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April 18, 2014

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Nine problems regulators have with NV Energy’s coal-ditching plan

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Leila Navidi

Reid Gardner Station, a coal fired power plant in Moapa, is shown on Friday, Dec. 7, 2007.

Click to enlarge photo

Michael Yackira, NV Energy president and CEO

Nevadans of every political stripe have cheered NV Energy’s plan to eject itself from the coal business.

They envision unemployed Nevadans back to work, laboring under clear, blue skies; dismantling dirty coal plants and installing new solar panels; guaranteeing Nevada’s energy independence for years to come.

The state’s regulators, however, are hoping legislators will stop daydreaming and heed their warnings about Senate Bill 123, the utility’s “NVision” plan.

In an effort to pass the bill, the utility has roped in both public and private participation from Gov. Brian Sandoval, U.S. Senate Majority Leader Harry Reid, the powerful Las Vegas casino industry, environmentalists and the renewable energy industry.

Lobbyists in Carson City say the bill has sparked a flurry of interest, and some have talked to potential new clients interested solely in this bill.

But it’s not only a big money game in Carson City. All NV Energy customers — you, your family, your business, your school — would pay more because of this bill.

But it may be well worth it, says the utility.

The Sun interviewed NV Energy CEO Michael Yackira and listened to a recent hearing from the Public Utilities Commission of Nevada to hear both the pros and cons for consumers:

    • Cost is debatable

      The utility says its plan will cost $494 million, or a 4 percent total increase over the next 20 years.

      Echoing the Attorney General’s consumer watchdog, the Public Utilities Commission questions that number.

      “I have a feeling it's going to be a whole lot more,” said Commissioner David Noble, noting that ratepayers have paid for about $3.5 billion worth of construction during the past decade and Nevada already has high energy rates. “One of the problems for getting commercial and industrial customers to come into this state are high rates. I don't see how SB123 addresses that problem.”

      The utility says that the 4 percent total growth over 20 years boils down to a 1.65 percent annual increase, which Yackira says is negligible because inflation will negate the increase.

      Here’s the bottom line: A rate impact model is only as good as its assumptions and variables. In other words, it’s difficult — if not impossible — to say what you’ll pay in rates 20 years from now if this bill passes.

    • Rates may decrease

      The commission says that rates might actually go down if the Legislature doesn’t pass this bill.

      As Noble said, ratepayers have helped build $3.5 billion in generating capacity in the past decade and gas prices have declined.

      If NVision and its baked-in power plant construction regimen doesn’t pass, rates could decrease.

      “Holding everything else constant, the next few rate cases may actually result in a rate decrease,” said Anne-Marie Cuneo, commission staff.

      Yackira said this could also hold true if NVision becomes law. He said the commission is “really pointing to natural gas prices.”

      “If those prices go down, our customers’ rates will go down,” he said.

      Bottom line: Cheap natural gas is holding rates down now, coal is on its way out regardless of NVision, and the effect of the NVision plan won’t really be felt until new construction brings new costs to ratepayers several years down the road.

    • Future generations will pay

      3) The utility says a “rate mitigation” provision will keep the cost of NVision down, but the commission says the cost will catch up to Nevadans because the plan is essentially a credit card scheme: only pay a little now, pay more later — with interest.

      “Your kids will end up paying for electricity that you used nine to 10 years ago, with interest,” Cuneo said.

      Under the bill, rate increases would be capped at 5 percent each year. But if the actual rate increase is higher, the difference would be carried over to future years and ratepayers would be charged interest. In short, consumers would trade a lower bill now for a higher bill later.

      But Yackira said the process cuts both ways. The utility has collected more than it should have from customers in the past, and “we owe you money plus interest,” Yackira said.

      Bottom line: Yackira was speaking of fuel and power-purchase costs. The main costs from NVision would be from construction of new power plants and the cost of taking coal plants offline. So the comparisons aren’t direct. But the process does, as Yackira said, cut both ways.

    • There may be fewer jobs than advertised

      The plan does not provide the jobs NV Energy says it will, the commission says.

      “There would likely be very minimal jobs with this Nvision plan,” Cuneo said.

      The original announcement said NVision would create 4,700 jobs. But, as the commission pointed out, the utility’s current 20-year plan already includes job creation incidental to construction that likely will happen during the next two decades.

      Yackira said that is true, but the accelerated decommissioning of coal and subsequent construction of natural gas and renewable energy assets would bring those jobs to Nevada faster.

      “We were saying that this plan could create 4,000 or so jobs in the near term at a time that we’re trying to improve the economy and decrease unemployment,” he said.

      Bottom line: NVision would result in job creation just as much as the status quo would result in job creation. The main difference is timing.

    • Energy efficiency isn't considered

      The utility’s plan doesn’t take advantage of what is, by the utility’s own admission, the cheapest, most effective way to keep rates low: energy efficiency.

      Although consumers generally dislike the idea that NV Energy charges for the power they save through energy efficiency, it still costs less than building new power plants and transmission lines.

      “I'm not understanding why we are eliminating that when it's our best option,” said Commissioner Rebecca Wagner.

      Yackira said the utility already has conservation programs.

      “This plan is an adjunct to our conservation program, which in some years has reduced as much as 1 percent of total consumption in this state,” he said.

      Bottom line: The utility’s plan sets a construction schedule for renewable energy and natural gas power plants. Building new power plants is one of the most profitable things the utility can do to make money, and a mandated schedule for construction gives shareholders assurance of long-term profitability.

    • There are potentially cheaper power purchase agreements

      The commission says the utility is ignoring potentially advantageous market conditions for purchasing power, in lieu of building its own power plants.

      “There are a myriad of lost opportunities that we would come across in the next 10 years that we would forgo,” Noble said. “To me it's a solution in search of a problem.”

      The coal-replacement building plan would “completely mitigate risk for the utility,” Wagner said.

      Yackira said the utility is only following a decade-old plan that began as the result of the Western Energy Crisis. At the time, Nevada bought a lot of its power from out of state and ended up relying on some unreliable players.

      “Nevada was left holding the bag,” Yackira said. “We said we need to be more energy independent.”

      In response, the utility built its own power-generating capacity so that wouldn’t happen again. Noble said the cost was about $3.5 billion.

      “If we look at electricity prices, they’re about flat to where they were to the beginning of 2006 in Southern Nevada,” Yackira said. “The strategy has worked.”

      Bottom line: Cheap natural gas has kept rates fairly flat during the past few years, but rates haven’t fallen because ratepayers have been paying more for the construction of power plants. Cheap natural gas in the future could keep rates down if NVision’s construction plan becomes law. But it’s also true that the plan doesn’t consider potentially cheaper power purchase agreements.

    • Review process may be weakened

      The commission says the NVision plan could weaken the commission’s Integrated Resource Planning process. This may seem like bureaucratic garble, but UNR graduate and current chairman of the Federal Energy Regulatory Commission Jon Wellinghoff was instrumental in the creation of this well-regarded process.

      Much like having a gearhead buddy check a mechanic’s price quote for repairing a car, the resource IRP is basically an expert, independent review of the utility’s plan for generating reliable energy in the next few years.

      “The commission’s resource planning statutes are some of the best in the United States as far as resource planning goes,” Noble said.

      Yackira said the NVision plan strengthens the flexibility of the commission, giving it the ability to review plans with a more diversified menu of regulatory choices.

      Here, the commission says it’s open to changes, but it’s protective of the process.

      “I think that the IRP process has proven itself to be able to meet the flexibility and the needs of what is happening out there in the marketplace,” Commissioner Alaina Burtenshaw said.

      Bottom line: The regulatory process still exists in the bill, but the bill says the commission “shall accept” the utility’s plan if it provides an adequate and reliable level of power service to ratepayers, a minimum standard for the utility.

    • Legislature would be accountable for policy

      NVision essentially asks legislators to raise rates on their constituents and guarantee a profit on NVision’s mandated power plant construction.

      “Legislators need to be aware that they would be legislating rate increases,” Wagner said.

      She also said that legislators should be aware that they’re weighing matters that the commission and its staff would normally review for several months. The Legislature has just 36 days left in the legislative session.

      Yackira said the Legislature should set a major state policy of divesting from coal and investing in natural gas and renewable energy.

      He compared it to the Legislature’s approval of the Renewable Portfolio Standard, another state-mandated energy policy that requires the utility to obtain a certain percentage of its power from renewable sources.

      “We think it’s important to set policy at the state level,” Yackira said.

      Bottom line: This is not an either-or situation. As Yackira noted, the Legislature has discretion to change the bill. The bill could be a single page directing the utility to get out of the coal business, or it could be the 24-page measure the utility has proposed, or it could be anything in-between. Regardless, the Legislature would be accountable for the policy.

    • Different kinds of energy independence at play

      NV Energy has sold the bill as a way to ensure “Nevada’s energy independence.”

      Wagner said that selling point “is driving me nuts.”

      NVision’s natural gas regimen is “making us more dependent on fossil fuel and less reliant on our indigenous resources and conservation,” she said. “True energy independence would be not sending billions of dollars out of state to purchase natural gas.”

      Yakira said Nevada could become a natural gas producer, but the energy independence has to do more with independence from energy markets, not fuel markets.

      “It’s incumbent for us to ensure the reliability of energy without the markets,” Yakira said, citing the Western Energy Crisis and its disastrous reliance on energy markets. “We can’t count on those markets to produce energy for us, and we’ve been down that path, and it’s failed miserably for us and our customers.

      The best way to assure that is to have the Legislature adopt this policy that we want to get rid of coal and replace it with natural gas and renewables. If the Legislature decides not to go down that route, we are still going to press forward with this because we think it’s the right thing to do.”

      Bottom line: The commission and the utility are talking about different kinds of “energy independence.”

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    1. I guess the most serious problem we face from burning deep sequestered carbon and raising the temperature of the entire Earth is not worth a point?

    2. What is the point in allowing a private for profit corporation provide power to Nevada in a monopolistic market. A PUD (Public Utility District) such as is used in Washington State and other places may be able to provide power at cost, without having to support the profit motives of a private company. This company seems to have a stranglehold on our utility costs.

    3. Where is the:

      "What happens when Natural Gas prices rise?" question? Seriously? No one is asking this? They think gas prices will stay this low forever? Demand is ramping up and they are talking about exporting large quantities of gas. Prices will rise

    4. http://www.greencarcongress.com/2013/05/...

      GM knows something the author of this article doesn't.