The Committee on Government Affairs was called to order at 8:12 a.m., on Friday, February 5, 1999. Chairman Douglas Bache presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Bache, Chairman

Mr. Lee, Vice Chairman

Ms. Berman

Mrs. Freeman

Ms. Gibbons

Mr. Humke

Mr. Mortenson

Mr. Neighbors

Ms. Parnell

Ms. Segerblom

Mr. Thomas

Ms. Tiffany

Ms. Von Tobel

Mr. Williams

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Judy Sheldrew, Chairman, Public Utilities Commission of Nevada (PUCN), announced to the committee the PUCN had a full complement of members with the appointment of Commissioners Pitlock and Soderberg. Mrs. Sheldrew said she wanted to touch briefly on how the state came to embrace electric restructuring and a brief review of a bill, passed in the 1997 Legislature (Exhibit C). She added she would go over some of the more complicated and complex issues that arose during the transition from when the electric utility was a monopoly to one of open and effective competition.

Mrs. Sheldrew pointed out although restructuring was complicated it was not an idea originating in the State of Nevada. In 1995 the legislature created an Assembly Concurrent Resolution (A.C.R.) 49 interim committee to study the effects of competition in the generation, sale, and transmission of electric energy. At that time the PUCN also opened an investigation to assess whether open competition could best serve the citizens of the state. The good working relationship between the PUCN and the interim committee assisted the state in becoming a competitive market place. In June 1996, the PUCN reported its findings to the interim committee with the conclusion competition could best serve the state if restructuring was done properly and served all classes of utility customers. The A.C.R. 49 committee adopted the following guiding principals:

Assembly Bill (AB) 366 of the 69th Session was an all-encompassing bill addressing many issues; the central one was to bring about effective competition under certain legislative guidance. Mrs. Sheldrew indicated the guidelines that were in A.C.R. 49 of the 69th Session had been included in AB 366. The one most important statement was the one codified in NRS 703.025 and was a legislative directive to the PUCN to change their focus and take necessary action to encourage and enhance utility services in Nevada.

One area of interest was the jurisdiction of the commission overseeing Nevada Power and Sierra Pacific Power Company power-lines; and which fell under FERC jurisdiction. The FERC outlined seven principals which state commissions must use in evaluating jurisdiction as it applied to lines. There was one hearing contested by Sierra Pacific regarding service territory, however, jurisdictional delineation of Nevada Power was settled before it went to a hearing. The issue became important as the FERC had the authority to set rates for transmission service on lines under their jurisdiction.

Mrs. Sheldrew went on to say the coordination between the FERC and the commission would become increasingly important as the regulatory question was addressed to bring nationwide competition. A.B. 366 also addressed the alternative seller who would provide a component of service in Nevada deemed to be potentially competitive. Criteria set up by the legislature included there be no detrimental effect to the reliability or safety of the electric system. If there was a cost increase, there should be a service improvement by the alternative seller and no negative impact on any class of customer.

That bill took the opportunity to tell the commission that generation and aggregation would be considered separately when providing electric services. The commission then looked at the other components of service in the current bundle rate concluding metering, customer services, and billing and should be competitive. Mrs. Sheldrew added transmission and distribution were deemed to be non-competitive, those would be regulated by the appropriate jurisdictional authority.

Mrs. Sheldrew pointed out, as technology improved there was a possibility some components of what were now deemed non-competitive services could become competitive if they met the test. At that point either an alternative seller or the utility could request the designation. The entity would then be scrutinized to see if it met the statutory tests for licensing. It was found California energy service providers had few requirements to be licensed and were not quality sellers, so Nevada had tried to avoid those problems with the passage of AB 366 of the 69th Session. Many California providers were not able to make deliveries, nor interested in providing services they claimed they could provide, which resulted in the California commission revoking a number of utility licensees.

Mrs. Freeman questioned if California imposed penalties for defaulting on service or if there were sanctions by the state. Mrs. Sheldrew replied there were penalties now in place. Originally in the state’s haste to start the program they were not as diligent as they should have been.

Mrs. Freeman asked if California consumers had been hurt by the ineffectiveness of the program. She had seen the insurance industry come into the State of Nevada, sell programs and then leave the state with detrimental effects on consumers.

Mrs. Sheldrew believed there had been some pyramid schemes but the California commission was able to stop them before they became too prolific and those unscrupulous providers were severely penalized. She added she did not want to leave the impression Nevada was going to do anything like California had.

Mrs. Freemen queried if Arizona, California, and Nevada were implementing electric energy deregulation, why had other states, such as Oregon not addressed the issue. Mrs. Sheldrew pointed out Oregon, Washington, Idaho, and Montana had access to federally subsidized low cost power from Bonneville. Those states discouraged competition because they did not want anyone else sharing their low cost energy. Eventually the issue would become an important issue nationally.

Mrs. Freeman observed there was support from the Clinton Administration and Congress for all states to deregulate within a certain length of time and wondered if there would be an exemption for states in which subsidies were obtained.

Mrs. Sheldrew remarked there were a number of bills pending in Congress, including the present administration’s bill, which directed the implementation of retail competition as a national issue. She felt that was due to the fact some states would never be interested in making the move to open competition. The PUCN had been monitoring the issue, so if a viable bill came from the Federal Government, Nevada would already have something in place. The State of Nevada had not fared well with federal legislation requirements in the past.

Mrs. Berman said she had a question on the revocation of licenses in California. She understood Pennsylvania had implemented deregulation before California and had not ended up with massive fraud. She wondered how pervasive the problems were and if provisions had been placed in Nevada’s bill to address penalties.

Mrs. Sheldrew stated California did not have an adequate screening process in place in the beginning. That issue had since been addressed and remedied. Pennsylvania had a pilot program in place before going forward which contributed to the successful implementation of bringing residential customers into the program. Entrepreneurs in California were able to obtain licenses, but then were unable to deliver services. She felt a lot had been learned from California, so Nevada was taking a much more cautious and steady approach. Due to the fact Nevada was such a small market compared to California, the state would need to do it right the first time. The legislature put the requirements in AB 366 to allow scrutiny of a provider before a license to sell was issued. The requirements looked at financial and operational abilities, customer billing procedures, and a particular provider’s background in other states enabling the state to deny licensing if the background proved undesirable.

Mrs. Sheldrew asserted a licensing regulation was established by the PUCN and approved at the end of December, 1998. At present no alternative sellers had applied to the state for licensing. Under AB 366 the vertical integrated utilities in existence would identify which services would be potentially competitive and which needed to be recognized as non-competitive. The vertical integrated utility would cease to exist, but would become the distribution utility of tomorrow. That did not mean the consumer had to buy each component of service, because marketers could come into the state to provide aggregate services. Vertical integrated utilities would not be barred from providing competitive services, but would have to go through an affiliate, and there had to be an "arms-length" relationship between the affiliate and the distribution utility.

Mrs. Freemen questioned if the utility bill the consumer received would mirror the consumer’s present telephone bill. Mrs. Sheldrew responded there would be one bill for all services, and would be the responsibility of the aggregate. Aggregation combined billing, customer services, metering, generation, and distribution services.

Ms. Segerblom asked if a consumer would have the freedom to choose a specific service to provide billing. Mrs. Sheldrew stated if Nevada Power, for instance, established an affiliate to provide aggregation services the consumer could choose that affiliate. There would be a tag line to identify the affiliate such as "XYZ, an affiliate of Nevada Power Company." She added the entire program was about customer choice and the ability to select an affiliate.

Ms. Segerblom asked if the bill would be higher if a consumer did not choose but took the available provider. Mrs. Sheldrew felt if that happened the commission would have failed in their deregulation attempt; it was not meant to impact any segment of the population.

Mrs. Sheldrew went on to say, A.B. 366 also directed the commission to assure consumers, who were unable to obtain or failed to select an alternative seller, would still receive electric service. When the vertical integrated utility ceased to exist, the person who did not choose would be assigned a seller who was a universal service receiver or be assigned "a provider of last resort." Nevada Power or Sierra Pacific Power must be the "provider of last resort" unless the commission found it in the public interest to provide services another way. Should that occur, an auction would be held for large blocks of customers who had not chosen a provider, with the difference being the customer would receive a bill from a different company.

