Jon Ralston: Full interview with NV Energy CEO Paul Caudill about deregulation, solar and more

[00:00:00] Speaker 1: Paul Coddell, welcome to KTNV. Thank you very much, John. There's a lot going on in your world. A couple of big things I want to talk to you about, at least from this week. We'll get to the issue of solar energy a little later. But first I want to talk about deregulation. There's a deregulation initiative on the ballot. You put out a statement of principles this week in which you declared that you are neutral on that ballot question. Do you know of any instance in the history of the world, Mr. Coddell, where a monopoly has willingly given up a monopoly? [00:00:37] Paul Coddell: I don't know in the history of the world, but I will say that we did this for what I would look at as the right reasons, John. You go back to February of this year when the Energy Choice Initiative was first announced, and I don't make public statements too quickly very often, but I did that day. And I said that we're not going to fight this. We have not fought it. [00:00:58] Speaker 1: You told me that so I can vouch for it. I remember. [00:01:01] Paul Coddell: Yeah, and I said that our interests here are really to do what's right for all Nevadans. And if the state decides, and stakeholders, customers in the state decide that some form of deregulation is the right thing to do for the state of Nevada, then we're going to roll up our sleeves and get down to work. And that's why we issued the key principles. [00:01:21] Speaker 1: Now, we haven't known each other that long, but I've come to know you as someone who is fairly candid. I don't think you spin a lot, but this document is a spin document, is it not? It really is saying, we're neutral, wink, wink, but here are some things you should really worry about. Isn't that what that document says? [00:01:36] Paul Coddell: Absolutely not. You don't think so? It's not a spin document. No. It's a document that is, for us, is the fundamentals that we have to think about as a group if we decide to go down this path. And that's why we did what we did. You can look at places like Texas or New York. Everybody's got 24 states that have gone through something like this. All we're saying is that these are issues or principles that I think all of us need to take into account if we decide to go forward. So, for example, I've had lots of phone calls and environmental groups wondering about what this is going to do for renewable energy going forward, major customers, residential customers, people are just trying to understand what this means. In a fully deregulated market with full open retail access, one of the things that has been done in other states is to divest a generation. So, go to the utility and say, look, we do not want you to be vertically integrated anymore. I have already told some leadership that if the state of Nevada wants NV Energy to become a wires company, we'll morph into a wires company. That's your preference? I'm not saying that that's our preference. I'm saying that this is a decision that can't be made by NV Energy. [00:02:50] Speaker 1: It could be taken out of your hands by the public and the legislature, correct? [00:02:53] Paul Coddell: That's exactly correct. And so what I'm saying is if we want a fully deregulated market, depending on what that means, and we want to divest generation assets, we need to be thinking about the fact that we can't have stranded investments. So that's just one principle, and that's the reason we put it out there. [00:03:08] Speaker 1: I'm going to go through some of these principles because I think people will be interested, and I assume the document is posted on your website. We'll try to get it up on our website as well. But first let me read the prelude to the principle because I want to ask you something about that. What is not included here, not included here, is any discussion of risk or a compilation of lessons learned from areas of the country that have taken steps toward deregulation of historically regulated energy markets. So let's talk about a couple of things that you say there. What is not included here is any discussion of risk. That would seem to be like saying we are not going to discuss the most important issue because most people watching this right now, they care essentially, especially now. They walk into their house. They want their air conditioning to be running, right? They don't want to worry that there's going to be an outage. They want their lights to go on. So the real risk that you don't want to talk about here apparently is stability, is the guarantee at least under adverse circumstances that the electricity is going to work, right? That's a real risk in a deregulated marketplace. [00:04:04] Paul Coddell: I wouldn't go that far. I don't know that there's a real risk that after deregulation we're not going to be able to get power into the state. [00:04:13] Speaker 1: I didn't suggest that, but I mean, can a deregulated marketplace be as reliable? Let's talk about reliability as the one that exists in Nevada now. [00:04:22] Paul Coddell: I would say that the answer to that is likely yes. How? Because you have the backbone of the whole system is the transmission and distribution grid. What is more complex, however, John, is the market design. How do you take a regulated environment? We have 66 power plants in the state. We have, just to give you an idea, we hold somewhere in the neighborhood of close to 2,000 