Two Nevada Power plants sold for $634 million

Monday, Nov. 20, 2000 | 11:30 a.m.

Two Southern Nevada power plants operated by Nevada Power Co. will be sold to two companies specializing in power generation for $634 million, the companies announced today.

Nevada Power's 740-megawatt gas-fired Clark Generating Station and the majority of the generating capacity of the 605-megawatt coal-fueled Reid Gardner Generating Station are being sold to NRG Energy Inc., Minneapolis, and Dynegy Inc., Houston, both publicly traded companies.

Clark is located near Russell Road and U.S. 95 and has 78 employees while Reid Gardner is near Moapa, about 52 miles northeast of Las Vegas and has 132 employees. Three of the Reid Gardner units, producing 110 megawatts each, are wholly owned by Nevada Power. A fourth unit, producing 275 megawatts, is jointly owned by Nevada Power and the California Department of Water Resources, which will keep its 200-megawatt ownership interest in the plant.

NRG plans to operate the stations and Dynegy will serve as the power marketer and fuel supplier. The deal is the sixth collaboration by the two companies, which jointly own 2,768 megawatts of power generation facilities in California and 350 megawatts in Illinois.

NRG, in October, was the successful bidder for Sierra Pacific Power Co.'s 50 percent interest in the 522-megawatt coal-fired North Valmy Generating Station as well as 25 megawatts of peaking power units in Northern Nevada.

The deal must be approved by the Federal Trade Commission, the Federal Energy Regulatory Commission and the Public Utilities Commission of Nevada and is expected to close in the second quarter of 2001.

For Nevada Power and Sierra Pacific, both subsidiaries of Sierra Pacific Resources Inc., Reno, the sales marked the third and fourth of seven power plant sales required as a condition of the merger of those two companies in 1999. The two plants are the largest of the power generating assets being sold.

Three more plants -- Fort Churchill near Yerington, the Harry Allen plant at Apex, north of Las Vegas, and the Sunrise plant near Las Vegas High School -- are scheduled to be sold next year. Sierra Pacific Resources also will sell its 11.3 percent interest in the Navajo Generating Station near Page, Ariz.

The proceeds of the sale of all the power plants are a key component of the court settlement that was reached earlier this year when Sierra Pacific sued the state for disallowing it from recovering escalating purchased power and fuel costs from consumers. The state prevented the utility from recovering those costs as part of the transition to a deregulated market, but that transition has been delayed twice.

David Barneby, vice president of generation for Nevada Power and Sierra Pacific, said the $634 million purchase price was the high bid received for the plants.

Barneby explained that the bid was received as part of a lengthy two-stage auction process that required all bidders to sign a confidentiality agreement that also blocks Sierra Pacific Resources from disclosing the number of bidders. The process was established for Sierra Pacific to maximize the sales price all all of the plants.

For each of the power plants being sold, Sierra Pacific sent several hundred applications to prospective companies earlier this year, asking for an "indicative bid" that could not be reduced. A short list of bidders was then recontacted to receive the submission of the final bid.

Those bids were received earlier this month on the Reid Gardner and Clark plants.

Barneby explained that the company will not be able to calculate exactly how the proceeds of the sale will be distributed until all of the power plants are sold because the expense of the sale will be accounted at one time. Once the expenses of the transactions are determined, the company will receive $115 million of the proceeds.

Mark Ruelle, chief financial officer of Sierra Pacific, said of the $115 million, some of it would pay off company debt and the debt of Portland General Electric, an Oregon utility Sierra Pacific is acquiring.

The rest of the proceeds would go into an escrow account for customers to offset higher costs of purchased power and fuel. It hasn't been determined how that would be distributed to customers.

The company expects to pay income taxes on the gain, since the purchase price is above the book value of the plant.

Consumer Advocate Tim Hay said the purchase price appears to be just under twice the book value of the plants.

"It appears to me to be a fairly robust price for these assets," Hay said. "It's a fairly substantial deal."

He said the two buyers are "reputable names" in the power-generation industry.

As part of the transaction with NRG and Dynegy, Nevada Power negotiated a transitional purchase power agreement through March 2003. That, the company said, would help provide electricity price stability for customers while the state is in transition to an open market. By March 2003, the market is expected to be deregulated.

Nevada Power also wrote into the contract during the bid process that the employees of the two power plants could keep their jobs through contracts with the International Brotherhood of Electrical Workers for about 18 months.