<PAGE>
================================================================================
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, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
<TABLE>
<S> <C> <C>
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
</TABLE>
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 5, 2000
Common Stock, $1.00 par value 78,419,949 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.
This combined Quarterly Report on Form 10-Q is separately filed by Sierra
Pacific Resources and Nevada Power. 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.
================================================================================
<PAGE>
SIERRA PACIFIC RESOURCES
NEVADA POWER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
------------------------------
Page No.
--------
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999............................................................ 2
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999................................................ 3
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 1999................................................ 4
Balance Sheets for Nevada Power Company - March 31, 2000 and
December 31, 1999............................................................ 5
Statements of Income for Nevada Power Company - Three Months
Ended March 31, 2000 and 1999................................................ 6
Statements of Cash Flows for Nevada Power Company - Three Months
Ended March 31, 2000 and 1999................................................ 7
Notes to Condensed Consolidated Financial Statements.................................. 8
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................................... 15
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk...................................................................... 23
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings................................................................ 24
ITEM 4. Submission of Matters to a Vote of Security Holders.............................. 24
ITEM 5. Other Information................................................................ 24
ITEM 6. Exhibits and Reports on Form 8-K................................................. 25
Signature Page................................................................................. 26
Appendix....................................................................................... 27
</TABLE>
1
<PAGE>
SIERRA PACIFIC RESOURCES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant at Original Cost:
Plant in service $ 5,405,356 $ 5,351,399
Less: accumulated provision for depreciation 1,611,138 1,571,102
------------- ------------
3,794,218 3,780,297
Construction work-in-progress 308,564 293,232
------------- ------------
4,102,782 4,073,529
------------- ------------
Investments in subsidiaries and other property, net 114,948 105,880
------------- ------------
Current Assets:
Cash and cash equivalents 16,829 4,789
Accounts receivable less provision for uncollectible accounts:
2000-$4,934; 1999-$6,475 201,683 215,972
Materials, supplies and fuel, at average cost 74,361 73,621
Deferred energy costs 8,424 14,884
Other 13,023 7,003
------------- ------------
314,320 316,269
------------- ------------
Deferred Charges:
Goodwill 325,655 327,725
Regulatory tax asset 196,364 196,364
Other regulatory assets 104,534 105,242
Other 125,397 122,677
------------- ------------
751,950 752,008
------------- ------------
$ 5,284,000 $ 5,247,686
============= ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity $ 1,475,613 $ 1,477,129
Preferred stock 50,000 50,000
SPPC/ NVP obligated mandatorily redeemable preferred trust securities 237,372 237,372
Long-term debt 1,552,782 1,556,627
------------- ------------
3,315,767 3,321,128
------------- ------------
Current Liabilities:
Short-term borrowings 789,678 754,979
Current maturities of long-term debt 192,211 202,709
Accounts payable 110,274 138,448
Accrued interest 32,786 15,394
Dividends declared 20,961 20,850
Accrued salaries and benefits 16,536 15,410
Deferred taxes on deferred energy costs 3,080 5,683
Other current liabilities 47,039 29,773
------------- ------------
1,212,565 1,183,246
------------- ------------
Commitments & Contingencies (Note 9)
Deferred Credits:
Deferred federal income taxes 417,884 413,964
Deferred investment tax credit 61,913 62,604
Regulatory tax liability 54,188 52,839
Customer advances for construction 110,445 109,422
Accrued retirement benefits 68,354 67,314
Other 42,884 37,169
------------- ------------
755,668 743,312
------------- ------------
$ 5,284,000 $ 5,247,686
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
SIERRA PACIFIC RESOURCES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
OPERATING REVENUES:
Electric $ 353,652 $ 182,433
Gas 34,836
Water 10,249
Other 4,161
---------- ---------
402,898 182,433
---------- ---------
OPERATING EXPENSES:
Operation:
Purchased Power 103,297 53,860
Fuel for power generation 66,923 30,603
Gas purchased for resale 22,851 -
Deferral of energy costs-net 7,164 3,789
Other 66,566 31,714
Maintenance 14,306 15,011
Depreciation and amortization 40,633 19,704
Taxes:
Income taxes 10,015 1,413
Other than income 10,443 5,378
---------- ---------
342,198 161,472
---------- ---------
OPERATING INCOME 60,700 20,961
---------- ---------
OTHER INCOME:
Allowance for other funds used during construction 848 2,253
Other income - net 156 (319)
---------- ---------
1,004 1,934
---------- ---------
Total Income Before Interest Charges 61,704 22,895
---------- ---------
INTEREST CHARGES:
Long-term debt 25,822 14,706
Other 14,190 2,011
Allowance for borrowed funds used during construction and
capitalized interest (2,297) (2,098)
---------- ---------
37,715 14,619
---------- ---------
INCOME BEFORE SPPC/NVP OBLIGATED MANDATORILY
REDEEMABLE PREFERRED TRUST SECURITIES 23,989 8,276
Preferred dividend requirements of SPPC/NVP obligated mandatorily
redeemable preferred trust securities 4,836 3,793
---------- ---------
INCOME BEFORE PREFERRED STOCK DIVIDENDS 19,153 4,483
Preferred stock dividend requirements of Subsidiary (975) (42)
---------- ---------
NET INCOME $ 18,178 $ 4,441
========== =========
Net Income Per Share- Basic $ 0.23 $ 0.09
========== =========
- Diluted $ 0.23 $ 0.09
========== =========
Weighted Average Shares of Common Stock Outstanding 78,416 51,265
========== =========
Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SIERRA PACIFIC RESOURCES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three-Months Ended
March 31,
------------------------------
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 19,153 4,483
Non-cash items included in income:
Depreciation and amortization 40,633 19,704
Deferred taxes and deferred investment tax credit (340) (1,630)
AFUDC and capitalized interest (3,145) (4,351)
Deferred energy costs 6,460 4,162
Early retirement and severance amortization 1,049 -
Other non-cash 2,718 (1,122)
Changes in certain assets and liabilities, net of acquisition:
Materials, supplies and fuel (740) (5,731)
Accounts receivable 14,289 13,483
Other current assets (6,020) (2,861)
Accounts payable (28,174) (26,242)
Other current liabilities 33,181 (1,077)
Other - net 4,240 9,992
--------- ---------
Net Cash Flows From Operating Activities 83,304 8,810
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant (65,588) (42,561)
Non-cash charges to utility plant 1,014 (516)
Contributions in aid of construction 2,150 -
Customer refunds for construction 1,022 557
--------- ---------
Net cash used for utility plant (61,402) (42,520)
--------- ---------
Investments in subsidiaries and other property - net (9,985) (11)
--------- ---------
Net Cash Used In Investing Activities (71,387) (42,531)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 33,584 (82,635)
Proceeds from issuance of long-term debt - 130,000
Retirement of long-term debt (12,661) (1,739)
Change in funds held in trust - 10
Retirement of preferred stock - (50)
Sale of common stock 5 -
Dividends paid (20,805) (12,894)
--------- ---------
Net Cash Provided By Financing Activities 123 32,692
--------- ---------
Net increase in Cash and Cash Equivalents 12,040 (1,029)
Beginning balance in Cash and Cash Equivalents 4,789 1,770
--------- ---------
Ending balance in Cash and Cash Equivalents $ 16,829 $ 741
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During Period For:
Interest $ 22,559 $ 12,334
Income Taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
NEVADA POWER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------------- -------------------
(Unaudited)
ASSETS
<S> <C> <C>
Utility Plant at Original Cost:
Plant in service $ 2,977,035 $ 2,928,973
Less: accumulated provision for depreciation 794,202 772,003
--------------------- -------------------
2,182,833 2,156,970
Construction work-in-progress 185,640 195,671
--------------------- -------------------
2,368,473 2,352,641
--------------------- -------------------
Investments in Sierra Pacific Resources (Note 2) 654,976 654,156
Investments in subsidiaries and other property, net 16,108 15,644
--------------------- -------------------
671,084 669,800
--------------------- -------------------
Current Assets:
Cash and cash equivalents 891 243
Accounts receivable less provision for uncollectible accounts:
2000-$2,016; 1999-$2,826 94,895 110,955
Materials, supplies and fuel, at average cost 44,626 43,108
Deferred energy costs 8,800 14,884
Other 6,634 3,573
--------------------- -------------------
155,846 172,763
--------------------- -------------------
Deferred Charges:
Regulatory tax asset 130,833 130,833
Other regulatory assets 27,374 28,190
Other 29,360 24,258
--------------------- -------------------
187,567 183,281
--------------------- -------------------
$ 3,382,970 $ 3,378,485
===================== ===================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity including $654,976 -2000; $654,156 -1999
of equity in Sierra Pacific Resources (Note 2) $ 1,475,613 $ 1,477,129
NVP obligated mandatorily redeemable preferred trust securities 188,872 188,872
Long-term debt 928,644 931,004
--------------------- -------------------
2,593,129 2,597,005
--------------------- -------------------
Current Liabilities:
Short-term borrowings 194,653 182,000
Current maturities of long-term debt 89,415 89,842
Accounts payable 51,992 75,088
Accrued interest 22,528 10,098
Dividends declared 24,128 24,126
Accrued salaries and benefits 7,865 7,025
Deferred taxes on deferred energy costs 3,080 5,683
Other current liabilities 24,695 18,536
--------------------- -------------------
418,356 412,398
--------------------- -------------------
Commitments & Contingencies (Note 9)
Deferred Credits:
Deferred federal income taxes 235,092 236,139
Deferred investment tax credit 26,258 26,624
Regulatory tax liability 16,342 14,993
Customer advances for construction 69,226 69,341
Accrued retirement benefits 18,517 18,262
Other 6,050 3,723
--------------------- -------------------
371,485 369,082
--------------------- -------------------
$ 3,382,970 $ 3,378,485
===================== ===================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NEVADA POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
OPERATING REVENUES:
Electric $ 196,030 $ 182,433
----------------- -----------------
OPERATING EXPENSES:
Operation:
Purchased power 53,817 53,860
Fuel for power generation 37,647 30,603
Deferral of energy costs-net 6,788 3,789
Other 29,151 31,714
Maintenance 9,821 15,011
Depreciation and amortization 21,416 19,704
Taxes:
Income taxes 3,627 1,413
Other than income 5,406 5,378
----------------- -----------------
167,673 161,472
----------------- -----------------
OPERATING INCOME 28,357 20,961
----------------- -----------------
OTHER INCOME:
Equity in earnings of Sierra Pacific Resources (Note 2) 10,207 -
Allowance for other funds used during construction 780 2,253
Other income - net 376 (319)
----------------- -----------------
11,363 1,934
----------------- -----------------
Total Income Before Interest Charges 39,720 22,895
----------------- -----------------
INTEREST CHARGES:
Long-term debt 15,899 14,706
Other 3,665 2,011
Allowance for borrowed funds used during construction and
capitalized interest
(1,815) (2,098)
----------------- -----------------
17,749 14,619
----------------- -----------------
INCOME BEFORE NVP OBLIGATED MANDATORILY REDEEMABLE
PREFERRED TRUST SECURITIES 21,971 8,276
Preferred dividend requirements of NVP obligated mandatorily
redeemable preferred trust securities 3,793 3,793
----------------- -----------------
INCOME BEFORE PREFERRED STOCK DIVIDENDS 18,178 4,483
Preferred stock dividend requirements (42)
----------------- -----------------
NET INCOME $ 18,178 $ 4,441
================= =================
Net Income Per Share - Basic $ 0.23 $ 0.09
================= =================
- Diluted $ 0.23 $ 0.09
================= =================
Weighted Average Shares of Common Stock Outstanding 78,416 51,265
================= =================
Dividends Paid Per Share of Common Stock $ 0.250 $ 0.250
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NEVADA POWER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three-Months Ended
March 31,
---------------------------------------------
2000 1999
---------------- ----------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 18,178 $ 4,483
Non-cash items included in income:
Depreciation and amortization 21,416 19,704
Deferred taxes and deferred investment tax credit (1,227) (1,630)
AFUDC and capitalized interest (2,595) (4,351)
Deferred energy costs 6,084 4,162
Other non-cash 1,453 (1,122)
Equity in earnings of SPR (Note 2) (10,207) -
Changes in certain assets and liabilities, net of acquisition:
Materials, supplies and fuel (1,518) (5,731)
Accounts receivable 16,060 13,483
Other current assets (3,061) (2,861)
Accounts payable (23,096) (26,242)
Other current liabilities 16,826 (1,077)
Other - net (1,072) 9,992
---------------- ----------------
Net Cash Flows From Operating Activities 37,241 8,810
---------------- ----------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant (38,348) (42,561)
Non-cash charges to utility plant 406 (516)
Contributions in aid of construction - -
Customer refunds for construction (116) 557
---------------- ----------------
Net cash used for utility plant (38,058) (42,520)
---------------- ----------------
Investments in subsidiaries and other property - net (92) (11)
---------------- ----------------
Net Cash Used In Investing Activities (38,150) (42,531)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 12,653 (82,635)
Proceeds from issuance of long-term debt - 130,000
Retirement of long-term debt (1,098) (1,739)
Change in funds held in trust - 10
Retirement of preferred stock - (50)
Additional investment of Parent 14,000 -
Dividends paid (23,998) (12,894)
---------------- ----------------
Net Cash Provided By Financing Activities 1,557 32,692
---------------- ----------------
Net increase in Cash and Cash Equivalents 648 (1,029)
Beginning balance in Cash and Cash Equivalents 243 1,770
---------------- ----------------
Ending balance in Cash and Cash Equivalents $ 891 $ 741
================ ================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During Period For:
Interest $ 7,134 $ 12,334
Income Taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of the financial statements
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1. MANAGEMENT'S STATEMENT
- -------------------------------------
In the opinion of the management of Sierra Pacific Resources, hereafter
known as SPR, 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 Annual Report on Form 10-K for
the year ended December 31, 1999.
