What Nevada can learn from Virginia's experience with electric deregulation
The following is a viewpoint by Frank Wagner, a state senator in Virginia, with 27 years in the legislature.
Nevada citizens are being asked the question: Do you want to choose your electricity provider or should you be forced to buy your electricity from NV Energy? It would be logical to conclude increased competition in Nevada would lead to lower electric prices. As a strong believer in free markets, deregulation made sense to me too, when Virginia considered a similar change to its electricity market.
In the late 90’s, I along with my fellow Virginia legislators started down the road of deregulating our electricity market. The hope was that deregulation would lower electric rates for our constituents. However, we took a "go slow" approach and opted to study the issue for five years, while monitoring adjacent states that shifted their electric markets towards deregulation.
What we witnessed in other states caused us to scrap our plans to deregulate the electric generation market and go back to a fully regulated environment. States to our north, including Maryland, Delaware and Pennsylvania, fully embraced open markets and saw large increases in their consumers' electric bills. However, states to our south, including North Carolina and South Carolina, which chose not to deregulate, experienced little or no increase in their electric rates.
Since competition typically lowers prices and improves quality, how come it doesn’t seem to work in the electric market? To gauge why, one must understand the electric power grid. Electricity is primarily generated at large power plants. The voltage is stepped up and transmitted through power lines like those coming from the Hoover Dam towards Las Vegas. The transmission lines go to large sub-stations where the voltage is stepped down and put on distribution lines which travel into your neighborhoods. From distribution lines, the voltage is lowered one more time to the voltage you use at home and transmitted to your meter.
If Nevada chooses deregulation, the only choice you will have is who will generate your electricity. All aspects of electricity transmission will still be controlled by NV Energy and you will still be paying those costs in your electric bill.
So, who are these new competitors screaming that you need and deserve choice? Twenty years ago, they were at Virginia’s capitol and all over the state making promises and telling my constituents they deserve choice. In reality, these competitors are typically out of state private equity firms and publicly traded companies looking to make a large return for their investors — all at your expense. This is why your electricity rates will not likely go down in a deregulated market.
After looking at deregulation, Virginia returned to a fully regulated market and we have witnessed the positive economic results from our decision. Our principle electric utility provides some of the lowest electric rates to our citizens of any utility in the nation.
Our nation’s electric grid was built on technology from the 1950’s or earlier. Along the way, it is constantly being upgraded, but these upgrades come at a cost. In a deregulated market who will ensure that Nevada’s grid is keeping pace with the rest of the nation?
In Virginia, under a fully regulated market, the legislature, in conjunction with our state regulators and our utilities fashioned a landmark piece of legislation that ensures stable rates for the next ten years, while allowing our utilities sufficient dollars to make important investments in smart grid technology and hardening our grid against environmental and cyber threats.
On November 6, Nevadans will decide whether ratepayers will maintain a fully regulated environment where utility commissioners and legislators control outcomes, or profit driven companies see how much they can profit from this new and confusing marketplace.
Based on Virginia’s experience, I would recommend avoiding deregulation and keeping pressure on your legislators and commissioners to keep electric rates low. As a consumer, I don’t want my elected government to lose that control and you shouldn’t either.