FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1994 Commission File No.1-4698
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Nevada Power Company
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(Exact name of registrant as specified in its charter)
Nevada 88-0045330
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
6226 West Sahara Avenue, Las Vegas, Nevada 89102
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(Address of principal executive offices) (Zip Code)
(702) 367-5000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the 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 .
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Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Common Stock outstanding July 31, 1994, 42,527,493 shares.
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1
PART I. FINANCIAL INFORMATION
STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1994 1993 1994 1993
-------- -------- -------- --------
ELECTRIC REVENUES ........................ $195,788 $142,318 $340,446 $275,132
-------- -------- -------- --------
OPERATING EXPENSES AND TAXES:
Fuel ................................ 26,636 21,275 47,195 45,868
Purchased and interchanged power .... 67,004 60,080 119,495 107,553
Deferred energy cost adjustments, net 9,679 (19,706) 14,817 (25,600)
-------- -------- -------- --------
Net energy costs .................... 103,319 61,649 181,507 127,821
Other production operations ......... 3,944 3,716 8,015 7,945
Other operations .................... 25,008 21,207 48,088 40,058
Maintenance and repairs ............. 9,441 10,902 19,185 20,271
Provision for depreciation .......... 12,314 10,561 24,026 20,832
General taxes ....................... 4,210 4,441 8,495 8,197
Federal income taxes ................ 9,391 6,820 10,773 10,365
-------- -------- -------- --------
167,627 119,296 300,089 235,489
-------- -------- -------- --------
OPERATING INCOME ......................... 28,161 23,022 40,357 39,643
-------- -------- -------- --------
OTHER INCOME (EXPENSES):
Allowance for other funds used
during construction ................ 1,444 2,578 3,671 5,022
Miscellaneous, net .................. 4,613 (393) 4,851 (1,087)
-------- -------- -------- --------
6,057 2,185 8,522 3,935
-------- -------- -------- --------
INCOME BEFORE INTEREST DEDUCTIONS ........ 34,218 25,207 48,879 43,578
-------- -------- -------- --------
INTEREST DEDUCTIONS:
Interest on long-term debt .......... 11,248 10,636 22,031 21,679
Other interest ...................... 868 874 1,345 1,259
Allowance for borrowed funds used
during construction ................ (1,091) (1,541) (2,382) (2,977)
-------- -------- -------- --------
11,025 9,969 20,994 19,961
-------- -------- -------- --------
NET INCOME ............................... 23,193 15,238 27,885 23,617
DIVIDEND REQUIREMENTS ON PREFERRED STOCK . 994 997 1,989 1,994
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK ...... $ 22,199 $ 14,241 $ 25,896 $ 21,623
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ............................. 42,251 38,226 42,023 37,806
======== ======== ======== ========
EARNINGS PER AVERAGE COMMON SHARE ........ $ 0.53 $ 0.37 $ 0.62 $ 0.57
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE ............... $ 0.40 $ 0.40 $ 0.80 $ 0.80
======== ======== ======== ========
See Notes to Financial Statements.
2
BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1994 1993
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(In Thousands)
ELECTRIC PLANT:
Original cost ...................................... $1,760,679 $1,638,560
Less accumulated depreciation ...................... 472,701 451,302
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Net plant in service ............................. 1,287,978 1,187,258
Construction work in progress ...................... 116,843 167,652
Other plant, net ................................... 92,338 95,236
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1,497,159 1,450,146
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INVESTMENTS .......................................... 21,359 21,822
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CURRENT ASSETS:
Cash and temporary cash investments ................ 298 145
Customer receivables -
Billed ........................................... 51,354 37,270
Unbilled ......................................... 43,187 13,000
Reserve for doubtful accounts .................... (1,074) (1,125)
Other receivables .................................. 7,554 15,465
Fuel stock and materials and supplies .............. 40,554 40,327
Deferred energy costs .............................. 36,061 58,783
Prepayments ........................................ 6,430 8,313
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184,364 172,178
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DEFERRED CHARGES:
Debt expense, being amortized ...................... 27,979 28,645
Accumulated deferred taxes on proposed refund of
recovered energy costs - Mohave accident ......... - 5,417
Other .............................................. 128,594 131,129
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156,573 165,191
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$1,859,455 $1,809,337
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock, 42,429,726 and 41,505,195
shares issued and outstanding, respectively ..... $ 45,634 $ 44,709
Premium and unamortized expense on capital stock . 510,205 491,856
Retained earnings ................................ 101,794 109,359
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657,633 645,924
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Cumulative preferred stock ......................... 42,184 42,264
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Long-term debt ..................................... 695,485 716,589
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1,395,302 1,404,777
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CURRENT LIABILITIES:
Notes payable ...................................... 28,990 25,000
Current maturities and sinking fund requirements ... 57,338 7,496
Accounts payable, including salaries and wages ..... 82,105 70,098
Accrued taxes ...................................... 8,692 (1,131)
Accrued interest ................................... 6,782 6,212
Accumulated deferred taxes on deferred energy costs 12,621 20,574
Customers' service deposits and other .............. 36,071 31,441
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232,599 159,690
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DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred investment tax credits ........ 34,654 35,384
Accumulated deferred taxes on income ............... 129,109 126,133
Customers' advances for construction ............... 30,461 28,455
Proposed refund of recovered energy
costs - Mohave accident .......................... - 16,698
Other .............................................. 37,330 38,200
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231,554 244,870
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$1,859,455 $1,809,337
========== ==========
See Notes to Financial Statements.
