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 March 31, 1998 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 .
---- ---
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 May 4, 1998, 50,943,730 shares.
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1
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
FOR THE
THREE MONTHS
ENDED MARCH 31,
------------------
1998 1997
-------- --------
ELECTRIC REVENUES ......................................... $165,263 $155,355
OPERATING EXPENSES AND TAXES:
Fuel ................................................. 26,573 21,126
Purchased and interchanged power ..................... 51,055 53,270
Deferred energy cost
adjustments, net .................................... (2,276) (1,647)
-------- --------
Net energy costs .................................... 75,352 72,749
Other production operations .......................... 4,469 3,745
Other operations ..................................... 25,683 24,062
Maintenance and repairs .............................. 12,482 9,983
Provision for depreciation ........................... 17,711 16,175
General taxes ........................................ 5,369 5,057
Federal income taxes ................................. 2,934 4,143
-------- --------
144,000 135,914
-------- --------
OPERATING INCOME .......................................... 21,263 19,441
-------- --------
OTHER INCOME (EXPENSES):
Allowance for other funds used
during construction ................................. 2,199 2,052
Miscellaneous, net ................................... (593) (970)
-------- --------
1,606 1,082
-------- --------
INCOME BEFORE INTEREST DEDUCTIONS ......................... 22,869 20,523
-------- --------
INTEREST DEDUCTIONS:
Interest on long-term debt ........................... 14,108 12,308
Other interest ....................................... 566 437
Allowance for borrowed funds used
during construction ................................. (1,178) (792)
-------- --------
13,496 11,953
-------- --------
Distribution requirements
on company-obligated mandatorily
redeemable preferred securities
of subsidiary trust ................................. 2,437 -
-------- --------
NET INCOME ................................................ 6,936 8,570
DIVIDEND REQUIREMENTS ON PREFERRED
STOCK .................................................... 44 987
-------- --------
EARNINGS AVAILABLE FOR COMMON STOCK ....................... $ 6,892 $ 7,583
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING .............................................. 50,579 49,059
======== ========
EARNINGS PER AVERAGE COMMON SHARE ......................... $ .14 $ .15
======== ========
DIVIDENDS PER COMMON SHARE ................................ $ .40 $ .40
======== ========
See Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March 31, December 31,
1998 1997
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(In Thousands)
ELECTRIC PLANT:
Original cost ..................................... $2,396,287 $2,378,296
Less accumulated depreciation ..................... 663,827 647,208
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Net plant in service ............................ 1,732,460 1,731,088
Construction work in progress ..................... 178,882 158,029
Other plant, net .................................. 70,457 71,592
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1,981,799 1,960,709
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INVESTMENTS ......................................... 14,200 13,571
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CURRENT ASSETS:
Cash and temporary cash investments ............... 46 720
Customer receivables .............................. 66,533 71,722
Other receivables ................................. 15,177 16,415
Fuel stock and materials and supplies ............. 44,031 42,370
Deferred energy costs ............................. 33,379 30,597
Prepayments ....................................... 9,492 6,711
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168,658 168,535
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DEFERRED CHARGES .................................... 206,492 196,607
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$2,371,149 $2,339,422
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock, 50,693,751 and 50,399,746
shares issued and outstanding, respectively .... $ 53,898 $ 53,604
Premium and unamortized expense on capital stock 670,269 662,987
Retained earnings ............................... 103,752 117,032
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827,919 833,623
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Cumulative preferred stock ........................ 3,385 3,463
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Company-obligated mandatorily redeemable preferred
securities of the Company's subsidiary trust, NVP
Capital I, holding solely $122.6 million principal
amount of 8.2% junior subordinated debentures of
the Company, due 2037 ............................ 118,872 118,872
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Long-term debt .................................... 893,246 895,439
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1,843,422 1,851,397
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CURRENT LIABILITIES:
Notes Payable ..................................... 47,155 -
Current maturities and sinking fund requirements .. 5,041 19,937
