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Executives

Britta Carlson - Manager of IR

Bill Rogers - SVP, CFO and Treasurer

Michael Yackira - President and CEO

Analysts

Dan Eggers - Credit Suisse

Doug Fischer - Wachovia

Greg Gordon - Citi Investments

Steve Fleishman - Catapult Partners

Emily Christie - RBC Capital Markets

John Kiani - Deutsche Bank

Igor Green - Zimmer Lucas Partners

Sierra Pacific Resources (SRP) Q3 2007 Earnings Call October 29, 2007 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Sierra Pacific Resource Earning Call to Investors Third Quarter 2007 Conference. 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 our host, Ms. Britta Carlson. Please go ahead.

Britta Carlson

Good morning. Thank you for joining us this morning to review the results of Sierra Pacific Resources for the third quarter of 2007.

In addition to the press release that was issued over the Newswire earlier today, we do expect to file our 2007 third quarter Form 10-Q with the SEC within the next week. At that time, it will be available to you, without charge, on our Company website at www.sierrapacificresources.com, and by accessing the investor link.

This morning's call will also be available for replay later today on our Company website or by telephone at 800-475-6701. International callers may use 320-365-3844. Please use the conference call ID number 890083.

I would like to remind you that comments we make during this call may include forward-looking statements regarding the future performance of Sierra Pacific Resources and its subsidiaries, Nevada Power and Sierra Pacific Power. These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the Company's Form 10-K for the year ended December 31, 2006 and the Company's Form 10-Qs for the quarter ended June 30, 2007.

I would also like to mention that reconciliations of certain non-GAAP financial information presented during this call may be found in our earnings press release, which is posted on our Company website at the same address I mentioned earlier.

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 our call today with an overview of the third quarter results as well as other financial developments, followed by Michael who will give a corporate operations update, regulatory update and discuss political issues.

I'll now turn the call over to Bill Rogers.

Bill Rogers

Thanks, Britta, and good morning, everyone. I hope you have seen our earnings release and have had a chance to review it.

As mentioned earlier, our third quarter 2007 Form10-Q is expected to be filed within the next week with the SEC. Soon after that, we will also be making a supplemental informational filing with the SEC on certain non-GAAP financial measures, as we have done regularly over the past year. In our earnings press release, we included certain financial highlights from our Company's income statements and balance sheets that I will now discuss.

I am pleased to report Sierra Pacific Resources earned $152.2 million for the third quarter of 2007. The earnings per share of $0.69 is a 38% increase compared to the earnings per share in the third quarter of 2006.

In third quarter 2006, the company earned $106 million or $0.50 per share adjusted for a onetime nonrecurring item in the third quarter of that year. The adjustment was approximately $116.2 million net of taxes for the reinstatement of deferred energy of record in the third quarter of 2006.

Retail electric megawatt hour sales for the three months ended September 30th, 2007 were $9.9 million, up 4.4%, compared with the same 2006 quarter. Although the local economy is not growing at the robust pace it enjoyed in the 2004 to 2006 period, the rate of growth continues to exceed the national average. Consolidated customer growth for the period ended September 30th, 2007 was 2.6% compared with the 4% of the same period ending in 2006.

Total operating revenues were $1.2 billion for the third quarter, up 11% from the 2006 third quarter. Operating revenues were higher in 2007 as a result of increases at both Nevada Power and Sierra Pacific Power, and retail electric rates, customer growth and hotter summer weather.

Gross margin increased approximately $80 million to $476 million. This is an increase of 20% over last year's third quarter. Nevada Power Company's general rate case, which went into effect on June 1st, 2007, continued customer growth at utilities and hotter summer weather throughout Nevada contributed to improve gross margins at our utilities.

Third quarter 2007 other operating and maintenance expenses were $121.7 million, higher by $6.7 million or 5.8%, compared with the same 2006 quarter. These higher other operating and maintenance expenses were largely related to higher regulatory amortizations, higher operating expenses at our fleet of power plants and the timing of outages and maintenance.

