Switch, Sands, Wynn mum at PUC meeting

Image

Steve Marcus

Exterior view of the NV Energy building Monday, Oct. 20, 2014, in Las Vegas.

Mon, Jun 29, 2015 (5:45 p.m.)

Continuing the effort to cut ties with the state’s largest power provider, representatives from the casino and energy industries met with officials from the Public Utilities Commission to discuss how regulators should calculate a fee to charge large-scale companies that want to create and purchase power without NV Energy.

The meeting comes as MGM Resorts International, Las Vegas Sands and Wynn Resorts apply to buy and create power with the utility. It also follows the failed attempt by Switch, a Las Vegas tech company that houses data for companies like eBay and Sony, to exit its contract with NV Energy.

Energy experts, casino representatives and PUC officials spent the day hashing proposals to modify the current process for determining how large-scale companies can sever ties with NV Energy — a process that has drawn questions about the costs for the utility’s remaining ratepayers and raises concerns about consumer choice in the energy marketplace controlled by NV Energy, a regulated monopoly.

The effort to leave the grid is largely a move by companies that want to capitalize on the nation’s low natural gas prices and declining prices for purchasing and creating solar.

MGM says that the utility is currently charging it up to 20 percent more for energy produced by natural gas than what is currently priced on the open market.

“We're not getting the benefit of the lower prices,” Fred Schmidt, an attorney representing MGM, said.

An exodus that includes Switch and the casinos could amount to a 10 percent reduction in the utility’s demand. MGM represents around 4 percent of NV Energy’s customer base.

This month, the PUC’s three commissioners voted 2-1 to deny Switch’s application, with Commissioners Alaina Burtenshaw and David Noble citing concerns about the forecasting model used to calculate exit fees for large-scale customers looking to cut ties with NV Energy. Commissioner Rebecca Wagner supported Switch’s exit.

In past exit fee applications, the PUC’s regulatory operations staff used a three-year model that uses a wide variety of economic inputs — fuel costs, demand and others — to compute an exit fee.

The method used to determine past exits occurred in a different market.

The casinos and Switch are applying to leave the utility under a 2001 law, dubbed in statute as 704b, which says companies can leave the utility if they consume more than 1 megawatt of power per year, pay an exit fee and bring in new electricity not currently generated by the utility.

The law passed in the wake of the California energy crisis spurred by the defunct energy company Enron that left western states like Nevada paying inflated prices on the spot market. Lawmakers drafted the law to incentivize big companies to build power plants of their own. Barrick Goldstrike and Newmont Mining hashed deals with the PUC to leave the utility more than a decade ago.

The market, though, is now much different. Prices for natural gas are at record lows and NV Energy has built new power plants as a way to avoid the ups and downs of the spot market.

The market conditions, while not mentioned in the law, have been the underlying crux of the debate.

In response to the concerns expressed by the commission on the Switch exit application, the regulators scheduled the meeting to investigate new ways to determine exits. Burtenshaw, who serves as chairwoman of the PUC, said that Monday’s hearing was a “brainstorming process” and did not make any new rules or policies. But the hearing signaled that new precedents may be drafted in the near future.

Switch, which has applied for a reconsideration of its application with the PUC, declined to submit proposals in the process along with Las Vegas Sands and Wynn Resorts.

Switch's absence from the debate showcased concern about how the outcome of the investigations could affect current precedents used to determine exits. The companies declined to comment for the story.

All parties involved in the case debated combining the casino applications into one or having an “open season” for all companies pondering a potential departure from the utility.

“I know there are some complications with that,” Burtenshaw said. “But I think it is a good starting place.”

By not bundling applications, MGM and others expressed concern that companies would bear more of a burden if they left first because the PUC and its staff's calculations would not consider the overall demand reduction in the market.

MGM suggested new ways to determine exit fees in front of Burtenshaw, members of the PUC’s regulatory operations staff, the Bureau of Consumer Protection and NV Energy officials.

Currently, parties that receive PUC approval to exit must pay a lump sum to the utility. There were suggestions that an exiting company could make that payment over a period that could span up to 10 years. There were also proposals for the PUC to use a forecasting model that’s longer than three years where regulators would track how much their exit costs the utility annually.

California and Oregon don’t require lump sum exit fees and have different processes for charging exiting customers over a period of time.

MGM pushed for the tracking proposal because it said that the PUC could also factor in the benefits — mainly a reduced burden on NV Energy infrastructure — that the utility would gain from its exit.

The law does not currently require the PUC to track benefits of exiting customers, Dan Jacobsen, technical staff manager for the Bureau of Consumer Protection, said.

“While assuming there would be a mitigation of costs is a neat idea, we don’t think the framework is there,” Jacobsen said.

Noble Americas Energy Solutions, the company Switch wants to use as its natural gas provider if it leaves NV Energy, participated in the meeting and said Nevada’s laws and regulations are not designed for the utility to have any competition.

“The issue you've got in Nevada is that you’re trying to allow retail competition in a framework that’s not established for retail competition,” Greg Bass, director of retail commodity operations for Noble, said. “All the other states that allow retail competition have a complete regulatory framework for it. They don’t have these kind of debates about exit fees because it’s already been resolved.”

The PUC will hold another meeting with all the parties next month. The casinos will also have a private meeting with NV Energy in the coming weeks. The utility had representation at the meeting but did not make any proposals.

Back to top

SHARE

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy