Sierra Pacific Resources the holding company for Sierra Pacific Power Company provide electricity to more than 286000 customers in the area of northern Nevada and northeastern California including world-famous Reno and Lake Tahoe. The company also provide natural gas and water service to customers in the greater Reno metropolitan area. Other operating subsidiaries of the company include the Tuscarora Gas Pipeline Company Lands of Sierra Sierra Energy Company eothree and Sierra Water Development Company. NV ENERGY, INC. has a market cap of $2.73 billion; its shares were traded at around $11.64 with a P/E ratio of 18.8 and P/S ratio of 0.8. The dividend yield of NV ENERGY, INC. stocks is 3.4%.
Highlight of Business Operations:NVE recognized net income of $18.4 million for the three months ended June 30, 2009 compared to net income of $36.1 million for the same period in 2008. NVE incurred a net loss of $3.9 million for the six months ended June 30, 2009 compared to net income of $60.2 million for the same period in 2008. Consolidated gross margin increased by $21.6 million and $29.3 million for the three months and six months ended, respectively, primarily due to increased rates as a result of SPPC s 2007 GRC, effective July 1, 2008. Earnings decreased primarily due to increased other operating and maintenance expenses, depreciation and interest charges, some of which are costs related to the purchase of the Higgins Generating Station and the construction of the Clark Peaking Units, which were not included in rates prior to July 1, 2009, and lower revenues, as a result of milder weather. Other Income/Expense items which contributed to the change in earnings are discussed in NPC s and SPPC s respective Results of Operations for more details on the change in earnings.
Upon evaluation of the factors above, NVE and the Utilities have reduced estimated cash requirements, as reported in the 2008 Form 10-K, for capital expenditures by approximately $145 million to $170 million for 2009 for total estimated cash requirements of $775 million to $750 million for the current year. The current recession, as well as recent volatility in the global credit and financial markets, has created an unprecedented level of uncertainty regarding future business conditions. While management expects to maintain this process of continual re-evaluation for the foreseeable future, it is not possible to predict how long the economic recession will continue or what its long-term effect will be on the economy in general or on our financial position, cash flows or results of operations in particular.
As of June 30, 2009, NVE, NPC and SPPC had cash on hand of approximately $21.5 million, $35.9 million, and $19.1 million, respectively. NVE and the Utilities attempt to maintain their cash and cash equivalents in highly liquid investments, such as U.S. treasury bills. In addition to cash on hand, the Utilities may use the combined balance under their revolving credit facilities of $691 million, as of June 30, 2009 in order to meet their liquidity needs. Alternatively, depending on the usage of the Utilities revolving credit facilities, NVE and the Utilities may issue long-term debt, subject to certain restrictions as discussed in Factors Affecting Liquidity, Ability to Issue Debt, below. NVE and the Utilities anticipate with the reduction in cash requirements for capital expenditures, as discussed earlier, and decreasing commodity prices, that cash on hand, internally generated funds and the ability to issue debt, which includes the use of the Utilities revolving credit facilities, will be sufficient to meet short-term operating costs. However, if energy costs rise at a rapid rate and the Utilities do not recover the cost of fuel and purchased power in a timely manner, if operating costs are not recovered in a timely manner or the Utilities were to experience a credit rating downgrade resulting in the posting of collateral as discussed below under Gas Supplier Matters and Financial Gas Hedges, the amount of liquidity available to the Utilities could be significantly less. In order to maintain sufficient liquidity, NVE and the Utilities may be required to further delay capital expenditures, re-finance debt or issue equity.
As of June 30, 2009, NVE, NPC, SPPC and their subsidiaries had approximately $5.6 billion of debt and other obligations outstanding, consisting of approximately $3.7 billion of debt at NPC, approximately $1.4 billion of debt at SPPC and approximately $485 million of debt at the holding company and other subsidiaries. Although NVE and the Utilities are parties to agreements that limit the amount of additional indebtedness they may incur, NVE and the Utilities retain the ability to incur substantial additional indebtedness and other liabilities.
As of June 30, 2009, NPC and SPPC paid dividends to NVE of $37 million and $123.8 million, respectively. On July 31, 2009, NPC and SPPC paid dividends of $25.0 million and $5.0 million, respectively, to NVE. As of June 30, 2009, NVE contributed $90.3 million to SPPC during 2009.
Under these restrictions, NVE (holding company), NPC and SPPC are permitted to incur a combined total of up to $500 million in indebtedness and letters of credit under their respective revolving credit facilities without having to satisfy any incurrence or maintenance test. As of June 30, 2009, NPC had approximately $115 million borrowed and $18.3 million of letters of credit outstanding and SPPC had approximately $171 million borrowed and $16.2 million in letters of credit outstanding against the credit facilities, leaving a combined availability of approximately $179.5 million under this restriction.
Read the The complete ReportNVE is in the portfolios of David Dreman of Dreman Value Management, George Soros of Soros Fund Management LLC, Charles Brandes of Brandes Investment.