<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996 Commission File No. 1-4698
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Nevada Power Company
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0045330
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6226 West Sahara Avenue, Las Vegas, Nevada 89102
- ------------------------------------------ ---------
(Address of principal executive offices) (Zip Code)
(702) 367-5000
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(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
---- ---
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Common Stock outstanding July 31, 1996, 48,025,873 shares.
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PART I. FINANCIAL INFORMATION
STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
ELECTRIC REVENUES ..................... $199,468 $173,348 $346,596 $318,532
OPERATING EXPENSES AND TAXES:
Fuel ............................. 25,439 21,764 44,138 44,439
Purchased and interchanged power . 65,727 57,548 116,824 102,588
Deferred energy cost
adjustments, net ................ 2,401 8,027 6,391 18,127
-------- -------- -------- --------
Net energy costs ................ 93,567 87,339 167,353 165,154
Other production operations ...... 3,735 3,900 7,599 8,735
Other operations ................. 24,333 24,407 47,910 47,160
Maintenance and repairs .......... 13,005 8,996 22,816 18,939
Provision for depreciation ....... 15,254 13,463 30,233 26,529
General taxes .................... 5,092 4,762 9,929 9,339
Federal income taxes ............. 11,243 6,720 12,839 7,273
-------- -------- -------- --------
166,229 149,587 298,679 283,129
-------- -------- -------- --------
OPERATING INCOME ...................... 33,239 23,761 47,917 35,403
-------- -------- -------- --------
OTHER INCOME (EXPENSES):
Allowance for other funds used
during construction ............. 1,934 1,477 3,451 3,172
Miscellaneous, net ............... (1,439) (325) (2,208) 1,727
-------- -------- -------- --------
495 1,152 1,243 4,899
-------- -------- -------- --------
INCOME BEFORE INTEREST DEDUCTIONS ..... 33,734 24,913 49,160 40,302
-------- -------- -------- --------
INTEREST DEDUCTIONS:
Interest on long-term debt ....... 12,037 11,741 23,678 23,290
Other interest ................... 1,050 653 1,457 993
Allowance for borrowed funds used
during construction ............. (535) (891) (675) (1,945)
-------- -------- -------- --------
12,552 11,503 24,460 22,338
-------- -------- -------- --------
NET INCOME ............................ 21,182 13,410 24,700 17,964
DIVIDEND REQUIREMENTS ON PREFERRED
STOCK ................................ 990 992 1,979 1,984
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK ... $ 20,192 $ 12,418 $ 22,721 $ 15,980
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING .......................... 47,760 46,080 47,529 45,860
======== ======== ======== ========
EARNINGS PER AVERAGE COMMON SHARE ..... $ 0.42 $ 0.27 $ 0.48 $ 0.35
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE ............ $ 0.40 $ 0.40 $ 0.80 $ 0.80
======== ======== ======== ========
See Notes to Financial Statements.
