===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Registrant, State of Incorporation, Address of
Commission File Principal Executive Offices and Telephone I.R.S. employer
Number Number Identification Number
1-8788 SIERRA PACIFIC RESOURCES 88-0198358
P.O. Box 10100
(6100 Neil Road)
Reno, Nevada 89520-0400 (89511)
(775) 834-4011
1-4698 NEVADA POWER COMPANY 88-0045330
6226 West Sahara Avenue
Las Vegas, Nevada 89146
(702) 367-5000
0-508 SIERRA PACIFIC POWER COMPANY 88-0044418
P.O. Box 10100
(6100 Neil Road)
Reno, Nevada 89520-0400 (89511)
(775) 834-4011
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at May 7, 2001
Common Stock, $1.00 par value 78,485,261 Shares
of Sierra Pacific Resources
Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding
Common Stock, $1.00 stated value, of Nevada Power Company.
Sierra Pacific Resources is the sole holder of the 1,000 shares of outstanding
Common Stock, $1.00 stated value, of Sierra Pacific Power Company.
This combined Quarterly Report on Form 10-Q is separately filed by Sierra
Pacific Resources, Nevada Power Company and Sierra Pacific Power Company.
Information contained in this document relating to Nevada Power Company is filed
by Sierra Pacific Resources and separately by Nevada Power Company on its own
behalf. Nevada Power Company makes no representation as to information relating
to Sierra Pacific Resources or its subsidiaries, except as it may relate to
Nevada Power Company. Information contained in this document relating to Sierra
Pacific Power Company is filed by Sierra Pacific Resources and separately by
Sierra Pacific Power Company on its own behalf. Sierra Pacific Power Company
makes no representation as to information relating to Sierra Pacific Resources
or its subsidiaries, except as it may relate to Sierra Pacific Power Company.
================================================================================
SIERRA PACIFIC RESOURCES
NEVADA POWER COMPANY
SIERRA PACIFIC POWER COMPANY
QUARTERLY REPORTS ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Sierra Pacific Resources -
Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000.................. 3
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 2001 and 2000................................................................. 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000................................................................. 5
Nevada Power Company -
Condensed Balance Sheets - March 31, 2001 and December 31, 2000............................... 6
Condensed Statements of Income - Three Months Ended March 31, 2001 and 2000................... 7
Condensed Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000............... 8
Sierra Pacific Power Company -
Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000.................. 9
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 2001 and 2000................................................................. 10
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000...... 11
Notes to Condensed Consolidated Financial Statements.............................................. 12
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 20
Sierra Pacific Resources Results of Operations............................................ 21
Nevada Power Company Results of Operations................................................ 24
Sierra Pacific Power Company Results of Operations........................................ 27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................................ 33
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings......................................................................... 34
ITEM 4. Submission of Matters to a Vote of Security Holders....................................... 34
ITEM 5. Other Information......................................................................... 34
ITEM 6. Exhibits and Reports on Form 8-K.......................................................... 34
Signature Page........................................................................................ 35
2
SIERRA PACIFIC RESOURCES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Utility Plant at Original Cost:
Plant in service $5,390,480 $5,269,724
Less: accumulated provision for depreciation 1,671,622 1,636,657
---------- ----------
3,718,858 3,633,067
Construction work-in-progress 273,675 348,067
---------- ----------
3,992,533 3,981,134
---------- ----------
Investments in subsidiaries and other property, net 126,137 135,062
---------- ----------
Current Assets:
Cash and cash equivalents 79,830 51,503
Accounts receivable less provision for uncollectible accounts:
2001-$33,347; 2000-$13,194 398,439 336,361
Materials, supplies and fuel, at average cost 90,051 75,132
Deferred energy costs 34,902 16,370
Other 93,574 59,128
---------- ----------
696,796 538,494
---------- ----------
Deferred Charges:
Goodwill, net of amortization 318,745 320,256
Regulatory tax asset 175,509 175,509
Other regulatory assets 110,603 105,588
Risk management assets 2,023,159 -
Other 118,291 116,965
---------- ----------
2,746,307 718,318
---------- ----------
Net assets of discontinued operations (Note 6) 261,745 261,479
---------- ----------
$7,823,518 $5,634,487
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity $1,266,899 $1,359,712
Accumulated other comprehensive income 5,156 -
Preferred stock 50,000 50,000
SPPC/ NPC obligated mandatorily redeemable preferred trust securities 237,372 237,372
Long-term debt 2,130,209 2,133,679
---------- ----------
3,689,636 3,780,763
---------- ----------
Current Liabilities:
Short-term borrowings 445,895 213,074
Current maturities of long-term debt 472,881 472,527
Accounts payable 324,909 312,039
Accrued interest 50,770 30,184
Dividends declared 83 20,890
Accrued salaries and benefits 17,960 28,957
Other current liabilities 10,596 17,795
---------- ----------
1,323,094 1,095,466
---------- ----------
Commitments & Contingencies (Note 9)
Deferred Credits:
Deferred federal income taxes 411,247 406,310
Deferred investment tax credit 54,431 55,252
Regulatory tax liability 51,170 50,994
Customer advances for construction 107,339 109,962
Accrued retirement benefits 82,142 80,027
Deferred energy 18,699 -
Risk management liabilities 1,379,593 -
Risk management regulatory liabilities 648,721 -
Other 57,446 55,713
---------- ----------
2,810,788 758,258
---------- ----------
$7,823,518 $5,634,487
========== ==========
The accompanying notes are an integral part of the financial statements
3
SIERRA PACIFIC RESOURCES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
Three months ended
March 31,
-----------------------------------------
2001 2000
--------------- ---------------
(unaudited)
OPERATING REVENUES:
Electric $671,131 $353,652
Gas 64,165 34,836
Other 2,630 4,161
-------- --------
737,926 392,649
-------- --------
OPERATING EXPENSES:
Operation:
Purchased power 352,808 103,297
Fuel for power generation 217,906 66,923
Gas purchased for resale 70,543 22,851
Deferral of energy costs-net 185 7,164
Other 104,299 61,853
Maintenance 18,304 13,890
Depreciation and amortization 39,033 38,751
Taxes:
Income taxes (45,276) 10,875
Other than income 10,611 9,852
-------- --------
768,413 335,456
-------- --------
OPERATING (LOSS) INCOME (30,487) 57,193
-------- --------
OTHER (EXPENSE) INCOME:
Allowance for other funds used during construction (536) 840
Other income - net 1,269 261
-------- --------
733 1,101
-------- --------
TOTAL (LOSS) INCOME BEFORE INTEREST CHARGES (29,754) 58,294
-------- --------
INTEREST CHARGES:
Long-term debt 40,222 23,601
Other 7,882 14,071
Allowance for borrowed funds used during construction and
capitalized interest 398 (2,233)
-------- --------
48,502 35,439
-------- --------
(LOSS) INCOME BEFORE SPPC/NPC OBLIGATED MANDATORILY
REDEEMABLE PREFERRED TRUST SECURITIES (78,256) 22,855
Preferred dividend requirements of SPPC/NPC obligated
mandatorily redeemable preferred trust securities (4,729) (4,729)
-------- --------
(LOSS) INCOME BEFORE PREFERRED STOCK DIVIDENDS (82,985) 18,126
Preferred stock dividend requirements of subsidiary (875) (875)
-------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS (83,860) 17,251
-------- --------
DISCONTINUED OPERATIONS:
Income from operations of water business to be disposed of
(net of income taxes of $478 and ($860) in 2001 and 2000, respectively) 381 927
-------- --------
NET (LOSS) INCOME $(83,479) $ 18,178
======== ========
(Loss) Income per share - Basic
(Loss) Income from continuing operations $ (1.07) $ 0.22
Income from discontinued operations 0.01 0.01
-------- --------
Net (loss) income $ (1.06) $ 0.23
======== ========
(Loss) Income per share - Diluted
(Loss) Income from continuing operations $ (1.07) $ 0.22
Income from discontinued operations 0.01 0.01
-------- --------
Net (loss) income $ (1.06) $ 0.23
======== ========
Weighted Average Shares of Common Stock Outstanding (000's) 78,475 78,416
======== ========
Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250
======== ========
The accompanying notes are an integral part of the financial statements.
4
SIERRA PACIFIC RESOURCES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31,
------------------------------------
2001 2000
--------- ----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) Income from continuing operations before preferred dividends $ (82,985) $ 18,126
Income from discontinued operations before preferred dividends 481 1,027
Non-cash items included in income:
Depreciation and amortization 40,984 40,633
Deferred taxes and deferred investment tax credit 4,097 (340)
AFUDC and capitalized interest 974 (3,145)
Amortization of deferred energy costs - 6,460
Early retirement and severance amortization - 1,049
Other non-cash 7,114 2,718
Changes in certain assets and liabilities:
Accounts receivable (61,627) 14,289
Materials, supplies and fuel (15,017) (740)
Deferred energy costs (54) -
Other current assets (30,455) (6,020)
Accounts payable 12,870 (28,174)
Other current liabilities 2,390 33,181
Other - net 3,160 4,240
--------- --------
Net Cash Flows From Operating Activities (118,068) 83,304
--------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant (62,813) (65,588)
AFUDC and other charges to utility plant (974) 1,014
Customer refunds for construction (2,623) 1,022
Contributions in aid of construction 6,768 2,150
--------- --------
Net cash used for utility plant (59,642) (61,402)
--------- --------
Investments in subsidiaries and other property - net (2,855) (9,985)
--------- --------
Net Cash Used In Investing Activities (62,497) (71,387)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 232,821 33,584
Retirement of long-term debt (3,116) (12,661)
Sale of common stock - 5
Dividends paid (20,813) (20,805)
--------- --------
Net Cash Provided By Financing Activities 208,892 123
--------- --------
Net Increase in Cash and Cash Equivalents 28,327 12,040
Beginning balance in Cash and Cash Equivalents 51,503 4,789
--------- --------
Ending balance in Cash and Cash Equivalents $ 79,830 $ 16,829
========= ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During Period For:
Interest $ 31,086 $ 22,559
Income Taxes $ (33,842) $ -
The accompanying notes are an integral part of the financial statements
5
NEVADA POWER COMPANY
CONDENSED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
2001 2000
---------------------- ----------------
(unaudited)
ASSETS
Utility Plant at Original Cost:
Plant in service $3,181,923 $3,089,705
Less: accumulated provision for depreciation 877,766 855,599
---------------------- ----------------
2,304,157 2,234,106
Construction work-in-progress 177,844 228,856
---------------------- ----------------
2,482,001 2,462,962
---------------------- ----------------
Investments in Sierra Pacific Resources (Note 2) 439,660 471,975
Investments in subsidiaries and other property, net 13,618 13,418
---------------------- ----------------
453,278 485,393
---------------------- ----------------
Current Assets:
Cash and cash equivalents 9,095 43,858
Accounts receivable less provision for uncollectible accounts:
2001-$28,116; 2000-$11,605 210,414 137,097
Materials, supplies and fuel, at average cost 49,518 45,573
Other 51,908 28,933
---------------------- ----------------
320,935 255,461
---------------------- ----------------
Deferred Charges:
Regulatory tax asset 113,647 113,647
Other regulatory assets 33,976 32,583
Risk management assets 1,504,867 -
Other 27,140 25,912
---------------------- ----------------
1,679,630 172,142
---------------------- ----------------
$4,935,844 $3,375,958
====================== ================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity including $439,660 and $471,975
of equity in Sierra Pacific Resources in 2001 and 2000 (Note 2) $1,272,055 $1,359,712
NPC obligated mandatorily redeemable preferred trust securities 188,872 188,872
Long-term debt 925,050 927,784
---------------------- ----------------
2,385,977 2,476,368
---------------------- ----------------
Current Liabilities:
Short-term borrowings 196,163 100,000
Current maturities of long-term debt 253,265 252,910
Accounts payable 168,834 126,015
Accrued interest 22,340 16,913
Dividends declared 92 86
Accrued salaries and benefits 6,767 12,297
Other current liabilities 17,014 16,450
---------------------- ----------------
664,475 524,671
---------------------- ----------------
Commitments & Contingencies (Note 9)
Deferred Credits:
Deferred federal income taxes 210,516 216,753
Deferred investment tax credit 24,798 25,163
Regulatory tax liability 19,908 19,908
Customer advances for construction 64,345 65,588
Accrued retirement benefits 28,334 27,985
Deferred energy 11,403 -
Risk management liabilities 1,164,309 -
Risk management regulatory liabilities 340,557 -
Other 21,222 19,522
---------------------- ----------------
1,885,392 374,919
---------------------- ----------------
$4,935,844 $3,375,958
====================== ================
The accompanying notes are an integral part of the financial statements.
6
NEVADA POWER COMPANY
CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
Three months ended
March 31,
----------------------------------------
2001 2000
------------------ ------------------
(unaudited)
OPERATING REVENUES:
Electric $359,012 $196,030
OPERATING EXPENSES:
Operation:
Purchased power 201,822 53,817
Fuel for power generation 115,352 37,647
Deferral of energy costs-net 11,308 6,788
Other 50,772 29,151
Maintenance 12,980 9,821
Depreciation and amortization 21,876 21,416
Taxes:
Income taxes (30,464) 3,627
Other than income 6,050 5,406
------------------ ------------------
389,696 167,673
------------------ ------------------
OPERATING INCOME (30,684) 28,357
------------------ ------------------
OTHER (EXPENSE) INCOME:
Equity in earnings (losses) of Sierra Pacific Resources (Note 2) (28,137) 10,207
Allowance for other funds used during construction (351) 780
Other income - net 421 376
------------------ ------------------
(28,067) 11,363
------------------ ------------------
TOTAL (LOSS) INCOME BEFORE INTEREST CHARGES (58,751) 39,720
------------------ ------------------
INTEREST CHARGES:
Long-term debt 16,620 15,899
Other 3,963 3,665
Allowance for borrowed funds used during construction and
capitalized interest 352 (1,815)
------------------ ------------------
20,935 17,749
------------------ ------------------
(LOSS) INCOME BEFORE NVP OBLIGATED MANDATORILY
REDEEMABLE PREFERRED TRUST SECURITIES (79,686) 21,971
Preferred dividend requirements of NPC
obligated mandatorily redeemable preferred trust
securities (3,793) (3,793)
------------------ ------------------
NET (LOSS) INCOME $(83,479) $ 18,178
================== ==================
Net (Loss) Income Per Share - Basic $ (1.06) $ 0.23
================== ==================
- Diluted $ (1.06) $ 0.23
================== ==================
Weighted Average Shares of Common
Stock Outstanding (000's) 78,475 78,416
================== ==================
Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250
================== ==================
The accompanying notes are an integral part of the financial statements.
7
NEVADA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31,
------------------------------------
2001 2000
------------- ----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) Income before preferred dividends $(83,479) $ 18,178
Non-cash items included in income:
Depreciation and amortization 21,876 21,416
Deferred taxes and deferred investment tax credit (6,602) (1,227)
AFUDC and capitalized interest 704 (2,595)
Amortization of deferred energy costs - 6,084
Other non-cash (6,317) 1,453
Equity in losses (earnings) of SPR (Note 2) 28,137 (10,207)
Changes in certain assets and liabilities, net of acquisition:
Accounts receivable (73,318) 16,060
Materials, supplies and fuel (3,945) (1,518)
Deferred energy costs 11,403 -
Other current assets (18,984) (3,061)
Accounts payable 42,819 (23,096)
Other current liabilities 462 16,826
Other - net 2,053 (1,072)
------------- ----------------
Net Cash Flows From Operating Activities (85,191) 37,241
------------- ----------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant (42,718) (38,348)
AFUDC and other charges to utility plant (703) 406
Customer refunds for construction (1,243) (116)
Contributions in aid of construction 1,309 -
------------- ----------------
Net cash used for utility plant (43,355) (38,058)
Investments in subsidiaries and other property - net - (92)
------------- ----------------
Net Cash Used In Investing Activities (43,355) (38,150)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 96,163 12,653
Retirement of long-term debt (2,380) (1,098)
Additional investment of Parent - 14,000
Dividends paid - (23,998)
------------- ----------------
Net Cash Provided By Financing Activities 93,783 1,557
------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents (34,763) 648
Beginning balance in Cash and Cash Equivalents 43,858 243
------------- ----------------
Ending balance in Cash and Cash Equivalents $ 9,095 $ 891
============= ================
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During Period For:
Interest $ 15,508 $ 7,134
Income Taxes $(10,015) $ -
The accompanying notes are an integral part of the financial statements.
8
SIERRA PACIFIC POWER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
Utility Plant at Original Cost:
Plant in service $2,208,557 $2,180,019
Less: accumulated provision for depreciation 793,856 781,058
------------- ------------
1,414,701 1,398,961
Construction work-in-progress 95,831 119,210
------------- ------------
1,510,532 1,518,171
------------- ------------
Investments in subsidiaries and other property, net 59,050 60,047
------------- ------------
Current Assets:
Cash and cash equivalents 10,809 5,348
Accounts receivable less provision for uncollectible accounts:
2001 - $5,231; 2000 - $1,589 172,679 133,369
Materials, supplies and fuel, at average cost 40,399 29,209
Deferred energy costs 34,902 16,370
Other 41,374 29,852
------------- ------------
300,163 214,148
------------- ------------
Deferred Charges:
Regulatory tax asset 61,862 61,862
Other regulatory assets 62,338 61,236
Risk management assets 518,292 -
Other 14,110 12,036
------------- ------------
656,602 135,134
------------- ------------
Net assets of discontinued operations (Note 6) 261,745 261,479
------------- ------------
$2,788,092 $2,188,979
============= ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity 601,278 604,795
Preferred stock 50,000 50,000
SPPC obligated mandatorily redeemable preferred trust securities 48,500 48,500
Long-term debt 605,080 605,816
------------- ------------
1,304,858 1,309,111
------------- ------------
Current Liabilities:
Short-term borrowings 199,620 108,962
Current maturities of long-term debt 219,616 219,616
Accounts payable 120,483 146,724
Accrued interest 14,599 6,992
Dividends declared 22,999 23,975
Accrued salaries and benefits 10,236 15,475
Other current liabilities 2,789 2,932
------------- ------------
590,342 524,676
------------- ------------
Commitments & Contingencies (Note 9)
Deferred Credits:
Deferred federal income taxes 190,278 179,106
Deferred investment tax credit 29,632 30,088
Regulatory tax liability 31,263 31,087
Accrued retirement benefits 42,655 44,374
Customer advances for construction 42,994 41,776
Deferred energy 7,296 -
Risk management liabilities 210,128 -
Risk management regulatory liabilities 308,164 -
Other 30,482 28,761
------------- ------------
892,892 355,192
------------- ------------
$2,788,092 $2,188,979
============= ============
The accompanying notes are an integral part of the financial statements.
9
SIERRA PACIFIC POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
Three Months Ended
March 31,
---------------------------------------
2001 2000
---------------- ----------------
(Unaudited)
OPERATING REVENUES:
Electric $312,119 $157,622
Gas 64,165 34,836
---------------- ----------------
376,284 192,458
---------------- ----------------
OPERATING EXPENSES:
Operation:
Purchased power 150,987 49,480
Fuel for power generation 102,553 29,276
Gas purchased for resale 70,543 22,851
Deferral of energy costs - net (11,123) 376
Other 27,694 23,156
Maintenance 5,324 4,069
Depreciation and amortization 16,849 17,149
Taxes:
Income taxes (2,121) 11,894
Other than income 4,394 4,371
---------------- ----------------
365,100 162,622
---------------- ----------------
OPERATING INCOME 11,184 29,836
---------------- ----------------
OTHER (EXPENSE) INCOME:
Allowance for other funds used during construction (184) 60
Other expense - net (486) (273)
---------------- ----------------
(670) (213)
---------------- ----------------
TOTAL INCOME BEFORE INTEREST CHARGES 10,514 29,623
---------------- ----------------
INTEREST CHARGES:
Long-term debt 10,571 7,529
Other 2,960 3,092
Allowance for borrowed funds used during construction and
capitalized interest 46 (418)
---------------- ----------------
13,577 10,203
---------------- ----------------
(LOSS) INCOME BEFORE SPPC OBLIGATED MANDATORILY
REDEEMABLE PREFERRED TRUST SECURITIES (3,063) 19,420
Preferred dividend requirements of SPPC obligated
mandatorily redeemable preferred trust securities (936) (936)
---------------- ----------------
(LOSS) INCOME BEFORE PREFERRED DIVIDENDS (3,999) 18,484
Preferred dividend requirements (875) (875)
---------------- ----------------
NET (LOSS) INCOME FROM CONTINUING OPERATIONS (4,874) 17,609
---------------- ----------------
DISCONTINUED OPERATIONS:
Income from operations of water business to be disposed of
(net of income taxes of $478 and ($860) in
2001 and 2000, respectively) 381 927
---------------- ----------------
NET (LOSS) INCOME $ (4,493) $ 18,536
================ ================
The accompanying notes are an integral part of the financial
statements.
10
SIERRA PACIFIC POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Three Months Ended
March 31,
--------------------------------
2001 2000
-------- --------
(Unaudited)
Cash Flows From Operating Activities:
(Loss) Income from continuing operations before preferred
dividends $ (3,999) $ 18,484
Income from discontinued operations before preferred
dividends 481 1,027
Non-Cash items included in income:
Depreciation and amortization 18,800 19,031
Deferred taxes and investment tax credits 10,697 868
AFUDC and capitalized interest 271 (550)
Early retirement and severance amortization - 1,049
Other non-cash 790 1,261
Changes in certain assets and liabilities:
Accounts receivable (38,859) 7,848
Materials, supplies and fuel (11,289) 542
Deferred energy costs (11,456) 376
Other current assets (11,522) (2,842)
Accounts payable (26,241) (8,748)
Other current liabilities 2,225 16,513
Other-net 1,906 476
-------- --------
Net Cash Flows From Operating Activities (68,196) 55,335
-------- --------
Cash Flows From Investing Activities:
Additions to utility plant (20,095) (27,239)
AFUDC and other charges to utility plant (271) 608
Customer (refunds) advances for construction (1,380) 1,138
Contributions in aid of construction 5,459 2,150
-------- --------
Net cash used for utility plant (16,287) (23,343)
Investment in subsidiaries and other non-utility property
- net 997 842
-------- --------
Net Cash Used in Investing Activities (15,290) (22,501)
-------- --------
Cash Flows From Financing Activities
Increase (decrease) in short-term borrowings 90,658 (8,917)
Retirement of long-term debt (736) (1,563)
Additional investment by parent company - 7,000
Dividends paid and premiums on preferred redemption (975) (19,967)
-------- --------
Net Cash Provided by (Used in) Financing Activities 88,947 (23,447)
-------- --------
Net Increase in Cash and Cash Equivalents 5,461 9,387
Beginning Balance in Cash and Cash Equivalents 5,348 3,011
-------- --------
Ending Balance in Cash and Cash Equivalents $ 10,809 $ 12,398
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During Period For:
Interest $ 9,139 $ 7,833
Income taxes $(18,071) $ -
The accompanying notes are an integral part of the financial
statements.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1. MANAGEMENT'S STATEMENT (SPR, NPC, SPPC)
- --------------------------------------------------
In the opinion of the management of Sierra Pacific Resources (SPR), Nevada
Power Company (NPC), and Sierra Pacific Power Company (SPPC), the accompanying
unaudited interim condensed consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the condensed consolidated financial position, condensed
consolidated results of operations and condensed consolidated cash flows for the
periods shown. These condensed consolidated financial statements do not contain
the complete detail or footnote disclosure concerning accounting policies and
other matters which are included in full year financial statements and
therefore, they should be read in conjunction with the audited financial
statements included in SPR's, NPC's, and SPPC's Combined Annual Report on Form
10-K for the year ended December 31, 2000.
