Nevada’s ‘aggressive’ renewable energy standards drain ratepayers
It's one thing to set your own goals.
It's quite another to impose your goals on others and enforce those goals through a government-regulated monopoly you control.
That's what Nevada lawmakers have done to NV Energy ratepayers with increasing force for the last 13 years. Their tool of choice has been the "Renewable Portfolio Standard," first imposed on NV Energy, the state-regulated electric utility, in 1997.
And now, as Nevadans struggle to find a way out of a statewide economic depression, they have the added burden of some of the most costly green-energy rules of any state in the country, passed by the 2009 Nevada Legislature.
Those renewable energy quota goals have been hailed as "aggressive" by the American Council of Renewable Energy, a Washington, D.C., nonprofit "dedicated to moving renewable energy into the mainstream of America's economy." According to Emerging Energy Research, an international purveyor of energy data and analysis, the goals are the third-most demanding in the country — behind only California and New Jersey.
While some Nevada legislators pride themselves on their efforts to fight "climate change," the financial burden of their decision falls on Silver State ratepayers. Residential electricity rates, plotted from 1990 on, show a meaningful increase in Nevada rates over those nationally, beginning in 1997:
Data: U.S. Energy Information Administration
In 1997 Nevada lawmakers mandated that NV Energy — then named Nevada Energy — begin acquiring or purchasing ever-larger percentages of its electricity from higher-cost renewable energy sources.
To meet state government's initial Renewable Portfolio Standard (RPS) requirement, electricity providers needed to have 1 percent of their total energy come from renewable power. Over the years, however, the standard has increased to 5 percent in 2003 and will increase to 25 percent by 2025.
The "25 by 25" standard was established in 2009 by Senate Bill 395, introduced by then-governor Jim Gibbons and shepherded through the Nevada Legislature by Senate Energy Chairman Michael Schneider (D-Clark) and Assembly Commerce and Labor Chairman Marcus Conklin (D-Clark).
Schneider introduced the first hearing on the bill by observing that "President Barack Obama and U.S. Senator Harry Reid have given much support to the renewable- and green-energy issues coming before this Committee." Schneider is a member of the Blue Ribbon Panel, a group established by Reid in August 2008, to help "move Nevada toward a clean energy future."
One consequence of the "clean energy" drive in Nevada has been to retard the state's efforts to bring new businesses into the state, say some economic development activists. Energy-intensive industries, such as manufacturing and digital data centers, are especially affected.
"In 2000, we had among the lowest power rates in the Western United States," Lance Gilman, a marketing partner at the Reno-Tahoe Industrial Park, recently told the Las Vegas Sun. "Today, we have some of the most expensive power rates in the United States."
While costs and the green-energy standards set by lawmakers keep increasing, the actual attainment of those standards regularly slips.
According to data from NV Energy, 2008 was the only year on record when the company met lawmakers' targets — although the company believes it also met targets in 2010, official numbers for which are to be released in April 1.
More usual is what happened in 2009, when NV Energy's Southern Nevada subsidiary, Nevada Power, failed to meet its RPS quota. Although Nevada law allows the state Public Utilities Commission (PUC) to fine utility providers that fail to meet the standards, the PUC did not. Instead it ruled that Nevada Power could carry forward a Portfolio Credit deficit into 2010, and "... shall invest $150,000 to $192,500 in one or more photovoltaic facilities ..." on public buildings.
Under Nevada law, utilities are ostensibly allowed to charge ratepayers on a cost-plus basis — which might appear to give utilities a built-in incentive to quickly expand the proportion of power they purchase from renewable sources. However, the higher cost of "green" energy actually discourages that.
Say that a utility jumps whole-hog on the renewable energy bandwagon, buys large quantities of solar or geothermal electricity and successfully meets or surpasses the state quota. When the utility then goes to the PUC and asks for the higher electricity rates it would need to pay for the more expensive green energy, those requests could trigger a firestorm of popular rebellion.
Now, not only the utility, but the PUC will find itself on the political hot seat. Amid popular hostility from ratepayers — championed, perhaps, by the same politicians who mandated the renewable-energy quotas — the utility may well find itself denied the rate increases it needs to pay for those previous "green" expenditures. If so, it could face a serious potential cash-flow problem, lowered ratings from Wall Street analysts and investors bailing out of its stock.
So utility regulators, aware of these considerations, regularly decline to fine the utility. Instead, they require it to schedule more future investment in green energy. Then the next year, the whole process is repeated.
It is Nevada consumers who've faced the harsher punishment. Since 1997, when Nevada first enacted the RPS quotas, the average residential retail price has risen from 6.77 cents per kilowatt hour (c/kWh) to 12.41 c/kWh, according to data from the Energy Information Administration.
Moreover, since 2001 — when the state-imposed renewable energy quota was first increased — Nevada's average residential retail price has stayed above the national average price, even though the national price kept rising. In 2010, Nevada's price at 12.41 was still above the national average of 11.62 c/kWh.
A spokesperson for NV Energy couldn't pinpoint exact causes for the rising energy prices.
One element in the higher prices paid by Nevadans is the TRED charge, which all Nevada ratepayers now see on their electric bills. In 2004, notes the U.S. Department of Energy, the Nevada Public Utility Commission established the "Temporary Renewable Energy Development" charge to "insure prompt payment to renewable energy providers." A PUC press release at the time justified the charge with the argument that the "impaired credit rating of Nevada's electric utilities has made it difficult for many renewable energy developers to obtain financing for new renewable projects ... mandated under Nevada's Renewable Portfolio Standard (RPS)."
According to PUC data, as of September 2010 utility companies have raised $67.2 million from TRED, yet RPS quotas still are not met consistently.
Neither the PUC nor NV Energy could say how long TRED would remain on consumers' bills, which raises the question: "What is so ‘temporary' about TRED?"
"There's no driver to encourage attainment [of the RPS quotas]," said Assemblyman Ed Goedhart (R-Amargosa), member of the Assembly Committee on Commerce and Labor. For utilities "it's like constantly being pulled over for speeding but never receiving a ticket."
TRED isn't the only cost that Nevada lawmakers' renewable energy ambitions impose on residents. In 2008, the PUC approved the Renewable Energy Program (REPR) — described by a NV Energy spokesman as a "fee that helps further development of alternative energy projects and renewable rebate programs."
All ratepayers pay into REPR, where the money is reportedly pooled for rebates to ratepayers who've installed their own renewable generating device. However, the PUC does not publicly account for REPR funds nor account transparently for the money's administration.
The financial burdens on Nevadans, which arise from government's green-energy enthusiasms, don't end with fees. NV Energy received $138.8 million for renewable energy in federal stimulus funds, which is widely understood to add to the national debt burden shared by all citizens.
Also, as part of the 2009 federal stimulus package, the Department of Energy guaranteed $350 million toward the One Nevada transmission line (ON Line), a joint venture between NV Energy and Great Basin Transmission, an affiliate of New York-based LS Power.
Carl Linvill, the PUC commissioner who approved the TRED charge on Nevada ratepayers, now works for Aspen Environmental Group. Aspen has a consulting contract with Western Area Power Administration, the government agency originally attached to ON Line and responsible for distributing the stimulus funds.
One reason for the ever-higher costs borne by Nevada ratepayers — as well as the failed mandates — is simply the economics of developing the new technology, according to Steven Brown, director of business and economic research at the University of Nevada, Las Vegas.
"The technology they're developing is rare," said Brown. "In most states, the cost of electricity will rise when [governments] push towards more renewables."
To meet Nevada's standards, state utility companies may make up their deficiencies by purchasing — or using already-owned — green "portfolio credits." In 2011, for the first time, NV Energy anticipates purchasing credits from 44 generators in Idaho, Utah and Wyoming, operated by seven different facility owners.
NV Energy also supplies power to 47,000 California customers in the Lake Tahoe region, and intends to draw on credits derived there.
"Since our standards are so aggressive, it's costing [utility companies] a little more, and they have to try and meet these standards in a variety of ways," said Tom Piechota, professor of civil and environmental engineering at UNLV.
This spring, NV Energy is expected to seek a 5 percent rate increase from the PUC. The higher rate, says the company, would support increased efficiency and help fund a new $750 million power plant.
"The results [of Nevada's RPS legislation] have been less than stellar," said Assemblyman Goedhart. "The system sets up for appeasement. And appeasing everyone makes it more expensive."