Now considered a certainty, reliable electric supply one of many issues facing panel studying retail energy choice ballot question
When temperatures hit triple digits in the harsh desert heat of the Las Vegas summer, most people don’t think twice about cranking up the air conditioning.
That’s because state law and energy regulators require NV Energy — Nevada’s primary electric utility that serves more than 90 percent of the state — to adequately prepare and plan energy supply for years in advance, typically through a process overseen by energy regulators and open to the public.
But a 2018 ballot question opening up Nevada’s energy market to retail competition has energy experts concerned that without careful planning, the near-certainty of flipping a switch to have power come on for air conditioning could be thrown into jeopardy.
That process — generally referred to as “resource adequacy”— is yet another quandary facing the state’s Energy Choice Commission, a 25-member group composed of elected officials, business leaders and energy experts and chaired by Lt. Gov. Mark Hutchison. It is charged with researching and drafting recommendations for state policymakers if a ballot question requiring the state to open up its electric market to retail competition passes again 2018.
Kevin Geraghty, a utility executive specializing in energy supply, told the commission on Wednesday that the careful planning and structuring of a retail energy market was crucial in securing adequate resources to meet spikes in demand that occur every Nevada summer.
Although the utility itself plots out its plans for energy supply in three-year increments that require approval and undergo heavy scrutiny from the state’s Public Utilities Commission, Geraghty said a similar level of state control over energy supply in a retail market would be much more difficult to manage, even if Nevada enters into a multi-state wholesale energy market, or regional transmission organization (RTO).
“The RTOs cannot obligate anybody to build or introduce a resource,” he said. “That’s what you get in an open market. Nobody can force anybody to build a Dairy Queen on this corner. Nobody has the power to tell anybody to expend their resources, their capital, to solve this problem, unless they have a reason to expect that they can profit from that.”
Geraghty said that NV Energy maintains a 15 percent reserve margin for Northern Nevada and 12 percent margin for Southern Nevada for energy capacity, but that the utility had come “very close” to deficiency because the reserve amounts are based on temperatures (102 degrees in Reno and 112 in Las Vegas) that can easily be exceeded in the heat of summer.
Democratic Assemblyman and commission member Chris Brooks said that although other states such as Texas use “scarcity” pricing with no mandatory minimum reserves, he wanted Nevada to incentivize so-called “capacity pricing” as a way to minimize potential harm associated with using profits from fluctuating electric rates to determine whether private companies should install electric generation in the state.
“As a legislator and a policy maker, I don’t want to let complete uncontrolled, unbridled, price hikes make our decisions for investments in the state,” he said. “Having all the choices in the world doesn't mean a thing if the lights don’t come on, or if the air conditioner doesn’t work in the summer.”
Geraghty said that the utility has to plan resources on a variety of factors, from potential generation and transmission outages to projecting customer behavior as well as any policy choices, such as high renewable energy production standards.
“Our folks have to end up following all those policies, and somewhat handicap where they’re going to land,” he said. “It’s an evolving and moving landscape. Will there be a carbon tax? Will there be CO2 reductions? All these things dramatically impact resource adequacy and energy, and there’s just, to me quite frankly, the greatest uncertainty that’s been introduced into our business.”
Geraghty said that the utility is currently below the needed resource adequacy and reserve levels for the next three summers, from a 676 megawatt deficit in 2018 to a 1,178 megawatt gap in 2020. He noted a recent PUC decision rejecting the purchase of an Arizona power plant in part drew on the uncertainty surrounding the energy choice ballot question, and could affect near-term efforts to obtain required capacity for the summer months.
“From a long term perspective, things are at a near standstill,” he said. ”And I can appreciate it, it’s driven from the very reason this commission exists.”
Members of the commission ended the meeting by approving four of eight suggested topics for inclusion in a PUC investigatory docket, including a timeline for implementation, changes to state law, market structure and an analysis of other retail markets. Commissioners rejected suggesting that the study include a look at potential costs and benefits of transitioning to a retail electric market, treatment of energy customers who applied under a state law allowing them to leave the grid and treatment of rural electric cooperatives and municipalities.
The PUC will likely hold hearings on the docket between January and February 2018, with a final report published sometime in March.