Utility exec works to keep lights shining

When Michael Yackira succeeded Walt Higgins as chief executive officer of Nevada's investor-owned electric utilities last summer, the energy world was changing.

The Western energy crisis of 2000 and 2001 defined Higgins, a 63-year-old retired Navy captain and former submarine officer.

Higgins endured six years of sometimes bitter battles with Enron Corp., challenges in rate cases and the Southern Nevada Water Authority's unsolicited buyout offer for Nevada Power Co. When Higgins turned the wheel over to Yackira, most observers expected calmer seas for the new boss.

Yackira, 56, however, faces what could be the electric utility industry's biggest boom -- as well as its most challenging era.

Some analysts say the era of fossil fuels -- oil, natural gas and coal -- is nearing an end.

Sierra Pacific Resources, however, is betting that its proposed $5 billion coal-fired power plant near Ely will be a big part of the answer to Nevada's soaring utility bills and energy needs.

The proposed Ely Energy Center would rely on coal from the Powder River Basin of Wyoming and Montana, arriving at the power center by rail. The generation plant would use a new 250-mile transmission line to carry the electricity to Nevada Power and Sierra Pacific Power Co. customers.

Yackira and his crew argue that the rapidly growing population in Nevada cannot rely entirely on renewable energy and conservation to satisfy the state's increasing power needs. They say Nevada Power shouldn't risk reliance on wholesale power purchases to keep the lights on and the air conditioners humming in Southern Nevada, especially after witnessing the fleecing of utility providers and their customers during the Western energy crisis.

Utility executives contend the company already relies too heavily on natural gas for power generation. They also say gas prices have been volatile in recent years, triggering big rate increases.

The company's solution: Build a giant $5 billion coal plant outside Ely, a city whose citizens are hungry for economic development.

"We believe that expanding renewable energy in this state is extremely important," Yackira said. "You can't do it just with renewables. You can't do it just with conservation."

Environmentalists argue that the company is wrong; they contend that Nevada utilities should abandon last century's dirty, outmoded power generation technology and go green.

Renewable energy and energy conservation are sufficient to meet the growing electricity demands of the state's growing population, critics say. Nevada has ample supplies of sunshine, geothermal resources and wind energy, none of which pollute the air like coal.

These critics say the company's coal-fired power plant would emit twice the quantity of carbon dioxide per unit of electricity as a gas-fired plant. Carbon dioxide, many scientists believe, contributes to global warming, which is threatening the planet's ecosystem.

Natural gas is cleaner than coal, but gas prices have risen the last few years. Although coal prices have climbed, too, Yackira argues that coal would diversify the company' fuel mix and reduce the risk of rate spikes from gas-price increases.

Critics say building the Ely center would cause a big increase in electric power rates. Under Nevada utility regulations, Nevada Power and Sierra Pacific Power, the holding company's subsidiaries, would be entitled to raise rates by $500 million yearly to pay for the $5 billion Ely center.

Sierra Pacific Resources contends that would still be less expensive for consumers than the alternative.

Yackira argues that the company would build renewable power projects, rather than conventional coal-fired power plants, if profit were the only motivation. The utilities say they make no profit on fossil fuels, such as coal.

If Nevada Power constructed a solar thermal plant, like Nevada Solar One, which Acciona Energy built, all of the costs would be factored into the plant cost, because sunlight, the wind and geothermal heat are free, Yackira said.

So why doesn't the utility company solely build solar plants, wind farms and geothermal plants that use renewable resources without throwing off carbon dioxide? It's not entirely the company's decision.

"We have to convince our investors that these are worthy investments," Yackira said. "They realize that our obligation first and foremost is reliability."

Critics note that Horizon Asset Management of New York and an affiliate own 29 percent of Sierra Pacific Resources' shares. While Horizon describes itself as a passive investor, critics wonder whether the New York firm isn't influencing Sierra's decisions.

Also, Sierra Pacific Resources lacks the expertise needed for renewable power projects, opponents say. So building and operating its own renewable energy plants isn't an option, at least not yet.

The utility has relied on the expertise of outside firms for renewable power development and plant operation although the company is a joint-venture partner on a wind farm and heat-recovery power plant now being planned.

Environmentalists say energy conservation would make up for any supply shortfall if the Nevada utilities built only renewable power projects.

Yet, Yackira said the company has no incentive to favor power-plant development over energy conservation.

The Public Utilities Commission allows the Nevada utilities to earn a profit on energy conservation programs.

"We are indifferent whether we build power plants or invest in conservation," Yackira said.

Sierra Pacific's utilities plan includes spending $135 million over three years on energy conservation programs.

Yackira also contends that it will only be feasible to build a transmission line linking Sierra Pacific Power in the north and Nevada Power in the south if the Ely center is built. Some of the transmission-line capacity could be used to ship renewable energy from remote wind farms and geothermal power plants sites at a later date.

Yackira believes geothermal power, which is generated with hot underground water and steam, is the state's most attractive renewable resource. Geothermal power plants operate around the clock and can provide electricity for the attractive price of 6 cents to 7 cents per kilowatt hour.

Without the transmission line, Las Vegas cannot tap into Northern Nevada's abundant geothermal resources and California consumers will use Nevada's geothermal energy, he said.

However, critics complain that Sierra Pacific Resources could be walking into a financial trap for its customers, if not for stockholders.

Congress is considering a bill that would cap or limit carbon dioxide emissions. To exceed the cap, electric utilities and industrial companies would need to buy coal-plant credits from former polluters which have reduced their carbon dioxide emissions below their cap.

The Nevada utilities will ask customers to bear the carbon regulation expenses, analysts say.

Until a carbon regulation bill is passed, utilities can only guess about how much compliance would cost and how much they need to charge customers for coal power.

However, the Bureau of Land Management isn't expected to decide on the Ely project until late 2009. By then, there may be a new federal law on carbon regulation, and analysts may be able to determine how much the regulation adds to the cost of coal-power generation.

Meanwhile, Sierra is pumping out more profits. The holding company increased first-quarter profits by 54 percent over the same period last year and expects the trend to continue.

The past several years have been good to electric utility companies in general.

"The industry for four consecutive years outperformed the S&P 500 (index of the largest publicly held companies in the country)," Yackira said. "That's never happened before in the history of this industry."

So far this year, electric utility stocks have performed worse than the Standard & Poor's 500.

"The pullback was inevitable," Yackira said. "The question was when."

Sierra Pacific Resources attracts investors because of its rapid revenue growth, stemming primarily from the state's increasing population.

Longer term, utility investors may benefit from a shift away from fossil fuels, such as petroleum. Some observers believe America will replace the gasoline engine in autos with electric motors.

People already are driving hybrid cars, such as the Toyota Prius, which use both gasoline and electricity generated by the car's wheels.

But a plug-in hybrid could be plugged into a power outlet, get its batteries recharged and run without burning gasoline.

Drivers then would rely on electric utilities like Nevada Power, rather than gasoline service stations.

This story first appeared in the Business Press. John G. Edwards writes for the Business Press' sister publication, the Las Vegas Review-Journal. He can be reached at jedwards@reviewjournal.com or 383-0420.

CRAIG L. MORAN/reviewjournal