By VERNON ROBISON
Moapa Valley Progress
While a lot of promises have been made in favor of the Energy Choice Initiative (ECI) showing up as Question 3 on the November ballot, the truth may not be quite so rosy. At least, that was the message from Overton Power District (OPD) officials at a membership meeting of the Moapa Valley Chamber of Commerce. The monthly lunch meeting was hosted on Wednesday, June 29 by OPD and held in the conference room of the district’s Overton office.
OPD General Manager Mendis Cooper began the meeting explaining that, as a state agency, the district cannot take an official position on ECI. “We can’t campaign or tell people how to vote in an official capacity,” Cooper said. “But we can present the facts that we have gathered as we have tried to understand this complex issue so people can make a more informed choice.”
OPD Public Information specialist Keith Buchhalter began with a brief overview of the initiative. In theory the ECI seems simple, he explained. It claims to do away with the regulated monopoly held by statewide utility NV Energy and replace it with a new energy marketplace. Ratepayers could then choose energy providers from a menu of different options.
In concept, proponents say this arrangement would create competition, and cut down on government regulation in the energy market which presumably would drive the price of power down.
“Unfortunately, these claims are not altogether in line with the research and data that we have been looking at,” Buchhalter said.
The main concern about ECI, at least from the OPD standpoint, is its inclusion of rural districts and co-ops throughout the state.
“All of the other states that have gone through this kind of deregulation have had a carve-out provision exempting the small rural co-ops from being included,” said OPD staffer Aaron Walker who assisted Buchhalter in the presentation. “This initiative doesn’t do that. It lumps us all in there together.”
Cooper said that there seems to be a disconnect in the initiative in how it deals with the rural entities. “We have talked to many of those involved in drafting this intiative,” he said. “They have assured us that it was written with the co-ops and rural districts in mind. But they didn’t ever talk to us to find out anything about us.”
Cooper added that when specific questions are raised on how the ECI will work with the rural entities, there are no answers. “They usually just pass the managing of the details on to the legislature saying ‘Don’t worry, (the legislature) will take care of all of that,’” Cooper said. “That is a little unsettling.”
And when district officials have brought those same questions to legislators, they have heard concerns about how the narrow language of the initiative will tie the legislature’s hands on a lot of things, Cooper said.
“So we are concerned that there are a lot of empty promises here,” Cooper said. “After all, when was the last time you turned things over to the government and it came out good?”
Buchhalter explained that the ECI could bring significant changes to the local governance of the rural power entities throughout the state.
“To understand what the impacts could be to OPD, you really have to understand our origins,” he said.
He explained that OPD was formed in 1935 by the Nevada State Legislature as a non-profit General Improvement District. The founding legislation was requested by members of the community who wanted power services to be provided in Moapa Valley where it had not been provided before. At that time, there were no public or private utilities willing to provide services to such a small and remote area. Thus the district was formed to accomplish that.
Unlike NV Energy, the district and other rural entities are not regulated by the Public Utilities Commission of Nevada (PUCN), the state regulatory body established to represent ratepayers interests in regulating the power industry. Instead, the OPD is governed by a seven member, locally-elected, board of trustees. This board oversees all the operations and finances of the district; including the rates charged for power.
“In that way the rural districts already kind of operate under an Energy Choice model,” said Walker. “We go out onto the open market and are looking for the best rates for our customers.”
But under ECI it is unclear how that governance structure would be affected, Buchhalter said. “Will we still have full oversight of a locally-elected board?” he asked. “Or will there be some other regulatory oversight from another distant agency like the PUCN? These are questions that we haven’t been able to find answers for.”
Another question is about the future of OPD’s oldest power contracts. Since its founding in 1935, a large portion of its power resources has been the hydro power from Hoover Dam. This relatively cheap resource keeps OPD rates relatively low for its customers. But ECI opens questions on what will happen to those long-held hydro contracts.
“The short answer is we are uncertain how those contracts will be handled,” Buchhalter said. “It is a big deal because it is our cheapest power and our most senior resource. But there are just no answers to those questions at this point.”
The uncertainties surrounding ECI don’t just apply to the rural entities either, OPD officials said. Rather they extend to the more populous areas of the state as well.
Walker presented the findings of a formal report on ECI recently completed by the Public Utilities Commission of Nevada (PUCN).
The report raised some questions about the claims that the ECI would lower power rates in the state, Walker said.
Even with the NV Energy regulated monopoly, Nevadans currently have some of the lowest power rates in the country, the PUCN report observed. But if ECI is enacted, the report projected a sharp increase in electricity rates in the state over the first 10 years of deregulation. This was based on a study of other states who had gone through a similar deregulation and had seen rate increases.
“One of the misleading things that proponents say is that Energy Choice will result in lower rates,” said Walker. “They cite numbers claiming that over like a 10 year period of time, the percentage increase in rates is lower. That may be true, but what they don’t tell you is what happened in between those 10 years.”
Walker showed a detailed study of what happened to rates in Texas after its deregulation between 2002 and 2013. The rates quickly surged up immediately. It took more than eight years for the rates to begin to stabilize again.
“The fact that they came back down at all after all those years probably had more to do with the drop in price of natural gas during that time than with anything to do with deregulation,” Walker said.
But during the years of spiking rates, the study calculated that the average customer would have saved $5,500 per year if the state had stayed with a traditional regulated monopoly model, Walker said.
“That adds up to a total impact of $27 billion lost to Texas ratepayers,” Walker added.
In addition to that, the PUCN report projected other costs associated with ECI. It estimated a total of $100 million in administrative costs just to set up the new system. Then it would cost $45 million in ongoing costs per year.
Another expense which will have to be passed to ratepayers is something called “stranded costs.” Walker explained that as large utilities invest hundreds of millions of dollars into power plants and other infrastrucutre, they offset those investments with the promise of being able to amortize them over long periods of time. If the utility is forced to divest itself of these facilities early, however, it disrupts that cost recovery schedule. The loss resulting from that disruption is a stranded cost.
Under ECI, NV Energy would be required to immediately divest itself of its state-wide fleet of generation plants, Walker said. The PUCN, in its report, estimated that this would result in $4 billion in stranded costs to the ratepayers.
Furthermore, stranded costs are not just limited to the big utility, Walker added. The rural districts and co-ops throughout the state are expected to experience around $1.5 billion in stranded costs, according to the PUCN report.
Another concern about ECI centers around where the newly created state energy market will go for wholesale power once its biggest utility is out of the generating business. Because of the complexities of this issue and the tight timeframe involved, it is likely that the state would have to join an already established regional wholesale market.
“The nearest one to Nevada, and the most likely option, is to our west: the California Independent System Operators or CAISO,” said Walker. “That means that all of the control of generation and cost will be from California through a board appointed by the California governor. Nevada would not even have a seat on that board.”
Under those circumstances it would be likely that the power generating plants in Nevada, being divested by NV Energy and acquired by other entities, would likely be used to provide power to priority markets in California, said Cooper.
“It is really just a matter of economics,” Cooper said. “If you have a power plant and have a choice on selling to Nevada at 8 cents per kilowatt-hour or to California at 18 cents per kilowatt-hour, what are you going to do?”
