Nevada Power parent’s loss narrows

Kevin Rademacher

Tuesday, Aug. 10, 2004 | 10:55 a.m.

Sierra Pacific Resources, parent company of Las Vegas-based Nevada Power Co., on Monday said regulatory disallowances were the chief culprit in a second-quarter loss.

The company said it lost $44.9 million, or 38 cents per share, in the quarter. While he said the loss was disappointing, Sierra Pacific Chief Executive Walter Higgins described the results as "solid progress."

For the same 2003 quarter, the company reported a loss of $217 million, or $1.85 per share.

Revenue for the second quarter was $677 million, up from $666 million a year ago.

"They had a loss, but it looks to me like the trend is improving," said Jake Mercer, a utilities analyst for Piper Jaffray & Co.

Sierra Pacific said the quarterly results include a $47 million write-off related to the construction of the Pinion Pine power plant in Northern Nevada. The recovery from ratepayers of certain costs for the experimental plant were disallowed by the state Public Utilities Commission in a rate case for Sierra Pacific Power Co., the parent company's Reno-based utility.

Another $10 million in interest costs related to debt refinancing also was written off during the quarter.

"Write-offs are never a positive thing," Mercer said. "But the most important thing is that they are getting smaller and hopefully they will be ending."

In the same 2003 quarter, the company wrote off $93 million in fuel and purchased power expenses the PUC said were incurred imprudently and refused to allow the company to recover from customers. It also wrote off $124 million in charges related to the conversion of $300 million in debt to stock. The company also wrote off $42 million related to unregulated subsidiaries, including a $33 million charge to its fiber optics subsidiary incurred after a joint-venture partner filed for bankruptcy.

Despite the improvements, high interest charges continue to plague the company. For the quarter, companywide interest charges on long-term debt totaled $85.7 million, up from $70.8 million a year ago. At its Nevada Power subsidiary, interest charges were $37.7 million, up from $32.8 million a year ago.

Higgins pointed out that the company's move to refinance nearly $800 million in debt cut a possible interest increase by $3 million annually.

Still, Mercer said the rising interest charges comes at a time when most utilities have been able to cut their interest costs.

"It's a concern for the longer term," he said. "You would like to see that trend flat to declining."

The company said its Nevada Power subsidiary posted a second-quarter net income of $13.6 million, compared with a loss of $22.2 million for the same 2003 quarter.

The company also said customer growth in Southern Nevada is on track to grow by about 45,000 meters for the year. That would be a 10 percent increase over the record pace set in 2003 and a 5 percent overall increase in total customers.

"As you can see, growth continues very, very rapidly," Higgins told analysts in a conference call this morning.

Sierra Pacific Resources stock advanced 2.3 percent on the news this morning this morning, trading at $8.43, up 19 cents.

Looking toward third-quarter results, Higgins said that July saw mild weather compared with 2003.

"Weather in July, a month in which we typically reach our system peak, was cooler in 2004 than in 2003," he said. "It is August, however, and (Monday) we hit a new all-time peak."

Nevada Power said Monday's system peak required 4,859 megawatts at 4:43 p.m. to serve customer demand. The prior system peak was 4,808 megawatts reached at 4 p.m. on July 22, 2003.

Higgins indicated that the new peak could be topped today and that the company expected to reach its previously predicted peak of 5,000 megawatts this year.

In addition to high temperatures driving up air conditioning demand, Nevada Power now has about 700,000 customers, up from about 675,000 a year ago.

In the conference call Higgins also outlined the company's ongoing battle with disgraced energy trader Enron Corp. He told investors that the Federal Energy Regulatory Commission has released its schedule for an expedited hearing on the company's appeal of more than $336 million in termination payments Enron has demanded for contracts signed during the Western energy crisis of 2000-01.

The Nevada companies claim the contracts should be abandoned because of market manipulation on the part of Enron and others. Analysts have indicated that the company's junk-rated credit will not improve until the Enron matter is decided.

Following a series of pre-filing dates for written testimony, the parties will begin hearings in Washington on Oct. 18. FERC has promised an initial decision by Dec. 31.

Higgins added that Enron has filed an objection in federal court in New York seeking to block the FERC rehearing. Enron argues that the termination payment issue has already been decided a U.S. Bankruptcy Court judge.

The company will file an answer to Enron's complaint today and hearings are scheduled for Friday, Higgins said.