Two-hundred-and-seventy miles outside Las Vegas, Glen Canyon Dam holds back trillions of gallons of Colorado River water in Lake Powell. It is water that eventually makes its way across the Southwest — to Las Vegas casinos, to arid California cropland, to Los Angeles film sets — through a series of dams that use the water to produce electricity. After the water leaves Glen Canyon, this happens next at Hoover Dam, 30 miles outside of Las Vegas, and again at Davis Dam below Lake Havasu, only to be repeated again at Parker Dam 155 miles downstream.
Colorado River water is pumped into Southern Nevada and so, too, are the electrons these four dams produce, cheap power that, on most days, is significantly lower than market prices.
One of the biggest beneficiaries is NV Energy, which has a 50-year contract for Hoover Dam power with the Colorado River Commission of Nevada, the agency that controls the state’s hydropower from the river. With Question 3 on the ballot — an initiative to end NV Energy’s monopoly on power supply — that contract and several similar contracts face an unknown future, and the commission believes a statutory change might be necessary to prepare for it.
Last week, the Colorado River Commission board was set to vote on an item that would have allowed the commission to put forward a bill draft request for the 2019 legislative session to address hydropower if Question 3 passes. Before the Legislature convenes, state agencies — and elected officials — are allowed to make bill draft requests to indicate what statutes they want changed during the session.
Commission staff, on Tuesday, said the agency might need tweaks in the statute for “more flexibility to serve its customers,” according to the agenda item. The vote was tabled to the board’s next meeting in July because of time constraints. But the discussion highlights the rigid system that governs federal hydropower and questions around what Nevada’s hydropower portfolio would look like under a restructured market.
“This is all a new undertaking,” said Jayne Harkins, who directs the commission.
Question 3, known as the Energy Choice Initiative, would open Nevada’s energy market to retail competition, meaning customers would have a choice to pick energy service from several power providers rather than being required to purchase electrons from one company, NV Energy.
If that happens, NV Energy has said it would divest its assets, including contracts like the one for Hoover Dam power. That leaves open the question as to what would happen to the roughly 240 megawatts of cheap, renewable hydropower it gets from the dam. Will it be reallocated? Should it be managed by the state? People have differing opinions, though everyone agrees on one thing: The hydropower contract should stay within Nevada and benefit Nevada ratepayers.
“We want to keep the hydropower here for the benefit of the state,” Harkins said.
But how you actually get to that point is more complicated.
The questions are not restricted to NV Energy either. Several rural cooperatives have contracts to purchase energy from Colorado River dams: Glen Canyon, Hoover, Davis and Parker. In the North, some cooperatives get their power from the Bonneville Power Administration, which allocates power off the federal dams in the Columbia River Basin. These co-ops get more than 65 percent of their energy from hydropower.
The Nevada Rural Electric Association, which opposes Question 3, is concerned that if it passes, the co-ops could be forced to also give up their cheap hydropower, something that could conflict with the terms of their contracts and create liabilities for the small nonprofits.
“That’s the fear,” said Hank James, the electric association’s executive director. “That’s the question that needs to be answered.”
But the group backing the Energy Choice Initiative said co-ops have little reason to be concerned. Under energy choice, co-ops should be able to keep their hydropower contracts because the market Question 3 envisions would not disrupt nonprofit entities, said Jon Wellinghoff, a policy advisor for the ballot measure who chaired the Federal Energy Regulatory Commission until 2013.
“The one that is really in question is the [commission’s] Hoover allocation to the residential customers that are currently under NV Energy’s business,” Wellinghoff said.
Federal hydropower contracts are typically issued to municipalities, co-ops, nonprofits and agencies like irrigation districts. Hoover Dam power is dealt with differently, per rules outlined in the Boulder Canyon Project Act of 1928. The act, which established Hoover Dam, names the Colorado River Commission as the nonprofit. But from there, the commission awards state contracts to 23 Nevada organizations, including private industry, the Southern Nevada Water Authority, rural electric cooperatives and the state. The biggest one goes to NV Energy.
Because the power is so cheap, NV Energy, under Nevada law, is required to pass along the financial benefits of the hydropower to residential customers in the form of lower rates.
In August, during a meeting of the Governor’s Committee on Energy Choice, a panel of energy experts and politicians speculated about possibilities for the Hoover Dam contract. One idea was to sell the power at a markup into a market like the California Independent System Operator. Hoover Dam power, the thinking goes, would be competitive because it is so cheap.
But Harkins told the committee that the commission would prefer to enter long-term contracts with creditworthy counterparties. Long-term contracts make it easier for the commission to seek improvement bonds, which Harkins said could be important if turbine upgrades are necessary at the Hoover Dam. The buyers of power from the dam are responsible for upkeep at the dam.
The issue: Barring a legislative change, the commission is limited as to who it can contract with. Nevada law limits its potential contractors to co-ops, the utility and a few governmental entities. One option would be to work with a state agency that could manage the power. The benefits of the power could then be passed to ratepayers or used to help bolster the general fund. Another idea, Wellinghoff said, would be to allocate the contracts to the power providers that come into the market so that residential ratepayers continue reaping the benefits of the hydropower.
“I think it’s fairly easy to do,” he added, though he said it might require legislation.
The reason the Colorado River Commission staff wants the bill draft request is simple.
As Harkins put it before the committee, “There are lots of legal issues.”
Since the Boulder Canyon Act was signed in 1928 and the New York Times declared in its headline that the “Mighty Colorado Now Must Work For Man,” things have changed. Where in 1937, the Hoover Dam provided nearly all of Southern Nevada’s power and the Colorado River accounted for none of its water, the opposite is true today. The Hoover Dam allocation accounts for only a small portion of its power and the Colorado River accounts for 90 percent of its water.
All of this is taking place amid another conversation about Lake Mead, the reservoir above Hoover Dam. During the 18-year drought, Lake Mead has dropped significantly in the last two decades. With it, the dam has produced less hydropower. According to federal water managers, the dam’s production has dropped by about 25 percent since the drought started.
Yet even amid poorer conditions, contractors jumped at the chance to renew their 50-year contracts last year, a vote of confidence that Hoover Dam will continue producing well into the future. The bottom line is there is demand for the hydropower. The question is who’ll get it.
“The contracts definitely will not be lost to Nevada,” Wellinghoff said.