Cooler temperatures, investments hold back NV Energy’s earnings

Profits for local power utility NV Energy fell dramatically in the second quarter, as cool temperatures and regulatory issues hurt the company's financial results.

What's more, some of those trends could curb the utility's income for the rest of 2011, NV Energy officials said in a Monday conference call. They called 2012 a "pivotal" year for the company's financial footing.

First, about those latest results.

NV Energy earned net income of $12.9 million, or 5 cents a share, in the quarter that ended June 30. That was down 65 percent from $36.9 million, or 16 cents a share, in the same period in 2010.

Quarterly revenue of $675 million dropped 13.7 percent from $782.7 million in the same quarter a year ago.

The results fell below analysts' expectations, which Thomson Reuters pegged at earnings of 16 cents a share on revenue of $755 million.

The weaker results came partly from mild temperatures. Cooling-degree days, which measure how average temperatures affect air-conditioning demand, fell 9 percent year over year in June, said Dilek Samil, the utility's senior vice president of finance, chief financial officer and treasurer. Megawatt hours sold statewide fell 1.2 percent in the second quarter year over year as well, Samil said.

The company also took an $8.6 million charge after the Public Utilities Commission of Nevada cut its request to recoup expenses and lost revenue related to energy efficiency and conservation programs. Also hurting year-over-year comparisons was NV Energy's May 2010 sale of 2,325 acres around Independence Lake, near Lake Tahoe, to the Nature Conservancy. The $15 million sale gave NV Energy a $7.6 million pre-tax 2010 income gain missing from 2011's results.

Finally, the utility's new Harry Allen Generating Station in Apex came online in May, adding operating and maintenance costs to the company's bottom line and slashing pre-tax earnings in the quarter by nearly $9 million, Samil said.

Some of those factors could keep a lid on the utility's income for the rest of 2011, Samil added.

Take those cooler summer temperatures. The third quarter, with its blistering weather, typically drives most of NV Energy's annual earnings. So far, with most of July's revenue recorded, cooling-degree days are down 15 percent and power sales are down roughly 10 percent year over year in the month. It's shaping up to be the mildest July in Nevada in the past decade.

And until the company can charge higher rates to cover Harry Allen's operating costs, the new plant will continue to drag down financial results, Samil said.

NV Energy has asked the Public Utilities Commission for a $246 million revenue increase, about half of which would go toward paying for Harry Allen. The request would amount to an 11.5 percent jump in the portion of rates covering operating costs, but company officials say a refund of purchased power and fuel costs, plus deferred collection of some operating revenue, would cancel out the rate hike and leave ratepayers' bills unchanged.

The commission will have hearings and consumer sessions on the filing in October. Any new rates would go into effect Jan. 1.

"We continue to expect 2012 to be a pivotal year. We will have new rates in effect, and that should allow us to recover our investment in Harry Allen, as well as make us whole in other investments since our last rate case," Samil said. "Our financial flexibility and financial profile should be much improved beginning in 2012."

Michael Yackira, NV Energy's president and chief executive officer, also noted in the conference call that while Nevada's economy continues to show signs of stabilization, the utility's planning "does not take into account any material change in Nevada's economy or its recent growth trajectory."

NV Energy has seen modest growth in its customer base, including an increase of just under 1 percent in the second quarter, and that trend leaves company officials "cautiously optimistic," Yackira said.

But serious growth will require enough job creation to encourage large numbers of new residents to move to Nevada.

"We believe the state's economy is set for a slow recovery that is likely to be measured in years, as opposed to months," Yackira said. "As a result, our employees continue to work hard to reduce costs and improve the efficiency of our operations."

The utility's shares fell 29 cents, or 1.95 percent, Monday to close at $14.55 on the New York Stock Exchange. The company's shares are up 21 percent since hitting a 52-week low in August 2010.

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