Check out These Good Contacts

Note: There are a lot of good names and organizations in this article, especially the Economic Development Councils. Worth spending some time with them?

Lorna

Wednesday, February 7, 2001
Nevada Goes for the Gold

By Dave Todd
dtodd@ftenergy.com <mailto:dtodd@ftenergy.com<

It's a reverse twist on America's economic history. One might even call it a case of Eastward Ho!

For the first time in the nearly two centuries that California has been part of the United States, entrepreneurs are talking about leaving, not moving into, the Golden State because of potential opportunities for doing business to the east. Not much farther east, only over the mountains into neighboring states, but still in that direction, as opposed to jurisdictions north or south of California. And the biggest lights in the eyes of one particular industry are emanating from Nevada.

Jack Stewart, president of the California Manufacturers and Technology Association, recently warned that massive power price increases and future rate hikes "could be the genesis for industry departures from the state." The impact on large industrial users, he warned, could "provide an impetus for a statewide economic downturn" in California, which accounts for about 12% of the United States GDP.

California's mass exodus
Since the beginning of the year, Nevada's primary economic development agencies have been overwhelmed by California companies wanting to relocate some or all of their operations to the state. The bad news for California is that the list includes many Silicon Valley enterprises or "wannabes" whose growth planning units have been gripped by uncertainty about the dependability of future electric supply delivery.

Somer Hollingsworth, president and CEO of the Nevada Development Authority in Las Vegas, said in late January he was urgently asked to meet with corporate officials of a major California company to brief them about relocating to Nevada. In meeting with the company he asked, "Are there others like you? And they said, yes, we can introduce you to company after company after company."

Overwhelmingly, it is high-tech California companies that are most interested in moving because of their ever-growing requirements for reliability in their electric service. Beyond that, "We have five power companies that have already come down here and talked to us-power producers," he said. These companies, including Calpine Corp., are keen to take advantage of a variety of opportunities made easier by the fact that, unlike California, Nevada has no state income tax and no general corporate or business inventory tax, putting it at both a geographical proximity and tax advantage to California. It also puts Nevada ahead of other low-tax Western states such as Arizona, Colorado and Utah.

Reno/Silicon Valley share symbiotic relationship
Hollingsworth's northern counterpart at Reno's public/private sector-backed agency, the Economic Development Association of Western Nevada (EDAWN), tells a similar story. Chuck Alvey, who heads that body, says interest in his city from Silicon Valley refugees is becoming intense.

A mere three-hours' drive and 40-minute plane ride from the San Francisco/San Jose area, Reno and Lake Tahoe already house hundreds of high-tech industry executives who commute back and forth and who have, up to now, escaped the impact of power drains caused by their energy-intensive industries. "Server farms," banks of computers that manage Web sites and related business operations, continue to grow in number. A single server farm can require as much as 10 MW of power to operate.

Strict new federal energy efficiency standards, to curb demand by other power hogs, such as residential central air conditioners and heat pumps, clothes washers, water heaters and commercial heating and cooling equipment, won't be implemented in time to affect the current power crisis. The U.S. Department of Energy last month announced that the energy conservation measures could save consumers and businesses more than $19 billion over the next 30 years.

Though the energy saved would eliminate the need for 40,000 MW of new power generation, the new standards wouldn't be phased in until between 2003 and 2007.

Stan Thomas, director of business planning and growth strategies for Sierra Pacific Power Co., Nevada's dominant energy company, said his business has "experienced great success" at moving Silicon Valley-based firms' divisions into Nevada, albeit in a limited way. "But we're seeing a lot more companies saying: 'Wait a minute. We can't operate here anymore with power being shut off, and having payrolls to meet and not producing any product.' "

He added that getting "a little more aggressive" about enticing electricity supply-constrained companies to relocate to Nevada is no longer likely to be seen as a cherry-picking operation at another state's expense. In fact, Nevada froze its electric deregulation planning last year, pausing to reconsider its options, as a direct result of California's policy confusion. "We have delayed until we have a plan together where capacity exceeds (native in-state) demand," said Thomas.

Sierra Pacific's power delivery capabilities are being enhanced by its plan to build a new 345-kV line in eastern Nevada to import power from Utah. In 1998, it also installed a major line into the Pacific Northwest. Both developments are significant because the company has switched its strategy to become more of a power transmission distribution company than a generator.

"We're learning our lesson here," said Thomas. Setting aside the issue of burgeoning energy demand requirements across the West, the need to recover stranded costs associated with deregulation is a preoccupation for power plant-owners in general, he said.

As for California, " I think the next couple of years are going to be some tight times, no doubt about it. And that's why what we're trying to do (in Nevada) is secure long-term contracts as well as short-term contracts to protect our customers while we're in the process of securing capacity, to ensure that we have an adequate supply of electricity at reasonable rates."

Other areas targeting California companies
It's not just Nevada's physical proximity to California that helps it attract relocating companies. It's also the different opportunities offered by Nevada's two main population centers, Reno and Las Vegas. Both cities attract different kinds of energy-dependent businesses from California. In this regard, "We are two different markets," said Thomas.

In any case, Nevada isn't the only state that's getting calls, and returning interest in kind. Half a continent away, Tennessee's state department of economic and community development recently targeted about 1,000 California companies with financial enticements and advertisements that proclaim "the lights are always on" in the electric power-rich Tennessee Valley Authority's service territory. Elsewhere across the nation, from Seattle to Manhattan, there are initiatives to build or refurbish buildings to make them capable of servicing high-energy demand, Internet-related data centers.

Nevada, however, has one giant advantage, aside from being closer to California. Las Vegas, for example, has one of the most extensive, readily accessible black fiber systems of any major metropolitan area in the United States. But of course it would. As the Nevada Development Authority's Hollingsworth joked: "Most everything we have here is state-of-the-art and brand new because we blow everything up every 20 years. We just implode it and build something new." The most recent casualty to fall to progress was the El Rancho Hotel on the Las Vegas Strip, deemed past its prime, which bit the dust in October in a televised entertainment spectacle. Power to the people.