The Committee on Government Affairs was called to order at 8:13 a.m., on Tuesday, March 16, 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

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Bache stated the meeting would start with a presentation regarding the deregulation of the power utilities within the state by Ms. Sheldrew.

Judy Sheldrew, Chairman, Nevada Public Utilities Commission (NPUC) testified she was appearing before the committee to introduce a distinguished panel of experts and practitioners from other states as well as national research organizations and the Federal Trade Commission who would address the issue of "market power." Information provided from other states indicated methods had been developed by which incumbent "market power" could be mitigated and had also helped Nevada in addressing their issues of marketing power.

John Hilke, Ph.D. Economist, Federal Trade Commission stated although he was employed by the Federal Trade Commission he was appearing before the Assembly Committee on Government Affairs representing his own views. The Federal Trade Commission (FTC) had strong concerns regarding the "market power" issue because it translated into the welfare of the consumers. Competition was viewed as positive for society because it brought prices closer to costs and was likely to improve the quality of products people received and innovation of those products. He added he had some overheads he would share with the committee as well as a handout (Exhibit C) if they preferred to read along with him.

The FTC had a dual interest in deregulation and electricity reform. He touched briefly on each item on page 1 of Exhibit C pointing out FTC’s involvement in the electricity industry was mainly to enforce antitrust measures and provide consumer protection. In the electric industry there was an element of retail market power assessment, which was the ability of the market to raise prices above the competitive level for an extended period of time. In order to be innovative, profits had to be made and supply and demand from the plants dictated what the prices would be.

Mr. Hilke added some states approached retail "market power" by requiring divestiture of generation assets allowing more owners into the market. Another approach was to increase the number of suppliers by allowing entry to occur more easily. Another possibility was connections through transmission allowing more entries from outside the immediate area allowing effective competition. The last element was affiliate rules and those tended to support "market power."

Mr. Hilke said one element the FTC favored was a cost benefit analysis, which was a context in which policies were set so prices were as low for consumers as they could be and market power was not being exerted. Some issues such as the vertical relationship between an affiliate and parent were apparent. The tradeoff was between vertical integration and competition. Looking at the tradeoff between efficiencies and potential anti-competitive elements, it was possible to divide the scenarios. One was a strong vertical economy and was a cheaper if the entities were tied together. If that was the scenario then deregulation should not be considered, at the other extreme was if there was no vertical economy then divestiture should be considered, because there was no gain on the efficiency side and all costs were on the antitrust competition side. Those were the two extremes, but if you took the middle ground the situation had to be examined to try and develop some rules for affiliate relationships. Although there had not been any studies in Nevada it seemed likely the state would fall in the middle ground where a system could be developed preserving competition as well as some of the vertical economies.

He went on to say there were problems with cross-subsidization where the concern was investments made by the regulated firm would be used by the affiliate without proper compensation. Many states had tried to control cross-subsidization through transfer pricing arrangements and bidding on transactions between the affiliate and the parent, with costs of shared inputs assigned in a biased manner. However, the biased assignment of costs was often difficult for regulators to detect and remedy producing distorted competition and product inefficiencies in the unregulated business as well.

In response to Mr. Mortenson’s request of an example, Mr. Hilke stated the logo situation was one. If the affiliate and parent used the same logo then confusion could arise, as the logo would be associated with the parent. As the parent had always provided good service, good service could be assumed with the affiliate while perhaps the affiliate only provided 10 hours of training, while the parent provided 15 hours. It would be hard for the consumer to know the facts because of the lack of background information.

Mr. Mortenson questioned if there was a strict line between the vertical and the regulated business. Mr. Hilke responded part of the reputation a company had was due to monuments. For example, an element of a parent firm’s reputation might be the credibility of its pledge of high-quality service that were backed by the parent’s financial stability as a government-franchised monopoly. If a consumer imputed the same credibility to an affiliate’s promises of high-quality service because of its use of the parent’s logo, the consumer could be injured if the affiliate was unable to fulfill its promise to the consumer. Under such circumstances, the use of the logo by the unregulated affiliate could harm consumers and competition in much the same way as deceptive advertising.

Ms. Von Tobel stated there had been previous testimony on divestiture and questioned if Mr. Hilke could use the example of the logos of Sierra Pacific Power and Nevada Power to make the point clearer. Mr. Hilke responded divestiture involved generation assets and in that context divestiture would essentially break any relationship between the affiliate and the parent. Thus turning the affiliate into an actual separate company having no relationship to the parent so in a general sense divestiture was a structural remedy as opposed to a behavioral remedy. The FTC was involved because from their experience structural remedies were easier to manage, less costly to monitor, and more effective than behavioral remedies.

Ms. Von Tobel questioned if he could explain the name and logo in simple terms. Mr. Hilke replied there were many forms of divestiture having nothing to do with logo and name. In generation divestiture it meant the utility was forced to sell its generation capacity to other firms. In the present context if an affiliate was divested from the parent, it was unlikely they would end up using the same name and logo unless there was some mechanism for making sure the affiliate bought the rights of the parent.

Manoj Hastak, Ph.D., Associate Professor of Marketing at the American University in Washington D.C. stated his research had been in the area of consumer response to market communication, regarding issues pertaining to how consumers process or respond to advertising or product labeling. He had been a consultant to the FTC over the past several years as well as other federal agencies.

He went on to say the study he conducted in November of 1998 had the overall purpose of assessing potential consumer confusion between an affiliate and a parent electric company. The study was a "mall intercept study" which meant respondents were intercepted at a shopping mall, in that case a suburb of Las Vegas, done by the professional marketing company of Cunningham Research. The respondents went through a simple procedure taking about 5 to 10 minutes. Respondents were initially given a very brief introduction to the study, being told they would soon be facing a deregulated environment within which many different electric companies would be competing for business. As part of the study they were shown two advertisements for two electric companies. They looked at the ads and when the ads were removed the respondent was asked to make a choice between the two companies and asked to provide justification for their choice. Subsequently direct questions were asked to see if the two companies were confused with their parent electric company. The respondents were also divided into three groups and were shown three different sets of ads, but the procedure was essentially the same for all respondents.

Dr. Hastak pointed out there were four issues the study was designed to address. Issue one was, did respondents confuse Nevada Power Energy (a fictitious name) with Nevada Power the parent electric company. The ads for Nevada Power Energy were shown to the respondents with the logo of Nevada Power; however, no association between the two companies was mentioned. The other ad was another fictitious company called Horizon Energy. The respondents were asked to make a choice between the two companies resulting in a little over 70 percent of respondents choosing Nevada Power Energy. Of those more than half confused Nevada Power Energy with Nevada Power indicating they believed Nevada Power Energy was their current electric provider or was a company with which they were familiar. His conclusion was respondents did confuse an affiliate with a name similar to the parent electric company.

Dr. Hastak added issue two asked if a disclosure reduced the tendency of respondents to confuse an affiliate with a similar sounding name with the parent company. A different group of respondents were used to address that question. The respondents in that group saw an ad for Horizon Energy and another ad for Nevada Power Energy containing a small disclosure, basically saying Nevada Power Energy was an affiliate of Nevada Power Company but not the same company. Again the respondents went through the same series of tests and the results in this case indicated over 55 percent of the respondents chose Nevada Power Energy. His conclusion was the disclosure used did not significantly alleviate consumer confusion between an affiliate who used a name similar to the parent company and a neutral energy company.

