Sierra Pacific Resources Q1 2008 Earnings Call

Sierra Pacific Resources (SRP)

Q1 FY08 Earnings Call

April 23, 2008, 10:00 AM ET

Executives

Britta Carlson - Manager of Investor and Shareholder Relations

William D. Rogers - Corporate Sr. VP, CFO and Treasurer, SPR

Michael W. Yackira - President and CEO

Analysts

Dan Eggers - Credit Suisse

John Kiani - Deutsche Bank Securities, Inc.

Lasan Johong - RBC Capital Markets

Doug Fischer - Wachovia Capital Markets LLC

Brian Russo - Ladenburg Thalmann

Michael Lapides - Goldman Sachs

Robert Howard - Prospector Partners

Jeffrey Coviello - Duquesne Capital

Clark Orsky - KDP Investment Advisors, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to Sierra Pacific Resources First Quarter Earnings Conference Call to investors. 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]. And as a reminder, this conference is being recorded.

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

Britta Carlson - Manager of Investor and Shareholder Relations

Good morning. This is Britta Carlson, Manager of Investor and Shareholder Relations. I want to thank you this morning for joining us to review Sierra Pacific Resources' results for the first quarter 2008. In addition to the press release issued earlier this morning over the newswire, we expect to file our 2008 third quarter Form 10-Q with the SEC on or about May 2, 2008. 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 a replay later today on our website or by telephone at 800-475-6701. International callers may use 320-365-3844. The conference call ID number is 919549.

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 Company and Sierra Pacific Power Company. 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-K for the year ended December 31st, 2007.

I would also like to mention that reconciliations of certain non-GAAP financial information presented during today's call may be found in our earnings press release, which is posted on our company website at the web address I mentioned previously.

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 by discussing key drivers and trends. Michael will then provide an update on the corporate strategy, including an update.

I will now turn the call over to Bill Rogers.

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

Thank you, 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 2008 first quarter Form 10-Q is expected to be filed with the SEC on or about May 2nd. Soon thereafter we will also be making a supplemental informational filing with the SEC on certain non-GAAP financial measures. In our earnings press release, we included certain financial highlights from our company's income statements and balance sheet. So rather than repeat our financials, I will discuss key drivers and trends that affect our earnings.

As released this morning, Sierra Pacific Resources earned $24.1 million or $0.10 per share in the first quarter 2008 compared with $15.6 million or $0.07 per share in the same 2007 quarter. We are very pleased with our first quarter 2008 consolidated earnings. Despite a slowdown in residential customer growth, our annual load growth remains strong.

The first quarter is traditionally a small part of our total annual earnings of the company, with the third quarter representing 70% to 80% of the annual earnings. Although it remains early and subject to many factors including weather, we are very pleased with our financial performance at the start of 2008.

Our retail electric sales remain strong in southern Nevada, with megawatt hour sales growing 2.4% in the first quarter compared with the same 2007 period. Sierra Pacific Power's retail electric sales were flat, and gas sales were up 7.9%. Customer growth for the first quarter 2008 in residential, commercial and industrial electric customers served by Nevada Power was 1.5%, 3.7%, and 3.4% respectively, when compared with the first quarter 2007. Sierra Pacific Power's residential, commercial and industrial electric customers grew by 1.2%, 2.5%, and 0.7% respectively, compared with the same quarter in 2007. Our company now serves more than 1.3 million electric and gas customers.

The cyclical nature of the Las Vegas homebuilding market has resulted in lower than projected residential customer growth, just as we experienced above projected customer growth in 2005. Total employment levels remained unchanged with jobs on the Las Vegas strip and commercial employment replacing the loss of jobs related to the residential homebuilding industry.

As cited by the Center For Business and Economic Research at the University of Nevada Las Vegas, population's projections indicate a slower rate of growth in 2008, but growth nonetheless. Further, they indicate that we will recover in 2009 and remain strong over the next several years, as a result of substantial hotel room construction throughout the Strip.

Total revenues were 6% higher in the first quarter of 2008 compared with the first quarter in 2007, as a result of the Nevada Power general rate case, which went into effect June 1st of last year and continued customer growth. Gross margin or revenue margin increased approximately $37 million, an increase of 16% in the first quarter of this year, when compared to the first quarter of last year. This compares with an increase of just 2% for the same quarterly period in 2007 versus the quarter in 2006.

