UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (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, 1998 OR [ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 1-8788 SIERRA PACIFIC RESOURCES (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- NEVADA 88-0198358 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. BOX 10100 (6100 NEIL ROAD) 89520-0400 RENO, NEVADA (89511) (Address of principal executive office) (Zip code) - -------------------------------------------------------------------------------- (702) 834-4011 (Registrant's telephone number, including area code) 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 12, 1998 Common Stock, $1.00 par value 30,941,219 shares - -------------------------------------------------------------------------------- The undersigned registrant hereby amends its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998 by adding as an Appendix thereto the Quarterly Report on Form 10-Q of the registrant's wholly-owned subsidiary, Sierra Pacific Power Company, for the fiscal quarter ended March 31, 1998, which Appendix is attached to this amendment. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. SIERRA PACIFIC RESOURCES By: /s/ Mark A. Ruelle ------------------------------- Mark A. Ruelle Senior Vice President Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) Date: July 2, 1998 APPENDIX ================================================================================ 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 0-508 SIERRA PACIFIC POWER COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 88-0044418 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 10100 (6100 Neil Road) Reno, Nevada 89520-0400 (89511) (Address of principal executive office) (Zip Code) (702) 834-4011 (Registrant's telephone number, including area code) 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 12, 1998 Common Stock, $3.75 par value 1,000 Shares ================================================================================ SIERRA PACIFIC POWER COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 CONTENTS Page ---- PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS Report of Independent Accountants.................................3 Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997.................................................4 Condensed Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997.....................................5 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997.....................................6 Notes to Condensed Consolidated Financial Statements..............7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................8 PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS................................................14 ITEM 5. OTHER INFORMATION................................................14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................14 Signature Page..............................................................15 Appendix....................................................................16 2 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholder of Sierra Pacific Power Company Reno, Nevada We have reviewed the accompanying condensed consolidated balance sheet of Sierra Pacific Power Company and subsidiaries as of March 31, 1998, and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and consolidated statement of capitalization of Sierra Pacific Power Company and subsidiaries as of December 31, 1997, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated January 30, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Reno, Nevada April 23, 1998 3 SIERRA PACIFIC POWER COMPANY CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) MARCH 31, DECEMBER 31, 1998 1997 -------------- -------------- (UNAUDITED) ASSETS Utility Plant at Original Cost: Plant in service $2,079,796 $2,063,269 Less: accumulated provision for depreciation 680,484 664,490 ---------- ---------- 1,399,312 1,398,779 Construction work-in-progress 198,792 202,036 ---------- ---------- 1,598,104 1,600,815 ---------- ---------- Investments in subsidiaries and other property, net 27,264 26,791 ---------- ---------- Current Assets: Cash and cash equivalents 23,625 6,920 Accounts receivable less provision for uncollectible accounts 1998 - $1,398; 1997 - $1,704 94,596 104,926 Materials, supplies and fuel, at average cost 27,772 25,255 Other 5,315 2,572 ---------- ---------- 151,308 139,673 ---------- ---------- Deferred Charges: Regulatory tax asset 66,548 66,563 Other regulatory assets 62,179 63,476 Other 15,911 14,924 ---------- ---------- 144,638 144,963 ---------- ---------- $1,921,314 $1,912,242 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity $ 642,385 $ 639,556 Preferred stock 73,115 73,115 Preferred stock subject to mandatory redemption: Company-obligated mandatorily redeemable preferred securities of the Company's subsidiary Sierra Pacific Power Capital I, holding solely $50 million principal amount of 8.6% junior subordinated debentures of the Company, due 2036 48,500 48,500 Long-term debt 606,780 606,889 ---------- ---------- 1,370,780 1,368,060 ---------- ---------- Current Liabilities: Short-term borrowings 85,000 75,000 Current maturities of long-term debt