The next issue addressed was whether using an unfamiliar name along with a disclosure to specify the true nature of the relationship between the affiliate and the parent company reduced consumer confusion. That group looked at an ad for Horizon Energy and an ad for another fictitious company called Ultima Energy, stating at the bottom of the ad it was an affiliate of the parent company. In that exercise about 42 percent of the respondents chose Ultima Energy while 38 percent chose Horizon, suggesting the affiliate was not chosen as often as in other groups. When questioned more directly only 3 percent of the respondents believed Ultima was their current electricity provider indicating there was no consumer confusion when the names were unfamiliar.

The final issue was the ability of the disclosure to communicate effectively with consumers to test the potential of the disclosure. Once respondents saw the disclosure more carefully the ad was removed from view and they were asked if the disclosure communicated to them had been understood. The conclusion after careful scrutiny was the affiliate was not the same as the parent company.

Mr. Humke questioned the size of the interview group. Mr. Hastak replied there were 199 total respondents, divided into 3 groups with approximately 66 respondents in each group. Mr. Humke asked in which suburb of Las Vegas the survey was conducted. Mr. Hastak responded it was held in Henderson.

Mr. Humke wondered who had been used as surveyors. Mr. Hastak stated he had contracted with a professional research company, Cunningham Research. The company had professional interviewers and an onsite supervisor overseeing the studies.

Mr. Humke asked if it was a mall research firm. Mr. Hastak replied it was a data collection facility placed in a mall, usually in a storefront or a suite of offices in one of the mall annexes. The interviewers would have permission to recruit individuals with a few simple questions who were then taken to the research facility in the mall to administer the survey and a variety of market research studies.

Mr. Humke wondered what the general wage was. Mr. Hastak responded he was not aware of the exact figure but imagined it was not very high.

Mrs. Freeman queried if there was an age restriction. Mr. Hastak said he created two age quotas one up to 39 years and the second from 40 to 64 and used approximately the same number of respondents in both age groups.

Mrs. Freeman wondered why no one was recruited over the age of 64 due to the large number of senior citizens residing within the state. Mr. Hastak said it was a judgement call. He intended to restrict participating respondents to 65 and under, simply because older respondents might have problems with some of the material.

Mrs. Freeman pointed out there were several legislators on the Committee on Government Affairs who were over the age of 64, who were expected to make important decisions and found it very offensive to indicate people over the age of 64 were easily confused. She found it to be a stereotype and resented the implication. Mr. Hastak apologized, as he had not meant to offend anyone.

Ms. Berman questioned if during the study the person being interviewed was asked they paid the bills. Mr. Hastak replied the respondents were asked if they were residents of the county and either the primary bill payer or responsible for the payment of electric bill.

Ms. Berman queried if there was an actual question saying "do you pay the bills, or does your husband pay the bills." Mr. Hastak thought the question was "are you involved in or responsible for paying the electric bills in your house?"

Ms. Berman pointed out involved could be the person bringing home the check and placing it in the bank. She felt the question was not specific enough as the person who actually wrote the check would be the one to know what company was paid. Mr. Hastak stated the intent was to capture the primary bill payer, but many times people took turns paying bills and he did not want to exclude someone who may not be the only person paying the bills.

Ms. Berman asked how long the interview was. Mr. Hastak responded it lasted approximately 10 minutes.

Ms. Von Tobel said she was curious, as it seemed consumers were able to make decisions, and knowledgeable decisions were the most important aspect. Whether one or another logo was examined, it was the consumers responsibility to choose who would be their provider. She felt the study tried to make the consumer appear as if they could not make an informed choice.

Dr. Hastak responded consumers should be given a choice, but there had been a lot of evidence built up over time suggesting there was potential for deception. He believed consumers could behave responsibly and the study was not conducted to prove consumers were dumb. However, there were situations where consumers could be fooled or misinterpret information because certain information was withheld or the information presented led them in only one direction.

Mr. Hilke interjected, when the Federal Trade Commission looked at consumer protection issues deception was definable in several different ways. In general, the FTC tried to assess through empirical work what proportion of consumers may be fooled by a particular presentation. As their work went forward it was narrowly defined and indicated if even a relative small portion of consumers got the wrong impression having a material affect on their welfare, that ad was deceptive.

Commissioner Sheldrew introduced Dr. Kenneth Rose who was with the National Regulatory Research Institute and was active in the issues of market power particularly in the state of Ohio, who were contemplating working on an auction for non-choosing customers. Bob Lane a Senior Policy Analyst with the Division of Strategic Planning with the California Public Utilities Commission would address some of the successes in attempting to meet or bring about competition to retail customers.

Mrs. Freeman asked if the survey was funded from NPUC funds by the fee on the utilities. She wanted assurance funding did not come out of the state general fund. Ms. Sheldrew responded a contract was negotiated with Dr. Hastak to conduct the study and was funded by the NPUC. Mrs. Freeman questioned what the study cost. Ms. Sheldrew believed the contract was for $15,000. Mrs. Freeman wondered if that was an average cost.

Ms. Sheldrew said it was the first time her agency had done such a survey. Information presented by the Federal Trade Commission who suggested perhaps empirical evidence would be a good way to figure out it there was some degree of consumer confusion. The NPUC then went forward to try to find marketing expertise and was how Dr. Hastak came to conduct the study. She added she felt it was money very well spent, and it clarified what the options were and what decisions were appropriate in order to bring about a competitive market place.

Mrs. Freeman queried if the NPUC was under the purview of the Attorney General’s Office, or was it under the governor. Ms. Sheldrew replied the governor appointed the three commissioners.

Dr. Kenneth Rose testified he was with the National Regulatory Institute located at the Ohio State University at Columbus, Ohio, and had worked closely with legislators in that state in attempting to pass a restructuring electric industry legislation for the past 2 years. The biggest issue was stranded costs, which was anywhere from a $6 billion to a $16 billion problem. Another issue was "market power" and how to limit it while introducing competition into the state. The utilities had a monopoly in Ohio for close to 80 years, so they were against anything that limited their market power.

Dr. Rose wanted to focus on one issue, which was what to do with customers who did not choose a provider. There seemed to be very low responses initially to switching even though other providers were offering service at a lower cost. The problem was very perplexing for economists in particular because it was assumed consumers would try to save money and would choose the lower rate when the services were exactly the same (Exhibit D). There were three basic choices for the non-choosing customers. If the customer did nothing he would default automatically to service from the former incumbent monopolist, be randomly assigned to other providers, or a competitive auction could be conducted. To economists market power was a problem because of its anti-competitive effects. If a supplier was able to raise and maintain the price above the competitive level for a short time there was no problem, but if it was sustained then intervention might be necessary. An example of market power that was different was vertical market power, which was the ability of a supplier to use their control over the wires to limit access to others in the market and limiting access to customers in particular. The independent system operators or regional transmission operators (ISO) were basically designed to get around the problem at the transmission level, allowing other suppliers to use the lines in a way to give access to those customers.

Dr. Rose went on to say he wanted to talk about the incumbent market power. He pointed out in Graph 1 of Exhibit D even with no discount there would be some switching of customers due to dissatisfaction with their company even if switching cost more. As indicated on the graph 20 percent of the customers would switch with a 10 percent discount, so even though someone offered the exact same service at a saving of 10 percent, 80 percent would stay with the incumbent. So if the incumbent charged a price 10 percent higher to retain 80 percent of the customers, that was "market power." One thing learned over time from telephone long distant competition, customers got used to switching. The last 15 years were examined as long distance providers began offering other services besides simply long distance service. AT&T’s long distance market did not fall below 50 percent until 1998 and in looking at electric and gas programs in other areas the results were similar even with sizable discounts, customers simply chose not to make a choice.

