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| Company Overview
Vulcan Power Company ("Vulcan") is a privately owned developer of clean, renewable power projects headquartered in Bend, Oregon. Founded in 1991, the primary focus of Vulcan is the development and operation of clean, renewable, "24x7" baseload geothermal power plants. Vulcan Power's projects comprise over 170,000 acres of private and federal land leases—one of the largest geothermal property portfolios in the United States—and will supply geothermal energy to the most significant renewable power contract portfolio in the nation. As of June 2008, Vulcan Power executed firm contracts to supply over 200 megawatts (MW) of environmentally benign, "green" power to major electric utilities in California and Nevada. Several additional power contracts are currently in the process of negotiating agreements. Vulcan Power's projects supplying these contracts will increase geothermal power output by nearly 25% in the United States.
A 2007 third-party report estimates that Vulcan's property leases may supply steam from subsurface natural steam reservoirs in the Earth to generate electricity that may exceed 1000 MW. That is sufficient power to supply electricity for up to 2 million Americans. It is also up to three times the amount of powerful, natural steam required to fulfill the massive Vulcan power project development portfolio. An estimated $27 million has been spent on geothermal exploration and development work on Vulcan's project property leases. Vulcan has invested more than $20 million in additional development work on its project areas. In 2007-2008, Vulcan closed a $45 million corporate financing agreement with a Merrill Lynch subsidiary; the cornerstone investment of its proposed $150 million institutional private placement. With executed utility power contracts, advanced geothermal resource sites and its own drill rigs, the highly experienced management team of Vulcan Power intends to meet its contract goals through an aggressive, phased development plan of resource exploration, drilling and power plant construction. The drilling has already begun in Nevada. At Vulcan, its "Full Steam Ahead!" Company Highlights Vulcan Power Company has worked diligently to position itself as a major new supplier of geothermal power—the "Premium Power Source." Vulcan has created:
Strong Market for New Geothermal Power In the American West, electric utilities are scrambling to meet a substantial share of their future power load demand with renewable energy. Why? Because new Renewable Portfolio Standard (RPS) laws require utilities to serve their customers with large amounts of new "green" electricity generated from renewable sources. Another reason lies in the ever-higher prices for natural gas, the primary fossil fuel used by power plants in our region. In July 2008, gas fuel exceeded $12.00 per mcf in the region where Vulcan conducts business. With increasing public concern about the environment and RPS laws requiring utilities to supply a portion of their power from renewable sources, the emerging market for "green" energy resources generates a cost competitive geothermal industry. Geothermal power prices are economical, starting below the California Energy Commission Market Price Referent (MPR) of nearly $0.10 per kilowatt-hour, the estimated price of power from a new gas-fired power plant coming online in 2009. In these market conditions, baseload "24x7" geothermal power is a preferred, clean, reliable bargain for utilities and their millions of customers across the West. The Vulcan Power Team is proud to have led the passage of RPS laws in Nevada and California for geothermal and other renewable power industries. Crafted through bipartisan cooperation by our elected representatives, these new laws have created a new "renewables platform" of market opportunity that will phase-in an estimated 10,000 MW of new renewable power in the six states of California, Nevada, Arizona, New Mexico, Oregon, and Washington. Vulcan's projects have gained a substantial share of new RPS long-term, fixed-price power contracts. This is a direct result of a tightly focused and well executed Vulcan five year plan, aimed at creating markets and gaining market share after acquiring high quality, advanced stage, strategically located, steam fuel properties for lease and development. Renewable Transmission Upgrades Vulcan has a highly experienced transmission planning team proactively working with electric utilities, regulatory agencies, and state and federal leaders to advance the major task of rebuilding the Western transmission grid upon a sustainable, renewable power base. To handle projected loads, the western transmission grid requires major infrastructure upgrades. Those programs are underway in California, where Vulcan geothermal projects have been identified by regulatory agencies and utilities as desirable "low hanging fruit" for adding new renewable power to the grid. For example, Southern California Edison proposes building an upgrade of its North of Lugo transmission line at a cost of over $250 million, largely to facilitate new geothermal power. In support of such projects, the California Public Utility Commission issued a ruling that allows electric utilities a rate of return on transmission projects even if renewable developers do not produce power. That ruling was considered a major step forward to meet the California State Renewable Transmission Plan. For the electric utility industry, it eliminates risk from transmission upgrade projects designed to service new renewable energy projects. In addition to ongoing project-specific transmission activities, Vulcan has designed and filed its G3 Transmission Plan to connect the geothermal systems of northern Nevada to RPS driven load centers in southern Nevada and southern California. More information on the G3 Transmission Plan can be viewed at www.g3plan.com. This project will significantly increase Vulcan Power's capacity to deliver renewable power from geothermal-rich Nevada to the California load centers.
