NV Energy, Inc. Q4 2008 Earnings Call Transcript

NV Energy, Inc. (NVE)

Q4 2008 Earnings Call Transcript

February 11, 2009 10:00 am ET

Executives

Britta Carlson – Manager, Investor and Shareholder Relations

Michael Yackira – President and Chief Executive Officer

Bill Rogers – Corporate Senior Vice President, Chief Financial Officer and Corporate Treasurer

Analysts

Daniel Eggers – Credit Suisse

Brian Russo – Ladenburg Thalmann

Steve Fleishman – Catapult Capital

Sam Brothwell – Wachovia

Emily Christensen [ph] – RBC Capital Markets

Tom O’Neil [ph] – Green Arrow [ph]

Reza Hatefi – Decade Capital

Rick Shobin – GLG

Chris Ellinghaus – Shields and Company

Eric McCarthy [ph] – Praesidis Asset Management

Wen-Wen Lindroth – PIMCO Capital

Raymond Long [ph] – Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NV Energy 2008 full year earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. (Operator instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to the Manager of Investor and Shareholder Relations, Britta Carlson. Please go ahead.

Britta Carlson

Good morning. Thank you for joining us this morning to review NV Energy’s results for the fourth quarter and full year 2008. In addition to the press release that was issued over the Newswire earlier today, we expect to file our 2008 Form 10-K with the SEC later this month.

I would like to remind you that comments we make during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the future performance of NV Energy Inc., and its subsidiaries, Nevada Power Company and Sierra Pacific Power Company, both doing business as NV Energy.

These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's Form 10-Q for the quarters ended March 31, June 30, and September 30, 2008, and Form 10-K for the year ended December 31, 2007. I would also like to mention that reconciliations of certain non-GAAP financial information presented during today's call can be found in our earnings press release, which was posted on our company website at www.nvenergy.com.

With me this morning are Michael Yackira, President and Chief Executive Officer, and Bill Rogers, Corporate Senior Vice President and Chief Financial Officer. Bill will begin this morning by reviewing our 2008 results and discussing key financial drivers and trends. Michael will then provide an update on the corporate strategy, including an update on recent industry developments.

I will now turn the call over to Bill Rogers.

Bill Rogers

Thanks, Britta. Good morning everyone and thank you for joining us.

In our earnings press release, we included certain financial highlights from our company's income statements and balance sheets. Rather than repeat our financials, I will discuss key drivers and trends that affect our earnings. As released this morning, NV Energy earned $209 million or approximately 6% higher than net income of $198 million in 2007. On an earnings per share basis, NV Energy earned $0.89 per share in 2008 compared to $0.89 per share in 2007. The dilution in the per share earnings was a result of the common stock offering in December 2007.

In the fourth quarter of 2008, NV Energy lost $2 million or $0.01 per share compared with earnings of $3.7 million or $0.02 per share in the same period last year. The reductions in earnings in the fourth quarter of 2008 versus the fourth quarter of 2007 was largely due to higher depreciation and maintenance expense, higher interest expense and lower AFUDC earnings. The majority of these expense dollars as well as some of the increase in operating expenses are associated with the completed construction of the Clark peakers for $400 million and the purchase of the Walter M. Higgins generating station for $510 million, both in the fourth quarter of 2008.

Although these assets are now serving our customers and are expected to be in rates in July 2009, they are not currently in rates. The after-tax impact of not recovering in rates the increased cost of capital, depreciation, operating and maintenance expenses associated with these capital additions is approximately $0.07 per share. The after-tax impact of these investments is expected to continue through the first half of 2009 and until rates become effective.

In addition, we had several one-time items in the fourth quarter with other income and deductions, including impairment charge for SPcom [ph] and expenses associated with our name change to NV Energy. These were partially offset by gains from the repurchase of holding company debt. These three items netted to an after-tax loss of $0.01 per share. With respect to our revenue, our retail electric sales decreased throughout the state by 1.5% in 2008 compared to 2007. The reduction in megawatt hour sales was primarily due to more comfortable summer weather in 2008 and more specifically July 2008 relative to July 2007. As we stated in our third quarter call, the extremely and abnormally hot weather in July 2007 added approximately $0.10 per share to the full 2007 year earnings.

We are pleased that gross margin increased approximately $100 million or 8% from the $1.25 billion in 2007 to $1.35 billion in 2008. Our NV energy southern territory contributed 66% of consolidated gross margin and the electric and gas business as of NV Energy’s northern service territory contributed 31% and 3% respectively. Due to our investment actions, we anticipate this growth trend in gross margin to continue. On the expense side, our consolidated operations and maintenance expenses increased by only 2% in 2008 when compared with 2007. This expense discipline helped to drive improvements to our bottom line.

