in obtaining such approval. (b) DETM. DETM temporarily waives the effect of any and all Nevada Power defaults or breaches of the Existing Confirmation Agreements existing on the date of this Confirmation Amendment or as of any prior date, until the earlier of (i) the date an Event of Default (as hereinafter defined) occurs or (ii) December 31, 2003, after which the waiver contained in this section shall end and be of no further force and effect, and the terms of the Existing Confirmation Agreements (as amended by this Confirmation Amendment) shall govern any such default or breach thereof by Nevada Power; provided that if the Delay Amount has been repaid in full prior to such earlier date, the waiver shall become permanent in all respects. 4. Payment Terms Under New Confirmation Agreements. (a) [****] (i) [****] (b) [****] (i) [****] (ii) [****] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. (c) [****] 5. Representations and Warranties. (a) Nevada Power. Nevada Power represents and warrants that it has the right, power, and corporate authority to enter into and perform its obligations under this Confirmation Amendment. Nevada Power's execution, delivery and performance of this Agreement has been duly authorized, no further action is necessary on the part of Nevada Power and no consents or other approvals are required to be obtained in connection therewith. The execution and delivery of this Confirmation Amendment does not contravene, or constitute a default under, any provision of applicable law or regulation or its organizational documents or any material agreement, judgment, injunction, order, decree or other instrument binding upon it or result in any creation or imposition of any lien on any of its assets. This Confirmation Amendment has been duly and validly executed and delivered by Nevada Power and, assuming the due execution and delivery by the other party hereto, constitutes a valid and binding obligation of Nevada Power, enforceable against it in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, receivership or other similar laws affecting creditors' rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law). CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. (b) DETM. DETM represents and warrants to Nevada Power that DETM has the right, power, and authority to enter into and perform its obligations under this Confirmation Amendment. The execution, delivery and performance of this Confirmation Amendment by DETM has been duly authorized, no further action is necessary on the part of DETM and no consents or other approvals are required to be obtained in connection therewith. The execution and delivery of this Confirmation Amendment does not contravene, or constitute a default under, any provision of applicable law or regulation or its organizational documents or any material agreement, judgment, injunction, order, decree or other instrument binding upon it or result in any creation or imposition of any lien on any of its assets. This Confirmation Amendment has been duly and validly executed and delivered by DETM and, assuming the due execution and delivery by the other party hereto, constitutes a valid and binding obligation of DETM, enforceable against it in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, receivership or other similar laws affecting creditors' rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law). 6. Defaults. (a) Events of Default. In addition to the Events of Default under the WSPP Agreement, the occurrence of any one or more of the following events shall also constitute an Event of Default by Nevada Power under all Confirmation Agreements between Nevada Power and DETM until such time as the Delay Amount is fully repaid and all energy and gas have been delivered and paid for under the Covered Short Positions (with respect to subsections (i) through (vi) below) and until such time as the Delay Amount is fully repaid (with respect to subsections (v) and (vi) below): (i) If Nevada Power fails to pay or prepay when due any amount under this Confirmation Amendment, including, without limitation, any Delay Period Payment, the Delay Amount, any Mandatory Prepayment of the Delay Amount, any interest thereon, or any prepayment for energy under a New Confirmation Agreement. (ii) Nevada Power defaults in any other of its obligations under this Confirmation Amendment and any such default continues for five (5) days. (iii) A default, event of default or other similar event or condition of Nevada Power with respect to any indebtedness for borrowed money which results in such indebtedness becoming immediately due and payable has occurred and is continuing. (iv) A default, event of default or other similar event or condition of Nevada Power with respect to any other agreement between Nevada Power and DETM or any of its affiliates has occurred and is continuing, including, without limitation, under the Marketing Services Agreement or the Master Gas Agreement. (v) Nevada Power enters into any agreement with or makes any payment to any supplier of energy to Nevada Power that has terminated or subsequent to the date of this Agreement terminates its contract with Nevada Power (a "Terminated Supplier") which provides for any payment to or any collateral for the Terminated Supplier other than interest on any termination or settlement payment owed to such Terminated Supplier at a per annum rate no greater that **** and no more frequently than as interest is paid on the Delay Amount. (vi) Sierra Pacific uses any amounts received by it from Nevada Power to make any dividends or other payment on account of its common stock or executes any amendment to any agreement to which it is a party if such amendment would alter any payment obligation of it, unless such alteration would be to its benefit and not increase its cash payment obligations to such party from and after the date of this Agreement through the calendar year 2003. (b) Notice of Default. Nevada Power shall notify DETM in writing promptly of the occurrence of any Event of Default by it. (c) Remedies. In addition to the rights and remedies upon an Event of Default set forth in the WSPP Agreement and in any Confirmation Agreement and at law and in equity, upon the occurrence of an Event of Default of Nevada Power, (i) the Delay Amount, together with all unpaid interest and all other amounts payable hereunder, shall automatically become due and payable forthwith, without presentment, demand, notice, protest or other requirement of any kind, all of which are expressly waived by Nevada Power and (ii) DETM may exercise any and all rights and remedies available to it under applicable law, including the right to collect from Nevada Power all sums due under the Existing Confirmation Agreements. Upon the occurrence of an Event of Default, the non-defaulting party may, without prior notice and in addition to and not in limitation of its other rights and remedies, setoff (including, without limitation, by setoff, offset, combination of accounts, deduction, counterclaim, retention or withholding across or within each or all agreements) any and all sums or obligations (whether arising under this Confirmation Amendment, the Confirmation Agreements or any other agreement and whether matured or unmatured) owed or otherwise accrued by the defaulting party to the non-defaulting party or any of its affiliates against any sums or obligations owed or otherwise accrued by the non-defaulting party or any of its affiliates to the defaulting party. Nevada Power shall pay all reasonable costs and expenses of collection incurred by or on behalf of the DETM as a result of an Event of Default, including reasonable attorney's fees. In the event either of the parties hereto becomes entitled to receive or does receive any Termination Payment pursuant to Section 22.3 of the WSPP Agreement, then the Delay Amount shall be reduced by the portion thereof attributable to any energy CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. deliveries that are scheduled to be made pursuant to each Existing Confirmation Agreement during the Delay Period by such party but which are not made. 7. Miscellaneous. (a) Limitation on Waiver. The rights and remedies of DETM under this Confirmation Amendment shall be cumulative and not alternative. No waiver by DETM of any right or remedy under this Confirmation Amendment shall be effective unless in a writing signed by DETM. No failure to exercise, delay in exercising, or single or partial exercise of any right or remedy by DETM, and no course of dealing between DETM on the one hand and Nevada Power on the other hand, shall constitute a waiver of, or shall preclude any other or further exercise of the same right or remedy. (b) Confirmation Amendment. This Confirmation Amendment may be amended, modified or supplemented only in writing, signed by each of the parties hereto. (c) Notices. Notices given under this Confirmation Amendment, including any notice of a change of address, shall be addressed as provided under the applicable Confirmation Agreement and to the additional addressees: (i) if to Nevada Power, to William E. Peterson, Sr. V.P. & General Counsel, 6100 Neil Road, P.O. Box 10100, Reno, NV 89520-0024, Fax: (775)834-5959, email: wpeterson@sierrapacific.com; and (ii) if to DETM, to Duke Energy Marketing and Trading, L.L.C. to JoAnn Russell, General Counsel, 5400 Westheimer Court, Houston, TX 77056-5310, Fax: (713) 627-5122, email: jprussell@duke-energy.com. (d) Severability. If any term, provision, covenant or restriction of this Confirmation Amendment is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (e) Governing Law. This Confirmation Amendment shall be governed by and construed in accordance with the laws of the State of Utah, without regard to the conflicts of laws rules thereof. (f) Assignment. Nevada Power may not assign or transfer this Confirmation Amendment or the obligations owing thereunder without the prior written consent of DETM in its sole discretion. DETM may assign or transfer this Confirmation Amendment or any obligations owing thereunder to any affiliate so long as such entity has a credit status which, in Nevada Power's reasonable opinion, is at least as high as that of DETM. (g) Parties Bound. This Confirmation Amendment shall bind Nevada Power and DETM and their respective successors and assigns. The Existing Confirmation Agreements and all transactions thereunder, as amended hereby, are hereby reaffirmed by each of Nevada Power and DETM and remain in full force and effect. (h) Section Headings. The headings in this Confirmation Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) References. All words used in this Confirmation Amendment shall be construed to be of such number and gender as the context requires or permits. Unless a particular context clearly provides otherwise, the words "hereof" and "hereunder" and similar references refer to this Confirmation Amendment in its entirety and not to any specific section or subsection hereof. (j) Definitions. All capitalized terms not defined herein shall have the meaning ascribed to them in the WSPP Agreement. (k) Counterparts. This Confirmation Amendment may be executed in counterparts, and upon execution by all the parties, each counterpart shall have the same force and effect as if all parties signed the same instrument. [signature page follows] IN WITNESS WHEREOF, the parties have executed this Confirmation Amendment as of the date first stated above. NEVADA POWER COMPANY By:____________________________ Name:__________________________ Title: DUKE ENERGY TRADING AND MARKETING, L.L.C. By:____________________________ Name: Title: SCHEDULE A EXISTING CONFIRMATION AGREEMENTS [***] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. SCHEDULE B ADJUSTED NET CASH PAYMENT PRICES [***] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. SCHEDULE C COVERED SHORT POSITIONS (see attached) [DUKE ENERGY LOGO] [MOBIL LOGO] CONFIRMATION AGREEMENT SELLER: Duke Energy Trading and Marketing, L.L.C. BUYER: Nevada Power Company 4 Triad Center, Suite 1000 P.O. Box 230 Salt Lake City, UT 84180 Las Vegas, NV 89151-0230 Attn: Scott Krantz Attn: Mike Smart Phone: (801) 531-5467 Phone: (702) 367-5880 Fax: (801) 531-5490 Fax: (702) 367-5869
