Uncertainty surrounds building of power plants

Monday, June 10, 2002 | 10:58 a.m.

Nevadans familiar with state energy issues are hopeful that new power plants in Clark County will help local customers avoid another Western electricity crisis.

They are uncertain, however, about the amount of additional electricity that will be made available for local homes and businesses in coming years because many of the proposed generating plants have been put on hold.

The prevailing thought is that building more power plants locally will increase the supply of electricity and help stabilize the prices paid by consumers. That's particularly important in Southern Nevada because Nevada Power Co. has become increasingly reliant on energy generated elsewhere. That has made the utility more vulnerable to unstable wholesale prices, such as was the case when those costs began skyrocketing in the West two years ago.

"It is our responsibility as a state to help solve the Western power crisis," Carl Linvill, energy adviser to Gov. Kenny Guinn, said. "Whether the electricity stays in Nevada or leaves Nevada it will increase the overall supply and that will help lower prices."

Plans have been announced to build at least 7,791 megawatts of new generating capacity in the county, slightly less than twice the 4,115 megawatts of capacity that exists in Southern Nevada. One megawatt is enough to power roughly 1,000 homes.

But less than half of the announced new capacity is under construction or undergoing permits. Most of the proposed plants have not left the drawing board.

At least one proposed plant, the 587-megawatt Arrow Canyon facility planned by Reliant Energy of Houston to be placed near Apex, has been suspended indefinitely. Reliant spokesman Richard Wheatley said lackluster national economic conditions caused by such events as the Enron debacle and Sept. 11 terrorist attacks have made it more difficult to justify construction of power plants.

"Market conditions are not what they should be to build a power plant of that type right now," Wheatley said. "We've either delayed or cancelled projects around the country."

It so happens that Reliant's stock, like those of other energy trading giants, has fallen sharply in recent weeks because of concerns on Wall Street that the industry has not been properly disclosing its trading activities. But Linvill and state Consumer Advocate Timothy Hay said they do not believe those concerns will have much impact on planned power plants locally.

Reliant, for instance, is still planning to complete its 560-megawatt Bighorn plant in Primm by next year. Wheatley said that it is far easier to get a power plant built in Nevada than in California, which he said should benefit Las Vegans. He said Nevada's edge over California is that it has "a better general climate from a regulatory and business standpoint."

"We try at all times to keep the capacity of the power focused on the area where the plant operates," he said. "You want to make sure you're fulfilling local and regional needs first before meeting power needs anyplace else."

Lucinda Parker, permitting specialist for the Clark County Department of Air Quality Management, said companies are finding Nevada attractive for power plants because fees they are required to pay the state run $20,000 to $30,000 annually, compared to more than double that in California.

"As California has gotten less industrial friendly it has gotten more stringent," Parker said. "We are as stringent as California in some respects and we still exceed federal rules. But we also have air quality that allows them to locate here whereas Southern California does not. And the other thing we have is available land."

That said, Nevada lawmakers recognize that federal law makes it impossible for the state to require that all or most of the electricity generated by new plants in Clark County stays in Southern Nevada. That's because the plants are being built by out-of-state companies and there is open access to power lines that allows electricity generated locally to go to other Western states.

"It would violate the commerce clause of the U.S. Constitution to legislate that a certain percentage of power stay in the community," Assembly Majority Leader Barbara Buckley, D-Las Vegas, said. "It's up to county planners to make sure residents are protected."

State lawmakers and regulators would have more control to keep locally generated electricity within Southern Nevada if the plants were built by Nevada Power or parent Sierra Pacific Resources. Those utilities are cash-strapped, however, and have no plans to add to their combined portfolio of nine plants.

The Las Vegas Valley Water District has been able to extract guarantees from new plants that are being built near Apex that at least 25 percent of their electricity will remain in the county. But that's because those plants will be using district water in the construction and operation of those generating facilities.

Another incentive to sell the power locally is that it costs the generating companies more money to transfer electricity longer distances.

One Apex plant, Duke Energy's 1,170-megawatt plant, is scheduled to open next year.

"We were attracted to Nevada because it's a growing market," Duke spokeswoman Diana Vavrek said. "The energy market has grown about 8 percent a year in Nevada. Nationally, energy demand is growing only 1 to 2 percent a year."

The proposed Apex plants about 20 miles north of Las Vegas will also be able to tap into nearby natural gas lines.

Hay said he believes the new plants coming on line will give Southern Nevada enough electricity to meet demand for at least the next 10 years. He also said Nevada Power should be relieved of some pressure to come up with adequate energy supplies if large customers such as resorts gain permission from the state Public Utilities Commission to buy retail electricity from other suppliers. Those requests are pending and some will be considered on June 18.

He also said the new plants should more than make up for the possible closing by 2006 of the Mohave Generating Station in Laughlin. Nevada Power owns 14 percent of that plant. Hay's only concern is that the Mohave plant, whose majority owner is Southern California Edison, produces inexpensive power that may be tough to replace with equally inexpensive power.

Edison has indicated it may have to close the plant at least temporarily because it may have problems getting coal to the coal-fired plant after 2005. That's when its coal contracts expire. The plant's owners have also indicated they may have difficulty coming up with the money to make necessary upgrades, including pollution reduction safeguards.

"You can make a reasonable assumption that at least 2,000 megawatts of electricity will come on line in the next year, which is a substantial increase," Hay said. "That would reduce Nevada Power's reliance on out-of-state power."

With local peak demand reaching 4,600 megawatts during the summer but considerably less at other times of the year, the utility has access to slightly more than 2,000 megawatts of generating capacity in Southern Nevada from five plants.

Decades ago Nevada Power generated all of the electricity it sold to customers. But from the late 1970s through the early 1990s, it became cheaper to buy power than to generate it because the nation had an electricity surplus. Instead of building more plants to keep up with growth, Nevada Power turned to wholesalers to make up the difference.

Beginning in the early 1990s, rapid population growth in the West coupled with a slowdown in the construction of new power plants had combined to reduce the electricity surplus. Reduced supplies began translating to higher wholesale prices.

But Nevada Power's increasing reliance on wholesale energy was cemented in 1999 when it merged into Sierra Pacific Resources, which is based in Reno. The PUC made it a condition of the merger that the utilities had to begin selling their generating plants. Regulators feared that by keeping their generating plants, those utilities would have had an unfair advantage over competitors in the event retail electricity was sold on the open market.

Sierra Pacific Resources stated on its website that it was a decision "that all parties believed at the time was in the best interest of the state's energy consumers. Since then, market conditions changed significantly."

Critics, however, said that the utilities were to blame for the high wholesale prices they began paying when the Western energy crisis struck in 2000 because the companies did a poor job of planning their energy purchases. But Hay, one of those critics, also said that in hindsight the state "would have been better off if more plants were built here in the last decade."

By 2000, Nevada Power's reliance on the wholesale market had become far greater than was normal for investor-owned utilities nationwide. Such utilities on average bought only 12 percent of their energy on the open market that year, according to the Edison Electric Institute, a Washington trade association. Nevada Power that year bought 46 percent of its energy on the market, nearly four times the national average. The utility buys more than 50 percent of its energy on the market for summer use.

As it turned out, deregulation was put on hold for most customers and Nevada Power was ordered last year by lawmakers to keep its generating plants.

"I'm not against them at some point getting into the business of building power plants," Linvill said of Nevada Power. "But there are still other power plant projects going forward and I anticipate that they will be very helpful."

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