2
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BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1996 1995
---------- ------------
(In Thousands)
ELECTRIC PLANT:
Original cost ..................................... $2,104,966 $2,036,775
Less accumulated depreciation ..................... 572,196 546,803
---------- ----------
Net plant in service ............................ 1,532,770 1,489,972
Construction work in progress ..................... 160,685 129,255
Other plant, net .................................. 79,008 81,893
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1,772,463 1,701,120
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INVESTMENTS ......................................... 10,229 9,989
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CURRENT ASSETS:
Cash and temporary cash investments ............... 1,606 25,507
Customer receivables .............................. 97,496 65,079
Other receivables ................................. 4,600 6,321
Fuel stock and materials and supplies ............. 40,960 38,710
Deferred energy costs ............................. (25,571) (18,844)
Prepayments ....................................... 6,606 8,144
---------- ----------
125,697 124,917
---------- ----------
DEFERRED CHARGES .................................... 215,049 211,585
---------- ----------
$2,123,438 $2,047,611
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock, 47,944,587 and 47,038,193
shares issued and outstanding, respectively .... $ 51,149 $ 50,243
Premium and unamortized expense on capital stock 613,772 595,258
Retained earnings ............................... 103,730 118,860
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768,651 764,361
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Cumulative preferred stock ........................ 41,784 41,863
---------- ----------
Long-term debt .................................... 796,636 799,999
---------- ----------
1,607,071 1,606,223
========== ==========
CURRENT LIABILITIES:
Notes payable ..................................... 55,000 -
Current maturities and sinking fund requirements .. 5,763 5,809
Accounts payable .................................. 78,473 64,518
Accrued taxes ..................................... 11,723 19,457
Accrued interest .................................. 6,353 6,059
Deferred taxes on deferred energy costs ........... (8,947) (6,595)
Customers' service deposits and other ............. 35,548 34,605
---------- ----------
183,913 123,853
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DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred investment tax credits ................... 31,734 32,464
Deferred taxes on income .......................... 226,706 215,315
Customers' advances for construction and other .... 74,014 69,756
---------- ----------
332,454 317,535
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$2,123,438 $2,047,611
========== ==========
See Notes to Financial Statements.
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<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
1996 1995
-------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 24,700 $ 17,964
Adjustments to reconcile net income to net cash
provided-
Depreciation and amortization ...................... 33,962 31,814
Deferred income taxes and investment tax credits ... 3,354 (5,230)
Allowance for other funds used during construction . (3,451) (3,172)
Changes in-
Receivables ........................................ (30,696) (13,872)
Fuel stock and materials and supplies .............. (2,250) (1,294)
Accounts payable and other current liabilities ..... 13,739 1,664
Deferred energy costs .............................. 7,479 17,463
Accrued taxes and interest ......................... (7,440) 11,924
Other assets and liabilities ........................ 2,493 (1,440)
-------- --------
Net cash provided by operating activities ......... 41,890 55,821
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures and gross additions ....... (102,136) (81,450)
Investment in subsidiaries and other ................ 228 13,650
Salvage net of removal cost ......................... 594 1,449
-------- --------
Net cash used in investing activities ............. (101,314) (66,351)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of capital stock ........................... 19,441 17,469
Issuance of long-term debt .......................... - 85,000
Change in funds held in trust ....................... (1,517) 7,158
Retirement of preferred stock and long-term debt .... (2,700) (54,043)
Change in short-term borrowing ...................... 55,000 -
Cash dividends ...................................... (39,817) (38,504)
Other financing activities .......................... 5,116 5,401
-------- --------
Net cash provided by financing activities ......... 35,523 22,481
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS:
Net increase (decrease) during the period ........... (23,901) 11,951
Beginning of period ................................. 25,507 123
-------- --------
End of period ....................................... $ 1,606 $ 12,074
======== ========
CASH PAID DURING THE PERIOD FOR:
Interest, net of amounts capitalized ................ $ 29,381 $ 26,332
======== ========
Income taxes ........................................ $ 16,120 $ 205
======== ========
See Notes to Financial Statements.
4
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NOTES TO FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
the registrant, pursuant to the rules and regulations of the Securities and
Exchange Commission, and reflect all adjustments which, in the opinion of
management are necessary for a fair presentation. Certain information and
footnote disclosures have been condensed in accordance with generally accepted
accounting principles and pursuant to such rules and regulations. The
registrant believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements and notes thereto be read in conjunction with the financial
statements and the notes thereto included in the registrant's latest annual
report. Certain prior period amounts have been reclassified, with no effect on
income or common shareholders' equity, to conform with the current period
presentation.
