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November 27, 2014

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LEGISLATURE 2013:

The anatomy of a legislative power play: How NV Energy will exit coal and make money doing it

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Sam Morris

Nevada Power’s Reid Gardner coal-fired plant is shown in April 2007.

U.S. Sen. Harry Reid arrived in Carson City on a Wednesday in February, commandeered an office at the Legislature and sat down with state Sen. Kelvin Atkinson to hatch a plan.

A sweeping proposal to move coal out of Nevada’s energy mix had incubated for months among a group of powerful and influential politicians, business executives and lobbyists before they stepped forward and selected Atkinson to help execute it — at least publicly.

What emerged from that meeting was a legislative power play reaching from D.C. to Nevada that illustrates how consummate insiders can dictate energy cost and policy for every Nevadan for the next decade.

The big idea: Nevada would cease its investments in three coal-fired power plants and NV Energy, the state’s energy monopoly, would get to build expensive gas and renewable energy power plants — a cost that ratepayers would have to bear.

In a state with nearly the highest energy costs in the Mountain West region and a growing renewable energy sector, a potentially risky shift from coal to gas and alternative-energy plants could have been momentous or disastrous for Nevada residents, businesses, energy providers and politicians.

But business and political leaders meeting privately in D.C. and in Nevada had made the decision: Nevada would try to exit the coal market. Atkinson, a Democrat from North Las Vegas, would be the state lawmaker to carry the bill, prompting his meeting with Reid.

“He and I talked about getting out of coal and then being more aggressive with renewables,” Atkinson said.

But it wasn’t just the state’s most powerful Democrat scheming with a compatriot to force the hand of NV Energy, which had wanted to build coal plants as recently as 2009.

Republican political strategist and powerhouse lobbyist Pete Ernaut of R&R Partners and his client NV Energy had recently become convinced of the wisdom of dumping coal and thought legislation was the best way to accomplish it.

The stakes were high when NV Energy executives met with lobbyists last summer to discuss what Nevada should do about its coal plants. Closing them would cost a lot of money, but keeping them might cost more.

Click to enlarge photo

Senate Majority Leader Harry Reid is joined by members of the Moapa band of Paiutes and environmentalists as he calls for the closing of NV Energy's Reid Gardner coal-fired power plant during the National Clean Energy Summit 5.0 at the Bellagio Tuesday, August 7, 2012.

That same summer, Reid was accusing the utility of “literally killing” members of a Native American tribe, the Moapa Band of Paiutes, who live near the Reid-Gardner coal-fired power plant about 50 miles north of Las Vegas.

The coal plant belched ash and dangerous chemicals into the lungs of the Paiutes.

“That's why it is time to close the dirty relic, Reid-Gardner,” Reid said in a speech.

This was the same senator who in 2007 had excoriated the utility for planning to open a coal plant in Ely. This was the Democratic cheerleader for renewable energy whose calls for killing coal came coupled with the Democratic president’s promises to tighten regulations on existing coal plants — promises that came true last week when President Barack Obama announced plans to curb climate change and reduce carbon emissions. This was the most powerful politician in Nevada standing with the Paiutes as they prepared to file a lawsuit against NV Energy.

A lot has changed since 2007, when NV Energy CEO Michael Yackira had stood stridently in defense of building coal plants.

By summer 2012, exiting the coal market looked like the smartest economic, political and legal decision the company could make, so much so that Yackira recently called the decision “inevitable.”

“We believed that this was inevitable, but we wanted to be, as a state, ahead of the curve by trying to reduce our dependence on coal and increase our investment in renewable energy,” Yackira said, echoing Reid and Atkinson.

Coal was no longer a question. The question was how to protect investors, how to turn an inevitability into an opportunity.

NVision becomes public

Ernaut walked into a packed legislative committee room April 3.

Something big was about to happen, but only he, Atkinson and a few others knew exactly what was in the works. Everybody else was all ears.

A hearing had just commenced for Senate Bill 123, but energy lobbyist Rose McKinney James was testifying to the Senate Commerce and Labor committee about a bill that might as well have been a ghost.

Atkinson stopped her mid-sentence and announced he would like to rip the guts out of SB123 and replace it with NV Energy’s new 10-year plan, shocking McKinney James and even surprising lawmakers such as Sen. Justin Jones, D-Las Vegas, who lamented that legislators weren’t apprised of Atkinson’s sweeping amendment that would take Nevada out of the coal market.

Not only would the amendment accomplish Reid’s goals, it also would allow NV Energy to build and own natural gas and renewable energy power plants, a move that would raise rates for Nevadans and boost share prices for investors.

The plan was dubbed NVision.

The utility’s lawyer, Sean Elicegui, recited in a monotone voice the ins and outs of the changes in the bill that would require the utility to replace the 15 percent of the energy it gets from coal by 2025 — and, in the process, dodge the bulk of regulatory oversight from the state’s Public Utilities Commission.

NV Energy then trotted out the first members of what would be a budding coalition to provide the political cheerleading needed to get the bill through.

Labor unions jumped at the opportunity to build power plants. Renewable energy developers predictably opined that investment in renewable energy was great. Even the Moapa Band of Paiutes, which is still suing the utility, endorsed the amendment.

The idea had percolated for months in private. This was the moment Atkinson raised the curtain on the opening act of the legislative play.

But some of the ensemble cast were noticeably missing — namely the state’s largest power customers, who also happen to be some of Carson City’s most powerful political players.

Off camera, one lobbyist muttered an obscenity to describe the amendment.

The smooth road — paved by the politically popular idea of ditching coal — wasn’t yet a reality.

“There was a lot of polarization to begin with,” said Sen. Mark Hutchison, R-Las Vegas, who eventually voted for the bill.

Ernaut pivoted from the Legislature to Republican Gov. Brian Sandoval’s office to garner support from Republicans in the Senate and Assembly.

As both a friend and political adviser to the governor, Ernaut appeared more poised to approach Sandoval than chief NV Energy lobbyist Tony Sanchez, a Democrat who worked with former U.S. Sen. Dick Bryan.

Protracted private negotiations in the governor’s office had soured when Sandoval’s general counsel and chief policy adviser, Lucas Foletta, resigned in protest over the utility’s effort to rush the bill through and push the governor in front of a measure that would surely change.

Even Atkinson wasn’t happy with the first draft of the bill. A legislative mandate to allow the utility to build 2,600 megawatts of power galled some seasoned legislative observers; the proposal would cost billions of dollars. It was just too big.

“I’ve been asked if the utility shot high in the beginning to get to some compromise,” Atkinson later said to an Assembly committee. “I won’t deny that that probably was the case.”

The bold and unexpected proposal turned heads, and a cascade of private and public interest followed the April 3 hearing.

So many industry groups explored retaining representation at the Legislature that lobbyists began to call the bill a de facto lobbyist employment act.

The Attorney General’s Office Bureau of Consumer Protection sounded alarms, telling anyone who would listen that the bill would mean Nevadans would pay more for energy. Later, appointed commissioners on the state's Public Utilities Commission lambasted the measure, saying the state would cede too much power to a utility that has no competition.

Meanwhile, financial analysts upgraded NV Energy’s stock, saying the bill would mean the utility would build a $500 million power plant. Shareholders earn money when the utility builds things, so this would boost the stock.

But the bill’s peddlers sliced through the flurry of opinions and sought the counsel of just a few concerned parties.

And in reality, it was just too late — with the four-month legislative session half over — for any organized opposition to stage a meaningful challenge to the bill.

Coal vs. money

In the Legislature, the bill was always about coal, and it was never about coal.

The zeal to kill coal and green-wash Nevada’s energy landscape was so strong that one lobbyist essentially declined to take the coal industry as a client — the industry’s cause was impossible to advance in the Nevada Legislature, he said.

Advocates for the bill trumpeted the exit from the coal market at every public hearing and in every press release.

For investors and energy users in Nevada, the battle was always about the money.

None stood to lose more money from the bill than Southern Nevada’s largest energy users, the megaresorts on the Strip. Nevada’s gaming companies also employ dozen of lobbyists and open their coffers come campaign contribution season.

If rates dramatically increased, they would pay the most. The bill’s announcement two months into the legislative session stunned many gaming managers and executives, who called in their concerns with their representatives at the Legislature.

Ernaut, the gregarious leader of NV Energy’s own phalanx of lobbyists, also represented the casino industry, a fact that raised a few eyebrows in Carson City.

But Ernaut exempted himself from the flurry of face-to-face meetings in Carson City’s halls, offices and coffee shops. Every gaming company employed its “energy nerds” to scrutinize the bill, and lobbyists said Reid’s office called several of the key players.

For several weeks in April, the carefully crafted proposal could have unraveled.

