PUC to deny Switch’s plan to split from NV Energy

By Kyle Roerink

Published Monday, June 8, 2015 | 12:17 p.m.

Updated Monday, June 8, 2015 | 4:35 p.m.

In a decision that’s likely to have a ripple effect in Nevada’s energy marketplace, the Public Utilities Commission has ruled that Switch cannot produce and purchase power without NV Energy, according to a draft ruling posted on the PUC’s website this morning.

The PUC will formally issue its ruling at a Wednesday meeting, but the draft signals the likely outcome the three commissioners will deliver.

The draft order, submitted by PUC Chairwoman Alaina Burtenshaw, ends an eight-month application process for Switch and begins speculation on how the PUC will rule in upcoming cases with some of the state’s largest casino companies.

Switch, a Las Vegas data company that houses information for companies like eBay and Sony, applied to leave NV Energy by citing a 2001 law allowing utility customers that consume more than 1 megawatt per year to cut ties with the power company.

The company consumes about 34 megawatts per year — the equivalent to about 57 Super Walmarts. The law requires an outgoing customer pay an exit fee to ensure NV Energy will not have to raise rates on customers that stay with the utility.

Switch is one of NV Energy’s biggest private customers. It applied to leave as part of a company goal to use 100 percent renewable energy in the coming years and cut its annual electricity costs.

The size of the fee was a point of contention among the parties participating in the application process. The draft order was the commissioners' first time weighing in on the matter.

The PUC’s regulatory operations staff — a branch of the agency independent of the three commissioners — recommended Switch pay a $27.5 million exit fee to protect NV Energy's customers. The utility, which also participated in the application process, gave recommendations that ranged from $27 million to more than $50 million.

Switch suggested it pay around $18 million to leave.

All parties based their exit fee proposals on three-year forecasts that considered NV Energy’s rates, energy efficiency programs and reduced demand. The fee represents the utility’s revenue impact and the potential impact on customers.

Burtenshaw’s draft order diverged from the recommendations of the regulatory operations staff and suggested that times have changed.

The 2001 law Switch cited came into existence at a time when the power company did not control much of its own generating capacity and the state wanted more private companies to purchase and generate electricity. In the 14 years since the law was written, NV Energy has acquired the generating capacity or made purchasing agreements for nearly 4,000 megawatts of power — a figure that can supply the majority of the state’s typical demand.

Those acquisitions have involved the construction and purchase of new facilities. The power company took into account revenue from Switch’s power bills when it made the acquisitions.

The order said approval of Switch’s exit application “is contrary to public interest because … remaining customers will be burdened with increased costs associated with the long-term obligations that will remain on [NV Energy’s] system following Switch’s departure.”

The draft order did not give a recommended figure for an exit fee.

Burtenshaw’s draft order and the Switch exit attempt draw questions about how regulators apply the law. The law makes no mention of market conditions, but it does give the PUC authority to deny an exit in light of public benefit.

Current market conditions “would not protect remaining customers from paying higher rates,” Dan Jacobsen, technical staff manager with the Attorney General’s Bureau of Consumer Protection, said.

A decision based on current market conditions has critics, though.

In May, the PUC’s regulatory staff issued a brief that said Switch’s attempt to leave from NV Energy was “tortured” because of current market conditions.

The law, though, makes no mention of market conditions as a factor for application to leave the utility, Randolph Townsend, a former Republican state senator who helped write the law, said to the Sun in May.

“Market conditions have changed,” he said at the time. “That does not change the law. If you want to change the law go ahead and change the law.”

The staff memo interprets the historical context of the law and said “the 2001 Legislature did not, and could not, have foreseen the immense change the [utilities] and the energy markets would undergo in the ensuing 14 years.”

“That’s a tortured interpretation,” said Jon Wellinghoff, a former Federal Energy Regulatory Committee chairman who also served as the former chief counsel for the PUC and was Nevada's first Advocate for Customers of Public Utilities. He also helped write the law. The statute is “cut and dry,” he said.

The draft order also suggested the three-year forecasting model — which the commission used in past exit fee assessments — is outdated for current conditions in the state and may not give the best estimates to protect ratepayers who will remain with the utility. That could mean an unexpected pivot in the exit application process.

The PUC, its staff, NV Energy and past applications have all used the three-year forecasting model. During the case, regulators or their staff never mentioned potential problems the forecasting model could pose.

A source close to the Switch case said the draft order sends a clear signal to Wynn Resorts, Las Vegas Sands and MGM Resorts International, which also are applying to create and purchase power without the utility.

Switch declined to comment before the formal ruling on Wednesday.