The Committee on Government Affairs was called to order at 8:00 a.m., on Thursday, March 4, 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. Douglas Bache, Chairman

Mr. John Jay Lee, Vice Chairman

Ms. Merle Berman

Mrs. Vivian Freeman

Ms. Dawn Gibbons

Mr. David Humke

Mr. Harry Mortenson

Mr. Roy Neighbors

Ms. Bonnie Parnell

Ms. Gene Segerblom

Mr. Kelly Thomas

Ms. Sandra Tiffany

Ms. Kathy Von Tobel

Mr. Wendell Williams

GUEST LEGISLATORS PRESENT:

Assemblyman Bernie Anderson, District 31

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Bache opened the hearing and requested the presence of Assemblyman Anderson. Susan Miller, a lobbyist for Sierra Pacific Power Company, was dispatched to find Mr. Anderson. The Chair advised the committee to be at ease until Mr. Anderson arrived. Since Mr. Anderson did not arrive promptly at the hearing, Chairman Bache decided to postpone discussion of A.B. 277 until after A.B. 168 was heard.

Chairman Bache turned over the gavel to Vice Chairman Lee. Assemblyman Bache, representing Assembly District 11, stated the purpose of the bill was to change the date for deregulation from December 31, 1999, to March 1, 2000. The reason cited was the year 2000 problem. Mr. Bache was concerned computer problems related to the turn of the century would cause problems for power suppliers during deregulation. Mr. Bache felt March 1 would be an appropriate date, because most glitches should be out of the system within 60 days.

Ms. Von Tobel suggested April 1 as a date for possible deregulation because it was April Fool’s Day.

Mr. Bache reiterated the bill was simply a date change from December 31, 1999 to March 1, 2000.

Judy Stokey, Government Affairs Consultant for Nevada Power Company, stated Nevada Power and Sierra Pacific Power were both in support of the bill.

Douglas Ponn, Executive Director for Sierra Pacific Power Company, reiterated his company’s support for the bill.

Mr. Bache asked if either company had suggested alternative dates for deregulation.

Mr. Ponn answered S.B. 226 proposed a date change of December 31, 1999. The sponsor of the bill, Senator Amodei, was flexible on the date change. Mr. Ponn referred to Public Utilities Commission recommendations on an alternative date as well. Mr. Ponn said Sierra Pacific Power had never advocated a date change.

Judy Sheldrew, Chairman of the Public Utilities Commission, handed out a statement explaining the commission’s position (Exhibit C). Ms. Sheldrew said several suggestions for an appropriate deregulation date change were submitted by regulated entities under the Public Utilities Commission of Nevada, including Sierra Pacific Power Company. Those suggestions and comments were included in the statement. The purpose of the statement was to report progress of the Public Utilities Commission toward implementation of competition in the retail electric industry. There were four main points outlined in the statement explaining why it was in the public interest to delay the start of electric service competition. The commission advocated a change in the date of deregulation for the following reasons. The first issue was the timing of the opening of the Nevada electric market in relation to the opening of the same market in Arizona. The Public Utilities Commission felt that could effect the number of alternative sellers who initially entered the Nevada markets. The second issue concerned the market power mechanisms that must be in place prior to deregulation. Those mechanisms required approval by the Federal Energy Regulatory Commission (FERC) before competition could begin. The next issue involved the year 2000 problem for the entire western electric grid. The statement discussed how Nevada could be impacted by other electric utilities within the western interconnection. Those other utilities may not have their year 2000 problems solved by December 31, 1999. The final issue discussed in the statement was the complication caused by peak usage during the summer months of May through September, especially in southern Nevada. Changing the date of implementation to occur during that time could cause numerous problems for the newly created system administrator. The rest of the commission’s statement focused on progress toward the goal of implementing competition and an outline of the work remaining.

There were seven main points in the progress of the commission toward implementing retail competition.