“Let me put it this way: The prospect of NV Energy trying to pass a bill over the objections of its biggest customers is zero,” Ernaut said at the time.

The loose group of players in this game included Sandoval and Reid staffers, gaming energy experts and lobbyists, NV Energy managers and contract lobbyists, staff at the Bureau of Consumer Protection and the Public Utilities Commission, those with knowledge of the meetings said.

How many legislators were at these meetings?

“None of them,” said one lobbyist familiar with the working group meetings.

Like many complicated bills, energy policy takes years for lawmakers to master, and it’s not uncommon for industry groups to argue the finer points of legislation before bringing a compromise to lawmakers.

“The most important part is to build consensus,” Ernaut said. “You may not start with it. You may start with controversy, but if reasonable people sit down and talk in a reasonable manner, you can arrive at an answer that makes good business sense for all.”

Bringing the central power players together helped the bill move forward, even as the Public Utilities Commission, a former state attorney general, the Bureau of Consumer Protection and a few lawmakers continued to raise objections to the bill’s rate increases and regulatory changes.

If the initial ask was too big, it was time for NV Energy to put something more realistic on the table.

In the hours before a crucial deadline, NV Energy unveiled an amendment to SB123 that overhauled the proposal. Now the company was calling for about one-third of the new construction the original bill had mandated and adding a degree of regulatory protection back into the bill.

That compromise had the backing of a coalition that included the Sierra Club and other environmental groups. With the original supporters including labor unions, renewable energy advocates, NV Energy, Reid and Sandoval, it’d be difficult to find a more politically formidable alliance in Nevada.

By late May, senators congratulated themselves for all the hard work on the bill and duly passed it 21-0, kicking the bill to the Assembly to finish the deal and hand it to a governor eager to sign it.

But Assembly Republicans didn’t want to play nice.

The loyal opposition

On the walls of Assemblyman Ira Hansen’s office are posters of Theodore Roosevelt and Winston Churchill — two politicians who weren’t afraid to speak against the powerful.

The Republican from Sparks has spent decades honing his political speech on talk radio and in newspaper columns, and he now turned his ire toward NV Energy.

“They thought this was a slam dunk,” said Hansen, who noted bills that have the support of Sandoval, Reid and the gaming industry usually glide through the legislative process. “Who’s going to stand in their way?”

Even billionaire investor Warren Buffett appeared as an ally, issuing a vote of confidence in the utility when he declared during the same week the Assembly was considering SB123 that he would buy the company.

Hansen, a plumber, preferred that the Legislature mandate NV Energy exit the coal market by a certain date and leave the particulars to the utilities commission to decide. And he aggressively pushed his argument to fellow lawmakers and the press.

But Democrats have the majority in the Assembly and set the agenda.

Hansen’s low-level protests would not upset the bill’s passage. Hansen’s amendments would only gum up the legislative gears in the last crucial days of the legislative session, and the resort and casino industry had agreed to the only amendment that mattered.

Still, Ernaut — the chief lobbyist tasked with keeping the coalition together — couldn’t afford to let anything threaten the deal.

In those final hours, Ernaut was seen in several heated hallway conversations with Hansen.

“Suddenly, I’m in the vortex of incredible political pressure,” Hansen said.

Sandoval’s office, worried about how a lack of Republican support would be viewed, spent the last few days trying to persuade other Assembly Republicans to vote for the bill.

In the end, 10 of 15 Assembly Republicans voted against it June 3, the last day of the legislative session.

The governor signed the bill this month, sparking cheers from the environmental community and NV Energy shareholders.

The compromise had worked. NV Energy had shot high and left with a bill making it financially beneficial for it to exit coal.

Everybody involved in the process says ratepayers will see rate increases under the new plan above and beyond increases that would’ve happened had NV Energy stayed in the coal market.

The company’s official estimates say the impact will be negligible, less than 5 percent above forecasted rate increases. The Bureau of Consumer Protection says there’s a chance the rate increases could be much higher, and critics have cited a similar law in Colorado that led to double-digit rate increases.

But, more importantly, everybody who mattered in the process had come to agreement about acceptable rate increases and everything else in the bill.

“That’s what this building is, and people have to understand that our legislative body is a negotiating body,” Atkinson said of the bill as it awaited final passage in the Assembly. “You shoot for the moon, and you compromise.”

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  1. Meanwhile the planet burns from using fossil fuels.