Report predicts summer power outages

Thursday, May 16, 2002 | 10:58 a.m.

Southern Nevada could face power outages this summer because of Nevada Power Co.'s struggles to buy enough electricity, according to a report released Wednesday.

The report, released Wednesday by the nonprofit North American Electric Reliability Council of Princeton, N.J., didn't mention Nevada Power by name but predicted problems on the fact that the utility has locked up only 75 percent of Southern Nevada's expected electrical use for the summer.

The report identified Southern Nevada and southwestern Connecticut as the nation's two biggest trouble spots for electricity heading into the summer.

Walt Higgins, chairman and chief executive officer of Nevada Power parent Sierra Pacific Resources, said he was not surprised by the report's findings, given the utilities' battered credit ratings. But Donald Soderberg, chairman of the state Public Utilities Commission, said he believes the report may have relied on outdated information and that the situation in Southern Nevada is not as dire as the council stated.

Cash-strapped Nevada Power Co. is not mentioned by name in the report, but the findings clearly reflect the utility's shaky financial situation. Nevada Power still hasn't purchased the final 25 percent of the energy it will need to get through the summer, council spokesman Tim Gallagher said.

"What we're concerned about is that they haven't locked it all up yet," Gallagher said. "There is still a good amount of generating capacity that they should be able to buy at peak demand."

Nevada Power buys on the wholesale market roughly half of the energy the utility dispenses to customers. As of now, only about half of those wholesale purchases have been made for the summer, Gallagher said. He said the problem is that there is still a chance Nevada Power will not be able to purchase the remaining 25 percent of its energy needs.

The utility has blamed many of its financial problems on a March 29 ruling from the PUC that granted Nevada Power only $485 million of the $922 million it is seeking from ratepayers for energy used last year. Nevada Power's credit ratings have been downgraded by Wall Street and the utility says that makes it far more difficult to buy energy from suppliers who are worried about getting paid.

Higgins said the report confirmed what the utility has been saying about the difficulty it has had purchasing power. With an affiliate of Enron Corp. and Morgan Stanley Capital Group Inc. having already pulled out of energy contracts with Sierra Pacific, Higgins said other supplies have also decided not to sell power to the utility.

"I would say that the NERC consultant is reflecting a concern that we have expressed, that our creditworthiness has suffered," Higgins said. "I wasn't surprised by what they said.

"There's always the possibility of customer interruption under unusual circumstances. But if we are able to work with our suppliers and get the supplies we lost from Enron and Morgan Stanley, the chances of that happening are remote. We've still been able to purchase power on a daily basis."

Soderberg, in fact, expressed optimism that electricity supplies available to Southern Nevadans this summer will exceed demand. He observed, and Higgins agreed, that Nevada Power continues to make all of its required payments to power suppliers.

Soderberg also said the discontinuance of the Enron and Morgan Stanley contracts has increased the utility's short-term cash flow, which should make it easier for the company to get through the summer.

"I'm not predicting that blackouts will occur," Soderberg said. "There are still challenges but we feel good about it. There will be supply in the West and supply will outstrip demand and that's a good thing. That was our internal assumption based on what we knew and the report confirmed that.

"The company has challenges to make up the (energy) requirements it lost, but I think they're up to it. They haven't missed a payment yet."

The report stated that the area covered by Southern Nevada, Arizona and New Mexico is expected to have access this summer to only 10.7 percent more electricity than anticipated peak demand.

"That is a relatively low number," Gallagher said. "The Western Electricity Coordinating Council (that includes Nevada) has a benchmark of 12 percent. You are below the benchmark and that is driven by Southern Nevada."

The danger of having such "tight capacity conditions in Southern Nevada," as the report put it, is that it increases the likelihood of a power outage should something go wrong, such as a generating plant being forced to close or much hotter weather than expected.

"Adequate transmission capability exists to permit electricity imports into Southern Nevada, but if the electricity purchases are not available, this area will be especially susceptible to customer curtailments associated with higher than normal equipment failures or extreme weather," the report stated.

The problem in Connecticut has to do with inadequate power lines, according to the report. Although that problem does not yet exist in Clark County, Sierra Pacific Resources has announced it will slash capital expenditures this year by $125 million, including $50 million that was to help expand power line capacity in the Las Vegas Valley.

In addressing Southern Nevada, Arizona and New Mexico overall, the report stated that fuel supplies for the region were expected to be adequate for the summer despite severe drought conditions and reduced water flows along the Colorado River and other tributaries.

"Due to reservoir storage capacity, it is expected that the below-normal precipitation will not adversely affect hydroelectric generation," the report stated.

The council, formed as the result of a blackout in the Northeast in 1965, promotes the reliability of the electric systems that serve North America.