(1) FEDERAL INCOME TAXES:
For interim financial reporting purposes, Nevada Power Company (Company)
reflects in the computation of the federal income tax provision liberalized
depreciation based upon the expected annual percentage relationship of book and
tax depreciation and reflects the allowance for funds used during construction
on an actual basis. The total federal income tax expense as set forth in the
accompanying statements of income results in an effective federal income tax
rate different than the statutory federal income tax rate. The table below
shows the effects of those transactions which created this difference.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- ----------------
1996 1995 1996 1995
------- ------- ------- -------
(In Thousands)
Federal income tax at statutory rate ... $11,442 $ 7,263 $13,373 $ 9,757
Investment tax credit amortization ..... (365) (365) (730) (730)
Other .................................. 433 442 866 884
------- ------- ------- -------
Recorded federal income taxes .......... $11,510 $ 7,340 $13,509 $ 9,911
======= ======= ======= =======
Federal income taxes included in-
Operating expenses ................... $11,243 $ 6,720 $12,839 $ 7,273
Other income, net .................... 267 620 670 2,638
------- ------- ------- -------
Recorded federal income taxes .......... $11,510 $ 7,340 $13,509 $ 9,911
======= ======= ======= =======
(2) COMMITMENTS AND CONTINGENCIES:
Hearings began March 11, 1996 for the last phase of the 1995 deferred
energy case to consider the prudency of the Company's fuel and purchased power
expenditures during the period June 1993 to May 1995, a buyout of a coal supply
agreement and a credit to customers related to use of coal reserves in an
unregulated subsidiary company. Hearings are scheduled to resume in September,
1996. The PSC Staff and Consumer Advocate Office have filed testimony seeking
disallowance from recovery and credit to the Company's customers of
approximately $25 million, plus carrying charges. The Company believes its
expenditures and use of coal reserves are prudent and reasonable and will
vigorously defend against the proposed disallowances.
Saguaro Power Company (Saguaro), a cogeneration power producer, and the
Company are parties to a 30-year power purchase contract (Contract) wherein
the Company agreed to purchase power from Saguaro's plant near Henderson,
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Nevada. On June 22, 1995, Saguaro filed a demand for arbitration with the
American Arbitration Association (AAA) and a lawsuit in District Court, Clark
County, Nevada, seeking damages and injunctive relief as a result of being
curtailed in its power deliveries during periods of low load conditions on
the Company's system. The lawsuit alleges that the Company refused to
accept and pay for approximately $2 million of electric energy and capacity,
and that the Company should reimburse Saguaro for $2 million related to the
construction of the interconnection line. Saguaro also alleges that the Company
has refused to pay Saguaro for excess capacity. Lastly, Saguaro alleges that
the Company has committed fraud and anticipatory breach of the Contract and
requests punitive damages of $75 million.
The Nevada District Court denied the Company's request that the issues
regarding low load conditions and the lawsuit for curtailment damages be heard
before the Public Service Commission of Nevada based on the arbitration clause
of the Contract. The Nevada District Court ordered all the parties to arbitrate
the above issues with the exception of Saguaro's claim concerning the
interconnection line.
The arbitration between the Company and Saguaro was concluded on May 30,
1996. The arbitrator's decision is expected in mid-September, 1996.
The Federal Clean Air Act Amendments of 1990 (Amendments) include
provisions for reduction of emissions of oxides of nitrogen by establishing new
emission limits for coal-fired generating units. This will require the
installation of additional pollution-control technology at some of the Reid
Gardner Station generating units before 2000 at an estimated cost to the Company
of no more than $6 million.
The Amendments also mandated creation of the Grand Canyon Visibility
Transport Commission (Commission) to work toward the goal of visibility
improvement in the Grand Canyon and other national parks of the Colorado
Plateau. The Commission completed its report and recommendations to the
Environmental Protection Agency (EPA) in June, 1996. The Commission's study
anticipates emission reductions from stationary sources, including power plants,
over the next 40 years, from other provisions of the Amendments, therefore,
additional power plant controls are not mandated at this time. EPA will develop
regulations to implement the Commission's recommendations. The new regulations
are expected to be promulgated in 1997.
Related to visibility, the United States Congress authorized the EPA to
study the potential impact the Mohave Generating Station (Mohave) may have on
visibility in the Grand Canyon area. Results of this study are expected in
1997. The cost of any improvements that may be required cannot be determined at
this time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On July 15, 1996, the Company filed a request with the Public Service
Commission of Nevada (PSC) for authorization to decrease energy rates by
approximately $41 million under the state's deferred energy accounting
procedures. The Company proposes that large power users receive the decrease
since, according to Company studies, they are currently subsidizing residential
users. The proposed energy rates would more closely reflect the customer's cost
of service. If approved by the PSC, the Company expects the decrease to be
effective no later than mid-January 1997.
6
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Hearings are scheduled to resume in September, 1996 for the last phase of
the 1995 deferred energy case to consider various fuel related issues. (See
Note 2 to Financial Statements included in this quarterly report.)
The Company's customer growth rate during 1995 and 1994 was 6.0 percent.
The increase in customers for the first six months of 1996 was at an annualized
rate of 7.2 percent. At June 30, 1996, the Company provided electric service to
470,505 customers.
Pursuant to Nevada law, every three years the Company is required to file
with the PSC a forecast of electricity demands for the next 20 years and the
Company's plans to meet those demands. Among the major items in the Company's
1994 Resource Plan, as refiled and amended, which were approved by the PSC in
1994 and 1995 are the following:
(1) the Company will continue to pursue a strategy of relying on short-term
power purchases to meet the forecasted increases in load;
(2) the Company will maintain sufficient flexibility to implement an
efficient cost-effective resource acquisition process where
appropriate, noting that the competitive solicitation process remains
the preferred method for comparing resource options;
(3) the Company will proceed with the installation of the initial 230 kV
circuit and associated substation and communication facilities on the
previously approved Arden-Northwest 230 kV Transmission Line;
(4) the Company will proceed with the rerouting of a portion of the #2
Arden-McCullough 230 kV Transmission Line;
(5) the Company will proceed with limited resource planning approval to
seek the necessary UEPA and other permitting approvals, and to acquire
necessary sites and rights-of-way for two 230 kV switching stations;
(6) the Company will proceed with a Renewable Energy Program for the
Company to utilize all appropriate incentives, resources, and expertise
to foster the development of economically competitive renewable energy
systems with the intent to provide Southern Nevada customers with 20
megawatts of solar-generated electricity by the year 2002.
On April 1, 1996, the Company filed a status report on the results of
transmission studies along with an amendment requesting approval of three energy
service company contracts. Hearings on the amendment are currently underway.
To meet capital expenditure requirements through 1997, the Company plans to
utilize internally generated cash, the proceeds from industrial development
revenue bonds (IDBs), first mortgage bonds (FMBs), preferred securities and
common stock issues through public offerings and the Stock Purchase and Dividend
Reinvestment Plan (SPP).
The Company has the option of issuing new shares or using open market
purchases of its common stock to meet the requirements of the SPP. Under the
SPP the Company issued 1,577,977 and 862,819 shares, respectively, of its
common stock in 1995 and the first six months of 1996.
On October 12, 1995, Clark County, Nevada issued $76.75 million Series
1995A IDBs (Nevada Power Company Project) due 2030. Net proceeds from the sale
of the IDBs were placed on deposit with a trustee and are being used to finance
7
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the construction of certain facilities which qualify for tax-exempt financing.
At June 30, 1996, $79 million remained on deposit with the trustee.
8
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OPERATING RESULTS OF FIRST SIX MONTHS OF 1996
COMPARED TO FIRST SIX MONTHS OF 1995
Earnings per average common share were 48 cents for the first six months of
1996, compared to 35 cents for the same period in 1995. The increase in
earnings was due to increased revenues. The average number of customers
increased 6.6 percent and kilowatthour sales, excluding sales for resale, were
up 14.6 percent, as compared to the first six months of 1995. Revenues
increased due to customer growth and warmer weather.
