Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Liquidity and Capital Resources
RESOURCE DEVELOPMENT AND CONSTRUCTION PROGRAMS
Every three years Nevada law requires the company to file with the Public
Service Commission of Nevada (PSC) a forecast of electricity demands for the
next 20 years and the company's plans to meet those demands. On September 16,
1991, the PSC approved the company's 1991 Resource Plan, and during 1992 and
1993, the PSC approved the first through fourth amendments to the Resource Plan.
The Resource Plan, as amended and approved in 1992 and 1993, includes the
following major projects:
- - two 90 megawatt (MW) combined-cycle generating units at the Clark Generating
Station, one added in 1993 and one to be added in 1994;
- - the construction of two 70 MW combustion turbine generating units at the Harry
Allen Project site, one unit in 1995 and one unit in 1996. The 1996 Allen
combustion turbine will be subject to a cost comparison of purchased power
resources that are being competitively bid with the least expensive resource
taken as the company's supply choice;
- - a total of 305 MW in purchased power from four qualifying facilities, with
175 MW and 85 MW received beginning in 1992 and 1993, respectively, and 45 MW
expected to be received beginning in 1994;
- - planning costs for a 500 kilovolt (KV) transmission system from the Harry
Allen Substation, located north of the Las Vegas Valley, to Marketplace, a
future 500 KV switching station located near the McCullough Substation south
of the Las Vegas Valley. The company must present final plans on this system
for PSC approval. If PSC approval is received, the transmission system could
be operational by 1998;
- - installation of additional emissions reduction equipment at the Navajo
Generating Station;
- - firm purchased power of 75 MW;
- - the construction of a 230 KV transmission line from Arden Substation, located
southwest of Las Vegas, to Northwest Substation, located northwest of Las
Vegas; and
- - several demand-side pilot projects.
On September 29, 1993, a fifth amendment to the company's 20-year Resource Plan
was filed with the PSC. On February 25, 1994, the PSC approved a stipulation
among the company, PSC Staff, Office of the Consumer Advocate and other
intervenors granting the company's request. The amendment calls for three
purchase power contracts with Southern California Edison, the City of Glendale
and the Salt River Project totaling 160 MWs for the years 1996 to 2000. These
purchase power contracts are a result of the company's 1996 Request for
Proposal for supply-side resources. The stipulation also approved a 50 MW
purchase power contract with Arizona Public Service for the years 1995 to 1997.
The company will file its 1994 Resource Plan on July 1, 1994. As part of
the plan, the company anticipates a portion of the supply-side resources and
demand-side programs to be obtained through a Request For Proposal process.
Budgeted construction expenditures for 1994 and 1995 are $175 million
annually including allowance for funds used during construction.
For the next five years customer growth is estimated to average 5.0
percent per year while demand for electricity is estimated to increase by an
average of 4.3 percent per year.
FINANCIAL STRATEGIES
Nevada Power Company customer growth averaged over 5.1 percent during each of
the three years ended December 31, 1993. To meet the growth forecasted for the
company's service territory for the mid 1990s, the company will continue to
rely upon the financial markets to provide a substantial portion of the funds
to build necessary company-owned facilities.
The company is committed to maintaining shareholder value throughout this
period of continuing rapid growth. To achieve this goal the company will:
- - seek appropriate and timely rate relief from regulators;
- - pursue a balanced financing approach utilizing low cost tax-exempt financing
when possible;
- - maintain ongoing cost containment efforts; and
- - seek legislative and regulatory support when necessary.
16 Nevada Power Company
Cost Containment - The company has and will continue to review all planned
construction and operating expenditures in an effort to reduce the level of
external financing required during this period of rapid growth. Management is
constantly reviewing expenditures in light of its commitment to provide
shareholders with returns that deliver long-term shareholder value, deliver
quality service to customers and provide a reliable supply of electricity at
reasonable prices.
CAPITALIZATION
To meet capital expenditure requirements through 1995, the company will utilize
internally generated cash, the proceeds from industrial development revenue
bonds (IDBs), first mortgage bonds (FMBs), and common stock issues through
public offerings and the Stock Purchase and Dividend Reinvestment Plan (SPP).
New Financing Capacity - Under the tests required by the company's FMBs and the
terms of its preferred stock issues, as of December 31, 1993, the company could
issue up to $379 million of additional FMBs at an assumed interest rate of 8
1/2 percent and up to $371 million of additional preferred stock at an assumed
dividend of 8 1/2 percent.
The company has received PSC approval for authority through December 31,
1994 to issue up to 2 million shares of common stock, $70 million of new
taxable debt and $195 million of fixed rate bonds for the purpose of
refinancing certain existing fixed and floating rate bonds.
Earnings to Interest and Preferred Dividends Coverage - For the year 1993, the
ratio of earnings to interest charges was 3.47 times compared to 2.42 times in
1992. The ratio of earnings to interest charges plus preferred dividends was
3.06 times in 1993 compared to 2.18 times in 1992.
Common Equity - In June 1993, the company sold by public offering 2,700,000
shares of common stock. The net proceeds of $65.7 million were used to reduce
short-term debt which was incurred primarily to construct necessary plant
facilities.
The company has the option to issue new common shares or purchase shares
on the open market to satisfy the needs of the SPP. During 1993, the company
issued $40.8 million of common stock under the SPP. (See Note (a) of "Notes to
Schedules of Capitalization.") At year end, common equity represented 46.0
percent of total capitalization.
Short-Term Debt - The company has received regulatory approval to issue short-
term debt up to $150 million for the period 1992 through 1994 and has a
committed bank line for $125 million which expires on December 31, 1994. The
bank line requires that the company obtain the bank group's approval prior to
incurring additional unsecured debt. The short-term financing is expected to be
utilized to fund some of the company's construction expenditures until long-
term financing is secured. At December 31, 1993, the company had no balance
outstanding on this line.
Long-Term Debt - On June 24, 1992, Clark County, Nevada issued $105 million
6.70% fixed rate 30-year IDBs (Nevada Power Company Project) Series 1992A. Net
proceeds from the sale of the IDBs were placed on deposit with a trustee and
are being used to finance the construction of certain facilities which qualify
for tax-exempt financing. At December 31, 1993, $59.1 million remained on
deposit with the trustee.
REGULATION
Adequate and timely rate relief will be an important factor in determining the
company's ability to finance the major construction program the company faces
over the next few years. Generally, the PSC allows recovery of costs on an
historical basis in setting rates charged to customers for electrical service.
Environmental expenditures made by the company are currently being
recovered through customer rates. Management believes environmental
expenditures will increase over time and the increased costs will also be
recovered as necessary utility expenses. A discussion of pending environmental
matters is contained in Note 7 of "Notes to Financial Statements."
Nevada Power Company 17
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Pending Rate Matters - On February 28, 1994, the company filed requests with
the PSC to recover additional fuel and purchased power costs of $38.5 million
and resource planning costs of $1 million. The energy rate request included
$28.7 million of deferred energy costs for the test period ended November 30,
1993, and $9.8 million to adjust the base energy rate.
On November 19, 1993, the PSC Staff filed a petition with the PSC alleging
that the company may be overearning as much as $17 million annually because
business conditions have changed substantially since the company received its
last general rate case decision in July 1992. On January 10, 1994, the PSC
voted to open an investigation into the company's earnings. Management believes
the company's earnings are within the authorized rate of return granted to the
company in July 1992. Hearings on this proceeding are scheduled to commence in
June 1994.
The company has fully reserved for any negative financial effect related
to a February 6, 1991, proposed order by the PSC which, if adopted, would
require the company to bear the full cost of replacement power and related
expenses resulting from a 1985 accident at the Mohave Generating Station.
Earnings for the fourth quarter of 1990 included an after-tax charge of $12.9
million for this proposed order. On June 17, 1991, the PSC issued another order
setting aside the proposed order and ordered the parties to participate in
joint hearings before the California Public Utilities Commission (CPUC). The
CPUC hearings are now concluded, and the PSC will prepare its own opinion based
on the record created in the CPUC hearings. In January 1994, the administrative
law judge in the CPUC proceeding issued a proposed opinion denying recovery to
Southern California Edison (SCE) of its incremental purchased power costs
resulting from the accident. SCE has filed comments with the CPUC concerning
the proposed decision.
Concluded Rate Matters - Effective February 1, 1994, the PSC granted the
company a $23.6 million increase in the energy portion of customer rates. (See
Note 7 of "Notes to Financial Statements.")
The table below summarizes the rate adjustments that have been granted to
the company during the past three years.