The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
Principles of Consolidation
---------------------------
The condensed consolidated financial statements of SPR include the accounts
of SPR and its wholly owned subsidiaries, Nevada Power Company, Sierra Pacific
Power Company, (collectively, the "Utilities"), Tuscarora Gas Pipeline Company,
Sierra Gas Holding Company (formerly Sierra Energy Company), Sierra Energy
Company dba e-three, Sierra Pacific Energy Company, Lands of Sierra, Sierra
Pacific Communications, Nevada Electric Investment Company and Sierra Water
Development Company. All significant intercompany transactions and balances
have been eliminated in consolidation.
Reclassifications
-----------------
Certain items previously reported for years prior to 2001 have been
reclassified to conform to the current year's presentation. Net income and
shareholders' equity were not affected by these reclassifications.
NOTE 2. FINANCIAL STATEMENTS OF NEVADA POWER COMPANY (NPC)
- -------------------------------------------------------------
In accordance with Generally Accepted Accounting Principles, the 1999
merger between SPR and NPC was accounted for as a reverse purchase, with NPC
deemed to be the acquirer of SPR as reflected in the SPR Consolidated Financial
Statements. However, after the merger with SPR and as a result of the structure
of the transactions, NPC is a separate legal entity, which is a wholly owned
subsidiary of SPR. As a legal matter, NPC does not own any equity interest in
SPR. The audited NPC Financial Statements accommodate the presentation of
financial information of NPC on a stand-alone basis by summarizing all non-NPC
financial information into a few items on each of the Financial Statements.
These summarized items are repeated below (in 000's):
Non-NPC Financial Items on the NPC Financial Statements
NPC Balance Sheet: March 31, 2001 December 31, 2000
- ------------------ -------------- -----------------
Investment in Sierra Pacific Resources $439,660 $471,975
Equity in Sierra Pacific Resources $439,660 $471,975
The Investment in Sierra Pacific Resources reflects the net assets, after
deducting for all liabilities and preferred stock of Sierra Pacific Resources
not related to NPC. The Equity in Sierra Pacific Resources reflects the sum of
paid-in-capital and retained earnings of SPR, without the benefit of NPC.
These line items do not represent any asset to which holders of NPC's
securities may look for recovery of their investment. These items must be
disregarded for determining the ability of NPC to satisfy its obligations or to
pay dividends (preferred or common), for calculating NPC's ratios of earnings to
fixed charges and preferred stock dividends and for all of NPC's financial
covenants and earnings tests including those under its charter and mortgage.
12
NPC Income Statement: Three Months Ended Three Months Ended
- --------------------- ------------------ ------------------
March 31, 2001 March 31, 2000
-------------- --------------
Equity in (Losses) Earnings of Sierra Pacific Resources $(28,137) $10,207
This line does not represent any item of revenue or income to which holders
of NPC's securities may look for recovery of their investment. This item must
be disregarded for determining the ability of NPC to satisfy its obligations or
its ability to pay dividends (preferred or common), for calculating NPC's ratios
of earnings to fixed charges and preferred dividends and for all of NPC's
financial covenants and earnings tests including those under its charter and
mortgage.
NPC Statement of Cash Flow: Three Months Ended Three Months Ended
- --------------------------- ------------------ ------------------
March 31, 2001 March 31, 2000
-------------- --------------
Equity in (Losses) Earnings of Sierra Pacific Resources $(28,137) $(10,207)
As in the income statement, the Equity in Earnings of Sierra Pacific
Resources reflects the three months of SPR net income, after SPPC preferred
stock dividends.
This line item does not represent any item of cash flow to which holders of
NPC's securities may look for recovery of their investment. This item must be
disregarded for determining the ability of NPC to satisfy its obligations or its
ability to pay dividends (preferred or common), for calculating NPC's ratios of
earnings to fixed charges and preferred dividends and for all of NPC's financial
covenants and earnings tests including those under its charter and mortgage.
NOTE 3. SHORT-TERM BORROWINGS (SPR, NPC, SPPC)
- ------------------------------------------------
As of January 16, 2001, SPR had eliminated its December 31, 2000, commercial
paper balance of $4 million. On March 9, 2001, SPR discontinued its commercial
paper program as a result of the placement of a credit facility, which had an
outstanding balance of $50 million at March 31, 2001.
NPC, which had no commercial paper outstanding at December 31, 2000, issued
approximately $96.2 million of commercial paper during February and March 2001,
at a weighted average interest rate of 6.02%.
SPPC's commercial paper balance increased from $108.9 million at December
31, 2000, to approximately $149.1 million at March 31, 2001, at an average rate
of 6.32%. In addition, under regulatory authority obtained pursuant to the 1999
merger of SPR and NPC allowing the Utilities to borrow from each other, at March
31, 2001, SPPC had a balance of $50.5 million owed to NPC, including $13 million
at 6.3%, $12 million at 5.45%, and $25.5 million at 5.6%.
13
NOTE 4. EARNINGS PER SHARE (SPR)
- -----------------------------------
SPR follows SFAS No. 128, "Earnings Per Share". The difference between
Basic EPS and Diluted EPS is due to common stock equivalent shares resulting
from stock options, employee stock purchase plan, performance shares and a non-
employee director stock plan. Common stock equivalents were determined using
the treasury stock method.
Three Months Ended
March 31,
--------------------------------------
2001 2000
----------- -----------
Basic EPS
Numerator
(Loss) Income from continuing operations ($000) $ (83,860) $ 17,251
Income from discontinued operations ($000) 381 927
----------- -----------
Net (loss) income ($000) $ (83,479) $ 18,178
=========== ===========
Denominator
Weighted average number of shares outstanding 78,475,217 78,416,356
----------- -----------
Per-Share Amounts:
(Loss) Income from continuing operations $ (1.07) $ 0.22
Income from discontinued operations 0.01 0.01
----------- -----------
Net (loss) income $ (1.06) $ 0.23
=========== ===========
Diluted EPS
Numerator
(Loss) Income from continuing operations ($000) $ (83,860) $ 17,251
Income from discontinued operations ($000) 381 927
----------- -----------
Net (loss) income ($000) $ (83,479) $ 18,178
=========== ===========
Denominator
Weighted average number of shares outstanding
before dilution 78,475,217 78,416,356
Stock options/1/ 1,050 1,153
Executive long term incentive plan-
performance shares/1/ 35,363 56,403
Non-Employee Director stock plan/1/ 5,885 5,736
Employee stock purchase plan/1/ 2,433 929
----------- -----------
78,519,948 78,480,577
=========== ===========
Per-Share Amounts/1/:
(Loss) Income from continuing operations $ (1.07) $ 0.22
Income from discontinued operations 0.01 0.01
----------- -----------
Net (loss) income $ (1.06) $ 0.23
=========== ===========
/1/ Because of a net loss for the three months ended March 31, 2001, stock
equivalents would be anti-dilutive. Accordingly, Diluted EPS for that
period is computed using the weighted average number of shares
outstanding before dilution.
14
NOTE 5. SEGMENT INFORMATION (SPR)
- -----------------------------------
SPR operates two business segments providing regulated electric and natural
gas services. NPC provides electric service to Las Vegas and surrounding Clark
County. SPPC provides electric service in northern Nevada and the Lake Tahoe
area of California. SPPC also provides natural gas service in the Reno-Sparks
area of Nevada. Other segment information includes segments below the
quantitative threshold for separate disclosure. In September 2000, SPR and SPPC
adopted a plan to sell SPPC's water utility business. Accordingly, the water
business is not included in the segment information below.
Information as to the operations of the different business segments is set
forth below based on the nature of products and services offered. SPR evaluates
performance based on several factors, of which the primary financial measure is
business segment operating income. Intersegment revenues are not material.
Financial data for business segments is as follows (in thousands):
Three Months Ended
March 31, 2001 Electric Gas Other Consolidated
- ----------------------- ----------- ---------- ------------ -------------
Operating Revenues $671,131 $64,165 $ 2,630 $737,926
=========== ========== ============ =============
Operating Income $(24,595) $ 5,095 $(10,987) $(30,487)
=========== ========== ============ =============
Three Months Ended
March 31, 2000 Electric Gas Other Consolidated
- ----------------------- ----------- ---------- ------------ -------------
Operating Revenues $353,652 $34,836 $ 4,161 $392,649
=========== ========== ============ =============
Operating Income $ 53,580 $ 4,612 $ (999) $ 57,193
=========== ========== ============ =============
NOTE 6. DISCONTINUED OPERATIONS (SPR, SPPC)
- ---------------------------------------------
On September 7, 2000, SPR and SPPC adopted a plan to sell SPPC's water
utility business. Accordingly, the water business is reported as a discontinued
operation as of September 30, 2001, and the consolidated financial statements
have been reclassified to report separately the net assets and operating results
of the water business. SPR's and SPPC's prior year operating results have been
restated to reflect continuing operations.
On January 15, 2001, SPPC's Board of Directors approved a definitive
agreement to sell SPPC's water business to the Truckee Meadows Water Authority
for $350 million. On April 5, 2001, the PUCN issued an order approving the
cancellation of SPPC's certificate of public convenience and necessity to serve
water. On April 27, 2001, the PUCN completed the Nevada regulatory approval
process by approving a stipulation regarding the gain on the sale of the net
assets of the water business. The stipulation provides that SPPC refund to
customers $21.5 million of the gain. The refund will be credited on the bills
of SPPC's electric customers over a fifteen-month period after the expected
close of the sale later in the second quarter of 2001. Management anticipates
using the remaining proceeds from the sale after payment of taxes and expenses
of the transaction to reduce debt and for other corporate purposes.
Revenues from operations of the water business to be disposed of were $11.5
million and $10.2 million for the three-month periods ended March 31, 2001, and
March 31, 2000, respectively. The income from operations of the water business,
as shown in the Condensed Consolidated Statements of Income of SPR and SPPC,
includes preferred dividends of approximately $100,000 for each of the three-
month periods ended March 31, 2001 and 2000. Net income from operations of the
water business during the period September 7 through December 31, 2000, was
approximately $704,000. Net income from operations of the water business for
the three months ended March 31, 2001, was approximately $381,000. These
amounts are not included in the revenues and income (loss) from continuing
operations shown in the accompanying income statements.
Included in the sale are water storage and supply, transmission, treatment
and distribution facilities. Also included in the sale are four hydroelectric
generation plants on the Truckee River. Accounts receivable consist of amounts
due from developers for distribution facilities. Regulatory assets included for
sale consist primarily of costs incurred in connection with the Truckee River
negotiated water settlement. SPPC has historically received regulatory
treatment to permit these costs to be recovered through its water rates. Other
unallocated regulatory assets, that may be in part included in the sale, are not
reflected in the table of net assets that follows. Assets and liabilities of
the water utility business consist of the following:
15
Amounts in thousands March 31, 2001 December 31, 2000
--------------------------- ---------------------------
Plant in service $341,173 $338,199
Less: Accumulated provision for depreciation 89,989 88,056
-------- --------
Net Plant 251,184 250,143
Construction work-in-progress 11,313 11,861
Accounts receivable 2,069 2,520
Materials 452 353
Regulatory tax asset 3,609 3,609
Other regulatory assets 4,604 4,674
-------- --------
Total Assets $273,231 $273,160
-------- --------
Deferred federal income taxes 4,113 4,275
Deferred investment tax credit 3,904 3,937
Regulatory tax liability 3,469 3,469
-------- --------
Net assets of discontinued operations $261,745 $261,479
======== ========
NOTE 7. REGULATORY EVENTS (SPR, NPC, SPPC)
- --------------------------------------------
On April 18, 2001, the Governor of Nevada signed into law Assembly Bill 369
(AB369). The provisions of AB369 include a moratorium on the sale of generation
assets by electric utilities, the repeal of electric industry restructuring, and
a reinstatement of deferred accounting for fuel and purchased power costs
("deferred energy accounting") for electric utilities. The stated purposes of
this emergency legislation were, among others, to control volatility in the
price of electricity in the retail market in Nevada and to ensure that the
Utilities have the necessary financial resources to provide adequate and
reliable electric service under present market conditions. To achieve these
purposes, AB369 allows the Utilities to recover in future periods their costs
for wholesale power and fuel, which have risen dramatically over the past year.
Deferred energy accounting will have the effect of delaying additional rate
increases to consumers until early next year while, at the same time, providing
a method for the Utilities to recover their increasing costs for fuel and
purchased power. Set forth below is a summary of key provisions of AB369.
Generation Divestiture Moratorium
- ---------------------------------
AB369 prohibits all divestiture of generation assets by electric utilities
until July 2003. After January 1, 2003, NPC or SPPC may seek Public Utilities
Commission of Nevada (PUCN) permission to sell one or more generation assets
with the sale to be effective on or after July 1, 2003. The PUCN may approve
the request to divest only if it finds the transaction to be in the public
interest. The PUCN may base its approval of the request upon such terms,
conditions, or modifications as it deems appropriate and that divestiture would
satisfy the public policy criteria set forth in the statute.
AB369 directs the PUCN to take all steps necessary to obtain federal
approval for the prohibition on divestiture and to vacate any of its own orders
that had previously approved generation divestiture transactions.
Deferred Energy Accounting
- --------------------------
AB369 requires both Utilities to use deferred energy accounting for their
respective electric operations beginning on March 1, 2001. The intent of
deferred energy accounting is to ease the effect of fluctuations in the cost of
purchased power and fuel. Deferred energy accounting provides that an asset is
recorded on the books of the Utility to the extent actual fuel and purchased
power costs exceed fuel and purchased power costs recoverable through current
rates. Conversely, a liability is recorded to the extent fuel and purchased
power costs recoverable through current rates exceed actual fuel and purchased
power costs. These excess amounts are reflected in adjustments to rates in
future time periods, subject to PUCN review. In
16
reference to deferred energy accounting, AB369 specifies that fuel and
purchased power costs include all costs incurred to purchase fuel, to purchase
capacity and to purchase energy. The Utilities also record in these accounts a
carrying charge on such deferred balances.
AB369 requires that each Utility file an application to clear its deferred
energy account balances after the end of each 12-month period, but allows the
balances from each 12-month period to be recovered over an adjustment period of
up to three years in order to reduce the volatility of rate changes. In
addition, after the initial deferred energy case, each Utility is allowed to
file an application to clear its deferred energy account balances after the end
of a six-month period if the proposed net increase or decrease in fuel and
purchased power revenues for the six-month period is more than 5%. If a Utility
using deferred energy accounting realizes a rate of return greater than the rate
authorized by the PUCN, the portion that exceeds the authorized rate of return
will be transferred to the next deferred energy adjustment period.
In addition, AB369 requires that the PUCN determine (1) whether costs for
purchased power and fuel have been prudently incurred, (2) whether those costs
recorded in deferred accounts are recoverable, and (3) whether the amounts have
been properly reflected in the deferred accounts.
Transition of Rates to Deferred Energy Accounting
- -------------------------------------------------
All rates in effect on April 1, 2001, including the cumulative increases
under the Global Settlement and the CEP Riders, remain in effect until the PUCN
issues final orders on future general and initial deferred energy rate
applications. (See "Required Filings," below). No further applications can be
made for the Fuel and Purchased Power (F&PP) riders that were part of the July
2000 Global Settlement described in the Utilities' Annual Report on Form 10-K
for the year ended December 31, 2000.
The Utilities will not be permitted to recover any shortfall incurred before
March 1, 2001, resulting from the difference between actual fuel and purchased
power costs and the rates permitted by the Global Settlement. Although the F&PP
riders were in effect during this period, the riders were based on trailing 12-
month average costs and were subject to caps and therefore did not allow the
Utilities full recovery for fuel and purchased power costs due to the rapid rise
in energy prices.
AB369 prohibits the PUCN from taking any further action on the Comprehensive
Energy Plan (CEP) described in the Utilities' Annual Report on Form 10-K for the
year ended December 31, 2000, and provides that, except for the CEP Rider rate
increases put into effect on April 1, 2001, the CEP will be deemed to have been
withdrawn by the Utilities. Additionally, approximately $20 million of revenue
collected by the Utilities based on the CEP before April 1, 2001, was credited
to the deferred energy accounts, which caused the accounts to start in an over-
collected position.
Required Filings
- ----------------
NPC is required to file a general rate application on or before October 1,
2001. In addition, NPC must file an application to clear its deferred energy
accounts on or before December 1, 2001. In connection with clearing NPC's
deferred energy accounts, the PUCN must investigate and determine whether NPC's
rates that went into effect on March 1, 2001, pursuant to the CEP, are just and
reasonable and reflect prudent business practices. The rates in effect on April
1, 2001, remain in effect until the PUCN issues a final order on the general and
initial deferred energy rate application. The PUCN is prohibited from adjusting
rates during this time period unless an adjustment is absolutely necessary to
avoid a finding that the rates are confiscatory and therefore in violation of
the United States or Nevada Constitutions. If adjustments are necessary, they
may only be made to the extent necessary to avoid an unconstitutional result.
SPPC is required to file a general rate application on or before December 1,
2001, and an application to clear its deferred energy accounts on or before
February 1, 2002. In connection with clearing SPPC's deferred energy accounts,
the PUCN must investigate and determine whether SPPC's rates that went into
effect on March 1, 2001, pursuant to the CEP, are just and reasonable and
reflect prudent business practices. The rates in effect on April 1, 2001,
remain in effect until the PUCN issues a final order on the general and initial
deferred energy rate application. The PUCN is subject to the same constraints
on adjustment of SPPC's rates as described above for NPC.
After the initial general rate applications described above, each Utility
will be required to file future general rate applications at least every 24
months.
17
Restrictions on Mergers and Acquisitions
- ----------------------------------------
AB369 imposes certain restrictions on mergers and acquisitions involving
Nevada electric utilities. In particular, the PUCN may not approve a merger or
acquisition involving an electric utility unless the utility complies with the
generation divestiture provisions of AB369.
In addition, AB369 includes provisions that would have significantly
affected the required regulatory approvals for SPR's proposed acquisition of
Portland General Electric Company (PGE) from Enron Corp. On April 26, 2001,
Enron Corp. and SPR terminated, by mutual agreement, the proposed purchase and
sale of PGE.
Repeal of Electric Industry Restructuring
- -----------------------------------------
AB369 repeals all statutes authorizing retail competition in Nevada's
electric utility industry and voids any license issued to an alternative seller
in connection with retail electric competition.
Other Pending Legislation
- -------------------------
Various legislation with implications for the electric utility industry are
still pending before the Nevada Legislature. The current biennial legislative
session ends on June 4, 2001. One of the measures being considered would
increase the renewable energy portfolio requirements to 15% by 2012. Both SPPC
and NPC would be required to meet these requirements. Current law caps
renewable energy at 1% and allows an exemption for SPPC's existing renewable
portfolio that provides for about 9% of SPPC's resource requirements.
Other legislation may be introduced that would allow certain customers to
choose new energy suppliers. The Governor of Nevada has stated that he would
support a plan that allows major power users, such as casinos and mines, to
purchase power on the open market provided that such a plan would bring more
power to the state.
NOTE 8. DERIVATIVES AND HEDGING ACTIVITIES (SPR, NPC, SPPC)
- -------------------------------------------------------------
Effective January 1, 2001, SPR, SPPC, and NPC adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, both issued by
the Financial Accounting Standards Board. As amended, SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position, measure those instruments at fair value, and
recognize changes in the fair value of the derivative instruments in earnings in
the period of change unless the derivative qualifies as an effective hedge.
The adoption of this standard did not have a material impact on the
earnings of SPR or the Utilities. SPR and the Utilities did, however, recognize
all derivatives as assets or liabilities in the condensed consolidated balance
sheets upon adoption and measured those instruments at fair value. This resulted
in SPR, NPC, and SPPC recording $0, $678 million and $303 million of risk
management assets, respectively, and $2.9 million ($1.9 million net of taxes),
$722 million, and $97 million of risk management liabilities, respectively, at
January 1, 2001.
On April 18, 2001, AB 369 was signed into law in Nevada. AB 369 reinstated
electric deferred energy accounting by the Utilities effective March 1, 2001.
(See Note 7 - Regulatory Events, above.) As a result, fuel and purchased power
expenses, including gains and losses on derivative instruments, are recoverable
or payable through future rates. In accordance with SFAS No. 71, "Accounting
for the Effects of Certain Types of Regulation," regulatory assets and
liabilities are established to the extent that such derivative gains and losses
are recoverable or payable through future rates. Because of this accounting
treatment, the Utilities will not apply hedge accounting to their electricity
and natural gas derivatives. However, SPR and the Utilities have adopted cash
flow hedge accounting for other derivative instruments not subject to regulatory
treatment. The transition adjustments resulting from adoption of SFAS No. 133
related to the other derivative instruments not subject to regulatory treatment
was reported as the cumulative effect of a change in accounting principle in
Other Comprehensive Income of SPR and the Utilities.
SPR's and the Utilities' objective in using derivatives is to reduce
exposure to energy price risk and interest rate risk. Energy price risks result
from activities that include the generation, procurement and marketing of power
and the procurement and marketing of natural gas. Derivative instruments used
to manage energy price risk include forwards and swaps. These contracts allow
the Utilities to reduce the risks associated with volatile electricity and
natural gas markets.
