Question mark

When Nevadans go to the polls this year, they will carry the weight of the big money spent on ballot Question 3.

In June disclosures, the campaigns of U.S. Senate candidates Jacky Rosen and Dean Heller came to about $20 million combined. Spending on Question 3 is believed to have already been on the far side of $30 million by August, with two months of the campaign still to go, and NV Energy alone is prepared to spend up to $30 million if necessary to defeat Q3.

The spending has not exactly led to any greater clarity for the public. Complaints about the confusion over what Q3 means and would do are common.

The confusion is surprising, because in 2016 the public seemed set on its view of Question 3. In the first round of voting on the measure, Nevadans supported it by a whopping 44.72 percent margin. To put it in perspective, that’s about twice the margin by which Lyndon Johnson beat Barry Goldwater and Richard Nixon beat George McGovern.

Yet not only does the public now have serious doubts about the measure, but those doubts appear to be growing. Suffolk University surveys commissioned by the Reno Gazette Journal showed 45 percent of voters in July planning to vote against the question, 51 percent by September.

Perhaps all the public needs to know is that the ballot measure would remove any cap on rates, which is certainly part of what is driving the change in public sentiment. But the confusion also stems not from what Q3 does, but from what it was never intended to do. As we’ll see in the course of this article, the origin of Question 3 has nothing to do with choice, net metering or renewable energy. It has to do with only one thing—corporate exit fees. All other effects it may have on energy policy, good or bad, are incidental.

Genesis

In 2015, three major Nevada casinos approached state public utilities regulators about leaving the NV Energy monopoly to purchase and generate power in other ways.

The three casinos—MGM Resorts International, Las Vegas Sands and Wynn Resorts—are not mom-and-pop operations. Combined, they accounted for seven percent of NV Energy’s business. The utility had laid out substantial funds to accommodate the three casinos’ needs during a $750 million renovation, and the cost of those needs were being paid by the three, amortized over a long period. If they walked away from NV Energy, the cost would be dumped on the remaining ratepayers. So the corporations would pay exit fees.

In August 2015, the staff of the Public Utilities Commission calculated the fees—$88.2 million by MGM, $23.9 million by the Sands, $16.6 million by Wynn.

MGM and Wynn ponied up the money and went their way. The Sands decided to try to dump the fees on the public. That’s the first place rank-and-file NV Energy customers will pay more if Question 3 is approved.

Sands owner Sheldon Adelson was perfectly willing to stick the public with his debt. He launched an effort to file an initiative petition partially deregulating power in the state by requiring the Nevada Legislature to shut down the state’s electric utility monopoly and create a competitive market in which all comers can supply power.

While this was going on, another energy drama was running more or less concurrently.

In 2014, many Democrats, demoralized in the last years of the Obama administration, stayed home instead of voting. Republican gains were strong, and in Nevada, there was a Republican sweep—every state government office elected statewide went to the GOP and both houses of the legislature did, too—the first time since 1890 such a thing happened.

Among the fruits of Republican control of the 2015 legislature was enactment of Senate Bill 374, calling on the Public Utilities Commission to conduct “an analysis of the effects of net metering.”

With net metering, homeowners can generate their own power and send any surplus power back to the grid, receiving compensation for the power they provide. The practice seemed to make conservatives crazy—the Wall Street Journal called it a form of income redistribution—and Warren Buffett’s Berkshire Hathaway Energy, which owns NV Energy, had lobbyists dogging state legislatures, courts and utility rate-setting commissions across the nation to put an end to net metering.

The Nevada PUC, assigning credibility to a Buffett claim that non-solar customers were being forced to subsidize solar rooftop users—a claim the PUC’s own staff had discredited—took the senate bill and ran off the end of the Earth with it, ordering reductions in the payments homeowners receive, hitting them with a fee for access to the grid, even applying the fee to those who had outfitted their homes with solar gear that was not yet paid for, defeating the whole purpose of a pro-net metering state policy that was still in place. This was not an “analysis” of net metering. It was war against net metering.

A robust young industry in the state collapsed, some firms leaving the state. It turned out that both solar generation and net metering were very popular.

This is when a key public misunderstanding developed. The juxtaposition of timing between the net metering fiasco and the drafting of Adelson’s initiative petition led a commonly accepted notion to arise—that the petition, if enacted, would protect net metering.

Actually, the net metering problem is already solved. Gov. Brian Sandoval was blamed by solar panel firms for the fiasco, which was not correct. Sandoval had been unwilling to interfere with the Public Utilities Commission, which is set up in the law to be independent from politicians, but the governor signaled his feelings about what the commissioners had done by his choices for new commissioners as the terms of members expired. His new PUC appointees won praise from renewable energy advocates. PUC chair Joe Reynolds, in particular, was highly regarded. “Joe Reynolds has been a strong leader on the issue,” according to the Southwest Energy Efficiency Project’s Nevada representative Tom Polikalas.

The new PUC adopted rules protecting net metering. In addition, the Democrats in 2016 regained majorities in both houses of the legislature, and the 2017 legislature enacted a measure sponsored by Assemblymember Justin Watkins that reversed the PUC’s net metering rate change and also enacted an array of other measures that secured the position of renewable energy in the state.

Thus, the net metering problem was solved without Question 3. But the ballot measure does pose other problems.

The Constitution

In the months after Question 3 won its landslide first-round victory in the 2016 election on the strength of net metering sentiment, it appeared so certain to be enacted in 2018 that Gov. Sandoval appointed a panel to prepare recommendations on how it should be implemented.

But something else also happened. A lot of people who had previously supported the measure under the impression it had to do with net metering got around to reading its language.

There had always been some uneasiness over the fact that Adelson had proposed constitutional instead of statutory changes. There was also concern about going back into the water—the last time Nevada deregulated electricity had been a disaster.

Moreover, the supporters of renewable energy were concerned by what enactment of Question 3 would do to a thriving clean energy movement in the state that’s supported by both state government and by NV Energy.

In earlier years, the efforts of NV Energy—formerly known as Sierra Pacific Power—were grudging and reluctant. Solar isn’t practical, its reps would say. And Q3 supporters, such as former state consumer advocate Jon Wellinghoff, kept alive legitimate reminders of the corporation’s policies: “And don’t forget that it was just a few short years ago that NV Energy effectively killed off the rooftop solar industry in Nevada (because it was eroding its profits), leading to thousands of lost jobs and multiple business closures.”

But the utility now gets good marks from clean energy experts, particularly since its adoption of a new energy plan that includes doubling its level of renewables in the next five years and raising its battery energy capacity. It has contracted with Cypress Creek Renewables, 8minutenergy and NextEra Energy Resources to build new projects.

The Sandoval administration, meanwhile, is running ahead on meeting the goals of President Obama’s Clean Power Plan, which the Trump administration is trying to repeal.

In addition, renewables have become something of a Western cause as Nevada and other states in the West have joined the clean energy effort. Nevada began early on to reduce its reliance on coal.

Environmentalists asked, what would happen to this momentum if Adelson’s partial deregulation hit the state’s power system? What would happen in the turbulence and havoc of creating a new system? On Feb. 5 last year, a group called the Coalition to Defeat Question 3 announced it had been formed to oppose Question 3. It included people and groups the state’s environmental community trusted—the Natural Resources Defense Council, the Sierra Club, Southwest Energy Efficiency Project and Western Resource Advocates. Their participation changed perceptions about which side represented clean energy. (There is some speculation in political circles over whether Adelson will spend more on Question 3 than he would have spent on the exit fee.)

“[T]here is nothing in Question 3 that would promote or enhance clean energy development in the state,” Sierra Club’s Toiyabe Chapter Chair Anne Macquarie told a Carson City luncheon group. “And while the complex new rules are being written—over a period of years to make the transition from a regulated monopoly energy provider to a still-regulated competitive market—we fear clean energy policy initiatives will stall or stop. … We don’t think we can wait to move forward with aggressive clean energy policy while a state with a lightly-staffed Public Utilities Commission and a legislature that meets only every two years hammers out the details of a complex and difficult transition. And we don’t think that the electricity market that results from this transition will benefit small customers like us or the environment.”

Many in the environmental community have subsequently withdrawn their support from the measure.

Another problem plagues Q3. Both it and a second ballot measure, Question 6, deal with energy, and both seek to implant their language in the Nevada Constitution.

The benefit to their sponsors is presumably to insulate their measures from change by the Nevada Legislature. But that’s not all it does. It insulates them from correction of mistakes or updating of language.

It’s not as though there is no example available of a mistake in the drafting of an initiative petition. In 2016, a ballot measure providing for background checks in some gun purchases not already covered by existing law was written to require federal checks and banning state checks. It turned out that the FBI declined to perform the checks for a state that had its own system, and state officials were unable to convince the feds to make Nevada a “hybrid” state that uses both types of checks.

As a result, the law Nevadans supported has never been implemented. Ballot measures sometimes do contain mistakes, and those errors are far more easily corrected in statutes than in the Constitution. According to the Guinn Center for Policy Priorities in Clark County, of states that have approved energy deregulation, not one has done it through constitutional change. All but New York have done it through statute, and New York did it through its regulatory body.

The Center warned that if Nevadans were to become unhappy with the results of Question 3, “They would have to repeal the constitutional amendment with another constitutional amendment. This would entail circulation of a new petition to obtain the requisite number of signatures to appear on the ballot and then passage in two successive elections.” Or the Nevada Legislature would have to process a constitutional amendment through two legislative sessions, and then it would have to be approved by voters. Either way, it would be a drawn-out process.

Dracula vs. Frankenstein

Not everyone is comfortable with allying themselves with either side in this battle. On one side is the guy who tried to kill net metering. On the other is a guy who doesn’t want to pay his bills.

But Question 3 is coming at Nevada whether residents like it or not, and it must be dealt with.

Supporters of Question 3 say that predictions of unfavorable outcomes to its enactment are “speculative.” That’s certainly true. The effects of deregulation are never predictable. But their predictions of favorable results from Question 3 are, therefore, also speculative.

“Competition is good,” according to the pro-3 campaign’s website. “Don’t let a monopoly like NV Energy tell you otherwise.”

But there’s an underlying premise to that statement that demonstrates the unpredictability of deregulation—it assumes that deregulation promotes competition.

In 1978, Congress deregulated the airlines. Nevada’s Howard Cannon, who chaired the Senate Commerce Committee, tried to stop airline deregulation but was outmaneuvered by Ted Kennedy. The London Economist reported, “Cannon is almost alone in his skepticism. Sen. Kennedy brushed aside [Cannon’s] questions with an implied question of his own: What is wrong with getting lower fares for the public, no matter what harm it may do to the present system?” Kennedy went around the Nevadan and built support for deregulation in Cannon’s committee. Unable to stop it, Cannon retreated and said he would sponsor the bill himself in order to keep some control over the process.

President Carter signed airline deregulation on Oct. 24, 1978. It nearly destroyed the airline industry. Far from fostering competition, as sponsors had promised, it triggered a series of bankruptcies and mergers that put more than a hundred airlines out of business, including well-known carriers like Eastern, Braniff, Pan Am, Continental, Northwest and TWA. Two aviation experts reported that the losses that piled up equaled the airlines’ profits for the previous 60 years of passenger airline existence. No one brags any more about having helped deregulate the airlines—or about creating competition in the airline industry. There are a handful of big, national airlines left, providing lousy service.

In the 1990s, Congress deregulated the banking industry and Wall Street. President Clinton recommended it to a Republican Congress. The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, enacted by Congress in the 1930s to keep banks out of the insurance business and prevent another Wall Street collapse. Congress also passed the Commodity Futures Modernization Act, exempting credit-default swaps from regulation.

Nevada’s U.S. Sen. Harry Reid reluctantly voted to repeal Glass-Steagall and later said he made a mistake. During the 2008 Wall Street meltdown, Reid said deregulation “paved the way for much of this crisis to occur.” The meltdown was so severe and the financial institutions involved so huge—Lehman Brothers, Bear Stearns, Merrill Lynch—there were those who said if they went down, they could take the United States with them. The ensuing investigating commission found deregulation “which effectively eliminated federal and state regulation” to be one cause.

The results of deregulation are seldom predictable.

There’s an example more analogous to the Question 3 debate.

During the 1990s and early 21st century, state legislatures deregulated their power generating markets in varying degrees at the demand of Enron, which wielded huge campaign contributions and pseudo-intellectual “studies” calling for deregulation. Half the states went along, including Nevada, where deregulation was something everyone at the legislature “knew” was needed. Nevada did it in electricity and gas. Consumer advocates who urged caution were ignored. (A 2007 Power in the Public Interest study of Department of Energy figures found that retail rates rose more from 1999 to 2007 in deregulated states than regulated states.)

California partially deregulated in the same approximate time frame. Soon, the families of the working poor were being evicted from homes because their power bills shot out of sight. Companies shut down, unable to pay suddenly astronomical power bills. Havoc spread across the West, particularly in the three Pacific Coast states, as blackouts and brownouts roiled society.

Transcripts of Enron telephone calls laid out the frauds in detail. States like Nevada were even pulled into the act when California-generated power was sold to Nevada, then sold back to California at ridiculous prices, something that regulation had prohibited.

When it was all over, Nevada’s Valley Electric Association had to pay Enron $14 million for electricity that the fraudulent corporation never supplied, and Nevada’s attorney general went to court against Enron. Even Gov. Kenny Guinn, a former utility president who believed in deregulation, was shaken by the experience and retreated from deregulation.

Now what?

Initiative petitions were created to give everyday citizens a tool to be used against rich people, arrogant corporations and overbearing government. Instead—and particularly in Nevada where business lobbyists convinced the state to make petition requirements more onerous—initiatives are used only by the wealthy, corporations or powerful interest groups that can afford to gather the signatures.

One risk of initiatives is that they will be used on issues of such complexity that the public will be at a loss on which side is right. The rise of modern public relations methods are particularly good at concealing the real intent of petitions. No one is campaigning on Question 3 with talk of exit fees, or regional markets, price spikes, interstate transmissions or stranded costs. Those are the kind of things legislators normally deal with. Instead, the campaign is about “choice” and “renewable energy.”

We live in an era in which things no one expected have come to pass. Renewables are not only practical now, but their price has dropped dramatically. Does that mean it is time for Question 3, which would eliminate any ceiling on rates? There is a long line of other corporations waiting behind the Sands, including Tesla, who say they are next. Does it mean that if we deregulate, Adelson’s version of deregulation is the correct one? How can an ordinary voter even know what that version—and its consequences—are? As with other instances of deregulation, we cannot know. We can try it, or we can leave energy policy to the Nevada Legislature.