The results of operations for the three-month period ended March 31,
2000 are not necessarily indicative of the results to be expected for the full
year.
Principles of Consolidation
---------------------------
The condensed consolidated financial statements include the accounts of
SPR and its wholly-owned subsidiaries, Nevada Power Company (NVP), Sierra
Pacific Power Company (SPPC), Tuscarora Gas Pipeline Company, Sierra Gas Holding
Company (formerly Sierra Energy Company), Sierra Energy Company dba eo 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 2000 have been
reclassified to conform with the current year's presentation. Net income and
shareholders' equity were not affected by these reclassifications.
NOTE 2. FINANCIAL STATEMENTS OF NEVADA POWER COMPANY
- -----------------------------------------------------
As described in Note 3 that follows, NVP is deemed to be the acquirer
of SPR for accounting purposes and this is reflected in the SPR Consolidated
Financial Statements. However, after the merger with SPR and as a result of the
structure of the transactions, NVP is a separate legal entity, which is a wholly
owned subsidiary of SPR. As a legal matter, NVP does not own any equity interest
in SPR. The audited NVP Financial Statements accommodate the presentation of
financial information of NVP on a stand-alone basis, without the benefit of the
other SPR entities, by summarizing all non-NVP financial information into a few
items on each of the Financial Statements. These summarized items are repeated
below:
Non-NVP Financial Items on the NVP Financial Statements
NVP Balance Sheet:
- -----------------
Investments in Sierra Pacific Resources $654,976
Equity in Sierra Pacific Resources $654,976
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 NVP. The Equity in Sierra Pacific Resources reflects
the sum of paid-in-capital and retained earnings of SPR, without the benefit of
NVP.
These line items are required by the rules of purchase accounting and
do not represent any asset to which holders of NVP's securities may look for
recovery of their investment. These items must be disregarded for determining
the ability of NVP to satisfy its obligations or to pay dividends (preferred or
common), for calculating NVP's ratios of earnings to fixed charges and preferred
stock dividends and for all of NVP's financial covenants and earnings tests
including those under its charter and mortgage.
8
<PAGE>
NVP Income Statement:
- --------------------
Equity in Earnings of Sierra Pacific Resources $ 10,207
The Equity in Earnings of Sierra Pacific Resources reflects three months of SPR
net income, after SPPC preferred stock dividends.
This line item is required by the rules of purchase accounting and does not
represent any item of revenue or income to which holders of NVP's securities may
look for recovery of their investment. This item must be disregarded for
determining the ability of NVP to satisfy its obligations or its ability to pay
dividends (preferred or common), for calculating NVP's ratios of earnings to
fixed charges and preferred dividends and for all of NVP's financial covenants
and earnings tests including those under its charter and mortgage.
NVP Statement of Cash Flow:
- --------------------------
Equity in Earnings of Sierra Pacific Resources $ 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 is required by the rules of purchase accounting and does not
represent any item of cash flow to which holders of NVP's securities may look
for recovery of their investment. This item must be disregarded for determining
the ability of NVP to satisfy its obligations or its ability to pay dividends
(preferred or common), for calculating NVP's ratios of earnings to fixed charges
and preferred dividends and for all of NVP's financial covenants and earnings
tests including those under its charter and mortgage.
NOTE 3. SIERRA PACIFIC RESOURCES AND NEVADA POWER COMPANY MERGER
- -----------------------------------------------------------------
On July 28, 1999 the merger between SPR and NVP was finalized. The
merger was accounted for as a reverse purchase under generally accepted
accounting principles, with NVP considered the acquiring entity even though SPR
is the surviving legal entity. In addition, for accounting purposes the merger
was deemed to have occurred on August 1, 1999. As a result of this reverse
purchase accounting treatment; (i) the historical financial statements of SPR
for periods prior to the date of the merger are no longer the financial
statements of SPR, and therefore, are no longer presented; (ii) the historical
financial statements of SPR for periods prior to the date of the merger are
those of NVP.
Through March 31, 2000, SPR incurred a total of $60.3 million in
capitalized costs since merger work began. The capitalized merger amounts
consist of $40.7 million of transaction and transition costs and $19.6 million
of employee separation costs. For more information regarding the capitalization
of merger costs, see Note 2 of "The Notes To Financial Statements" included in
SPR's Annual Report on Form 10-K for the year ended December 31, 1999.
Employee severance, relocation, and related costs for SPR were $15.1
million, of which $1.7 million remains unpaid as of March 31, 1999. Other costs
incurred in connection with employee separations included pension and
postretirement benefits net of curtailment gains of $4.5 million.
In accordance with the terms of the merger, each outstanding share of
SPR's common stock was converted into the right to receive either $37.55 in cash
or 1.44 shares of newly issued SPR common stock. Each outstanding share of NVP
common stock was converted to the right receive either $26.00 in cash or 1.00
share of newly issued SPR common stock. 4,037,000 shares of SPR and 11,716,611
shares of NVP common stock were exchanged for $151.6 million and $304.6 million,
respectively. The remaining shares of each company were converted to newly
issued shares of SPR common stock. SPR stockholders and NVP stockholders
received 38,866,054 and 39,548,506 shares of newly issued SPR common stock,
resulting in 78,414,560 outstanding shares of SPR on August 1, 1999.
The total consideration paid to SPR common stockholders was equal to
cash of $151.6 million and 38,866,054 shares of newly issued SPR common stock at
a price of $24.18 per share based on the average closing price of NVP common
stock between April 22, 1998 and May 6, 1998. The eleven day average price of
NVP common stock used in determining the total stock consideration represents
the market price over a reasonable period of time before and after the
transaction was announced on April 29, 1998. As shown below, $331.2 million of
goodwill was recorded in connection with the merger and is being amortized over
40 years. However, the Public
9
<PAGE>
Utilities Commission's order approving the merger allowed SPR to defer merger
costs (including goodwill) allocable to the regulated utilities for a three year
period. At the end of the deferral period SPR will propose an amortization
period for goodwill and other merger costs. Accordingly, goodwill amortization
associated with the regulated utility companies is being reclassified to a
regulatory asset during the three year period. Also, because SPR is deferring
merger costs as regulatory assets the transaction costs included in the
calculation of goodwill represent only costs allocable to SPR's non-regulated
subsidiaries.
Pro forma unaudited financial information for SPR on a consolidated
basis, giving effect to the merger as if it had occurred at the beginning of all
periods presented. The pro forma information presented below is not necessarily
indicative of the results that would have occurred, or that will occur in the
future.
Three-Months ended
(Dollars and shares in thousands March 31,
except per share amounts) ------------------------------------
- --------------------------------- 2000 1999
----------------- --------------
Operating Revenue $ 402,898 $ 377,219
Operating Income $ 60,700 $ 58,654
Income Applicable to Common Stock $ 18,178 $ 19,661
Net Income per share - basic and
diluted $ 0.23 $ 0.25
Weighted Average Shares of Common
Stock Outstanding 78,416 78,416
Total Assets $5,284,000 $5,101,900
NOTE 4. RECENT PRONOUNCEMENTS OF THE FASB
- ------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS 133, entitled "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position, and measure those
instruments at fair value. In May 1999, members of the Financial Accounting
Standards Board agreed to delay the effective date of Statement 133 to fiscal
years beginning after June 15, 2000.
In March 2000, FASB issued a proposed amendment to Statement 133 that,
among other revisions, exempted from the fair value requirements normal
purchases and normal sales (as defined by Statement 133) that contain settlement
provisions, if it is probable that the contracts will not settle net and will
result in physical delivery. SPR is still assessing the impact of SFAS 133 on
its financial condition and results of operations.
NOTE 5. SHORT-TERM BORROWINGS
- ------------------------------
SPR's commercial paper balance increased by approximately $29.8 million
since December 31, 1999. On March 31, 2000, SPR had $493.2 million of commercial
paper outstanding at an average rate of 6.29%.
NOTE 6. LONG-TERM DEBT
- -----------------------
On March 31, 2000, SPR redeemed $10 million of Series E senior notes.
10
<PAGE>
NOTE 7. EARNINGS PER SHARE
- ---------------------------
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.