and preferred stock 458 454 Accounts payable 49,667 63,088 Accrued interest 13,490 6,394 Dividends declared 20,365 19,365 Accrued salaries and benefits 10,066 14,978 Other current liabilities 37,035 19,209 ---------- ---------- 216,081 198,488 ---------- ---------- Deferred Credits: Accumulated deferred federal income taxes 157,984 162,627 Accumulated deferred investment tax credit 39,382 39,873 Regulatory tax liability 40,554 40,767 Accrued retirement benefits 38,131 37,456 Customer advances for construction 32,532 38,478 Other 25,870 26,493 ---------- ---------- 334,453 345,694 ---------- ---------- $1,921,314 $1,912,242 ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 4 SIERRA PACIFIC POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (Dollars in Thousands) THREE MONTHS ENDED MARCH 31, --------- 1998 1997 ------ ------ (Unaudited) OPERATING REVENUES: Electric $ 142,139 $ 134,655 Gas 31,366 28,177 Water 9,217 9,026 ----------- ----------- 182,722 171,858 ----------- ----------- OPERATING EXPENSES: Operation: Purchased power 38,375 31,878 Fuel for power generation 23,880 22,807 Gas purchased for resale 19,331 14,792 Other 28,828 31,127 Maintenance 4,696 6,049 Depreciation and amortization 16,921 15,378 Taxes: Income taxes 12,660 12,843 Other than income 4,893 4,692 ----------- ----------- 149,584 139,566 ----------- ----------- OPERATING INCOME 33,138 32,292 ----------- ----------- Other Income: Allowance for other funds used during construction 971 1,434 Other income - net 122 251 ----------- ----------- 1,093 1,685 ----------- ----------- Total Income Before Interest Changes 34,231 33,977 ----------- ----------- INTEREST CHARGES: Long-term debt 9,768 9,946 Other 1,908 799 Allowance for borrowed funds used during construction and capitalized interest (1,682) (1,168) ----------- ----------- 9,994 9,577 ----------- ----------- INCOME BEFORE OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 24,237 24,400 Preferred dividend requirements of Company-obligated mandatorily redeemable preferred securities (1,043) (1,043) ----------- ----------- INCOME BEFORE PREFERRED DIVIDENDS 23,194 23,357 Preferred dividend requirements (1,365) (1,365) ----------- ----------- INCOME APPLICABLE TO COMMON STOCK $ 21,829 $ 21,992 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 5 SIERRA PACIFIC POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) Three Months Ended March 31, --------- 1998 1997 --------- --------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Income before preferred dividends $ 23,194 $ 23,357 Non-cash items included in income: Depreciation and amortization 16,921 15,378 Deferred taxes and deferred investment tax credit (5,333) (583) AFUDC and capitalized interest (2,653) (2,601) Early retirement and severance amortization 1,054 1,257 Other non-cash 156 (474) Changes in certain assets and liabilities: Accounts receiveable 10,330 7,908 Materials, supplies and fuel (2,517) 1,294 Other current assets (2,743) (1,434) Accounts payable (13,421) (9,835) Other current liabilities 20,010 3,105 Other - net (1,429) (2,195) ----------- ----------- Net Cash Flows From Operating Activities 43,569 35,177 ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to utility plant (24,894) (28,498) Non-cash charges to utility plant 2,724 2,667 Net customer refunds and contributions in aid construction 4,644 2,484 ----------- ----------- Net cash used for utility plant (17,526) (23,347) (Investments in) Disposal of subsidiaries and other property - net (497) 53 ----------- ----------- Net Cash Used in Investing Activities (18,023) (23,294) ----------- ----------- CASH FLOWS USED IN FINANCING ACTIVITIES: Increase in short-term borrowings 10,637 8,654 Reduction of long-term debt (113) (107) Dividends paid (19,365) (17,364) ----------- ----------- Net Cash Used In Financing Activities (8,841) (8,817) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 16,705 3,066 Beginning balance in Cash and Cash Equivalents 6,920 890 ----------- ----------- Ending Balance in Cash and Cash Equivalents $ 23,625 $ 3,956 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During Period For: Interest $ 5,281 $ 4,805 Income Taxes - - The accompanying notes are an integral part of the financial statements. 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- NOTE 1. MANAGEMENT'S STATEMENT - --------------------------------- In the opinion of the management of Sierra Pacific Power Company, hereafter known as the Company, 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 Company's audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Deloitte & Touche LLP, the Company's independent accountants, have performed a review of the unaudited consolidated financial statements, and their report has been included in this report. The results of operations for the three month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Sierra Pacific Power Capital I, Pinon Pine Corp., and Pinon Pine Investment Co. All significant intercompany transactions and balances have been eliminated in consolidation. Reclassifications ----------------- Certain items previously reported for years prior to 1998 have been reclassified to conform with the current year's presentation. Net income and shareholder's equity were not affected by these