• The commission determined which electric services may be provided on a competitive basis by alternative sellers.
• The commission adopted regulations governing the provision of physical distribution services on a nondiscriminatory basis.
• The commission adopted its final licensing rule.
• The commission adopted its Consumer Protection rule.
• The commission prescribed alternative methods for providing last resort service to non-choosing customers. The commission had recently issued a proposed rule and expected to adopt a rule by March 1999.
• The commission adopted regulations governing the conditions under which affiliates may offer potentially competitive services, including protection against discriminatory behavior by the distribution company in favor of its affiliates.
• The commission adopted regulations governing the process an affiliate of a noncompetitive service provider may use to provide potentially competitive services.

The further action necessary prior to implementation of competition consisted of six sections. The first section outlined the Public Utilities Commission’s responsibility to impose conditions necessary to promote competition, including conditions on the ownership, operation, and control of transmission facilities. Toward that end, the commission issued its Order Establishing Principles for the Creation of an Independent Service Administrator (ISA). Those principles described the minimum requirements which must be present in any agreement to form an ISA and any transmission tariffs. Those agreements must be filed with and approved by the FERC. The Retail Aggregation Tariff (RAT) placed a cap on the price generators in a "load pocket" could sell power to retail aggregators. Since the price cap controls the price of a wholesale transaction, it was under the jurisdiction of the FERC. The second section dealt with past costs. The commission’s responsibility was to determine recoverable costs. Third, the commission was evaluating applications by Nevada Power and Sierra Pacific Power. Fourth, the commission would be issuing final rules governing the process for selecting providers of last resort, as indicated in the above progress report. Then the commission would begin the bidding and auction process for providers of last resort. Rates would be filed and finalized. Fifth, the commission was in the process of adopting regulations establishing compliance plan filing requirements. The commission would then be evaluating the compliance plans submitted by each vertically integrated utility. Sixth, and finally, the commission was in the process of evaluating the effect of the proposed merger of Sierra Pacific Power and Nevada Power. The commission was charged with overseeing the divestiture of generation assets as a condition of the merger. The commission had already determined "generation divestiture would not be in the public interest unless bidders committed to sell generation under a FERC approved RAT and contracted with an ISA." According to the statement, the outcome of the merger and the required divestiture increased the importance of receiving FERC approvals for the ISA and RAT.

Ms. Sheldrew outlined some of the points in her statement as follows. First, Ms. Sheldrew was concerned because Arizona was opening its electric market to competition at the same time. Additionally, the merger of Sierra Pacific Power Company and Nevada Power Company was a cause for concern. The Public Utilities Commission was also concerned there was insufficient system administration over the transmission of power, resulting in a decrease of competition. Ms. Sheldrew outlined attempts to create a regional organization to operate transmission. She also discussed tariffs, wondering if they would be sufficient to protect customers in Nevada. Ms. Sheldrew told the committee approval by the FERC was necessary before deregulation could begin as well. Procedures for providers of last resort needed to be resolved. She stated the Public Utilities Commission was not ready to suggest an alternative date.

Ms. Gibbons asked what the consumer protection rule was, in reference to Ms. Shelrew’s written statement.

Ms. Sheldrew replied a bill passed in 1997, A.B. 366, directed the Public Utilities Commission to compare energy providers’ rates and contracts. The bill also directed the commission to establish rules and guidelines for advertising, as well as establishing a complaint process.

Ms. Gibbons asked about staffing problems within the Public Utilities Commission as a result of the new responsibilities given to the organization by A.B. 366 of the 69^th Session.

Ms. Sheldrew explained the commission did not have more responsibility, it had a shift in responsibility, from regulation to a more market-based approach. Ms. Sheldrew offered to present an organizational chart to the committee, upon the request of the Chair. She also said the commission was relying on outside consultants to do some of the work.

Michael Pitlock, Public Utilities Commissioner, explained the agency evolved from rate-based regulation to monitoring competitive markets. He discussed the benefit of outside consultants, stating the commission’s workload would be reduced after deregulation.

Ms. Von Tobel asked if the Public Utilities Commission had a stance on two bills pending in the Senate, S.B. 222 and S.B. 226, related to deregulation.

Ms. Sheldrew replied the commission was opposed to both bills. The commission was opposed to S.B. 222 because it was too limited. It opposed S.B. 226 because it did not recognize the due process utilized by the commission.

