Nevada's Question 3 pits retail choice against uncertainty in battle of billionaires
Voters could pass a constitutional amendment that restructures the state's regulated utility, opens a competitive electricity market and subjects customers and lawmakers to hard questions.
Billionaire Warren Buffett and casino magnate Sheldon Adelson headline a $100 million feud between their Nevada business interests, but it's up to customers to choose their power system's future.
The feud is over Nevada's Question 3 ballot measure, which would amend the state's constitution to establish a "competitive retail electric energy market" and prohibit "monopolies and exclusive franchises." Under it, the Buffett-owned NV Energy would be restructured and Adelson's Sands Hotel could buy power in a competitive market.
NV Energy had spent over $63 million supporting the NO effort as of mid-October, according to the Nevada Secretary of State's website. The YES effort was largely backed with over $22 million from Sands and almost $11 million from data center operator Switch. Spending was expected to accelerate as the campaign closed.
"We are trying to overcome spending by the opposition to provoke fear of restructuring," spokesperson for the Adelson-backed Energy Choice Initiative (ECI) Jon Wellinghoff, a former Federal Energy Regulatory Commission Chair, told Utility Dive. "It is hard to overcome lies about retail electricity choice when they are outspending us."
The NV Energy-backed NO on Question 3 side is equally assertive. "This would only benefit large corporate energy users like the Sands and Switch," communications director Tracy Skenandore told Utility Dive. "Small business and residential customers will face more complexity, a threat to solar and potentially higher rates."
Because Nevada law requires constitutional amendments to be approved by voters twice, this is Q3's second time on the ballot. It got 72% of the vote in 2016, but a July 31 Reno Gazette-Journal poll showed 46% opposing, 31% supporting and about 22% undecided.
Nevada Governor Brian Sandoval, R, announced in September that, despite voting for the initiative in 2016, he is now undecided, according to the Northern Nevada Business View. And a September 11 Las Vegas Review-Journal poll found NO leading 51% to 32%, suggesting the opposition may be gaining momentum.
The reasons for that momentum may be voter doubts about retail choice, reflecting the bigger question this election will answer: Do consumers in regulated markets want this kind of change?
A shift in voter momentum
One factor driving the momentum shift is that hostility toward NV Energy for its 2015 push to roll back net metering for rooftop solar has dissipated. The legislature reversed the changes and the state's solar industry is rebounding.
NV Energy has also promised to double renewable energy generation if the measure does not pass, which has led to endorsement from local environmental groups, including the Sierra Club. Finally, voters may see more cost and complication to broader power choice.
A Blue Ribbon gubernatorial committee's report on restructuring raised important questions about protections for reliability, rates and renewables, which provided "an initial framework" that could lead to "a successful transition plan."
The committee also requested a study by the Public Utilities Commission of Nevada (PUCN) to answer questions not carefully considered ahead of the 2016 vote. The PUCN found that if the measure passes NV Energy "will likely be forced to divest" assets, which will cost ratepayers an estimated $4.1 billion.
The study's finding is significantly lower than NV Energy's $6.7 billion estimate, but much higher than the $1.1 billion benefit an ECI analyst said would be paid back to ratepayers.
A neutral report from Nevada's non-partisan Guinn Center followed the work from the Governor's Committee, the PUCN and ECI.
"The range between a stranded cost of $4.1 billion and a stranded benefit of $1.1 billion is not insubstantial," the Guinn Center reported. But "neither represents the actual valuation or what a given buyer is willing to pay at the time of divestiture. And that cannot be quantified until the time of divestiture itself. These are merely estimates."
Three of the ECI debate's most disputed specifics — reliability, rates and renewables — lead to diverging answers that voters may find difficult to decide.
The Three Rs
The ECI will create no threat to reliable electricity delivery and NO TV ads are "lies to scare voters," Executive Director Dave Chase told Utility Dive.
"Our plan is to give people a constitutional right to an open and competitive energy market and have the legislature pass laws to enact that competitive market," Chase said. "It allows six years for the legislature to work through issues. It will not be simple, but it is also not the scary uncertain abyss that the other side is describing."
"Once choice is in place, NV Energy's poles and wires would continue to reliably deliver electricity and the utility's CEO Paul Caudill admitted that," Chase said.
Caudill did say NV Energy's system will remain reliable, but reliability is also about electricity providers, NO's Skenandore said.
Consumers in restructured states must choose a retail electricity provider, she said, referring to several examples of unsuccessful restructuring. The Massachusetts Attorney General found retail providers were "overcharging and using predatory practices" in October and Connecticut regulators found they were "enrolling customers without permission" in September.
Texas had "rolling blackouts in 2006 and 2011," she added. "In June, the Houston Chronicle reported regulators found REPs guilty of misleading offers that could increase customers' bills from $0.023/kWh to $0.20/kWh."
Those are the kinds of things Nevada restructuring laws will prevent, Chase argued.
"It is what other states' restructuring laws were written to prevent and what choice opens Nevada customers to," Skenandore said.
Rates for residential and commercial-industrial customers in states with retail choice are 14% lower than in regulated states, according to the ECI website. In regulated states, "overall rates are up 5% and residential rates are up 7%" since 2000, it adds. Nevada's overall rates have risen 55% since then.
But the state's rates have also decreased 15% since 2009, are among the lowest in the country and average rates in states with retail choice are "30% higher than Nevada's," according to the NO website.
With restructuring, Nevada consumers could find themselves dependent on prices in the California wholesale market, which may be facing new turmoil, Skenandore said.
"That is another lie from choice opponents," Chase said. "NV Energy is already a part of the California wholesale market and Nevada buys 88% of its power from out of state."
"None of the current competitive states were deterred...[from] choice by the prospect of the expense."
Philip R. O'Connor
President, PROactive Strategies
Nevada's exposure to California's market is now very limited, but moving to choice would likely require extensive participation, Skenandore responded. And NV Energy's out-of-state purchases are largely through contracts, not the market.
There is "no basis" for claims that choice raises prices higher than in regulated states, according to PUCN testimony from PROactive Strategies President Philip R. O'Connor on behalf of the Retail Energy Supply Association. "None of the current competitive states were deterred...[from] choice by the prospect of the expense."
If Nevada moves to choice, there will be a "need for effective consumer protection policies," the Governor's committee concluded.
Choice will not "kill rooftop solar, but NV Energy and the PUCN killed rooftop solar in 2015 by essentially nullifying net metering," Chase said. "When the legislature reversed those changes in Assembly Bill 405, it future-proofed the law to protect it from the ECI."
"Nothing in Question 3 harms solar and the law requires anybody selling electricity in Nevada to provide net metering," Chase said. "The legislature might need to tweak the laws, but it would have three legislative sessions to do everything needed."
ECI language also protects "public policies on renewable energy, energy efficiency and environmental protections," he added.
NV Energy recently promised "a $2 billion investment in solar" but "that is a political ploy," Chase said. Unlike the ECI campaign, the NO side has not endorsed Question 6, a ballot measure that expands Nevada's renewable portfolio standard, he added.
"[Retail choice] could upend the growth of rooftop solar and large scale solar in Nevada and remove consumer protections that keep electricity rates at reasonable levels."
Spokesperson, Sierra Club
Choice "could invalidate legislation we worked hard to put in place, including net metering provisions," Sierra Club spokesperson Elspeth DiMarzio told Utility Dive. "It could upend the growth of rooftop solar and large scale solar in Nevada and remove consumer protections that keep electricity rates at reasonable levels."
The groups met with both sides of Question 3 and concluded its "market uncertainty" could put NV Energy's planned renewables investment at risk, DiMarzio added. They considered NV Energy's neutral position on Question 6 against the Sands' opposition to the renewables mandate in the legislature. And they concluded the utility "is committed to renewables because it is the lowest cost option."
If the ECI passes, there would likely be several years of uncertainty, DiMarzio said. "That would probably delay the growth of rooftop and all other renewables."
Assemblyman Chris Brooks, D, who co-sponsored and co-authored the pro-solar AB 405 and was a member of the Governor's committee, also opposes the ECI.
"The constitutional amendment takes precedence over any current or future statute, including guidance in AB 405," he told Utility Dive. "It becomes a constitutional right to procure, generate or sell electricity, and no one can regulate providers, consumers or retail pricing. No language can future-proof against that."
Some may argue net metering is a constitutional right, and others may argue a renewables mandate or a requirement to offer NEM violates their constitutional rights, Brooks said. "Still others could argue net metering customers violate their constitutional right because it imposes a cost shift."
"Research suggests that a restructured electricity market may lead to either increases or decreases in electric rates," the Guinn Center concluded. Research also indicates "there is no correlation between restructuring electricity markets and increased renewables" and "it is not clear what will happen to net metering customers in Nevada if Question 3 passes."
The constitutional amendment "forces the Nevada Legislature to proceed with restructuring," the report adds. "Even if legislators find that restructuring is infeasible, the constitutional imperative takes precedence."
The most appropriate one-line summary of the Guinn Center findings is in its conclusion, Guinn Center Director of Economic Policy Meredith Levine told Utility Dive.
"The opportunity to restructure its electricity market presents Nevadans with a different option and potential for its energy future, but the price of that decision is uncertainty," it reads.
"The uncertainty," Levine added, "is because Nevada has no implementation plan. Other states went into restructuring with a plan, knowing they could change it if necessary. We advise voters to read the Guinn Center voter guide and weigh the attraction of choice with concerns about uncertainty."
"Other states have restructured through a statute or a regulation, not a constitutional amendment."
Assemblyman, Nevada state legislature
"There will be no uncertainty," ECI spokesperson Wellinghoff insisted. "The PUCN will oversee an orderly process in which the utility decides what to do with its generation. ... This has been done in 14 states, so there is a track record on how to do it."
Assemblyman Brooks disagreed. "Other states have restructured through a statute or a regulation, not a constitutional amendment," he said. "Only a court can decide constitutional questions. That means uncertainty during the years the legislature works out the laws and they are challenged in the courts. It could badly hurt our renewables industry and discourage businesses from coming here."
The way electricity is generated and delivered has changed dramatically in recent years and many see customer empowerment as the next step beyond the regulated utility, ECI's Chase said. "This vote is being closely watched in the utility and energy world."