Accounts payable .................................. 50,679 64,737
Accrued taxes ..................................... 7,789 7,543
Accrued interest .................................. 14,971 7,284
Deferred taxes on deferred energy costs ........... 11,683 10,709
Customers' service deposits and other ............. 40,058 37,649
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177,376 147,859
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DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred investment tax credits ................... 29,179 29,544
Deferred taxes on income .......................... 245,832 235,846
Customers' advances for construction and other .... 75,340 74,776
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350,351 340,166
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$2,371,149 $2,339,422
========== ==========
See Notes to Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
-------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 6,936 $ 8,570
Adjustments to reconcile net income to net cash
provided-
Depreciation and amortization ...................... 20,537 17,828
Deferred income taxes and investment tax credits ... 3,340 904
Allowance for other funds used during construction . (2,199) (2,051)
Changes in-
Receivables ........................................ 6,427 11,422
Fuel stock and materials and supplies .............. (1,961) (821)
Accounts payable and other current liabilities ..... (11,545) (11,321)
Deferred energy costs .............................. (2,923) (664)
Accrued taxes and interest ......................... 7,933 7,549
Other assets and liabilities ........................ (7,313) (3,409)
-------- --------
Net cash provided by operating activities ......... 19,232 28,007
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures and gross additions ....... (38,196) (41,087)
Investment in subsidiaries and other ................ (227) 242
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Net cash used in investing activities ............. (38,423) (40,845)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock ........................... 7,575 8,873
Deposit of funds held in trust ...................... (532) (484)
Retirement of long-term debt ........................ (16,081) (1,258)
Retirement of preferred stock ....................... (80) (80)
Change in short-term borrowing ...................... 47,155 25,500
Cash dividends ...................................... (20,221) (20,407)
Other financing activities .......................... 701 733
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Net cash provided by (used in) financing activities 18,517 12,877
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CASH AND TEMPORARY CASH INVESTMENTS:
Net increase (decrease) during the period ........... (674) 39
Beginning of period ................................. 720 2,544
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End of period ....................................... $ 46 $ 2,583
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized ................ $ 11,303 $ 10,857
======== ========
Income taxes ........................................ $ - $ -
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated 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 and are of a
normally recurring nature. 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 consolidated 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) CONSOLIDATION POLICY:
The condensed consolidated financial statements include the accounts of
Nevada Power Company (Company) and its wholly-owned subsidiary, NVP Capital I.
All significant intercompany transactions and balances have been eliminated in
consolidation.
(2) RECENTLY ISSUED ACCOUNTING STANDARDS:
The Financial Accounting Standards Board (FASB) recently issued Statement
of Financial Accounting Standards No. 130 (FASB 130), Reporting Comprehensive
Income, which is effective for fiscal years beginning after December 15, 1997.
FASB 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. The adoption resulted in no material effect on the disclosures in
the Company's condensed consolidated financial statements.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131 (FASB 131), Disclosures about Segments
of an Enterprise and Related Information, which is effective for annual
financial statements for periods beginning after December 15, 1997. FASB 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Due to recent legislation enacted in
Nevada for restructuring the electric utility industry, the Company cannot
predict the effect adoption of FASB 131 will have on disclosures in its
condensed consolidated financial statements.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 132 (FASB 132), Employers' Disclosures about
Pensions and Other Postretirement Benefits - an amendment of FASB Statements
No. 87, 88 and 106, which is effective for financial statements for periods
beginning after December 15, 1997. FASB 132 revises employer's disclosures
about pension and other postretirement benefit plans but does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and eliminates certain disclosures that are no longer as useful as
they were when the above mentioned FASB statements were originally issued. The
Company has not yet determined the effect adoption of FASB 132 will have on
disclosures in its condensed consolidated financial statements.
