<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 SEPTEMBER 30, 1997
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 RESOURCES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0198358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 30150 (6100 NEIL ROAD)
RENO, NEVADA 89520-0400 (89511)
(Address of principal executive office) (Zip Code)
(702) 689-5400
(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 November 4, 1997
Common Stock, $1.00 par value 30,892,965 Shares
================================================================================
<PAGE>
SIERRA PACIFIC RESOURCES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
CONTENTS
<TABLE>
<CAPTION> PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
Report of Independent Accountants............................................ 3
Condensed Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996....................................................... 4
Condensed Consolidated Statements of Income - Three-Months and Nine-Months
Ended September 30, 1997 and 1996....................................... 5
Condensed Consolidated Statements of Cash Flows - Nine-Months
Ended September 30, 1997 and 1996....................................... 6
Notes to Condensed Consolidated Financial Statements......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................ 9
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS................................................................. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 16
Signature Page.............................................................................. 17
</TABLE>
2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Sierra Pacific Resources
Reno, Nevada
We have reviewed the accompanying condensed consolidated balance sheet of Sierra
Pacific Resources and subsidiaries as of September 30, 1997, the related
condensed consolidated statement of income for the three-month and nine-month
periods then ended, and the condensed consolidated statement of cash flows for
the nine-month period ended September 30, 1997. The condensed interim financial
statements as of September 30, 1996, and for the three-month and nine-month
periods then ended were reviewed by other accountants whose report dated October
28, 1996, stated that they were not aware of any material modifications that
should be made to those statements in order for them to be in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and consolidated statement of
capitalization of Sierra Pacific Resources and subsidiaries as of December 31,
1996, and the related consolidated statements of income, retained earnings, and
cash flows for the year then ended (not presented herein); and in our report
dated February 14, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1996 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Reno, Nevada
November 4, 1997
3
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Utility Plant at Original Cost:
Plant in service $2,037,204 $1,984,781
Less: accumulated provision for depreciation 649,117 606,406
---------- ----------
1,388,087 1,378,375
Construction work-in-progress 201,694 164,835
---------- ----------
1,589,781 1,543,210
---------- ----------
Investments in subsidiaries and other property, net 44,099 44,583
Current Assets:
Cash and cash equivalents 10,345 4,949
Accounts receivable less provision for uncollectible accounts $1,699 at
September 30, 1997 and $2,196 at December 31, 1996 80,527 94,736
Materials, supplies and fuel, at average cost 24,248 27,586
Other 3,718 4,472
---------- ----------
118,838 131,743
---------- ----------
Deferred Charges:
Regulatory tax asset 67,528 67,667
Other regulatory assets 68,288 67,319
Other 15,292 14,832
---------- ----------
151,108 149,818
---------- ----------
$1,903,826 $1,869,354
---------- ----------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity $ 622,739 $ 594,859
Preferred stock 73,115 73,115
Preferred stock subject to mandatory redemption:
SPPC-obligated mandatorily redeemable preferred securities of
SPPC's subsidiary Sierra Pacific Power Capital l, holding
solely $50,000 principal amount of 8.6% junior
subordinated debentures of SPPC, due 2036 48,500 48,500
Long-term debt 627,327 637,846
---------- ----------
1,371,681 1,354,320
---------- ----------
Current Liabilities:
Short-term borrowings 66,000 38,000
Current maturities of long-term debt and preferred stock 10,564 25,434
Accounts payable 45,045 53,804
Accrued interest 13,679 6,849
Dividends declared 10,944 10,452
Other current liabilities 28,014 33,078
---------- ----------
174,246 167,617
---------- ----------
Deferred Credits:
Accumulated deferred federal income taxes 168,922 164,199
Accumulated deferred investment tax credit 40,358 41,836
Regulatory tax liability 41,153 42,870
Customer advances for construction 39,093 39,429
Other 68,373 59,083
---------- ----------
357,899 347,417
---------- ----------
$1,903,826 $1,869,354
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric $ 137,611 $ 136,353 $ 402,869 $ 388,712
Gas 7,690 8,196 47,670 44,530
Water 14,482 14,133 35,919 34,971
Other 1,092 2,130 4,450 6,599
----------- ----------- ----------- -----------
160,875 160,812 490,908 474,812
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Operation:
Purchased power 32,279 29,687 93,757 89,014
Fuel for power generation 27,781 27,075 77,426 75,477
Gas purchased for resale 3,531 4,074 23,868 23,420
Other 30,558 30,933 97,197 97,593
Maintenance 4,827 4,344 16,304 13,431
Depreciation and amortization 16,746 14,664 47,572 43,015
Taxes:
Income taxes 11,417 12,673 33,440 33,402
Other than income 4,703 4,612 14,149 13,784
----------- ----------- ----------- -----------
131,842 128,062 403,713 389,136
----------- ----------- ----------- -----------
OPERATING INCOME 29,033 32,750 87,195 85,676
----------- ----------- ----------- -----------
OTHER INCOME:
Allowance for other funds used during construction 1,619 1,800 4,547 3,820
Other income (expense) - net 351 (270) 1,170 890
----------- ----------- ----------- -----------
1,970 1,530 5,717 4,710
----------- ----------- ----------- -----------
Total Income 31,003 34,280 92,912 90,386
----------- ----------- ----------- -----------
INTEREST CHARGES:
Long-term debt 10,261 10,193 31,429 29,319
Other 1,459 1,215 3,421 3,613
Allowance for borrowed funds used during construction and
capitalized interest (1,283) (1,492) (3,637) (2,791)
----------- ----------- ----------- -----------
10,437 9,916 31,213 30,141
----------- ----------- ----------- -----------
INCOME BEFORE OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES 20,566 24,364 61,699 60,245
Preferred dividend requirements of SPPC-obligated
mandatorily redeemable preferred securities (1,043) (707) (3,128) (707)
----------- ----------- ----------- -----------
INCOME BEFORE PREFERRED DIVIDENDS 19,523 23,657 58,571 59,538
Preferred dividend requirements (1,365) (1,679) (4,094) (4,969)
----------- ----------- ----------- -----------
INCOME APPLICABLE TO COMMON STOCK $ 18,158 $ 21,978 $ 54,477 $ 54,569
=========== =========== =========== ===========
Net Income Per Share $ 0.588 $ 0.720 $ 1.764 $ 1.800
Weighted Average Shares of Common Stock Outstanding 30,891,370 30,691,494 30,873,646 30,395,607
Dividends Paid Per Share of Common Stock $ 0.310 $ 0.295 $ 0.915 $ 0.870
</TABLE>
The accompanying notes are an integral part of the financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
SIERRA PACIFIC RESOURCES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Nine Months Ended September 30,
-----------------------------------
1997 1996
-----------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 58,570 $ 59,538
Non-cash items included in income:
Depreciation and amortization 47,572 43,015
Deferred taxes and deferred investment tax credit 1,667 (7,573
AFUDC and capitalized interest (8,184) (6,611)
Early retirement and severance amortization 3,497 6,628
Other non-cash (2,040) 148
Changes in certain assets and liabilities:
Accounts receivable 14,209 16,497
Materials, supplies and fuel 3,338 440
Other current assets 754 (1,419)
Accounts payable (8,759) (47,227)
Other current liabilities 1,766 18,356
Other - net 3,596 14,064
--------- ---------
Net Cash Flows From Operating Activities 115,986 95,856
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to utility plant (111,432) (153,332)
Non-cash charges 9,001 8,524
Net customer refunds and contributions in aid construction 17,067 9,492
--------- ---------
Net Cash Used In Investing Activities (85,364) (135,316)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 30,384 (28,468)
Proceeds from issuance of long-term debt -- 60,031
Reduction of preferred stock -- (20,400)
Reduction of long-term debt (25,418) (10,435)
Proceeds form Company obligated mandatorily
redeemable preferred securities -- 48,500
Decrease in funds held in trust -- 9,175
Sale of common stock 2,144 17,829
Dividends paid (32,336) (31,333)
--------- ---------
Net Cash (Used In) Provided From Financing Activities (25,226) 44,899
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,396 5,439
Beginning balance in Cash and Cash Equivalents 4,949 4,243
--------- ---------
Ending balance in Cash and Cash Equivalents $ 10,345 $ 9,682
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During Period For:
Interest $ 30,163 $ 25,188
Income Taxes $ 22,379 $ 27,629
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<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 the Company, the accompanying unaudited interim condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the condensed
consolidated financial position, condensed consolidated results of operations
and condensed consolidated cash flows for the periods shown. These condensed
consolidated financial statements do not contain the complete detail or footnote
disclosure concerning accounting policies and other matters which are included
in full year financial statements and therefore, they should be read in
conjunction with the Company's audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Deloitte & Touche LLP, the Company's independent accountants, have performed a
review of the unaudited condensed consolidated financial statements and their
report has been included in this report.
