hardscrabble mining town in the hinterlands of the Nevada desert may seem an unlikely place to find a roiling debate over America's energy supply, but the tiny city of Ely has sparked a controversy that won't end soon.
   At stake is the ability of the second fastest growing U.S. state to meet the demands of people and companies rapidly moving west, and the battle lines are drawn sharply.
   On one side is Sierra Pacific Resources with its plans to build a US$3.8-billion Ely Energy Center, which would generate 1,500 megawatts of electricity at two coal-fired power plants. On the other side are Senate Majority Leader Harry Reid (D-Nevada), and environmental groups claiming the plants would contaminate the air with excessive carbon emissions.
   Caught in the middle of this dispute are manufacturing companies, warehouse users, data center operators, casino hotels and other businesses clamoring for more power in Nevada.
   While now one knows which side will win, experts who track industrial energy supply and demand say this much is certain: without new power plants and additional energy resources, America's manufacturing competitiveness will continue to erode.
   "Rising energy prices extend beyond the gas pumps and affect the ability of U.S. corporations to compete in the global economy," Deborah Wince-Smith, president of the Council on Competitiveness, said Aug. 6 in calling upon the U.S. government to enact an initiative to enhance American competitiveness and energy security. "By creating the conditions that will foster private sector innovation and investment in more sustainable energy approaches, we can improve our economy, environment, national security and standard of living."
   The council is part of a chorus of industry groups imploring Congress and the White House to act now to reverse the tide of waning energy independence.
   The National Association of Manufacturers, led by former Michigan Gov. John Engler, puts the worsening situation in even more dire terms: "Rising energy prices and restricted energy development are challenging our nation's families, small business and jobs," the NAM president and CEO said recently. "When you restrict the domestic supply, it's only logical that prices will go up. Continuing on this path is not just bad policy; it's bad economics."
   Engler and NAM contend that the deepening energy crisis threatens U.S. manufacturing in several ways:
   • Manufacturing companies consume one-third of all energy in the country, both to operate their factories and to use as a critical raw material or feedstock to produce goods.
   • Rising natural gas prices have cost the U.S. chemical industry 100,000 jobs and $50 billion in business since 2000.
   • Of the more than 80 new, large-scale chemical plants being built around the world – each costing more than $1 billion – none are being constructed in the U.S.
   • Structural costs for U.S. manufacturers are 32 percent higher than what America's nine major trading partners – including Canada, Japan, German and China – pay for energy, pollution abatement, corporate taxes, health care and litigation.
   All of this is occurring even as industrial plants become more efficient. According to the U.S. Department of Energy, the amount of energy it takes to produce one dollar of goods has been cut in half, from 30,000 BTU in 1970 to 15,600 BTU in 2004.
   Logistics companies, which provide the critical infrastructure needed to transport raw materials and finished goods, also are becoming more efficient. Jacksonville-based CSX Transportation has reduced fuel consumption by 30 million gallons this decade and improved fuel efficiency by 73 percent since 1980, reports Gary Sease, spokesman for the railroad firm.
   Despite advances like these, energy industry experts say it's not enough to meet escalating demand.    Even electric utilities are starting to sound the alarm. Rising growth in U.S. demand for electricity over the next quarter century, coupled with declining reserve margins, points to "the hard reality that it is time to invest in America's electric future," Edison Electric Institute Tom Kuhn said in his recent state-of-the-industry speech.
   Kuhn cited federal studies forecasting power demand climbing 40 percent by 2030 even as most U.S. regions enter a period of steadily declining reserve margins. "More power plants and transmission wires must be built to meet this demand," said Kuhn. "The distribution system needs to be modernized and expanded. And investments need to be made in technologies that can further reduce air emissions and increase energy efficiency."
   The North American Electric Reliability Corp.'s recent assessment of the nation's power grid reveals that the margins between peak electric demand and total installed generation capacity are dwindling in most regions. By 2010, the NAERC predicts, these margins will drop below minimum regional target levels in New England, the Mid-Atlantic, the Midwest, Texas and the Rocky Mountains. Beyond 2010, all of the West and Southwest will fit into this category too.
   Remarkably, the nation's energy infrastructure failed to keep up with demand even in the midst of a power-plant building boom. Capital expenditures on power plants and transmission lines by electric utilities in 2005 rose to $46.5 billion, the first significant investment hike since 2001, the peak year of the industry's competitive generation buildout. In 2006, capital expenditures reached nearly $60 billion, an increase of more than 30 percent over the previous year.
   As of Dec. 31, 2005, the U.S. electric power industry's total installed generating capacity was 1.07 million megawatts, only a 1.7 percent increase from 2004. Total U.S. electricity generation in 2005 was 4,054,688 gigawatt-hours, up 2.1 percent from 2004. (A gigawatt is 1,000 megawatts or 1 million kilowatts.)
   The Energy Information Association estimates that 258 gigawatts of new generating capacity will be needed by 2030 to meet growing demand for electricity in America, at a total cost of $412 billion. This means the U.S. will need anywhere from 250 to 500 new baseload power plants rated at 500 megawatts to 1 gigawatt each.
   The main obstacle faced by the power industry today, however, is a swirling storm of opposition led by climate-change regulation of carbon emissions, efforts to stop the resurgence of nuclear power, and continued measures by Congress to block offshore drilling for oil and natural gas.
   The only energy projects that seem to win broad public support any more are ethanol plants, windmill farms, hydrogen fuel cell centers, bio-diesel factories, and other forms of alternative or renewable energy facilities. But even the most optimistic of renewable energy proponents admit that these new technologies are not being developed fast enough to slake America's thirst for power.
   "There has to be greater diversity in the production of electricity," says Rosario Palmieri, director of energy resources policy for NAM in Washington. "It starts with reforming the way our energy sector is regulated. There are problems with Clean Air Act regulations such as new source review. This prevents power plants from upgrading and becoming more efficient. If you accomplish too much efficiency, you are treated as if you were a new facility and that triggers new environmental regulations. Old power plants and other similarly permitted activities are prevented from becoming upgraded and becoming more efficient because the regulatory costs are too high."
   Against this backdrop of legal hurdles and mounting pressures from environmental groups, Sierra Pacific Resources is embarking on the most ambitious expansion program in company history. A company with $7 billion in assets plans to spend $1 billion or more per year for each of the next seven years to build new power plants and upgrade existing ones.    For Michael Yackira, the new CEO who took office at SPR offices in Las Vegas on Aug. 1, it's nothing less than the challenge of a lifetime.
   "Over the 20 years from the mid-1980s to the middle of this decade, the company didn't build any significant amount of new power generation," Yackira tells Site Selection. "Starting in 2003, we embarked on a new strategy that calls us to be more self-sufficient. We doubled our own generating capacity in about four months at the beginning of 2006. We acquired one plant, we built one and we finished one."
   The Sierra Pacific Power entity of SPR broke ground last year on the 514-megawatt Tracy Combined Cycle Plant next to the utility's Tracy Generating Station east of Reno. The plant is expected to start producing electricity for Northern Nevada and the Lake Tahoe area of California by June 2008.
   The company's Chuck Lenzie Generating Station 20 miles (32 km.) northeast of Las Vegas became fully operational on April 17, 2006. A 1,100-megawatt generating station, Lenzie consists of four natural gas-fired combustion turbines, four heat recovery steam generators and two steam turbines operating in combined-cycle mode. Lenzie is the first company-owned power plant completed since 1995.
   Nevada Power Co., another entity of SPR, finalized its purchase of a 75 percent interest in the Silverhawk Power Station in Southern Nevada last year. The 560-megawatt plant is a natural gas-fueled, combined-cycle generating unit.
   When asked what's driving this expansion binge, Yackira says, "Compared to the rest of the U.S., Arizona and Nevada are growing two and a half times faster than anyplace else. We have to serve our customers. We've spent a lot of money to do it."
   SPR is responsible for 97 percent of the electric business in Nevada. Sierra Pacific Power covers about 50,000 sq. miles (12.95 million hectares) in Northern Nevada, concentrated mainly in Reno and Sparks, the region's two largest cities. Nevada Power covers only 4,500 square miles (1.17 million hectares) but serves twice the number of people. Most of them reside in Clark County.
   Clark, home to Las Vegas and its fast-growing suburb of Henderson, is adding residents so rapidly that it needs to hire 3,000 schoolteachers and 5,000 nurses just to serve the people already there, says Bob Cooper, director of economic development for Henderson, a city of 350,000.
   "We are trying to invest to prevent volatility in our prices," Yackira says. "That is the key for industrial customers who are moving here. They want to know that their price of electricity will not vary much. Our power plants use less fuel to make the same amount of kilowatt hours than are used by other plants in the region. This gives comfort to the people who are moving to the region. Costs will not vary as much as they did in the late 1990s."
   While most people associate Nevada with the "What happens in Vegas stays in Vegas" television commercials, the reality is that SPR aggressively markets the state to industrial end-users. Its roster of industrial clients landed in the past year, fueled by the expansion of SPR power plants, includes Pittsburg Paints (80,000 sq. ft., or 7,432 sq. m., in Patrick); Quad Graphics (370,000 sq. ft., or 34,373 sq. m., in Reno); James Hardie (200,000 sq. ft., or 18,580 sq. m., in Patrick); Charles River Labs (280,000 sq. ft., or 26,012 sq. m., in Reno); PetSmart (885,000 sq. ft., or 82,217 sq. m., in Patrick); Trex Decking (375,000 sq. ft., or 34,838 sq. m., in Fernley); Poly America (375,000 sq. ft., or 34,838 sq. m., in Las Vegas); FedEx Ground (130,000 sq. ft., or 12,077 sq. m., in Las Vegas); and CDW (513,000 sq. ft., or 47,658 sq. m., in Las Vegas).
