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NV Energy, Inc., (NYSE:NVE)

Q3 3009 Earnings Call

October 26, 2009 10:00 am ET

Executives

Britta Carlson - Manager, Investor and Shareholder Relations

Michael W. Yackira President, Chief Executive Officer, Director

William D. Rogers Chief Financial Officer, Corporate Senior Vice President, Treasurer

Analysts

Dan Eggers - Credit Suisse

Greg Gordon - Morgan Stanley

Paul Patterson - Glenrock Associates

Brian Russo - Ladenburg Thalmann

Emily Christie - RBC Capital Markets

Michael Lapides - Goldman Sachs

James Dobson - Wunderlich Securities

Phyllis Gray - Dwight Asset Management

Edward Heyn - Catapult Capital Management

Steve Fleishman - Merrill Lynch

Operator

Good morning ladies and gentlemen. At this time I would like to welcome everyone to the NV Energy 2009 Third Quarter Earnings Conference Call. (Operator Instructions). As a reminder, today’s call is being recorded. With that being said I will now turn the conference over to Britta Carlson. Please go ahead.

Britta Carlson

Good morning and thank you for joining us to review NV Energy’s results for the third quarter of 2009. In addition to the press release that was issued over the wire earlier today, we expect to file our third quarter Form 10-Q for the 2009 period with the SEC later this week.

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 periods ended March 31, 2009 and June 30, 3009 and the Form 10-K for the year ended December 31, 2008. 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 is posted on our company web site at www.nvenergy.com.

With me this morning are Michael Yackira, President and Chief Executive Officer, and Bill Rogers, Senior Vice President and Chief Financial Officer. Bill will begin our call this morning by reviewing our third quarter 2009 results and discuss key financial drivers and trends. Michael will then provide an update on the corporate strategy, including recent industry developments.

I will now turn the call over to Bill Rogers.

Bill Rogers

Thank you, Britta. Good morning everyone and thank you for joining us. In our earnings press release we included our company’s income statements, certain financial highlights from our balance sheets and operating data. Rather than repeat our financials I will begin with a review of our earnings, gross margin, and revenue drivers on a quarter-to-quarter basis. Following this review I will discuss forward-looking load forecasts, capital expenditure plans, and cash flow.

As released this morning, NV Energy is very pleased to report net income of $183 million or $0.78 per share in the third quarter of 2009, as compared with earnings of $151 million or $0.64 per share in the third quarter of 2008. The earnings increase in the third quarter of 2009 versus the same 2008 period was the result of both top line growth from the recent rate case and cost discipline.

With respect to our revenue, we are pleased that gross margin increased approximately $89 million or 19%. Improvement in our revenue margin, or gross margin, was a result of higher general rates in Southern Nevada effective July 1st of this year. As previously discussed, this was largely the result of investments in generating facilities that were completed in 2008. Our NV Energy Southern territory contributed 77% of consolidated gross margin and the electric and gas businesses of NV Energy’s northern service territory contributed 22% and 1% respectively.

Our retail electric sales in Southern Nevada were down 2.9% in the third quarter of 2009 compared to 2008. Northern Nevada retail electric sales declined 5.7% in the same quarter.

Residential customer growth is essentially flat on a year-on-year basis.

As noted in our earnings press release we have had growth in commercial and industrial customers. More importantly, due to the business lines of our industrial customers, namely hotels, gaming, and mining, we have not lost any industrial customers or load and we do not anticipate any loss in industrial customers looking ahead.

The weather was not materially different quarter-to-quarter therefore the volume sales decline was the result of changes in customer usage patterns not directly attributable to weather.

Our system peak for 2009 was 5,586 megawatts in Southern Nevada and 1,554 megawatts in Northern Nevada. The Southern Nevada 2009 peak was 1.5% higher compared with our 2008 peak of 5,504 megawatts. Summer weather in 2009 was comparable to summer weather in 2008; therefore we believe the system peak increase provides further evidence of overall customer stability. We attribute this to stable commercial and industrial sales which offset a modest decline in residential sales.