Derivatives used to manage interest rate risk include interest rate swaps
designed to moderate exposure to interest rate changes and lower the overall
cost of borrowing. At March 31, 2001 SPR had one interest rate swap related to
$200 million of SPR floating rate notes maturing April 20, 2003. This interest
rate swap is considered a completely effective cash flow hedge
At March 31, 2001, the fair value of the derivatives resulted in the
recording of $0, $1.5 billion, and $518 million in risk management assets and
$5.1 million (net of taxes), $1.2 billion, and $210 million in risk management
liabilities in the Consolidated Balance Sheets of SPR, NPC, and SPPC,
respectively. Due to the regulatory environment in which the Utilities operate,
regulatory assets and liabilities were established to the extent that derivative
gains and losses are recoverable or
18
payable through future rates. Accordingly, $341 million and $308 million in net
regulatory liabilities were recorded in the Consolidated Balance Sheets of NPC
and SPPC, respectively. In addition, for the three months ended March 31, 2001,
the unrealized losses resulting from the change in the fair value of derivatives
designated and qualifying as cash flow hedges of $3.2 million (net of taxes) for
SPR was recorded in Other Comprehensive Income. Such amounts will be
reclassified into earnings when the related transactions are settled or
terminate. No amounts were reclassified into earnings during the three months
ended March 31, 2001.
The effects of the adoption of SFAS No. 133 on comprehensive income and the
components thereof at March 31, 2001, are as follows:
Comprehensive Income (in $000's)
SPR NPC SPPC
--------------- --------------------- --------------
Net loss at March 31, 2001 $(83,479) $(83,479) $(4,493)
Cumulative effect upon adoption of change in
Accounting principle, January 1, 2001, net of taxes (1,923) 444 212
Change in market value of risk management assets and
Liabilities as of March 31, 2001, net of taxes (3,233) (444) (212)
--------------- --------------------- --------------
Accumulated Other Comprehensive (Loss) (5,156) - -
--------------- --------------------- --------------
Total Comprehensive loss at March 31, 2001 $(88,635) $(83,479) $(4,493)
=============== ===================== ==============
NOTE 9. COMMITMENTS AND CONTINGENCIES (SPR, NPC)
- ---------------------------------------------------
In July 2000, NPC received from the United States Environmental Protection
Agency (EPA) a request for information to determine the compliance of certain
generation facilities at the Clark Station with the applicable State
Implementation Plan. In November 2000, NPC and the Clark County Health District
entered into a Corrective Action Order requiring, among other steps, capital
expenditures at the Clark Station totaling approximately $3 million. In March
2001, the EPA issued an additional request for information that could result in
remediation beyond that specified in the November 2000 Corrective Action Order.
If the EPA prevails, capital expenditures and temporary outages of four of Clark
Station's generation units could be required. Additionally, depending on the
time of year that the compliance activity and corresponding generation outage
would occur, the incremental cost to purchase replacement energy could be
substantial.
NOTE 10. SUBSEQUENT EVENTS (SPR, SPPC)
- ----------------------------------------
On April 26, 2001, SPR and Enron Corp. announced that they had mutually
agreed to terminate their agreement for SPR's purchase of Enron's wholly owned
subsidiary, Portland General Electric (PGE). In negotiating the mutual
termination, SPR agreed to share certain expenses which Enron Corp and PGE had
incurred for the proposed transaction. The Condensed Consolidated Statement of
Income of SPR for the three months ended March 31, 2001, reflects a charge in
connection with the planned purchase of PGE of $22 million, including
approximately $7.5 million representing a termination payment for sharing
expenses.
On April 27, 2001, Washoe County, Nevada issued for SPPC's benefit $80
million of Water Facilities Refunding Revenue Bonds, Series 2001, due March 1,
2036 ("the Bonds"). The Bonds will bear interest at a Term Rate of 5.75% per
annum from their date of issuance to April 30, 2003. Beginning May 1, 2003, the
method of determining the interest rate on the Bonds may be converted from time
to time in accordance with the related Indenture so that such bonds would,
thereafter, bear interest at a daily, weekly, flexible, term or auction rate.
The Bonds were issued to refund $80 million of Washoe County variable rate Water
Facilities Revenue Bonds (Sierra Pacific Power Company Project) Series 1990 on
April 30, 2001. SPPC's obligations in respect of the Series 1990 bonds were
supported by a letter of credit that was terminated in connection with the
redemption of those bonds.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this Form 10-Q includes forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements relate to anticipated financial performance,
management's plans and objectives for future operations, business prospects,
outcome of regulatory proceedings, pending or future Nevada, California or
federal legislation, market conditions and other matters. Words such as
"anticipate," "believe," "estimate," "expect," "intend," "plan" and "objective"
and other similar expressions identify those statements that are forward-
looking. These statements are based on management's beliefs and assumptions and
on information currently available to management. Actual results could differ
materially from those contemplated by the forward-looking statements. In
addition to any assumptions and other factors referred to specifically in
connection with such statements, factors that could cause the actual results of
Sierra Pacific Resources (SPR), Nevada Power Company (NPC), or Sierra Pacific
Power Company (SPPC) to differ materially from those contemplated in any
forward-looking statement include, among others, the following:
(1) a continuation of the current shortage of supply of electricity in the
western United States and the adverse effect that such shortage is having
on the availability of purchased power throughout the region and on the
price of such purchased power (to the extent that the Utilities are not
permitted to pass such higher costs on to their respective customers);
(2) a continuation of the high prices for natural gas in the western United
States, as those affect both the cost of generated and purchased
electricity and the cost of acquiring gas for SPPC's retail gas customers
(in either case, to the extent that the Utilities are not permitted to pass
such higher costs on to their respective customers);
(3) the extent to which high energy prices and the financial difficulties of
electric utilities and power exchanges in the western United States cause
any counterparties to NPC's or SPPC's power purchase contacts to default on
their obligations, thus requiring the Utilities to seek to replace the
power at then current market prices;
(4) the ability of SPR, NPC and SPPC to access the capital markets to finance
their capital requirements for construction costs and the repayment of
maturing debt, which are estimated for the balance of 2001 to total
approximately $449 million for NPC and approximately $419 million for SPPC;
(5) unforeseen delays in completing the sale of SPPC's water business to
Truckee Meadows Water Authority;
(6) the outcome and timing of rate cases to be filed by NPC and SPPC with the
Public Utilities Commission of Nevada (PUCN), including the periodic
applications authorized by recent Nevada legislation to permit the
Utilities to recover costs for fuel and purchased power which have been
recorded by the Utilities in their deferred energy accounts and deferred
natural gas recorded by SPPC for its gas distribution business;
(7) future Nevada, California or federal legislation or regulations affecting
electric industry restructuring, including laws or regulations which could
allow certain customers to chose new electricity suppliers, which could
affect the amount the Utilities would be allowed to recover from customers
for certain costs that prove to be uneconomic or which could have other
unforeseen effects on the Utilities;
(8) whether the PUCN will issue favorable orders in a timely manner to permit
the Utilities to borrow money and issue additional securities to finance
the Utilities' operations and to purchase power and fuel necessary to serve
their respective customers;
(9) unseasonable weather and other natural phenomena, which can have
potentially serious impacts on the Utilities' ability to procure adequate
supplies of fuel or purchased power to serve their respective customers and
on the cost of procuring such supplies;
(10) industrial, commercial and residential growth in the service territories of
the Utilities;
(11) the loss of any significant customers; and
(12) changes in the business of major customers, including those engaged in gold
mining or gaming, which may result in changes in the demand for services of
NPC or SPPC.
20
Other factors and assumptions not identified above may also have been
involved in deriving these forward-looking statements, and the failure of those
other assumptions to be realized, as well as other factors, may also cause
actual results to differ materially from those projected. SPR, NPC and SPPC
assume no obligation to update forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting forward-
looking statements.
Sierra Pacific Resources
- ------------------------
During the first three months of 2001, SPR incurred a loss of $83.0 million
from continuing operations before preferred stock dividend requirements. During
the first quarter of 2001, SPR declared no common stock dividends, and NPC and
SPPC, SPR's principal subsidiaries, declared no common stock dividends to their
parent, SPR.
As discussed in the results of operations sections that follow, operating
results for the first three months of 2001 continued to be negatively affected
by the significantly higher and extremely volatile fuel and purchased power
costs that developed in the western United States in May 2000 and have continued
since.
In an effort to mitigate the effects of higher fuel and purchased power
costs, during 2000 NPC and SPPC (collectively, the "Utilities") entered into the
Global Settlement, which established a mechanism that initiated incremental rate
increases for each Utility. However, because the mechanism for adjusting rates
lagged changes in actual energy costs and was subject to certain caps, increases
were insufficient to cover fuel and purchased power costs. Cumulative electric
rate increases under the Global Settlement for NPC and SPPC, respectively, are
$200 million and $65 million per year.
Noting the insufficiency of the rate increases under the Global Settlement,
the Utilities on January 29, 2001 filed a Comprehensive Energy Plan (CEP). The
plan included a request for emergency rate increases (CEP Riders). On March 1,
2001, the PUCN permitted the requested CEP Riders to go into effect subject to
later review. The CEP Riders provided for NPC and SPPC respectively, further
rate increases of $210 million and $104 million per year.
Notwithstanding the increases under the Global Settlement and the CEP
Riders, the Utilities' revenues for fuel and purchased power recovery are below
the related expenses. Accordingly, the Utilities sought additional relief
pursuant to legislation. As described in more detail below, in April 2001 the
State of Nevada enacted AB369, the provisions of which include the use of
deferred energy accounting by the Utilities beginning March 1, 2001. Deferred
energy accounting allows the Utilities to recover in future periods that portion
of their costs for fuel and purchased power not covered by current rates and
defers to future periods' the expense associated with the amounts by which fuel
and purchased power costs exceed the costs to be recovered in current rates.
However, as a result of other provisions of AB369, the financial benefits of
deferred energy accounting are not expected to begin until the second quarter of
2001.
NEVADA ENERGY LEGISLATION
-------------------------
On April 18, 2001, the Governor of Nevada signed into law AB369. The
provisions of AB369 include a moratorium on the sale of generation assets by
electric utilities, the repeal of electric industry restructuring, and a
reinstatement of deferred accounting for fuel and purchased power costs
("deferred energy accounting") for electric utilities. The stated purposes of
this emergency legislation were, among others, to control volatility in the
price of electricity in the retail market in Nevada and to ensure that the
Utilities have the necessary financial resources to provide adequate and
reliable electric service under present market conditions. To achieve these
purposes, AB369 allows the Utilities to recover in future periods their costs
for wholesale power and fuel, which have risen dramatically over the past year.
Deferred energy accounting will have the effect of delaying additional rate
increases to consumers until early next year while, at the same time, providing
a method for the Utilities to recover their increasing costs for fuel and
purchased power. Set forth below is a summary of key provisions of AB369.
Generation Divestiture Moratorium
- ---------------------------------
AB369 prohibits all divestiture of generation assets by electric utilities
until July 2003. After January 1, 2003, NPC or SPPC may seek Public Utilities
Commission of Nevada (PUCN) permission to sell one or more generation assets
with the sale to be effective on or after July 1, 2003. The PUCN may approve
the request to divest only if it finds the transaction to be in the public
interest. The PUCN may base its approval of the request upon such terms,
conditions, or modifications as it deems appropriate and that divestiture would
satisfy the public policy criteria set forth in the statute.
AB369 directs the PUCN to take all steps necessary to obtain federal
approval for the prohibition on divestiture and to vacate any of its own orders
that had previously approved generation divestiture transactions.
21
Deferred Energy Accounting
- --------------------------
AB369 requires both Utilities to use deferred energy accounting for their
respective electric operations beginning on March 1, 2001. The intent of
deferred energy accounting is to ease the effect of fluctuations in the cost of
purchased power and fuel. Deferred energy accounting provides that an asset is
recorded on the books of the Utility to the extent actual fuel and purchased
power costs exceed fuel and purchased power costs recoverable through current
rates. Conversely, a liability is recorded to the extent fuel and purchased
power costs recoverable through current rates exceed actual fuel and purchased
power costs. These excess amounts are reflected in adjustments to rates in
future time periods, subject to PUCN review. In reference to deferred energy
accounting, AB369 specifies that fuel and purchased power costs include all
costs incurred to purchase fuel, to purchase capacity and to purchase energy.
The Utilities also record in these accounts a carrying charge on such deferred
balances.
AB369 requires that each Utility file an application to clear its deferred
energy account balances after the end of each 12-month period, but allows the
balances from each 12-month period to be recovered over an adjustment period of
up to three years in order to reduce the volatility of rate changes. In
addition, after the initial deferred energy case, each Utility is allowed to
file an application to clear its deferred energy account balances after the end
of a six-month period if the proposed net increase or decrease in fuel and
purchased power revenues for the six-month period is more than 5%. If a Utility
using deferred energy accounting realizes a rate of return greater than the rate
authorized by the PUCN, the portion that exceeds the authorized rate of return
will be transferred to the next deferred energy adjustment period.
In addition, AB369 requires that the PUCN determine (1) whether costs for
purchased power and fuel have been prudently incurred, (2) whether those costs
recorded in deferred accounts are recoverable, and (3) whether the amounts have
been properly reflected in the deferred accounts.
Transition of Rates to Deferred Energy Accounting
- -------------------------------------------------
All rates in effect on April 1, 2001, including the cumulative increases
under the Global Settlement and the CEP Riders, remain in effect until the PUCN
issues final orders on future general rate applications. (See "Required
Filings," below). No further applications can be made for the Fuel and
Purchased Power (F&PP) riders that were part of the July 2000 Global Settlement
described in the Utilities' Annual Report on Form 10-K for the year ended
December 31, 2000.
The Utilities will not be permitted to recover any shortfall incurred before
March 1, 2001, resulting from the difference between actual fuel and purchased
power costs and the rates permitted by the Global Settlement. Although the F&PP
riders were in effect during this period, the riders were based on trailing 12-
month average costs and were subject to caps and therefore did not allow the
Utilities full recovery for fuel and purchased power costs due to the rapid rise
in energy prices.
AB369 prohibits the PUCN from taking any further action on the Comprehensive
Energy Plan (CEP) described in the Utilities' Annual Report on Form 10-K for the
year ended December 31, 2000, and provides that, except for the CEP Rider rate
increases put in effect on April 1, 2001, the CEP will be deemed to have been
withdrawn by the Utilities. Additionally, approximately $20 million of revenue
collected by the Utilities based on the CEP before April 1, 2001, was credited
to the deferred energy accounts, which caused the accounts to start in an over-
collected position.
Required Filings
- ----------------
NPC is required to file a general rate application on or before October 1,
2001. In addition, NPC must file an application to clear its deferred energy
accounts on or before December 1, 2001. In connection with clearing NPC's
deferred energy accounts, the PUCN must investigate and determine whether NPC's
rates that went into effect on March 1, 2001, pursuant to the CEP, are just and
reasonable and reflect prudent business practices. The rates in effect on April
1, 2001, remain in effect until the PUCN issues a final order on the general
rate application. The PUCN is prohibited from adjusting rates during this time
period unless an adjustment is absolutely necessary to avoid a finding that the
rates are confiscatory and therefore in violation of the United States or Nevada
Constitutions. If adjustments are necessary, they may only be made to the
extent necessary to avoid an unconstitutional result.
SPPC is required to file a general rate application on or before December 1,
2001, and an application to clear its deferred energy accounts on or before
February 1, 2002. In connection with clearing SPPC's deferred energy accounts,
the PUCN must investigate and determine whether SPPC's rates that went into
effect on March 1, 2001, pursuant to the CEP, are just and reasonable and
reflect prudent business practices. The rates in effect on April 1, 2001,
remain in effect until the PUCN issues a final order on the general rate
application. The PUCN is subject to the same constraints on adjustment of
SPPC's rates as described above for NPC.
22
After the initial general rate applications described above, each Utility
will be required to file future general rate applications at least every 24
months.
Restrictions on Mergers and Acquisitions
- ----------------------------------------
AB369 imposes certain restrictions on mergers and acquisitions involving
Nevada electric utilities. In particular, the PUCN may not approve a merger or
acquisition involving an electric utility unless the utility complies with the
generation divestiture provisions of AB369.
In addition, AB369 includes provisions that would have significantly
affected the required regulatory approvals for the proposed acquisition of
Portland General Electric Company (PGE) from Enron Corp. On April 26, 2001,
Enron Corp. and SPR terminated, by mutual agreement, the proposed purchase and
sale of PGE.
Repeal of Electric Industry Restructuring
- -----------------------------------------
AB369 repeals all statutes authorizing retail competition in Nevada's
electric utility industry and voids any license issued to an alternative seller
in connection with retail electric competition.
Other Pending Legislation
- -------------------------
Various legislation with implications for the electric utility industry are
still pending before the Nevada Legislature. The current biennial legislative
session ends on June 4, 2001. One of the measures being considered would
increase the renewable energy portfolio requirements to 15% by 2012. Both SPPC
and NPC would be required to meet these requirements. Current law caps
renewable energy at 1% and allows an exemption for SPPC's existing renewable
portfolio that provides for about 9% of SPPC's resource requirements.
Other legislation may be introduced that would allow certain customers to
choose new energy suppliers. The Governor of Nevada has stated that he would
support a plan that allows major power users, such as casinos and mines, to
purchase power on the open market provided that such a plan would bring more
power to the state.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
SPR, SPPC and NPC have short-term credit facilities in the amounts of $50
million, $150 million and $150 million, respectively. The short-term credit
facilities of SPPC and NPC serve primarily as liquidity backup for the
commercial paper programs used by each Utility to fund working capital and
general corporate needs.
SPR has drawn the full amount of its $50 million credit facility to provide
extra cash to meet unanticipated liquidity needs. As of March 31, 2001, SPR's
cash investments on hand totaled $57 million. SPR anticipates renewing or
extending the credit facility on or before the expiration date of June 30, 2001.
As of March 31, 2001, SPPC and NPC had commercial paper balances
outstanding of $149 million and $96 million, respectively, and have not drawn on
their credit facilities. These credit facilities expire on August 27, 2001, and
the Utilities anticipate renewing or extending these facilities on or before the
expiration date. Set forth below is a schedule showing the current maturities
of debt in 2001 (in $000's):
SPPC NPC
------------- -------------
June 12, 2001 $200,000 $150,000
August 20, 2001 100,000
December 1, 2001 17,000
December 17, 2001 100,000
------------- -------------
$217,000 $350,000
============= =============
The Utilities expect to pay the principal amounts of these maturing debt
obligations, to pay their current obligations and to finance the anticipated
deferred energy regulatory assets with a combination of the proceeds from the
sale of SPPC's water business sale (scheduled to close in June), ongoing cash
flows from operations and the proceeds from the sale of additional securities.
The Utilities expect that their working capital financing needs will grow
with the restoration of deferred energy. To the extent that current revenues
are less than current expenses, the recovery of those costs will be delayed
until the completion of the next deferred rate cases.
23
Nevada Power Company
- ---------------------
The causes for significant changes in specific lines comprising the results
of operations for NPC are as follows (dollars in thousands):
Three Months
Ended March 31,
--------------------------------------------------
Change from
2001 2000 Prior Year %
---------------- ---------------- ------------
Electric Operating Revenues ($000):
Residential $103,179 $ 83,573 23.5%
Commercial 55,556 46,734 18.9%
Industrial 72,222 55,121 31.0%
------------ ------------
Retail revenues 230,957 185,428 24.6%
Other 128,055 10,602 1107.8%
------------ ------------
Total Revenues $359,012 $196,030 83.1%
============ =============
Retail sales in thousands
of megawatt-hours (MWH) 3,316 3,148 5.3%
Average retail revenue $ 69.65 $ 58.90 18.2%
per MWH
Residential electric revenues increased for the three months ended March
31, 2001, over the same period in 2000 due to a combination of factors. Higher
rates resulted from cumulative monthly rate increases pursuant to the 2000
Global Settlement and an increase in rates effective March 1, 2001, pursuant to
the CEP. A 5% increase in customers and an increase in heating degree-days in
the first quarter of 2001 as compared to 2000 also contributed to higher
residential revenues.
Higher commercial and industrial electric revenues for the three months
ended March 31, 2001, over the prior year were the result of rate increases
corresponding to those experienced for residential revenues as well as increases
in customers of 4.4% and 8.2%, respectively, over the same period of 2000.
The increase in other electric revenues for the three-month period ended
March 31, 2001, over the same period in 2000 was mainly due to large increases
in risk management activities and wholesale power sales at much higher prices.
NPC purchases fixed cost energy at a delivery point where the energy can either
be delivered to its control area or sold, should NPC not require the energy.
The energy is also sold if replacement energy can be obtained less expensively
than transporting the energy to the control area. Historically, fewer of these
sales have taken place. NPC seeks neither to purchase nor sell energy on a
speculative basis.
Three Months
Ended March 31,
-------------------------------------------------
Change from
2001 2000 Prior Year %
------------- ------------- ----------------
Purchased Power ($000) $201,822 $53,817 275.0%
Purchased Power in thousands
of MWHs 2,468 1,243 98.6%
Average cost per MWH of
Purchased Power $ 81.78 $ 43.30 88.9%
24
Purchased power costs were significantly higher for the three months ended
March 31, 2001, than for the prior year as Short-Term Firm and Economy Energy
prices increased substantially. In addition, volumes purchased increased to
accommodate growth in wholesale sales and system load.
Three Months
Ended March 31,
-------------------------------------------------
Change from
2001 2000 Prior Year %
--------------- -------------- ---------------
Fuel for Power Generation ($000) $115,352 $37,647 206.4%
Thousands of MWHs generated 2,501 2,264 10.5%
Average cost per MWH of
Generated Power $ 46.12 $ 16.63 177.3%
Fuel for generation costs for the three months ended March 31, 2001, were
significantly higher than the prior year due to substantial increases in natural
gas prices. In addition, volumes generated were higher to accommodate system
load.
Three Months
Ended March 31,
--------------------------------------------------
Change from
2001 2000 Prior Year %
--------------- -------------- ---------------
Deferral of energy costs-net ($000) $11,308 $6,788 66.6%
=============== ==============
Deferral of energy costs-net increased for the three months ended March 31,
2001, due to provisions of AB369 reflected in the current year amount and the
implementation of deferred energy accounting beginning March 1, 2001. The
current balance includes a charge of approximately $12.5 million, equivalent to
the March 2001 CEP revenues, consistent with the provisions of AB369. This
charge was offset by a $1.2 million credit representing the amount by which
March 2001 purchased power and fuel costs exceeded the amounts collected through
rates. Deferral of energy costs-net for 2000 represents energy costs that had
been deferred in prior periods and were then recognized in the three months
ended March 31, 2000, as a result of deferred energy rate increases granted in
1999. Pursuant to the Global Settlement with the PUCN, NPC ceased utilizing
deferred energy accounting effective August 1, 2000.
Three Months
Ended March 31,
---------------------------------------------------
Change from
2001 2000 Prior Year %
--------------- -------------- ---------------
Allowance for other funds
used during construction ($000) $ (351) $ 780 -145.0%
Allowance for borrowed funds
used during construction $ (352) $ 1,815 -119.4%
---------- --------
$ (703) $ 2,595 -127.1%
========== ========
Total allowance for funds used during construction (AFUDC) for the three
months ended March 31, 2001, reflects an adjustment to refine amounts assigned
to specific components of facilities that were completed in different periods.
25
Three Months
Ended March 31,
---------------------------------------------------
Change from
($000) 2001 2000 Prior Year %
--------------- -------------- ---------------
Other operating expense $ 50,772 $29,151 74.2%
Maintenance expense $ 12,980 $ 9,821 32.2%
Income taxes $(30,464) $ 3,627 -939.9%
Taxes other than income taxes $ 6,050 $ 5,406 11.9%
Other operating expense for the three-month period ending March 31, 2001,
increased compared to the same period in 2000 primarily due to a $16.1 million
increase in the provision for uncollectible accounts related to the California
Power Exchange and a $3 million reserve provision established as a result of
AB369.
Maintenance costs for the three-month period ending March 31, 2001,
increased from the prior year primarily as a result of planned outages at the
Reid-Gardner and Clark stations. The increase was offset in part by crews
performing required activities of a capital nature, thereby reducing the amount
of maintenance expense.
Income taxes decreased for the three months ended March 31, 2001, due to
net pre-tax losses in the current year.
Taxes other than income for the three months ended March 31, 2001, were
higher due primarily to higher property and payroll taxes.
Financial Condition, Liquidity And Capital Resources
During the first three months of 2001, NPC incurred a loss of approximately
$55.3 million (excluding NPC's equity in the losses of its parent, SPR), and
declared no dividends on its common stock, all of which is held by SPR.
Cash flows during the three months ended March 31, 2001, decreased compared
to the same period in 2000. The decrease resulted from a reduction in cash
flows from operating activities, due to a decrease in operating income, and to a
lesser extent increased cash used in investing activities that was partially
offset by an increase in cash flows from financing activities. The increase in
cash used for investing activities resulted from an increase in cash used for
utility plant. The increase in cash flows from financing activities was due to
an increase in short-term borrowings and no common dividend payment in 2001.
Construction Expenditures and Financing
NPC's construction program and capital requirements for the period 2001-
2005 were originally discussed in its Annual Report on Form 10-K for the year
ended December 31, 2000. Of NPC's amount projected for 2001 ($175 million),
$43.4 million (24.8%) was spent as of March 31, 2001. Construction expenditures
were funded from sources other than internally generated funds.
NPC may utilize internally generated cash and the proceeds from secured and
unsecured borrowings and preferred securities to meet capital expenditure
requirements through 2001.
26
Sierra Pacific Power Company
- ----------------------------
The components of gross margin are set forth below (dollars in thousands):
Three Months
Ended March 31,
--------------------------------------------------
Change from
2001 2000 Prior Year %
-------------- -------------- -------------
Operating Revenues:
Electric $312,119 $157,622 98.0%
Gas 64,165 34,836 84.2%
-------------- --------------
Total Revenues 376,284 192,458 95.5%
-------------- --------------
Energy Costs:
Electric 260,561 78,756 230.8%
Gas 52,399 23,227 125.6%
-------------- --------------
Total Energy Costs 312,960 101,983 206.9%
-------------- --------------
Gross Margin $ 63,324 $ 90,475 -30.0%
============== ==============
Gross Margin by Segment:
Electric $ 51,558 $ 78,866 -34.6%
Gas 11,766 11,609 1.4%
-------------- --------------
Total $ 63,324 $ 90,475 -30.0%
============== ==============
The causes for significant changes in specific lines comprising the results
of operations for SPPC are as follows (dollars in thousands):
Three Months
Ended March 31,
------------------------------------------------
Change from
2001 2000 Prior year %
--------------- --------------- ------------
Electric Operating Revenues ($000):
Residential $ 51,509 $ 47,911 7.5%
Commercial 51,174 44,799 14.2%
Industrial 54,585 45,114 21.0%
--------------- ---------------
Retail revenues 157,268 137,824 14.1%
Other 154,851 19,798 682.2%
--------------- ---------------
Total Revenues $312,119 $157,622 98.0%
=============== ===============
Retail sales in thousands of
megawatt-hours (MWH) 2,133 2,117 0.8%
Average retail revenue per MWH $73.73 $65.10 13.3%
Retail electric revenues increased for the three months ended March 31,
2001, over the same period in 2000 due to a combination of factors. Higher
rates resulted from cumulative monthly rate increases pursuant to the 2000
Global Settlement and an increase in rates effective March 1, 2001, pursuant to
the CEP. Continued growth in the number of customers and a 10% increase in
heating degree-days in the first quarter of 2001 as compared to 2000 also
contributed to higher retail revenues.
Other electric revenues were significantly higher in the three-month period
ended March 31, 2001, compared to the prior year primarily due to large
increases in risk management activities and wholesale electric revenues. SPPC
purchases fixed cost energy at a delivery point where the energy can either be
delivered to its control area or sold, should SPPC not require the energy. The
energy is also sold if replacement energy can be obtained less expensively than
transporting the energy
27
to the control area. Historically, fewer of these sales have taken place. SPPC
seeks neither to purchase nor sell energy on a speculative basis.
Three Months
Ended March 31,
--------------------------------------------
Change
from Prior
2001 2000 year %
------------- ------------- ------------
Gas Operating Revenues ($000):
Residential $21,624 $16,726 29.3%
Commercial 10,641 8,424 26.3%
Industrial 4,631 3,346 38.4%
Miscellaneous 517 413 25.2%
------------- -------------
Total retail revenue 37,413 28,909 29.4%
Wholesale revenue 26,752 5,927 351.4%
------------- -------------
Total Revenues $64,165 $34,836 84.2%
============= =============
Retail sales in thousands
of decatherms 5,293 5,129 3.2%
Average retail revenues per $7.07 $5.64 25.4%
decatherms
The three months ended March 31, 2001, reflected increased gas revenues
among all classes of retail customers compared to the prior year, primarily as a
result of the rate increase approved by the PUCN that took effect February 1,
2001. The increase in retail revenues was due to a lesser extent to an increase
in heating-degree days.
SPPC's wholesale gas revenues increased significantly for the three-month
period ended March 31, 2001, over the same period in 2000 in response to risk
management activities. SPPC seeks neither to purchase nor sell gas on a
speculative basis.
Three Months
Ended March 31,
------------------------------------------------------------------------
Change from
2001 2000 Prior Year %
------------------- ----------------------- -----------------
Purchased Power ($000): $150,987 $49,480 205.1%
Purchased Power in thousands
of MWHs 1,447 1,593 -9.2%
Average cost per MWH of
Purchased Power $ 104.34 $ 31.06 235.9%
Purchased power costs were higher for the three months ended March 31,
2001, than the prior year because SPPC fulfilled more of its total energy
requirements with more expensive Short-Term Firm energy purchased power. SPPC
also took advantage of additional risk management opportunities although the
overall price was substantially higher.
28
Three Months
Ended March 31,
------------------------------------------------------------------
Change from
2001 2000 Prior Year %
----------------- ------------------- -----------------
Fuel for Power Generation ($000) $102,553 $29,276 250.3%
Thousands of MWHs generated 1,583 1,200 31.9%
Average fuel cost per MWH
of Generated Power $ 64.78 $ 24.40 165.5%
Fuel for generation costs for the three-month period ended March 31, 2001,
were substantially higher than for the prior year as natural gas prices
increased significantly and volumes generated were higher to accommodate greater
system load.
Three Months
Ended March 31,
---------------------------------------------------------------------
Change from
2001 2000 Prior Year %
------------------ --------------------- -----------------
Gas Purchased for Resale ($000)
Retail $51,685 $17,138 201.6%
Wholesale 18,858 5,713 230.1%
------------------ ---------------------
Total $70,543 $22,851 208.7%
================== =====================
Gas Purchased for Resale - retail
(thousands of decatherms) 5,716 4,640 23.2%
Average cost per retail decatherm $ 9.04 $ 3.69 144.8%
The cost of retail gas purchased for resale increased for the three months
ended March 31, 2001, compared to the prior year due to substantially higher gas
prices. The increase in the cost of wholesale gas purchased over the prior year
reflects higher prices as well as costs associated with risk management
activities.
Three Months
Ended March 31,
--------------------------------------------
Change
from Prior
2001 2000 Year %
------------ ------------- ------------
Deferral of energy costs-net ($000)
Purchased Power and Fuel for Power Generation 7,021 - N/A
Gas Purchased for Resale (18,144) 376 -4925.5%
------------ -------------
Total $(11,123) $ 376 -3058.2%
============ =============
Deferral of energy costs-net for purchased power and fuel for generation
increased for the three months ended March 31, 2001, due to provisions of AB369
reflected in the current year amount and the implementation of deferred energy
accounting beginning March 1, 2001. The current balance includes a charge of
approximately $7.3 million, equivalent to the March 2001 CEP revenues,
consistent with the provisions of AB369. This charge was offset by a $.3
million credit representing the amount by which March 2001 purchased power and
fuel costs exceeded the amounts collected through rates. SPPC did not utilize
deferred energy accounting for its electric operations in 2000.
29
Deferral of energy costs-net for gas purchased for resale decreased for the
three months ended March 31, 2001, substantially over the prior year because
SPPC is recording higher undercollections of such costs than in the prior year.
Revenue received from the base purchased gas rates did not cover the increased
cost of natural gas experienced by SPPC. SPPC anticipates recovery of these
costs through the deferred energy accounting mechanism.
Three Months
Ended March 31,
--------------------------------------------------------
Change from
2001 2000 Prior Year %
-------------- -------------- --------------
Allowance for other funds used
during construction ($000) $(184) $ 60 -406.7%
Allowance for borrowed funds used
during construction ($000) (46) 418 -111.0%
-------------- --------------
$(230) $ 478 -148.1%
============== ==============
Total allowance for funds used during construction (AFUDC) for the three
months ended March 31, 2001, reflects an adjustment to refine amounts assigned
to specific components of facilities that were completed in different periods.
Three Months
Ended March 31,
-------------------------------------------------------------------
Change from
(In 000's) 2001 2000 Prior Year %
----------------- ------------------- -----------------
Other operating expense $27,694 $23,156 19.6%
Maintenance expense 5,324 4,069 30.8%
Income taxes (2,251) 11,894 -118.9%
Interest charges on long-term debt 10,571 7,529 40.4%
Other operating expense for the first quarter of 2001 increased compared to
the same period in 2000 primarily due to a $3.5 million reserve provision
established as a result of AB369 and a $2.7 million increase in the provision
for uncollectible accounts related to the California Power Exchange. The
increase was offset, in part, by reductions in labor costs, and consulting and
legal fees.
Maintenance costs for the three-month period ended March 31, 2001 were
higher compared to the same period in 2000 due to increased expenses related to
the combustion turbines at the Winnemucca and Clark Mountain generation
facilities.
Income taxes decreased for the three months ended March 31, 2001, due to net
pre-tax losses in the current year.
Interest charges on long-term debt increased for the three months ended
March 31, 2001, due to higher average long-term debt balances compared to 2000.
Financial Condition, Liquidity And Capital Resources
During the first three months of 2001, SPPC incurred a loss of
approximately $4.0 million from continuing operations before preferred stock
dividends. SPPC declared $975,000 in dividends to holders of its preferred
stock but declared no dividends on its common stock, all of which is held by its
parent, SPR.
30
Cash flows during the three months ended March 31, 2001 decreased slightly
compared to the same period in 2000. The decrease resulted from a reduction in
cash flows from operating activities, mainly due to a decrease in operating
income, partially offset by less cash used in investing activities and more cash
provided by financing activities. The decrease in cash used for investing
activities was due to less cash used for utility plant. The increase in cash
provided by financing activities was due to an increase in short-term borrowings
and no common dividend paid in 2001.
