Hiro Sakuma
Executive Vice President of Diamond Generating Corp.

When Diamond Generating Corp. was formed in 1999 in Los Angeles, it chose to avoid the then ambitious merchant market and pursue a quiet multi-step development strategy. Hiro Sakuma, the company’s executive vice president said from the beginning the company chose to develop and acquire generation assets that had a guaranteed stable income and cash flow that offered a 3% annual growth rate.


Mitsubishi, the parent of Diamond Generating, chose to reenter the American power market in 1999 after dissolving its U.S. subsidiary Diamond Energy three years earlier to concentrate on the Asian market. Its experience in that market strengthened its view that it needed to get back into the U.S. market, the biggest in the world and growing at an annual rate of 3%, explained Sakuma. It also appreciated the much fairer U.S. legal framework, even to foreign nationals, than what it found with some of the Asian governments, he added.

But from its start, Sakuma said, Diamond Generating decided to take a much more conservative strategy in comparison to many of the merchant developers who were aggressively pursuing green field projects in 1999. They were buying up fleets of turbines with an expectation of eventually seeing annual returns of 18% to 20% or more. Diamond Generating decided not to use recourse financing and to only invest in those projects that had off-take or power purchase contracts, Sakuma explained.

Diamond Generating also had the advantage of an initial capitalization from its parent company. It was able to utilize Mitsubishi’s financial strength and strong credit rating in structuring its transactions.

Diamond Generating’s initial strategy was to make passive investments in a small number of projects with long-term power contracts to create cash flow that would cover general and administrative expenses, debt and new development activities. It began with a $120-million investment in an 18% stake in Orion Power Holdings, a joint venture of GS Capital Partners II, an investment fund managed by Goldman Sachs & Co., and Constellation Power Source, a power marketing affiliate of Baltimore Gas & Electric. By 2000, Orion held more than 5000 MW of operating assets it had acquired from developers and utilities. Diamond sold its stake in Orion to Reliant Resources in Sept. 2001 to invest in new generation assets.

Shortly after the Orion investment in 2000, Diamond teamed up with Tenaska to form Tenaska Diamond L.P. They now own joint interests in seven operating power plants totaling 5,825 MW in Texas, Georgia, Alabama, Oklahoma and Washington in which Tenaska is the controlling partner. Diamond Generating’s interests in these plants total 1,730 MW.


In 2003, the company began investing its proceeds in its first two green-field developments in which it holds controlling interests: the 500-MW Ivanpah project in Nevada and the 600-MW Wanapa project in Oregon. Both will be gas-fired combined cycle facilities. Ivanpah’s site is permitted and the company is negotiating a power purchase contract with an unnamed buyer. Its partner is Black Hills Generation, Inc. The plant is expected to be on-line in 2006.

The Oregon project is being developed in partnership with the Umatilla Indian Confederated Tribe at Hermiston. The Eugene, Oregon Water and Electric Board, the City of Hermiston and Port of Umatilla are also partners. Wanapa project development is six or seven months behind that of the Ivanpah project. Its environmental permit application is being reviewed and the company is working on a power purchase agreement. Diamond hopes have the project on-line by 2007.

Today, in 2004, Diamond Generating is taking its next strategic step, according to Sakuma, by seeking to acquire controlling interests in existing generation assets having long-term power purchase agreements with creditworthy power purchasers. It is seeking a managing general partner role in gas, oil or coal-fired projects, either in operation or under construction.


Sakuma predicts the power market will come back by 2007. While the company is intent on taking a leading role in developing green field projects with a focus on the western U.S., it must keep its development team in place, and maintain its development costs within the cash flow of its Tenaska projects, as the recovery continues. The privately-held company’s net income in 2002 was $24 million after taxes.

But Sakuma emphasized that Diamond Generating is also interested in other investments in the extended electric industry, one example being transmission which is very stable. “If we grow enough and cash flow is large enough, we will invest in merchant plants in the middle to long-term-three to five years,” he said. The August 2003 blackout in the Eastern U.S. proved there must be transmission-related investments in merchant facilities, he said.