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Draft Order Would Deny Nevada Customer's Application to Take Competitive Supply

June 9, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A draft Nevada PUC order would deny the application of Switch Ltd. to take competitive electricity supply.

Given potential long-term costs shifted to other ratepayers associated with Switch's exit from Nevada power utility supply, the draft concludes that there is insufficient evidence to find the application to be in the public interest

The denial would be without prejudice with respect to a new application from Switch addressing concerns raised in the draft.

Under Nevada's restrictive "choice" market design, only very large customers (1 MW or above) are permitted to take alternative supply from a, "provider of new electric resources," and must get approval from the PUC to do so.

The PUC is to consider, among other things, costs imposed on remaining utility customers in reviewing applications. The PUC may condition approval on payment of an exit fee.

The draft states that, "The Commission is particularly concerned that remaining Nevada Power customers will be responsible for Switch's share of the costs associated with the long-term, out-of-market contracts that are currently embedded in Nevada Power's rates, as well as Switch's share of the costs of Nevada Power's other obligations to further Nevada's energy policies."

The draft concludes that due to Nevada Power's class-specific rate designs, the exit of Switch from utility supply would impose an increase in costs on remaining Large C&I customers absent the replacement of Switch with a similar customer. Moreover, the draft would conclude that an exit fee even in the amount of $27 million as proposed by PUC Staff would be inadequate to mitigate these costs.

Analyses of the impact from Switch's exit have used a three-year horizon, but the draft would conclude that such a timeframe provides an inadequate consideration of the long-term stranded costs that would be assumed by other Nevada Power ratepayers, particularly long-term costs associated with varying public policy goals that have pushed rates above the level that would result from solely least-cost planning.

"The Commission finds that it is contrary to the public interest to allow Switch to exhibit bundled retail service to circumvent paying its share of the costs that have been incurred by Nevada Power to comply with Nevada's legislative energy policies and to serve existing and future load. The Commission finds that these costs include each of the following: REPR (renewable) costs; TRED (green power financing) costs; energy efficiency program and implementation costs; long term must-take resource contracts required by the RPS standard; and SB 123 costs, including but not limited to decommissioning and site remediation costs. The Commission finds that each of these costs were incurred, in part, to serve Switch's load and that it would be contrary to the public interest to allow Switch to exit Nevada Power's system without fully paying for its portion of these costs. The Commission finds that each of these costs extends past the next 3 years, which means that Switch's responsibility for these costs also extends past a 3-year period. Given that these remaining, long-term costs are currently embedded in Nevada Power's rates, all current ratepayers, not just those smaller customers unable to exit Nevada Power's system, are responsible for the payment of these costs. Thus, the Commission finds it contrary to the public interest to accept an impact fee that does not capture the entirety of Switch's share of these costs that are currently embedded in Nevada Power's rates. Therefore, the Commission finds that it would be contrary to the public interest to limit Switch's impact fee to either the Switch -- or Staff -- estimated impact fee," the draft states

"Accordingly, the Commission finds that approval of the Exit Application is contrary to the public interest because the evidence on the record shows that remaining customers will be burdened with increased costs associated with the long-term obligations that will remain on Nevada Power's system following Switch's departure, and because the record does not support either of the promulgated impact fees as being adequate to capture the portion of these costs that are attributable to Switch and that were incurred in part to service Switch's load," the draft states

The draft would conclude that the record contains inadequate evidence to develop an exit fee in the instant proceeding reflective of all of these costs and concerns

Although the issue of a nonbypassable rider to address departing customers' obligations for these long-term costs was posited in the proceeding, the draft finds that it would be inappropriate to address a global issue such as a nonbypassable surcharge within the confines of a specific exit application.

To the extent its application is granted, Switch has arranged for Constellation to supply its data centers

Docket No. 14-11007

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