reclassifications. NOTE 2. RECENT PRONOUNCEMENTS OF THE FASB - ------------------------------------------- On June 30, 1997, the FASB issued SFAS 131 entitled "Disclosure About Segments of an Enterprise and Related Information". This statement establishes additional standards for segment reporting in the financial statements and is effective for fiscal years beginning after December 15, 1997. Management has not determined the effect of this statement on its financial statement disclosure. In February 1998, the FASB issued SFAS 132 entitled "Employers' Disclosures about Pensions and Other Postretirement Benefits". This statement revises employers' disclosures about pension and other postretirement benefit plans for fiscal years beginning after December 15,1997. The statement does not change the measurement or recognition of those plans. Therefore, management believes this statement will not have a material impact on the financial statements of the Company. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- Electric Operations - ------------------- The components of gross margin for electric operations are (dollars in thousands): Three Months Ended March 31, --------------- Increase Increase 1998 1997 (Decrease) (Decrease) % ---------- ---------- ---------- ------------ Electric Operating Revenues (dollars): Residential $46,526 $45,136 $1,390 3.1% Commercial 41,802 40,583 1,219 3.0% Industrial 43,992 41,720 2,272 5.4% ---------- ---------- ---------- ---------- Electric Revenues before Other 132,320 127,439 4,881 3.8% Other 9,819 7,216 2,603 36.1% ---------- ---------- ---------- ---------- Total Revenues 142,139 134,655 7,484 5.6% Electric Energy Costs: Purchased Power 38,375 31,878 6,497 20.4% Fuel for Power Generation 23,880 22,807 1,073 4.7% ---------- ---------- ---------- ---------- Total Energy Costs 62,255 54,685 7,570 13.8% ---------- ---------- ---------- ---------- Gross Electric Margin $79,884 $79,970 ($86) -0.1% ========== ========== ========== ========== Electric Operating Revenues Megawatt-Hours (MWH): Total MWH Sales 2,276,379 1,949,724 326,655 16.8% Less: Other Sales MWH 251,864 102,995 148,869 144.5% ---------- ---------- ---------- ---------- Electric Sales before Other Sales MWH 2,024,515 1,846,729 177,786 9.6% ---------- ---------- ---------- ---------- Average Revenues per MWH $65.36 $69.01 ($3.65) -5.3% Residential, commercial and industrial revenues increased due to an overall increase in customers of 3.00%. The increases in revenue were partially offset by a rate reduction that went into effect in March 1997. Other revenues increased primarily due to an increase in wholesale sales and additional facilities surcharge revenue. 8 Purchased power energy costs in the preceding table consisted of the following total MWHs and average electric costs: Three Months Ended March 31, ---------------- Increase/ Increase/ 1998 1997 (Decrease) (Decrease)% ------------- ------------- ----------- ----------- Purchased Power MWH 1,188,202 933,730 254,472 27.3% Average cost per MWH of Purchased Power $32.30 $34.14 ($1.84) -5.4% The cost of purchased power increased because of an increase in the volume of purchased power due to system load growth and additional wholesale sales in 1998. The increase in the cost of purchased power was partially offset by a reduction in the cost per MWH due to an increase in the amount of secondary energy purchases relative to firm purchases in 1998. Secondary energy purchases were considerably less expensive per MWH. Fuel for power generation provided the following total megawatt-hours (MWH) and average electric costs (dollars in thousands): Three Months Ended March 31, ---------------- Increase/ Increase/ 1998 1997 (Decrease) (Decrease)% ------------- ------------- ----------- ----------- Fuel for Power Generation $23,880 $22,807 $1,073 4.7% Power Generated MWH 1,229,753 1,110,515 119,238 10.7% Average cost per MWH of generation fuel $19.42 $20.31 ($0.89) -4.4% The cost of fuel for generation increased because of increased generation requirements to meet continued customer growth. The increase in the cost of fuel for generation was partially offset by a reduction in the cost per MWH due to reduced coal costs in 1998. GAS OPERATIONS - -------------- The components of gross margin for gas operations are (dollars in thousands): Three Months Ended March 31, ---------------- Increase/ Increase/ 1998 1997 (Decrease) (Decrease)% ------------- ------------- ----------- ----------- Gas Operating Revenues: Residential $16,070 $14,970 $1,100 7.3% Commercial 8,644 8,031 613 7.6% Industrial 3,848 3,762 86 2.3% Other 2,804 1,414 1,390 98.3% ---------- ---------- ---------- -------- Total Revenues 31,366 28,177 3,189 11.3% ---------- ---------- ---------- -------- Gas Energy Costs: Gas Purchased for Resale 19,331 14,792 4,539 30.7% ---------- ---------- ---------- -------- Gross Gas Margin $12,035 $13,385 ($1,350) -10.1% ---------- ---------- ---------- -------- 9 Three Months Ended March 31, --------------- Increase Increase 1998 1997 (Decrease) (Decrease) % -------------- -------------- -------------- ------------ Gas Operating Revenues (Decatherms): Total Decatherms Sold 6,486,360 5,343,748 1,142,612 21.4% Average Revenues per Decatherm $ 4.84 $ 5.27 $ (0.43) -8.2% Residential, commercial and industrial revenues increased due to a 5.2% increase in customers. Other revenues increased because of an increase in sales for resale due to increased focus on this business opportunity. Gas Energy Costs consisted of the following total decatherms purchased and average gas costs: Three Months Ended March 31, --------------- Increase/ Increase/ 1998 1997 (Decrease) (Decrease) % -------------- -------------- -------------- ------------ Decatherms Purchased 6,503,945 5,279,150 1,224,795 23.2% Average cost per Decatherm of gas purchased for resale $ 2.97 $ 2.80 $ 0.17 6.1% The cost of gas purchased for resale increased because of an increase in the unit cost of firm and spot purchases. Total decatherms purchased increased over the first quarter of 1997 because of the increase of sales for resale during the current year. WATER OPERATIONS - ----------------- Three Months Ended March 31, --------------- Increase/ Increase/ 1998 1997 (Decrease) $ (Decrease) % ------- ------- -------------- ------------ Water Operating Revenues: Sales $ 9,217 $ 9,026 $ 191 2.1% ------- ------- ----- ------ Gross Water Margin $ 9,217 $ 9,026 $ 191 2.1% ======= ======= ===== ====== Water sales increased because of a 3.2% increase in customers during the current year. 10 OTHER FINANCIAL INFORMATION - --------------------------- Three Months Ended March 31, --------------- Increase/ Increase/ 1998 1997 Decrease $ Decrease % ------ ------ ---------- ---------- Allowance for other funds used $ 971 $1,434 $ (463) -32.3% during construction Allowance for borrowed funds used during construction 1,682 1,168 514 44.0% ------ ------ ------ ------ $2,653 $2,602 $ 51 1.2% Total allowance for funds used during construction did not change materially from 1997 to 1998. The allowance for borrowed funds did increase relative to the allowance for other funds because of the short-term credit facility established in 1998 to fund construction of the Alturas transmission project. The following table includes other items of financial information which vary materially from the same amounts in the first quarter of 1997: March 31, --------- Increase/ Increase/ 1998 1997 (Decrease) $ (Decrease) % ---------- ---------- ------------ ------------ Other operating expense $28,828 $31,127 $(2,299) -7.4% Maintenance expense 4,696 6,049 (1,353) -22.4% Depreciation and amortization 16,921 15,378 1,543 10.0% Interest Charges-Other 1,908 799 1,109 138.8% ---------- ---------- ---------- -------- $52,353 $53,353 $(1,000) -18.7% ---------- ---------- ---------- -------- Other operating expense decreased due to stock plan costs and an operating reserve established as a result of a 1997 regulatory stipulation. This decrease was partially offset by a larger reserve recorded in the first quarter of 1998 to satisfy the performance warranty requirements related to the Pinon Pine Power Project (see "Financial Condition, Liquidity and Capital Resources" for additional information). Maintenance expense decreased due to costs recorded in 1997 from flood damage. Depreciation and amortization expense increased due primarily to increases in water division utility plant added after the first quarter of 1997. Interest Charges-Other increased due to the short-term credit facility established in January 1998 for the Alturas transmission project. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES ---------------------------------------------------- During the first three months of 1998, the Company earned $23.2 million in income before preferred dividends, declared $1.4 million in dividends to holders of its preferred stock and declared $19 million in common stock dividends to its parent, Sierra Pacific Resources. CONSTRUCTION EXPENDITURES AND FINANCING - --------------------------------------- The Company's construction program and capital requirements for the period 1998-2002 were originally discussed in the Company's 1997 Annual Report on Form 10-K. Of the amount projected for 1998, as of March 31, 1998, $17.5 million (11.6%) had been spent. Of this amount, approximately 138.1% was provided by internally-generated funds. 11 ALTURAS INTERTIE - ---------------- As of April 5, 1998, the Company had spent approximately $88.4 million on the Alturas Intertie transmission line. The current estimated total construction cost, including AFUDC, is approximately $150.6 million. Construction of the project is expected to be completed in late 1998. For further discussion of major projects, refer to the Company's 1997 Annual Report on Form 10-K. PINON PINE - ---------- As discussed in detail in the Company's 1997 Annual Report on Form 10-K, the Company continues construction of the coal gasifier portion of the Pinon Pine Power Project. The Company anticipates an in-service date for the gasifier during the Spring of 1998. The Company paid $2.4 million in March 1998 to General Electric Capital Corporation in satisfaction of the performance warranty requirements not met during 1997. The Company expects that based on the projected in-service date, the performance warranty requirements will not be met by December 31, 1998. Consequently, the Company has reserved a contingency of $1.8 million as of March 31, 1998 to satisfy the performance obligation. REGULATORY