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August 28, 2015

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Lack of competition is bad news for ratepayers

As CEO of a company that owns two gas-fired power plants in North Las Vegas, I want to invest in the Nevada economy. I want to hire contractors, pay taxes and provide as many jobs as possible. But if Senate Bill 123 is signed into law, those things will become difficult, if not impossible. Worse, companies like mine may go out of business.

The headlines say that SB123 will retire coal plants and replace them with natural gas and renewables. But lost in translation is how this will be accomplished.

Buried in the fine print of the bill is a provision to remove public oversight over NV Energy, effectively making it a pure monopoly. As a result, companies like mine, which put competitive pressure on the monopoly, will be pushed out of the market — and your rates will go up.

Some background on the power industry helps explain the problem. Before electricity gets to your house, it passes through three phases: generation (where it’s created); transmission (where it’s moved); and distribution (where it’s delivered).

Transmission and distribution require enormous amounts of capital, so they’re typically controlled by utilities. But generation can be provided at lower costs. This allows nonutility generators, known as independent power producers, to bid against utilities for the right to generate electricity. As in any bidding situation, the low bid usually wins. That, in turn, keeps prices down for ratepayers.

But SB123 changes that. According to the bill, 550 megawatts of natural gas generation must be owned by the utility. In other words, the utility can set prices wherever it wishes, and the PUC has no choice but to accept them. The PUC cannot solicit other bids, nor can it demand cheaper alternatives. It can’t even tell the utility to consider using existing plants rather than building brand new, expensive, redundant ones.

And here’s the kicker: The more money the utility spends, the more it makes. So there’s absolutely no reason for the utility to submit anything other than the most expensive proposal. It’s the opposite of competitive bidding.

My company’s plant has provided electricity to Nevadans since 2004. We employ 19 highly skilled workers. A greenhouse on our site produces up to 100,000 cucumbers per day and employs an additional 140 people. We have paid tens of millions of dollars in salaries, taxes, and payments for goods and services over the years. We are proud to do business in Nevada.

However, next January our contract expires. Normally, we would submit a bid to renew it. But SB123 bans us from even offering a proposal to fill 550 megawatts of identified needs. Without competition from us and others like us, the utility becomes a monopoly. And as any economist will tell you, monopolies raise prices. Always have, always will.

SB123 now sits on Gov. Brian Sandoval’s desk, and all indications are he will sign it. I wish he wouldn’t. But if he does, let’s hope that SB123 is implemented in a way that gives independent power producers and ratepayers the benefit of a fair, open and competitive process.

Mo Klefeker is president and CEO of Southwest Generation, an independent power producer headquartered in Denver that owns and operates two gas-fired power plants in North Las Vegas.

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