On the cost side, we are pleased with our expense discipline in this lower growth environment. On a quarter-to-quarter operations and maintenance expenses were essentially unchanged despite owning and operating more plant, specifically Clark and Higgins and despite having higher pension expenses. Continued expense discipline will be imperative to achieve desired results in this low-growth environment.

Having reviewed the quarter-to-quarter comparison I will now discuss forward-looking load forecasts, capital expenditure plans, and cash flow.

With respect to our forward-looking load forecasts, although it remains difficult to project the timing of improvements in our economy we continue to be confident in the longer-term prospects for Nevada. As we have disclosed at various investor events over the past few months, we view the low growth to be no less than 0% and no more than 2% in the 2010 and 2011 period on a year-to-year basis.

As previously stated, we have experienced no loss in industrial load and we are adding industrial customers; therefore the rate of growth in our load will be determined by the growth in residential customers. The key indicators to see long-term growth will be improving employment at hotel and gaming properties and the return of the construction business which will take some time. We are seeing signs of a modestly improved local economy. Total employment across the state and in Las Vegas increased in September when compared to August. Existing and new home sales increased on a year-on-year basis throughout the quarter. More importantly in Southern Nevada the median home sales price in recent months has increased. As the Las Vegas employment picture and housing market improves we do expect to see a return of the residential and commercial construction market; however that trend to higher construction employment is not currently visible.

Now I would like to turn your attention to our investment and capital formation plans.

We are affirming our 2009 estimated cash consumption requirements to a range of $750 to $775 million. As a reminder, in our 2008 Form 10-K we disclosed 2009 cash consumption requirements of $920 million; therefore the year-to-date reduction for the year is likely to be $145 to $170 million.

As an update from our second quarter call, we are further reducing our 2010 capital expenditures by $50 million to $600 million for the year and we are now in a position to provide you with our 2011 and 2012 estimated capital expenditures. These estimates are based upon approved resource plan investments and our estimates of base capital.

The consolidated cash construction requirements, including Harry Allen are estimated to be $490 million for 2011 and $450 million for 2012.

In summary, based on current forecasts and approvals our 2010 through 2012 capital expenditure budget is approximately $1.54 billion. To put this in perspective this is approximately the same for the single 2008 year. As we previously discussed, we have one major construction project under way, the Harry Allen combined cycle plan. The estimated capital expenditures associated with the Harry Allen plant will be $212 million and $24 million in 2010 and ’11 respectively. This plant is expected to be completed in 2011.

Presented in the financial highlights contained within our earnings press release the balance sheet improved from the second quarter 2009. We expect the balance sheet to continue to improve over the quarters to come. As of today we have stronger liquidity with revolving credit borrowings of only $10 million. We have paid down $131 million in debt since the end of the second quarter; as a result we currently have over $1 billion in combined liquidity and our exposure to interest rate movements is minimal with only 13% of our total debt subject to variable rates.

With the reduction of the 2010 capital investment and our expense discipline we have modest external financing requirements over the next three years. With our known and resource plan approved capital investments we expect to have an external financing requirement of only $250 million over the three year 2010 to 2012 period. This does not include the refinancing of a debt maturity in 2011. Through our retained earnings over this period we expect the balance sheet to progressively improve.

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. Good morning everyone and thanks for joining us. I am pleased with our third quarter results especially in light of the economy. Growth has slowed in Nevada as it has everywhere else in the United States, but as Bill mentioned earlier, unlike most other utilities we have not lost industrial load. In fact, we are expecting some near term growth in industrial load and employment in Southern Nevada: Planet Hollywood recently finished an addition; the mass of MGM Mirage city center project is nearly completion and in 2010 the Cosmopolitan is expected to open its 3,000-room resort.

Never the less business realities point to the need for change and an important key to success for every business, especially in these turbulent economic times, is to control costs without sacrificing the quality of service to customers. I am pleased to tell you that not only have we been able to control costs and maintain our level of customer service, we have continued to invest in projects that will enhance the Nevada energy landscape enabling us to serve our customers better and more efficiently.