Purchased power increased $14.2 million due to increased power purchases
offset in part by lower average purchased power costs. Maintenance and repairs
increased $3.9 million due to increased maintenance expense at Reid Gardner.
Depreciation expense increased $3.7 million because of a growing asset base.
Other income miscellaneous, net decreased $3.9 million due primarily to the
first quarter 1995 recording of the sale of mining property by the Company's
unregulated subsidiary, Nevada Electric Investment Company.
Average common shares increased because of the sale of additional common
shares through the SPP to partially provide funds for the construction of
facilities necessary to meet increased customer demand for electricity.
OPERATING RESULTS OF SECOND QUARTER OF 1996
COMPARED TO SECOND QUARTER OF 1995
Earnings per average common share were 42 cents for the second quarter of
1996, compared to 27 cents for the same period in 1995. The increase in
earnings was due to increased revenues. The average number of customers
increased 6.7 percent and kilowatthour sales, excluding sales for resale, were
up 22.4 percent, as compared to the first six months of 1995. Revenues
increased due to customer growth and warmer weather.
Fuel expense increased by $3.7 million due to increased generation and
higher average fuel rates. Purchased power increased $8.2 million due to
increased power purchases offset in part by lower average purchased power costs.
Maintenance and repairs increased $4.0 million due to increased maintenance
expense at Reid Gardner. Depreciation expense increased $1.8 million because of
a growing asset base.
Average common shares increased because of the sale of additional common
shares through the SPP to partially provide funds for the construction of
facilities necessary to meet increased customer demand for electricity.
9
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PART II. OTHER INFORMATION
Items 1 through 5. None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibits Filed Description
-------------- -----------
27 Financial Data Schedule
b. Reports on Form 8-K.
None.
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nevada Power Company
--------------------
(Registrant)
STEVEN W. RIGAZIO
--------------------------------------
(Signature)
Date: August 1, 1996 Steven W. Rigazio
--------------
Vice President, Finance and Planning,
Treasurer, Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF NEVADA POWER COMPANY AS OF JUNE 30, 1996, AND THE RELATED STATEMENTS OF
INCOME AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $1,772,463
<OTHER-PROPERTY-AND-INVEST> 10,229
<TOTAL-CURRENT-ASSETS> 125,697
<TOTAL-DEFERRED-CHARGES> 215,049
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,123,438
<COMMON> 51,149
<CAPITAL-SURPLUS-PAID-IN> 613,772
<RETAINED-EARNINGS> 103,730
<TOTAL-COMMON-STOCKHOLDERS-EQ> 768,651
38,000
3,784
<LONG-TERM-DEBT-NET> 702,262
<SHORT-TERM-NOTES> 55,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 300
200
<CAPITAL-LEASE-OBLIGATIONS> 94,374
<LEASES-CURRENT> 5,263
<OTHER-ITEMS-CAPITAL-AND-LIAB> 455,604
<TOT-CAPITALIZATION-AND-LIAB> 2,123,438
<GROSS-OPERATING-REVENUE> 346,596
<INCOME-TAX-EXPENSE> 12,839
<OTHER-OPERATING-EXPENSES> 285,840
<TOTAL-OPERATING-EXPENSES> 298,679
<OPERATING-INCOME-LOSS> 47,917
<OTHER-INCOME-NET> 1,243
<INCOME-BEFORE-INTEREST-EXPEN> 49,160
<TOTAL-INTEREST-EXPENSE> 24,460
<NET-INCOME> 24,700
1,979
<EARNINGS-AVAILABLE-FOR-COMM> 22,721
<COMMON-STOCK-DIVIDENDS> 37,851
<TOTAL-INTEREST-ON-BONDS> 0<F1>
<CASH-FLOW-OPERATIONS> 41,890
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<F1>INAPPLICABLE.
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<PAGE>
</TABLE>