Allowance for funds used and borrowed during construction increased by $10.6 million to $16.8 million, as a result of the construction Clark Peaking Units in Las Vegas and the expansion of the Tracy Generating Station near Reno.

Total interest expense was $69.8 million, 10% lower than last year's third quarter. This was result of lower holding company debt and various re-financings of debt at the utilities in 2006 and 2007. Our continued investment in generation, transmission, and distribution assets, added just under $752 million in plant additions since the end of the third quarter 2006.

Now, for the year-to-date consolidated results. Sierra Pacific resources earned a $193 million, or $0.87 per share year-to-date 2007. This compares with an adjusted net income of $135 million or $0.66 per share in last year's first nine months. This is a 32% increase in earnings per share for the nine-month period.

Modestly higher general rates in Nevada Power, customer growth at utilities, and hotter summer weather at Nevada power contributed to improve earnings. The recognition of $11 million pretax settlement with the PUCN regarding the reversal of accrued interest associated with NPC's 2001 Deferred Energy Case, increased AFUDC mentioned earlier for the quarter and a decrease in interest expense also mentioned for the quarter, also, impacted the nine-month results.

Retail electric megawatt hour sales for the nine months ended September 30, 2007, were 23.9 million megawatt hours, an increase of 3.5% compared with the same period in 2006. Year-to-date total operating revenues were $2.8 billion, up 8% from the 2006 period. Operating revenues were higher throughput 2007 for the same reasons mentioned earlier for the quarter.

Gross margin increased $101 million or 11%, to just over $1 billion for the 2007 period, compared with the 2006 period. Other operating and maintenance expenses increased by $19.3 million or 5.8% to $353 million for the same reasons mentioned earlier. Total interest expense was down 8% year-to-date or $18.6 million, as result of lower holding company debt and various re-financings of debt at the utilities in both 2006 and 2007.

As we have just reviewed, the rate of growth in our gross margin continues to outpace the rate of growth in operating, maintenance and interest expenses. As previously mentioned, interest expense is actually lower for the comparable nine-month period, despite a considerable investment in plant. AFUDC for the nine-month period increased by $14.1 million or 53%, to $40.6 million for the first nine months.

In the nine-month period, our improved earning profile, cash flow and financial strength positioned the Company to reinstate the common dividend at $0.08 per share. We paid the dividend on September 12. This dividend was the first declared by Sierra Pacific Resources since February 2002.

In addition, through our cash flow, we are able to fund significant investment in plant without issuing equity, whilst maintaining the strength of our balance sheet. Further, with our improved financial profile in the third quarter of 2007, we are in a position to increase contributions to our defined benefits plans, other post-retirement benefit plans, and VEBA Trust in an aggregated amount of a $100 million.

On October 4th, Moody's Investor Service recognized our improved financial strength and credit profile by upgrading their rating of the utility senior secured debt to Baa3, investment-grade credit quality. Our cost of borrowing and the utilities revolving credit facilities is reduced, now the three or four rating agencies recognize the utilities debt as investment-grade credit quality.

Financial liquidity remained strong. On a combined basis, today; Nevada Power and Sierra Pacific Power have only $75 million of direct borrowings under the revolving credit facilities. Further, on a combined basis, the utilities borrowing availability under their revolving credit facilities exceeds over $800 million.

Now, I will turn the call over to Michael Yackira, who will discuss other important matters that impact the Company.

Michael Yackira

Thank you, Bill, and good morning everyone. We are pleased with our company's third quarter financial results and also pleased, as Bill mentioned, that Moody's has upgraded the senior secured debt of the utilities to investment-grade. The recognition of our improved credit is valuable, especially, in light of the investments that we are making on behalf on our customers now and in years to come.

