Breaking down Question 3, the Energy Choice Initiative

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During the midterm election, Nevada voters will make a major decision about how energy is regulated in the state.

In Question 3, voters are being asked to amend the Nevada Constitution to give residents and businesses the right to choose who they buy power from.

It would end the regulated monopoly of NV Energy, which supplies power to most of the state. 

You’ve seen the ads: Break up with NV Energy! Or your rates could go up, so vote no! 

That’s the campaign over energy choice, which will be on the ballot as Question 3 in November. The Guinn Center on policy priorities this week released a 100-page report on the Energy Choice Initiative, but that research found that even the most basic questions about the measure couldn’t be answered definitively. 

Meredith Levine was the lead author of that report, and says she was surprised at the uncertainty.

“I was surprised. Many times when we do the research, you think the data is the data is the data. And you go from that and you expect to be able to say hey, this is what the data shows and we’re comfortable with that, and wherever it falls, it falls. You go into this and it’s kind of interesting to see that the data doesn’t provide the answers and the experiences have been so different across different states,” said Levine, center director of economic policy.

States that have adopted energy choice plans have usually adopted rate caps, which makes comparisons to other states difficult. Also, federal government rate numbers include so many different factors, it’s hard to pick out which ones might be affected by energy choice plans.

In addition, she said rates could be affected when NV Energy sells off its power plants and long-term energy contracts, because it would be anti-competitive for it to generate, transmit and sell power at the same time. Consumers could be asked to pay some or all of those charges.

Levine also pointed out Nevada would be the only state to switch from a regulated monopoly utility to a competitive market using a constitutional amendment. Most other states have done so by passing laws. And the report says of the 22 states that have adopted energy choice plans, seven have repealed it entirely or partially.

Governor Brian Sandoval’s Committee on Energy Choice also researched the issue, and it found some of the same uncertainties uncovered by the Guinn Center. Lieutenant Governor Mark Hutchison was chairman of that committee, and says much of what will happen will only be determined by the legislature, after the initiative is passed and made part of the constitution.

“This is going to be on the legislature. At the end of the day, Steve, you’re right, you’ve got these competing reports and people say that we can answer questions in some of those reports, people say we can’t in other reports. At the end of the day, this is going to be on the legislature, the policymakers, the elected representatives of the people are going to have to spend a substantial time in the next three legislative sessions coming up with solutions,” Lt. Gov. Mark Hutchison said.

And that’s a big part of the uncertainty, the need for lawmakers to fill in the many blanks on energy choice between now and 2023, when the initiative will go into effect if it’s approved. 

But Hutchison said his committee recommended lawmakers write rules for consumer protections, including possible rate caps, laws against fraud and model terms of service that all companies in a new competitive market would be required to adopt. He said, the work is so complex, it may require special sessions of the legislature to complete before the deadline. The only people who seem to be sure what will happen are the campaigns: The Yes on 3 Campaign says it will definitely lower rates, while the No on 3 Campaign says the opposite.

The Guinn Center in its research found examples of both, and says either is possible.

We reached out to the campaigns for and against Question 3 for a response to the Guinn Center report.

The Coalition to Defeat Question 3 said this: 
“The Guinn Center report is yet another independent study that underscores Question 3’s serious risks and costs. The facts are that in deregulated states, average residential electricity rates are 30 percent higher than they are in Nevada, and, as the Guinn Center concluded, Nevada would no longer be able to protect consumers from rate increases if Question 3 were to pass,” said Tracy Skenandore, Coalition to Defeat Question 3 spokesperson. “The report also highlights that Question 3 offers no guarantee of increasing renewable energy and may, in fact, cripple Nevada’s renewable and rooftop solar sectors. We hope Nevadans will continue to look into the facts and vote NO on Question 3 this November.”

The Guinn Center technical report concluded:

  • The state would have no ability to protect consumers from rate increases if Question 3 were to pass, and electricity consumers
  • would be newly exposed to volatility in wholesale electricity prices
  • In deregulated states, consumers experienced electric price shock once their “teaser” rates had expired
  • Residential and small customers in deregulated markets have faced serious consumer protection issues, including hidden and misleading fees, poor customer services, and switching customers to other suppliers without customers’ knowledge or permission
  • There is no correlation between deregulated electricity markets and increased renewables, and there is no requirement or guarantee within Question 3 that more electricity be generated from renewable sources
  • There are no guarantees that rooftop solar customers would continue to receive favorable net-metering rates for electricity returned onto the electricity grid
  • Implementation of a deregulated retail market in other states has not followed a simple, straightforward path. The transition has required legislators to “tweak the laws” and regulators to issue new orders so that unanticipated outcomes and unintended consequences could be addressed 
  • Question 3 would make Nevada the only state to initiate electricity deregulation via constitutional amendment. A lengthy, multi-year process would be required should the Legislature find deregulation is infeasible or should Nevadans want to repeal it

Meanwhile, the Yes on Question 3 campaign cited earlier writings by the Guinn Center report’s author, Meredith Levine, to buttress it’s contention that the initiative would lower energy costs, although the report released this week specifically said it could not determine whether rates would rise or fall. 

The campaign wrote: 

“Question 3 will create competition and lower Nevadan’s energy bills. This report highlights the benefits states with energy choice see, particularly with respect to natural gas prices in lowering the cost of energy to consumers,” said Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission and a consultant to the Yes on Question 3 campaign. “I agree wholeheartedly with the report’s author, Meredith Levine when she said, “Competition in the energy industry would be good for consumers.””

According to Nevada Watchdog in January 2018, Meredith A. Levine, the lead author of the Guinn Center’s study on the possible effects of Question 3, said “Competition in the energy industry would be good for consumers.” Levine said, “One idea is that competition would help bring the rates down, and so it could be a more attractive option should this idea of choice bring the rates down,” adding that “the bill would allow people to look at whether a company uses renewable energy and allow consumers to switch to that company, even if it ultimately is more expensive.” [Guinn Center, 7/17/2018; Nevada Watchdog, 1/17/2018] 

“In a restructured market with energy choice, the wholesale price of natural gas is the most important determinant of customer electricity rates. While wholesale electric costs influence electric rates in both traditionally regulated markets and restructured markets, consumers are exposed more directly to changes and volatility in commodity pricing under restructured markets. When natural gas prices are low, consumers in restructured states—by virtue of their increased exposure to the wholesale market—realize benefits from lower fuel costs.” [Guinn Center Executive Summary, pg 4]

In light of the dueling statements, Guinn Center Executive Director Nancy Brune said this in a statement: 

The fact that interested parties, some of whom have opposing viewpoints, are referencing the Guinn Center’s latest report on Question 3 suggests that we have fulfilled our goal — namely, to provide a balanced assessment of the arguments for and against Question 3. However, we acknowledge that efforts to restructure electricity markets in other states were prolonged and complex. Following a decision to restructure the market, decision-makers subsequently had to intervene to stabilize markets and protect consumers, facilitate competition, and establish new or revise existing regulatory frameworks. As such, we encourage voters to read the full report (or shorter voter companion guide) to better understand the many factors that could impact whether a restructured electricity market would be “good” or “bad” for Nevada.  

The report and the voter can be found here.

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