Economic Analysis of Nevada’s Future Electricity ...

Economic Analysis of Nevada’s Future Electricity-Generating Alternatives

November 2007 © ECONorthwest 2007

Phone • (541) 687-0051 Suite 400 FAX • (541) 344-0562 99 W. 10th Avenue [email protected] Eugene, Oregon 97401

ECONorthwest Economic Analysis of Nevada’s Future Electricity-Generating Alternatives i

TABLE OF CONTENTS

I. SUMMARY OF FINDINGS............................................................................. 1

II. BACKGROUND ........................................................................................... 4

III. THE POTENTIAL ECONOMIC AND ENVIRONMENTAL CONSEQUENCES OF DEVELOPING AND OPERATING THE ELY ENERGY CENTER .................. 7 A. POTENTIAL POSITIVE ECONOMIC CONSEQUENCES..................................................7 B. POTENTIAL NEGATIVE ECONOMIC CONSEQUENCES (SUMMARY)..............................8 C. POTENTIAL NEGATIVE ENVIRONMENTAL IMPACTS....................................................9 1. Emission of harmful pollutants ......................................................................................9 2. Contributions to climate change ..................................................................................10 3. Negative impacts on water resources .........................................................................10 4. Increased accidents ....................................................................................................12 5. Visibility and ecological impacts ..................................................................................12 6. Diminished amenities ..................................................................................................14 7. Other negative environmental consequences .............................................................14

D. POTENTIAL NEGATIVE IMPACTS ON JOBS ..............................................................15 1. Negative Impacts on Jobs from the Costs Imposed on Others ....................................15 2. Forgone Jobs in Other Energy Sectors .......................................................................18

E. POTENTIAL NEGATIVE CONSEQUENCES: EXCESSIVE COSTS .................................18 1. Direct Costs of Coal-Fired Electricity ...........................................................................18 2. Spillover Costs of Coal-Fired Electricity.......................................................................19

F. POTENTIAL NEGATIVE CONSEQUENCES: INCREASED RISKS ..................................26

IV. A FEASIBLE ALTERNATIVE TO COAL: ENERGY EFFICIENCY AND ELECTRICITY FROM RENEWABLE RESOURCES........................................ 30 A. POTENTIAL ECONOMIC CONSEQUENCES: MORE JOBS...........................................35 B. POTENTIAL ECONOMIC CONSEQUENCES: COST SAVINGS......................................42 C. POTENTIAL ECONOMIC CONSEQUENCES: LOWER RISK .........................................44

V. REFLECTIONS AND CONCLUSIONS .......................................................... 47

ECONorthwest Economic Analysis of Nevada’s Future Electricity-Generating Alternatives 1

I. SUMMARY OF FINDINGS

Sierra Pacific Power Company and Nevada Power Company, the state’s two major electric utilities, estimate that demand for electricity will grow by about 2,000 megawatts (MW) over the next decade. Nevadans soon must choose between two alternatives for accommodating this growth.

One alternative involves generating electricity by burning coal. The utilities’ parent company, Sierra Pacific Resources, seeks to build one 750-MW coal-fired generator near Ely, in White Pine County, by 2011 and another by 2013. Its preliminary estimate of the total cost is $3.2 billion. Two other independent power producers also have proposed building new coal-fired generators in the state, and to sell the output to customers in Nevada and other states. LS Power Group proposes to build a 1,590-MW generator near Ely, and Sithe Global Power, LLC, proposes a 750-MW generator near Toquop, in Lincoln County. In each case, the coal for the generators probably would be shipped in by rail from Wyoming.

The other alternative does not involve burning coal. Instead, it entails investing in energy efficiency, so that energy savings could be used to meet new demands, and in new generators powered by wind, geothermal heat, and other renewable resources.

The choice between the two alternatives will have important economic consequences for Nevada’s families, landowners, and businesses. This report describes the tradeoffs, focusing on these four areas:

Environmental Consequences. The two generators proposed by Sierra Pacific Resources would annually

emit: * 3,044 tons of sulfur dioxide * 3,044 tons of nitrogen oxides * 760 tons of particulate matter * 88 pounds of mercury * 11,501,735 tons of carbon dioxide

and consume: * 3.26 billion gallons of water.

The pollutants, water use, and operation of the generators would have important environmental consequences:

Increased illness, injury and premature deaths Change in climate More frequent and severe droughts Harm to crops and livestock Reduced visibility in scenic areas Increased toxicity of fish Harm to threatened or endangered species Change in soils, water, flora, fauna Exposure to hazardous inputs Winter fog/haze Growth in population and traffic Boom-bust economic and social change Degradation of recreational opportunities Noise and light pollution Disposal of waste products Damage to historic and cultural sites

Impacts on Jobs. Investments in energy efficiency and renewable resources probably will create more jobs in Nevada than investments in coal-fired generators. A review of recent research compared the average number of jobs created over their operational lifetimes by different types of generating facilities. It found that, after adjusting for differences in their operating characteristics, a coal-fired generator creates, on average, 1.01 jobs per


megawatt of capacity, whereas a solar (photovoltaic) generator creates 7.41 – 10.56 jobs and a wind-powered generator creates 0.71 – 2.79 jobs. Other evidence indicates that the long-run job creation for operations and maintenance by the energy-efficiency/ renewable-resources alternatives likely would be 2 – 10 times the job creation by the coal-fired alternative. Moreover, by degrading the environment, the emissions from coal-fired generators probably would have an adverse impact on many jobs in the surrounding communities.

Costs to Ratepayers. Investments in energy efficiency and renewable resources probably would meet Nevada’s future demands for electricity at a significantly lower cost to ratepayers than investments in coal-fired generators. There are substantial opportunities to increase the efficiency of existing electricity uses, with the saved electricity available to meet new demands at a cost of about $0.02 to $0.03 per kilowatt-hour (kWh). If additional generating capacity is needed, electricity from wind and geothermal resources is expected to cost consumers $0.05 – $0.06 per kWh, about the same as coal-fired electricity, under base-case scenarios. Analysis presented to the Nevada Public Utility Commission shows that, under base-case conditions, replacing Nevada Power Company’s share of the first proposed Ely coal plant, 600 MW, with a portfolio of energy efficiency, wind energy, and geothermal energy would save about $198 million (present value for 2007 to 2041).

Economic Risks. Every strategy for meeting Nevada’s future demand for electricity embodies some risk, but a decision to rely on new coal-fired generators would create extraordinary risks for ratepayers, shareholders, families, landowners, and businesses. Ratepayers and shareholders would face considerable risk that the cost of coal-fired electricity would outstrip the developers’ preliminary estimates. This risk would arise from several factors: construction costs have been growing as much as 40 percent per year at generators being built elsewhere, coal prices have been and likely will be highly volatile, and actions by state and local governments indicate utilities burning coal soon will incur additional costs for their emissions of carbon dioxide. Estimates developed by Nevada Power Company, Sierra Pacific Power Company, and other western utilities indicate that the carbon dioxide costs for the two generators Sierra Pacific Resources proposes to build at Ely would be at least $103.5 million, and perhaps as large as $805 million, per year. There is some probability that the increase in costs would render a coal-fired generator obsolete, so that ratepayers and/or shareholders would have to swallow the costs of the unproductive plant and equipment and the accelerated costs of decommissioning the facility.

Sierra Pacific Resources, itself, has said that anticipated regulations to curtail emissions of carbon dioxide could make coal no longer viable as a fuel from which to generate electricity, so that it would be uneconomical to construct new coal-fired generators, and/or uneconomical to maintain or operate a generator already in place. This assessment indicates there is a real probability that money spent to develop the Ely Energy Center may yield no benefits at all. Instead, the proposed coal-fired generators may become obsolete, perhaps even before they are completed, leaving ratepayers and/or shareholders to swallow the costs of the unproductive plant and equipment and the accelerated costs of decommissioning the facilities.

Residents of the area surrounding a coal-fired generator would face multiple risks. Its emissions and operation would increase the incidence of illness and premature death,


adversely affect crops and livestock, diminish the quantity and/or quality of water resources, impair amenities that contribute to the quality of life for those who live in the area, and lower property values. Businesses and communities would bear risks associated with the likelihood that activity in the tourism and recreational sectors would diminish insofar as emissions from the generators would degrade visibility, fishing opportunities, the character of the Great Basin National Park, and other attractive resources. Long-run risk would arise insofar as the generators would lessen the area’s ability to participate in the processes of amenity-driven growth that exert considerable, growing influence on the economic vitality of rural communities throughout the western states.

Everyone who lives in or cares about the southwestern states would bear additional risk that the region would experience future droughts made more frequent and intense by the emissions of carbon dioxide from burning coal. Those living or caring about other regions would bear risks of the emissions’ contributions to other climate changes, which may include higher incidence of severe hurricanes and other storms, flooding, extinctions of species, wildfires, spread of insects and diseases, and numerous other undesirable outcomes.

A decision to implement the energy-efficiency/renewable-resources alternative would avoid most of these risks. This alternative would not consume coal or other fuel to generate electricity, so there would be no risk that the future cost of electricity would jump to cover rising fuel costs. It would have minor emissions of carbon dioxide relative to those from coal-fired generators so there would be no or little risk that the cost of electricity would jump to cover carbon dioxide costs. It would produce minimal or no emissions to harm human health, crops and livestock, or the ecosystem, to degrade visibility, or to adversely affect water supplies, property values, and the amenities that contribute to economic growth.

The information readily available up to now has told only part of the economic story regarding the coal-fired generators Sierra Pacific Resources and others propose to build in Nevada. Before they can make fully-informed decisions regarding these proposals, Nevadans must have the results from a broader analysis. Such an analysis must comprehensively examine the environmental consequences, impacts on jobs, economic costs and benefits, and economic risks. It must compare the proposed coal-fired generators against an alternative that would rely on energy efficiency and electricity from renewable resources. This report takes the first steps toward this goal. It demonstrates that the energy-efficiency/ renewable-resources alternative is the better choice, for it would have fewer adverse environmental consequences, create more jobs, impose smaller costs on Nevadans, and be accompanied by lower economic risk.

ECONorthwest prepared this report for the Nevada Clean Energy Campaign, a coalition of grassroots organizations supporting energy efficiency and clean renewable energy development in Nevada. ECONorthwest is the oldest and largest economic consulting firm in the Pacific Northwest. Ernie Niemi and Cleo Neculae, economists with ECONorthwest, prepared this report, with assistance from numerous individuals, agencies, and organizations, who helped us acquire and interpret information regarding the alternatives’ potential economic effects. Responsibility for the content of this report, however, rests solely with ECONorthwest.

For more information about this report, please contact:

Ernie Niemi, Senior Policy Analyst [email protected] 541-687-0051


II. BACKGROUND

Nevada’s electric utilities have projected that the demand for electric energy will grow by 2,000 megawatts (MW) over the next decade.1 Two major pathways have been proposed for satisfying this increase in demand. One entails building new coal-fired generators. The other calls for a more diversified set of clean-energy actions, with investments in energy efficiency to keep demand from rising so quickly, and the development of new generators powered by wind, geothermal heat, and other renewable sources of energy.

This report describes and compares the potential economic consequences associated with these two pathways. Specifically, it examines the tradeoffs between them in terms of:

Impacts on jobs. We compare: (1) the impacts on energy-related employment opportunities, and (2) the impacts on jobs arising from environmental and other effects that would alter the spending patterns of Nevadans and visitors.

Economic costs. We compare the direct costs of implementing the coal option with the clean-energy option (energy efficiency and electricity from renewable energy). We also account for the spillover costs Nevadans would bear, for example, as coal-fired pollutants increase the levels of illness and premature death, lower property values, and increase the incidence and severity of future droughts in the state.

Economic risk. We describe differences between the coal option and the clean-energy option in terms of risks that might lead to increases in costs and/or to jumps in future electricity rates.

Table 1 lists the new coal-fired generators developers propose to develop in Nevada in the next 5 – 7 years. If all the proposals were to be completed, the increase in generating capacity would total about 4,000 MW. This is twice the increase in statewide demand the state’s utilities expect to materialize, absent additional investments in energy-efficiency programs. These new generators would be developed in the context of a considerable number of existing and proposed coal-fired generators in the southwestern states, as shown in Figure 1. The proximity of other generators is important insofar as their construction and operation would interact with those of the new generators proposed for Nevada, magnifying the effects on costs, jobs, and risks of the new in-state generators.

To facilitate the analysis of the coal-fired alternative, we focus on one of the proposed facilities listed in Table 1, the Ely Energy Center. Based on our preliminary assessment, we anticipate that its economic consequences would be similar to those of another facility, proposed by LS Power Development, LLC, that would have similar capacity and be located nearby.

1 Nevada State Office of Energy. 2007. Status of Energy in Nevada: Report to Governor Gibbons and the Legislature. May 21. Retrieved September 10, 2007, from http://energy.state.nv.us/2007%20Status%20of%20Energy%20in%20Nevada%20Report.pdf.


Table 1. Proposed Coal-Fired Generators in Nevada

Facility Location Owner/Developer Capacity

(MW)

Ely Energy Center White Pine Co. Sierra Pacific 1,500a

White Pine Project White Pine Co. LS Power Associates 1,590

Toquop Energy Project Lincoln Sithe Global Power 750

TS Power Plant Eureka Newmont Mining Corp. 220

Total 4,060 Source: ECONorthwest a First two proposed generators. Two more have been proposed for subsequent development.

Figure 1. Existing and Proposed Coal-Fired Generators in Nevada and Neighboring States

Source: Environmental Defense and Western Resource Advocates. 2007. Climate Alert: Cleaner Energy for the Southwest.


The Ely Energy Center is the name given to a proposed complex of coal-fired generators planned by Sierra Pacific Resources, parent company of Sierra Pacific Power Company and Nevada Power Company, to generate electricity near the town of Ely, in White Pine County, as shown in Figure 2. It would begin with two generators, each with a 750-MW capacity, that would burn pulverized coal from Wyoming’s Powder River Basin to create high-pressure steam to drive a turbine.2 The proposal also anticipates developing two additional generators at the site sometime in the future. Each of these would have the capacity to generate 500 MW and may burn gasified coal. The proposal also entails building a 250-mile transmission line toward Las Vegas, reconstructing and extending a rail line to accommodate trains bringing coal to the facility from Wyoming, and the construction of other ancillary facilities.

The proposed development would occupy about 3,000 acres owned by the U.S. Bureau of Land Management. It would use about 10,000 acre-feet3 of water per year for cooling and other purposes, with the water coming from aquifers in three nearby basins. Construction of the first phase of the project would begin in 2008, with the first generator completed in 2011 and the second in 2013, at a cost of about $3.2 billion (exclusive of the transmission line). The first two generators would consume coal equivalent to about one train per day, with each train having 120 – 150 cars.

Sierra Pacific Resources’ objectives in building the Ely Energy Center are “to provide reliable, low-cost energy for Nevada Power and Sierra Pacific Power, reduce the companies’ reliance on volatile oil and natural gas markets to generate electricity, and provide additional generation to keep pace with an expected 250 megawatts of annual load growth in the companies’ service territories.”4 It wants the proposed transmission line to “strengthen the electrical infrastructure of Nevada” by connecting the systems and resources of the two subsidiary utilities. The transmission line also might facilitate future development of wind-powered generators in the Ely area, whose development has been forestalled, in part, by the lack of nearby transmission lines to which they could supply electricity. Sierra Pacific Resources, and some residents of the Ely area, also see an important ancillary benefit from the proposed project, in that the Ely Energy Center would boost jobs, incomes, population, property values, and tax revenues to support local services.

2 For the company’s description of the project, see http://www.sierrapacificresources.com/projects/ely/.

3 An acre-foot is an amount of water (about 326,000 gallons) that would cover an acre of land one-foot deep.

4 Sierra Pacific Resources. 2007. “Ely Energy Center Environmental Issues.” Retrieved October 11, 2007, from http://www.sierrapacificresources.com/projects/ely/environmental.cfm

Figure 2. Proposed Ely Energy Center and Transmission Line

Source: Sierra Pacific Resources


III. THE POTENTIAL ECONOMIC AND ENVIRONMENTAL CONSEQUENCES OF DEVELOPING AND OPERATING THE ELY ENERGY CENTER

In the following paragraphs we describe the Ely Energy Center’s potential economic consequences, recognizing that some of these would be positive and others negative. Our presentation proceeds in this order:

A. Potential Positive Economic Consequences

B. Potential Negative Economic Consequences (Summary)

C. Potential Negative Environmental Impacts

D. Potential Negative Impacts on Jobs

E. Potential Negative Consequences: Excessive Costs

F. Potential Negative Consequences: Increased Risks

A. POTENTIAL POSITIVE ECONOMIC CONSEQUENCES The preceding section’s description of the proposed Ely Energy Center, which we drew largely from materials prepared by Sierra Pacific Resources, identifies anticipated positive consequences in these three areas:

• Generating capacity and electric energy. The two initial generators would have a combined capacity of 1,500 MW. The generators are expected to be baseload resources, operating for extended periods of time, but with occasional shutdowns for maintenance or other reasons.

• Positive impact on jobs. Sierra Pacific Resources has not revealed the total amount of labor that would be required to construct the first two coal-fired generators at the Ely Energy Center and related facilities, but it has stated that the workforce would peak at 1,200 – 1,500 employees.5 Operation of the generators and related on-going activities would provide permanent employment for more than 100 workers. Studies of other major industrial facilities indicate that most, perhaps nearly all, of these jobs probably would be filled by workers from outside the local area.6 The new jobs, workers, and their families would provide a stimulus to the overall local economy.

• Decreased risk. Sierra Pacific Resources has justified its decision to develop coal-fired generators in part because it has compared this alternative against generators that would be fueled by oil and natural gas. In its assessment, Sierra Pacific Resources asserts that coal prices are less likely than the prices of these other fuels to jump in the future and cause marked increases in electricity rates. It concludes

5 Sierra Pacific Resources. “Ely Energy Center FAQs.” Retrieved June 29, 2007, from http://www.sierrapacificresources.com/projects/ely/FAQ.cfm.

6 Bartik, T.J. 1993. “Who Benefits from Local Job Growth: Migrants or the Original Residents?” Regional Studies 27 (4): 297-311.


this difference in risk is sufficiently important to warrant choosing coal over oil and natural gas, as a source of energy from which to meet demands for electricity over the next three or more decades.

B. POTENTIAL NEGATIVE ECONOMIC CONSEQUENCES (SUMMARY) The proposed Ely Energy Center would have negative as well as positive economic consequences. The negative consequences fall into three categories:

• Negative impacts on jobs. Pollution from the burning of coal would degrade the surrounding environment and diminish the ability of nearby communities to derive jobs and income from the area’s natural-resource amenities, such as the Great Basin National Park and the region’s hunting and fishing opportunities. It also would impede or preclude meeting Nevada’s energy requirements via alternatives that promise a greater number of new job opportunities.

• Costs. Electricity from the proposed coal-fired generators would be costly. The $3.2 billion construction costs estimated by Sierra Pacific Resources is just the beginning. Utilities building coal-fired generators elsewhere are finding that construction costs are growing at unexpected high rates. In addition, national initiatives to rein in the emission of carbon dioxide could significantly increase the cost of burning coal. Moreover, the direct costs of developing and operating the coal-fired generators constitute only a portion of the total costs. Through the generators’ emission of pollutants and other factors, spillover costs would materialize through increases in the incidence of human illness and premature death, diminished production of crops and livestock, reduced visibility, changes in the region’s ecosystem, and contributions to global climate change.

• Increased risks. A commitment now to burn coal to generate electricity over the next several decades would generate considerable risk for ratepayers, investors, local communities, and Nevada’s overall economy. Some of this risk stems from the generators’ large size. Once they are built, a substantial portion of the state’s economy will be handcuffed for several decades to their technology and cost structure, subject to potential rises in the price of coal and unable to take advantage of newer, cheaper technologies that emerge in the future. Or, alternatively, the new technologies would render them obsolete. Perhaps more important, there is a high likelihood that utilities burning coal soon will have to bear liability for their substantial emissions of carbon dioxide and contributions to climate change. If the utilities are successful in passing this liability to their customers, then Nevada’s households and businesses could be paying markedly higher rates.

We describe these negative economic consequences below. Many of these, but by no means all, would accompany the negative environmental effects of mining, transporting, and burning coal. Hence, we first provide a quick overview of these potential environmental effects, and then provide additional detail as we describe the associated economic consequences.


C. POTENTIAL NEGATIVE ENVIRONMENTAL IMPACTS Sierra Pacific Resources correctly points out that, because of changes in combustion and other technologies, the new generators would emit much smaller levels of pollutants, and have smaller environmental impacts per unit of electricity generated than the region has experienced with old coal-fired generators. The emissions and impacts would be far from zero, however. Although the details regarding the emissions and their impacts have yet to be assessed by Sierra Pacific Resources and relevant regulators, the preliminary evidence we describe below indicates the impacts would be considerable. To facilitate our description of the impacts, we separately address the emission of harmful pollutants, contributions to climate change, impacts on water resources, increased accidents, visibility and ecological impacts, diminished natural-resource amenities, and other negative environmental effects.

1. EMISSION OF HARMFUL POLLUTANTS

Burning coal to generate electricity produces several pollutants that have important harmful effects. These include increased incidence of illness and premature death among humans, livestock, and fish and wildlife exposed to the pollutants, as well as changes in vegetation in the surrounding region. The pollutants that have received the greatest attention are: sulfur dioxide, nitrogen oxides, particulates, ozone, carbon monoxide, volatile organic compounds, lead, and mercury.

Nevadans already experience significant adverse health effects of existing coal-fired power plants. Researchers have estimated that the small particles emitted from power plants shorten the lives of 26 Nevadans per year. Related illnesses cause residents to have 680 asthma attacks, of which 10 require visits to an emergency room, and workers to miss 3,987 days of work.7 Figure 3 illustrates the human-health effects in Nevada of burning fossil fuels to generate electricity. The map shows a simulation, published in 2004, of the premature deaths in 2010 that would be attributable to emissions of just one pollutant, particulate matter, from power

7 Clear the Air. “Nevada’s Dirty Power Plants,” citing Abt Associates. 2004. Power Plant Emissions: Particulate Matter-Related Health Damages and the Benefits of Alternative Emission Reduction Scenarios. June. Retrieved June 25, 2007, from http://www.cleartheair.org/regional/factsheets/factsheetNVfinal.pdf.

Figure 3. Premature Mortality Risk Attributable to Particulate Matter from Power Plants, 2010

Source: Abt Associates Inc. 2004. Power Plant Emissions: Particulate Matter-Related Health Damages and the Benefits of Alternative Emission Reduction Scenarios. Clean Air Task Force, Boston, MA. June, p. 6-6. Retrieved June 15, 2007, from http://www.cleartheair.org/dirtypower/docs/ abt_powerplant_whitepaper.pdf.


plants in the U.S. It shows 1 – 5 premature deaths per 100,000 adults in southern Nevada, and one or fewer in the rest of the state. The map does not, however, incorporate the effects of emissions from the new coal-fired plants proposed to be built in Nevada. Those emissions would raise the premature-death rates from particulate matter, especially for populations experiencing the greatest exposure to the pollutant.

Other pollutants also would contribute to the incidence of illness and premature death. Of special concern is mercury. When emitted into the air, some mercury deposits into water bodies where it is converted to methylmercury, which, when ingested, damages the brain, nervous system, blood vessels, kidneys, and immune system. People ingest methylmercury primarily by eating contaminated fish. Methylmercury is especially dangerous for fetuses and young children, who may experience deficits in attention, language, verbal memory, spatial function, and intelligence, as well as non-neurological effects. Ingestion of methylmercury by adults is associated with increased risk of heart attack. Though limited in scope, testing has found that mercury concentrations in parts of northern Nevada are among the highest in the western U.S.; additional emission from new coal-fired generators would add to the burden.

2. CONTRIBUTIONS TO CLIMATE CHANGE

Scientists and governments around the world have concluded that emissions of carbon dioxide and other gases are contributing to increases in temperature and changes in climate around the globe.8 These effects, in turn, have begun to have numerous negative economic consequences, which scientists predict will intensify in the future. The list of actual and potential economic harm stemming from climate change is long and includes increases in the incidence of intense storms and droughts, rise in deaths associated with high temperatures, spread of temperature-related insects and diseases, reductions in some regions’ agricultural production, increased flooding from rising sea levels, increased risk of species going extinct, increased costs of insurance, and setbacks to the rate of economic development in many countries.

The proposed coal-fired generators would contribute to these effects by emitting about 11 million tons of carbon dioxide annually. A consortium of western electric utilities, including Nevada Power Company and Sierra Pacific Power Company, found that the damages attributable to future carbon dioxide emissions are likely to be between $9 and $70 per ton. If the coal-fired generators were built and Nevada’s ratepayers were made liable for these damages, they could see their rate payments rise $103.5 million – $805 million per year. The findings also indicate that, under climate-related actions proposed by California and others, the liability would be about $460 million per year.

3. NEGATIVE IMPACTS ON WATER RESOURCES

Construction and operation of the proposed coal-fired generators likely would have negative impacts on the quantity and quality of water resources available for other uses, as well as

8 See, for example, reports from the Intergovernmental Panel on Climate Change (IPCC), available at http://www.ipcc.ch/.


on the surrounding area’s water-related ecosystems. Sierra Pacific Power has indicated that, to operate the two generators, it would pump 3.26 billion gallons, or about 10,000 acre-feet, of ground water per year for cooling and other purposes.9 The extent to which the use of water would affect the availability and quality of water for other uses has not yet been determined. If the pumping should lower the water table of the aquifer(s) from which the utilities would acquire groundwater, it would leave less water available for farmers, communities, and others in the future. A lowering of the water table also might reduce the flow from groundwater to surface water at seeps and springs. The quality of groundwater and surface water could be degraded by emissions from the generators, ancillary activities associated with them, and the urban development that the generators would stimulate. The impacts on water supplies could become more significant if the region experiences more frequent and severe droughts in the future, which, as we explain below, seems likely.

Indeed, emissions from the generators also are likely to reduce the region’s water supplies further by contributing to global and local processes that can cause drought. The generators’ emissions of carbon dioxide would contribute to changes in climate that are underway and expected to become more extreme, unless steps are taken to arrest and reverse the growth in emissions. Figure 4 portrays expectations, drawn from nineteen leading climate-change models, of how carbon dioxide and other gases that affect climate will affect precipitation across North America. The map shows that precipitation in the desert Southwest during the 2020s and 2040s is expected to be as much as 8 percent less than during the last half of the twentieth century. The amount of water available for the region’s populations of humans, plants, and animals would be reduced even more, insofar as emissions of carbon dioxide, including those from the coal-fired generators, also would

9 Equal to 326,000 gallons, an acre-foot of water typically meets the annual demands of about 1.5 households in Nevada. Nevada Department of Conservation and Natural Resources, Division of Water Resources. 1999. Nevada State Water Plan. March. Retrieved October 11, 2007, from http://water.nv.gov/WaterPlanning/plan-app/Use%20Summaries/dt1a9511.pdf

Source: Seager, R. 2007. An Imminent Transition to a More Arid Climate in Southwestern North America. Lamont-Doherty Earth Observatory of Columbia University. Retrieved June 15, 2007, from http://www.ldeo.columbia.edu/res/div/ocp/drought/science.shtml.

Figure 4. Projected Change in Precipitation: the Average for 2021-2040 Minus the Average for 1950-2000, as a Percent of the 1950-2000 Average


contribute to predicted rises in temperatures, so that the precipitation that does occur would evaporate more quickly.

The generators’ emissions of particulates may worsen future drought conditions even further. Researchers at the Nevada Desert Research Institute have found that, under some conditions, the pollution produced by combustion can reduce a storm’s snowfall by one-half and may reduce the water content of the snow that does fall by 25 percent.10 This effect materializes because minute particles in polluted air attract moisture and keep it from forming droplets large enough to fall to the ground. Instead, the moisture disperses and remains suspended in the atmosphere. These findings indicate the reduction in precipitation occurs most strongly when the pollution particles are the result of continuous combustion, as would occur in the coal-fired generators. Hence, they raise the possibility that emissions from the generators could reduce winter precipitation throughout the area downwind.

4. INCREASED ACCIDENTS

The mining, transportation, and combustion of coal inevitably result in accidents that injure or kill workers as well as others. So too do the construction of coal-fired generators and ancillary facilities, the disposal of waste materials, and the decommissioning of generators and other facilities once they no longer are being used. The injuries and deaths from accidents depend on many factors, and current information does not allow us to predict with precision how many of each would occur if the coal-fired plants at Ely were built and operated. An extensive investigation into the potential spillover costs of coal-fired electricity in the early 1990s concluded, however, that the spillover costs associated with the human-health effects of accidents that accompany the shipment of coal to power plants were “of the same order of magnitude” as those that were caused by airborne pollutants.11

5. VISIBILITY AND ECOLOGICAL IMPACTS

Airborne pollutants emitted from the coal-fired generators would alter the visibility in the surrounding region and induce changes in the region’s ecosystem. The full extent of the potential changes is not known, but some insights are available from a preliminary assessment of another coal-fired generator that LS Power Group, an independent power producer, has proposed to build near Ely. In its assessment of the proposal, the National Park Service concluded that the generator’s coal-fired emissions would have negative effects on the Great Basin National Park and the proposed Great Basin National Preserve, located to the southeast of Ely. The Park Service also concluded that these effects would be large enough that it would oppose development of the generator.12 It particularly expressed

10 Nevada Desert Research Institute. 2004. “Researchers Find Air Pollution Link to Drought.” July 27. Retrieved June 15, 2007, from http://news.dri.edu/nr2004/jul_drought.htm.

11 Oak Ridge National Laboratory and Resources for the Future. 1994. Estimating Externalities of Coal Fuel Cycles. September. Retrieved June 18, 2007, from http://www.osti.gov/energycitations/purl.cover.jsp? purl=/757381-ZMgpzz/webviewable/.

12 Edwards, J.G. 2007. “Park Service Opposes LS Power Project.” Las Vegas Review Journal. June 5. Retrieved June 26, 2007, from http://www.lvrj.com/business/7840012.html.


concern that emissions from the combustion of coal would reduce visibility and alter the ecosystem. For instance, it highlighted the potential for emissions to adversely impact the habitat of cutthroat trout, particularly at Baker Lake, encourage invasive plants to the detriment of native plants, increase the likelihood of range fires, and accelerate the mortality of trees. Potential degradation of visibility is important in part because the park prides itself as being one of the very few locations left in the continental U.S., where one can enjoy stargazing without any interference from light or air pollution.13 The park’s probable lost ability to provide these amenities, due to air pollution, would fail the tenets of Public Law 99-565, which created the park twenty years ago and which stipulates that the park should be managed in such a way “as to perpetuate [the park’s] qualities for future generations.”14

Potential emissions from the coal-fired generators at the proposed Ely Energy Center have raised similar concerns. These concerns persist—even though a representative of Sierra Pacific Resources has stated that it would employ technology to lower its emissions of sulfur dioxide15—because the fact remains that, regardless of technology, the generators would emit multiple pollutants capable of adversely affecting visibility and the ecosystem.

The Environmental Protection Agency (EPA) further highlighted concerns about the potential environmental effects of proposals to establish coal-fired generators in Nevada.16 In criticism of an analysis of LS Power Group’s proposed coal-fired generator, EPA concluded the proposed developer has failed to ascertain the extent to which alternatives could satisfy demands for energy without burning coal and producing widespread adverse impacts on the environment. The EPA specifically observed that the assessment did not fully consider how an alternative involving investing in energy efficiency would lower the demand for new coal-fired generators. It also encouraged further investigation of the potential for generators powered by geothermal heat to substitute for the proposed coal-fired generators. Although a representative of Sierra Pacific Resources dismissed the EPA’s conclusions as irrelevant to its plans,17 this reaction seems premature. Neither Sierra Pacific Resources nor anyone else has published a full, comparative assessment of coal-fired generation versus alternatives that rely on energy efficiency and renewable resources. Until such an assessment is produced and accepted, it seems that concerns about the environmental impacts of coal-fired generators located near Ely will persist.

13 U.S. Department of the Interior, National Park Service, Great Basin National Park. 2007. “Plan Your Visit.” Retrieved July 26, 2007, from https://cms.pwr.nps.gov/grba/planyourvisit/index.htm.

14 U.S. Department of the Interior, National Park Service. 2007. Business Opportunity: Proposal to Operate a Food and Beverage Retail Operation at the Lehman Caves Visitor Center within Great Basin National Park. CC-GRBA001-07. Retrieved July 26, 2007, from http://www.concessions.nps.gov/images/webpages/ Prospectus/GRBA001/5%20-%20GRBA001%20Business%20Opportunity.pdf

15 Herndon, R. 2007. “SPR Says Its Plant Will Be Less Polluting than LS Power’s.” Ely Times. June 14. Retrieved August 12, 2007, from http://www.elynews.com/articles/2007/06/14/news/news01.txt.

16 Sweet, P. 2007. “Don’t Rush to Add Coal Plant, EPA Warns.” Las Vegas Sun. August 9. Retrieved August 12, 2007, from http://politics.lasvegassun.com/2007/08/dont-rush-to-ad.html.

17 Edwards, J.G. 2007. “Official Deflects Criticism of Plant.” Las Vegas Review-Journal. August 10. Retrieved August 12, 2007, from http://www.lvrj.com/business/9083081.html.


6. DIMINISHED AMENITIES

White Pine County and the surrounding area have considerable natural-resource amenities that enhance the quality of life for those who live there. they also generate economic activity, jobs, and income by attracting recreationists and others. The natural resources of the Great Basin National Park, for example, have attracted 78,000 – 90,000 recreational visitors per year in the past decade, and their expenditures have generated economic activity in local communities.18 Emissions from the proposed coal-fired generators could diminish the region’s amenities by reducing the supply and quality of water, impairing visibility, or altering the region’s flora and fauna. These impacts could impair this area’s ability to take advantage of strong national forces that cause areas with high quality natural-resource amenities to experience more robust economic growth than areas with degraded amenities. Some of the natural-resource amenities at risk are those that White Pine County’s Chamber of Commerce and its Tourism and Recreation Board have identified as making the county “A Great Place To Visit” and “A Great Place To Live”:19

• “The spectacular grandeur of the Great Basin National Park” • “Elk, mule deer, antelope, coyotes, badgers, hawks, rabbits, and more…”

• A “high desert landscape [with] beautiful lakes for fishing and boating…” • “The quiet serenity of Cave Lake State Park”

• “Rare natural features [that] include the Bristlecone Pines (among the worlds' oldest living things)”

• “Majestic Mount Wheeler”

• “Ward Mountain Recreation Area and Trail System”

• “A clear desert climate characterized by clear sunny days … all year” • “Shoshone Ponds Natural Area”

• “Swamp Cedar Natural Area”

7. OTHER NEGATIVE ENVIRONMENTAL CONSEQUENCES

Construction and operation of the proposed coal-fired generators could have numerous other, potentially significant, negative impacts. These include: reductions in the productivity of agricultural crops and livestock, increased fog and haze during winter months, increased levels of airborne dust, harm to threatened or endangered species, boom-bust impacts on local communities, noise and light pollution, industrialization of public lands, and damage to cultural resources. These impacts have yet to be measured.

18 National Park Service. Park Visitation Report: Great Basin NP. Retrieved September 5, 2007, from http://www2.nature.nps.gov/NPstats/select_report.cfm?by=year.

19 White Pine County Tourism and Recreation Board, White Pine Chamber of Commerce, and White Pine Economic Diversification Council. 2007. “Ely, Nevada: Welcome, White Pine County.” Retrieved July 31, 2007, from http://www.elynevada.net/.


D. POTENTIAL NEGATIVE IMPACTS ON JOBS The construction and operation of the proposed Ely Energy Center would create some new jobs, as described previously in this report. These increases in the demand for labor directly related to the development and operation of the generators would, however, be offset by negative impacts elsewhere in the economy. These negative impacts would materialize through three mechanisms: (a) costs imposed on households, landowners, businesses, and visitors; (b) forgone development of energy alternatives capable of producing even greater numbers of jobs; and (c) higher than necessary electricity prices.

1. NEGATIVE IMPACTS ON JOBS FROM THE COSTS IMPOSED ON OTHERS

Later in this report, we describe evidence indicating that development and operation of the coal-fired generators would impose substantial costs on workers, families, landowners, businesses and visitors. These costs would materialize through multiple mechanisms:

Increased illness, injury and premature deaths Change in climate More frequent and severe droughts Harm to crops and livestock Reduced visibility in scenic areas Increased toxicity of fish Winter fog/haze Increased dust Change in soils, water, flora, fauna Harm to threatened or endangered species Growth in population and traffic Boom-bust economic and social change Degradation of recreational opportunities Noise and light pollution Industrialization of public lands Damage to historic and cultural sites Exposure to hazardous inputs Disposal of waste products

These costs are important in their own right, because they reduce the welfare of affected workers and families and the earnings of affected landowners and businesses. They also are important because, as workers, families, landowners, and businesses incur these costs, they likely would diminish their expenditures in the local economy and the diminished expenditures would have a negative impact on jobs. For example, the families of workers injured or killed in accidents, or of those made ill by exposure to harmful pollutants, may have less to spend. Hence, their reduced expenditures would support fewer jobs in retail shops. Landowners would see a loss of wealth if pollution were to cause the value of their properties to decline, and would lower their inclination to invest in improvements and support jobs in construction. Families who otherwise might visit the area surrounding Ely might decide to stay away if pollution diminishes visibility or decreases hunting, fishing, or other recreational opportunities associated with the area’s water resources, open spaces, flora, or fauna. Related businesses would see a decline in sales and might cut their workforce. Ranchers would have less to spend if pollution and hotter climate resulting from the generators were to lower the productivity of their hay and other crops, and slow the growth of their livestock.

Most of these potential negative impacts on jobs are readily understood. One type of impact, that is especially important, relates to the potential effects of the generators’ emissions on water resources, recreational opportunities, visibility, and other natural-resource amenities. Economists have long recognized that, on average, areas with abundant, robust natural-resource amenities experience faster growth in population and jobs, their families have higher levels of income and education, and they attract a higher concentration of


entrepreneurs.20 Figure 5 illustrates one representation of natural-resource amenities that have been shown to be associated with changes in population and jobs. The map shows that these amenities are concentrated in Nevada and other western states. This should come as no surprise to Nevadans, who have witnessed rapid growth in population and jobs, due in large part to the state’s amenities.

White Pine County and the larger surrounding area have considerable natural-resource amenities capable of supporting amenity-driven growth. A website sponsored by White Pine County’s Chamber of Commerce and its Tourism and Recreation Board illustrates these amenities and their importance by describing the area as “A Great Place To Visit” and “A Great Place To Live” and identifying a substantial set of amenities, which we list above.

Emissions for the proposed coal-fired generators would diminish the attractiveness of some or all of these natural-resource amenities and, hence, reduce the ability of the local community to capitalize on these amenities as a future source of economic growth. For example, reductions in visibility would diminish the attractiveness of the Great Basin National Park and other natural areas, and reduce the number of people taking advantage of the area’s hunting, fishing, sight-seeing, and wildlife-watching opportunities. Changes in

20 See, Niemi, E., C. Neculae, and T. Raterman. 2006. Natural-Resource Amenities and Nebraska’s Economy: Current Connection, Challenges, and Possibilities. July. Retrieved July 31, 2006, from http://www.ngpc.state.ne.us/admin/NiemeReport.pdf.

Figure 5. Nevada Has a High Concentration of Natural-Resource Amenities (shown in green) that Correlate with Growth in Jobs and Incomes

Source: McGranahan, D.A. 1999. Natural Amenities Drive Rural Population Change. Agricultural Economic Report No. 781. U.S. Department of Agriculture, Economic Research Service, Food and Rural Economics Division. September. Retrieved January 24, 2006, from http://www.ers.usda.gov/Publications/AER781/.


the quantity or quality of the area’s water resources could diminish their ability to attract boaters and fishers. The impact on fishers would be magnified insofar as mercury emissions from the generators would contaminate the area’s fish, further diminishing the attractiveness of fishing in the area.

The potential impact on the regional and statewide economy could be significant. Research has shown that natural-resource and other amenities account for about one-half of interstate differences in job growth.21 These findings indicate that the residents of White Pine County and Nevada face a tradeoff. By accepting, even subsidizing, development of the coal-fired generators they can gain some additional jobs. At the same time, however, pollution from the generators and other effects, such as consumption of large amounts of water, probably would diminish the area’s natural-resource amenities. Hence, its ability to realize growth in jobs and economic activity associated with these amenities will be impaired. This tradeoff is likely to intensify in the future. Unless degraded, White Pine County’s natural-resource amenities are likely to become even more important, insofar as predicted increases in drought and temperatures elsewhere in Nevada are likely to increase the attractiveness of areas with higher elevations and water resources.

Strong support for our conclusions regarding the likelihood that pollution from the generators would negatively affect jobs comes from a 2003 consensus statement on the relationship between the environment and the economy, which was endorsed by more than 100 economists, including two Nobel Laureates.22 The statement included these salient expressions:

The West’s natural environment is, arguably, its greatest, long-run economic strength. The natural landscapes of the western states, with wide open spaces, outdoor recreational opportunities, and productive natural-resource systems underlie a quality of life that contributes to robust economic growth by attracting productive families, firms, and investments. The West’s natural environment, however, faces serious challenges that threaten to undermine its contribution to the economy. These include air and water pollution, urban sprawl, the extension of roads and other development into roadless public lands, and fragmentation of habitat for native fish and wildlife.

… [T]he economic health of western communities increasingly will depend on the health of the environment. Long-run prosperity will derive from efficient, effective efforts to conserve increasingly scarce environmental resources, protect high-quality natural environments, reverse past environmental degradation, and manage congestion in both urban areas and on public lands with high recreational use. Resource-management policies and economic-development activities that significantly compromise the environment will likely do more economic harm than good.

The economists’ statement serves as a strong warning to those who believe development of the Ely Energy Center would be a boon to the local economy. Extensive research indicates that just the opposite is likely to materialize. Narrow gains in employment linked directly to the proposed coal-fired generators are likely to be more than offset by broad, negative impacts on jobs as pollution from the generators would degrade the amenities of White Pine County and environs, and cripple the area’s ability to derive jobs and prosperity from the amenities.

21 Partridge, M. and D. Rickman. 2003. “The Waxing and Waning of Regional Economies: the Chicken-Egg Question of Jobs Versus People.” Journal of Urban Economics 53: 76-97.

22 Whitelaw, W.E. (ed). 2003. A Letter from Economists to President Bush and the Governors of Eleven Western States Regarding the Economic Importance of the West’s Natural Environment. Available at http://www.salmonandeconomy.org/pdf/120303letter.pdf.


2. FORGONE JOBS IN OTHER ENERGY SECTORS

By proceeding with coal-fired generators, rather than investments in energy efficiency and renewable energy, Nevada’s utilities would forgo the jobs and other economic impacts associated with energy efficiency and renewable resources. The ability of the efficiency and renewable-energy sectors to create jobs was recently highlighted by these statements, from a recent assessment of the job-creation potential of the photovoltaic industry:

Research has shown that renewable energy generates more jobs in its construction and manufacturing sectors, per megawatt of installed power capacity, than does fossil fuel generation. [footnote omitted] Specifically for PV [photovoltaic] generation, far more jobs are produced constructing PV facilities than are produced by the construction and operation of coal and natural gas-fired plants.23 [bold emphasis added]

Other evidence supports a parallel conclusion for energy efficiency and generators powered by renewable resources other than solar radiation. The net effect: there probably will be fewer energy-related jobs with the coal-fired generators than without them. Stated differently: to maximize energy-related jobs, Nevadans should pursue a strategy that focuses on investments in energy efficiency and generating electricity from wind and other renewable resources. We further discuss and document this conclusion below, in our description of an alternative to coal-fired generators.

E. POTENTIAL NEGATIVE CONSEQUENCES: EXCESSIVE COSTS The total costs of electricity from the Ely Energy Center will be the sum of the direct costs and the spillover costs:

Total Costs = Direct Costs + Spillover Costs

The direct costs are those that would be borne by Sierra Pacific Power Company or Nevada Power Company and, hence, by their shareholders or ratepayers. The spillover costs are those that would be borne by others.24

1. DIRECT COSTS OF COAL-FIRED ELECTRICITY

Sierra Pacific Resources has described the direct costs in these terms: “Preliminary estimates indicate a final cost of the first phase at approximately $3.2 billion, including the cost of permitting, water, rail, and other ancillary facilities, but excluding the cost of electric transmission facilities. The project cost will be finalized as the design is finalized

23 Kellison, B., E. Evans, K. Houlihan, M. Hoffman, M. Kuhn, J. Serface, and T. Pham. 2007. Opportunity on the Horizon: Photovoltaics in Texas. University of Texas at Austin, Innovation, Creativity & Capital Institute. June. Retrieved August 12, 2007, from http://www.utexas.edu/ati/cei/documents/TexasSolarOpportunity2007.pdf.

24 Economists often use another term, negative externalities, to describe spillover costs. This term arises because the costs impinge on people, firms, and communities that are outside, or external to those who make the decisions that yield the costs.


and components of the project are put out to bid.”25 Other evidence suggests that costs could be considerably higher, however. For example, construction costs for other coal-fired plants in the U.S. have been rising as much as 40 percent per year.26

What does this mean for ratepayers? General analyses of the costs of coal-fired electricity indicate that the cost probably would be in the neighborhood of 5 – 6 cents per kilowatt-hour (kWh), but the actual the cost almost certainly would not be much less, and it could be considerably higher.27 This estimate does not include the direct cost of the 250-mile transmission line Sierra Pacific Resources proposes to build to deliver electricity from Ely to near Las Vegas, or the likelihood that ratepayers would bear significant costs to cover damages associated with coal-fired emissions of carbon dioxide or other pollutants. It also does not reflect the likelihood that coal prices will be higher than forecast. This risk is significant, as reflected in the price forecasts of the Energy Information Administration (EIA). Under its reference-case set of assumptions, the EIA forecasts that the U.S. average delivered price of coal, exclusive of inflation, will increase by about 6.2 percent between 2005 and 2030. Under another set of plausible assumptions that reflect higher demand for coal, tighter environmental restriction on coal mining, and increased transportation costs, however, the agency forecasts that the delivered price of coal in 2030 would be 49 percent higher than under the reference-case forecast.28

2. SPILLOVER COSTS OF COAL-FIRED ELECTRICITY

Economists and others have long recognized that extensive spillover costs accompany the production, transmission, and consumption of electricity, especially when it is generated by burning coal. There are many different pathways along which spillover costs materialize; we separate them into four categories: human health, climate change, water, and other.

Human-Health-Related Spillover Costs. Coal-fired production of electricity adversely affects human health via two major routes: accidents and exposure to harmful pollutants. The mining, transportation, and combustion of coal inevitably result in accidents that injure or kill workers and others. So too do the construction of coal-fired generators and ancillary facilities, the disposal of waste materials, and the decommissioning of generators and other facilities once they no longer are being used. These activities, and especially the burning of coal, also emit into the air several pollutants that cause illness and accelerated death among those exposed to them.

25 Sierra Pacific Resources. “Ely Energy Center FAQs.” Retrieved June 22, 2007, from http://www.sierrapacificresources.com/projects/ely/FAQ.cfm.

26 Rose, J. 2006. “Direct Testimony of Judah Rose for Duke Energy Systems.” North Carolina Utilities Commission, Docket No. E-7, Sub 790. Retrieved July 31, 2007, from http://dukeenergyproperties.com/pdfs/rose.pdf.

27 See, for example, Freese, B. and S. Clemmer. 2006. Gambling with Coal: How Future Climate Laws Will Make New Coal Power Plants More Expensive. Union of Concerned Scientists. September. Retrieved June 22, 2007, from http://www.ucsusa.org/assets/documents/clean_energy/gambling_with_coal_final_report_sept_06.pdf.

28 Energy Information Administration. 2007. Annual Energy Outlook 2007 with Projections to 2030. Report #:DOE/EIA-0383(2007). February. Retrieved August 16, 2007, from http://www.eia.doe.gov/oiaf/aeo/index.html.


Burning coal produces several pollutants that can cause increased incidence of disease and death among those exposed to them. The pollutants that have received the greatest attention are sulfur dioxide, nitrogen oxides, particulates, ozone, carbon monoxide, volatile organic compounds, lead, and mercury. For more than two decades economists have estimated the value of the health-related spillover costs associated with airborne emissions from coal-fired generators. In general, these studies show that the damages increase as pollutants become more concentrated and as the number of people exposed to the pollutants rises. We are aware of no study that directly quantifies the number of people who would be exposed to the different pollutants, at various concentrations, or calculates the potential health-related spillover costs that Nevadans and residents of other states would bear because of the emissions from the proposed coal-fired plants at Ely. Table 2, however, provides a framework for examining these costs. The first column shows preliminary estimates of the expected annual emissions of some of the pollutants that can have an adverse impact on human health. The next column of Table 2 shows the estimated spillover cost per unit of emissions for some of the pollutants. The figures for sulfur dioxide, nitrogen oxides, and particulate matter, adjusted to 2007 dollars, were adopted by the Public Utility Commission of Nevada (PUCN) in the 1990s. The figures for carbon monoxide and volatile organic compounds come from a 2000 summary, of past studies in the U.S.

Sufficient data exist to estimate the total spillover cost for only the three pollutants listed in Table 2. Preliminary calculations show the illnesses and premature deaths caused by the potential emissions of just these three would have an economic value of about $38.5 million per year. Three factors would push the actual overall total value higher. One is population growth. In the future, when the coal-fired plants would be emitting these pollutants into the air, the population of Nevada (and surrounding states) will be much larger than it was

Table 2. Some of the Potential Human-Health, Spillover Costs from the First Two Proposed Coal-Fired Generators at Ely

Pollutant Quantity Per Yeara Cost Per Unit Total Cost

Sulfur Dioxide 3,044 tons $2,090b $6,400,000

Nitrogen Oxides 3,044 tons $9,130b $27,800,000

Particulate Matterc 760 tons $5,610b $4,300,000

Mercury 88 lbs. N.A. ??

Carbon Monoxide N.A. $700d ??

Volatile Organic Compounds

N.A. $1,884d ??

Others N.A. N.A. ?? Source: ECONorthwest a Lehr, R.L. 2006. “Direct Testimony on Behalf of Nevadans for Clean Affordable Reliable Energy (NCARE).” Before the Public Utilities Commission of Nevada. September 13. Values are expressed in tons/year, except mercury (pounds/year). b Values used by the Public Utility Commission of Nevada in 1995. Carlin, J. 2002. “Environmental Externalities in Electric Power Markets: Acid Rain, Urban Ozone, and Climate Change.” EIA Alternative Fuels. Retrieved July 2, 2007, from http://www.eia.doe.gov/cneaf/pubs_html/rea/feature1.html. Values converted to equivalent 2007 dollars. c Particles smaller than 10 micrometers in diameter, which pose the greater health concerns than larger particles because they can pass through the nose and throat and enter the lungs. d Matthews, H.S. and L.B. Lave. 2000. “Applications of Environmental Valuation for Determining Externality Costs.” Environmental Science and Technology. 34 (8) 1390-1395. Values converted to equivalent 2007 dollars.


in the 1990s, when the PUCN determined the cost-per-unit values shown in Table 2. The greater the population exposed to the pollutants, all else equal, the higher will be the incidence of illness and premature deaths. The second factor is the value per illness and premature death. Studies completed since the 1990s indicate that this value is increasing and may be several times greater than the value that underlies the figures shown in Table 2. The third factor is the human-health effects of pollutants other than sulfur dioxide, nitrogen oxides, and particulates. The absence of adequate data does not mean that these other pollutants have no human-health spillover costs, but only that we cannot calculate them yet. Hence, the total cost is undoubtedly greater than the preliminary estimate associated with just the three pollutants shown in Table 2.

Indirect evidence regarding the economic costs associated with mercury emissions substantiates this point. In 2005, a group of scientists from Mount Sinai School of Medicine estimated the economic impacts associated with the loss of future productivity of children whose IQs were decreased due to contamination with methylmercury. The study found that the U.S. economy foregoes $8.7 billion annually in lost productivity. Approximately 15 percent, or $1.3 billion, is lost due to mercury emissions from American power plants.29 Future emissions of mercury from the proposed coal-fired generators at Ely probably would adversely affect children in the vicinity and cause economic harm in a similar manner.

The total cost of the three pollutants listed first in Table 2, $38.5 million, divided by the expected annual output of electricity of the two coal-fired plants yields a rough estimate of the pollution-related, human-health, spillover cost per kilowatt-hour: about 0.3 cents. As we discuss above, past research has found that the accident-related costs associated with coal-fired production of electricity are of the same magnitude as the pollution-related costs. Applying this relationship in this instance indicates the overall health-related spillover costs would be about 0.6 cents per kilowatt-hour. This amount is about 10 percent of the estimated direct cost of the electricity from the coal-fired plants. The actual health-related spillover costs could be higher, however. By how much, it is hard to say.

Climate-Related Spillover Costs. Extensive scientific evidence leads scientists throughout the world to conclude that emissions of carbon dioxide and other gases, collectively known as greenhouse gases, are causing the atmosphere to warm and climate to change.30 Related research shows that these changes will have both economic benefits and economic costs, but the latter will far outweigh the former.31 The net adverse effects represent spillover costs imposed on current and future generations.

29 Trasande, L., P.J. Landrigan, and C. Schechter. 2005. “Public Health and Economic Consequences to Methyl Mercury Toxicity to the Developing Brain.” Environmental Health Perspectives 113 (5): 590-596.

30 Intergovernmental Panel on Climate Change. 2007. Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Summary for Policymakers. Retrieved July 3, 2007, from http://ipcc-wg1.ucar.edu/wg1/Report/ AR4WG1_Pub_SPM-v2.pdf. Other greenhouse gases include methane and nitrous oxide.

31 Stern, N. 2006. The Economics of Climate Change: The Stern Review. Cambridge, U.K.: Cambridge University Press, p. 304. Retrieved October 30, 2006, from http://www.hm-treasury.gov.uk/independent_reviews/stern_ review_economics_climate_change/stern_review_report.cfm; and Intergovernmental Panel on Climate Change. 2007. Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel of Climate Change. Summary to Policymakers. Retrieved July 3, 2007, from http://www.ipcc.ch/SPM040507.pdf


Numerous studies and regulatory processes have estimated the spillover costs looking at either the damages expected to result from the emission of greenhouse gases or the cost of reducing emissions. A consortium of western utilities, including Sierra Pacific Power Company and Nevada Power Company, which recently completed a preliminary assessment of the economic feasibility of expanding the regional transmission system, reviewed the relevant studies and concluded that, once mechanisms are in place to control greenhouse gases, utilities that emit carbon dioxide would incur a cost somewhere in the range between $9 and $70 per ton of carbon dioxide (in 2006 dollars).32 Furthermore, the utilities found that, for states that seek to reduce their emissions of greenhouse gases commensurate with the policies and actions adopted by California, it would be reasonable to conclude that the cost would be about $40 per ton of carbon dioxide.

Table 3 applies these figures to the anticipated carbon-dioxide emissions of the two 750-MW coal-fired plants Sierra Pacific Resources proposes to build at Ely. At the bottom and top of the range of costs per ton of carbon dioxide emitted, the total cost would be $103.5 million and $805 million per year, respectively. At $40 per ton, the annual cost would be $460 million.

These numbers illustrate the general magnitude of the costs Sierra Pacific Power Company and Nevada Power Company would incur for emissions from the proposed coal-fired generators when regulations for controlling greenhouse gases come into effect (or, alternatively, if courts find they are liable for the emissions’ damages). If the utilities pass the costs to their customers, then ratepayers will foot the bill. Table 4 shows the potential impact on rates, relative to their 2005 level. We calculated the impact by dividing the potential costs of complying with regulations to limit greenhouse gases, shown in Table 3, by the expected annual electricity output of the two generators proposed for the Ely Energy Center. Rates would jump 45 percent if the coal-fired generators were built and the utilities were to become liable for climate-change emissions at a price of $40 per ton of carbon dioxide, which is the price the consortium of western utilities expects will materialize in California. We emphasize that these numbers give only a rough indication of how future efforts to limit climate change will affect electricity rates. These are uncharted waters, for

32 Western Regional Transmission Expansion Partnership Economic Analysis Subcommittee. 2007. Benefit-Cost Analysis of Frontier Line Possibilities: Final Report. April 27. Retrieved June 21, 2007, from http://www.ftloutreach.com/images/FTL_Econ_Analysis_Final_Report_4-27-07.doc.

Table 3. Potential Climate-Change Costs from the First Two Proposed Coal-Fired Generators at Ely

Quantity of Carbon Dioxide Emitted Per Yeara

Value Per Ton

Total Annual Costs (million)

11,501,735 $9 $103.5

11,501,735 $40 $460

11,501,735 $70 $805 Source: ECONorthwest

a Lehr, R.L. 2006. “Direct Testimony on Behalf of Nevadans for Clean Affordable Reliable Energy (NCARE).” Before the Public Utilities Commission of Nevada. September 13. Quantity is expressed in short tons.


the U.S. has no experience with comprehensive programs that would make utilities and others pay for the damages associated with their emissions of carbon dioxide. The actual programs may yield carbon-dioxide prices and electricity-rate increases higher or lower than those we describe above. Researchers at the University of California, for example, have found that a carbon dioxide price of $25 per ton of carbon dioxide emitted into the atmosphere, applied to a coal-fired generator similar to the ones planned for the Ely Energy Center, would raise the price of the generated electricity by about 17 percent.33 Other researchers conclude that a price of just $15 per ton of carbon dioxide would raise the price of coal-fired electricity by 1.6 cents per kWh, or about 18 percent of Nevada’s 2005 average rate.34 In short, it is impossible to know now precisely what impact the regulation of greenhouse gases would have on the cost of coal-fired electricity, but it is clear that, at the price levels that many in the utility industry believes possible, the increase in electricity rates probably would exceed 15 percent, and it could be 45 percent or more.

Water-Related Spillover Costs. The construction and operation of the proposed coal-fired generators would impose water-related spillover costs on Nevadans and others through several mechanisms. These costs could materialize as the utilities consume water and reduce the supply available for other uses. They also would arise as emissions from the generators intensify the probability that Nevada and the surrounding region will experience severe drought conditions. Additional costs could appear as emissions from burning coal change the quality of water in the surrounding area and change the area’s water-related ecosystems.

Sierra Pacific Resources has indicated that, to operate the two generators, it would pump 3.26 billion gallons, or about 10,000 acre-feet, of groundwater per year for cooling and other purposes. Several studies indicate that water used to cool coal-fired and other

33 Farrell, A.E. and D. Sperling. 2007. A Low-Carbon Fuel Standard for California Part 1: Technical Analysis. The University of California. May 29. Retrieved June 26, 2007, from http://www.energy.ca.gov/2007publications/ UC-1000-2007-002/UC-1000-2007-002.PDF

34 Green, K.P., S.F. Hayward, and K.A. Hassett. 2007. Climate Change: Caps vs. Taxes. American Enterprise Institute for Public Policy Research. June. Retrieved June 26, 2007, from http://www.aei.org/publications/ pubID.26286,filter.all/pub_detail.asp.

Table 4. Potential Rate Impacts if Climate-Related Spillover Costs Are Folded into Electricity Rates

Potential Rate Impact Potential Spillover Costs Per Ton of Carbon Dioxidea Cents per kWh Percent Increaseb

$9 0.93 10.1

$40 4.12 44.8

$70 7.21 78.4 Source: ECONorthwest

a Range of values, and most likely value applicable to California and to other states that adopt similar goals for reducing greenhouse gases. Western Regional Transmission Expansion Partnership Economic Analysis Subcommittee. b Percent of the average retail price of electricity in Nevada in 2005, 9.2 cents per kilowatt-hour (kWh).


thermoelectric generators in the U.S. has a value of about $39 per acre-foot (in 2007 dollars).35 At this value, the water that would be used annually for the two generators would have a total value of about $390,000. If the water were like other commodities, the company would have to pay this or a similar amount to obtain it. Under current laws and regulations, however, it apparently would obtain the water for free, paying only for the costs of pumping, conveying, and disposing of the water.

Most of the water used by Sierra Pacific Resources would evaporate as it is used for cooling. Thus, it would not be available for other uses. Over the next several decades, this consumption of water could become even more important economically, especially if Ely and White Pine County look to this area for water to meet municipal-industrial demands. The amount of water that would evaporate at the generators, if available to the state’s municipal-industrial water utilities, would meet the needs of about 15,000 households.

Further spillover costs would materialize insofar as pollution from the generators would intensify future droughts and/or impair the quality of water supplies. Numerous economic costs would accompany more frequent and intense droughts in the desert Southwest:

• The area’s farmers and ranchers would incur additional costs to secure water for their crops and livestock or, alternatively, reduce the scale of their operations.

• Generation of hydroelectricity in the southwestern states would decline, and consumers and businesses would incur additional costs for electricity from replacement sources.

• Wildfires would occur more frequently and across a broader landscape.

• Municipal-industrial water users, as well as rural households, would endure greater risk of future water shortages and/or incur additional costs to tap into new sources of water.

• Fish, wildlife, and plants would be stressed, and significant ecological changes could occur.

Whatever the generator’s impacts on future droughts, water-related spillover costs are likely to increase in the future as populations grow and additional competing demands for water emerge in the residential, recreational, agricultural, municipal, or industrial sectors.

Other Spillover Costs. The construction and operation of the coal-fired generators, together with the activities and development that would accompany them, could impose spillover costs through numerous pathways other than those we have already discussed. Here are some of them:

• Pollutants emitted into the air by the generators likely would harm crops and livestock.

• Emissions could form fog or haze during winter months, especially if the proposal to build a high smokestack to avoid this problem proves inadequate.

35 Brown, T.C. 2004. The Marginal Economic Value of Streamflow from National Forests. Discussion Paper. U.S. Forest Service, Rocky Mountain Research Station. December 28.


• Emissions could increase the risk to threatened or endangered species, by altering their habitat, reducing water supplies, or inducing more intense and frequent droughts.

• Degradation of the environment could diminish the area’s attractiveness to visitors and jeopardize the area’s tourism and recreation sectors. A full description of these sectors does not exist, but insights are provided by the National Park Service, which has estimated that the Great Basin National Park supports 144 jobs and contributes $5.8 million in annual revenue to the Baker–Ely area.36

• Development of the Ely Energy Center could bring about changes in the rural character of the Ely area that some would see as a reduction in the quality of life available in the area. They might see a significant expansion in population and traffic as an intrusion, especially if the newcomers have different sets of social values. The sense of intrusion might be most intense during the construction phase, when the population would be greatest, but also afterward, if those remaining have to cope with the downside of a boom-bust cycle. Extended deterioration of the quality of life might materialize insofar as the generating facility, the train and other traffic, and the added population produce unwanted noise and light pollution, industrialization of public lands, and degradation of historic and cultural resources.

Summary of Spillover Costs. Sierra Pacific Resources has demonstrated that, except for carbon dioxide, the coal-fired generators it proposes to build at the Ely Energy Center would emit pollutants at much lower levels than those typical of older generators. This is not to say, however, that the emissions would be near zero, or that the emissions would have near zero adverse impacts on the humans, plants, animals, water, and soils exposed to them. Far from it. The evidence in the sections above demonstrates that the spillover costs of developing and operating the coal-fired generators would be substantial. Although further analysis is required to make a more precise determination, it appears that the annual spillover costs from operating the generators probably would be at least as large as the direct costs. Additional spillover costs would arise from the construction and decommissioning of the facilities associated with the proposed Ely Energy Center, as well as with the proposed transmission line that would connect it with Las Vegas.

Spillover costs matter. Real people, real landowners, real businesses, and real communities will bear them. Many of these costs would accrue to those who reside in or visit White Pine County, through a higher incidence of accidental injuries and deaths, exposure to harmful pollutants in the air, degradation of the area’s visibility, adverse impacts on the health of livestock and wildlife, changes in its ecosystem, alterations in its rural character, and consumption of water resources.

Spillover costs also matter because the utilities’ ability to impose them on families, landowners, and businesses may be curtailed in the future. This is especially true for those associated with the emission of greenhouse gases, insofar as litigation may force the utilities to bear the damages caused by their emissions. Moreover, Congress and the state legislature may impose regulations aimed at restricting emissions. As utilities become responsible for damages and costs of complying with the regulations, they, and perhaps

36 Brean, H. 2006. “Great Basin National Park Celebrates 20 Years.” Review Journal. October 30. Retrieved July 26, 2007, from http://www.reviewjournal.com/lvrj_home/2006/Oct-30-Mon-2006/news/10487985.html


their ratepayers, will see marked jumps in the costs associated with coal-fired electricity. Additionally, utilities would see similar jumps if they become liable for the damages or incur additional regulatory costs associated with other emissions. We address these risk in the next section.

F. POTENTIAL NEGATIVE CONSEQUENCES: INCREASED RISKS Sierra Pacific Resources has justified its decision to develop coal-fired generators in part because it has compared this alternative against generators that would be fueled by natural gas. In its assessment, Sierra Pacific Resources asserts that coal prices are less likely than gas prices to jump in the future and cause marked increases in electricity rates, and it concludes this difference in risk is sufficiently important to warrant choosing coal as a source of energy from which to meet future demands for electricity over the next three or more decades.

This view, however, overlooks important risks that make coal a less attractive source of energy. One of these, as we discuss above, arises because there is momentum building to have utilities bear the costs associated with their future emissions of carbon dioxide. In effect, this action would resemble imposing a tax on carbon-dioxide emissions. Such a tax would raise the cost of both coal and natural gas, but its impact on coal would be much larger. By one recent national analysis, a tax on carbon dioxide initially would raise the cost of coal at least 8 times more than it would raise the cost of natural gas.37 Successful efforts to make those that burn coal liable for other spillover costs, such as the adverse impacts of airborne pollutants on human health, visibility, and the ecosystem would make the rates paid for coal-fired electricity even greater. In short, it appears that Sierra Pacific Resources’ comparison of the cost-risks associated with coal is incomplete. Folding in the greater spillover costs associated with coal combustion would make coal-fired generators appear more risky.

There also are significant risks associated with Sierra Pacific Resources’ assumption that the price of coal will be less likely to jump than the price of natural gas. The charts in Figure 6 show the current price forecast for each fuel prepared by the Energy Information Administration. The top chart shows that the price of coal mined in western states is expected to rise steadily through 2030. In contrast, the bottom chart shows the price of gas used to generate electricity is expected to decrease through about 2013 and then rise slowly, but remain below the current price through 2030. Moreover, the Energy Information Administration’s analysis of the likelihood that prices may rise faster than expected shows that, under plausible assumptions, by 2030 the price of coal would be 49 percent higher than the reference-case forecast, whereas the price of natural gas would increase by only 27 percent.38 Combined, these forecasts undermine the reasoning used to justify the proposal to build the Ely Energy Center, for they do not show that coal-fired generators embody less risk of jumps in fuel costs than gas-fired generators. They also indicate that, with a decision to proceed with coal-fired generators, ratepayers should expect at least continual increases, and perhaps large jumps, in the rates they pay for electricity, to cover the rising cost of coal.

37 Green, K.P., S.F. Hayward, and K.A. Hassett. 2007. See footnote 34.

38 Energy Information Administration. 2007. See footnote 28.


Others have noticed the rising risk associated with coal as the nation continues to move toward reining in emissions of carbon dioxide and other greenhouse gases. Earlier this year, for example, investment analysts examined the risks associated with a 1,600-MW coal-fired plant that LS Power proposes to build near Ely.39 They concluded that proceeding with the plant would be accompanied by risks from these sources:

• Potential federal legislation. The report states, "Although the exact design of federal carbon regulation in the United States remains uncertain, consensus

39 Innovest Group. 2007. Dynegy: Carbon Risk Accompanies LS Power Merger. Retrieved June 29, 2007, from http://www.innovestgroup.com/images/dynegy-ls%20power%20merger%20report%20v%20final%20%282 %29.pdf.

Figure 6. The U.S. Department of Energy Expects the Price of Coal Will Rise Relative to the Price of Gas

Source: Energy Information Administration. 2007. Annual Energy Outlook 2007 with Projections to 2030. Report #:DOE/EIA-0383(2007). February. Retrieved August 16, 2007, from http://www.eia.doe.gov/oiaf/aeo/index.html.

Average Minemouth Price of Coal, by Region, 1990–2030 (2005 dollars per million Btu)

Natural Gas Prices by End-Use Sector, 1990–2030 (2005 dollars per thousand cubic feet)


within the power sector and industry at-large suggests that a mandatory reduction in greenhouse gas emissions is impending.”

• Existing and potential actions by state legislatures. The report states, "In the absence of federal regulation on greenhouse gas emissions, numerous states have developed legislation to address growing concern over climate change. … These requirements, which generally take the form of renewable portfolio standards, will serve to further discourage the development of new coal capacity. State standards [including those of Nevada] could directly threaten the profitability of the … planned coal capacity …."

• Regulatory requirements and stakeholder opposition. The report states, "Additional risks … stem from the likelihood of strong regulatory and stakeholder opposition. Recent and ongoing decisions … demonstrate that state regulators are becoming increasingly critical of proposed coal-fired power plants.”40

• Interaction between other risks and construction costs. The report states, "Regulatory and stakeholders delays will likely create additional risks … with increasing construction costs. Recent trends in power plant construction indicate that increased demand has led to a rise in the cost of key inputs. In 2006, the cost of new coal-fired power plants increased by 40 percent. This is representative of a continuing trend in which capital costs have increased by 90 – 100 percent since 2002.”

These investment advisers are not alone in their assessment of the risks that accompany investments in coal-fired electricity. Many in the utility industry have reached similar conclusions. In 2005, for example, three top executives from western utilities (Idaho Power, Pacific Gas and Electric Company, and PacifiCorp) co-authored a paper that looked at these and related issues and concluded:

Utilities and regulators are recognizing the imprudence of assuming that carbon dioxide emissions will not cost anything over the long lifetime of new investments. Several utilities have begun to protect their customers and shareholders from this financial risk by integrating an estimated cost of carbon dioxide emissions into their evaluation of resource options, and selecting the overall least-cost portfolio of resources.41

Additional risk accompanies Sierra Pacific Resources’ proposal insofar as it overlooked alternatives, other than gas-fired generators, that promise to meet Nevada’s future demands for electricity at lower expected cost and with less potential for unexpected cost increases. One of these alternatives would entail investments to increase the efficiency of the state’s use of electricity and expand the generation of electricity from renewable sources of energy, such as wind and geothermal heat. Several analyses provide some important insights about how efficiency and renewable resources stack up against a coal-fired alternative. One of these was conducted by the Northwest Power and Conservation Council, which oversees electricity- and conservation-related planning in the region containing

40 Regulatory risks were reinforced when the Environmental Protection Agency (EPA) recently expressed concerns about the potential environmental consequences of burning coal in the Ely area. See Sweet, P. 2007, footnote 16.

41 Bokenkamp, K., K.H. LaFlash, V. Singh, and D.B. Wang. 2005. “Hedging Carbon Risk: Protecting Customers and Shareholders from the Financial Risk Associated with Carbon Dioxide Emissions.” The Electricity Journal 18(6): 11–24.


Washington, Oregon, Idaho, and Montana. The Council recently completed a 20-year plan that ranked options in terms of their expected cost per kilowatt hour.42 The plan identified more than two dozen options involving increased efficiency or generation from renewable resources that would be cheaper than the cheapest new coal-fired plant. It reached this conclusion even though the region is among the leaders in past investments in energy efficiency and electricity rates are among the lowest in the nation. In this case, the lowest-hanging fruit, in terms of opportunities to increase efficiency, have already been picked. Some of these still remain to be picked in Nevada, indicating there is even more opportunity to capitalize on efficiency and renewable resources at lower cost and risk relative to coal-fired generators.

Another aspect of risk arises from the lumpiness of the financial commitment that accompanies Sierra Pacific Resources’ proposal. Approval of this proposal potentially would obligate ratepayers to cover its costs for several decades, even as demands for energy change in unpredictable ways, or if alternative sources of energy at lower prices should become available. An alternative approach, relying on incremental investments in energy efficiency and renewable resources would be less lumpy and, at least in concept, allow Nevadans greater flexibility in responding to future events.

The risks involved with the development of energy capacity provided by new coal-fired plants are underscored by the recent decision of investment institutions, such as Citigroup, to downgrade the coal industry across the board. In their released assessment of the coal-based companies, the Citigroup analysts named factors, such as lower earnings, infrastructure limitations, elevated stockpiles, and “anti-Coal” politics, responsible for the industry’s future downturn.43

In sum, rather than providing ratepayers the greatest protection from risk, Sierra Pacific Resources’ proposal to develop coal-fired generators probably would expose them to significantly greater risk relative to an alternative that would focus on energy efficiency and renewable resources. Based on current information, one cannot reasonably conclude that the proposed Ely Energy Center and its coal-fired generators is the least-risk alternative. Further analysis is required to clarify the risks it poses for ratepayers and the state’s economy, as well as those of the alternatives.

42 Northwest Power and Conservation Council. 2005. Fifth Electric Power and Conservation Plan. Retrieved June 29, 2007, from http://www.nwcouncil.org/energy/powerplan/plan/Default.htm.

43 Citigroup Global Markets. 2007. Coal: Missing the Window; Downgrading on Stubborn Stockpiles, Hostile Politics. July 18.


IV. A FEASIBLE ALTERNATIVE TO COAL: ENERGY EFFICIENCY AND ELECTRICITY FROM RENEWABLE RESOURCES

Numerous researchers, agencies, and organizations have examined alternatives for meeting future demands for electricity. They have concluded that the best course is to avoid the development of new coal-fired generators and, instead, to invest in increasing energy efficiency, in developing generators powered by renewable resources, such as wind, geothermal heat, and solar radiation, and in developing new technologies, such as those that would capture and store the carbon dioxide emissions from burning coal. For example, a task force acting at the direction of an advisory committee to the Western Governors’ Association reviewed seven major studies of the current potential for energy-efficiency investments and found:44

[T]here is considerable cost-effective and achievable electricity savings potential in the Western states. … The studies that examined potential net economic benefits all found that more aggressive, multi-year energy efficiency efforts could save consumers and businesses billions of dollars over the lifetime of the measures, with very favorable benefit-cost ratios.

The advisory committee to the governors concluded that investments in clean energy would create “tens of thousands of new jobs” and stimulate new economic growth in the region. It also offered this conclusion regarding the economic importance of investments in energy efficiency:

Energy efficiency and conservation are our cheapest, cleanest, least risky and least controversial energy strategies. Increasing the efficiency of energy use in Western states, without reducing productivity, will provide a broad range of benefits, including: saving consumers and businesses money on their energy bills; reducing vulnerability to energy price spikes; reducing peak demand and improving the utilization of the electricity system; reducing the risk of power shortages; supporting local businesses and stimulating economic development; reducing water consumption and reducing pollutant emissions by reducing the need to construct new power plants. [bold emphasis added]

In other words, Nevada has extensive opportunities for increasing the efficiency with which electricity is used, freeing up energy to meet new demands. Taking advantage of these opportunities would be less costly (produce net benefits) than meeting new demands with coal-fired or other generating capacity.

Nevada also has extensive renewable resources for generating electricity. Figure 7 shows the potential wind-powered capacity in Nevada is 2,770 MW. The maps in Figure 8 show Nevada also has some of the nation’s greatest potential for generating electricity from solar radiation and geothermal heat. The latter exceeds 2,000 MW annual capacity while the solar capacity is greater.45 One analysis shows Nevada has 410,000 acres with the highest

44 Western Governors’ Association, Clean and Diversified Energy Advisory Committee, Energy Efficiency Task Force. 2006. Clean and Diversified Energy Initiative: Energy Efficiency Task Force Report. January. Retrieved July 2, 2007, from http://www.westgov.org/wga/initiatives/cdeac/Energy%20Efficiency-summary.pdf.

45 Renewable Energy Atlas of the West. 2006. Nevada. Retrieved July 5, 2007, from http://www.energyatlas.org/PDFs/LowRes/atlas_state_NV.pdf.


“premium” rating for its solar-generating potential.46 Capable of producing 7 kilowatt hours per square meter per day (kWh/m2/day), its total capacity is more than 80,000 MW. Taking into account additional lands with “excellent” and “good” potential, the state’s overall solar-generating capacity exceeds 165,000 MW.

Based on this and other information Nevadans for Clean Affordable Reliable Energy (NCARE) has outlined an alternative for meeting Nevada’s future energy demand through investments in energy efficiency and electricity generators powered by renewable resources.47

NCARE showed that electricity to be generated by Nevada Power Company’s share (600 MW) of the first generator at the proposed Ely Energy Center could be supplanted by a portfolio of energy efficiency and renewable energy at a lower cost. In particular, it showed that reasonable amounts of energy efficiency and electricity from geothermal heat and wind could reliably meet the demands of Nevada Power Company’s customers, so that the utility would not need its proposed share of the new coal-fired power plant. Table 5 provides more detail on NCARE’s proposal. NCARE also showed that, by proceeding with its proposed portfolio of investments in energy efficiency and electricity from renewable resources, Nevada would avoid the negative environmental impacts of coal-fired electricity. For Nevada Power Company’s 600-MW share of the first generator at the Ely Energy Center, these avoided impacts would include, for each year:

• Emission of: 1,217 tons of sulfur dioxide 1,217 tons of nitrogen oxides 304 tons of particulate matter 35 pounds of mercury 4,600,694 tons of carbon dioxide.

• Consumption of: 1.30 billion gallons of water.

46 Leitner, A. 2002. Fuel from the Sky: Solar Power’s Potential for Western Energy Supply. National Renewable Energy Laboratory. Retrieved August 12, 2007, from http://www.nrel.gov/csp/pdfs/32160.pdf.

47 Lehr, R.L. 2006. “Direct Testimony on Behalf of Nevadans for Clean Affordable Reliable Energy (NCARE).” Before the Public Utilities Commission of Nevada. September 13. NCARE is a non-profit cooperative association of public interest entities—Citizen Alert, the Nevada Conservation League, the Progressive Leadership Alliance of Nevada, Western Resource Advocates, Sierra Club, and the Southwest Energy Efficiency Project—whose members, donors, and supporters of these entities are residents of Nevada and ratepayers of Sierra Pacific Power Company and Nevada Power Company.

Figure 7. Nevada Has 2,770 MW of Potential Wind-Powered Generating Capacity

Source: Tegen, S., M. Goldberg, and M. Milligan. 2007. Economic Development Impacts from Wind Power in the Western Governors' Association States. U.S. Department of Energy. June 3. Retrieved July 25, 2007, from http://www.eere.energy.gov/windandhydro/ windpoweringamerica/pdfs/wpa/poster_2007_econ_dev_wga.pdf.


Figure 8. Nevada Has a High Potential for Generating Electricity from Solar Energy …

Source: Kellison, B.E. Evans, K. Houlihan, M. Hoffman, M. Kuhn, J. Serface, and T. Pham. 2007. Opportunity on the Horizon: Photovoltaics in Texas. University of Texas at Austin, Innovation, Creativity & Capital Institute. June. Retrieved August 12, 2007, from http://www.utexas.edu/ati/cei/documents/TexasSolarOpportunity2007.pdf. Ratings refer to photovoltaic technology.

… and from Geothermal Resources

Source: Renewable Energy Atlas of the West. 2006. Nevada. Retrieved July 5, 2007, from http://www.energyatlas.org/PDFs/LowRes/atlas_state_NV.pdf.


In contrast, energy efficiency and electricity generated from geothermal and wind energy would produce little or no air emissions and energy efficiency and electricity from wind energy use little or no water.

NCARE’s analysis further demonstrated that the cost of the clean-energy portfolio likely would be less than the cost of coal-fired electricity. Under base-case assumptions, this portfolio would cost $198 million less. Particularly important, the clean-energy portfolio would enable ratepayers to avoid future costs associated with expected increases in the price of coal, and with the costs of complying with anticipated regulations on the emission of carbon dioxide.

The feasibility of the clean-energy portfolio is further enhanced insofar as the State of Nevada already has taken important steps to increase energy efficiency and encourage the development of renewable energy. It already has adopted standards aimed at increasing efficiency and the use of renewable sources of energy and, in each area, it is a leader among the states, as indicated by Figure 9. Implementing the clean-energy portfolio would entail building on the momentum created by these important steps.

Expanding NCARE’s proposed portfolio to supplant the total 1,500 MW generating capacity of the first two generators at the Ely Energy Center would draw in other investments in

Table 5. Illustration of NCARE’s Energy-Efficiency/Renewable-Resources Alternative: Proposed Substitution for Nevada Power Company’s Share of First Coal-Fired Generator at Ely Energy Center

Additional Energy Efficiency Reduction in required average generation capacity 550 MW

Annual average reduction in energy consumption

3,162 MWh/year per MW

1.7 million MWh/year, total

Years to realize full reduction 14 years, starting in 2007

Cost $25 per MWh saved

Additional Geothermal

Capacitya 240 MW

Years to reach full capacity 6 years, starting in 2007

Contract price $64.52/MWh

Additional Wind Capacityb 380 MW

Years to reach full capacity 4 years, starting in 2007

Contract price $56.00/MWh + $3.49/MWh for integration with other resources

Source: ECONorthwest, with information from Lehr, R.L. 2006. “Direct Testimony on Behalf of Nevadans for Clean Affordable Reliable Energy (NCARE).” Before the Public Utilities Commission of Nevada. September 13. a Assumed 80 percent capacity factor. b Assumed the capacity credit would be 95 MW.


energy efficiency and the development of additional generating capacity from renewable resources. The latter could include additional wind-powered generators as well as technologies that generate electricity from solar radiation. Photovoltaic technologies generate electricity directly and are increasingly seen on rooftops. Others use concentrated solar radiation, reflected off parabolic mirrors to heat a fluid and produce a pressurized vapor that can drive a turbine and generate electricity. The heat can be stored so that electricity can be produced during hours when the sun is not shining. One project with this technology, Nevada Solar One, came on line earlier this year with a capacity of about 64 MW. Current planning foresees additional projects, having a capacity of 250 – 500 MW, ready to produce electricity around 2012, or before the 2013 planned completion date of the second generator proposed by Sierra Pacific Resources.

If the utilities and others are unable to move quickly enough to meet future demands through investments in energy efficiency and renewable resources, then it may be necessary to develop additional gas-fired generators or generators that burn coal but much more efficiently than, and without the carbon dioxide emissions of, those planned for the

Figure 9. Nevada Already Encourages Energy Efficiency and Electricity from Renewable Sources of Energy

Source: Pew Center on Global Climate Change. 2007. “States with Energy Efficiency Resource Standards.” March. Retrieved July 5, 2007, from http://www.pewclimate.org/what_s_being_done/in_the_states/ efficiency_resource.cfmSource; and “States with Renewable Portfolio Standards.” June. Retrieved July 5, 2007, from http://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm.

A. States with Standards for Energy Efficiency, 2006

B. States with Standards for Electricity from Renewable Resources, 2007


Ely Energy Center. Gas-fired generators could provide capacity to quickly respond to increases in demand for electricity and, perhaps, to fill-in any gaps between the development of other generating capacity. New coal-fired technologies using a process called integrated gasification combined cycle (IGCC) are being developed with the intent to capture the carbon dioxide they would produce and store it underground. Some analysts have concluded that plants with these technologies and a capacity of about 300 MW may be available around 2015 and produce electricity at costs slightly more than the costs associated with the technologies proposed for development at Ely.

In the following paragraphs we examine these three aspects of the potential economic consequences of the energy efficiency/renewable resources alternative:

A. Potential Economic Consequences: More Jobs

B. Potential Economic Consequences: Cost Savings

C. Potential Economic Consequences: Lower Risk

A. POTENTIAL ECONOMIC CONSEQUENCES: MORE JOBS With a decision to implement the energy-efficiency/renewable-resource alternative, Nevada would forgo the jobs associated with the Ely Energy Center. In exchange, however, it would realize an even greater number of new job opportunities.

Support for this conclusion comes from several directions. Table 6, for example, summarizes and compares estimates of the jobs that would be created with 1,500 MW of coal-fired generating capacity at the Ely Energy Center, a comparable amount of generating capacity powered by wind and geothermal resources, and a comparable amount of energy savings from investments in energy efficiency. The left column shows the number of jobs predicted for the Ely Energy Center. Construction would take about 4 years and employ up to 1,200 – 1,500 workers; operations would employ more than 100 workers. The middle column shows the jobs that likely would be created with the development in northern Nevada of wind-powered generators with a total capacity of 1,000 megawatts (MW) and geothermal-powered generators with a capacity of more than 800 MW.48 Even though the total capacity would exceed the sum of the two 750-MW coal-fired generators proposed for the Ely Energy Center, the authors of the report determined that the amount of electricity produced per year would be comparable after accounting for the amount of time that generators would not be operational. The construction of the renewable-energy capacity would take about three years and require 3,354 person-years of employment. On-going operations would provide jobs totaling 580 person-years of employment per year. These numbers indicate that, during construction, the coal-fired generators probably would employ more workers, but, during on-going operations, the wind- and geothermal-powered generators would employ at least 5 times more workers.49

48 Western Resource Advocates. 2005. Economic Impacts of Clean Energy Development in Northern Nevada: Potential Geothermal and Wind Energy Project Impacts for Washoe County and Environs. Retrieved June 29, 2007, from http://www.nevadacleanenergy.org/FINALeconomicReport2.pdf.

49 The analysis also estimated other dimensions of the economic impacts of the wind- and geothermal-powered generators. The total capital cost associated with the renewable-resource generators would be about $3.9 billion, somewhat more than the cost of the coal-fired generators. Of this cost, wages represent $137 million. During


The right column of Table 6 shows the potential employment levels associated with a proposal to take several actions to induce Sierra Pacific Power Company and Nevada Power Company to increase the energy efficiency of their own operations and the activities of their customers.50 Construction is not considered separately from operations. After a three-year ramp-up, these actions would require each utility to increase energy efficiency so that the energy saved would equal about 1 percent of its overall electricity sales. Sponsors of the proposal have estimated that expenditures on the program would directly create about 200 – 1,000 jobs.

Other research, reflected in Table 7, suggests that the job advantage for energy efficiency and renewable resources would be even greater. The data in the top rows of the table come from a review of 13 independent studies of the jobs associated with different generating technologies, and show the average annual employment per unit of capacity. The unit of capacity, MWa, adjusts the so-called nameplate capacity of each technology, measured in megawatts or MW, to account for the percentage of time it would be operational. The review

operations, the wind- and geothermal-powered generators each year would yield property taxes ($25.8 million), sales/use taxes ($182 million), and royalties ($7.5 million). Corresponding figures have not been made available for the coal-fired generators.

50 Geller, H., C. Mitchell, and J. Schlegel. 2005. Nevada Energy Efficiency Strategy. Southwest Energy Efficiency Project. January. Retrieved August 9, 2007, from http://www.swenergy.org/pubs/Nevada_Energy_Efficiency_ Strategy.pdf.

Table 6. Potential Job Creation, by Alternative Coala Wind + Geothermalb Increased Efficiencyc

Duration Jobsd Duration Jobsd Duration Jobsd

Construction ~ 4 years up to 1,200 – 1,500 ~ 3 years

3,354 person-

years – –e – –e

Jobsd Jobsd Jobsd

Operations 100+ 580 200 – 1,000f

Source: ECONorthwest

a For two 750-MW generators. Sierra Pacific Resources. “Ely Energy Center FAQs.” Retrieved June 29, 2007, from http://www.sierrapacificresources.com/projects/ely/FAQ.cfm. b For 1,000 MW of wind-powered capacity and 840 MW of geothermal-powered capacity, with an average output similar to what is expected from the coal-fired generators. Western Resource Advocates. 2005. Economic Impacts of Clean Energy Development in Northern Nevada: Potential Geothermal and Wind Energy Project Impacts for Washoe County and Environs. Retrieved June 29, 2007, from http://www.nevadacleanenergy.org/FINALeconomicReport2.pdf. c For cost-effective programs that would enable Nevada to reach the energy-efficiency standard established by the Western Governors’ Association. Geller, H., C. Mitchell, and J. Schlegel. 2005. Nevada Energy Efficiency Strategy. Southwest Energy Efficiency Project. Retrieved July 2, 2007, from http://www.swenergy.org/pubs/Nevada_Energy_Efficiency_Strategy.pdf. d Direct jobs associated with each alternative. Additional jobs might be created indirectly elsewhere in the economy. e Construction activities are folded into on-going operations. f Direct employment derived from estimates of total (direct and indirect) employment, assuming 1 – 2 indirect jobs are created for each direct job. Annual job levels for 2010 (bottom of range) and 2020 (top), assuming the initiation of an energy-efficiency program in 2006.


of the studies found the development and operation of solar (photovoltaic) generating capacity would involve 7 – 10 times more jobs than coal-fired generators. This finding is reflected by the numbers at the upper right of Table 7: jobs per adjusted megawatt (MWa) for solar (photovoltaic) total 7.41 – 10.56, whereas the total for coal is 1.01. Compared to coal-fired generators, the development and operation of wind-powered generators could create 30 percent fewer jobs, on the low end, or up to 280 percent more jobs, on the high end. One should note, however, that the studies show the majority of the on-going jobs created by coal-fired generators are associated with the mining and other activities involved in the processing of fuel (coal) rather than with the generation of electricity, per se.

The bottom section of Table 7 applies the per-MWa numbers to the amount of generating capacity planned for the Ely Energy Center. Sierra Pacific Resources plans to install coal-fired generators with a nameplate capacity of 1,500 MW, but the adjusted capacity would be 1,275 MWa, assuming that the generators would operate 85 percent of the time. The bottom row of Table 7 shows the average annual employment over the life of the facility: 300 per year in construction, manufacturing, and installation; 900 in operation, maintenance, and fuel processing; and 1,300 total. The actual number of jobs would vary from year to year; these are the annual averages. Comparable generating capacity from solar (photovoltaic) resources would create the following levels of average annual employment: 7,300 – 7,900 per year in construction, manufacturing, and installation; 1,500 – 6,100 in operation, maintenance, and fuel processing; and 9,400 – 13,500 total. The comparable numbers for wind-powered generation are: 500 – 3,200 jobs per year in construction, manufacturing, and installation; 300 jobs in operation, maintenance, and fuel

Table 7. Generators Powered by Renewable Resources Probably Would Produce More Jobs

Average Annual Employment over Life of Facility

Technology

Construction, Manufacturing,

Installation

Operation, Maintenance,

Fuel Processing Totala

Jobs per MWab

Solar (Photovoltaic) 5.76 – 6.21 1.20 – 4.80 7.41 – 10.56

Wind 0.43 – 2.51 0.27 0.71 – 2.79

Coal 0.27 0.74 1.01

Jobs for 1,275 MWac

Solar (Photovoltaic) 7,300 – 7,900 1,500 – 6,100 9,400 – 13,500

Wind 500 – 3,200 300 900 – 3,600

Coal 300 900 1,300 Source: Kammen, D.M., K. Kapadia, and M. Fripp. 2004. Putting Renewables to Work: How Many Jobs Can the Clean Energy Industry Generate? University of California, Berkeley, Renewable and Appropriate Energy Laboratory.

a Totals per MWa are reported in the study; they are not the simple sums of the numbers shown in the preceding columns. b MWa equals average installed megawatts, adjusted to reflect the percentage of time a generator would produce electricity. For example, the adjusted capacity of a 1 MW solar facility operating on average 21% of the time, would be 0.21 MWa. c 1,275 MWa = adjusted capacity of 1,500 MW coal-fired generators operating at 85 percent of capacity.


processing; and 900 – 3,600 jobs total. All these employment estimates are just that: they reflect the findings of recent studies applied to an assumption that each type of generating could be built in Nevada. The actual feasibility of individual facilities has to be determined. The actual extent to which the jobs associated with each type of facility would materialize in Nevada also remains to be determined. It is clear, however, that coal-fired electricity offers the lowest potential job creation and most of the long-run, coal-related jobs probably would occur outside Nevada and be associated with the mining, processing, and transportation of coal. The solar and wind technologies would have no fuel-processing jobs; all of the long-run employment would arise from operation and maintenance activities. Some of the manufacturing jobs associated with each of the technologies probably would occur elsewhere. Most, if not all, of the operation and maintenance jobs would occur in the state.

Overall, the data in Table 7 show that solar (photovoltaic) and wind technologies involve more labor than coal-fired technologies. Moreover, the employment potential in the renewable industries could grow even more, especially in Nevada and other states with high concentrations of wind, geothermal, and solar resources.

Investments in energy efficiency and renewable resources also would help Nevada cooperate with its neighbors in accomplishing these goals established by the Western Governors’ Association in 2004:

• Develop an additional 30,000 MW of clean energy by 2015.

• Achieve a 20 percent increase in energy efficiency by 2020.

Subsequent analysis, by an advisory committee to the governors, concluded that the investments in clean energy would create “tens of thousands of new jobs” and stimulate new economic growth in the region.51

Research reported by the National Renewable Energy Laboratory gives separate insights into the potential for wind-powered generators to create jobs and incomes in Nevada, and especially in adjacent rural communities. An analysis of existing utility-scale wind-powered generators showed they created 40 – 140 construction jobs, and 6 – 20 (average 10) permanent jobs, per 100 MW of generating capacity. Due to increased efficiencies, new generators probably would create somewhat fewer jobs than those of the past.52 This research also shows that the development of wind-powered generators can have additional impacts on local economies. A typical wind farm in the U.S., with 100 MW of capacity, boosts property tax revenues by $500,000 – 1 million per year. When located on private land, the landowner receives lease payments of $2,500 – 3,000 per MW of capacity.

The findings of another analysis, shown in Figure 10, indicate the potential employment opportunities Nevada could see with the development of 2,770 MW of wind-powered

51 Western Governors’ Association, Clean and Diversified Energy Advisory Committee, Energy Efficiency Task Force. 2006. Clean and Diversified Energy Initiative: Energy Efficiency Task Force Report. January. Retrieved July 2, 2007, from http://www.westgov.org/wga/initiatives/cdeac/Energy%20Efficiency-summary.pdf..

52 Kelly, M. 2007. Wind Energy & Economic Development. National Renewable Energy Laboratory. June 8. Retrieved July 25, 2007, from http://www.eere.energy.gov/windandhydro/windpoweringamerica/pdfs/wpa/econ_dev.pdf


capacity.53 Construction of the wind-powered generators would create 7,500 person-years of full-time employment, operations would create 20,300 person-years of employment over 20 years, and the overall monetary impact on the state’s economy over that period would be $3.0 billion. These numbers take into account not just the workers and dollars directly associated with the generators but also those having an indirect connection. Indirect jobs and economic activity would arise from the so-called multiplier effect, in which the expenditures of the wind-power industry and its workers would create jobs and activity in other businesses. In turn, their expenditures would create jobs and activity in other businesses, and the process would ripple throughout the economy.

A different analysis compared the in-state economic impacts of comparably sized gas-fired, coal-fired, and wind-powered generators that might be built in Arizona, Colorado, or Michigan.54 The author compared in-state direct spending associated with each type of

53 Tegen, S., M. Goldberg, and M. Milligan. 2007. Economic Development Impacts from Wind Power in the Western Governors' Association States. U.S. Department of Energy, Wind & Hydropower Technologies Program. June 3. Retrieved July 25, 2007, from http://www.eere.energy.gov/windandhydro/windpoweringamerica/pdfs/wpa/poster_2007_econ_dev_wga.pdf.

54 Tegen, S. 2006. Comparing Statewide Economic Impacts of New Generation from Wind, Coal, and Natural Gas in Arizona, Colorado, and Michigan. NREL/TP-500-37720. National Renewable Energy Laboratory. May. Retrieved July 25, 2007, from http://www.nrel.gov/docs/fy06osti/37720.pdf.

Figure 10. Potential Jobs and Monetary Impacts in Nevada and Other States from Development of Wind-Powered Generation

Source: Tegen, S., M. Goldberg, and M. Milligan. 2007. Economic Development Impacts from Wind Power in the Western Governors' Association States. U.S. Department of Energy, Wind & Hydropower Technologies Program. June 3. Retrieved July 25, 2007, from http://www.eere.energy.gov/windandhydro/windpoweringamerica/pdfs/wpa/poster_2007_econ_dev_wga.pdf.


facility, assuming its annual output would equal that of a reference, 270-MW gas-fired generator. She examined expenditures over a 20-year period in these categories: construction, operations and maintenance, fuel extraction, fuel transport, land leases, financing, and property taxes. She found that, for each of the three states, in-state expenditures associated with wind-powered generators would significantly exceed those for coal-fired generators. The charts in Figure 11 show that wind-related in-state expenditures would be almost double the comparable coal-related expenditures in Arizona, and they would be three times as large in Colorado. The largest advantage, both absolute and relative, for wind-powered generators would occur on an on-going basis, through expenditures for taxes and for operations and maintenance. The higher in-state expenditures likely would result in higher in-state job creation for wind-powered relative to coal-fired generators.

Much of the potential for new wind-related jobs exists in the Ely area. Figure 12 shows the state’s extensive wind resources, and indicates estimates of wind speeds at 50 meters above the ground, representing the height at which windmills would operate. It also identifies sites where there likely is sufficient wind to support development of utility-scale generators. The map shows wind resources ranked from Class 1 (lowest) to Class 7 (highest). The Department of Energy notes that, in general, sites with winds in Class 4 or above are potentially suitable for the development of utility-scale generators, and anticipated advancements in technology are likely to expand this range to Class 3 sites. The department’s assessment of the state’s wind resources concludes that some of the best sites are near Ely:

This map indicates that Nevada has wind resources consistent with utility-scale production. The largest contiguous lower elevation areas of good-to-excellent resource are located in southern Nevada near Las Vegas and near Ely. Good-to-excellent wind resources are also located on the higher ridge crests throughout the state.55

The actual employment impacts of the energy-efficiency/renewable-resource alternative would depend, in part, on the facility with which the state’s utilities, regulators, legislature, and communities recognize and capitalize on opportunities to increase energy efficiency and develop new generating capacity using renewable resources. Some assistance toward this end already is available: the National Renewable Energy Laboratory, together with the National Association of Counties, has prepared a handbook to help county commissioners capitalize on the economic development opportunities associated with wind-powered generators, for example.56 Similar assistance is likely to become available for other resources and energy-efficiency activities.

55 U.S. Department of Energy, Wind & Hydropower Technologies Program. “Nevada Wind Resource Map.” Retrieved July 20, 2007, from http://www.eere.energy.gov/windandhydro/windpoweringamerica/maps_template.asp?stateab=nv

56 Costanti, M., and P. Beltrone. 2006. Wind Energy Guide for County Commissioners. National Renewable Energy Laboratory, Wind Powering America, and the National Association of Counties October 31. Retrieved July 25, 2007, from http://www.eere.energy.gov/windandhydro/windpoweringamerica/pdfs/wpa/county_commissioners.pdf.


Figure 11. In-State Expenditures for Comparably-Sized Coal-Fired, Gas-Fired, and Wind-Powered Generators

Arizona

Colorado

Source: Tegen, S. 2006. Comparing Statewide Economic Impacts of New Generation from Wind, Coal, and Natural Gas in Arizona, Colorado, and Michigan. NREL/TP-500-37720. National Renewable Energy Laboratory. May. Retrieved July 25, 2007, from http://www.nrel.gov/docs/fy06osti/37720.pdf.


B. POTENTIAL ECONOMIC CONSEQUENCES: COST SAVINGS Above, we referred to the findings of a task force, acting at the direction of an advisory committee to the Western Governors’ Association, which reviewed seven major studies of the current potential for energy-efficiency investments and found it would be cheaper to reduce the demand for electricity through investments in energy efficiency, than to expand the supply of electricity through the development of the proposed coal-fired generators. From its review of existing energy-efficiency programs, the task force found that “Most of

Figure 12. Nevada’s Wind-Energy Resources

Source: U.S. Department of Energy, Wind & Hydropower Technologies Program. “Nevada Wind Resource Map.” Retrieved July 20, 2007, from http://www.eere.energy.gov/windandhydro/windpoweringamerica/maps_template.asp?stateab=nv


the programs are saving electricity at a total cost of 2 – 3 cents per kWh saved.”57 [bold emphasis added]

Table 8 applies this finding and shows that, to the extent that Nevadans can accomplish energy efficiency at similar rates, then the direct cost of saving energy would be about half the direct cost of generating new coal-fired electricity: 2 – 3 cents versus about 5 – 6 cents per kWh. This cost saving would total about $280 million per year, if energy efficiency could offset all of the electricity that the two 750-MW generators would produce annually, operating at 85 percent capacity. If not, then the research underlying the other data in Table 8 indicates that electricity could be generated from wind- or geothermal-powered generators at about the same cost as electricity from coal-fired generators. (This statement ignores spillover costs which, as we demonstrate above, would be far greater for coal-fired electricity.)

The task force’s findings indicate, however, that energy-efficiency programs and policies probably would not be powerful enough to nullify all requirements to build new generating capacity. Hence, some new generating capacity would be required. Electricity from new generators that rely on geothermal resources and wind as a source of energy might have higher direct costs than electricity from the proposed coal-fired generators at Ely. Or, it might not. In the past, the direct costs of electricity from these renewable resources have been higher, but some of these costs have been offset by subsidies. The costs of electricity from renewable resources have been declining, however, at least until recently, when the demand for new facilities outstripped manufacturing capacity, and studies indicate there is a high likelihood that they will be the same as, or even lower than, the direct costs of coal-fired electricity in the foreseeable future. A review of recent analyses found that the cost of

57 Western Governors’ Association, Clean and Diversified Energy Advisory Committee, Energy Efficiency Task Force. 2006. See footnote 51.

Table 8. Potential Direct Costs,a by Alternative (cents per kilowatt-hour) Ely Energy

Center (Coal)b Energy

Efficiencyc Windd Geothermale

5 – 6 2 – 3 5 – 6 Competitive with Fossil Fuels

Source: ECONorthwest

a Approximate busbar costs, ignoring spillover costs. b U.S. Department of Energy, Energy Information Administration. 2007. Annual Energy Outlook 2007 with Projections to 2030. Report #:DOE/EIA-0383(2007). February. Retrieved July 9, 2007, from http://www.eia.doe.gov/oiaf/aeo/excel/figure56_data.xls. c Western Governors’ Association, Clean and Diversified Energy Advisory Committee, Energy Efficiency Task Force. 2006. Clean and Diversified Energy Initiative: Energy Efficiency Task Force Report. January. Retrieved July 2, 2007, from http://www.westgov.org/wga/initiatives/cdeac/Energy%20Efficiency-summary.pdf. d U.S. Department of Energy, Energy Information Administration. 2007. Annual Energy Outlook 2007 with Projections to 2030, and Wiser, R. and M. Bollinger. 2007. Annual Report on U.S. Wind Power, Installation, Cost, and Performance Trends: 2006. U.S. Department of Energy, Energy Efficiency and Renewable Energy. May. Retrieved July 9, 2007, from http://www.nrel.gov/docs/fy07osti/41435.pdf. e Tester, J.W. and others. 2006. The Future of Geothermal Energy: Impact of Enhanced Geothermal Systems (EGS) on the United States in the 21st Century. Retrieved July 5, 2007, from http://geothermal.inel.gov/publications/future_of_geothermal_energy.pdf.


electricity from new wind-powered generators currently is about 6 – 9 cents per kWh, and half that amount at the best sites.58 The direct costs of electricity from geothermal resources are now about 6 – 10 cents per kWh, but an assessment by an MIT-led interdisciplinary panel recently concluded that, although they might rise in absolute terms, the costs are likely to decline relative to those of electricity from fossil fuels.59

In short, these data indicate there is a high likelihood that Nevada’s ratepayers would pay significantly less to address the state’s future demands for electricity not by building coal-fired generators but by investing in energy efficiency, at one-half the current cost of coal-fired electricity (ignoring spillover costs), and on generating additional electricity from renewable resources, at roughly the same cost as the current cost of coal-fired electricity. Further analysis, however, is required to develop a more detailed description of each alternative and produce a more precise comparison of their relative costs.

C. POTENTIAL ECONOMIC CONSEQUENCES: LOWER RISK Above, we describe the economic risks that would accompany development of the coal-fired generators proposed for the Ely Energy Center. Many of these risks would be borne by ratepayers. Substantial evidence indicates that electricity from coal-fired generators probably would be more expensive than estimated by Sierra Pacific Resources. Recent rapid rises in the cost of developing coal-fired generators suggest that ratepayers would be responsible for costs far greater than current estimates. Once the generators are built, rate shocks could materialize if coal prices are higher than expected. They also could occur if Sierra Pacific Resources were to incur significant costs for their emissions of carbon dioxide. Indeed, the company, itself, has recognized this risk:

Future changes in environmental regulations governing emissions reductions could make certain electric generating units uneconomical to construct, maintain, or operate. In addition, any legal obligation that would require [Nevada Power Company and Sierra Pacific Power Company] to substantially reduce [their] emissions beyond present levels could require extensive mitigation efforts and, in the case of CO2 legislation, would raise uncertainty about the future viability of fossil fuels, particularly coal, as an energy source for new and existing electric generating facilities.60

In other words, the company is saying that anticipated regulations to curtail emissions of carbon dioxide could make coal no longer viable as a fuel from which to generate electricity, so that it would be uneconomical to construct new coal-fired generators, and/or uneconomical to maintain or operate a generator already in place. This assessment indicates there is a real probability that money spent to develop the Ely Energy Center may yield no benefits at all. Instead, the proposed coal-fired generators may become obsolete, perhaps even before they are completed, leaving ratepayers and/or shareholders to swallow

58 Smith, R. 2007 “The New Math of Alternative Energy.” The Wall Street Journal. February 23. Retrieved July 5, 2007, from http://yaleglobal.yale.edu/display.article?id=8813.

59 Tester, J.W. and others. 2006. The Future of Geothermal Energy: Impact of Enhanced Geothermal Systems (EGS) on the United States in the 21st Century. Retrieved July 5, 2007, from http://geothermal.inel.gov/publications/future_of_geothermal_energy.pdf.

60 Sierra Pacific Resources. 2007. Form 10-K. Filed with the U.S. Securities and Exchange Commission. March 1.


the costs of the unproductive plant and equipment and the accelerated costs of decommissioning the facilities.

Ratepayers and shareholders are not the only ones who would bear significant risks. Residents of the area surrounding Ely would face the probability that emissions from the generators would increase the incidence of illness and premature death, adversely affect crops and livestock, diminish the quantity and/or quality of water resources, impair amenities that contribute to the quality of life for those who live in the area, and lower property values.

Businesses and communities would bear risks associated with the likelihood that activity in the tourism and recreational sectors would diminish insofar as emissions from the generators would degrade visibility, fishing opportunities, the character of the Great Basin National Park, and other attractive resources. Long-run risk would arise insofar as the generators would lessen the area’s ability to participate in the processes of amenity-driven growth that exert considerable, growing influence on the economic vitality of rural communities throughout the western states.

Everyone who lives in or cares about the southwestern states would bear additional risk that the region would experience future droughts made more frequent and intense by the emissions of carbon dioxide and other climate-related gases. Those living or caring about other regions would bear risks of the emissions’ contributions to other climate changes, which may include higher incidence of hurricanes, other severe storms, flooding, extinctions of species, wildfires, spread of insects and diseases, and numerous other undesirable outcomes.

Implementing the energy-efficiency/renewable-resources alternative would avoid most of these risks. Evidence indicates that this alternative probably would enable Nevada to meet future demand for electricity at a lower cost. Electricity made available from investments in energy efficiency is predicted to cost about one-half the current, estimated direct cost of coal-fired electricity. The cost of electricity from renewable resources is predicted to be comparable to the current cost of coal-fired electricity (exclusive of spillover costs), but the latter likely will jump when utilities incur costs for emitting carbon dioxide.

None of this is to say that ratepayers would face no economic risks with the energy-efficiency/renewable-resources alternative. Significant hurdles would have to be overcome to develop and implement new technologies. Nevada would not be alone in trying to overcome them, however. Other states and countries, numerous businesses, and countless communities are striving to find new ways and lower the costs of increasing energy efficiency and generating electricity from renewable resources. All this activity is likely to yield new technologies and, as they become available, Nevada would be prepared to take advantage of them. Hence, as Nevadans weigh this alternative against coal-fired generators, they must assess the likelihood that these efforts will be successful.

For individuals, families, landowners, businesses, and communities, the tradeoffs between the two alternatives are more striking. The energy-efficiency/renewable-resources option is much less likely to adversely affect human health (though there undoubtedly will be some accidents and other undesirable outcomes). It is much less likely to have adverse impacts on crops, livestock, fish and wildlife, and the overall ecosystem, or to degrade visibility (although it may have localized negative impacts on visual aesthetics). The energy-


efficiency/renewable-resources option would not increase the likelihood of severe drought, but, instead, it would positively reinforce efforts to limit climate change and sustain water resources. Indeed, the review, conducted for an advisory committee to the Western Governors’ Association, of recent studies of energy efficiency found that implementing best practices throughout the region would lower emissions of carbon dioxide and nitrogen oxides by 17 percent and 7 percent, respectively, by 2020.61 It also found that, as the region becomes more efficient in its use of energy, it would use much less water. Generating electricity from wind and geothermal resources would produce almost no emissions of airborne pollutants and consume little water.

61 Western Governors’ Association, Clean and Diversified Energy Advisory Committee, Energy Efficiency Task Force. 2006. See footnote 51.


V. REFLECTIONS AND CONCLUSIONS

Nevadans face important choices that will affect their pocketbooks, communities, job opportunities, and, for some, even their lives. Some have argued that building coal-fired generators is the safe choice: it is a proven technology, coal is less costly than natural gas, and, although energy efficiency and renewable-resource generators sound good, they have a short track record. In sum, they say Nevada should choose coal, because it is less costly and less risky.

But cost and risk are tricky things to get one’s arms around. Often, in situations such as this, decision-makers and the public confuse cost and risk with the availability of information, and assume that an alternative supported by large amounts of data and studies have less cost and risk than those that aren’t. Or, they assume that, if something was the best alternative in the past then it must be the best in the future. Each of these approaches is akin to steering a car by looking in the rearview mirror, seeking solace by regarding a view where the terrain is familiar, rather than endure the discomfort of scrutinizing the less familiar landscape visible through the windshield. Looking backward rather than forward can have disastrous results especially at a time, such as now, when the factors that influence cost and risk are changing dramatically. Never before have utilities and ratepayers faced the prospect of becoming liable for substantial costs associated with climate change. Not for generations, perhaps millennia, has the desert southwest faced the prospect of severe, prolonged drought that many scientists believe has already arrived on our doorstep. Only recently has the economic outlook for communities depended more on their ability to sustain a healthy environment than on their ability to sacrifice the environment to industrial development.

If Nevadans are to manage economic costs and risks effectively as they choose between building new coal-fired generators and implementing the energy efficiency/renewable resources alternative, they must fully assess and weigh these and other factors, making certain they are looking ahead, not looking in the rearview mirror. We believe that, if they do so, they will conclude that a prudent strategy is to limit exposure to the significant costs and risks that accompany the development of coal-fired generators. Our discussion above shows that a decision to build coal-fired generators would expose Nevadans to risks of great significance, that can be aggregated into three bundles:

• Risks associated with rising electricity rates. Coal-fired generators have large upfront construction costs and these have been growing rapidly at plants being built elsewhere. They also have an expected operating life of several decades, during which fuel (coal) prices may increase markedly and the utilities may become liable for large costs associated with the emission of greenhouse gases. Obligations to repay the construction costs may preclude Nevada from taking advantage of opportunities for meeting future demand for electricity at lower cost.

• Risks associated with imposing spillover costs on families, landowners, and businesses. These costs arise from emission-related negative impacts on human health, water resources, crops and livestock, ecosystem structure and productivity, recreational opportunities and other natural-resource amenities, visibility, and other resources.


• Risks associated with adopting a technology that promises to create fewer jobs. Nevadans' expenditures on energy will yield fewer jobs if spent on coal-fired electricity than if spent on energy efficiency and renewable resources.

Implementing the energy efficiency/renewable resources alternative is feasible and would enable Nevada to meet growth in the demand for electricity at lower cost and with less risk. Evidence supporting this conclusion includes:

• Nevada has abundant solar, wind, and geothermal resources and a large potential for increased energy efficiency. Assessments for the Western Governors' Association, the National Renewable Energy Laboratory, and others indicate that the energy efficiency/renewable resources alternative could meet the state's future growth in demand for electricity.

• Investments in energy efficiency and renewable resources probably will meet Nevada's future demands for electricity at a lower cost to ratepayers than investments in coal-fired generators. Electricity made available through investments in efficiency is expected to cost consumers about $0.02 to $0.03 per kilowatt-hour (kwh). Electricity from wind and geothermal resources is expected to cost consumers about $0.05 - $0.06, about the same as the currently expected cost of coal-fired electricity, although the latter overlooks potential jumps in construction costs, fuel costs, and emission-related costs. Analysis presented to the Nevada Public Utility Commission shows that, under base case conditions, replacing Nevada Power Company's share, 600 MW, of the first proposed Ely coal plant with a portfolio of energy efficiency, wind energy, and geothermal energy would save about $198 million (present value over the period 2007 to 2041). Expectations of the region's utilities, including Sierra Pacific Power Company and Nevada Power Company, indicate that complying with California's potential regulations to curtail greenhouse gases would raise the cost of coal-fired electricity by $0.04 per kwh. The potential additional cost to ratepayers from Sierra Pacific Resources' proposed coal-fired generators is about $400 million per year.

• The spillover costs of coal-fired electricity are important. The two generators proposed by Sierra Pacific Resources would annually

emit: * 3,044 tons of sulfur dioxide * 3,044 tons of nitrogen oxides * 760 tons of particulate matter * 88 pounds of mercury * 11,501,735 tons of carbon dioxide

and consume: * 3.26 billion gallons of water.

The pollutants, water use, and operation of the generators would impose costs on families, landowners, and businesses. These costs would materialize through multiple mechanisms:

Increased illness, injury and premature deaths Change in climate More frequent and severe droughts Harm to crops and livestock Reduced visibility in scenic areas Increased toxicity of fish Harm to threatened or endangered species Increased dust Change in soils, water, flora, fauna Winter fog/haze Growth in population and traffic Boom-bust economic and social change Degradation of recreational opportunities Noise and light pollution Industrialization of public lands Damage to historic and cultural sites Exposure to hazardous inputs Disposal of waste products


Most of these costs have not been quantified, but data for just the human-health costs of sulfur dioxide, nitrogen oxides, and particulate matter indicate that persons exposed to emissions from the Sierra Pacific Resources' generators would incur costs of about $38 million per year. Analysis by the region's electric utilities indicates the annual costs from the emission of carbon dioxide could be $103.5 million – $805 million per year.

• Investments in energy efficiency and renewable resources probably will create more jobs in Nevada than investments in coal-fired generators. A recent review of 13 studies compared the jobs created over their operational lifetimes by different types of generating facilities. It found that, after adjusting for differences in their operating characteristics, a coal-fired generator creates, on average, 1.01 jobs per megawatt (MW) of capacity, whereas a solar (photovoltaic) generator creates 7.41 –10.56 jobs and a wind-powered generator creates 0.71 – 2.79 jobs. Other evidence indicates that, looking beyond the peak construction period, the long-run job creation by energy efficiency and renewable resources likely would be 2 – 10 times the job creation by coal-fired generators. Moreover, by degrading the environment, the emissions from a coal-fired generators probably would have an adverse impact on many jobs in the surrounding communities.

Further investigation is required to understand in full detail the relative economic consequences of the two strategies for meeting Nevada's future growth in demand for electricity: (1) by building coal-fired generators or (2) by increasing energy efficiency and relying on generators powered by renewable resources. The information currently available strongly indicates, however, that the latter would yield more jobs, lower costs, and less risk.

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