This letter shall confirm transactions arranged on June 4, 2002 between Duke Energy Trading and Marketing, L.L.C. (DETM) and Nevada Power Company (NPC). The terms and conditions of this transaction are as follows: DETM to sell and deliver and NPC to purchase and receive power under five (5) simultaneous block transactions covered by this confirmation under the details and terms contained herein. BLOCK #1 DELIVERY RATE: 175 Megawatts Per Hour CONTRACT QUANTITY: 36,400 Total Megawatt Hours DELIVERY TERM: June 15, 2002 - June 30, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment BLOCK #2 terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. DELIVERY RATE: 300 Megawatts Per Hour CONTRACT QUANTITY: 76,800 Total Megawatt Hours DELIVERY TERM: June 15, 2002 - June 30, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 07:00 - HE 22:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #3 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 56,000 Total Megawatt Hours DELIVERY TERM: June 15, 2002 - June 30, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 11:00 - HE 20:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #4 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 16,800 Total Megawatt Hours DELIVERY TERM: June 15, 2002 - June 30, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 08:00 - HE 23:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. BLOCK #5 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 16,800 Total Megawatt Hours DELIVERY TERM: June 15, 2002 - June 30, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 09:00 - HE 24:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. SPECIAL TERMS & CONDITIONS: This Confirmation Agreement is being provided pursuant to, in accordance with and is subject to the Western System Power Pool Agreement ("Agreement") as may be amended from time to time and as supplemented and modified herein, and that certain Master Amendment to Confirmation Agreements by and between Buyer and Seller, dated June 4, 2002, and constitutes part of and is subject to all of the terms and provisions of such Agreements. Terms used but not defined herein shall have the meanings ascribed to them in the Agreements. In the event of a conflict between this Confirmation Agreement and the WSPP Agreement, this Confirmation Agreement shall govern. Please confirm that the terms and conditions stated herein accurately reflect your understanding of our agreement by signing and returning by facsimile to Duke Energy Trading and Marketing, L.L.C. at (801) 531-5490. By: ___________________________________________ Date: ___________________ Duke Energy Trading and Marketing, L.L.C. By: ___________________________________________ Date: ___________________ Nevada Power Company If the description contained in this Confirmation Agreement is contrary to your understanding of the agreement, please notify DETM via telecopy by the close of the fifth business day following your receipt of this Confirmation Agreement. Your failure to notify DETM of any such contrary understanding by such time constitutes your confirmation of the transaction as described above. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. [DUKE ENERGY LOGO] [MOBIL LOGO] CONFIRMATION AGREEMENT SELLER: Duke Energy Trading and Marketing, L.L.C. BUYER: Nevada Power Company 4 Triad Center, Suite 1000 P.O. Box 230 Salt Lake City, UT 84180 Las Vegas, NV 89151-0230 Attn: Scott Krantz Attn: Mike Smart Phone: (801) 531-5467 Phone: (702) 367-5880 Fax: (801) 531-5490 Fax: (702) 367-5869
This letter shall confirm transactions arranged on June 4, 2002 between Duke Energy Trading and Marketing, L.L.C. (DETM) and Nevada Power Company (NPC). The terms and conditions of this transaction are as follows: DETM to sell and deliver and NPC to purchase and receive power under five (5) simultaneous block transactions covered by this confirmation under the details and terms contained herein. BLOCK #1 DELIVERY RATE: 250 Megawatts Per Hour CONTRACT QUANTITY: 104,000 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #2 DELIVERY RATE: 300 Megawatts Per Hour CONTRACT QUANTITY: 148,800 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 07:00 - HE 22:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #3 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 108,500 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 11:00 - HE 20:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #4 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 28,000 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 08:00 - HE 23:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #5 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 28,000 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 09:00 - HE 24:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. SPECIAL TERMS & CONDITIONS: This Confirmation Agreement is being provided pursuant to, in accordance with and is subject to the Western System Power Pool Agreement ("Agreement") as may be amended from time to time and as supplemented and modified herein, and that certain Master Amendment to Confirmation Agreements by and between Buyer and Seller, dated June 4, 2002, and constitutes part of and is subject to all of the terms and provisions of such Agreements. Terms used but not defined herein shall have the meanings ascribed to them in the Agreements. In the event of a conflict between this Confirmation Agreement and the WSPP Agreement, this Confirmation Agreement shall govern. Please confirm that the terms and conditions stated herein accurately reflect your understanding of our agreement by signing and returning by facsimile to Duke Energy Trading and Marketing, L.L.C. at (801) 531-5490. By: ___________________________________________ Date: ___________________ Duke Energy Trading and Marketing, L.L.C. By: ___________________________________________ Date: ___________________ Nevada Power Company If the description contained in this Confirmation Agreement is contrary to your understanding of the agreement, please notify DETM via telecopy by the close of the fifth business day following your receipt of this Confirmation Agreement. Your failure to notify DETM of any such contrary understanding by such time constitutes your confirmation of the transaction as described above. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. [DUKE ENERGY LOGO] [MOBIL LOGO] CONFIRMATION AGREEMENT SELLER: Duke Energy Trading and Marketing, L.L.C. BUYER: Nevada Power Company 4 Triad Center, Suite 1000 P.O. Box 230 Salt Lake City, UT 84180 Las Vegas, NV 89151-0230 Attn: Scott Krantz Attn: Mike Smart Phone: (801) 531-5467 Phone: (702) 367-5880 Fax: (801) 531-5490 Fax: (702) 367-5869
This letter shall confirm transactions arranged on June 4, 2002 between Duke Energy Trading and Marketing, L.L.C. (DETM) and Nevada Power Company (NPC). The terms and conditions of this transaction are as follows: DETM to sell and deliver and NPC to purchase and receive power under five (5) simultaneous block transactions covered by this confirmation under the details and terms contained herein. BLOCK #1 DELIVERY RATE: 250 Megawatts Per Hour CONTRACT QUANTITY: 108,000 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #2 DELIVERY RATE: 300 Megawatts Per Hour CONTRACT QUANTITY: 148,800 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 07:00 - HE 22:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #3 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 108,500 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 11:00 - HE 20:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #4 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 22,400 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 08:00 - HE 23:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #5 DELIVERY RATE: 350 Megawatts Per Hour CONTRACT QUANTITY: 22,400 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 09:00 - HE 24:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. SPECIAL TERMS & CONDITIONS: This Confirmation Agreement is being provided pursuant to, in accordance with and is subject to the Western System Power Pool Agreement ("Agreement") as may be amended from time to time and as supplemented and modified herein, and that certain Master Amendment to Confirmation Agreements by and between Buyer and Seller, dated June 4, 2002, and constitutes part of and is subject to all of the terms and provisions of such Agreements. Terms used but not defined herein shall have the meanings ascribed to them in the Agreements. In the event of a conflict between this Confirmation Agreement and the WSPP Agreement, this Confirmation Agreement shall govern. Please confirm that the terms and conditions stated herein accurately reflect your understanding of our agreement by signing and returning by facsimile to Duke Energy Trading and Marketing, L.L.C. at (801) 531-5490. By: ___________________________________________ Date: ___________________ Duke Energy Trading and Marketing, L.L.C. By: ___________________________________________ Date: ___________________ Nevada Power Company If the description contained in this Confirmation Agreement is contrary to your understanding of the agreement, please notify DETM via telecopy by the close of the fifth business day following your receipt of this Confirmation Agreement. Your failure to notify DETM of any such contrary understanding by such time constitutes your confirmation of the transaction as described above. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. [DUKE ENERGY LOGO] [MOBIL LOGO] CONFIRMATION AGREEMENT SELLER: Duke Energy Trading and Marketing, L.L.C. BUYER: Nevada Power Company 4 Triad Center, Suite 1000 P.O. Box 230 Salt Lake City, UT 84180 Las Vegas, NV 89151-0230 Attn: Scott Krantz Attn: Mike Smart Phone: (801) 531-5467 Phone: (702) 367-5880 Fax: (801) 531-5490 Fax: (702) 367-5869
This letter shall confirm transactions arranged on June 4, 2002 between Duke Energy Trading and Marketing, L.L.C. (DETM) and Nevada Power Company (NPC). The terms and conditions of this transaction are as follows: DETM to sell and deliver and NPC to purchase and receive power under four (4) simultaneous block transactions covered by this confirmation under the details and terms contained herein. BLOCK #1 DELIVERY RATE: 250 Megawatts Per Hour CONTRACT QUANTITY: 96,000 Total Megawatt Hours DELIVERY TERM: September 1, 2002 - September 30, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #2 DELIVERY RATE: 150 Megawatts Per Hour CONTRACT QUANTITY: 45,000 Total Megawatt Hours DELIVERY TERM: September 1, 2002 - September 30, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 11:00 - HE 20:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #3 DELIVERY RATE: 250 Megawatts Per Hour CONTRACT QUANTITY: 24,000 Total Megawatt Hours DELIVERY TERM: September 1, 2002 - September 30, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 08:00 - HE 23:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. BLOCK #4 DELIVERY RATE: 250 Megawatts Per Hour CONTRACT QUANTITY: 24,000 Total Megawatt Hours DELIVERY TERM: September 1, 2002 - September 30, 2002 CONTRACT SCHEDULE: Sundays and NERC Holidays only. HE 09:00 - HE 24:00 PPT PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and NPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between NPC and DETM, dated June 4, 2002. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. SPECIAL TERMS & CONDITIONS: This Confirmation Agreement is being provided pursuant to, in accordance with and is subject to the Western System Power Pool Agreement ("Agreement") as may be amended from time to time and as supplemented and modified herein, and that certain Master Amendment to Confirmation Agreements by and between Buyer and Seller, dated June 4, 2002, and constitutes part of and is subject to all of the terms and provisions of such Agreements. Terms used but not defined herein shall have the meanings ascribed to them in the Agreements. In the event of a conflict between this Confirmation Agreement and the WSPP Agreement, this Confirmation Agreement shall govern. Please confirm that the terms and conditions stated herein accurately reflect your understanding of our agreement by signing and returning by facsimile to Duke Energy Trading and Marketing, L.L.C. at (801) 531-5490. By: ___________________________________________ Date: ___________________ Duke Energy Trading and Marketing, L.L.C. By: ___________________________________________ Date: ___________________ Nevada Power Company If the description contained in this Confirmation Agreement is contrary to your understanding of the agreement, please notify DETM via telecopy by the close of the fifth business day following your receipt of this Confirmation Agreement. Your failure to notify DETM of any such contrary understanding by such time constitutes your confirmation of the transaction as described above. SCHEDULE D CERTAIN TRANSACTIONS (see attached) ATTACHMENT "A" to the NATURAL GAS SALES/PURCHASE AGREEMENT Dated: July 1, 1996 DETM Agreement No. GSA 176 Seller Buyer - ------ ----- DUKE ENERGY TRADING AND MARKETING, L.L.C. NEVADA POWER COMPANY 4 Triad Center, Suite 1000 6100 Neil Road Salt Lake City, UT 84180 Reno, NV 89520 Representative: Steve Bateson Representative: Mike Smart Fax Number: (801) 531-5490 Fax Number: (702) 367-5869 EXHIBIT DATE: June 4, 2002 TERM: June 15, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST) SERVICE LEVEL: Firm Obligation PRICE: From June 15, 2002 (8:00 a.m. MST) through July 1, 2002 (7:59 a.m. MST), the Price shall be **** per MMBtu. From July 1, 2002 (8:00 a.m. MST) through August 1, 2002 (7:59 a.m. MST), the Price shall be **** per MMBtu. From August 1, 2002 (8:00 a.m. MST) through September 1, 2002 (7:59 a.m. MST), the Price shall be **** per MMBtu. From September 1, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST), the Price shall be **** per MMBtu. QUANTITY: From June 15, 2002 (8:00 a.m. MST) through July 1, 2002 (7:59 a.m. MST), the Quantity shall be ***** MMBtu per day. From July 1, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST), the Quantity shall be ***** MMBtu per day. POINT(S) OF DELIVERY: ***** CONFIRMATION PROVISION: Notwithstanding any provision to the contrary in the above-referenced Natural Gas Sales/Purchase Agreement dated July 1, 1996, Nevada Power Company (NPC) and Duke Energy Trading and Marketing, L.L.C. (DETM) agree that DETM CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. shall provide the Attachment "A" for this transaction. PAYMENT PROVISION: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between DETM and NPC, dated June 4, 2002. CONFLICT: In the event of a conflict between the above-referenced Natural Gas Sales/Purchase Agreement dated July 1, 1996 and this Attachment "A," this Attachment "A" shall govern. THIS ATTACHMENT "A" IS BEING PROVIDED PURSUANT TO, IN ACCORDANCE WITH, AND IS SUBJECT TO THE ABOVE-REFERENCED NATURAL GAS SALES/PURCHASE AGREEMENT DATED JULY 1, 1996 AS MAY BE AMENDED FROM TIME TO TIME AND AS SUPPLEMENTED AND MODIFIED HEREIN, AND THAT CERTAIN MASTER AMENDMENT TO CONFIRMATION AGREEMENTS BY AND BETWEEN DETM AND NPC, DATED JUNE 4, 2002. IF THE DESCRIPTION CONTAINED IN THIS EXHIBIT "A" IS CONTRARY TO YOUR UNDERSTANDING OF THE AGREEMENT, PLEASE NOTIFY DETM VIA TELECOPY BY THE CLOSE OF THE SECOND BUSINESS DAY FOLLOWING YOUR RECEIPT OF THIS EXHIBIT "A." YOUR FAILURE TO NOTIFY DETM OF ANY SUCH CONTRARY UNDERSTANDING BY SUCH TIME CONSTITUTES YOUR CONFIRMATION OF THE TRANSACTION AS DESCRIBED ABOVE. ACCEPTED and AGREED to: Seller Buyer DUKE ENERGY TRADING AND MARKETING, L.L.C. NEVADA POWER COMPANY By: _______________________________ By: ______________________________ Date: _______________________________ Date: ______________________________ EX-10.4 8 b43700spexv10w4.txt AMENDMENT NO. 2 TO CREDIT AGREEMENT Exhibit 10.4 [EXECUTION COPY] AMENDMENT NO. 2 TO CREDIT AGREEMENT This AMENDMENT NO. 2, dated as of June 25, 2002 (this "AMENDMENT"), is made by and among NEVADA POWER COMPANY, a Nevada corporation (the "BORROWER"), the banks listed on the signature pages of this Amendment as "Lenders" (such banks, together with their respective permitted assignees from time to time, being referred to herein, collectively, as the "LENDERS"), and UNION BANK OF CALIFORNIA, N.A. ("UNION BANK"), as administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"). PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders, the Administrative Agent, Union Bank, as Sole Bookrunner, Wells Fargo Bank, N.A., as Syndication Agent, and Bank One, NA, BNP Paribas and Mellon Bank, N.A., as Co-Documentation Agents, previously entered into that certain Credit Agreement, dated as of November 30, 2001, as amended by that certain Waiver Letter and Amendment (the "WAIVER LETTER"), dated April 4, 2002 (as so amended, the "EXISTING AGREEMENT", as further amended by this Amendment, the "AMENDED AGREEMENT", and as the Amended Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Existing Agreement. (2) As contemplated at the time of executing the Existing Agreement, the Borrower plans to enter into a receivables purchase facility (the "RECEIVABLES PURCHASE FACILITY") with certain financial institutions (the "PURCHASERS"). Under the Receivables Purchase Facility, (a) the Borrower will sell accounts receivable arising from the provision of electricity to a newly created, wholly-owned bankruptcy remote special purpose subsidiary of the Borrower (the "SPV") and (b) either (i) the SPV (or a newly created, wholly-owned bankruptcy remote special purpose subsidiary of Sierra Pacific Resources (the "PARENT SPV") to which the SPV may first sell such accounts receivable) will sell undivided percentage ownership interests in such accounts receivable (the "PURCHASER INTERESTS") to the Purchasers, or (ii) the Purchasers will make advances 2 ("ADVANCES") to the SPV or the Parent SPV in respect of and secured by such accounts receivable. (3) Although it was the parties' intention that the Existing Agreement permit the establishment of the Receivables Purchase Facility to enhance the Borrower's liquidity and overall financial position, during the course of preparing the documentation for the Receivables Purchase Facility, it has become apparent that certain provisions of the Existing Agreement restrict the capacity of the Receivables Purchase Facility to achieve those objectives. (4) Accordingly, the Borrower now wishes to amend the Existing Agreement to clarify that the Borrower may enter into the transactions contemplated by the Receivables Purchase Facility. The Borrower also wishes to amend Section 6.02 and other provisions of the Existing Agreement in certain particulars. The Required Lenders and the Administrative Agent have agreed to such amendments, on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS TO EXISTING AGREEMENT. The Existing Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) NEW DEFINITIONS. The following new definitions are hereby added to Section 1.01 in the appropriate alphabetical order: "ADVANCES" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "DISPOSE" has the meaning assigned to such term in Section 6.04; and the terms "DISPOSITION" and "DISPOSED" shall have correlative meanings. "MINIMUM ADVANCE PERCENTAGE" means, in respect of any Receivables Purchase Facility, a percentage equal to the greater of (i) 80% less the reserves (expressed as a percentage) established under such Receivables Purchase Facility in respect of dilutive factors with respect to the accounts receivable Disposed of to the Purchasers thereunder or securing Advances thereunder, as the case may be, or (ii) 70%. "PARENT SPV" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. 3 "PURCHASE CONTRACT L/C" has the meaning assigned to such term in Section 6.02(h). "PURCHASER INTERESTS" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "PURCHASERS" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "RECEIVABLES PURCHASE FACILITY" means an accounts receivable purchase facility pursuant to which (a) the Borrower will sell accounts receivable arising from the provision of electricity to a newly created, wholly-owned bankruptcy remote special purpose subsidiary of the Borrower (the "SPV") and (b) either (i) the SPV (or a newly created, wholly-owned bankruptcy remote special purpose subsidiary of Sierra Pacific Resources (the "PARENT SPV") to which the SPV may first sell such accounts receivable) will sell undivided percentage ownership interests in such accounts receivable (the "PURCHASER INTERESTS") to the various financial institutions party to such facility (the "PURCHASERS"), or (ii) the Purchasers will make advances ("ADVANCES") to the SPV or the Parent SPV in respect of and secured by such accounts receivable. "RELATED SECURITY" means, with respect to any accounts receivable of the Borrower, the SPV or the Parent SPV (as applicable), (i) all Liens and property subject thereto from time to time, if any, purporting to secure payment of such accounts receivable, whether pursuant to the contract related to such accounts receivable or otherwise, (ii) all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such accounts receivable whether pursuant to the contract related to such accounts receivable or otherwise, (iii) all service contracts and other contracts and agreements associated with such accounts receivable, (iv) all books and records related to such accounts receivable, and (v) all proceeds of any of the foregoing. "SPV" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. 4 (b) REPORTING REQUIREMENTS. Section 5.01 is hereby amended by adding the following new subsections (k) and (l) at the end thereof: "(k) CASH RECEIPTS AND DISBURSEMENTS. The Borrower shall deliver to the Administrative Agent, with a copy for each Lender, on the first Wednesday of every two-calendar-week period, a statement of projected weekly cash receipts and cash disbursements for at least the immediately succeeding 12-calendar-week period, together with a comparison of the projected cash receipts and disbursements to actual cash receipts and disbursements for the immediately preceding two-calendar-week period, in each case in substantially the form set forth as Exhibit E, duly completed and signed by a Responsible Officer of the Borrower. (l) MONTHLY FINANCIAL REPORTS. As soon as practicable, and in any event within three Business Days, after the Borrower issues its monthly management-prepared financial statements, the Borrower shall deliver such financial statements to the Administrative Agent, with a copy for each Lender." (c) LIENS. Section 6.02 is hereby amended by: (i) deleting the word "and" after the semicolon at the end of subsection (f) thereof; (ii) deleting clause (iv) contained in the proviso to subsection (g) thereof in its entirety and substituting therefor the following new clause (iv): "(iv) the aggregate amount secured by all Liens described in this Section 6.02(g) shall not at any time exceed (A) $50,000,000 minus (B) the aggregate amount of cash, cash equivalents, marketable securities, instruments and other investment property held in deposit accounts, investment accounts or otherwise with any financial and/or depository institutions and subject to a Lien permitted under subsection (h) below;" (iii) deleting the period at the end of subsection (g) thereof; (iv) adding the following new subsection (h) immediately after subsection (g) thereof: "(h) Liens, including pledges, rights of offset and bankers' liens, on deposit accounts, instruments, investment accounts and investment property (including 5 cash, cash equivalents and marketable securities) from time to time maintained with or held by any financial and/or depository institutions, in each case solely to secure (1) any and all obligations of the Borrower in respect of letters of credit issued from time to time by any such financial and/or depository institutions (or their Affiliates) for the account of the Borrower or any of its Subsidiaries for purposes of supporting the Borrower's or such Subsidiary's obligations now or hereafter owing to gas or other energy suppliers (such letters of credit, collectively, the "PURCHASE CONTRACT L/C'S"), or (2) any and all obligations now or hereafter existing of the Borrower or any of its Subsidiaries in connection with any deposit account, investment account or cash management service (including ACH, Fedwire, CHIPS, concentration and zero balance accounts, and controlled disbursement, lockbox or restricted accounts) now or hereafter provided by any financial and/or depository institutions to or for the benefit of the Borrower, any of its Subsidiaries or any special purpose entity directly or indirectly providing loans to or making receivables purchases from the Borrower or any of