MATTERS - ------------------ As mentioned in the Company's 1997 Annual Report on Form 10-K, the Company, in September, 1997, filed an application with the Nevada Public Utilities Commission to increase its water rates. On April 2, 1998, the Commission authorized the Company to increase its water rates by approximately $4.3 million annually (or 9.4%), effective April 29, 1998. Environmental - ------------- As discussed in Sierra Pacific Power Company's Annual Report on Form 10-K for 1997, a parcel formerly owned by the Company was identified to have soil contamination from a gas manufacturing process. The Company has proposed to use a mobile incinerator to thermally destroy contamination in the top two feet of soil. This process would require additional technical support and air monitoring which the Company did not initially anticipate in costs to remediate. The Company currently has a liability of $400,000 accrued, but anticipates the additional cleanup requirements may exceed this estimate. However, management does not consider the additional costs will be material. MERGER - ------ As reported in Sierra Pacific Resources (SPR), the parent company of Sierra Pacific Power, Report on Form 8-K dated April 29, 1998, SPR and Nevada Power Company entered into an Agreement and Plan of Merger, dated as of April 29, 1998, providing for a merger of equals transaction among the companies. Pursuant to the Merger Agreement, LAKE Merger Sub ( a wholly-owned subsidiary of SPR) will first merge into SPR, with SPR being the surviving corporation. Immediately thereafter, Nevada Power will merge in DESERT Merger Sub ( a wholly- owned subsidiary of SPR), with DESERT Merger Sub being the surviving corporation and continuing as a wholly-owned subsidiary of SPR. Sierra Pacific Power will also continue as a wholly-owned subsidiary of SPR. The Mergers are subject to certain customary closing conditions, including, without limitation, the receipt of the required stockholder approvals of SPR and Nevada Power. Additionally, the mergers require the receipt of all necessary governmental approvals, including the Federal Regulatory Commission and the Public Utilities Commission of Nevada. Approvals from the common shareholders will be sought at meetings which are expected to be held in the third quarter of 1998. The companies anticipate the regulatory approval process can be completed in about one year. Nevada has a 180-day approval process by statute. The merger will be accounted for using the purchase method of accounting. Each stockholder of SPR will have the opportunity to elect to receive 1.44 shares of the combined company's common stock per share or $37.55 in cash per share. Each stockholder of Nevada Power will have the right to receive 1.00 shares of the combined company's common stock or $26.00 in cash per share. To fund the cash portion of the consideration paid to both the SPR and Nevada Power 12 stockholders, the combined company intends to borrow approximately $450 million. Net merger savings of approximately $350 million are estimated to be achieved in the ten-year period following the consummation of the merger. See the Form 8-K for additional details relating to the terms of the proposed merger and Merger Agreement. 13 PART II - ------- ITEM 1. LEGAL PROCEEDINGS None. ITEM 5. OTHER INFORMATION On April 13, 1998, Victor Pena, Vice President, Information Services and Business Development, announced he will be leaving the Company June 30, 1998. On an interim basis, his duties will be shared by various individuals within the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed with this Form 10-Q. (15) Letter of independent accountants acknowledging awareness regarding interim financial information of the Company. (27) The Financial Data Schedule containing summary financial information extracted from the consolidated financial statements filed on Form 10-Q for the three month period ended March 31, 1998, for Sierra Pacific Power Company and is qualified in its entirety by reference to such financial statements. (b) Reports on Form 8-K Filed January 15, 1998-Item 5, Other Events Reported that Malyn K. Malquist was named President and Chief Executive Officer of Sierra Pacific Power Company and Sierra Pacific Resources, its parent. Also reported the departure of Walter M. Higgins, who held the positions Mr. Malquist is assuming. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sierra Pacific Power Company -------------------------------- (Registrant) Date: May 15, 1998 By /s/ Mark A. Ruelle ---------------------- ------------------------------ Mark A. Ruelle Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: May 15, 1998 By /s/ Mary O. Simmons ---------------------- ------------------------------ Mary O. Simmons Controller (Principal Accounting Officer) 15 Sierra Pacific Power Company 6100 Neil Road Reno, Nevada 89511 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Sierra Pacific Power Company and subsidiaries for the periods ended March 31, 1998 and 1997, as indicated in our report dated April 23, 1998; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is incorporated by reference in Registration Statement No. 333-17041 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Reno, Nevada May 12, 1998