Summary of Rate Adjustments 1991 through 1993
Effective Date Nature of Increase (Decrease) Amount (In millions)
____________________________________________________________________________
Jan. 1, 1991 Energy rate increase $24.4
March 4, 1991 Energy and resource plan rate increase 1.0
Nov. 12, 1991 General rate increase 12.2
Energy rate increase 11.4
July 27, 1992 General rate increase 22.2
Energy and resource plan net rate decrease (26.4)
June 28, 1993 Energy and resource plan net rate increase 42.1
____________________________________________________________________________
DEREGULATION AND COMPETITION
Deregulation of the electric utility industry is accelerating with the
enactment of the National Energy Policy Act of 1992 (Act). Deregulation will
lead to further competition in the industry as generators of power obtain
greater access to transmission facilities linking them to potential new
customers. Most observers believe the electric utility beneficiaries of the Act
will be twofold; those who can provide low cost generation for sale and those
who have strategically located transmission highways that can transmit low cost
power from one area to another.
18 Nevada Power Company
Within the region the company's residential rates are competitive. However,
large industrial customer rates may require adjustment to remain competitive in
the changing environment. In recognition of the changing regional competitive
environment, the company is focusing on the costs of serving various classes of
customers and the appropriate rates to be charged based on those costs of
service. The company will seek through the PSC any rate adjustments necessary
to maintain a competitive position.
An opportunity exists given the company's strategic location in the center
of a region of price diversity. As generators arrange for sales of electricity
to customers in other areas, much of the power may need to be transmitted
through the company's service territory. The company would have an opportunity
to charge generators for the transmission of energy through its system. The
company is studying the feasibility of constructing additional cost effective
transmission facilities to maximize the advantage of its strategic location.
OTHER
In September 1993, as a part of a comprehensive organizational study, the
company offered a voluntary early retirement package to 175 employees who would
be at least 55 years of age, and have completed at least 10 years of service by
March 31, 1994. A total of 109 employees, or approximately 6 percent of the
work force, accepted the package. In October 1993, the company's Board of
Directors unanimously approved a new organization structure that realigns
functions to improve operations and customer service. The company expects that
the net result from the change in organizational structure will be a leaner
work force that operates more efficiently and makes the company more
competitive in a changing electric energy industry. At December 31, 1993,
organizational study, early retirement and severance costs of $6.7 million are
included in other deferred charges. (See Note 8 of "Notes to Financial
Statements.")
The company and the International Brotherhood of Electrical Workers Local
396 signed new Collective Bargaining Agreements for the company's plant and
clerical employees in January and February 1994, respectively. The four-year
plant and clerical agreements, effective February 1 and May 1, 1994,
respectively, each provide for base wage increases of 4% in 1994, 3.5% in 1995,
3.25% in 1996 and a 4% lump sum increase in 1997.
The company has adopted Statement of Financial Accounting Standards No.
106 (FAS 106), Employers' Accounting for Postretirement Benefits Other Than
Pensions (See Note 3 of "Notes to Financial Statements") and No. 109 (FAS 109),
Accounting for Income Taxes (See Note 2 of "Notes to Financial Statements")
effective January 1, 1993. The increase in 1993 of other deferred charges and
other deferred credits primarily reflects adjustments related to the adoption
of FAS 106 and FAS 109. (See Note 8 of "Notes to Financial Statements.")
In March 1994, the company resolved certain litigation and bought out the
remaining obligation under a coal purchase contract. The company's portion of
the settlement and buyout is $15.25 million. Management believes the cost of
the buyout will be recovered through Nevada's deferred energy accounting
procedures. (See Note 7 of "Notes to Financial Statements.")
Results of Operations
GENERAL
In 1993, earnings increased, as compared to 1992, due primarily to higher
revenues resulting from an increase in general rates effective July 1992 and an
increase in kilowatthour sales. In 1992, earnings increased, as compared to
1991, due primarily to higher revenues resulting from two increases in general
rates effective November 1991 and July 1992.
Average shares of common stock outstanding for 1993 increased by 3.8
million shares compared to 1992, as a result of public offerings of 2.7 million
shares in June of 1993 and 2.99 million shares in April 1992.
REVENUES
Revenues during 1993, 1992 and 1991 were $652 million, $601 million and $546
million, respectively. The 8.5 percent increase in 1993, as compared to 1992,
was a result of a 5.8 percent increase in kilowatthour sales and an increase in
energy rates effective June of 1993.
The 10 percent increase in 1992, as compared to 1991, was a result of a
7.2 percent increase in kilowatthour sales and increases in general and energy
rates effective November 1991.
Nevada Power Company 19
Management's Discussion and Analysis
Of Financial Condition and Results of Operations
Increase (Decrease) in Revenue From Prior Year
Nature of Increase (Decrease) (In millions) 1993 1992 1991
_______________________________________________________________________________
Kilowatthour sales $28.2 $37.7 $19.1
General rate changes 12.3 20.5 (0.3)
Deferred energy adjustments (13.3) (5.3) 5.4
Fuel cost base rate changes 22.4 0.4 26.9
Resource plan cost changes and other 1.3 1.2 3.0
-------------------------
Total increase $50.9 $54.5 $54.1
=========================
_______________________________________________________________________________
FUEL AND PURCHASED POWER
In 1993, as compared to 1992, and in 1992, as compared to 1991, purchased power
expense increased 21.1 percent and 51.6 percent, respectively, due to increased
purchases from qualifying facilities.
Effective June 28, 1993, the PSC granted the company a $44.2 million
increase in the energy portion of customer rates, and effective July 27, 1992,
the PSC granted the company a $28.3 million decrease in energy rates.
During 1993, the company deferred $48.5 million of increased energy costs
for collection in a later period and collected $17 million of energy cost
increases which had previously been deferred. During 1992, the company deferred
$39.5 million of increased energy costs for collection in a later period and
collected $26.6 million of energy cost increases which had previously been
deferred. Recovery of fuel expenses is administered under the state's deferred
energy cost accounting procedures. (See Note 1 of "Notes to Financial
Statements.") Under the deferred energy procedure, changes in the costs of fuel
and purchased power are reflected in customer rates through annual rate
adjustments and do not affect earnings.
The following tables summarize the source of kilowatthours sold, the
percentage of company generated kilowatthours by fuel source and fuel costs per
kilowatthour.
1993 1992 1991
_______________________________________________________________________________
Source of Kilowatthours Sold
Company generation 49% 49% 55%
Hoover Dam hydroelectric 4 4 5
Purchased power 47 47 40
---------------------------------
100% 100% 100%
=================================
Company Generated Kilowatthours
By Fuel Source
Coal 93% 94% 94%
Natural Gas 7 5 5
Oil - 1 1
---------------------------------
100% 100% 100%
=================================
Fuel Costs Per Kilowatthour
Coal 1.61 cents 1.63 cents 1.56 cents
Natural Gas 2.98 3.83 3.53
Oil 4.21 4.74 6.42
_______________________________________________________________________________
20 Nevada Power Company
OTHER OPERATING EXPENSES AND TAXES
Other operations expense increased by $5.5 million in 1993, as compared with
1992, primarily due to an increase in administrative and general expenses
resulting mainly from increased labor costs, computer system conversion costs
and an increase in the provision for uncollectible accounts.
The $7.2 million increase in other operations expense for 1992 was due
mainly to an increase in employee medical benefit costs, employee pension
expenses and an increase in resource planning costs.
The level of maintenance and repair expenses depends primarily upon the
scheduling, magnitude and number of unit overhauls at the company's generating
stations. During 1993, these expenses decreased by $2.5 million due primarily
to lower maintenance costs at the Reid Gardner and Navajo Generating Stations.
During 1992, as compared to 1991, these expenses decreased by $10 million due
to major maintenance expenses at the Reid Gardner and Mohave Generating
Stations in 1991.
Depreciation expense increased $3.9 million in 1993 and $4.3 million in
1992 primarily because of a growing electric plant asset base. In addition, the
average annual depreciation rate increased from approximately 2.8 percent to
2.9 percent effective November 1991.
General taxes increased by $2.3 million in 1993 primarily due to higher
assessed property values and rates for property tax purposes.
OTHER INCOME AND EXPENSES
Other miscellaneous, net includes a charge of $3.2 million net of tax in the
fourth quarter of 1993 for a write-off of costs related to environmental and
engineering studies for the cancelled coal-fired White Pine Power Project. A
rate decision by the PSC on January 24, 1994, resulted in a write-off of $2
million net of tax in the fourth quarter of 1993 for previously deferred energy
costs. (See Note 7 of "Notes to Financial Statements.")
Other miscellaneous, net includes a charge of $2.6 million net of tax in
the fourth quarter of 1992 for a write-off of costs related to the property
loss on a faulty cooling tower at the company's Reid Gardner Generating Station
unit 4 and associated legal fees. On August 4, 1992, the PSC issued an order
resulting in a write-off of $2.4 million net of tax for previously deferred
energy costs.