its Subsidiaries; PROVIDED, HOWEVER, that the aggregate amount of cash, cash equivalents, marketable securities, instruments and other investment property held in deposit accounts, investment accounts or otherwise with any financial and/or depository institutions and subject to a Lien permitted under this Section 6.02(h) shall not at any time exceed (A) $50,000,000 minus (B) the aggregate amount secured by Liens described in subsection (g) above; and" (v) adding the following new subsection (i) immediately after the new subsection (h) thereof: "(i) Liens in the SPV's accounts receivable and Related Security securing the obligations of the SPV under a Receivables Purchase Facility permitted under Section 6.04(c) (including, without limitation, the SPV's obligation to repay Advances made thereunder)." and (vi) deleting the phrase "to secure any obligations now or hereafter owing to such power and/or commodity trading counterparties or power suppliers" contained in the penultimate sentence of Section 6.02 in its entirety and substituting therefor the new phrase "to secure any obligations now or hereafter owing to 6 such power and/or commodity trading counterparties or power suppliers; PROVIDED, that, for the avoidance of doubt, this sentence shall not prohibit any Liens permitted under Section 6.02(h)(1) securing obligations of the Borrower in respect of Purchase Contract L/C's". (d) DISPOSITIONS OF PROPERTIES. Section 6.04 is hereby amended in its entirety to read as follows: "SECTION 6.04 Dispositions of Properties. The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, sale-leaseback, transfer, abandon or otherwise dispose of, voluntarily or involuntarily (collectively, "DISPOSE"), any of its Properties, or agree, become or remain liable contingently or otherwise to do any of the foregoing, except that, so long as no Default or Event of Default shall have occurred and be continuing or shall exist at such time or after giving effect to such transaction, the Borrower and its Subsidiaries may Dispose of Property (a) in transactions in the ordinary course of business consistent with past practice, (b) that is obsolete, (c) comprising accounts receivable and Related Security transferred from time to time on a revolving basis to the SPV, the Parent SPV, a commercial paper conduit or other purchaser pursuant to a Receivables Purchase Facility; PROVIDED that (i) the outstanding amount of capital associated with the Purchaser Interests that are Disposed of, or the outstanding amount of Advances made in respect of such Disposed accounts receivable, as the case may be, pursuant to all Receivables Purchase Facilities does not exceed $125,000,000 in the aggregate as of any date of determination, and (ii) the aggregate net cash proceeds received by the Borrower for all Dispositions of accounts receivable and Related Security made pursuant to, or in connection with, Receivables Purchase Facilities are not less than the Minimum Advance Percentage of the aggregate amount of accounts receivable Disposed of in all such Dispositions; PROVIDED, HOWEVER, that, notwithstanding the foregoing, upon the occurrence and during the continuance of a Default or an Event of Default, the Borrower and its Subsidiaries may continue to Dispose of accounts receivable and Related Security pursuant to this clause (c) if (and only if) (A) the conditions set forth in clauses (i) and (ii) above are satisfied at the time of each such Disposition and (B) the cash proceeds received by the Borrower for each such Disposition are applied immediately as a prepayment of the Loans pursuant to Section 2.08(b); PROVIDED, FURTHER, that each Disposition made by the Borrower in reliance on this clause (c) shall constitute a representation and warranty of the Borrower, made at the time of such Disposition, that the conditions set forth in clauses (i) and (ii) above are satisfied at such time, and (d) in transactions other than as provided in Section 6.04(a), (b) and (c); PROVIDED that the aggregate book 7 value of all Property Disposed of pursuant to this Section 6.04(d) from and after the date hereof shall not exceed $50,000,000." (e) DIVIDENDS AND STOCK REPURCHASES. Section 6.06 is hereby amended in its entirety to read as follows: "SECTION 6.06 DIVIDENDS AND STOCK REPURCHASES. The Borrower shall not declare or pay, directly or indirectly, any dividend, payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any share of any class of capital stock of the Borrower (except for dividends in the form of capital stock), or purchase, redeem, retire, or otherwise acquire for value any shares of any class of capital stock of the Borrower or any warrants, rights, or options to acquire any such shares, now or hereafter outstanding, or make any distribution of assets to any of its shareholders." (f) EQUAL AND RATABLE LIEN. Section 6.09(a) is hereby amended by deleting the period at the end of the first sentence thereof and inserting in lieu thereof the following: "; PROVIDED, HOWEVER, that, subject to Section 2.15(d), no issuer of a Purchase Contract L/C shall be required to share with the Lenders any collateral granted to such issuer pursuant to Section 6.02(h)(1) if (i) such issuer received from the Borrower at the time of the issuance of such Purchase Contract L/C a written representation and warranty confirming the Borrower's compliance with the provisions of Section 6.02(h) in connection therewith and (ii) such issuer had no actual knowledge at the time of such issuance that the Lien granted by the Borrower or any of its Subsidiaries (as the case may be) in such collateral constituted a violation of Section 6.02." (g) RESTRICTIVE AGREEMENTS. Section 6.10(a) is hereby amended by deleting the phrase "the Borrower or any of its Subsidiaries to create" in its entirety and substituting therefor the new phrase "the Borrower or any of its Subsidiaries (other than the SPV and/or the Parent SPV in connection with a Receivables Purchase Facility) to create". (h) PREPAYMENTS AND REDEMPTION OF INDEBTEDNESS. Article VI is hereby amended by adding the following new Section 6.11 at the end thereof: "SECTION 6.11 PREPAYMENTS AND REDEMPTION OF INDEBTEDNESS. The Borrower shall not purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, 8 defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any of its Indebtedness (other than Indebtedness hereunder and under the other Loan Documents), except that (i) the Borrower may make payments on the regularly-scheduled payment dates with respect to the principal of and interest on its Indebtedness, (ii) the Borrower may reimburse the issuer of any letter of credit or similar instrument issued for the account of the Borrower (in each case to the extent such letter of credit or similar instrument is permitted to be issued for the account of the Borrower pursuant to the terms of this Agreement) for any drawings made thereunder, together with any interest and fees related thereto, at the times required under any reimbursement agreement or similar agreement to which the Borrower is a party, and (iii) for the avoidance of doubt, this Section 6.11 shall not prohibit any payments or prepayments of amounts payable (including, without limitation, deferred amounts payable) (other than for borrowed money) to the Borrower's gas and power suppliers arising in the ordinary course of business." (i) NEW EXHIBIT. Exhibit E attached hereto is hereby deemed to constitute Exhibit E to the Credit Agreement. SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective (a) with respect Sections 1(c)(v), 1(d) and 1(g) hereof, as of July 5, 2002, and (b) with respect to all other provisions contained in Section 1 hereof, as of the date first above written, when, and only when, the Administrative Agent shall have received: (i) counterparts of this Amendment executed by the Borrower, the Administrative Agent and the Required Lenders, (ii) for the account of each Lender that delivers an executed counterpart of this Amendment on or before June 25, 2002, a nonrefundable amendment fee of 0.30% of such Lender's Commitment, in immediately available funds, and (iii) all of the following documents, each document being dated the date of receipt thereof by the Administrative Agent (which date shall be the same for all such documents), in form and substance satisfactory to the Administrative Agent: (A) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names, true signatures and incumbency of the officers of the Borrower authorized to sign this Amendment and any other documents to be delivered hereunder. (B) A certificate of a Responsible Officer of the Borrower (the statements in which shall be true) stating that (1) after giving effect to the Waiver Letter, except as disclosed by Sierra Pacific Resources in its press release issued on June 11, 2002, the representations and warranties set 9 forth in Article III of the Existing Agreement are true and correct on and as of the date hereof, both before and after giving effect to this Amendment, as though made on and as of such date, and (2) after giving effect to this Amendment, no event has occurred and is continuing that constitutes a Default or an Event of Default, and no Default or Event of Default would result from the execution, delivery or performance of this Amendment or the transactions contemplated hereby. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: (a) The execution and delivery by the Borrower of this Amendment, and the performance by the Borrower of this Amendment and the Amended Agreement, (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, and (iii) do not and will not (A) require any consent or approval of the shareholder of the Borrower (other than any such consent or approval that has been duly obtained and is in full force and effect), (B) violate any provision of the articles of incorporation or by-laws of the Borrower or of law, (C) violate any legal restriction binding on or affecting the Borrower, (D) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected, or (E) result in or require the creation of any Lien (other than pursuant to the Loan Documents) upon or with respect to any of its properties. This Amendment has been duly executed and delivered by the Borrower. (b) No Governmental Action is required for (i) the due execution and delivery by the Borrower of this Amendment or (ii) the performance by the Borrower of this Amendment and the Amended Agreement, other than any such Governmental Actions that have been duly obtained or made and are in full force and effect on the date hereof. (c) Each of this Amendment and the Amended Agreement is the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) Except as disclosed by the Borrower in its reports filed with the Securities and Exchange Commission prior to the date hereof, there is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation, litigation or proceeding affecting the Borrower or any of its properties before any court, governmental agency or arbitrator, that would reasonably be expected to materially adversely affect the legality, validity, or enforceability of, or the ability 10 of the Borrower to perform its obligations under, this Amendment or the Amended Agreement. SECTION 4. REFERENCE TO AND EFFECT ON THE EXISTING AGREEMENT. (a) Upon the effectiveness of this Amendment: (i) each reference in the Existing Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Existing Agreement shall mean and be a reference to the Amended Agreement; and (ii) each reference in any other Loan Document to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Existing Agreement shall mean and be a reference to the Amended Agreement. (b) Except as specifically amended above, the Existing Agreement shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders or the Administrative Agent under the Existing Agreement or any other Loan Document, nor constitute a waiver of any provision of the Existing Agreement or any other Loan Document. SECTION 5. COSTS AND EXPENSES. The Borrower agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent in connection with the preparation, negotiation, syndication, execution, delivery, administration and performance of this Amendment, the Amended Agreement, the other Loan Documents and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of (A) counsel to the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities hereunder and thereunder, and (B) any other consultants or experts that the Administrative Agent reasonably deems necessary or advisable in connection with the foregoing, and (ii) all costs and expenses of the Administrative Agent and each Lender (including, without limitation, reasonable fees and expenses of (A) counsel to the Administrative Agent and counsel for each Lender and (B) any other consultants or experts deemed necessary or advisable by the Administrative Agent) in connection with the enforcement or preservation of rights (whether through negotiations, legal proceedings or otherwise) under this Amendment, the Amended Agreement or any other Loan Document. SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. In furtherance of the foregoing, it is understood and agreed that signatures hereto submitted by facsimile transmission shall be deemed to be, and shall constitute, original signatures. 11 SECTION 7. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of the New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] S-1 IN WITNESS WHEREOF, the parties hereto have caused Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. NEVADA POWER COMPANY By ----------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A., as Administrative Agent By ----------------------------------- Name: Title: Signature Page to Amendment No. 2 to NPC Credit Agreement S-2 LENDERS ------- UNION BANK OF CALIFORNIA, N.A. By ----------------------------------- Name: Title: WELLS FARGO BANK, N.A. By ----------------------------------- Name: Title: BANK ONE, NA By ----------------------------------- Name: Title: BNP PARIBAS By ----------------------------------- Name: Title: By ----------------------------------- Name: Title: MELLON BANK, N.A. By ----------------------------------- Name: Title: Signature Page to Amendment No. 2 to NPC Credit Agreement S-3 BAYERISCHE LANDESBANK GIROZENTRALE By ----------------------------------- Name: Title: By ----------------------------------- Name: Title: MIZUHO CORPORATE BANK, LTD., formerly known as The Industrial Bank of Japan, Limited By ----------------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC. By ----------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First Union National Bank By ----------------------------------- Name: Title: Signature Page to Amendment No. 2 to NPC Credit Agreement S-4 MERRILL LYNCH BANK USA By ----------------------------------- Name: Title: Signature Page to Amendment No. 2 to NPC Credit Agreement EXHIBIT E --------- PROJECTED/ACTUAL CASH FLOWS [ table ] EX-10.5 9 b43700spexv10w5.txt MASTER AMENDMENT TO CONFIRMATION AGREEMENTS EXHIBIT 10.5 CONFIDENTIAL TREATMENT SIERRA PACIFIC POWER COMPANY HAS REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. MASTER AMENDMENT TO CONFIRMATION AGREEMENTS (SPPC - POWER) Dated as of June 4, 2002 This Master Amendment to Confirmation Agreements (this "Confirmation Amendment") provided pursuant to and in accordance with the Western Systems Power Pool Agreement (the "WSPP Agreement") is made by and between Sierra Pacific Sierra Pacific Power Company, a Nevada corporation ("Sierra Pacific"), and Duke Energy Trading and Marketing, L.L.C., a Delaware limited liability company ("DETM"). WHEREAS, Sierra Pacific and DETM are currently parties to certain Confirmation Agreements (as defined in the WSPP Agreement) and the transactions thereunder, including but not limited to, those listed on Schedule A attached hereto and made a part hereof (collectively, the "Existing Confirmation Agreements"); WHEREAS, Sierra Pacific and DETM desire to set forth in this Confirmation Amendment certain payment and other terms that will amend and supplement the Existing Confirmation Agreements and all Confirmation Agreements executed with respect to future transactions between the parties under the WSPP Agreement (the "New Confirmation Agreements"); and WHEREAS, in consideration of the agreement of the parties to be bound by the terms hereof, Sierra Pacific and DETM have agreed to execute this Confirmation Amendment. NOW THEREFORE, the parties hereto agree as follows: 1. Payment Terms Under New Confirmation Agreements. (a) [****] (i) [****] (ii) [****] (b) [****] (i) [****] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. (ii) [****] (c) [****] 2. Representations and Warranties. (a) Sierra Pacific. Sierra Pacific represents and warrants that it has the right, power, and corporate authority to enter into and perform its obligations under this Confirmation Amendment. Sierra Pacific's execution, delivery and CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. performance of this Agreement has been duly authorized, no further action is necessary on the part of Sierra Pacific and no consents or other approvals are required to be obtained in connection therewith. The execution and delivery of this Confirmation Amendment does not contravene, or constitute a default under, any provision of applicable law or regulation or its organizational documents or any material agreement, judgment, injunction, order, decree or other instrument binding upon it or result in any creation or imposition of any lien on any of its assets. This Confirmation Amendment has been duly and validly executed and delivered by Sierra Pacific and, assuming the due execution and delivery by the other party hereto, constitutes a valid and binding obligation of Sierra Pacific, enforceable against it in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, receivership or other similar laws affecting creditors' rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law). (b) DETM. DETM represents and warrants to Sierra Pacific that DETM has the right, power, and authority to enter into and perform its obligations under this Confirmation Amendment. The execution, delivery and performance of this Confirmation Amendment by DETM has been duly authorized, no further action is necessary on the part of DETM and no consents or other approvals are required to be obtained in connection therewith. The execution and delivery of this Confirmation Amendment does not contravene, or constitute a default under, any provision of applicable law or regulation or its organizational documents or any material agreement, judgment, injunction, order, decree or other instrument binding upon it or result in any creation or imposition of any lien on any of its assets. This Confirmation Amendment has been duly and validly executed and delivered by DETM and, assuming the due execution and delivery by the other party hereto, constitutes a valid and binding obligation of DETM, enforceable against it in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency, receivership or other similar laws affecting creditors' rights generally and equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law). 3. Defaults. (a) Events of Default. In addition to the Events of Default under the WSPP Agreement, the occurrence of any one or more of the following events shall also constitute an Event of Default by Sierra Pacific under the WSPP Agreement and all Confirmation Agreements between Sierra Pacific and DETM until all energy and gas have been delivered and paid for under the Covered Short Positions: (i) If Sierra Pacific fails to pay or prepay when due any amount under this Confirmation Amendment. (ii) Sierra Pacific defaults in any other of its obligations under this Confirmation Amendment and any such default continues for five (5) days. (iii) A default, event of default or other similar event or condition of Sierra Pacific with respect to any indebtedness for borrowed money which results in such indebtedness becoming immediately due and payable has occurred and is continuing. (iv) A default, event of default or other similar event or condition of Sierra Pacific with respect to any other agreement between Sierra Pacific and DETM or any of its affiliates has occurred and is continuing, including, without limitation, under the Marketing Services Agreement or the Master Gas Agreement. (b) Notice of Default. Sierra Pacific shall notify DETM in writing promptly of the occurrence of any Event of Default by it. (c) Remedies. In addition to the rights and remedies upon an Event of Default set forth in the WSPP Agreement and in any Confirmation Agreement and at law and in equity, upon the occurrence of an Event of Default the non-defaulting party may, without prior notice and in addition to and not in limitation of its other rights and remedies, setoff (including, without limitation, by setoff, offset, combination of accounts, deduction, counterclaim, retention or withholding across or within each or all agreements) any and all sums or obligations (whether arising under this Confirmation Amendment, the Confirmation Agreements or any other agreement and whether matured or unmatured) owed or otherwise accrued by the defaulting party to the non-defaulting party or any of its affiliates against any sums or obligations owed or otherwise accrued by the non-defaulting party or any of its affiliates to the defaulting party. Sierra Pacific shall pay all reasonable costs and expenses of collection incurred by or on behalf of the DETM as a result of an Event of Default, including reasonable attorney's fees. 4. Miscellaneous. (a) Limitation on Waiver. The rights and remedies of DETM under this Confirmation Amendment shall be cumulative and not alternative. No waiver by DETM of any right or remedy under this Confirmation Amendment shall be effective unless in a writing signed by DETM. No failure to exercise, delay in exercising, or single or partial exercise of any right or remedy by DETM, and no course of dealing between DETM on the one hand and Sierra Pacific on the other hand, shall constitute a waiver of, or shall preclude any other or further exercise of the same right or remedy. (b) Confirmation Amendment. This Confirmation Amendment may be amended, modified or supplemented only in writing, signed by each of the parties hereto. (c) Notices. Notices given under this Confirmation Amendment, including any notice of a change of address, shall be addressed as provided under the applicable Confirmation Agreement and to the additional addressees: (i) if to Sierra Pacific, to William E. Peterson, Sr. V.P. & General Counsel, 6100 Neil Road, P.O. Box 10100, Reno, NV 89520-0024, Fax: (775)834-5959, email: wpeterson@sierrapacific.com; and (ii) if to DETM, to Duke Energy Marketing and Trading, L.L.C. to JoAnn Russell, General Counsel, 5400 Westheimer Court, Houston, TX 77056-5310, Fax: (713) 627-5122, email: jprussell@duke-energy.com. (d) Severability. If any term, provision, covenant or restriction of this Confirmation Amendment is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (e) Governing Law. This Confirmation Amendment shall be governed by and construed in accordance with the laws of the State of Utah, without regard to the conflicts of laws rules thereof. (f) Assignment. Sierra Pacific may not assign or transfer this Confirmation Amendment or the obligations owing thereunder without the prior written consent of DETM in its sole discretion. DETM may assign or transfer this Confirmation Amendment or any obligations owing thereunder to any affiliate so long as such entity has a credit status which, in Sierra Pacific's reasonable opinion, is at least as high as that of DETM. (g) Parties Bound. This Confirmation Amendment shall bind Sierra Pacific and DETM and their respective successors and assigns. The Existing Confirmation Agreements and all transactions thereunder, as amended hereby, are hereby reaffirmed by each of Sierra Pacific and DETM and remain in full force and effect. (h) Section Headings. The headings in this Confirmation Amendment are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) References. All words used in this Confirmation Amendment shall be construed to be of such number and gender as the context requires or permits. Unless a particular context clearly provides otherwise, the words "hereof" and "hereunder" and similar references refer to this Confirmation Amendment in its entirety and not to any specific section or subsection hereof. (j) Definitions. All capitalized terms not defined herein shall have the meaning ascribed to them in the WSPP Agreement. [signature page follows] IN WITNESS WHEREOF, the parties have executed this Confirmation Amendment as of the date first stated above. SIERRA PACIFIC POWER COMPANY By:___________________________ Name: Title: DUKE ENERGY TRADING AND MARKETING, L.L.C. By:____________________________ Name: Title: SCHEDULE A EXISTING CONFIRMATION AGREEMENTS [***] CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. SCHEDULE B COVERED SHORT POSITIONS (see attached) [DUKE ENERGY] [MOBIL LOGO] CONFIRMATION AGREEMENT SELLER: Duke Energy Trading and Marketing, L.L.C. BUYER: Sierra Pacific Power Company 4 Triad Center, Suite 1000 P.O. Box 230 Salt Lake City, UT 84180 Las Vegas, NV 89151-0230 Attn: Scott Krantz Attn: Mike Smart Phone: (801) 531-5467 Phone: (702) 367-5880 Fax: (801) 531-5490 Fax: (702) 367-5869