If I could, please let me put our growth in perspective. First and foremost, our communities continue to have a growth in population, and for the full-year 2008, we had total employment growth of just over 1% in Southern Nevada. Furthermore, our company continues to have a growth in customers. NV Energy’s southern service territory average residential customer count increased 0.8% in 2008 when compared to the average customer counts for the same period last year. Moreover, commercial and industrial electrical customer counts increased 2.6% and 3.8% respectively. This same growth trend is true for NV Energy’s northern service territory. Average residential customer count increased 0.5% while commercial and industrial electrical customer count increased 2% and 4.5% respectively in 2008. National economic conditions resulted in lower current year residential growth than we have experienced in the past but we expect that to change over the next 12 to 18 months as hotel employment opportunities attract population migration to Southern Nevada.

Now, I would like to turn your attention to our investment and capital formation plans. As a result of the completion of projects under budget and the management of our growth capital, we have reduced our 2009 estimated cash construction requirements to approximately $920 million. The Harry Allen plant, which is the only major project currently under construction, accounts for approximately one third of that investment, and our base capital expenditures account for approximately $370 million of that investment.

As a result of our updated estimates, our cash capital investment plans for the years 2009 through 2013 will be approximately $3 billion. The capital investment plan for the 2009 year will be funded with internally generated cash flow and augmented by external financing, neither the debt or debt and equity markets of approximately $350 million to $500 million. In addition, the company may seek to refinance borrowings under its revolving credit facilities.

External financing needs for 2009 will ultimately be determined by a number of factors, including the actual amount of capital expenditures, the outcome of the general rate case for our southern NVE utility, and our decisions on our 2009 pension funding contributions. With that recap of our trends and our financials, I will now turn the call over to Michael Yackira, who will discuss other important matters that impact our company.

Michael Yackira

Thanks, Bill, and good morning everyone. Let me join Bill in thanking you for attending this meeting this morning.

We are pleased with our 2008 financial and operating results. Additionally, we are pleased that last week our Board of Directors declared a quarterly dividend of $0.10 per share. We achieved our results including continued customers and gross margin growth, despite the downturn in the economy and reduction in the growth rate in Nevada, due to the excellent efforts of our employees. The employees of NV Energy are working diligently to achieve the company's vision to be the premier energy provided for Nevada. They are implementing the three-part energy strategy that I mentioned in previous earnings calls. First, we are increasing our investments in energy efficiency and conservation programs; second, we are increasing our renewable energy projects and initiatives; and third, we are adding cleaner more efficient traditional power generation.

Let's first turn to energy efficiency and conservation. In 2008, we invested about $60 million state wide in these programs to help our customers reduce their energy usage and help the environment as well. You will likely remember that Nevada allows for an incentive return on equity for these investments. Our investments have helped reduce our customers’ carbon footprint by an amount equivalent to removing about 55,000 cars from our highways. We are achieving these results through advertising and public education campaigns about the benefits of these programs and we offer a wide range of energy efficiency programs for our customers. As an example, during the past year, we offered rebates to support the sale and distribution of approximately 3.4 million low energy use compact fluorescent light bulbs in Nevada, bringing the total to more than 5 million bulbs distributed since the program's inception in 2003. Rebate programs to encourage customers to install photovoltaic panels on rooftops are part of our overall energy efficiency effort as well. Since the start of that program in 2003, our customers have installed nearly 2 megawatt of solar energy state wide and receive $7 million in incentives to partially offset installation costs. This initiative has been expanded to include wind turbines and micro hydroelectric plans as well.

Because the Nevada State legislature understands the value of energy efficiency, it modified Nevada’s portfolio standard in 2007 to include energy efficiency as part of the formula. Nevada’s law requires that 20% of the energy we provide for our customers must be from renewables by 2015, and up to one quarter of that requirement can be fulfilled with savings from energy efficiency.

Turning to the second part of our energy supply strategy, our long-term goal is to exceed the state's portfolio standard. In 2008, we took our commitment to renewable energy a step further by announcing plans to invest directly in projects that we expect will deliver future returns for our investors and our customers alike.

We announced three such investments in 2008. First, we finalized the joint development agreement with Renewable Energy Systems Americas for a 200 megawatt project call China Mountain and we now own a 50% interest in that project which will be located in Northern Nevada. The wind turbines will deliver power to our customers via nearby transmission line that is already in place. And the BLMs environmental review process is well underway and we expect should be completed by 2010.

Last March we entered into a joint ownership agreement with Ormat, a world leader in geothermal energy, to develop a 30 megawatt geothermal project in Western Nevada called Carson Lake. This marks the first time a utility and a geothermal developer have joined forces to co develop a project. NV Energy is also working with Ormat and Kern River Gas Transmission Company to develop a 6 megawatt waste head recovery project south of Las Vegas.

The generating plant will be fuelled by waste heat from a gas pipeline compression station and NV Energy will own 100% of this project. Overall, NV Energy currently has contracts with almost 600 megawatt of renewables, including projects that are under development. We expect to announce plans for several more renewable energy projects in Nevada in the not too distant future.

The third part of our energy supply strategy calls for the addition of cleaner, more efficient traditional power generation. During the past year, we added over 1700 megawatt of natural gas fired generation state wide, and we received regulatory approval to construct and have began construction of another 500 megawatt at the Harry Ellen generating station north of Las Vegas. Since 2006, just three years ago today, NV Energy has more than doubled Nevada’s in-state generated capacity and significantly decreased our dependence on unpredictable energy markets. The benefit for our customers is greater service reliability, more rate stability and lower prices, both currently and in the long run, because these plants are more efficient in their conversion of natural gas to electricity than others in our system or available in the energy market.

During the summer, we completed construction of 600 megawatt of gas turbines peaking units at the Clerk Generating Station in Las Vegas. In October, we closed on the acquisition of the 598 megawatt Higgins Power Plant from Reliant Energy located south of Las Vegas near the California border. That is of course the plant and not Reliant Energy. Both of these are included in our forthcoming general rate case in Southern Nevada, which I'll discuss in a few moments.

In northern Nevada, our 541 megawatt facility began operation at our Tracy Generating Station near Reno making northern Nevada virtually energy self sufficient for the first time in its history. You're likely aware of our announcement just two days ago in which we postponed the building of the Ely Energy Center coal facility until carbon capture and storage technologies are commercially feasible. That decision was made after careful and lengthy consideration of increasing capital costs and the likelihood of federal climate legislation – climate change in legislation expected to be passed by this Congress that would have a significant impact on coal-fired plants. We therefore determined that the company will not move forward on construction of the coal plant until those technologies that will capture and store green house gasses are commercially feasible, which is currently projected by the end of the next decade. This reduces our capital investment in both 2009 and 2010.

However to access Nevada’s plentiful renewable resources, primarily geothermal, solar and wind, we believe it is imperative that we press forward with the transmission component of the Ely project so that Nevada and its citizens can benefit as much as possible and as soon as possible from renewable energy. We will request that the Public Utilities Commission of Nevada evaluate the 250 mile transmission line separately so that it can be placed in operation no later than 2012. This line will be the first time that we were able to interconnect our northern and southern systems, increasing reliability for our customers. Costs associated with this project are being evaluated with more detail to be included in an upcoming filing with the Public Utilities Commission.

Other issues before the PUC include our general rate case for the company's southern Nevada service area. We are seeking an overall 14.9% increase in rates. Most of the costs in this filing are related to the generation projects that Bill and I have mentioned in Southern Nevada and those projects totaled approximately $910 million of the $1.4 million in additional investments that are included in our filing. We're trying to ease the impact of the rate increase on our customers by requesting a delay in the implementation of the rates until September 1, to avoid a rate increase in July and August when our customers bills are highest. Our request to delay the rate effective date is contingent on the PUCN approval to track and differ until a future rate case the revenues that we would otherwise have collected. Additionally, we are proposing a low-income rate for customers who meet certain income qualifications. Hearings on the rate case began in April.

Nevada has certainly not been immune to the effects of the down economy, but the recent news is brighter. Home sales had picked up towards the end of 2008 and MGM Mirage’s $9 billion project CityCenter on the Las Vegas strip is targeted to open late this year and has begun hiring up to 12,000 new employees. In Nevada, the gold mining industry also remains very healthy. While we are cautiously optimistic that we will see improvement in late 2009 and 2010, we certainly can't predict when the economy will begin its recovery. However, we are certain that the long-term energy needs of Nevada will continue to grow and our employees are striving to ensure that our customers enjoy safe, reliable electric and natural gas service today, and that we will have adequate energy supplies to serve our regions in years to come.

In closing, I would like to thank all of you for your continued interest in our company. Thanks for joining us, and Bill and I are now ready to take questions.

Question-and-Answer-Session

Operator

(Operator instructions). And our first question comes from the line of Dan Eggers from Credit Suisse. Please go ahead.

Dan Eggers – Credit Suisse

Hi good morning. Just a few clarification questions around the fourth quarter from a volume – customer count, do you have the fourth quarter customer count, where you guys ended the quarter, and then what the impact of weather was in the fourth quarter versus normal?

Bill Rogers

We haven't disclosed the customer count, but we will disclose that in the 10 K, Dan. What we provide on our calls is the average customer count from year to year.

Dan Eggers – Credit Suisse

Okay.

Bill Rogers

And the residential customer count in southern Nevada as I mentioned average 2008 average 2007 grew by 0.8%. With respect to weather, had very little impact on the fourth quarter, and there were no other identifiable changes in customer usage.

Dan Eggers – Credit Suisse

And then I guess weather for all of 2008 versus normal, how did the full-year fare out?

Bill Rogers

One way to think about that is the residential sales volumes in southern America and those were down by 3.7% year 2008 compared to 2007. Total retail sales for residential customers, including and adding to that the commercial industrial were down 1.1% in southern Nevada, and residential sales in northern Nevada were actually up 0.2%. So the weather did have an extreme impact and you can see that most visibly in the residential customer sales.

Michael Yackira

And Dan, this is Michael. As a reminder, Bill did say that the unusual weather that we experienced in July of 2007 wasn't replicated in December of 2008, and that in and of itself was $0.10 per share effect.

Dan Eggers – Credit Suisse

Mike, when I think of your 08 as being a normal year, if we can call anything a normal year, then…

Michael Yackira

I think that was…

Dan Eggers – Credit Suisse

’07 was operationally good, right?

Michael Yackira

I think that's an accurate prediction. I think we have experienced abnormally warm weather for the full decade but for 2008.

Dan Eggers – Credit Suisse

Okay. On the Clark and Higgins plants, because they say cost $0.07 in the fourth quarter, you would assume that you were to just put that in the first-half of 09 versus 08, that would be a $0.14 drag for you to get really to the second half of ’09, so if I look at 09 versus 08, that is going to on net about $0.07 drag, is that fair?

Michael Yackira

Those plans are not expected to go in rates until July 1, 2009, and we have every reason to believe they will go into rates but until that point in time there will be that drag.

Dan Eggers – Credit Suisse

And $0.07 is the right number until they are into rates, is that fair?

Michael Yackira

Well, the Clark peaking plants, we closed those in the books and brought them online for our customers at the beginning of the fourth quarter, and we closed on the Higgins plant in late October.

Dan Eggers – Credit Suisse

That might be a little more than $0.07 a quarter, $0.07 to $0.09 a quarter or something, okay. And then last thoughts on ‘09 guidance, once you get the rate case done, is that a reasonable expectation?

Michael Yackira

Could you repeat that, Dan, I'm sorry?

Dan Eggers – Credit Suisse

Thoughts on timing for 2009 guidance post rate cases, is that the right approach?

Michael Yackira

Well we haven't given guidance for years, so your assumption is with regard to starts, we certainly have considered giving guidance, and we will continue to do so, but we haven't made a – we haven't made a commitment to that one, one way or the other.

Dan Eggers – Credit Suisse

Okay, thank you guys.

Michael Yackira

Certainly past the rate case will be greater indication of what our earnings power is, no doubt.

Dan Eggers – Credit Suisse

Okay, thanks.

Operator

All right. Our next question comes from the line of Brian Russo from Ladenburg Thalmann. Please go ahead.

Brian Russo – Ladenburg Thalmann

Good morning.

Michael Yackira

Good morning.

Brian Russo – Ladenburg Thalmann

You mentioned you are going to make an upcoming filing on the transmission developments, can you be more specific, maybe when we might expect that?

Michael Yackira

Brian, we're expecting to file that within the next month. We are planning to make an amendment to our integrated resource plant, and that filing will delineate the cost of the plant, the savings we expect to have for our customers, in that plant, and all of that will be available for your review when we file it, which should be within a month.

Brian Russo – Ladenburg Thalmann

Okay. And I think historically you know the transmission line that was being proposed was not only to support renewables but also the Ely Energy Center, am I'm just curious is there enough generation or capacity being built in the outskirts that makes this transmission line relevant?

Michael Yackira

That's an excellent question. When we announced the Ely Energy Center in January of 2006, we obviously had a very different position with respect to ownership of generation. And at that point, we were saying and firmly believed that the economics of the transmission line had to be coupled with the Ely Energy Center. We also said at the time that renewable energy, to meet the portfolio standard on a least cost basis for our customers, we needed to have that transmission line. A lot has happened since 2006. We’ve more than doubled our own capacity in that period of time, a couple of acquisitions have occurred, the Silverhawk of acquisition, the Higgins acquisition, the completion of the Tracy Power Plant, the completion of Lenzie, series of power plants. We started the year 2006 owning about 2500 megawatts and we ended the year 2008 owning close to 6000 megawatts. So that in and of itself we believe gives us the economic impetus is to build the transmission line and coupled with additional renewable development that has occurred in the state and more to come, we think that this is the right answer for our customers in the long run.

Brian Russo – Ladenburg Thalmann

Okay, great. And then just lastly, can you comment on your dividend policy?

Michael Yackira

We have no specific policy but as you have seen we increase the dividend after we had a better handle on what 2008 was going to look like and could look into 2009. That is the statement that we made when we announced the dividend and did the quarterly – third quarter earnings call and that is still the case.

Brian Russo – Ladenburg Thalmann

Okay great. Thanks a lot guys.

Michael Yackira

Thank you.

Operator

All right. Our next question comes from the line of Ted Haine [ph] with Catapult Capital.

Steve Fleishman – Catapult Capital

Yes, hi. It is Steve Fleishman actually.

Michael Yackira

When I heard Catapult, I figured it was you, Steve.

Steve Fleishman – Catapult Capital

Thanks Michael. A couple of questions. First I'm not sure if you can answer this, but do you have the customer growth numbers just for the quarter over quarter as opposed to the full-year?

Bill Rogers

We do not.

Steve Fleishman – Catapult Capital

Okay.

Bill Rogers

But they did actually begin to accelerate in the latter part of the year relative to the earlier part of the year.

Steve Fleishman – Catapult Capital

Okay.

Bill Rogers

And then how about sales growth?

Michael Yackira

We don't have that either for disclosure right now.

Steve Fleishman – Catapult Capital

Okay. That will be in the K?

Michael Yackira

Yes.

Steve Fleishman – Catapult Capital

Okay, great.

Michael Yackira

I take it back. It won't be in the K. The annual information is in the K, not the quarterly.

Steve Fleishman – Catapult Capital

But not the quarter, okay.

Michael Yackira

Sorry Steve.

Steve Fleishman – Catapult Capital

Okay. Then on the financing plans for 2009, Bill, you mentioned some mix of debt and equity, 350 million to 500 million, on the equity side of that, what's the trigger to do that? Is it –

Bill Rogers

Well, we certainly recognize that our balance sheet has more leverage on it today than it did at year end 2007 and we're committed to a strong balance sheet. So I think it is a number of factors including the total size of the financing need in 2009 as well as what we learned as a result from the general rate case, our earnings prospects, and the equity market, Steve.

Steve Fleishman – Catapult Capital

If you – would it be any benefit to do it before the rate case to try and get it into rates or that…

Bill Rogers

The capital structure is already set and then in the earnings release today, we had 43.8% for our southern NV utility, a common equity percentage. And the capital structure in rates on the certification debt is slightly higher than that.

Steve Fleishman – Catapult Capital

Okay. And then one last thing on the rate case, just could you just remind how the – how the regulatory lag is treated under the new law? I know you have to use historic test years, is that correct?

Michael Yackira

We use a historic test year, Steve, but include certain aspects of capital investments and costs that we can point to contractually within the request for the period between the filing of the case and the institution of rates, which is referred to as the hybrid period.

Steve Fleishman – Catapult Capital

And that would be things like adding these power plants, so to speak?

Michael Yackira

Some of that, yes. Our construction work in progress for the Harry Allen planned, as an example.

Steve Fleishman – Catapult Capital

Okay. Great, I appreciate it. Thank you.

Michael Yackira

Thank you, Steve.

Operator

All right. Our next question comes from the line of Sam Brothwell with Wachovia, please go ahead.

Sam Brothwell – Wachovia

Good morning, guys.

Michael Yackira

Good morning, Sam.

Sam Brothwell – Wachovia

Michael, just wanted to ask you, I believe there is a – another transmission project, I think it is LS Power, that is at some stage of proposal or development. I was wondering if you could comment on that versus what you guys are proposing? Are the projects mutually exclusive, whether the – obviously you're going to be making a filing, I don't know if the LS project has been approved or where it stands, but maybe just give us a little color on that?

Michael Yackira

I'd prefer if you would ask LS about his project.

Sam Brothwell – Wachovia

I want your point of view.

Michael Yackira

Our point of view is that we believe that it is best for our customers and our state to have control of that transmission line. It is going to be a very important element of our ability to share the resources that I mentioned didn't exist within the system three years ago. We think that the jurisdiction of a Public Utilities Commission is a better place for that transmission line to be adjudicated than the FERC. So we believe that there are lot of reasons why our transmission line is better. Secondly, quite frankly, LS has never built a transmission line of this magnitude and we have done that. We have invested over a billion dollars in transmission over the past 15 years and we know how to do it. So it is important to us and we think that our transmission line is a better alternative and can be done just as quickly as their line.

Sam Brothwell – Wachovia

Okay. Well thanks.

Michael Yackira

Thank you.

Operator

All right. Our next question comes from the line of Emily Christensen [ph] with RBC Capital Markets.

