Thursday, Nov. 13, 2003 | 11:12 a.m.
Dramatically lower purchased power costs and higher demand for power to run air conditioning units during the summer months drove profits at Sierra Pacific Resources up 9.4 percent in the third quarter.
Sierra Pacific, parent company of Nevada Power Co. of Las Vegas, this morning reported third-quarter net income of $86.9 million, up from $79.4 million reported for the same 2002 quarter.
Sierra Pacific said purchased power costs for the quarter were $434.4 million, down from $604.7 million reported for the same 2002 quarter.
Walter Higgins, chief executive of Nevada Power, said the demand for electricity for the quarter was up 2 percent from 2002.
A recent rate decrease ordered by state regulators and charges associated with a bankruptcy court ruling in favor of Enron Corp. limited an otherwise positive third quarter, company executives said.
Despite wider quarterly profits, earnings per share of 28 cents were down from 78 cents per share a year ago. That slip was due to the issuance of additional stock authorized by shareholders in August. That move was done to cover convertible debt -- bonds that can be converted stock -- and increased the number shares outstanding from 102 million to 183 million.
Revenue for the quarter was $904.9 million, down from $1 billion for the same 2002 quarter.
A 6.3 percent rate cut at Nevada Power that was ordered by the state Public Utilities Commission in May "is causing us to under-collect" from ratepayers based on the cost of fuel to run power plant and power purchased on the open market, Higgins said.
Net income at Nevada Power was $62.5 million, compared with $79.3 million for the same 2002 quarter, despite increased for electricity demand over the previous year, Higgins said.
"The increase in kilowatt hours sold ... and customer growth and an increase in demand were offset by the (rate) decrease," Higgins said.
Nevada Power generates about 40 percent of the electricity it delivers to customers. The balance of the power is purchased on the open market.
Higgins said the company would seek to correct the rate imbalance in a "deferred energy" filing it is scheduled to make with the PUC on Friday. That filing will request the authority to recoup through rates any unrecovered costs for fuel and purchased power for the 12 months ending Sept. 30. The case also will seek to set rates at an adequate level to recover those costs as they are incurred going forward.
That imbalance comes despite the lower power costs for the company.
The company also took a $40 million charge to increase its reserves to cover pre-judgment interest in the bankruptcy case with Enron Corp. In October a bankruptcy court judge ruled that Nevada Power Co. and its sister company -- Sierra Pacific Power Co. of Reno -- owe Enron $336 million in termination payments and interest for contracts signed during the Western energy crisis and cancelled by Enron in May 2002.
In a conference call with Wall Street analysts this morning, Higgins said the company is preparing to appeal the bankruptcy court judgment in the Enron case to the U.S. District Court in New York.
The company also will appeal the Federal Energy Regulatory Commission's June ruling that the long-term power contracts entered into during the Western energy crisis are valid. FERC upheld that ruling this week. That affirmation cleared the way for an appeal to the U.S. Circuit Court of Appeals, Higgins said.
The utilities also will make a filing with state regulators seeking to clarify what portion of a negative outcome in the Enron case could be passed on to ratepayers.
Earlier this month, the bankruptcy court allowed the utilities to post in an escrow account $338 million in bonds as collateral to stay the execution of the judgment during the appeals process. The companies also were ordered to place in the account $280,000 in cash to cover interest and $35 million in cash as additional collateral.
As it has in several recent filings with the U.S. Securities and Exchange Commission, Sierra Pacific again warned of a possible negative outcome in the Enron case.
"Any requirement to pay the Judgment or to provide cash collateral, in excess of the $35 million the utilities are required to deposit into escrow ... for Enron's claims for termination payments could adversely affect (Sierra Pacific Resources') (Nevada Power's) and (Sierra Pacific Power's) cash flow, financial condition and liquidity, and could make it difficult for one or more ... to continue to operate outside of bankruptcy," the company's third-quarter SEC filing said.
When asked about the bankruptcy possibility by analysts this morning, Higgins would not elaborate.
"We belive that statement very accurately portrays the situation," he said.
The company's stock was down 0.30 percent on the news this morning, trading at $6.68, down 2 cents.
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