megawatts now, or it'll be there. Shortly, of renewable energy contracts. So the market design, if we decide to go down this path, needs to take into account what's going to happen when we, let's say, divest those generation assets and they're all of a sudden now owned by a number of different entities. And that, to me, that's the Texas experience. One of the things that's happened there is that it doesn't have anything to do with reliability and whether or not lights are going to stay on or air conditioners are going to run. But what does happen is without a really involved and very transparent stakeholder process relative to market design, you can get yourself in a situation where it doesn't function efficiently. And that's where you end up with price spikes and those kinds of things. [00:05:28] Speaker 1: Has it worked well anywhere? [00:05:31] Paul Coddell: I think, you know, there's studies out there that indicate that it has done some things well in certain areas and then some that are not. So there's examples. There's no reason to really get into them. You've got Texas, New York here recently where they've had some concerns. [00:05:46] Speaker 1: How about California, which is close by? [00:05:48] Paul Coddell: Well, you'd have to ask the folks that live in California whether their rates have... [00:05:51] Speaker 1: I don't have to ask them, nor do you, right? It didn't work too well there, did it? No. It didn't, did it? [00:05:56] Paul Coddell: Look, I look at California and I just, frankly, look at rates that residential customers are paying and the answer should be pretty straightforward. [00:06:07] Speaker 1: That's a yes, but very well said, sir. Let's talk about a couple of these principles because I think they do seem to me to indicate, and yes, some people call me cynical once in a while, but I know you will never do that. Market restructuring must not result in unrealized investment or stranded assets. Guess who would have the stranded assets? You. [00:06:25] Paul Coddell: No, not just us. [00:06:26] Speaker 1: Not just you. [00:06:27] Paul Coddell: We hold 42 renewable energy contracts under power purchase agreements. Now, these contracts have been put in place over the last probably 15 to 20 years to help meet the renewable portfolio standards. [00:06:42] Speaker 1: Set by the legislature. Correct. [00:06:43] Paul Coddell: These are mandated standards set by the legislature. Largely geothermal, much more solar now, John, as you're probably wearing, a little bit of wind. We've got some biomass, et cetera. So we don't own these plants. We fundamentally guarantee a payment stream for these plants, and these have all been approved by the Public Utilities Commission. So in a full divestiture, we, the state, is going to have to take into account how do we deal with these assets, I'll call them, that are already owned by other entities, to ensure that there's no stranded investment on their part. [00:07:16] Speaker 1: How do you do that? [00:07:18] Paul Coddell: That's a complicated issue, and it's something we're going to have to look at. [00:07:21] Speaker 1: You also talk about jobs, protecting Nevadans' jobs. How do you guarantee that? How many employees do you have? [00:07:28] Paul Coddell: We have 2,500 employees. [00:07:30] Speaker 1: Yeah, and you want those jobs protected. How can you guarantee those are going to be protected? [00:07:34] Paul Coddell: Well, I'm not sure how you guarantee it, in a full divestiture, right? We don't have, if you think about these 66 power plants, plus the positions that support them, those, that, you know, look, the AFL-CIO came out the other day, and it shouldn't be a surprise to anybody that they're going to probably take a stance against this, but that's their concerns. And I will say one thing, John, of our 2,500 employees, about half of them are represented by two International Brotherhood of Electrical Workers bargaining units. You know, for those of us that are concerned about keeping the lights on or keeping the air conditioning running, these are the folks that go out, like they did last year, and replace 40 poles that were brought down. They work 24 hours a day to do that. Right now in northern Nevada, it's fire season. We've had a heck of a season up there. They answer 4 million phone calls. These are the folks that are bread and butter of what we deliver to our customers, and I'll say this. We worked hard to develop a good relationship with them, and I'm frankly damn proud of the fact that we've been able to do that over the last three years. [00:08:38] Speaker 1: You know, it would be real clever is if you were publicly neutral, and then you quietly urged the AFL-CIO to oppose it. You didn't do that, did you? We have not done that. All right. I didn't think you'd say yes to that. One other one I want to talk about. Market participants should compete in a level playing field, be subjected to the same requirements. Correct. Are you worried that if it's not a full deregulation or some kind of helter-skelter kind of deregulation, that you could be treated unfairly? Is that what you're worried about? [00:09:04] Paul Coddell: No, not at all. Not at all? I'll give you an example. Some of the calls I've gotten from the environmental community, even in the last week, are saying, how do we deal with the renewable portfolio standard if we don't go to one generator? So if we've got, let's just say, and I don't know how many folks would actually come in and buy these power plants if we fully divested, but how can we ensure that we place the same renewable portfolio standard requirements on an out-of-state owner of a power plant as you do with us? And so the idea here is that everybody that's participating in the market is going to have to be held to the same standard. [00:09:38] Speaker 1: But I mean, that would entail the legislature, of course, changing the law. The law right now essentially says Envy Energy has to meet this RPS, the renewable portfolio standard. They would just have to change the law to say everybody who's doing business here has to meet that, right? [00:09:51] Paul Coddell: I'm not a lawyer, but that sounds very simple. But my point is that by writing that down, that's a principle that we can agree to and then say, okay, if that's where we want to go, let's make sure that we check that off. That's all. [00:10:03] Speaker 1: You don't see any chance then that during the next, whatever it is, 80 days, I have nightmares about the number of days until the election that you're going to come out against this? [00:10:12] Paul Coddell: We will not come out against it. [00:10:13] Speaker 1: Is that because it has to pass twice and you might come out against it the second time? [00:10:16] Paul Coddell: No, we will not come out against it. We haven't spent it. We have not spent a dime to fight it. We will not spend a dime to fight it. And our objective here is to work with all stakeholders, roll up our sleeves and start getting past what I kind of think of as the gloss or the greener pastures and go to work on what this really means for the state. [00:10:34] Speaker 1: You know, it's interesting because it is a very complicated issue. You say get past the gloss and you can tell that people just viscerally relate to it and think that's a good idea. You've seen the polling. We did one here at KTNV. It's as many as two-thirds, maybe even more. People say, yeah, that sounds great. I don't like the power company. I just got my August bill is coming in. Right? I mean, so you know that's out there. Sure. Not that you're not likable. I'm talking about the company, right? And so it's viscerally appealing to people. So you are saying that even though it has nothing to do with giving up a monopoly, that you think if you educate people that they can make a more informed decision, whether it's people voting or people having to write laws once in that environment. [00:11:12] Paul Coddell: In a market restructuring, one of the lessons learned that we don't call out here is the fact that there is a significant effort that has to go into education, right? Almost training to some extent to make sure that as many people as you possibly can across customer classes and in the state understand what that market looks like and how it's supposed to be operated. So I think education is going to be hugely important if we go forward with something like this. [00:11:38] Speaker 1: Things have changed a lot in the whole dynamic of the energy market in Nevada. You haven't been at the head of NV Energy for that long. But what's really come is you see first the pressure on renewables. Even though NV Energy can make the case, we have the highest proportion of geothermal, I think, in the country last time I looked. But there is a perception that you're being stubborn and that solar companies have fueled that to some extent. But also there's these major companies, gaming companies, that are saying, we've had enough of you. You're not progressive enough. I had Jim Mern here talking about how regulated power doesn't work. We're leaving the grid. He says he's supporting this, but they're not going to put any more money in. I think they put $10,000 in. But Sheldon Adelson's company, which also has been at Loggerheads with you, I think put in at last report close to $700,000, something like that. I think you've seen the same reports. Can you keep any of these gaming companies happy or is that just that horse is out of the barn? [00:12:34] Paul Coddell: Can I keep them happy? You know what I mean. Look, we've got, let me go back, I'll go back to the thing I've said all along. The gaming companies, I think about, I've gone through the list with you before, John, on the shows. They're so important to the state that what they decide to do is in the best interest of the state. I am not going to put myself or the company in a position where we're on the opposite side of the table with any of these folks. [00:13:01] Speaker 1: But you are already, are you? No, we're not. You're saying they're acting in the best interest of the states. They're acting in their own best interest, right? [00:13:06] Paul Coddell: They're making decisions. [00:13:07] Speaker 1: They're capitalists, as Jim Murren said. [00:13:09] Paul Coddell: You know, Mr. Murren and Bobby Baldwin and the people that I work with, we've worked hard with them to make sure that they understood what this meant for them. And they make these decisions based on the steps that they want to take. And I'll tell you that I've told our own group, my employees, that we're going to continue to support them. We're going to help them work their way out if that's where they're headed. And we're going to fight like hell to try to get them back when the time is right. [00:13:34] Speaker 1: What is the impact? Explain this. Because I say this all the time whenever I talk to you or anybody else about energy. It's much more complicated than people think in terms of all of your contracts that you have, how you make money, don't make money, what exactly is ratepayer money. It's tremendously complicated. Explain what it would mean to the average ratepayer if all of these major employers, major gaming companies, were to say, so long, NV Energy. What does it mean? [00:13:59] Paul Coddell: In theory, under the current way that the legislative, I think the law, and the Public Utilities Commission is kind of administering the law, if these companies pay, what's this so-called impact fee? They pay an exit fee. Or exit fee. That is fundamentally designed to keep the rest of the customers, hold the rest of the customers harmless. So I would answer to you that there would not be an impact to the rest of the customers, in theory, if that's what that impact or exit fee is designed to do. Correct. [00:14:29] Speaker 1: And if the exit fee is what you've calculated. No, we've not calculated. What the PUC, excuse me, what the regulators have calculated is the correct balance, right, for them to leave and hold the rest of the grid harmless, right? [00:14:42] Paul Coddell: So theoretically, there should be no impact to the other customers. [00:14:46] Speaker 1: Do you think that will happen in practice? What do you think? [00:14:48] Paul Coddell: I don't know what the rest of the gaming customers have in mind in terms of whether they want to stay, leave. [00:14:54] Speaker 1: You have some sense of what they do. [00:14:55] Paul Coddell: I do have a pretty good sense. [00:14:56] Speaker 1: Yeah, and a lot of them want to leave, right? [00:14:57] Paul Coddell: I don't know that a lot of them want to leave. We don't have, we've got only one application in so far up north, the Peppermill, but that's the last one. [00:15:06] Speaker 1: But you've heard that. [00:15:07] Paul Coddell: I haven't heard that there's a big lineup. You think Sands will stay? I can't speak for Mr. Adelson and his team. You'll have to ask them about that. [00:15:17] Speaker 1: I'll do that. I'll just have a few minutes left there. I do want to talk to you about this other big news this week, which is this study that came out that showed that there was a, I think, $36 million subsidy from non-solar using, rooftop solar using customers for rooftop solar customers. Seemingly backing up the position that you have had and contradicting what Lyndon Rive, head of Solar City, and what the whole solar coalition has been saying now all year long and pounding you guys saying there's no subsidy. The subsidy is illusory, the subsidy is illusory. I assume you've read that study. You didn't write it, did you? [00:15:50] Paul Coddell: I did not write it, and I haven't read it. [00:15:52] Speaker 1: You haven't read it yet, but you know what it says. I do. Does that make sense to you? [00:15:55] Paul Coddell: Well, here's what I know is the methodology, my understanding is the methodology that the consultant, who is doing this, by the way, for the commission, I believe the legislative task force is also going to review this. My understanding is that they use the exact same methodology that they did for the earlier study and just changed the inputs. So assuming, and the earlier study had a significant amount, I believe, of stakeholder involvement to decide the methodology. So if all of that stays the same and more accurate inputs are used, like, for example, what the cost of, we'll call it universal scale or large scale solar is, if that's all that's really changed, then what this would indicate is there is a cost shift. [00:16:38] Speaker 1: You think there's a cost? Your numbers show there's a cost shift. [00:16:40] Paul Coddell: Yeah, I think the number that came out in the study is around $15 million net of the kind of what we call the renewable generations program and some of the other rebates and incentives that have been provided. So the number I think the commission came up with is around $16 million for those. So it's fairly close. [00:16:59] Speaker 1: Let me just show you, in case you haven't seen it, I got a statement from the solar folks on what they thought of the study. We look forward to working with other stakeholders to review this draft study and provide input on the data and analysis through a transparent peer review process. The public deserves a rigorous and fair accounting of the costs and benefits of solar, and we will work with the PUC and other leadership to ensure the updated study, like the initial study, meets the high standards the public expects. I assume you agree with that, I assume you want this to have the highest standards, because you think that your case will be borne out if it's done right, correct? [00:17:30] Paul Coddell: We welcome the dialogue. I know that there is already ongoing work inside of the Sierra Pacific Power Company general rate case up in northern Nevada. Right. And then I believe that there's now what we call a kind of an investigatory docket or a proceeding that's actually going to be kind of set up to look at the study specifically. So this process is, as I've said all along, is going to continue until we get to a solution that is, frankly, sustainable. [00:17:58] Speaker 1: The solution may come, or at least a partial solution, may come in the next legislative session. Some people, again, cynics I don't understand, sir, are forecasting this Donnybrook between the utility and the solar advocates, again. It seems to me that some of the issues you may have already reached some kind of