Three Cheers for Nevada's Governor Lombardo

The new year is a time for resolutions, both attainable and unattainable.  In the state regulatory space, however, particularly in a time of rapid transition and challenging markets economics, it is important to develop a resolution with a clear and focused goal.  For state regulators, regardless of political stripe or policy bent, the recent State of the State by new Nevada Governor Joe Lombardo is worthy of review and reflection:

I call your attention to another area of challenge and opportunity: energy.  California does not have enough electric generation within its own state to meet its electricity needs – and is now relying on the broader western electric market to import energy.

With California retiring its units and changing its transmission rules, we have no choice but to reduce our reliance on the market and seek energy independence for all Nevadans.

To address this, I will issue an executive order that allows electric providers, to develop dedicated in-state generation resources, to ensure that we are no longer forced to rely on the broader electric market.

Our energy independence will spur economic development, lead to job creation, and drive lower-cost energy for all Nevadans.

This discussion—a fairly nuanced one as energy and regulatory policy in a State of the State goes—is sure to elicit incoming fire from RTO enthusiasts and left-leaning policy wonks.  But there are some important takeaways in the speech worth considering for state regulators as 2023 ramps up and gets rolling.

Resource adequacy is imperative and the number one priority as numerous energy providers simultaneously transition their generation fleets.  States should manage their resources to ensure customer needs are met.  That requires a clear-eyed assessment of the resource adequacy situation in your state and out of your state, much like Governor Lombardo did in his speech.  This assessment informs steps that may need to be taken, including politically unpopular ones, to ensure needs are met.  Yes, that might include gas-fired generation.  Gas generation is one of the unsung heroes of the clean energy transition, and we cannot forget that perhaps inconvenient truth as we move forward.

In addition, state regulators should resolve to balance affordability and utility financial health.  Healthy companies can facilitate the transition in the most cost-effective way, but price volatility can lead to an impulse to penalize or punish regulated entities in rate cases and other cases involving cost recovery.  Regulators should use available tools to stabilize rates, not near-term hammers to reduce or mitigate them because they can affect the health of the providers and the ability to continue on the long path toward a cleaner future for the power sector. 

Governor Lombardo’s speech implicitly recognizes this dynamic, and while the concept of “energy independence” may be of concern in certain quarters, it addresses resource adequacy issues, creates certainty for customers, and provides investment opportunities for regulated entities.  This trifecta can and should form the basis for New Years Resolutions for state regulators across the country.