Nevada Power and Sierra Pacific Power filed a July 12 application with the Federal Energy Regulatory Commission related to a merger of these the NV Energy (NYSE: NVE) utility subsidiaries ahead of a planned takeover of the merged utilities by MidAmerican Energy Holdings.
NV Energy under this proposed deal, which was first announced on May 29, would become an indirect, wholly owned subsidiary of MidAmerican Energy Holdings.
Nevada Power is a regulated public utility offering retail and wholesale transmission service in southern Nevada, and is regulated by the Public Utilities Commission of Nevada (PUCN) and FERC. Nevada Power operates the balancing authority area (BAA) in southern Nevada. FERC has granted Nevada Power the authority to sell electric energy, capacity, and ancillary services at market-based rates outside of the Nevada Power BAA.
Nevada Power’s service territory covers about 4,500 square miles in southern Nevada, and includes the cities of Las Vegas, North Las Vegas and Henderson. Nevada Power makes a very limited amount of wholesale sales under agreements on file with the commission or under terms of its commission-granted market-based rate authority. Nevada Power’s peak load in 2012 was 5,761 MW. Nevada Power operates about 1,725 miles of high voltage transmission lines (60 kV to 500 kV).
Sierra Pacific is a regulated public utility offering retail and wholesale transmission service predominately in northern Nevada, and is regulated by the PUCN and the commission. Sierra Pacific operates the BAA in northern Nevada. The commission has granted Sierra Pacific the authority to sell electric energy, capacity, and ancillary services at market-based rates outside of the Sierra Pacific BAA.
Sierra Pacific’s service territory covers approximately 42,000 square miles of western, central and northeastern Nevada, including the cities of Reno, Sparks, Carson City, and Elko. Sierra Pacific serves various wholesale customers under agreements on file with the commission.
Sierra Pacific’s 2012 peak load was about 1,646 MW. Sierra Pacific operates around 2,050 miles of high voltage (55 kV to 345 kV) transmission lines.
On May 31, the NV Energy companies filed an application with FERC requesting authorization under Section 203 of the Federal Power Act (FPA) for approval of an internal corporate reorganization to merge Sierra Pacific into Nevada Power resulting in a single company (which will be called the NV Energy Operating Co.). In that application, the NV Energy companies also indicated that they were coordinating with the Western Electricity Coordinating Council (WECC) and the North American Electric Reliability Corp. to consolidate the Sierra Pacific BAA and Nevada Power BAA into one BAA.
Also on May 31, the NV Energy utilities made two additional filings under Section 205 of the FPA to adopt a single system transmission rate to coincide with the in-service date of the new 235-mile 500-kV transmission line, called the One Nevada Transmission Line (ON Line), and to revise the existing NV Energy OATT to govern service over an interconnected system once ON Line is placed in-service. All three of the May 31 filings are still pending before the commission.
The potential NV Energy reorganization and the consolidation of the Nevada Power and Sierra Pacific BAAs are in coordination with the completion of the ON Line, which will provide the first direct interconnection between the two utilities’ systems. The ON Line is expected to be completed and capable of transmitting power by Dec. 31, 2013, and the NV Energy companies seek to complete their reorganization by Jan. 1, 2014.
Beginning Jan. 1, 2014, NV Energy Operating is planning (subject to obtaining necessary regulatory approvals) to provide transmission service across the merged, single-system BAA. By providing for joint dispatch of the two systems, a direct transmission interconnection will allow the NV Energy Operating Company to utilize the most economical mix of renewable and conventional resources without being constrained by geography or physical limitations, the July 12 application noted. Combining the two systems will both facilitate further development of renewable energy resources located within Nevada, which consist primarily of geothermal and wind in the North and solar in the South, and also enhance the reliability of the interconnected transmission systems.
Reid Gardner coal plant is going to be shut
Nevada Power owns 100% of Reid Gardner Units 1-3, each of which is a coal-fired facility. The combined output of these units is 300 MW. Nevada Power currently owns 32.2% of Unit 4, which is the plant’s newest, most efficient, and largest coal-fired generating unit with a net capacity of 257 MW.
On April 22, Nevada Power filed an application, under Section 203 of the FPA, for commission authorization for the reversion of the remaining 67.8% interest in Unit 4 as set forth under the terms of a 1979 Participation Agreement between Nevada Power and the California Department of Water Resources (CDWR).
The NV Energy utilities have spent considerable time evaluating the presence of coal- fired generation in their fleets, the application said. As a result, the NV Energy utilities proposed a plan and supported state legislation that would facilitate the early retirement of Reid Gardner Units 1-3, as well as Unit 4, which was passed by the Nevada legislature and became effective on June 11. This legislation requires the NV Energy utilities to file with the PUCN a plan for reducing emissions by retiring coal-fired units and replacing the capacity of those units.
MidAmerican owns other utilities, including PacifiCorp
MidAmerican is a holding company that owns subsidiaries principally engaged in energy businesses, and is itself a consolidated subsidiary of Berkshire Hathaway. Its domestic electric power generating, transmission and natural gas transmission assets are owned directly or indirectly by the following entities: MidAmerican Energy Co., PacifiCorp, MidAmerican Renewables LLC, Kern River Gas Transmission Co., Northern Natural Gas Co. and MidAmerican Transmission LLC.