Dr. Rose added one of the most successful programs in the country was the gas choice program in Ohio. If a consumer did not choose, the customer stayed with Columbia gas, who had an affiliate company into which move those customers. Switching started in the fall of 1998 and 30 percent of the original customers switched; however, that meant 70 percent still had not chosen anyone even though there were around 15 different suppliers and a fairly sizeable amount of money could be saved by the consumer if they did switch.

He pointed out in 1986 the FCC decided it was unfair to allow AT&T to have all the customers that did not choose, and it was determined customers would be randomly assigned based on the proportions of those customers who did choose. Customers were told if they did not choose, they might end up with a provider they did not want and that prompted many people to switch. The legislature set up an auction system, which began immediately and ran for a 5 -year period. He stated the detailed program on the auction program was in the handout (Exhibit E) "Public Utilities Fortnightly." Presently there was an attempt by a legislative working group in Ohio to come up with a new auction proposal for energy. It would be run slightly differently with the auction starting only after each utility had finished receiving their stranded costs through a competitive transition charge, so customers would no longer be geographically identified only by load within the old existing utility service territory.

Mr. Humke asked why he was talking about Ohio, and asked him to explain the commonality between Nevada and Ohio. Dr. Rose responded all of the states were facing similar issues and his survey involved customers in California. There were basically four states presently having electric choice for customers, California, Massachusetts, Rhode Island, and Pennsylvania. The economic incentive for residential customers was very low, the highest rate of response was Pennsylvania, and even then response rates were only in the teens.

Mr. Humke asked if the four states were serving as laboratories where true choice was available. Dr. Rose commented there was more to it than that, as many states were addressing the gas issue. Mr. Humke stated Dr. Rose seemed to be in Nevada to sell the auction concept to the legislature simply because it was done in Ohio. Dr. Rose responded he was merely presenting what the facts and issues had been in Ohio, and he was not trying to sell anything.

Mr. Humke inquired what the population of Ohio was. Dr. Rose responded there were 10 or 11 million. Mr. Humke asked if the population was fairly well distributed throughout the state. Dr. Rose remarked Ohio was fairly urban, as there was Cleveland, Columbus, and the Cincinnati areas and the rest, particularly the southeast, were rural. Mr. Humke questioned how many electric utilities provided service. Dr. Rose responded there were eight investor owned companies, numerous rural electric cooperatives, and a few municipal companies.

Mr. Humke queried if those were formerly regulated utilities. Dr. Rose said the eight investor owned were still regulated. Mr. Humke then asked about the average price per kilowatt-hour. Dr. Rose replied that was part of the problem because it varied considerably. In the south the price was below the national average running 6 to 7 cents per kilowatt hour in the north it was as high as 12 cents a kilowatt hour. He went on to explain there were three operating companies which were first energy corporations, Toledo Edison, Cleveland Electric Illuminating, and Ohio Edison who owned a substantial number of nuclear power plants.

Dr. Rose added most states prior to restructuring were regulated in similar ways: rate base, rate of return, and regulation where procedures for determining the rates were similar. In a historical sense all the states were similar to Ohio looking at what other states were doing, including Nevada. Nevada already passed restructuring so that was being examined along with California, Pennsylvania and the New England states to evaluate the best way to proceed.

Mr. Humke wanted to stipulate he was not an expert in electrical rate restructuring, but if an expert came to testify he hoped the information provided would be objective as he wished to be educated, not sold something.

Mr. Lee felt retail marketing areas were geographically set and could not see where Nevada paralleled Ohio at all. If a user lived in Las Vegas or the Reno area, as they were more or less isolated as a person had to travel quite a distance to get from one town to another he did not think the auction process would work. Dr. Rose said he had testified before the Public Utilities Commission in Carson City and the original proposal by the commission was to have an auction based on a percentage of the load. When he returned to Ohio, he felt enacting a program by load percentile made more sense than a geographic plan and that was what was being proposed. Ohio also had concentrated urban areas with rural population spread throughout the state.

Ms. Von Tobel believed as an economist he must believe in free market enterprise, but what she kept hearing was a manipulation of the market. In a free market there was a business cycle where supply and demand took over and asked where the consumer stood when the market was basically being manipulated. Dr. Rose stated one had to consider where the starting point was, which was a monopolistic. The principal was to introduce competition, but how the industry was restructured would have ramifications on how well competition developed. He felt intervention was justified in the case of the non-choosing customer and would help in developing a competitive market.

Ms. Von Tobel asserted many states chose to do nothing, indicating to her those states were allowing the free market to operate and eventually the market would work itself out. Dr. Rose replied he did not feel the problems were recognized by the states early on and some states were beginning to recognize problems such as Georgia where that state was doing an FCC style allocation and it was becoming apparent something more needed to be done.

Bob Lane, Senior Policy Analyst at the California Public Utilities Commission testified he was appointed by the governor and served from 1993 until 1998 as an advisor to the commission. When his term ended he was kept on as staff. He pointed out the views he was expressing were his and not those of the commission or any commissioner, but he would be telling the Committee on Government Affairs the same sort of thing he advised the commission. He started in December of 1992 addressing "retail wheeling" issues the term used in California for retail competition. He had overseen implementation of direct access, which gave ability to individual consumers to directly contract with an energy service provider. He had also been involved with development of a competitive metering service within the state, as well as the consumer education program, so they were aware an alternative electric provider could be chosen.

Mr. Lane added specifics of energy programs varied greatly by state, but what California had done was in response to specific state concerns. New Mexico was the first state to have proposed legislation, and was what California modeled its UDC (Utility Distribution Company) after in providing bundled default service. If someone did not choose an alternate provider they were left with their current utility which the UDC required to provide the energy for the default service from what was referred to as the "power exchange." It was a state created, but privately run corporation, which ran a trading mechanism where the utility bought at the clearinghouse price. The rates for the default service were frozen at the June 1996 level as required by legislation. Mr. Lane pointed out there was no unbundling of retail costs and the utility operated as one unit just as it had before deregulation as far as the default customer was concerned. Metering and billing aspects were unbundled, with only large customers being first addressed and then beginning January 1, 1999, it was expanded to smaller customers.

He added there were two markets, a wholesale market where buyers and resellers joined together, and there was also retail competition which encompassed selling directly to end users generally thought of as being small users. In California he felt there was success in reforming the wholesale market. At the retail level success was mixed and was not what California had anticipated, not what the utilities had feared, nor the kind of success for which customers had hoped. There was a direct access market where customers were choosing from someone other than their utility. Companies had come into the state and tried to switch people without their permission but consumer protection rules were sufficient to take those companies to court and had received restitution for the consumers.

Mr. Lane said although only about 1 percent of residential users had switched 18.6 percent of business services switched and they were the largest users representing over one-quarter of the electricity load. Nearly all of the customers who had switched went to a renewable based product, meaning they were choosing not based on price but on cleaner sources of fuel. California had a lot of renewable resources such as geothermal, wind, and biomass resources. Also there was a subsidy for renewable providers enabling that market to become viable.

One problem was with "the provider of last resort" price, which was the same as wholesale price where the provider received a credit for the wholesale energy, which explained why the large consumer was paying more. So any new provider had to not only beat the energy price but make enough money to recoup their cost of retailing plus enough profit to stay in business. It worked well in the large market because of the low cost of retailing, but as you moved down to the smaller users the margin of income also became smaller. Another area of concern was the load usage many business such as malls and hotels had as they were open when their customers were on site, not allowing a shift in load, to a time when usage was lower and costs were less. In the beginning the state focused on the wholesale customer and only later turned their attention to setting the default rates.

