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NV Energy, Inc. (NVE)

Q2 2011 Earnings Call

August 1, 2011 10:00 am ET

Executives

Max Kuniansky – IR

Michael Yackira – President and CEO

Dilek Samil – SVP, CFO and Treasurer

Analysts

Daniel Eggers – Credit Suisse

Greg Gordon – ISI

Neil Mehta – Goldman Sachs

Steve Fleishman – BofA

Jay Dobson – Wunderlich Securities

Andrew Levi – Caris & Company

Paul Patterson – Glenrock Associates

Robert Howard – Prospector Partners

John Alley – Decade Capital

Presentation

Operator

Ladies and gentlemen, thank you very much for standing by. And welcome to the NV Energy Second Quarter 2011 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given to you at that time. (Operator Instructions)

And also as a reminder today’s conference is being recorded. I would now like to turn the call over to your first speaker, Mr. Max Kuniansky. Please go ahead.

Max Kuniansky

Good morning, everyone. Thank you for joining us to review NV Energy’s results for the second quarter of 2011. By now you’ve seen the press release issued earlier today and the slides on our website. We do expect to file our Form 10-Q with the SEC within this week.

Comments we make during this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the future performance of NV Energy Inc. and its subsidiaries, Nevada Power Company and Sierra Pacific Power Company.

These statements are current expectations and as such are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company’s Form 10-Q with period ended March 31, 2011 and the Form 10-K for the year ended December 31, 2010. Reconciliations of certain non-GAAP financial information can be found on our company website at www.nvenergy.com.

With me this morning are Michael Yackira, President and Chief Executive Officer; and Dilek Samil, Senior Vice President, Chief Financial Officer and Treasurer.

I’ll now turn the call over to Dilek.

Dilek Samil

Thank you, Max, and good morning, everyone. I’d like to officially welcome Max to NV Energy. Most if not all of you know Max and know that he’s the content professional. Max brings a wealth of utility and Investor Relations experience to our company and with Britta’s in depth knowledge of NV Energy they make a great team. I feel fortunate to work with them both.

With that, let me turn to our numbers. As we announced this morning, net income for the second quarter of 2011 was $12.9 million or $0.05 per diluted share, as compared with $36.9 million or $0.16 per share in the second quarter a year ago. For the first half of 2011, we earned $15.2 million or $0.06 per diluted share, compared with $35.2 million or $0.15 in 2010.

The key drivers of the decrease in second quarter earnings were lower gross margin, lower AFUDC, higher depreciation and two other items, which I’ll explain. Beginning with those two items, one was an adjustment related to our energy efficiency and conservation program, which reduced second quarter earnings by $8.6 million pre-tax.

We’ve been recording estimated loss revenues associated with these programs since August of last year. In the second quarter, the Public Utilities Commission issued a ruling which does in fact allow us to recover lost revenue but at a lower level than we had requested that ruling necessitated the adjustment.

The second item is a $7.6 million pre-tax gain on the sale of our independent Lake property, which we recorded in quarter two last year. Together these two adjustments account for nearly half the decline in pre-tax earnings for the quarter.

Gross margin was down nearly $15 million for the second quarter of 2011, compared to the same period a year ago. The single largest reason for the margin decline was decreased customer usage, primarily reflecting milder weather compared to last year.

The milder temperatures occurred in June which is typically a month of hot summer weather in the Las Vegas area accompanied by increased air conditioning rate. This year, cooling degree days for June were down 9% compared to last year. In total, megawatt hour sales in Nevada for the second quarter were down by 1.2% year-over-year.

Another factor contributing to lower gross margin was the sale of our California operations, which we completed on January 1st of this year.

Partially offsetting the declines were revenues related to energy efficiency and conservation programs, which we could not recognize in prior years and customer growth and Nevada customer base grew just under 1% for the quarter.

Turning to expenses, depreciation increased and AFUDC decreased in the second quarter. As expected, the Harry Allen Generation Plant which we placed in service in early May was the single largest factor driving both variances and also put pressure on operating and maintenance expense. As a result, completion of Harry Allen reduced pre-tax earnings by nearly $9 million for the quarter.

The total cost for the project came in at about $700 million including AFUDC. We expect the trend of higher depreciation and lower AFUDC to continue for the rest of the year and to remain dilutive to earnings until these amounts are reflected in rates.

Michael will provide an update on the Nevada economy in a few minutes but our conclusions and our outlook are unchanged. Our load forecast remains flat for next year, so we’re working hard to hold expenses flat.

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