Sierra Pacific Resources three-part strategy to meet the energy needs of Nevada includes energy efficiency programs, renewables and new generation.

Sierra Pacific Resources and its subsidiaries (Nevada Power and Sierra Pacific Power) has a three-part strategy to meet the energy needs of Nevada:

1. Increasing our energy efficiency and conservation programs to provide our customers with tools to lower their bills while improving the environment;

2. Expanding renewable energy initiatives and investments that have already made us a national leader;

3. Building new generating plants that will use the best available technology to improve the environment while balancing the mix of fuels used to produce electricity.

All three of these are integral to our goal of providing clean, safe, reliable electricity to our customers at reasonable and predictable prices. They work in tandem in that none individually can achieve this goal.

Some background information is necessary to explain why each component of our strategy is critical.

For many years, our company and our state decided that it was better to buy electricity from power plants owned by others than to build power plants in Nevada to meet the growth in customers and electrical demand. This strategy worked as long as the energy markets were stable, which they were for many years. However, because of changes to rules and regulations that led to the so-called Western Energy Crisis earlier this decade, our customers and our shareholders suffered when the price of power reached unprecedented highs and electricity was in short supply. Our strategy since 2003 has been to increase our ownership of power to avoid price spikes and reliability problems. As a result of this strategy, in 2006 we added 1800 MW of efficient natural gas facilities and by summer of 2008, we expect to bring that total to about 2,800 MW. The end result is that we will have more than doubled the amount of generating capacity owned by our company. However, because of our growth and our deficit position prior to 2003, we still will not own enough to meet our customers’ needs and we will still depend on the market to supply some of our electricity, especially in the summer. Our desire is to continue to increase our self-sufficiency. In addition to building new, modern power plants, we will expand our programs to reduce our customers’ use of electricity and increase use of renewable energy.

Increasing our energy efficiency and conservation programs

These programs produce value for our customers because they help reduce their use of electricity and decrease their bills. Here are four examples:

1. We provide rebates directly to our customers through our air conditioning programs that reduce the cost of replacing older, more energy consuming units with new, more efficient ones.
2. We provide rebates indirectly through retail stores such as Costco and Home Depot to reduce the cost of energy saving compact fluorescent lamps so that our customers may replace their current less energy–efficient light bulbs.
3. Our refrigerator recycling program allows customers to dispose of their older inefficient units in an environmentally responsible manner while receiving a rebate from the company.
4. Customers may receive a rebate for installing solar panels on their homes or businesses.

Our programs will be expanded further to provide additional ways we can help our customers save money while at the same time improve the environment.

Expanding our renewable energy initiatives and investments

In 1997, Nevada was one of the first states to have a Renewable Portfolio Standard (RPS). Today, we have one of the most aggressive Portfolio Standards in the nation. By 2015, 20% of our energy must come from a combination of renewables and conservation programs. We see the RPS as a floor, not a cap, because Nevada is blessed with abundant renewable resources in the form of geothermal, solar and wind energy, the most per customer of any state in the country. Here are some facts:

We are currently involved in more than 30 renewable projects

• Nevada is a leader in geothermal energy use, ranking number one in geothermal watts per customer. Sierra Pacific Power has a 20–year history of utilizing this resource.
• Our company currently has 25 geothermal projects under contract, having added nine projects in the past 12 months, bringing the total to more than 470 MW.
• Nevada will be the number one state in solar energy capacity per customer by the end of 2007.
• The 64 MW Nevada Solar One Plant, now in operation, is the largest solar energy plant to be built in the U.S. in the past 16 years.
• Once completed by yearend 2007, the 12 MW photovoltaic facility at Nellis Air Force will be the largest facility of its kind in North America and one of the largest in the world.
• We expect to directly invest hundreds of millions of dollars in wind, solar and geothermal projects within the next several years.
• 500 MW of wind energy is planned by 2012.
• We will have more than 1,000 MW of solar, geothermal, wind, biomass and small hydro generation by 2012.

Building new generating plants

Since the beginning of 2006, we have completed the construction of the Lenzie Generating Station and a power plant at our Harry Allen site. We also acquired 75 percent of the Silverhawk plant. The total additional power from these three plants more than doubled our owned generating capacity for Nevada Power customers. These power plants are highly efficient because they use less natural gas and water to produce power than older plants. This makes these plants good for our customers and the environment. The same will be true for the plants now under construction. By the summer of 2008, we will complete a large plant just east of Reno at our Tracy site. And by the end of the summer of 2008, we will have added significantly to our ownership of combustion turbines at our Clark Generating Station which will help deliver power to our customers in Las Vegas in the hot summer months.

