<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
COMPANY'S FINANCIAL RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<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> 1,726,055
<OTHER-PROPERTY-AND-INVEST> 61,773
<TOTAL-CURRENT-ASSETS> 153,342
<TOTAL-DEFERRED-CHARGES> 162,372
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,103,542
<COMMON> 4
<CAPITAL-SURPLUS-PAID-IN> 591,684
<RETAINED-EARNINGS> 88,586
<TOTAL-COMMON-STOCKHOLDERS-EQ> 680,274
0
50,000
<LONG-TERM-DEBT-NET> 623,946
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 101,782
<LONG-TERM-DEBT-CURRENT-PORT> 102,685
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 544,855
<TOT-CAPITALIZATION-AND-LIAB> 2,103,542
<GROSS-OPERATING-REVENUE> 202,707
<INCOME-TAX-EXPENSE> 11,034
<OTHER-OPERATING-EXPENSES> 158,330
<TOTAL-OPERATING-EXPENSES> 169,364
<OPERATING-INCOME-LOSS> 33,343
<OTHER-INCOME-NET> (310)
<INCOME-BEFORE-INTEREST-EXPEN> 33,033
<TOTAL-INTEREST-EXPENSE> 12,479
<NET-INCOME> 20,554
975
<EARNINGS-AVAILABLE-FOR-COMM> 18,536
<COMMON-STOCK-DIVIDENDS> 19,000
<TOTAL-INTEREST-ON-BONDS> 9,750
<CASH-FLOW-OPERATIONS> 55,335
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Sierra Pacific Power Company is a wholly owned subsidiary of Sierra Pacific
Resources and, as such, its common stock is not publicly traded. SPPC does not
report EPS information.
</FN>
</TABLE>
