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Indy Explains: Advisory committee's advice on how to implement the Energy Choice Initiative

Riley Snyder
Riley Snyder
EnergyGovernmentIndy Explainers

Implementing the Energy Choice Initiative is going to be one of the biggest tests for Nevada policymakers if the proposed constitutional amendment passes in 2018 — but a key piece of homework is now completed.

The 25 members of the advisory Governor’s Committee on Energy Choice, which is chaired by Lt. Gov. Mark Hutchison, voted Monday to approve the final set of recommendations on how to best enact the ballot question, which would constitutionally require Nevada to shed its monopoly electric system and transition to a competitive, retail market where multiple companies could generate electricity and sell power to individuals and businesses.

The final 51-page report is the result of more than 30 meetings and presentations over a year and a half, and includes 28 suggestions ranging from how to encourage renewable energy production in a retail market to best practices for educating customers on how to navigate a new marketplace. The committee’s work came after the measure passed on a 72 to 28 percent margin in 2016, but faces more formalized opposition this cycle from NV Energy, which stayed neutral on the measure in the past.

Although the committee’s report isn’t binding, it marks the culmination of a year’s worth of presentations and study on the ramifications of the ballot question and how to deal with them. But the dozens of recommendations still underscore the tall task facing lawmakers in 2019 and beyond of how to successfully transition the state’s electric market.

Monday’s meeting was largely uneventful outside of small suggested typo fixes, but the potential work ahead is still enormous — several of the suggestions included asking the Legislature to form yet another committee to study unresolved issues, including determining just how much NV Energy will need to be compensated for selling off its long-term power contracts and generating stations.

The task of transitioning the state’s electric market from a monopoly model, where NV Energy essentially controls the generation, transmission and retail sale of electricity, to a competitive retail market won’t take effect until 2023 if the ballot initiative is passed, but successfully pulling off the transition will be a tall order for a state with a part-time Legislature and a country that hasn’t seen a state open its electricity market in nearly two decades.

The report isn’t the only guidebook that lawmakers will have to implement the ballot measure — the state’s Public Utilities Commission also issued a detailed report in April concluding that the ballot measure would cost tens of millions of dollars to execute and likely raise residential rates over the first 10 years.

Here’s what the commission is recommending lawmakers and the next governor do if the ballot question passes:

Consumer Protection

More than half of the proposed recommendations came in the realm of consumer protection, which the report stated was a priority because residential customers were the least likely to participate in a restructured electric market.

“The disparity between participation rates among small and residential customers as compared with larger customers illustrates that these classes of electricity consumers occupy distinct positions in a competitive market,” the report stated. “This distinction further amplifies the need for effective consumer protection policies, particularly with regard to consumer education initiatives for small and residential customers, which can encourage residential and other small
electricity consumers to fully participate in a competitive market and help ensure that the benefits of competition are not reserved for larger commercial and industrial consumers.”

Several of the recommendations dealt with creating a robust “customer education initiative” to help ratepayers adjust to the new marketplace. Suggestions included clearly explaining pricing, consumer rights and available low-income programs, as well as risks, rights and responsibilities for customers. It also recommended working with community groups who “may require particularized educational assistance” to explain changes in the market, but did not identify a suggested funding source or proposed amount.

In its report, the PUC recommended the Legislature allocate $10 million for consumer outreach and education.

Another suggestion included requiring new providers of electric service to use a standard “Terms of Service Disclosure Form,” which would standardize “essential terms” of a contract including price, any fees, complaint and dispute process and collection practices. It also recommended changing state law to protect customer data.

Suggestions for policing new retail electricity sellers also included requiring providers to notify customers if their electric service provider is switched and to prohibit independent third-party marketers from signing up customers for new electric providers, as other states have had problems with them misleading customers. It also recommended that the state prohibit door-to-door or telephonic sales for electric providers and update its unfair trade and deceptive practices law to “ensure that retail market participants do not engage in unfair or deceptive trade practices.”

It also recommended the state not allow “variable-rate” contracts, which are contract structures that change depending on how much a person pays for power on certain factors, such as the price of electricity or time of day. The report stated those types of contracts can lead to “enormous confusion for customers and can easily lead to problematic contracts for customers who end up paying more.”

The report recommended that lawmakers cap “enrollment fees” for customers starting with a new provider and prohibit “disenrollment fees” used to penalize customers for switching providers.

Market Design

A successful transition to a competitive market will likely require the state to join an electric wholesale market, broadly defined as any selling or buying of electricity between generation and retail sale and use of electricity. The state would “presumably” join the California System Independent Systems Operator, or CAISO, which manages the California wholesale electric market.

It noted that whatever arrangement the state had with CAISO would first require Nevada to control its own fuel mix, retain power over programs like energy efficiency and net metering, and give future lawmakers “legislative flexibility and power to make further changes to ensure consumer protection.” Joining CAISO would take about three and a half years and cost about $750,000 in start-up fees, with another $21 to $27 million for annual maintenance. It would also likely require approval from the California Legislature, which governs CAISO.

The report also recommended that the state should establish a “provider of last resort,” or electric provider who steps in to provide power as a “safety net” in case another provider goes under. It recommended that the service be “temporary” and only used under “rare” circumstances and suggested the Legislature define circumstances for use no later than 2021. NV Energy has stated it has no interest in being designated as a provider of last resort, but the PUC report stated that it could be designated into that role regardless.

The report also recommended creation of a committee between the governor and Legislature designed to study how to fit programs such as net metering for rooftop solar and providers of last resort into a competitive market. It recommended the committee be integrated with the PUC and its staff and produce recommendations no later than by the start of the 2021 legislative session.

Generation and Transmission

The report recommends keeping the Integrated Resource Plan (IRP), a three-year plan on how the utility plans to manage expected supply and demand, in place until the retail market is created by the Legislature.

NV Energy’s most recent IRP proposal calls for a massive expansion of photovoltaic solar plants and expanded battery storage, but is contingent on Question 3 not passing. If the measure does pass, the utility is asking to only enter one of the six proposed contracts.

It also reported that resource adequacy — having enough power capacity to meet demand — could be an issue in a retail market, given the age of some of NV Energy’s plants and some of the contract terms with existing power purchase agreements. It recommended further studying transmission issues to see if additional expansion is needed before joining a wholesale market.

The report also recommends that the utility identify so-called “must-run” generation units, which are needed during certain operating times to ensure the system is stable and to find a way to eliminate their status so future owners of the plants aren’t able to engage in “anti-competitive” behavior.

Innovation and Renewable Energy

A total of five broad recommendations related to spurring innovation and encouraging renewable energy were made by the commission, but no specifics as to if the state should increase its current Renewable Portfolio Standard, a required minimum energy production benchmark. A separate ballot measure raising the current standard to 50 percent by 2030 has qualified for the 2018 ballot.

The report generally recommended that policymakers implement the ballot question in a way that doesn’t interfere with current state goals on renewable energy production, energy efficiency, net metering, energy storage and subsidized pricing for low-income customers. But the report noted that absent state policy goals, the mere transition to a retail market did not automatically create an increase in renewable energy production.

“Because retail choice allows consumers to choose their own supply, there is no guarantee that, absent state policy, the share of renewables will continue to grow if ECI is approved,” the report stated.

Administering popular policies such as net metering would be possible in a retail market, but the report states it would require a secure funding mechanism and reliable actor, either a third party entity, a new electric provider or the incumbent utility itself.

It also recommended that the governor or the Legislature create or fund incubators for energy-related pilot projects and “promote regulatory flexibility” for providers to integrate things like green fleets and using electric cars to store or create distributed generation. It also recommended the 2019 Legislature “revisit” the topic of community solar gardens — essentially small-scale local rooftop solar panel projects funded by individuals or small groups — after Sandoval vetoed a bill that would have allowed for them in 2017.

Economic Impact

Only one recommendation came out of this subcommittee — that the Legislature should “as soon as practicable” further study the economics of NV Energy divesting its energy-producing assets, including generation and power purchase agreements

The report states that actually determining the cost of “stranded assets” and other costs is “among the most challenging issues associated with market restructuring” and found “consensus on the best approached is not arrived at easily.” The group included electric market restructuring bills approved in California, Ohio and Texas as possible examples for lawmakers to look at in the future.

The PUC’s report estimated that the total cost of stranded assets would be around $4 billion, including every power plant and long-term power-purchase agreements. Supporters of the initiative have disputed that figure.

Disclosure: NV Energy has donated to The Nevada Independent. You can see a full list of donors here.

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