RESOURCE PLANNING Several key legislative initiatives are 2007 currently being debated before Congress that Nevada’s Electricity Future: could affect the economics of coal for power A Portfolio-Focused Approach generation by penalizing greenhouse gas emissions. As the debate of greenhouse gas emissions unfolds, the interests of Nevada and its 1.0 INTRODUCTION ratepayers is to ensure that adequate and affordable supplies of electricity are available Providing adequate supplies of affordable today based on technologies that are both proven electricity with acceptable environmental on a utility scale and commercially viable. impacts is a critical challenge facing the country. Nevada seeks to have a dialogue with its The western United States, and specifically the neighbors to discuss how these ends can be State of Nevada, now faces crucial strategic realized. choices regarding the identification and development of new electric generation capacity 2.0 NEVADA'S ENERGY CHALLENGE to meet existing and forecasted demand. 2.1 Nevada Resources and Demographics Southern Nevada has a large capacity deficit and unless this need is addressed immediately, Nevada’s electricity challenges are shaped this deficit will escalate. Southern Nevada is by its land, natural resources and demographics. dependent on natural gas and purchased power to The state of Nevada covers 110,567 square meet existing demand. As a result of this deficit miles, making it the 7th largest in terms of land Nevada has some of the highest rates in the area of the 50 states; however, over 80 percent of region. the state is owned by the federal government. Nevada is the driest state in the nation, averaging 1 Nevada’s answer to these challenges is only 9 inches of precipitation annually ; portfolio-focused planning. Portfolio-focused sufficient water is always a concern. There are planning provides the opportunity for Nevada to two population centers 500 miles apart. increase diversity and thereby manage supply, environmental and price risks. Greater portfolio Exhibit 1 diversity will allow increased flexibility to Sierra Pacific and Nevada Power Service respond to changing energy needs and Areas availability, while still providing acceptable environmental impacts and affordable rates. The Public Utilities Commission of Nevada’s (Commission) regulates public utilities engaged in electric, natural gas, and water and sewer services by setting fair rates for those services. To ensure adequate planning to provide electric resources for that service, the Commission thoroughly examines evidence at hearings for the Companies’ Resource Plans. Their decision in November 2006 to approve Sierra Pacific Power Company’s (Sierra Pacific) and Nevada Power Company’s (Nevada Power) 2006 Integrated Resource Plan (IRP) including a 1,500 megawatt (MW) coal plant (the Ely Energy Center or EEC), a 250-mile transmission line, 600 MW of new natural gas peaking capacity, aggressive demand-side management programs, and renewable energy was made to further the goal of portfolio diversity. In the Plan new coal remains an option as part of a balanced 1 Colorado River Water Users Association and diverse portfolio of resources. http://www.crwua.org/nv/crwua_nv.htm (accessed September 7, 2007) 1 Nevada’s population in 2006 was 2.6 Nevada has an abundance of solar and million, approximately 20 percent higher than in geothermal resources.6 Access to wind resources 2000. In the period between 1990 and 2000, the is limited in much of the state, although there are population of Nevada grew by 66 percent, or by wind resources in Eastern Nevada. Much of the almost 800,000, from 1.2 million to renewable energy resource base is located in approximately 2.0 million. Eight out of ten of isolated areas. In order to access these renewable these people settled in Southern Nevada energy resources, new transmission capacity communities in and around the Las Vegas area.2 needs to be developed to bring the electricity It is estimated that of the current population of from where the resource is located to the load the state, only 28 percent were born in Nevada, centers. These distances are substantial and the lowest ratio in the US.3 typically measured in hundreds of miles, often involving access to federal lands. The Nevada State Demographer projects continued growth for the state, and especially the 2.2 Capacity Shortfalls Las Vegas area, over the next 20 years. The population of Nevada is expected to increase Both Nevada Power and Sierra Pacific need from the 2006 level of 2.6 million to additional generation resources. In particular, approximately 4.4 million by 2026, of which 3.3 Nevada Power has an immediate need for million are expected to reside in the Las Vegas additional capacity. Exhibit 2 shows Nevada area.4 Power’s position relative to available resources. These resources include both Nevada Power- Nevada Power and Sierra Pacific are the owned generation and resources Nevada Power largest providers of electricity in Nevada, controls under long-term contracts. Nevada accounting for over 85 percent of retail Power, with a peak of approximately 5,800 MW, electricity sales. Nevada Power serves currently has a large open position with respect approximately 800,000 customers in the Las to capacity of approximately 2,000 MW. The Vegas area. Nevada Power’s current peak open position is now filled with short-term demand is approximately 5,800 MW. Sierra purchases in wholesale markets (see Exhibit 2). Pacific serves approximately 360,000 customers in the Reno, the northern Nevada region and the Exhibit 2 Lake Tahoe area of California. Sierra Pacific’s Nevada Power Load and Resources peak demand is approximately 1,700 MW. Both NPC Load and Resources Nevada Power and Sierra Pacific are owned and operated by Sierra Pacific Resources. Although 10,000 9,000 the companies are linked by a common parent, 8,000 they are not linked electrically and therefore, 7,000 Open Position cannot share supply resources as shown in 6,000 5,000 Exhibit 1. 4,000 3,000 Available (MW) Capacity 2,000 Resources In terms of energy resources, Nevada has 1,000 little or no natural gas, petroleum, or coal. 0 3 5 1 3 5 11 Although the Hoover Dam is located in Nevada, 2007 2009 20 201 201 2017 2019 202 202 202 the vast majority of electricity produced at this Ye ar facility is allocated to California and Arizona.5 With respect to Exhibit 2, it is important to 2 Nevada State Demographer's Office note the following details: http://www.nsbdc.org/what/data_statistics/demographer/pubs /pop_increase/ (accessed September 19, 2007) • Nevada Power’s need for approximately 2,000 3 Colorado River Water Users Association http://www.crwua.org/nv/crwua_nv.htm (accessed September MW of additional capacity exists today. 7, 2007) 4 Nevada State Demographer's Office http://www.nsbdc.org/what/data_statistics/demographer/pubs 2%2520- /docs/NV_2006_Projections.pdf (accessed September 19, %2520Final.doc+hoover+dam+electricity+allocation&hl=en 2007) &ct=clnk&cd=9&gl=us (accessed September 5, 2007) 5 Nevada State Office of Energy 6 US Energy Information Administration. http://72.14.253.104/search?q=cache:TpidI3l3LCQJ:energy.s http://tonto.eia.doe.gov/state/state_energy_profiles.cfm?sid= tate.nv.us/2005%2520Report/Final%2520CD/Chapter%2520 NV (accessed September 7, 2007) 2 • Without the addition of new capacity, the diversity is a material reliability goal of capacity shortfall will escalate to 4,000 MW integrated resource planning. In Nevada, the by 2020. risks associated with price volatility are borne directly by ratepayers. One half of the rate for • A substantial percentage of Nevada Power’s customers is due to cost of fuel and purchased existing generation assets, especially coal power. Both Nevada Power and Sierra Pacific assets, are older and could reach the end of have experienced the increased price pressure in their useful lives as early as 2012. natural gas since 2000. Further, both Nevada Power and Sierra Pacific continue to experience There is a need for new capacity today and the financial effects of the Western Energy Crisis this need will continue to grow dramatically of 2000-2001. without the addition of new generation resources. As Nevada considers future generation 2.3 Rate Stabilization options, it is important to recognize that the system is currently highly dependent on natural Electric rates in Nevada are higher than the gas fired generation and purchased power, the national average and higher than those in the price of which is highly correlated with the price immediate region, except for California (see of natural gas. Diversity in generation fuel is a Exhibit 3). Important factors contributing to this risk management strategy to mitigate both disparity are the rapidly rising price of natural energy supply and fuel transportation risks, as gas and the construction budget required to meet well as fuel price risk in the near and long-term the demand associated with high growth. The future. cost of natural gas has increased more than 200 percent since 1999. These increases are reflected Exhibit 4 in customer rates. Consequently, rate Nevada Power Fuel Mix 2008 stabilization is a key concern for Nevada as the Nevada Power state works to maintain an economically Fuel Mix competitive position with respect to other states 2008 in the immediate region and the country as a whole. Renewables, Coal, 18% 9% Exhibit 3 Retail Electricity Rates7 Residential Commercial Industrial Purchased Feb- Feb- Feb- Feb- Feb- Feb- Natural Gas, Power, 25% 07 06 07 06 07 06 48% Average 9.88 9.8 9.28 9.04 6.2 5.87 U.S. Mountain 8.5 8.36 7.39 7.32 5.33 5.28 Arizona 8.46 8.15 7.5 7.06 5.6 5.33 3.0 OPTIONS TO MEET CHALLENGES Colorado 9.15 9.2 7.37 7.97 5.91 6.09 Nevada Power and Sierra Pacific are Idaho 5.76 6.14 4.83 5.38 3.16 3.55 required by Nevada Statute to submit IRPs every Montana 8.17 8.23 7.89 7.83 5.05 4.97 three years.