Construction Expenditures and Financing
- ---------------------------------------
SPPC's construction program and capital requirements for the period 2001-
2005 were originally discussed in its Annual Report on Form 10-K for the year
ended December 31, 2000. Of SPPC's amount projected for 2001 ($125 million),
$16.3 million (13.0%) was spent as of March 31, 2001. Construction expenditures
were funded from sources other than internally generated funds.
SPPC may utilize internally generated cash and the proceeds from secured
and unsecured borrowings and preferred securities to meet capital expenditure
requirements through 2001.
Sierra Pacific Resources (Holding Company)
- ------------------------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three months ended March 31, 2001, include the operating results of the
holding company. The holding company operating results included a charge of
approximately $22 million recognized as a result of the termination of the PGE
acquisition. The holding company also recognized higher interest costs, $14.0
million in 2001 and $8.0 million in 2000, due to the issuance of additional debt
in April and May of 2000.
Tuscarora Gas Pipeline Company
- ------------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three-month periods ended March 31, 2001, and March 31, 2000, include
the operating results of Tuscarora Gas Pipeline Company (TGPC), a wholly owned
subsidiary of SPR. TGPC contributed $.7 million and $.6 million, respectively,
in net income for the three-month periods ended March 31, 2001, and March 31,
2000.
e.three
- -------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three-month periods ended March 31, 2001, and March 31, 2000, include
the operating results of e.three, a wholly owned subsidiary of SPR. e.three
incurred a loss of $.2 million for the three months ended March 31, 2001, and
contributed $.2 million in net income for the three-month period ended March 31,
2000.
Sierra Pacific Energy Company
- -----------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three-month periods ended March 31, 2001, and March 31, 2000, include
the operating results of Sierra Pacific Energy Company (SPE), a wholly owned
subsidiary of SPR. SPE incurred net losses of $87,000 and $3.2 million,
respectively, for the three-month periods ended March 31, 2001, and March 31,
2000. The losses are the result of costs incurred to exit the retail energy-
sales business.
Sierra Pacific Communications
- -----------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three-month periods ended March 31, 2001, and March 31, 2000, include
the operating results of Sierra Pacific Communications (SPC), a wholly owned
subsidiary of SPR. SPC incurred net losses of $373,000 and $61,000,
respectively, for the three-month periods ended March 31, 2001, and March 31,
2000.
PORTLAND GENERAL ELECTRIC ACQUISITION
-------------------------------------
On April 26, 2001, SPR and Enron Corp. announced that they had mutually
agreed to terminate their agreement for SPR's purchase of Enron's wholly owned
subsidiary, Portland General Electric (PGE). In negotiating the mutual
termination, SPR agreed to share certain expenses which Enron Corp and PGE had
incurred for the proposed transaction. The Condensed Consolidated Statement of
Income of SPR for the three months ended March 31, 2001, reflects a charge in
connection with the
31
planned purchase of PGE of $22 million, including approximately $7.5 million
representing a termination payment for sharing expenses.
GENERATION DIVESTITURE
----------------------
The PUCN approved the revised Divestiture Plan stipulation in February
2000. In May 2000 an agreement was announced for the sale of NPC's 14% undivided
interest in the Mohave Generating Station ("Mohave"). In the fourth quarter of
2000 the Utilities announced agreements to sell six additional bundles of
generation assets described in the approved Divestiture Plan. The sales are
subject to approval and review by various regulatory agencies. For additional
information, see the Annual Report on Form 10-K for the year ended December 31,
2000.
As described above, AB369, which was signed into Nevada law on April
18, 2001, prohibits until July 2003, the sale of generation assets and directs
the PUCN to vacate any of its orders that had previously approved generation
divestiture transactions. In January 2001, California enacted a law that
prohibits until 2006 any further divestiture of generation properties by
California utilities, including SPPC, and could affect the sale of NPC's
interest in Mohave since the majority owner of that project is Southern
California Edison. In addition SPPC's request for an exemption from the
requirements of a separate California law requiring approval of the California
Public Utilities Commission (CPUC) to divest its plants was denied, subject to
future refiling.
As a result of these legislative and regulatory developments, the
Utilities are engaged in discussions with the buyers of the generation assets
regarding the termination of the sales agreements and the related energy buyback
contracts and interconnection agreements. As of March 31, 2001, NPC and SPPC
had incurred costs of $9.2 million and $12.3 million, respectively, in order to
prepare for the sale of generation assets. NPC and SPPC plan to request
recovery of these costs.
SALE OF WATER BUSINESS
----------------------
As discussed in the Annual Report on Form 10-K for the year ended December
31, 2000, on January 15, 2001, SPPC's Board of Directors approved a definitive
agreement to sell SPPC's water business to the Truckee Meadows Water Authority
for $350 million. On April 5, 2001, the PUCN issued an order approving the
cancellation of SPPC's certificate of public convenience and necessity to serve
water. On April 27, 2001, the PUCN completed the Nevada regulatory approval
process by approving a stipulation regarding the gain on the sale of the net
assets of the water business. The stipulation provides that SPPC refund to
customers $21.5 million of the gain. The refund will be credited on the bills
of SPPC's electric customers over a fifteen-month period after the expected
close of the sale later in the second quarter of 2001. Transfer of the
hydroelectric facilities included in the sale will require action by the CPUC.
The sale agreement contemplates a second closing for the hydroelectric
facilities to accommodate the CPUC's review of the transaction.
REGULATORY MATTERS
------------------
Substantially all of the utility operations of both NPC and SPPC
(collectively the "Utilities") are conducted in Nevada. As a result both
companies are subject to utility regulation within Nevada and therefore deal
with many of the same regulatory issues.
Nevada Matters
- --------------
Optional Conservation Service (SPPC, NPC)
On April 19, 2001, the PUCN approved new NPC and SPPC electric rates for
Optional Conservation Service (Schedule OC). Schedule OC allows the Utilities
to request customers with demand greater than 1 MW to voluntarily curtail their
load when there is an economic or system need for capacity and energy.
Customers who curtail load will receive a billing credit.
California Matters (SPPC)
- -------------------------
Distribution Performance-based Rate-making (PBR)
Hearings on SPPC's distribution PBR proposal were held on April 2, 2001.
An outline of the settlement reached by SPPC, the CPUC Office of Ratepayer
Advocates, and The Utility Reform Network resolving all issues was presented
during the hearing. On May 11, 2001, a formal joint settlement will be
submitted to the CPUC.
32
FERC Matters (SPPC, NPC)
- ------------------------
Regional Transmission Organization and Independent Transmission Company
As reported in the 2000 Annual Report on Form 10-K, NPC and SPPC are
members of a proposed regional transmission organization (RTO West) and a
proposed independent transmission company (TransConnect). On April 25, 2001,
FERC gave preliminary approval for both RTO West and TransConnect. Both
organizations remain subject to approvals from state regulators and the board of
directors of each member company. See the Utilities' 2000 annual report on
Form 10-K for additional information about RTO West and TransConnect.
Wholesale Sales Tariffs
On March 13, 2001, SPPC and NPC each filed an application for an order
approving market-based rates. The market-based authority would apply to sales
of electric energy and capacity outside of the Utilities' control areas.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See the Utilities' 2000 Annual Report on Form 10-K for quantitative and
qualitative disclosures about market risk. There have been no material changes
to the information previously disclosed in that report, except as described in
the following discussion.
The Utilities described in their 2000 Annual Report on Form 10-K that they
were primarily exposed to commodity price risk for changes in the market price
of electricity as well as changes in fuel costs incurred to generate
electricity. However, on April 18, 2001, the Governor of Nevada signed into law
AB369, which provides, among other requirements, a reinstatement of deferred
energy accounting for electric utilities. AB369 requires both Utilities to
utilize deferred energy accounting for their respective electric operations
beginning on March 1, 2001. The intent of deferred energy accounting is to ease
the effect of fluctuations in the cost of purchased power and fuel. To the
extent actual fuel and purchased power costs exceed amounts collected through
rates, deferred energy accounting provides a mechanism to collect the excess
amounts through adjustments to rates in future time periods. The Utilities are
also permitted to record a carrying charge on uncollected deferred balances.
Deferred energy accounting substantially relieves the Utilities from the
commodity price risk associated with purchased power and fuel costs. See
"Nevada Energy Legislation" in Item 2, Management's Discussion And Analysis Of
Financial Condition And Results Of Operations, above, for more information
regarding deferred energy accounting and AB369.
Also See Item 2, Management's Discussion And Analysis Of Financial
Condition And Results Of Operations, above, for a discussion of rate increases
permitted under the Global Settlement and the CEP, and the estimated future
revenues that will be provided by those increases.
33
PART II
ITEM 1. LEGAL PROCEEDINGS
Although SPR, NPC, and SPPC are involved in ongoing litigation on a variety
of matters, in management's opinion none individually or collectively are
material to SPR's, NPC's, or SPPC's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q:
None
(b) Reports on Form 8-K:
Form 8-K filed on January 22, 2001 by SPR, NPC, and SPPC- Item 5, Other Events
Disclosed that on January 18, 2001, the legislature of the State of
California passed a law that would "prohibit a facility for the generation of
electricity owned by a public utility from being disposed of prior to January 1,
2006".
Form 8-K filed on February 1, 2001, by SPR, NPC, and SPPC - Item 5, Other Events
Disclosed, and included as an exhibit, SPR's press release dated January
29, 2001, announcing the filing of an emergency Comprehensive Energy Plan.
Form 8-K filed on February 21, 2001 by SPPC - Item 5, Other Events
Disclosed that Sierra Pacific Power Company had successfully completed its
consent solicitation of the holders of its Class A, Series 1 Preferred Stock.
Form 8-K filed on February 26, 2001, by SPR, NPC, and SPPC - Item 5, Other
Events
Disclosed that on February 23, 2001, the Public Utilities Commission of
Nevada voted to approve the implementation of the Comprehensive Energy Plan Rate
Rider effective March 1, 2000, as filed on January 29, 2001.
Form 8-K/A filed on February 27, 2001, by SPR, NPC, and SPPC - Item 5, Other
Events
Amended the Current Reports on Form 8-K filed on February 26, 2001. The
original filing incorrectly stated that the Comprehensive Energy Plan (CEP) Rate
Rider was approved by the Public Utilities Commission of Nevada effective March
1, 2000. The CEP Rate Rider was effective March 1, 2001.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
Sierra Pacific Resources
------------------------
(Registrant)
Date: May 14, 2001 By: /s/ Mark A. Ruelle
------------ ------------------------------
Mark A. Ruelle
Senior Vice President
Treasurer
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 2001 By: /s/ Mary O. Simmons
------------- ------------------------------
Mary O. Simmons
Controller
(Principal Accounting Officer)
Nevada Power Company
------------------------------
(Registrant)
Date: May 14, 2001 By: /s/ Mark A. Ruelle
------------ ------------------------------
Mark A. Ruelle
Senior Vice President
Treasurer
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 2001 By: /s/ Mary O. Simmons
------------- -------------------------------
Mary O. Simmons
Controller
(Principal Accounting Officer)
Sierra Pacific Power Company
------------------------------
(Registrant)
Date: May 14, 2001 By: /s/ Mark A. Ruelle
------------ -----------------------------
Mark A. Ruelle
Senior Vice President
Treasurer
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 2001 By: /s/ Mary O. Simmons
------------- ------------------------------
Mary O. Simmons
Controller
(Principal Accounting Officer)
35