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Sierra Pacific CEO Pushes Aggressive Construction Plans for Fast-Growing Region

January 16, 2006
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Questioning the viability of a major proposed new coal plant by a well-heeled Sempra Energy unit in his state, Reno-based Sierra Pacific Resources CEO Walter Higgins last Monday bullishly outlined his companies' plans for the largest energy project it has ever undertaken in Nevada. He noted there is plenty of room for other new power plant projects in the state, but their developers should seek interconnections with one of his company's two utilities.

As collectively the fastest growing utilities in the nation, Nevada Power Co. and Sierra Pacific Power Co. are facing increased demand that equates to building a new 500 MW generation plant every year, Higgins told NGI in a wide-ranging interview. Essentially, Sierra Pacific Resources and its utilities decided to develop a $3 billion, 1,500 MW coal-fired plant and 250-mile high-voltage transmission line in east-central Nevada after talks with various out-of-state developers in several different parts of the state -- including Sempra -- proved unsatisfactory.

One possible developer of a separate, smaller plant in the Ely, NV area didn't want to share ownership with Sierra, and Sempra wasn't interested in an interconnection with one of the Nevada utilities, Higgins said. A third out-of-state developer had plans and an implementation approach that was counter to that of the Nevada companies, he said.

"We reasoned that we had to move ahead with something that would work, and by that I mean work for the state of Nevada, our customers and our company to meet the needs of all of Nevada in a way that is acceptable," Higgins said. "So we had to go ahead on our own, and we're doing our thing, and if they [another developer focused on Ely] want to build their plant, we support it. There is way more than enough capacity for them to build as well as us.

"And I don't mean capacity for us to buy, although we might buy some from them when they build their plant. But there is enough air shed and water -- if you use low-water-use technology like we're doing to go forward."

Standard & Poor's Ratings Services in a new report released Tuesday, "Will High-Yield or High-Grade Financing Fuel New U.S. Coal Power Plants?" concluded that "without a doubt, U.S. coal-fired power generation is about to enter its most significant build-out in a generation. Fundamental shifts in natural gas supply and demand have driven natural gas prices to levels that make gas-fired power generation the most expensive conventional means of producing electricity."

Higgins called Sempra's original plans for its 1,450 MW Granite Fox coal-fired plant proposal for the town of Gerlach, NV, about 100 miles straight north of Reno, "a very unusual thing" because it was focused on building an interconnection to the nearby north-south Pacific Intertie DC line for taking power point-to-point from Oregon generation sources and moving them south into Southern California markets. But the proposal has stirred local opposition in and around Gerlach, although a Sempra spokesperson downplayed the impact of this opposition, saying Sempra is moving ahead with permitting, including the development of $150 million in transmission upgrades.

"Later on when Sempra started running into trouble, it suddenly occurred to them that without selling power in Nevada, they didn't really have much of a Nevada-supportable project," Higgins said. "That changed their goal a little bit and they began further talking with us, but with the recent pronouncements [against coal-fired generation] out of California, I don't know what the status of their project is.

"It has been quite a while since we talked with Sempra."

Sierra Pacific's strategy is to take two utilities that historically developed separately in terms of ownership and operations with a huge geographical barrier between the north and south in Nevada -- both extremely power-short, dependent on the wholesale market -- and turn them into linked entities with 70% to 90% of their supplies coming from their own plants. Currently Sierra Pacific Power is about 60% self-reliant for its generation needs, Higgins said, and Nevada Power is 50% or less. He hopes to turn those numbers up to close to 100% in the north and 75-80% in the south over the next 10 years with projects like the massive Ely development in White Pine County.

The initial time frame calls for the first coal unit to be operating in 2011, the second one in 2013, and if technology improvements are made the way Higgins expects, before the second traditional coal unit comes on line, Sierra will begin constructing the first of two coal-gasification/synthetic gas-fired generation units of 500 MW each.

He doesn't expect the holding company's and utilities' continued below-investment-grade credit ratings to hinder the development, although he expects to be back into the investment-grade status before the first construction begins.

"We will move forward with this project, even if it begins to move forward faster than the restoration of our resuming investment grade," Higgins said. "This is to meet new load that is coming for sure, and you can't get it done any faster than we are going to do it. Then we are going to stage the others so there is some orderliness and manageability to the project."

Higgins said his companies are not looking for partners and do not need them, but if the right partnership offer came along, they would consider it. If someone wants transmission capacity on the proposed new line and they ask for it, the company will study the request and figure out whether upgrades or an added line would be needed, but Sierra Pacific would certainly look at the request in keeping with FERC's open access rules, he said.

"This would be the largest project that the Nevada utilities have ever undertaken, but we are in the final stages of completing a 1,200 MW double (two-and-one) combined-cycle natural gas-fired generation plant we assumed from Duke," Higgins said. "We're finishing it as not quite a $500 million project. [The proposed Ely project] is considerably bigger, but nevertheless we've done many large transmission lines. We've probably built more large transmission than anybody in the nation in the past 10 years. We have a lot of experience building stuff as you might expect at the fastest growing utility in the United States."

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