The following provides a reconciliation of Basic EPS andDiluted EPS.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ -------------
<S> <C> <C>
Basic EPS
Numerator
Income available to common stockholders ($000) 18,178 4,441
----------- ------------
Denominator
Weighted average number of shares outstanding 78,416,356 51,265,117
----------- ------------
Per-Share Amount $ 0.23 0.09
=========== ============
Diluted EPS
Numerator
Income available to common stockholders ($000) 18,178 4,441
----------- ------------
Denominator
Weighted average number of shares outstanding
before dilution 78,416,356 51,265,117
Stock options 1,153 -
Executive long term incentive plan 56,403 -
Non-Employee stock plan 5,736 -
Employee stock purchase plan 929 -
----------- ------------
78,480,577 51,265,117
----------- ------------
Per-Share Amount $ 0.23 $ 0.09
=========== ============
</TABLE>
11
<PAGE>
NOTE 8. SEGMENT INFORMATION
- ----------------------------
SPR operates three business segments providing regulated electric,
natural gas and water service. Electric service is provided to Las Vegas and
surrounding Clark County, northern Nevada and the Lake Tahoe area of California.
Natural gas and water services are provided in the Reno-Sparks area of Nevada.
Other segment information includes segments below the quantitative threshold for
separate disclosure.
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.
Segment information for the three months ended March 31, 1999 includes
only the operating results of NVP.
Three Months Ended
March 31, 2000 Electric Gas Water Other Consolidated
- ------------------ --------- -------- -------- -------- ------------
Operating Revenues $ 353,652 $ 34,836 $ 10,249 $ 4,161 $ 402,898
========= ======== ======== ======== ============
Operating income $ 54,356 $ 4,612 $ 2,732 $ (1,000) $ 60,700
========= ======== ======== ======== ============
Three Months Ended
March 31, 1999 Electric Gas Water Other Consolidated
- ------------------ --------- -------- -------- -------- ------------
Operating revenues $ 182,433 $ - $ - $ - $ 182,433
========= ======== ======== ======== ============
Operating income $ 20,961 $ - $ - $ - $ 20,961
========= ======== ======== ======== ============
NOTE 9. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Grand Canyon Trust and Sierra Club filed a lawsuit in the U.S.
District Court, District of Nevada, in February 1998, against the owners
(including NVP) of the Mohave Generation Station ("Mohave"), alleging violations
of the Clean Air Act regarding emissions of sulfur dioxide and particulates. An
additional plaintiff, National Parks and Conservation Association, later joined
the suit. The plant owners and plaintiffs have had numerous settlement
discussions and filed a proposed settlement with the court on October 6, 1999.
The consent decree, approved by the court in November, established emission
limits for sulfur dioxide and opacity and required installation of air pollution
controls for sulfur dioxide, nitrogen oxides and particulate matter. The new
emission limits must be met by January 1, 2006 and April 1, 2006, for the first
and second units, respectively. However, if the owners sell their entire
ownership interest, with a closing date prior to December 30, 2002, then the new
emission limits become effective 36 months and 39 months from the date of last
closing for the two respective units. The estimated cost of new controls is $300
million. As a 14% owner in the Mohave Station, NVP's costs could be $42 million.
Also, the United States Congress authorized the Environmental
Protection Agency ("EPA") to study the potential impact Mohave may have on
visibility in the Grand Canyon area. A final report of the study results was
released in March 1999. The study acknowledges that sulfur dioxide emissions
from Mojave are transported to the Grand Canyon. EPA has solicited information
to determine whether visibility impairment in the Grand Canyon can be reasonably
attributed to Mohave. If EPA determines that significant visibility impairment
is reasonably attributable to the station, EPA could initiate a review for Best
Available Retrofit Technology. Based upon indications from EPA and the National
Park Service, the Plant owners believe that terms of the settlement of the suit
discussed above are expected to be reflected in a State Implementation Plan for
Nevada and resolve any concerns of EPA regarding visibility impairment.
In 1991, the EPA published an order requiring the Navajo Generating
Station ("Navajo") to install scrubbers to remove 90 percent of sulfur dioxide
emissions beginning in 1997. As an 11.3% owner of Navajo, NVP was required to
fund an estimated $48 million for installation of the scrubbers. The first of
three scrubber units was placed in commercial operation in November 1997, the
second scrubber in September 1998, with the last scrubber placed in operation in
June 1999. NVP spent approximately $47.6 million on the scrubbers' construction.
In 1992, NVP received resource-planning approval from the PUCN for its share of
the cost of the scrubbers.
12
<PAGE>
In May 1997, the Nevada Division of Environmental Protection (NDEP) issued
an Order requiring NVP to submit a plan to eliminate the discharge of Reid
Gardner Station wastewater to groundwater. The Order also required a
hydrological assessment of groundwater impacts in the area. In June 1999, NDEP
determined that wastewater ponds have degraded groundwater quality. In August
1999, NDEP issued a discharge permit to Reid Gardner Station and an Order that
requires all wastewater ponds to be closed or lined with impermeable liners over
the next 10 years. This Order also required NVP to submit a Site
Characterization Plan to NDEP to ascertain impacts. Technical information from
the Plan will be used to develop a corrective action plan and allow NVP to
determine an estimate of remediation costs for cleanup. New pond construction
and lining costs are estimated at $20 million.
Additionally, SPPC has four wells which currently exceed the federal
drinking water standard for naturally occurring arsenic concentrations.
Production from three of these wells continues by blending treated water. The
fourth well is out of service pending treatment. SPPC's water laboratory
research staff is developing options to assure that SPPC is prepared to meet new
arsenic standards. The new Arsenic regulations will be promulgated in 2000 and
the proposed regulation is expected to require action on 17 of the 25 wells
serving Sierra's system. Depending upon final rules from the EPA, SPPC may incur
between $70 million and $98 million by 2004 to meet the new standards.
As part of the Generation Divestiture process, Phase I and/or Phase II
Environmental Assessments were conducted at NVP's Harry Allen, Clark, Sunrise
and Reid Gardner facilities. Additional environmental assessments are being
conducted to further characterize the sites. Remediation costs are unknown
because characterization is not complete.
Nevada Electric Investment Company (NEICO), a subsidiary of NVP in 1999,
owns property in Wellington, Utah, which was the site of a coal washing and load
out facility. The site now has a reclamation estimate supported by a bond of
$4.9 million with the Utah Division of Oil and Gas Mining. The property was
under contract for sale and the contract required the purchaser to provide $1.3
million in escrow towards reclamation. However, the sales contract was recently
terminated and NEICO has taken title to the escrow funds. It is NEICO's
intention to sell the property.
In accordance with the revised Divestiture Plan stipulation approved by the
PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be
offering for sale generation assets with peak capacity of approximately 2,985
megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940
MW owned by NVP. Letters of interest were issued to potential bidders in
February 2000. Upon response from the qualified potential bidders and execution
of the confidentiality agreements, offering memoranda and materials were
provided to the bidders. First Stage indicative bids are expected in early May
2000. A short list will be selected for each of the seven bundles being offered
and the second stage due diligence process will begin later in May 2000. Final
bids and the selection of winning bids will occur in late June or early July
2000. Close of sale and transfer of ownership should occur between December 2000
and mid-2001.
NOTE 10. SUBSEQUENT EVENTS
- ---------------------------
On April 20, 2000, SPR issued an aggregate of $300 million floating rate
notes, $200 million of which will mature on April 20, 2003 and the remaining
$100 million will mature on April 20, 2002. Interest on the notes is payable
quarterly commencing on July 20, 2000. The interest rate on the notes for each
interest period will be a floating rate, subject to adjustment every three
months, equal to the London InterBank Offered Rate (LIBOR) for three-month U.S.
dollar deposits plus a spread of 0.60% for the notes maturing in 2003 and a
spread of 0.65% for the notes maturing in 2002. These notes will not be entitled
to any sinking fund. The notes due 2002 will be redeemable, in whole, without
premium at the option of SPR beginning on April 20, 2001 and on each interest
payment date thereafter. The net proceeds of the $200 million issue were used to
retire an equal amount of commercial paper of SPR that was used as temporary
funding for the cash portion of the NVP merger consideration. The net proceeds
of the $100 million issue were used to make a capital contribution to NVP, which
in turn was used to retire $85 million of maturing long-term debt on May 1, 2000
and the remaining proceeds were used to pay off its commercial paper.
Upon issuance of these floating rate notes, SPR also reduced its bank
credit facility to $300 million from the previous amount of $500 million in
accordance with the terms of the credit agreement.
On May 9, 2000, SPR issued $300 million of notes under its universal shelf
registration. These notes bear interest at an annual rate of 8.75% and will
mature on May 15, 2005. Interest on the notes is payable semi-annually
13
<PAGE>
on May 15 and November 15 commencing on November 15, 2000. The notes will not be
subject to any sinking fund and will be redeemable in whole or in part at any
time upon payment of the principal amount of the notes being redeemed, accrued
interest and a make-whole premium. The net proceeds from the issuance of these
notes were used to retire an equal amount of commercial paper of SPR.
On May 1, 2000 $85 million of NVP's First Mortgage Bonds matured.
On May 10, 2000, in accordance with SPR's plan to sell the generation
assets of NVP and SPPC, AES Corporation announced that it was the successful
bidder for the purchase of a controlling interest in the 1,580 MW Mohave
Generating Station in Laughlin, Nevada for approximately $667 million. AES
executed Asset Sale Agreements with the sellers, NVP (14%) and Southern
California Edison Company (56%), for a 70% undivided interest in the facility.
The acquisition is subject to approval by the FERC and the California Public
Utilities Commission, and review by the Public Utilities Commission of Nevada
and is expected to close late in the 4/th/ Quarter of 2000.
Mohave Generating Station is a 2-unit, coal-fired power plant located on 2,500
acres along the Colorado River, approximately 80 miles south of Las Vegas.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information in this Form 10-Q, and in the Form 10-Q of Sierra Pacific
Power Company (SPPC) attached as an Appendix, 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, 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 (NVP), or
SPPC to differ materially from those contemplated in any forward-looking
statement include, among others, the following: (1) the pace and extent of the
ongoing restructuring of the electric and gas industries in Nevada and
California; (2) the outcome of regulatory and legislative proceedings and
operational changes related to industry restructuring; (3) the amount NVP and
SPPC are allowed to recover from customers for certain costs that prove to be
uneconomic in the new competitive market; (4) regulatory delays or conditions
imposed by regulatory bodies in approving the acquisition of Portland General
Electric; (5) the outcome of ongoing and future regulatory proceedings; (6)
management's ability to integrate the operations of SPR, NVP, SPPC, and Portland
General Electric and to implement and realize anticipated cost savings from the
merger of SPR and NVP and the acquisition of Portland General Electric; (7) the
results of the contemplated sales by NVP and SPPC of their Nevada generating
assets; (8) industrial, commercial and residential growth in the service
territories of NVP and SPPC; (9) fluctuations in electric, gas and other
commodity prices and the ability to manage such fluctuations successfully; (10)
changes in the capital markets and interest rates affecting the ability to
finance capital requirements; (11) the loss of any significant customers; (12)
the weather and other natural phenomena; and (13) changes in the business of
major customers which may result in changes in the demand for services of NVP or
SPPC. 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 assumes no
obligation to update forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting forward-looking
statements.
