The following guest blog comes from Clay Fitch, CEO of Wells Rural Electric Company in Nevada, a member-owned, non-profit cooperative that provides electrical service across 1,400 miles of power line to more than 10,000 square miles of Northeastern Nevada and part of Tooele County in Utah.
In Nevada’s 2016 General Election, the Energy Choice Initiative passed with 72% in favor and only 28% opposed. Just two years later, the measure was defeated by a margin of two-to-one. What caused such a drastic flip in public opinion? In the two years between elections, Nevadans took the time to really investigate what could happen if energy choice passed and understand the consequences, especially the unintended consequences.
First and foremost, “energy choice” is far too complicated to implement through a ballot initiative. Some utilities have power purchase contracts that span fifty years. Others are locked into complex multi-state networks. Still others serve multiple states. For example, there are fourteen electric utilities serving customers in Nevada. Those utilities use one of five different corporate structures: municipalities, cooperatives, investor-owned utilities, power districts and associations. Four are based in neighboring states. Two based in Nevada serve into adjoining states. While it’s possible that everyone could work through those and many other issues, it couldn’t be done under a one-size-fits-all constitutional amendment with a deadline carved in stone.
Electricity rates were also an issue. Advocates for energy choice claimed that competition would lower rates, give consumers choices, drive innovation, boost renewable energy development and create jobs. These were not new claims of course. Many of these same promises were made during “deregulation” efforts in the late 1990’s.
But was it true that “competition will drive down prices”? Competition among sellers might drive prices down, while competition among buyers usually drives prices up. However, there isn’t a big supply of cheap electricity in Nevada just waiting for someone to buy it. If there were, existing utilities would already be buying it and reselling it to their customers. “Retail Choice” or competition could mean that a homeowner might end up competing against a large industrial user for electricity. Nevada could have also ended up competing with neighboring states for the most affordable supplies.
In the communities Wells Rural Electric Company (WREC) serves, there might be only one grocery store, one dollar store, one hardware store, or one bank, if we’re lucky. We often have to drive 50 or 100 miles to buy a car or go to a pharmacy, and for other services. There just isn’t a large enough population to attract competing businesses. Multiple providers might be interested in competing for customers in the Las Vegas or Reno metropolitan areas or for large industrial customers in rural areas but it seems unlikely that any providers will be interested in competing for small customers in rural Nevada. That’s why Nevada have fourteen electric utilities in the first place. In fact, the history of energy deregulation in Texas illustrates that competitive electricity providers seek metro markets, but tend to ignore rural areas.
One of the most troubling marketing ploys energy choice advocates used in Nevada was comparing retail rates to wholesale rates. Wholesale electricity markets trade in units of whole megawatts, while few customers need or can manage that much electricity. That claim is like saying that customers should pay the same price per gallon when they fill the tank of their car as the gas station paid when they bought an entire truckload. Household customers will simply never get quite get the same deal as major industrial and commercial customers who use significantly higher amounts of electricity.
In the end, the “Energy Choice Initiative” failed in Nevada primarily because a large and diverse coalition formed to defeat the proposal. That coalition included trade associations such as the Nevada Mining Association, the Nevada Farm Bureau, and the Nevada Cattlemen’s Association who became concerned about impacts on their member businesses. Labor organizations became anxious about higher rates for working families, so the Teamsters, Operating Engineers, Professional Firefighters of Nevada, AFL-CIO, and others joined the coalition. Predatory marketing practices in other states brought consumer advocacy groups like AARP Nevada and the Nevada Veterans Association to the coalition. Industry groups, including the Nevada Rural Electric Association and the International Brotherhood of Electrical Workers found common ground with the investor-owned utility, NV Energy, and supported the coalition. The Sierra Club and the Natural Resources Defense Council (NRDC) were among the environmental organizations that joined the coalition when they determined that the Energy Choice Initiative was a threat to the development of renewable energy in Nevada. Coalition members all had very different interests to protect, but they all opposed energy choice for one reason: it would harm their members. Essentially, the only organizations left supporting retail choice were the Las Vegas Sands resorts and data center giant Switch.
NRDC’s opposition was driven by concerns that ECI would undermine the development of renewable energy projects. “Energy Choice’ advocates promised that energy choice would allow customers to choose a provider that only sells clean energy. And while that might eventually be possible, large-scale solar farms, wind turbines, and geothermal energy plants are expensive to build and construction almost always has to be financed. Most lenders and investors want assurances that they will be repaid. Such assurance is hard to find when customers could be here today and gone tomorrow.
While energy choice as proposed was rejected soundly by voters in Nevada, other states and communities have their own choices to make about electricity deregulation. As they do, they should have their eyes open and arm themselves with the facts. When we know more about the value of the electric providers that serve us today, as well as the dangers and pitfalls of deregulation, we can make informed choices that protect customers and preserve our access to safe, reliable, and affordable electricity.