Retail power company eyes deal with Le Reve

Malcolm Hall

Friday, Feb. 22, 2002 | 10:54 a.m.

San Diego-based Sempra Energy, which developed a partnership with the Venetian on a $70 million heating and cooling plant, is attempting to strike similar deals with other resort properties, including Steve Wynn's Le Reve.

Bob Dickerman, president of Sempra Energy Solutions, a subsidiary of Sempra Energy, said the company has "a lot of interest" in the Las Vegas casino market and offers large commercial and industrial customers a portfolio of electricity, natural gas and environmental products and services.

While full deregulation of the power industry in Nevada is on hold, lawmakers last year passed a measure that allows large electricity users such as mining operations and casinos to contract with wholesale power companies.

"We're very serious about our prospects for growth in that marketplace," Dickerman said. "At the moment, the Venetian is our only infrastructure operation but we're very interested in developing a similar relationship with the Wynn properties and other new developments."

Todd Nisbet, project manager Wynn Design and Development, said the company is still evaluating its energy options.

"It's still under review and no final determination has been made yet, if we decide to go that way at all," Nisbet said.

Le Reve is a planned 42-story, 2,455-room tower to be built on the site of the former Desert Inn on the Las Vegas Strip. Wynn bought the Desert Inn for $270 million in 2000. Construction on the estimated $1.6 billion Le Reve megaresort is expected to begin this spring.

During its construction three years ago, Sempra invested $70 million in the utility plant serving the $1.5 billion, 3,000-room Venetian resort and the adjacent Sands Expo and Convention Center with partner Conectiv Inc. of Wilmington, Del.

The plant provides chilled water and steam to both properties, owned by Sheldon Adelson. Sempra bought Conectiv's 50 percent stake in 2000. Sempra developed similar projects at the Staples Center, the Hollywood and Highland entertainment center and the DreamWorks SKG animation studio, all in the Los Angeles area.

"It's an outsourcing relationship," Dickerman said. "It involves us owning all the equipment and is a model that has proven to be very successful for us and our customers as well. It enables them to lay off many of the risks associated with energy."

Dickerman said since energy is a very large component of a resort's capital and energy costs, "if we're able to supply capital for their plants, it frees up capital for them to invest in new resorts and we can perform their operations with lower cost, a higher degree of reliability and fewer operating risks ... because we're specialists."

Steve Boss, president of the Nevada Energy Buyers Network in Las Vegas, agreed the benefit of such joint energy ventures relates to the capital equity markets.

"If you're going to build a $1 billion resort, you can take that $70 million out of your balance and someone else takes on the capital expenditure," Boss said. "It's a way of keeping things off your balance sheet and there's a limit to how much you can borrow."

The Venetian plant, one of the largest of its kind in the world, features seven chillers producing 14,000 tons of air conditioning, enough to cool 3,500 homes. The plant pumps 22,000 gallons of water to the properties each minute at a constant 42-degree temperature.

A customized software system links 10,000 pieces of equipment, while five 800-horsepower steam boilers produce heat.

Nearly 50 Sempra engineers and technicians operate the plant, which includes a 10.8-megawatt emergency power generating system, enough to power the entire hotel in case of an outage.

To ensure the slot machines and bars are operational in case of a power outage, the backup generators "have to be able to come up in less than 10 seconds," said Larry Malmedal, Sempra's on-site manager.

Sempra also buys the natural gas and electricity for the property.

Kim Grange, director of facilities at the Venetian, said the arrangement is a seamless operation.

"When I first came into the business five years ago I was skeptical because I was always the total controller of these facilities," he said. "But now I totally support this concept because it allows me to do my job and maintain the public areas in a greater level of detail. I can pay attention to the other stuff and worry about nothing."

Boss said he's aware of only one other major property in Las Vegas that outsources all of its energy needs, the $1.2 billion Aladdin resort, which opened in August 2000 with 2,600 rooms.

Aladdin outsourced its power needs to Northwind Aladdin LLC, which is 25 percent owned by Sierra Pacific Resources and 75 percent owned by Exelon Thermal Technology of Chicago, said Gary Wood, vice president of operations for Sierra Energy Co., a division of Sierra Pacific Resources.

"We own the plant with Exelon, and provide cooling and heating to Aladdin and Desert Passage, who pay a monthly fee and any other utility costs," Wood said. "Up to this point its been a real good relationship and I think Aladdin and Desert Passage are comfortable with outsourcing their energy. They can take that capital and put it into other resources."