Vulcan Geothermal Properties
In the 1990s, while other U.S. geothermal companies focused on offshore properties for growth, the Vulcan team planned and implemented a cost-effective, "counter cyclical sweep" of the best available, major advanced stage geothermal properties in the western United States. Vulcan evaluated more than 100 geothermal resource areas and has successfully assembled a portfolio of private and federal geothermal leases and exclusive lease applications that exceed 170,000 acres. Vulcan leases one of the largest geothermal property positions in the U.S. A 2007 comprehensive report on Vulcan's geothermal resource property leases by Vulcan's Chief Scientist, Dr. Jim Combs, Ph.D. (MIT), estimates that Vulcan's projects have a power capacity potential that may exceed 1000 MW. These large property leases are strategically located near existing power transmission lines that serve California—the second largest and greenest power market in the nation—and other markets in the rapidly growing American West. The Vulcan Power Team believes its property strategy, including bearing the initial risks of acquisition, holding costs, and exploration, provides the company with a significant competitive advantage. This is especially true considering successful company companion efforts to create renewable energy markets, for itself and its competitors, through active pursuit of RPS laws and other progressive energy policies in the United States. Vulcan's leased geothermal properties have benefited from an estimated $27 million in important geological and geophysical research, drilling exploration, and development work by prior leaseholders. Replication of these efforts today would cost an estimated $70 million. Vulcan has performed an additional $20 million in follow up work since the acquisitions, bringing the total value of exploration and development on Vulcan's leased properties to $90 million in 2008 dollars. Vulcan Power Purchase Agreements
Vulcan signed its first Power Purchase Agreement (PPA) with Southern California Edison to supply up to 120 MW of geothermal power to the utility. By June 2008, Vulcan's projects had executed long term, fixed price PPAs with Pacific Gas & Electric and Nevada Power Company for a total of 300 MW of geothermal power from Vulcan leased properties in Nevada and California. Several additional megawatts of geothermal power supply contracts are in progress with other utilities. Vulcan is also developing biomass power projects in connection with the Federal Healthy Forest Initiative. Supported by federal funds, the Initiative seeks thinning of small trees to reduce forest fire risks and to improve forest health. Wood chips generated from thinning will provide fuel for biomass power plants. A Vulcan subsidiary has signed a contract for 40 MW of biomass power in Oregon. The Vulcan Power Team
The Vulcan Power Team has a high level of experience in all aspects of geothermal resource exploration, power development, production, and finance. Members of this team of professionals serve the company as directors, employees and advisors. The Vulcan Power Team has particular expertise in all of the scientific, engineering, financial, and legal disciplines needed to successfully develop geothermal power. Their collective technical talents include geology, geophysics, power engineering, power plant construction, transmission, and steam well drilling. Rocket DrillCo Subsidiary
Vulcan has formed Rocket DrillCo, its wholly owned drilling subsidiary, to provide Vulcan with ownership interest in up to 5 large drilling rigs. Rocket Rig 2 is pictured (right). With very high demand for quality drilling equipment and crews, Rocket DrillCo provides Vulcan with a significant competitive advantage to move forward with its geothermal development projects. Vulcan gains drilling expertise and benefits from day-rate cost caps. Rocket DrillCo ensures Vulcan rig availability, a fundamental component to the development of its steam fields and potential revenue from contract drilling. The Company also has reduced its well costs through bulk purchase strategic alliances with well equipment suppliers. Vulcan Advanced Technology
In the hands of our experienced team, this advanced software provides Vulcan with cost effective high-quality steam field resource exploration and development capability. The company manages this core competency under a rigorous phased exploration methodology, designed to minimize the costs and risks of steam exploration and development. Renewable Energy Incentives Programs The explosive growth of renewable energy for power generation will be a defining feature of infrastructure growth in the U.S. economy for the foreseeable future. As noted above, RPS laws in several states have spawned the requirement for over 10,000 MW of new renewable power projects in the American West. To offset risks of natural gas price fluctuations and supply reductions, and to meet concerns about climate change, new "green" power laws and other incentives are being considered where Vulcan is developing its geothermal and biomass power projects and markets. For example, progressive lawmakers in California have banned new coal-fired power from entering the state unless it is proven to be non-polluting--an unlikely event. California is also considering increasing its RPS law requirement from 20% by 2011 to 33% by 2020. |