Nevada Power contributed 60% of the consolidated gross margin. Our electric and gas business of Sierra Pacific Power contributed 34% and 6% respectively. Over the last two-year period, the consolidated gross margin grew approximately 18%, which translates into a compound annual growth rate of 8.7%. Due to the growth in our native load and our investment plans, we anticipate the trend of strong growth rate in our gross margins to continue.

Our capital investment plans remain robust, with recent announcements to co-invest in our renewable projects with Ormat, Kern River, and Renewable Energy Systems Americas. These projects as well as the Harry Allen combined cycle plant and various transition projects will result in capital of investments of approximately $1.2 billion, if not greater, per year through the 2008-2010 time period. The agreement to acquire Big Horn Generating Station is in addition to this investment plan. The Harry Allen plant and the transmission projects have been outlined in our Form 10-K for 2007, as well as the seventh amendment to Nevada Power's integrated resource plan, filed this March.

Construction of Tracy Generating Station near Reno and the Clark Peakers in Las Vegas are on-schedule and on-budget. The investment in Tracy was included in Sierra Pacific's recent general rate case filing. The investments in Clark and Big Horn, if approved by our Public Utility Commission, will be included in Nevada Power's general rate case filing later this year.

Our balance sheet continues to strengthen, as evidenced by the equity of total capitalization of 41%, 48.5% and 46.7% for the parent company, Nevada Power and Sierra Pacific Power respectively. As we progress on our strategy to increase our own generation capacity in Nevada to include our announced agreement to purchase Big Horn, we intend to maintain the integrity of our balance sheet.

With that recap of the trends in our financials, I will now turn the call over to Michael Yackira, who will discuss other important matters that impact our company.

Michael W. Yackira - President and Chief Executive Officer

Thanks, Bill and good morning, everyone. Thanks for joining us on this call. As Bill said, we're pleased with our first quarter results. While Nevada has not been exempted from the nationwide economic slowdown, the growth does continue, driven in Las Vegas by the major hotel resort projects to be completed over the next several years.

As a result, our customer base will continue to grow, as will the demand for energy. According to the latest census bureau estimates, Nevada is once again the fastest growing state in the nation, as it has been for 20 of the last 21 years. Our company's primary goal is to ensure that all of our customers will benefit from a reliable service at reasonable and predictable prices.

To achieve this goal in such a dynamic market, our three-part energy supply strategy bears repeating. It calls for first increasing our investment in energy efficiency and conservation programs; second, expanding our renewable initiatives and investments; and third, adding Nevada-based generating facilities that use traditional fuels including natural gas and coal. This third part of our strategy is especially timely, considering yesterday's announcement on reaching an agreement to acquire Reliant Energy's Big Horn generating station near Las Vegas. I'll be discussing Big Horn later. However, with Nevada's continuing growth, I'd like to first talk about the steady progress we also have been making in the other two all-important strategic areas.

Let's begin with energy efficiency and conservation. In 2007, our energy initiatives for efficiency have saved $250 million kilowatt hours statewide. These programs help our customers take more control of their bills while helping the environment and deferring the need to build generating plants. Our plan is to spend at least $135 million over the next three years on these programs, and if we can find additional cost-effective means to invest in these programs, we'll add to this amount.

Energy efficiency programs are also helping fulfill Nevada's renewable portfolio standard, because up to one-quarter of the total renewable requirements can be satisfied with savings achieved from these initiatives. Nevada regulation treats investments in energy efficiency as rate based and has allowed an additional amount to be added to authorize a return on equity to provide incentives for such investments.

Last month, Nevada Power filed an amendment to the company's integrated resource plan, with the Public Utilities Commission of Nevada. The plan seeks authorization for power supply and transmission projects as well as two renewable energy projects.

We recently announced a joint ownership agreement with a subsidiary of Ormat Technologies to develop a 30 megawatt geothermal project in Northern Nevada called Carson Lake. This project marks the first time that a utility and a geothermal company have joined forces to develop a project. Ormat has a proven track record as a leading geothermal developer, and this particular project is favorably sited at a known geothermal resource area where other plants are already producing.

Additionally, we have filed with the PUCN for approval to invest in the first power plant in Nevada that uses waste heat to produce electricity. The waste heat will be captured from a compression station, along a gas pipeline owned by the Kern River Gas Transmission Company near Las Vegas. The six-megawatt generating plant will be constructed by Ormat, which has developed a proprietary technology for this process.

Our company is continuing its discussions with Renewable Energy Systems Americas, toward joint development and ownership of the largest wind project announced to-date in Nevada, a 200-megawatt wind generation project proposed for the northeastern portion of the state. The China Mountain Wind Project could be in service by 2011. At present, our utilities purchase approximately 275 megawatts of power from renewable energy producers. As outlined in the integrated resource plan over the next five years, we expect to invest approximately $500 million in renewable energy projects.

Now for the third part of our energy supply strategy, namely adding generating plants in Nevada that use traditional fuels. Let me start with a summary of the agreement announced yesterday. Under its terms, Nevada Power will pay approximately $500 million for the Big Horn plant, plus related inventory. We expect this acquisition to close later this year, following required regulatory approvals. Similar to our recent planned construction projects, Big Horn is highly efficient and employs a dry-cooling technology to reduce water requirements significantly. This natural gas-fired combined cycle facility was commissioned in 2004, and is nominally rated at 598 megawatts.

Turning to our Harry Allen project, we're asking our Commission in our resource plan filing to approve building this 500-megawatt project in southern Nevada. You may remember that we announced the project in November of 2007 because of delays in the final permitting of the Ely Energy Center and our need to assure that our customers have the reliability they expect and deserve. The project has an air permit and will be built on an existing site.

Similar to recent projects that we have brought online, the Harry Allen facility will use the latest emission-control technologies and will use very little water, because it will be air cooled. The estimated cost of this project is approximately $682 million. Harry Allen will be similar to the 541-megawatt Tracy combined cycle plant under construction in Northern Nevada near Reno, which is on-schedule to be complete by the summer of this year.

With completion of that project, our Northern Nevada service territory will be virtually energy self-sufficient for the first time. With regard to the Ely Energy Center, we expect the air permit for this project to be issued by the Nevada Division of Environmental Protection by this summer. In addition, the Bureau of Land Management has advised us that the draft environmental impact statement will be released late this year and that it is unlikely that a final EIS and a record of decision will be issued before December 2009.

Because of these delays in our recent resource planning amendment filing, we have said that we expect the in-service date for the first 750-megawatt generating unit to be 2015, and the second in 2016. We also disclosed in our 10-K that the current cost of the project is about $5 billion, and rising construction costs are a worldwide condition and our industry is no exception. Whether it's the construction of traditional power plants such as Harry Allen or Ely or renewable energy projects, rising equipment and material costs as well as engineering services and skilled craft labor have been increasing at a rate much faster than inflation.

I'll conclude my remarks with an update on our rate case in Northern Nevada. Sierra Pacific Power filed with the PUCN for a $111 million general rate increase or an overall increase of 12.5%. In the filing, we're also asking the PUCN. to increase the company's return on equity from 10.6% to 11.5%. Hearings started last week, and new rates once approved will be effective on July 1st.

About two-thirds of the rate increase request is attributed to the Tracy Combined Cycle plant that I mentioned earlier and the remainder is for other infrastructure investments to serve Northern Nevada. It's noteworthy that the rate increase we're seeking will be partially offset by reductions in rates related to fuel and purchase power costs that have occurred since October of 2007. When those are accounted for, the net impact of the pending general rate case amounts to about $41 million.

Now Bill and I are ready to take your questions. Operator, we're ready to take questions.

Question And Answer

Operator

All right, thank you. [Operator Instructions]. We have a question from Dan Eggers with Credit Suisse. Please go ahead.

Dan Eggers - Credit Suisse

Hi, good morning. Michael, just going back to what we talked about last quarter with jobs creation per hotel room at two to three jobs. Can you just give a little more color right now I guess the timing of those jobs come into effect how many of those people the rooms are going to be put into service '08,'09, '10 are already employed within the system just to help us better calculate what underlying growth would look like?

Michael W. Yackira - President and Chief Executive Officer

Dan, maybe 5,000 to 10,000 new rooms this year and about 35,000 over the next three or so years. But to break it down any finer than that, we'd need to do a little more work. But that's a good approximation.

Dan Eggers - Credit Suisse

Okay. So we... I guess when we look at the room additions relative to job creation, we should still be using two to three jobs per room, is the right assumption or is some of those... is some of that workforce already in the system, I guess from a customer-growth perspective?

Michael W. Yackira - President and Chief Executive Officer

From a new... these really do create new jobs. And the number that we have used in the past is about three and a half jobs per new room and that looks pretty effective.

Dan Eggers - Credit Suisse

Okay. And how much load can we think about being created with those hotel rooms separate from the jobs actual consumption of electricity within the system?

Michael W. Yackira - President and Chief Executive Officer

We don't disclose that, Dan.

Dan Eggers - Credit Suisse

Okay. Just another set of questions for you, I guess. Can you talk a little bit about your natural gas hedging from a supplier availability perspective but also from a pricing perspective? As we think about the big move in gas prices over the last three to four months, what that will do to rates at both utilities as you pass that through?

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

Dan, this is Bill Rogers. We have commission approved energy supply plan, which includes in that a rolling three season ahead hedging plan, and then in the State of Nevada we have two seasons. We have summer which is April 1 through October, and then the winter season. So we are always hedged to some degree for the next three seasons, and in fact we are hedged about two months by the start of near-term season.

The exact ratios of hedging are 75% for the near term, 50% and then 25% for that third season ahead. Accompanying that on a quarterly basis, the base fare of energy rate or the going forward rate for our customers is reset. So when we reset the rate, it is very much in line with where we have hedged and where we are looking at the forward curve today. Therefore, we dampen much of the volatility as a result of change in commodity prices. You are correct and the way the commodity prices went down last year and that benefited us. They've gone up in February and March of this year, but fortunately our hedging has dampened much of that increase.

Dan Eggers - Credit Suisse

Okay. So there is still room for an increase, but not as bad as the heavy gas fleet in $10 gas environment would suggest I guess?

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

That's correct and that's the purpose of this longer-term hedging program approved by our commission.

Dan Eggers - Credit Suisse

Okay. Thank you.

Operator

And next we have a question from John Kiani with Deutsche Bank. Please go ahead.

John Kiani - Deutsche Bank Securities, Inc.

Good morning, Michael, Bill.

Michael W. Yackira - President and Chief Executive Officer

Good morning, John.

John Kiani - Deutsche Bank Securities, Inc.

I have some questions around longer-term resource planning and rate-based growth. With the addition of Big Horn now, I guess slightly as an amendment to your existing IRP and the prior announcement of the Harry Allen plant and some of the other announcements and comments you've made around renewables investments in rate base. How should we think about the rate-based growth from new generation and resource planning for Sierra Pacific? And obviously, as you mentioned Ely is pushed out farther for certain reasons from a permitting perspective and other reasons; should we think about the company and the rate-based growth as being more gas-focused and renewables-focused for now and that that's where a lot of the new generation and new supply additions are going to come in and that Ely is more of a... kind of a longer term, secondary type of a project. Is that the right way to think about it or is that not accurate?

Michael W. Yackira - President and Chief Executive Officer

It's fairly not a secondary part of our strategy, John. I think you understand for well the reason for us wanting to build Ely and that is to have a more balanced fuel portfolio and that has not changed. The timing of Ely has changed, but our desire to balance the portfolio has not. And While we have added quite substantially to our portfolio of assets in Nevada, we're still well short of being fully hedged if you will against the energy markets because we don't own all the generation necessary to produce the demand from our customers. We, at the beginning of the summer this year, we'll own about 4,200 megawatts of generation statewide against a load of about 7,200 megawatts, so we're still short. The good news is Tracy provides that opportunity for the fist time for us to be self-sufficient in northern Nevada.

With the completion of the Clark Peakers in Southern Nevada, 400 megawatts which will come on by this summer, and 200 megawatts sometime later this year, we'll be adding to our owned capacity and reducing the need for peak power purchases. The construction program, I'll let Bill talk about this, but that's disclosed in our 10-K and he mentioned earlier we're talking $1.2 million, over the next several years, excluding the acquisition of Big Horn.

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

That's right, Michael. Thank you, John. As disclosed in our Form 10-K, Nevada Power has $6.6 billion of construction investments over the 2008 to 2012 time period and Sierra Pacific Power has just under $2 billion. Within that disclosure, we disclosed the amount relative to Ely Energy Center. It's a little less than $2.5 billion and most of that investment is in 2011, 2012. So our drive to invest in the state of Nevada on behalf of our customers remains strong and I think that that's a way to think about rate-based growth. Rate base will grow in a stair step function depending upon when we file our general rate cases and which company

is filing a general rate case.

John Kiani - Deutsche Bank Securities, Inc.

That's helpful. So then the take away is that just because you bought Big Horn, it doesn't mean that any focus has shifted away from Ely, it's obviously needed from a supply perspective but Ely is still a priority in any short fall in the interim from the delay in Ely will just be filled with gas or other types of supply?

Michael W. Yackira - President and Chief Executive Officer

That's correct John.

John Kiani - Deutsche Bank Securities, Inc.

Okay, that's helpful. Thank you.

Operator

And next we have a question from Lasan Johong with RBC Capital Markets. Please go ahead.

Lasan Johong - RBC Capital Markets

Great. Thank you very much. First of all, how do you finance Big Horn and the China Mountain Wind project. And what's the costs of the China Mountain Wind project?

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

We've not disclosed the cost of our joint venture with RES, referred to as China Mountain. With respect to the investment in that project as well as all of our other investments, it'll be done at the utility level, specifically in these two cases at Nevada Power and it'll be traditional corporate financing as part of our overall corporate financing plan, with a very strong intent to not only maintain the integrity of our balance sheet but to improve our credit ratios over time.

Lasan Johong - RBC Capital Markets

Sounds like you need to do an equity issue.

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

We have not been bashful in saying the company is growing and investing on behalf of our customers at this rate requires equity to maintain the integrity of the balance sheet.

Lasan Johong - RBC Capital Markets

Right. Can you give us any update on the California asset strategic initiative?

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

We continue to take a look at that and have not made much progress relative to our earnings call for the year-end 2007 period. But we encourage you to watch this space.

Lasan Johong - RBC Capital Markets

Okay. And there was a fairly big jump in gas consumption at Sierra Pacific 7.9%. A lot of that was driven by one customer; can you kind of give us a little background on what is going on there?

Michael W. Yackira - President and Chief Executive Officer

Maybe Bill can add some color to this, but it's a large industrial customer that is using more natural gas, and we certainly did have an increase at our natural gas consumptions at Sierra Pacific, you're correct.

Lasan Johong - RBC Capital Markets

Is that a sustainable pattern or is it just one-time project or do you think, you can give us a little color on that?

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

It's partially weather for natural gas, as well as more industrial load as we characterize it in our northern system.

Lasan Johong - RBC Capital Markets

So it is sustainable then.

Michael W. Yackira - President and Chief Executive Officer

Yes it is.

Lasan Johong - RBC Capital Markets

Okay. That's great. And can you give us any updates on the major project in the strip? Do you think everything is coming on schedule? Are they on kind of a pattern where you guys can predictably put in generation and are they giving you heartache and grief about building because there's not enough momentum in the real estate market?

Michael W. Yackira - President and Chief Executive Officer

I'm not sure of the heartache and grief comment, Lasan, but if you were to come down here, and even if you were to take a two-week hiatus between visiting the Strip, you would see an amazing amount of growth or construction at City Center and construction at Echelon Place. Encore is continuing, and is on schedule to be completed on time. Palazzo just opened earlier this year, had a soft opening late last year. The construction that's the interesting thing and why we feel confident that customer growth while it's slowed perhaps this year and into 2009, will continue to be strong. It's because these projects have continued, and there is no abatement in terms of their desire to get these things finished as quickly as possible.

Lasan Johong - RBC Capital Markets

So then longer term, are we kind of back to 3% to 4% growth rate in Las Vegas?

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

The answer to that is yes. And that's what we disclosed in our integrated resource plan filings.

Lasan Johong - RBC Capital Markets

Fantastic. Thank you.

Operator

And we have a question from Doug Fischer with Wachovia Securities. Please go ahead.

Doug Fischer - Wachovia Capital Markets LLC

Thank you. Bill and Michael would... will you be asking for some kind of accounting order to deal with any regulatory lag for Big Horn and anything you can give us on estimated O&M, depreciation and property tax levels?

Michael W. Yackira - President and Chief Executive Officer

Doug That will all be covered within our filing. We have obviously we made the announcement yesterday and we have not started on the process, but we will be making a filing within 30 days. So you'll see all that information or whatever we can supply in that filing.

Doug Fischer - Wachovia Capital Markets LLC

Any... in the first quarter, I didn't see any discussion of non-recurring or non-GAAP items. I know that at least a modest portion of Pinion Pine disallowance was reversed. Has that already been accounted for... is that in the first quarter remind us what that... how that $5.8 million that was dealt with from our earned income and balance sheet perspective?

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

A portion of that pretax number but not the entirety of it was reversed in first quarter and part of the income.

Doug Fischer - Wachovia Capital Markets LLC

Okay. And it's not called out because of materiality or what's the reason for that Bill?

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

That's correct.

Doug Fischer - Wachovia Capital Markets LLC

Okay. And then any kind of general comment you can give to us if, for example, the staff recommendation were to be adopted in its entirety for Sierra Pacific Power in the first 12 months after the new rates are in effect, at that unit, how would you expect that unit to perform versus its allowed return?

Michael W. Yackira - President and Chief Executive Officer

Let me just make a quick comment as a reminder, Doug. This jurisdiction has the situation that's different from others in that it's not a staff recommendation. It's testimony filed by the commission staff, which is an intervener by statute as is the Bureau of Consumer Protection an intervener by statute. So it's not similar to other jurisdictions like Florida's jurisdiction, where there is a recommendation from staff that's proposed to the commission. It is a position being taken as an intervener. That being said, do you have any comment about... I would prefer not to make any comments about the staff position. We're in the middle of hearings, and, I think time will tell and you can read the transcripts of the hearing if you'd like, but time will tell as to what the outcome is.

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

It's very early in the hearing process, Doug. The hearings began last Thursday.

Doug Fischer - Wachovia Capital Markets LLC

I understand that and I am sure that it will be riveting reading.

Operator

Okay. And next we have line from Brian Russo with Ladenburg Thalmann. Please go ahead.

Brian Russo - Ladenburg Thalmann

Hi, good morning.

Michael W. Yackira - President and Chief Executive Officer

Good morning, Brian.

Brian Russo - Ladenburg Thalmann

Could you just talk more about the renewables, projects, and any of your future projects, and then any future transmission that will be needed to bring that power to the load centers?

Michael W. Yackira - President and Chief Executive Officer

Brian, you know that part of our Ely Energy Center project and an important part is interconnecting the northern and southern systems for the first time, and that is part of the same E.I.S. process that we have with Ely. Since we're tied together, the delays that we're seeing in Ely, while not necessarily as long as Ely's first fire, it certainly has laid the in service date as we originally expected for the transmission line. That's necessary. The transmission bolstering in northern Nevada to assure the geothermal is reached is also important. You know these are small projects, 20 megawatts and 30 megawatts at a time, sometimes as big as 50 megawatts.

But in remote locations so there is a need for additional transmission infrastructure to assure those power plants can get into the system, but these are all part of the plan and we expect the transmission will be built to accommodate these. We're very interested as you know in expanding our position in geothermal and wind and solar. There is more to come as Bill said earlier, watch this space.

Brian Russo - Ladenburg Thalmann

All right. And if there are any more delays in the Ely Energy Center past, say, first start date of 2015, would you need more generation to meet your 80% goal of owned generation, or does the Big Horn acquisition kind of fill that gap?

Michael W. Yackira - President and Chief Executive Officer

It doesn't fill that gap, Brian. We're talking about, another 500 megawatts through Big Horn. Almost 600 megawatts from Big Horn. 500 megawatts from Harry Allen. That still leaves us short and we're growing in the state at about 250 megawatts per year. So there is a need for continued building and we expect we'll be accomplishing that over time. If Ely is delayed obviously, another 1500 megawatts that is further delayed will require to us do something more in the nearer term but this is one step at a time and our plan right now is to make a filing on Big Horn and see where the commission goes on that acquisition plus Harry Allen.

Brian Russo - Ladenburg Thalmann

Okay, and on the filing with Big Horn and the upcoming Nevada Tower GRC, obviously a big driver would be Big Horn. What are the other drivers in that filing?

Michael W. Yackira - President and Chief Executive Officer

Our infrastructure growth continues to be strong. The $1.2 billion that Bill mentioned before is about... what is it about 60% new projects and about 40% infrastructure. So there's a lot of infrastructure costs that have to go into this filing. It's an accumulation of two years of rate-based growth. So the Clark Peakers would be in there as an example. As Bill mentioned, if the commission approves the acquisition of Big Horn, Big Horn would be in that case, too.

Brian Russo - Ladenburg Thalmann

Okay. And then lastly just to clarify the $1.2 billion of CapEx over the next three years that's kind of like a base CapEx right? I mean you have excluded Big Horn from that and Harry Allen and any renewables?

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

The Harry Allen renewables are included in that approximately $1.2 billion and Bighorn is excluded.

Brian Russo - Ladenburg Thalmann

Okay.

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

Other renewable investments or other opportunities we might see on behalf of our customers would add to that.

Brian Russo - Ladenburg Thalmann

Okay, great. Thanks a lot.

Michael W. Yackira - President and Chief Executive Officer

Thanks, Brian.

Operator

And next we have one from Michael Lapides with Goldman Sachs. Please go ahead.

Michael Lapides - Goldman Sachs

Hey, guys Michael Lapides. Congrats on a very cost-efficient transaction for your ratepayers. Two questions. One kind of thinking next four to five years kind of through 2012, 2013. When you have a view on how many additional incremental megawatts of capacity in total over the next five to six years you would like to add into your utility subsidiaries, that's one. And the following question is just how should we think about known and measurable kind of the time line and process for the closing of the Big Horn transaction?

Michael W. Yackira - President and Chief Executive Officer

Let me take the first one. I'll have Bill take the second question. John, our plan is to continue to provide reliable service to our customers. Again, the reason that we decided to speed up the building of the Harry Allen plant and our desire to purchase the Big Horn plant is that we don't see a lot of building going on. And we have the need and the need is growing and we need to assure that our customers who have grown to expect and as I said deserve the reliable service that we have, and by our count Nevada Power is number two in the United States in terms of reliability. We need to assure that that continues. Extremely important for the economic growth of both parts of our state, but you can imagine Southern Nevada's extremely interested in that and Northern Nevada's more self-sufficient today, or will be in a couple of months than they have been ever before. So our desire is to assure that and that will be with a mixture of purchases and building. But if it turns out that we can't find the purchases, we're going to be building. And we are growing as I mentioned at about 250 megawatts in the state per year in peak demand.

Michael Lapides - Goldman Sachs

Okay. Thank you.

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

Michael, with respect to the approval process for our agreement to acquire the Big Horn plant from Reliant, the variety of regulatory approvals beginning with the Public Utility Commission in Nevada, so we will file an amount to our 2006 integrated resource plan for their consideration. We expect to file that within the next 30 days, and then they will have 135 days after that to issue an order. Concurrent with that, we need to file with the FERC as well as the D.O.J., and once all regulatory approvals are in place, we'll close shortly thereafter.

Michael Lapides - Goldman Sachs

Can you see any major reasons why either the FERC or the DoJ will have any issues with the transaction?

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

We'd rather not speculate on their thinking.

Michael Lapides - Goldman Sachs

Okay. Thank you guys.

Operator

And there is a question from Robert Howard with Prospector Partners. Please go ahead.

Robert Howard - Prospector Partners

Good morning, guys.

Michael W. Yackira - President and Chief Executive Officer

Hi, Rob.

Robert Howard - Prospector Partners

Just wondering you guys looked like you were having some good growth sort of from the industrial customer end of things and we always talk about the hotel growth and commercial growth. With commodity prices going up, you know, drastically all over the place, that industrial growth kind of being driven by new mining customers and is there maybe some potential for a lot more of that?

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

In our order system, but those customers are extending the licensor lines in the areas where they're mining so they maintained substantial growth. They're primarily the result of the price of gold. In the southern system with respect to industrial customers, it depends upon the size of the customer whether it's industrial or commercial but some of these very large projects which you might think as industrial rather commercial are industrial from the categorization.

Robert Howard - Prospector Partners

So meaning like some of the mega hotel type things you might classify as industrial or is that...

Michael W. Yackira - President and Chief Executive Officer

Yes, sir.

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

That's correct.

Robert Howard - Prospector Partners

Okay, all right. And the rest of my questions have been answered. Thanks and congrats on your purchase from yesterday.

Michael W. Yackira - President and Chief Executive Officer

Thanks, Rob.

Operator

[Operator Instructions]. We have one from Jeffrey Coviello with Duquesne Capital. Please go ahead,

Jeffrey Coviello - Duquesne Capital

Hi, good morning guys. How are you? Two quick questions. One is on the commission. I know there's three sitting commissioners right now. I was wondering, I'm trying to remember if that commission is usually a larger number of commissioners or if three's the right number and there's no more room to appoint anyone? And the second was just, you know, assuming big horn gets approved, I was wondering what kind of financing flexibility you had? I think as I understood it, you guys were thinking about '09 as a probable time to be doing maybe some equity and debt financing in a market. I was wondering with big horn if it is approved if that moves the time forward a bit or if we're still thinking about really '09?

Michael W. Yackira - President and Chief Executive Officer

Jeff, Let me take the fist one and Bill will take the second. In the 1990s and before that, it was the public service commission and it was a five-member group that was changed late in the 1990s, and it's a three-member group. They are appointed by the governor. They have staggered terms. And if there was any change to that, that would require statutory change. Bill?

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

Jeff, good morning.

Jeffrey Coviello - Duquesne Capital

Good morning.

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

Jeff, good morning. With respect to financing plans, we do not disclose or exact thinking with respect to timing or amount, but having said that, given the substantial investment and the recent announcement of big horn, it makes sense to us that we ought to be raising equity capital sometime between now and mid-2009.

Jeffrey Coviello - Duquesne Capital

Got it. Okay, that's very helpful guys. Thank you very much.

Michael W. Yackira - President and Chief Executive Officer

Thanks, Jeff.

Operator

And next we have one from Clark Orsky with KDP Investment Advisors. Please go ahead.

Clark Orsky - KDP Investment Advisors, Inc.

Yes, hi just two questions. One was on the flat megawatt hour sales that Sierra Pacific Power, was that just sort of a conservation affect in the quarter or?

Michael W. Yackira - President and Chief Executive Officer

I think it was just a slightly milder whether in the quarter, but no specific attributions or anything beyond that.

Clark Orsky - KDP Investment Advisors, Inc.

Okay. I guess the other question I had was... I believe I recall you had some medium-term notes that were somehow locked up in the auction rates and probably I am just wondering what the sort of reify scenario was there for you guys. Are you looking at that?

Michael W. Yackira - President and Chief Executive Officer

Between our two companies we have 568 million of auction rate securities that are insured by Ambank, MBIA and FJIC, depending upon the series. We've had a variety of reset interest rates throughout the course of the years. Given the caps we put on those securities, when we restructured the programs in 2006-2007, the interest expense has not been what I'll call punitive. We do not currently have any plans to refinance those.

Clark Orsky - KDP Investment Advisors, Inc.

Okay. Thanks.

Operator

[Operator Instructions]. And we have a follow-up from Lasan Johong with RBC Capital Markets. Please go ahead.

Lasan Johong - RBC Capital Markets

Thank you. Michael, just kind of a strategic type question. Can we assume that 6, half dozen in the other you're going to build a 1500 megawatt plant where the Ely site is currently there, regardless of whether it's a coal of gas plant? I believe that was what you had expressed earlier? Is that still the case?

Michael W. Yackira - President and Chief Executive Officer

I beg to differ. We never said that that would be a natural gas plant. Pipe is about 100 miles away. If we were going to build a natural gas plant, we don't think that that would be the best place for us to be building it. It would be closer to the load.

Lasan Johong - RBC Capital Markets

Agreed. Second are there any considerations for joint venturing or going out and maybe accelerating the building process by taking on somebody else's project that's what already have been permitted?

Michael W. Yackira - President and Chief Executive Officer

Lasan our project is the one that we are interested in. We have committed to build the cleanest coal project in the United States. That's the one we are committed to.

Lasan Johong - RBC Capital Markets

So there is no alternative choice if this is it.

Michael W. Yackira - President and Chief Executive Officer

This is the one we are going to follow. Yes.

Lasan Johong - RBC Capital Markets

Understood. Thank you very much Michael.

Michael W. Yackira - President and Chief Executive Officer

Thank you, Lasan.

Operator

And we do have a follow-up form Michael Lapides from Goldman Sachs. Please go ahead.

Michael Lapides - Goldman Sachs

Hi, guys. Thinking about other combined cycles in the region that may not be operating at the levels their current owners would like them to economically. For transmission purposes, can you only look at or consider assets that are in Nevada or are there assets elsewhere in the desert southwest that you would be able to wield the power into your service territory?

Michael W. Yackira - President and Chief Executive Officer

We're interested in power plants in Nevada for Nevadans. That's the statement we've been making. We believe that that's the way to do it. It's certainly better to have those power plants in our control area so that we can operate them well, not have to worry about transmission constraints. That's our desire, to build them in Nevada.

Michael Lapides - Goldman Sachs

Okay. Thank you.

Operator

And at this time there are no questions in queue. Please continue.

Michael W. Yackira - President and Chief Executive Officer

Well thanks very much for participating this morning I think the questions as usual were excellent, and we're very pleased with our quarter. We look forward to seeing some of you in May at the EEI Financial Conference, and thanks for your interest, and any follow-up calls please, make sure to call Britta. Thanks very much for participating.

Operator

Thank you. Ladies and gentlemen, this conference will be available for replay after 9:30 AM today until May 23rd at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701 and entering the access code 919549. International participants may dial 1-320-365-3844. Again those numbers are 1-800-475-6701, international 1-320-365-3844, and entering access code 919549.

That does conclude your conference for today, and thank you for your participation, and for using AT&T Executive Teleconference. And you may now disconnect.

Copyright policy: All transcripts on this site are copyright Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.