This letter shall confirm transactions arranged on June 4, 2002 between Duke Energy Trading and Marketing, L.L.C. (DETM) and Sierra Pacific Power Company (SPPC). The terms and conditions of this transaction are as follows: DETM to sell and deliver and SPPC to purchase and receive power under five (5) simultaneous block transactions covered by this confirmation under the details and terms contained herein. BLOCK #1 DELIVERY RATE: 150 Megawatts Per Hour CONTRACT QUANTITY: 62,400 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #2 DELIVERY RATE: 50 Megawatts Per Hour CONTRACT QUANTITY: 12,400 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 13:00 - HE 20:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #3 DELIVERY RATE: 50 Megawatts Per Hour CONTRACT QUANTITY: 20,800 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #4 DELIVERY RATE: 50 Megawatts Per Hour CONTRACT QUANTITY: 20,800 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #5 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. DELIVERY RATE: 75 Megawatts Per Hour CONTRACT QUANTITY: 31,200 Total Megawatt Hours DELIVERY TERM: July 1, 2002 - July 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. SPECIAL TERMS & CONDITIONS: This Confirmation Agreement is being provided pursuant to, in accordance with and is subject to the Western System Power Pool Agreement ("Agreement") as may be amended from time to time and as supplemented and modified herein, and that certain Master Amendment to Confirmation Agreements by and between Buyer and Seller, dated June 4, 2002, and constitutes part of and is subject to all of the terms and provisions of such Agreements. Terms used but not defined herein shall have the meanings ascribed to them in the Agreements. In the event of a conflict between this Confirmation Agreement and the WSPP Agreement, this Confirmation Agreement shall govern. Please confirm that the terms and conditions stated herein accurately reflect your understanding of our agreement by signing and returning by facsimile to Duke Energy Trading and Marketing, L.L.C. at (801) 531-5490. By: ___________________________________________ Date: ____________________ Duke Energy Trading and Marketing, L.L.C. By: ___________________________________________ Date: ____________________ Sierra Pacific Power Company If the description contained in this Confirmation Agreement is contrary to your understanding of the agreement, please notify DETM via telecopy by the close of the fifth business day following your receipt of this Confirmation Agreement. Your failure to notify DETM of any such contrary understanding by such time constitutes your confirmation of the transaction as described above. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. [DUKE ENERGY LOGO] [MOBIL LOGO] CONFIRMATION AGREEMENT SELLER: Duke Energy Trading and Marketing, L.L.C. BUYER: Sierra Pacific Power Company 4 Triad Center, Suite 1000 P.O. Box 230 Salt Lake City, UT 84180 Las Vegas, NV 89151-0230 Attn: Scott Krantz Attn: Mike Smart Phone: (801) 531-5467 Phone: (702) 367-5880 Fax: (801) 531-5490 Fax: (702) 367-5869
This letter shall confirm transactions arranged on June 4, 2002 between Duke Energy Trading and Marketing, L.L.C. (DETM) and Sierra Pacific Power Company (SPPC). The terms and conditions of this transaction are as follows: DETM to sell and deliver and SPPC to purchase and receive power under five (5) simultaneous block transactions covered by this confirmation under the details and terms contained herein. BLOCK #1 DELIVERY RATE: 150 Megawatts Per Hour CONTRACT QUANTITY: 64,800 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #2 DELIVERY RATE: 50 Megawatts Per Hour CONTRACT QUANTITY: 12,400 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Sunday HE 13:00 - HE 20:00 PPT All Days, Including NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #3 DELIVERY RATE: 50 Megawatts Per Hour CONTRACT QUANTITY: 21,600 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #4 DELIVERY RATE: 50 Megawatts Per Hour CONTRACT QUANTITY: 21,600 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. BLOCK #5 DELIVERY RATE: 75 Megawatts Per Hour CONTRACT QUANTITY: 32,400 Total Megawatt Hours DELIVERY TERM: August 1, 2002 - August 31, 2002 CONTRACT SCHEDULE: Monday - Saturday HE 07:00 - HE 22:00 PPT Excluding NERC Holidays PRICE: $********** DELIVERY POINT: **** SCHEDULING: Duke Energy Trading and Marketing L.L.C. 24-Hour Dispatch: (801) 531-5130. Preschedules and control area information will be confirmed by DETM and SPPC by 12:00pm PPT on the appropriate scheduling day prior to the day of delivery. TYPE OF SERVICE: **** PAYMENT TERMS: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between SPPC and DETM, dated June 4, 2002. SPECIAL TERMS & CONDITIONS: This Confirmation Agreement is being provided pursuant to, in accordance with and is subject to the Western System Power Pool Agreement ("Agreement") as may be amended from time to time and as supplemented and modified herein, and that certain Master Amendment to Confirmation Agreements by and between Buyer and Seller, dated June 4, 2002, and constitutes part of and is subject to all of the terms and provisions of such Agreements. Terms used but not defined herein shall have the meanings ascribed to them in the Agreements. In the event of a conflict between this Confirmation Agreement and the WSPP Agreement, this Confirmation Agreement shall govern. Please confirm that the terms and conditions stated herein accurately reflect your understanding of our agreement by signing and returning by facsimile to Duke Energy Trading and Marketing, L.L.C. at (801) 531-5490. By: ___________________________________________ Date:____________________ Duke Energy Trading and Marketing, L.L.C. By: ___________________________________________ Date: ____________________ Sierra Pacific Power Company If the description contained in this Confirmation Agreement is contrary to your understanding of the agreement, please notify DETM via telecopy by the close of the fifth business day following your receipt of this Confirmation Agreement. Your failure to notify DETM of any such contrary understanding by such time constitutes your confirmation of the transaction as described above. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. SCHEDULE D CERTAIN TRANSACTIONS (see attached) EXHIBIT "A" to NATURAL GAS SALES AND PURCHASE AGREEMENT Dated: July 1, 1997 DETM Agreement No. GSA 408 Seller Buyer - ------ ----- DUKE ENERGY TRADING AND MARKETING, L.L.C. SIERRA PACIFIC POWER COMPANY 4 Triad Center 6100 Neil Road Suite 1000 PO Box 10100 Salt Lake City, UT 84180 Reno, NV 89520 Representative: Steve Bateson Representative: Mike Smart Fax Number: (801) 531-5490 Fax Number: (702) 367-5869 EXHIBIT DATE: June 4, 2002 TERM: June 15, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST) SERVICE LEVEL: Firm Obligation PRICE: From June 15, 2002 (8:00 a.m. MST) through July 1, 2002 (7:59 a.m. MST), the Price shall be ***** per MMBtu. From July 1, 2002 (8:00 a.m. MST) through August 1, 2002 (7:59 a.m. MST), the Price shall be ***** per MMBtu. From August 1, 2002 (8:00 a.m. MST) through September 1, 2002 (7:59 a.m. MST), the Price shall be ***** per MMBtu. From September 1, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST), the Price shall be ***** per MMBtu. QUANTITY: ***** MMBtu per day DELIVERY POINT(S): ***** PAYMENT PROVISION: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements ("Amendment") by and between Duke Energy Trading and Marketing, L.L.C. (DETM) and Sierra Pacific Power Company (SPC), dated June 4, 2002. CONFLICT: In the event of a conflict between the above-referenced Natural Gas Sales and Purchase Agreement dated July 1, 1997 and this Exhibit "A," this Exhibit "A" shall govern. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. THIS EXHIBIT "A" IS BEING PROVIDED PURSUANT TO, IN ACCORDANCE WITH, AND IS SUBJECT TO THE ABOVE-REFERENCED NATURAL GAS SALES AND PURCHASE AGREEMENT DATED JULY 1, 1997 AS MAY BE AMENDED FROM TIME TO TIME AND AS SUPPLEMENTED AND MODIFIED HEREIN, AND THAT CERTAIN MASTER AMENDMENT TO CONFIRMATION AGREEMENTS BY AND BETWEEN DETM AND SPC, DATED JUNE 4, 2002. IF THE DESCRIPTION CONTAINED IN THIS EXHIBIT "A" IS CONTRARY TO YOUR UNDERSTANDING OF THE AGREEMENT, PLEASE NOTIFY DETM VIA TELECOPY BY THE CLOSE OF THE SECOND BUSINESS DAY FOLLOWING YOUR RECEIPT OF THIS EXHIBIT "A." YOUR FAILURE TO NOTIFY DETM OF ANY SUCH CONTRARY UNDERSTANDING BY SUCH TIME CONSTITUTES YOUR CONFIRMATION OF THE TRANSACTION AS DESCRIBED ABOVE. ACCEPTED and AGREED to: Seller Buyer DUKE ENERGY TRADING AND MARKETING, L.L.C. SIERRA PACIFIC POWER COMPANY By: _______________________________ By: ______________________________ Date: _______________________________ Date: ______________________________ EXHIBIT "A" to NATURAL GAS SALES AND PURCHASE AGREEMENT Dated: July 1, 1997 DETM Agreement No. GSA 408 Seller Buyer - ------ ----- DUKE ENERGY TRADING AND MARKETING, L.L.C. SIERRA PACIFIC POWER COMPANY 4 Triad Center 6100 Neil Road Suite 1000 PO Box 10100 Salt Lake City, UT 84180 Reno, NV 89520 Representative: Steve Bateson Representative: Mike Smart Fax Number: (801) 531-5490 Fax Number: (702) 367-5869 EXHIBIT DATE: June 4, 2002 TERM: July 1, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST) SERVICE LEVEL: Firm Obligation PRICE: From July 1, 2002 (8:00 a.m. MST) through August 1, 2002 (7:59 a.m. MST), the Price shall be ***** per MMBtu. From August 1, 2002 (8:00 a.m. MST) through September 1, 2002 (7:59 a.m. MST), the Price shall be ***** per MMBtu. From September 1, 2002 (8:00 a.m. MST) through October 1, 2002 (7:59 a.m. MST) the Price shall be ***** per MMBtu. QUANTITY: ***** MMBtu per day DELIVERY POINT(S): ***** PAYMENT PROVISION: Payment shall be made according to the payment terms set forth in Section 4 of that certain Master Amendment to Confirmation Agreements by and between Duke Energy Trading and Marketing, L.L.C. (DETM) and Sierra Pacific Power Company (SPC), dated June 4, 2002. CONFLICT: In the event of a conflict between the above-referenced Natural Gas Sales and Purchase Agreement dated July 1, 1997 and this Exhibit "A," this Exhibit "A" shall govern. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS (***) DENOTE SUCH OMISSIONS. THIS EXHIBIT "A" IS BEING PROVIDED PURSUANT TO, IN ACCORDANCE WITH, AND IS SUBJECT TO THE ABOVE-REFERENCED NATURAL GAS SALES AND PURCHASE AGREEMENT DATED JULY 1, 1997 AS MAY BE AMENDED FROM TIME TO TIME AND AS SUPPLEMENTED AND MODIFIED HEREIN, AND THAT CERTAIN MASTER AMENDMENT TO CONFIRMATION AGREEMENTS BY AND BETWEEN DETM AND SPC, DATED JUNE 4, 2002. IF THE DESCRIPTION CONTAINED IN THIS EXHIBIT "A" IS CONTRARY TO YOUR UNDERSTANDING OF THE AGREEMENT, PLEASE NOTIFY DETM VIA TELECOPY BY THE CLOSE OF THE SECOND BUSINESS DAY FOLLOWING YOUR RECEIPT OF THIS EXHIBIT "A." YOUR FAILURE TO NOTIFY DETM OF ANY SUCH CONTRARY UNDERSTANDING BY SUCH TIME CONSTITUTES YOUR CONFIRMATION OF THE TRANSACTION AS DESCRIBED ABOVE. ACCEPTED and AGREED to: Seller Buyer DUKE ENERGY TRADING AND MARKETING, L.L.C. SIERRA PACIFIC POWER COMPANY By: ______________________________ By: _____________________________ Date: ______________________________ Date: _____________________________ EX-10.6 10 b43700spexv10w6.txt AMENDMENT NO. 1 TO CREDIT AGREEMENT Exhibit 10.6 [EXECUTION COPY] AMENDMENT NO. 1 TO CREDIT AGREEMENT This AMENDMENT NO. 1, dated as of June 25, 2002 (this "AMENDMENT"), is made by and among SIERRA PACIFIC POWER COMPANY, a Nevada corporation (the "BORROWER"), the banks listed on the signature pages of this Amendment as "Lenders" (such banks, together with their respective permitted assignees from time to time, being referred to herein, collectively, as the "LENDERS"), and UNION BANK OF CALIFORNIA, N.A. ("UNION BANK"), as administrative agent for the Lenders (the "ADMINISTRATIVE AGENT"). PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders, the Administrative Agent, Union Bank, as Sole Bookrunner, Wells Fargo Bank, N.A., as Syndication Agent, and Bank One, NA, BNP Paribas and Mellon Bank, N.A., as Co-Documentation Agents, previously entered into that certain Credit Agreement, dated as of November 30, 2001 (the "EXISTING AGREEMENT", as further amended by this Amendment, the "AMENDED AGREEMENT", and as the Amended Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). Capitalized terms used and not otherwise defined herein shall have the meanings assigned thereto in the Existing Agreement. (2) As contemplated at the time of executing the Existing Agreement, the Borrower plans to enter into a receivables purchase facility (the "RECEIVABLES PURCHASE FACILITY") with certain financial institutions (the "PURCHASERS"). Under the Receivables Purchase Facility, (a) the Borrower will sell accounts receivable arising from the provision of electricity or natural gas to a newly created, wholly-owned bankruptcy remote special purpose subsidiary of the Borrower (the "SPV") and (b) either (i) the SPV (or a newly created, wholly-owned bankruptcy remote special purpose subsidiary of Sierra Pacific Resources (the "PARENT SPV") to which the SPV may first sell such accounts receivable) will sell undivided percentage ownership interests in such accounts receivable (the "PURCHASER INTERESTS") to the Purchasers, or (ii) the Purchasers will make advances ("ADVANCES") to the SPV or the Parent SPV in respect of and secured by such accounts receivable. 2 (3) Although it was the parties' intention that the Existing Agreement permit the establishment of the Receivables Purchase Facility to enhance the Borrower's liquidity and overall financial position, during the course of preparing the documentation for the Receivables Purchase Facility, it has become apparent that certain provisions of the Existing Agreement restrict the capacity of the Receivables Purchase Facility to achieve those objectives. (4) Accordingly, the Borrower now wishes to amend the Existing Agreement to clarify that the Borrower may enter into the transactions contemplated by the Receivables Purchase Facility. The Borrower also wishes to amend Section 6.02 and other provisions of the Existing Agreement in certain particulars. The Required Lenders and the Administrative Agent have agreed to such amendments, on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENTS TO EXISTING AGREEMENT. The Existing Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) NEW DEFINITIONS. The following new definitions are hereby added to Section 1.01 in the appropriate alphabetical order: "ADVANCES" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "DISPOSE" has the meaning assigned to such term in Section 6.04; and the terms "DISPOSITION" and "DISPOSED" shall have correlative meanings. "MINIMUM ADVANCE PERCENTAGE" means, in respect of any Receivables Purchase Facility, a percentage equal to the greater of (i) 80% less the reserves (expressed as a percentage) established under such Receivables Purchase Facility in respect of dilutive factors with respect to the accounts receivable Disposed of to the Purchasers thereunder or securing Advances thereunder, as the case may be, or (ii) 70%. "PARENT SPV" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "PURCHASE CONTRACT L/C" has the meaning assigned to such term in Section 6.02(i). 3 "PURCHASER INTERESTS" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "PURCHASERS" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. "RECEIVABLES PURCHASE FACILITY" means an accounts receivable purchase facility pursuant to which (a) the Borrower will sell accounts receivable arising from the provision of electricity or natural gas to a newly created, wholly-owned bankruptcy remote special purpose subsidiary of the Borrower (the "SPV") and (b) either (i) the SPV (or a newly created, wholly-owned bankruptcy remote special purpose subsidiary of Sierra Pacific Resources (the "PARENT SPV") to which the SPV may first sell such accounts receivable) will sell undivided percentage ownership interests in such accounts receivable (the "PURCHASER INTERESTS") to the various financial institutions party to such facility (the "PURCHASERS"), or (ii) the Purchasers will make advances ("ADVANCES") to the SPV or the Parent SPV in respect of and secured by such accounts receivable. "RELATED SECURITY" means, with respect to any accounts receivable of the Borrower, the SPV or the Parent SPV (as applicable), (i) all Liens and property subject thereto from time to time, if any, purporting to secure payment of such accounts receivable, whether pursuant to the contract related to such accounts receivable or otherwise, (ii) all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such accounts receivable whether pursuant to the contract related to such accounts receivable or otherwise, (iii) all service contracts and other contracts and agreements associated with such accounts receivable, (iv) all books and records related to such accounts receivable, and (v) all proceeds of any of the foregoing. "SPV" has the meaning assigned to such term in the definition of "Receivables Purchase Facility" contained in this Section 1.01. (b) REPORTING REQUIREMENTS. Section 5.01 is hereby amended by adding the following new subsections (k) and (l) at the end thereof: 4 "(k) CASH RECEIPTS AND DISBURSEMENTS. The Borrower shall deliver to the Administrative Agent, with a copy for each Lender, on the first Wednesday of every two-calendar-week period, a statement of projected weekly cash receipts and cash disbursements for at least the immediately succeeding 12-calendar-week period, together with a comparison of the projected cash receipts and disbursements to actual cash receipts and disbursements for the immediately preceding two-calendar-week period, in each case in substantially the form set forth as Exhibit E, duly completed and signed by a Responsible Officer of the Borrower. (l) MONTHLY FINANCIAL REPORTS. As soon as practicable, and in any event within three Business Days, after the Borrower issues its monthly management-prepared financial statements, the Borrower shall deliver such financial statements to the Administrative Agent, with a copy for each Lender." (c) LIENS. Section 6.02 is hereby amended by: (i) deleting the word "and" after the semicolon at the end of subsection (g) thereof; (ii) deleting clause (iv) contained in the proviso to subsection (h) thereof in its entirety and substituting therefor the following new clause (iv): "(iv) the aggregate amount secured by all Liens described in this Section 6.02(h) shall not at any time exceed (A) $50,000,000 minus (B) the aggregate amount of cash, cash equivalents, marketable securities, instruments and other investment property held in deposit accounts, investment accounts or otherwise with any financial and/or depository institutions and subject to a Lien permitted under subsection (i) below;" (iii) deleting the period at the end of subsection (h) thereof; (iv) adding the following new subsection (i) immediately after subsection (h) thereof: "(i) Liens, including pledges, rights of offset and bankers' liens, on deposit accounts, instruments, investment accounts and investment property (including cash, cash equivalents and marketable securities) from time to time maintained with or held by any financial and/or 5 depository institutions, in each case solely to secure (1) any and all obligations of the Borrower in respect of letters of credit issued from time to time by any such financial and/or depository institutions (or their Affiliates) for the account of the Borrower or any of its Subsidiaries for purposes of supporting the Borrower's or such Subsidiary's obligations now or hereafter owing to gas or other energy suppliers (such letters of credit, collectively, the "PURCHASE CONTRACT L/C'S"), or (2) any and all obligations now or hereafter existing of the Borrower or any of its Subsidiaries in connection with any deposit account, investment account or cash management service (including ACH, Fedwire, CHIPS, concentration and zero balance accounts, and controlled disbursement, lockbox or restricted accounts) now or hereafter provided by any financial and/or depository institutions to or for the benefit of the Borrower, any of its Subsidiaries or any special purpose entity directly or indirectly providing loans to or making receivables purchases from the Borrower or any of its Subsidiaries; PROVIDED, HOWEVER, that the aggregate amount of cash, cash equivalents, marketable securities, instruments and other investment property held in deposit accounts, investment accounts or otherwise with any financial and/or depository institutions and subject to a Lien permitted under this Section 6.02(i) shall not at any time exceed (A) $50,000,000 minus (B) the aggregate amount secured by Liens described in subsection (h) above; and" and (v) adding the following new subsection (j) immediately after the new subsection (i) thereof: "(j) Liens in the SPV's accounts receivable and Related Security securing the obligations of the SPV under a Receivables Purchase Facility permitted under Section 6.04(c) (including, without limitation, the SPV's obligation to repay Advances made thereunder)." (d) DISPOSITIONS OF PROPERTIES. Section 6.04 is hereby amended in its entirety to read as follows: "SECTION 6.04 Dispositions of Properties. The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, sale-leaseback, transfer, abandon or 6 otherwise dispose of, voluntarily or involuntarily (collectively, "DISPOSE"), any of its Properties, or agree, become or remain liable contingently or otherwise to do any of the foregoing, except that, so long as no Default or Event of Default shall have occurred and be continuing or shall exist at such time or after giving effect to such transaction, the Borrower and its Subsidiaries may Dispose of Property (a) in transactions in the ordinary course of business consistent with past practice, (b) that is obsolete, (c) comprising accounts receivable and Related Security transferred from time to time on a revolving basis to the SPV, the Parent SPV, a commercial paper conduit or other purchaser pursuant to a Receivables Purchase Facility; PROVIDED that (i) the outstanding amount of capital associated with the Purchaser Interests that are Disposed of, or the outstanding amount of Advances made in respect of such Disposed accounts receivable, as the case may be, pursuant to all Receivables Purchase Facilities does not exceed $125,000,000 in the aggregate as of any date of determination, and (ii) the aggregate net cash proceeds received by the Borrower for all Dispositions of accounts receivable and Related Security made pursuant to, or in connection with, Receivables Purchase Facilities are not less than the Minimum Advance Percentage of the aggregate amount of accounts receivable Disposed of in all such Dispositions; PROVIDED, HOWEVER, that, notwithstanding the foregoing, upon the occurrence and during the continuance of a Default or an Event of Default, the Borrower and its Subsidiaries may continue to Dispose of accounts receivable and Related Security pursuant to this clause (c) if (and only if) (A) the conditions set forth in clauses (i) and (ii) above are satisfied at the time of each such Disposition and (B) the cash proceeds received by the Borrower for each such Disposition are applied immediately as a prepayment of the Loans pursuant to Section 2.08(b); PROVIDED, FURTHER, that each Disposition made by the Borrower in reliance on this clause (c) shall constitute a representation and warranty of the Borrower, made at the time of such Disposition, that the conditions set forth in clauses (i) and (ii) above are satisfied at such time, and (d) in transactions other than as provided in Section 6.04(a), (b) and (c); PROVIDED that the aggregate book value of all Property Disposed of pursuant to this Section 6.04(d) from and after the date hereof shall not exceed $50,000,000." (e) DIVIDENDS AND STOCK REPURCHASES. Section 6.06 is hereby