The Committee on Government Affairs was called to order at 8:15 a.m., on Thursday, February 18, 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. Mortenson

Mr. Neighbors

Ms. Parnell

Ms. Segerblom

Mr. Thomas

Ms. Tiffany

Ms. Von Tobel

COMMITTEE MEMBERS EXCUSED:

Mr. Humke

Mr. Williams

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Bache said he wanted to discuss A.B. 44 first, as he had a suggestion on the bill, which dealt with the age of 75 for retirement. There were some policy decisions but was primarily a fiscal matter, and he felt the bill should be re-referred to the Committee on Ways and Means.

Ms. Von Tobel questioned if the bill would be referred without recommendation to the Ways and Means Committee. Chairman Bache answered in the affirmative.

Chairman Bache stated he would take A.B. 98 out of order, as a presentation had been scheduled for 9 a.m. by Sierra Pacific Power and Nevada Power. Frank Siracusa, Chief of the Division of Emergency Management with the Department of Motor Vehicles and Public Safety, wished to testify on the bill as he had to return to Las Vegas. Mr. Siracusa said changes had been proposed in the bill. Where verbiage "the chief shall develop comprehensive coordinated plans for emergency management," his department requested "The chief shall assist in the development of." If the change was approved, the attached fiscal note attached could be eliminated.

Chairman Bache recalled that had been proposed to the committee.

Mr. Lee understood any private citizens could approach the organization and request training in emergency management techniques. Mr. Siracusa responded, most emergency management organizations used volunteer services, so training was provided by both his office and Federal Emergency Management Association (FEMA), through his office and was open to the general public.

Ms. Gibbons thought Douglas County was going to offer an amendment. Mr. Siracusa replied Douglas County was in favor of the proposed change. He added his office continued to assist local governmental entities in the development of their emergency plans but did not write any plans for the local governments.

Chairman Bache stated the concern voiced by testimony from various local entities was, they did not want the division to take over writing the emergency plans. They only wanted continued assistance, and he felt the amendment took care of those concerns.

ASSEMBLYMAN LEE MOVED AMEND AND DO PASS ON A.B. 98.

Carol Vilardo, Nevada Taxpayers Association, stated she had contacted everyone who appeared at the February 3 meeting, and all the parties met on February 5. Included at that meeting were, Nancy Wong, representing Department of Industrial Relations (DIR); Vern Rossi; Georgi Cody, Nevada Motor Transport Association; Brian Hutchins, legal counsel for Department of Transportation and Department of Motor Vehicles; Dave Ziegler, Legislative Counsel Bureau research staff; Eileen O’Grady, Legislative Counsel Bureau, legal counsel; Alan Biaggi, Administrator, Environmental Protection; Pam Crowell, Deputy, Elections Division, Secretary of State’s office; Charlotte Crawford, Director, Department of Human Resources; Doug Walther the Deputy Attorney General for Business and Industry; and Assemblymen Neighbors and Humke.

Ms. Vilardo pointed out at the meeting proposed changes were drafted with the assistance of Ms. O’Grady. A copy of the hand-written changes was faxed to everyone in attendance at the meeting and she would make them available to any committee member who requested them. She went on to say she had received faxes from the Secretary of State’s Office, both from the Elections Division and Securities Division indicating concerns expressed at the meeting had been resolved by the proposed amendments. The Department of Taxation had no problem with any of the language since AB 171 from the 69^th session had been amended took care of their concerns.

One concern voiced by Mr. Biaggi the Administrator of Environmental Protection was relative to the impact on the oil cleanup fund. That concern paralleled a situation with the Department of Taxation however, there was statutory authority to make modifications. For the record Ms. Vilardo wanted to impress there was no intent to impact any decisions made by the Department of Environmental Protection as that agency was involved in petroleum claims. As frequently happened with the Department of Taxation, there could be a deficiency determination causing penalties with interest. A situation might exist where there were extenuating circumstances and the business could apply to the Tax Commission, so a ruling could be overturned. She believed that same scenario was analogous to the situation dealing with the particular departmental fund. However, some of the suggested language changes concerned her as she felt the bill was being emasculated. It came to her attention a fiscal note was going to be added to the bill. She thought the quickest way to kill a bill was add a fiscal note. AB 171 of the 69^th Session, upon which the present bill was based, had hearings in The Committee on Government Affairs, three workshops by The Committee on Government Affairs, and two hearings in the Senate. During those hearings there was no indication there would be a fiscal impact from either an agency or the Attorney General’s Office.

Even with the modifications made in A.B. 12 which tried to address major concerns, she did not understand why there was now a fiscal impact. She added it was a good bill as it stood. If there were concerns not brought out at the meeting held on Friday those concerns should be communicated to her and she would entertain further amendments or changes. Her main concern was the Attorney General opinions being turned into regulations. A published opinion was no problem, if it was encoding federal law.

Ms. Vilardo pointed out Charlotte Crawford was extremely concerned about the impact on the Department of Human Resources if federal law had to be incorporated into every regulation. However, as she had not heard further from Ms. Crawford, she was assuming her concerns had been alleviated. When encoded federal laws would not be subjected to regulatory process, as that would be extremely cumbersome.