A keen example of this investment is the addition of new, highly efficient electric generating facilities throughout our system. We have said this on prior calls but it bears repeating, since the end of 2005 we have more than doubled our own generation adding approximately 3,300 megawatts statewide, but the number of employees required to operate the total generating fleet has been reduced by 10% over that same period and we now produce approximately 2/3 of our customer’s energy needs from own generation; a markedly different position from just a few years ago.

This is good news for our customers regarding the costs attributed to running our generating facilities. Also, the improved efficiency of our fleet with these additions coupled with the declining fuel and purchase power prices benefited our electric customers with rate decreases that went into effect earlier this month. The Public Utilities Commission of Nevada approved an electric rate decrease of 2.7% for our Southern Nevada customers and a 7.6% decrease for our customers in Northern Nevada. Declining natural gas prices also helped customers of [Barochal] Distribution Company in the Reno-Sparks area of Nevada who saw a rate decrease of 8%.

The performance of our plants has been recognized within the utility industry. In September Power Magazine announced that our Clark generating station in Las Vegas received the magazines Top Plant of 2009 distinction. Clark was a Brownfield site at which we added 600 megawatts of peaking capability in 2008, doubling the stations output while also cutting its overall emissions by about 50%. It is a plant that has run well for a long time and was also recognized for its incredible safety record of no lost time accidents over the past 15 years.

In addition, we were recently recognized by another trade publication for our achievements in power generation. The Combined Cycle Journal recognized NV Energy with its first ever Pacesetter Utility Award for building and acquiring a fleet of world class, combined cycle power generators.

Our customers have also experienced the benefit of expansion of our energy efficiency programs and later this year we will be looking to further enhance these programs. We are required to file an integrated resource plan with our commission every three years and we will be filing that IRP for our Southern Nevada service territory on December 1st. Our plan includes requests for approval to continue offering our customers a wide range of energy efficiency and conservation programs. As a reminder, one quarter of our states portfolio standard can be met through these cost effective programs. It also seeks approval for purchase power contracts with renewable energy providers to meet our states portfolio standard.

One of the most noteworthy aspects of our filing is our plan to construct the one Nevada transmission line or online project, a 500-kilovolt line that will for the first time establish a direct electrical connection between the Northern and Southern parts of our state. With the requisite approvals and the support of the Department of Interior, which has selected this project for expedited federal permitting, will be ready to start construction and expect to have the line in service by late 2012.

While this IRP does not ask our commission to approve any new traditional generating facilities, based on prior approval we are constructing a 500-megawatt combined cycle plant at our Harry Allen generating station north of Las Vegas with an in-service date by the summer of 2011.

I believe, as many in our industry do, that new technology will provide more information to our customers about their energy usage and enable them to take steps to reduce it. Smart meter and smart grid technology could create dynamic and dramatic change in providing that information. We have been actively studying the potential customer benefits of such technology through a project that we call Advanced Service Delivery or ASD. If implemented ASD could produce significant opportunities for operational savings as well as provide real-time information to customers about their usage and the potential benefits of new electric service options.

ASD would encourage our customers to conserve energy and shift energy use away from peak summer time afternoon hours. This is particularly important in Southern Nevada with the spikes in demand we experience during the summer months. ASD would give our customers greater control over their energy use and help us manage Nevada’s electrical system more efficiently.

In August we applied for a $138 million grant from the Department of Energy to support ASD. Since NV Energy serves almost 95% of our state, we are one of the few utilities that could accomplish this technology shift in virtually an entire state. If we are awarded the grant we would expect to implement the project in its entirety by the end of 2012 converting almost 1 ½ million electric and gas meters across the state. PUCN approval would be required to accomplish this.

We are already making improvements in the way we interact with our customers through the internet. We currently have about ¼ million customers signed up to use our online services and we recently introduced online billing eliminating the need for paper bills. We are pleased by our customer’s response to this new feature. Paperless billing combined with our online energy audit and bill analysis tools help our customers in managing their energy consumption and costs.

Our cost control efforts have been good, but we must continue to find new opportunities. As an example, we have recently announced a voluntary severance incentive for our employees and we expect that process will be completed by the end of the year. This will assist us in controlling our operating and maintenance expenses beginning in 2010. We also expect that we will find more opportunities for savings without compromising customer service.

