HomeMy WebLinkAbout13 Rye Patch Geothermal Power Plant Age
nda Item # #03
.!UCKEE ■ •
Public
Memorandum
To: Board of Directors
From: Stephen Hollabaugh
Date: June 1, 2007
Subject: Contract for the purchase of capacity and energy from the proposed Rye
Patch Geothermal Power Plant to be shared with Plumas Sierra Rural
Electric Cooperative.
When acquiring new resource, Conservation is considered first resource.
Historic load growth has averaged 4.7% over the last three years
• Forecast assumes that load increases by only 1% over the next three years
- Conservation may account for 1-3% of load
- Offsets growth that would otherwise require additional resources
• Conservation is estimated to shave approximately 1 MW from TDPUD's monthly average
energy requirements
- Actual load requires market purchases to shape around average requirements
- Greater conservation will reduce shaping purchases
After conservation, the District still has a need for resource.
History:
The Board approved by resolution to amend the Renewable Portfolio Standard (RPS) on
March 21 , 2007 (attached). The RPS defines geothermal as a qualified RPS renewable
resource. The RPS also set a goal that the District resource mix will have a minimum of 21%
of renewable resources by 2010.
The Rye Patch geothermal generation being considered is a qualified RPS renewable
resource.
The District still has a need for resource for 2008 forward.
New Information:
The District has been investigating renewable resources that might meet the Districts
resource needs. We became aware of a possible geothermal resource from our consultant
Energy Source. The District has done its due diligence on this possible generation. The
Rye-Patch Geothermal facility is currently owned by Presco Energy.
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Presco has done a lot of geological investigation into the geothermal lands of this project.
This project has had a somewhat long past with multiple owners. The project includes re-
powering of the generation. Presco has been much more conservative in their generation
output estimates of this project. Attached is a report (Rye-Patch-H urn bolt House Power
Project, Power Generation and Geothermal Resource Development). This report covers the
project history, Resource Potential, Well Capacities and Reservoir Engineering, and Power
Generation to name just a few. Presco has done extensive resource potential investigation
that includes the resource characteristic, geology, geothermal temperature, and well
capacities and reservoir engineering. After reviewing the information, the District believes
this project has great potential for success and sustained generation output.
Presco Energy
Attached is the Company Summary and Principals. I have been dealing with Richard Ellis
who is the President of the company.
Contract:
The District has been working with Plumas Sierra Rural Electric Cooperative (Plumas) who is
also interested in this resource. Truckee Donner and Plumas both are members of UAMPS
and plan this project works well with both utilities.
The contract for Rye Patch Geothermal Project is between Presco Energy (Seller) and
Truckee Donner PUD & Plumas Sierra REC. Truckee and Plumas will share the output and
create a letter agreement between each other to define that.
Key provisions of the contract are as follows:
• Contract is for 10 years with two 5 year renewal options.
• Contract capacity for the first phase is expected to be a minimum of 5 MW up to 8MW.
The contract capacity shall be established by test within 90 days following the
Commercial Operation Date.
• Contract price is 6.4 cents/kWh with 1% annual escalation.
• An option to acquire the REC's (renewable energy credits) is proposed at 0.5
cents/kWh.
• Presco has an interconnection agreement with Sierra Pacific Power Company, but will
require an operating agreement to cover such matters as generation imbalance.
Generation imbalance costs are born by Presco
• Truckee and Plumas have or will have transmission system agreements with Sierra,
arrangements for points of delivery and transmission costs are the Buyers'
responsibility.
• Proposed commercial operation date is June 1, 2008.
• Termination for failure to meet a September 1, 2008 commercial date, failure to
maintain at least 75% capacity for 90 days, force majeure preventing deliveries for
greater than 90 days, mutual agreement and failure to obtain an operating agreement
with Sierra are offered.
• Planned outages are to be coordinated and agreed in advance
The entire contract is attached. Plumas Sierra REC is still reviewing the contract and may
have some slight edits but contract itself is substantially complete. Truckee's counsel will
have another opportunity to review the contract to also suggest slight edits as may be
needed.
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Positives of this Contract for the District:
This contract fits well into the District's need for resource. It is a geothermal resource located
within Sierra Pacific's transmission control area of which the district has transmission rights,
and meets the Renewal Portfolio Standard for renewable resource. This generation will meet
the need of the District and start to move the District closer to its goal of 21% renewable
resources by 2010. This contract is a take and pay contract. That means the District only
pays for the output it receives.
Negatives of the Contract for the District:
Presco Energy has to re-power the plant and hopes to have it up and running by June 1,
2008. If the commercial operation is delayed, the district will have to replace this resource in
a short time frame.
The Positives outweigh the Negatives:
This generation is located well for the District to have access to it. The Sierra Pacific
transmission that it is located is a main transmission line for Sierra with good reliability. This
contract will be a great asset to the District's customers and should be attained if at all
possible by the District. Truckee Donner PUD will negotiate a contract with the Plumas
Sierra Rural Electric Cooperative to share the benefits and energy from this contract.
Recommendation:
The Board of Directors adopts and authorizes the Board President to sign the Contract for the
Power Purchase Agreement Between Plumas Sierra REC, Truckee Donner PUD and Presco
Energy, LLC in substantially the form presented.
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POWER PURCHASE AGREEMENT
BETWEEN
PLUMAS SIERRA REC, TRUCKEE DONNER PUD
AND
PRESCO ENERGY,LLC
This Power Purchase Agreement ("Agreement") is made and entered into as of this
day of , 2007 ("Effective Date"), by and between Plumas Sierra REC, a California
based rural electric cooperative, Truckee Donner PUD, a California public utility district
("Buyers"), and Presco Energy, L.L.C., a L.L.C. ("Seller") (jointly known as the
"Parties" and individually also referred to as "Party").
WITNESSETH
WHEREAS Buyers are load serving California based electric utilities;
WHEREAS Seller owns and operates the Rye Patch Geothermal Plant and Wellfield
("Rye Patch Project" or "Project") in Pershing County, Nevada, which is used to generate
electricity;
WHEREAS the electricity generated by the Rye Patch Project is expected to comply with
the requirements of Nevada's Renewable Energy law;
WHEREAS Seller desires to sell to Buyers the geothermal capacity and net energy output
from the Rye Patch Project and offer an option for the associated Portfolio Energy Credits
("PEC"), and Buyers wish to purchase such capacity and energy output and have an option to
acquire PECs from Seller based on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, Buyers and Seller hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Commercial Operation Date: The Commercial Operation Date is the date, as
certified by an independent engineer, selected by mutual agreement between Seller and Buyers,
that the one i,• ndr-oa pefeent (1 00 ) " Rye Patch Project is operational and energy has been
delivered to the Delivery Point, which term is defined below. The Parties will agree in advance
on the definition of operational.
1.2 Contract Term: The Contract Term shall begin on the Effective Date and
continue for ten (10) years, unless terminated earlier pursuant to the terms hereof, with the option
of Buyers to extend this Agreement in accordance with Paragraph 2.1, each of which extensions
shall be subject to all the terms and conditions set forth herein and shall extend the Contract
Term as set forth in paragraph 2.1.
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1.3 Contract Capacity: The Parties acknowledge that a single nominal rating is
difficult to establish at the time this contract is signed. The first phase is expected to have a
capacity rating of 6-8Mw based on certain atmospheric conditions. The Contract Capacity shall
be one hundred percent (100%) of the firm capacity and net energy output from Rye Patch
Project, as defined below. The Contract Capacity will be established by test within 90 days
following the Commercial Operation Date. The results of the test will be shared with Buyers and
a value for Contract Capacity shall be agreed to and added to this contract by letter amendment.
Should the Project be expanded, Buyers will have a no cost option to increase purchases to this
level under the then current price and terms. The division of energy between TDPUD and
PSREC is to be determined by separate agreement between TDPUD and PSREC.
1.4 Deliverer: The Delivery Point will be the Star Peak substation on the Sierra
Pacific Power Company 120 kV transmission line approximately four miles south of Humboldt
House, Nevada.
(a) Seller shall be responsible for the scheduling of required transmission, as
detailed below in Article 10, and for all costs, expenses, taxes, fees and charges
associated with the delivery of energy to the Delivery Point.
(b) Buyers shall be responsible for the scheduling of required transmission
and for all costs, expenses, taxes, fees and charges associated with the transmission of
energy from the Delivery Point to their respective points of receipt. Buyers shall
coordinate schedules with Seller's designated Scheduling Coordinator.
(c) Unless otherwise agreed to in writing, title to capacity and energy shall
pass from Seller to Buyers at the Delivery Point.
1.5 Delivered Energy Quantity: The Delivered Energy Quantity shall equal the
quantity of energy (in MWh) delivered to Buyers as measured at the meter on the high side of the
plant transformer between the plant and the Star Peak substation compensated to the Delivery
Point.
1.6 Derating: A condition of the Rye Patch Project as a result of which it is unable to
produce the Contract Capacity during any dispatch hour.
1.7 Generation Imbalance Service: Seller is required to obtain generation imbalance
service from the transmission provider. This service is provided when deliveries from a
generator deviate from schedules.
1.8 Peak Period: Peak Period is June 1 through September 30 in any contract year.
1.9 Planned Outage(s): A Planned Outage(s) is any non-forced outage or reduction in
the Contract Capacity of the Rye Patch Project.
1.10 Purchase Price: The Purchase Price is the price Buyers shall pay to Seller which
is 6.4 cents for each kWh of Delivered Energy Quantity. The Purchase Price shall be escalated
at a rate of one percent (1%) per annum, for the Term of Agreement, adjusted on each
anniversary date of the Commercial Operation Date. [ Subject to negotiation]
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1.11 PPT: PPT is the Pacific Prevailing Time, which means Pacific Daylight Time or
Pacific Standard Time, whichever is then prevailing.
1.12 Portfolio Energy Credits ("PEC(s)"): Portfolio Energy Credits are all portfolio
energy credits, or offsets allocated, assigned or otherwise awarded or certified to Seller or Buyers
by the Public Utilities Commission of Nevada ("Commission") in connection with the Rye Patch
Project, including all parasitic PECs generated, in accordance with the applicable Nevada
statutes and regulations.
1.13 Rye Patch Project: The Rye Patch Project is that group of geothermal wells,
plant, equipment, and facilities owned and operated by Seller and located in Sections 21 and 28
of Township 31 North, Range 33 East, Pershing County, Nevada, as more fully described in
Exhibit A.
1.14 Scheduled EnerU: Scheduled Energy is that quantity of energy that has been
scheduled for delivery by Seller pursuant to the provisions of Article 10 below.
1.15 Scheduling Coordinator: An entity certified per the transmission providers'
GATT that contracts on behalf of generators and load serving entities to schedule the distribution
of electricity.
1.16 Transmission Provider: The Transmission Provider shall have that meaning
provided in Sierra Pacific Power Company's Open Access Transmission Tariff("OATT").
1.17 WECC: WECC is the Western Electric Coordinating Council (formerly Western
System Coordinating Council) and any successor entity thereto.
Any other defined terms hereinafter are defined as provided in this Agreement.
ARTICLE 2
AGREEMENT FOR PURCHASE AND SALE
2.1 According and subject to all of the provisions of this Agreement, Seller agrees to
sell and Buyers agrees to buy the entire capacity and net energy output from the Rye Patch
Project.
2.2 Buyers have an annual option of acquiring all PEC's from the Rye Patch Project.
PEC's are available for 0.50 cents per PEC or gross generated kWh. Buyers have 180 days from
the Commercial Operations Date to exercise the first annual option. For each subsequent year,
Buyers must notify Seller of their intent to exercise the option on the anniversary of the
Commercial Operation Date. Should Buyers fail to exercise the option in any year, Seller has no
further requirement to offer that year's PEC's to Buyers and is free to sell those PEC's to others.
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ARTICLE 3
TERM AND TERMINATION
3.1 Term of Agreement: This Agreement shall be effective as of the Effective Date
and shall remain in full force and effect until the end of the Contract Term.
(a) Buyers shall have two options to renew the Agreement under the same
terms and conditions herein, each option to be for a period of five (5) years.
(b) Each option to renew the Agreement executed by Buyers shall extend the
then current Contract Term for an additional five (5) years. Should Buyers elect to extend
the contract term, the price would be escalated by 5% at the beginning of the new term
and then subject to 1% escalation per year for the year after the first year of the new term.
(c) Each time Buyers choose to exercise the option to renew the Agreement,
Buyers shall provide Seller written notification of Buyers intention to extend the
Agreement no later than 180 days prior to the end of the then current Contract Term.
3.2 Termination: This Agreement:
(a) shall be terminated at the end of the Contract Term;
(b) may be terminated by Buyers in the event Delivered Energy Quantity is
for any reason less than seventy-five percent (75%) of Contract Capacity for a total of 90
days within any twelve (12) consecutive month period;
(c) may be terminated if a Force Majeure event or occurrence wholly or in
substantial part prevents Seller from performing the terms of this Agreement for ninety
(90) consecutive days;
(d) may be terminated by Buyers if Seller fails to commence power sales by
September 1, 2008;
(e) may be terminated by mutual written agreement of the Parties;
(f) may be terminated by Buyers if Seller fails to obtain prior to the
Commercial Operation Date and maintain during the term of the Agreement a generation
imbalance agreement with the Transmission Provider acceptable to Buyers.
3.3 Effect of Termination: Any default under or termination of this
Agreement or expiration of the Term shall not release any Party from any applicable provisions
of this Agreement with respect to:
(a) The payment of any amounts owed to the other Party arising prior to or
resulting from termination of, or on account of breach of, this Agreement; or
(b) Indemnity obligations contained in Article 11, which shall survive to the
full extent of the statute of limitations period applicable to any third party claim.
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3.4 Duty to Mitigate: Each Party agrees that it has a duty to use reasonable
commercial efforts to mitigate damages and covenants to minimize any damages it may incur as
a result of the other Party's default.
ARTICLE 4
MAINTENANCE
4.1 A Planned Outage may be scheduled by Seller to perform maintenance at the Rye
Patch Project, except that a Planned Outage(s) shall not be scheduled during a Peak Period.
4.2 Seller shall request and obtain Buyers prior written approval before scheduling a
Planned Outage.
4.3 Seller shall provide the Planned Outage schedule to Buyers in accordance with
Article 10 (Scheduling). Buyers shall promptly review Seller's proposed Planned Outage
schedule and shall notify Seller in writing within thirty (30) days of Buyers receipt of such
schedule with either required modifications or approval.
4.4 Regardless of any prior approval of a Planned Outage, Seller shall not start a
Planned Outage on the Rye Patch Project without confirming the approved Planned Outage with
Buyers Scheduling Coordinator seven(7) days prior to the start of the Planned Outage.
ARTICLE 5
COMMENCEMENT OF POWER SALES
5.1 Seller has in place an Interconnection agreement with Sierra Pacific Power
Company. Seller shall promptly commence efforts for and diligently pursue the approval and
execution of its operating agreement that includes Generation Imbalance Service on terms
acceptable to Buyers with Sierra Pacific Power Company. Seller shall notify Buyers of the
approval and execution of its operating agreement with Sierra Pacific Power Company at least
thirty (30) days prior to its proposed Commercial Operation Date. Buyers shall be responsible
for the costs of transmission delivery including losses and for making all transmission delivery
arrangements with Sierra Pacific Power Company.