Mr. Pitlock stated the bills were an example of the changing nature of the guidelines outlined in A.B. 366 of the 69^th Session.

Ms. Von Tobel commented agencies sometimes opposed rules set by the legislature.

Mr. Neighbors moved to page 4 of the statement prepared by Ms. Sheldrew. That section covered the customers of last resort in the progress report of the Public Utilities Commission. His question was regarding persons who were unable to choose a new electricity provider.

Ms. Sheldrew stated some persons would not be marketed by the new providers, especially people living in rural areas. Ms. Sheldrew explained that provision was to ensure everyone would have electricity, even if they were not approached by an alternative seller. Affiliates of the vertically integrated utility were the first option to those last resort customers. Another option was an auction process.

Mr. Neighbors asked if those who did not choose could simply stay with the company who already provided service.

Ms. Sheldrew said the vertically integrated utility of Nevada Power and Sierra Pacific Power would not exist after day 1 of deregulation. They would only be distributors of energy; they would not provide energy to customers. Ms. Sheldrew reiterated the affiliate of the utility would be the provider to those who did not choose.

Mr. Neighbors said he had many calls from constituents regarding that area of deregulation.

Mrs. Freeman asked what S.B. 222 and S.B. 226 were regarding.

Ms. Sheldrew stated there were stranded costs which needed to be compensated prior to deregulation. The legislature had outlined regulations on those costs during the 69^th Session. As Ms. Sheldrew explained it,
S.B. 222 pulled out qualified facility contracts, required energy to be provided to all customers, and required all customers to pay those costs on a pro-rata basis. The value of those contracts was estimated to be $964 million. That number was presented by the two existing utility companies (Sierra Pacific Power and Nevada Power) during their merger. Senate Bill 226 directed the legislature to review recommendations made by the Public Utilities Commission and make the final determination on which entities would be involved in the new competitive structure. Additionally, the bill allowed the utility affiliates to use the brand names of the vertically integrated utility and hold the qualified facility contracts sacrosanct.

Mr. Mortenson asked if Mr. Pitlock had been with the Public Utilities Commission longer than Ms. Sheldrew.

Mr. Pitlock proceeded to outline his work history with the State of Nevada.

Mr. Mortenson wanted to know if the last resort customers were assigned to the vertically integrated utility under A.B. 366 of the 69^th Session. He suggested those last resort customers were customers no one else would want. Mr. Mortenson asked if it would be fair to force one provider to take on all of those customers, rather than spreading them out among all the competitors.

Ms. Sheldrew replied when A.B. 366 of the 69^th Session was written, it was important everyone in the state continue to receive service. The statute specified the established utilities would take on those customers unless there was an alternative method. She stated again other methods could be used to assign those customers to alternative sellers. Although as a customer group the last resort customers were not undesirable, they were more expensive to serve. She stated alternative sellers may be discouraged if they were forced to take on those last resort customers, and the service to those customers might be substandard as a result. If a provider wanted to service customers of last resort specifically, they would be reviewed by the Public Utilities Commission for the service.

Mr. Mortenson again stated those customers were at a disadvantage because free competition was not available for them.

Ms. Sheldrew said those customers were compensated on a cost of service basis. For that group of customers, rate of return would still apply. Service would be regulated for all customers of last resort.

Mr. Pitlock used the example of the breakup of the Bell system and AT & T in relation to the deregulation of electric utilities.

Mr. Mortenson commented statistics showed the largest number of people would not make the choice. Approximately 80 percent of people were not going to choose a new provider.

Ms. Sheldrew agreed with Mr. Mortenson. She stated customer inertia was very low, and it delayed the benefit of competition for residential customers. Ms. Sheldrew said 59 percent of people in a telephone poll were in favor of competition. Those polled felt competition was beneficial and looked forward to having a choice for electricity. The Public Utilities Commission wanted everyone to choose a new provider, and have a very small group of last resort customers.

Mr. Humke referred to page 2 of the prepared statement and the cooperation between the legislature and the Public Utilities Commission. In the statement, the Public Utilities Commission had stated its desire for cooperation and the necessity of legislative leadership on that issue. He asked why the bill was effective on passage and approval.

Chairman Bache said he requested it be drafted that way.

Ms. Sheldrew suggested passage on approval was wise because it was important to inform the public as quickly as possible about the date change and inform the potential new providers.

Ms. Von Tobel asked another question regarding S.B. 226. She wondered if the names of the vertically integrated utilities would be used by the new power affiliates.

Ms. Sheldrew replied if S.B. 226 were passed, the name could be legally used by the new providers.

Ms. Von Tobel commented her constituents were worried the company they had trusted for power for so long would no longer provide service.

Ms. Parnell asked if the new affiliates could advertise using the name of the vertically integrated utilities.

Ms. Sheldrew stated the affiliates must use a disclaimer, with or without passage of S.B. 226. The Senate bill would allow the affiliate to call themselves the power company and use the logo. Under current regulation, that would not be possible.

Ms. Segerblom asked if she would be getting marketing telephone calls as a residential customer from those new power affiliates.

Ms. Sheldrew said commercial and industrial customers would be more likely to get calls than a residential customer. She suggested neighborhood groups or other kinds of associations might be approached and marketed by an alternative seller. Ms. Sheldrew clarified those affiliates were required by statute to provide consumer information to all new customers. Perhaps 10 years after deregulation the number of calls to residential customers would increase.

Chairman Bache asked if the Public Utilities Commission had discussed the year 2000 problem in relation to the date February 29, 2000. The Chair had been informed the date could possibly cause problems.

Mr. Pitlock responded he had not heard concerns from the utility industry regarding the date.

Chairman Bache asked if anyone had suggested another date to the Public Utilities Commission besides March 1, 2000.

Ms. Sheldrew indicated the commission had received input from several agencies regarding the date change. Some agencies, such as Sierra Pacific Power Company, had recommended no date change, while the Bureau of Consumer Protection recommended November 1, 2000 as the new date. The bureau felt the summer peak in southern Nevada might provide a trial by fire for the new system administrator. Other dates suggested were Nevada Day, 2000, and May 1, 2000.

Chairman Bache asked if the Public Utilities Commission would be handling intrastate complaints regarding power distribution.

Ms. Sheldrew stated that was part of the commission’s responsibility; however, all regulations and service were subject to the FERC.

Vice Chairman Lee requested Joyce Newman, Executive Director of the Utility Shareholders Association, come forward.

Chairman Bache asked if the Utility Shareholders Association had a position on the appropriate date for deregulation.

Ms. Newman responded the shareholders were not in a position to make the judgment, and the association was neutral.

The hearing on A.B. 168 was closed at that time.

Chairman Bache reopened the hearing on A.B. 277.

Assemblyman Bernie Anderson, representing district 31, expressed the desire to set aside hearing the legislation. Sierra Pacific Power Company, who had requested the bill, wanted to address issues which had been raised during the drafting of the bill. Mr. Anderson requested additional time for the parties involved to work out a clean piece of legislation.

Mr. Mortenson commented he had two suggestions for the bill. He wanted to see the underground assessment be placed in a separate section of the bill, so people could see they would be paying extra for the underground improvement. Additionally, the pot of money for improvement should not go back to the government coffers if left unused, but back to the ratepayers.

Chairman Bache asked Mr. Anderson to contact him when the parties had worked out a new draft. The hearing on A.B. 277 was closed at that time.

Chairman Bache presented an amendment for the bill (Exhibit D). The chairman expressed concern over the original language and stated the amendment addressed concerns made by Washoe County. The amendment would amend page 1, section 1, by changing paragraph 2 to read: "To secure group health insurance or related medical, administrative and educational services and group life insurance for its officers and employees…" The amendment would also change page 2, section 1, paragraph 2, subsection B to read: "Medical, administrative and educational services related to group health insurance."

Discussion followed. Mr. Humke asked if Washoe County had been consulted on the amendment.

Chairman Bache replied he had not discussed it with the county, but his concerns had been addressed in reference to charter and private schools, which were not related to group health insurance.

The meeting of the Assembly Committee on Government Affairs was adjourned at 9:37 a.m.

RESPECTFULLY SUBMITTED:

Kelly Gregory,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

DATE: