Chairman Kerry, Senator Ensign, members of the committee, thank you very much for the opportunity to be with you today. My name is Roberto Denis and I’m senior vice president of energy supply for Sierra Pacific Resources, a holding company that serves most of the electrical energy needs of Nevada. Our company has been taking significant steps to lessen our carbon footprint while at the same time meeting the ever increasing demand for energy in one of fastest growing regions of the country.

There are many factors that make this an especially difficult task.  These involve managing the tradeoffs between renewable energy and fossil fuel plants, different fuel types, self generation versus market purchases, the commercial application of current and emerging technologies and of course, the cost of energy to our customers.

Sierra Pacific Resources is the holding company for two utility subsidiaries, Nevada Power Company and Sierra Pacific Power Company that provide electricity to 1.2 million electricity customers in Nevada and around the Lake Tahoe area of California. We are interconnected to the western transmission grid and are significant participants in the western power markets since we currently purchase about half the energy we deliver.  It is noteworthy that Nevada was a major victim of the meltdown in the western markets several years ago when Enron and others were found to be illegally manipulating the power purchase market in California.

Our State’s high growth rate is also a very important consideration. We have been adding about 55,000 new customers per year, an annual growth rate of 5%, which is much higher than the electric industry as a whole. Investing to meet this growth is a constant challenge. Our company owns nine power plants with a diverse mix of fuels including coal and natural gas. For ten years, Nevada has had a renewable portfolio standard in place and we have been contracting for geothermal, wind and solar energy and expect to be making direct investments in renewable energy projects as well for years to come. Because of our state’s rapid economic growth plus the hard lessons learned from being over reliant on the power purchase markets during the Enron years, Sierra Pacific Resources is committed to delivering a diverse power portfolio that protects against the volatility of fluctuating fuel costs and swings in the purchased power markets. Over the next several years we intend to invest more than $1 billion annually to add to our generating capacity and build the infrastructure necessary to support the strong growth.

            Our utility in northern Nevada, Sierra Pacific Power Company leads the nation in use of renewable energy as a percentage of total energy consumed. In 1997, Nevada enacted one of the nation’s first Renewable Portfolio Standard (RPS) laws. It required all electric providers in the state to acquire renewable electric generation or purchase renewable energy credits so that one percent of the energy consumption of each utility was produced from renewable sources.

In 2001, the state amended the RPS law to become the country's most aggressive renewable portfolio standard. The law then required that 15 percent of all electricity consumed in Nevada be derived from new renewables by the year 2013, with five percent of that amount coming from solar energy. . In June 2005, the Nevada legislature extended the deadlines and raised the requirements of the RPS to 20 percent of sales by 2015. The bill also allows utilities to receive credits toward meeting the state's RPS by investing in certain energy efficiency measures capped at one-quarter of the total standard in any particular year. The law phases in the renewable energy commitment over time as follows: 9 percent by 2007, increasing to 12 percent by 2009, 15 percent by 2011, 18 percent by 2013 and 20 percent by 2015.

We are committed to renewable energy and believe that such investment needs to be stimulated; in that regard, we call upon Congress to extend the Investment Tax Credit (ITC) and the Production Tax Credit (PTC) for all types of renewable energy for at least 8 years and to remove the outdated provision which excludes utilities from participating in the ITC for renewables. This nation needs the financial strength of the nation’s utility industry if we are to substantially attract the investment of large sums of capital to renewable energy.

This year, state regulators approved three new geothermal contracts that will bring an additional 73 megawatts of renewable energy to our customers. Two major Nevada solar projects, including the largest solar thermal plant built anywhere in the past 15 years, will this year begin delivering a total of 74 megawatts of power. Just this past Monday, I attended an event at Nellis Air Force Base in Las Vegas celebrating the beginning of construction for the largest solar photovoltaic system ever to be built in North America. I can assure that our company, in cooperation with our state leaders, is doing everything possible to be at the forefront of renewables development. By year end, Sierra Pacific Resources will lead the nation in the generation of solar and geothermal energy in relation to total electric energy consumed.

Sierra Pacific Resources places a high priority on helping our customers conserve energy. It is our goal to achieve 50 percent of our energy savings from our residential customers. Our demand side management (DSM) program will result in the installation of 2 million compact fluorescent light bulbs each year. This is accomplished through a buy down subsidy we provide local retailers who sell these energy saving light bulbs. We perform energy efficiency audits for our customers and help almost 23,000 per year to improve the efficiency of residential AC units. We continue to work with the gaming properties to convert the bright lights along the famous Las Vegas strip to efficient lighting. We have a program to improve energy efficiency of swimming pools and outdoor water features.  One quarter of the RPS goal of 20 percent by 2015 may come from DSM programs. Below is a projection of our DSM goals by company.

 

            Includes both Sierra Pacific Power Company and Nevada Power Company

 

Despite years of experience coupled with one of the most aggressive renewable energy programs in the nation, it must be noted that Sierra Pacific Resources cannot meet our future energy demands solely from new wind, solar or geothermal. By 2008, we expect to be about 75 percent reliant on natural gas as the source of fuel for the power we sell. This dependence is due to the addition of more than 2,800 megawatts of new, efficient combined cycle natural gas generation. We are concerned however about the price stability of natural gas which was the fuel choice for the majority of new power plant additions during the past decade.

Last year we announced that we were pursuing the development of the Ely Energy Center, a four unit coal power complex totaling 2,500 megawatt in eastern Nevada. This facility will utilize the newest high efficiency, supercritical boilers, water saving dry cooling and the latest emission-control technologies. The first two, 750-megawatt units located near Ely, Nevada will not be completed until 2011 and 2013, respectively. The project is an important part of our company’s ongoing strategy to maintain a balanced energy portfolio that is in the best interests of the state. Ely will also be the catalyst for the development of more renewable energy resources (particularly wind energy in the mountains of eastern Nevada) by providing transmission access to northern and southern Nevada via a proposed 250-mile transmission line between our two companies. This transmission line that would not be economically justifiable to serve a stand alone renewable energy project. Therefore, this project and its associated transmission should provide the opportunity to develop additional renewable projects that would not otherwise be developed in Nevada.

It also is important to point out that, as new generation is developed, Sierra Pacific Resources is decommissioning older, less-efficient coal and natural gas plants, a move that conserves the use of natural resources and mitigates our CO2 emissions. After the Ely facility is built, we are planning to retire three aging coal units at the Reid Gardner Station in southern Nevada. And, with the anticipation of Ely, Nevada Power will not participate in efforts to restart the coal-fired Mohave power plant that was shuttered in 2006.  These actions combined with the aggressive development of renewables will insure that even when the first two units of the Ely Energy Center are completed, our company’s carbon footprint will mirror that of a utility that burns 100% natural gas.

As you can tell, we at Sierra Pacific Resources have not been waiting for Congress to impose carbon controls before we developed our own carbon mitigation and reduction program. In addition to striving to meet a 20% RPS goal and replacing our older natural gas units with highly efficient combined cycle plants and building new state of the art supercritical coal units, we have also implemented aggressive energy conservation programs. All of these measures will be needed if we are to face the challenge. Like Sierra Pacific Resources, many other utilities in the nation are also moving to implement carbon reduction strategies.

Should Congress eventually conclude however that these voluntary efforts are not sufficient; we would favor federal legislation which imposes an economy wide approach to carbon control with trading mechanisms for allowance distribution. Should Congress impose a cap and trade regime as is reflected in most of the legislation that has been introduced, we believe that caps must be applied with great care to avoid inequitable distribution of carbon allowances. 

As the fastest growing state for nineteen of the past twenty years and with expected high growth anticipated far into the future, a simple cap would relative to other states, severely and unfairly disadvantage Nevada's economy.  Additionally, Nevada has for many years imported a large proportion of its electricity.  After the serious market disaster created by the California energy crisis and with all western states growing far faster than the electric supply can accommodate, it is clear that consideration must be given in any capping mechanism to both the historic use of carbon by a utility (really by a group of customers) (whether self generated or not) and the growth of the state's economy. If Congress adopts a cap and trade system, it must allocate carbon emission allowances for growth states (as was done for SO2 allowances in the 1990 Clean Air Act Amendments) and for power purchased and not just self generated. CO2 emission allowances must be distributed taking into account both historic and projected use of carbon.

We particularly urge the Congress to be mindful that the most knowledgeable source about our collective ability to capture and store CO2, the Electric Power Research Institute (EPRI), estimates that even with the most aggressive technology development actions that can be realistically contemplated, there will be NO ability to effectively capture and sequester carbon until at least 2020.

Thus, any policy choices that may be made by the Congress should recognize that EVERY economically viable set of generation strategies to serve the electric needs of the US economy until then must include coal, clean supercritical coal or when viable, IGCC. As recognized in the recent MIT study, instead of excluding the most viable domestic energy source, we must focus on seeking technological solutions to mitigate any adverse effect of the current and future use of coal.

Much has been said of the recent MIT study on the future of generation in a carbon constrained world. It is important to remember that the MIT study did NOT recommend that the United States should stop building coal fired generation. Its conclusion, with which we agree, was that new coal units must utilize the best commercially available technologies and must be built to accommodate retrofits when new large scale carbon capture and sequestration (CCS) technologies are demonstrated feasible.  Our new Ely coal complex will do just that. The first two units are being designed so that when CCS is available we will have a physical facility that can be retrofitted to enable us to capture the CO2 and identified the land for a CO2 storage site. Additionally, we are working with the Electric Power Research Institute (EPRI) and 25 other utilities to fund a pilot-scale demonstration project in Wisconsin of a promising new CO2 capture technology for pulverized coal units.  American Electric Power has already announced plans for scale-up of this technology at two of its coal-fired plants in West Virginia and Oklahoma. We hope we will be able to deploy these emerging technologies by the time the final two units of our Ely complex are scheduled to be constructed.

While Integrated Gasification Combined Cycle (IGCC) offers promise in the near term, it has been shown to be more economic using eastern bituminous coals. The use of IGCC with western subbituminous coals which have different characteristics and contain higher moisture has not yet been proven commercially viable. Quoting from recent testimony given by EPRI’s Mr. Stuart Dalton:

“The COE cost premiums…vary in real-world applications, depending on available coals and their physical-chemical properties, desired plant size, the CO₂ capture process and its degree of integration with other plant processes, plant elevation, the value of plant co-products, and other factors.  Nonetheless, IGCC with CO₂ capture generally shows an economic advantage in studies based on low-moisture bituminous coals.  For coals with high moisture and low heating value, such as subbituminous and lignite coals, a recent EPRI study shows PC with CO₂ capture being competitive with or having an advantage over IGCC.[1]”  

Indeed, Sierra Pacific has a history with gasification of coal. In 1992, near Reno, we partnered with US Department of Energy in one of the few western Clean Coal Technology Projects. The Piñon Pine Project attempted to extract synthetic gas from coal under pressure and burn the synthetic gas stream in gas fired turbines. Because of significant challenges, the Piñon Pine Project was not completed until late 2001 and at a cost of $335 million. It was never able to operate commercially because of problems we encountered with the first-of-a-kind technologies used in the plant. Ultimately, the plant was abandoned and converted to a pure natural gas facility. Our company ventured and lost millions of dollars on this experiment.

I would like to quote from Dr. Bryan Hannegan’s recent Testimony before the Senate Energy and Natural Resources Committee given on March 22, 2007. In expressing EPRI’s view on the MIT report he said:

“EPRI stresses that no single advanced coal generating technology (or any generating technology) has clear-cut economic advantages across the range of U.S. applications. The best strategy for meeting future electricity needs while addressing climate change concerns and economic impact lies in developing multiple technologies from which power producers (and their regulators) can choose the one best suited to local conditions and preferences.”

I would also like to submit with my testimony a copy of the EPRI report entitled “Technologies for a Carbon Constrained World” that was first released to the public in February, 2007.

Clearly, innovative technological advances must be supported and encouraged and successful outcomes must be embraced, but in the meantime we should not stop the development of new generation needed to serve customers today and in the immediate future.  Walking away from coal-powered generation altogether would mean higher prices for consumers and an even greater national reliance on energy imports. Our nation’s energy independence must include the use of coal, our most plentiful energy resource, in the production of new, environmentally responsible electric generation. We must be careful to avoid arbitrary efforts to pre-ordain winners in the race to develop new generation technologies. Ours is a large and geographically diverse industry and winners must be market driven if we are to best serve our customers. We believe this is an appropriate and responsible approach to addressing environmental concerns while keeping our commitment to deliver reliable power to our customers. Thank you.

 

 

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