5.2 Seller shall make all commercially reasonable efforts to ensure a Commercial
Operation Date of June 1, 2008. Seller shall in any event provide notice of its proposed
Commercial Operation Date, along with projected plant output and net sales energy, no later than
thirty (30) days prior to such date. Seller shall commence power sales to Buyers upon the
Commercial Operation Date.
ARTICLE 6
METERING
6.1 Seller shall be responsible for providing, installing, operating and maintaining all
meters in good operating condition. The meters shall be revenue quality meters and shall be
used for quantity measurements under this Agreement. Such equipment shall be capable of
transmitting data to multiple parties, including Buyers designees, and shall be capable of
measuring and reading instantaneous and hourly real and reactive energy and capacity.
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6.2 Meters shall be installed at a location reasonably determined by both Parties to
effectuate this Agreement.
6.3 Meters shall be tested at least once every calendar year by Seller. Either Party
may request a special test of the meters, but such Party shall bear the cost of such special testing
unless there is an inaccuracy outside the limits established in American National Standard
Institute Code for Electricity Metering (ANSI C12.1, latest version), in which case Seller will be
responsible for the costs of the special testing. Authorized representatives of both Parties shall
have the right to be present at all routine or special tests and to inspect any readings, testing,
adjustment, or calibration of the meters. Seller shall provide to Buyers fifteen (15) days prior
written notice of routine meter testing. In the event of special meter testing, the Parties shall
notify each other with as much notice as is practicable. All test reports are to be provided to
Buyers.
6.4 If the meters are registering but their accuracy is outside the limits established in
ANSI C 12.1, Seller shall be responsible for the repair and recalibration or replacement of the
meters. Buyers shall adjust payments to Seller for the Delivered Energy Quantity for the lesser
of the period in which the inaccuracy existed or ninety (90) days. If the period in which the
inaccuracy existed cannot be determined, adjusted payments shall be made for a period equal to
one-half of the elapsed time since the last test and calibration of the meters; however, the
adjustment period shall not exceed ninety (90) days.
6.5 If the meters fail to register, payments shall be based upon Buyers best estimate of
the Delivered Energy Quantity received. Buyers shall adjust payments to Seller for the
Delivered Energy Quantity for the lesser of the period in which the failure existed or ninety (90)
days. If the period in which the failure existed cannot be determined, adjusted payments shall be
made for a period equal to one-half of the elapsed time since the last test and calibration of the
meters; however, the adjustment period shall not exceed ninety (90) days. In such event, Buyers
estimated payments shall be in full satisfaction of payments due hereunder.
ARTICLE 7
INVOICING AND PAYMENTS
7.1 On or before the last day of each month, Seller shall send to Buyers an invoice for
the prior month ("Billing Period"). The invoice shall be calculated based on the meter data
available to Seller and shall comply with this Article.
7.2 On each monthly invoice, Seller shall calculate and show the following amounts:
(a) The Scheduled Energy amount during each dispatch hour of the Billing
Period;
(b) The sum of the Scheduled Energy amounts during all dispatch hours of the
Billing Period;
(c) The sum of the Delivered Energy Quantities during all dispatch hours of
the Billing Period multiplied by the Purchased Price for Delivered Energy Quantity;
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(d) The total amount due from Buyers. Exhibit A is a sample form of the
invoice. Any payment due to either Party shall be made within twenty (20) calendar days
of the date of the invoice.
7.3 Should Buyers exercise the option in paragraph 2.2 in addition to the
requirements for monthly invoices set forth in this Article, within thirty (30) calendar days after
the Nevada PEC Administrator issues its final PEC statement for a year during the Contract
Term, the Seller shall send to Buyers a yearly statement for such year, which shall include for the
year the following calculations:
(a) The net metered output of electricity in kWh delivered to the transmission
or distribution system;
(b) The metered generation of the Rye Patch Project in kWh;
(c) The difference between the metered generation of the Rye Patch Project
and the net metered output of electricity delivered to the transmission or distribution
system;
(d) The PECs certified by the Nevada REC Administrator;
(e) The sum of the PECs available to be transferred by Seller to Buyers;
7.4 Overdue amounts and refunds of overpayments shall bear interest from and
including, the due date or the date of overpayment, as the case may be, to the date of payment of
such overdue amounts or refund at a rate calculated pursuant to the maximum lawful rate
permitted by applicable Nevada state law.
ARTICLE 8
SETOFFS AND NETTING
8.1 Setoffs and Netting: All outstanding obligations to make payment as between
Parties may be offset against each other. In the event Buyers and Seller are each required to pay
to the other an amount under any agreement, then such amounts with respect to each Party may
be aggregated and the Parties may discharge their obligations to pay through netting, in which
case the Party, if any, owning the greater aggregate amount shall pay to the other Party the
difference between the amounts owed in accordance with the terms and provisions hereof.
ARTICLE 9
DELIVERY CONDITIONS
9.1 Seller shall dedicate and agrees to sell to Buyers for the Contract Term 100% of
the Contract Capacity, associated energy, and if the option in paragraph 2.2 is exercised gross
associated PECs, including parasitic PECs, from the Rye Patch Plant. Seller shall not sell any of
the Contract Capacity, associated energy (with the exception of imbalance energy sold to Sierra
under Generation Imbalance Service), or if the option in paragraph 2.2 is selected gross
associated PECs from the Rye Patch Project to any person or other entity than Buyers without
the written permission of Buyers.
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9.2 Seller shall use reasonable commercial efforts to deliver from the Rye Patch
Project to the Delivery Point Delivered Energy Quantity of at least eighty-five percent (85%) of
the Contract Capacity for each dispatch hour.
9.3 Parties shall take all steps necessary pursuant to the applicable Nevada statutes
and regulations to participate in the Nevada Renewable Energy law system of PECs. This
includes but is not limited to filing an application for participation with the Commission.
9.4 Seller shall take all steps necessary to comply with the applicable Nevada statutes
and regulations governing the Nevada Renewable Energy law PEC system, including but not
limited to submitting meter readings, performing necessary accounting, and submitting quarterly
and annual reports.
9.5 If the option in paragraph 2.2 is exercised, Seller shall deliver to Buyers the PECs
associated with the renewable capacity and gross energy output from the Rye Patch Project in
accordance with the applicable Nevada statutes and regulations then in effect.
9.6 The Parties agree to cooperate in the certification, allocation, and transferring of
PECs under the applicable Nevada statutes and regulations governing the Nevada Renewable
Energy law REC system.
ARTICLE 10
SCHEDULING
10.1 Seller's operating representative shall be available to address and make decisions
on all operational matters under this Agreement on a twenty-four (24) hour, seven (7) day per
week basis. To accomplish this, Seller shall, at its expense, maintain and install a
communication link with Buyers operating representatives and schedulers to maintain
communications between these personnel at all times. At a minimum, Seller will provide at its
expense:
(a) a telecommunications circuit from the Rye Patch Project to the Buyers
operations center and those of its Scheduling Coordinators for the purposes of
telemetering;
(b) two dedicated ringdown voice telephone lines for purposes of accessing
Buyers dial-up metering equipment and for communications with Buyers operations
center; and
(c) equipment to transmit and receive facsimiles and email to and from
Buyers and Buyers Scheduling Coordinators.
10.2 Due to the nature of the product being sold and purchased pursuant to this
Agreement, Seller shall provide to Buyers designees Forecast and Availability Notice
information, including Seller's good faith Forecast of the Delivered Energy Quantity, Planned
Outage(s), Derating, and other similar changes that may affect the Delivered Energy Quantity.
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(a) Forecast:
(i) As soon as practicable but no later than thirty (30) days before the
Commercial Operation Date, Seller shall provide to Buyers designees an annual
schedule of Scheduled Energy deliveries, on an average hourly basis, for each of
the following twelve (12) calendar months. Such annual schedule shall also
include the schedule for Planned Outage(s). No later than the anniversary of the
Commercial Operation Date, Seller shall provide Buyers with a forecast for the
following 12 months.
(ii) Thereafter, on or before the twenty fifth of each month during the
Contract Term, Seller shall provide to Buyers a monthly schedule of Scheduled
Energy deliveries, on an average hourly basis for the following month and shall
also provide such other information at such times as are required by Sierra Pacific
Power Company's GATT.
(iii) Should unforeseen conditions arise that might or which do require
changes in the Forecast, Seller shall notify Buyers designees of said changes or
outages as soon as known.
(b) Availability Notice:
(i) In accordance with WECC rules and procedures, Seller shall
provide to Buyers in sufficient time for Buyers Scheduling Coordinator(s) to
notify Buyers Transmission Provider an Availability Notice.
(ii) The information in the Availability Notice shall be Seller's good
faith forecast and will indicate any dispatch hour for which the Delivered Energy
Quantity is expected to be less than the Scheduled Energy amount.
(iii) If the Delivered Energy Quantity is less than the forecasted amount
due to a Derating or any other reason, Seller shall provide the magnitude of the
decrease, the hours during which the decrease is expected to apply, and the cause
of the decrease.
(iv) Buyers Scheduling Coordinator shall make best efforts to
implement Seller's schedule changes as soon as possible.
10.3 Delivery Schedule:
(a) Based on the information in the Availability Notice and Buyers energy
needs, and in accordance with the WECC rules and procedures, Buyers designees shall
deliver to Seller's Scheduling Coordinator a Delivery Schedule.
(b) The information in the Delivery Schedule shall indicate for each dispatch
hour, the Delivered Energy Quantity to be delivered to the Delivery Point.
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(c) The Seller's Scheduling Coordinator shall make best efforts to implement
the necessary adjustments to the Delivered Energy Quantity to be delivered to the
Delivery Point.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification: To the greatest extent allowed by law, each Party agrees to
indemnify, defend and hold harmless the other Party, and any of said other Party's affiliates,
directors, officers, employees, agents, and permitted assigns, from and against all claims, losses,
liabilities, damages, settlements, judgments, awards, fines, penalties, costs, and expenses,
including reasonable attorneys' fees directly incurred in connection with or directly arising out of
any action, suit, administrative proceeding, investigation, defense, audit or other proceeding
brought by any person or entity, including any governmental entity, and any settlement or
compromise thereof, incurred by a Party, whether or not involving a third party claim, which the
Party suffers, sustains, or becomes subject to, as a result of:
(a) any breach of or failure to perform any covenant or agreement in this
Agreement by said Party;
(b) any failure to comply with applicable law, regulation or order by said
Party; and
(c) any claim of one Party's employees or affiliates' employees against the
other Party or the other Party's affiliates, which such employees could not ordinarily
bring against the Party due to applicable workers' compensation laws, and which claims
relate to or arise out of the performance by the Parties under this Agreement.
ARTICLE 12
FORCE MAJEURE
12.1 Force Majeure: Any event or occurrence beyond the reasonable control of and
without the fault or negligence of the Party claiming Force Majeure, including, but not limited to
acts of God, strike, earthquake, storm, fire, lightning, epidemic, war, riot, civil disturbance,
sabotage, acts of the public enemy, explosion, change by a federal, state or local legislative,
executive, administrative or judicial agency or body, including without limitation any failure to
issue, or delay in issuance of, any required permit of authorization, which, in any of the
foregoing cases, by exercise of due diligence such Party could not reasonably have been
expected to avoid, and which wholly or in substantial part prevents such Party from performing
an obligation under this Agreement.
12.2 Exceptions: The following are excluded from being a Force Majeure event or
occurrence:
(a) an event or occurrence that may result in the non-availability of the
resource supply needed to generate electricity at the Rye Patch Project;
(b) market shifts; or
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(c) the financial inability of a Party.
12.3 A Party shall be excused from performing its obligations under this Agreement
and shall not be liable in damages or otherwise to the other Party if and to the extent such Party
declares that it is unable to perform or is prevented from performing an obligation under this
Agreement by a Force Majeure condition, except for any obligations and/or liabilities under this
Agreement to pay money, which shall not be excused, and except to the extent an obligation
accrues prior to the occurrence or existence of a Force Majeure condition provided that:
(a) the Party declaring its inability to perform by virtue of Force Majeure, as
promptly as practicable after the occurrence of the Force Majeure condition, but in no
event later than five (5) days thereafter, gives the other Party written notice describing, in
detail, the nature, extent and expected duration of the Force Majeure condition;
(b) the suspension of performance is no greater in scope and of no longer
duration than is reasonably required by the Force Majeure condition;
(c) the Party declaring Force Majeure uses all commercially reasonable effort
to remedy its inability to perform; and
(d) as soon as the Party declaring Force Majeure is able to resume
performance of its obligations excused as a result of the Force Majeure condition, it shall
give prompt written notification thereof to the other Party.
12.4 Notwithstanding the foregoing, this Agreement may be terminated if a Force
Majeure event or occurrence wholly or in substantial part prevents Seller from performing the
terms of this Agreement for ninety(90) consecutive days.
ARTICLE 13
INSURANCE
13.1 General Requirements: Seller shall maintain at all times, at its own expense,
general/commercial liability, workers' compensation, and other forms of insurance relating to its
property, operations, and facilities in the manner and amounts set forth herein from the Effective
Date of this Agreement. Seller shall maintain coverage on all policies written on a "claims
made" or "occurrence" basis. If converted to an occurrence form policy, the new policy shall be
endorsed to provide coverage back to a retroactive date acceptable to Buyers.
13.2 (Qualified Insurers: Every contract of insurance providing the coverage required
herein shall be with an insurer qualified to do business in the state of Nevada and with the
equivalent, on a continuous basis, of a "Best Rating" of "A" or better and shall include
provisions or endorsements:
(a) stating that such insurance is primary insurance with respect to the interest
of the Buyers and that any insurance maintained by Buyers is excess and not contributory
insurance required hereunder;
671866.6 11
DRAFT - 3
(b) stating that no reduction, cancellation, or expiration of the policy shall be
effective until ninety (90) days from the date notice thereof is actually received by
Buyers; provided that upon Buyers receipt of any notice of reduction, cancellation, or
expiration, Buyers shall immediately provide notice thereof to Seller;
(c) endorsed to name Buyers as an additional insured on the general liability
insurance policies of Seller as its interests may appear with respect to this Agreement.
13.3 Certified Copies of Insurance Policies: At Buyers request, Seller shall deliver to
Buyers a copy of each insurance policy, certified as a true copy by an authorized representative
of the issuing insurance company.
13.4 Inspection of Insurance Policies: Buyers shall have the right to inspect the
original policies of insurance applicable to this Agreement at the Seller's place of business
during regular business hours.
13.5 Seller's Minimum Insurance Requirements:
(a) Workers' Compensation: Workers' compensation insurance in
accordance with statutory requirements including employer's liability insurance with
limits of not less than $1,000,000 per occurrence;
(b) General Liability: General liability insurance including bodily injury,
property damage, products/completed operations, contractual, and personal injury
liability with a combined single limit of at least $2,000,000 per occurrence and at least
$5,000,000 annual aggregate; and
(c) Automobile Liability: Automobile liability insurance including owned,
non-owned, and hired automobiles with combined bodily injury and property damage
limits of at least 2,000,000 per occurrence and at least $2,000,000 aggregate.
