Power company terminates energy marketing deal

Kevin Rademacher

Thursday, Aug. 21, 2003 | 11:11 a.m.

Allegheny Energy Supply Co. on Wednesday terminated an exclusive, 15-year agreement to market energy produced by the Las Vegas Cogeneration II power plant.

Allegheny will pay $114 million to Black Hills Corp., which owns the 222-megawatt plant in North Las Vegas, in order to end the deal that was signed in May 2001. Las Vegas Cogeneration went into commercial service in January.

"With the signing of this agreement, we have substantially achieved our goal of exiting the Western energy markets, thereby significantly reducing our financial exposure to energy trading," Paul Evanson, president and chief executive of Maryland-based Allegheny Energy, said in a statement.

Daniel Landguth, chairman and chief executive of South Dakota-based Black Hills Corp., said the company expects to negotiate new long-term contracts for the plant's electricity.

The change in control of Las Vegas Cogeneration could be a boost for several large customers seeking permission from the state Public Utilities Commission to leave the Nevada Power Co. grid and purchase their own electricity.

MGM MIRAGE, Station Casinos, Fashion Show Mall and the Monte Carlo hotel-casino are seeking permission to leave, but they have all struggled with a clause in the exit rules handed down by the PUC. The rule requires the exiting customers to purchase 10 percent of their peak-demand summer power from a plant inside the local transmission grid.

The commission and Nevada Power have said that provision is necessary to ensure that all customers will have seamless access to power during the period of highest demand when the local transmission system is at capacity. During that time, Nevada Power has argued, new power cannot be imported over the heavily used lines from outside the system.

However, only two local power plants are currently selling power on the wholesale market -- Mirant's Apex Generating Facility and Las Vegas Cogeneration.

The exiting customers said securing deals with those power plants had been difficult because Allegheny was struggling financially and Mirant had just filed for bankruptcy.

Steve Boss, president of the Nevada Energy Buyers Network which represents Station and Fashion Show, said a new situation at Las Vegas Cogeneration could make securing those deals easier.

"One of our problems was that Allegheny's financial position made it difficult for exiting customers to secure a solid deal," Boss said.

He said Black Hills, a financially sound company, could end up marketing the power on its own, but they may also find a new partner to handle the sale of power.

"Obviously, if Black Hills does that they will be concerned with finding a company that is secure financially," Boss said. "But either one of those cases is going to be beneficial."

The commission could vote in the coming weeks to let the customers leave provisionally, with the agreement that the contract issue will be settled before next summer when two additional power plants are expected to go into service in the Las Vegas area.

The customers, however, have been hesitant to finalize their new power contracts without formal assurance that it will be approved by the PUC.