Sierra Pacific in the black first time in 4 quarters

By the OGJ Online Staff

HOUSTON, Aug. 3, 2001—Sierra Pacific Resources, emerging from the red for the first time after 4 consecutive quarter losses, reported second quarter income from continuing operations of $54 million, or 69-/share compared to a loss of $20.2 million or 26- for last year’s quarter. The results included a $26 million, or 33-/share gain on the sale of the company’s water business. Revenue increased to $1.1 billion compared to $474.3 million.

The company said not to expect a repeat of that kind of revenue increase because of federal price caps in the wholesale market effective June. Sierra Pacific complains the price caps penalize load-serving utilities in the western states.

The quarter and outlook for earnings is, however, more positive because of a deferred accounting cost recovery mechanism put in place by state regulators.

Deferred accounting allows the company to recover and earn a rate of return from customers on the difference between rates and the costs of fuel and purchased power. The deferred amount will be recovered over a 3-year period.

To date, Reno-based Sierra Pacific that owns two Nevada utilities has cumulative deferrals of $350 million. Walt Higgins, CEO, suggested the deferral balance could go as high as $700 to $900 million by the end of October. He said on a conference call that he doesn’t expect further deferrals after that date.

The undercollections result from rates being set at about 5-/kw-hr when power costs the company on average for both utilities 7 to 8-/kw-hr, Higgins said.

While deferred accounting restores some financial balance, the company continues to face some difficult times in the wholesale power markets, he said.

Higgins is particularly concerned about the recent Federal Energy Regulatory Commission order that capped wholesale rates effective in June of this year. The cap penalizes any utility wanting to sell excess power into the western market to “make up” for higher cost power purchased earlier in the year to serve customers. When the company has excess power, it makes a sale if possible that will reduce the costs of power it bought to serve customers.

Sierra Pacific went out and secured sufficient power last summer and fall to ensure a reliable source of power for its customers. The portfolio was arranged under different FERC rules and during a time of extremely high and volatile prices. Now, these rules have been changed, Higgins said.

“We are the proverbial ants here,” he said. “We went out last summer and fall and procured power to provide for our customers. Now the load serving utilities are being penalized and the grasshoppers are rewarded.”

Sierra Pacific has filed complaints with FERC about the consequences of the price cap order.

“Either apply the cap to all power sold before last summer or have no caps,” he said. “You can’t have it both ways.”

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