13.6 Failure to Comply: If Seller fails to comply with the provisions of this Article,
Seller shall hold harmless and indemnify Buyers from any direct or indirect loss or liability,
including attorneys' fees and other costs of litigation, resulting from the injury or death of any
person or damage to any property if Buyers would have been protected had Seller complied with
the requirements of this Article.
ARTICLE 14
DISPUTE RESOLUTION
14.1 Dispute: Any action, claim, or dispute which either Party may have against the
others arising out of or relating to this Agreement or the transactions contemplated hereunder, or
the breach, termination, or validity thereof ("Dispute") shall be submitted in writing to the other
Party(s). The written submission of any Dispute shall include a concise statement of the question
or issue in dispute together with a statement listing the relevant facts and documentation that
support the claim.
671866.6 12
DRAFT - 3
14.2 Good Faith Resolution: The Parties agree to cooperate in good faith to expedite
the resolution of any Dispute. Pending resolution of a Dispute, the Parties shall proceed
diligently with the performance of their obligations under this Agreement.
14.3 Informal Negotiation: The Parties shall first attempt in good faith to resolve any
Dispute through informal negotiations by the designated representatives and senior management
of each Party.
14.4 Arbitration and Waiver: Each Party hereby waives and renounces any right to
seek a court action based on any Dispute arising out of this Agreement. Any Dispute, which has
not been resolved through informal negotiation within thirty(30) calendar days of the date either
Party gives written notice to the other that it believes informal negotiation has failed, shall finally
be settled by binding arbitration in accordance with the rules of the American Arbitration
Association then in effect, and judgment on the award may be entered in any court in the state of
Nevada having jurisdiction.
ARTICLE 15
REPRESENTATIONS AND WARRANTIES
15.1 Representations and Warranties of Seller: The Seller represents and warrants to
the Buyers as follows:
(a) Organization: The Seller is a limited liability company duly organized,
validly existing and in good standing under the law of the state of and has all
requisite power and authority to own, lease, and/or operate its properties and it's Rye
Patch Project and to carry on its business as is now being conducted. The Seller is duly
qualified or licensed to do business as a limited liability company and is in good standing
in each jurisdiction in which the property owned, leased or operated by it or the nature of
the business conducted by it makes such qualification necessary.
(b) Authority Relative to this Agreement: The Seller has full authority to
execute, deliver, and perform this Agreement and to consummate the transactions
contemplated herein and has taken all actions necessary to authorize the execution,
delivery and performance of this Agreement. No other proceedings or approvals on the
part of the Seller are necessary to authorize this Agreement. This Agreement constitutes
a legal, valid, and binding obligation of Seller enforceable in accordance with its terms.
(c) Permits, Authorizations, Leases, Grants, etc.: Seller has applied for or will
promptly apply for or has received the permits, authorizations, leases, grants, etc.
required by Seller to construct and operate the Rye Patch Project and to fulfill its
obligations under this Agreement.
(d) Consents and Approvals: The execution, delivery and performance of this
Agreement by the Seller shall not
(i) conflict with or result in any breach of any provision of the articles
of organization(or other similar governing documents) of the Seller; or
671866.6 13
DRAFT - 3
(ii) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental authority.
(e) Availability of Funds: Seller has, or will have, and shall maintain
sufficient funds available to it to perform all obligations under this Agreement and to
consummate the obligations contemplated pursuant thereto.
(f) Interconnection Cost Due Diligence: Seller has conducted due diligence
regarding the costs of all facilities necessary to interconnect the Rye Patch Project to the
Delivery Point.
(g) Title: Seller owns all the geothermal capacity and net energy output from
the Rye Patch Plant and the associated PECs and has the right to sell such capacity,
energy output, and associated PECs to Buyers. Seller will convey good title to the
capacity, energy output, and associated PECs to the Buyers free and clear of any liens or
other encumbrances or title defects, including any which would affect Buyers ownership
of any portion of such capacity, energy output, and associated PECs or prevent the
subsequent transfer of any portion of such capacity, energy output, and associated PECs
by Buyers to a third party.
(h)
15.2 Representations and Warranties of Buyers: The Buyers represent and
warrants to the Seller as follows:
(a) Organization: The Buyers are
(b) Authority Relative to this Agreement: The Buyers have full authority to
execute, deliver, and perform this Agreement and to consummate the transactions
contemplated herein and have taken all actions necessary to authorize the execution,
delivery and performance of this Agreement. No other proceedings or approvals on the
part of the Buyers are necessary to authorize this Agreement. This Agreement constitutes
a legal, valid, and binding obligation of Buyers enforceable in accordance with its terms.
(c) Consents and Approvals: The execution, delivery and performance of this
Agreement by the Buyers shall not
(i) conflict with or result in any breach of any provision of the articles
of organization(or other similar governing documents) of the Buyers; or
(ii) require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental authority.
ARTICLE 16
NOTICES AND OTHER COMMUNICATIONS
16.1 Except as otherwise provided herein, all notices, demands, requests or other
correspondence required or permitted under this Agreement shall be in writing and shall be sent
671866.6 14
DRAFT - 3
by express mail, hand delivery, facsimile, or E-mail (with the original of any facsimile or E-mail
being sent by overnight delivery for record purposes only and without affecting the validity of
the facsimile or E-mail) addressed as follows:
If to Buyers:
PSREC TDPUD
Scheduling Coordinator contact
here
If to Seller:
Richard K. Ellis
Presco Energy, LLC
7400 East Orchard Road, Suite 150
Englewood, Colorado 80111
Phone: 303-771-8551
Fax: 303-771-9514
E-mail: rkellis@quest.net
ARTICLE 17
MISCELLANEOUS
17.1 Entire Agreement, Amendments, and Counterparts: The terms of this Agreement
constitute the entire agreement between the Parties with respect to the matters set forth in this
Agreement and may be changed only by written agreement executed after the date hereof by the
Parties. This Agreement and any amendment thereto may be executed and delivered in
counterparts, each of which shall be deemed an original.
17.2 Financial and Credit Guarantees: No Party shall be required to post any financial
guarantees or maintain any credit standard. It is the intent of the Parties that the Purchase Price
has been discounted sufficiently to reflect that the product being sold may not be financially
firm.
17.3 Tax Credits: Seller shall be entitled to retain any and all associated tax credits
arising from the development or operation of the Rye Patch Project. The Purchase Price has
been discounted sufficiently to reflect the retention by Seller of the associated tax credits.
17.4 No Waiver: No waiver by any Party of any one or more defaults by the other
Party(s) in the performance of any of the provisions of this Agreement shall operate or be
671866.6 15
DRAFT - 3
construed as a waiver of any other default or defaults whether of a like kind or different nature.
No delay by either Party in the enforcement of any of its rights under this Agreement shall be
deemed a waiver of such rights.
17.5 No Partnerships: This Agreement shall not be interpreted or construed to create
an association,joint venture, agency relationship, or partnership between the Parties or to impose
any partnership obligation or liability upon other Parties. No Party shall have any right, power or
authority to enter into any agreement or understanding for, or act on behalf of, or act as or be an
agent or representative of, or to otherwise bind, any Party.
17.6 Headinas: The headings used for the Articles and Paragraphs herein are for
convenience only and shall not affect the meaning or interpretation of the provisions of this
Agreement.
17.7 Governing Law: This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Nevada without regard to principles of conflicts of laws.
17.8 No Third Party Beneficiaries: This Agreement confers no rights whatsoever upon
any person other than the Parties and shall not create, or be interpreted as creating, any standard
of care, duty or liability to any person not a Party hereto.
17.9 BindingEffect:ffect: This Agreement shall be binding on and inure to the benefit of
the Parties and their respective successors and permitted assigns, except as expressly provided in
this Agreement.
17.10 Assi ng ment:
(a) Buyers may, without consent of Seller, assign this Agreement or assign or
delegate its rights and obligations under this Agreement, in whole or in part, if such
assignment is made to an affiliate, parent, subsidiary, Scheduling Coordinator or
successor.
(b) Seller may assign this Agreement as follows:
(i) Seller may, with the written consent of Buyers, with such consent
not unreasonably delayed or withheld (and without relieving itself from liability
hereunder), (i) transfer, pledge, encumber, or assign this Agreement or the
account, revenues or proceeds hereof in connection with any financing or other
financial arrangements and (ii) transfer or assign this Agreement to an affiliate.
(ii) Seller may, with the written consent of Buyers, with such consent
not unreasonably delayed or withheld, assign this Agreement to a successor of all
or substantially all of the assets of such Party by way of merger, consolidation,
sale or otherwise, provided such successor assumes and becomes liable for all of
such Party's duties and obligations hereunder.
(iii) Buyers shall respond in writing to Seller's request to assign this
Agreement within forty-five (45) days.
671866.6 16
DRAFT - 3
(c) Except as stated above, neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by either party, including by
operation of law, without the prior written consent of the other Party, said consent not to
be unreasonably withheld or delayed. Any assignment of this Agreement in violation of
the foregoing shall be, at the option of the non-assigning Party, void.
(d) This Agreement and all of the provisions hereof are binding upon, and
inure to the benefit of, the Parties and their respective successors and permitted assigns.
17.11 Severability: The provisions of this Agreement are not severable and in the event
any provision of this Agreement is found invalid or unenforceable by a court of competent
jurisdiction, the entire Agreement shall be deemed void.
IN WITNESS WHEREOF, the Parties have executed this Agreement, or caused it
to be executed by their duly authorized officers or agents as of the date written below.
Plumas Sierra REC PRESCO ENERGY,L.L.C.
By: By:
Name: Name:
Title: Title:
Date: Date:
Truckee Donner PUD
By:
Name:
Title:
Date:
671866.6 17
PRESCO
ENERGY
COMPANY SUMMARY AND PRINCIPALS
Presco Energy, LLC is a Nevada Limited Liability Company formed for the
specific purpose of acquiring, developing, managing and operating the Rye Patch-
Humboldt House Project for its two members, Presco, Inc. and its affiliate, WEPCO
Energy, LLC. Both are resource companies with a long history in the domestic oil and
gas business. Presco, Inc., including its affiliated and predecessor companies, has a 40-
year history of successful resource development in several areas of the domestic onshore.
The Company,through its founder Art Preston, developed substantial oil and gas reserves
in northern Michigan (Niagaran Reef play) and south Louisiana (co-discoverer of the
giant South Lake Arthur gas-condensate field in 1979). The hallmark of Company
success has been the application of sound business principles and risk management, use
of state-of-the-art technologies and development of a strong, area-specific knowledge
base.
Presco and its affiliates have embarked on an aggressive program of exploration
and development in unconventional reservoirs, and today have active development
programs in Texas, Oklahoma, Arkansas, Mississippi and Colorado. The Rye Patch-
Humboldt House Project is a natural extension of our core resource development
business, and our commitment of capital and resources is reflective of this.
Summary backgrounds for the principals are as follows:
Arthur Preston,Chairman
Mr. Preston has wide-ranging business interests in several industries, but principal
focus over the past four decades in resource development. After graduating from the
University of Illinois, he began his career as a geologist, developing expertise in
exploration and production operations in the Illinois basin. He and his brothers formed a
family company in the early 1970's that developed a history of successful exploration
and reserves development and production, primarily in Michigan and south Louisiana.
They were early participants in several prolific discoveries in the Niagaran Reef Trend of
northern Michigan, and made substantial sales of producing assets in the early 1980's to
Total Petroleum. The Preston companies are credited with the co-discovery and
development of one of the largest gas fields found in south Louisiana; the South Lake
Arthur Field will ultimately recover nearly one trillion cubic feet of gas. The Company
continues its focus in Louisiana to this day, participating in two recent discoveries of
significant size with partners Hunt Oil and PetroHunt(over 300 billion cubic feet of gas).
Mr. Preston provides leadership, vision and strategic focus to Presco Energy's
efforts at Rye Patch-Humboldt House, and was responsible for the initial contact and
negotiations to acquire the Project.
PRESCO
ENERGY
AAW
Richard Ellis,President
Mr. Ellis has undergraduate and graduate degrees in geology, mathematics and
law, and began his career in 1977 with Chevron after graduating from the University of
California at Berkeley. He became independent in 1985, working with several
independent companies in a technical and business capacity to generate, acquire and
develop oil and gas reserves in basins in the Rockies, Mid-Continent and California. His
29 years of experience span all phases of the resource business: technical, economic,
business and legal. He has had particular success in the development and exploitation of
large resource projects in the Rockies and Mid-Continent. Mr. Ellis is an acknowledged
(and published) expert in fractured and low-permeability reservoirs, having initiated
several regulatory changes in the San Juan and Williston basins that enhanced the
economic viability of fractured reservoir development. He is currently developing
several unconventional projects, principally in coalbed methane and shale gas reservoirs,
in domestic basins.
Mr. Ellis has been involved with the Rye Patch-Humboldt House Project from
Presco Energy's inception, conducted the primary due diligence, financial modeling and
negotiation for the acquisition, and is responsible for implementation of the development
and expansion strategy. His particular expertise is in technical and economic analysis,
and project acquisition, development, and funding, drawing on years of experience
bringing in financial and industry partners at appropriate stages to complete project
development.
David Wheeler,Executive Vice President and CFO
Mr. Wheeler has over 30 years of experience in the areas of finance and
accounting, primarily in the oil and gas industry. Mr. Wheeler, a CPA and graduate of
Texas A&M University with a degree in Economics, began his career with Deloitte
Haskins & Sells (now Deloitte & Touche, LLP). For over ten years with this public
accounting firm, he specialized in oil and gas accounting and auditing, and was involved
in initial public offerings and periodic reporting to the SEC by public oil and gas
companies.
After leaving public accounting, Mr. Wheeler spent approximately 9 years with
GOTCO, Ltd., a spin-off company from the Gulf-Chevron merger in 1985, or derivative
companies, initially as internal auditor and later as chief financial officer, also serving as
a director on the boards of certain of the subsidiary companies. These companies were
involved in crude oil and refined products trading, international shipping and lubricants
marketing. Mr. Wheeler also spent two years as an independent international financial
consultant working on projects in India, Austria, Chile, Argentina and Panama. During
the past six years, Mr. Wheeler has served as Executive Vice President of Presco, Inc.,
member of Presco Energy, LLC, and is the financial advisor to Mr. Preston. Mr. Wheeler
shares responsibility for the financial, strategic and business supervision of Presco
Energy's geothermal projects.
PRESCO
ENERGY
IAW
David Mendive,Principal Consultant and Advisor
Mr. Mendive is Vice President of Geothermal Development Associates, and
coordinates all engineering work, including oversight, design and construction, for the
Rye Patch plant and wellfield. His educational background includes electrical
engineering degrees at the undergraduate and graduate levels, and he has taught courses
in power systems and network analysis at the University of Nevada at Reno. His 32 years
of experience includes work in all phases of power system design and construction;
power contract (PPA) development, review, and negotiations; utility interconnection
studies and negotiations; power market evaluation and load projections; formulation of
economic models and development plans; technical review and support in relation to
project financing; project management; project start-up supervision; operator training;
electrical engineering; instrumentation and control system design.
As the principal engineer on the Rye Patch Project, he has direct responsibility for
the completion of the plant, and has developed an aggressive schedule to accomplish this,
drawing on his extensive experience with other geothermal projects.
Albert Waibel,Principal Consultant and Advisor
Mr. Waibel is President of Columbia Geosciences, was instrumental in Presco's
acquisition of its Rye Patch-Humboldt House assets and lease position, and provides
principal technical direction to Presco's expanded exploration program at RP-HH. He
has over 35 years of experience in geothermal exploration, ranging from regional
reconnaissance to wellfield development, and has conducted geothermal exploration
programs in North America, Asia, Africa and Europe. He has experience with 28
geothermal projects in nine states, including seven projects in Nevada. Mr. Waibel was a
staff member of the Department of Geological Sciences at Southern Methodist University
after graduating from Portland State University. Mr. Waibel is currently President of the
Pacific Northwest Section of the Geothermal Resources Council.
David Blackwell,Principal Consultant and Advisor
Dr. Blackwell is Professor of Geophysics in the Department of Geological
Sciences at Southern Methodist University in Dallas, Texas. He graduated with B.S.
degrees in geology and mathematics from Southern Methodist University in 1963. He
completed his Ph.D. in geophysics at Harvard University in 1967. He founded the Heat
Flow Laboratory within the Department of Geological Sciences at SMU in 1971. Under
his leadership, the Heat Flow Lab became recognized worldwide as a leading research
center for geothermal exploration. Dr. Blackwell is a founding member of the
Geothermal Resources Council, a past president of the Council, and is currently a board
member of the Council. He and Mr. Waibel have principal responsibility for Presco's
resource confirmation program in the greater RP-HH.
RYE PATCH-HUMBOLDT HOUSE
POWER PROJECT
Pershing County, Nevada
Power Generation and
Geothermal Resource Development
PRESCO
M
ENERGY
I"
7400 East Orchard Road, Suite 150
Englewood, Colorado 80111
(303) 771-8551
TABLE OF CONTENTS
TABLEOF CONTENTS...............................................................................................2
INTRODUCTION AND SUMMARY..............................................................................4
GEOTHERMAL INDUSTRY BACKGROUND AND HISTORY........................................11
ELECTRICITY MARKETS AND FUNDAMENTALS.......................................................IS
Sierra Pacific Average Portfolio Prices and Costs...............................................................................18
RenewableEnergy Development.........................................................................................................18
Nevada's Renewable Portfolio Standard(RPS)...................................................................................21
RYE PATCH - HUMBOLDT HOUSE PROJECT............................................................23
History...................................................................................................................................................23
RESOURCEPOTENTIAL..........................................................................................27
ResourceCharacterization...................................................................................................................27
Geology................................................................................................................................................28
Temperature.........................................................................................................................................29
WELL CAPACITIES AND RESERVOIR ENGINEERING..............................................31
PriorDrilling Results.............................................................................................................................31
ExistingCapacity..................................................................................................................................31
The72-28 Well.....................................................................................................................................34
ReservoirTest and Modeling................................................................................................................36
TestProtocol.........................................................................................................................................36
Modeling and Characterization-Conclusions......................................................................................36
RESERVESESTIMATE............................................................................................38
ProbabilisticForecast...........................................................................................................................40
POWERGENERATION............................................................................................42
PlantOperation.....................................................................................................................................42
OperatingEfficiencies...........................................................................................................................46
ECONOMICEVALUATION.......................................................................................48
ProForma Model..................................................................................................................................48
PowerOutput........................................................................................................................................48
CapitalCosts........................................................................................................................................49
Operating and Maintenance Costs.......................................................................................................49
Royalties,Taxes and Other Payments.................................................................................................49
EnergyPrice and Terms.......................................................................................................................50
ModelResults.......................................................................................................................................50
ProjectExpansion.................................................................................................................................50
REFERENCES.........................................................................................................54
APPENDIX.............................................................................................................56
CONFIDENTIAL INFORMATION AND DISCLAIMER
This Confidential Memorandum is provided to select companies for their exclusive use, and is not
to be distributed unless approved by Presco Energy, LLC. The materials contained herein provide a
compilation of data and the interpretation thereof related to a geothermal power generation project, and
as such constitute the best judgment of Presco Energy, LLC. Projects of this type and nature, however,
have certain intrinsic risks, including but not limited to the potential loss of a company's investment. In
addition, the actual results may be substantially different from those projected below. In view of the
limited transferability of interests, expertise required to properly evaluate this investment and risk of loss,
this project is considered appropriate for sophisticated and knowledgeable companies only.
2
INTRODUCTION AND SUMMARY
Pershing Renewables, LLC ("Pershing") is a joint venture between Presco Energy, LLC
("Presco") and its partner Western Biofuels Development, LLC ("WBD"). WBD has extensive
experience in the power and ethanol industries, and Presco has a long history of successful resource
development in the domestic U.S. Pershing is developing a "geo-ethanol" project at Presco's wholly-
owned Rye Patch-Humboldt House geothermal site in northwestern Nevada. The site was selected for its
proven capacity for power generation, with an existing geothermal plant (nominal 17 megawatts) and
potential for expansion to 60 to 80 megawatts on Company-owned lands. The Pershing business model
uses renewable energy—the Rye Patch geothermal plant and its expansions—to provide power and heat
to ethanol facilities to be built on the property, dramatically reducing the cost-of-energy required to
produce ethanol and its byproducts,distiller's grains(DDGS)and food-grade COZ. The co-location of the
renewable power and ethanol production facilities at the Nevada site provides ready access to the largest
domestic markets for ethanol and its co-products; California and Nevada collectively use over 1.2 billion
gallons of ethanol annually,with these volumes projected to increase dramatically over the next decade.
The Pershing Project — Pershing Renewables I - is thus fundamentally different from the
traditional ethanol facilities built in the Midwest grain-producing areas: its destination location provides
access to renewable power— conventional power for traditional plants is recently as high as 25-30% of
operating costs — and the significant competitive advantage of marketing the ethanol and co-products
directly and cost-effectively to the largest users of these products. Further, the Pershing business model
uses renewable energy to create a renewable fuel, establishing a sustainable advantage over traditional
plants which, though currently enjoying high cash flows, have much higher production costs. While the
market projections for ethanol remain optimistic, being a sustainable low-cost producer is a worthy and
primary goal of any capital stakeholder.
Selecting the correct site to implement this business model requires expert knowledge of the
geothermal resource and its development, as well as the infrastructure and material requirements of the
ethanol process and facility. Only a few such sites can be found, the most attractive of which is
Pershing's Rye Patch property. Here,all the necessary elements are present and optimal:the UPRR main
line, Interstate 80, the Paiute gas pipeline (Southwest Gas) and Humboldt River run through the property.
Pershing has acquired all surface,mineral and water rights, as well as permits, for the existing geothermal
plant, and the initial 50-million-gallon-per-year(MMGPY) ethanol facility is scheduled for permitting in
the next few months.
A traditional dry-mill corn plant producing ethanol has direct energy costs of approximately
$0.385 per gallon of ethanol produced, with these costs likely to escalate for the foreseeable future. The
"geo-ethanol" facility produces all the products of a traditional plant—ethanol and distiller's grains—but
can also process the COz co-product to "food-grade"simply by using excess Project power(at little or no
cost). The revenues derived from the marketing of this co-product easily cover the incremental costs of
transporting grain to the destination plant (no more than $0.30 per gallon produced). The "proximity
advantage"of a location adjacent to the nation's largest markets is significant: at least$0.07 per gallon for
ethanol and $25 per ton for DDGS. The result is optimal value creation: sales of excess power, ethanol
and co-products from a facility with the lowest production costs in the industry ensure high, sustainable
returns to the stakeholders.
4
r.V .
The Rye Patch-Humboldt House Project Site
Rye Patch I, the initial geo-ethanol facility to be built at the Rye Patch-Humboldt House site, is
being developed to reach financial closing in the fourth quarter of 2006. The superior nature of this site
and business opportunity lay in the following:
• Rye Patch I is located on 13,600 fee and lease acres along a major transportation and utility
corridor in the heart of Nevada cow country, with abundant water and the rights to use such
water available.
o Interstate 80, the main east-west artery in the northern portion of the interstate system,
crosses the property.
o The mainline of the Union Pacific Railroad also crosses the property, affording the most
cost-effective method by which corn can be transported from low-cost Midwest growing
areas.
• The site has an existing geothermal power plant and wellfield, 85 to 90% complete, which will
be producing and selling electricity through its interconnect with a 120 kV transmission line on
the Sierra Pacific grid before and during the construction of the ethanol facility. In fact, this
power unit will be online,selling power and generating revenues before the financial closing.
• One hundred percent (100%) of the business venture and assets are owned and controlled by
Pershing. These assets, including the lands owned and controlled, will be contributed and
dedicated solely to the geo-ethanol venture.
• The geothermal resource owned and controlled by Pershing has been"certified"by a preeminent
industry evaluation firm to have proved and potential capacity of at least 36 megawatts at the
Rye Patch plant. A 50 MMGPY dry mill facility, processing its COz to "food grade", requires
approximately eight megawatts, making the expansion potential of this location clearly evident.
It is the overall strategy of Pershing to develop total geo-ethanol capacity of 250 MMGPY at this
site,using cash flow from the initial 50 MMGPY facility to support an aggressive expansion.
Rye Patch 1 Project Characteristics
Proven technologies will be used in the Rye Patch dry mill ethanol facility, and the geothermal
plant has been built to exacting industry standards for the resource. The following key alliances are
considered essential for Project design,construction,performance and ultimate financial success:
1. A 50 MMGPY dry mill corn facility is being designed by Lurgi PSI, Inc(Lurgi)using traditional
dry mill processing technologies.
a. Lurgi was selected for the design and process engineering because of its extensive
international experience in process engineering, and to ensure the geothermal and ethanol
processes are properly integrated and optimized.
b. Lurgi is a $4 billion per year business, with no debt; its corporate guaranty of the
performance criteria in the final EPC agreement, and all performance criteria of this
venture, assures the stakeholders a secure investment outcome.
2. The DeBruce Companies (DeBruce) are being engaged as the grain accumulation partner and
marketer of the DDGS for Rye Patch 1.
5
a. DeBruce is a $2+ billion per year grain accumulator, with 25 grain facilities throughout the
Midwest. These facilities are optimally located to support the demands of Rye Patch I and its
subsequent expansions.
b. As the largest agricultural shipper on the Union Pacific, DeBruce can assure the lowest cost-
per-bushel transportation costs, from its grain facilities in the lowest-cost grain areas, to Rye
Patch I.
c. A unit train loader/unloader will be constructed on the Rye Patch I site to assure unit train
rates-the cheapest contractual rates available-not only for the inbound corn,but also for the
outbound ethanol,DDGS and COz.
d. All grain provided by DeBruce will be at DeBruce's cost, with the relationship between
Pershing and DeBruce defined as a service agreement, with monthly service fee payments for
all of the grain and risk management services. All grain will be subject to aggressive risk
management strategies, with DeBruce using its positions on the CBOT and the KCBOT to
assure the best prices for Project grain.
e. DeBruce will apply its extensive experience in grain handling and facilities' design to assure
the grain and DDGS handling is optimal for the site. This service will assure the lowest-cost
grain facility bids and expedited material handling for the Project. Its demonstrated ability to
negotiate with Union Pacific offers a sustainable advantage for the Project.
f. Silo storage for two million bushels of corn will be provided on site, with additional ground
storage available,to assure any rail delays in corn shipment do not result in the interruption of
ethanol production.
g. DeBruce's experience and knowledge of the DDGS market, specifically as a valuable
supplier to the animal feed market,will assure maximum net returns for the Project.
3. Current discussions have revealed a large demand for the ethanol products to be produced by this
Project. Although the Project pro forma assumes all of the ethanol will be sold in the California
markets,the State of Nevada is reviewing several incentives to local blenders which would favor
the use of Nevada-produced ethanol. Currently, without any state mandate, Nevada consumers
use approximately 165 MMGPY of ethanol annually, all of which is transported by rail from
western Nebraska.
4. The local communities and Pershing County welcome this business development and have
committed their support for the Project, both in its initial phase and future expansion. All of the
required local permitting and zoning will be in place prior to financial closing.
5. Both state agencies and representatives are supportive and aggressively courting the near-term
completion of this Project. The U.S. Senate Minority Leader, Harry Reid, has used the term
"geo-ethanol facilities" in federal legislation supporting a broader ethanol initiative. His support,
as well as the support of the Nevada Governor, his staff and all relevant agencies, assures the
required state permits and approvals will be issued before financial closing.
6. All required permits and interconnection agreements are in place for the geothermal plant and
substation,clearing the way for power sales into the spot market immediately upon completion.
Our primary and immediate goal is to fund the Project with an appropriate financial partner or
partners. We encourage your interest, and will provide additional information and meet with your
principals as soon as appropriate.
6
The Rye Patch Geothermal Power Project is located in northwest Nevada, approximately
120 miles northeast of Reno (Figure 1). Presco Energy acquired the plant, wells, leases and
related Project assets in July of 2001, and expanded its lease position to cover essentially all of
the Rye Patch Known Geothermal Resource Area, or KGRA (Figure 2). The plant and wellfield
are currently 80 to 85 percent complete, and were designed to operate at a nominal sales capacity
of 12.7 megawatts. Presco has implemented a comprehensive plan for the completion and start-
up of renewable power sales by the 2nd Quarter of 2005 (Figure 3).
A new well completed in 2001 - the 72-28 - tested up to 2.1 million pounds of fluid per
hour at 300' Fahrenheit, making it one of the largest geothermal wells completed in Nevada. An
extended testing and modeling sequence for the production wells is now complete. The reservoir
analysis from the test was used to certify the power output from the binary plant, and is an
important element of the final design process and power sales agreement.
As an independent power producer (IPP), Presco has a number of options available for
the sale of its renewable power, including sales to Sierra Pacific, local utility and owner of the
transmission system, or sales through Sierra, using their transmission system to "wheel" power
to northern Nevada, Utah and California markets. Recent Nevada legislation repealed
deregulation (SB369) and expanded the state's Renewable Portfolio Standard (RPS) to require
that all generators and sellers have a minimum of five percent of power from renewable sources,
including geothermal energy, by the end of 2002 (SB372). This number escalates in biennial
increments to 15 percent by the year 2013. In addition, California's RPS was recently doubled
(S1038), making it likely utilities and generators will pursue Nevada baseload renewable power
with some alacrity. Direct power sales from IPPs to large commercial and industrial customers
(the so-called "exiting customers" under A13661) are now possible in Nevada, and renewable
generators can sell "renewable credits", with or without the energy, to Nevada utilities or
generators obligated to meet the RPS.
During the initial plant construction in 1993 and 1994, the prior owners completed the
Star Peak substation tying the plant to Sierra's 120 kV transmission line from Winnemucca to
Oreana (Figure 1). The Interconnection and Operating Agreement in place at the time has been
updated and completed for current line requirements. The 120 kV line has ample capacity, as
loads are hovering in the 50 to 70 percent range (area mining operations have undergone
expansion due to higher commodity prices).
The Project is located in the Rye Patch KGRA, originally identified in the 1970's by
Phillips Petroleum, which embarked on an extensive program of temperature gradient and
exploratory drilling. The geothermal resource was found to have a high-temperature component,
with temperatures in excess of 470 degrees Fahrenheit. Initial resource development and plant
construction were commissioned years later, in 1992, by Ormat Energy Services, Inc. (OESI),
the domestic subsidiary of Ormat, Ltd., Israeli manufacturer of the turbine-generator sets used
7
A F, s
throughout the geothermal power industry, and its financial partner, General Electric Capital
Corporation (GECC). Long-term contract prices in the two- to three-cent per kilowatt-hour
(kwh) range, cost overruns (over $37 million invested) and poor exploration results forced a
shutdown of the Project, and the eventual transfer of the assets to a Nevada electric co-op, Mt.
Wheeler Power. Presco's background in resource development and the Project's large potential
drew it to the area in early 2001. The Project assets were purchased from Mt. Wheeler in July of
2001 after an extensive review and vetting process.
Presco and its operating group have assembled an experienced team of plant construction,
operations, drilling and completion personnel to bring the Project online. Each has extensive
experience in projects of similar size in Nevada and California, and has prepared detailed cost
estimates through start-up for all phases of the Project. Depending on the degree of automation,
plant operations will be staffed with six to eight full-time employees, including at least one
engineer-manager. The Company maintains an office in Reno to coordinate all field activities, as
well as handle administrative and accounting functions.
A market-based, rate-of-return approach was used to evaluate the full-cycle Project
economics for the initial plant and wellfield. Considerable effort was expended improving the
accuracy of the key components of plant and wellfield cost and expense. Estimates of G&A,
O&M, taxes, royalties and debt service indicate a project-average total "cost-of-energy" of
approximately 3.6 cents per kilowatt-hour(kwh), well below the industry average of 5.0 cents or
more. Total capital needs, including completion of plant and wellfield through start-up,
retirement of existing seller financing, and working capital and contingencies, are approximately
$12.9 million, or $806 per kilowatt of installed capacity, again well below the industry average
of $2,000 or more. Renewable power price premiums exist nationwide (Figure 4), but are
difficult to predict under the new Nevada RPS. The composite price for baseload renewable
energy and capacity is expected to be at or slightly below Sierra's portfolio-average cost of
power, which for 2002 was approximately 7.1 cents per kwh (includes both generated and
purchased power). Presco is completing a long-term power sales agreement with Sierra,which is
subject to approval by the Nevada Public Utilities Commission (PUCN). Under the proposed
contract, and over a 30-year Project life, project financial attributes - debt service coverage
ratios, rates-of-return, and return-on-equity - are excellent. In addition, the Rye Patch Project
qualifies for various Federal tax incentives, including the ITC and renewable PTC (1.8 cents per
kwh when the Energy Bill passes).
The Company's strategic plan calls for immediate funding and start-up of Rye Patch at
the 12.7-MW net sales level. An extensive temperature gradient drilling program was completed
in June, 2003, and will be used to site new development drilling in the northern portion of the
KGRA. Development of new geothermal resource over time is projected to add 50 to 100
megawatts of capacity,with future net cashflows of$380 to $750 million.
9
k'
GEOTHERMAL INDUSTRY BACKGROUND AND HISTORY
Although the direct use of geothermal heat for space heating dates to the nineteenth
century, commercial development of geothermal power generation began in the 1950's. Over
8,100 Megawatts (MW) of geothermal power generation capacity are now installed worldwide,
with over 3,000 MW in the U.S. alone(Figure 5).
Although small in comparison with total U.S. capacity requirements (0.4%, or the annual
energy equivalent of 60 million barrels of oil), the potential for geothermal power is quite large.
Geothermal heat, both hydrothermal and "hot dry rock" in origin, constitutes the largest energy
resource available on the planet, far surpassing the energy available from conventional sources
such as petroleum, natural gas and coal. The potential for the commercial use of this resource is
limited at present, and is dependent on power price, costs of development and the technologies
available to convert the energy to usable forms. The Energy Information Agency (EIA)
estimates known, accessible resources, almost exclusively hydrothermal in nature, at
approximately 23,000 MW worldwide. Undiscovered resources add 95,000 to 150,000 MW.
None of this capacity is considered commercial today at less than two cents per kilowatt-hour
(kwh), although at least 10,000 MW is commercial at prices of five cents per kwh.
Improvements in technology expected by 2020 are projected by the EIA to result in an additional
11
6,000 MW at prices less than two cents per kwh, 10,000 MW at less than three cents, and 19,000
MW at less than five cents. The growth of markets for geothermal power, and electricity from
renewable energy generally, arose out of concerns over domestic energy security, depleting
conventional reserves and the environmental impacts associated with fossil fuel plants. In spite
of competition from conventional technologies, geothermal power investment flourished in the
1980's on attractive prices, legislative mandates, tax incentives and support from Department of
Energy R&D programs(Figure 5).
INSTALLED CAPACITY
U.S. GEOTHERMAL FACILITIES
400 Summary by Year 4,000
1980-1990 PURPA Prices:
7+cts/kwh
3
ea
� 300 - - --- ---_ 3,000 �
�. u
Ca 200 _ ee
Q.
- -- ---- 2,000
U Ann Capaciy
Cum Capa city E!A Projections
Cum
CIO
d
100 - - - _ 1,000
i
_ E
Q �
- -- -- --- -- V
0 0
}
1966 1970 1976 11980 1985 1990 1995 2000 2005 2010
source:REPIS database,2000 PURPA
becomes law FIGURE 5
The general strategic approach of geothermal R&D programs, almost all of which were
supported in one form or another by the DOE, was to improve the competitiveness of the
resource by lowering the costs of commercial applications. This was accomplished in four basic
ways:
• improving reservoir description and characterization, permitting more accurate targeting
and prediction of permeable flow zones
• developing more effective drilling and completion technologies
• improving the efficiency of the underlying process cycles and conditions of heat
conversion
• enhancing operating efficiencies and reducing O&M costs.
Geothermal electricity, in contrast with other forms of renewable and conventional
energy, is considered highly reliable, with most plants qualified as "baseload", and capacity
12
factors routinely in the range of 90 to 95 percent (versus 60-70% for coal and nuclear plants, and
just 30-35% for wind applications). Steady improvements in technology, on both the resource
and generation side, have lowered industry average costs to less than five cents per kwh. The
Rye Patch Project, because of its unique structure, has projected costs of just 3.5 cents per kwh
(see Economic Evaluation).
Much of the development of geothermal power systems in the western U.S. occurred
between 1980 and 1990, as the "Standard Offer 4" contract offered to Independent Power
Producers (IPP's)by utilities precipitated a flurry of investment, allowing developers to compete
successfully with conventional generation at six- to seven-cent power. Low load-growth rates
and the reduction in marginal (gas-fired) electricity costs brought real prices to historic low
levels in the early- to mid-1990's. By 1994, when the Rye Patch plant was mothballed, two- to
three-cent prices had discouraged further capital investment. Over the past 24 months, however,
the industry has experienced a dramatic resurgence of activity, largely on the strength of price
fluctuations and supply disruption in California and other parts of the west. While prices (and
demand) continue to fluctuate, increases in renewable capacity are certain to occur as states such
as Nevada implement new portfolio standards and legislative mandates.
The higher-quality, domestic geothermal resources are located predominantly in the
states of California and Nevada. The geothermal industry has focused its efforts in Nevada in
recent years because of its business climate, continuing growth and large, unexplored potential.
Ten projects (14 plants) are currently in operation, aggregating 217 MW of capacity and ranging
in size from 1.2 to 66.0 MW (Table 1). All use established binary, flash or combined
technologies. All but two—Beowawe and Dixie Valley—sell power to Nevada markets through
Sierra Pacific Power Company (SPPC).
Virtually all of the Nevada (and many of the California) projects have undergone
ownership changes over the past decade, and several are currently under resource or plant
expansion, or both. Resource exploration and development is on an upswing as well, with
renewed leasing and permitting initiatives by the BLM and State providing the impetus.
13
14
4;
Average Retail Price of Electricity Sold
10
Commercial, Residential and Industrial Sectors
Real Price
8 (1996 dollars) 2002 National Average:
7.2 oents/kwh
0
t 2002 National Average:
6 Nominal Price 6.5 cents/kwh
0
Y
01
a 4
c
m
U
2
0 T T T-TT i '---� T T T
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source:EIA,2003 Year FIGURE 6
ELECTRICITY MARKETS AND FUNDAMENTALS
Although major segments of the electricity industry are being restructured, Nevada has
resisted the trend, choosing instead to watch and observe while conditions in California are
resolved. Senate Bill 369, signed into law in June of 2001, effectively repealed deregulation, but
SB 372 and AB 661 mandated changes in SPPC's business that anticipate moves toward
competitive pricing, albeit in measured steps. Nevada's real and nominal electricity prices over
the past two decades parallel national trends (Figure 6), with reductions reflecting improved
operating efficiencies, reduced construction costs and lower fuel costs (increases in gas-fired
generation). Increased gas prices and California imbalances have reversed the national trend in
recent years (Figure 6). The continuing emergence of competitive markets is likely to impact
prices further, although prediction of price trends will be hampered by uncertainties in capacity,
fuel prices, weather, demand, generation, and transmission and distribution costs. Inefficiencies
and the inherent complexities of a system under radical change have resulted in large variations
in prices between states and regions(Figure 7).
Utility "stranded costs" - investments in expensive plants and high-cost contracts for fuel
and power that are not recoverable under competitive pricing - are likely to hinder progress
toward competition in the absence of successful cost-cutting, and were the principal reason why
Nevada elected to repeal deregulation (SB 369). Large reductions in market value, or complete
failure as in the case of PG&E and SoCal Edison, are the likely outcomes without some form of
phased competition. With the repeal of deregulation,both Nevada Power and Sierra Pacific,
15
#r
kn.
sister companies under the Sierra Pacific banner, will continue to amortize these investments
under the average-cost approach, with pass-through of costs to rate payers.
For 2002, total capacity in Nevada was approximately 6,850 MW, with total annual
generation of 32 million megawatt-hours. Sixty percent of generation (and load) is used in the
southern area of the state (Nevada Power— 19.2 million MWh), while 40 percent is used in the
north (Sierra Pacific - 12.8 million MWh). Although total state capacity is dominated by coal-
fired installations at Mohave (1,580 MW), Reid Gardner (556 MW) and North Valmy (522
MW), growth in capacity, both utility and non-utility, has been predominantly gas-fired,
increasing at an annual rate of 21 percent over the period 1988 to 1998. At present, 70 percent of
state generating capacity occurs in plants with an average age over 30 years, giving Nevada
consumers an average retail price — 8.31 cents per kwh in 2003 — slightly above the national
average of 7.43 cents (Figure 7).
Sierra Pacific Average Portfolio Prices and Costs
For 2002 - the last full year for which data are available - Sierra Pacific Power
Company's total costs for generated and purchased power, including geothermal plants, had risen
to 7.1 cents (Table 2a). SPPC purchased renewable energy — 693,000 MWh - from nine
geothermal plants at an average (long-term contract)price of 5.8 cents. Tables 2a and 2b provide
a snapshot of the changes in SPPC prices and costs over the period 1999 through 2002, a period
in which Western power markets (particularly California) experienced extreme volatility.
SPPC's exposure to this volatility derives largely from the significant proportion of purchased
power in its portfolio, a condition that persists today and for the foreseeable future
Renewable Energy Development
Concerns about domestic energy security, depleting conventional reserves and the
environment prompted the passage of the Public Utility Regulatory Policies Act (PURPA) in
1978, making it possible for nonutility generators (the so-called "Independent Power Producer",
or IPP) to enter the wholesale market. PURPA guaranteed the purchase (by a utility) of all
power output from a "Qualifying Facility" (QF), and at "full avoided cost", or the marginal cost
of the last-generated unit. Two types of Qualifying Facility (QF) were recognized: the
cogeneration QF and small power producer QF.
The small power producer QF - the binary plant at Rye Patch - uses renewable energy -
geothermal heat or steam - as its primary fuel source (Figure 8 - required by PURPA to be at
least 75 percent of total input). The cogeneration QF produces sequential forms of energy —
electricity and heat or steam — using the same fuel source. The typical "topping cycle" system,
such as that proposed for the gas-fired turbine application at Rye Patch, uses high-temperature,
high-pressure steam from a boiler to drive a turbine generating electricity (Figure 8). The waste
heat or steam from the turbine is then used as a source of heat for an industrial or commercial
process (such as the geothermal loop driving the Rye Patch binary plant).
18
19
Nevada's Renewable Portfolio Standard (RPS)
Nevada Senate Bill 372, signed into law in June of 2001, provides for an incremental
increase in the percentage of renewable power in the state's total electricity supply. The RPS
requires Nevada Power and Sierra Pacific Power to generate (or purchase) from renewable
sources, by 2003, five percent of their total power sold, escalating in biennial two-percent
increments to a maximum of 15 percent in 2013. The utilities are allowed to trade "renewable
energy credits" (REC's) to meet these goals, even though the physical transfer of electrons
between the northern and southern portions of the state is at present impractical. Assembly Bill
661, also signed in June, 2001, permits the "eligible customer" (essentially large users, with
loads of one megawatt or more) to exit the SPPC system and purchase power from independent
generators (such as Rye Patch). The PUCN has completed its rulemaking to set up the
mechanisms for the implementation of both pieces of legislation.
The PUCN, under its charge to protect the consumer, must ensure the price for renewable
power is "just and reasonable", and doesn't create an undue burden on the ratepayer(consumer).
The "renewable price" is a combination of a base price plus a "renewable premium", or
increment necessary to encourage investment in renewable projects. SPPC, with PUCN
oversight and approval authority, has chosen the RFP process as the most effective means by
which to establish a market-based "renewable price". Presco's long-term power sales agreement
with SPPC will be approved (and guaranteed) by the PUCN, reducing price or market risk since
the utility rate base is adjusted to account for the effects of all contracts.
21
RYE PATCH - HUMBOLDT HOUSE PROJECT
History
Presco purchased the Project assets in July of 2001 from Mt. Wheeler Power, a rural
electric co-op in eastern Nevada. This was the culminating transaction in a series of asset
transfers dating from Phillips Petroleum's initial exploratory efforts in the Rye Patch-Humboldt
House area some 25 years ago (Figure 9). Exploration of the Rye Patch resource began with the
Phillips E-1 test, a full-size production well drilled in 1977. The well flowed 800,000 lbs per
hour of 350' F fluid on test, and is generally acknowledged the discovery for the "Rye Patch
Geothermal Field" (Figure 10). The Phillips program continued with a series of temperature
gradient holes, stratigraphic tests and another exploratory well, and provided the impetus for
additional work by Chevron (Western States Geothermal), Unocal and others in the 1980's.
Beginning in 1991, Ormat Energy Services, Inc. (OESI), through its Rye Patch Limited
Partnership, drilled a series of gradient holes leading to the drilling of the 44-28 production well.
This well confirmed the potential for commercial power generation and established a target
development area in the southern KGRA (Figures 10 and I1). The company commissioned
studies by GeothermEx (e.g. 1992) and others to support an aggressive drilling and testing
program begun in concert with construction of the Rye Patch Plant. Seven additional wells were
drilled, largely on the strength of the available subsurface data, with little or no geophysical data
integrated into the whole. At the cessation of Project activity in late 1993, extended testing had
established "proven" deliverability sufficient to support approximately six megawatts of
sustained output(Table 3).
The plant and related wellfield assets, including leases covering the immediate Project
area, were acquired by The Industrial Company (TIC), EPC contractor for owners GE Capital
and OESI, in a foreclosure proceeding begun in 1994. Recognizing the limited understanding of
resource capability, TIC embarked on a new program of exploration. It sought and was awarded
support from the DOE for a vertical seismic profile (VSP) and 3D seismic survey in 1997. The
VSP established area reflectivity and velocities in advance of field seismic acquisition by SECO.
The Lawrence Berkeley Lab processed the data, but considered interpretability to be limited.
Additional geophysical data - gravity, magnetic and resistivity methods - were acquired, but
proved to be of limited value and were never systematically integrated with other data.
Following the 1999 transfer of Rye Patch assets to Mt. Wheeler Power, new temperature
gradient data were acquired by the SMU Geothermal Lab. Geothermal Development Associates
(GDA) completed a comprehensive reinterpretation of all Project data in early 2000, and caused
Mt. Wheeler to drill a new production well — the 72-28 - targeting the Rye Patch Fault (GDA,
2000). This effort marked the first systematic attempt to target a source of geothermal fluids
based on an integrated geological and geophysical interpretation. Nearly one month and twenty
cement plugs were expended in an attempt to drill past the notorious Valley Fill, an
unconsolidated to highly-]ithified, volcaniclastic sequence that forms the pediment surface on the
west flank of the Humboldt Range. The well was eventually abandoned, and a new effort
mounted to combat the lost circulation using the polyurethane plug technology
23
24
25
y
developed by Sandia Lab. The DOE agreed to provide 80-20 fund-matching support for a
cleanout of the 72-28 well, plugging of lost circulation zones and drilling to the original
objective, the Rye Patch Fault. Operations were again commenced in April of 2001, and after
successful plugging of the lost circulation, drilling continued to 1,890 feet, where the well began
artesian flow of hot fluids at surface pressures of 70 to 105 psig (72-28 Well Summary & Plot,
Appendix). The reservoir zone is a highly fractured and faulted limestone in the Triassic Star
Peak Group (Columnar Section, Appendix). Well control issues once again forced an early
termination of drilling at a total depth of 2,088 feet, well short of the Rye Patch Fault objective.
RESOURCE POTENTIAL
Resource development, whether oil and gas or geothermal, is a multi-stage process
requiring the systematic application of a series of exploration techniques, each providing, in
proper sequence, some measure of risk reduction and assessment of resource size. The initial
exploratory work at Rye Patch-Humboldt House (RP-HH) - shallow temperature gradient
drilling and fluid geochemistry - confirmed the presence of an unusually large, high-temperature
geothermal system covering at least 10,000 acres (Figure 11). This was followed by
progressively more-definitive work, including early geophysical surveys and deep drilling in the
(southern) Rye Patch portion of the RP-HH. In spite of this, little or no progress was made
resolving the complex structural geometries controlling geothermal fluid flow at RP-HH.
All of the traditional exploration methods and techniques were applied here in some
form, but none addressed the expansive nature of the resource and its interrelated components.
The first (and only) 3D seismic survey of a geothermal field in Nevada did little to address this
issue, designed as it was to image an "intra-block" portion of the anomaly (Figure 11). The
focus, here and elsewhere, has almost always been a subset of the overall system, addressing a
specific problem — new production or injection well, specific reservoir unit or fault. The
resulting inadequate characterization of the resource occasioned the early "abandonment" of a
resource now likely to become one of Nevada's largest. Several programs are currently
underway or planned to develop the large, high-temperature geothermal resource at RP-HH.
Presco and the University of Nevada, Reno, in a cost-sharing arrangement with the National
Renewable Energy Lab, embarked on a five-well temperature gradient drilling program in the
Humboldt House area in May of 2003 (Figure 11). An extensive geophysical program—45 line-
miles of 2D seismic, along with gravity and magnetic surveys— is planned for 2005 (Figure 11).
These programs will provide important data on the shallow gradients, fluid geochemistries and
structural geometry of the unexplored portion of the system. From this, a series of deep
exploration and production wells will be drilled in 2005-2006.
Resource Characterization
The RP-HH geothermal resource covers approximately 17 square miles on the northwest
flank of the Humboldt Range (Figure 11). Temperature data from approximately 35 shallow
gradient holes, three exploratory and seven development wells provide conclusive evidence of
27
one of the largest high-temperature geothermal discharge areas in Nevada(Forest, 1993; Faulder,
1987; OESI, 1991; Phillips Petroleum Co., 1979). The high-temperature fluids rise from depth
along major conduits such as the Rye Patch and E-1 faults—young normal faults with recent and
recurrent movement — where they are dispersed laterally into permeable reservoir units at
intermediate and shallow depths (Figure 12). The reservoirs consist of Triassic-age, fractured
carbonate units (Columnar Section, Appendix) and pervasively fractured brittle zones associated
with the faults. Faults are west-dipping at steep to near-vertical inclinations (Figure 12, and
Sections A-A' and B-B', Appendix). The four wells to be used to supply the Rye Patch plant
produce moderate-enthalpy fluids from one of these outflow zones, at depths ranging from 1,700
to 3,400 feet.
Analysis of fluid geochemistries and silica geothermometers in the 72-28 production well
(Figure 10 and 72-28 well summary, Appendix) reveal potential resource temperatures up to 525
degrees Fahrenheit. Data on the observed surface heat loss at RP-HH and other developed
geothermal systems were acquired by the SMU Geothermal Lab (Blackwell, 2002) and are
presented in Figure 13, showing potential at RP-HH for combined generation capacity ranging
from 23 to 230 megawatts.
Geology
The Humboldt Range and adjacent Humboldt Valley to the west are a characteristic
horst-and-graben pair, similar to others in the Basin and Range. The Humboldt Range is a
north-trending anticlinorium comprised of Mesozoic marine sediments, including thick sections
of carbonate and nearly-pure limestone. At the core of the fold are Early Mesozoic metavolcanic
and metavolcaniclastic rocks. Locally within the range, Cretaceous granitic dikes and stocks
intrude the Mesozoic sedimentary section (Davis, 1983; Hastings et.al., 1988; Johnson, 1977;
Silberling and Wallace, 1967, 1969).
The RP-HH is located along the western margin of the Humboldt Range. To the north,
the geothermal anomaly is truncated by the northeast-trending Midas Lineament. To the south,
the geothermal anomaly is truncated by the northwest-trending fault zone that offsets the
Humboldt Range from the West Humboldt Range. The block defined by these three major
structural elements is subject to local dilation along (bounding) high-angle normal and strike-slip
faulting. Dilation and the resulting pervasive fracturing in the fault zones create high-
permeability conduits for flow of high-temperature fluids to lateral dispersion layers, including
those observed in the shallow gradient holes.
All Rye Patch wells and stratigraphic tests penetrate young Tertiary sedimentary and
volcanic rocks from the surface to depths ranging from 1,700 to 2,600 feet. The "valley fill"
sediments are nearly horizontal, and are separated from the underlying, steeply-dipping
Mesozoic section by an erosional unconformity, which itself dips approximately 30 degrees to
the northwest. The Mesozoic rocks encountered in Rye Patch wells are predominantly
limestone, with lesser amounts of sandstone and siltstone, and are part of the Natchez Pass
Formation. The target aquifers are two: an upper, unit at the unconformity
28
Production from the field is obtained from two zones:
Upper aquifer at the unconformity
Permeability related to karst or solution phenomena occurring during development of the
erosion surface
Lower aquifer in a clastic unit in the Natchez Pass Formation between massive
limestones
Permeability is predominantly in fractures developed during uplift and tilting; capacity in
the siltstones and sandstones
Homoclinal westward dip of Mesozoic section—20 to 40 deg WNW
Although no fault interpretation required, surface topography suggests a range-front fault
oriented
Temperature
Temperature measurements from drill holes in the RP-HH have identified five, shallow,
hot plumes created by lateral outflow from the near-vertical conduits. In sequence from south to
north they include:
• area near production well 63-28 (Section 28 of T31N, R33E) south of the existing
plant (Figure 11). The plume flows west and north, and can be observed at
shallow depths in adjacent wells.
29
30
• area along a near north-trending structure adjacent to production wells E-1, 68-21
and 52-28 (sections 21 and 28 of T31N, R33E)
• area in Section 10 (T31N, R33E), south of the mine leach pad, identified in
condemnation holes drilled by Florida Canyon Mining(Figure 11).
• adjacent to the mine pit in Section 2 of T31N, R33E. It is identified by drill holes
and by hot water encountered in the mine.
• large area northwest of the mine, in sections 4 and 5 of T31N, R33E, and sections
29, 31, 32, 33 and 34 of T32N, R33E (Figure 11). Temperature gradients range
from 70F/100 ft. to 20°F/100 ft. in several shallow holes, and recent silicic hot
spring deposits are observed. (Blackwell, 2000; Forest, 1993; Geothermal
Development Associates, 2000; GeothermEx, 1992, 1999; ; OESI, 1991; Pegasus
Gold Corp., 1997; Phillips Petroleum Co., 1979; Vandenburg, 1988).
WELL CAPACITIES AND RESERVOIR ENGINEERING
Prior Drilling Results
The confirmation well for the Rye Patch Geothermal Field—well 44-28—was completed
in December of 1991 at a depth of 3,475 feet, flowing 340,000 lbs/hr at 329' F (Table 3 and 44-
28 wellbore plot, Appendix). On the strength of this result, OESI embarked on an extensive
drilling program in 1992 and 1993, during the period of plant construction (GDA Task 1 Report,
and others). Although recent drilling has confirmed the commerciality of the Rye Patch
resource, the OESI drilling results were considered only marginally successful at the time, and
the expected result given the lack of systematic effort in exploration and targeting of the
geothermal resource.
Existing Capacity
Four wells are earmarked for commercial production based on short- and extended-term
testing completed to date, and include the 72-28 (see below), 44-28, E-1 and 68-21 wells (Table
3 and wellbore plots, Appendix). Flow tests on individual wells and interference tests on groups
of wells were completed in April-May and August-September of 1993. Engineering analyses
addressed the following principal questions:
• Long-term flow capacities in three production wells—44-28, 52-28 and 68-21
• Reasons for productivity decline—temperature and rate—in the 44-28 well
• Options for injection
31
The interference observed between wells, even though completed at different depths and
possibly in different reservoirs, implies fair-to-good lateral and vertical communication via faults
and/or fractures in this local area of the geothermal anomaly. History matching of pressure data
was used to establish reservoir capacity (kh), transmissibility (kh/µ) and pore volume (�h).
Capacities ranged from 20 to 30 darcy-feet, and all wells exhibited high skin factors (5 to 7.5),
indicating wellbore damage (clogged fractures or fill). Remediation is deemed a necessity only
in the 44-28 well, however, as this well exhibited a progressive decline in productivity and
temperature in separate tests conducted over a two-year period. Well surveys showed an influx
of cool waters from shallow zones (approximately 2,110 feet), and fill has accumulated from a
total depth of 3,475 feet to 3,350 feet, further impairing flow. The well has been cleaned out for
monitoring during the 72-28 test, and will be squeezed and acid applied to relieve scaling prior to
production service,the intent being to restore the original flow of 400,000 lbs/hr at 405'F.
The three original wells scheduled for production service by ORMAT/TIC performed as
follows:
Well Initial flow Initial Temperature Flow at 12 years Temperature at
(Ibs/hr) (degrees F) (Ibs/hr) 12 years
(degrees F)
44-28 350,000 385 280,000 385
(flowing)
52-28 350,000 320 290,000 320
(pumping)
68-21 500,000 310 450,000 310
(pumping)
Totals 1,200,000* 335* 1,020,000 333
*est. generation of approx. 6 MW(Figure 14)
Declines were forecast to be approximately 10 percent over 12 years (25 percent over 30
years). The magnitude of the "proved" resource established to date for the existing plant and
wellfield (see "Reserves Estimate" below) indicate the modest incremental drilling program
supporting the existing plant (provided for in the development plan as a new well every four
years)will ensure deliverabilities in excess of existing plant capacity.
Fundamental to the successful reservoir management of geothermal systems is the
effective return (injection) of the cooled fluids (plant effluent) to the reservoir, in a manner
balancing voidage and maintaining reservoir pressure and temperature. Comprehensive testing,
sampling and modeling are critical to the understanding of reservoir flow patterns, and facilitate
proper location of production and injection wells, optimizing both production strategy and plant
performance. At present, injection is planned for the 51-21 well, some 4,500 feet north of the
33
plant and "down-gradient" from the production wells (Figure 10 and 51-21 wellbore diagram,
Appendix). A temporary injection solution is possible in the E-1 well (Figure 10 and E-1
wellbore diagram, Appendix), but its proximity, high productivity and documented
communication with nearby production wells are potential problems over time.
Fluid chemistries observed in the recent well test (Michels, 2002) suggest silica and
carbonate scaling and possible corrosion will require selective chemical treatment in wells and at
the plant. Both silica and carbonate have solubilities affected by temperature change: the CO2
responsible for calcite deposition increases in solubility as temperature decreases, while silica
decreases in solubility as temperature decreases. Although it adds to O&M costs, scale and
corrosion treatments are standard operating procedure in geothermal power systems, requiring
only regular monitoring to achieve optimum resolution.
The 72-28 WeH
As indicated above, the interpretation by Ehni and Booth (GDA, 2000) converged on the
Rye Patch and E-1 faults as the most-likely targets for the high-temperature resource, and as a
result the 72-28 well was spudded in April of 2000. High cross-flows and total lost circulation
were encountered in Valley Fill volcaniclastic sediments from 323 to 609 feet, and the well was
cased with 13 3/8" pipe after attempting 20 cement plugs. Total depth at temporary
abandonment was 977 feet. The well was re-entered in April of 2001, and used Sandia Lab's
polyurethane grout technology to shut off the flow zones before drilling to the base of the
Tertiary at 1,652 feet. After 9 5/8" casing was cemented, the well drilled ahead in Triassic rocks
—Grass Valley silts and shales and Natchez Pass carbonates. The well commenced flow at 1,893
feet in a zone of highly fractured, cavernous limestone (72-28 Well Summary & Plot,Appendix).
Flow and control problems forced an early termination of drilling, and the well reached a total
depth of just 2,088 feet, short of the Rye Patch Fault objective. The high-productivity nature of
the well provided the impetus for an extended reservoir test.
Short-Term Test
Short-term testing and evaluation of the 72-28 well occurred in late May of 2001.
Capacity of the well was documented in the range of 1.6 to 2.1 million pounds per hour at 297'
F, and all flow was artesian, at surface pressures of 71 to 105 psig. Flows were confirmed by
two independent methods: the orifice meter and the James tube. Static bottomhole pressures
before and after the flow test were 949 and 953 psig, respectively. Downhole and surface
temperatures were essentially equal, indicating single-phase liquid flow in the wellbore, with no
flashing until fluid entry into the (atmospheric) separator. Total drawdown to achieve the
average flow of 1.8 million pounds per hour was 54 psi, implying a productivity index of 72 gpm
per psi, an extraordinarily high value. Using the design configuration and mass balance specified
by ORMAT engineers for the five-unit plant (Figure 16, below), the well is expected to achieve
sustainable power output in the range of 4.4 to 7.5 MW,with a"most likely" estimate, confirmed
in the long-term test, of 6.5 MW(Figure 14 and Table 3).
34
35
Reservoir Test and Modeling
Test Protocol
An extended test of the 72-28 well and its nearest neighbors was completed in January of
2002. Fluids produced from the 72-28 were injected in the E-1, with pressure and temperature
monitoring in the 68-21 and 44-28 wells. In sequence,the test protocol included:
• cleanout of three existing wells (E-1, 68-21, and 44-28; wellbore diagrams,
Appendix)
• installation of transfer pumps, pipelines, and instrumentation linking all wells
• testing of instrumentation and collection of background pressure and temperature
data
• geothermal fluid was produced from the 72-28 well and injected in the E-1
• reservoir conditions were monitored before, during, and after the test
Well 72-28 flowed initially at full output, with the discharge valves wide open, through a
flow-line with pressure and temperature monitoring, sampling ports, and orifice plate and James
tube flow meters, before discharging into a large atmospheric separator/muffler. The separated
liquid passed through a weir box before emptying into the reserve pit.
Pumps transferred hot water from the reserve pit to well E-1 through approximately 1,250
ft of 12-inch pipe. Flow and pump rates were controlled to maintain a constant level in the
reserve pit, and were manned continuously by personnel familiar with the safe operation and
maintenance of large diesel engines, generators, motors, and pumps. Flow continued for a period
of 40 days from late-November, 2001, through mid-January, 2002, a period sufficient to achieve
stable flow. Build-up periods of 14 and 19 days were recorded during and after flow. Data were
gathered continuously. Gas and liquid samples were taken at regular daily intervals for analysis.
Calcium carbonate scaling was observed at the surface at points of largest pressure drop (James
tube, separator orifice and weir box). While not expected in the production phase (pumped well
will keep CaCO3 in solution), its presence during the test required downhole treatment.
Modeling and Characterization - Conclusions
Reservoir modeling and characterization was completed by Holt (2002), with the
following reservoir components of particular interest:
• sustainable yield of the 72-28 well, both in conjunction with other field wells and
independently
• interference with other field wells
• effective reservoir thickness
• permeability and transmissibility (kh)
36
• boundary conditions, if any
An independent analysis and interpretation of Rye Patch water chemistry, including
samples collected during the test and over the past nine years, was completed by Michels (2002).
Interpretations of chemical geothermometry have strong implications for the future targeting of
wells, both in the plant area and to the north in the expanded development area. A passive-
source seismic survey was conducted during the final flow and shut-in periods of the 72-28 well,
the intent being to identify and map events defining the fault and fracture geometry contributing
to reservoir flow. Unfortunately, acoustic events associated with transient pressure responses as
the test was completed had amplitudes at or close to noise levels, and thus were
indistinguishable, providing little or no redundancy for mapping purposes. Future seismic data
acquired for the expansion program at Rye Patch will use an active source such as dynamite or
vibroseis.
Finally, a comprehensive reservoir analysis was completed by Blackwell and Waibel
(April, 2002) synthesizing and incorporating the independent studies discussed above, and
outlining future development, both in the immediate plant area and in the expansion area to the
north. Important conclusions to be drawn from the integration of recent and past studies include:
1) Reservoir modeling based on flow testing shows the current well configuration to have a
capacity adequate to accommodate existing surface facilities (Holt, 2002)
2) Forecast deliverabilities and identified reservoir conditions have provided important input
to final plant design (forthcoming from GDA), such as:
♦ static and flowing temperatures in the 72-28 well production zone are consistent with
those in the production zone in nearby wells(the so-called"intermediate-depth
aquifer").
♦ chemistries of produced fluids from the 72-28 flow test are consistent with those of
fluids produced in adjacent wells from the intermediate-depth aquifer(e.g. 52-28; 68-
21; 44-28;E-1).
♦ interpretation of the results of the 72-28 flow test suggests the reservoir is capable of
a sustained pumped capacity of at least 1,118,000 lbs per hour(Holt, 2002)
♦ the composite production model incorporating wells 68-21, 52-28, 44-28, and 72-28
(some pumping and some flowing)yields a minimum flow rate of approximately
1,500,000 lbs per hour, for 27 years (Holt, 2002).
♦ intermediate-depth geothermal aquifers have temperatures ranging from 300 to 354T
(Blackwell, 2000)
3) The Rye Patch geothermal resource, and its expansion to the north in the Humboldt
House area, has the following characteristics:
♦ three geothermal zones are identified in both the fluid chemistry analyses and the
interpretation of the temperature-depth curves from Rye Patch field wells: a shallow
37
dispersion layer in valley-filling sediments, an intermediate-depth group of near
horizontal aquifers, and a deeper high-temperature geothermal resource
♦ geothermal fluid chemistries indicate the Rye Patch field is underlain by a high-
temperature resource of up to 525°F (Michaels, 2002)
♦ the shallow and intermediate-depth aquifers exhibit lateral flow of fluids supplied
from the deeper high-temperature resource, with changes in observed fluid
chemistries a function of fluid interaction with the rocks encountered in the ascent via
high-angle structures(e.g.the Rye Patch or Range Front faults)
♦ the shallow dispersion plumes grade from approximately 200°F to ambient
temperature (Blackwell, 2000)
♦ the surface heat loss observed in the greater Rye Patch-Humboldt House area is
consistent with electric power production potential in the range of 80 to 100
megawatts
♦ the main flow system at RP-HH is a deep-rooted Basin and Range normal fault
system separating the Humboldt Range from the adjoining Humboldt River valley.
By analogy to the Dixie Valley geothermal system (Blackwell et al., 1999), the upper
10,000 to 20,000 feet of the fault system is steep, composed of multiple strands, and
is complexly fractured. The flow most likely occurs from a pervasive network of
faults and fractures in carbonates, clastics and volcanics, resulting in geothermal
aquifers of considerable volume
RESERVES ESTIMATE
The estimate of energy-in-place and recovery factors for the resource underlying the Rye
Patch Geothermal Field are important elements in the overall assessment of Project risk. The
well test added critical new data and parameters — conductivity, storativity and boundary
conditions — which were incorporated in the full reservoir simulation (Holt, 2002). The
definitive answer will of course be provided by the history of energy production yet to come. As
an independent first-order determination of sustainable capacity ("reserves"), we follow the
methodology developed by the USGS, using the following basic equation:
Sustainable Capacity,in MW=A x h x C,x(T-TJ x R
FxL
where: A is the area of the geothermal reservoir(in square feet)
h is the thickness of the reservoir(feet)
C, is the volumetric specific heat of the reservoir
T is the average temperature of the reservoir(deg F)
T,, is the average annual ambient temperature (deg F)
R is the recovery factor (fraction of thermal energy in-place that is converted to
net electrical energy in the plant)
38
3
d
F is the plant capacity factor(fraction, annual basis)
L is the plant(or Project) life(years)
The volumetric specific heat, C, is a function of pore volume, rock and fluid densities,
and rock and fluid specific heats:
CV = pr x Cr x(1++ pf x C f x
165 lb/cu ft x .23 BTU/lb-deg F x(1-.05)+59 lb/cu ft x 1.0 BTU/lb-deg F x .05
38.975 BTU/cu ft-deg F
The recovery factor, R, is the fraction of stored thermal energy ultimately converted to
electrical energy. Typically, 50 percent or less of stored thermal energy is recovered in the steam
or fluid produced at the wellhead. The fraction of this component of total stored heat energy
converted to electrical energy is a function of plant efficiencies, which are typically 15 percent or
less (see "Operating Efficiencies", below). The composite recovery-conversion factor, then, is
on the order of 7.5 percent.
Key reservoir parameters known to a lesser degree of certainty, and over a range of
values, include:
• Recovery-Conversion factor 0.025 to 0.10, with 0.075 most likely
• Reservoir area: 500 to 1,500 acres, with 1,000 acres most likely
• Average temperature 2900 to 3600 F, with 310' F most likely
• Reservoir thickness 500 to 1,500 feet, with 1,000 feet most likely
• Reservoir porosity 0.02 to 0.08,with 0.05 most likely
The values estimated for reservoir area reflect the deep resource area(i.e. at depths below
1,500 feet) with observed gradients greater than 10' Fahrenheit per 100 feet (Figure 11). At
present there is limited control to establish the boundary of this resource, thus making the range
of areas used for reserve estimates conjectural. With essentially two reservoirs present — the
intermediate-zone carbonate unit at temperatures of 300'to 350' F (72-28, E-1 and 68-21 wells),
and the deeper 400°+ F reservoir encountered in the 44-28 well (at 3,400 feet) — geothermal
fluids will mix to an intermediate temperature determined by the relative volumes. The reservoir
thickness range reflects the depths at which commercial-grade geothermal fluid flows have been
encountered to date, realizing no penetration has yet been achieved of the target Rye Patch and
E-1 Faults. At the very minimum, this thickness will cover the range of depths encountered in
the production wells with commercial flows (i.e. 3,400 feet in the 44-28 to 1,900 feet in the 72-
28;wellbore diagrams, Appendix).
39
o;
Table 4— Sustainable Capacity- volumetric estimate
Reservoir Properties
Reservoir Area (sq ft) 43,560,000
(1,000 acs)
Reservoir Thickness (ft) 1,000
Volumetric Specific Heat 38.975
(BTU/cu ft-deg F)
Ave Reservoir Temp (deg F) 3100
Ave Ambient Temp (deg F) 56°
Recovery-Conversion Factor 0.075
Plant Capacity Factor (frac) 0.95
Project Life (yrs) 30
Usable Heat & Power
Annual Heat Converted (BTU/yr) 1,135,613,212,105
Power Generated (kw/yr) 332,731,677
Sustainable Capacity (MW) 38.0
Probabilistic Forecast
The deterministic result— 38.0 MW— suggests the resource "proved"to date will sustain
capacities well in excess of the current plant design. Given the uncertainties and functional
dependencies of the major variables — area, thickness, temperature, recovery factor, capacity
factor and specific heat (porosity) — a simulation of existing Project capacity was deemed
prudent. The results of the 1,000-trial simulation are presented in Figure 15. The expected range
of the input variables was determined from mapping, log analysis, temperature surveys and plant
design and performance criteria, with all distributions assumed triangular. The mean and median
capacities are 34.8 and 32.5 MW, respectively, somewhat below the 38.0 MW forecast due to the
asymmetry of the variable distributions. Of particular interest, and typical for volumetric reserve
calculations generally, the outcome has principal sensitivities to recovery factor (correlation
coefficient of 0.61), area(0.51) and thickness (0.50). Simulation over abroad range of reservoir
parameters suggests a high degree of certainty (greater than 98 percent) the existing "proved"
resource would sustain capacities in excess of the current design output for the plant. Note that
comparison of the probabilistic forecast with the reservoir modeling of the existing well
population suggests considerable potential for expansion in the immediate plant area.
40
41
POWER GENERATION
The Rye Patch plant is an organic Rankine cycle "binary" system, and was originally
designed and installed in 1992 and 1993 by Project partners OESI and GE Capital (GECC). The
plant is 80 to 85 percent complete, and uses five dual ORMAT Energy Converter (OEC) units—
turbine-generator sets with ancillary equipment — to develop a nominal output of 16.0 MW
(Figure 16). Geothermal fluids enter the plant as hot brine (300' to 340' F) and steam (380' to
405' F), with routing to the appropriate OEC level or levels. Binary units use isopentane as the
working fluid. Heat exchangers are currently plate-and-frame, and will be replaced with shell-
and-tube units during the final construction phase. The heat rejection (condenser) system uses
dry cooling, as sources of cooling water are limited. A cost and efficiency analysis is underway
to evaluate the impact of a mixed air-liquid (mist) cooling system during summer operations,
when reduced cooling efficiencies decrease output. A necessary precondition will be a reliable
source of clean water.
Emissions for the plant are essentially nonexistent, as fluids are never exposed to the
atmosphere. All Federal, State and county permits—including those for"special use", air, water
and noncondensible gases (NCG) -are in-place and current. The plant has fully operational step-
up and switchgear in place to interconnect with Sierra Pacific at its Star Peak substation, adjacent
to the property. The Special Facilities (Interconnect) Agreement with SPPC was originally
executed in September of 1992, and has been amended and brought forward to meet present line
requirements.
Plant Operation
The OEC units are designed to convert heat energy (geothermal fluids) to mechanical
energy(turbines)to electrical energy(generators) using the following principal components:
• Preheater
• Vaporizer
• Condenser
• Organic turbines
• Generator
• Motive fluid cycle pump
• Control valves, rupture discs, level switches
• Pressure and temperature gauges
• Internal piping and connections
• Lubrication subsystem
• Power and control panels
42
43
The turbines are impulse in nature, using organic fluid vapors moving at supersonic
velocities as the motive force. The working fluid — isopentane - undergoes repeated phase
change associated with changes in temperature and pressure in a closed system: liquid-to-vapor-
to-liquid (Figure 17). Evaporation of the liquid occurs in a parallel or tandem series of plate-
and-frame heat exchangers, with hot geothermal fluids — brine or steam — providing heat for
evaporation. The organic vapor passes through a separator, removing all liquids prior to
expansion in the high-pressure turbine. The vapor expands yet again in a low-pressure turbine.
Both turbines are coupled to a common shaft driving the generator. Vapor is routed through the
air-cooled condenser bays, returning to a liquid state before collection and return to the
preheaters by cycle feed pumps.
Each OEC is independently controlled, with programmable controllers, protection relays,
synchronizers, governors and emergency shut-offs in a Power Control Shelter (PCS). The
Central Station Controller(CSC) is housed in the plant control room, and collects data from each
OEC, provides operating control for the plant and wellfield, interfaces with the plant substation,
and relays plant information to remote monitoring sites.
Net power output of the five OEC units, each of which is nameplate-rated at 3,500 kw, is
a function of resource temperature, ambient air temperature and "parasitic loads" associated with
auxiliary power consumption. ORMAT and TIC engineers have estimated auxiliary loads of
approximately 3,300 kw for all production and injection pumps, feed pumps, condenser fans,
brine pumps and miscellaneous plant loads. Based on the configuration and resource depicted in
the Plant Schematic, average net power at an ambient temperature of 65' F is 12,700 kw (Figure
16). Net power output as a function of(dry-bulb) ambient temperature is shown in Figure 18.
Net energy sales, for on-, mid- and off-peak periods, and for varying capacity factors (92.5 to
95.0 percent) are depicted in Figure 19, and form the basis for the power projection in the pro
forma economic model (and the capacity-energy schedule in the SPPC PPA). Both reflect the
current design configuration, and may need to be adjusted to reflect the contribution of the 72-28
well.
Presco will complete the plant in its original design configuration, using a time-and-
materials construction contract with appropriate milestones and performance guarantees.
Whether or not Presco receives new performance guarantees from ORMAT, it will require (of
the contractor) detailed field tests of the equipment, with benchmarks for performance and
operation,prior to acceptance by Presco.
44
45
Operating Efficiencies
The Rye Patch plant is designed to provide baseload generation, competing with coal and
gas-fired plants in Nevada, but at much higher capacity factors (on the order of 90 to 95 percent,
versus 60 to 70 percent for conventional systems). Cycle efficiencies are affected by seasonal
variations in ambient temperature, and sales contracts typically incorporate monthly variations as
a result(Figures 18 and 19).
Geothermal plant efficiencies are dependent on the temperature difference between the
vaporizer(boiler) and condenser. The theoretical cycle efficiency is expressed as follows:
%Efficiency=(abs temp of heat input deg R—abs temp of condenser,deg R) x 100
absolute temp of heat input,deg R
The Rye Patch system, at a weighted-average resource temperature of approximately
320' F, and plant effluent temperature of 165' F, yields a theoretical efficiency of 20 percent
(contrast this with efficiencies of up to 50 percent for combined-cycle, gas-fired systems).
Efficiency losses in the equipment and heat transfer processes bring the gross plant efficiency to
a number approximately 2/3 of theoretical, or just 13 percent. Thus each kilowatt (3,413 BTU)
generated in a plant operating at this efficiency will require a heat input of 26,253 BTU. Of
particular importance from a design standpoint, fully 87 percent of the heat input, or 22,841
BTU, must be rejected to the atmosphere, requiring cooling towers and heat rejection equipment
which are correspondingly larger than the same components in a conventional plant. Finally, net
plant efficiencies are lower still due to parasitic loads associated with pumps, fans and control
systems (for projected Rye Patch parasitic loads of 3,300 kw, or 20% of nominal output,
efficiency drops to a net value of 10 percent or less).
Obviously, cycle efficiency has a major impact on a system's cost-of-energy. Even
modest improvements will have large proportional effects. DOE R&D programs have focused
on improving binary and flash technologies in recent years, and Presco will avail itself of both
the support and benefits of these programs, as appropriate. Recent work has focused on:
• changes in the basic conversion cycle designs
• addition of"topping" and"bottoming"cycles
• improved or mixed working fluids
• hybrid cycle designs merging features of binary and flash plants
• reduction of O&M costs through automation and optimization
• reduction in complex instrumentation and controls
46
ECONOMIC EVALUATION
The regulated utility approach to project valuation is a cost-based, revenue requirements
analysis, using projections of expenses, taxes, insurance and depreciation to determine the
revenue stream necessary to provide a "regulated return" to equity and debt holders. As an
independent power producer (IPP), Presco uses a market-based, rate-of-return approach to
project pro forma cash flows. Project finance options limit the number of capital structures —
combinations of debt and equity - for developing, building, owning and operating power plants.
The models developed below will sustain capital structures with typical IPP project debt loads
ranging from 70 to 80 percent. The financial criteria used for review and comparison of the Rye
Patch Project include:
• Discounted value
• Internal rate-of-return
• Return-on-equity
• Equity payout
• Cost-of-energy
Calculation of a "cost-of-energy" (COE) provides a convenient measure of the
"breakeven" Project performance required to meet all operating and maintenance costs, existing
debt coverage (production payment), depreciation and other project expenses. The Rye Patch
Project COE has been normalized to units of one kwh, and adjusted to (constant) 2004 dollars.
Because of the Rye Patch capital structure,this number(3.6 cents per kwh) is substantially lower
than the industry average (currently 5.0 cents per kwh; source: DOE).
Pro Forma Model
Detailed projections were developed for the following key inputs:
• Power output
• Capital costs
• Operating and maintenance costs
• Royalties,taxes and related production payments
• Price and contract terms
Power Output
Plant power output and net sales have been annualized for purposes of economic analysis
from Figures 18 and 19. The model calls for the drilling of replacement wells—production and
injection— at four-year increments over the life of the Project, and at capital costs of$1,000,000
each, to sustain resource deliverability and maintain power output at an average annual sales
volume of 104,146 MWh. Based on test results, start-up of the existing Project will likely
require the 44-28, 68-21, E-1 and 72-28 wells for production, leaving the 52-28 and other
48
;W
locations (new wells) along strike for maintenance of plant flows. Plant life is expected to be 30
years or more, in line with projections for typical geothermal installations. Planned resource
expansion on the extensive Presco leasehold in the greater KGRA area will be used to support
new plant capacity.
Capital Costs
Detailed bids for plant and wellfield completion have been developed by TIC, previous
Engineering, Procurement and Construction (EPC) contractor at Rye Patch, and TBC (Table 5B,
below). Both companies have extensive experience in the construction and maintenance of
geothermal power plants using ORMAT equipment, and rely on ORMAT engineers in Israel and
Reno for technical assistance and troubleshooting. The TIC bid detail reflects the company's
intimate knowledge of the existing plant, as they provided oversight, engineering, construction
and bonding, as well as guarantees on scheduling and performance, for GECC. TBC has
extensive experience in the installation of ORMAT plants in Nevada, California and Hawaii, and
is a principal contractor on projects operated by ORMAT. TBC was the principal construction
contractor on Presco's well test, and provided competent, cost-effective service for all phases.
At this stage, the financial models incorporate TBC pricing. Plant completion time is estimated
at four to five months (Figure 2), based on both estimates. A summary of Project capital costs is
summarized in Tables 5a and 5b below, and all documentation related to the bids is available for
review in Presco's offices.
Operating and Maintenance Costs
Operating and maintenance costs are low relative to gas-fired plants, which face variable
(and substantial) fuel costs. This advantage is partially offset by the higher capital costs for
geothermal plants. At present gas prices of approximately $6.00 per MMBTU (March, 2004),
and average heat rates for combined-cycle plants of 9,000 BTU/kwh, the fuel cost component of
gas-fired generation is roughly $54 per MWh. Total costs of generation with fixed and variable
costs are thus approximately $69-74 per MWh (higher than the average for Rye Patch of
approximately $45 per MWh; see below). Rye Patch O&M costs were developed from actual
costs for plants of similar size, and are summarized on the O&M Cost Projection (Appendix).
Staffing requirements will vary depending on degree of automation; Presco projects the need for
six to eight full-time employees, including a senior plant engineer-manager. All O&M and
G&A expenses are escalated 2.0 percent for the life of the Project.
Royalties, Taxes and Other Payments
Royalties provided in the Federal geothermal lease are payable on a"netback geothermal
value", derived by subtracting transmission and generating costs from electricity gross sales at
the "plant tailgate". Transmission and generating costs have two components — operating and
maintenance costs, and capital costs — and are calculated as a monthly deduction ($/kwh) from
the prior calendar-year sum of O&M and capital costs. Capital costs are amortized under a
depreciation schedule or limited return-on-investment method. The Fed imposes a minimum
49
royalty, as accelerated capital cost recovery results in reduced royalty payments in the early
Project years. Royalties payable to fee owners are a fixed percentage of gross revenues (five
percent in all cases; Lease Summary, Appendix), subject only to transmission costs to the point
of sale. For the existing plant, the royalties on the Campbell Fee Lease have been renegotiated
from the original ten percent to five percent.
The pro forma for the existing plant includes a "production payment" — payable as a
percentage of gross sales revenues, beginning at 12.5 percent and escalating in annual 2.5
percent increments to 25 percent - to the former owner, Mt. Wheeler Power, as "seller
financing". The payment obligation will occupy a subordinate security position on the Project
assets, behind senior Project financing, if it occurs. This obligation is satisfied in five to six
years (see pro forma economic run, Appendix). Mt. Wheeler also retains a three percent
overriding royalty interest on gross sales revenues for the life of the existing plant (in its current
configuration only). Presco retains a five percent overriding royalty interest.
Energy Price and Terms
As discussed above, Presco has completed negotiations for a PPA with Sierra Pacific
Power Company. The price for energy is 6.0 cents per kwh. This price escalates at a contract
increment of one percent per annum for the life of the Project. Contract term is 20 years, after
which time the power would be sold either to or through Sierra.
Model Results
The income and expense components of gross revenues for the Project are presented for
both the life-of-project and the first full-capacity year -by percentage of total, dollar amount and
cents per kwh (normalized to the weight-averaged, life-of-Project price of 7.0 cents, or first-year
price of 6.0 cents) — in Figure 20. Net income (profit) is the largest proportion of total revenues
both for the first year and Project life, in spite of escalating costs (O&M, G&A and wellfield)
and completion of replacement wells. The production payment, significant at the onset(15%), is
extinguished in six years, and represents just 4 percent of gross revenues over the life of the
Project.
Project Expansion
Review of existing technical data and previous drilling on Presco's leasehold suggests
additional capacity in the range of 50 to 100 megawatts, with the majority of additional resource
to be developed in the Humboldt House area north of the Rye Patch plant (Figure 11). An
expansion case— 103.2 net MW—is included in the Appendix, and shows an average COE of 3.4
cents per kwh, robust returns and potential net cashflows in excess of$1.0 billion. In summary
and by every measure, the Project financial attributes provide excellent returns on invested
capital.
50
REFERENCES
Blackwell,D.D., 2000, Thermal gradient results at Rye Patch Reservoir geothermal area,
Pershing County,Nevada, Report to Mt. Wheeler Power, March 22, 20 pp.
Blackwell, D. D., and A. Waibel, 2002, Geothermal Model of the Rye Patch Reservoir
Geothermal system,Pershing County,Nevada: Integration of the 72-28 well results,
Report to Presco Energy,March 31, 13 pp.
Blackwell,D. D., K. W. Wisian,D.Beniot, and B. Gollan, 1999, Structure of the Dixie Valley
geothermal system, a"typical Basin and Range geothermal system, from thermal and
gravity data", Geothermal Resources Council Trans., 23, 525-531.
Davis, Jonathan O., 1983, Geologic map of the Rye Patch Reservoir South Quadrangle,Nevada.
Nevada Bur.Mines and Geol.Map 76.
Forest, Robert E., 1993, Rye Patch geothermal project, Pershing County,Nevada.Unpublished
(?)report. 43 pp.
Faulder,D.D., 1987, Humboldt House prospect, Pershing County,Nevada,well test analysis,
Oct. 31-Nov. 8, 1985. in-house memo to file, California Energy Co.
Geothermal Development Associates, 2000,Rye Patch Geothermal Resource, Task 1 Report,
Report to Mt. Wheeler Power,February.
GeothermEx, Inc., 1992, Assessment of the geothermal potential of the Rye Patch geothermal
system, Pershing County,Nevada, unpublished report to GE Capital.
GeothermEx, Inc., 1997. Geology of the Rye Patch geothermal field,Pershing County,Nevada,
Report to TIC, Steamboat Springs, CO, December.
GeothermEx, 1999,Assessment of the geothermal resource at Rye Patch,Nevada and
recommendations for siting a new production well, chapter 5.
Gritto, Roland,Thomas M. Daley and Ernest L. Majer, 2000, Seismic mapping of the subsurface
structure at the Rye Patch geothermal reservoir. Earth Sciences Div., LBL,LBNL-
47032, 25 pp.
Hastings, James S.,Thomas H. Burkhart and R.E. Richardson, 1988, Geology of the Florida
Canyon gold deposit,Pershing County,Nevada. in: Geological Society of Nevada 1988
spring field trip guidebook, Special Pub.No. T.
Holt,R.,2002,Rye Patch reservoir assessment-Draft Version 1,Report to Geothermal
Development Associates,Reno,Nevada, 6 pp., 19 fig.
54
ChM
Johnson,Maureen G., 1977, Geology and mineral deposits of Pershing County,Nevada. Nevada
Bur.Mines and Geol. Bull. 80. 115 p.
Kettell, Joseph,2002,Rye Patch Power Equipment: Appraisal of Orderly Liquidation Value,
Report to Presco Energy, January 15, 32 pp.
Mesquite Group, Inc., 1993, Summary report: Rye Patch Limited Partnership geothermal
resource assessment.Report to LCRW Power Co., 24 pp.
Michels, D.,Rye Patch geothermal development,Hydro-chemistry of thermal water applied to
resource definition, Report to Presco Energy, 33 pp., 13 figures, 2002.
OESI, 1991, Preliminary assessment Humboldt House geothermal resource, Pershing County,
Nevada. Private in-house report. 13 pp.
Optim Seismic, 2002, Microseismic Survey of the 72-28 Well Test Area,Report to Presco
Energy, March.
Pegasus Gold Corp., 1997, Condemnation Flats drill holes data.
Phillips Petroleum Co., 1979, Geothermal reservoir assessment case study, northern Basin and
Range Province. DOE/ET/27099-1, 105 p.
Phillips Petroleum Co., misc. data sheets,unpublished.
Silberling,N.J., and R.E. Wallace, 1967, Geologic map of the Imlay Quadrangle, Pershing
County,Nevada. USGS Map GQ-666
Silberling,N.J., and Robert A. Wallace, 1969, Stratigraphy of the Star Peak Group (Triassic) and
overlying Lower Mesozoic rocks, Humboldt Range,Nevada.USGS Prof. Paper 592, 50
PP
SubSurface Surveys, 1992, Seismic reflection survey of the Humboldt House area,Nevada.
unpublished report to OESI.
Teplow, William, 1999, Integrated geophysical exploration program at the Rye Patch geothermal
field, Pershing County,Nevada. unpublished report to Mt. Wheeler Power Co.
Vanderburg, William O., 1988, Mines of Humboldt and Perxhing Counties. a reprint of
Reconnaissance of mining districts in Pershing County,Nevada, US Bur. Mines Inf. Circ.
6902, 1936,republished by Nevada Publications,Las Vegas,Nevada.
Wallace,Alan R., 1989,The Relief Canyon gold deposit,Nevada: A: mineral solution breccia.
Econ. Geol., Vol. 84,pp. 279-290.
55
Wisian, K. W., D.D. Blackwell, and M. Richards, 2001, Correlation of heat loss and total energy
production for geothermal systems,Trans. Geothermal Resources Council, 25,p.
332-
335.
Zonge Engineering, 1997, CSAMT/MT surveys, Rye Patch geothermal project,Pershing
County,Nevada. unpublished report to Mt. Wheeler Power Co.
APPENDIX
• Lease Summary
• Select Plant and Project Photos
• Columnar Section — Rye Patch Area
• Sections A-A' and B-B'
• 72-28 Well Summary & Plot
• Wellbore Diagrams (72-28, 44-28, E-1, 68-21 , 52-28 and 51-21 wells)
• Economic Runs — 12.7 MW (existing) and 103 MW (expansion)
• O&M Projections
• Company Summary and Principals
• Confidentiality Agreement and Exhibit
56
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