By Riley Snyder
The Nevada Independent

In his 2017 State of the State address, Gov. Brian Sandoval made what seemed at the time like an easy prediction.

“With the overwhelming passage of Question 3 last year, it is likely Nevadans will have energy choice in the future,” he said in his last biennial address to the Legislature.

Sandoval’s comments were indicative of the air of inevitability that permeated the state and its policymakers throughout much of 2017 and 2018. But what once seemed a near certainty met its end on Election Night when Question 3, or the Energy Choice Initiative, was defeated with nearly two-thirds of voters opposed.

That result was a far cry from that of 2016, when more than 72 percent of voters cast a ballot in favor of the initiative, one of the largest margins of victory for a ballot question in modern Nevada history. Add in a coalition of powerful supporters — former Democratic Senate Majority Leader Harry Reid, data center giant Switch and one of the largest businesses in the state, the Las Vegas Sands — and the ballot question appeared to be a lock for the next election.

If approved, the measure would have amended Nevada’s Constitution to require the state adopt a retail competitive electric market by 2023, thereby ending NV Energy’s reign as the monopoly electric provider for most of the state. Although the proposed language contained few specifics, proponents said approving the ballot measure would lower electric rates while allowing Nevadans to shop and choose for their electric providers, rather than being forced to buy power only from NV Energy.

But it failed, and the first-ever attempt by any state to create a retail electric market at the ballot box is now consigned to the dustbin of history.

So why did it fail?

Supporters and opponents of the ballot measure chalk it up to two reasons: a misguided advertising message by supporters of the initiative that tried to make the question a referendum on NV Energy, and the unprecedented $63 million spent by the Berkshire Hathaway-owned utility to defeat the measure.

When the money was tallied, opponents of the ballot question spent more than three times more than the amount reported by proponents. They were also able to bring together a diverse coalition of groups, including rural counties, organized labor, business organizations, pro-renewable groups, teachers’ unions and senior groups to publicly oppose Question 3 and appear in campaign ads laying out their issues with it.

Peter Koltak, the Coalition to Defeat Question 3’s campaign manager, said the PAC decided to focus on a core message of three “Rs,” — renewables, rates and reliability — and hammer the issue for months with their immense fundraising advantage, despite what Koltak acknowledged as a built-in advantage of an attractively written ballot question.

Beginnings

Origins of the the Energy Choice Initiative stem from long standing fights between NV Energy and the two proponents of the ballot measure — Switch and Las Vegas Sands.

In any energy market, the most valuable customers to a utility are typically large-scale energy users such as a casino, hotel or major industrial customer with a large, steady load that can help subsidize hard-to-reach residential and other customers. But larger power users in Nevada have chafed at working with the utility; Switch CEO Rob Roy said in a February interview with The Nevada Independent that much of his animosity with the company stemmed from their alleged refusal to work with his company to develop a large-scale solar project in 2014.

“The hardest thing for me in Nevada in 18 years of building this company, the hardest single thing to work on — not clients, not success, not technology, not politics, not any of those things, it’s been one thing, and one thing that’s been the hardest hurdle to overcome has been NV Energy,” he said at the time. “It’s how I feel. I know it’s how all of them feel. It’s how Caesars feels. It’s how the Peppermill feels. It’s how Barrick felt way before all of us, so much so that they left 10 years before us.”

Switch and other large power customers decided to leave the utility, possible under a 2001 state law left over from an aborted effort to move to a retail market. The so-called 704B process allows large power users to apply to leave the utility as a customer if regulators deem it to be in the public interest — and if they pay an “exit fee” to the utility to make up any extra charges that might be levied on other customers by their departure.

Switch was the first to file to leave in 2014, followed by Wynn Resorts, MGM Resorts and the Las Vegas Sands, though the Sands opted not to pay its assessed $23.9 million exit fee in 2016, calling it in regulatory filings unjustified and meant to “perpetuate NV Energy’s monopoly.”

Two months later, the casino giant helmed by Republican Party megadonor Sheldon Adelson contributed half a million dollars to the nascent Energy Choice Initiative — the proposed constitutional amendment that would prohibit electric monopolies and open up the state to retail competition.

Although proponents of the initiative largely focused on the benefits of a retail market and the possibility of more renewable energy, Sands executive Andy Abboud let the mask slip a bit in October when he said involvement in the measure was more about the assessed exit fees.

“I have a fundamental problem on the cost structure, of the PUC determining costs when they were unable to tell us how they determined our exit fee, and today it seems like those exit fees were completely unnecessary,” Abboud said last year at a meeting of the Governor’s Committee on Energy Choice. “I’m not here today to go after the PUC, but let’s be honest. That’s why a lot of us are here, that’s why this initiative was launched, was the lack of transparency on what consumers are being charged to leave the grid.”

The measure soon qualified for the ballot after supporters gathered more than the required 55,000 signatures, and more supporters piled on: Tesla, Switch, the Sands, MGM, the Nevada Conservation League, Patagonia, solar companies, every major newspaper in the state and even Reid, the state’s most powerful Democrat and longtime U.S. senator who had long tangled with the utility and brought together initial supporters for the ballot question.

“Nevadans are poised to gut energy monopolies’ rigid power grabs and directly participate in the clean energy economy,” Reid said in a 2016 statement. “Voting ‘yes’ on energy choice will represent a seismic shift for America and the world — a momentous example of how the people can take down an outdated, special interest monopoly and choose the future they want for their state and their country.”

Their efforts were aided by a low point in public perception of the utility, driven by its involvement in and defense of a controversial decision in late 2015 by utility regulators to drastically reduce reimbursement rates received by rooftop solar customers through the state’s net metering program.

Ultimately, backers including Switch, Sands and MGM Resorts contributed $3.4 million to the PAC supporting the ballot question, while an opposition group funded by the Nevada State AFL-CIO and the International Brotherhood of Electrical Workers raised more than $910,000 to oppose the effort.

The ballot question dominated on Election Day in 2016, winning 16 of 17 Nevada counties and a massive 72 percent of the vote.

The campaign

Voter impressions of the Energy Choice Initiative were largely determined by fierce volleys over the digital and broadcast airways in the last months of the campaign cycle, but three key events helped shape the trajectory of the ballot question and seal its downfall.

On Feb. 5, the Coalition to Defeat Question 3 announced its formation, and set up an initial leadership board composed of a wide group of backers including business interests, urban Democrats, rural Republicans, union leaders, casino executives and NV Energy. More crucially, the group announced it was retaining the firm of Winner & Mandabach, a prominent national consulting firm. It also told The Nevada Independent that it was prepared to spend up to $30 million against the measure.

That initial announcement set the stakes high, and the utility ended up spending close to twice that amount on the campaign.

“When I started this, all the folks on our side, we knew NV Energy was going oppose this, they were going to spend some money,” Yes on 3 campaign manager Dave Chase said in an interview. “I don’t think anyone had any fathom of an idea of how much money they were going to spend and how hard they were going to go at this.”

Still, up through early 2018, most Nevadans still had a positive view of the ballot question. As late as April, a poll by The Nevada Independent found voters supported the initiative 54 percent to 16 percent, with 30 percent undecided.

That same month, Public Utilities Commission Chairman Joe Reynolds released a scathing 104-page analysis of the ballot question that questioned whether the measure would actually lower rates and said it could cost billions to repay costs associated with the utility’s “stranded assets,” as well as millions of dollars in other costs if a transition to a retail market was to be successful.

Proponents slammed the report as unfair — Sands executive Abboud called Reynolds a “rogue regulator” and said the report was “flatly unlawful” and “disgraceful” — but its findings were reiterated ad nauseum by opponents of the ballot measure to bolster claims that approving the measure could increase rates.

Koltak said elements including the PUC’s report helped highlight potential uncertainties with the ballot question, while the proponents focused their ad campaigns on attacking NV Energy rather than explaining to voters why the initiative should be approved.

“Voters aren’t dumb,” he said. “They figured out pretty quickly this was going to have a pretty significant impact on how things ran in this state. And they never told anyone why they should vote for it, and when you’re asking people to vote for a ballot question, you have to give them a reason to do it, and it can’t just be because this other thing is bad, it has to be, ‘It’s going to benefit me, here’s the reason why.’”

Another major turning point happened on May 31, when a prominent host of state officials watched as utility CEO Paul Caudill announced that the company’s next triennial Integrated Resource Plan — a state-mandated documented requiring the utility to lay out its planned energy supply and demand management — would include an ambitious proposal to add 1,001 new megawatts of new solar and battery projects to its portfolio, doubling renewable energy production in the state by 2023.

The historic announcement came with a massive asterisk — NV Energy asked the PUC, charged with overseeing the IRP process, to not approve any of the new projects if Question 3 passed, as such a circumstance would require divesting from its current electric plants and long-term power purchase agreements.

Again, the announcement was used prominently in ads by proponents of the campaign, who warned that approval of the measure would see the utility’s six proposed large-scale photovoltaic solar plants swept away.

Although supporters, including Chase, suggested the timing and scope of the IRP was politically motivated, renewable advocates largely applauded the utility’s decision and either joined the opposition or stayed neutral on the ballot question.

Andy Maggi, executive director of the Nevada Conservation League, said he thought the utility’s commitment to large-scale renewable production was genuine and made sense given the plummeting cost of solar — the proposed new generating stations included a potential record low price for solar in the U.S. NCL endorsed the ballot question in 2016 but stayed neutral this cycle, Maggi said, because of those commitments to more renewable energy.

“The reasons we were supporting it in 2016 had dimmed in terms of importance in our mind,” he said.

Funding

Doubtlessly, one of the primary drivers of the ballot question failing was the record-breaking sum of money spent by NV Energy.

In total, the Coalition to Defeat Question 3 raised more than $63.5 million from the utility throughout 2018, while spending about $63.3 million over the same time period. All cash contributions came from NV Energy, with several organizations including the AFL-CIO reporting in-kind donations in the high six figures.

Such spending on a state-level issue is unprecedented in Nevada political history. For comparison, both sides of the contentious 2016 ballot question over background checks on private gun sales raised $26.5 million throughout the entire campaign; supporters and opponents of the 2016 marijuana legalization ballot question cumulatively raised around $7.9 million. Total spending on the 2018 ballot question eclipsed outside spending in the state’s U.S. Senate race and far outstripped the amounts raised by both candidates in what many considered the state’s highest profile race.

A referendum on NV Energy

Supporters of Question 3 initially launched their messaging campaign by focusing on the supposed benefits of retail markets, including lower prices and freedom of choice (rates in retail states are generally higher but have decreased faster over the last decade than those in monopoly states).

But the campaign’s primary strategy and ad campaign — including the first television ad — focused on asking viewers to “break up” with NV Energy, the first in a long list of attacks against the incumbent utility. Subsequent ads would highlight negative stories involving the utility including claims the company had “excessive” executive pay, a former CEO “pumped up profits and walked away with millions” and claims that the company overcharged ratepayers by nearly $346 million.

But by most metrics, efforts to make the campaign about the utility failed.

According to opinion polling conducted by Benenson Strategy Group for the opposition campaign and provided to The Nevada Independent, the utility’s favorability numbers have remained consistently high since December 2017. The polling shows the utility’s favorability numbers staying around 60 percent throughout the entire campaign, with a 61 percent favorable and 25 percent unfavorable opinion reported the day before Election Day.

Political support

The political calculations changed over time, as well. Reid, who prominently backed the initiative in 2016, made no public comments on the measure this election cycle, and Democratic candidates including Gov.-elect Steve Sisolak and Sen.-elect Jacky Rosen either outright opposed the measure or said they were neutral.

Some top Republicans, including gubernatorial candidate Adam Laxalt, said they backed the initiative but typically didn’t run on it or highlight the issue on the campaign trail, possibly because their core constituency of rural voters overwhelmingly opposed the concept.

Almost no politicians on the 2018 ballot appeared in ads for or against the initiative. One ad from proponents featured reality show star Jonathan Scott, while ads from opponents largely featured members of the various interest groups opposing the ballot question, from the Sierra Club, a firefighters union, consumer advocates and the Latin Chamber of Commerce (and several former elected officials, including Ross Miller and Frankie Sue Del Papa).