MINUTES OF THE
SENATE COMMITTEE ON NATURAL RESOURCES
Sixty-seventh Session
February 11, 1993
The Senate Committee on Natural Resources was called to order by Chairman R. Hal Smith, at 8:45 a.m., on Thursday, February 11, 1993, in Room 205/206 at the Cashman Field Center, Las Vegas, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator R. Hal Smith, Chairman
Senator Dean A. Rhoads, Vice Chairman
Senator Ernest E. Adler
Senator Thomas J. Hickey
Senator Mark A. James
Senator Joseph M. Neal, Jr.
Senator Dina Titus
STAFF MEMBERS PRESENT:
Caren Jenkins, Senior Research Analyst
Rayanne Francis, Senate Committee Secretary
Caroline Allen, Senate Committee Secretary
OTHERS PRESENT:
Karen M. Galatz, Chairman, Colorado River Commission of Nevada
David E. Luttrell, Consultant, Colorado River Commission of
Nevada
Melvin Ware, Chief Power Marketing Administrator, Colorado River
Commission of Nevada
Richard Jost, Jones Jones Close & Brown
Keith Ashworth, Nevada Power Company
Edison G. Elizeh, Nevada Power Company
Tom Cahill, Director, Colorado River Commission of Nevada
* * * * *
BILL DRAFT REQUEST (BDR) R-1253: Urges Congress and President to adopt legislation authorizing transfer of specified system for transmission of electricity to Colorado River Commission.
BDR S-1254: Authorizes Colorado River Commission to issue additional bonds.
Chairman Smith commented the day's hearing would address two BDRs drafted at his request. He invited Karen M. Galatz, Chairman, Colorado River Commission of Nevada (CRC), to begin her presentation on BDR R-1253 and BDR S-1254.
Ms. Galatz introduced herself and David E. Luttrell, Consultant, Colorado River Commission of Nevada, to members of the committee. Ms. Galatz's testimony and comments are contained in Exhibit C.
Mr. Luttrell's testimony to members of the Senate Committee on Natural Resources is contained in Exhibit D. During his presentation, he referred to a report compiled by the Colorado River Commission, entitled "Acquisition Summary Report" (Exhibit E). Mr. Luttrell also provided committee members with a handout demonstrating the Parker-Davis Project transmission facilities in southern Nevada (Exhibit F).
Senator Adler noticed there was a $1 million discrepancy between the cost to acquire the transmission facilities ($5.6 million) and the $6.6 million Mr. Luttrell had quoted in his testimony. Mr. Luttrell explained the recorded book value of the transmission facilities was presently $5.6 million. He pointed out the $1 million difference in cost was attributable to fees associated with passing the legislation, performing an environ-mental study and engineering design costs to rebuild the basin substation, etc.
Senator Adler inquired what was the basis for the CRC's confidence that it could operate the transmission facilities at a lesser cost than the Western Area Power Administration (WAPA). Mr. Luttrell responded by saying the CRC's projected trans-mission rate will be $.84 per kilowatt month, compared to WAPA's rate of $1.11 per kilowatt month. He continued by saying the CRC's reduction in cost can be attributed to two factors: 1) the ability to rebuild the basic substation at a reduced cost; and 2) a commitment to aggressive marketing strategies to sell more power and transmit larger quantities of power over the lines.
Senator Adler asked if the CRC would sell power to out-of-state customers. Mr. Luttrell responded by saying the CRC would only sell power within Nevada. He explained that some of the power transmitted over the Parker-Davis Project system would come from out-of-state sources through the Mead Substation in Eldorado County. Mr. Luttrell clarified only the CRC's existing power contractors will be allowed to transmit power through the Parker-Davis facilities. He commented these power contractors have expressed a willingness to purchase higher levels of power than is currently being supplied by WAPA.
Senator Neal understood that WAPA was operated by the federal government. Mr. Luttrell said this was a correct statement. Senator Neal asked if the federal government had constructed the southern Nevada portion of the Parker-Davis transmission facilities, including the Hoover-Mead Basic Line. Mr. Luttrell replied the federal government had constructed these facilities in the early 1940s as part of the war effort.
Senator Neal asked Mr. Luttrell what would happen if Nevada did not acquire this portion of the Parker-Davis Project. Mr. Luttrell said WAPA would continue to operate the trans-mission facilities and a rate increase of $1.11 per kilowatt month would be passed on to consumers in Nevada.
Ms. Galatz pointed out the CRC experiences some difficulty in working with WAPA. She said there is a rigidity to their process, making it very difficult for the CRC to address the future electrical needs of Nevada. She continued by saying the CRC has no input, whatsoever, into WAPA design activities. For example, she asserted WAPA's modifications to the basic substation were not consistent with the needs of CRC power contractors.
Senator Neal inquired what would be the basic advantage of acquiring the Parker-Davis facilities at this time. Ms. Galatz replied there were two major advantages: 1) reduced costs; and 2) facilities which were designed to fit the present and future needs of CRC customers and rate payers.
Senator Neal asked if it would be possible for a private company to purchase this portion of the Parker-Davis Project. Mr. Luttrell responded by saying he imagined it would be much more difficult for a private concern to complete such a transaction. He stressed the CRC is a state agency with no vested interest other than benefitting power consumers in southern Nevada.
Senator Neal wondered if the CRC was successful in obtaining the Parker-Davis facilities, would it have any kind of control over what its five power contractors charged their consumers for electrical power. Mr. Luttrell said the CRC has no control over the rates its contractors charge. He clarified that the CRC does not purchase power for its utility contractors--the contractors pay the CRC to transmit electricity over the transmission lines.
Senator Neal asserted the purchase of the Parker-Davis facilities in southern Nevada would, in no way, provide assurances to the consumer that the power contractors would not increase their rates. Mr. Luttrell responded by saying the taxpayers in the State of Nevada would not be paying for the purchase of the Parker-Davis facilities, because bond revenues would cover acquisition costs. He continued by saying the Nevada Power Company (NPC), a CRC power contractor, was a regulated utility of the Public Service Commission of Nevada (PSC). Ms. Galatz assured Senator Neal that mechanisms were already in place to protect the public's interest in the acquisition of this transmission facility.
Senator Hickey inquired if similar transmission facility purchases have been made prior to this date and if the results were positive or negative. Mr. Luttrell replied by saying he knew of four well-documented cases involving the transfer of federal transmission facilities to non-federal interests. He admitted none of these other transactions involved purchases from WAPA. Senator Hickey asked in what locations these transfers had taken place. Mr. Luttrell explained two transfers had taken place in Arizona, one in Oklahoma and one in Washington State.
Melvin Ware, Chief Power Marketing Administrator, Colorado River Commission of Nevada, introduced himself to members of the committee. In response to several questions by Senator Hickey, he explained the entities transmitting power over existing WAPA lines are the Nevada Power Company, Valley Electric Association and the CRC (on behalf of its industrial customers). Mr. Ware clarified that, of the power transmitted over WAPA's existing lines, 45 percent of the capacity is purchased by industrial interests, 45 percent by the Nevada Power Company and 10 percent by the Valley Electric Association.
Senator Hickey asked the CRC to provide him with a breakdown, in layman's terms, of the cost (to a average household) of a kilowatt month and a kilowatt hour. He commended the CRC on its plan to acquire the transmission facilities by utilizing revenue bonds. He felt this was an appropriate method to use in this instance.
In response to a question posed by Senator Hickey, Mr. Luttrell explained the method of how power is transmitted over WAPA's lines. He remarked the present day use of the southern Nevada Parker-Davis facilities is as follows: 1) to transmit contrac-tually-allocated federal hydropower to various utilities; and 2) to transmit power purchased by utilities and the CRC (representing the needs of industrial customers) outside of the federal government arena.
Considerable discussion ensued on exactly what limited the amount of power transmitted over the Parker-Davis lines--the capacity of the transmission line or the CRC's ability to market enough power to fill the transmission line to capacity. Mr. Luttrell admitted there is limited space on each transmission line, but stressed the CRC is confident it could sell an addi-tional 120 megawatts if the acquisition is approved.
Senator Adler asked if the revenue bonds for this acquisition would go against the state's debt ceiling. Mr. Ware assured Senator Adler this would not be the case. He pointed out the CRC bond counsel was in the audience. Richard Jost, Jones Jones Close & Brown, introduced himself and asserted the acquisition bond had been structured so it would not affect the state.
Ms. Galatz stressed another advantage of acquiring the Parker-Davis facilities was the CRC's ability to address the future electrical needs in southern Nevada. Mr. Luttrell emphasized the CRC is restricted from addressing anticipating growth needs, because flexibility was, essentially, nonexistent as long as WASA continued to operate the facilities.
Senator James asked what was the basic reason the CRC was interested in purchasing the Parker-Davis facilities. Ms. Galatz responded by saying the catalyst for acquiring these transmission facilities was due to the fact that WAPA only deals with immediate electrical needs. She continued by saying WAPA is limited by addressing only the regional needs while the CRC must deal with present electrical demands, as well as anticipate the future electrical needs of Nevadans.
Mr. Luttrell said a prime example of why the CRC needs to quickly gain approval of this acquisition was attributable to the fact WAPA was currently rebuilding the Parker-Davis Basic Substation. He agreed the substation was in dire need of being rebuilt because the equipment was old and outdated. However, he stressed that WAPA was only upgrading the substation to its own specifications, not the present and future needs of its customers. Mr. Luttrell stressed it was extremely important to obtain the transmission facilities before WAPA completed its upgrade construction of the basic substation.
Senator James asked if the revenue bonds would be repaid by the sale of transmitted power over the Parker-Davis lines. Mr. Luttrell said the CRC intends to recover the debt service on the revenue bonds by charging its power contractors a facilities use charge. Senator James inquired if the debt service cost was figured into the $.84 per kilowatt month quoted earlier in the
hearing. Mr. Luttrell replied anticipated costs had been figured into the $.84 per kilowatt month.
Senator James asked for some kind of assurance that increased costs would not be passed on to the consumer. Keith Ashworth, Nevada Power Company, introduced himself to the members of the committee. Mr. Ashworth explained the NPC has two separate rate classifications. The first, he said, is the general rate classification--which accounts for all of the expenses. The second is the deferred energy and fuel classification, or purchased power--which is similar to power actually generated by the NPC. Mr. Ashworth explained, once every year, the NPC seeks the PSC's approval to adjust the deferred energy rate.
Mr. Ashworth explained that, under a current arrangement with WAPA, the NPC was limited to 70 megawatts of transmitted power. If the acquisition of the Parker-Davis transmission facilities was approved by Congress, he pointed out the NPC would be able to transmit 14 additional megawatts of power (a total of 84 megawatts). He continued by saying if the acquisition does not take place, the NPC will have to look elsewhere to replace the 14 megawatts of power and at, most assuredly, a higher cost to the consumer.
Mr. Ashworth stressed if WAPA were allowed to proceed with its proposed upgrade of the basic substation, the NPC would have to withdraw from this portion of the system. He clarified that WAPA's upgrade to the substation is totally incompatible with the NPC's system of transmitting electrical power.
Senator Titus asked how receptive would WAPA be to the acquisition of this portion of the Parker-Davis facilities. Mr. Luttrell said the CRC had discussed this matter with WAPA representatives, and WAPA is not overly enthusiastic about the prospect of selling these facilities to the state of Nevada. He admitted WAPA's lack of enthusiasm has not dampened the CRC's spirits, because the merits of the acquisition are different. He continued by explaining the state was not interested purchasing the bulk transmission system, which consisted of power lines crossing into other states. Mr. Luttrell emphasized the state was only attempting to purchase a very isolated section of WAPA's power lines, located in southern Nevada.
In response to a question by Senator Hickey, Edison G. Elizeh, Manager, Transmission Planning & Contracts, Nevada Power Company, introduced himself to members of the committee. He explained a transmission line operates in a manner similar to riding a bus--the rider pays a fee to ride the bus from one point to another.
Senator Hickey inquired if WAPA's rates are regulated by any other entity. Mr. Luttrell said WAPA was considered to be an "unregulated" utility. He explained WAPA sells federal power and controls generation and transmission facilities. He remarked that WAPA's proposed rate adjustments are regulated in only three respects: 1) WAPA was required to issue public notifications of rate adjustments; 2) rate adjustment notifica-tion was to be provided to the United States Secretary of Energy; and 3) WAPA must submit rate adjustments to the Federal Energy Regulatory Commission for the record, as well as for ratification. He concluded his comments by mentioning WAPA was not required to submit to a review of their management or operations.
Senator Hickey asked if the NPC was limited to purchasing power from the CRC only. Mr. Elizeh replied by saying this was not the case. Mr. Ashworth explained the NPC purchased power wherever it was cheap and available. Out of 200 investor-owned utilities in the United States, Mr. Elizeh said the NPC is rated at #14 in the low residential rate category.
Mr. Ashford informed committee members the NPC has already notified the WAPA of its withdrawal from the system if it completes the upgrade of the basic substation. He continued by saying NPC engineers have determined the redesigned substation will be totally incompatible with their system. Mr. Ashford said if the NPC was forced to look to other suppliers for its 84 megawatts of power, the cost would be much higher. He concluded his testimony by saying the NPC fully supports the CRC's attempt to acquire the Parker-Davis transmission facilities.
Senator James stated he felt it would be advantageous to pursue acquisition of these facilities, based solely on the fact that hydroelectric power has fewer detrimental effects on the environment. Mr. Ashford agreed by pointing out the cleanest and cheapest power to be found is hydroelectric power. Senator James continued by saying the environmental benefit to Nevada would be lost if the NPC were forced to purchase its 84 megawatts of power from a coal- or gas-fired sources. Mr. Elizeh clarified the issue at hand was not the "purchase" of power, but the "transmission" of power. He explained every type of power was being transmitted over the Parker-Davis lines, not just hydroelectric power.
Senator Neal wondered if the CRC currently owned any other transmission facilities in the state of Nevada. Mr. Luttrell explained this would be the CRC's first facilities acquisition. Considerable discussion ensued on the specific rate amounts that the CRC charges the NPC to supply it power for several different power sources. Senator Neal requested the CRC supply this information to members of the committee as soon as possible.
Senator Neal asked representatives of the CRC if they antici-pated selling the Parker-Davis transmission facilities to private contractors in the future. Ms. Galatz explained the sale of the facilities to a private contractor was not the CRC's intention.
Senator Hickey noted that pressure is being exerted on several industries, in southern Nevada, to move to another location. He asked how would the CRC fill the void if the industries in the Basic Management Incorporated (BMI) complex, in Henderson, Nevada, moved to another location. Tom Cahill, Director, Colorado River Commission of Nevada, introduced himself to members of the committee. He responded by explaining these decisions would have to be dealt with at the time the industries relocated and left the system. Mr. Cahill explained contractual negotiations would have to take place at the time the industries withdrew from the CRC system. He concluded his statements by saying he assumed the negotiation process would protect Nevada's, and the CRC's, investment interests. Mr. Luttrell emphasized not only would contractual negotiations have to take place, but changes to legislation would have to be made because federal resource allocations are set forth in state law.
Senator Hickey asked if he was correct in assuming the CRC would have contractual arrangements dealing with the use of the transmission facilities for the duration of the revenue bond. Mr. Cahill said this was an accurate statement.
Senator Rhoads inquired how would the revenue bond process be handled. Mr. Cahill responded by saying the bonds sold to finance the acquisition of the transmission facilities, would fall into the natural resources category. He explained bonds in this category are not included in the state's debt limitation. Chairman Smith disagreed and remarked the bonds to be issued would be revenue bonds.
Senator Neal commented he would like to see an amendment to this bill draft request specifying the transmission lines and elec-trical equipment would be controlled by a public entity of the state. He felt such an amendment would be necessary to assure the public of the CRC's agreement not to resell this portion of the Parker-Davis facilities to a private concern.
Chairman Smith reminded members of the Senate Committee on Natural Resources they were prohibited from taking formal action on any bill during the 2-week adjournment period. He continued by explaining he intended to bring BDR R-1253 before committee members for introduction when the legislature reconvened in Carson City, Nevada.
* * * * *
Chairman Smith opened the hearing on BDR S-1254. He noted there was a discrepancy between the $23 million listed in the bill draft request and the $24 million shown on a slide presented earlier in the hearing.
Mr. Ware explained the $1 million difference was derived from an administrative charge the CRC would collect from its customers.
Senator Adler stated he understood that the CRC was a relatively unregulated, wholesale transporter of electricity. Mr. Cahill replied this was correct. Senator Adler asked if the CRC would play the role of an electricity wholesaler or just a transporter of power. Mr. Cahill explained it would be more accurate to categorize the CRC as a transporter of power.
Senator Adler inquired if the CRC would be responsible for purchasing power on behalf of its industrial customers. Mr. Luttrell replied the CRC currently purchases power for its industrial customers, but only transports power for its five utility customers.
On behalf of the CRC's industrial customers, Senator Adler wondered if the CRC would be responsible to search for new suppliers if hydropower levels dropped due to drought condi-tions. Mr. Luttrell said the CRC would look at the current market to locate an additional electrical supplier at wholesale rates. He said the CRC maintains contracts for standby power, when required. He said the NPC could be contracted to locate a power supplier and "wheel" the electricity to the Mead Sub-station. At this point, the CRC would take control of the power and transmit it to the BMI complex, in Henderson, Nevada.
Mr. Ware stated the CRC currently leases this portion of the Parker-Davis transmission facilities. He continued by saying if the CRC were authorized to acquire these facilities, it would then become the owner.
After considerable discussion, it was determined that the CRC's technical role would remain constant. Those in attendance agreed that no additional language would need to be drafted, because the CRC's method of conducting business would remain constant.
Senator Hickey inquired if the CRC was considering the purchase of transmission facility rights-of-way. Mr. Luttrell explained the CRC is not seeking to purchase rights-of-way, because this issue would be addressed by merely transferring facility usage from WAPA to CRC. He continued by saying the only transfer of real property to take place would involve the purchase of property currently owned by WAPA. Senator Hickey asked if all of these costs have been accounted for in the projected acquisition costs. Mr. Luttrell replied the CRC is relatively comfortable with the accuracy of the projected costs, but stressed it is the CRC's normal operating procedure to allow for a 10 percent contingency factor.
Senator Neal stated the $23 million cost contained in BDR S-1254 is reputed not to have any impact the bond indebtedness of the state. However, he read from page 1 of section 1 clearly attached the state's full faith and credit:
Sec. 7. 1. The commission, on behalf and in the name of the state,...
Chairman Smith asked the CRC's bond counsel, Mr. Jost, if he would like to present additional testimony on the legal nature of the CRC's bond program. Mr. Jost said the specific language printed on the actual bonds to be issued would determine whether they are revenue bonds or general obligation bonds. He continued by saying the language contained in BDR S-1254, simply set forth the CRC's function as an agency of the state. He assured members of the committee the CRC fully intends to issue bonds which would not be counted against the state's debt limitation.
In response to Senator Neal's concerns over existing language in the bill draft request, Ms. Galatz explained the CRC intended to issue revenue bonds, not general obligation bonds. Senator Neal said he would really prefer to have language amended into the bill draft request specifying the use of revenue bonds only. Chairman Smith said the inclusion of such an amendment would be appropriate under these circumstances. Senator James expressed his support of such an amendment. Ms. Galatz assured members of the committee the CRC would work on an amendment to BDR S-1254.
Senator Hickey reiterated his concern about the possibility that a large segment of the industrial contractors in the BMI complex could possibly withdraw from the CRC's system of obtaining and transmitting electrical power. He inquired if the proposed bond program would be contractually protected from such an event. Mr. Ware responded by saying the CRC could develop a program which would protect its interests by requiring the CRC to deliver the power to other customers or by disclosing this risk to potential bond purchasers. Senator Hickey inquired if Mr. Ware was referring to adding a covenant to the bond issuance. Mr. Ware agreed and explained typical CRC power contracts have not been structured as "take or pay" power contracts.
Senator Hickey stressed he would like the minutes of the hearing to reflect the committee's concern of the existence of a potential problem involving the unanticipated withdrawal of a major power contractor from the CRC's power system.
Chairman Smith reiterated it was his intent to bring both BDR R-1253 and BDR S-1254 before the Senate Committee on Natural Resources for introduction when the legislature reconvened in Carson City, Nevada.
* * * * *
There being no further business before the Senate Committee on Natural Resources, Chairman Smith adjourned the hearing at 10:46 a.m.
RESPECTFULLY SUBMITTED:
Rayanne J. Francis,
Committee Secretary
APPROVED BY:
Senator R. Hal Smith, Chairman
DATE:
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Senate Committee on Natural Resources
February 11, 1993
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Senate Committee on Natural Resources
January 21, 1993
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