3
STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------
1994 1993
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 27,885 $ 23,617
Adjustments to reconcile net income to net cash provided-
Depreciation and amortization .......................... 31,023 26,395
Deferred income taxes and investment tax credits ....... (671) 10,183
Allowance for other funds used during construction ..... (3,671) (5,022)
Changes in-
Receivables ............................................ (46,126) (15,364)
Fuel stock and materials and supplies .................. (1,020) (1,715)
Accounts payable and other current liabilities ......... 15,427 27,141
Deferred energy costs .................................. 12,417 (27,058)
Accrued taxes and interest ............................. 10,393 159
Other assets and liabilities ........................... (2,306) (1,665)
-------- --------
Net cash provided by operating activities ............. 43,351 36,671
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures and gross additions ........... (70,637) (75,914)
Investment in subsidiaries and other .................... 288 (3,243)
Salvage net of removal cost ............................. (245) 169
-------- --------
Net cash used in investing activities .................. (70,594) (78,988)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of capital stock ................................... 19,263 85,108
Sale of long-term debt .................................. - 45,000
Change in funds held in trust ........................... 32,295 (689)
Retirement of preferred stock and long-term debt ........ (4,202) (56,187)
Coal contract buy-out ................................... (15,439) -
Change in short-term borrowing .......................... 28,990 -
Cash dividends .......................................... (35,527) (32,202)
Other financing activities .............................. 2,016 1,276
-------- --------
Net cash provided by financing activities .............. 27,396 42,306
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CASH AND TEMPORARY CASH INVESTMENTS:
Net increase (decrease) during the period ............... 153 (11)
Beginning of period ..................................... 145 160
-------- --------
End of period ........................................... $ 298 $ 149
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized .................... $ 25,108 $ 26,225
======== ========
Income taxes ............................................ $ 2,000 $ 1
======== ========
See Notes to Financial Statements.
4
NOTES TO FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
the registrant, pursuant to the rules and regulations of the Securities and
Exchange Commission, and reflect all adjustments which, in the opinion of
management are necessary for a fair presentation. Certain information and
footnote disclosures have been condensed in accordance with generally accepted
accounting principles and pursuant to such rules and regulations. The
registrant believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements and notes thereto be read in conjunction with the financial
statements and the notes thereto included in the registrant's latest annual
report. Certain prior period amounts have been reclassified, with no effect on
income or common shareholders' equity, to conform with the current period
presentation.
(1) FEDERAL INCOME TAXES:
For interim financial reporting purposes, Nevada Power Company (Company)
reflects in the computation of the federal income tax provision liberalized
depreciation based upon the expected annual percentage relationship of book and
tax depreciation and reflects the allowance for funds used during construction
on an actual basis. 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. The table below
shows the effects of those transactions which created this difference.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1994 1993 1994 1993
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(In Thousands)
Federal income tax at statutory rate ..... $12,316 $ 7,883 $14,906 $12,185
Investment tax credit amortization ....... (365) (365) (730) (573)
Recovery of unprovided deferred taxes per
Public Service Commission Docket 91-5055. 367 357 776 714
Other .................................... (322) 72 (247) (104)
------- ------- ------- -------
Recorded federal income taxes ............ $11,996 $ 7,947 $14,705 $12,222
======= ======= ======= =======
Federal income taxes included in-
Operating expenses ..................... $ 9,391 $ 6,820 $10,773 $10,365
Other income, net ...................... 2,605 1,127 3,932 1,857
------- ------- ------- -------
Recorded federal income taxes ............ $11,996 $ 7,947 $14,705 $12,222
======= ======= ======= =======
(2) COMMITMENTS AND CONTINGENCIES:
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 Public
Service Commission of Nevada (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 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 with the California Public Utilities Commission
(CPUC). The CPUC hearings are now concluded. The CPUC
5
issued an opinion and order in March 1994 finding Southern California Edison
(SCE) was imprudent in not inspecting the pipe prior to the explosion, and
indicated SCE may not recover from ratepayers the incremental purchased power
costs in excess of the costs if it had inspected and undertaken repairs.
On July 6, 1994, the PSC approved a stipulation which completely resolved
the Mohave accident replacement power case. As a part of the stipulation, $11
million of the reserved $17.4 million previously collected from customers for
fuel and purchased power costs and interest will be refunded to customers. The
$11 million was transferred from other deferred credits to deferred energy costs
to offset increased fuel and purchased power costs that have been deferred for
collection. The balance of $4.2 million, net of tax, was reflected as other
income in miscellaneous, net for the second quarter of 1994.
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. As part of the stipulation approved by the PSC on
July 6, 1994, the energy rate and the resource planning rate requests have been
withdrawn. In addition, the stipulation requires the Company to begin using
billed and unbilled sales to calculate deferred energy balances. Implementation
of this methodology has resulted in a credit adjustment to deferred energy costs
and a debit to unbilled customer receivables of $19.4 million with no impact on
the Company's earnings.
On July 11, l991, Nevada Electric Investment Company (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 has been recorded pending regulatory
review.
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.
6
(3) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company adopted Statement of Financial Accounting Standards No. 106
(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. As a result of the stipulation approved by the PSC on July 6, 1994, the
Company is no longer recognizing these benefit costs on a pay-as-you-go basis
and began using the accrual method. The Company is amortizing the FAS 106
deferred asset at March 31, 1994 over a period of 8 years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On July 6, 1994, the PSC approved a stipulation between the Company, PSC
staff, Office of Consumer Advocate and other intervenors to settle an earnings
investigation of the Company and several other pending regulatory matters. The
stipulation will reduce non-residential rates by $6.25 million beginning October
1, 1994 and provides for no additional rate changes before July 1, 1995. The
overall rate of return was reduced from 10.02 percent to 9.66 percent although
the allowed return on equity remains at 12.5 percent. In addition, the
stipulation completely resolves the replacement power case from the 1985 Mohave
Generating Station accident and resulted in the withdrawal of the Company's
$38.5 million energy rate request and $1 million resource planning rate request
filed with the PSC on February 28, 1994. (See Note 2 to Financial Statements
included in this quarterly report.)
The Company's customer growth rate during 1993 and 1992 was 5.4 and 4.6
percent, respectively. The increase in customers for the first six months of
1994 was at an annual rate of 6.5 percent. At June 30, 1994, the Company
provided electric service to 416,954 customers.
Every three years Nevada law requires the Company file with the PSC a
forecast of electricity demands for the next 20 years and the Company's plans to
meet those demands. On July 1, 1994, the Company filed with the PSC the 1994
Resource Plan, which requested approval of the following major items:
(1) Arden-Northwest 230 kV Transmission Project -
This project was previously approved for partial
construction. The Company is now requesting additional
money for completion.
(2) A Comprehensive Renewable Energy Program -
Nevada Power wants to utilize all appropriate incentive,
resources, and expertise to foster the development of
economically competitive renewable energy systems with the
intent to provide Southern Nevada customers with 20
megawatts of solar-generated electricity by the year 2002.
(3) Supply-Side Request for Proposal (RFP) Process and Short-List -
For resources in 1997 and 1998, the Company is requesting
approval of the process used to select the Short-List, which
includes utility system sales, combustion turbine projects,
pumped hydroelectric projects, a seasonal diversity
exchange, and a wind power project.
7
(4) Residential New Construction Program -
This program would assist builders in meeting and exceeding
minimum building energy codes.
(5) Three Energy Service Company Contracts -
All three contracts are designed for the commercial customer.
The total reduction is equivalent to 13.8 megawatts.
The PSC has scheduled hearings on the above mentioned Resource Plan to
begin in mid-September 1994, with an opinion and order in mid-November.
The Company is anticipating filing an Amendment to this Resource Plan by
the end of 1994. The Amendment will request approval of the completed RFP and
the subsequent recommendation on the Company's resource options.
To meet capital expenditure requirements through 1994, the Company plans to
utilize internally generated cash, the proceeds from industrial development
revenue bonds (IDBs), first mortgage bonds and common stock issues through
public offerings and the Stock Purchase and Dividend Reinvestment Plan (SPP).
The Company has the option of issuing new shares or using open market
purchases of Company common stock to meet the requirements of the SPP. Under
the SPP the Company issued 1,640,326 and 903,203 shares, respectively, of common
stock in 1993 and the first six months of 1994.
On May 18, 1994, the Company filed requests with the PSC for authorization
to issue short-term unsecured promissory notes not to exceed $150 million with
such authorization to expire on December 31, 1997, and for authorization to
issue an additional 2 million shares of common stock under the SPP.
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 June 30, 1994, $26.8 million remained on deposit with the
trustee.
OPERATING RESULTS OF FIRST SIX MONTHS OF 1994
COMPARED TO FIRST SIX MONTHS OF 1993
Earnings per average common share were 62 cents for the first six months
of 1994, compared to 57 cents in the same period in 1993. The increase in
earnings was due primarily to an increase in kilowatthour sales and settlement
of the replacement power case from the 1985 Mohave Generating Station accident.
Year to date kilowatthour sales, excluding sales for resale, were up 9.3
percent, as compared to the first six months of 1993, due to a 6.1 percent
increase in average number of customers as well as warmer weather in 1994.
The increase in revenues was due to the higher kilowatthour sales and
increases in rates to recover costs for fuel and purchased power. Higher
revenues also resulted from recording unbilled revenues for the recovery of
energy costs, with an offsetting increase in the deferred energy cost
adjustment, as required by the stipulation approved by the PSC on July 6, 1994.
The cost of purchased power increased by $11.9 million due primarily to
charges for energy and capacity purchased from qualifying facilities under
contracts with Nevada Cogeneration Associates. Other operations expense
increased $8.0 million due primarily to an increase in administrative and
general expenses resulting mainly from an increase in employee benefit costs and
higher labor costs. Employee benefit costs
8
were higher primarily due to increased amounts for group medical insurance,
pensions, postretirement benefits other than pensions (See Note 3 to Financial
Statements included in this quarterly report), and amortization of
reorganization, early retirement and severance costs. Depreciation expense
increased $3.2 million because of a growing asset base. Other income
miscellaneous, net increased $5.9 million due in large part to the stipulated
resolution of the Mohave accident.
Average common shares increased because of the sale of additional common
shares through public offerings and the SPP to partially provide funds for the
construction of facilities necessary to meet increased customer demand for
electricity.
OPERATING RESULTS OF SECOND QUARTER OF 1994
COMPARED TO SECOND QUARTER OF 1993
Second quarter earnings of 53 cents per average common share were up 16
cents from the same period in 1993. While the average number of customers
increased 6.3 percent over the second quarter of 1993, kilowatthour sales,
excluding sales for resale, were up 15 percent due to warmer weather in the
second quarter of 1994. Earnings were also higher due to the settlement of the
replacement power case from the 1985 Mohave Generating Station accident.
The increase in revenues was due the higher kilowatthour sales and
increases in rates to recover costs for fuel and purchased power. Higher
revenues also resulted from recording unbilled revenues for the recovery of
energy costs, with an offsetting increase in the deferred energy cost
adjustment, as required by the stipulation approved by the PSC on July 6, 1994.
Fuel expense in the second quarter of 1994 increased by $5.4 million as
compared to the second quarter of 1993 due to increased generation at Clark
Station and increased coal expense. Purchased power expense increased by $6.9
million due primarily to charges for energy and capacity purchased from
qualifying facilities. Other operations expense rose $3.8 million as a result
of an increase in administrative and general expenses due mainly to higher group
medical insurance costs and postretirement benefits other than pensions (See
Note 3 to Financial Statements included in this quarterly report). Depreciation
expense increased $1.8 million because of a growing asset base. Other income
miscellaneous, net increased $5.0 million due in large part to the stipulated
resolution of the Mohave accident.
Average common shares increased because of the sale of additional common
shares through public offerings and the SPP to partially provide funds for the
construction of facilities necessary to meet increased customer demand for
electricity.
9
PART II. OTHER INFORMATION
Items 1 through 5. None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
None.
b. Reports on Form 8-K.
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nevada Power Company
--------------------
(Registrant)
Date: August 9, 1994 STEVEN W. RIGAZIO
---------------- ---------------------------
Steven W. Rigazio
Vice President, Finance and Planning,
Treasurer, Chief Financial Officer
10