Nevada Power Co. defends plant purchase

Kevin Rademacher

Thursday, Aug. 26, 2004 | 11:10 a.m.

Nevada Power Co. executives on Wednesday began defending a $558 million plan to purchase and complete a power plant abandoned by Duke Energy of North Carolina.

In hearings before the state Public Utilities Commission, key questions surrounded the company's request for financial incentives and the cost of natural gas needed to fuel the 1,200 megawatt plant, located about 20 miles north of Las Vegas.

The plan itself has been hailed by all parties to the case as a needed move to reduce the utility's dependence on open-market power buys to meet customer demand. That market reliance cost the company and ratepayers dearly during the Western energy crisis.

Nevada Power currently buys more than 50 percent of its power on the open market, and the purchase would increase that level to about 65 percent. Still, the parties to the case, as was evident in the hearings, have questions about the details of the deal.

"There is a potential downside to this project," PUC Commissioner Carl Linvill said during the hearing, referring to the rising cost of natural gas.

In a recent string of rate cases, Southwest Gas Corp. has sought rate hikes to cover higher natural gas costs. Officials with that utility, which are currently seeking a 5 percent rate increase, have indicated that natural gas costs are running as much as 2 1/2 times last year's prices.

Michael Yackira, chief financial officer for Nevada Power's parent company, Sierra Pacific Resources, said the company has considered the fuel prices.

"I think that observation is a very appropriate one," Yackira said, adding that it was taken into consideration when the company decided to buy the plant.

He also pointed out that the company was studying the feasibility of building an additional coal-fired plant. Coal is a cheaper fuel but fell out of favor in the past because of environmental concerns. Yackira added that the company will likely present a proposal to the commission for a new coal plant if, as expected, the Mohave coal-fired power plant near Laughlin is taken out of commission in December 2005.

Mohave is controlled by Southern California Edison, but Nevada Power has a 14 percent ownership interest. The plant has been plagued with environmental concerns and retrofitting the plant with cleaner technology is expected to be cost prohibitive.

Roberto Denis, the company's vice president for energy supply, answering questions from PUC Chairman Don Soderberg, also said that the new plant would use less natural gas than some of the company's older less-efficient plants.

"It's like owning an SUV and replacing it with a Volkswagen Beetle," Denis said. "You use less gas and go the same amount of miles."

Fred Schmidt, an attorney representing the Southern Nevada Water Authority, questioned Nevada Power's request for a 5 percent incentive increase in the company's return on equity associated with the new plant.

That incentive, the company projects, will generate an additional $93 million for the company. Schmidt asked whether the company would still buy the plant if the inventive was requested.

"Yes, we would," Yackira responded.