amended in its entirety to read as follows: "SECTION 6.06 DIVIDENDS AND STOCK REPURCHASES. The Borrower shall not declare or pay, directly or indirectly, any dividend, payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any share of any class of capital stock of the Borrower (except for dividends in the form of capital stock), or make any distribution of 7 assets to any of its shareholders, in each case if a Default or Event of Default shall have occurred and be continuing or shall exist at such time or after giving effect to such transaction. The Borrower shall not purchase, redeem, retire, or otherwise acquire for value any shares of any class of capital stock of the Borrower or any warrants, rights, or options to acquire any such shares, now or hereafter outstanding." (f) EQUAL AND RATABLE LIEN. Section 6.09(a) is hereby amended by deleting the period at the end of the first sentence thereof and inserting in lieu thereof the following: "; PROVIDED, HOWEVER, that, subject to Section 2.15(d), no issuer of a Purchase Contract L/C shall be required to share with the Lenders any collateral granted to such issuer pursuant to Section 6.02(i)(1) if (i) such issuer received from the Borrower at the time of the issuance of such Purchase Contract L/C a written representation and warranty confirming the Borrower's compliance with the provisions of Section 6.02(i) in connection therewith and (ii) such issuer had no actual knowledge at the time of such issuance that the Lien granted by the Borrower or any of its Subsidiaries (as the case may be) in such collateral constituted a violation of Section 6.02." (g) RESTRICTIVE AGREEMENTS. Section 6.10(a) is hereby amended by deleting the phrase "the Borrower or any of its Subsidiaries to create" in its entirety and substituting therefor the new phrase "the Borrower or any of its Subsidiaries (other than the SPV and/or the Parent SPV in connection with a Receivables Purchase Facility) to create". (h) PREPAYMENTS AND REDEMPTION OF INDEBTEDNESS. Article VI is hereby amended by adding the following new Section 6.11 at the end thereof: "SECTION 6.11 PREPAYMENTS AND REDEMPTION OF INDEBTEDNESS. The Borrower shall not purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any of its Indebtedness (other than Indebtedness hereunder and under the other Loan Documents), except that (i) the Borrower may make payments on the regularly-scheduled payment dates with respect to the principal of and interest on its Indebtedness and (ii) the Borrower may reimburse the issuer of any letter of credit or similar instrument issued for the 8 account of the Borrower (in each case to the extent such letter of credit or similar instrument is permitted to be issued for the account of the Borrower pursuant to the terms of this Agreement) for any drawings made thereunder, together with any interest and fees related thereto, at the times required under any reimbursement agreement or similar agreement to which the Borrower is a party, and (iii) for the avoidance of doubt, this Section 6.11 shall not prohibit any payments or prepayments of amounts payable (including, without limitation, deferred amounts payable) (other than for borrowed money) to the Borrower's gas and power suppliers arising in the ordinary course of business." (i) NEW EXHIBIT. Exhibit E attached hereto is hereby deemed to constitute Exhibit E to the Credit Agreement. SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective (a) with respect Sections 1(c)(v), 1(d) and 1(g) hereof, as of July 8, 2002, and (b) with respect to all other provisions contained in Section 1 hereof, as of the date first above written, when, and only when, the Administrative Agent shall have received: (i) counterparts of this Amendment executed by the Borrower, the Administrative Agent and the Required Lenders, (ii) for the account of each Lender that delivers an executed counterpart of this Amendment on or before June 25, 2002, a nonrefundable amendment fee of 0.30% of such Lender's Commitment, in immediately available funds, and (iii) all of the following documents, each document being dated the date of receipt thereof by the Administrative Agent (which date shall be the same for all such documents), in form and substance satisfactory to the Administrative Agent: (A) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names, true signatures and incumbency of the officers of the Borrower authorized to sign this Amendment and any other documents to be delivered hereunder. (B) A certificate of a Responsible Officer of the Borrower (the statements in which shall be true) stating that (1) except as disclosed by Sierra Pacific Resources in its press release issued on June 11, 2002, the representations and warranties set forth in Article III of the Existing Agreement are true and correct on and as of the date hereof, both before and after giving effect to this Amendment, as though made on and as of such date, and (2) after giving effect to this Amendment, no event has occurred and is continuing that constitutes a Default or an Event of Default, and no Default or Event of Default would result from the execution, delivery or performance of this Amendment or the transactions contemplated hereby. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants as follows: 9 (a) The execution and delivery by the Borrower of this Amendment, and the performance by the Borrower of this Amendment and the Amended Agreement, (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, and (iii) do not and will not (A) require any consent or approval of the shareholder of the Borrower (other than any such consent or approval that has been duly obtained and is in full force and effect), (B) violate any provision of the articles of incorporation or by-laws of the Borrower or of law, (C) violate any legal restriction binding on or affecting the Borrower, (D) result in a breach of, or constitute a default under, any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected, or (E) result in or require the creation of any Lien (other than pursuant to the Loan Documents) upon or with respect to any of its properties. This Amendment has been duly executed and delivered by the Borrower. (b) No Governmental Action is required for (i) the due execution and delivery by the Borrower of this Amendment or (ii) the performance by the Borrower of this Amendment and the Amended Agreement, other than any such Governmental Actions that have been duly obtained or made and are in full force and effect on the date hereof. (c) Each of this Amendment and the Amended Agreement is the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (d) Except as disclosed by the Borrower in its reports filed with the Securities and Exchange Commission prior to the date hereof, there is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation, litigation or proceeding affecting the Borrower or any of its properties before any court, governmental agency or arbitrator, that would reasonably be expected to materially adversely affect the legality, validity, or enforceability of, or the ability of the Borrower to perform its obligations under, this Amendment or the Amended Agreement. SECTION 4. REFERENCE TO AND EFFECT ON THE EXISTING AGREEMENT. (a) Upon the effectiveness of this Amendment: (i) each reference in the Existing Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Existing Agreement shall mean and be a reference to the Amended Agreement; and (ii) each reference in any other Loan Document to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Existing Agreement shall mean and be a reference to the Amended Agreement. 10 (b) Except as specifically amended above, the Existing Agreement shall continue to be in full force and effect and is hereby in all respects ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders or the Administrative Agent under the Existing Agreement or any other Loan Document, nor constitute a waiver of any provision of the Existing Agreement or any other Loan Document. SECTION 5. COSTS AND EXPENSES. The Borrower agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent in connection with the preparation, negotiation, syndication, execution, delivery, administration and performance of this Amendment, the Amended Agreement, the other Loan Documents and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of (A) counsel to the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities hereunder and thereunder, and (B) any other consultants or experts that the Administrative Agent reasonably deems necessary or advisable in connection with the foregoing, and (ii) all costs and expenses of the Administrative Agent and each Lender (including, without limitation, reasonable fees and expenses of (A) counsel to the Administrative Agent and counsel for each Lender and (B) any other consultants or experts deemed necessary or advisable by the Administrative Agent) in connection with the enforcement or preservation of rights (whether through negotiations, legal proceedings or otherwise) under this Amendment, the Amended Agreement or any other Loan Document. SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. In furtherance of the foregoing, it is understood and agreed that signatures hereto submitted by facsimile transmission shall be deemed to be, and shall constitute, original signatures. SECTION 7. GOVERNING LAW. This Amendment shall be governed by, and construed in accordance with, the laws of the State of the New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] S-1 IN WITNESS WHEREOF, the parties hereto have caused Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. SIERRA PACIFIC POWER COMPANY By ----------------------------------- Name: Title: UNION BANK OF CALIFORNIA, N.A., as Administrative Agent By ----------------------------------- Name: Title: Signature Page to Amendment No. 1 to SPPC Credit Agreement S-2 LENDERS ------- UNION BANK OF CALIFORNIA, N.A. By ----------------------------------- Name: Title: WELLS FARGO BANK, N.A. By ----------------------------------- Name: Title: BANK ONE, NA By ----------------------------------- Name: Title: BNP PARIBAS By ----------------------------------- Name: Title: By ----------------------------------- Name: Title: MELLON BANK, N.A. By ----------------------------------- Name: Title: Signature Page to Amendment No. 1 to SPPC Credit Agreement S-3 BAYERISCHE LANDESBANK GIROZENTRALE By ----------------------------------- Name: Title: By ----------------------------------- Name: Title: MIZUHO CORPORATE BANK, LTD., formerly known as The Industrial Bank of Japan, Limited By ----------------------------------- Name: Title: LEHMAN COMMERCIAL PAPER INC. By ----------------------------------- Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First Union National Bank By ----------------------------------- Name: Title: Signature Page to Amendment No. 1 to SPPC Credit Agreement S-4 MERRILL LYNCH BANK USA By ----------------------------------- Name: Title: Signature Page to Amendment No. 1 to SPPC Credit Agreement EXHIBIT E --------- PROJECTED/ACTUAL CASH FLOWS [ table ] EX-99.1 11 b43700spexv99w1.txt CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER Exhibit 99.1 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 Quarterly Report of Sierra Pacific Resources, Nevada Power Company, and Sierra Pacific Power Company (the "Companies") on Form 10-Q for the period ending June 30, 2002 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. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the 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 14, 2002 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 Companies for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-99.2 12 b43700spexv99w2.txt CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER Exhibit 99.2 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 Quarterly Report of Sierra Pacific Resources, Nevada Power Company, and Sierra Pacific Power Company (the "Companies") on Form 10-Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis D. Schiffel, Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies. /s/ Dennis D. Schiffel - ------------------------------ Dennis D. Schiffel Chief Financial Officer August 14, 2002 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 Companies for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----