accord on, grandfathering certain customers, for instance. Where are the bones of contention right now, and do you think they could be resolved, for lack of a better word, peacefully? [00:18:30] Paul Coddell: I would hope so, and the issue is really how do you value solar on a rooftop? And if you kind of default to the answer in terms of reducing carbon footprint, there's no doubt, nobody can have a doubt, that because of the numbers, that universal-scale solar is cheaper. We just signed a 100-megawatt contract for a new solar plant that I think starts in the $34. Is it the Boulder City one? No, it's a new one that we just applied to the commission. [00:19:02] Speaker 1: But, I mean, is it in Boulder City? [00:19:04] Paul Coddell: It's in southern Nevada. And so what we'll end up with, the starting point for that is 3.4 cents a kilowatt hour. I think over the life of the plant, it's around 4 cents a kilowatt hour. So universal-scale or large-scale solar is extremely cheap right now. The costs have gone down precipitously. So there's no doubt, I don't think, that universal-scale solar is the cheapest way to reduce the carbon footprint. Now, is there other benefits to rooftop solar that may not be taken into account in the kind of cost-benefit? And I think that's where the argument is. And so we're going to continue to work with the solar industry and the Public Utilities Commission. We're looking at Colorado just issued kind of an interesting settlement between a bunch of parties that deals more with time of use rates. And now I'm getting into inside baseball, but my point is we're open to looking at all, and frankly, John, we have been, which is the reason we've continued to reach out to the solar industry to try to come up with a solution that would benefit everybody. So we're not... [00:20:06] Speaker 1: It does seem to make, I'm sorry to interrupt you, but it does seem to make common sense to anybody visiting here who doesn't know anything about what the regulatory environment might be or any of these political battles. It's sunny here a lot. We should be moving forward. Most people, if it's affordable, if, and that's a big if, if it's affordable, should probably be moving toward solar. Does that not make sense? [00:20:29] Paul Coddell: You want to reduce your carbon footprint at the least cost. If we decide that we want to do something differently, and rooftop solar right now is more expensive than universal scale solar. It's come down, though. It has come down, right? It absolutely has come down. Then we just need to make sure we, again, get into the details and find out the value of rooftop solar, for example, in a certain area of the load pocket here in Las Vegas where we might be able to get some benefit for voltage control or being able to get voltage up. So that's the work, I think, that's in front of us as a, you know, frankly, as a group of stakeholders here. [00:21:03] Speaker 1: Finally, last question, I promise. Does it bother you? I mean, once again, this week, the Senate Minority Leader, Harry Reid, could not resist taking a few pot shots at Envy Energy, essentially saying that you've been slow to come to the table, that you've been resistant. He is very, at least appears to be very passionate about renewable energy. Have you tried to sit down with him? Have you had a dialogue with him at all? Or are you just his favorite punching bag? [00:21:30] Paul Coddell: I think you'd be surprised at how many times Senator Reid and I have talked in the last week. In the last week? Last week and a half. [00:21:36] Speaker 1: Were there any four-letter words exchanged either way? No, not at all. [00:21:38] Paul Coddell: Okay. [00:21:38] Speaker 1: Did he hang up on you because he hangs up on people a lot? Not a bit. [00:21:40] Paul Coddell: Not a bit. I have, I think, a very, very good relationship with Senator Reid. You think he's misguided? No, I do not. No, I don't. Look, I'm not in his position, and I know he's very passionate about things like renewable energy. I think that his comments, you know, here in the last two statements, I think he was, you know, appreciative of the fact that we put some principles out there that, in fact, we had worked with his team to try to kind of kick-start some of this. [00:22:09] Speaker 1: He did put a statement out that was, yeah, somewhat neutral. I believe his statement about as much as I believe you're neutral, but go on. [00:22:17] Paul Coddell: Well, I can't help you. I know. You know, the bottom line is, the bottom line for me, John, is real simple. Envy Energy, we're an easy target right now. We're a regulated monopoly in the midst of a, frankly, a huge change in the energy markets. So I can't deal with what people's perceptions are. We're working our asses off to try to improve customer service. We've kept rates down. I've shared with you already that our rates are cheaper today in Nevada than they were in 2007. So we're doing all we can. I've got the greatest respect for the employees that are working behind me. And we're just going to keep doing what we think is the right thing, and hopefully it benefits all of us here in the state of Nevada. [00:23:00] Speaker 1: I really appreciate your willingness to come out and talk about it. These are complicated issues, and as you mentioned, you are a target. So it was really good of you to come and talk. Thanks for coming on. [00:23:07] Paul Coddell: Thank you, John. Congratulations on your new show, too. Thanks so much.