NV Energy signals arrival in big leagues

Dividend growth policy? Check. Earnings guidance? Check. Debt reduction plan? Check.

NV Energy announced a series of financial initiatives Tuesday signaling its arrival in the industry’s big leagues.

“We’ve reached a maturity level,” said CEO Michael Yackira. “We’re more like a normal utility now in that growth in investments in our generation fleet will match growth in our load (demand).”

For ratepayers, stability means lower borrowing costs, leading to lower service costs and rate requests, Yackira said.

A decade ago the company was wrestling with energy emergencies and a chronic shortage of company-owned generation. The utility generated less than 40 percent of its own power in 2001, and relied on wholesale markets. That proved disastrous during the Western energy crisis, when the cost of purchased power soared. The company asked the state Public Utilities Commission for a rate increase of nearly $1 billion in 2002 but only about half that was granted.

NV Energy paid for added generation capacity by borrowing millions, sometimes at rates as high as 10.5 percent, and by suspending dividends in 2002. It restored below-average dividends of around 8 cents a share in 2007.

A decade and 3,000 megawatts of new power plants later, NV Energy now handles more than 75 percent of its power demand, much closer to the normal utility share of 90 percent to 110 percent.

With the utility caught up on generation, it’s spending a lot less on new construction and is able to ramp up investor returns. NV Energy bumped its dividend per share from 13 cents in the first quarter to 17 cents in the second quarter, and is on track to pay 64 cents in 2012, up 31 percent from 49 cents in 2011. With projected earnings of $1.15 to $1.25 a share in 2012, that would mean a dividend payout ratio of about 50 percent, close to the industry norm of 55 percent to 65 percent that is NV Energy’s target.

Plus, no longer is the company’s revenue vulnerable to the vagaries of regulatory rate filings. Until now, NV Energy, with 2,700 employees and a market cap of $4 billion, was the only company of its size not filing earnings guidance, Yackira said. Forecasts didn’t make sense when regulators could unexpectedly pare millions from revenue requests, but today, the utility can cover capital costs with cash flow and make forward-looking statements with more certainty.

Thanks to those slow but steady improvements, the company’s interest rate on revolving lines of credit has plummeted to 2.5 percent. NV Energy is refinancing debt to take advantage.

“As our financial position improves, and as Wall Street recognizes that improvement, the cost of doing business should come down for our customers in the long run,” Yackira said.

NV Energy also said Tuesday that its earnings have improved. In the quarter ended March 31, the company posted net income of $12.2 million, or 5 cents a share, compared with net income of
$2.3 million, or 1 cent a share, a year earlier. Quarterly revenue fell 4.6 percent to
$611.4 million from $641 million a year earlier. Income bested analyst expectations, which Thomson Reuters pegged at 4 cents a share on revenue of $662 million.

Yackira attributed improved earnings to income from the Harry Allen plant at Apex, which went live in May 2011. Yackira also noted that operating and maintenance expenses were “virtually unchanged.”

NV Energy’s shares rose 7 cents, or 0.41 percent, Tuesday to close at $16.97 on the New York Stock Exchange.

Contact reporter Jennifer Robison at
jrobison@reviewjournal.com or 702-380-4512.
Follow @J_Robison1 on Twitter.