MidAmerican Energy is a combination gas and electric company in the Midwest and a jurisdictional public utility under the FPA. MidAmerican Energy is primarily engaged in the business of generating, transmitting, distributing and selling electric energy and distributing, selling and transporting natural gas. MidAmerican Energy’s generating assets are located primarily within the Midcontinent ISO market area, with a small portion in the PJM Interconnection BAA.
PacifiCorp is a vertically-integrated public utility primarily engaged in providing retail electric service to about 1.8 million residential, commercial, industrial and other customers in California, Idaho, Oregon, Utah, Washington and Wyoming. PacifiCorp provides electric transmission service in nine Western states, and owns or has interests in approximately 16,200 miles of transmission lines and 75 thermal, hydroelectric, wind-powered generating and geothermal facilities, with a plant net capacity of about 10,579 MW.
MidAmerican Renewables, through its subsidiaries, was formed to acquire, own, operate, and invest in renewable energy facilities. MidAmerican Renewables wholly owned subsidiaries include Bishop Hill Energy II LLC, Cordova Energy Co., Pinyon Pines Wind I LLC, Pinyon Pines Wind II LLC, Solar Star California XIX LLC, Solar Star California XX LLC, and Topaz Solar Farms LLC. In addition, MidAmerican Renewables owns 49% of the membership interests in Agua Caliente Solar LLC and 50% of the membership interests in CE Generation LLC.
MidAmerican has several renewable energy projects in development
Looking at some example projects from the application where development is ongoing:
- Agua Caliente is constructing a 290-MW solar photovoltaic facility in Yuma County, Ariz., which will be directly interconnected to the transmission system owned by Pacific Gas & Electric (PG&E) and operated by the California Independent System Operator (CAISO). Approximately 253 MW of the Agua Caliente facility is presently in commercial operation, and the entire 290 MW facility is expected to be in commercial operation by the end of the first quarter of 2014. Agua Caliente has entered into a long-term power purchase agreement with PG&E under which the entire net electrical output of the facility is committed to PG&E.
- Solar Star 1 is developing and constructing a 325-MW solar photovoltaic facility located in Kern and Los Angeles counties, Calif., that will be interconnected to the transmission system owned by Southern California Edison (SCE) and operated by the CAISO. The entire output of Solar Star 1 is committed to SCE under a long-term power purchase agreement. MidAmerican Renewables recently acquired the rights to Solar Star 1 from SunPower Corp., which is constructing the facility. Construction of Solar Star 1 recently started, and initial test operation is expected to occur in the fourth quarter of 2013.
- Solar Star 2 is developing and constructing a 276-MW solar photovoltaic facility located in Kern County, Calif., that will be interconnected to the transmission system owned by SCE and operated by the CAISO. The entire output of Solar Star 2 is committed to SCE under a long-term power purchase agreement. MidAmerican Renewables recently acquired the rights to Solar Star 2 from SunPower, which is constructing the facility. Construction of Solar Star 2 recently started, and initial test operation is expected to occur in the fourth quarter of 2013.
- Topaz is constructing a 550-MW solar photovoltaic facility in San Luis Obispo County, Calif., which will be interconnected to the transmission system owned by PG&E and operated by the CAISO. The Topaz facility began trial operation during the first quarter of 2013, and anticipates achieving commercial operation status for 190 MW during the third quarter of 2013. Topaz is expected to be in full commercial operation by March 2015. Topaz has entered into a long-term power purchase agreement with PG&E under which the entire net electrical output of the facility is committed to PG&E.
Consultant finds no market power problems with merger
Julie Solomon, Managing Director of Navigant Consulting, provided the market impacts analysis for the July 12 application. Solomon said that with respect to new generation, she only included generation already under construction and expected to be on-line by summer 2014.
She generally eliminated units expected to retire during 2014, but reflected no such retirements for applicants, although NV Energy intends to retire Reid Gardner Units 1-3 (300 MW) by the end of 2014, and PacifiCorp intends to retire the coal-fired Carbon (172 MW) plant in Utah by early 2015. Additionally, PacifiCorp’s new gas-fired Lakeside 2 plant (645 MW), which is under construction and expected to be on-line in the summer 2014, is reflected in the base case as on-line in the summer and shoulder seasons. She assumes that NV Energy controls 100% of the Reid Gardner 4 unit, which it currently owns jointly with California Department of Water Resources.
Nevada legislators, in the recently-passed Senate Bill 123, directed NV Energy to eliminate 800 MW of coal-fired power from its portfolio, to develop 350 MW of renewable energy development and to construct or acquire a 550-MW power plant. Most of the generation changes will occur outside of the 2014 study period, and thus none of the changes related to Senate Bill 123 are reflected in her analysis, Solomon noted.
Nevada Power owns or controls about 4,500 MW of generation, and has long-term contracts to purchase around 1,900 MW. Sierra Pacific owns approximately 1,600 MW of generation, and has long-term contracts to purchase about 600 MW.