The final outcome should be the complete separation of default service and distribution service, where the utility was only a distribution company and would not be in the retailing business at all. That was the way the interstate natural gas service worked where the pipelines were not included in what was called the "merchant function." They did not buy and sell gas anymore, they just moved it from one area to another and did not offer a default service. He added power was scheduled in and out of Nevada as a result of the interconnection of the two systems so it was essential to create a competitive market place up front which was difficult to accomplish once the market was moving. Rules and pricing of default servicing were key to creating a competitive retail market place.

Mr. Mortenson asked if California would have fared better than Ohio, if instead of having one default provider encompassing an entire group, they had adopted a policy of geographical division and then auctioned off those divisions. Mr. Lane replied it was difficult to say which was best, but he believed there would have been more fluidity in the market. The balloting mechanism in California had been successful because all the utilities divested most of their generation facilities and all of their fossil fueled plants, creating a robust competitive market in the generation and wholesale markets. A survey was done among consumers as to why they did not choose or did not think they had a choice. The most common answer was they did not know anyone who chose nor were they comfortable with any of the companies offering service.

Mr. Lee stated Nevada had not decided whether to contract with an Independent Service Organization (ISO) or Independent Service Administrator (ISA), and asked if the ISO in California was a nonprofit organization. Mr. Lane replied it was a nonprofit corporation.

Mr. Lee said he was somewhat confused because it sounded like everything was being done to deregulate the industry but at the same time limited opportunities for cost savings. Mr. Lane responded the method of setting the Competitive Transmission Charge (CTC) limited the ability for consumers to realize savings. It had to do with having a CTC that varied and was an inverse proportion to the energy rate, so when the energy rate was very high the CTC was low and when the energy rate was low the CTC rate got higher. In periods when there were high costs a competitor might be able to undercut the cost, but it was hidden from consumers because the CTC was reduced which meant the provider would not know the final cost of delivery.

Mr. Humke commented Mr. Lane had indicated he worked for the California PUC, but was speaking on his own behalf rather than the commission, and asked if he was on leave status. Mr. Lane replied no. There was no formal commission decision on his viewpoints, but his opening remarks were a standard disclaimer used when he was not testifying for the commission. He added he had testified many times in the past, and was only appearing to offer some expertise, as he had been involved in restructuring for several years.

Mr. Humke was trying to determine if he was "on the clock" with the California PUC, on loan to Nevada PUC, or what his role was at the meeting. Mr. Lane responded he worked in strategic planning and came to Nevada as an interagency courtesy. The PUCs cooperated through various organizations and other states sent people to California when it was at the hearing stage, and they had found the information very helpful.

Mr. Humke asked if he considered part of his job in California as lobbying the legislature. Mr. Lane said he had lobbied in the past but not on his current job. Mr. Humke questioned what his job description was. Mr. Lane responded he worked in the Division of Strategic Planning reporting directly to the five commissioners and the division director in providing candid advice about various issues. He currently worked on electric restructuring issues and local telecommunications issues.

As there was no further information Chairman Bache thanked them and stated even though the presentation lasted longer than anticipated, the four bills on the agenda would be handled as there was no floor session. He added he had three bill (BDR) introductions.

• BDR S-1547 – Revises provisions of North Las Vegas City Charter regarding election of city councilmen (A.B. 590).

• BDR 20-1554 – Increases annual salaries of certain elected county officers (A.B. 589).

John Bonaventura, representing the Nevada Well Owners Association introduced Ray Preston, President of the Nevada Well Owners Association and Hal Lipman one of the members. He stated A.B. 408 was requested to bring language into compliance with Nevada Revised Statute (NRS), chapter 534. He read what he believed was the intent of the legislature (Exhibit F). The requested change was inserting "for just cause" on line 18 in section 1 and changing "any purpose" to "just cause" on page 2, line 3. It would clarify the intent of the legislature in requiring the state engineer to show just cause rather than having unlimited power. He would like to have the bill passed as soon as possible.

Hal Lipman, a retiree and a member of the Well Owners Association stated he had several acres in southern Nevada with animals and a domestic well. He felt the guidelines proposed in the bill would clearly define what the rules were for the state engineer and the well owners, so they were both in compliance with what the legislature intended.

Ray Preston, President, Nevada Well Owners Association, said the association was restarted approximately 6 weeks ago with 15 people and presently membership was at 550 and growing. It was originally formed in 1982 and was active for some time but then went by the wayside. His group also represented the Northwest Citizens Association with a membership of over 400 families, and members of the Nevada Horse Council were also joining the association. He added he had lived in Las Vegas for 42 years and presently lived on a quasi-municipal well having a revocable permit and targeted at some point to be shut down. The cost of hooking up to the water source would cost approximately $20,000. He pointed out Southern Nevada Water District figures indicated well owners used approximately 6 percent of total water usage from the aquifer in Clark County. He had attended a number of meetings with the state engineer, water authority, and Clark County Commissioners and felt there had been very little consideration given to the well owners. If the bill passed he felt it would force the state engineer to have a "just cause" in shutting down the wells rather than arbitrarily doing it.

Mr. Lee questioned if it was a prevention bill, as he did not understand why the bill was needed. Mr. Bonaventura interjected the basic intent of the bill was to bring section 534.020 into compliance with the intent of chapter 534. The intention of the entire chapter addressed waste, pollution, and contamination. Section 534.020 was not in compliance with legislative intent, when wording such as "for any purpose" indicated the state engineer had unlimited power, and he felt that was not what the chapter intended in the first place.

Mr. Lee still did not understand if it was a preventative measure or if there was some type of action bringing about concern of the well owners. Mr. Preston replied he sat in meetings with the state engineer approximately a year ago, and the state engineer stated he could shut a well down whenever he pleased, because hooking up to city water was available. In looking at statute it did not give the well owner any recourse, and he felt that was unfair.

Mr. Bonaventura interjected the state engineer of course would be against the bill because it would limit his power. He felt there was no other position in statute which had unlimited power, and in researching the statutes he was unable to find any other language stating something could be shut down "for any purpose." In its present form the law was left completely to the discretion of one person.

Mr. Lipman added he felt it would make the job easier for the state engineer if the guidelines were spelled out in order for him to base his judgements and would be much like having a drivers license where the rules were laid out.

Mr. Mortenson remarked he agreed with the intent but he had a feeling that changing the wording to "just cause" was not going to help much because there would be just cause for anything he was pressured into doing.

Ms. Von Tobel stated she was happy Mr. Lipman and Mr. Preston were able to come and testify on behalf of hundreds of well owners as the majority of them were in her district. She knew a great deal of capital was invested in their properties and they were now faced with the possibility of not being able to use their wells. There would also be a tremendous outlay of funds in converting to the water system and felt the language would assist any well owner who went to court. Under current law a judge could simply state he was sorry about excess fees but "for any purpose" gave the state engineer that prerogative.

Mr. Bonaventura pointed out in every case so far when a case went to court the well owner lost because of the wording in the statute.

Ms. Von Tobel questioned if the change would give them sufficient recourse. Mr. Bonaventura responded it would at least give a judge the chance to hear the argument.

