NRG, Dynegy Gamble on Sierra Pacific Units

In their sixth asset alliance, NRG Energy Inc. and Dynegy Inc. are expanding their co-owned generation portfolio in the western United States by purchasing one power plant and buying most of the generating capacity of another plant from Nevada Power Co. for $634 million. Minneapolis-based NRG will be operator and Houston-based Dynegy will serve as power marketer and fuel supplier.

The deal includes the 740 MW gas-fired Clark Generating Station and 590 MW of the 605 MW coal-fired Reid Gardner Generating Station. Already, NRG and Dynegy jointly own 2,768 MW of power generation facilities in California, and 350 MW in Illinois.

Nevada Power, a unit of the holding company Sierra Pacific Resources, based in Reno, also agreed to a transitional power purchase agreement to buy power from the plants until March 1, 2003. The sale was required by regulators when they approved Sierra Pacific's purchase of Nevada Power (see Daily GPI, March 8; Oct. 12, 1998). The plants now supply power to Las Vegas.

"Acquiring the Reid Gardner and Clark stations expands our already strong relationship with Dynegy and furthers NRG's strategy of building a top three position in its primary markets," said David H. Peterson, NRG CEO. "This acquisition improves our partnership's position in the western region by adding a strong component of baseload generation to the portfolio."

Dynegy CEO Chuck Watson said that the addition will increase the company's generating capacity by more than 4,000 gross MW, "which is comparable to many industry mergers without the regulated transmission and distribution." Watson said the acquisition lifts Dynegy's earnings forecast for 2001 to $1.75 to $1.80 per share.

Analyst James Yannetto of UBS Warburg LLC called the purchase "the latest example of the successful execution of Dynegy's 'laser-like accuracy' capacity addition/diversification strategy." He said the assets were ideally located in the high growth western United States with "clear access to California," and had "multi-fuel capabilities," to help round out the companies' peaking portfolio.

The Clark Generating Station in southeastern Las Vegas consists of 10 gas- and oil-fired generating units, with natural gas as the primary fuel. The Reid Gardener station, 52 miles northeast of Las Vegas, has four baseload coal-fired units, three with 110 MW each, which are wholly owned by Nevada Power. Nevada Power and the California Department of Water Resources (CDWR) jointly own the fourth unit, a 275 MW coal-fired unit.

NRG and Dynegy will jointly acquire Nevada Power's combined ownership, and use interest in the fourth unit as part of the transaction. The CDWR will maintain its 15 MW ownership interest in the unit.

The Reid Gardner and Clark Stations are among the seven asset bundles included in an auction started by Sierra Pacific earlier this year. Last month, NRG was named as the successful bidder for Sierra Pacific's 50% interest in the 522 MW coal-fired North Valmy Generating Station and 100% interest in the 25 MW of peaking units in northern Nevada. Nevada Power and Sierra Pacific intend to complete the sale and transfer of the remaining generation assets in 2001.

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