Excluding gains, utility parent’s profits dip

Sierra Pacific Resources on Monday reported that ongoing earnings tripled in the fourth quarter, but Wall Street analysts questioned when or whether the company will build the giant coal-fired Ely Energy Center.

Fourth-quarter ongoing earnings per share rose to 6 cents from 2 cents a year ago because of a Nevada Power Co. rate increase, customer growth, funds for construction and lower interest expenses. Ongoing profits jumped to $14 million from $4.3 million during the fourth quarter.

Those numbers exclude one-time factors.

When nonrecurring gains and losses are included, Sierra Pacific profits total $3.7 million, or 2 cents a share, in the fourth quarter, compared to $26.1 million, or 12 cents a share, a year ago.

Profit for the last period of 2006, however, included a $40.9 million gain after taxes from the sale of Tuscarora Gas Transmission Co.

For the year, the utility company earned $197.7 million, up from $120.3 million in the previous year, excluding special items. Earnings per share were 89 cents, compared to 58 cents a year earlier.

The holding company reported that a gain of $116.2 million after taxes from a rate-case appeal boosted the profit in the prior year.

Chief Executive Officer Michael Yackira said the company's business strategy was producing positive results. But state consumer advocate Eric Witkoski said the company was doing too well, increasing its yearly income by $77 million "at the expense of ratepayers."

Yackira said the company's two utility subsidiaries, Nevada Power of Las Vegas and Sierra Pacific Power Co. of Reno, continue to earn less profit than allowed by state regulators. The utilities are making a 7 percent return on equity (profits divided by the value of shareholder equity), compared with an allowed 10.6 percent for Nevada Power and 10.5 percent for Sierra Pacific Power.

The company in November said it plans to first build a 500-megawatt natural gas-fired expansion to its Harry Allen Generating Station north of Las Vegas and build the $3.8 billion Ely project later, because of regulatory delays on Ely.

In a conference call, analysts asked utility executives about the decision to push back the operational date for the first half of the Ely center from 2011. The Ely project "certainly is not dead," Yackira told analysts.

Yackira said the Bureau of Land Management has been unable to process the company's application for use of federal land as quickly as expected.

"We just don't know when a final decision on BLM regulatory access to the site will be final," the CEO said.

The consumer advocate said the public needs more information about the cost of capturing carbon dioxide or paying a possible carbon tax from the coal plant because of expected federal legislation.

"(Customers) are assuming the risk" of higher costs at the Ely plant, Witkoski said. "We need to proceed with both eyes open and lot more information."

The Associated Press on Wednesday quoted a Goldman Sachs analyst predicting the Ely center would be canceled. Analyst Michael Lapides said opposition to the coal-fired project in Ely didn't diminish the prospects for Sierra Pacific's shares.

Either gas-fired power plants or coal plants are "needed to keep pace with above-average demand growth in the region," Lapides said. The utility company is expected to earn a profit on either type of power plant.

Sierra Pacific spent $1.2 billion last year on power plants, transmission and distribution lines last year and expects those capital expenditures to exceed that number in 2008, 2009 and 2010. Only 10 percent of those numbers would stem from expenses associated with the Ely center.

Customer growth for the company rose by 2 percent in 2007, compared with 3.8 percent in the prior year.

At Las Vegas-based Nevada Power, the number of customers grew by 2.5 percent to 827,000 last year.

Sierra Pacific Power electric and gas customers grew by 1.2 percent to 513,000 last year.

Over the next three years, the Strip will need 300 megawatts or million watts of additional power, Yackira said, pointing to casino and mixed-used developments. An estimated 40,000 hotel rooms are under construction or being planned in Las Vegas, he said, and experts estimate each new hotel room creates 3.5 jobs for the region.

In the fourth quarter, Nevada Power reported $4.4 million in net income, compared with $11.7 million a year ago. For the year, Nevada Power earned $167.5 million, compared with $224.5 million in the prior year.

Sierra Pacific Power reported $8.1 million in fourth-quarter earnings, compared with $15.4 million in the final period of the prior year. For the year, Sierra Pacific Power earned $65.7 million, up from $55.4 million in the previous year.

Sierra Pacific Resources shares fell 22 cents, or 1.49 percent, Monday to close at $14.52 on the New York Stock Exchange.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or (702) 383-0420.