Senator John Porter representing 8,000 square miles in Clark County testified there were large numbers of well owners who were impacted by the water situation in southern Nevada. Individuals had sizeable investments in their wells and the issue of taking those wells without just cause by members of the state or water authority seemed unreasonable. He had received over 300 letters in just the past 3 weeks and there was a perception the state was trying to take their water rights away. He added he and Ms. Von Tobel had been working closely with the Well Owners Association and were trying to find solutions because of concerns such as the ability of owners to deepen existing wells or redrill them. The largest concern was the declining water table in the Clark County basin and negotiations were ongoing with the water district. He felt there would be some solutions forthcoming, but the bill addressed the issue of having specific language in statute giving well owners some protection.

Mr. Mortenson disclosed he had two homes in southern Nevada one of which was on a well and understood the concerns.

Mr. Neighbors questioned if there were examples of problems with the state water engineer. Senator Porter said although he had many letters he had not had time to read them all for specifics and would defer to Mr. Preston.

Mr. Preston said there was one incident with a resident located just east of Highway 95 off Anne Road. There were eight people on one well and it was pumping sand, the state engineer denied their application to go deeper as there was water available on the street. The quote given the homeowner for hookup was $13,500, taking the pipe just to the water meter. From that point the pipe would have to go under driveways and around to the back of the house for connection into the house at an unknown cost. There would also be additional costs for capping the well, which ran between $5,000 and $7,000. He added that case was still pending in the courts.

Julie Wilcox, Director of Management Services, Southern Nevada Water Authority, Las Vegas Valley Water District stated the water authority had no problem with the bill and understood the concerns of the well owners as the district had been working with well owners for many years to find solutions. She pointed out Mark James started the well owner’s organization and Senator Porter created the citizens advisory committee and both started addressing the issues. She added there was another bill currently being drafted, dealing with some solutions, including language suggested by the well owners.

R. Michael Turnipseed, Nevada State Engineer wanted to give some history of how the revocable permit program came about. In 1941 the state engineer realized the basin had the potential of being over-pumped as Las Vegas Springs was declining because of artesian wells being drilled due to rapid growth in the valley. In 1955 the legislature added the provisions allowing the state engineer to issue temporary permits, revocable when service became available through the Las Vegas Valley Water District or other purveyors in the valley. A number of revocable permits were granted between 1950 and 1971, and outside the service area up until 1992. When the southern Nevada water system was built 1971 and Colorado River water came into the valley the revocation program was started.

He pointed out since that time about 20,000 acre feet of water rights were revoked. One of the largest revocations was in the Curtis Park area where about 300 homes were on a revocable permit and the supreme court ruled temporary permits for ground water appropriation were not entitled to equitable relief against the state engineer. They also ruled the state engineer did not abuse his discretion in revoking the temporary permits to appropriate ground water. Had it been known in 1955 there would be attempts to make the temporary permits permanent they would never have been approved in the first place.

Mr. Turnipseed felt the proponents of the bill were misinterpreting the language "for any purpose" in denying applications for ground water. It meant for any use whether industrial, culinary, stock water, or commercial purposes, if it was in a municipality where water was available. He thought in removing that language a disgruntled citizen could file an application to appropriate water and the state engineer could only deny it for "just cause" and completely disengage the municipality from serving that property. There still was the problem of twice as much water being pumped out of the ground as being replenished. There was close to 70,000 acre feet pumped out in 1998 and depending on which figures were accurate only 25,000 to 35,000 acre feet being replenished. Consequently the water level was declining. He indicated, in the northwest area (Exhibit G) monitor wells were shown in determining depletion and artificial recharge. The second page of the handout indicated declining water tables since 1941. The last page showed the decline was at a maximum of 20 feet and related all figures were based on yearly average. The criteria for approval or denial was in NRS 533.370, and he did not see what was being accomplished with the suggested language suggested in the bill.

He explained when a revocable permit was issued, an affidavit was sent to the property owner to fill out and return before a permit was issued. It assured the applicant understood the permit was only temporary and subject to revocation upon available service from one of the municipalities or Las Vegas Valley Water District and felt the well owners had to know from the beginning it was only a temporary permit. The whole purpose of managing the ground water was to decrease usage and force new developments to use Colorado River water. After the permit was issued, tracking took place to see where water became available and when the waterline ran in front of the property a notice of intent to revoke was issued. The homeowner then had the opportunity for a hearing and if there was just cause to why they could not hookup then they were not required to do so. He added old criteria stated if the waterline was within 600 feet of the property, a notice was sent to the homeowner. Currently, if a freeway were located between the property and the water line the permit would not be revoked.

Mr. Lee stated owning a well was not a crime and it always seemed well owners were viewed as criminals. He had a piece of property that had 1/64 share of a well that no longer existed. However, he had just built a home and drilled a well on another piece of property and was never told the permit was revocable. He added Curtis Park was in his assembly district and he knew a lot of people were not happy with being forced to hookup. He had put a fire hydrant on his property and a lot of money into the property, which he would never have done if he had known the permit was revocable. Last year when the ground water plan came up, a $10 assessment fee on well owners was discussed with no real opposition. He observed most homeowners would not object to paying a few dollars to help pay for the injection to keep the aquifer stable. He did not feel Mr. Turnipseed had made any valid objection to the bill. He did not see what people were doing hurt the water system and if they were willing to pay the money to drop their wells, they should have that opportunity.

Mr. Turnipseed agreed there was no crime in having a well. In fact if the basin had been shut down in 1955 with no new permits issued, it would have left Las Vegas with a significantly lower population growth rate. There was no question temporary wells drove the economy between 1955 and 1998, the fact remained, twice as much water was being pumped out as being replenished. He was sympathetic with the owners and the high hookup fee, but felt concerns would be addressed when another bill, A.B. 347, was looked at. There were panic situations when a shower was turned on and nothing came out and if twice as much water continued to be pumped out of the basin as was being replenished, it was a race to bedrock with all wells eventually going dry.

Mr. Lee questioned if water banking as done in Arizona was considered, because surely something could be done to protect residents. Mr. Turnipseed referred to language in A.B. 347, which was the ground water management district bill. He believed it stated there would be a charge of $27 per acre foot per year or $27 per year, for domestic wells. $17 of which would pay to pump, treat, and transport water, that way the well owners were buying into the longevity of their well. He added Senator Porter had asked him to consider not revoking temporary permits until the wells actually failed, and that was being considered. It made sense to bank water because, neither Nevada or Arizona were using all of the water allocated to them from the Colorado River.

Mrs. Segerblom had a problem with the cost of going onto a water system and asked if she had understood correctly there would be a bill to help pay that cost. Mr. Turnipseed replied there was a bill being submitted by the Ground Water Management District allowing the user to amortize the cost of hooking up over a few year period.

Mrs. Segerblom questioned if it was $35,000 to hookup to the water district. Mr. Turnipseed responded the $13,000 mentioned earlier was the approximate cost to hook up per household. Mrs. Segerblom understood a lot of artificial recharging was being done. Mr. Turnipseed replied the Southern Nevada Water Authority oversaw that program and had returned about 140,000 acre feet into the ground.

Mr. Mortenson stated there were some very large pumps removing water from the ground supplying the northwest area and questioned how many acre feet were being extracted per year. Mr. Turnipseed responded he had the numbers for wells number 74, 75, 91, 98, and 112. Wells 74 and 75 were just west of I-95 and north of Ann Road, last year they pumped out 443 million gallons while recharging 266 acre feet.

Mr. Mortenson felt the declining level was not due to the little wells pumping about 5,000 acre feet but to the Southern Nevada Water Authority who was pumping out enormous quantities out. Mr. Turnipseed said even though the amount pumped was only about 3 percent, when combined with the total of all the domestic wells and revocable permits in the northwest that added up to much more than the Las Vegas Valley Water District.

Mr. Mortenson asked if those figures took into consideration the recharge factor. Mr. Turnipseed replied the revocable permits were scattered all over the valley and not just confined to the northwest. Mr. Mortenson asked if he was saying the mom and pop wells in the valley were pulling more water out of the ground than the Southern Nevada Water Authority. Mr. Turnipseed thought that was the case.

Ms. Von Tobel indicated Mr. Turnipseed had previously stated the policy was being changed and he was no longer demanding well users abandoned their wells because he knew the price to convert was so high. To her it sounded like he was holding out for the bill from the water district rather than working with the well owners. She was concerned because he was also saying the language "for just cause" would not do any good therefore the bill should be "indefinitely postponed" which everyone knew meant, "kill the bill." She questioned if the bill would not affect his office and was why he opposed to the bill. Mr. Turnipseed said it would cause substantially more litigation for his office. If the language as proposed passed it would mean a well could be drilled anywhere, even in the middle of Carson City or Reno. He pointed out the issue had already been before the Supreme Court and it was determined there was already "just cause" in Las Vegas, due to the fact permits were issued temporarily to begin with.

Ms. Von Tobel asked if the well owners had the language "just cause," was he saying it would give the well owners more rights in court. Mr. Turnipseed said if it could be proven the well owner had more "just cause" than the state engineer, certainly it would be ruled in the well owners’ favor.

Ms. Von Tobel said she just felt the language needed to be in law to protect the well owners and did not feel Mr. Turnipseed had made a viable case against the bill.

Mr. Turnipseed stated if the bill was going to pass, he requested the language for "any purpose" be left in, because that meant any use. Ms. Von Tobel asked the language could be changed "to read for any purpose or just cause." Mr. Turnipseed replied that would be fine.

Chairman Bache wanted to clarify a point as he felt the state engineer’s problem was with subsection (b), and asked if the wording "any use" would be better than "any purpose." Mr. Turnipseed replied that would be fine. Chairman Bache pointed out subsection (b) addressed new applicants, as opposed to current well owners, because Las Vegas was already over-appropriated and any new permits would be denied. He questioned if it were changed would it affect rural Nevada. Mr. Turnipseed said the change would remove his ability to deny applications to appropriate ground water within the municipality.

Mr. Thomas pointed out in section 3, subsection (d), it made a lot more sense to put in "Deny with just cause applications to appropriate ground water for any purpose or use." He added if anyone was confused on water usage 1 family of 4 used 1 acre foot of water per year, and there were 5,000 wells permitted in Las Vegas valley.

Mr. Mortenson asked if he understood correctly Mr. Turnipseed stated 5,700 acre feet amounted to 20 percent of the water pumped. Mr. Turnipseed replied no, if all the revocable permits pumped to their maximum of 14,500 acre feet it would be approximately 20 percent of total pumpage. Mr. Mortenson said then it was roughly only 7 or 8 percent, and was totally confused as to who pumped the other 92 percent out of the valley. Mr. Turnipseed replied about 43,000 acre feet of water was pumped by the Las Vegas Valley Water District and Southern Nevada Water Authority. There was additional pumping by the air force, North Las Vegas and from permits issued prior to the revocation program. What used to be the Dunes and now the Bellagio, had permanent water rights as did anything built beyond the district service lines between 1955 and 1971.

Mr. Mortenson questioned if the water rights of the Bellagio and Mirage would be revoked. Mr. Turnipseed replied those were not revocable. Mr. Mortenson pointed out the mom and pop operation had revocable permits even though they used only 8 percent of the water and felt it was not an equitable situation.

Chairman Bache closed the hearing as there was no additional testimony and proceeded through the bills.

Dale Erquiaga, stated he was the acting director of the Department of Museums, Library, and Arts.

Chairman Bache interrupted to state as they were down to seven members they would operate temporarily as a subcommittee of Assembly Committee on Government Affairs.

Mr. Erquiaga went on to say before testifying he would like to introduce Peter Bandurraga, who was the acting administrator for the Division of Museums and History within the department who would address the bill and then would have some closing remarks.

Peter Bandurraga stated he was also the Director of the Nevada Historical Society. NRS 381 and 382 were the sections covering their particular division. The changes being requested were technical changes dealing with the directors of five of the six museums in the department. In the case of Director of the Nevada Historical Society and the Director of the Nevada State Museum and Historical Society, the positions were changed in the last legislature from unclassified to classified positions. Three other positions were being requested as title changes from curator to director at the Lost City Museum, Railroad Museum, and the Nevada State Museum as they had become stand-alone institutions, justifying director as the chief officer. Curator was a technical term implying someone taking care of a collection while director implied a person taking care of the institution. The only other requested changes were setting rates for train rides and commercial use of trains at the Nevada Railroad Museum and allowing investment in the Board of Museums and History. It was both an advisory board but also had fiduciary responsibility for private funds. The board currently had authority to set rates for admission to the museums and wanted the same responsibility for train rides.

Chairman Bache interjected there was now a quorum, so they would be operating as the Assembly Committee of Government Affairs.

Ms. Segerblom questioned why the appointment of the director was being changed to the administrator rather than the governor. Mr. Bandurraga stated that was changed during reorganization in other language, so the requested change was to make it consistent. He pointed out as there were several divisions within the department, it was appropriate to have the administrator of the department appoint those division heads.

Denice Miller, Senior Policy Advisor, Office of the Governor, testified there was an amendment proposed to the bill as shown in (Exhibit H). The issue she wished to address was the qualification in NRS 378.0086 for the director. She pointed out Mr. Erquiaga, the acting director, had been chief deputy for the secretary of state, and most recently the director of marketing and community relations at the Hughes Corporation. He was also Deputy of Elections for some time, worked as a speechwriter for Governor Reagan, and director of the Red Cross in Nevada, but one thing he did not have was an advanced degree. The request being made was to make the director of the Department of Museums consistent with requirements in statutes with other department heads. Currently only one other department head was required to have an advanced degree and that was the Director of the Department of Transportation, who was required to be a professional engineer. The proposed language in the amendment was similar to that used for the directors of the Department of Business and Industry, Human Resources and a compilation of other departments. She requested the bill with the amendment be passed so Mr. Erquiaga could be appointed the director rather than an acting director.

Ms. Segerblom said she would like to see Mr. Erquiaga in the position but hesitated to see it changed in eliminating an advanced degree.

Ms. Miller stated when reorganization was completed there should have been an administrator to keep consistent with other department heads. Because many positions within the department required advanced degrees due to the technicality of those duties, the Governor’s Office, felt with the growth of the department, the position needed to be administrative rather than technical.

Rene Ashleman, II, stated he was Chairman of the Museum Board and the Cultural Commission, both advisory bodies to the various divisions in the department involved in the bill. He felt there were approximately 25 different disciplines within the department so technical expertise was not required of the administrator. Each area had its scientific and cultural background employees, and it would require the administrator to possess 25 advanced degrees. What the position required was someone who had the skill to run the administration, such as a president of a large company, rather than the technical knowledge of running a museum or library. From the board’s viewpoint the change was recommended because all of the people in pertinent positions within the department had the expertise needed which was still required by statute.

In response to Ms. Segerblom’s question, Mr. Ashleman remarked requirements for the heads of the departments had not been changed.

Ms. Tiffany said she was not concerned with the advanced degree issue. She indicated in the Department of Data Processing, which was a cabinet level position, the director’s background was administrative and not technological. She pointed out the position was more about working within government and being politically astute rather than possessing an advanced degree.

Ms. Berman said she was very happy Mr. Erquiaga was going to be the director and as an artistic person she realized many times they were not able to direct or lead.

Ms. Parnell noted a difference between the bill and the proposed amendment in relationship to appointment and also classified versus unclassified positions, and questioned how those issues were to be resolved. Mr. Erquiaga testified the Department of Museums, Library and Arts was created in 1993 by reorganization and was sort of the Yugoslavia of departments. Rather disparate entities, many which had been stand-alone departments directly reporting to the governor, were merged. In the ensuing 6 years a director became the head of the department who was appointed by the governor, and currently it was felt the requirements were too technical. There were four division administrators, the Division of Museum and History, Division of Library and Archives, Division of Historic Preservation, and the Division for the Arts and all had duties which were unrelated. Those administrators were appointed by the director and currently some were classified and some were not. The amendment made all of those positions unclassified and serving at the pleasure of the director who in turn served at the pleasure of the governor. In the past some of the positions below the division level or at agency level were unclassified as well. The request was to make that level classified as they would be highly technical people with statutorily set requirements.

As there was no further discussion, Chairman Bache stated they would address the next bill on the agenda.

Harry Mortenson, Assembly District 42, testified the bill allowed citizens equal time at public hearings and had received a couple of amendments that morning, and one amendment of his own he wished considered. Starting in section 1, subsection 1, "Testimony in favor of" and (adding) "not less than an equal time in opposition to the testimony." There were two reasons, it kept people from having to watch clocks to make time exactly equal. Under the bill it would give the advantage on the opposing side. He stated an official of a county requested the modification, because occasions arose where the original presenter would have 10 minutes of time and 300 people in the audience wanted to testify against it. With the change a county official would have the option of limiting opposition to the same amount of time for all parties. There could be cases where the official wanted to allow a total time frame or all 300 could be allowed to testify. The chairman would still control the meeting but give an equal voice to all the people.

Ms. Parnell asked if there was any concern over subsection 2 with regard to the rebuttal language. It seemed to her, meetings would be easier to control if an hour for each side was specified. When rebuttal language was added one side could keep rebutting one person after the other.

Mr. Mortenson pointed out it did say "to the extent rebuttal time was allowed." If the chairman of the public body decided enough time was spent on the issue and no more rebuttal testimony would be taken, that was his decision. If the chairman allowed one rebuttal he must allow equal time, but he still had total control.

Mr. Humke asked what happened when a person had difficulty deciding if they were for or against a bill and signed in on the line between "testify for" and "testify against" on the sign in sheet. Mr. Mortenson replied he thought there was only a place on the sign in sheets stating for and against.

Chairman Bache pointed out many times people would write across both columns to indicate ambivalence as to their testimony.

Mr. Humke also questioned amendments. As often happened it could be something controversial and the sponsor of the bill added amendments and asked how those would be handled. Mr. Mortenson believed the chairman always had the right to cut off testimony as long as both positive and negative views were heard. If the amendments were on the negative side, when the time limit was reached, testimony could be cut-off and the amendments could be heard at some other time.

Mrs. Freeman thought it was possible to make the point in a resolution rather than putting something in statute. She would like to see some type of wording allowing flexibility and for the chairman to make the ultimate decision.

Chairman Bache stressed his understanding from the committee was they were not opposed to the concept, but there were language problems, and thought a subcommittee would be appropriate. Mr. Mortensen agreed a subcommittee would be appropriate.

Chris Jensen, testified she was representing Nevada Concerned Citizens, and the organization was in full support of A.B. 369. Over the years there were problems with one side receiving more latitude than the other side. She felt with the bill there would be more willingness to work toward an equitable outcome. Also, there needed to be consistent and easily understood guidelines for public hearings so all sides were fairly heard. Sometimes even with philosophical differences a common ground could be found if the different ideas and issues were truly listened to and felt it would generate respect on both and issues were truly heard and felt it would generate respect on both sides with the meeting moving more smoothly. The point was to have open and honest government.

Mrs. Jensen had a few suggestions: 1) Give adequate notice on topics to be voted on so all parties could be prepared. 2) Allow the prime sponsor to testify first followed by the chief spokesperson for the opposition. 3) Rotate testimony between the remaining supporters and opponents, having a 3-to 5-minute time limit for each side. 4) If a large number of people wanted to comment, divide the time so each speaker would have an equal amount of time, so everyone could be heard in the available time. 5) If not everyone could be heard allow those taking time off work or traveling a long distance to testify first. 6) Have questions from the committee limited during testimony or held till the end. And, 7) Ask everyone to avoid name calling, personal insults, or rudeness.

Janine Hansen, State President, Nevada Eagle Forum, stated one area of concern to her was local governments providing equal opportunity to participate in discussions. Several years ago there were several school board strategic planning committees meeting around the state and the way that process had been set up, it was almost impossible for opponents to have an opportunity to express their concerns. In Washoe County on the sex education advisory committee she found very limited time for opposition testimony. One case in Sparks, where testimony was approved in advanced, the chairman became so outraged with the presentation that after 5 minutes he revoked the privilege and because the person would not stop talking threatened to have him arrested. She felt there probably could be some clarification in the language but appreciated what Mr. Mortenson was trying to do.

Lesa Coder, Assistant Director, Clark County’s Department of Comprehensive Planning said she was also wearing a second hat as Zoning Administrator for the county. Their staff provided support to four planning committee meetings and two county commission meetings a month. Whether the bill was passed either by resolution or by statute, they would like to work with the committee or subcommittee in honing the language. One concern not addressed was debate between the commissioners, should they choose to have sidebar conversations or discussions among themselves. She also did not feel a stop watch approach was appropriate. There could be people in the audience needing questions answered or taking a neutral posture, and felt time keeping could be contrary to proposed legislation.

Marvin Leavitt, City of Las Vegas stated in reading the bill there were a number of concerns relating to provisions and how they might be interpreted. If discussions were held with a subcommittee or further discussions with the committee involving language clarification, they too would like to participate.

Ms. Tiffany asked if a resolution was passed would it even be followed. Mr. Leavitt replied it would be the perception by the various individuals who would be conducting the meetings. With growth in communities the meetings were getting longer, some going into very late hours. There were more and more professional testifiers appearing at local level hearings, but there needed to be a workable process giving equal opportunity to all citizens.

Ms. Tiffany said it sounded as if he was saying no one would take a resolution seriously. Mr. Leavitt stressed the subject was taken seriously, but there still needed to be measures in place to control the longevity of the meetings and felt the problem must be addressed either in resolution or statute.

Mr. Mortenson indicated he shared Mr. Leavitt’s concerns and knew there were some problems with the language and would be happy to work with the committee to try and get something in place on which everyone could agree.

Barbara McKenzie representing the city of Reno, said she had talked with Mr. Mortenson about the bill as there was concern it might limit testimony from citizens if they were just limited to a 5 or 10 minute testimony. She too offered to work with the committee on language satisfying everyone’s needs.

As there was no further testimony, Chairman Bache related there were two bill drafts that needed to be introduced before the next bill was taken.

• BDR 31-785 – Authorized temporary advance from state general fund to western interstate commission for higher education’s fund for student loans. (A.B.587)

• BDR 27-431 – Makes various changes to provisions relating to state purchasing. (A.B. 588)

ASSEMBLYMAN LEE SECONDED THE MOTION.

Assemblyman Wendell Williams, Assembly District 6, testified the bill required accountability throughout all the school systems including K through 12 and stated he had handed out a copy of the 1996 Audit Report (Exhibit I) which was very expensive and time consuming. One purpose of the bill was to require an annual audit due to the principal findings as indicated on pages 3 to 5 in the handout. He pointed out one important issue was at the bottom of page 3, "The current organizational control structure results in an inefficient process that failed to effectively control budgets and expenditures." The second issue was "Only four of the seven institutions have developed policies and procedures for budget and expenditure activities. As a result, we noted a number of different accounting practices at the various institutions." He went on to say there were 10 recommendations from the audit division. Four of them were accepted, three were partially accepted, and the other three were totally rejected. It was his recommendation to continue tracking the university as far as expenditures and conducting a performance audit of the University and Community College System of Nevada. It seemed to him the recommendations were practically ignored. He felt there had to be assurance the taxpayers were receiving the best possible service for the taxpayer dollar.

Mr. Williams said the other part of the bill dealt mainly with Clark County because of the population requirement of school districts having more than 150,000 enrolment. He pointed out several bonds had passed dating back to 1994 and no audit was ever conducted on the bond money. He felt there should be some type of accountability for the use of those funds.

Mrs. Freeman questioned if the audit study was the one requested by Speaker Dini and the university was required to pay for it. Mr. Williams replied the audit was done because of legislation passed in 1987.

Mrs. Freeman asked if the funding for the audit came from the state general fund or the university budget. Mr. Williams said his understanding was funding came from the university. He added he would like to see the recommendations in the audit made by the auditor followed, because if the auditor determined the recommendations were in the best interest of the people there was a responsibility to implement those recommendations. He pointed out whether it was university funds or general fund money it was still taxpayer money.

Mr. Lee felt there definitely was a lack of control. Also, when the $500,000 from the Board of Regent’s assets was shifted to University of Nevada, Reno foundation, it seemed to be more of a fraud situation rather than poor accounting practices. Mr. Williams replied the recommendations and findings were done through the audit and deferred to Mr. Crews for an explanation of the audit.

Gary Crews, Legislative Auditor, Legislative Counsel Bureau reported the audit was done after it was requested by Speaker Dini in the 1995 Session. The findings were presented to the legislative commission in December of 1996. The university system did reject a number of recommendations at that time and subsequently the Department of Administration went in and evaluated the extent to which the implementation was made in a 6-month follow-up report. The report then went back to the audit subcommittee of the legislation commission in the summer of 1997. In the follow-up it was found four recommendations had been fully implemented, five were partially implemented and one had not been implemented at that time. When the university appeared before the subcommittee the university indicated it had reversed its position on implementing some of the recommendations and in fact nine were accepted. He pointed out it had not been verified if they were in fact implemented.

Mr. Crews added the audit was an extensive and comprehensive audit. Before engaging in the audit it was thought to be a simple audit, what the auditors found were seven different institutions operating independently from each other. So it was the same as doing seven audits. If the committee wished to follow-up on the audit recommendations it might be a better way of addressing the issue rather than conducting another full audit.

Mr. Mortenson questioned which recommendation was not implemented. Mr. Crews stated it was on page 64, number 8, "Replace the exception reporting process with regular monitoring of budgets at the System Administration level." The idea of the recommendation was to catch problems before they happened, so it was more a proactive rather than reactive approach. The university felt the system they had in place was functioning adequately.

Mr. Mortenson asked if the University Foundation was included in the audit. Mr. Crews responded it was not included.

Thomas Anderes, Vice Chancellor, Finance and Administration, University and Community College System of Nevada stated the university system had no problem with a follow-up. If there were issues and concerns about what the university was doing and whether there was a follow through with the recommendations made in 1996, they would welcome anyone to examine it. With another full audit the biggest problem was again going through 18 months with three to five different auditors looking at a variety of areas which disrupted the system and was extremely expensive.

Jim Richardson, Nevada Faculty Alliance Chapters wanted to go record as applauding the suggestion made by Assemblyman Williams to look at the last audit ensuring implementation had been made, rather than starting a new audit which would be time consuming and expensive. The last audit cost $70,000 and probably a great deal more than that amount in staff time. A.B. 368 had an expenditure of $120,000 from the regents special projects money for the audit, which could be used to do other things. He would like an amendment where a follow-up report could be done and reported back to the legislature on response to the recommendations. He pointed out faculty groups had concerns due to fact a lot of the recommendations moved toward a greater centralization of the system putting additional power in the hands of the chancellor. Their objection was all the institutions were not exactly the same, serving different needs in all areas of the state with diverse programs. He understood the accounting was exactly the same throughout the system, but the institutions were different.

Richard Ziser, representing Nevada Concerned Citizens, said the area of their interest was in construction funds relating primarily to Clark County School District. In 1994 the bond program spent $630 million, in 1996 $605 million, and the new bond program passed in 1998 of $3.5 billion was to be expended in school construction. There were calls to his group and even bond over-sight committees requesting auditing of the bond programs, which had not been forthcoming from the Board of Trustees. He felt it was important to have the board held accountable for the massive funds being spent, especially since a 10 year program had been approved. He stressed in representing the citizens he was strongly in support of the bill.

Ms. Von Tobel stated she was in favor of the bill, due to the arrogance of the university system in only implementing a few procedures until they were in a position where they were forced to do it. In talking about a $120,000 expenditure, she reminded the committee the university simply took $250,000 from vacancy savings and gave that money to positions for merit increases that were not even legislatively approved. They also had higher salaries built into their base budgets, which were not approved by the legislature, so she was not concerned about $120,000 for conducting an audit. The university could say the recommendation had been implemented but until the auditors checked they would not know exactly what had been implemented.

Ms. Tiffany questioned if another audit was necessary, would the legislative auditors conduct it. Mr. Crews replied the way the bill read in section 2, his office would be conducting the audit.

Ms. Tiffany asked if a problem would be created for the office, in fitting an additional audit into their schedule, as she knew they usually set up scheduled audits. Mr. Crews said the present schedule had been submitted to the legislative commission in September 1998 and was approved for a 2-year period. It would require rearranging some priorities; however, a mandate would override any predetermined schedule, and it could be accommodated.

Ms. Tiffany opined if the audit was done as a follow-up, was it a better way than approaching the issues with a new audit. She felt a new audit would give a fresh approach to relevant information. Mr. Crews replied if a follow-up were done to determine the status of the recommendations, a lot of the same auditing procedures would be carried out. Policies and procedures could be developed, but it was unclear to what degree they were implemented and also if the procedures set up were consistently followed. Sometimes responses were questionable from executive branch agencies as far as reliability of the information.

Ms. Tiffany asked if it would be more prudent to do a full-blown audit, which probably would not be as time consuming because of the background information already obtained. Mr. Crews replied if they were looking for assurance the recommendations were implemented the bill could be amended to indicate the audit be conducted in determining the status of the recommendations made in the 1996 audit. It would be done under audit standards and issuance of an audit report as done for other agencies.

Chairman Bache advised Mr. Mortenson he would be appointing a subcommittee on his bill at the meeting on March 17. As there was no further business he adjourned the meeting at 12:40 p.m.

RESPECTFULLY SUBMITTED:

Virginia Letts,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

DATE: