Former federal energy regulators say it's a 'fertile time' for energy choice, question renewable mandates
But what do federal energy regulators think?
Two former Federal Energy Regulatory Commission members appointed in the early 2000s — Pat Wood and Nora Brownell — met with reporters at the invitation of the PAC backing the ballot measure last week to give their takes on the potential benefits of moving to a competitive retail market. FERC is the federal agency that regulates and oversees interstate transmission of electricity, natural gas and oil and is composed of five commissioners nominated by the president and confirmed by the U.S. Senate.
Both commissioners are far from household names, but both oversaw their individual state’s move to an open electric model — Wood in Texas and Brownell in Pennsylvania — as a state utility regulator, and both extolled potential benefits of moving to an open, competitive market.
“I would not have gone to retail competition in 2002 or 2004, because the marginal cost of electricity was actually going up,” Wood said. “So you would have created a lot of stranded costs that weren’t really valid. But now that the cost of power is going down in the competitive states and going up in the rest of the states, I think it’s a fertile, fertile time to just finish the job and get on with it here.”
Approved by voters 72 to 28 percent in the 2016 election, the Energy Choice Initiative would amend Nevada’s Constitution and require the state move to a competitive, retail electric market by 2023. After sitting out 2016, NV Energy has gone all-in to block the ballot measure from passing, contributing more than $12.6 million to a PAC opposing the initiative. The two businesses bankrolling the initiative, the Las Vegas Sands and Switch, have contributed a combined $19 million to groups supporting the measure.
Though recent polling has shown the opposition with a comfortable lead, passage of the initiative would kick off an intense, five-year race to reshape Nevada’s electric market. Already, a state-led advisory commission spent more than a year putting together an initial blueprint suggesting which steps to be taken by lawmakers should the measure be approved in 2018.
Though Wood and Brownell are both unabashed supporters of a move to competitive markets, they said their experience overseeing structural shifts in markets would be key for Nevada leaders to lean on if the measure passes in November.
For most people, the most vivid example of a competitive market gone askew is that of California and the broader Western energy crisis of 2000 and 2001, which saw rolling blackouts, spikes in electric prices and the collapse of at least one utility.
Opponents of the ballot measure have highlighted California in television ads as a key example of what could go wrong if the ballot measure is approved, but Wood and Brownell said federal energy regulators have significantly reversed course and beefed up their enforcement and oversight capacity during the last two decades.
“It’s pretty clear that the prior commission didn’t have the resources or really the mindset to really oversee vibrant competitive wholesale markets,” Wood said.
Brownell said that California’s poor experience with a competitive market was in some ways brought on by poor market design — blaming the state’s “old and declining generation” mix coupled with a lack of incentives for the building of new power plants that eventually contributed to supply shortages and blackouts.
“FERC itself took a lot of blame from California, some it well-deserved, but FERC doesn’t build power plants or transmission lines,” she said. “And they had insufficient infrastructure to support the economy, and the growth in that economy. And that underlying fact cannot be changed by any market design. If you don’t have enough, you don’t have enough.”
Changes in federal law have given FERC additional tools to use against misbehaving players in wholesale and other electric markets, including fines of up to $1 million a day, a new mandate to go after fraud and manipulation, audit powers and the ability to publicly shame bad actors.
It hasn’t exactly made for the most appealing campaign fodder, but approval of the ballot measure would likely require Nevada enter into an organized wholesale market prior to the required 2023 start of a competitive market.
Wholesale markets — broadly defined as the buying and selling of electricity between the points of generation and end use — are considered almost necessary for any state with a competitive electric market.
“The more sellers in the market, the more competitive pricing you’re going to have, and the competitive pricing in the wholesale market pushes down prices in the retail market,” Brownell said.
There are nine organized wholesale markets — also called Regional Transmission Organizations or Independent System Operators — in North America, but the only one physically near Nevada is the California ISO, which serves both Nevada’s western neighbor and parts of rural western Nevada served by the Valley Electric Association.
Although some policy makers have expressed skepticism toward Nevada potentially giving up some independence through joining California’s wholesale market, Brownell said that a partnership could be beneficial for Nevada.
“That’s a great market to sell into. They don’t like to build things there, but they do want renewable energy. So for Nevada, it’s a great economic opportunity to leverage your solar resources,” she said.
Both former commissioners cautioned that a move to a competitive market wasn’t an automatic silver bullet.
“Market design does matter,” Wood said. “Details do matter when you talk about a project that moves at the speed of light. You’ve got to have oversight, you’ve got to have guardrails in place, but most importantly, you’ve got to have business incentives.”
Brownell, who said it was “outrageous” and “offensive” to suggest that electric customers wouldn’t be able to efficiently pick a new electric provider, nonetheless said there were important market design lessons that states with competitive markets had already learned.
In Pennsylvania, she said the decision to keep customers enrolled with the incumbent utility as a provider of last resort after the shift to a competitive marketplace resulted in almost no customers switching providers. She said another requirement, to have customers physically sign papers to switch providers, created another high barrier to entry.
Both Brownell and Wood expressed surprise at the polarization of the ballot measure — most major Democrats, including gubernatorial candidate Steve Sisolak and Rep. Dina Titus, said they plan to oppose the measure. But if the measure passes, Wood said the state lawmakers would likely be able to craft policies that address some of the concerns expressed by labor organizations and others over the dismantling of NV Energy’s monopoly model.
“I think a Legislature in a purple state like yours would hit that balance pretty well. I don’t know why that should be a big issue at all,” he said. “You can have a choice environment that fully protects labor interests.”
While not stating it outright, Wood expressed some doubt on policies mandating a certain amount of renewable energy production in states with competitive markets.
“I personally think it’s unwise to direct certain plants to run or not to run,” he said. “My own experience in our state has been that the markets have done a much better job of making that decision.”
Although Texas law required retailers in the state to install 5,000 megawatts of new renewable generation by 2015 (a goal achieved in 2009), Wood said the dwindling cost of renewables had helped ease into that goal without placing barriers on the electric market. The PAC supporting the initiative has endorsed another measure on the 2018 ballot that would raise Nevada’s Renewable Portfolio Standard to 50 percent by 2030.
Brownell said that a retail model allows for more fluid decision making, citing a case in Pennsylvania where an electric utility moved to open two nuclear plants near the Pittsburgh area despite the state’s declining electric load.
“Everyone in the world, except the people ordering it, knew the steel industry was dying,” she said. “And that was a big part of stranded costs. It was tragic — from the day they opened they were underutilized, and overpriced.”
Disclosure: Switch, NV Energy, Steve Sisolak and Valley Electric Association have donated to The Nevada Independent. You can see a full list of donors here.