She added if there was no interest shown by a provider, the statute stated the "provider of last resort" would be designated as an affiliate of Nevada Power Company in the south or Sierra Pacific Power in the north. Both she and the consumer advocate were encouraging some of the "providers of last resort" to provide service to residential customers not just large commercial customers.

Mr. Mortensen’s concern was when the small consumer wanted to buy electricity they would be competing with huge mega-industries who could negotiate real low rates and the small consumer would have no bargaining power. It seemed to him, the stragglers who had not chosen would have the advantage because they could be lumped into one large group. Mrs. Sheldrew agreed saying many providers would not actually go out and solicit the small user. It was very expensive to advertise and an individual did not use enough energy for a provider to supply an individual small consumer. In order to get service to residential customers the concept was to put non-choosing customers into larger "blocks" so they would be an attractive market to alternate sellers.

Mr. Mortensen questioned why the small customers could not be put into just one big block. Mrs. Sheldrew related the commission was trying to establish an optimum size. Presently, the involved parties indicated it was more likely to get an alternative seller who might be interested in a percentage of a single "block."

Ms. Von Tobel was confused about the non-choosing customer. In her thinking a non-choosing customer might not choose because they were satisfied with the service they were already receiving. If the customer was satisfied, they would stay where they were. Mrs. Sheldrew responded the customer would have to be moved because the power company which had been providing services to the customer, as well as wire service, was no longer accessible. With unbundling, the distribution utility would no longer provide energy services, so the consumer would have to be moved somewhere. If the consumer was happy with their present service they should choose the affiliate of the power company that had been providing service.

Ms. Von Tobel asked if she were a satisfied customer of Nevada Power Company, would the affiliate solicit her business and make it simple to stay with them. Mrs. Sheldrew remarked, if that was the line of business they chose they probably would. Applications were pending before the commission and hearings would be held the end of February so applicants could specify which services they wished to provide. The utility must demonstrate a diverse relationship and meet the guidelines for legal competition. Mrs. Sheldrew added if a provider met the regulatory and statutory guidelines and wanted to provide any area of service, the request would be considered.

Mr. Neighbors questioned what happened when the non-choosing customer was a bad credit risk. Mrs. Sheldrew responded the customer would be included in a block or would go to an affiliate of the present existing utility they had been utilizing. There had been some discussion of handling those customers separately, but that idea had been abandoned. She stressed eventually there would have to be one "provider of last resort," who would be required to be a supplier for the bad credit risk consumer. Pursuant to statute, at present an affiliate of both Nevada and Sierra Pacific Power had been designated as "provider of last resort."

Ms. Gibbons questioned who in Federal Government was pushing for deregulation, was it an elected official or the chairman of a committee? Mrs. Sheldrew stated, probably a dozen bills had been submitted directing all states to implement retail competition. However, none of the bills had been heard. She believed the original genesis in the State of Nevada, was started by Senator Shaffer. The Federal Energy Regulatory Commission (FERC) through its regulatory authority over the transmission system created additional pressure. Whether Congress addressed the issue during the present session was undeterminable, but at the moment a stand-alone Public Utility Holding Company Act (PUCA) bill was being addressed. The bill was thought to be a component of restructuring, the idea being reform cannot become fact without comprehensive restructuring. California opened up the market, which had an impact on the State of Nevada. Nevada felt there had to be some plan in place because if it did not have its own, well thought-out system in place, the Federal Government would step in at some point and impose a system on the entire western region.

Mrs. Sheldrew continued, the PUCN would be required to determine recoverable costs for assets and obligations of competitive services. She pointed out in California the stranded cost issue was significant due to the high number of purchase power contracts with high costs, as well as a number of very expensive nuclear facilities. The PUCN was in the process of developing a regulation in anticipation of an application from the utilities upon conclusion of a rate filing to be made in the spring. The regulation would be made after evaluating how costs needed to be assigned to various components of electric service.