The results of operations for the three-month and nine-month periods
ended September 30, 1997 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 the Company and its wholly-owned subsidiaries, Sierra Pacific Power Company
(SPPC), Tuscarora Gas Pipeline Company (TGPC), Sierra Gas Holding Company
(formerly Sierra Energy Company), Sierra Energy Company dba e.three (e.three),
Lands of Sierra (LOS), and Sierra Water Development Company (SWDC). All
significant intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
-----------------
Certain items previously reported for years prior to 1997 have been
reclassified to conform with the current year's presentation. Net income and
shareholder's equity were not affected by these reclassifications.
NOTE 2. RECENT PRONOUNCEMENTS OF THE FASB
- ------------------------------------------
The Financial Accounting Standards Board (FASB) recently issued SFAS
No. 128 entitled "Earnings Per Share". This statement establishes standards for
computing and presenting earnings per share and is effective for financial
statements issued for periods ending after December 15, 1997. Earlier
application of this statement is not permitted and upon adoption requires
restatement (as applicable) of all prior-period earnings per share data
presented.
In addition, the FASB issued SFAS 129 entitled "Disclosure of
Information about Capital Structure" in February 1997. This statement
establishes standards for disclosing information about an entity's capital
structure. The Company already complies with SFAS 129 and foresees no material
impact on the financial statements in adopting the statement for periods ending
after December 15, 1997.
On June 30, 1997, the FASB issued SFAS 130 entitled "Reporting
Comprehensive Income". This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997. Management does not believe this new
statement will have a material impact on the financial statements of the
Company.
7
<PAGE>
On June 30, 1997, the FASB issued SFAS 131 entitled "Disclosure About
Segments of an Enterprise and Related Information". This statement establishes
additional standards for segment reporting in the financial statements and is
effective for fiscal years beginning after December 15, 1997. Management does
not believe this new statement will have a material impact on the Company.
NOTE 3. REGULATORY ACCOUNTING
- ------------------------------
SPPC's rates are currently subject to the approval of the Public
Utilities Commission of Nevada (PUCN) and are designed to recover the cost of
providing generation, transmission and distribution services to its customers.
As a result, SPPC qualifies for the application of SFAS No. 71, "Accounting for
the Effects of Certain Types of Regulation". This statement recognizes that the
rate actions of a regulator can provide reasonable assurance of the existence of
an asset and requires the capitalization of incurred costs that would otherwise
be charged to expense where it is probable that future revenue will be provided
to recover these costs. SFAS No. 101, "Regulated Enterprises-Accounting for the
Discontinuation of Application of FASB Statement No. 71" requires that an
enterprise whose operations cease to meet the qualifying criteria of SFAS 71
should discontinue the application of that statement by eliminating the effects
of any actions of regulators that had been previously recognized.
As discussed under Regulatory Proceedings, legislation has been passed
in California and Nevada which will effectively define electric generation as a
competitive service. As a result of this legislation the generation operations
of SPPC may in the future no longer qualify for application of SFAS 71. The
total impact of the new legislation on SPPC's reporting practices is not
currently determinable because only general guidelines exist. However, SPPC
believes that it continues to qualify for application of SFAS 71.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's net income for the three months ended September 30, 1997
was $18.2 million, a decrease of 17.3% from the same period of 1996, following,
primarily, the performance of its principal subsidiary, SPPC. Net income for
the nine months ended September 30, 1997 equaled that of the same period of
1996.
RESULTS OF OPERATIONS
---------------------
SIERRA PACIFIC POWER COMPANY
- -----------------------------
SPPC's net income for the three months ended September 30, 1997 was
$18.8 million, a decrease of 13.8% from the same period of 1996. The $3.0
million decrease resulted from a rate reduction discussed below, slightly higher
---------------------
energy costs, cooler weather, increased depreciation applicable to new plant,
and the recognition in the third quarter of the revenue sharing mechanism
established through the PUCN stipulation originally discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. Net income for
the nine months ended September 30, 1997 increased 4.0% ($2.2 million) over the
same period of 1996.
Total operating revenues for the three-months and nine-months ended
September 30, 1997 increased 1.0% and 3.8% ($1.1 million and $18.2 million) over
the comparable periods in 1996 due to increased sales and customer growth.
Specifically, the kWh sold for the three month period increased approximately 5%
primarily as a result of increases in lower priced industrial sales. KWh sold in
the nine month period decreased slightly in total, however sales increased in
the higher priced residential, commercial and industrial markets, while
decreasing significantly in the low priced wholesale market. Listed below are
the revenues and revenue margin (in thousands) by division:
<TABLE>
<CAPTION>
Three-Months Nine-Months
Ended Ended
September 30, September 30,
------------------ ----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $137,611 $136,353 $402,869 $388,712
Gas 7,690 8,196 47,670 44,530
Water 14,482 14,133 35,919 34,971
-------- -------- -------- --------
Total Revenues $159,783 $158,682 $486,458 $468,213
-------- -------- -------- --------
Energy Costs:
Electric $ 60,060 $ 56,762 $171,183 $164,491
Gas 3,531 3,477 23,868 21,528
-------- -------- -------- --------
Total Energy Costs $ 63,591 $ 60,239 $195,051 $186,019
-------- -------- -------- --------
Revenue Margin by Division:
Electric $ 77,551 $ 79,591 $231,686 $224,221
Gas 4,159 4,719 23,802 23,002
Water 14,482 14,133 35,919 34,971
-------- -------- -------- --------
Total $ 96,192 $ 98,443 $291,407 $282,194
======== ======== ======== ========
</TABLE>
9
<PAGE>
Energy costs are comprised of purchased power, fuel for power
generation and gas purchased for resale. Average energy costs for the three-
months and nine-months ended September 30, 1997 and 1996 are set forth below.
<TABLE>
<CAPTION>
Three-Months Nine-Months
Ended Ended
September 30, September 30,
--------------- ------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Average cost per KWH of
purchased power 3.42c 3.37c 3.43c 2.99c
Average fuel cost per
KWH of generated power 2.05c 2.08c 2.10c 2.20c
Average costs per therm of
gas purchased for resale 14.59c 19.12c 25.14c 25.52c
</TABLE>
For the three months ended September 30, 1997, megawatt-hours (MWH)
purchased increased 7.3% (64,607 MWH) over the same period in 1996. While this
reversed the downward trend established during the first two quarters of 1997,
total megawatt-hours purchased during the nine months ended September 30, 1997
remained 9.9% (301,431 MWH) lower than the comparable period of 1996. The total
cost of purchased power increased 8.7% and 5.3% ($2.6 million and $4.7 million)
for the three- and nine-months ended September 30, 1997, compared to the same
periods in 1996, reflecting not only increased customer growth and demand, but
also higher unit costs of purchased power. The cost per kWh for the three- and
nine-months ended September 30, 1997 increased 1.5% (0.05c) and 14.1% (0.44c)
compared to the same periods of 1996.
In addition to increasing its purchases of power, SPPC increased its
MWH generated by 3.9% and 7.5% (50,773 MWH and 257,889 MWH) for the three-and
nine-months ended September 30, 1997, over the comparable 1996 periods. This
reflects customer growth and an incremental shift from more expensive purchased
power. The total cost of fuel for power generation during the same periods
increased 2.6% ($.7 million and $1.9 million), while the cost per kWh generated
decreased 1.5% and 4.5%(.03c and .10c) for the three- and nine-months ended
September 30, 1997 compared to the same periods in 1996.
For the three-months and nine-months ended September 30, 1997, SPPC
increased the therms of gas purchased for resale 33.4% and 12.8% (6,059,209 and
10,782,477) over the comparable periods in 1996. Following customer growth, the
total cost during the same period increased 1.5% and 10.9% ($.1 million and $2.3
million). Lower natural gas prices during the three months ended September 30,
1997, however, contributed to reductions in per-therm costs of 23.7% and .4%
(4.58c and .43c) for the comparable three- and nine-month periods ended
September 30, 1997.
Other operations expenses decreased 4.1% ($1.2 million) for the three-
months ended September 30, 1997, compared to the same period in 1996. During
the quarter ended September 30, 1997 expenses of $1.2 million by SPPC's
subsidiary operations at the Pinon Pine plant were more than offset by
reductions in other operations expenses at SPPC's various operating plants, from
the same period of 1996. While the net decrease in the nine-months ended
September 30, 1997 over the same period of 1996 totaled $4.2 million (4.4%),
changes in certain specific operations accounts, both increases and decreases,
were notable. SPPC's Pinon Pine subsidiary incurred $4.1 million in expense in
its first nine months of operation. This was offset primarily by pension and
benefit accruals reflected in the nine month period ended September 30, 1996 for
merger related retirement and severance plans which did not reoccur in the
comparable period in 1997.
10
<PAGE>
Maintenance expenses increased 11.1% and 21.4% ($.5 million and $2.9
million) for the three- and nine-months ended September 1997 over 1996 due,
primarily, to flood-related expenses and increased labor for planned maintenance
at the Valmy Plant in 1997.
Depreciation and amortization expenses for the three-months and nine-
months ended September 30, 1997 increased 14.2% and 10.6% ($2.1 million and $4.6
million) due to increases in utility plant; most notably, the Chalk Bluff water
treatment facility and the Pinon Pine combined cycle combustion turbine
generator.
Allowance for funds used during construction (AFUDC) and capitalized
interest decreased 11.8% ($.4 million) for the three-months, and increased 23.8%
($1.6 million) for the nine-months ended September 30, 1997, compared to the
corresponding periods of 1996. For the year-to-date ended September 30, 1997
CWIP increased from the prior year. Most notable is the CWIP associated with
construction expenditures for the Alturas Intertie of $78.0 million at September
30, 1997 compared to $63.7 million at September 30, 1996.
Interest on long-term debt increased 9.4% ($2.5 million) for the nine-
months ended September 30, 1997, over the same period in 1996, reflecting the
effect of interest on debt issued in 1996 for the full period. Other interest
expense increased 20.1% ($.2 million) for the three-months and decreased 5.3%
($.2 million) for the nine-months ended September 30, 1997 compared to the same
periods in 1996, primarily as a result of changes in levels of short-term
borrowings.
Due to the issuance in the third quarter of 1996 of 8.6% trust
originated preferred securities by SPPC's subsidiary, Sierra Pacific Power
Capital I, preferred dividends on mandatorily redeemable preferred securities
increased $.3 million and $2.4 million for the three-months and nine-months
ended September 30, 1997.
Preferred dividend requirements for all other preferred securities
decreased 18.7% and 17.6% ($.3 million and $.9 million) for the three-months and
nine-months ended September 30, 1997 compared to the same periods in 1996, due
to the redemption of Series G preferred stock in June 1996.
TUSCARORA GAS PIPELINE COMPANY
- ------------------------------
For the three-months and nine-months ended September 30, 1997, TGPC, a
wholly owned subsidiary of the Company, contributed net income of $.4 million
and $1.1 million compared to $.4 million and $1.5 million for the comparable
periods in 1996.
LANDS OF SIERRA
- ---------------
LOS, a wholly owned subsidiary of the Company, develops and manages
real estate in Nevada and California. In keeping with the Company's intent to
liquidate its properties, LOS sold commercial property in the first quarter of
1997 for $.7 million. Lands of Sierra contributed net losses and income for the
three-month and nine-month periods ending September 30, 1997 of $(.03) million
and $.1 million and net income for the comparable periods in 1996 of $.5 million
and $1.6 million.
THE COMPANY AND OTHER SUBSIDIARIES
- ----------------------------------
Combined, the Company and subsidiaries other than SPPC, TGPC and LOS
contributed net losses of $1.0 million and $3.4 million for the three-months and
nine-months periods ending September 30, 1997 compared to net losses for the
same periods of $.2 million and $1.1 million in 1996. The increase in the
losses for 1997 is attributed to start up costs associated with the newly formed
subsidiary, e.three, and increased costs at the holding company for consulting
and expenses associated with a stock plan.
11
<PAGE>
INCOME TAXES
- ------------
Income taxes, for the Company and its subsidiaries, reflected in
operating income and other income-net are summarized below: (dollars in
thousands)
<TABLE>
<CAPTION>
Ended Ended
September 30, September 30,
------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Currently payable $ 7,088 $12,113 $30,446 $39,717
Deferred taxes - net 4,111 277 3,021 (6,157)
Investment tax credit - net (493) (493) (1,478) (1,478)
------- ------- ------- -------
Total income taxes $10,706 $11,897 $31,989 $32,082
======= ======= ======= =======
Income taxes charged to:
Operations $11,417 $12,673 $33,440 $33,402
Other income - net (711) (776) (1,451) (1,320)
------- ------- ------- -------
Total income tax expense $10,706 $11,897 $31,989 $32,082
======= ======= ======= =======
Income before income taxes and
preferred dividend requirements $30,230 $35,554 $90,560 $91,620
======= ======= ======= =======
Effective tax rate 35.4% 33.5% 35.3% 35.0%
======= ======= ======= =======
</TABLE>
The Company's consolidated income taxes primarily reflect the impact
of SPPC's operations. SPPC's income taxes decreased 6.2% ($.8 million) for the
three-months and increased 4.3% ($1.4 million) for the nine-months ended
September 30, 1997, following income before income taxes during the periods.
While 1997 operating income continued higher for the nine-months ended September
30, 1997, compared to the same period in 1996, the decrease in taxes during the
third quarter of 1997 resulted, primarily, from SPPC's provision for the
stipulation previously established through an agreement with the PUCN. The
charge, attributed to year-to-date earnings, was recognized during the quarter.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
----------------------------------------------------
During the first nine months of 1997, the Company earned $58.6 million
in income before preferred dividends and declared $28.7 million in common stock
dividends. SPPC, the Company's principal subsidiary, declared $4.1 million in
preferred stock dividends.
As originally discussed in the SPPC's 1996 Annual Report on Form 10-K,
in February 1997, the PUCN approved a settlement with SPPC which resulted in a
decrease of $7.1 million in the SPPC's annual electric rates.
CONSTRUCTION EXPENDITURES AND FINANCING
- ---------------------------------------
The Company's construction program and capital requirements for the
period 1997-2001 were originally discussed in the Company's 1996 Annual Report
on Form 10-K. Of the amount projected for 1997, as of September 30, 1997, $85.4
million (58.9%) had been spent. Of this amount, approximately 98.0% was
provided by internally generated funds.
12
<PAGE>
ALTURAS INTERTIE
- ----------------
SPPC is constructing the Alturas Intertie transmission line to better
serve existing load, new customers and to significantly increase SPPC's access
to lower cost resources.
On August 12, 1997, the PUCN issued a compliance order for the project
approving the issuance of the Utility Environmental Protection Act Permit
(UEPA). The compliance order requires SPPC to fulfill certain requirements
which the Company is in the process of completing. Upon evidence of completion
of these requirements, the PUCN is expected to issue the UEPA permit.
The California Public Utility Commission (CPUC) is currently reviewing
the adequacy of SPPC's environmental mitigation and monitoring plan and is
expected to finalize approval of the plan in the upcoming months.
In July 1997, the Modoc National Forest issued a positive record of
decision for segment A, the northern most portion of the project, which would
interconnect with Bonneville Power Administration transmission system near
Alturus, California. This decision relieves SPPC from pursuing the off-forest
alternative route B segment which would have required a modification to the
original order issued by the CPUC.
In September 1997, the Nevada Attorney General's Office of Advocate
for Customers of Public Utilities and an individual plaintiff filed a lawsuit
against SPPC and the Federal Bureau of Land Management (BLM) in Federal District
Court requesting that a supplemental Environmental Impact Statement (EIS) be
prepared under the National Environmental Protection Act for the twelve mile
reroute of the transmission line in Washoe County. The parties agreed to
suspend the action until the BLM completed an analysis on whether there exists a
need for a supplemental EIS. The BLM completed its analysis November 4, 1997,
indicating that it found no need for a supplemental EIS. Pursuant to a
stipulation among the parties, the Plaintiffs have fifteen days from November 4
to decide whether or not to pursue this litigation.
SPPC issued invitations to bid to qualified contractors on July 22,
1997, and subsequently awarded the contract to Union Power on October 16, 1997.
Physical construction is expected to begin later this year or in the first
quarter of 1998 provided approvals are received on schedule, with project
completion anticipated in late 1998. For further discussion, refer to the
Company's 1996 Annual Report on Form 10-K.
PINON PINE POWER PROJECT
- ------------------------
In August 1992, the SPPC executed a cooperative agreement with the
U.S. Department of Energy (DOE) for the construction of a coal gasification
power plant. This clean coal integrated gasification combined-cycle power plant
will be capable of operating on syngas produced from coal, natural gas, and,
potentially, other solid fuels. The project consists of a coal gasification
facility, a power island and post-gasification facilities to clean and partially
cool the syngas produced by the gasifier. Estimated construction, start-up and
commissioning costs for Pinon, including the DOE portion are approximately
$287.4 million, which includes permitting, taxes, start-up, commissioning,
operator training, capitalized interest and AFUDC. Expected DOE funding for
construction, start-up and commissioning costs is $130.0 million.
Construction began on the project in February 1995 with the natural
gas fired portion (combined cycle combustion turbine) completed and placed in
service December 1996. The balance of the plant is expected to be placed in
service by April 1998. SPPC now estimates that the gasifier portion of the
project will overrun the contract price by approximately 10.0% ($9.2 million)
primarily due to costs associated with resolving start-up technical issues and
other costs due to the later than anticipated in-service date. Based on the
anticipated in-service date, contractual obligations are expected and are
currently reserved for 1997 at $2.8 million. It is possible that SPPC will incur
additional contractual obligations if the plant does not meet its operating
targets. For additional information regarding the Pinon Pine Power Project,
refer to the Company's 1996 Annual Report on Form 10-K.
13
<PAGE>
REGULATORY PROCEEDINGS
----------------------
CALIFORNIA MATTERS
- ------------------
On May 6, 1997, the California Public Utilities Commission (CPUC)
issued an order implementing portions of the California restructuring bill
signed into law in September 1996. Beginning January 1, 1998, all investor-
owned utilities, including SPPC, must offer all customers direct access. Under
the order, customers may choose to continue to take service from their incumbent
utility at tariffed rates, purchase energy from marketers or contract directly
with a generator.
On October 1, 1997, the SPPC filed supplemental testimony to its June
27, 1997 transmission plan which distinguished its position from that of other
utilities. Hearings were held October 8-10, 1997 and a decision from the CPUC
is expected late November 1997.
SPPC is still reviewing the compliance requirements associated with
this law. At this time, management cannot fully predict how these requirements
will impact SPPC's electric business in California which represent approximately
6.3% of the Company's total electric kWh retail sales. For further discussion
of regulatory actions, please refer to California Matters in SPPC's 1996 Annual
------------------
Report on Form 10-K.
NEVADA MATTERS
- --------------
On September 19, 1997, SPPC filed an application with the PUCN to
increase water rates by $15.2 million. The increase is required primarily to
recover the cost of facilities built to comply with the federally mandated Safe
Drinking Water Act. If approved, the increase will result in approximately a
33% increase in annual water revenues. The PUCN is expected to rule on the
application prior to March 18, 1998.
The Nevada Legislature passed Assembly Bill 366 during the 1997
legislative session. This law provides for restructuring the electric utility
industry in the State of Nevada. On August 7, 1997, the PUCN opened two dockets
under which it will determine how to implement the electric and natural gas
provisions of AB 366. Hearings and workshops are being held to address the
implementation process. SPPC expects the PUCN to reach final decisions on
implementing the natural gas and electric provisions of AB 366 by the first half
of 1999.
FEDERAL ENERGY REGULATORY COMMISSION
- ------------------------------------
As a result of FERC's Omnibus Compliance Order dated September 2,
1997, SPPC filed forms of service agreements placing itself under its own open
access tariff for non-firm and short-term firm point-to-point transmission
service and for network integration transmission service.
On July 18, 1997, SPPC filed changes to its Open Access tariffs with
FERC clarifying how its limited import capacity should be allocated among
network transmission customers. On October 2, 1997, SPPC filed changes to
accommodate retail transmission access.
On October 15, 1997, FERC approved a settlement agreement between
Paiute Pipeline (Paiute), SPPC, FERC staff and other customers. On July 22,
1997, Paiute filed to place the settlement rates into effect on August 1, 1997
and on July 28, 1997 the Administrative Law Judge certified the settlement to
the Commission. A refund of approximately $1.0 million for January through July
1997 is forthcoming.
On October 31, 1997 the FERC issued an order requiring that limited
transmission capacity be allowed on a first in time basis rather than on a pro-
rata share basis as proposed by the company. The FERC also stated that the
company could allow its first in time priority to its customers on a pro-rata
share basis voluntarily, but would have to file a new tariff to do so.
14
<PAGE>
The FERC also determined that the company's firm transmission usage
had priority over shippers using the first in time allocation procedure.
However, the FERC did set two factual issues for hearing:
a. Is the Sierra Pacific transmission system limited to 360 mWh?
b. Do all of the network reserves claimed by the company qualify as
network reserves?
The company expects to resolve these issues during 1998.
15
<PAGE>
OTHER BUSINESS
--------------
UNION CONTRACT
- --------------
SPPC and the International Brotherhood of Electrical Workers (IBEW) have reached
a tentative agreement on the collective bargaining agreement. The Company's
current contract with the IBEW expires December 31, 1997. The new agreement,
subject to ratification in November 1997 by local union membership, would be
effective for the period January 1, 1998 through December 31, 2000.
ELECTRIC BUSINESS
- -----------------
SPPC's contract with Black Butte Coal Company for coal shipments from
the Black Butte Mine in Wyoming to the Valmy Power Station, is in effect until
June 30, 2007 or until all commitments required by the contract are delivered or
canceled. In keeping with SPPC's intent to amortize the contract more rapidly,
SPPC paid $3.7 million in June 1997 to buy out the purchase commitment for the
period July 1996 through June 1997. Also, for each month from July through
December 1997, the Company is paying approximately $0.2 million per month to buy
out the contract for that period. The present value of SPPC's remaining
purchase commitments under the contract as of September 30, 1997 is
approximately $9.3 million. For further discussion of the Black Butte Coal buy
out, refer to the Company's 1996 Annual Report on Form 10-K.
SPPC operates a portion of its electric system as a lessee under
agreement with the Truckee-Carson Irrigation District (TCID). Under the terms
of the lease, SPPC is obligated to pay an annual lease payment of $108,000 plus
2% of gross revenues from operations within the leasehold area. The lease
expires in July 1998 and TCID is currently exploring options with respect to
operation and maintenance of its distribution system and alternative power
suppliers. It is estimated that the company generates approximately $2.0
million of net income from serving TCID. The Company has added approximately
$21.0 million in upgrades and other improvements to the TCID electric system.
If TCID does not renew the lease, it will be obligated to reimburse SPPC for
upgrades and improvements made by the SPPC.
16
<PAGE>
PART II
- -------
ITEM 1. LEGAL PROCEEDINGS
Environmental Proceedings
- -------------------------
For a discussion of environmental issues see "Item 1. Business -
Environment" in the SPPC's 1996 Annual Report on Form 10-K. SPPC is assessing
potential environmental issues at two additional sites. One location is the
site of a former manufactured gas facility which was owned by SPPC. The second
location is a vehicle salvage yard. SPPC has not fully evaluated the cost to
remediate these facilities, if required. The Company has reserved $1.0 million
for environmental remediation costs.
LOS owns several parcels of commercial property at Lake Tahoe where it
has been determined from preliminary testing there has been soil and ground
water contamination from under ground fuel storage tanks. LOS has not fully
evaluated the cost to remediate this site, but has a current reserve of $0.9
million based on preliminary estimates.
Other
- -----
Although the Company is involved in ongoing litigation on a variety of
matters, it is management's opinion that none individually or collectively is
deemed material to the Company's financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Form 10-Q are denoted with an asterisk (*). The
other listed exhibits have been filed with the Securities and Exchange
Commission during the period covered by this report and are incorporated
herein by reference.
*(15) Letter of independent accountants acknowledging awareness
regarding unaudited interim financial information of the
Company.
*(27) The Financial Data Schedule containing summary information
extracted from the condensed consolidated financial statements
on Form 10-Q for the period ended September 30, 1997, for
Sierra Pacific Resources, and is qualified in its entirety by
reference to such financial statements.
(b) Reports on Form 8-K:
None.
17
<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: 11/12/97 By: /s/ Mark A. Ruelle
---------------------------------------
Mark A. Ruelle
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)
18
<PAGE>
EXBITIT 15
Sierra Pacific Resources
6100 Neil Road
Reno, Nevada 89511
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited condensed interim
financial information of Sierra Pacific Resources and subsidiaries for the
period ended September 30, 1997, as indicated in our report dated November 4,
1997; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, is
incorporated by reference in Registration Statements Nos. 33-90284 and 333-4374
on Forms S-3 and Registration Statement Nos. 2-92454, 33-87646, and 33-48152 on
Forms S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Reno, Nevada
November 11, 1997
19
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<PAGE>
<ARTICLE> UT
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements filed on Form 10-Q for the nine-month period
ended September 30, 1997, for Sierra Pacific Resources and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-START> JAN-01-1997
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 622,739
48,500
73,115
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<TOTAL-OPERATING-EXPENSES> 403,713
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7,222
<EARNINGS-AVAILABLE-FOR-COMM> 54,477
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