(3) FEDERAL INCOME TAXES:
For interim financial reporting purposes, the Company reflects in the
computation of the federal income tax provision liberalized depreciation based
upon the expected annual
5
used during construction on an actual basis. The total federal income tax
expense as set forth in the accompanying consolidated 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
ENDED MARCH 31,
----------------
1998 1997
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(In Thousands)
Federal income tax at statutory rate ...................... $ 3,771 $ 4,651
Investment tax credit amortization ........................ (365) (365)
Other ..................................................... 433 433
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Recorded federal income taxes ............................. $ 3,839 $ 4,719
======= =======
Federal income taxes included in-
Operating expenses ...................................... $ 2,934 $ 4,143
Other income, net ....................................... 905 576
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Recorded federal income taxes ............................. $ 3,839 $ 4,719
======= =======
(4) COMMITMENTS AND CONTINGENCIES:
On February 6, 1997, the Public Service Commission of Nevada (PUCN) issued
its opinion and order in the last phase of the 1995 deferred energy case
concerning the prudency of the Company's fuel and purchased power expenditures
during the period June 1993 to May 1995, a buyout of a coal supply agreement
and a credit to customers related to the use of coal reserves in an unregulated
subsidiary company. The PUCN order resulted in a fourth quarter 1996 charge of
$5.5 million, net of tax, for amounts disallowed by the PUCN. On May 7, 1997,
the Company filed a Petition for Judicial Review in the First District Court in
Carson City, Nevada challenging the PUCN's findings which resulted in
disallowances.
The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S.
District Court, District of Nevada, in February 1998 against the owners of the
Mohave Generating Station (Mohave) alleging violations of the Clean Air Act
regarding emissions of sulfur dioxide and particulates. The owners believe the
emission limits referenced in the suit are not applicable to Mohave, and filed
a motion to dismiss the lawsuit in April 1998. Also, the owners previously
partnered with the Environmental Protection Agency (EPA) and the National Park
Service on a multi-year study to determine the impacts, if any, of Mohave
emissions on visibility in the Grand Canyon (see Environmental Matters below).
The environmental groups want the owners to install pollution control equipment
at an estimated cost of $200 to $300 million. The Company owns a 14 percent
interest in Mohave. The outcome of this action cannot be determined at this
time.
The Federal Clean Air Act Amendments of 1990 (Amendments) include
provisions for reduction of emissions of oxides of nitrogen by establishing new
emission limits for coal-fired generating units. This will require the
installation of additional pollution-control technology at two of the Reid
Gardner Station generating units before 2000 at an estimated cost to the
Company of no more than $4 million; $1.4 million has been spent to date.
Also, the United States Congress authorized the EPA to study the potential
impact Mohave may have on visibility in the Grand Canyon area. Results of this
study are expected in 1998. The majority owner has estimated that control
costs, if required, could total between $200 and $300 million.
In 1991, the EPA published an order requiring the Navajo Generating
Station (Navajo) to install scrubbers to remove 90 percent of sulfur dioxide
emissions beginning in 1997.
6
As an 11.3 percent owner of Navajo, the Company will be required to fund an
estimated $50.9 million for installation of the scrubbers. The first of three
scrubber units was placed in commercial operation in November 1997. The second
scrubber has recently entered start-up and will be in commercial operation by
November 1998, with the last scrubber unit operational by August 1999.
Currently, the project is approaching 85 percent complete. The Company has
spent approximately $40.7 million through December 1997 on the scrubbers'
construction. In 1992, the Company received resource planning approval from
the PUCN for its share of the cost of the scrubbers.
(5) SHORT-TERM BORROWING:
In April 1998, the Company obtained an additional $50 million bank
revolving credit facility which expires on April 16, 1999 and pays a facility
fee based on the Company's senior unsecured debt rating. Borrowing rates under
the bank line are determined by both current market rates and the Company's
senior unsecured debt rating.
(6) MERGER; DIVIDEND POLICY:
On April 30, 1998, Nevada Power Company and Sierra Pacific Resources
announced that their boards of directors unanimously approved an agreement
providing for a proposed merger of equals combination with stock and cash
consideration, creating a company with a total market capitalization of
approximately $4.0 billion ($2.3 billion in equity, $1.5 billion in debt and
$240 million in preferred stock). In conjunction with the Company's approval
of the proposed merger, the Company's Board of Directors stated that, after it
considers its August 1998 dividend at the current rate of 40 cents per quarter
($1.60 per share annually), it intends to adopt the expected combined company
initial annual dividend rate. This would result in an indicated annual
dividend rate of $1.00 per share for periods following the August 1998 dividend
payment. For further information regarding the proposed merger please refer to
the Company's Securities and Exchange Commission (SEC) Form 8-K filed with the
SEC on April 30, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Overall net cash flows decreased during the first three months of 1998, as
compared to 1997, primarily due to less cash being provided by operating
activities partially offset by more cash being provided by financing
activities. The decrease in cash being provided by operating activities was
primarily due to increased energy costs. The increase in net cash provided by
financing activities is primarily due to increased short-term borrowing
partially offset by the repayment of the Series I first mortgage bonds (FMBs).
On April 30, 1998, Nevada Power Company and Sierra Pacific Resources
announced that their boards of directors unanimously approved an agreement
providing for a proposed merger of equals. (See Note 6 to the condensed
consolidated financial statements included in this quarterly report.)
On April 23, 1998, the Company filed a request with the PUCN for
authorization to increase energy rates by approximately $53 million under the
state's deferred energy accounting procedures and cap electric rates for all
customers until July 2000. The Company would retain the right to request a
rate increase if costs rise substantially. Commercial customers' rates would
increase by approximately $37 million and residential customers' rates would
increase by approximately $16 million under the proposal. The Company is
requesting the increase to cover higher costs for natural gas and purchased
power. The Company is asking the PUCN to render a decision by August 1, 1998.
7
The Company's customer growth rate during 1997 and 1996 was 6.4 and 7.2
percent, respectively. The increase in customers for the first three months of
1998 was at an annualized rate of 5.8 percent. At March 31, 1998, the Company
provided electric service to 525,887 customers.
Pursuant to Nevada law, every three years the Company is required to file
with the PUCN a forecast of electricity demands for the next 20 years and the
Company's plans to meet those demands. The Company filed its 1997 Resource
Plan on June 3, 1997. On October 20, 1997, the PUCN rendered a decision on
this plan. Among the major items in the Company's 1997 Resource Plan which
were approved by the PUCN are the following:
(1) the Company will proceed to build a 500 kV transmission project known
as the Crystal Transmission Project, with an in-service date of
June 1, 1999;
(2) the Company will continue to pursue a strategy of relying on bulk
power purchases to meet near-term incremental increases in load;
(3) the Company will proceed with a joint 230 kV transmission project with
the Colorado River Commission with costs subject to prudency review in
a future rate case;
(4) the Company received limited approval to proceed with six switchyard
projects;
(5) the Company received approval for pre-development costs to build two
144 megawatt (MW) combustion turbines in 2002 and 2003 which would be
converted to a 410 MW combined cycle plant in 2004. An amendment to
the 1997 Resource Plan will need to be filed by September 1999 for
full approval if the Company wants to proceed with building the
turbines.
To meet capital expenditure requirements through 1998, the Company plans
to utilize internally generated cash, the proceeds from industrial development
revenue bonds (IDBs), FMBs, unsecured borrowings, preferred securities and
common stock issues through public offerings and the Stock Purchase and
Dividend Reinvestment Plan (SPP).
Starting April 30, 1998, the Company will use open market purchases of its
common stock to meet the requirements of the SPP. Under the SPP the Company
issued 1,659,764 and 273,284 shares, respectively, of its common stock in 1997
and the first three months of 1998.
On November 20, 1997, Clark County, Nevada issued $52.3 million Series
1997A IDBs (Nevada Power Company Project) due 2032 and Coconino County, Arizona
Pollution Control Corporation issued $20 million 5.8% Pollution Control Revenue
Bonds (PCRBs) Series 1997B (Nevada Power Company Project) due 2032. 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. Net proceeds from the sale of the PCRBs were placed
on deposit with a trustee and are being used to finance the construction of the
Navajo scrubber facilities which qualify for tax-exempt financing. At March
31, 1998, $53.5 million remained on deposit with the trustee.
At their February meeting, the Company's Board of Directors approved
opening access to the Company' SPP to any person or entity, whether or not
currently a registered holder of the Company's common or preferred stock.
Participation in the SPP was previously limited to service territory customers,
employees and shareholders.
In April 1998, the plant workers of the International Brotherhood of
Electrical Workers Union (IBEW) Local 396 ratified a new contract presented by
Company management. Clerical and plant workers of the IBEW have been working
without contracts since February 1998. The contract for the clerical workers
has not been scheduled for a vote at this time.
8
In April 1998, the Company obtained an additional committed bank line for
$50 million which expires on April 16, 1999. The short-term financing is
expected to be utiltized to fund some of the Company's construction
expenditures until long-term financing is secured.
INDUSTRY RESTRUCTURING
On July 17, 1997, the Governor of the state of Nevada signed into law
Assembly Bill 366 (AB 366) which provides for competition to be implemented in
the electric utility industry in the state no later than December 31, 1999
unless the PUCN determines a different date is necessary to protect the public
interest. AB 366 also changed the name of the Public Service Commission to the
PUCN, reduced it from five to three members, and removed the regulation of
transportation matters to another agency. It is expected that the generation,
aggregation (buying and reselling electricity to customers) and marketing of
electricity and possibly other utility services will be deemed competitive,
while transmission and distribution services will be deemed noncompetitive and
will continue to be regulated. The Company is required to submit a plan to the
PUCN to unbundle its integrated rates. A provider of a noncompetitive service
will be prohibited from providing a potentially competitive service except
through an affiliate which the PUCN has determined, after a hearing, has an
arm's length relationship with the provider of the noncompetitive service.
Each provider of a noncompetitive service that is necessary to the provision of
a potentially competitive service is required to make its facilities or
services available to all alternative sellers on equal and nondiscriminatory
terms and conditions. Alternative sellers of electricity must be licensed
under rules yet to be determined by the PUCN. AB 366 allows the PUCN to
authorize full recovery of costs which they determine to be stranded but does
not guarantee full recovery of those costs. Costs that were incurred by
utilities to serve their customers with the understanding that state regulatory
commissions would allow the costs to be recovered through electric rates are
potentially stranded costs. The greater part of the Company's potentially
stranded costs are related to contracts with qualifying facilities all of which
were previously approved by the PUCN. The PUCN shall designate a vertically
integrated electric utility or another entity to provide electric service to
customers who are unable to obtain electric service from an alternative seller
or who fail to select an alternative seller. The provider of last resort so
designated by the PUCN is obligated to provide electric service to those
customers. The PUCN may authorize the right to buy from alternative sellers in
gradual phases. The rate charged for residential service for customers who are
unable to obtain electric service from an alternative seller or who fail to
select an alternative seller must not exceed the rate charged for that service
on July 1, 1997, however, the PUCN may approve an increase in residential rates
in an amount necessary to ensure recovery by the Company of its just and
reasonable costs. The residential rate restriction will remain in place until
2003. Two-tenths of one percent of all electric energy sold must come from a
renewable resource produced in Nevada by January 1, 2001. Fifty percent of
this energy must be derived from solar power. Every two years the standard
increases by two-tenths of one percent until a total of one percent of all
electricity consumed comes from renewable resources.
In August 1997, the PUCN opened an investigatory docket of the issues to
be considered as a result of restructuring of the electric industry. The
docket sets forth the issues to be addressed as well as the steps the PUCN will
take to address them. Issues to be addressed include the following:
(1) Identification of all cost components in utility service and
establishment of allocation methods necessary for later pricing of
noncompetitive services;
(2) Designation of services as potentially competitive or noncompetitive;
(3) Determination of rate design and non-price terms and conditions for
noncompetitive services;
9
(4) Establishment of licensing requirements for alternative sellers of
potentially competitive services;
(5) Past (stranded) costs;
(6) Criteria and standards by which the PUCN will apply the legislative
requirements concerning affiliate relations;
(7) Criteria and process by which the PUCN will appoint providers of
bundled electric service;
(8) Consumer protection;
(9) Anti-competitive behavior codes of conduct and enforcement;
(10) Price regulation for potentially competitive services in immature
markets;
(11) Compliance plans in accordance with regulation;
(12) Options for complying with legislative mandates for integrated resource
planning and portfolio standards;
(13) Innovative pricing for noncompetitive services.
In its Order dated November 4, 1997, the PUCN designated unbundled
services in eight major categories with twenty-six unbundled services in total.
The major categories include Generation Capacity and Energy Supply, Generation
Services Necessary to Support Transmission Service, Arranging for Power
Supplies, Power Delivery, End-Use Metering, Customer Accounting, Marketing and
Sales, and Public Good Services. The PUCN evaluated the cost unbundling
methodologies for the unbundled services set forth in its Order and, after
hearings, issued an Interim Order describing the process the parties should
follow to complete developing cost unbundling methodologies and to work toward
consensus on that issue. Subsequently, the PUCN stated in an Interim Order
dated March 5, 1998 that the majority of the conclusions of the Cost Unbundling
Consensus Report should be adopted. Additionally, on March 19, 1998, a second
Cost Unbundling Consensus Report on resolution of most of the final issues was
filed with the PUCN. All parties will hold a workshop in April to discuss and
reach consensus on the final issues that remain.
The PUCN has the authority to classify a service as a potentially
competitive service if it finds the service meets specific requirements. The
PUCN has proposed regulations and held a hearing on the contents of
applications by any person seeking a designation of an unbundled service as
potentially competitive.
On January 21, 1998, the PUCN issued an Order to solicit comments on the
Classification of Components of Electric Service as Potentially Competitive
Services; Non-price Terms and Conditions for Distribution Tariffs; Licensing
of Alternative Sellers; and Consumer Protection. As requested by the PUCN,
comments were filed on the Classification of Electric Service as Potentially
Competitive Services and workshops were held. The services which were
discussed as potentially competitive were billing, customer service, metering,
demand management services and physical connection.
Comments were filed with the PUCN on Non-Price Terms and Conditions for
Distribution Tariffs and a workshop was held. The main topics of discussion
were physical distribution facilities and services, eligibility to obtain
distribution service, packaging of services, processing requests and denial of
service, informational interaction, safety and reliability.
10
On March 4, 1998 the PUCN issued a Notice of Request for Comments on
proposed regulation intended to address the competitive provision of services
by the utility distribution company and its affiliates. Comments were filed
and workshops were held where several of the major issues discussed were the
use of the corporate family name and logo, shared corporate support functions,
consistent application of the rule, cross subsidization of costs, violations
and sanctions. A revised proposed regulation will be issued by the PUCN and
parties will be requested to comment.
Comments on Licensing of Alternative Sellers and Consumer Protection were
filed and workshops held. During the Licensing portion of the workshops,
the primary issues discussed were types of licenses, by services offered and
customers served, and financial viability. The main topics of discussion
during the Consumer Protection workshop were standardized disclosure, uniform
contracts, allocation of partial payments, labeling and the Consumer Bill of
Rights.
On April 23, 1998, the PUCN issued an Order to solicit comments in
response to questions and issues related to load pockets, treatment of
transition costs and provider of last resort service. PUCN workshops have been
scheduled for May and June 1998 on these issues.
CONTINUING APPLICABILITY OF FASB 71
The Company's rates are currently subject to approval by the PUCN and are
designed to recover the Company's costs of providing services to its customers.
A primary difference between a rate regulated entity and an unregulated entity
is the timing of recognizing certain assets and expenses for financial
reporting purposes. The Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (FASB 71),
prescribes the method to be used to record the financial transactions of a
regulated entity. The criteria for applying FASB 71 include the following:
(i) rates are set by an independent third party regulator, (ii) approved rates
are intended to recover the specific costs of the regulated products or
services, (iii) rates set at levels that will recover costs, can be charged to
and collected from customers. If the Company determines as a result of
competitive changes in Nevada, PUCN orders or otherwise that its business, or a
portion of its business, fails to meet any of these three criteria of FASB 71,
it may have to eliminate from its Consolidated Financial Statements the related
transactions prescribed by the regulators that would not have been recognized
if it had been a non-regulated company, which could result in an impairment of
or write-off of utility assets. The Company believes, however, that it
continues to meet the criteria for operating as a rate regulated entity, as
prescribed by FASB 71.
In July 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on several issues which have
arisen due to deregulation of the electric utility industry and the continuing
applicability of FASB 71. The EITF reached a consensus that a company should
stop applying FASB 71 to a separable portion of its business when deregulatory
legislation or a rate order which results in deregulation gives enough detail
for the company to reasonably determine how the transition plan to deregulation
will effect that separable portion. Once FASB 71 is no longer applied to that
separable portion of the business it will be disclosed separately in the
company's financial statements. Any regulatory assets and liabilities that
originated in that separable portion of the company should be evaluated on the
basis of which portion of the business the regulated cash flows to settle them
will come from and will not be eliminated until they are recovered,
individually impaired or eliminated by the regulator or the portion of the
business where the regulated cash flows come from can no longer apply FASB 71.
Any new regulatory assets and liabilities are recognized within the portion of
the company where the regulated cash flows for their recovery or settlement are
derived and are eliminated in the same manner as existing regulatory assets and
liabilities as described above.
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YEAR 2000
The Company has begun changing its computer programs and systems to be
year 2000 compliant (e.g., to recognize the difference between '99 and '00 as
one year instead of negative 99 years). The Company believes the impact the
year 2000 issue will have on its business applications will not be material.
The Company is still reviewing this issue for its electrical system equipment.
A plan is in progress to identify and correct problems related to the year 2000
issue.
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OPERATING RESULTS OF THE FIRST QUARTER OF 1998
COMPARED TO FIRST QUARTER OF 1997
Earnings per average common share were fourteen cents for the first
quarter of 1998, compared to fifteen cents for the same period in 1997. The
decrease in earnings available for common was primarily due to the first
quarter 1997 sale of sulfur dioxide emission allowances, the distribution
requirements on company-obligated preferred securities of a subsidiary trust
due to the issuance of the Quarterly Income Preferred Securities (QUIPS) and
additional interest expense. Revenues increased primarily due to an energy
rate increase effective February 1, 1998. The average number of customers
increased 6.48 percent and kilowatthour sales, excluding sales for resale, were
up 6.67 percent, as compared to the first quarter of 1997.
Fuel expense increased $5.4 million due to increased generation and higher
average fuel rates. Purchased power decreased $2.2 million due to decreased
power purchases. Maintenance and repairs increased $2.5 million due mainly to
increased maintenance expense at the Reid Gardner Generating Station.
Depreciation expense increased $1.5 million because of a growing asset base.
Interest on long term debt increased by $1.8 million primarily due to the new
Series 1997A $52.3 million IDBs and Series 1997B $20 million PCRBs and the
remarketing at fixed rates of variable rate revenue bonds $76.75 million Series
1995A, $44 million Series 1995C, $20.3 million Series 1995D and $13 million
Series 1995E. Distribution requirements on company-obligated preferred
securities of a subsidiary trust increased by $2.4 million due to the issuance
of the QUIPS.
Average common shares increased because of the sale of additional common
shares through the SPP to partially provide funds for the construction of
facilities necessary to meet increased customer demand for electricity.
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PART II. OTHER INFORMATION
Items 1 through 5. None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibits Filed Description
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27 Financial Data Schedule
b. Reports on Form 8-K.
Form 8-K filed on April 30, 1998.
Signatures
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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
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(Registrant)
STEVEN W. RIGAZIO
--------------------------------------
(Signature)
Date: May 6, 1998 Steven W. Rigazio
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Vice President, Finance and Planning,
Treasurer, Chief Financial Officer
14