Emily Christensen – RBC Capital Markets

Good morning.

Michael Yackira

Good morning, Emily.

Emily Christensen – RBC Capital Markets

First of all, on the capital spending, you outlined $3 billion between now and 2013, that basically include Harry Allen and then just your normal run rate?

Bill Rogers

Harry Allen investments and other plans, investments in renewables, will all be within that five-year period.

Emily Christensen – RBC Capital Markets

Can you give any color on how much of that is renewable?

Bill Rogers

Well, I will give you color on the current year and then in the 10 K, we will disclose the five-year period. In the current year of $920 million, as I said earlier $320 million of that is for the Harry Allen combined cycle plant, $370 million for base capital, $49 million for renewable resource investments directly by our company and $30 million for the Ely Energy Center which we would certainly expect to be less than that.

Emily Christensen – RBC Capital Markets

Okay. And then turning to visitors to Vegas, apart from the home sales data, what are you seeing in terms of trend in terms of visitor volume and how much of an impact does that have on your sales?

Bill Rogers

I will open up with a comment, Emily, and I will ask Michael if he would want to add to that. I think it has very little impact on impacts to our sales. Our hotel and gaming clients are largely base load customers, so irrespective of their visitor traffic, it does not have an impact on sales, and you can see that in the relatively flat usage year-on-year 2007 to 2008. With respect to actual visitor volume, for the month of January, visitor volume was down approximately 10% compared to January 2008, and that has been really the change in visitor volume for the last several months.

Emily Christensen – RBC Capital Markets

Okay, thank you very much.

Operator

All right. Our next question comes from the line of Tom O’Neil [ph] with Green Arrow [ph]. Please go ahead.

Tom O’Neil – Green Arrow

Good morning. Just was curious on the Ely CapEx, what was spent to date and whether there was any review process for that or is that all historically approved?

Bill Rogers

Tom, if I may, the commission approved that up to 130 million and that has been revised downward per our request in 2008. Between the two companies into by year end 2008, we have invested approximately $71 million in the Ely Energy Center.

Michael Yackira

And that includes, Tom, investments in preparation for the transmission line as well as water rights.

Tom O’Neil – Green Arrow

Got it. Okay, thank you.

Operator

All right. Our next question comes from the line of Reza Hatefi [ph] with Decade Capital. Please go ahead.

Reza Hatefi – Decade Capital

Thank you. I guess a couple of people asked about customer growth, what is the expected load growth in 2009 versus 2008?

Bill Rogers

In the northern utilities service territory on a weather normalized and demand side management adjusted basis, we would expect 1% growth in 2009, and a 3% growth from 2010 to 2011 period. That's actual volume sales and then we expect customer growth of 2% for 2009 and then increasing. In the northern service territory, because we have had a couple of mines that have gone offline and one being just a distribution only customer, we are expecting a load loss of 1.5% in 2009, and then growth in 2010 and 2011 period of 0.5% to 1% relative to 2009. We expect customer growth in the northern area to be 1.2% this year increasing to 1.8%.

Reza Hatefi – Decade Capital

And the 3% you mentioned for the southern utility, 10 and 11, is that 3% in 10 and then another 3% 11, or 3% for both years combined?

Bill Rogers

Both are year-on-year numbers.

Reza Hatefi – Decade Capital

Year-on-year. And the mining company that are offline in the northern utility, are they kind of lower margin customers?

Michael Yackira

Reza, we don't necessarily disclose margin by margin, but those are high load factor customers, but not very large customers.

Reza Hatefi – Decade Capital

Okay, great. Thank you very much.

Michael Yackira

Thank you, Reza.

Operator

Our next question comes from the line of Peter Crusoe [ph] with GLG. Please go ahead.

Rick Shobin – GLG

Hi, it is actually Rick Shobin. My question goes back to what Steve asked and I have a comment on that question, it will be very helpful if you guys provided information around what happened with regards to sales trends in the quarter from a volume and customer basis. So if there is something else available, it would be very helpful.

Bill Rogers

We can answer that. We don't disclose it but volume sales were down less than 0.5% quarter to quarter, and customer growth for the quarter was similar to the customer growth for the year.

Rick Shobin – GLG

Okay. When you look at – when you characterize sales growth, do you – is it – I mean how much looking forward in the projection comes from like new customers hookups versus actual usage per customer going up? And then my second question is how do you characterize vacant homes, are those being – are those characterized as like just existing – just reduction in customer counts or are they just existing homes that don't really affect the customer usage or customer count at all?

Bill Rogers

Sure. On the first part of your question, the key driver in total volume sales growth is increases in customers which is derived from increases in population, and the key driver of that is the employment opportunities created from the increase in the hotel rooms. So the reason we talk about hotel room growth count frequently is not because of the load that we would see at the hotels because of the increase in customer count as a dependent variable of that. So we are not forecasting an increase in use per customer, we are forecasting more customers.

Michael Yackira

And, this is Michael. The use per customer is so driven especially in southern Nevada by weather that that is the key variable there year over year in every year.

Bill Rogers

With respect to I think the question on vacant homes and how does that go into users and so forth, once we install a meter to a customer, that customer is active irrespective of whether they are a normal user or low use customer. They are included as a customer for our company. As a generalization, most demographers for Southern Nevada consider about 5% of the homes to be vacant at any point in time, that is due to housing development, that is due to snowbirds, that is due to a lot of our residences who have second or third homes here. And therefore that's within our customer count and in our forecast.

Rick Shobin – GLG

And that would show up via usage?

Bill Rogers

Yes.

Rick Shobin – GLG

Okay. Thank you very much.

Operator

All right. Our next question comes from the line of Chris Ellinghaus with Shields and Company. Please go ahead.

Chris Ellinghaus – Shields and Company

Hi everybody, how are you?

Michael Yackira

Good morning, Chris.

Chris Ellinghaus – Shields and Company

Hi, Bill. Relative to the conversation we had vis-à-vis equity in December, has your thoughts versus book value changed at all since then?

Bill Rogers

I think book value is a consideration when we take a look at issuing equity but the other factors are equally if not more important.

Chris Ellinghaus – Shields and Company

Okay, thank you very much.

Operator

(Operator instructions). And our next question comes from the line of Eric McCarthy [ph] with Praesidis Asset Management.

Eric McCarthy – Praesidis Asset Management

Good morning. Sorry, another caller asked the question, but could you clarify that you will be getting full recovery on the cost you have expended to date on Ely?

Michael Yackira

It is Michael. We have approval from our Commission to spend $130 million towards the development of the Ely Energy Center. We, as Bill mentioned, reduced the amount that was originally requested when we received the approval back in 2006 for the development of Ely, and we spent significantly less than that. We haven't determined how yet to ask for recovery of those investments, nor how much have we delineated to our Commission, how much of those investments are ongoing regarding the transmission line. That is something we will determine in some time in the future, but it is certainly not – it is not material and it is nowhere near the $130 million that they had approved.

Eric McCarthy – Praesidis Asset Management

Thanks.

Operator

All right. And we do have a question from the line of Wen-Wen Lindroth from PIMCO Capital. Please go ahead.

Wen-Wen Lindroth – PIMCO Capital

Hi, this is Wen-Wen Lindroth. Could you please outline what your liquidity is currently?

Bill Rogers

Wen-Wen, it is Bill Rogers.

Wen-Wen Lindroth – PIMCO Capital

Hi, Bill.

Bill Rogers

I will outline what it was relative to year-end. At the southern end of the utility, we had $193 million of liquidity at year-end, and then in the first week in January, we closed on a $90 million supplemental revolving credit facility, and we sold $125 million of bonds. So we added $215 million to that $193 million number. At the northern utility, we had year end liquidity of $183 million at year-end, and we subsequently and in the early part of January converted 40 million of auction rate notes to variable rate demand notes, and that did use 40 million of that liquidity.

Wen-Wen Lindroth – PIMCO Capital

And the beginning liquidity for Northern Nevada was how much again?

Bill Rogers

183. Our total – we mentioned it early in the call, our total liquidity was impacted by pension contribution that we made to our funds in late year 2008 as well as $39 million of debt buybacks at the holding company in late 2008.

Wen-Wen Lindroth – PIMCO Capital

So for the southern utility, it is about 400 million right now, and 140 million at the northern utility?

Bill Rogers

The southern utility – yes, that's a good number.

Wen-Wen Lindroth – PIMCO Capital

Okay.

Bill Rogers

But I would not say right now, what I'm sharing with you is post year and post closing of those two actions in the first week in January.

Wen-Wen Lindroth – PIMCO Capital

Okay. And then did you mention that you made look to refi revolver draw downs?

Bill Rogers

Yes. We're not in the habit of using our revolving credits as permanent capital. We did use our revolving credit at the southern utility to assist in the financing to close on Higgins Generating Station, and we have subsequently received an order from the Commission so that we now have $1.25 billion in financing authority for the southern utility to refinance in the bond markets and now the revolving credit.

Wen-Wen Lindroth – PIMCO Capital

Okay. And how much is drawn down and what is the total capacity?

Bill Rogers

I have discussed what our liquidity was in the original facility prior to supplemental facility was $600 million at the southern utility.

Wen-Wen Lindroth – PIMCO Capital

How much is drawn down currently?

Michael Yackira

We don't disclose that Wen-Wen on an interim basis. We just disclose those things quarterly.

Wen-Wen Lindroth – PIMCO Capital

Okay. And so you'll disclose what it was at the end of the year?

Michael Yackira

Yes.

Wen-Wen Lindroth – PIMCO Capital

Okay, thank you very much.

Operator

All right. We do have a follow-up question from the line of Ted Haine with Catapult Capital.

Steve Fleishman – Catapult Capital

Hello. It is actually Ted this time, not Steve.

Michael Yackira

He’s just trying to fool us.

Steve Fleishman – Catapult Capital

Exactly. I just wanted to follow up on some of the growth – the volume growth numbers. I just wanted to reconcile because it sounds like you're saying that the fourth quarter of 08 volume growth was 0.5%, and that you are cautiously optimistic of a recovery late in 2009, but then I think you said the volume growth assumptions were 2% in the South and 1.2% in the north, and I was just trying to – are you assuming more of 0.5% growth in the near term and then a big pickup at the end of the year, or you just have – can you kind of reconcile that jump if the economy doesn’t come back?

Bill Rogers

We don't really forecast low growth or energy demand on a monthly or quarterly basis. We do it on an annual basis, but just to repeat what we said, we are forecasting for 2009 in the South growth of 1% and then in 2010 and 2011, growth on an year-on-year basis of 2% to 3%. On the north, we're actually forecasting a loss this year due to a mining company going offline and becoming a distribution only company. Did I clarify it for you?

Steve Fleishman – Catapult Capital

I guess a little bit. It just seems like it was slower in the fourth quarter and then it seems like it's almost picking up next year relative to your views on the economy, so I guess that is a little more confusing?

Michael Yackira

Yes. It was marginally slower in the fourth quarter, lost about 0.5% due to quite frankly more comfortable weather.

Steve Fleishman – Catapult Capital

Okay. So there was some weather in the fourth quarter that hurt?

Bill Rogers

Right. But the big driver in the 1.5% change downward in load in 2008 relative to 2007 was the summer and you can see that in the residential customer sales.

Steve Fleishman – Catapult Capital

Got you. Okay, thank you.

Operator

All right. The next question comes from the line of Raymond Long [ph] with Goldman Sachs. Please go ahead.

Raymond Long – Goldman Sachs

Hey guys. I am going to ask my primary question about liquidity and I will do the math on how much you have in the bank lines, but a couple of other questions, can you talk a little bit about pension costs and what potential contribution you may be looking at for 2009 and talk also about your uncollectibles and what you are seeing there? Thanks.

Bill Rogers

I will start with pension and I will speak to both 2008 as well as 2009 if I could, Ray.

Raymond Long – Goldman Sachs

Great, thank you.

Bill Rogers

In 2008, our pension and OPEB expense was approximately $30 million, and about 60% of that is expensed and about 40% is capitalized. And we had intended to contribute $30 million to our plans and that was disclosed in our 2007 Form 10K. We did contribute $30 million in September of last year, and in late December of last year we contributed another $70 million for $100 million total. With respect to the 2008 pension expense or overheads, we are still calculating those, but based upon our estimates to date, it will be approximately $70 million. And the increase from 30 to 70 is entirely a result of the change in the funding liability. The other $70 million, again approximately 60% of that is expensed, and 40% is capitalized. Given that that is the overhead rate (inaudible) plan and our thinking with respect to cash flow in our modeling, we intend to contribute $70 million to those plans. That would be done in late 2009 and then after we take a look at all the mix of factors that impact our cash flow. Before I go to discussing accounts receivable reserves, any other questions you have there?

Raymond Long – Goldman Sachs

I think that covers it.

Bill Rogers

Okay. With respect to the reserves for bad debt, I think that is really the question there. In 2008, we wrote off $20 million of bad debt and we charged $17 million to income, and that's an increase in the charge to income relative to the $11 million that we charged in 2007. At year end, we have approximately $33 million in bad debt reserves as a contra account within our receivables balance on the balance sheet.

Raymond Long – Goldman Sachs

33, did you say?

Bill Rogers

Yes, sir.

Raymond Long – Goldman Sachs

Okay. Great, thanks Bill.

Operator

And that was our last question.

Michael Yackira

Well, thanks everybody for joining us this morning. We look forward to seeing you soon and continuing to talk about the future of our company and the future energy needs of our state. Thanks very much.

Operator

And ladies and gentlemen, this conference will be available for replay today after 9:30 AM Pacific through midnight March 11, 2009. You may access the AT&T teleconference replay system at any time by dialing 1800-475-6701 and entering the access code 983482. International participants can dial 320-365-3844. Those numbers again are 800-475-6701 and 320-365-3844, entering the access code 983482. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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