Mrs. Freeman interjected ordinarily there was justification for requesting a particular fiscal note. Ms. Vilardo responded the fiscal note and issue of funding started when the Attorney General’s office testified. It would require interpretation of the federal regulations to establish state regulations, which would mean more time spent on interpretation of law. She was not sure what had changed between A.B. 171 of 1997 and the present bill and perhaps the Attorney General could address the issue when they testified. She did not want to emasculate the bill with a lot of exceptions that might be generic and destroy what was trying to be achieved. The Taxpayers Association was not trying to stop any agency from saying to a business, "you were out of compliance" or "your licensing procedures were wrong." If the regulations were going to be used for general applicability to all businesses, then businesses had a right to know what those regulations were. She felt the bill would make life easier for business people or those required to be regulated and compliance would be much better.

Often times an agency did not have enough money in their budget to obtain information off the Internet, and publishing pamphlets to inform a business on compliance was considered frivolous. There was a feeling throughout the industry that ignorance of a statute or regulation was no excuse to be out of compliance. She indicated there was proposed language changes resulting from the meetings and included in the handout under section A of Exhibit C. She wanted to point out Sections 2 and 3 were deleted from the bill, so the bill was as originally submitted in the 1997 session.

Ms. Tiffany interjected she had more of a comment than a question. In looking at the bill and having been a victim of similar circumstances, she felt businesses should be visited more often and in a more friendly manner. Advice and help should be foremost even on an initial audit, rather than being judged guilty until proven innocent. She did not believe the bill should be changed anymore but implemented as it stood. She felt the committee needed to decide to help the small business community, and those enforcing the regulations should be more like consultants or ombudsmen. She thought the present bill was good and should be supported.

Ms. Vilardo pointed out in line 12 of the proposed amendment, where "or" was changed to "and", the intent of the bill was not to hamstring any agency such as Environmental Protection. If it was going to cost the regulated community, whether business or government, the entity needed prior knowledge in order to be in compliance with the rules. She hoped the intent was clear to the agencies, so they would not feel constrained in doing their job and was one of the reasons the emergency provision was placed into the bill. She wanted to make it clear she, as well as some of the other trade organizations, would be monitoring the report to ensure an agency was not abusing the emergency provision. Maybe the provision should be removed, but she wanted to explain the reason for having the provision in the bill as it allowed a certain amount of discretion if there was a question of health or safety.

Chairman Bache questioned if The Committee on Government Affairs amended the bill and it was passed with the fiscal note, would there be an objection to referring it to he Committee on Ways and Means. Ms. Vilardo replied she thought the bill stood on its own merit and did not like the idea of a hearing by The Committee on Ways and Means. She stated if the fiscal note issue had been raised during the last session or the first hearings on A.B. 12, she would not have a problem. She reiterated the best ploy to kill a bill was to put a fiscal note on it.

Mrs. Freeman commented she would not support referring the bill to the Committee on Ways and Means until she had a chance to look at the fiscal note.

Ms. Vilardo said she had no further comments at that time.

John Wiles, counsel for the Division of Industrial Relations, stated the bill would impact his division because of their state Occupational Safety and Health Administration (OSHA) plan. He added concerns his division had were not addressed in the amendment. The broad scope of the definition of regulation in the bill could result in constant hearings for his agency. Although the question of a fiscal note was not raised at previous hearings, there would certainly be costs associated with the process. In his opinion there was already a "common sense" statute under Nevada Revised Statutes (NRS) Chapter 618.375. "Every employer, shall furnish employee a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees . . .," to which OSHA referred as a general duty clause. He did not believe regulations could cover each and every circumstance. There were issues of safety in all businesses, including small businesses, which were known only to that particular industry. Issues were recognized within the business community, whether it was a dry cleaning business or a small construction firm, but there may not be a standard covering particular hazard.

The standards were already voluminous, and adopting regulations covering every single hazardous activity would become burdensome. Under the general duty clause which his agency was required to enforce, all state regulations must be as effective as the federal program. The division would review all businesses to discern what the hazards were and if a particular hazard was found, it might not be covered. That hazard would then have to be addressed, and he felt that was overly burdensome on the agency as well as the business community. He felt an effective program was already in place in the form of the agency’s safety consultation and training section. He added that program was available to all employers in the state so a survey could be conducted without penalties or costs to the business. Recommendations for corrections would be made, so they could comply within a certain period of time.

He added previous testimony raised questions of OSHA overreaching. He had not been able to ascertain any specifics from Ms. Vilardo on how her constituents were impacted. He wanted to stress his agency had continued concerns about the bill, as it was broad in scope and would adversely impact the present program.

Ms. Segerblom questioned if someone from the Division of Industrial Relations attended the conference initiated by Ms. Vilardo. Mr. Wiles replied Nancy Wong, division counsel, sat in on the meeting. During that meeting the concern raised by Ms. Vilardo was OSHA had taken some action against an employer and a regulatory effort was implemented. The provision of "two in, two out" raised questions related to the fighting of highly hazardous interior fires. He noted that particular controversy would be remembered by anyone involved in workers compensation or safety matters. The controversy arose when his office tried to ascertain appropriate standards to adopt in fighting those types of fires. Rather than impose standards on a wide range of municipalities and local governments, a fire fighters work group held meetings over a 1-year period. A consensus within the group was reached before a formal interpretation was made of the standards. He brought up the fire fighters example because it worked. The division could have gone forward and adopted regulations in just a few months however, it was felt input from the fire districts enabled a consensus in adopting adequate standards without impacting them financially.

Ms. Tiffany pointed out she had a personal experience with the content of the bill. She had owned a coffee shop, which only had two full time employees plus two owners. She was very particular about following appropriate procedures down to the letter regarding OSHA requirements. At the business there was a procedure manual, training was required, rules were posted, and the reports were done. She calculated 20 percent of employee time was spent following all the requirements, and for a small business she felt that was onerous. Sometimes a business license may be thrown in a drawer as opposed to being posted where the rules said it had to be. For small business owners to attend classes or sit down and read a voluminous manual on regulations was too much to expect. If an audit was conducted and a problem was identified, the business owner should have a way to work it out without a presumption of guilt.

Mr. Wiles responded he appreciated the concerns, as the agency was aware of its impact on small businesses. He pointed out it was not the Department of Business and Industry (B&I) making the rules it was the legislature who determined the best approach. He was trying to convey enforcement of regulations had to be as strict and effective as federal law. He understood the problem with a small business because each manual involved one particular issue and could contain several hundred pages. The Department of Labor adopted standards through a process involving business and industry, and then published them in a federal register with an effective date. Under Nevada Law his agency had to enforce those regulations and doubted small businesses had the opportunity to review any changes or provide comments. He wanted everyone to be aware, due to federal mandates the bill impacted his division. The Federal Government said a state plan must be in place, or the Federal Government would force the Federal OSHA Program on the state.

Ms. Tiffany pointed out that the words force and enforce were used eight times in Mr. Wiles testimony, and that was how she felt about OSHA regulations. She thought the bill was trying to make a friendly atmosphere for business. Businesses paid taxes and that money was used to pay the government to oversee the regulations. If there was a burden she thought it should be on the back of government rather than the small business.

Mr. Mortenson asked where OSHA fines went. Mr. Wiles replied it was his understanding they went back into the assessment fund as the OSHA was funded by assessments, rather than general fund revenue with the excess funds distributed back to the payers of the assessment. He added he was an attorney and was not in a position to know much about the actual budget, but the fines did go into the Workers Compensation and Safety Fund created under Chapter 616 of the Nevada Revised Statutes.

Mr. Mortensen questioned if he was saying OSHA was funded with their own fines. Mr. Wiles replied it was a question not within his expertise. Part of their funding came from the Federal Government, which he believed was about 50 percent of the agency budget. The other 50 percent came from the Workers Compensation and Safety fund. No fines went back to the Federal Government.

Mr. Neighbors said the issue of fiscal impact had been raised on the bill. He hoped everyone opposed to the bill would tell the committee what the individual fiscal impact would be on that agency. He added, in The Committee on Transportation the previous day, a fiscal impact came up on a bill under consideration. It was determined someone would need to run the program if the bill was approved. That committee felt with all the computers available it could be done within the proposed multi-million dollar budget. He said with that in mind, what would the fiscal impact be on the Industrial Relations Department.

Mr. Wiles thought everyone in the legislature knew the quickest way to tag a bill for defeat was to raise the issue of a fiscal note. He did not want to raise that flag, but he was not qualified to answer the question. Under the general duty clause he could not tell which regulations the Federal Government would require the state to adopt.

Ms. Segerblom questioned if Mr. Wiles had an amendment to the bill, or if he was generally opposed to the entire bill. He responded there was no proposed amendment by his agency, as they felt the existing law provided adequate protection under the state plan.

Mr. Mortenson said he could see explaining the problems to a business and helping them by being an "able assistant instead of a meddling master." If the offender was fined for the first offense, there could be a fiscal impact if 50 percent of the budget came from fines.

Mr. Wiles stressed no violation could be overlooked and still maintain the state plan although he realized that was what the committee was seeking. With that approach the state would be in violation of the federal OSHA act.

Ms. Von Tobel commented Nevada was encouraging business to move into the state, as most people realized gaming was not an industry that could support the state forever. The state needed to expand and offer a pro-business atmosphere. She questioned why any business would locate in Nevada over any neighboring state, if Nevada was making it difficult for them. She felt Ms. Vilardo was correct in wanting the changes and supported her proposed legislation.

Chairman Bache interjected although several people wanted to speak for A.B. 12 he had scheduled a presentation from Nevada Power and Sierra Pacific Power. He said the power company presentation would be heard, before more testimony was taken on A.B. 12. He informed the audience the presentation would take about one and a 1½ hours so anyone was welcome to take a break and return later to testify.

Michael R. Niggli, President and Chief Operating Officer with Nevada Power Company, indicated there was a handout to which he would refer to, "Creating a Competitive Company and a Competitive Marketplace." (Exhibit D) He would be answering any questions regarding the merger or restructuring, as Mr. Malyn K. Malquist, Chairman and President of Sierra Pacific Power was ill but hoped to appear before the committee at a later date. He went on to say restructuring in the State of Nevada as well as the rest of the nation was a complex issue and there were significant changes in the last 2 years since A.B. 366 was passed. He stated the legislature had the choice of how and when restructuring took place, and who would be involved with the restructuring from the customer’s standpoint. Nevada Power and Sierra Pacific looked at the need to stay competitive while keeping costs down. The choice had been made to merge the two entities and proceed on a combined basis. He felt the merger would benefit the customers in keeping rates down. Nevada Power had significantly under-earned on its authorized rate of return for the last 3 to 5 years with a 9.59 percent return on equity while being authorized at 12.5 percent. They could have asked for a rate increase but chose the merger instead which gave them the best opportunity to avoid a change in base rates. Even though energy rates fluctuated at the market place they had tried to keep base rates low and stable for all users.

Mr. Niggli pointed he would go over the objectives and touch on highlights of the merger. Indicated on page 3 of the handout, was the timeline of how the utility would be impacted after the probable merger. On December 31, 1998, an order was received from the Public Utilities Commission of Nevada (PUCN) to merge under certain conditions. The clarification of that order came late in January, 1999, which established the opportunity for the companies to merge when certain conditions were met as outlined by the PUCN. Federal approval was still needed from the Federal Energy Regulatory Commission (FERC) with approval anticipated sometime between March and Mid-May, but if full-scale hearings needed to be held, that approval could come later. Approval by FERC was required when going through a restructuring process, because they oversaw transmission access and interstate commerce. Approval was also needed from the Securities and Exchange Commission which should occur sometime in April or May. If the timelines were followed all of the state and federal approvals would be obtained by June when the merger would be completed.

Mr. Niggli added there were still a number of items which would have to be covered before the merger could be approved. The divestiture plan, which sold off the power plants, had to be filed with the state. It had to be approached in a manner so employees would not be impacted and would have the opportunity of continued employment with the new companies. Several tariffs would have to be filed with the Federal Energy Regulatory Commission, most importantly a generation/abrogation tariff, known as a GAT. The GAT specified prices received from certain power plants during certain times of operation.

An Independent Scheduling Administrator (ISA) tariff would also need to be filed which established non-discriminatory access on transmission systems. That tariff was important because it allowed anyone who wanted to be in the transmission market, the opportunity to acquire equal access to the system. There was a stakeholder group presently working on such a program, with members coming from the generation community, the marketing sector, the retailers, and those involved in the transmission sector. In those meetings a consensus of opinion was determined specifying what was expected of the ISA position. The FERC was pushing for a broader solution than the ISA and would involve a region, not just one state. He felt Nevada eventually would be part of a Regional Transmission Organization or a larger Independent System Organization (ISO).

Mr. Niggli went on to say another item to be filed with the FERC was the unbundling issue, which was basically a rate case which looked at the single utility bill. When looking at components on the bill there were only two major items not broken out in the base rate, one item covered distribution, customer service, and transmission charges. The other item was energy pricing, which fluctuated as the market fluctuated. In unbundling the specific components of pricing would be identified, so as new suppliers came into the market they would know exactly what the price was in utilizing the transmission or distribution systems. He explained the transmission system brought the high voltage or high concentration of energy from point "A" to substations, while the distribution system connected the substation into the home.

Mr. Niggli indicated page 4 was an overview of what the merger intended to accomplish. Even though Nevada Power had been one of the fastest growing utilities over the past decade, rates were the lowest of any utility in the pacific southwest, because of that the rate of return suffered a bit. He felt with the merger customer’s base rates would stabilize. Nevada Power recently installed an energy management system at its control center. Sierra Pacific power currently was in need of a new system such as Nevada Power and Sierra Pacific had a number of practices, which would fit into the programs at Nevada Power which would reduce costs. He felt the merger would allow strong competition, because once the market place opened up there would be many familiar names selling electricity: Shell Oil, Houston Industries, who was recently renamed Reliant Energy, Duke Energy, Pacific Gas and Electric, and Southern California Edison just to name a few.

Mr. Niggli added one of the issues to jumpstart competition would be to willingly divest power plants allowing other entrants into the marketplace and providing a choice of suppliers. To protect Nevada jobs a hiring freeze would be implemented as well as retraining and encouraging early retirement. Merging with Sierra Pacific would double the size of the company and the sale of the power plants would divest the company of about one third of its business and restructure the entire industry.

He testified page 5 depicted what was envisioned in the market place to ensure equal and equitable competition. There also had to be customer choice, the ability for them to choose and allow abrogation tariffs. Other areas to be considered were metering practices, customer service practices, and billing practices. Diversification would impact every constituent, so transition must be accomplished in a smooth manner with little or no customer confusion.

Many states were contemplating restructuring. California was the first with rates about 50 percent higher than Nevada. If high cost energy was provided, options would have to be considered with the opportunity to pursue alternative lower cost sources. He felt with the merger, the business would become a "Premier" transmission and distribution corporation delivering electrons regardless of where the customer bought the electricity. The company intended to remain in business, keep their customers, and compete in the marketplace.

Mrs. Freeman questioned if Sierra Pacific also had rates as low as Nevada Power. Mr. Niggli responded Nevada Power had the lowest rates in the pacific southwest while Sierra Pacific’s rates were moderate.

Mrs. Freeman explained she was involved in the health care industry and managed care and had found competition did not always benefit the consumer. She was concerned that if any change was made it must be done so the consumer was protected. She had seen health care corporations come into a state, sign up a lot of people, and then leave. She felt guaranteed consumer protection must be in place before the merger was completed. It was not like buying a new car where there was a choice everyone had to have electricity.

Mr. Niggli responded one of the issues that became apparent in restructuring was although customers had a choice, they were removed from the umbrella of the system in place today. Presently, utility companies had to go to the PUCN and request authorization when constructing facilities or placing new facilities in the base rate and that meant consumers would be at the mercy of the market. Some suppliers would come into a state, solicit business, and then leave. Others would enter the market to fill the void, but it might not be at the same price. Nevada Power bought one-half of its power in the market place with the other half generated by its power plants. He pointed out 3 years ago when going out to bid for power in the summer the average price was $18 a megawatt hour, the following year it was $25 a megawatt hour, and last year it was $31 a megawatt hour. In 1999 the first set of bids came in and the average price was about $44 a megawatt hour. From that the trend could be tracked in an upward motion. As demand continued to go up in the western United States, suppliers were not keeping up with the demand, even though new power plants were being built.

As for consumer protection he felt it would be up to the consumer to know and understand the company being dealt with. The market would shake out a lot of unscrupulous suppliers in the process and licensing requirements would minimize the number even more.

Mrs. Freeman inquired if licensing was the responsibility of the PUCN. Mr. Niggli replied the PUCN had two functions. One was setting appropriate licensing standards and the other policing those standards. Ultimately the market place determined if a supplier was worthy of supplying the customer.

Mrs. Freeman asked Mr. Niggli if the price increase, to which he referred, related to the stock market. Mr. Niggli responded there was not much linkage at all. Utility stock prices had not been very high over the past few years as prices in the energy market place really related to supply and demand.

Ms. Von Tobel said she understood the PUCN had proposed Nevada Power and Sierra Pacific Power not use their logos. She asked how Mr. Niggli suggest that be handled, and also why PUCN was requiring Nevada Power and Sierra Pacific Power to cover bad credit risks as she was concerned with setting a policy precedent. Mr. Niggli believed the logo issue was serious, as the name and logo of both utilities had been built up over the years and earned their brand equity within the state. Both utilities felt they had a legal right to utilize their names and would defend that right. One example of deregulation was in Australia where a company came into the market with a very poor record of reliability and customer service, so when a choice could be made 90 percent of their customers left. Both Nevada Power and Sierra Pacific Power had good service and reliability so the brand equity should not be removed. They felt they had a business right to be represented in the market place as themselves.

During the selection process, Mr. Niggli felt a lot of people would not be interested in choosing and the way the proposal read, a customer who did not choose would be assigned against their will. The bad credit customer would be assigned in the same way. He added, with the merger the corporation would anticipate supplying all customers both those not choosing a supplier and the credit challenged as accepting just the bad credit risk would not be equitable.

Ms. Segerblom remarked he had mentioned protecting the employees, but what about the stockholders. Mr. Niggli responded one of the reasons for the merger was to ensure the stockholders had an excellent chance to earn an equitable rate of return. Nevada Power had not been earning a return on its equity, and the alternative was to raise rates or cut costs. In serving southern Nevada, one of the fastest growing communities in the nation, cutting costs was not an option. Once the merger was complete it would afford the opportunity to reduce the level of cost growth, so the shareholder would be rewarded to the maximum extent possible.

Ms. Segerblom asked if he was aware of any companies who contemplated buying the power plants. Mr. Niggli stated there had been conversations with a number of them. At the moment they were going through a pre-qualifying process and the bid list was being sent to about 700 companies. That number would be narrowed down to about 100 responses with probably 10 major corporations in a finalist group.

Ms. Gibbons questioned how many employees would be affected, due to the fact a lot of people came from California where Pacific Gas and Electric was the largest supplier, so those people would probably sign up with that company. She went on to ask how rates could be kept low with all the competition coming into the state. Another concern of hers was "slamming" which happened when the telephone companies deregulated. She added if all the power plants were sold and lost to outside vendors the "genie could never be put back into the bottle."

Mr. Niggli wanted to clear up one misconception. The Federal Government was not forcing the state to sell off their plants. However, they were in the process of considering legislation asking states to finish deregulation, but as yet no requirement had been imposed. Responding to the cost issue, Nevada Power had low rates and Sierra Pacific Power had moderate rates, so a lot of the rate structure benefits depended on how restructuring of the industry was accomplished. The present low rates at Nevada Power would not remain in place as competition drove efficiency of corporations through the entire value chain. The immediate benefits would be for the larger customers. It was a lot easier to aggregate the large customer as to choice, and currently the large customers paid a subsidy to cover the residential customer. After the program was in place all the subsidies would be stripped away and everyone would pay an equal rate for service.

He went on to say concerns impacting employees would occur with both restructuring and a merger. About 250 employees would be impacted if the merger was approved, and would mostly be management positions. About 60 to 70 positions had already been eliminated since the merger was announced last year and there was a hiring freeze in place. Under restructuring, with metering, customer service, and billing becoming competitive, probably 2 to 3 times more employees would be affected. The transition in outsourcing needed to be done carefully if there was to be a choice for divestiture and covering all customer groups.

Ms. Gibbons interrupted to ask if there were any safety concerns in diversifying or merging. Mr. Niggli replied with the merger the handling of wires and transformers would stay with Nevada Power and Sierra Pacific. The bidders for the power plants would have to be reputable and be licensed. Presently power was bought and sold throughout the western United States and aggregated by Nevada Power as part of the process. Once the power plants were sold and the "genie was out of the bottle" the only way to put it back was to repurchase the plants, and that was a commercial transaction, to which the parties did not have to agree.

Ms. Gibbons questioned why the merger or diversification processes were even being considered. Mr. Niggli said it was a national trend. Thirty years ago many companies around the United States began putting in higher cost resources. Demand was very high and to meet the demand higher priced nuclear facilities were established which kept raising the price of power. Even though the average price was high the incremental cost was low, which afforded the opportunity to buy power at cheaper prices in the market place. In turn it allowed the entire industry to be restructured replacing the single supplier with multiple suppliers. That was the impetus for ensuring the best plan was in place for the State of Nevada.

Ms. Gibbons asked if only large consumers would be sought. Mr. Niggli responded a lot of the suppliers would like to have marquee customers, such as casinos or mines. He did not feel the corporation formed by the merger could compete with those suppliers because they would not own the power plants, others who did own the plants quite possibly could provide the lowest cost. The corporation would be aggregating supply from other facilities and focusing on the small commercial and residential market.

Ms. Parnell said she had a technical question. Issues had been raised such as "provider of last resort", "stranded cost", name and logo, and she asked whether the final determination would be made by the PUCN or legislative action.

Mr. Niggli responded the answer lay with both the Assembly and Senate Government Affairs Committees. It would be determined by legislation which issues would be cored by legislative action and which by the PUCN. Two years ago when A.B. 366 passed, the legislation implemented basic policy direction and then PUCN was asked to suggest implementation. Given the 2 years and looking at the overall picture the legislature now had to decide if additional guidelines needed to be set.

Another decision to be made was customers who had not chosen being automatically assigned to providers. He thought legislation passed 2 years ago needed revisiting, as the integrity of the entire process was at stake when the abrogation of any one contract was considered. He added if restructuring was considered there must be assurances it was not costly, complex, nor time consuming.

Mr. Lee stated in touring the Alfred Merritt Plant when he was on the Water Rates Advisory Board he found the southern Nevada water district was Nevada Power’s largest customer. He questioned if the contracts with the small customer had to be negotiated. Mr. Niggli replied with regard to contracts, they must all be honored whether with suppliers, co-generators, or unions.

Mr. Mortensen said a statement was made that as nuclear power plants began coming on line the price of electricity grew, but the incremental cost began to decrease. Mr. Niggli replied there were two aspects. Generally speaking higher costs were associated with Nuclear Power plants. As nuclear facilities came on line technological advances in construction techniques, materials, and efficiency of natural gas turbines were also improving significantly. So where there were combined cycle facilities the cost was reduced considerably.

Mr. Mortensen asked if Mr. Niggli was saying the construction or capital cost of producing electricity was growing, but in actuality the consumer was paying less. Mr. Niggli responded that actually the consumer was paying more. As companies finalized the plants they were placed into the rate base so the rates went up however, at the same time the cost of new facilities was going down on the generation side.

Ms. Tiffany said she appreciated the presentation. The comment she wanted to make was with regard to "market power", "customer choice", and "new customer service practices", she thought competition was supposed to reduce rates. She saw everything in her notes except "reducing rates." Mr. Niggli responded reduction was one of the potential outcomes but would not be noticeable until sometime in the future.

Ms. Tiffany questioned the difference between ISO and ISA. Mr. Niggli replied the concept between the two was interchangeable to a degree, although the ISA could be referred to as a light version of the ISO. The ISA dealt with the transmission system, which was important because it moved the power around in bulk quantity to various areas. Mr. Niggli explained, California had a single facility east of Sacramento where all the essential transmission facilities for the state were housed. California was about 10 times Nevada’s size in electricity demand, and spent $300 to $400 million establishing the control center and constructing new systems to allow competition. Nevada did not want to have something that extensive and onerous in place, which meant there had to be a simple, straightforward process, which also met the FERC guidelines.

The stakeholder group in Nevada was actually lead by a gentleman from a company called Dynagee who was also a power marketer. In the past Nevada Power was almost completely regulated by the PUCN. Now an ISA would be set up, scheduling transactions for all activities that came through transmission system.

Ms. Tiffany asked if the ISA would be a governmental agency. Mr. Niggli responded it was a non-profit organization and essentially fell under the jurisdiction of the Federal Regulatory Commission. It had its own board of directors and employees funded by the electric system. There would be a charge on the transmission system as transactions were made and power flowed.

Ms. Tiffany went on to ask if the oversight was a federal program. Mr. Niggli responded the FERC would not allow the state to implement customer choice without some non-discriminatory access to the transmission system. In Montana customer choice was implemented without an ISA or ISO, but that utility had sold all its power plants in advance so the utility was actually acting in the capacity of an ISA or ISO. Nevada would have to go a little bit further, if they were unable to sell of the power plants by the time competition started.

Ms. Tiffany asked if Nevada had a choice on how the program was set up and if it was federally funded would the state also have to cover costs. Mr. Niggli replied it was not clear. There was a choice on how the stakeholder group was put together and the proposal would be submitted to the FERC with funding coming from the stakeholder group. During the process of filing, set guidelines must be followed and the FERC would either accept or deny the proposal.

Ms. Tiffany inquired about contracts as she was presently involved in drafting a bill on de-consolidation and wondered if there were precedents or case law covering contracts. Mr. Niggli replied the question was whether the legislature or the commission would attempt to force abrogation of any of the contracts as part of the process. There was strong commercial law regarding forced abrogation of contracts.

Ms. Gibbons questioned what the next step toward implementation would entail. Mr. Niggli opined it was a "tough decision." The laws the legislature imposed would affect every citizen in the state and the process of deregulation could be painful and should be pursued cautiously when divesting the power plants. He felt the largest customers would benefit the most. It must also be determined if the residential customer should have a choice or stay under some type of regulatory compact. He suggested if deregulation was pursued the metering, customer service, and billing aspects should not be deregulated initially but could be considered at a later date if the process became viable. He thought if deregulation were to go forward, some items had to be specified by law including abrogation of contracts. The issue of the name and logo were important as it dealt with recognition. Shell Corporation, for one, would likely enter the market, and they were not being asked to change their name and logo.

Ms. Gibbons questioned why the name and logo could not be utilized, as it seemed to her Nevada was being penalized. Mr. Niggli responded the concept by the commission was to assure all competitors were successful in the Nevada marketplace. In that vein they wanted assurance Nevada Power and Sierra Pacific Power did not have an inordinate advantage.

Chairman Bache informed the committee A.B. 88 was requested by Speaker Dini, there were no amendments proposed and no testimony in opposition.

ASSEMBLYMAN LEE MOVED DO PASS ON A.B. 88.

ASSEMBLYWOMAN PARNELL SECONDED THE MOTION.

Ms. Von Tobel stated the bill would impact private water companies. She was concerned it was a mandate to those companies and boards to have training and pay for it. Although she thought training was important, there were private water companies in her district who were not paid. She added she could not support the bill unless the training was voluntary because it would impact her constituents.

Mr. Bache understood from testimony the burden would not be on the individual person, but the purveyor and quite often the rural water association provided the training.

Ms. Tiffany questioned if the type of required training had been spelled out and if it was possible to obtain related training at a community college.

Steve Porter, Executive Director of Nevada Rural Water Association, relayed Mr. Lawson had presented to the board of directors an example of a training package put together by the National Rural Water Association. Included was the type of information that could be presented to both boards and general improvement districts as part of the training process. Previous testimony had included concerns of operators in the field, as many were unclear as to how their organization worked. He felt the biggest issue was that the Board of Directors of a local water district understand what relationship should exist between the board, manager and staff. Training would assure the reporting and financial requirements placed on the water systems were understood without putting an undue burden on them. If a person chose to serve on a board, that person had the obligation to receive at least 6 hours of training to understand the associated responsibilities of serving on a board.

Ms. Tiffany reflected it sounded similar to what was presented in the Committee on Commerce and Labor regarding boards and their continuing education. She added she was not opposed to the bill, but as there were different types of improvement districts she felt the scope was very broad. She questioned if one group would be providing training. Mr. Porter said his association had envisioned being the primary training staff.

Ms. Tiffany asked if the training would be offered to all types of general improvement districts. Mr. Porter replied his association’s intent was water districts.

Mr. Bache pointed out the intent was any type of district which was a purveyor of water. The training would not apply to a general improvement district or some other type of district.

Ms. Tiffany stated she did not see that in the bill. Mr. Porter believed the intent was only the water districts. Chairman Bache related line 4 stated it was Water Districts, "constructs or acquires a water system."

Ms. Gibbons suggested one area where training was needed was the open meeting law. Most people serving on the boards did not understand what was required of them and felt they could not get in trouble because they did not know the law.

Mr. Ziegler interjected the notes from the hearing on the bill indicated the goal of the association was to keep travel to a maximum of 75 miles, which translated into the association bringing training to the districts. It had been estimated the cost was about $50 per person.

Ms. Von Tobel questioned what happened if a member did not get training due to scheduling conflicts or an appointment, as it appeared from the bill training was mandatory within a 2-year period. She asked if the training was not completed would that cause automatic termination. Mr. Porter said that was what the bill stated. Ms. Von Tobel went on to say, the people on the boards usually served without compensation and training mandates would discourage many people from serving.

Chairman Bache commented, in providing training it was the thrust of the association to reduce some of the legal problems and the costs associated with them.

Chairman Bache stated, A.B. 100 was requested by the Housing Division. The major change was on page 2 line 10 where the amount was increased for use by the division in obtaining qualified loans.

Mr. Thomas asked if Mr. Horsey could explain the bill as he wanted to make sure the bill was not subsidizing the current land use patterns and socioeconomic segregation which was creating the structural deficit occurring in Nevada.

Chas Horsey, Administrator of the Housing Division said there were lendable proceeds in both programs. There was an $18 million affordable housing project in downtown Reno announced on television, which was an integral part of their downtown revitalization effort. That bond issue had closed and there was a similar project going forward in downtown Las Vegas. The lendable proceeds from the single-family and multi-family projects were dispersed throughout the state in almost the same proportion as the demographic proportion of population. He added any multi-family developer applying to the housing division must first approach the local government that had jurisdiction for approval. Bond financing was not applied for until the developer received full approval from local governments.

Mr. Thomas asked if the majority of the monies went to communities selling homes at $80,000 or less. Mr. Horsey replied the proceeds from bond issues went for both new and used housing, with 60 to 65 percent allocated to new homes.

Chairman Bache pointed out the reason no action had been taken at the original hearing was his concern about the cost increase. Since then he had discussed his concern with some financial experts and they all agreed the increase was appropriate.

Mr. Thomas remarked wording indicated 10 percent of the $1.25 million must be allocated to veterans, and questioned why that formula was changed. Mr. Horsey replied the 10 percent figure was used for every bond issue, so that figure moved with the increased limits.

Mr. Thomas noted that had not been changed in the bill. The amount was raised to $2 billion but the veteran’s amount remained at $100 million. Mr. Horsey replied that was because the outlay was taken on an individual bond issue basis and when all the lenders in the state were notified as to the monies available, the veterans’ quota was taken first. The amount was sufficient to meet the needs of the veterans.

ASSEMBLYMAN TIFFANY MOVED DO PASS ON A.B. 100.

ASSEMBLYWOMAN SEGERBLOM SECONDED THE MOTION.

Chairman Bache remarked there was only a short period of time to revisit A.B. 12, but they would continue hearing the testimony until they had to adjourn to go into floor session.

Ann Cathcart, Attorney General’s Office, suggested there were some amendments being proposed and thought there was a possibility of working something out with Ms. Vilardo as they had talked in the hall during the power company’s presentation. She felt with amendments there could be a substantial reduction to the fiscal note. Ms. Cathcart explained the fiscal note had been submitted because the Attorney General’s Office represented over 100 state agencies, boards, and commissions. Many of the agencies engaged in some kind of rule making process which included detailed discussions regarding the character of a proposed regulation. The office was involved in drafting regulations, providing notices, attending meetings, and helping in direction. Every deputy was involved in some part of the process and when the issue of fiscal notes arose there was a determination made as to the overall increase.

Charlotte Crawford, Director, Department of Human Resources stated her office had been working with Ms. Vilardo on A.B. 12, and shared her goal. Her department mainly regulated health care related activity from hospitals to individual providers, and the regulations needed to be clear and precise. She was working with Ms. Vilardo on some additional language changes regarding the intent of assessing a monetary fee or penalty. She wanted assurance the guidelines coming from the Federal Government did not have to be encoded into regulation at the state level. Another issue was the life safety issue, it should be clarified as to where postings should be displayed assuring there was no conflict at the federal level with such postings. The concern of the Attorney General’s Office was that the regulations not become so burdensome that large providers, such as hospitals, could find loopholes to avoid providing the types of services they should be providing.

Mr. Neighbors asked if the Attorney General’s Office was aware of the fiscal impact attached to the bill. Ms. Crawford replied the present amendment was a third version, so it was difficult to determine the impact as the bill kept changing. She added, Dr. Feldman who was the chairman of the State Board of Health, did forward a communication to Senator O’Connell with a $1.6 million fiscal note impacting the Department of Health. She added it was not requested by Department of Human Resources and did not believe it was relevant to the current language.

Tom Grady, Nevada League of Cities, wanted to take the opportunity to thank Ms. Vilardo for working with them on concerns in sections 2 and 3. He thought everything was solved until testimony from Mr. Wiles regarding the "two in, two out". He felt that was a poor example, as the state OSHA demanded certain things be done and then went to region 9 without working with local government. As a result of OSHA actions a committee was formed who tried working with firefighters, fire chiefs, and local governments for over 18 months to reach an agreement with which everyone could live. However, after the fact the state OSHA changed their decision and forced the fire agencies to work with the "two in, two out" ruling. He added because of OSHA actions, no one involved in the original agreement was satisfied with the changes that were made.

Bob Hadfield, Executive Director, Nevada Association of Counties, explained the only reason his association was allowed into the process when the issue was being discussed, was because of his vociferous actions three sessions ago to ensure everyone was aware of the problems. His association worked with Rose McKinney-James creating a committee representing all the people. Twice during the interim he and Tom Grady, on separate occasions, traveled to Washington D.C. to meet with federal OSHA officials, who essentially told them it was a state plan. In meetings back there it was only with the intervention of then Representative Vucanovich, OSHA would even sit down and start to cooperate. His purpose was not to pick on Mr. Wiles, but it was difficult in the regulatory process to know what was taking place. From his perspective he felt serious consideration should be given to the issues brought forth by Ms. Vilardo.

Mr. Bache asked Ms. Vilardo to come forward as he understood there were some additional concerns brought out in the meeting with all the parties during the break. He wanted to be assured Ms. Crawford’s concerns had been addressed. Because of the time constraint he wanted to see if it was possible for her to come the following morning, February 19, and he would accept additional information from her.

Ms. Segerblom questioned if Mr. Wiles was included in the discussion. Ms. Vilardo said during the meeting there had been some modification of everyone’s position. She could accept some of the changes because the bill had not been emasculated.

Ms. Von Tobel stated when the vote was taken on A.J.R. 1, on February 17^th she had left the room but wanted to go on record as opposing the bill. Nellis Air Force Base was in her district and some constituents had contracts and needed long term protection. They had voiced it would be in their best interest if she did not support the bill. She wanted to make that part of the record.

There being no further business, the meeting was adjourned at 10:52 a.m.

RESPECTFULLY SUBMITTED:

Virginia Letts,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

DATE: