With deregulation looming, energy choice commission begins tackling tough questions

Michelle Rindels
Michelle Rindels
Riley Snyder
Riley Snyder

A diverse group of lawmakers, energy experts and representatives from high-profile businesses took the first steps Wednesday in trying to figure out how exactly Nevada’s energy market should be shaped if a deregulation ballot measure passes in 2018.

The committee, which is chaired by Lt. Gov. Mark Hutchison, faces a host of questions ranging from how to design a new market structure to how ending NV Energy’s monopoly would affect ambitious renewable energy bills being pushed in the 2017 session.

While the proposed constitutional amendment, which passed overwhelmingly in 2016,  still needs to be approved by voters a second time in the 2018 election and wouldn’t take effect until 2023, state officials want to bring certainty about the big transition as soon as possible.

Here’s just a sample of some of the concerns that the 25-member committee will grapple with during the next 12 months:

Should Nevada tap into a wholesale market, and how?

While proponents of Question 3 point out that many other states have implemented retail electricity choice, much of that has happened on the East Coast — where there are already organized, regional wholesale markets.

Wholesale markets are where power plant owners and utility companies that are connected to the grid buy and sell energy at auction. Retail choice is when there are multiple companies selling that energy to the end-use customer, rather than just one possible supplier (such as NV Energy).

“Getting wholesale markets right is vital,” said Josh Weber, an attorney representing the Energy Choice Initiative, which is primarily backed by major gaming companies like the Las Vegas Sands and MGM. “Liquid, organized markets are a feature of the most successful retail choice programs.”

Underscoring the entire debate is the fact that no state with a de-monopolized energy system has accomplished that without being part of a wholesale market.

Nevada has bilateral agreements with power companies in other states but isn’t part of a formal wholesale market such as the one in California -- the California Independent System Operator, or CAISO. Many states in the Intermountain West are in a similar position.

Committee members generally seemed to favor the idea of entering an open market compact, with Nevada having several options — joining California’s market, joining with other states in the region or starting a statewide wholesale market. NV Energy executive Carolyn Barbash estimated that the process of entering or creating a wholesale market could take anywhere between two to five years.

Hutchison wondered whether partnering with California would be the best fit. A representative from CAISO said that while Nevada wouldn’t be subject to certain California carbon emissions rules if it was transferring power within Nevada, it would have to play by California rules if it wanted to export power there.

“California has different priorities than Nevada does,” Hutchison said. “If California is this giant influencer in this ISO [Independent System Operator], I’m very concerned about us having a seat at the table and how loud our voices will be that will affect rates and reliability.”

There are also questions about the role the Federal Energy Regulatory Commission, which oversees energy agreements between states, would play in Nevada. Hutchison raised concerns that Nevada would need federal approval on any wholesale marketplace it designs.

“If we’re going to take the time and the effort … to design and to promote the rules of this wholesale market, and then we have to go back, with hat in hand, to the federal government, how much control do we really have over this market?” he said.

There’s also uncertainty about FERC itself. The commission’s board still needs to fill at least one of its three vacancies (appointed by President Donald Trump and approved by the Senate) before it can achieve a quorum and begin issuing orders.

“What if FERC changes their policies?” Hutchison asked. “What if FERC changes its composition? It just presents another unknown to us where we can’t control our own destiny in the state of Nevada. I’m concerned about that.”

Does Question 3 conflict with pending renewable energy bills?

Questions linger about how ambitious renewable energy bills proposed by Democratic lawmakers would fit into a post-Question 3 market.

AB206 would require 50 percent of the energy drawn into Nevada be produced by renewable sources, with a goal of 80 percent by 2040. An amendment seeking to make it more palatable exempts certain smaller electricity providers and delays the ramp-up period.

But several major casino lobbyists and the Nevada Resort Association testified against the bill during a hearing earlier in April, saying the state shouldn’t take on ambitious renewable energy goals while trying to deal with the complexities of the deregulation process.

“We feel that this just isn’t the time to codify these mandates,” Las Vegas Sands lobbyist Chase Whittemore said at the earlier hearing.

Backers of the ballot question had a different take during the meeting, insisting that the language of the proposed constitutional amendment wouldn’t interfere with how lawmakers set and manage renewable standards. Weber, who presented to the committee and said the Energy Choice Initiative group didn’t take positions on pending legislation, noted that creating and raising a portfolio standard wasn’t strongly linked to establishing a new retail energy market.

“It’s as though there’s two different axes and they don’t really affect each other,” he said.

Brooks’ bill was granted a waiver from legislative deadlines, so it will likely remain on the table for the remaining weeks of the legislative session. He said he was pleased that Energy Choice Initiative backers said on the record that open markets and aggressive renewable energy standards are complementary.

“That is not something that would limit us as a body in creating policy for Renewable Portfolio Standard, energy efficiency, (things) that would fit in the utility structure,” he said.

What if consumers don’t care?

Consumers in an open market who don’t make a choice about their electricity provider are served by what’s called a “provider of last resort” to ensure there are no interruptions in electric service and be a backup in case a retail energy provider goes under. Members of the commission asked who would be that default provider if Nevada opens its markets.

Weber said other states that have implemented retail choice have started out by having the incumbent utility serve as that default company. But NV Energy has already said it has no interest in serving that role, which its president called a risky business proposition.

There are also competitive concerns about having an incumbent such as NV Energy as provider of last resort. It becomes too easy for customers to default to that familiar company and it retains an outsized influence in the market, Weber said.

And there are constitutional questions, as it could conflict with the ballot question language prohibiting “exclusive franchises for the generation of electricity.”

Nevada could invite electricity companies to bid on the opportunity to be the provider of last resort, and regulators — possibly the PUC — could set the rate that the company could charge. Because the provider of last resort would be required to serve anyone who needs it, its costs are often higher, and it’s often allowed to charge more.

Another option is that the state could assign a company to serve as provider of last resort.

But proponents of Question 3 hope the measure creates a vigorous market where people actively make choices about their providers and the competition lowers prices and drives innovation. Asked about his biggest fear on opening the markets, Weber said it would be if people leaned too much on the default company.

“It’s apathy,” Weber said about his worst-case scenario. “People are just going to take the provider of last resort, and we’re going to have done all this work, and nobody’s going to really be able to benefit as much as we think.”

How are utilities compensated if they’re ordered to sell off their assets?

To create true competition and level the playing field for incoming companies, existing utilities including NV Energy would need to divest energy-generating assets such as power plants.

A big question is who would compensate those companies for the difference if the price of those assets is less than their market value. It’s likely that ratepayers would reimburse the company for those losses, but Weber suggested the payout could be negotiated down.

“They also need to be minimized,” Weber said. “Legislatures in various states have taken actions to make sure that that’s not a blank check for those that own those assets to say ‘Here’s what we want. Sign the check, we’ll cash it.’”

Public Utilities Commission Chairman Joe Reynolds said his biggest concern is how the transition would affect Nevada ratepayers’ pocketbooks.

“There’s tremendous uncertainty,” he said. “My question is, is it good for Nevadans?”

What happens next?

The energy policy questions facing the group are certainly complex, and topping things off is a number of procedural and administrative questions on committee function.

While the commission is designated as a public body and is subject to the state’s Open Meeting Law, no extra state funds are going to pay for meetings or staff to help produce a report on the costs of implementing the measure. Some help may come in the form of AB452, which would create an interim legislative study on the energy choice ballot question and passed out of the Assembly on Tuesday on a 41-1 vote. The Legislature’s interim energy committee has funds for staff support from the Legislative Counsel Bureau.

It’s also unclear if the full commission will meet again during the legislative session. Hutchison initially proposed meeting in early May, but legislators balked at the idea of scheduling a policy-heavy meeting so far into the busy 120-day session. Future meeting dates for the full commission and the five “technical advisory groups” have yet to be finalized.

Commission subgroups and membership:

Open Energy Market Design & Policy: Commercial and Residential
Jeremy Susac, Lennar Ventures (Chair)
Kevin Sagara, Sempra Energy
Chris Brooks, Assemblyman
Andy Abboud, Sands Corp.
Adam Laxalt, Attorney General

Consumer Protections: Protections from Undue Rate Increases & Fraudulent Practices
Kelvin Atkinson, Senator (Chair)
Kevin Hooks, Las Vegas Urban League
Eric Witkoski, Consumer Advocate – AG’s office
Barry Gold, AARP
Ann Silver, The Chamber Reno, Sparks, Northern NV

Innovation, Technology, and Renewable Industry Development
Jennifer Taylor, Clean Energy Project
Daniel Witt, Tesla
Steve Hill, GOED
Adam Kramer, Switch
Dana Bennett, NV Mining Association

Generation, Transmission, & Delivery: Securing Energy Imports & Exports
David Lutrell, Lincoln County Power District (Chair)
Angie Dykema, Governor’s Office of Energy
Jeremy Newman, IBEW
James Oscarson, Assemblyman
Darren Daboda, Moapa Valley Paiute Tribe

Ratepayer & Investor Economic Losses: Divesting Assets & Investments
Senator James Settelmeyer
Paul Caudill, NV Energy
Joe Reynolds, PUC
Mark Hutchison, Lt. Governor
Erik Hansen, The Wynn

Photo Caption: Electrician Mario Rojas with 1 Sun Solar carries a latter to inspect solar panels in Las Vegas on Tuesday, March 28, 2017. (Jeff Scheid/The Nevada Independent)

Disclosure: MGM Resorts International has donated to The Nevada Independent. You can see a full list of donors here.

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