On November 26, 1991, the PSC issued an order associated with requests by
the company for a general rate increase and an increase to recover certain fuel
and purchased power costs. The PSC order resulted in write-offs during the
fourth quarter of 1991 to other miscellaneous, net which included a charge of
$1.9 million net of tax applicable to a cancelled coal-fired generating station
as well as a charge of $2.3 million net of tax for deferred energy costs.
FINANCING EXPENSES
Interest on long-term debt increased $2.0 million in 1992, as compared to 1991,
primarily as a result of interest on IDBs issued in June 1992, offset partially
by lower interest costs on several issues of long-term debt refinanced at lower
interest rates and interest income on IDB proceeds held in trust.
Other interest expenses decreased by $1.3 million during 1992, as compared
to 1991, because of less short-term borrowing.
Nevada Power Company 21
Statements of Income
For the Years Ended Dec. 31,
(In thousands, except per share amounts) 1993 1992 1991
______________________________________________________________________________
Electric Revenues (Notes 1 and 7) $651,772 $600,915 $546,411
----------------------------
Operating Expenses and Taxes:
Fuel 98,701 96,563 98,084
Purchased and interchanged power 242,803 200,344 132,117
Deferred energy cost adjustments,
net (Note 1) (31,490) (12,834) 38,533
----------------------------
Net energy costs 310,014 284,073 268,734
Other production operations 17,715 17,594 17,795
Other operations 83,158 77,697 70,454
Maintenance and repairs 35,379 37,911 47,928
Provision for depreciation (Note 1) 43,358 39,450 35,148
General taxes (Note 2) 16,401 14,093 12,727
Federal income taxes (Notes 1 and 2) 37,278 29,975 16,198
----------------------------
543,303 500,793 468,984
----------------------------
Operating Income 108,469 100,122 77,427
----------------------------
Other Income (Expenses):
Allowance for other funds used
during construction (Note 1) 9,880 8,251 4,172
Other miscellaneous, net (Note 7) (5,496) (10,127) (6,285)
----------------------------
4,384 (1,876) (2,113)
----------------------------
Income Before Interest Deductions 112,853 98,246 75,314
----------------------------
Interest Deductions:
Interest on long-term debt 43,173 43,500 41,518
Other interest 1,931 2,185 3,468
Allowance for borrowed funds used
during construction (Note 1) (5,799) (4,219) (4,848)
----------------------------
39,305 41,466 40,138
----------------------------
Net Income 73,548 56,780 35,176
Dividend Requirements
on Preferred Stock 3,986 4,262 2,880
----------------------------
Earnings Available for
Common Stock $ 69,562 $ 52,518 $ 32,296
============================
Weighted Average Common
Shares Outstanding 39,482 35,652 30,855
============================
Earnings per Average Common Share $ 1.76 $ 1.47 $ 1.05
============================
See Notes to Financial Statements.
______________________________________________________________________________
22 Nevada Power Company
Statements of Retained Earnings
For the Years Ended Dec. 31, (In thousands) 1993 1992 1991
_______________________________________________________________________________
Balance at Beginning of Period $102,493 $107,516 $123,963
Add - Net Income 73,548 56,780 35,176
--------------------------------
176,041 164,296 159,139
--------------------------------
Deduct:
Dividends paid in cash:
Cumulative preferred stock -
5.40%, 5.20% and 4.70% Series 224 233 243
9.90% Series (Note 6) 3,762 4,572 2,264
Common stock 62,696 56,998 49,116
--------------------------------
66,682 61,803 51,623
--------------------------------
Balance at End of Period $109,359 $102,493 $107,516
================================
See Notes to Financial Statements.
_______________________________________________________________________________
Nevada Power Company 23
Balance Sheets
December 31, (In thousands) 1993 1992
_____________________________________________________________________________
Assets
Electrical Plant, at Original Cost (Notes 1, 7 and 9):
Production $ 681,527 $ 588,493
Transmission 277,543 263,807
Distribution 594,874 536,644
General 84,616 77,402
-----------------------
1,638,560 1,466,346
Less accumulated depreciation 451,302 410,963
-----------------------
Net plant in service 1,187,258 1,055,383
Construction work in progress 167,652 172,092
Property under capital leases 91,517 96,753
Plant held for future use 3,719 4,442
-----------------------
1,450,146 1,328,670
-----------------------
Investments (Notes 1 and 7) 21,822 19,339
-----------------------
Current Assets:
Cash and temporary cash investments 145 160
Customer receivables -
Billed 37,270 33,988
Unbilled (Note 1) 13,000 9,945
Reserve for doubtful accounts (1,125) (803)
Other receivables (Note 7) 15,465 7,139
Fuel stock, at average cost 16,613 21,717
Materials and supplies, at average cost (Note 8) 23,714 24,099
Deferred energy costs (Notes 1 and 7) 74,033 24,708
Prepayments 8,313 9,151
-----------------------
187,428 130,104
-----------------------
Deferred Charges:
Debt expense, being amortized 28,645 25,503
Accumulated deferred taxes on proposed refund of
recovered energy costs - Mohave accident (Note 7) 5,417 6,055
Other (Note 8) 115,879 47,369
-----------------------
149,941 78,927
-----------------------
$1,809,337 $1,557,040
=======================
See Notes to Financial Statements.
_____________________________________________________________________________
24 Nevada Power Company
December 31, (In thousands) 1993 1992
______________________________________________________________________________
Capitalization and Liabilities
Capitalization
(See Schedules of Capitalization
and Long-Term Debt):
Common shareholders' equity $ 645,924 $ 532,473
Redeemable cumulative preferred stock 38,000 38,000
Cumulative preferred stock with
mandatory sinking funds 4,264 4,464
Long-term debt 716,589 715,451
-------------------------
1,404,777 1,290,388
-------------------------
Current Liabilities:
Notes payable (Note 7) 25,000 -
Current maturities and sinking fund requirements
(See Schedules of Capitalization
and Long-Term Debt) 7,496 15,345
Accounts payable, including salaries and wages 70,098 46,357
Accrued taxes (1,131) 1,375
Accrued interest 6,212 7,178
Customers' service deposits 12,069 11,816
Accumulated deferred taxes on deferred energy costs 20,574 7,264
Other (Note 8) 19,372 6,716
-------------------------
159,690 96,051
-------------------------
Commitments and Contingencies (Note 7)
Deferred Credits and Other Liabilities:
Accumulated deferred investment tax credits (Note 1) 35,384 36,687
Accumulated deferred taxes on income (Note 2) 126,133 84,097
Customers' advances for construction 28,455 26,803
Proposed refund of recovered energy
costs - Mohave accident (Note 7) 16,698 15,113
Other (Note 8) 38,200 7,901
-------------------------
244,870 170,601
-------------------------
$1,809,337 $1,557,040
=========================
See Notes to Financial Statements.
______________________________________________________________________________
Nevada Power Company 25
Schedules of Capitalization
December 31, (Dollars in thousands) 1993 1992
_____________________________________________________________________________
Common Shareholders' Equity (a,c):
Common stock, $1 par value, authorized
70,000,000 shares; issued 41,505,195
and 37,132,817 shares at December 31,
1993 and 1992; stated at $ 44,709 $ 40,337
Premium on capital stock 496,367 393,401
Unamortized capital stock expense (4,511) (3,758)
Retained earnings 109,359 102,493
-----------------------------------
Total common shareholders' equity 645,924 46.0% 532,473 41.3%
-----------------------------------
Redeemable Cumulative Preferred Stock (b):
$20 par value, authorized 4,500,000 shares
for all series; Outstanding at December
31, 1993 and 1992: 9.90% Series,
1,900,000 shares 38,000 38,000
-----------------------------------
Total 38,000 2.7 38,000 3.0
-----------------------------------
Cumulative Preferred Stock with
Mandatory Sinking Funds (b):
Outstanding at December 31, 1993 and 1992:
5.40% Series, 46,669 and 48,669 shares 934 974
5.20% Series, 44,507 and 46,507 shares 890 930
4.70% Series, 132,000 and 138,000 shares 2,640 2,760
-----------------------------------
4,464 4,664
Current sinking fund requirement (200) (200)
-----------------------------------
Total 4,264 0.3 4,464 0.3
-----------------------------------
Long-Term Debt (See Schedules of
See Schedules of Long-Term Debt) 716,589 51.0 715,451 55.4
-----------------------------------
Total capitalization $1,404,777 100.0% $1,290,388 100.0%
===================================
_____________________________________________________________________________
26 Nevada Power Company
Notes to Schedules of Capitalization
(a) The changes in common stock shares for 1991, 1992 and 1993 are as
follows:
Shares
________________________________________________________________________________
Outstanding, December 31, 1990 28,912,228
Issued through public offering 3,000,000
Issued under 401(k) Savings Plan 30,870
Issued under Stock Purchase and
Dividend Reinvestment Plan 1,032,369
----------
Outstanding, December 31, 1991 32,975,467
Issued through public offering 2,990,000
Issued under 401(k) Savings Plan 27,644
Issued under Stock Purchase and
Dividend Reinvestment Plan 1,139,706
----------
Outstanding, December 31, 1992 37,132,817
Issued through public offering 2,700,000
Issued under 401(k) Savings Plan 32,052
Issued under Stock Purchase and
Dividend Reinvestment Plan 1,640,326
----------
Outstanding, December 31, 1993 41,505,195
==========
_______________________________________________________________________________
Premium on capital stock increased $103 million, $73.9 million and $66.8
million during 1993, 1992 and 1991, respectively, due to issue of common
stock.
Cash dividends paid per share on common stock were $1.60 each year during
1993, 1992 and 1991.
(b) The Redeemable Cumulative Preferred Stock, 9.90% Series is redeemable at
the option of the company, as a whole or in part, on April 1, 1997, and
is subject to mandatory redemption in its entirety on April 1, 2002.
(See Note 6 of "Notes to Financial Statements.")
Under the provisions of the 4.70%, 5.20% and 5.40% series cumulative
preferred stock with mandatory sinking funds, the company is obligated
to use its best efforts to purchase, each year, up to an aggregate of
6,000, 2,000 and 2,000 shares, respectively, at prices not in excess
of $20.00 per share. The obligations are not cumulative.
The 5.20% series and 5.40% series are presently redeemable at the option
of the company at $21.00 per share and the 4.70% series at $20.25 per
share.
(c) In October 1990, the company adopted a Stockholder Rights Plan and
declared a dividend of one stock purchase right for each outstanding
share of common stock. (See Note 6 of "Notes to Financial Statements.")
Nevada Power Company 27
Schedules of Long-Term Debt
December 31, (In thousands) 1993 1992
_________________________________________________________________________
Long-Term Debt (a)
(Note 5 to Financial Statements):
First mortgage bonds (b):
7 1/8% Series I due 1998 $ 15,000 $ 15,000
7 5/8% Series L due 2002 15,000 15,000
7 1/8% Series N due 2006 13,000 13,000
6 3/4% Series O due 2007 7,100 7,500
8 3/4% Series P due 1995 423 445
9 3/8% Series S due 2016 - 52,000
7.80% Series T due 2009 15,000 15,000
6.92% Series U due 1995 50,000 50,000
6.70% Series V due 2022 105,000 105,000
6.60% Series W due 2019 39,500 39,500
7.20% Series X due 2022 78,000 78,000
6.93% Series Y due 1999 45,000 45,000
8.50% Series Z due 2023 45,000 -
--------------------------
428,023 435,445
Industrial development revenue bonds (c):
7.80% due 2020 100,000 100,000
Floating rate weekly demand -
Due 2015 44,000 44,000
Due 2018 25,000 25,000
Due 2019 60,000 60,000
Less funds held in trust (59,051) (65,285)
6 3/8% pollution control revenue bonds
due 2004 (d) 16,000 17,000
Obligations under capital leases 109,968 114,501
--------------------------
723,940 730,661
Debt premium and discount, being amortized (55) (65)
Current maturities and sinking fund
requirements (7,296) (15,145)
--------------------------
Total long-term debt $716,589 $715,451
==========================
_________________________________________________________________________
28 Nevada Power Company
Notes to Schedules of Long-Term Debt
(a) The amounts of long-term debt maturities, including sinking fund
requirements, are $7.3 million in 1994, $57.3 million in 1995, $8
million in 1996, $7.9 million in 1997 and $7.3 million in 1998,
including $5.6 million, $5.2 million, $5.3 million, $5.2 million
and $4.5 million for obligations under capital leases, respectively.
None of the long-term debt is held by or for the account of the
company.
(b) Generally, electric plant is subject to the first mortgage lien.
It is the company's intention to meet the sinking fund requirement
for its series I and L first mortgage bonds by pledging property
additions in lieu of cash payments.
The N, O and P series first mortgage bonds provide for annual payments
sufficient to ratably retire the respective series by their final due
dates. Payments on the N series do not commence until 1996.
The series N, O, T, V, W and X first mortgage bonds correspond with
respect to their terms to four series of collateralized pollution control
revenue bonds and two series of industrial development revenue bonds
issued by various municipal authorities.
(c) The fixed rate industrial development bonds and floating rate
industrial development bonds were issued by Clark County, Nevada and
are guaranteed as to payment of principal and interest by the company.
(d) The indenture for the 6 3/8% pollution control revenue bonds due 2004
provides for annual sinking fund payments of $1 million to and including
March 1, 2003 and a final payment of $6 million on March 1, 2004.
Nevada Power Company 29
Statements of Cash Flows
For the Years Ended Dec. 31,
(In thousands) 1993 1992 1991
__________________________________________________________________________
Cash Flows from Operating Activities:
Net income $ 73,548 $ 56,780 $ 35,176
Adjustments to reconcile net
income to net cash provided -
Depreciation and amortization 55,139 47,356 44,686
Deferred income taxes and
investment tax credits 16,504 12,030 (9,536)
Allowance for other funds
used during construction (9,880) (8,251) (4,172)
Changes in -
Receivables (4,591) (2,635) (339)
Fuel stock and materials and supplies 5,490 5,928 (8,104)
Accounts payable and other
current liabilities 27,290 17,296 676
Deferred energy costs (37,766) (8,916) 40,466
Accrued taxes and interest 1,868 (14,683) 439
Other assets and liabilities 3,343 2,473 1,013
---------------------------------
Net cash provided by operating
activities 130,945 107,378 100,305
---------------------------------
Cash Flows from Investing Activities:
Construction expenditures and
gross additions (163,257) (171,074) (151,089)
Investment in subsidiaries and other (2,828) (4,531) (2,851)
Salvage net of removal cost 227 405 1,798
---------------------------------
Net cash used in investing
activites (165,858) (175,200) (152,142)
---------------------------------
Cash Flows from Financing Activities:
Sale of capital stock 107,329 78,066 70,814
Sale of long-term debt 45,000 317,500 -
Change in funds held in trust 6,234 (21,135) 6,612
Retirement of preferred stock
and long-term debt (59,405) (175,745) (9,043)
Increase (decrease) in short-term
borrowing - (71,000) 34,110
Cash dividends (66,883) (60,596) (51,532)
Other financing activities 2,623 738 845
---------------------------------
Net cash provided by financing
activities 34,898 67,828 51,806
---------------------------------
Cash and Temporary Cash Investments(Note 1):
Net increase (decrease) during the period (15) 6 (31)
Beginning of period 160 154 185
--------------------------------
End of period $ 145 $ 160 $ 154
================================
Cash Paid During the Period for:
Interest, net of amounts capitalized $ 57,140 $ 55,926 $ 48,919
================================
Income taxes $ 18,001 $ 13,793 $ 22,771
================================
See Notes to Financial Statements.
__________________________________________________________________________
30 Nevada Power Company
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
For ratemaking and other purposes, the company is subject to the
jurisdiction of the PSC and the Federal Energy Regulatory Commission (FERC).
The accounting records of the company are maintained in accordance with the
uniform system of accounts prescribed by the FERC and adopted by the PSC.
Electric Revenues - The company bills its customers monthly on a cycle basis
and recognizes the estimated amount of revenue applicable to kilowatthours of
energy sold but not yet billed at the end of an accounting period.
Deferred Energy Cost Adjustments - As permitted by state statute, the
company defers differences between the current cost of fuel plus net
purchased power and base energy costs as defined. Any over or under
recoveries are deferred in the balance sheet as a current asset or current
liability. Under regulations adopted by the PSC, deferred energy rates are
revised at least every 12 months to clear the accumulated deferred balance
over a future period.
Electric Plant - The costs of betterments and additions to electric plant and
replacements of retirement units of property are capitalized. Such costs
include labor, payroll taxes, material, transportation, an allowance for
funds used during construction and, where applicable, property taxes.
Maintenance is charged with the cost of repairs and minor replacements.
Accumulated depreciation is charged for the cost of plant retired, less net
salvage.
Depreciation has been provided for financial statement purposes on a
straight-line basis at rates based upon the estimated useful lives of the
various classes of plant. The provisions for depreciation during the first
ten months of 1991 were equivalent to an annual rate of approximately 2.8
percent of the average gross investment in depreciable plant. Effective
November 1991, as authorized by the PSC, the annual depreciation rate was
increased to approximately 2.9 percent.
Allowance for Funds Used During Construction - The allowance for funds used
during construction (AFUDC) represents the estimated costs of borrowed and
equity funds applicable to electric plant construction.
The FERC has prescribed a specific computational method for determining
the AFUDC rate. The PSC has authorized the AFUDC rate to be the lesser of the
rate determined under the FERC computational method or the rate equivalent to
the overall rate of return authorized by the PSC. Through December 31, 1992,
the company used a rate of 10.02 percent to calculate AFUDC on construction
work in progress as authorized by the PSC, effective July 1992. In January
1993, the company began using an AFUDC rate as calculated under the FERC
computational method which averaged 9.88 percent for 1993.
Recently Issued Accounting Standards - In November 1992, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 112 (FAS 112), Employers' Accounting for Postemployment Benefits which is
effective for years beginning after December 15, 1993. FAS 112 established
accounting standards for employers who provide benefits to former or inactive
employees after employment but before retirement (postemployment benefits).
The company is currently analyzing the provisions of FAS 112 and believes that
application of the new standard will not have a material impact on the
company's results of operations or financial position.
Federal Income Taxes - Effective January 1, 1993, the company adopted
the provisions of FAS 109, Accounting for Income Taxes. FAS 109 requires
recognition of deferred tax liabilities and assets for the future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. The cumulative effect of the
change in accounting for income taxes is not material to net income.
In November 1991, the PSC issued an order which allows the company to
recover the previously flowed through tax benefits ratably over the estimated
remaining book life of the plant. Calculated at current rates, approximately $38
million of income taxes will be allowed in future rates.
Nevada Power Company 31
Notes to Financial Statements
Investment tax credits earned have been deferred and are being amortized
to income ratably over the estimated service lives of the related property.
Cash Flow Information - Cash equivalents, which generally are convertible to
cash at par on short notice and mature three months or less from the date of
acquisition, are reported as temporary cash investments.
The company had no material non-cash investing or financing transactions
during 1993 or 1992. During 1991, a capital lease obligation of $83 million
was incurred when the company entered into a power purchase contract with
Mission Energy Company.
Other Accounting Policies - The company uses the equity method of accounting
to report immaterial investments in subsidiaries.
Disclosure by the company of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (FAS 107), Disclosures about Fair
Value of Financial Instruments. At December 31, 1993 and 1992, the provisions
of FAS 107 apply only to the company's long-term debt and redeemable
cumulative preferred stock. (See Notes 5 and 6 of "Notes to Financial
Statements.")
In 1993, the company adopted the provisions of FAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, which requires
accrual of postretirement benefits during the years an employee provides
services. (See Notes 3 and 8 of "Notes to Financial Statements.")
Certain amounts in prior periods have been reclassified to conform to
the financial statement presentation for December 31, 1993.
Note 2 - Federal Income and Other Taxes
The total federal income tax expense as set forth in the accompanying
Statements of Income results in an effective federal income tax rate
different than the statutory federal income tax rate for the following
reasons:
Years Ended Dec. 31,
(Dollars in thousands) 1993 1992 1991
______________________________________________________________________________
Federal income tax
at statutory rate $39,625 35.0% $29,241 34.0% $17,057 34.0%
Adjustments:
Investment tax credit
amortization (1,303) (1.2) (1,618) (1.9) (1,618) (3.2)
Other items 1,344 1.2 1,600 1.9 (446) (0.9)
--------------------------------------------------
Total recorded federal
income tax $39,666 35.0% $29,223 34.0% $14,993 29.9%
==================================================
Federal income taxes
included in:
Operating expenses $37,278 $29,975 $16,198
Other income, net 2,388 (752) (1,205)
--------------------------------------------------
$39,666 $29,223 $14,993
==================================================
______________________________________________________________________________
32 Nevada Power Company
The current and deferred components of federal income taxes included
in operating expenses are as follows:
Years Ended Dec. 31, (In thousands) 1993 1992 1991
_________________________________________________________________________
Current federal income taxes $20,680 $18,213 $25,753
-----------------------------------
Deferred federal income taxes:
Depreciation differences 8,899 13,823 8,127
Deferred energy costs 11,765 (434) (12,601)
Contributions in aid of
construction (1,732) (1,437) (806)
Coal contract buyout (945) (1,009) (1,009)
Other - net (86) 2,437 (1,648)
-----------------------------------
17,901 13,380 (7,937)
-----------------------------------
Investment tax credit amortization (1,303) (1,618) (1,618)
-----------------------------------
Total $37,278 $29,975 $16,198
===================================
_________________________________________________________________________
General taxes charged to operating expenses are as follows:
Years Ended Dec. 31, (In thousands) 1993 1992 1991
_________________________________________________________________________
Real estate and personal property $11,338 $ 9,408 $ 8,185
Payroll 4,748 4,285 4,083
Other 315 400 459
-----------------------------------
Total $16,401 $14,093 $12,727
===================================
_________________________________________________________________________
The company adopted FAS 109, Accounting for Income Taxes, effective January 1,
1993. As a result, the company's December 31, 1993 balance sheet contains a net
regulatory asset of $14 million. (See Note 8 of "Notes to Financial
Statements.")
The regulatory liability for temporary differences related to liberalized
depreciation will continue to be amortized using the average rate assumption
method required by the Tax Reform Act of 1986. The regulatory liability for
temporary differences caused by investment tax credits will be amortized
ratably in the same fashion as the accumulated deferred investment credit under
former Internal Revenue Code Section 46(f)(2).
Nevada Power Company 33
Notes to Financial Statements
The net accumulated deferred federal income tax liability consists of
accumulated deferred federal income tax liabilities less accumulated deferred
federal income tax assets related to:
Years ended Dec. 31, (In thousands) 1993 1992
________________________________________________________________________
Accumulated deferred federal income tax
liabilities:
Temporary basis differences - plant $ (33,058) $ -
Investment tax credits (35,384) (36,687)
Excess of tax depreciation over
book depreciation (83,309) (75,214)
Coal contract buyout (2,251) (3,196)
Accrued taxes (1,985) (2,418)
Deferred energy (20,574) (7,264)
Demand-side program costs (3,686) (1,072)
Other (1,844) (2,197)
------------------------
Total (182,091) (128,048)
------------------------
Accumulated deferred federal income tax
assets:
Unamortized investment tax credits 19,053 -
Refundable customer advances 9,867 8,800
Purchased power 5,417 6,055
Nonrefundable contributions in aid
of construction 2,510 3,497
Capitalized expenses 1,439 1,556
Other 1,949 1,916
-----------------------
Total 40,235 21,824
-----------------------
Net accumulated deferred tax liability $(141,856) $(106,224)
=======================
________________________________________________________________________
Note 3 - Employee Benefits
Employee Welfare Benefit Plans - The company provides certain health, dental,
vision care and long-term disability benefits to employees through plans
administered under a Voluntary Employee's Beneficiary Association (VEBA)
Trust. Currently, substantially all of the costs of the benefit programs for
employees are borne by the company. Effective August 1, 1994, current
employees will begin paying 10% of the cost of providing health, dental and
vision benefits.
The cost of the benefit plans was approximately $10.3 million, $9.3
million and $8.2 million, during 1993, 1992 and 1991, respectively. The
programs also provide benefits to retired employees who elect to continue
coverage by paying the applicable premiums. (See "Postretirement Benefits
Other Than Pensions" below.)
Defined Contribution Retirement Plan - The company maintains an employee
investment plan (401(k) Plan) which was established January 1, 1990, under
Section 401(k) of the Internal Revenue Code. Employees who are at least 21
years old and who have completed one year of eligibility service may become
"participants" in the 401(k) Plan. The company matched 50 percent in 1993,
1992 and 1991 of any Management, Professional, Administrative and Technical
participant's contributions to the 401(k) Plan not to exceed 3 percent of the
participant's annual compensation. In 1993, 1992 and 1991, the company matched
25 percent of any union-represented participant's contributions to the 401(k)
Plan not to exceed 1.5 percent of the participant's annual compensation. All
company contributions are invested in common stock of the company. The amounts
expensed for company matching contributions to the 401(k) Plan were $921,000
for 1993, $629,000 for 1992 and $581,000 for 1991.
34 Nevada Power Company
Defined Benefit Retirement Plan - The company has a non-contributory defined
benefit retirement plan (PLAN) designed to meet the provisions of the
Employee Retirement Income Security Act of 1974. All full-time employees age
21 and over with one year of service are covered by the PLAN. Benefits under
the PLAN are dependent upon each participant's salary for the highest
consecutive 60 months of service and length of service.
The company also has a Supplemental Executive Retirement Plan (SERP) in
addition to the regular PLAN. Participation is limited to such officers as
the Board of Directors may select. Presently, 27 active or retired designated
officers and employees participate in the SERP. The SERP will be funded as
benefits are disbursed.
The table below sets forth the funded status and amounts recognized in
the company's financial statements at December 31, 1993, 1992 and 1991 for
both the PLAN and SERP.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligations
for both the PLAN and SERP were 7.25 percent and 4.50 percent in 1993, and 8.25
percent and 5 percent in 1992 and 1991, respectively. The expected rate of
return on PLAN assets was 8.5 percent in 1993, 1992 and 1991. PLAN assets are
primarily invested in listed stocks, fixed income securities and federal
agencies securities.
