Power plant work ahead of schedule

Kevin Rademacher

Thursday, July 28, 2005 | 11:14 a.m.

Regulators and decision makers in the financial markets have been closely watching the progress of Nevada Power Co. as its works to complete a partially constructed power plant it purchased in 2004.

The half-a-billion-dollar deal -- which included the cost of buying the abandoned Lenzie plant in the Apex Industrial Park about 20 miles north of Las Vegas, and completing construction -- is seen as a barometer of the company's recovery from financial turmoil after the 2000-01 Western energy crisis.

So far, so good, company officials told members of the state Public Utilities Commission on Wednesday. Michael Yackira, chief financial officer for Sierra Pacific Resources, parent company of the Las Vegas electric company, said the project is ahead of schedule and under budget.

While the news is similar to a report given to regulators in January, the margin of success on the project appears to be widening.

"The good news is that construction continues to go smoothly," Yackira said.

When approving the deal, regulators directed the company to have the massive 1,200-megawatt plant completed by summer 2006 in order to meet surging demand created by Southern Nevada's population growth. The Lenzie plant also will be key in replacing the coal-fired Mohave power plant near Laughlin that will be taken out of service Dec. 31 because of pollution concerns.

Nevada Power owns a 14 percent stake in Mohave and receives about 10 percent of the power it needs to serve peak summer demand from the plant, U.S. Securities and Exchange Commission documents said.

"In-service dates will be well in advance of what the commission ordered," Yackira said.

Roberto Denis, Nevada Power's vice president for energy supply, said the plant is now 82 percent complete, including the interconnection with the Kern River natural gas pipeline that will supply fuel for the plant.

With that, Denis said the first unit of the plant would be fired for testing in late August and complete Dec. 31. The second unit would begin testing in October and complete March 31.

The PUC had set in-service dates for the two units of March 31 and June 30, respectively.

Plant construction also could be as much as $42 million under budget, Denis said. Denis cautioned that unexpected issues could still contribute to costs, but the possible savings would come from an as-yet unneeded contingency budget.

"We have not used or designated any contingency (expenses) at this time," Denis said, adding that the current hard adjustments to the commission approved construction cost of $367.6 million amounts to a savings of $7.9 million.

"We are definitely moving in a positive direction," Denis added.

The company also addressed an earlier commission concern that original specifications from turbine manufacturer General Electric indicated that in excessive summer temperatures, output could be limited to as low as 940 megawatts. Denis said that in subsequent conversations with GE, the manufacturer extended the warranty to allow high-temperature outputs of 1,160 megawatts.

One megawatt is estimated to be enough power to serve about 750 homes.

Additionally, Yackira also discussed financing activities with the commission. He said the company's effort to replace high-interest debt with new financing has cut projected 2006 interest expenses from $203 million to $182 million. The moves also trimmed the company's debt-to-capitalization ratio from 61.9 percent to 55.4 percent.

Those improvements were among a series of positive developments cited in a recent Moody's Investors Service report in which it indicated that the utility and its parent company's debt rating were being reviewed for possible upgrade.

The report also cited "significantly reduced regulatory risk" and "good progress by the utilities to become less dependent upon outside sources of power."

If upgraded, the move would put Nevada Power and Sierra Pacific Resources one step below investment grade, Yackira said.

"This first step is imperative in getting to that second step, which is investment grade," he said.

In other commission activity, an interim order that would forego any penalties for Nevada Power and Sierra Pacific Power Co. of Reno for missing mandated renewable energy usage was approved. However, the utilities are required to file on Monday a detailed plan spelling out steps that will be taken to meet the requirements in future years.

State law requires that the electric companies use renewable power for 15 percent of their peak power demand by 2013.

The commission also has delayed until its Aug. 10 meeting a vote on standards for measuring customer service at Nevada Power and Sierra Pacific Power. The PUC has moved to set standards for determining the effectiveness of a 1999 merger between the two companies.