Water agency to pay $53 million for hydropower contracts

Friday, Feb. 21, 2003 | 11:22 a.m.

The Southern Nevada Water Authority has agreed to pay $53 million for long-term hydropower contracts, helping to resolve a dispute over those contracts between the Colorado River Commission and a Henderson chemical plant.

The commission last year sued the Pioneer chemical plant, owned by Pioneer Companies Inc. of Houston, and 13 energy suppliers.

At issue was whether Pioneer should be liable for about $120 million of forward power contracts the commission said it bought at high prices in 2000 and 2001 from the 13 energy suppliers during the energy crisis in the western United States.

These forward contracts, purchased for delivery starting January 2003, became "valueless and/or obligated Pioneer to purchase power at many times the market value" when energy prices fell sharply in 2001, a Pioneer counter lawsuit said.

"What prompted the settlement was the fact that some of the disputed high-priced contracts are going into effect now, meaning bills are due now for the electricity delivered starting January 2003 through December 2006," said Commission Executive Director George Caan.

The proposed settlement also resolves a dispute between Pioneer and the commission over the ownership of $45 million in "risk premiums" paid by the 13 energy suppliers to the commission for future power deliveries.

"The commission will retain $45 million in risk premiums," Caan said. "The risk premiums were monies paid by the energy suppliers in advance to mitigate against market volatility."

As part of the proposed settlement, Pioneer's long-term contracts with the commission for hydropower will be assumed by the Southern Nevada Water Authority for about $53 million, he said.

"The water authority will pay the commission $53 million for the rights to own the power contracts. On top of that, the water authority has to pay for the monthly cost of the hydropower. The estimated cost of the electricity over the contract period is about 3.5 cents per kilowatt-hour for water authority," Caan said.

"The commission will pay off the disputed transactions to the 13 suppliers with the $45 million and $53 million it now has available," Caan said. "We're trying to negotiate with the 13 suppliers to buy out all the contracts at a discounted price of $98 million. We're looking for the remaining $22 million to be discounted from the purchase."

The proposed settlement was approved Thursday by the board of the Southern Nevada Water Authority.

"The water authority will be supplied 20 megawatts to 25 megawatts annually until 2017 with an option to renew. This gives them a low-cost, non-volatile energy resource for at least the next decade," Caan said.

Dick Wimmer, deputy general manager with the water authority, agreed.

"The deal means (the water authority) will end up with long-term hydropower at attractive prices," he said, adding the deal will meet 13 percent of the authority's power needs.

Pioneer and the commission agreed to enter into a new power supply agreement at market rates.