Nevada Today

Nevada Today is a nonpartisan, independently owned and operated site dedicated to providing up-to-date news and smart analysis on the issues that impact Nevada's communities and businesses.

News and information

Nevada Amendment 3: A Move to Grid Parity

In 2016, 72.36 % of Nevada voters approved an initial constitutional amendment to minimize energy regulations and eliminate legal energy monopolies. The amendment (question 3) requires final approval in the 2018 election.

A “yes” vote supports this constitutional amendment. It requires Nevada Legislators to establish “an open, competitive retail electric energy market,” reduce energy market regulations, and prohibit energy monopolies.”

A “no” vote opposes this constitutional amendment.

If approved, the measure would place a “guarantee” in the Nevada Constitution giving energy customers the right to choose their energy provider and generate their own for resale. If approved, the Nevada Legislature must pass laws by July 1, 2023, to establish an “open, competitive retail electric energy market” that entitles customers to “safe, reliable, and competitively priced electricity.” The measure does allow the legislature to permit NV Energy or another firm to maintain a monopoly on the electricity distribution grid, such as transmission lines.

If no, the conditions of the energy market in Nevada would remain the same.

Overview

The right to choose does not guarantee lower prices nor does it mean no regulation.  The  U.S. economy is a free market economy based upon supply and demand – with some government regulation.  The real question is not regulation but how much regulation is needed in the energy market.

No market is entirely competitive.  The Federal Energy Regulatory Commission (FERC) recognizes that firms have some ability to manipulate prices. Thus, they gain market power through the ability to profitably raise prices for sustained periods of time.

If a firm can take actions that increase Locational Market Pricing (LMP)[i] in an electricity market in a single hour, then FERC generally does not equate that with the exercise of market power. For example, rural electrical coops.  If a firm can increase LMP consistently over the course of many hours, then FERC would recognize that firm having market power. For example, Nevada Energy.

LMP and the Renewable Market

The cost of renewable energy is now falling so fast that it should be a consistently cheaper source of electricity generation than traditional fossil fuels within just a few years, according to a new report from the International Renewable Energy Agency (IRENA).[ii]

Locational Marginal Pricing (LMP) is a way for wholesale electric energy prices to reflect the value of electric energy at different locations, accounting for the patterns of load, generation, and the physical limits of the transmission system.

Renewable energy has the potential to shift the LMP from traditional wholesalers and centralized hubs to local alternative energy consumers who may also become energy suppliers to the grid. If achieved, market power and pricing shifts, in part, from monopolies to tens of thousands of individual or small group alternative energy power producers.  There are consequences.

A shift of LMP from traditional utility providers to individuals or groups of individuals disrupts the power of traditional power monopolies to influence the market and make a profit.

Utilities argue that if more consumers use alternative energy to lower their monthly bills, there are fewer funds to pay for maintenance of the power grid. That makes it harder for them to predict how much power the grid will demand at any given time.

In Nevada, utility suppliers lobbied the legislature to slow down the move to solar power by requiring fees, a burdensome requirement process, and limits on the flow-back to the grid when excess power is produced.

The 2016 approval of Amendment 3 is a strong message to the Nevada legislature that constraining alternative energy development in the state is unacceptable.

Grid Parity

On one-hand, a yes vote to Amendment 3 can potentially destabilize the energy market by drastically shifting the LMP and disrupting the ability of traditional utility providers to give their view of cost-effective energy to all consumers.

However, a yes vote would need the legislators to move the state towards grid parity (socket parity). That occurs when an alternative energy source can generate power at a leveled cost of electricity (LCOE) that is less than or equal to the price of purchasing power from the monopolized electricity grid. [iii]

A move towards grid parity is arguably the amendment excludes NV energy or another firm who would maintain the distribution and transmission lines. Simply put the alternative energy provider becomes another, potentially less costly, link in a total utility system where distribution and transmission lines are centrally managed to ensure efficiency and cost effectiveness.

Electric Power Research Institute (EPRI)

A yes vote shows confidence in Nevada’s legislators to provide grid parity by including alternative energy resources in the grid without regulatory interference.

On the other-hand, a no vote suggests fear of rising energy costs, a desire to avoid destabilizing the market price. A no vote is also a no confidence vote in Nevada’s legislator’s ability to improve energy delivery in the state.

In the final analysis, voters are either saying yes, I have confidence in Nevada legislators to improve the energy environment, or no I don’t.

[table “14” not found /]

Endnotes:

[i] Locational Marginal Pricing Fact Sheet at: https://pjm.com/~/media/about-pjm/…/locational-marginal-pricing-fact-sheet.ashx

[ii] Dudley, Cominic, “Renewable Energy Will Be Consistently Cheaper Than Fossil. Fuels By 2020, Report Claims,, Jan 13, 2018, Forbes Business, at: https://www.forbes.com/sites/dominicdudley/2018/01/13/renewable-energy-cost-effective-fossil-fuels-2020/#4375de54ff2e

[iii] “What Is Grid Parity?”. Renewable Energy Advisers.

About Author

Michael McGreer Mesquite, Nevada
Dr. Michael Manford McGreer is managing editor of Nevada-today.com and writes on issues that impact public policy.

This site uses Akismet to reduce spam. Learn how your comment data is processed.