FERC conditionally approves Nevada Power buy of two power plants

Due to some issues with market power data, the Federal Energy Regulatory Commission on Oct. 29 only conditionally approved Nevada Power to buy two companion power plants.

On May 2, Nevada Power, Las Vegas Cogeneration Limited Partnership (LV Cogen I), and Las Vegas Cogeneration II LLC (LV Cogen II) applied for authorization for a transaction in which Nevada Power would acquire a 50-MW operating natural gas-fired combined cycle plant from LV Cogen I, and acquire a 224 MW operating natural gas-fired combined cycle plant from LV Cogen II.

LV Cogen I is a limited partnership that is a wholly-owned subsidiary of Desert Arc I LLC and Desert Arc II LLC. LV Cogen II is a wholly-owned subsidiary of SWG Nevada LLC. The Desert Arc entities and SWG Nevada in turn are wholly-owned subsidiaries of SWG Nevada Holdings LC, which is a wholly-owned subsidiary of Southwest Generation Operating Co.

LV Cogen I’s sole electric generation facility is a 50 MW unit located in Las Vegas, Nevada, which is interconnected with the Nevada Power transmission system. The LV Cogen I unit commenced operation in 1994 and sold its output from 1994 through December 2007 to Nevada Power as a Qualifying Facility (QF). In 2008, Nevada Power began purchasing (and is obligated to continue purchasing) energy and capacity from LV Cogen I under the terms of a 10-year summer tolling agreement.

LV Cogen II is an exempt wholesale generator and its sole electric generation facility is a 224-MW unit, also located in Las Vegas, which commenced operation in 2003 and is interconnected to Nevada Power’s transmission system. From January 2004 through December 2013, Nevada Power purchased capacity and energy from LV Cogen II pursuant to the terms of a tolling agreement. For the summer of 2014, Nevada Power entered into a short-term tolling power purchase agreement with LV Cogen II for up to 224 MW of capacity and energy, and agreed to suspend the provisions of its tolling agreement with LV Cogen I for the same time period. LV Cogen II may dispatch up to 224 MW of energy or capacity in lieu of the capacity under the tolling agreement with LV Cogen I when called upon by Nevada Power during the summer.

These plants needed to help replace to-be-shut coal capacity

Nevada Power is making these buys due to Nevada Senate Bill 123, which was enacted in 2013 by the Nevada Legislature and signed by the governor. Under that law, Nevada Power is required to file with the Nevada commission an emissions reduction and capacity replacement action plan (Emission Reduction Plan) that included a schedule for retiring or eliminating at least 800 MW of coal-fired generation by Dec. 31, 2019. Included in that schedule is a requirement for 300 MW to be retired by December 2014, and an additional 250 MW to be retired by December 2017. Nevada Power is also required to construct or acquire 350 MW of generating capacity from renewable facilities, and 550 MW of generating capacity from other generating plants. 

As part of Nevada Power’s Emission Reduction Plan, filed on May 1, 2014, with the Nevada commission, Nevada Power proposed the retirement of the coal-fired Reid Gardner Units 1, 2, and 3 by Dec. 31, 2014; the retirement of the coal-fired Reid Gardner Unit 4 by Dec. 31, 2017; and the disposition of Nevada Power’s 11.3% ownership interest in the coal-fired Navajo Generating Station by Dec. 31, 2019. Nevada Power also requested Nevada commission approval for the acquisition of the LV Cogen Units.

According to the applicants, the purchase price is $129,920,000. Applicants state that the purchase is being made in order to obtain sufficient capacity to serve Nevada Power’s native load obligations in light of the retirement of the Reid Gardner Units. Applicants state that, while Nevada Power has historically purchased both energy and capacity from the LV Cogen Units, because Nevada Power’s current agreements with LV Cogen consists of summer-only tolling agreements, they treat the LV Cogen Units as merchant capacity (not attributed to Nevada Power) in the market concentration analysis.

FERC, however, found that the applicants have not made a sufficient showing that, prior to the retirement of the Reid Gardner Units, the transaction will not have an adverse effect on competition. “We note that Applicants offered interim mitigation for the period during which the Commission is concerned about market power, which Applicants identified as the month of December 2014,” FERC wrote. “Based on the analysis above, we have concerns about market power from the time the transaction is consummated until the Reid Gardner Units are retired.  For this reason, we condition our approval of the transaction on Applicants’ proposed interim mitigation method to sell any economic output of the LV Cogen Units off-system for the period between the closing of the Proposed Transaction and the retirement of the Reid Gardner Units. Based on the unique circumstances of this case, we find that, as conditioned, the Proposed Transaction will not have an adverse impact on horizontal market power.”

In a separate order, FERC on Oct. 29 unconditionally approved the purchase by Nevada Power of the Sun Peak power plant, which is a deal also needed to make up for the same coal unit shutdowns. On May 2, Nevada Power and Nevada Sun-Peak Limited Partnership filed an application on this deal. Sun-Peak is an indirect subsidiary of ArcLight Energy Partners Fund III LP and ArcLight Energy Partners Fund IV LP, both of which are private equity investment funds managed by ArcLight Capital Partners LLC. Sun Peak is a 222-MW dual-fired simple cycle plant located in Las Vegas.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.