What the PUC decision on Switch means for Nevada

By Kyle Roerink

Wednesday, June 10, 2015 | 2 a.m.

Today the Public Utilities Commission will make its final decision on whether Switch can sever ties with NV Energy to produce and purchase power without the utility.

Switch’s push to exit weighs consumer choice in a regulated monopoly against potential cost increases on ratepayers. The company spent the last eight months leading the way for an exodus effort that now includes Wynn Resorts, Las Vegas Sands and MGM Resorts International. The companies are hoping to decrease their power bills and use more renewable energy.

The chairwoman of the three-member commission, Alaina Burtenshaw, sent a clear signal on Monday, releasing a draft ruling that said Switch could not end its contracts with the utility. It was the first input any commissioner had in the case.

Commissioner Rebecca Wager on Tuesday fired back. She proposed two modifications that would give Switch more options. One would allow Switch to exit from NV Energy and the other would allow for an expedited investigation to rehash the Switch case in the near future. In her proposal, Wagner wrote that Switch’s exit is prudent because it is “supported by evidence, is justifiable and provides a conclusion …”

Commissioner David Noble will now be the influential swing vote and will now offer his input today, potentially passing Burtenshaw’s order, adopting Wagner’s amendment or finding another solution in the Eleventh Hour.

The final decision, whatever its outcome, will have a ripple effect among Nevada’s biggest companies.

“It’s crucial,” Randolph Townsend, a former state lawmaker, energy expert and current gaming commissioner, said.

If the final outcome resembles Burtenshaw’s draft order, Switch will have to either file a lawsuit or wait for the Legislature to reconvene to try to reverse a potential denial. But it will also set the stage for future conversations about the PUC’s regulatory role in determining exits, NV Energy’s grip on its customers and the effect on residential, commercial and large-scale ratepayers.

“I don’t think this decision should be taken lightly,” Townsend said.

An en mass departure could cut the power company’s demand by nearly 10 percent and redefine how the state’s biggest companies consume and create power in Nevada.

Burtenshaw’s draft order on Monday sent an unexpected blow to Switch — one of NV Energy’s biggest customers — and offered little hope that a compromise could be met before the case comes to a close.

Burtenshaw wrote that a Switch exit “is contrary to public interest because … remaining customers will be burdened with increased costs associated with the long-term obligations that will remain on [NV Energy’s] system following Switch’s departure.”

Switch, which stores data for an array of Fortune 1000 companies, is applying a 2001 law that says companies can leave if they use more than 1 megawatt of power per year, pay an exit fee and receive PUC approval.

The bill passed in the wake of Western Energy crisis spurred by Enron, which manipulated power prices in the west for financial gain. The law was a way for the state to rely less on the utility and give big companies the opportunity to build power plants to provide electricity to their operations and other consumers. In the past decade, a handful of casino and mining companies tried to exit the utility. The mining companies — Barrick and Newmont — built their own power plants. The casinos stayed with the utility.

Burtenshaw’s order mentions current market conditions as a factor for denying Switch. Those factors include the shuttering of coal-fired power plants, legislative mandates for building new renewable infrastructure and future fossil fuel prices.

The Attorney General’s Bureau of Consumer Protection agreed that a Switch exit would not benefit customers in current market conditions.

That opinion has some questioning how regulators apply the law.

Townsend, who wrote the law as a legislator, said market conditions are not a factor for determining whether a company can leave the utility.

“What PUC needs to do is pull back, take a 30,000-foot view and say ‘what does the law say,’” he said.

The exit fee is also a point of contention. But Burtenshaw’s order made no suggestion of what Switch would have to pay to leave remaining customers unharmed.

The PUC’s regulatory operations staff — a branch of the agency independent of the three commissioners — recommended Switch pay a $27 million exit fee to protect NV Energy's customers.

The utility, which also participated in the application process, gave recommendations that ranged from $27 million to more than $50 million.

Switch suggested it pay around $18 million to leave.

Wagner’s proposal says the exit fee suggested by the PUC regulatory operations staff strikes a “reasonable balance among the interests outlined in the [statute].”

“Staff conducted extensive analysis to conclude that an impact of approximately 27 million is reasonable,” she wrote.

Conversely, Burtenshaw’s draft order suggested the three-year forecasting model to estimate exit fees — which the commission used in past exit applications — is outdated for current conditions in the state and may not give the best estimates to protect ratepayers who will remain with the utility.

During the case, regulators or their staff never mentioned potential problems the forecasting model could pose.

Switch declined to comment. The PUC doesn’t comment on open cases.