Reconciliation of Funded Status
PLAN SERP
___________________________ ____________________________
Years Ended Dec. 31,
(In thousands) 1993 1992 1991 1993 1992 1991
______________________________________________________________________________
Actuarial present
value of:
Vested benefit
obligation $54,434 $40,592 $32,458 $ 3,854 $ 2,814 $ 2,174
Nonvested benefit
obligation 3,875 4,217 3,312 514 375 345
----------------------------------------------------------
Accumulated benefit
obligation $58,309 $44,809 $35,770 $ 4,368 $ 3,189 $ 2,519
==========================================================
Projected benefit
obligation $80,575 $63,121 $56,032 $ 4,837 $ 3,452 $ 2,569
Plan assets
at fair value 60,236 54,575 49,494 - - -
----------------------------------------------------------
Plan assets
less than projected
benefit obligation (20,339) (8,546) (6,538) (4,837) (3,452) (2,569)
Unrecognized net
transition
obligation amortized
over approximately
nine years - - - 129 303 478
Unrecognized prior
service costs 5,577 6,005 6,433 412 166 (300)
Unrecognized net
(gain) loss 8,949 2,925 (822) 1,267 209 84
----------------------------------------------------------
Pension asset
(liability) $(5,813) $ 384 $ (927) $(3,029) $(2,774) $(2,307)
==========================================================
Net pension expense was
comprised of the following:
Service cost $ 3,284 $ 3,147 $ 2,884 $ 67 $ 76 $ 29
Interest cost on
projected benefit
obligation 5,243 4,900 4,334 297 278 211
Return on plan
assets (5,371) (1,739) (8,301) - - -
Net amortization
and deferral 1,021 (2,117) 2,862 197 331 268
----------------------------------------------------------
Net periodic
pension cost $ 4,177 $ 4,191 $ 1,779 $ 561 $ 685 $ 508
==========================================================
______________________________________________________________________________
Nevada Power Company 35
Notes to Financial Statements
Postretirement Benefits Other Than Pensions - The company adopted FAS 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions,
effective January 1, 1993. The costs of these benefits have been expensed on
a pay-as-you-go basis prior to the company adopting FAS 106. In July 1992,
the PSC authorized the company to continue recognizing these benefit costs
on a pay-as-you-go basis after adopting FAS 106 and to record any difference
in costs resulting from the implementation of FAS 106 as a deferred asset.
The company has elected to amortize its transition obligation at January 1, 1993
over a period of 20 years.
The company provides postretirement medical, dental and vision benefits to
employees who have retired or will retire and are eligible for an immediate
pension benefit. The postretirement health care plan is contributory, and
retirees' contributions can be adjusted annually for increases in the cost of
providing the benefits.
Net periodic postretirement benefit cost for the year ended December 31,
1993 included the following components:
(In thousands) 1993
_______________________________________________________________________
Service cost benefit earned during the year $ 614
Interest cost on projected benefit obligation 1,881
Amortization of transition obligation 1,166
------
Net periodic postretirement benefit cost $3,661
======
_______________________________________________________________________
A reconciliation of the funded status of the plan to the amounts recognized
in the Balance Sheet as of December 31, 1993 is as follows:
(In thousands) 1993
_______________________________________________________________________
Retirees $(10,270)
Fully eligible active employees (8,749)
Other active employees (6,777)
--------
Accumulated postretirement benefit obligation (25,796)
Unrecognized transition obligation 22,149
Unrecognized loss 542
--------
Accrued postretirement benefit cost liability $ (3,105)
========
_______________________________________________________________________
The medical cost trend rate assumed for 1994 was 10.25 percent, grading down
to 4.75 percent in 2001 and remaining at that level thereafter. The health
care cost trend rate has a significant effect on the accumulated postretire-
ment benefit obligation and net periodic cost. A one-percentage-point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation at December 31, 1993 by $1.9
million and would increase the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1993 by $149,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1993 was 7.25 percent.
Note 4 -Short-Term Borrowings
The company has a $125 million bank revolving credit facility which expires
on December 31, 1994, and pays commitment fees based on both the unused amount
of the facility and the company's first mortgage bond ratings. Borrowing rates
under the bank line are determined by both current market rates and the
company's first mortgage bond ratings.
During 1993, the maximum amounts of short-term borrowings outstanding
were $74 million, average short-term borrowings were $16.1 million and
weighted average interest costs were 5.34%. There were no short-term
borrowings outstanding at December 31, 1993.
36 Nevada Power Company
During 1992, the maximum amounts of short-term borrowings outstanding
were $71 million, average short-term borrowings were $18.6 million and
weighted average interest costs were 6.01%. There were no short-term
borrowings outstanding at December 31, 1992.
During 1991, the maximum amounts of short-term borrowings outstanding
were $71 million, average short-term borrowings were $36.2 million and
weighted average interest costs were 6.91%. The weighted average interest
rate for short-term borrowings outstanding at December 31, 1991, was 5.33%.
Note 5 - Long-Term Debt
In accordance with FAS 107, the company estimates the fair value of its long-
term debt based on quoted market prices for the same or similar issues or on
current interest rates available to the company for debt with similar terms
and maturity. The book value and estimated fair value of the company's long-
term debt, including current maturities and sinking fund requirements and
excluding obligations under capital leases, were $614 million and $665
million at December 31, 1993, and $616 million and $626 million at December
31, 1992, respectively. The estimate presented herein is not necessarily
indicative of the amount that the company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have an effect on the estimated fair value amount.
The indentures under which the company's first mortgage bonds were
issued provide for an immaterial restriction as to distributions to
shareholders at December 31, 1993.
Note 6 - Capital Stock
In October 1990, the company issued through dividend to its common share-
holders certain stock rights which expire in October 2000. The rights to
purchase junior preference shares, common shares or shares of a successor
corporation are not exercisable unless certain events occur and are intended
to assure fair shareholder treatment in any takeover of the company and to
guard against abusive takeover tactics.
On April 30, 1992, the company issued shares of Redeemable Cumulative
Preferred Stock, 9.90% Series consisting of the previously issued shares of
Auction Preferred Stock. The company elected to establish a 10-year dividend
period for this preferred stock, with mandatory redemption April 1, 2002. The
dividend rate on the shares of Redeemable Cumulative Preferred Stock, 9.90%
Series was determined at an auction held on April 23, 1992. Dividends on the
shares are cumulative from April 30, 1992, and will be payable when, as and if
declared, quarterly on January 1, April 1, July 1 and October 1 of each year
commencing July 1, 1992.
In accordance with FAS 107, the company estimates the fair value of its
redeemable cumulative preferred stock based on the per share closing price
times the number of shares outstanding. The book value and estimated fair
value of the redeemable cumulative preferred stock were $38 million and $43.6
million at December 31, 1993 and $38 million and $42 million at December 31,
1992, respectively. The estimate presented herein is not necessarily indicative
of the amount that the company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have an
effect on the estimated fair value amount.
Note 7 - Commitments and Contingencies
Rate Matters - In 1985 the company incurred $15.8 million in increased fuel and
purchased power expenses after a ruptured steam line at the jointly owned
Mohave Generating Station resulted in a loss of the plant for six months. The
PSC allowed the company to recover one half of the increased expenses subject
to refund. Fourth quarter 1990 earnings reflected a $12.9 million charge to
record a subsequent proposed order issued by the PSC which stated that the
company shall not recover any of the increased costs. The company has fully
reserved for any negative financial effect related to the proposed order. In
1991, the PSC set aside the proposed order and ordered the parties to
participate in joint hearings before the CPUC. The CPUC hearings are now
concluded, and the PSC will prepare its own opinion based on the record
created in the CPUC hearings. In January 1994, the administrative law judge
in the CPUC proceeding issued a proposed opinion denying recovery to SCE of
its incremental purchased power costs resulting from the accident. SCE has
filed comments with the CPUC concerning the proposed decision.
On August 12, 1993, the company filed a request with the PSC to recover
additional fuel and purchased power costs of $29.7 million under the state's
deferred energy accounting procedures. This request included $9.8 million of
deferred energy costs for the period of December 1, 1992, to May 31, 1993, and
$19.9 million to adjust the base energy rate. The company subsequently amended
its request to $26.8 million. Hearings in this
Nevada Power Company 37
Notes to Financial Statements
matter were concluded in December 1993, and the PSC granted an increase in rates
of $23.6 million, effective February 1, 1994. The PSC order resulted in fourth
quarter 1993 charges of $2 million net of taxes for deferred energy costs.
On July 11, 1991, Nevada Electric Investment Co. (NEICO), the company's
unregulated subsidiary, entered into an agreement to sell a 50 percent
undivided ownership interest in certain coal mining assets to the
Intermountain Power Agency (IPA). NEICO and IPA will continue the coal
mining operations as joint venturers under the name of the Crandall Canyon
Project. Additionally, IPA has executed a continuing coal purchase agreement.
This transaction has been inquired into by the PSC, and no gain on the
transaction has been recorded pending regulatory review which is expected in
1994.
Legal Matters - In December 1992, the company suspended deliveries under a
coal contract with Mountain Coal Co. based on a pricing dispute. Mountain
Coal Co. filed a lawsuit in the federal district court for the State of Utah
seeking a determination that the company had repudiated the coal supply
agreement. In October 1993, the court found in favor of Mountain Coal Co.'s
position. The company appealed the court's order, however, in March 1994,
the company resolved the litigation and bought out the remaining obligation
under the contract by issuing a promissory note (bearing interest at 10%) for
a total of $25 million. The facility using the coal under this contract is
jointly owned; accordingly the company's portion of this settlement is $15.25
million. The settlement and buyout have been recorded as of December 31, 1993,
with $25 million included in notes payable, $15.25 million included in
deferred energy costs and $9.75 million included in other receivables. The
settlement and buyout will result in lower fuel costs to the company's
customers over the otherwise remaining life of the contract; accordingly,
based on similar past buyouts, management believes that the cost of the
buyout will be recovered through Nevada's deferred energy accounting
procedures.
The company is involved in litigation arising in the normal course of
business. While the results of such litigation cannot be predicted with
certainty, management, based upon advice of counsel, believes that the final
outcome will not have a material adverse effect on the company's financial
position and results of operations.
Environmental Matters - The Federal Clean Air Act Amendments of 1990 include
provisions which will affect the company's existing steam generating
facilities and all new fossil fuel fired facilities. Title IV of the
Amendments provides a national cap on sulfur dioxide emissions by mandating
emissions reductions for many electric steam generating facilities. The
sulfur dioxide provisions of the Amendments will not adversely affect the
company because the company's steam units burn low sulfur fuels or have
sulfur dioxide control equipment. Title IV of the Amendments also provides
for reduction of emissions of oxides of nitrogen by establishing new
emission limits for coal-fired generating units. This Title will require
the installation of additional pollution-control technology at some of the
Reid Gardner Station generating units before 2000 at an estimated cost to the
company of no more than $6 million. Other provisions of the Amendments will
require the company to install or upgrade Continuous Emission Monitoring
systems at all steam generating units before 1995 at an expected cost of up
to $3.3 million.
The United States Congress authorized $2 million for the Environmental
Protection Agency (EPA) to study the potential impact the Mohave Generating
Station (MGS) may have on visibility in the Grand Canyon. The EPA report is
expected to be finalized in late 1995, with a follow-up report from the Grand
Canyon Visibility Transport Commission in late 1996. Also, the Nevada Division
of Environmental Protection has imposed more stringent stack opacity limits
for the MGS. This change may affect the company's utilization of resources,
but, until more experience is gained by operating at the new opacity levels,
any effect cannot be determined. As a 14 percent owner of the MGS, the company
will be required to fund any plant improvements that may result from the EPA
study and operation at the new opacity levels. The cost of any potential
improvements cannot be estimated at this time.
In 1991, the U.S. Environmental Protection Agency published an order
requiring the Navajo Generating Station (NGS) to install scrubbers to remove
90 percent of sulfur dioxide beginning in 1997. As an 11.3 percent owner of
the NGS, the company will be required to fund an estimated $46.6 million for
installation of the scrubbers. In 1992, the company received resource
planning approval from the PSC for its share of the cost of the scrubbers up
to $46.6 million.
38 Nevada Power Company
Leases - In 1984, the company sold its administrative headquarters facility,
less furniture and fixtures, for $27 million and entered into a 30-year
capital lease of that facility with five-year renewal options beginning in
year 31. The fixed rental obligation for the first 30 years is $5.1 million
per year. Future cash rental payments as of December 31, 1993, are as follows:
(In thousands)
___________________________________________________________________________
1994 $ 3,605
1995 3,604
1996 3,605
1997 3,604
1998 3,605
Thereafter 109,937
--------
$127,960
========
___________________________________________________________________________
The amount of imputed interest necessary to reduce the future cash rental
payments to present value is $85.7 million as of December 31, 1993.
Total interest expense on the lease obligation was $4 million and total
amortization of the leased facility was $402,000 for the year ended December
31, 1993. The total accumulated amortization of the leased facility on
December 31, 1993, was $9 million.
At December 31, 1993, the company has certain long-term noncancellable
operating lease agreements for which the future minimum lease payments are
immaterial.
Fuel and Purchased Power Obligations - The company has five long-term
contracts for the purchase of electric energy and/or capacity. The contracts
expire in years ranging from 1995 to 2016.
Total payments under these contracts were $55.9 million, $51.4 million
and $42.6 million in 1993, 1992 and 1991, respectively. The cost of power
obtained under these contracts is included in purchased power expense in the
statements of income.
At December 31, 1993, the estimated future payments for capacity and
energy that the company is obligated to purchase under these contracts,
subject in part to certain conditions, are as follows:
Accounted for Accounted for
as Long-term as Long-term
(In thousands) Executory Contracts Capital Lease
___________________________________________________________________________
1994 $ 35,600 $ 14,591
1995 36,150 13,986
1996 27,600 13,432
1997 28,600 12,902
1998 18,450 12,373
Thereafter 1,800 145,631
----------------------------------
Total minimum payment $148,200 212,915
========
Less amount representing estimated
executory costs included in total
minimum payment (98,232)
--------
Net minimum payments 114,683
Less amount representing interest (47,022)
--------
Present value of net minimum payments $ 67,661
========
___________________________________________________________________________
Nevada Power Company 39
Notes to Financial Statements
Total interest expense on the purchase power obligation accounted for as a
capital lease was $6.7 million and total amortization was $5.5 million in
1993. Total accumulated amortization was $15.3 million for the year ended
December 31, 1993.
The company has contracted with various coal suppliers to provide coal
to the Reid Gardner Generating Station. The contracts expire in years ranging
from 1994 to 2007.
The costs of approximately $33.9 million, $38.2 million and $44.6
million were incurred under the long-term coal contracts in 1993, 1992 and
1991, respectively.
At December 31, 1993, the estimated future payments for coal that the
company is obligated to purchase under these contracts are as follows:
(In thousands)
__________________________________________________________________________
1994 $ 29,128
1995 19,776
1996 17,258
1997 17,775
1998 18,308
Thereafter 182,258
--------
$284,503
========
__________________________________________________________________________
Construction - Certain commitments have been incurred at December 31, 1993, in
connection with the 1994 construction budget. Construction expenditures are
estimated at $175 million, including AFUDC, for 1994.
Note 8 - Other Deferred Charges and Credits
Other Deferred Charges - At December 31, 1993, as a result of the company
adopting FAS 109 effective January 1, 1993, other deferred charges include a
regulatory asset of $46 million and a deferred tax asset of $19.1 million.
The regulatory asset represents future revenue to be received from customers
due to the flow-through of tax benefits of temporary differences in prior
years and the deferred tax asset is from temporary differences caused by
investment tax credits.
As a result of the company adopting FAS 106 effective January 1, 1993, a
regulatory asset and a postretirement benefit liability of $3.1 million are
included in other deferred charges and other current liabilities,
respectively, at December 31, 1993. The regulatory asset and benefit
liability represent the difference between the postretirement benefit costs
expensed by the company on a pay-as-you-go basis as authorized by the PSC and
the costs resulting from the implementation of FAS 106.
At December 31, 1993, organizational study, early retirement and
severance costs of $6.7 million are included in other deferred charges to be
amortized over three years beginning February 1994. Of such costs, $5.5
million are related to the company's defined benefit retirement plan and are
included in other current liabilities as a part of the pension liability of
$5.8 million at December 31, 1993.
In May 1988, after securing PSC approval, the company paid United States
Fuel Company $23.5 million to terminate an existing coal supply agreement.
The amount paid plus carrying charges is being amortized over eight years and
the amounts included in other deferred charges and deferred energy costs as of
December 31, 1993, were $6.4 million and $2.3 million,respectively.
Other deferred charges as of December 31, 1993, also include $12.4
million for deferred federal income taxes on customer advances for
construction and $8.9 million for conservation programs.
Other Deferred Credits - As of December 31, 1993, a credit of $4.7 million
for generating station spare parts is included in other deferred credits.
Effective January 1992, this credit is being amortized over a six-year
period.
Other deferred credits as of December 31, 1993, also include a
regulatory liability of $32 million representing amounts to be refunded
to customers in the future as a result of the company adopting FAS 109.
40 Nevada Power Company
Note 9 -Interests in Jointly Owned Electric Utility Facilities
At December 31, 1993, the company owned the following undivided interests in
jointly owned electric utility facilities:
Company's Share of
_________________________________________________
Percent Construction
Owned by Plant Accumulated Net Plant Work in
(In thousands) Company In Service Depreciation In Service Progress
______________________________________________________________________________
Facility
Navajo Project 11.3 $132,370 $ 59,999 $ 72,371 $ 6,016
Mohave Project 14.0 67,479 27,559 39,920 4,888
Reid Gardner
Plant
Unit No. 4 32.2 133,528 30,516 103,012 869
---------------------------------------------
Total $333,377 $118,074 $215,303 $11,773
=============================================
______________________________________________________________________________
The amounts above for Navajo and Mohave include the company's share of
transmission systems and general plant equipment and, in the case of Navajo,
the company's share of the jointly owned railroad which delivers coal to the
plant. Each participant provides its own financing for all of these jointly
owned facilities. The company's share of operating expenses for these
facilities is included in the corresponding operating expenses in the
Statements of Income.
Note 10 - Quarterly Financial Data (unaudited)
Earnings Earnings
(In thousands, Available per Average
except per share Electric Operating Net for Common Common
amounts) Revenues Income Income Stock Share
___________________________________________________________________________
1993: First $132,814 $16,621 $ 8,379 $ 7,382 $0.20
Second 142,318 23,022 15,238 14,241 0.37
Third 232,263 54,957 47,113 46,117 1.13
Fourth 144,377 13,869 2,818 1,822 0.04
1992: First 122,902 12,035 2,022 820 0.02
Second 140,913 20,774 10,245 9,181 0.26
Third 206,868 51,198 42,982 41,984 1.15
Fourth 130,232 16,115 1,531 533 0.01
___________________________________________________________________________
The business of the company is seasonal in nature and it is management's
opinion that comparisons of earnings for the quarters do not give a true
indication of overall trends and changes in the company's operations.
The fourth quarter of 1993 reflects write-offs of $5.6 million net of tax
or 14 cents per average common share for certain deferred amounts including
costs related to preliminary studies for the coal-fired White Pine Power Project
and for deferred energy.
The fourth quarter of 1992 reflects write-offs of $4.5 million net of tax
or 13 cents per average common share for certain deferred amounts including
costs related to a property loss at Reid Gardner Generating Station No. 4.
Nevada Power Company 41
Independent Auditors' Report
To the Board of Directors and Shareholders of Nevada Power Company:
We have audited the balance sheets of Nevada Power Company as of December 31,
1993 and 1992, and the related statements of income, retained earnings and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the company at December 31, 1993 and 1992,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 2 to the financial statements, the company
changed its method of accounting for income taxes effective January 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109.
Deloitte & Touche
Deloitte & Touche
Las Vegas, Nevada
February 10, 1994
(March 11, 1994 as to the fourth paragraph of Note 7)
Report of Management
The management of Nevada Power Company is responsible for the financial
statements presented in this report. Management prepared the financial
statements in conformity with generally accepted accounting principles
applicable to public utilities which are consistent in all material respects
with the accounting prescribed by the Public Service Commission of Nevada
and the Federal Energy Regulatory Commission. In preparing the financial
statements, management made informed judgements and estimates relating to
events and transactions being reported.
The company has a system of internal accounting and financial controls
and procedures in place to insure that the financial records reflect the
transactions of the company and that assets are safeguarded. This system is
examined by management on a continuing basis for effectiveness and efficiency
and is reviewed on a regular basis by an internal audit staff that reports
directly to the Audit Committee of the Board of Directors.
The financial statements have been audited by Deloitte & Touche,
independent auditors. The auditors provide an objective, independent review as
to management's discharge of its responsibilities as they relate to the
fairness of reported operating results and financial condition. Their audit
includes procedures which provide them reasonable assurance that the financial
statements are not misleading and includes a review of the company's system of
internal accounting and financial controls and a test of transactions.
The Board of Directors has oversight responsibility for determining that
management has fulfilled its obligation in the preparation of financial
statements and the ongoing examination of the company's system of internal
accounting controls. The Audit Committee, which is composed solely of outside
directors, meets regularly with management, Deloitte & Touche and the internal
audit staff to discuss accounting, auditing and financial reporting matters.
The Audit Committee reviews the program of audit work performed by the
internal audit staff. To insure auditor independence, both Deloitte & Touche
and the internal audit staff have complete and free access to the Audit
Committee.
42 Nevada Power Company
Stock Prices on New York Stock Exchange
and Dividends Per Share
1993 Quarters 1992 Quarters
_________________________________ __________________________________
First Second Third Fourth First Second Third Fourth
______________________________________________________________________________
Common
High $25 $25 3/4 $26 3/4 $26 1/4 $19 5/8 $19 1/8 $22 5/8 $24
Low 22 5/8 24 24 5/8 22 1/2 18 5/8 18 18 1/2 21 3/4
Dividend
paid .40 .40 .40 .40 .40 .40 .40 .40
______________________________________________________________________________
High and low common stock prices shown are as reported by the Wall Street
Journal as New York Stock Exchange Composite Transactions. The common stock
is also listed on the Pacific Stock Exchange.
Holders of common stock are entitled to dividends as are declared by the
Board of Directors, subject to the rights of the cumulative preferred stock
and the preference stock of the company to quarterly cumulative dividends as
declared by the Board of Directors. The company has paid quarterly dividends
on its common stock since August 1954. See Note 5 of "Notes to Financial
Statements" for restriction on the company's ability to pay dividends.
The company had 47,239 shareholders of record of common stock at
December 31, 1993.
Nevada Power Company 43
Statistical Summary 1993-1989
1993 1992 1991 1990 1989
___________________________________________________________________________________________________________________
Summary of Operations
(In thousands, except per share amounts):
Electric Revenues:
Residential $ 267,941 $ 245,160 $ 216,784 $ 194,911 $ 179,333
Commercial and industrial 326,006 305,707 287,407 256,310 210,167
Other electric sales 48,504 42,011 34,459 35,057 27,767
Miscellaneous 9,321 8,037 7,761 6,043 5,635
----------------------------------------------------------------------
651,772 600,915 546,411 492,321 422,902
----------------------------------------------------------------------
Net Income (a) 73,548 56,780 35,176 24,992 51,467
Dividend Requirements on Preferred Stock 3,986 4,262 2,880 2,917 3,058
Earnings Available for Common Stock (a) $ 69,562 $ 52,518 $ 32,296 $ 22,075 $ 48,409
Weighted Average Number of Common
Shares Outstanding 39,482 35,652 30,855 28,330 26,693
Earnings Per Average Common Share (a) $ 1.76 $ 1.47 $ 1.05 $ .78 $ 1.81
Dividends Per Common Share $ 1.60 $ 1.60 $ 1.60 $ 1.58 $ 1.54
Capitalization
(In thousands, except per share amounts):
Long-Term Debt $ 716,589 $ 715,451 $ 578,540 $ 521,340 $ 460,366
Cumulative Preferred Stock 38,000 38,000 38,000 38,000 38,000
Cumulative Preferred Stock with
Mandatory Sinking Funds 4,264 4,464 4,664 4,864 5,067
Common Shareholders' Equity 645,924 532,473 460,307 406,291 383,150
Book Value Per Common Share $ 15.56 $ 14.34 $ 13.96 $ 14.05 $ 14.27
Return on Common Shareholders' Equity 10.77% 9.86% 7.02% 5.43% 12.63%
Electric Plant Investment (In thousands):
Gross $1,901,448 $1,739,633 $1,562,921 $1,345,107 $1,187,612
Depreciated 1,450,146 1,328,670 1,187,154 996,885 865,834
Total Assets (In thousands) $1,809,337 $1,557,040 $1,410,022 $1,236,210 $1,099,741
Construction Expenditures Excluding
AFUDC (In thousands) $ 157,458 $ 167,233 $ 145,271 $ 152,583 $ 120,134
Operating and Sales Data:
Generating Capacity and Firm
Purchases (Megawatts) 3,488 2,989 2,719 2,534 2,333
Peak Load (Megawatts) 2,681 2,501 2,373 2,248 2,092
Electric Sales (Megawatthours) 11,155,270 10,541,204 9,834,952 9,619,723 8,715,442
Number of Customers (Year End) 403,875 383,036 366,325 347,969 318,036
Average Annual Kilowatthour Sales
Per Residential Customer 13,008 13,343 13,213 13,331 13,624
Number of Employees (Year End) 1,741 1,734 1,689 1,639 1,543
___________________________________________________________________________________________________________________
(a) Amount for 1990 includes a provision for a proposed regulatory
disallowance and other adjustments.
Amount for 1991 includes write-offs for deferred energy and environmental
study costs.
Amount for 1993 includes write-offs for deferred energy costs and
preliminary study costs for a cancelled coal-fired generating station
project.
44 Nevada Power Company 45