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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 theSierra Pacific Resource Earning Call to Investors Third Quarter 2007 Conference.At this time, all participants are in a listen-only mode. Later, we willconduct 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 toreview the results of Sierra Pacific Resources for the third quarter of 2007.

In addition to the press release that was issued over theNewswire earlier today, we do expect to file our 2007 third quarter Form 10-Qwith 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 byaccessing the investor link.

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

I would like to remind you that comments we make during thiscall may include forward-looking statements regarding the future performance ofSierra Pacific Resources and its subsidiaries, Nevada Power and Sierra PacificPower. These statements are current expectations and as such are subject to avariety of risks and uncertainties that could cause the actual results todiffer materially from current expectations. These risks and uncertaintiesinclude the factors discussed in the Company's Form 10-K for the year endedDecember 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 certainnon-GAAP financial information presented during this call may be found in ourearnings press release, which is posted on our Company website at the sameaddress I mentioned earlier.

With me this morning are Michael Yackira, President andChief Executive Officer; and Bill Rogers, Corporate Senior Vice President andChief Financial Officer. Bill will begin our call today with an overview of thethird quarter results as well as other financial developments, followed byMichael who will give a corporate operations update, regulatory update anddiscuss political issues.

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

Bill Rogers

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

As mentioned earlier, our third quarter 2007 Form10-Q isexpected to be filed within the next week with the SEC. Soon after that, wewill also be making a supplemental informational filing with the SEC on certainnon-GAAP financial measures, as we have done regularly over the past year. In ourearnings press release, we included certain financial highlights from ourCompany'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 $0.69is a 38% increase compared to the earnings per share in the third quarter of2006.

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

Retail electric megawatt hour sales for the three monthsended September 30th, 2007 were $9.9 million, up 4.4%, compared with the same 2006quarter. Although the local economy is not growing at the robust pace itenjoyed in the 2004 to 2006 period, the rate of growth continues to exceed thenational average. Consolidated customer growth for the period ended September30th, 2007 was 2.6% compared with the 4% of the same period ending in 2006.

Total operating revenues were $1.2 billion for the thirdquarter, up 11% from the 2006 third quarter. Operating revenues were higher in2007 as a result of increases at both Nevada Power and Sierra Pacific Power, andretail electric rates, customer growth and hotter summer weather.

Gross margin increased approximately $80 million to $476million. This is an increase of 20% over last year's third quarter. NevadaPower 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 toimprove gross margins at our utilities.

Third quarter 2007 other operating and maintenance expenseswere $121.7 million, higher by $6.7 million or 5.8%, compared with the same2006 quarter. These higher other operating and maintenance expenses werelargely related to higher regulatory amortizations, higher operating expenses atour fleet of power plants and the timing of outages and maintenance.

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

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

Now, for the year-to-date consolidated results. SierraPacific 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 inlast year's first nine months. This is a 32% increase in earnings per share forthe nine-month period.

Modestly higher general rates in Nevada Power, customergrowth at utilities, and hotter summer weather at Nevada power contributed to improveearnings. The recognition of $11 million pretax settlement with the PUCNregarding the reversal of accrued interest associated with NPC's 2001 DeferredEnergy Case, increased AFUDC mentioned earlier for the quarter and a decreasein interest expense also mentioned for the quarter, also, impacted thenine-month results.

Retail electric megawatt hour sales for the nine monthsended 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 revenueswere $2.8 billion, up 8% from the 2006 period. Operating revenues were higherthroughput 2007 for the same reasons mentioned earlier for the quarter.

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

As we have just reviewed, the rate of growth in our grossmargin continues to outpace the rate of growth in operating, maintenance andinterest expenses. As previously mentioned, interest expense is actually lowerfor the comparable nine-month period, despite a considerable investment inplant. 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, cashflow and financial strength positioned the Company to reinstate the commondividend at $0.08 per share. We paid the dividend on September 12. Thisdividend was the first declared by Sierra Pacific Resources since February2002.

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

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

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

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

Michael Yackira

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

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

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

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

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

We're also supporting the Edison Electric Institute's newNational Institute for Energy Efficiency, which will promote the sharing ofinformation, ideas and experiences to help utilities deliver energy efficiencyto their customers more effectively.

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

The return has also been enhanced by 5% above our allowedROE to provide further incentives for these important investments. OurCommission's treatment is considered one of the best models in the United Statesto stimulate energy efficiency investments. And in 2005, the Nevada Legislaturechanged its renewable portfolio standard to include energy efficiency as amethod to partially meet the goals.

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

We're currently involved in more than 30 renewable energyprojects in Nevada,and we want to increase that number significantly. Earlier this month NevadaPower and Sierra Pacific Power issued a request for proposals for additionalrenewable energy resources. By the end of 2012, we expect to have more than1,000 megawatts of renewable energy supplies in Nevada.

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

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

Therefore, the third part of our energy strategy is toincrease Nevada'sgenerating capacity with the construction of new power plants. From thebeginning of 2006 through the end of the summer in 2008, our company will haveadded over 2,800 megawatts of capacity to our owned portfolio of assets, morethan doubling our position.

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

Construction of our new Tracy Combined Cycle Plant will becompleted in Northern Nevada by the summer of2008. And we will expand Sierra Pacific Power's generating capacity by morethan 50%, making our northern utility virtually self sufficient for the firsttime in its history.

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

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

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

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

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

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

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

In addition, we've submitted nearly all the data requiredfor 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 torelease its draft EIS for public comment.

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

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

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

In closing, during the past few years, we've focused onreturning Sierra Pacific Resources to investment-grade status and improvingshareholder value and then restating our common stock dividends. We are proudof 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 Nevadawill help sustain the progress we've already made. We look forward to seeingmany of you next week at the EEI Financial Conference in Orlando.

And operator, we are now ready to take questions.

Question-and-AnswerSession

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 noiserecently in opposition to Ely? Can you just give us an update on kind of your interactions with the Senator and hisstaff and, you know, kind of outline from your perspective what are his majorpushback points in the project right now, given a the broad base support withinthe state?

Michael Yackira

Well, Dan, I think you've hit the nail on their head intheir last comment. There is broad-based support for our coal project in thestate. There is an understanding, that we as a state are too dependent, wherecustomers are too dependent on natural gas as a fuel source. We are the onlystate 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 thatreally is reflected most in the west.

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

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

Dan Eggers - CreditSuisse

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

Michael Yackira

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

It's a place that has been under economic pressure becauseof the binding industry basically going away. There is great support in WhitePine County and in Ely for our power plant, and private land just isn'tavailable to the extent that we would need it to build this plant.

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

Dan Eggers - CreditSuisse

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

One other question, I guess, can you talk about, given thestate-of-the-art nature of Ely from an emission's perspective, what the CO2intensity of Ely would look like relative to say a new CCGT, and then also whatthe CO2 intensity per megawatt hour is of the plants that would be shut down aspart the Ely addition?

Michael Yackira

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

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

Dan Eggers - CreditSuisse

Great. Thank you.

Michael Yackira

Thank you.

Operator

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

DougFischer - Wachovia

Good morning. Can you hear me, Michael?

Michael Yackira

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

DougFischer - Wachovia

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

Michael Yackira

Of last year, Doug?

DougFischer - Wachovia

Yeah.

Michael Yackira

Yeah. That was $11 million, but that wasn't booked until2007. The $180 million approximately are reversal. Due to the Supreme Courtdecision in August of 2006, it was booked in the third quarter. But theadditional approximately $11 million was booked in early part of this year. Soit was in two different places.

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

Britta Carlson

$112 million.

Michael Yackira

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

DougFischer - Wachovia

The weather?

Michael Yackira

Bill, do you have some statistics?

Bill Rogers

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

DougFischer - Wachovia

In that order?

Bill Rogers

Yes.

DougFischer - Wachovia

Thanks.

Operator

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

Greg Gordon - CitiInvestments

Thanks. Good morning.

Michael Yackira

Good morning, Greg.

Greg Gordon - CitiInvestments

Some of the resistance I've heard with regard to yourproject comes from the concept of, I think, of avoided cost, and that there isa belief that new solar thermal technologies can, in fact, meet the base loador mid-merit demands of the Company at a cost that's equivalent to the cost ofa 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 believethat too in fact be the case?

Michael Yackira

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

So I guess it all depends on what your estimate is for theeffect of carbon. You know, if -- it would have to be pretty darn significantfor it to equate to the current cost of solar. And you know, as I keep sayingthat 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 Nevadaare considered the best places for solar. But it doesn't mean that, even withthat, that we can count on that for base load.

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

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

Greg Gordon - CitiInvestments

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

Michael Yackira

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

Greg Gordon - CitiInvestments

Thank you.

Michael Yackira

Thank you, Greg.

Operator

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

Steve Fleishman -Catapult Partners

Yeah. Hi. Good morning.

Michael Yackira

Hi. Steve.

Steve Fleishman - CatapultPartners

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

Bill Rogers

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

Steve Fleishman -Catapult Partners

Okay. And then, in terms of, customer growth in such isthis, 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 beenexperience 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 inSouthern Nevada, currently with 35,000 hotel rooms, coming on to the additional133,000 already exist, in the next four to five years we think there will be asignificant job growth. And it is likely, that customer count will pick-upalong with that.

Steve Fleishman - CatapultPartners

Okay. Thank you.

Michael Yackira

Thanks Steve.

Operator

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

Emily Christie - RBCCapital Markets

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

Bill Rogers

This is Bill Rogers again. Our financing plans have notchanged. Our target is to make the utilities solidly investment-grade creditquality. We have recognized, if that's the case then the parent is likely to benon-investment grade credit quality. And therefore, we managed that through theflexibility of having embedded redemption provisions within their securities.With respect to a target capital structure, we really take a look at a varietyof credit ratios. But in filings that we've made with the PUCN, we have sharedwith them that we trigger an equity offering out of the parent for contributionto the subsidiaries should the subsidiaries equity to total capital fall below43%. And that will get you to approximately a 40% on a consolidated basis.

Emily Christie - RBCCapital Markets

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

Michael Yackira

Well, it's a strategy, Emily -- this is Michael here -- thatwe've been taking about for the past several months, and that is, for us to beinvestors 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 beinvesting in all of the renewable projects that are necessary to meet theportfolio standard requirements.

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

Emily Christie - RBCCapital 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 - DeutscheBank

Good morning.

Britta Carlson

Good morning, John

Michael Yackira

Hi, John

John Kiani - DeutscheBank

Steve actually asked one of my questions, but just afollow-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 onlineover 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 yearsfor long-term planning purpose, what type of load growth increase or rateshould we think about?

Bill Rogers

As we file in our integrated resource plans, we do put inthere our view in terms of load growth and customer growth. And we generallytake a view that over the next five to seven years, growth will far exceed thenational average due to the factors that I mentioned earlier. And then over a20-year period of time, it will drift down to the national average of closer to1%.

Michael Yackira

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

Nothing really has changed. At least, nothing has changedthat we've been notified about with respect to those types of developments thatare mega projects, such as Project City Center, Echelon Place, the completionof 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 projectsthat some have estimated upwards of 1,000 megawatts on the strip to be addedover the next five years. Nothing has changed in that respect.

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

John Kiani - DeutscheBank

That's helpful, Michael. Thanks for that explanation. Andthen, on sort of a related subject, I guess all the talk about renewals doesn'treally address the needle peak and the growing needle peak that you all havebased on your service territory and the weather in that service territory. Youmay have touched on this already, but can you talk a little bit about thelatest on demand response initiatives and other initiatives to handle that growingneedle peak that you all have?

Michael Yackira

John, I mentioned that we have a desire to expand our energyefficiency programs. We expect that demand response will be an importantelement to that exactly because of the reason that you mentioned; a greatneedle peak here and one that looks like it is prime for demand responseequipment.

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

Just as a reminder though, we arebuilding 600 megawatts of peaking power at our Clark Station, 400 megawattswill be ready for December of 2008, and additional 200 megawatts will becompleted by the end of December 2008. So we're addressing both of those -- we'readdressing the peak demand needs by both contemplating the expansion of demandresponse 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 JohnAlli from Zimmer Lucas Partners. Your line is open.

Igor Green - Zimmer Lucas Partners

Hi, guys. This is actually [IgorGreen] and I am speaking on behalf of John. I have a quick question what was theadded in sense of bonus on the energy efficiency program. I think I just heardit, 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 furtherquestions in the queue at this time. I have a follow-up question from…

Michael Yackira

Okay.

Operator

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

Michael Yackira

Well, let me answer that in acouple of ways, Doug. One is I don't think we are disincentive – disincentedbecause the investment in our energy efficiency programs are treated like arate base asset. And, in fact, as I just mentioned, they get an incentivereturn. So, while we are not indifferent with respect to building a generatingplant 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 amodel for how energy efficiency should work. But, decoupling is being exploredfor natural gas Company's or LBC's in this state.

A part of the law, that was passedlast year that changed the timing of rate cases, hyper test year, the filing ofour base tariff energy rate every quarter, included the review by our PublicUtilities 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 toconservation 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'sright for the customers, but not hurt their bottom line. But we are notthinking about that in the state regarding an electric usage.

Doug Fischer - Wachovia

Okay. Thanks.

Michael Yackira

Thank you.

Operator

I am not showing any furtherquestion at queue at this time.

Michael Yackira

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

Operator

Ladies and gentlemen, that doesconclude our conference for today. Thank you for your participation and forusing AT&T Executive Teleconference. You may now disconnect.

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Source: Sierra Pacific Resources Q3 2007 Earnings Call Transcript

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