Despite the slowdown on the national housing market, growth in commercial construction is unabated in our state. Nevada is still one of the fastest growing states of the nation, providing our company with the opportunity to serve an increasing demand for electricity. So growth in our peak demand is expected to remain at an annual rate of about 250 megawatts through at least 2010.

To make sure we will continue to provide our customers with clean, reliable electricity at reasonable and predictable prices, we are following a three-part strategy. First, we are increasing our energy efficiency in conservation programs to provide our customers with the tools they need to lower their bills.

Second, we are expanding our renewable energy initiatives and investments that have already made us the national leader in renewables. And third, we're building new generating plans that will use the best available technology to improve the environment and efficiency of our portfolio of assets.

Because of the importance of energy efficiency, we recently joined forces with seven other new utilities to announce plans to increase our investment in conservation. These eight utilities in total serve nearly 20 million electric customers in 22 states. We share a common belief that energy efficiency is the most readily available resource in the near-term for addressing climate change.

We're also supporting the Edison Electric Institute's new National Institute for Energy Efficiency, which will promote the sharing of information, ideas and experiences to help utilities deliver energy efficiency to their customers more effectively.

Our Company plans to seek the approval of the Public Utilities Commission of Nevada to increase our utilities investment in energy efficiency to about $135 million over the next three years. The Nevada Commission has adopted progressive policies that provide an incentive to us to invest in energy efficiency. Three years ago, the Nevada Commission concluded that energy efficiency should be considered investments on which our company can earn a return.

The return has also been enhanced by 5% above our allowed ROE to provide further incentives for these important investments. Our Commission's treatment is considered one of the best models in the United States to stimulate energy efficiency investments. And in 2005, the Nevada Legislature changed its renewable portfolio standard to include energy efficiency as a method to partially meet the goals.

The second part of our strategy for serving our customers is renewable energy development. In 1997, Nevada was one of the first to pass an energy renewable statute, thus recognizing the importance of our states abundant renewable resources. We are making excellence progress with efforts to add more renewable energy to our supply portfolio and, in fact, by the end of 2007, Nevada will be number one on the nation per capita for both geothermal and solar.

We're currently involved in more than 30 renewable energy projects in Nevada, and we want to increase that number significantly. Earlier this month Nevada Power and Sierra Pacific Power issued a request for proposals for additional renewable energy resources. By the end of 2012, we expect to have more than 1,000 megawatts of renewable energy supplies in Nevada.

Earlier this month, we announced the formation of a Geothermal Energy Technology Advisory Panel to advice Sierra Pacific Resources' senior management on geothermal resource issues. The panel includes experts who will be reviewing and evaluating additional geothermal development opportunities in our state.

We believe the conservation and renewable energy are important parts of our strategy. However, they are insufficient to meet the energy needs in our growing state. We have added a significant amount of generation through a construction and acquisition. We must continue to build conventional generating plants, so that when the sun isn't shining and the wind isn't blowing, we meet our responsibility to deliver reliable electricity to our customers.

Therefore, the third part of our energy strategy is to increase Nevada's generating capacity with the construction of new power plants. From the beginning of 2006 through the end of the summer in 2008, our company will have added over 2,800 megawatts of capacity to our owned portfolio of assets, more than doubling our position.

For Nevada Power, we expect that about 70% of our energy needs for 2007 will be met with capacity owned by our company as a result of the completion in 2006 of the Lenzie and Harry Allen plants and the acquisition of 75% of the Silverhawk plant

Construction of our new Tracy Combined Cycle Plant will be completed in Northern Nevada by the summer of 2008. And we will expand Sierra Pacific Power's generating capacity by more than 50%, making our northern utility virtually self sufficient for the first time in its history.

I'm also pleased to report that the workers building this project have completed nearly 1 million hours work without a single loss time incident. All of these facilities are highly efficient in that they require less natural gas to produce electricity than older units. Nevertheless, they contribute to our dependence on natural gas.

Because we will be about 70% dependent on natural gas as a fuel source when these facilities are completed, our plan is to develop a better balance energy supply mix in order to provide more stable and predictable prices for our customers.

In 2015 we project that about 40% of our electricity will be generated with natural gas, 40% from coal and 20% from renewable energy. At the core of our plan is the new Ely Energy Center in East of Nevada that will be fueled with lowest sulfur coal from the Powder River Basin. This generating plant will initially include two 750 megawatt units.

In addition to move this power where it is needed, we'll build a 250 mile, 500-kilovolt transmission line, that will link Nevada Power and Sierra Pacific Power's transmission grids for the first time. This will allow our two utilities to share the output of the ElyEnergy Center and other resources, and will provide a strong pathway for renewable energy projects throughout Nevada. The permitting process is going to be challenging, however, our project can be differentiated from other coal projects for a variety of reasons. And here are some examples.

We'll install both fabric filter and wet scrubber systems that will result in the lowest comparative air emissions in any other operating facility in the nation fuelled by coal, surpassing current EPA requirements for emissions. Additionally, we'll use 50% less water than typical coal fired plants, and it will be a zero water discharge facility.

We also plan to test new technologies for capturing and storing carbon dioxide, and to expand those technologies when they will become proven and economically viable.

Finally, the Ely Energy Center will enable us to shutdown three older coal fuelled plants at Nevada Power's Reid Gardner Generating Station. Permitting for the project is moving forward, we expect the Nevada Department of Environmental Protection to release a draft of the air quality permit in November, and that the department will hold hearings in the January of 2008.

In addition, we've submitted nearly all the data required for the draft environmental impact statement to the Bureau of Land Management. And that document is being compiled. The next step will be for the BLM to release its draft EIS for public comment.

We expect the Nevada Department of Environment Protection will release the air quality permit and I‘ve already said that, that's a re-statement, I apologize.

Under the order approving the Ely Energy Center, our commission required us to make a filing in 2008 to provide an update on the project including cost estimates, schedules and alternatives. And we expect to do that in the first quarter of next year.

Now, while we are on the subject of regulatory matters, I'd like to note that a new state law has taken effect requiring quarterly rate filings regarding fuel and purchase power costs. The first of these filings were made in August and new rates took effect on October 1st. Sierra Pacific Power is also scheduled to file its next general rate case on December the 3rd and this will be the Company's first hybrid test year general case, combining expenditures already incurred as well as known projects through June 30th, 2008.

In closing, during the past few years, we've focused on returning Sierra Pacific Resources to investment-grade status and improving shareholder value and then restating our common stock dividends. We are proud of all of our employees who've worked tirelessly in accomplishing these goals.

We also believe our three-part strategy for providing clean, reliable energy to Nevada will help sustain the progress we've already made. We look forward to seeing many of you next week at the EEI Financial Conference in Orlando.

And operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from Dan Eggers from Credit Suisse. Your line is open.

Dan Eggers - Credit Suisse

Yeah. Good morning. Senator Reid has made a lot of noise recently in opposition to Ely? Can you just give us an update on kind of your interactions with the Senator and his staff and, you know, kind of outline from your perspective what are his major pushback points in the project right now, given a the broad base support within the state?

Michael Yackira

Well, Dan, I think you've hit the nail on their head in their last comment. There is broad-based support for our coal project in the state. There is an understanding, that we as a state are too dependent, where customers are too dependent on natural gas as a fuel source. We are the only state in the west that has such dependence on natural gas, say, like California, for example, 50% of its energy comes from a combination of coal, hydro and nuclear. And that really is reflected most in the west.

So our desire is to have a more balance portfolio. I think the Senator is looking at this as more of a national issue, in fact, just last week he made mention the fact that the coal industry is the one that's really in his sites. Just what happens that we're building a coal plan in his own state.

But, you know, I think the -- again, the last comment you made, it is a most important. We're continuing to progress on the matters with respect to the permit and the EIS. And we're continuing forward in the scheduled as I mentioned before, is in line with what we'd originally thought with respect to the Draft Air Permit being released by next month.

Dan Eggers - Credit Suisse

Now, there has been some proposed legislation around the use of federal lands, kind of, specific to Ely that have been talked about or proposed. Is there a way for you to build Ely, I guess, one, without federal land? And two, from a transmission perspective, is there any way to avoid a federal land issue or is that something unavoidable?

Michael Yackira

You realize, Dan, that 87% of the land mass in Nevada is controlled by the Bureau of Land Management. And the only place that we have -- we feel is the right place to build this coal plant in the center of the state which would provide the opportunity for us to interconnect our two utilities more readily than other places is in White Pine County in Ely.

It's a place that has been under economic pressure because of the binding industry basically going away. There is great support in White Pine County and in Ely for our power plant, and private land just isn't available to the extent that we would need it to build this plant.

I am not aware of any legislation other than the transmission bill that Senator Reid released in draft form a few weeks ago. I am certainly not aware of anything going on with respect to land and land use.

Dan Eggers - Credit Suisse

I was just trying to infer where you might be going. I didn't mean to imply that it was anything written at this point.

One other question, I guess, can you talk about, given the state-of-the-art nature of Ely from an emission's perspective, what the CO2 intensity of Ely would look like relative to say a new CCGT, and then also what the CO2 intensity per megawatt hour is of the plants that would be shut down as part the Ely addition?

Michael Yackira

Well, the CO2 emissions from the coal plant, is about two times that of our natural gas plants. But with the way we look at it, Dan, it really is looking at our carbon footprint in total after the Ely Energy Center is built after the addition of renewables that will be generated through the transmission line being built, as well as shutting down the Reid Gardner 1, 2 and 3 plants. Once we do that, our carbon footprint will actually get lower than it would be otherwise if we continue to build natural gas plants to meet the load of Nevada.

The renewal energy that is in Northern Nevada, Northern and Western Nevada, especially geothermal energy in Northern and Western Nevada and wind energy in Eastern Nevada, is likely either to be trapped there without ability to move it over a transmission line, or it could be developed for California. And I don't think that anybody in Nevada would like to see that happen with the great resources that we have and with quite an aggressive portfolio standard.

Dan Eggers - Credit Suisse

Great. Thank you.

Michael Yackira

Thank you.

Operator

Our next question comes from Doug Fischer from Wachovia. Your line is open.

Doug Fischer - Wachovia

Good morning. Can you hear me, Michael?

Michael Yackira

Yes, Doug. How are you? It's odd to hear you say Wachovia.

Doug Fischer - Wachovia

Just a couple of questions, can you give us a little -- do you have data on the cooling degree days for the two utilities versus normal and versus the prior year? And then, secondly, could you quantify for us on a pre and post-tax basis the amount of the accrued interest related to the 2001 deferred energy case that was apparently booked in the third quarter?

Michael Yackira

Of last year, Doug?

Doug Fischer - Wachovia

Yeah.

Michael Yackira

Yeah. That was $11 million, but that wasn't booked until 2007. The $180 million approximately are reversal. Due to the Supreme Court decision in August of 2006, it was booked in the third quarter. But the additional approximately $11 million was booked in early part of this year. So it was in two different places.

The net, I think Bill mentioned this in his remarks, but I think the left net was about $113 million in 2006 third quarter, something like that.

Britta Carlson

$112 million.

Michael Yackira

As far as -- I'm sorry, go ahead.

Doug Fischer - Wachovia

The weather?

Michael Yackira

Bill, do you have some statistics?

Bill Rogers

Well, we have not been disclosing cooling degree days, but they were higher in the third quarter of 2007 relative to 2006. Having said that, the impact on gross margin, therefore the impact of earnings was in the order that we disclosed earlier. So revenues, customers, and then, weather.

Doug Fischer - Wachovia

In that order?

Bill Rogers

Yes.

Doug Fischer - Wachovia

Thanks.

Operator

Our next question comes from Greg Gordon from Citi Investments. Your line is open.

Greg Gordon - Citi Investments

Thanks. Good morning.

Michael Yackira

Good morning, Greg.

Greg Gordon - Citi Investments

Some of the resistance I've heard with regard to your project comes from the concept of, I think, of avoided cost, and that there is a belief that new solar thermal technologies can, in fact, meet the base load or mid-merit demands of the Company at a cost that's equivalent to the cost of a coal plant, different factor in, sort of, a rational carbon price. Are you prepared to comment on what you see, in terms of, those -- the real cost for that technology and whether you believe that too in fact be the case?

Michael Yackira

I don't think that's the case today. I believe that, I think that I've mentioned this to you before, Greg, but the technologies that are being used today for solar thermal are really, virtually the same technologies that have been used for the past projects that were built in the late 1980's and early 1990's, perhaps, a little bit more technology driven but not significantly. And the prices, maybe, four to five times of that of traditional power plants.

So I guess it all depends on what your estimate is for the effect of carbon. You know, if -- it would have to be pretty darn significant for it to equate to the current cost of solar. And you know, as I keep saying that the sun does shine very strongly in Nevada, there is no doubt about it. We are one of the thermal hotbeds in the United States. California, Southern California, Arizona and Southern Nevada are considered the best places for solar. But it doesn't mean that, even with that, that we can count on that for base load.

It's great one. It's there as far as reliability is concerned, not great when its not there. So we have to have traditional power plants, in order to back that up. But even with that said, I think investment in these types of technologies including PV, the Photovoltaics, might bring down the price point. But I think, it's a long time between now and the time that it equates to conventional power plants.

Not suggesting that one day. I am also not suggesting that if the price is high enough on coal tax that it won't get closer, but I think it's got a long way to go before it's equal to traditional power plants.

Greg Gordon - Citi Investments

Notwithstanding that fact, are you still planning on investing incremental dollars in solar as part of your renewable portfolio strategy?

Michael Yackira

Part of it, you'll remember, perhaps, that 5% of our total renewable portfolio standard requirement is from solar. So, if you're looking through it, it's 1% of our total energy, at least at this stage. Our order really, is geothermal first because it looks like base load. It produces, you know, almost all the time. And it has a reasonable price point. I'd say second is probably when, again, because of the price. And third would be solar. And I think the legislature got it right in saying that solar should be a small component of the total mix for renewable portfolio.

Greg Gordon - Citi Investments

Thank you.

Michael Yackira

Thank you, Greg.

Operator

Our next question comes from Steve Fleishman from Catapult Partners. Your line is open.

Steve Fleishman - Catapult Partners

Yeah. Hi. Good morning.

Michael Yackira

Hi. Steve.

Steve Fleishman - Catapult Partners

Hi. Just one other thing is just trying to calculate. I think your tax rate in the quarter was about 32% is that, kind of, the tax rate you're expecting or might calculating that wrong?

Bill Rogers

Steve, it's close to the 33% but that's a good number for use, for modeling.

Steve Fleishman - Catapult Partners

Okay. And then, in terms of, customer growth in such is this, kind of, 2.5% to 3% area roughly, the range that you would be, kind of, expecting going forward? Do you think we've, kind of, reset at this level?

Bill Rogers

Steve, it's Bill again. I think that's -- what we've been experience in the current year, in Southern Nevada and less in that in Northern Nevada. Our customer growth is very much driven, by the growth in hotel rooms and the growth in jobs in Las Vegas. And the growth in job in Las Vegas is driven, almost directly and indirectly and highly correlated with hotel room count.

So even though, we are at 5.2% unemployment rate here in Southern Nevada, currently with 35,000 hotel rooms, coming on to the additional 133,000 already exist, in the next four to five years we think there will be a significant job growth. And it is likely, that customer count will pick-up along with that.

Steve Fleishman - Catapult Partners

Okay. Thank you.

Michael Yackira

Thanks Steve.

Operator

Our next question comes from [Emily Christie] from RBC Capital Markets. Your line is open.

Emily Christie - RBC Capital Markets

Good morning, just a couple of questions, if I can? In terms of the investment-grade rating at the utilities but not at the parent yet, have any of your financing plans changed, going forward, or you still seeing for equity at total cap ratio at the parent of 40%?

Bill Rogers

This is Bill Rogers again. Our financing plans have not changed. Our target is to make the utilities solidly investment-grade credit quality. We have recognized, if that's the case then the parent is likely to be non-investment grade credit quality. And therefore, we managed that through the flexibility of having embedded redemption provisions within their securities. With respect to a target capital structure, we really take a look at a variety of credit ratios. But in filings that we've made with the PUCN, we have shared with them that we trigger an equity offering out of the parent for contribution to the subsidiaries should the subsidiaries equity to total capital fall below 43%. And that will get you to approximately a 40% on a consolidated basis.

Emily Christie - RBC Capital Markets

Thanks. In terms of the renewable, I believe the strategy before was to issue the RFPs, and then if there was a lack of response, then you again involve in the development strategy equation. With the view of thermal advisory board, is that what you're seeing or is it just a change of strategy?

Michael Yackira

Well, it's a strategy, Emily -- this is Michael here -- that we've been taking about for the past several months, and that is, for us to be investors along with others likely co-investing or perhaps taking a direct 100% investment in some renewable projects. If not, then we're not going to be investing in all of the renewable projects that are necessary to meet the portfolio standard requirements.

But certainly, our interest in geothermal and other forms of renewable energy is evident by the panel that we have set up. So I don't think it's really changed. We haven't announced any projects yet, but we certainly will be within the next several months I expect.

Emily Christie - RBC Capital Markets

Okay. Thank you very much

Michael Yackira

Thank you.

Operator

Our next question comes from John Kiani from Deutsche Bank. Your line is open.

John Kiani - Deutsche Bank

Good morning.

Britta Carlson

Good morning, John

Michael Yackira

Hi, John

John Kiani - Deutsche Bank

Steve actually asked one of my questions, but just a follow-up on the load growth question. So, just if I understand what you said, Bill, because of the backlog of new rooms and total space that's coming online over the next several years, you think that that growth rate will pick back up. But I want to try to understand, kind of beyond the next three to fours years for long-term planning purpose, what type of load growth increase or rate should we think about?

Bill Rogers

As we file in our integrated resource plans, we do put in there our view in terms of load growth and customer growth. And we generally take a view that over the next five to seven years, growth will far exceed the national average due to the factors that I mentioned earlier. And then over a 20-year period of time, it will drift down to the national average of closer to 1%.

Michael Yackira

John, this is Michael here. I mentioned before that our current expectation is that our demand, peak demand for power will continue to grow at about 250 megawatts per year, certainly through 2010. And I also mentioned that the commercial construction is really continuing a pace.

Nothing really has changed. At least, nothing has changed that we've been notified about with respect to those types of developments that are mega projects, such as Project City Center, Echelon Place, the completion of The Palazzo, which is about to be completed, the extension of The Venetian, The Encore project next to the Win Resort, other projects that are large projects that some have estimated upwards of 1,000 megawatts on the strip to be added over the next five years. Nothing has changed in that respect.

So I think Bill's comment is right; that perhaps there was an exuberant market regarding residential properties that we need to catch up on, but nothing has changed from the commercial side. And therefore, we expect the catch-up to finalize itself over the next several years, and people have to live somewhere to support the great growth on the strip. So we expect that will continue to be strong.

John Kiani - Deutsche Bank

That's helpful, Michael. Thanks for that explanation. And then, on sort of a related subject, I guess all the talk about renewals doesn't really address the needle peak and the growing needle peak that you all have based on your service territory and the weather in that service territory. You may have touched on this already, but can you talk a little bit about the latest on demand response initiatives and other initiatives to handle that growing needle peak that you all have?

Michael Yackira

John, I mentioned that we have a desire to expand our energy efficiency programs. We expect that demand response will be an important element to that exactly because of the reason that you mentioned; a great needle peak here and one that looks like it is prime for demand response equipment.

We are testing, for example, now thermostats that we can push back or push up at a time of higher than expected demand or an operating problem. And they worked very well and our customers seem to be very responsive to those. We expect that we'll be testing other types of demand response expansion over the next several years.

Just as a reminder though, we are building 600 megawatts of peaking power at our Clark Station, 400 megawatts will be ready for December of 2008, and additional 200 megawatts will be completed by the end of December 2008. So we're addressing both of those -- we're addressing the peak demand needs by both contemplating the expansion of demand response as well as having conventional power plants to meet the need.

John Kiani - Deutsche Bank

Thanks. That's helpful.

Michael Yackira

Thanks, John.

Operator

Our next question comes from John Alli from Zimmer Lucas Partners. Your line is open.

Igor Green - Zimmer Lucas Partners

Hi, guys. This is actually [Igor Green] and I am speaking on behalf of John. I have a quick question what was the added in sense of bonus on the energy efficiency program. I think I just heard it, was it 50 bps?

Bill Rogers

Yes, 500 bps.

Igor Green - Zimmer Lucas Partners

500 bps?

Bill Rogers

Yes.

Igor Green - Zimmer Lucas Partners

Okay. I appreciate it. Thanks.

Operator

I am not showing any further questions in the queue at this time. I have a follow-up question from…

Michael Yackira

Okay.

Operator

From Doug Fischer from Wachovia. Your line is open.

Doug Fischer - Wachovia

Thank you. Can you hear me, Michael?

Michael Yackira

Yes, Doug.

Doug Fischer - Wachovia

What -- given the increased emphasis on efficiency across the west and across the country, you know, you are sort of in a different situation than some other areas because of the fast growth you have. But, is there any movement to adjust a gross margin for California. So that you are insensitive to the level of sales, and therefore, are not disincented to -- towards efficiency programs?

Michael Yackira

Well, let me answer that in a couple of ways, Doug. One is I don't think we are disincentive – disincented because the investment in our energy efficiency programs are treated like a rate base asset. And, in fact, as I just mentioned, they get an incentive return. So, while we are not indifferent with respect to building a generating plant versus, energy efficiency, I think, there is good incentive in this state. And, in fact, will -- one of the three states in the United States that looked at as a model for how energy efficiency should work. But, decoupling is being explored for natural gas Company's or LBC's in this state.

A part of the law, that was passed last year that changed the timing of rate cases, hyper test year, the filing of our base tariff energy rate every quarter, included the review by our Public Utilities Commission for decoupling regarding the LBC's. And you can imagine, that the LBC's, especially the one in Southern Nevada, we are not associated with that one obviously. But they are very sensitive to conservation programs affecting their very, very low per term throughput today. So exploring decoupling is coupled with -- to counterfeit-- coupled with, looking at expansion of their conservation program. So that they can do what's right for the customers, but not hurt their bottom line. But we are not thinking about that in the state regarding an electric usage.

Doug Fischer - Wachovia

Okay. Thanks.

Michael Yackira

Thank you.

Operator

I am not showing any further question at queue at this time.

Michael Yackira

Well, thank you very much everyone for being on the call. We appreciate your questions and your interest in our company. And as I said before, we looked forward to seeing many of you next week in Orlando. Have a good day.

Operator

Ladies and gentlemen, 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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