A BALANCED APPROACH SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT Our Three-Part Strategy 1 CONSERVATION 2 RENEWABLES 3 NEW GENERATION STRATEGIC TAKING A BALANCED APPROACH AS THE ENERGY PROVIDER FOR NEARLY ALL OF NEVADA, SIERRA PACIFIC RESOURCES HAS AN OBLIGATION TO PROVIDE OUR CUSTOMERS WITH RELIABLE ELECTRIC AND NATURAL GAS SERVICE AT REASONABLE AND PREDICTABLE RATES. WE ARE WORKING HARD TO FULFILL OUR RESPONSIBILITIES TO ALL OUR CONSTITUENTS, INCLUDING YOU, OUR INVESTORS, WITH A REALISTIC, BALANCED THREE-PART ENERGY STRATEGY THAT’S Sierra Pacific Resources is an investor-owned corporation with operating subsidiaries engaged DESCRIBED IN THE PAGES OF THIS ANNUAL REPORT. OUR STRATEGY CALLS FOR INVEST- in the utility business, principally in the State of Nevada. The company’s stock is traded on ING IN: ENERGY EFFICIENCY AND CONSERVATION PROGRAMS; RENEWABLE ENERGY the New York Stock Exchange under the symbol SRP. ¶ Its two major operating subsidiaries PROJECTS; AND NEW, HIGHLY EFFICIENT POWER GENERATION. THESE INVESTMENTS are Nevada Power Company, which serves approximately 826,000 electric customers in WILL CONTINUE OUR PROGRESS TOWARD NEVADA’S ENERGY INDEPENDENCE, HELP Las Vegas and surrounding areas of southern Nevada; and Sierra Pacific Power Company, CONSUMERS MANAGE THEIR POWER COSTS, AND ESTABLISH OUR COMPANY AS A which has approximately 366,000 electric customers in northern Nevada and the Lake Tahoe area of northern California, and provides natural gas service to approximately 149,000 customers NATIONAL LEADER IN RENEWABLE ENERGY. in the Reno-Sparks metropolitan area of northern Nevada. ¶ The combined service area of the two utilities covers approximately 54,500 square miles. ¶ The number of registered holders Michael W. Yackira of Sierra Pacific Resources’ common stock was 16,293 as of December 31, 2007. President & Chief Executive Offi cer On the cover: Sierra Pacific Power is partnering with The Nature Conservancy, Truckee Meadows Water Authority and other organizations in 2008 to preserve Independence Lake, which was acquired by the utility in 1937. We announced a similar agreement in 2007 to protect 3,350 acres of forested land in the Truckee River Canyon west of Reno. · 1 · SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT Energy Conservation Results in Millions of Kilowatt Hours NEVADA POWER SIERRA PACIFIC POWER 200 80 150 60 100 40 50 20 0 0 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 CONSERVATION INVESTING IN ENERGY EFFICIENCY LOOKS FUNNY, SAVES MONEY WAS THE THEME FOR THE COMPANY’S 2007 CAMPAIGN TO ENCOURAGE NEVADANS TO SAVE ENERGY BY REPLACING THEIR OLD INCANDESCENT BULBS WITH COMPACT FLUORESCENT LIGHT BULBS (CFLS). OVER 2 MILLION CFLS WERE DISTRIBUTED STATEWIDE IN 2007 FOR AN ANNUAL ENERGY SAVINGS OF APPROXIMATELY 120 MILLION KILOWATT HOURS. CFL BULBS USE ABOUT 75 PERCENT LESS ENERGY THAN STANDARD INCANDESCENT BULBS AND LAST UP TO 10 TIMES LONGER. THE CFL PROGRAM IS ONE COMPONENT OF A BROAD RANGE OF ENERGY EFFICIENCY INITIATIVES FOR RESIDENTIAL AND COMMERCIAL CUSTOMERS, SCHOOLS AND PUBLIC BUILDINGS. OTHER PROGRAMS PROVIDE CUSTOMERS WITH FINANCIAL INCENTIVES FOR RECYCLING OLD, INEFFICIENT REFRIGERATORS AND FOR REDUCING AIR CONDITIONER USE IN THE SUMMER. NEVADA POWER AND SIERRA PACIFIC POWER ALSO PROVIDE GRANTS TO NEVADA-BASED NONPROFIT AGENCIES TO FUND WEATHERIZATION AND ENERGY EFFICIENT RETROFIT PROJECTS. IN 2007, OUR ENERGY EFFICIENCY PROGRAMS SAVED OVER 250 MILLION KILOWATT HOURS OF ELECTRICITY STATEWIDE. · 2 · SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT Renewable Energy SOLAR WIND RENEWABLES GEOTHERMAL RENEWABLE ENERGY TAKES OFF A FIGHTER JET FROM NELLIS AIR FORCE BASE FLIES ABOVE THE PHOTOVOLTAIC SOLAR PANELS THAT ARE GENERATING 14 MEGAWATTS OF ELECTRICITY TO HELP POWER THE MILITARY BASE NORTH OF LAS VEGAS. A JOINT PROJECT OF THE U.S. AIR FORCE, NEVADA POWER COMPANY, MMA RENEWABLE VENTURES, LLC, AND SUNPOWER CORPORATION, IT IS THE LARGEST PHOTOVOLTAIC SYSTEM IN NORTH AMERICA. COMPLETED IN DECEMBER 2007, THE PROJECT IS HELPING NEVADA POWER MEET THE AMBITIOUS RENEWABLE ENERGY PORTFOLIO STANDARD SET BY THE NEVADA STATE LEGISLATURE. BY YEAR END 2007, NEVADA LED THE NATION IN BOTH SOLAR AND GEO- THERMAL POWER PER CAPITA. IN JUNE 2007, SOUTHERN NEVADA CUSTOMERS BEGAN RECEIVING 64 MEGAWATTS OF ELECTRICITY FROM THE LARGEST CAPACITY SOLAR THERMAL POWER PLANT BUILT IN THE WORLD SINCE 1991 AND THE THIRD LARGEST OF ITS KIND. SIERRA PACIFIC RESOURCES ALSO BEGAN DISCUSSIONS TO JOINTLY DEVELOP WITH ANOTHER COMPANY A 200-MEGAWATT WIND ENERGY PROJECT IN NORTHEASTERN NEVADA NEAR THE IDAHO BORDER. · 5 · SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT Projected Power Generation Portfolio 9% RENEWABLE 46% ENERGY COAL 24% COAL 2008 3% 2016 PURCHASED POWER* 20% 16% RENEWABLE PURCHASED % ENERGY POWER* 51 NATURAL GAS 31% NATURAL GAS *Primarily based on natural gas BALANCE A NEW GENERATION OF POWER PLANTS SIERRA PACIFIC RESOURCES’ BALANCED ENERGY SUPPLY STRATEGY CALLS FOR INVEST- MENT IN NEW, HIGHLY EFFICIENT POWER GENERATION. THE NEW TRACY COMBINED CYCLE PLANT NEAR RENO, SHOWN ON THE OPPOSITE PAGE, IS EXPECTED TO BE GEN- ERATING ELECTRICITY FOR SIERRA PACIFIC POWER’S CUSTOMERS BY THE SUMMER OF 2008. THIS 541-MEGAWATT, NATURAL GAS-FIRED POWER PLANT WILL INCREASE THE UTILITY’S GENERATING CAPACITY BY ABOUT 50 PERCENT, MAKING OUR NORTHERN NEVADA SERVICE AREA VIRTUALLY ENERGY SELF-SUFFICIENT. THE PLANT WILL BE THE MOST EFFICIENT IN NORTHERN NEVADA, USING ABOUT ONE-THIRD LESS FUEL THAN THE COMPANY’S EXISTING GENERATING UNITS AND IT WILL USE VERY LITTLE WATER. NEVADA POWER PLANS TO CONSTRUCT A SIMILAR 500-MEGAWATT, GAS-FIRED COMBINED CYCLE POWER PLANT NORTH OF LAS VEGAS. ADDITIONALLY, TO PROVIDE MORE NEVADA- BASED GENERATING PLANTS FOR USE DURING PEAK DEMAND PERIODS, NEVADA POWER IS INSTALLING GAS-FUELED COMBUSTION TURBINES AT CLARK STATION THAT ARE CAPABLE OF GENERATING UP TO 600 MEGAWATTS. ONCE THESE CLARK STATION UNITS ARE COMPLETED, BY THE END OF SUMMER 2008, WE WILL HAVE MORE THAN DOUBLED OUR COMPANY-OWNED GENERATING CAPACITY IN NEVADA FOR NEVADANS. · 6 · SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT Financial Highlights (dollars in thousands, except per share information) 2007 2006 TOTAL OPERATING REVENUES $ 3,600,960 $ 3,355,950 TOTAL OPERATING EXPENSES $ 3,186,393 $ 2,867,153 NET INCOME APPLICABLE TO COMMON STOCK $ 197,295 $ 277,451 NET INCOME APPLICABLE TO COMMON STOCK $ 0.89 $ 1.33 PER SHARE— BASIC WEIGHTED AVERAGE COMMON SHARES— BASIC 222,180,440 208,531,134 TOTAL ASSETS $ 9,464,750 $ 8,832,076 TOTAL ELECTRIC RETAIL SALES (MEGAWATT HOURS) 30,394,026 29,530,239 TOTAL RETAIL GAS SALES (DECATHERMS) 14,893,000 15,058,000 TOTAL ELECTRIC CUSTOMERS 1,192,000 1,168,000 GROWING TOTAL GAS CUSTOMERS 149,000 146,000 PROVIDING ENERGY FOR A GROWING STATE THE WORLD FAMOUS LAS VEGAS STRIP IS GROWING, ALONG WITH THE REST OF NEVADA. DURING 2007, NEVADA REGAINED ITS RANKING AS THE FASTEST GROWING STATE IN THE NATION. THOUSANDS OF NEW HOTEL ROOMS WILL BE COMPLETED IN LAS VEGAS OVER THE NEXT FEW YEARS, BOLSTERING THE CITY’S TOURISM AND CONVENTION BUSINESS. TWO OF THE NEW RESORTS UNDER CONSTRUCTION, MGM MIRAGE’S CITYCENTER AND BOYD GAMING’S ECHELON PROJECT, ARE THE LARGEST PROJECTS IN THE CITY’S HIS- TORY. DUE TO NEVADA’S GROWTH, PEAK ELECTRIC DEMAND IS EXPECTED TO GROW ANNUALLY BY 250 MEGAWATTS FOR THE NEXT FEW YEARS. IN 2007, NEVADA POWER COMPANY AND SIERRA PACIFIC POWER SET 36,677 ELECTRIC METERS. DURING THE PAST 10 YEARS, SIERRA PACIFIC RESOURCES UTILITIES HAVE INVESTED $1.17 BILLION IN NEW TRANSMISSION LINES. NEVADA POWER HAS CONSTRUCTED 210 MILES OF HIGH VOLTAGE TRANSMISSION LINES TO SERVE SOUTHERN NEVADA. OVER THE SAME PERIOD, SIERRA PACIFIC POWER HAS ADDED 450 MILES OF HIGH VOLTAGE TRANSMISSION LINES IN NORTHERN NEVADA. · 9 · SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT SIERRA PACIFIC RESOURCES 2007 ANNUAL REPORT Sierra Pacific Resources’ consolidated earnings were $197.3 million, or 89 cents per share, for the year ended December 31, 2007, compared with earnings of $277.5 million, or $1.33 per share, in 2006. The 2006 results were higher because of two non-recurring factors: a court ruling that allowed Nevada Power to recover $116.2 million, after tax, for previously disallowed fuel and purchased power costs and a $40.9 million after tax gain on the sale of Sierra Pacific Resources’ ownership in the Tuscarora Gas Transmission Company. Importantly, in the third quarter of 2007, Sierra Pacific Resources resumed dividend payments for the first time since 2002, after an improvement in our credit ratings from Moody’s Ratings Service. Our utilities’ senior secured debt is now rated investment grade by three of the four leading agencies. We invested more than $1.2 billion this past year in electric infrastructure and we expect to invest approximately $4 billion over the next three years in order to meet our customers’ growing energy needs. Serving the Fastest Growing State The demands on our utilities continue to grow since our state once again is the fastest growing in the nation. Peak electric demand is expected to increase statewide at an annual rate of about 250 megawatts, or approximately 3 percent, over the next few years. The Las Vegas skyline is dotted with construction cranes as workers build thousands of new hotel rooms for area visitors. Las Vegas Sands recently opened its addition to the Venetian. Wynn Resorts will complete its expansion in 2008. The two largest privately-funded construction projects in the United States, MGM Mirage’s CityCenter Project and Boyd Gaming’s Echelon Place, are