Nevada utility gets approval to finish power plant
Las Vegas Review-Journal
Sep. 18--Nevada Power Co. on Friday won regulatory approval to invest $367.6 million on a natural gas-fired power plant but saw the size of incentives for the project shrink.
The Public Utilities Commission gave the company its approval in a 3-0 vote
after reaching a compromise on the amount of financial incentives to give the
utility for the project, which was deemed a "critical" facility.
Commissioners agreed that Nevada Power was getting a good deal for the
incomplete, 1,200-megawatt Moapa Energy Facility located 20 miles north of Las
Vegas. They also underlined the importance of Nevada Power increasing its
generating capacity by 2006.
Tim Hay, chief of the attorney general's Bureau of Consumer Protection,
estimated that the financial incentives for buying and completing the plant will
increase rates by a total of $100 million over 20 years, starting at $18 million
in the first year and declining to $6.3 million in 2026.
Hay questioned why Nevada Power should be rewarded for doing its job of
providing electricity. However, Walt Higgins, chairman and chief executive
officer of Nevada Power parent Sierra Pacific Resources, called the project
"a sound investment in reliability" for customers.
PUC Chairman Don Soderberg fears growth in the West will lead to a shortage
of power generating capacity in the West by 2006 and that Nevada Power could be
again be forced to buy most of its supply at high wholesale prices, as it did
during the Western energy crisis two years ago.
Moapa's addition would increase the portion of electricity that Nevada Power
generates at its own plants to 60 percent from 40 percent.
"It also helps to protect us from (federal regulators) that have chosen
not protect Nevada and many in the West against Enron," added Commissioner
Carl Linvill.
The Federal Energy Regulatory Commission determined that Enron Corp.
manipulated the Western energy markets during the crisis of 2000 and 2001, but,
so far, FERC has refused to overturn contracts that locked Nevada utilities into
long-term contracts with Enron for high-priced power after the crisis passed.
Soderberg, who wrote the proposed order, called for allowing Nevada Power to
earn as much as a 14.25 percent return on equity if the Moapa Energy Facility is
completed in time, which is 4 percentage points more than allowed for other
utility assets. Return on equity, a measure of company earnings, is calculated
by dividing profit by stockholder equity.
Linvill supported an incentive but he favored reducing the incentive by 1
percentage point.
Under the amended order, Nevada Power may earn 2 percentage points of
additional return on equity in the Moapa plant. In addition, it allows Nevada
Power to earn another 0.5 percentage point if the first 600-megawatt unit is
completed by March 2006 and another 0.5 percentage point if the second unit is
ready to generate power by June of that year.
The incentive shrinks by 0.085 percentage points for each month one of the
units is late.
"They have an incentive to get it done on the dot and on time, which I
think is beneficial," Linvill said.
Commissioner Adriana Escobar Chanos questioned why the regulatory board
needed to provide Nevada Power any financial incentive to complete the power
plant on time.
"Its timely completion of this facility makes me feel a lot more
comfortable," given the prospect for a shortage of power generation in the
West by 2006, Linvill responded.
Soderberg called it a "carrot and stick" approach.
"What we're telling them today is this is your first priority" for
new projects, Soderberg said.
The PUC allowed Nevada Power to collect 9.5 percent annual interest through
rates on investments in the project during construction.
The commission trimmed the projected cost of the project by $8.4 million to
$367.6 million to encourage Nevada Power to avoid cost overruns.
Nevertheless, the order is "sort of like rewarding somebody for
something that's part of their normal course of business," Hay said.
"We're certainly pleased that the commission ended up reducing the
incentive amount from the amount proposed by the chairman," Hay said.
Higgins said Nevada Power will move quickly to complete the project.
"This facility will afford us a more balanced mix of our own generation
and purchased power, thereby reducing our state's reliance on potentially
volatile energy markets," Higgins said.
In a separate matter, the commission authorized Barrick Goldstrike Mines to
buy electricity from a competitor of Sierra Pacific Power Co., which serves
Northern Nevada.
Barrick will pay a $2.8 million impact fee to compensate Sierra Pacific
customers for potential costs caused by its exit from the regulated utility
system. The gold mining company also plans to build its own 115-megawatt,
natural gas-fired power plant near Reno.
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