NV Energy reports drop in earnings

NV Energy reported slumping earnings in a wide-ranging Friday conference call that also brought talk of a possible rate drop in 2010 and word that the power company's next general rate case will come around sooner than consumers expect.

First, about those dwindling profits.

NV Energy posted net income of $18.4 million, or 8 cents a share, in the quarter that ended June 30, as it took in revenue of $838.6 million. That's down from $36.1 million, or 15 cents a share, on sales of $838.7 million in the same quarter a year ago. Though income and sales declined year over year, both indicators beat analysts' forecasts: A poll by Thomson Reuters projected earnings of 4 cents a share on $677 million in revenue.

Michael Yackira, chief executive officer of NV Energy, said in a statement that the lower earnings came from the cost of buying and expanding generating stations in Southern Nevada. The company had higher operating and maintenance costs than it faced a year earlier, and it also took a bigger hit on depreciation and interest expenses. NV Energy couldn't recover any of those expenses through rates in the first half of the year, and that cost the company 10 cents a share in income, said Bill Rogers, NV Energy's chief financial officer.

The utility's financial outlook will improve in the second half of 2009 thanks to a 6.9 percent general rate boost the state Public Utilities Commission granted on June 24. That increase, which will add $10.29 a month to the average consumer's bill over a year, will give NV Energy an additional $222.7 million a year in revenue. Three percent of the rate gain went into effect on July 1; the remainder kicks in Jan. 1.

Rogers said higher year-over-year pension expenses took 2 cents a share from earnings, but NV Energy didn't include those bigger pension costs in its general rate case.

The utility did upgrade its gross margin — the portion of revenue that doesn't include fuel and purchased power. Its second-quarter margin was $325.9 million, a $21.6 million improvement over the margin a year earlier. The company credited the wider margin to a year-old general rate increase for its Northern Nevada subsidiary, as well as higher power use amid warmer weather and "modest" customer growth.

NV Energy's residential customer base grew 0.4 percent year-over-year in Southern Nevada, but shrank 0.1 percent in Northern Nevada. Commercial and industrial customers grew in both halves of the state, including a 2.8 percent jump in industrial users in Southern Nevada.

Meanwhile, executives have downgraded growth forecasts, which Rogers said they based on actual year-to-date experiences, expected completion dates on hotel projects and the health of the job market.

NV Energy had planned for 1 percent growth in power demand in 2009 and 3 percent increases in 2010 and 2011. But construction delays for big resorts including Fontainebleau and Echelon, along with a 6 percent contraction in Southern Nevada's job base, should mean demand growth of less than 2 percent in both years, Rogers said.

Rogers added that NV Energy will post positive cash flow in the second half of 2009 and won't need to return to capital markets for debt or equity for the rest of the year.

Now for that potential rate decrease.

Because the cost of purchased power and fuel to run its plants has come in lower than expected, NV Energy has collected $124 million more from consumers in 2009 than it needed. NV Energy is banned by law from profiting on that part of its business, so that $124 million will likely go back to consumers in 2010, Rogers said.

Yackira discussed several regulatory issues, including a change in filing dates for general rate cases.

State law says NV Energy must file a general rate case every three years. It made its last such filing on Dec. 1, and some of the rate boost that resulted took effect on July 1, per statute. But legislators didn't like the idea of altering rates during the summer, when power use is at its highest, so they changed the filing date to June 1, with rate changes scheduled to take effect Jan. 1.

That means NV Energy's next general rate case will happen in June 2011 — 2 years from its last application, rather than the three years the law allows. The three-year schedule will return following that one-time adjustment, Yackira said.

Yackira also noted that the utility will file an updated integrated resource plan with the state Public Utilities Commission in December. The company had filed a proposal with the commission on July 1, but the agency told executives their forecasts for demand growth were too aggressive. Yackira said he doesn't expect the updated plan will be "materially different" from its July version.

Finally, Yackira talked about cost-cutting efforts NV Energy has made.

Owning more of its generating capacity has meant more efficient maintenance-scheduling, he said. The utility has reduced pensions and other benefit expenses, and a strict policy on new hires sends every personnel request through Yackira for his approval. NV Energy has also "greatly reduced" use of outside contractors and overtime, Yackira said.

NV Energy's shares were down 7 cents, or 0.61 percent, in Friday trading to close at $11.50 on the New York Stock Exchange.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.