Department of Water Resources
A daily compilation of significant news articles and comment
May 2, 2008
5. Agencies, Programs, People -
A 2007 analysis showed a more favorable, best case scenario
By AARON CLAVERIE - Staff Writer
Both reports, one dated Jan. 17, 2006, and another dated Feb. 6, 2006, were prepared by Economic Insights, a Portland, Ore.-based firm.
The February report was recently leaked by district board member John Lloyd, who said he thought he had permission from the district's legal staff to do so.
After his action, the board decided to release the reports on the district's Web site with a disclaimer that states some of the information in the report has been "updated and usurped" by new data.
In April of 2007, the same firm sent the district a 21-page report that explained how the project could turn a small profit under ideal circumstances, said David Ramberg of Economic Insights on Thursday afternoon.
That report, which hasn't yet been released by the district, shows the project could realize an annual profit of $1 million or so, Ramberg said.
Ramberg said the 2007 report, which was put together with "ballpark" numbers was a best-case scenario requested by the district in response to the bleak forecasts contained in the 2006 reports.
"They wanted us to look at other possibilities at what they could do," he said. "They wanted to make sure there was no money to be had there before they gave up on it."
Critics of the power plant project seized on the findings in the 2006 reports as proof that the district has been throwing good money after bad, working in secret to push forward a project that was shown to be a money loser.
The district has been working with Nevada Hydro, a Vista-based group of investors, for more than a decade on gaining federal and state approval to build a hydroelectric power plant on the western edge of
The plant would generate electricity by pumping water into a new reservoir in the mountains west of
The 2006 reports, which are about 80 percent identical, explain why the plant, using electricity rates from 2005, would not turn a profit under similar market conditions because there wasn't a big enough difference, at the time, between the cost of electricity in the day versus the cost at night. Both reports state that the situation could change if gas prices were significantly higher, making coal and alternative power sources more attractive.
Without a large difference in price, the plant would essentially be spinning its wheels, paying for and using a lot of power to pump the water up a hill at night and recouping that power and a small amount of excess energy during the day.
The differences in the 2006 reports are mostly cosmetic. The January report is much blunter in tone, calling out Nevada Hydro for "mistakes" in its economic projections that were filed with federal regulators.
The February report makes a more balanced case, stating the project is not viable, but that there are certain contingencies, including the aforementioned rising gas prices and linking the project to another green power source such as a wind or solar energy plant, that could change the projections.
Earlier this year, the Federal Energy Regulatory Commission ruled that the transmission line aspect of the project qualifies for federal incentives that are offered to spur construction of such lines.
Also, Nevada Hydro is trying to link the power plant to a wind generation project that would send its energy to the plant at night, when wind power generation is highest, to help pump the water back up the hill into the reservoir.
Ramberg said those incentives and the possible wind-project link would change the financial projections used to prepare both the 2006 and 2007 reports, casting the project in a more favorable light.
The project also could become more viable, he said, if population growth in the area boosts the need for more power sources.
"The last I checked
Chris Wysocki, a Sacramento-based spokesman for Nevada Hydro, said the negative 2006 reports, which he hasn't seen, will not impact the ability of his clients to attract investment capital for the project.
"We're still full-steam ahead," he said.
The reports were commissioned by the water district's attorney, John Brown, who is negotiating a new agreement with Nevada Hydro that would modify a 1997 contract. That contract doesn't explain how and when the district will be reimbursed for its costs in helping the project move toward regulatory approval.
In October, Nevada Hydro announced an agreement with Morgan Stanley Commodities for the purposes of building, owning and operating the power plant and transmission lines, upon federal and state approval.
At the time, Arlin Travis, of Morgan Stanley, was quoted in a Nevada Hydro press release as saying, "This is a unique opportunity to participate in a world class project and provide a clean energy solution to the power needs of
Wysocki said Thursday that Morgan Stanley wouldn't have signed an agreement with Nevada Hydro without vetting the project.
"They have a team of people. They are going to do their due diligence. These are people who know what they are doing," he said. "There's nothing that was not disclosed to Morgan Stanley."#
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