Sunday, Nov. 1, 2009 | 2 a.m.
- Power lines tying up progress? (8-26-2009)
- NV Energy wants to build transmission line from Ely to Las Vegas (3-9-2009)
Beyond the Sun
NV Energy’s plan to build a transmission line to move electricity between the northern and southern parts of the state could unnecessarily stick ratepayers with a half-billion-dollar bill, the state’s consumer advocate warns.
That could leave customers paying the utility company $65 million for the line in its first year alone, Eric Witkoski, the consumer advocate, estimates.
The NV Energy line is not necessary because another utility, New York-based LS Power, is set to build a larger transmission line along the same Ely-Las Vegas route first, Witkoski says. If NV Energy would simply rent space on that line, it would save ratepayers a lot of money, he says.
“Building a second line is like buying the bus when all you need is a bus pass,” he says.
Witkoski also says NV Energy wants to construct its own transmission line because it can make more money for shareholders if it builds and operates its own big projects.
Both companies also want to own a north-south transmission line in Nevada because it is the key to millions of dollars in contracts from renewable energy developers with plans to build solar arrays, wind farms and geothermal plants across the state. The two companies are vying to be the one that moves that electricity elsewhere for sale.
NV Energy notes that LS Power’s line is not yet built. The Nevada utility contends that its customers are better served by NV Energy controlling its own destiny and that a variety of factors could reduce the bill to ratepayers for the cost of its line.
The company is to present its transmission line plan to the Nevada Public Utilities Commission in December, and if the commission approves the plan, construction could begin by early 2011. NV Energy also needs Bureau of Land Management approval of an environmental-impact statement, a hurdle that may have been lowered last week with the Obama administration’s announcement of an agreement to expedite permitting of transmission lines on federal land.
Seeking loans, tax credits
Still, LS Power is way ahead in this race. It has all the permits it needs for a 2,000-megawatt line, says it will start building by next summer and expects to have power running on it in 2012. It could be sooner if a federal stimulus program meant to boost renewable energy generation approves the LS Power project for a loan or tax credit, which appears likely. Under that scenario, construction of the line could begin in January and be half done before NV Energy even breaks ground, said Mark Milburn, LS Power’s project development director.
LS Power says it would welcome a deal with NV Energy but won’t say how much it would charge the Nevada utility to use its transmission line.
Even if the price were at the high end of the market spectrum, such a contract is bound cost Nevada ratepayers less than if those customers shouldered the cost of building their own line, Witkoski says.
One reason is that the LS Power line will connect to another that is to run into Idaho and is to have a large capacity, so Nevadans wouldn’t be the only ones helping to cover the company’s cost. LS Power would pass the cost of construction on to everyone using the electricity carried by the line.
NV Energy wants to move large amounts of electricity between the state’s two grids and intends to use the entire initial 600-megawatt capacity of its planned line, says Roberto Denis, a company vice president. If NV Energy had to purchase that capacity on the LS line, it would likely be pricey, Denis said.
Return on investment
The companies’ construction cost estimates for a line between Ely and North Las Vegas are similar: about $475 million for LS Power and $500 million for NV Energy. Both companies are trying to get low-interest government-backed loans for the projects to bring down the costs.
But even if that happens, ratepayers would wind up being billed by NV Energy for more than the construction cost of the Nevada utility’s transmission line. That’s because under Nevada law, the utility makes most of its money as a regulated return on investment on new infrastructure projects. So ratepayers would pay not just for the new transmission line, but also for maintenance and operating costs and a designated amount of profit for NV Energy.
That regulatory structure, Witkoski contends, is the real root of NV Energy’s desire to construct its own transmission line: It would let the utility stands to make more money for shareholders.
If the line costs $500 million to build and the Public Utilities Commission gives NV Energy the current return on investment of 9 percent (the amount set in the most recent rate case), the total construction cost to ratepayers would be about $545 million. That’s before the company factors in maintenance and operating costs, Witkoski said. Without federal help, the first bills for the line would total at least $65 million, he said. The amount ratepayers would have to pay each year would decrease as the line’s value depreciates, but it would hit ratepayers in the wallet for decades.
That’s the main reason Witkoski scoffs at NV Energy’s contention that buying needed capacity on LS Power’s line would be the more expensive option for ratepayers. Renting incremental use of the LS line, on an as-needed basis, is bound to be cheaper, he says.
Keeping costs down
NV Energy says that the main reason it wants to have its own line is to move renewable energy. But it would likely include wind energy moving from central Nevada to Los Angeles along with geothermal energy sent from Reno to Las Vegas.
Southern California is set to become a major consumer of renewable energy from Nevada. And if NV Energy can be the one transmitting that power from renewables, that has the potential of keeping Nevadans’ electric bills down, NV Energy says.
NV Energy says its line could also be used to keep its customers’ electricity costs down in another way. Because of their very different climates, Southern Nevada and Northern Nevada have opposite periods of peak electricity usage — winter in the north and summer in the south. Sometimes NV Energy can’t generate enough of its own power to meet the demand during peak usage times and has to purchase more expensive electricity on the open market. If it had its own line, the utility company could move the cheaper power it generates within the state to wherever it is needed.
That just takes Witkoski back to his first point: NV Energy could accomplish that on LS Power’s transmission line.