   Many customers are relocating from California, where they are used to paying 11 to 12 cents per kilowatt hour for electricity. In Nevada, they pay 7 to 8 cents per kwh.
   "Our desire is to be more self-sufficient as a state. To do that, we have to build new power plants," Yackira says. "We are 75 percent fueled by natural gas. We need to build a coal-fired plant so that by 2015, about 40 percent of our power would come from coal, 40 percent would come from natural gas and 20 percent would come from renewable power.
   "We also need to build new transmission lines. One new line would run from the Ely Energy Center down to the northern portion of the Las Vegas area – about a $500-million investment. We expect completion of that project by late 2010 or early 2011."
   To transmit power, the company must produce it first, and that's where the bold plans for Ely enter the picture.    Described as the state's largest power project since the Hoover Dam, the Ely Energy Center would come in the form of two 750-megawatt coal-fired units north of the 4,000-resident community in rural East Central Nevada. The first plant would come on line in 2011, with the second following three years later. The planned 250-mile (402-km.) transmission line would stretch from Ely to just north of Las Vegas in Clark County and unify the state's electrical system for the first time.
   Closer to Salt Lake City than to Reno or Vegas, Ely sits where the southern tip of the Steptoe Valley meets the foothills of the Egan Range, at the junction of highways 6, 50 and 93. Established in the 1870s as a stagecoach station and post office, the town began to bustle in 1906 when the Northern Nevada Railway connected the enormous pit mines at Ruth with the smelter on McGill Ranch. That legacy endures today, as railroad buffs come frequently from around the world to visit Ely and parts of surrounding White Pine County.
   The area received instant fame six years ago when the climactic scene to the hit comedy Rat Race was filmed in and around Ely's old train depot and railway museum.
   But the area has never seen anything like this. If Sierra Pacific has its way, little Ely and 9,000-citizen White Pine County will become the new energy hub of the exploding West.
   Thanks to massive supplies of coal in Wyoming and Montana in the Powder River Basin, the company believes it can manufacture electricity a lot cheaper if it becomes less dependent on expensive natural gas and increases its use of coal.
   "It has been said that the Powder River Basin's coal supply exceeds the energy reserves in Saudi Arabia," Roberto Denis, SPR senior vice president, recently told the Ely Times.
   The company contends that by using coal from the Powder River Basin – some of the lowest sulfur coal available in the U.S. – the power plants will produce less emissions. In addition, the plants will use super-critical units that are 5 to 10 times more efficient than traditional sub-critical technology due to higher operating temperatures and pressure. Each 1 percent improvement in efficiency produces a 3 percent reduction in emissions per megawatt hour.
   Phase 2 would include the construction of two 500-megawatt coal gasification plants, scheduled to come on line after the coal-fired plants and only when the gasification technology becomes less expensive, most likely in 2016 to 2018. (A completely separate project, a 1,600-megawatt coal-fired plant in White Pine County, is being proposed by LS Power. It would also tap into the planned 250-mile transmission line.)
   Phase 1 of the Ely Energy Center would cost SPR about $3 billion, say company officials, who chose Ely for its central location in Nevada.
   While SPR executives say the investment is essential if the West is to meet the demands of mushrooming growth, backing the project will require enormous patience. Federal and state approvals are expected to take at least two years.
   Also required would be a major refurbishing of the Nevada Northern Railroad to carry the heavy loads of coal once they leave the Union Pacific mainline between Wendover and Wells. The upgrade would cost $100 million and take 12 to 15 months to complete.
   But that's not even the biggest hurdle. Harry Reid, the leader of the Democratic majority in the U.S. Senate, claims that title. A Clark County resident and the state's leading public figure, Reid adamantly opposes the Ely Energy Center.
   Reid told the Associated Press Aug. 2 that he will do "everything I can" to stop construction of all three proposed coal-fired plants in White Pine County. "I can't (support) it. My conscience won't let me," he said.
   "All these power moguls want to do is steal our air and water," he added. "This isn't good for Nevada. I can't comprehend how much coal would be used."
   Instead of building new power plants, Reid proposes installing solar panels on several hundred thousand homes throughout Nevada. "I will use every means at my disposal to prevent the construction of new coal-fired power plants in Nevada that do not capture and permanently store greenhouse gas emissions," he said.
   Backing Reid are the Sierra Club, Interwest Energy Alliance, Nevada Conservation League, Western Resource Advocates, Nevada Wildlife Federation, National Parks Conservation Association and other environmental groups.
   Yackira is no stranger to controversy, having spent 11 years with the FPL Group in Florida. He says he "respectfully disagrees" with Reid. Yackira contends that the Ely Energy Center would help the environment by allowing the company to shut down aging power plants that are far less efficient.
   SPR cleared a major hurdle by securing approval from the Nevada Public Utilities Commission for the Ely center; and the Ely City Council strongly backs the project.
   The next big event occurs Sept. 7, when the Nevada Environmental Commission holds a hearing to listen to concerns from groups petitioning the state to block the project.
   Yackira points out that SPR supports energy conservation programs and renewable energy initiatives, including a $255-million solar generation facility by Spanish firm Acciona. The 64-megawatt plant came on line this year.
   The economic development department of Sierra Pacific Power, led by Grant Sims, even targets "clean energy" companies for relocation and expansion in Northern Nevada.
   "Our biggest challenge is keeping up with the growth. Look at what we have on the horizon," Yackira says. "We have about $7 billion in assets today. We will spend over $1 billion a year on infrastructure over the next seven years. I like that challenge."    NAM's Palmieri blames Reid and his colleagues in Congress for keeping America's manufacturers less competitive than their counterparts in China, India and Japan.
   "We need to diversify our energy supply," Palmieri says. "We are relying upon an ever-increasing amount of natural gas to produce our electricity. That is making natural gas more expensive. If we had more nuclear power and more clean coal and more renewable forms of energy to produce electricity for this nation, we could potentially become less reliant on natural gas."
   Currently, about 50 percent of the nation's electricity is generated from coal. Nuclear energy provides 19.3 percent, natural gas supplies 18.7 percent, and hydropower accounts for 6.5 percent. Fuel oil provides 3 percent, biomass 1.6 percent, and the remainder comes from geothermal, solar, wind and other renewable sources.
   The most energy-hungry industries, and therefore the most vulnerable to energy supply shortages and price spikes, include chemical manufacturing, data centers, fabricated metals, food processing, forest and wood products, primary metals, rubber and plastics, textiles and apparel makers, and stone, clay, glass and mining, according to data supplied by Georgia Power.
   Pete Garra, director of real estate for The Linde Group, a global chemicals company, tells Site Selection that "next to customer demand for products, power remains the key factor in determining the ultimate location for one of our new plants. In addition to the bottom-line cost, availability – typically 15 megawatts per plant – of reliable and sustainable power is critical to ensure a continuous supply of products to our customers."
   The New Jersey-based corporate real estate executive and vice chair of the Industrial Asset Management Council added, "Due to the high capital nature of investment and the technology employed, our plants run on a 24/7 basis. Thus, reliability and sustainability of the grid becomes a critical success factor."
   Unlike Linde, most large-scale chemical manufacturers have chosen to relocate their operations offshore, especially when natural gas costs $7 per 1,000 BTU in the U.S. and only $1 in Tobago. It's even cheaper in Russia.
   If America is to retain chemical-making plants like those of The Linde Group, the country must diversify its energy base and invest quickly in new infrastructure, say the experts.
   "It is time for us to do what every other country in the world has done: Allow drilling offshore," says Dr. Loren Scott, principal of Loren C. Scott & Associates and a top economic advisor to the State of Louisiana. "Off the west coast of Florida, in the Rocky Mountains and in Alaska, there are huge reserves of natural gas. Congress has blocked any new exploration of those reserves until 2012. If we could just get to that natural gas and oil, the price of those products would go down and we would be less reliant upon other countries.
   "The people who are worried about drilling offshore because of spills need to know this: There are far more spills from oil tankers coming from other countries than there are from offshore drills and tank farms," he says. "Hurricanes Katrina and Rita should have convinced us that we can drill offshore without a serious threat of spillage."
   In the meantime, Scott says, electric rates "will continue to drive the site selection process. Reliability is also going to be a concern. From the Florida coast to the Texas coast, that is a lingering issue."
   Scott says it's not just retirees who are considering leaving the Gulf Coast. "Industries are thinking about it too," he notes. "Given the intensity of hurricanes, it is critically important for us to keep the electricity on for a long time."
   Like the Gulf region, the American West is experiencing a storm of its own, in the form of escalating protests to plans to dramatically expand the nation's energy infrastructure.
   Sierra Pacific's Yackira, who spent a decade in Florida battling rolling blackouts and ever-increasing demand for electricity, says it's time for massive power plant expansion.
   "Keeping up with the growth," he says as he shuttles between offices in the booming metro areas of Las Vegas and Reno, "is something that we have to do."