PUC wants Switch to pay $27.7M ‘exit fee’ to leave Nevada Power

CARSON CITY — Staff with the Nevada Public Utilities Commission is recommending that the data storage company Switch pay a $27.7 million “exit fee” to leave Nevada Power and secure its own electricity on the wholesale market.

Switch says it should have to pay no more than $18.5 million.

The fee is meant to protect the utility’s remaining customers from the costs associated with Switch’s departure.

The staff report, filed ahead of a hearing Wednesday on Switch’s application, said the company’s departure will materially affect the utility’s future revenue and costs to remaining customers.

The total load that Switch proposes to move from retail service represents about 1.35 percent of Nevada Power Company’s annual energy sales.

Switch filed an application with the PUC in 2014 to leave Nevada Power, part of NV Energy, and secure its own electricity independently. The company is using a 2001 law approved by the Legislature allowing companies to leave the retail market.

Three gaming companies, Wynn Las Vegas, MGM Resorts International and Las Vegas Sands Corp., are all expected to follow suit. All three have submitted letters to the PUC announcing their intentions to purchase power from a “qualified energy provider” for their energy needs.

For Switch, some of the future costs calculated as part of the exit fee include the remediation costs for retiring the Reid Gardner and Navajo coal generating facilities that Nevada Power is eliminating in its shift to renewable energy sources. The staff report estimates that the remediation costs for Reid Gardner will be in excess of $100 million, and Switch would be required to pay its share of that work.

Dan Jacobsen, technical staff manager with the Bureau of Consumer Protection, said in filed testimony that the agency opposes several changes to the exit fee calculations proposed by the company because they would cause remaining customers’ bills to increase or would would increase the cost burden on Nevada Power.

The bureau supports the staff analysis regarding the exit fee.

Switch today has about 903,000 square feet of data center and office space. It plans to grow to more than 3 million square feet in the next decade, with most of that expansion coming in Northern Nevada.

The exit strategy being contemplated by several large NV Energy customers is a concern because of the potential costs on remaining ratepayers.

The original intent of the 2001 legislation was to help utility customers because there was so much demand for energy that costs were very high. If large users left and acquired their own electricity it would benefit ratepayers.

But in 2015 electricity can be acquired more cheaply on the wholesale market by large customers and so there is some effort by companies such as Switch to make the change using the 14-year-old law that was passed for other reasons.

Contact Sean Whaley at swhaley@reviewjournal.com or 775-687-3900. Find him on Twitter: @seanw801.