RESULTS OF OPERATIONS
- ---------------------
Tuscarora Gas Pipeline Company
- ------------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three months ended March 31, 2000 include the operating results of
Tuscarora Gas Pipeline Company (TGPC), a wholly-owned subsidiary of SPR. TGPC
contributed $.6 million in net income for the three months ended March 31, 2000.
Although not reflected in the SPR Condensed Consolidated Income Statement for
the three months ended March 31, 1999 included in this report, TGPC contributed
$.5 million in net income for that period. The Condensed Consolidated Income
Statement for the three months ended March 31, 1999 includes only the operating
results of NVP. See Note 2 for more information regarding the presentation of
financial information included in this report.
e-three
- -------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three months ended March 31, 2000 include the operating results of e-
three, a wholly-owned subsidiary of SPR. e-three contributed $.2 million in net
income for the three months ended March 31, 2000. Although not reflected in the
SPR Condensed Consolidated Income Statement for the three months ended March 31,
1999 included in this report, e-three incurred a net loss of $.7 million for
that period due to start-up activities.
15
<PAGE>
Sierra Pacific Energy Company
- -----------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three months ended March 31, 2000 include the operating results of
Sierra Pacific Energy Company (SPE), a wholly-owned subsidiary of SPR. SPE
incurred a net loss of $3.2 million for the three months ended March 31, 2000.
The current period losses are the result of costs incurred to exit the retail
energy-sales business. Although not reflected in the SPR Condensed Consolidated
Income Statement for the three months ended March 31, 1999 included in this
report, SPE incurred a net loss of $.4 million for that period.
Sierra Pacific Communications
- -----------------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three months ended March 31, 2000 include the operating results of
Sierra Pacific Communications (SPC), a wholly-owned subsidiary of SPR. SPC
incurred a net loss of $61,000 for the three months ended March 31, 2000. SPC
began operations in the third quarter of 1999.
SPC has finalized a partnership, called Sierra Touch America, LLC, with
Touch America, a subsidiary of Montana Power Company. The partnership was formed
to construct a fiber optic connection between Salt Lake City, Utah and
Sacramento, CA. The construction of the route is for three parties, AT&T and PF
Net corporations, and Sierra Touch America. SPC's share of the estimated $100
million total cost to the partnership is expected to be $25 million.
Sierra Pacific Power Company
- ----------------------------
Management's Discussion and Analysis of SPPC is contained in its Quarterly
Report on Form 10-Q for the three months ended March 31, 2000, which is attached
as an appendix. SPPC contributed $18.5 million in net income for the three
months ended March 31, 2000, which is reflected in the SPR Condensed
Consolidated Income Statement for that period. Although not reflected in the SPR
Condensed Consolidated Income Statement for the three months ended March 31,
1999 included in this report, SPPC contributed $21.1 million in net income for
that period.
Nevada Power Company
- --------------------
The Condensed Consolidated Statements of Income of Sierra Pacific Resources
for the three months ended March 31, 2000 include the operating results of
Nevada Power Company (NVP), another wholly-owned subsidiary of SPR, in addition
to those of SPPC. The following Condensed Consolidated Statements of Income
illustrate the operating results of NVP, SPPC and the combined results of all
other operations. The results of operations discussion that follows is based on
the NVP operating results included in these statements as the operating results
of the other subsidiaries have already been discussed in this section.
16
<PAGE>
SIERRA PACIFIC RESOURCES CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three-Months Ended March 31, 2000 Three-Months Ended March 31, 1999
------------------------------------------------ -----------------------------------------------
Sierra Sierra
Nevada Pacific Nevada Pacific
Power Power Other Total Power Power Other Total
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Electric $ 196,030 $ 157,622 $ - 353,652 $ 182,433 $ - $ - 182,433
Gas - 34,836 34,836 - - - -
Water - 10,249 - 10,249 - - - -
Other - - 4,161 4,161 - - - -
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
196,030 202,707 4,161 402,898 182,433 - - 182,433
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Operation:
Purchased power 53,817 49,480 - 103,297 53,860 - - 53,860
Fuel for power generation 37,647 29,276 - 66,923 30,603 - - 30,603
Gas purchased for resale - 22,851 22,851 - - - -
Deferral of energy costs-net 6,788 376 7,164 3,789 - - 3,789
Other 29,151 27,869 9,546 66,566 31,714 - - 31,714
Maintenance 9,821 4,485 - 14,306 15,011 - - 15,011
Depreciation and amortization 21,416 19,031 186 40,633 19,704 - - 19,704
Taxes: - - - - -
Income taxes 3,627 11,034 (4,646) 10,015 1,413 - - 1,413
Other than income 5,406 4,962 75 10,443 5,378 - - 5,378
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
167,673 169,364 5,161 342,198 161,472 - - 161,472
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME 28,357 33,343 (1,000) 60,700 20,961 - - 20,961
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME:
Allowance for other funds used
during construction 780 68 - 848 2,253 - - 2,253
Other income - net 376 (378) 158 156 (319) - - (319)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,156 (310) 158 1,004 1,934 - - 1,934
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Income 29,513 33,033 (842) 61,704 22,895 - - 22,895
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
INTEREST CHARGES:
Long-term debt 15,899 9,750 173 25,822 14,706 - - 14,706
Other 3,665 3,211 7,314 14,190 2,011 - - 2,011
Allowance for borrowed funds
used during construction and
capitalized interest (1,815) (482) - (2,297) (2,098) - - (2,098)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
17,749 12,479 7,487 37,715 14,619 - - 14,619
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME BEFORE SPPC/NVP OBLIGATED
MANDATORILY
REDEEMABLE PREFERRED TRUST
SECURITIES 11,764 20,554 (8,329) 23,989 8,276 - - 8,276
Preferred dividend
requirements of mandatorily
redeemable preferred trust
securities (3,793) (1,043) (4,836) (3,793) - - (3,793)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME BEFORE PREFERRED STOCK
DIVIDENDS 7,971 19,511 (8,329) 19,153 4,483 - - 4,483
Preferred stock dividend
requirements - (975) - (975) (42) - - (42)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME APPLICABLE TO COMMON STOCK $ 7,971 $ 18,536 $ (8,329) $ 18,178 $ 4,441 $ - $ - $ 4,441
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
The causes for significant changes in specific lines comprising the
results of operations for NVP are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------------- Change from Change from
2000 1999 Prior Year $ Prior Year %
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Electric Operating
Revenues:
Residential $ 83,573 $ 79,106 $ 4,467 5.6%
Commercial 46,734 41,327 5,407 13.1%
Industrial 55,121 49,395 5,726 11.6%
------------- ------------- ------------- ------------
Retail revenues 185,428 169,828 15,600 9.2%
Other 10,602 12,605 (2,003) -15.9%
------------- ------------- ------------- ------------
Total Revenues $ 196,030 $ 182,433 $ 13,597 7.5%
============= ============= ============= ============
Total retail sales in thousands
of megawatt-hours (MWH) 3,148 2,951 197 6.7%
Average retail revenue per MWH $ 58.90 $ 57.55 $ 1.35 2.4%
</TABLE>
Residential electric revenues increased due to a 5.8% increase in
customers over the prior periods and rate increases related to deferred energy
accounting that were effective in March 1999. These increases for three months
were partially offset by lower use per customer due to milder weather in 2000.
Commercial and industrial electric revenues increased due to a 5.0% and
5.4% increase in number of customers, respectively. Revenues for both categories
were also higher because of rate increases related to deferred energy accounting
and higher use per customer as a result of the expansion of existing customer
operations and the opening of new resort casinos.
Other electric revenues decreased due to the expiration of a wholesale
contract and loss of one public authority customer during 2000.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------- Change from Change from
2000 1999 Prior Year $ Prior Year %
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Purchased Power $ 53,817 $ 53,860 $ (43) -0.1%
Purchased Power in thousands
of MWHs 1,243 1,425 (182) -12.8%
Average cost per MWH of
Purchased Power $ 43.30 $ 37.80 $ 5.50 14.6%
</TABLE>
Purchased power costs were only slightly lower despite a 12.8% decrease
in the MWHs purchased compared to last year. The reduction in cost that resulted
from lower volumes purchased was offset by higher average unit costs for
short-term power purchases. In response to higher purchased power prices, NVP
increased electric generation to supply the increase in electric sales described
previously.
18
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------- Change from Change from
2000 1999 Prior Year $ Prior Year %
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Fuel for Power Generation $ 37,647 $ 30,603 $ 7,044 23.0%
Thousands of MWHs generated 2,264 1,969 295 15.0%
Average cost per MWH of
Generated Power $ 16.63 $ 15.54 $ 1.09 7.0%
</TABLE>
Fuel costs increased due to greater electric sales, the replacement of
more expensive purchased power with generation and higher gas prices in the
current year.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------- Change from Change from
2000 1999 Prior Year $ Prior Year %
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Deferral of energy costs-net $ 6,788 $ 3,789 $ 2,999 79.2%
============ ============ ============= =============
</TABLE>
Deferred energy cost recognition has increased to match deferred energy
rate increases granted in 1999. The rate increase was granted to increase NVP's
fuel recovery.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------- Change from Change from
2000 1999 Prior Year $ Prior Year %
---------------- ---------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Allowance for other funds used
during construction $ 780 $ 2,253 (1,473) -65.4%
Allowance for borrowed funds used
during construction 1,815 2,098 (283) -13.5%
---------------- ---------------- ----------------- ---------------------
$ 2,595 $ 4,351 $ (1,756) -40.4%
================ ================ ================= =====================
</TABLE>
Total allowance for funds used during construction (AFUDC) is lower
primarily because the construction of the Crystal Transmission Project completed
in May 1999.
19
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------- Change from Change from
2000 1999 Prior Year $ Prior Year %
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Other operating expense $ 29,151 $ 31,714 $ (2,563) -8.1%
Maintenance expense 9,821 15,011 (5,190) -34.6%
Depreciation and amortization 21,416 19,704 1,712 8.7%
Income taxes 3,627 1,413 2,214 156.7%
Interest charges- Long-term debt 15,899 14,706 1,193 8.1%
Interest charges-other 3,665 2,011 1,654 82.2%
</TABLE>
Other operating expense is lower due to reduced labor and benefit costs
in 2000 as a result of merger efficiencies and other unfilled vacancies.
Maintenance costs decreased from the prior year due to lower plant
maintenance costs.
Depreciation and amortization expense increased due to an 8.8% increase
in electric plant over the prior year.
Income taxes increased due to higher pre-tax income for the current
year.
Interest charges- Long-term debt, is greater due to higher average
long-term debt balances in the current year.
Interest charges- other is greater due to higher short-term borrowings
in the current year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
During the first three months of 2000, SPR earned $19.2 million in
income before preferred dividends and declared $19.85 million in common stock
dividends. NVP and SPPC, SPR's principal subsidiaries, declared common stock
dividends to their parent, SPR, of $24 million and $19 million, respectively.
SPPC also declared $475 thousand in dividends to holders of its preferred stock.
SPR cash flows during the three months ended March 31, 2000 increased
compared to the same period in 1999. A significant increase in cash flows from
operating activities was offset in part by an increase in cash flows used in
investing activities and a decrease in cash flows from financing activities.
Cash flows from operating activities were greater in 2000 than in 1999 due
primarily to 2000 including the operating results of the merged companies. For
the same reason, cash flows used in investing activities were greater in 2000
than in 1999. Cash flows from financing activities decreased in 2000 as compared
to 1999 due primarily to the 1999 issuance of long-term debt in excess of the
decrease in short-term borrowings, the net effect of which exceeded the 2000
increase in short-term borrowings.
Construction Expenditures and Financing
- ---------------------------------------
A description of construction expenditures and financing of SPPC is
contained in its Quarterly Report Form 10-Q for the period ended March 31, 2000
attached as an appendix.
NVP's construction program and capital requirements for the period
2000-2004 were originally discussed in the combined SPR/NVP Annual Report on
Form 10-K for the year ending December 31, 1999. Of NVP's amount projected for
2000 ($190.5 million), $38.1 million (20%) was spent as of March 31, 2000.
Internally generated funds equaled 34.7% of all construction expenditures.
NVP may utilize internally generated cash and the proceeds from
unsecured borrowings and preferred securities to meet capital expenditure
requirements through 2000.
20
<PAGE>
Financing
- ---------
On April 20, 2000, SPR issued an aggregate of $300 million floating
rate notes, $200 million of which will mature on April 20, 2003 and the
remaining $100 million will mature on April 20, 2002. Interest on the notes is
payable quarterly commencing on July 20, 2000. The interest rate on the notes
for each interest period will be a floating rate, subject to adjustment every
three months, equal to the London InterBank Offered Rate (LIBOR) for three-month
U.S. dollar deposits plus a spread of 0.60% for the notes maturing in 2003 and a
spread of 0.65% for the notes maturing in 2002. These notes will not be entitled
to any sinking fund. The notes due 2002 will be redeemable, in whole, without
premium at the option of SPR beginning on April 20, 2001 and on each interest
payment date thereafter. The net proceeds of the $200 million issue were used to
retire an equal amount of commercial paper of SPR that was used as temporary
funding for the cash portion of the NVP merger consideration. The net proceeds
of the $100 million issue were used to make a capital contribution to NVP, which
in turn was used to retire $85 million of maturing long-term debt on May 1, 2000
and the remaining proceeds were used to pay off its commercial paper.
Upon issuance of these floating rate notes, SPR also reduced its bank
credit facility to $300 million from the previous amount of $500 million in
accordance with the terms of the credit agreement.
On May 9, 2000, SPR issued $300 million of notes under its universal
shelf registration. These notes bear interest at an annual rate of 8.75% and
will mature on May 15, 2005. Interest on the notes is payable semi-annually on
May 15 and November 15 commencing on November 15, 2000. The notes will not be
subject to any sinking fund and will be redeemable in whole or in part at any
time upon payment of the principal amount of the notes being redeemed, accrued
interest and a make-whole premium. The net proceeds from the issuance of these
notes were used to retire an equal amount of commercial paper of SPR.
On May 1, 2000 $85 million of NVP's First Mortgage Bonds matured.
Portland General Electric Acquisition
- -------------------------------------
On November 8, 1999, SPR and Enron Corporation (Enron) announced that
they had entered into a purchase and sale agreement for Enron's wholly owned
electric utility subsidiary, Portland General Electric Company (PGE). PGE is an
electric utility serving more than 700,000 retail customers in northwest Oregon.
PGE will become a wholly owned subsidiary of SPR.
The proposed transaction is subject to customary closing conditions,
including, without limitation, the receipt of all necessary governmental
approvals, including the Federal Energy Regulatory Commission (FERC), the
Securities and Exchange Commission (SEC), the Oregon Public Utility Commission
(OPUC) and the Nuclear Regulatory Commission. SPR completed its filings with the
FERC, the Department of Justice, the OPUC and the SEC by March 3, 2000. As of
May 3, 2000, the Department of Justice investigation had concluded and the
waiting period under Hart-Scott-Rodino had expired. The remainder of the
required approvals is expected to be received by the second half of 2000.
Generation Divestiture
- ----------------------
In accordance with the revised Divestiture Plan stipulation approved by
the PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be
offering for sale generation assets with peak capacity of approximately 2,985
megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940
MW owned by NVP. Letters of interest were issued to potential bidders in
February 2000. Upon response from the qualified potential bidders and execution
of the confidentiality agreements, offering memoranda and materials were
provided to the bidders. First Stage indicative bids are expected in early May
2000. A short list will be selected for each of the seven bundles being offered
and the second stage due diligence process will begin later in May 2000. Final
bids and the selection of winning bids will occur in late June or early July
2000. Close of sale and transfer of ownership should occur between December 2000
and mid-2001.
REGULATORY MATTERS
------------------
Substantially all of the utility operations of both NVP and SPPC are
conducted in Nevada. As a result both companies are subject to utility
regulation within the State and therefore deal with many of the same regulatory
issues. Therefore, although the following regulatory discussion relates
specifically to NVP, many of the same issues are discussed in the regulatory
section of the current SPPC Form 10-Q, attached as an appendix
21
<PAGE>
Nevada Electric Restructuring Activities
- ----------------------------------------
Competition was due to start on March 1, 2000. However, in February
2000 the Governor of Nevada delayed the start date of competition indefinitely.
Electric competition may begin later in 2000 or 2001.
Generally, restructuring regulations and PUCN decisions during the
first quarter of 2000 have proceeded slowly, with some decisions adversely
positioned against the financial interests of NVP and SPPC. Currently, many
important regulations, including the Universal Metering Service Tariff, Provider
of Last Resort, and Past Costs, continue to be developed through regulatory
hearings. In their present form several of the proposed regulations could have a
negative financial risk exposure to NVP and SPPC. See the SPR's and NVP's 1999
Annual Report on Form 10-K.
On March 28, 2000, SPR, NVP and SPPC filed a federal lawsuit
challenging Nevada's laws providing for competition in the electric utility
industry and the PUCN's implementation of competition. See SPR's and NVP's Forms
8-K, filed on April 17, 2000.
The following are highlights of recent restructuring activity:
Universal Meter Services Tariff
The regulation is applicable to all licensed Alternative Sellers who
supply meter services, meter reading services, and meter data management
services. On January 18, 2000, the PUCN issued a Notice requesting comments and
scheduling a workshop and a hearing on the proposed Meter Services rule. Several
workshops and hearings were conducted in the first quarter of 2000. A final
regulation is expected by mid 2000.
Independent Scheduling Administrator (ISA)
On March 21, 2000, the PUCN issued a Notice of Workshop on retail
transmission issues including funding for the Mountain West Independent
Scheduling Administrator. In a workshop held April 12, various parties advocated
that the utilities provide funding and that the PUCN should provide cost
recovery for the utilities. The PUCN and the parties will continue to explore
this issue in the future workshops.
Past Costs
- ----------
Past costs, which are commonly referred to as stranded costs in other
jurisdictions, will continue to be addressed in 2000. The restructuring law
permits the recovery of past costs pursuant to specified legal criteria.
In December 1999, the PUCN voted to adopt certain amendments to Chapter
704 of the Nevada Administrative Code as permanent regulations regarding past
cost issues. The regulation was submitted to the Legislative Counsel Bureau
(LCB) for review by the Legislative Commission to determine its conformity to
statutory authority and faithfulness to the intent of the Legislature. In April
2000 the Legislative Counsel returned the regulation to the PUCN for revision
and the Legislative Commission voted 12-0 to require the PUCN to revise the
regulation and address issues raised by SPR.
The PUCN has 90 days to revise this regulation and report back to the
Legislative Commission. On April 12, 2000, the PUCN issued a Procedural Order
directing the PUCN Staff to develop a revised proposed rule that incorporates
the Legislative Commission's directive. The Staff's proposed rule will be
discussed in a May workshop.
Provider of Last Resort (PLR)
The PLR will provide electric service to customers who do not select an
electricity provider and to customers who are not able to obtain service from an
alternative seller after the date competition begins.
On May 3, 2000, the PUCN reissued the PLR regulation for comment. The
current draft regulation continues to contain various provisions that could have
negative financial ramifications for NVP and SPPC. See the 1999 Annual Report on
Form 10-K.
22
<PAGE>
FERC Matters
- ------------
Independent Transmission Company
On April 26, 2000, NVP, SPPC, Portland General Electric Company, Avista
Corporation, The Montana Power Company, and Puget Sound Energy, Inc. agreed to
study the formation of a for-profit Independent Transmission Company (ITC).
While not yet defined, the ITC could own, lease or maintain transmission lines
increasing efficiency and reliability.
Open Access Transmission Rates
In May 1999, NVP filed an application with the FERC to increase its
Open Access Transmission rates. On March 30, 2000, the FERC approved the
settlement filed on February 8, 2000 with rates becoming effective on March 1,
2000. Also on March 30, 2000, NVP filed a Loss Study that NVP agreed to provide
in the settlement.
Revised Generation Tariffs and Transitional Purchase Power Agreements
On March 31, 2000, NVP filed for approval of revisions to its
market-based tariff for generation to be divested. The filing included adding
ancillary services to the tariffs and Transitional Purchase Power Agreements
between NVP and the new owners.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the information previously
disclosed regarding quantitative and qualitative market risk in Annual Report
for on Form 10-K for the year ended December 31, 1999.
23
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
NVP filed a deferred energy case on July 15, 1999, covering the period
from June 1, 1998 through May 31, 1999. Nevada Senate Bill 438 froze the rates
for NVP at the level that was in effect on July 1, 1999, except that the PUCN
was authorized to modify those rates in decisions related to deferred accounting
cases filed by NVP prior to October 1, 1999. Accordingly, on September 30, 1999,
NVP filed an update through August 31, 1999. On February 4, 2000 the PUCN issued
an order that rejected NVP's updated September 30, 1999 deferred energy filing.
In addition, on March 27, 2000, the PUCN issued an order that substantially
reduced NVP's requested rate relief on the remaining $44 million included in the
case. As a result of these decisions, NVP recognized a pre-tax reserve against
1999 earnings of $80 million for previously deferred energy and imputed capacity
costs.
On March 28, 2000, SPR, NVP, and SPPC filed a lawsuit in Federal
District Court in Nevada asking the court to declare unconstitutional certain
aspects of the Nevada laws that created the framework for a deregulated electric
market in Nevada. These laws are described in more detail in "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
contained in SPR's Annual Report on Form 10-K for the year ended December 31,
1999. The lawsuit alleges that the restructuring laws fail to provide an
adequate mechanism for the recovery by NVP and SPPC of the substantial costs
incurred by them to assure reliable electric power supplies to Nevada customers
in the historically regulated market. The lawsuit requests that the court stay
the effectiveness of the Nevada restructuring laws until the PUCN adopts
implementing regulations that protect the utilities' rights under federal law.
SPR is not able at this time to predict how long it will take for this lawsuit
to be resolved and nor can it predict the outcome of the case.
In response to the PUCN decisions described above, NVP filed a lawsuit
against the PUCN on March 30, 2000 in the First Judicial District of Nevada in
Carson City. The lawsuit requests that the court set aside the PUCN's March 28,
2000 order, reinstate NVP's September 30, 1999 filing, and enter an order
allowing NVP to recover deferrals of imputed capacity through March 28, 2000 and
implement ongoing rates for fuel and purchased power that reflect the costs of
purchased energy. SPR is not able at this time to predict how long it will take
for this lawsuit to be resolved nor can it predict the outcome of the case.
See the Form 8-K filed April 17, 2000 for additional details.
Although SPR is involved in other ongoing litigation on a variety of
matters, it is management's opinion that none individually or collectively are
material to SPR's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On May 10, 2000, in accordance with SPR's plan to sell the generation
assets of NVP and SPPC, AES Corporation announced that it was the successful
bidder for the purchase of a controlling interest in the 1,580 MW Mohave
Generating Station in Laughlin, Nevada for approximately $667 million. .AES
executed Asset Sale Agreements with the sellers, NVP (14%) and Southern
California Edison Company (56%), for a 70% undivided interest in the facility.
The acquisition is subject to approval by the FERC and the California Public
Utilities Commission, and review by the Public Utilities Commission of Nevada
and is expected to close late in the 4th Quarter of 2000.
Mohave Generating Station is a 2-unit, coal-fired power plant located on 2,500
acres along the Colorado River, approximately 80 miles south of Las Vegas.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q:
(27) The Financial Data Schedule containing summary
financial information extracted from the condensed
consolidated financial statements on Form 10-Q for
the three month period ended March 31, 2000, for
Sierra Pacific Resources, and is qualified in its
entirety by reference to such financial statements.
(b) Reports on Form 8-K:
Form 8-K filed on February 25, 2000 - Item 5, Other Events
Described, and included as exhibits, SPR's press releases dated
February 4, 2000 and February 16, 2000, regarding the PUCN's February 4, 2000
decision described above in Part II, Item 1, Legal Proceedings.
25
<PAGE>
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 Resources
--------------------------------
(Registrant)
Date: May 15, 2000 By: /s/ Mark A. Ruelle
------------------ ------------------------------
Mark A. Ruelle
Senior Vice President
Treasurer
Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2000 By: /s/ Mary O. Simmons
------------------- ----------------------------
Mary O. Simmons
Controller
(Principal Accounting Officer)
26
<PAGE>
================================================================================
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, 2000
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) 89520-0400
Reno, Nevada (89511)
(Address of principal executive office) (Zip Code)
(775) 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 15, 2000
Common Stock, $3.75 par value 1,000 Shares
================================================================================
<PAGE>
SIERRA PACIFIC POWER COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999.................................................................. 3
Condensed Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999...................................................... 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 1999...................................................... 5
Notes to Condensed Consolidated Financial Statements.................................... 6
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................................... 8
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk............................................................................. 15
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings....................................................................... 16
ITEM 5. Other Information....................................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K........................................................ 16
Signature Page......................................................................................... 17
Appendix............................................................................................... 18
</TABLE>
2
<PAGE>
SIERRA PACIFIC POWER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant at Original Cost:
Plant in service $ 2,420,066 $ 2,420,728
Less: accumulated provision for depreciation 816,935 799,099
----------- -----------
1,603,131 1,621,629
Construction work-in-progress 122,924 97,561
----------- -----------
1,726,055 1,719,190
----------- -----------
Investments in subsidiaries and other property, net 61,773 62,704
----------- -----------
Current Assets:
Cash and cash equivalents 12,398 3,011
Accounts receivable less provision for uncollectible accounts:
$2,918 -2000 and $3,649 -1999 105,847 113,695
Materials, supplies and fuel, at average cost 29,528 30,070
Deferred energy costs (376) --
Other 5,945 3,103
----------- -----------
153,342 149,879
----------- -----------
Deferred Charges:
Regulatory tax asset 65,531 65,531
Other regulatory assets 71,732 73,660
Other 25,109 25,512
----------- -----------
162,372 164,703
----------- -----------
$ 2,103,542 $ 2,096,476
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity $ 680,274 $ 673,738
Preferred stock 50,000 50,000
SPPC Obligated mandatorily redeemable preferred trust securities 48,500 48,500
Long-term debt 623,946 625,430
----------- -----------
1,402,720 1,397,668
----------- -----------
Current Liabilities:
Short-term borrowings 101,782 109,584
Current maturities of long-term debt 102,685 102,755
Accounts payable 69,743 78,491
Accrued interest 10,238 5,110
Dividends declared 19,983 19,974
Accrued salaries and benefits 8,672 8,385
Other current liabilities 21,771 10,673
----------- -----------
334,874 334,972
----------- -----------
Commitments & Contingencies (Note 4)
Deferred Credits:
Deferred federal income taxes 171,455 170,261
Deferred investment tax credit 35,655 35,980
Regulatory tax liability 37,846 37,846
Accrued Retirement Benefits 49,837 49,052
Customer advances for construction 41,219 40,081
Other 29,936 30,616
----------- -----------
365,948 363,836
----------- -----------
$ 2,103,542 $ 2,096,476
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
SIERRA PACIFIC POWER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
----------- ---------
(Unaudited)
<S> <C> <C>
OPERATING REVENUES:
Electric $ 157,622 $ 144,303
Gas 34,836 38,027
Water 10,249 10,281
----------- ----------
202,707 192,611
----------- ----------
OPERATING EXPENSES:
Operation:
Purchased power 49,480 40,668
Fuel for power generation 29,276 26,470
Gas purchased for resale 22,851 24,717
Deferral of energy costs -net 376 --
Other 27,869 23,782
Maintenance 4,485 5,496
Depreciation and amortization 19,031 19,094
Taxes:
Income taxes 11,034 11,812
Other than income 4,962 4,799
----------- ----------
169,364 156,838
----------- ----------
OPERATING INCOME 33,343 35,773
----------- ----------
Other Income:
Allowance for other funds used during construction 68 --
Other income - net (378) 7
----------- ----------
(310) 7
----------- ----------
Total Income Before Interest Changes 33,033 35,780
----------- ----------
INTEREST CHARGES:
Long-term debt 9,750 9,861
Other 3,211 2,603
Allowance for borrowed funds used during construction
and capitalized interest (482) (198)
----------- ----------
12,479 12,266
----------- ----------
INCOME BEFORE SPPC OBLIGATED MANDATORILY REDEEMABLE
PREFERRED TRUST SECURITIES 20,554 23,514
Preferred dividend requirements of SPPC-obligated mandatorily
redeemable trust preferred securities (1,043) (1,043)
----------- ----------
INCOME BEFORE PREFERRED STOCK DIVIDENDS 19,511 22,471
Preferred stock dividend requirements (975) (1,365)
----------- ----------
INCOME APPLICABLE TO COMMON STOCK $ 18,536 $ 21,106
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SIERRA PACIFIC POWER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
(Unaudited)
2000 1999
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 19,511 $ 22,471
Non-cash items included in income:
Depreciation and amortization 19,031 19,094
Deferred taxes and deferred investment tax credit 868 983
AFUDC and capitalized interest (550) (198)
Deferred energy costs - net 376 --
Early retirement and severance amortization 1,049 1,047
Other non-cash 1,261 760
Changes in certain assets and liabilities:
Accounts receivable 7,848 7,746
Materials, supplies and fuel 542 (2,112)
Other current assets (2,842) (2,769)
Accounts payable (8,748) (3,343)
Other current liabilities 16,513 16,798
Other - net 476 (8,344)
---------- --------
Net Cash Flows From Operating Activities 55,335 52,133
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (27,239) (18,909)
Non-cash charges to utility plant 608 258
Net customer refunds and contributions in aid construction 3,288 3,684
---------- --------
Net cash used for utility plant (23,343) (14,967)
Investments in subsidiaries and other property - net 842 (30,068)
---------- --------
Net Cash Used in Investing Activities (22,501) (45,035)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term borrowings (8,917) 6,293
Reduction of long-term debt (1,563) (116)
Additional investment by parent company 7,000 8,000
Dividends paid (19,967) (20,365)
---------- --------
Net Cash Used In Financing Activities (23,447) (6,188)
---------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,387 910
Beginning balance in Cash and Cash Equivalents 3,011 15,197
---------- --------
Ending Balance in Cash and Cash Equivalents $ 12,398 $ 16,107
========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During Period For:
Interest $ 7,833 $ 7,793
Income Taxes $ -- $ 1,716
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE 1. MANAGEMENT'S STATEMENT
- -------------------------------
In the opinion of the management of Sierra Pacific Power Company (the
Company or SPPC), a wholly owned subsidiary of Sierra Pacific Resources (SPR),
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, 1999.
The results of operations for the three-month period ended March 31, 2000
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. The Company accounts for its ownership of
GPSF-B, a Delaware corporation acquired in February 1999, using the equity
method because the Company intends to own the entity temporarily. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
-----------------
Certain items previously reported for years prior to 1999 have been
reclassified to conform to the current year's presentation. Net income and
shareholder's equity were not affected by these reclassifications.
NOTE 2. RECENT PRONOUNCEMENTS OF THE FASB
- ------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, entitled "Accounting for Derivative Instruments and Hedging Activities".
This statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position, and measure those
instruments at fair value. In May 1999, members of the Financial Accounting
Standards Board agreed to delay the effective date of Statement 133 to fiscal
years beginning after June 15, 2000.
In March 2000, FASB issued a proposed amendment to Statement 133 that,
among other revisions, exempted from the fair value requirements normal
purchases and normal sales (as defined by Statement 133) that contain settlement
provisions, if it is probable that the contracts will not settle net and will
result in physical delivery. The Company is still assessing the impact of SFAS
133 on its financial condition and results of operations.
NOTE 3. SEGMENT INFORMATION
- ----------------------------
The Company operates three business segments providing regulated electric,
natural gas and water service. Electric service is provided to northern Nevada
and the Lake Tahoe area of California. Natural gas and water services are
provided in the Reno-Sparks area of Nevada.
Information as to the operations of the different business segments is set
forth below based on the nature of products and services offered. The Company
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).
6
<PAGE>
March 31, 2000 Electric Gas Water Consolidated
- ------------------- ---------- ---------- --------- ------------
Operating Revenues $ 157,622 $ 34,836 $ 10,249 $ 202,707
========== ========= ========= ============
Operating income $ 25,999 $ 4,612 $ 2,732 $ 33,343
========== ========= ========= ============
March 31, 1999 Electric Gas Water Consolidated
- ------------------- ---------- ---------- --------- ------------
Operating Revenues $ 144,303 $ 38,027 $ 10,281 $ 192,611
========== ========= ========= ============
Operating income $ 26,685 $ 6,289 $ 2,799 $ 35,773
========== ========= ========= ============
NOTE 4. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company has four wells which currently exceed the federal drinking
water standard for naturally occurring arsenic concentrations. Production from
three of these wells continues by blending water treated at the Glendale Water
Treatment Plant. The fourth well is out of service pending treatment. The
Company's water laboratory research staff is developing options to assure that
the Company is prepared to meet new arsenic standards. The new Arsenic
regulations will be promulgated in 2000 and the proposed regulation is expected
to require action on 17 of the 25 wells serving the Company's system. Depending
upon final rules from the EPA, the Company may incur between $70 million and $98
million by 2004 to meet the new standards.
In accordance with the revised Divestiture Plan stipulation approved by the
PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be
offering for sale generation assets with peak capacity of approximately 2,985
megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940
MW owned by NVP. Letters of interest were issued to potential bidders in
February 2000. Upon response from the qualified potential bidders and execution
of the confidentiality agreements, offering memoranda and materials were
provided to the bidders. First Stage indicative bids are expected in early May
2000. A short list will be selected for each of the seven bundles being offered
and the second stage due diligence process will begin later in May 2000. Final
bids and the selection of winning bids will occur in late June or early July
2000. Close of sale and transfer of ownership should occur between December 2000
and mid-2001.
7
<PAGE>
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, 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 Sierra
Pacific Power Company's (SPPC's) actual results to differ materially from those
contemplated in any forward-looking statement include, among others, the
following: (1) the pace and extent of the ongoing restructuring of the electric
and gas industries in Nevada and California; (2) the outcome of regulatory and
legislative proceedings and operational changes related to industry
restructuring; (3) the amount SPPC is allowed to recover from customers for
certain costs that prove to be uneconomic in the new competitive market; (4) the
outcome of ongoing and future regulatory proceedings; (5) management's ability
to integrate the operations of Nevada Power Company (NVP) and SPPC, and to
implement and realize anticipated cost savings from the merger of SPR and NVP;
(6) the results of the contemplated sales by SPPC of its Nevada generating
assets; (7) industrial, commercial and residential growth in the service
territory of SPPC; (8) fluctuations in electric, gas and other commodity prices
and the ability to manage such fluctuations successfully; (9) changes in the
capital markets and interest rates affecting the ability to finance capital
requirements; (10) the loss of any significant customers; (11) the weather and
other natural phenomena; and (12) changes in the business of major customers
that may result in changes in the demand for services of SPPC. 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. SPPC assumes no obligation to update
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking statements.
RESULTS OF OPERATIONS
The components of gross margin are set forth below (dollars inthousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
----------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $157,622 $144,303 $ 13,319 9.2%
Gas 34,836 38,027 (3,191) -8.4%
Water 10,249 10,281 (32) -0.3%
-------- -------- -------- ----
Total Revenues 202,707 192,611 10,096 5.2%
Energy Costs:
Electric 78,756 67,138 11,618 17.3%
Gas 23,227 24,717 (1,490) -6.0%
-------- -------- -------- ----
Total Energy Costs 101,983 91,855 10,128 11.0%
-------- -------- -------- ----
Gross Margin $100,724 $100,756 $ (32) 0.0%
======== ======== ======== ====
Gross Margin by Segment:
Electric $ 78,866 $ 77,165 $ 1,701 2.2%
Gas 11,609 13,310 (1,701) -12.8%
Water 10,249 10,281 (32) -0.3%
-------- -------- -------- ----
Total $100,724 $100,756 $ (32) 0.0%
======== ======== ======== ====
</TABLE>
8
<PAGE>
The causes for significant changes in specific lines comprising the
results of operations are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Electric Operating Revenues:
Residential $ 47,911 $ 47,525 $ 386 0.8%
Commercial 44,799 43,405 1,394 3.2%
Industrial 45,114 45,367 (253) -0.6%
------------- ------------- --------------- ---------------
Retail revenues 137,824 136,297 1,527 1.1%
Other 19,798 8,006 11,792 147.3%
------------- ------------- --------------- ---------------
Total Revenues $157,622 $144,303 $ 13,319 9.2%
============= ============= =============== ===============
Total retail sales in thousands
of megawatt-hours (MWH) 2,117 2,094 23 1.1%
Average retail revenue per MWH $ 65.10 $ 65.09 $ 0.01 0.0%
</TABLE>
Residential electric revenues increased slightly due to a 2.2% increase
in customers that was mostly offset by lower use per customer as a result of
milder weather in 2000.
Commercial electric revenues increased primarily due to a 3.0% increase
in customers over the prior period.
Industrial electric revenues were comparable with the prior period.
Other electric revenues were higher ($7.9 million over 1999) primarily
because of increased wholesale electric revenues that resulted from more
wholesale opportunities. Other revenues were also higher because of the
reclassification of a reserve to revenues of $4.3 million from operating expense
in 1999, that was made in order to reflect a refund resulting from an agreement
with the Public Utilities Commission of Nevada to refund a share of earnings.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Gas Operating Revenues:
Residential $ 16,726 $ 16,943 $ (217) -1.3%
Commercial 8,424 8,838 (414) -4.7%
Industrial 3,346 3,727 (381) -10.2%
Miscellaneous 413 531 (118) -22.2%
------------- -------------- --------------- --------------
Total retail revenue 28,909 30,039 (1,130) -3.8%
Wholesale revenue 5,927 7,988 (2,061) -25.8%
------------- -------------- --------------- --------------
Total Revenues $ 34,836 $ 38,027 $ (3,191) -8.4%
============= ============== =============== ==============
Sales (Decatherms):
Retail 5,128,696 5,399,835 (271,139) -5.0%
Wholesale 2,381,207 3,750,936 (1,369,729) -36.5%
------------- -------------- --------------- --------------
Total 7,509,903 9,150,771 (1,640,868) -17.9%
------------- -------------- --------------- --------------
Average revenues per decatherm
Retail $ 5.64 $ 5.56 $ 0.07 1.3%
Wholesale $ 2.49 $ 2.13 $ 0.36 16.9%
</TABLE>
Residential, commercial and industrial gas revenues were lower due to
lower use per customer as a result of warmer weather in 2000. The reduction in
residential and commercial revenues due to lower use per customer was partially
offset by customer increases of 4.9% and 3.2%, respectively.
9
<PAGE>
Wholesale gas revenues were lower primarily because of the expiration
of three short-term gas contracts that were included in 1999 revenues.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Water Operating Revenues $ 10,249 $ 10,281 $ (32) -0.3%
============== ============== =============== ===============
</TABLE>
Water revenues were comparable when compared to the prior period.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
---------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Purchased Power $ 49,480 $ 40,668 $ 8,812 21.7%
Purchased Power in thousands
of MWHs 1,593 1,325 268 20.2%
Average cost per MWH of
Purchased Power $ 31.06 $ 30.6 $ 0.37 1.2%
</TABLE>
Purchased power costs were higher primarily because of increased
purchases associated with higher wholesale electric sales as discussed
previously.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Fuel for Power Generation $ 29,276 $ 26,470 $ 2,806 10.6%
Thousands of MWHs generated 1,200 1,173 27 2.3%
Average cost per MWH of
Generated Power $ 24.40 $ 22.57 $ 1.83 8.1%
</TABLE>
Fuel for generation costs were greater because of higher gas unit
prices and to a lesser extent, increased electric generation required to meet
increased retail electric demand in 2000.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Gas Purchased for Resale
Retail $ 17,138 $ 17,561 $ (423) -2.4%
Wholesale 5,713 7,156 (1,443) -20.2%
---------------- ---------------- ---------------- ----------------
Total $ 22,851 $ 24,717 $ (1,866) -7.5%
================ ================ ================ ================
Gas Purchased for Resale (decatherms)
Retail 4,640,365 5,403,541 (763,176) -14.1%
Wholesale 2,381,207 3,750,936 (1,369,729) -36.5%
---------------- ---------------- ---------------- ----------------
Total 7,021,572 9,154,477 (2,132,905) -23.3%
================ ================ ================ ================
Average cost per decatherm
Retail $ 3.69 $ 3.25 $ 0.44 13.5%
Wholesale $ 2.40 $ 1.91 $ 0.49 25.7%
</TABLE>
Consistent with the decrease in residential, commercial and industrial
gas revenues discussed previously, retail gas purchases were also lower. The
reduction in retail gas purchases was partially offset by higher average gas
unit prices. Also, wholesale gas purchases were lower than in the prior year due
to lower wholesale sales as previously discussed.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Deferral of energy costs-net $ 376 $ - $ 376 -
============== ============== =============== ===============
</TABLE>
The Company began deferring energy costs in January 2000 for its natural gas
business.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
Change from Change from
2000 1999 Prior Year $ Prior Year %
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for other funds used
during construction $ 68 $ -- 68 --
Allowance for borrowed funds used
during construction 482 198 284 143.4%
-------------- -------------- --------------- ---------------
$ 550 $ 198 $ 352 177.8%
============== ============== =============== ===============
</TABLE>
Total allowance for funds used during construction (AFUDC) is higher
because of greater construction work in progress balances in 2000.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, Change from Change from
2000 1999 Prior Year $ Prior Year %
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Other operating expense $27,869 $23,782 $ 4,087 17.2%
Maintenance expense 4,485 5,496 (1,011) -18.4%
Income taxes 11,034 11,812 (778) -6.6%
Interest charges-other 3,211 2,603 608 23.4%
Preferred stock dividend requirements 975 1,365 (390) -28.6%
</TABLE>
Other operating expense was higher because of a reclassification of a
reserve to revenues of $4.3 million from operating expense in 1999, that was
made in order to reflect a refund resulting from an agreement with the Public
Utilities Commission of Nevada to refund a share of earnings.
Maintenance expense was lower than the prior year due to lower plant
maintenance costs.
Operating income taxes were lower due to lower pre-tax income during
the current year.
Interest charges-other were higher because of interest expense on $100
million floating rate notes issued in September 1999.
Preferred stock dividend requirements were lower because of the
redemption of Series A preferred stock in November 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
During the first three months of 2000, the Company earned $19.5 million
in income before preferred dividends. It declared $975,000 in dividends to
holders of its preferred stock and declared $19.0 million in common stock
dividends to its parent, Sierra Pacific Resources.
The overall increase in cash flows during the first three months of
2000 was greater than 1999 due to less cash used for investing which was
partially offset by an increase in cash used for financing activities. The
decrease in cash used for investing activities was due to the Company's 1999
acquisition of General Electric Capital Corporation's interest in Pinon Pine
Company L.L.C. Financing activities utilized more cash because of a decrease in
short-term borrowings.
