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Governor’s Committee on Energy Choice

Draft Report of Findings & Recommendations

The Governor’s Committee on Energy Choice (July 2018)

View Full Report (PDF)

Executive Summary

At the General Election on November 8, 2016, Nevada’s voters approved Ballot Question 3, the Energy Choice Initiative (“ECI”). ECI is a proposed amendment to the Nevada Constitution that would require that, “Not later than July 1, 2023, the Legislature shall provide by law for provisions…to establish an open, competitive, retail electric energy market,” and that “electricity markets be open and competitive so that all electricity customers are afforded meaningful choices among different providers, and that economic and regulatory burdens be minimized in order to promote competition and choice in the electric energy market.” The amendment would effectively require Nevada to transition from its current structure in which its primary electric utility is vertically integrated, to a new system in which electricity providers compete in a restructured, competition-based marketplace. In order for ECI to become law, Nevada’s voters must approve the proposed constitutional amendment a second time at the 2018 General Election.

Following initial voter approval of ECI, Governor Brian Sandoval announced during his January 2017 State of the State Address a plan to “Create by Executive Order the Governor’s Committee on Energy Choice to help prepare us for the complicated changes that lay ahead if Nevadans approve ECI.” The Governor signed Executive Order 2017-03, establishing the Governor’s Committee on Energy Choice, on February 9, 2017, three days after the start of the 79th Regular Legislative Session. Executive Order 2017-03 required the Committee to “identify the legal, policy, and procedural issues that need to be resolved, and to offer suggestions and proposals for legislative, regulatory, and executive actions that need to be taken for the effective and efficient implementation of [ECI].” This Executive Order was amended shortly after the conclusion of the legislative session to require the Committee to additionally study whether ECI’s proposed constitutional amendment would have an effect on specific renewable energy policy proposals, namely renewable portfolio standards and the development of community solar gardens.

The Energy Choice Committee was initially comprised of 25 members representing a broad coalition of community stakeholders and perspectives, including state legislators, executive agency directors, commercial electricity customers, private sector industry representatives, state regulators and consumer advocacy representatives, organized labor representatives, and representatives from Nevada’s rural electric co-operatives. The Committee first met on April 26, 2017, and concluded its work on June 18, 2018. Committee Chairman Mark Hutchison organized the Committee into five Technical Working Groups to engage in particularized studies of specific issues relating to ECI and the restructuring of electricity markets. Between April of 2017 and June of 2018, the Committee and its working groups met more than 30 times and heard from dozens of policy experts from Nevada and from around the nation. This report constitutes the findings and policy recommendations adopted by the Committee as a result of this extensive deliberative process.

Some of the prominent issues that are implicated by the potential passage of ECI were outlined in Executive Order 2017-03. In order to thoroughly examine these issues, the Committee was organized into five Technical Working Groups comprised of five committee members each. The working groups were assigned specific topics relating to the issues contained in the Executive Order, as follows: Technical Working Group on Open Energy Market Design and Policy; Technical Working Group on Consumer Protection; Technical Working Group on Innovation, Technology, and Renewable Industry Development; Technical Working Group on Generation, Transmission, and Delivery; and Technical Working Group on Ratepayer and Investor Economic Impacts. Each working group conducted public meetings, heard presentations related to their assigned topics and issues, and subsequently presented a report and recommendations for approval by the full Committee.

In September of 2017, the Committee voted to request that the Public Utilities Commission of Nevada (PUCN) open an investigatory docket to examine specific issues related to ECI. In particular, the Committee requested the docket be opened to ensure that a robust and transparent study was conducted regarding technical issues requiring extensive expertise and experience in energy and electricity market regulation. The Committee requested that the PUCN open the docket based on the agency’s ability to devote the necessary resources and technical expertise that a full study of these issues would require. The PUCN subsequently opened docket #17- 10001 to study the issues requested by the Committee pertaining to ECI, and in April of 2018, issued a final report of findings after unanimously approving the report. The PUCN’s Energy Choice Initiative Final Report was then presented to the Committee in May.

While the PUCN conducted its public workshops and investigation, the Committee’s Technical Working Groups (TWGs) also held public meetings during which presentations were offered by technical and policy experts and other stakeholders. Each working group ultimately adopted a set of recommendations based on the information they received, and those recommendations were then presented to the full Committee. The Committee unanimously approved all of the recommendations that were presented by the technical working groups dealing with their respective assigned topics.

The TWG on Open Energy Market Design proposed four recommendations. The TWG on Open Energy Market Design recommended that Nevada join an existing Independent Systems Operator (ISO) with an already existing wholesale market located in close proximity to the State, presumably the California ISO (CAISO). The TWG on Open Market Design also recommended that any contract or arrangement with CAISO or another neighboring ISO should ensure that Nevada retains its own authority with regard to certain key aspects of regulating the wholesale market – including retention of popular programs like energy efficiency and net metering. With regard to a retail market structure, the TWG recommended that the Governor and State Legislature form a joint committee to further examine options for a retail market, inclusive of a provider of last resort (POLR) and net-metering. The TWG also recommended that the PUCN be empowered to establish POLRs for back-up electric service in each area of the State open to competition.

The TWG on Innovation, Technology, and Renewable Energy proposed five recommendations addressing the potential impacts of a restructured energy market on currently existing renewable energy programs, including renewable portfolio standards, community solar programs, and net metering. The TWG recommended that policymakers implement ECI in a manner that conditions market participation on alignment with Nevada’s existing policy goals with regard to renewable energy technology development. The TWG further recommended that any competitive retail market policies adopted to implement ECI should be consistent with programs that advance the use of renewable energy and clean technology. Finally, the TWG recommended the creation and funding of pilot projects to develop renewable energy technology that may provide meaningful choice for Nevadans, that policies be considered which promote regulatory flexibility for offering incentives for “smart” energy technology, and that all proposed policies for implementing ECI be evaluated in consideration of positioning Nevada as a net exporter of energy.

The TWG on Generation, Transmission, and Delivery proposed three recommendations addressing issues related to resource adequacy and planning reserves, reliability “must-run” units, and expanding export/import transmission capacity. The TWG recommended that the PUCN continue to address resource adequacy and planning reserve requirements through the existing integrated resource planning process. In addition, the TWG recommended that NV Energy, as the incumbent utility provider, identify “must-run” generation units (a unit that ensures grid reliability under certain circumstances such as transmission outage), and identify the costs for eliminating the conditions necessitating “must-run” status for these units. The TWG recommended that these costs be recovered at the ratepayer level. Finally, the TWG recommended further study of transmission import and export capacity to determine whether additional expansion is required in order to join a wholesale market such as CAISO.

The TWG on Consumer Protection proposed fifteen policy recommendations. These recommendations addressed the need for effective and comprehensive consumer education efforts, particularly for small business and residential customers. Additionally, the Consumer Protection TWG offered recommendations for ensuring that customers are able to make accurate comparisons of essential terms of service among potential providers, as well as recommendations for protecting customer data and privacy, updating Nevada’s unfair and deceptive trade practices statutes, and discouraging excessive costs.

The TWG on Investor and Consumer Economic Impacts approved a single recommendation: that the State Legislature commission further investigation into stranded assets and transition costs as soon as practicable, should ECI be approved in November. The Economic Impacts TWG concluded that issues related to stranded assets and divestiture implicate questions that are among the most challenging to address. Based upon the information presented to the TWG, as well as prior studies conducted by the Nevada Legislative Counsel Bureau and the April 2018 PUCN Investigatory Report, the Economic Impacts TWG recommended that the State Legislature commission further study of the stranded assets, transition costs, and divestiture issues.

On May 9, 2018, the Committee voted to approve all recommendations presented by each of the technical working groups.

This report provides a summary of the information that was presented to the Committee and discusses in detail the Committee’s findings and policy recommendations for potential legislative, executive, and regulatory action that may be required if ECI is approved at the November 2018 General Election. In the event that Nevada’s voters choose to amend the Nevada Constitution and adopt ECI, requiring a transition to a restructured electricity market, policymakers will be confronted with important decisions regarding consumer protection, the selection of an organized wholesale market, the appropriate steps and processes for divesting incumbent utility providers of generation assets, and the impacts of a new competitive electricity market on the development of renewable energy infrastructure, to name a few. This report is not a discussion of the merits or advisability of ECI and neither encourages nor discourages passage of the initiative. It is intended to provide policymakers with an initial framework that will help to formulate a successful transition plan and facilitate future policy discussions surrounding the implementation of ECI, should the initiative be approved.