Nevada Votes NO on Energy Choice

On November 6, 2018, Nevada voters rejected a proposition that would have fully liberalized the state’s electricity market. The Energy Choice Initiative would have required the Nevada legislature to establish an open, competitive retail market for electricity, reduce energy market regulation and prohibit monopolies by energy companies. It was defeated with 67 percent of ballots cast against the measure after opponents spent millions of dollars campaigning against it.

The initiative had attracted attention from the rural electric cooperative community across the country. Passage would have made Nevada the first state to implement retail electricity choice through an amendment to its constitution, and the only one that did not exempt cooperatives from competition. Indeed, passage had seemed likely, after the same question, on the ballot in 2016, won with 72 percent of the vote. (Nevada requires constitutional amendments adopted by initiative to be voted on twice.)

Yet while the Energy Choice Initiative did not become law, the issue is by no means settled on a national scale. “Progress toward retail choice is likely to slow, but commercial and industrial (C&I) customers continue to want alternative options for procuring their energy,” says Taylor Gunn, lead economist for power, energy and water at CoBank. “Those interests pushed for passage in Nevada and they’ll continue that push in other states.”

That could mean ongoing risks from energy choice for electric co-ops nationwide, which may face a shrinking customer base and other issues should similar measures pass in their states, Gunn notes. A close examination of what was at stake in Nevada could help cooperatives elsewhere understand and prepare for what may still be ahead. In Nevada “the divestiture of NV Energy’s power supply assets could have resulted in billions of dollars of stranded costs and higher electricity bills for Nevada consumers,” says Gunn. The initiative, along with a second Nevada referendum, could also have reduced co-ops’ access to affordable federal hydroelectric power, which has long been a key resource for them.

C&I Customers Pushing for Choice

“A growing divergence between wholesale electricity prices and retail rates could embolden customers in other states, particularly large C&I customers, to embrace retail choice as a way to pay lower electricity rates,” says Gunn. Adding to the push for retail choice are a growing number of companies around the country that have decided to fill most or all of their energy needs from renewable sources.

States in which the generation mix is dominated by fossil fuels and where wholesale energy is cheaper than retail rates will face growing pressure for deregulation. The Midwest and West, which generally lack dominant investor-owned utilities that might oppose retail choice, could see a wave of change.

“Historically, electric cooperatives have been exempt from competition under deregulation,” says Gunn. “Even though Nevada voters rejected the initiative, an ever-louder call for choice could weaken this longstanding pact in other states.”

What’s the True Cost of Retail Choice?

Under the Energy Choice Initiative, power generation and energy supply would have been established as competitive services, with utilities required to divest assets related to the supply of electricity. NV Energy and its affiliates—the dominant energy suppliers in the state—would have been forced to leave the power-generation side of their businesses, divesting all of their power generation assets before 2023, when the law, had it been passed, was set to go into effect.

Because many of NV Energy’s long-term electricity contracts have prices above the cost of new generation, those contracts would have been unlikely to be purchased by new retail electricity providers entering the market. Whether NV Energy could have divested its power generation fleet and covered the book value of those assets remains a large unknown. Combined, these issues could have resulted in stranded costs of $4.074 billion dollars,1 according to an estimate by the Public Utility Commission of Nevada.

Spreading these costs across Nevada ratepayers would likely have increased monthly electricity bills, including electric co-op member-owners. However, Nevada electric co-ops do no rely on NV Energy for energy supply services. The Nevada Rural Electric Association argued that electric co-op customers shouldn’t have to shoulder any costs associated with the divestiture of NV Energy’s power generation assets.

Keeping Customers Under Retail Choice

If Energy Choice had become law, customers would have been automatically assigned to a retail electricity provider unless they chose to stay with their existing providers, which would have been responsible for notifying customers of the change and convincing them to remain customers. Inevitably, some customers would have taken no action, regardless of notifications, says Gunn, thus remaining with their assigned provider. “If similar requirements become parts of initiatives in other states, even in the best-case scenario, co-ops could be left with fewer customers.”

If retail choice is enacted in other states, rural electric co-ops could face rising electricity costs for delivering power to fewer customers, as well as significant uncertainty about the future.