Finally, I would like to provide an update on our efforts to expand our renewable energy portfolio.

Under the terms of Nevada’s portfolio standard 25% of the energy we provide to customers must be from renewables by 2025. As you have heard on past calls, Nevada is leading the way in solar and geothermal energy and we are adding to our portfolio. In August we announced a long-term purchase power agreement for energy produced from a 26-megawatt Photovoltaic plant planned north of Las Vegas that should be completed by the end of 2010. There are also a number of new developments on the horizon including the proposed $250-megawatt Solar Millennium project in Southern Nevada and the 200-megawatt wind project called China Mountain which are both undergoing environmental review.

Our company is positioned well for the future despite the economic down turn and we will continue to find ways to lower our costs and improve our performance to benefit our customers and our investors.

Now Bill and I are ready to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Dan Eggers with Credit Suisse.

Dan Eggers - Credit Suisse

Michael just on the CapEx plan and the numbers you guys laid out today, that CapEx plan does not include the online transmission project is that correct?

Michael Yackira

That is correct. We don’t include in our capital expenditure disclosures anything that has not been approved through the IRP process and since we are just asking our commission for approval of that, assuming we do have approval then that disclosure will be made in 2010.

Dan Eggers - Credit Suisse

Then I guess the timing for an approval in ’10, you said by the end of ’12 for that project. Is the expedited process just because it’s on federal land it should have less difficulties getting built than traditional state-to-state encumbered lines?

Michael Yackira

Well Dan I would say it is the opposite of that but for recent activity by the Department of Interior and Senator Reid. Within the past several months the Senator and Secretary Salazar made announcements about expedited permitting treatment on federal lands for certain projects related to renewable energy including transmission to move renewable energy primarily in the west, so this project qualified for that expedited treatment and that is a reason that we believe that we can have the line in place by late 2012.

Dan Eggers - Credit Suisse

Do you see any challenges to getting the equipment for the projects kind of start competing with other people who are building lines at the same time?

Michael Yackira

We don’t believe so.

Dan Eggers - Credit Suisse

Then just to clarify from an IRP CapEx plan perspective none of the renewable projects you guys are looking to partner in on, none of those are in CapEx either?

Bill Rogers

They are included in there to the extent that they have been approved by the Commission and approximately $110 million through 2011 is within those CapEx numbers.

Dan Eggers - Credit Suisse

So once you get the final review on China Mountain and all of that then that number will presumably go up further?

Bill Rogers

Then we would take that forward to the Commission and the resource plan approval process and if approved by our commission then that would be additive.

Dan Eggers - Credit Suisse

Once you get the permit you would go into kind of a mid-term IRP process is that correct?

Bill Rogers

Technically it would be an amendment to the existing and integrated resource plan.

Dan Eggers - Credit Suisse

Then the permits are expected late this year or early next year?

Bill Rogers

That is the expectation yes.

Dan Eggers - Credit Suisse

Okay, so then it would take six months after that for the IRP to be approved once you file?

Michael Yackira

An amendment is shorter. An amendment is 135 days, so we would ask for that approval through a different process from the three-year process which takes longer.

Dan Eggers - Credit Suisse

I got it, thank you.

Operator

Your next question comes from Greg Gordon with Morgan Stanley.

Greg Gordon - Morgan Stanley

How much of the $222 million rate hike actually rolled into rates in the quarter?

Bill Rogers

About 40% of that would be in the third quarter of the year.

Greg Gordon - Morgan Stanley

Thank you. You talked about the O&M being unchanged despite the impact of a new plants pension. Can you take us down one more level of detail and tell us how much O&M went up because of new plants pension and then what the offsets were and whether or not you consider them 1x or sort of just systematic and ongoing?

Bill Rogers

Certainly I will. The pension expense is going to stay with us; it is approximately $25 million a year or just over $6 million a quarter or $0.02 per share. So that stays with us and it stayed with us when we had the remeasurement date and calculated FAS 87 at the end of the year.

On the O&M side with respect to these two plants the run rate is approximately $3 million a quarter. With respect to the discipline in O&M I think it is important to recognize that we now have a fleet of very efficient gas plants in the south and we can optimize those maintenance expenses in a way that we have not been in a position to do in prior years.

Greg Gordon - Morgan Stanley

Okay so you basically found $9 million of savings, because you had $6 million in higher pension, $3 million in higher ongoing new plant expense, but you were able to keep O&M flat.

Bill Rogers

Yes.

Greg Gordon - Morgan Stanley

I have one more question on that topic. You said that you announced a voluntary severance program. How many employees are you targeting?

Michael Yackira

We are not targeting any number. We offered this voluntary severance program to all of our employees, including our bargaining unit employees, and there is a period of time that they have to make a decision whether or not they want to opt in to that program; that time is now ticking and that is why we say by the end of the year we will have a better handle on how many people will actually take the voluntary severance.

Greg Gordon - Morgan Stanley

When is the deadline?

Michael Yackira

It will be before the end of the year. Some time in November we will know, but we expect that by the end of the year the people who are taking the voluntary severance will no longer be employed by the Company.

Greg Gordon - Morgan Stanley

This is both in the North and the South?

Michael Yackira

That is correct.

Greg Gordon - Morgan Stanley

What is the total employee count?

Michael Yackira

We are not going to…

Greg Gordon - Morgan Stanley

I am just asking overall right now the total employee count.

Michael Yackira

There are about 3.100 employees in total.

Greg Gordon - Morgan Stanley

Great and I have one final question. As we look at Q4 operating costs versus Q4 last year should we expect that you will be able to achieve similar results that you achieved in Q3 in terms of keeping your O&M flat?

Bill Rogers

Greg, as I think you know we don’t provide forecasts, but we reviewed our intent to keep down O&M costs at our company.

Greg Gordon - Morgan Stanley

Thanks Bill.

Operator

Your next question comes from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates

I am just wondering if there is any sort of sense we should get for 2010 in terms of when we look at pension, when we look at CapEx and everything, all of the planned additions, is there any directional ID we should think about in terms of O&M with all of these moving parts in 2010?

Bill Rogers

The intent in 2010 with our load growth is to keep O&M flat relative to 2009. With respect to items such as pension expense we continue to fund there. We have enjoyed good returns in the marketplace, but it is too early to judge as to whether it will actually go down for the 2010 year. But, that is our driver for productivity is to keep O&M in line with load growth.

Paul Patterson - Glenrock Associates

Okay and then on the $250 million of external financing from 2010 through 2012, that doesn’t include the CapEx for the projects that have not been approved yet, is that correct?

Bill Rogers

That is correct. That $250 million is based upon currently approved resource plan projects and our estimates of base capital. It does not include a refinancing at the Southern utility in 2011, nor does it include resource plan projects that might be approved at some point in time in the 2010 or for that matter 2011 year.

Paul Patterson - Glenrock Associates

Okay so assuming that those things aren’t approved and also that you guys were indicating that your equity ratio that your retained earnings will be growing during that period of time should we think about any need for equity during that period?

Bill Rogers

I think it very much depends upon our overall capital expenditures and the rate of growth here in our state as well as approvals, but based upon the $250 million that is currently forecast the retained earnings will be higher than that external financing requirement, so there is not an apparent need for equity based upon that number.

Paul Patterson - Glenrock Associates

All right and that might change if we have a big increase in CapEx due to some new projects being approved?

Bill Rogers

Right, I mean I am not sure I would use the adjective big. It is certainly something that we can manage. In any event I don’t see it happening in the way of large dollars in 2010.

Paul Patterson - Glenrock Associates

Okay and the $50 million reduction in CapEx, the additional reduction, is that just more sort of scrubbing the numbers and stuff or is there anything that sort of jumps out as something that led to the CapEx reduction?

Bill Rogers

I think scrubbing the numbers is a fair way to characterize it. It is within what we call base capital and relates to rate of growth of residential, commercial, and industrial customers.

Paul Patterson - Glenrock Associates

Okay great, thank you very much.

Operator

Your next question comes from Brian Russo with Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Does your current CapEx profile that you laid out is that captured as 0% to 2% growth or is there some more flexibility say if growth is 0% versus 2%?

Bill Rogers

It does capture that 0% to 2%. That is not to say there is not more flexibility. We continue to take a look at our CapEx as part of our overall investment decision making and cost discipline, but it is embedded within that number.

Brian Russo - Ladenburg Thalmann

Okay are there any operating cash flow and CapEx figures for this third quarter that you can provide to us? I think in previous calls you mentioned that you would be free cash flow positive in the second half of ’09.

Bill Rogers

We remain free cash flow positive in the second half of ’09. We are pleased with our cash flow. The best indicator of that is the fact that we have been paying down debt and there is no change. We have now found ourselves in a place where we don’t have any more debt to pay down, with our cash on our books is greater than the $10 million we are borrowing on our revolving credit facilities.

Brian Russo - Ladenburg Thalmann

Okay and then just lastly you mentioned the 25% renewable standard by 2025. Can you give us a sense of how many megawatts of capacity you will need to meet that and what your thoughts are on Pap’s versus self-billed?

Michael Yackira

It is impossible for us to be able to talk about it in terms of megawatts of capacity because as you know the intermittency of wind and solar is so far different from geothermal and our desire with our online project is to retain as much of geothermal in our state for the benefit of our customers, for the benefit of meeting the portfolio standard because of its lack of intermittency; because it looks like a regular old power plant to us and its costs. So, to suggest that we know how many megawatts because this is based on energy, for example if they said 25% of your capacity must be from renewables that would be easier to calculate than 25% of the energy coming from renewables because of the mix of the different types of renewable projects. So, it is impossible to judge, but that is the rational for online is that by getting online in service we can retain those renewables that are more like traditional power plants in the form of geothermal and at a lower cost than other renewable energies to meet that portfolio standard.

Brian Russo - Ladenburg Thalmann

Okay, thank you very much.

Operator

Your next question comes from Emily Christie with RBC Capital Markets.

Emily Christie - RBC Capital Markets

Following on that last train of thought, do you have any updates on the Carson Link project with Omak?

Michael Yackira

Not at this stage.

Emily Christie - RBC Capital Markets

In terms of the load forecast do you have expectations beyond 2011 at this point?

Bill Rogers

The longer-term growth rate in Southern Nevada is approximately 3%, whether that is population growth rate, residential customers, or load. There is no reason that we have to believe that we wouldn’t return to that at some point in time. I think it is premature for us to give a forecast with respect to whether that point in time is 2012 because although it may be clear that employment prospects are improving and the housing market is improving we still do not have the construction market that we enjoyed several years ago, probably in advance of a lot of the homes that were built.

Emily Christie - RBC Capital Markets

Okay in terms of the DOE grant application for the advance service delivery, when do you expect to hear back on that?

Michael Yackira

We expect to hear back certainly before the end of the year and I think the DOE has claimed that we will know sometime in November.

Emily Christie - RBC Capital Markets

All right great. Thank you very much.

Operator

Your next question comes from Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs

When does the board reevaluate the dividend level?

Michael Yackira

We have said in the past that we look at the dividend post third quarter results, so our regularly scheduled board meeting is coming up at the end of this week and I am sure that will be part of our discussions during that board meeting.

Michael Lapides - Goldman Sachs

How should we think about your targets not necessarily short-term but long-term both for pay out ratio and for credit metrics whether it is debt to Cap or FFO to interest. I am just trying to put in sync that portion of the cash flow and balance sheet profile over the next two to three years?

Michael Yackira

What we have said on prior calls and it remains the case is that we expect that our dividends will grow relative to our earnings growth. We don’t have a specific dividend policy, but we expect that our dividend pay out ratio will be not much greater than 50%.

Michael Lapides - Goldman Sachs

I got it. The last item is deferred energy on the balance sheet; going forward from where you sit at the third quarter is that going to be a source of cash or a use of cash?

Bill Rogers

That very much depends upon commodity prices for the remainder of the year. Currently away from other settlements the deferred energy funds that we should be returning to our customers is approximately $140 million between the two companies and you will see that in our third quarter Form 10-Q. Assuming that nothing changed in the commodity markets with respect to forward price curves those funds would be returned to our customers beginning in late 2010.

Michael Lapides - Goldman Sachs

Meaning you will only start returning those, so you have a deferred energy net liability on the balance sheet right now which won’t start unwinding until third or fourth quarter of 2010?

Bill Rogers

That is correct and the customers are earning a return on that, you will see that within our income statement. The size of that and the timing of the return do matter from quarter-to-quarter, but all of that is captured within the $250 million, the external financing requirement I referenced earlier.

Michael Lapides - Goldman Sachs

Okay thank you guys. I will follow up off line.

Operator

Your next question comes from James Dobson with Wunderlich Securities.

James Dobson - Wunderlich Securities

We talked about this on the second quarter call I think, but additional CapEx cuts relative to the numbers you have announced today Bill, are these numbers we should think, and I think you suggested this to an earlier question that you continue to evaluate these numbers, but do you expect that these go down from here?

Bill Rogers

We continue to evaluate them, but I don’t think they would go down materially.

James Dobson - Wunderlich Securities

Okay great. Next on CapEx and I think part of this may be explained by the plans, but when you dig in a little bit it seems like it was almost a Tale of Two Cities, you sort of had the northern companies have a dramatic increase in O&M and then the southern territories have a modest decrease. Can you get us inside the granularity of that disparity?

Bill Rogers

There are a couple of elements that we are certainly able to disclose and are aware of: One would be the relative pensions and the OPED expenses in Northern Nevada relative to Southern Nevada they are higher, so that goes through O&M. The second is that the Southern Nevada fleet is much larger and similar and therefore there are probably more opportunities with respect to fleet maintenance expense relative to Northern Nevada.

James Dobson - Wunderlich Securities

I got it, and then we shouldn’t take from that any additional opportunities in the north relative to the south on an ongoing basis to meet the 2010 goal of roughly flat?

Bill Rogers

Rest assured we are looking for those opportunities.

James Dobson - Wunderlich Securities

Great and then my last question Bill, I may have missed t his but were there any results from the tender you did on the action rate securities and sort of what sort of capital requirements will be relative to that?

Bill Rogers

There were results. Just to review this for the benefit of everybody on the call, we have approximately $400 million of tax-exempt auction rate debt outstanding. We offered to any and all of those holders a purchase price of $0.90 on the dollar with no financing conditions. We had approximately $10 million of those that were tendered to us and we used cash on hand for that. That offer has since expired and we are very pleased to keep that debt on the books. As I noted in my prepared remarks we have very little variable rate interest debt and that is the cheapest cost of debt in our system.

James Dobson - Wunderlich Securities

Great, thank you very much.

Operator

Your next question comes from Phyllis Gray with Dwight Asset Management.

Phyllis Gray - Dwight Asset Management

Do you have information on vacant home statistics and trends in your service territories that you could share with us?

Bill Rogers

I will share some directional information with you. We don’t specifically track vacant homes at our company. We do track no use and low use customers. In the single-family residential market we have seen a decline in both the number of no use customers, so that is customers that are not getting a bill, as well as low use customers. That has been going up over the last two years and the last two quarters we have seen a modest decline in that and we feel that that has stabilized. I think that is supported by the increase in the number of home sales that we have seen in Southern Nevada. Existing home sales are anywhere from 4,000 to 4,500 a month; that is a very significant increase over 2008. Whether this trend continues and it comes down or not is unclear.

Phyllis Gray - Dwight Asset Management

Thank you and also could you go over again the timeline for your IRP update process and filing new IRPs for additional spending that might occur over the next few years?

Michael Yackira

We are required by statute to file a, what we would call a full blown integrated resource plan, one that includes a lot of detail with respect to load forecasts, 20 year horizons, and then something called a three year action plan. A three-year action plan is where the commission is giving us the approval to spend capital. During that three-year period of time things do come up, whether it be renewable energy projects or renewable energy investment opportunities, changes in demand site programs etc… and we have the opportunity during that three year period to file amendments to the existing approved IRP.

The time frames for the filings are normally in July. For us it is December this year because we withdrew our July filing for the southern utility, so we are refilling our IRP in December, but normally the filing is made for the southern utility in July and it would have been July of 2009 and then the northern utility would be July of 2010. The time frame for approval is 180 days from the filing. When we file an amendment the approval process is 135 days, so there is a shorter period of time because there is less information involved in review by both our public utilities commission as well as the interveners in the case, primarily the consumer advocate in our state.

Phyllis Gray - Dwight Asset Management

Okay so that means you will have an amendment filing in December and then another one in July for the other part of your service territory?

Michael Yackira

No, the July filing that we made for the southern part of the service territory was withdrawn and in its place the full filing will be made by December 1st.

Phyllis Gray - Dwight Asset Management

Both service territories?

Michael Yackira

Just for the southern service territories. July of next year we will file for the northern service territory, the full IRP.

Phyllis Gray - Dwight Asset Management

A full IRP as opposed to an amendment?

Michael Yackira

That is correct.

Phyllis Gray - Dwight Asset Management

Okay and then that would have the 180-day?

Michael Yackira

That is correct.

Phyllis Gray - Dwight Asset Management

Thank you.

Operator

Your next question comes from Edward Heyn with Catapult Capital Management.

Edward Heyn - Catapult Capital Management

Michael, could you just give us some color on when you originally were talking about addressing the dividend after the third quarter on in the second quarters, your tone on the outlook for low growth seemed a little more certain and was a little more bullish, it was probably in the 2% to 3% range and now you are in the 0% to 2% range. How does that uncertainty play into how the board looks at the pay out ratio and the long-term growth of the dividend?

Michael Yackira

I think what we said on the second quarter call still holds in that we have seen a decline. We expect that that decline in rate of growth, we expect that growth to be between 0% and 2% as Bill said, and that will certainly be a factor in the decision that the board will make as to whether or not we should be changing the dividend. We will be making that decision by the end of this week, but I don’t think anything has materially changed from the time we last talked about dividends and now.

Edward Heyn - Catapult Capital Management

Okay fair enough. Thanks a lot.

Operator

Your last question comes from Steve Fleishman with Merrill Lynch.

Steve Fleishman - Merrill Lynch

My question is in regards to the cost savings and lower CapEx. Would you say that those are already baked into the EPS trend lines that you have given out in your presentations i.e. like at 0% you hit about $1.00 in that presentation, or are they things that could cause that kind of core base line to be a little bit better?

Bill Rogers

Well Steve, as you well know we don’t provide EPS forecasts. We do try to provide some sensitivity of what load growth might mean to earnings per share. I don’t think anything that we have stated in this call would address that sensitivity.

Steve Fleishman - Merrill Lynch

Okay, so it is not clear whether these changes are baked into that or not?

Bill Rogers

I think it is clearly less than our own forecast, but suffice it to say that we intend to keep O&M flat in 2010 relative to 2009 and load growth will be a key variable with respect to actual earnings per share as well as weather.

Steve Fleishman - Merrill Lynch

Okay and then I have one other question on the transmission line. Is that going to be FURK regulated?

Michael Yackira

All of our transmission lines are FURK regulated, but they are brought into the retail rates of our customers by allocations which I believe are something like 97% of our transmission costs are associated with retail sales. So, yes it would be FURK regulated, but most all of our high voltage transmission lines are FURK regulated.

Steve Fleishman - Merrill Lynch

Okay, but you still might have lag then, some of your other retail investments or?

Michael Yackira

That is correct. Yes, because most of the recovery comes from retail rates, while the FURK rate would be set it would be set for our company and it would affect wholesale sales immediately, but the retail portion of that would be affected through general rate cases.

Steve Fleishman - Merrill Lynch

Okay, thank you.

Michael Yackira

Thanks everybody for joining us. We look forward to seeing hopefully most of you at Edison Electric Institutes Financial Conference in Hollywood, Florida next week. Thanks for your attention and your interest in the Company.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation. (Operator Instructions)

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Source: NV Energy, Inc., Q3 2009 Earnings Call Transcript
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