Think tank: Energy Choice ballot question would have uncertain impact on rates, wouldn't directly lead to more renewables
A new report by a nonpartisan think tank pokes holes in advertisements run by both sides of the Energy Choice Initiative campaign, and warns that the state will need to address many uncertainties in a short amount of time if the measure passes in 2018.
Although it did not explicitly recommend a position or say whether the proposed constitutional amendment was good or bad for Nevada, the 75-page report by the nonprofit Guinn Center for Policy Priorities underlined and attempted to clarify much of the rhetoric surrounding the ballot question, including whether it would raise electric bills or lead to increased renewable energy production.
The report found that data used by both sides of the well-funded campaigns supporting and opposing the ballot question to prove that rates would increase or decrease in a retail market were fundamentally flawed and result in an “apples-to-oranges” comparison that leads to “biased results.”
It also states that passage of the initiative would not automatically result in more renewable energy use in Nevada and found “no correlation” between states with retail energy markets and higher renewable energy — a seeming contradiction of the group backing the initiative's key plank that approval will “expand clean energy.”
“According to the industry experts with whom the Guinn Center spoke, neither a restructured model with retail electric choice nor the current vertically integrated utility structure provides unequivocally a more optimal pathway to delivering more renewable energy onto the grid,” the report states. “In fact, these experts assert, there is no correlation between restructuring, or lack thereof, and increased renewables: the type of market model has no bearing on increased renewable energy.”
The Energy Choice Initiative, which passed on a 72 to 28 percent spread in 2016, would amend Nevada’s Constitution to require the state to transition from a vertically integrated electric monopoly to an “open, competitive retail electric market” by 2023. The change would likely require the state’s incumbent utility, NV Energy, to divest its generation plants and long-term power purchase contracts as part of the new constitutional prohibition on the granting of electric monopolies.
Both sides of the campaign have been bankrolled by large corporations — NV Energy has spent more than $12 million so far opposing the ballot measure, while the Las Vegas Sands and Switch have contributed a combined $19 million to the main political action committee pushing for its passage.
The Guinn Center’s report is the latest document available to policymakers and voters to help analyze just what passing the measure would mean for Nevada. The Public Utilities Commission of Nevada approved a report critical of the ballot measure in April, warning it could cost millions of dollars to implement, and a 25-member advisory committee chaired by Lt. Gov. Mark Hutchison adopted a similarly lengthy report in June including a laundry list of recommendations for the Legislature on how to best implement the constitutional requirements if passed.
Jon Wellinghoff, a former Federal Energy Regulatory Commission chairman and consultant to the Yes on 3 campaign, responded to the report by pointing to an interview the report’s author gave in January.
“I agree wholeheartedly with the report's author, Meredith Levine when she said, ‘Competition in the energy industry would be good for consumers,’” he said in an emailed statement. “Question 3 creates competition in our energy market which will lower bills for Nevadans just as competitive markets have done for the 14 other states with energy choice.”
He also pushed back on specific portions of the report, saying that rooftop solar customers would likely see more benefits in a retail market, and predicted heightened consumer demand would “spur demand” for more renewable energy projects in the state.
In a statement, Coalition to Defeat Question 3 spokeswoman Tracy Skenandore said the report underscored the ballot question's "serious risks and costs."
"The report also highlights that Question 3 offers no guarantee of increasing renewable energy and may, in fact, cripple Nevada's renewable and rooftop solar sectors," she said in a statement. "We hope Nevadans will continue to look into the facts and vote NO on Question 3 this November.”
The report was based on interviews with two dozen experts including utility regulators, academics and other energy specialists, along with a review of case law and energy data both federally and in states with retail markets to determine any potential effects that Nevada might see. Overall, the report states the ballot question presents the state with potential of a very different electric market structure, but at the price of uncertainty.
“This is something that could affect every resident through their bills each month, and we don’t know the direction of that effect,” Levine, the think tank’s Director of Economic Policy and author of the report, said in an interview.
The report states that there was “no relationship” between a restructured electric market and increased renewable energy and that arguments to the contrary are “flawed.” It instead said that renewable energy use was more dependent on other policies that would be put in place regardless of market structure.
Chief among those include a higher Renewable Portfolio Standard, or RPS, which creates a minimum benchmark for renewable energy production statewide. Nevada’s current RPS standard is set at 25 percent by 2025, but a group backed by California billionaire Tom Steyer has qualified and placed a measure on the 2018 ballot to raise the minimum standard to 50 percent by 2030. It would need to pass in 2018 and again in 2020 to become law.
The report states that while vertically integrated utilities would likely be able to “more efficiently” implement a higher RPS, at least seven states with competitive retail markets had also put in place a higher renewable standard to no apparent ill effect.
Levine warned that an increased RPS could have a negative pressure on new suppliers entering the Nevada energy market.
“As RPS goes up, that can be a deterrent. I wouldn't say it would be or will be,” Levine said. “The other piece is that a lot of states that restructured did it with a higher RPS. It could cut both ways but in a certain regard; it could also be a barrier to entry.”
The report also noted that regardless of the outcome, new large-scale renewable energy projects in Nevada are already on the way, including Switch’s announced plans for a massive, 1-gigawatt solar project.
Another “layer of uncertainty” would come if Nevada joins an existing wholesale energy market — a clearinghouse where electricity can be bought or sold between the points of generation and end use, and considered essential for any retail market. Unless Nevada decides to take the plunge and develop its own wholesale electric market at a high cost, it would likely have to join a preexisting wholesale market with a different mix of available fuel sources than Nevada — which could affect the availability of renewable energy.
There’s a common theme with both campaigns — both rely on data the report says shouldn’t be used to compare electric rates state by state.
Both claims rely on annual average retail price of electricity from the U.S. Energy Information Agency, which the report points out strongly recommends against using it to compare energy prices over time and between states, calling it an “apples-to-oranges” comparison.
“Electricity rates reflect different inputs including fuel prices, weather, and regulatory costs, among others,” the report states. “As such, comparisons of energy prices over time and across states are challenging, if not impossible.”
There’s no clear pattern on the effect toward rates for states that transitioned to a competitive retail market — some have seen sharp increases, while others have seen prices fall. The report says that many other factors, including the shape and functions of a wholesale electric market, have a much larger effect.
“We argue that the conflicting results are a function of the limitations of the data itself, which should not be used to infer causation, as the data is not comparable across states–or even within states,” the report states. “Restructuring cannot be isolated from other factors, such as fuel prices, weather, regulatory costs, and more, all of which contribute to end-user electric rates. In fact, wholesale electric prices and policy decisions about market design have been far more deterministic in shaping rate behavior, the effects of which are amplified in restructured markets.”
Wellinghof said in an email that the data was “imperfect” but was still an independent source that could be used for comparison.
By far, the most important factor for rates in a state with a retail electric market is the price of wholesale natural gas. The report states that since customers are more exposed to the fluctuations of the market in a retail system, rates will likely be lower when natural gas costs are low, and rise if prices increase. Nevada’s current fuel mix consists of about 70.2 percent of natural gas, and in 2015 about 48.1 percent of the state’s fuel consumption came from that resource.
The report also calls into question the future of Nevada’s net metering program for rooftop solar customers, raising the specter of large-scale change for the state’s recently revitalized rooftop solar industry.
Nevada lawmakers approved a bill in 2017 designed to kickstart the nascent program, which reimburses customers for solar energy produced against their own consumption, and pays them a favorable rate for any “net” energy sent back to the grid. The bill included several provisions intended to protect new customers, including the 9,400 who have applied for the program since the 2017 law went into effect, from any changes made if the state switches to a retail electric market given the decades-long lifespan of the systems.
The issue is that passing the proposed constitutional amendment would “nullify” the previous legislation, as new constitutional amendments trump pre-existing legislation. And even if passage of the ballot question doesn’t formally invalidate the provisions, it would be de facto removed given the requirement that NV Energy cease operating as an electrical supplier.
The report lays out several suggestions for addressing current net metering customers, including requiring either NV Energy or other new market participants to offer the reimbursement program as a prerequisite for operating in the state. Ohio, for example, requires transmission companies to offer net metering services to rooftop solar customers.
But sans a solid alternative, the report predicts a robust net metering system and retail energy market cannot coexist.
“In the absence of further clarification, the right to energy choice seems incompatible with the rights guaranteed to net metering customers,” the report states.
Unlike the other 22 states that have moved to a restructured competitive electric market, Nevada’s proposal would be the first to be made through a change to the state Constitution.
Creation of a constitutional right to choose an electric provider is somewhat unprecedented, but the report states that use of the constitution as a “regulatory tool” could prove extremely cumbersome to undo, even if lawmakers and policy experts find the short five-year transition process “infeasible.”
It notes that many states delayed or even reversed their decision to move to a retail market.
“The experiences of other states suggest that restructuring is a complex and prolonged process that will take time, and only after retail electric choice is realized fully would Nevadans be able to determine if restructuring was the ‘right’ path,” the report states.
Levine, who noted that few states have been able to successfully and fully implement a retail market in a truncated five-year time period, said Nevada’s government had done an excellent job at the pre-preparation of identifying what needs to change and take place for the market transition to work. But she said that if it does pass, state lawmakers will need to get to work immediately.
“If it were to pass, the ball needs to get rolling. I have no better way of saying it,” she said.
Updated at 2:08 p.m. to include a statement from a Coaltion to Defeat Question 3 spokeswoman.
Disclosure: Switch and NV Energy have donated to The Nevada Independent. You can see a full list of donors here.