Construction Expenditures and Financing
- ---------------------------------------
The Company's construction program and capital requirements for the
period 2000-2004 were originally discussed in the Company's 1999 Annual Report
on Form 10-K. Of the amount projected for 2000 ($137.7 million), $23.3 million
(16.9%) had been spent as of March 31, 2000. Internally generated funds exceeded
all construction expenditures.
REGULATORY MATTERS
------------------
Generation Divestiture
- ----------------------
In accordance with the revised Divestiture Plan stipulation approved by
the PUCN in February 2000 (see the 1999 Annual Report on Form 10-K), SPR will be
offering for sale generation assets with peak capacity of approximately 2,985
megawatts (MW), with approximately 1045 MW owned by SPPC and approximately 1,940
MW owned by NVP. Letters of interest were issued to potential bidders in
February 2000. Upon response from the qualified potential bidders and execution
of the confidentiality agreements, offering memoranda and materials were
provided to the bidders. First Stage indicative bids are expected in early May
2000. A short list will be selected for each of the seven bundles being offered
and the second stage due diligence process will begin later in May 2000. Final
bids and the selection of winning
12
<PAGE>
bids will occur in late June or early July 2000. Close of sale and transfer of
ownership should occur between December 2000 and mid-2001.
Nevada Electric Restructuring Activities
- ----------------------------------------
Competition was due to start on March 1, 2000. However, in February
2000 the Governor of Nevada delayed the start date of competition indefinitely.
Electric competition may begin later in 2000 or 2001.
Generally, restructuring regulations and PUCN decisions during the
first quarter of 2000 have proceeded slowly, with some decisions adversely
positioned against the financial interests of the Company. Currently, many
important regulations, including the Universal Metering Service Tariff, Provider
of Last Resort, and Past Costs, continue to be developed through regulatory
hearings. In their present form several of the proposed regulations could have a
negative financial risk exposure to the Company. See the Company's 1999 Annual
Report on Form 10-K.
On March 28, 2000, the Company and its parent, Sierra Pacific
Resources, together with Nevada Power Company, filed a federal lawsuit
challenging Nevada's laws providing for competition in the electric utility
industry and the PUCN's implementation of competition. See SPR's Form 8-K, filed
on April 17, 2000.
The following are highlights of recent restructuring activity:
Universal Meter Services Tariff
The regulation is applicable to all licensed Alternative Sellers who
supply meter services, meter reading services, and meter data management
services. On January 18, 2000, the PUCN issued a Notice requesting comments and
scheduling a workshop and a hearing on the proposed Meter Services rule. Several
workshops and hearings were conducted in the first quarter of 2000. A final
regulation is expected by mid 2000.
Independent Scheduling Administrator (ISA)
On March 21, 2000, the PUCN issued a Notice of Workshop on retail
transmission issues including funding for the Mountain West Independent
Scheduling Administrator. In a workshop held April 12, various parties advocated
that the utilities provide funding and that the PUCN should provide cost
recovery for the utilities. The PUCN and the parties will continue to explore
this issue in the future workshops.
Past Costs
Past costs, which are commonly referred to as stranded costs in other
jurisdictions, will continue to be addressed in 2000. The restructuring law
permits the recovery of past costs pursuant to specified legal criteria.
In December 1999, the PUCN voted to adopt certain amendments to Chapter
704 of the Nevada Administrative Code as permanent regulations regarding past
cost issues. The regulation was submitted to the Legislative Counsel Bureau
(LCB) for review by the Legislative Commission to determine its conformity to
statutory authority and faithfulness to the intent of the Legislature. In April
2000 the Legislative Counsel returned the regulation to the PUCN for revision
and the Legislative Commission voted 12-0 to require the PUCN to revise the
regulation and address issues raised by SPR.
The PUCN has 90 days to revise this regulation and report back to the
Legislative Commission. On April 12, 2000, the PUCN issued a Procedural Order
directing the PUCN Staff to develop a revised proposed rule that incorporates
the Legislative Commission's directive. The Staff's proposed rule will be
discussed in a May workshop.
Provider of Last Resort (PLR)
The PLR will provide electric service to customers who do not select an
electricity provider and to customers who are not able to obtain service from an
alternative seller after the date competition begins.
On May 3, 2000, the PUCN reissued the PLR regulation for comment. The
current draft regulation continues to contain various provisions that could have
negative financial ramifications for the Company. See the 1999 Annual Report on
Form 10-K.
13
<PAGE>
Additional Nevada Matters
- -------------------------
Unbundling of Utility Services
On April 21, 2000, the PUCN approved a final order ("the Order") that
was consistent with its September 1999 interim order. See the Company's 1999
Annual Report on Form 10-K for additional information on the interim order. The
Order reduces the Company's revenue requirement and return on equity for
distribution service for those customers who choose to leave the Company upon
the start of retail competition. The Company intends to file a Petition for
Reconsideration with the PUCN.
SB438 provides for the electric distribution utility (EDU) to provide
the provider of last resort (PLR) services from the start of competition until
July 1, 2001. Currently, the date for the start of competition has not been
established and the PLR service period ends July 1, 2001. Consequently, the
Company anticipates very little change. However, the Company is seeking to
modify the PLR regulation. If the Company does not provide PLR services, then
the Order could result in a reduction of revenues.
Earnings Sharing
On May 1, 2000, the Company filed an earnings sharing refund request,
based on 1999 earnings of $471,000, for gas customers. The Company's filing
provides for no electric earnings sharing refund.
California Matters
- ------------------
Generation Divestiture
On March 2, 2000, the Company filed a new application requesting
exemption from California Public Utility Commission (CPUC) approval of the
Nevada-based generation divestiture transaction. The Company cited several
reasons for the exemption including that the Nevada and FERC oversight of the
generation divestiture will assure reliability and market power mitigation as
required by California's electric restructuring legislation.
Distribution Performance-Based Rate-making (PBR)
On May 4, 2000, the CPUC dismissed without prejudice the Company's
January 3, 2000, distribution PBR proposal (see the Company's 1999 Annual Report
on Form 10-K). The order accepted the application as meeting the compliance
requirement but directed the Company to re-file it when the cost of capital and
cost of service studies are available. The Company plans to re-submit the PBR
proposal along with the Cost of Service Application on June 30, 2000.
FERC Matters
- ------------
Independent Transmission Company
On April 26, 2000, the Company, together with Nevada Power Company,
Portland General Electric Company, Avista Corporation, The Montana Power
Company, and Puget Sound Energy, Inc. agreed to study the formation of a
for-profit Independent Transmission Company (ITC). While not yet defined, the
ITC could own, lease or maintain transmission lines increasing efficiency and
reliability.
Transmission Rate Case
In March 1999, the Company filed an application with the FERC to
increase its Open Access Transmission rates. See the Company's 1999 Annual
Report on Form 10-K. On March 30, 2000, the Company filed a Loss Study that the
Company agreed to provide in the partial settlement that was approved in January
2000. On April 27, 2000, a pre-hearing conference was held to set a procedural
schedule for remaining issues.
14
<PAGE>
Generation Tariffs
In March 1999, the Company filed with the FERC for approval of
generation tariffs that contain the rates, terms and conditions under which the
new owners of the Company's generation would operate after divestiture. The
tariffs permit market-based rates after the offering of capacity under a
cost-based recourse approach. On November 1, 1999 the FERC dismissed the
tariffs, and on November 22, 1999, the Company filed a request for rehearing of
the order dismissing the tariffs. On March 21, 2000, the FERC denied the
Company's request for rehearing.
Generation Tariffs and Transitional Purchase Power Agreements
On March 31, 2000, the Company filed for approval of generation tariffs
that contain the rates, terms and conditions under which the new owners of
divested generation would operate after divestiture. Included in the filing are
the Transitional Purchase Power Agreements between the Company and the new
owners.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There have been no material changes to the information previously
disclosed regarding quantitative and qualitative market risk in the Company's
Annual Report on Form 10K for the year ended December 31, 1999.
15
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
On March 28, 2000, SPR, NVP, and SPPC filed a lawsuit in Federal
District Court in Nevada asking the court to declare unconstitutional certain
aspects of the Nevada laws that created the framework for a deregulated electric
market in Nevada. These laws are described in more detail in "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. The lawsuit alleges that the restructuring laws fail to
provide an adequate mechanism for the recovery by NVP and SPPC of the
substantial costs incurred by them to assure reliable electric power supplies to
Nevada customers in the historically regulated market. The lawsuit requests that
the court stay the effectiveness of the Nevada restructuring laws until the PUCN
adopts implementing regulations that protect the utilities' rights under federal
law. The Company is not able at this time to predict how long it will take for
this lawsuit to be resolved and nor can it predict the outcome of the case.
Although the Company is involved in other ongoing litigation on a
variety of matters, it is management's opinion that none individually or
collectively are material to the Company's financial position.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q.
(27) The Financial Data Schedule containing summary financial
information extracted from the condensed consolidated
financial statements filed on Form 10-Q for the three month
period ended March 31, 2000, for Sierra Pacific Power Company
and is qualified in its entirety by reference to such
financial statements.
(b) Reports on Form 8-K
None
16
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Sierra Pacific Power Company
----------------------------------
(Registrant)
Date: May 15, 2000 By /s/ Mark A. Ruelle
-------------------------- ----------------------------------
Mark A. Ruelle
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 15, 2000 By /s/ Mary O. Simmons
-------------------------- ----------------------------------
Mary O. Simmons
Controller
(Principal Accounting Officer)
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPR'S
FINANCIAL RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<NAME> SIERRA PACIFIC RESOURCES
<CIK> 0000741508
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,102,782
<OTHER-PROPERTY-AND-INVEST> 114,948
<TOTAL-CURRENT-ASSETS> 314,320
<TOTAL-DEFERRED-CHARGES> 751,950
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,284,000
<COMMON> 78,420
<CAPITAL-SURPLUS-PAID-IN> 1,294,231
<RETAINED-EARNINGS> 102,962
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,475,613
0
50,000
<LONG-TERM-DEBT-NET> 1,472,724
<SHORT-TERM-NOTES> 100,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 689,678
<LONG-TERM-DEBT-CURRENT-PORT> 188,055
0
<CAPITAL-LEASE-OBLIGATIONS> 80,058
<LEASES-CURRENT> 4,156
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,223,716
<TOT-CAPITALIZATION-AND-LIAB> 5,284,000
<GROSS-OPERATING-REVENUE> 402,897
<INCOME-TAX-EXPENSE> 10,015
<OTHER-OPERATING-EXPENSES> 332,183
<TOTAL-OPERATING-EXPENSES> 342,198
<OPERATING-INCOME-LOSS> 60,699
<OTHER-INCOME-NET> 1,004
<INCOME-BEFORE-INTEREST-EXPEN> 61,703
<TOTAL-INTEREST-EXPENSE> 37,715
<NET-INCOME> 23,988
975
<EARNINGS-AVAILABLE-FOR-COMM> 18,178
<COMMON-STOCK-DIVIDENDS> 19,850
<TOTAL-INTEREST-ON-BONDS> 25,822
<CASH-FLOW-OPERATIONS> 83,304
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.23
</TABLE>