All of these power plants use natural gas as the fuel to produce electricity. Over 70 percent of our electricity today is produced by natural gas, which means our customers are too dependent on a fuel that has become far more costly than it was just 10 years ago. This is why we asked our Public Utilities Commission to approve our plans to construct the Ely Energy Center that uses coal to produce electricity. We believe that our customers will be served more reliability and will have more predictable prices if we diversify the fuels used to serve them; in this way, we will have a more balanced portfolio of fuels.

By 2015, we expect that about 40 percent of our electricity will be produced using natural gas, 40 percent using coal and 20 percent from renewable energy. If we are too dependent on any one fuel to produce electricity it could mean that our customers are subject to less stable electric prices. It may also mean that we are unable to reliably produce electricity for our customers if the dominant fuel is scarce.

Additional Information

The benefits of the Ely Energy Center are many.

The Ely Energy Center will:

• Provide reliable energy supply for our growing state at more predictable prices.
• Reduce our reliance on natural gas as our dominant fuel to produce electricity.
• Utilize the nation’s lowest–sulfur coal and about 50% less water than typical coal plants, and incorporate the most modern emissions equipment in the world. The plant will surpass all current state and federal emission standards (e.g., 30% fewer sulfur emissions overall and 50% of the mercury emissions)
• This will allow our company to reduce overall emissions including carbon per kilowatt hour by making it possible to retire older, less efficient coal units (Reid Gardner 1, 2 & 3)
• We plan to test carbon capture and storage technology at Ely and expand such technology to the full output of the plant when it is proved to be feasible and economic.
• Provide economic benefits ranging from 2,000 or more jobs during construction and up to 250 full–time positions.
• Include a 250–mile transmission line to open a new path for renewable energy and for the first time connect our northern and southern Nevada systems.

Answers to Common Misconceptions

“There is no such thing as ‘clean coal’”

While this is true today, we can only make the use of coal cleaner through investment in the technology to reduce or eliminate emissions. There are trade offs for all forms of electricity generation. Solar requires a lot of land to build, disturbs the ecosystem and while there is no fuel associated with this type of electricity production, the capital costs are extremely high. And there is no economic means of storing the energy so when the sun’s not shining, it’s not producing electricity. Geothermal power requires investments to find the resources, similar to drilling to find oil and gas.

With respect to wind energy, some dislike it because wind turbines sometimes kill birds and bats, while others say they don’t like seeing wind farms disturbing the landscape. (Also, the best wind projects produce energy 40 percent of the time and usually not at times of peak need). Power plants that use natural gas to make electricity produce fewer emissions but the fuel is less plentiful in the US than coal and has recently experienced price spikes and questions of continued availability. With that said, today more than 70 percent of our energy is produced from natural gas.

Coal is the most plentiful fuel in the United States and as a result, the price has been stable compared with oil and natural gas. The Ely Energy Center will use the world’s best technology, greatly lowering emissions compared to older coal plants, including ones that we own.

These comments are not meant to negate the great benefits of renewable energy. On the contrary, they play a very beneficial role in developing a portfolio of energy production options. As we’ve heard since childhood “never put all of your eggs in one basket.” This is true for energy fuel portfolios as much as it is for stock investment portfolios. This is the reason that we need and want to diversify our fuel mix to have more of a balance between natural gas, coal and renewables.

“Conservation and renewable energy are sufficient to meet the needs of our customers”

While we will expand both they are not enough to meet our growth or our shortfall of ownership of power plants. Conservation lowers energy usage but doesn’t eliminate it. Also, we are obligated to provide electricity when the sun isn’t shining and the wind isn’t blowing, so we must have power plants that have the capability to run all the time to achieve this obligation.

We consider it our company’s ongoing responsibility to play a major role in helping Nevada continue to lead the nation in the development of renewable energy. It is an important part of our state’s energy solution. However, we cannot rely solely on conservation and renewable energy to meet our state’s growing needs either.

“Other states are cancelling coal plants; why not Nevada”

As stated earlier, more than 70 percent of our electricity supply uses natural gas as the fuel. If we compare that to other western states, Nevada is the only state so dependent on one fuel, and it is the fuel that has the most price fluctuations. California, for example, gets almost half of its power from the combination of nuclear, hydro and coal. Many think that we get much of our power from Hoover Dam. The maximum energy generated by Hoover is about 3 percent of our peak demand. Another fact: while some states with greater fuel diversity than Nevada are cancelling plants, there are more than 50 plants that are either in construction or advanced stages of permitting and siting, total over 24,000 megawatts of generation.

Diversifying our energy portfolio with a balanced mix of natural gas, coal and renewable energy will provide the greatest assurance of reliable energy supply at more reasonable and predictable prices. Building more large natural gas–fueled plants, such as Lenzie or Tracy, instead of adding plants that use coal as the fuel would put our customers at risk for another energy crisis if natural gas supplies run short. It would also mean that we would not be able to retire the Reid Gardner units or financially justify the construction of the transmission line associated with the Ely Energy Center, which is needed to develop more renewable energy for our state and our customers.