The Indy Explains: Question 3, the Energy Choice Initiative
Question 3: Energy Choice Initiative
Formal name: The Energy Choice Initiative
Type of measure: Initiative petition to amend the Nevada Constitution
Group sponsoring: Nevadans for Affordable, Clean Energy Choices
Group opposing: Coalition to Defeat Question 3
Summary of what it does: The initiative would amend Nevada’s Constitution to require the state switch from a regulated monopoly model to a competitive retail electric system by 2023. That would mean abandoning the state’s traditional model, where one company or utility — NV Energy — is granted exclusive rights over the generation, transmission and retail sale of electricity. Transmission, or the “wires” side of the electric market, will likely remain under the purview of one company, but the proposed change would open up generation and retail sale of electricity to multiple, private businesses.
The initiative also creates a constitutional right for every person and business in the state to choose their own electric provider and holds that any laws in conflict with the act be voided when the 2023 deadline arrives. It also states that nothing in the provisions can “invalidate” the state’s policies on renewable energy or the Legislature’s ability to create those policies.
What have other states done?: A total of 13 states — Delaware, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Texas — and the District of Columbia have approved laws transitioning to full competitive retail status. The majority of states that transitioned market structures did so in the late 1990s and early 2000s.
During the past decade, states with retail choice have seen larger drops in electric prices than the 35 “monopoly” states, but the average price of electricity in almost every “retail” state is higher than the current prices in Nevada.
Arguments for passing Question 3: In their formal arguments for the measure, supporters of the initiative claim that Nevada has “some of the highest electricity rates in the West” and that ratepayers are limited in the types of energy they can purchase due to the monopoly model. (Nevada’s average electric price is actually slightly below average for Mountain and Pacific states, but is the fifth highest among the 11 states included in those categories).
They argue that rates have decreased by substantial amounts in retail states, which have gone down by 17.7 percent for the 14 retail states between 2008 and 2016.
The supporters also argue that approval of the initiative would avoid rates being set by energy regulators and allow them to instead be subject to pressures from the free market, and allow consumers more freedom to pick the type of electricity they want to power their homes.
They also compared electricity to other markets such as telecommunications, natural gas and railroads that were once considered natural monopolies but have seen improvements in price and new features after being open to competition.
Arguments against passing Question 3: Opponents’ formal arguments against the ballot question say a switch to a retail market is “unnecessary,” and represents a “loss of control” for Nevadans and claim that states with “deregulated” markets have seen higher electric prices.
Between 1999 and 2015, electric rates in retail states have increased, but at a lower percentage rate than monopoly market states and fell by about 14 percent between 2008 and 2015. The average cost of electricity in retail states across all sectors is typically higher than both the national average and average of monopoly states.
Opponents say that a move to a competitive market would remove the ability of regulators to set prices or structure rates and lessen their ability to prevent energy companies from “gouging” ratepayers. It states that Nevada’s electric market is too important of a public resource to permit the “unpredictable and uncontrollable cost increases that this market deregulation initiative would threaten.”
How did Question 3 qualify for the ballot: Nevada attempted to but eventually backed away from a move to a competitive market in the late 1990s, primarily because of concerns about repeating California’s then-imploding electric market and rolling blackouts.
But a vestige of that aborted effort is a provision in state law that allows large electric consumers to leave NV Energy as a customer and purchase power on the open market, as long as they pay an “exit fee” to the utility to other customers aren’t harmed by the sudden drop in demand. Several of the companies who have applied to leave the utility have grumbled at the high “exit fees” assessed by energy regulators — a Las Vegas Sands executive said at a public meeting last year that the reason the initiative was launched was because of a “lack of transparency on what consumers are being charged to leave the grid.”
Primary funders: The political action committee supporting the initiative has been almost entirely funded since 2015 by the Las Vegas Sands ($10.75 million) and Switch ($12.6 million), with other contributions coming from MGM Resorts and Valley Electric Association.
Opponents have been almost entirely funded by NV Energy, which was initially neutral on the ballot question during the 2016 election but has contributed more than $12.6 million to a PAC opposing the measure. The utility has promised to spend up to $30 million to defeat the initiative.
Financial impact: Fiscal analysts with the nonpartisan Legislative Counsel Bureau say that they cannot determine “with any reasonable degree of certainty” what the financial effects will be if voters approve the ballot question. But questions of how much the measure would cost have become a bitterly divided point among the campaigns, with the range of estimates swinging in the billions of dollars.
Opponents have largely cited an April report by the state’s Public Utilities Commission, which found that ratepayers could be held liable for paying back up to $4 billion in the “stranded assets” of power plants and long-term power purchase agreements that NV Energy would need to sell off if the measure passes, in addition to hundreds of millions of dollars in startup and ongoing costs required to set up a competitive electric market.
Supporters of the initiative — who have panned the PUC’s report — have presented a more rosy projection that the utility would actually earn hundreds of millions of dollars from the sale of its assets and that a potentially favorable ruling from the IRS after passage of the 2017 federal tax bill could result in even more savings.
Status: The initiative passed by 72 to 28 percent in the 2016 election and needs to be approved again in 2018 to become part of the constitution. State lawmakers would have until July 1, 2023 to create the new electric market.
Disclosure: Several Indy donors are mentioned in this story. You can view a full list of our donors here.