She assured the committee certain consumer protections would be in place prior to competition. Consumer protection regulations had been adopted including requirements for alternative energy sellers, which assured the customers would be handled, if the seller vacated the marketplace. One requested regulation required a provision to allow consumers to comparison-shop to assure the service would be available from comparable sellers. Another addressed the anti-slamming requirement, where either written or electronic verification must be made of all sign-ups, and gave the consumer 3 days to drop a service if they decided they had made a mistake.

Mrs. Sheldrew felt, most consumer advocate’s concerns had been addressed with the addition of the "provider of last resort" service. The present consumer Bill of Rights addressed 100 percent of deposit requirements, but also alerted the alternative energy seller penalties could be imposed and they could be removed from the market place.

The PUCN was directed to establish a process to assure a sufficient supply of energy would be available to consumers and granted authority to assure provisions were in place should there be a shortfall. She related the commission was currently in the process of acquiring the necessary software to assure information could be verified as it became available from the alternative sellers and affiliates as to loads, and how those loads would be met. Another standard was the requirement a certain percentage of the electricity provided in the state be from renewable sources, most notably geothermal or solar energy.

Mrs. Sheldrew went on to explain the legislature provided the PUCN broad authority to monitor markets and remedy abuse of market power or anti-competitive conduct. The commission could also impose penalties if it found anything was done to hamper development of effective competition. If during investigation there was an indication of criminal activity, such as deceptive trade, or anti-trust violations, the committee could turn that over to the Attorney General’s office for prosecution.

In the letter from the PUCN to Lorne Malkiewich, Director of the Legislative Counsel Bureau (Exhibit D), Mrs. Sheldrew pointed out the last page was a timeline which indicated what had been accomplished with the implementation of A.B. 366. The graph indicated when regulations were developed, orders approved, and when applications were received and reviewed. She felt the graph was a good indication of the progress of the PUCN. She noted some services might need a price cap established to assure consumers were not harmed, until there were more alternative sellers and competition in the market providing those services. The filings would be during the month of April and hearings would be conducted on those through mid-fall. The commission could then determine the rates for the "provider of last resort" service, because that service would definitely need to be capped.

Mrs. Sheldrew explained the commission would only approve the proposed merger between Sierra Pacific and Nevada Power companies on the condition they divest the generating units. The commission had also attempted to dovetail the companies into the procedural activities the legislature contemplated in order to open up the markets.

Ms. Tiffany recalled there had been a component in A.B. 366 regarding telephone usage in central Nevada, and questioned if anything had been accomplished in that area. She also asked if all of the $500,000 approved for a PUCN marketing campaign had been spent, and questioned the extent of the effectiveness of the program.

Mrs. Sheldrew replied there was a component in A.B. 366 requiring the commission adopt regulations to bring about directives of the Telecommunications Act of 1996 for educational libraries and rural health surcharges. That was accomplished within the short period of time the commission had to implement the requests, in order to receive discounts from the Federal Government for services. There had been some problems with the Federal Government in ascertaining how much of a discount would be allowed. The Federal Government wanted to make the payments to the provider of services rather than the school districts. She was not sure the problem had been rectified as some school districts were still applying to recover the rates.

In response to Ms. Tiffany’s question on the funding for marketing, Mrs. Sheldrew informed the members the legislature had approved up to $500,000 for PUCN to conduct a consumer education campaign. The campaign was to educate consumers about the upcoming changes. Since that directive, a brochure was developed (Exhibit E), explaining in clear language why the change in receiving power must be implemented. The brochure would be updated in the near future to include licensing requirements for alternative sellers as well as consumer protection. After the "provider of last resort" issue was resolved another update would be issued. Included in the marketing campaign were television advertisements, which she referred to as "fire sale" spots. Those were spots vacated by other advertisers at high viewer audience times, which the state was able to buy them at discounted rates. The ad was short and simply stated the viewer should call a certain phone number if they had questions on changes and a brochure would be sent directly to them. Her office had a staff of three, who were dedicated to making "grass roots" presentations to explain the entire process to potential users. Focus groups had been organized to advise the commission on how best to inform the public about deregulation. Those meetings were held in Elko, Reno, and Las Vegas with informative feedback derived from those groups.

Mrs. Sheldrew added a pre-campaign poll was held to see how many customers were aware of coming changes proposed by the utility. From the response, approximately 59 percent of those responding were aware of changes, but a much lower percentage was not aware of specifics. Due to that response, the campaign was now geared to give the public more detailed specifics. The commission were also considering a direct mailing to all rate payers throughout the state to detail the changes, as most participants in the focus group stated they never looked at bill stuffers but, would open and read something that came in a separate envelope. She felt the $500,000 expenditure was well spent, with consumers receiving adequate information about the changes.

Mrs. Freeman questioned, as the Federal Government was going to require deregulation, would any federal funds be available for implementation. Mrs. Sheldrew had not heard of any congressional bills requesting federal funding for educational campaigns in any of the states. In conversations with the State of Maine, Nevada’s consumer outreach staff tried to establish how much money was allocated by Maine to inform their citizens of coming changes. Maine allocated around $1.6 million to reach all their citizens. Mrs. Sheldrew added she understood California spent between $90 and $100 million on what had since been deemed a failed educational program. She stressed the whole program was predicated on the assumption consumers could make knowledgeable decisions with sufficient education.

Ms. Von Tobel remarked she had been in California approximately 1 1/2 years ago and every time she turned on the television there was advertising by utilities, but the ads were done by private industry. She questioned what the role of the PUCN would be when private companies started advertising in Nevada.

Mrs. Sheldrew responded the role established by the commission was to respond to consumer questions. No one competitor would be recommended, but the office would be the main disseminator of objective information. To be objective, the commission wanted assurance all competitors supplied comparable information, so consumers could engage in comparison shopping in one place. The PUCN wanted to be able to tell the consumer about all the licensed sellers that were available not predicated on one advertisement they might have seen. Mrs. Sheldrew’s main objective was to make sure the consumers were not blind-sided with a deluge of ads as happened in California to the point of mass confusion as to what exactly was being offered.

Ms. Von Tobel wondered what the role of the PUCN would be as more competition became available. Mrs. Sheldrew thought the PUCN would probably act as the referee instead of the regulator. They would have the responsibility of ensuring the market rules were being followed and if a provider violated the rules, then the commission would become involved. She added there was no way to gauge how long it would take for effective competition to develop. A good indication was the telephone situation, as it had been 2 years since deregulation, and there still was no competition at the local phone level.

Ms. Parnell inquired if any thought had been given to the elderly. She felt when consumer education was being considered the focus should definitely be on senior citizen centers throughout the state. Mrs. Sheldrew responded the senior citizens groups in rural areas were groups on which the commission had been focusing. Consumer representatives in Elko found the participants at the centers extremely receptive and a great source of information, because they had the time to spend with the representative on a one-to-one basis. The knowledge gained at the meetings was then passed on to their children and grandchildren with dissemination reaching a larger segment of the population.

Mrs. Sheldrew went on to say, many states who rushed into deregulation, found it was not a good idea. For example Arizona was supposed to open markets on a phase-in approach on January 1. After a change in commissioners, the idea was reassessed to insure implementation went smoothly. She felt it could be an opportunity for Nevada to work with Arizona in developing a regional transmission oversight board.

Mrs. Sheldrew apprised the committee that all five FERC members would be attending a regional conference in Las Vegas from 9 a.m. to 1 p.m. on February 12 and had invited all the state utility commissions to consult with them about the need for a western regional transmission organization. She felt it would be a unique opportunity for citizens of Nevada to see the operational makeup of FERC. She offered an invitation to the Committee on Government Affairs to attend, as it should be enlightening to them when dealing with the deregulation issue.

Chairman Bache advised Mrs. Sheldrew he would check with leadership to see if there was a floor session on Friday, February 12. He felt it would be very informative if the committee members could attend, but as it was in Las Vegas there could be a conflict.

Mrs. Sheldrew pointed out it was an honor for Las Vegas to be chosen, and thought it was due to the interest FERC had in the way the state was handling retail restructuring activities. There were only three regional meetings scheduled throughout the states to consult with various state commissions, in St. Louis, Las Vegas, and Washington D.C.

Mrs. Sheldrew went on to say she wanted to touch briefly on the delay of the startup date as brought out in a press release by the commission (Exhibit F). Pursuant to NRS 704.976 the legislature directed the market be opened to alternative sellers by December 31, 1999, unless the PUCN found it in the public interest to delay the opening. That would assure there was no anti-competitive conduct as a result of divestiture of the generation units, or the manipulation of the transmission system by the owners. Also a price cap needed to be established so consumers would not be harmed. Once the energy generators were divested they would no longer fall under jurisdiction of the PUCN. The sellers would then fall under FERC jurisdiction, to insure unfair prices could not be extracted from consumers. A retail aggregation tariff was currently being developed by the involved parties to be presented to FERC.

Mrs. Sheldrew added the year 2000 conversion would also be an issue. She felt if there were service disruptions on January 1, 2000, it would be unwise to open up the market on December 31, 1999, because restructuring could be unfairly blamed for the problems. Commissioner Soderberg had an agenda to scrutinize the preparedness of all utilities because of the interconnection with other utilities in the western grid. It must be recognized Nevada was a small market in the context of surrounding markets and if there was competition between providers to choose a market, California would win out.

Arizona was also a larger market for alternative sellers. If Nevada tried to open its markets at the same time as Arizona, Nevada might lose out on some alternative sellers who would like to service Nevada, but did not have sufficient resources to provide services to both states.

Another item she wanted to point out was the "provider of last resort." The PUCN felt it was imperative to entice alternative sellers to bid on large blocks of residential customers. Time would be needed to set the auction by those providers and could only be done once the rate information was available. In the south, from about May to September the operation of the transmission system was severely impacted and that area must be evaluated for reliability and to enable the scheduling administrator proper time to test. She believed a new startup date should only be reset once more and felt the PUCN needed the guidance of the legislature to establish that date.

Mrs. Freeman expressed her belief Nevada could move forward more easily on issues that were cumbersome for larger states. She had chaired the committee on health care issues and found during national health conferences she attended, many times Nevada was ahead of other states. She questioned if second-generation energy, such as geothermal was being considered in the overall picture for Nevada.

Mrs. Sheldrew responded a certain percentage of all the vendor portfolios were required to include renewable energy. For instance, credit was given to Sierra Pacific Power for its geothermal energy. She stated she would keep the Committee on Government Affairs apprised of the consensus of the participants as to regulations requested for alternative energy.

Chairman Bache inquired about the status on the Independent Scheduling Administrator (ISA) versus the Independent Scheduling Operator (ISO) program. In response, Mrs. Sheldrew reported the formulation of the ISO in California both very expensive and extensive. The purpose of the ISA was to assure the transmission owner, who was also providing generation or aggregation services, could not manipulate the transmission system in its favor. The ISA was considerably less expensive than the ISO. In a merger application by Nevada Power and Sierra Pacific Power both indicated they would join a regional ISO within 3 years if their merger were approved by the FERC. At present there were no independent ISOs in the west. Recently one had been proposed in the northwest, which had not worked out.

Mrs. Sheldrew continued there was one ISO being developed in the southwest called Desert Star, in which Nevada Power was participating, but when it came to pricing decisions states usually could not agree. She felt one of the reasons FERC was holding a regional transmission conference with state commissions was because of all the conflict. The FERC was trying to formulate what the geographical area, duties, and responsibilities each ISA or ISO should have. It appeared to Mrs. Sheldrew the FERC was committed to an ISO and whether Nevada would be allowed to have the intermediate step of an ISA while waiting for a formulation of an ISO remained to be seen.

Chairman Bache stated he did not have a list of anyone else who wished to make public comment, and before opening the meeting to public comment he wished to introduce a Bill Draft Request (B.D.R.) that had been set aside from the previous meeting.

• B.D.R. 18-492 Creates office of ombudsman for consumers of health insurance within bureau of consumer protection in office of attorney general (A.B. 143).

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Chairman Bache asked if Mr. Schmidt, Consumer Advocate, or Ms. Rose McKinney-James wished to make any comments on utility restructuring.

Fred Schmidt, State Consumer Advocate, Chief Deputy Attorney General heading the Bureau of Consumer Protection in the Attorney General’s Office, remarked his office had participated actively in helping with the deregulation. Mr. Schmidt commented he felt the commission was doing a good job trying to implement legislative intent, which would open the electricity market to competition. His office was trying to ensure residential and small business customers were protected and avoided mistakes other states had made.

Mr. Schmidt stated he had the honor of being selected by his peers, as the President of the National Association of Utility Consumer Advocates. That meant he would be speaking for the next 2 years in the federal forum for consumer advocates nationwide. In that regard there was a conference coming up in Washington D.C. in March which would have all the key congressional committee leaders, as well as Energy Secretary Richardson. It was a consensus of opinion Secretary Richardson planned to introduce the administration’s bill at the conference. Although a bill had been introduced last session it had not passed, and was presently being reworked for introduction. The main problem with the bill was the mandating of open competition nationwide by an exact date.

Mr. Schmidt declared several weeks ago, when he was in Washington D.C., he found a coalition had been formed by commissions and other energy organizations throughout the country. One issue on which everyone agreed was there should not be a mandate that "one size fits all" by a certain date. While he was there he received a commitment from Senator Frank H. Murkowski’s staff assuring him no mandate would be in any bills from the Senate. However, no such commitment was forthcoming from the House of Representatives. He thought there were too many uncertainties and too many differences in the way electric markets were developed to enforce states to conform to one program. He believed there would be federal legislation that would address two issues:

• There would be some lifting of restrictions on who essentially could get into the area of electric sales without a substantial federal regulation, particularly at the Securities Exchange Commission.
• The other was reliability.

The concern nationwide was there were too many different players. No one wanted electric service to be less reliable because it was opened up to competition, rather than regulated. There was a national electric reliability council representing seven regional utility organizations, but was re-forming since they would not be the only players in the future as membership broadened. Mr. Schmidt felt Congress would try to pass something to ensure there was an umbrella oversight organization with more authority at FERC to ensure nationwide interaction reliability between states going to competition and those that were not. That was an extremely important issue, as both California and Ohio experienced price spikes up to 1,000 percent for an hour when they went on the system.

He went on to say his office was making an effort to create a statewide database of telecommunications services. An outreach program was being developed to help facilitate the needs in rural areas, as there was a perception in rural areas they would not have the same telecommunications services available to them as urban areas. His office had been coordinating with utilities and other organizations, to allow compilation of data to provide information on who provided services and equipment statewide, to assure it would be available at one location.

The concern over the funds for rural libraries became an important issue, as the bill from the 69th Session, although passed, had no funding. Mr. Schmidt added his office conducted a rural tour of 18 communities in 9 different counties in the Nevada Bell service territory to identify needs last fall. It was found some rural areas did not have 911 service and some schools were without T1-lines (educational classroom television), which allowed connection to distance learning opportunities. There were even areas without individual dial tone service.

During the tour his office found a certain pool of funds were available through Nevada Bell’s earnings, so Mr. Schmidt’s office negotiated with Nevada Bell who agreed to set aside $4.3 million for improvement in rural area hospitals and libraries. His office had just filed a stipulation with the PUCN for expenditure of the $4.3 million over the next 3 years. That disbursement would also address the situation where rural communities did not have an internet service provider. Even though the PUCN had not voted on the expenditure, he felt it would be approved bringing improvements to the rural areas. Mr. Schmidt pointed out there had not been a commitment from Sprint to start a similar program in southern Nevada.

Mr. Schmidt went on to state as far as geothermal and other environmental developments, Sierra Pacific Power was the first to enter into a contract. He thought geothermal power was an excellent resource for northern Nevada. A portfolio standard contained in the energy bill would insure there would be a component in place so all suppliers, including Sierra Pacific and Nevada Power would not be burdened. Although the geothermal component was one of the cheapest renewable resources available in the north, there would also be solar development in the south. One advantage for Nevada was the availability of geothermal and solar power opportunities which many other states did not have.

Mr. Neighbors requested a copy of the settlement agreement from Mr. Schmidt, as he felt that was an important issue.

Chairman Bache questioned if there were any other companies beside Nevada Bell who had shown an interest in servicing the rural communities.

Mr. Schmidt responded there had not been any progress with other providers. He related there were several bills being drafted by the Attorney General’s Office addressing rural issues. He added he found a deficiency with senior assistance when doing surveys within the state.

He added there was a federal program of assistance called "lifeline" which provided assistance to people on welfare or who met other needs requirements. Unfortunately, the programs were not being implemented very aggressively in Nevada due to the fact it required the utilities to file for the program, have a tariff, and then go out and present the program. Although the utilities were reimbursed by the Federal Government, it was found less than 6 percent of all eligible customers in Clark County who could obtain the $5.25 free assistance were signed up. Mainly because they were not aware of the program and in the rural areas the percentage was even less. Nevada Bell did have the highest percentage, but even then it was barely 10 percent. It proved to be too costly to get the message of assistance out through flyers or mailers.

His office then pursued the idea if a household was on welfare assistance and qualified for that welfare assistance, they could automatically be signed up in the program. In meetings with the Welfare Division it was found some states had passed legislation to do that very thing. In meetings with the telephone association he informed them his office would draft a bill to have the automatic sign up become law in Nevada, so Nevada would get its fair share from the federal program.

Mr. Schmidt pointed out there was another bill being drafted that would require statewide 911 service throughout Nevada. It was found in some of the rural areas if there was an accident and 911 was dialed for emergency service, nothing happened. He added there had been a bill in Congress, that would have mandated service nationwide, but it did not pass.

Another item under consideration was the "slamming and cramming" of telephone customers. There was a comprehensive bill being proposed by his office, which would either remove or drastically diminish that practice.

Ms. Von Tobel indicated part of her district did not have the 911 service, due to the fact the citizens in those areas did not want to pay for the service. She questioned if that service was mandated, how would it be funded?

Mr. Schmidt replied a mechanism would have to be created to pay for it. The stipulation in the Nevada Bell area would have Nevada Bell provide the funding and implementation of the equipment to set it up. There were still requirements in maintaining the system in two ways. First a database of names and addresses must be established to have an enhanced 911 which indicated where the call originated. The second part would continue operation of the system, which would be funded in different ways in different communities.

Mr. Schmidt added last session a bill was passed allowing Washoe County to place a surcharge on telephone bills. Douglas County passed a bond several years ago to cover the implementation of its system. Clark County paid for its service through a property tax. The bill he was proposing would "grandfather" in the existing mechanisms and create a funding opportunity in other areas, as a lot of rural communities could not afford unfunded mandates. He added that was one of the reasons the public/private partnership was developed with Nevada Bell to identify areas in their service territory, which encompassed most of the state.

Ms. Von Tobel stated, initially Sandy Valley wanted 911 service but the residents were not willing to pay for it. She asked if the county could force the residents to pay for the service if there was a mandate. Mr. Schmidt answered in the affirmative.

Chairman Bache stated after discussions with Senators Porter and O’Connell there would be a joint meeting Thursday, February 25 at 3:30 p.m., but it was not a mandated meeting, so if there were conflicts with other scheduled meetings members could be excused. He added he would talk with Speaker Dini about attending the FERC conference in Las Vegas. He felt it would be very informative for the committee if they could meet with FERC, and it would be a good opportunity for the federal regulators to exchange ideas with legislators from the State of Nevada.

As there was no further business, Chairman Bache adjourned the meeting at 10:20 a.m.

RESPECTFULLY SUBMITTED:

Virginia Letts,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

DATE: