Editorial: Time to let free market work for electricity

The Energy Choice Initiative — Question 3 on the November ballot — would amend the Nevada Constitution to require lawmakers by July 1, 2023, to “establish an open, competitive retail electric market, to ensure that protections are established that entitle customers to safe, reliable, and competitively priced electricity …”

This would include provisions to reduce costs to customers, ensure reliable service and prevent unfair practices. It would not require competitive transmission and distribution systems.

The initiative passed in 2016 with 72 percent voting in favor, but, since it amends the Constitution, voters must again approve it this year.

It had virtually no opposition in 2016 but now NV Energy, the monopoly power company that serves 90 percent of Nevada, is spending $63 million to defeat Question 3. Under the monopoly system, NV Energy is assured a 10 percent rate of return on investments. Profits without risk.

The ballot measure is being pushed by several large power users — chiefly Las Vegas casinos and large mining and data companies.

The opponents of Question 3 make the spurious claim: “In fact, in the 14 states that deregulated electricity, average residential electricity rates are 30% higher than ours in Nevada.”

That is entirely due to factors such as fuel costs that have nothing to do with what a  change to a free market system could provide. The better comparison is to look at how electricity prices have changed over the years since competition was introduced.

According to a 2017 analysis by the Retail Energy Supply Association, the average electricity price in those 14 competitive states fell 8 percent from 2008 to 2016, while the price of power in the monopoly states rose nearly 15 percent.

NV Energy also claims passage of Question 3 would require it to sell off its generating facilities and purchase power contracts at a loss that would have to be covered by ratepayers, but nothing in the language of the amendment requires this. In fact, lawmakers could require NV Energy for a period of time to be the provider of last resort.

NV Energy estimated that it would lose $7 billion by selling assets. The Public Utilities Commission of Nevada estimated those stranded costs could cause electricity rates to rise $24.91 a month in Southern Nevada and $6.52 in Northern Nevada for residential customers.

But a report by the Garrett Group presented to the Governor’s Committee on Energy Choice on behalf of the initiative backers said such a sell-off should be profitable, and, when coupled with the recent tax law changes, should cause power bills to drop by $11.16 a month.

Nevada and many other states were well on the way to breaking up their electricity generation monopolies 17 years ago until the Enron market manipulation debacle led to blackouts and price spikes that scared lawmakers into backing off, even though the free market was not the problem. The problem was collusion and manipulation.

According to a Wall Street Journal article at the time, Enron charged California’s Independent System Operator for relieving power congestion without actually doing so. The company also avoided in-state price caps by moving power out of state and then reselling it to California — fraud. Enron violated the rules.

Free markets tend to reduce cost and encourage innovation.

For example, since Pennsylvania introduced a competitive electricity market residential and commercial customers in Philadelphia and Pittsburgh are paying 40 percent to 56 percent less for power in inflation-adjusted dollars than they did in 1996 and residential customers saved $818 million in 2016.

Let the free market system do what it does best, vote for Question 3.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

NV Energy desperately trying to protect its monopoly status

Why would NV Energy pour $63 million of its money into trying to persuade Nevada voters to reject a constitutional amendment that would end its monopoly on supplying electricity to customers in the state? And since money is fungible, how might they recoup that expense from ratepayers through a pliable Public Utilities Commission that already has basically sided with the utility?

The power company has outspent proponents of Question 3 — the Energy Choice Initiative — by two-to-one.

Yes on 3 Executive Director Dave Chase said in a statement Wednesday that was quoted by the morning newspaper, “This is $63 million that should be used to lower rates for Nevada families. Instead, that money is being used to protect an out-of-state owned corporate monopoly. NV Energy is not spending play monopoly money, they are spending our money, all to protect their bottom line.”

Of course, the major backer of Question 3 is the Las Vegas Sands Corp., which would like to buy cheaper electricity without having to pay a multimillion-dollar exit fee to NV Energy. The casino company is owned by the same family that owns the newspaper, which today editorially backed Question 3.

So, it is billionaire Warren Buffett vs. billionaire Sheldon Adelson.

The editorial rightly points out:

For instance, opponents maintain that states with competitive retail electricity markets have higher prices than Nevada. But they use “average” prices as a comparison tool, a deceiving statistic that ignores the wide range of choices available, including lower-cost options. The more relevant issue is how prices reacted after the implementation of choice. Answer: They’re down. The Energy Research Consulting Group estimates consumers in the 14 states with competition have saved $25 billion in the past six years.

Yes, the big corporations are likely to save millions, but the residential homeowners are also likely to save a few bucks and competition might spur innovation, while a monopoly is content to keep things the same and collect its guaranteed 10 percent rate of return on investments.

(Getty Images via R-J)

 

 

 

Newspaper column: How will energy choice affect rural Nevadans?

One of the big questions lingering about a constitutional amendment on the November ballot that would end electric power monopolies and create an open and competitive market electricity is: Just how will it affect customers of rural Nevada’s power cooperatives?

Question 3 on the 2016 General Election ballot — the Energy Choice Initiative (ECI) — passed by an overwhelming 72.4 percent to 27.6 percent. Because the measure would amend the state Constitution, it is back on the ballot this fall for final voter approval, but now a coalition headed by NV Energy is campaigning to defeat it.

David Luttrell — general manager of the Lincoln County Power District No. 1, president of the Nevada Rural Electric Association and a member of the Governor’s Committee on Energy Choice — said his power district has not joined the coalition opposing the initiative, but he is concerned the initiative’s impact on rural Nevada, should it pass, is not being adequately addressed.

“As we’re moving toward energy choice we were hopeful that there would be some recognition that the rural organizations, by definition, offer choice, so there are choices,” Luttrell said in a recent interview. “They were created by the people they serve for the people they serve. So at a very fundamental level that is choice.”

None of the rules will be written until and unless it passes again in November and goes to lawmakers. Luttrell said what is really going on at this stage is a kind of record building and fact finding.

“If you look at some of the comments of proponents of energy choice, one of the things they very strongly believe is that existing utilities do not and are not allowed to be retail energy providers, and their argument, I understand, I get the basis of their argument, is that an existing utility, retail energy provider, they do have an advantage that others that want to come into the area will not be able to compete against,” he said.

The proponents say it would be unfair and hinder real competition intended to lower overall power bills if the existing utilities are allowed to continue to generate power at the facilities they own and maintain existing contracts with outside suppliers.

While that argument is being made, it is not necessarily mandatory. The initiative itself simply requires the Legislature to pass a law providing an open, competitive retail electric energy market by July 1, 2023. The law must include provisions to reduce customer costs, protect against service disconnections and unfair practices, and prohibit the granting of monopolies for power generation, but could leave in place regulation of transmission or distribution systems.

On their website the backers of the initiative say it would be up to lawmakers to decide if current utilities would have to divest their generation facilities.

“In some energy choice states, energy consumers do not have to choose a new supplier. They can choose to remain with the incumbent utility. Other states have chosen to prohibit the utility from generating and selling power to consumers,” the ECI website offers. “In both cases, the utility retains ownership of the transmission and distribution grid and responsibility for maintaining the system and billing customers. Energy choice states simply give consumers the right to choose a new supplier, aggregate a community to purchase electricity, or generate their own power.”

But Paul Caudill, CEO of NV Energy, has told the Governor’s Committee on Energy Choice that, if voters approve the amendment, his company is ready to divest all generation assets and all purchase power agreements. He said the company has no interest in being a provider of last resort and will most likely transform into a wires only company.

NV Energy has suggested divestiture could result in so-called stranded cost of as much as $7 billion that would have to be paid by existing customers.

The Public Utilities Commission of Nevada estimates those stranded costs could cause electricity rates to rise $24.91 a month in Southern Nevada and $6.52 Northern Nevada for residential customers.

But a report by the Garrett Group presented to the Governor’s Committee on Energy Choice recently on behalf of the initiative backers said such a sell off should be profitable, and, when coupled with the recent tax law changes, should cause power bills to drop by $11.16 a month.

If rural power cooperatives have to divest their contracts for cheap hydroelectric power, Luttell says bills will necessarily soar.

Next week: Part 2

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.

Whither future power bills if voters approve Energy Choice Initiative?

Will power bills go up or down, if voters approve the Energy Choice Initiative on the November ballot? Depends on whose assumptions you believe.

The Nevada Public Utilities Commission, in a 109-page report recently released, claimed passage would cause electricity rates to rise $24.91 a month in Southern Nevada and $6.52 Northern Nevada residential customers, because NV Energy  has threatened to sell off its power generation plants at a loss — even though there is nothing in the initiative requiring such a move.

But a report by the Garrett Group presented to the Governor’s Committee on Energy Choice on Wednesday said such a sell off should be profitable, and, when coupled with the recent tax law changes, should cause power bills to drop by $11.16 a month.

The Garrett report noted that one can’t use current market power plant sales to make projections, because current sales reflect the fact that all retail customers are captive customers of NV Energy. Market sales, if the initiative passes, would change to reflect the fact that customers no longer would be captive customers.

We suspect NV Energy has threatened to sell off generating plants because under the competitive market the initiative would create the company would no longer be guaranteed a 10 percent rate of return on investments and might have to settle for a smaller profit margin unsatisfactory to billionaire company owner Warren Buffett.

Under the initiative the company or some other entity probably would still maintain a monopoly over transmission and distribution along with a guaranteed return on investment.

In 2016 voters approved the Energy Choice Initiative by an overwhelming 72.4 percent to 27.6 percent. Because the measure would amend the state Constitution it is back on the ballot this fall for final voter approval, but this time around a coalition headed by the state’s largest power monopoly, NV Energy, has vowed to spend $30 million to defeat it.

Voters will have decide who they believe and what is in their best interests. Capitalism or monopoly?

More solar power in Nevada might be just gliding the lily

NV Energy a couple of weeks ago provided the Public Utilities Commission with a report on its compliance in 2017 with the legislatively mandated renewable portfolio standard (RPS).

Under the law, the electric company was required to obtain 20 percent of its power from renewables in 2017 and 6 percent of that had to come from solar generation. By 2025 the requirement will be 25 percent renewables with 6 percent of that from solar sources.

Both subsidiaries of NV Energy met the 2017 requirement. Nevada Power in the southern part of the state generated 23.1 percent of its power from renewables and 44.5 percent of that from solar, meaning about 10 percent of the total power came from solar. Up north, Sierra Pacific generated 25.5 percent from renewables with 31 percent of that from solar, or almost 8 percent of total from solar.

Still more solar projects are on the drawing board.

According to the Institute for Energy Research, there is a solar value cliff after which adding solar photovoltaic capacity has zero value. IER says that cliff is 6 percent of all power production.

“Peak solar generation occurs early in the afternoon, while peak electricity demand typically occurs during early evening,” IER says. “This mismatch presents a scenario called the ‘duck curve,’ in which operators are forced to rapidly scale up other generation sources as solar generation ceases in order to seamlessly meet peak demand.”

When solar photovoltaic exceeds 6 percent of production, the capacity value of additional photovoltaic falls to zero. (Solar thermal power like that produced at Crescent Dunes near Tonopah and Ivanpah power plant in California near Primm have a different generation curve.)

The laws of man seldom take into account the laws of physics and economics.

 

Newspaper column: Customers should be able to shop for electricity

Question 3 on the 2016 General Election ballot — the Energy Choice Initiative — passed by an overwhelming 72.4 percent to 27.6 percent. The measure failed in only one county, White Pine, but by only four votes.

Because the measure would amend the state Constitution it is back on the ballot this fall for final voter approval, but this time around a coalition headed by the state’s largest power monopoly, NV Energy, has vowed to spend $30 million to defeat it.

The Energy Choice Initiative proposes that the Constitution be amended to require the Legislature to pass a law providing an open, competitive retail electric energy market by July 1, 2023. The law must include provisions to reduce customer costs, protect against service disconnections and unfair practices, and prohibit the granting of monopolies for power generation, but could leave in place regulation of transmission or distribution systems.

One of the chief arguments for the measure is that competition would drive down cost.

Nevada and many other states were well on the way to breaking up their electricity generation monopolies 17 years ago until the Enron market manipulation debacle that led to blackouts and price spikes that scared lawmakers into backing off, even though the free market was not the problem. The problem was collusion and manipulation.

According to a Wall Street Journal article at the time, Enron charged California’s Independent System Operator for relieving power congestion without actually doing so. The company also avoided in-state price caps by moving power out of state and then reselling it to California — fraud.

Expect to be inundated in the coming months with “facts and figures” that are wildly contradictory and warnings of another Enron debacle.

Michael Yackira, the former CEO of NV Energy, recently penned an op-ed for the donation-funded news website The Nevada Independent that argued the initiative could jeopardize energy dependability and not lower power bills.

“Fourteen states plus the District of Columbia have implemented deregulation,” Yackira writes. “The result: Not one of these has lower rates than Nevada and 11 of these places have higher rates than the national average. When compared to prices throughout the country, Nevada’s prices are below the national average. For example, California’s electricity prices per kilowatt hour are nearly double Nevada’s.”

Days later, Jon Wellinghoff, a backer of the Energy Choice Initiative as well as former general counsel to the Public Utilities Commission of Nevada and chairman of the Federal Energy Regulatory Commission, fired back at the same website, saying the initiative is not “deregualtion” at all, because the grid would still be regulated and still operated by the power company and the various rural power cooperatives around the state.

Wellinghoff said it is a basic economic principle that competition lowers costs. “Consider the case of Pennsylvania,” he writes. “Since it enacted energy choice, consumers have saved close to $1 billion per year on their power bills and the residents of Pittsburgh are paying 50 percent LESS for energy than under the monopoly utility, according to former Pennsylvania Public Utilities Commissioner John Hanger.”

He also cited a 2015 study by two veteran utility regulators titled “Evolution of the Revolution: The Sustained Success of Retail Electricity Competition.” That study found that from 1997 to 2014 the states that had adopted customer choice for power saw inflation-adjusted residential rates fall 5.2 percent, while monopoly states saw those rates rise 3.9 percent.

Opponents of the ballot measure like to point out that Nevada’s rates are below the national average and nearly half that of California’s, which has driven up costs by demanding that a huge proportion of its power come from more expensive renewable energy sources, such as solar and wind.

According to the U.S. Energy Information Administration, as of December 2017 Nevada power rates for all sectors ranked in the middle of the 11 western states, but since commercial and industrial users get lower rates in Nevada, our residential rates were the third highest in the region 12.34 cents per kilowatt-hour. Arizona’s residential rate was 12.85 cents and California’s 18.48. The lowest was in hydropower rich Washington at 9.63 cents.

Wellinghoff points out that large power consumers such as MGM, Switch, Caesars and Barrick Mining are already paying millions of dollars for the privilege of buying power on the open market — in the case of MGM, $87 million, which must mean they are going to save more than $87 million on the open market.

Why shouldn’t residential customers be able to shop for cheaper power?

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.

Update: An alert reader points out that a 2003 investigation of the power market manipulation determined that the underlying cause was poor regulatory plans. “Staff concludes that supply-demand imbalance, flawed market design and inconsistent rules made possible significant market manipulation as delineated in final investigation report. Without underlying market dysfunction, attempts to manipulate the market would not be successful,” the staff report concluded.

Editorial: Voters should dump a tax, add a tax and end a monopoly

Early voting in Nevada (R-J photo)

Early voting in Nevada (R-J photo)

Correction: Nevada no longer has some of the highest electricity rates in the West. According to the U.S. Energy Information Administration, as of August, only Idaho had lower residential rates than Nevada in the Mountain West states.

Nevada and many other states were well on the way to breaking up the electricity monopolies 15 years ago until the Enron market manipulation debacle that led to blackouts and price spikes scared lawmakers off. A free market was not the problem, it was criminal collusion and fraud.

Now, Nevadans have another chance to let free markets set the price of electricity instead of monopoly power companies and public utility regulators.

Question 3 on the statewide November ballot, if passed, would start the process of amending the state Constitution to prohibit granting electricity monopolies or exclusive franchises.

The argument for passage of Question 3 — the Energy Choice Initiative — points out that Nevada has some of the highest electricity rates in the West, this is partly due to the fact  electricity rates are dictated by the Public Utilities Commission, which by law must guarantee a profit for the monopoly utility companies. This is determined by setting a rate of return on equity, which incentivizes the power companies in the state to build expensive power plants when cheaper power might be available on the grid in an open and free market. There is no competitive pressure. There is little incentive to innovate.

Though the backers of Question 3 tout the potential of renewable energy development, the real benefit of passage is competition and innovation to achieve the most efficient and cost-effective power supply, whatever drives the generators.

Yes, Question 3 is supported by the large corporations and casinos who would benefit from buying cheaper electricity on the open market instead of from the monopoly NV Energy owned by billionaire Warrant Buffet, but residential customers also should benefit in the long run. Data from states that have adopted energy choice reveal a nearly 20 percent cost savings for consumers.

This newspaper endorses passage of Question 3.

Question 4 on the November ballot would also amend the state Constitution. Approval would require the Legislature to exempt durable medical equipment, oxygen delivery equipment, and mobility enhancing equipment from any sales or property taxes.

This would not only reduce the cost for those who require the equipment but also for all of us in the insurance pool who bear the cost.

We recommend a vote in favor of Question 4.

In each county in November the voters will be asked whether to index the tax on vehicle fuel to inflation with all resulting additional revenue going to build and repair roads specifically in those counties.

The 2015 Legislature allowed all counties to put a fuel tax indexing question on the ballot. This would allow the existing tax per gallon to increase at the same rate as the Producer Price Index, but with a cap of 7.8 percent per gallon. Some counties may choose a lower cap.

In this case the taxpayer-road user has a clear benefit in return for the outlay and thus a rare real return on investment. We think the voters would be wise to approve this tax.

(2016-ballot-questions-public-booklet)

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.