In front of you today is the select committee from the senate to present this to you. We would like to give you, first of all, a brief overview into the thinking of our committee, and then we will walk you through this bill section by section, and certainly be glad to answer any questions.

This bill is the result of the changes in the competitive electric market over the last 20 months since we last met. The stellar work that your committee did on Assembly Bill 366 [of the 69^th Legislative Session] remains to this day a beacon in this country as to how best to transition into a fully competitive market. Using that document, we took testimony hour after hour after hour on some of the things that had changed in the marketplace. More importantly, the document raised the significant concern of every member of the senate committee who has sat for many years on this. There were four of us that have been together for 15 years on that committee.

The one common theme that over which we all expressed our concern was of course, in A.B. 366, the auction and assignment of residential customers. As a result of that, when we walk you through the bill, Senator Carlton will give you what the committee worked on and attempted to use it as our way of addressing that concern for residential customers.

The basic premise of this bill was to look at a couple of key issues. (1) Nevada is a state and has its place in the region, and (2) more importantly, our continued success by having customers at the residential level receive reliable, fairly priced electricity and allowing our economic development and growth efforts with regard to all of our industries to be able to look at other options in a competitive world.

The bill before you represents the efforts of a committee that tried to address key components – I underline that because there are individuals who will come before you who will talk about smaller niche concerns – and I know you will give them the respect you have given us, and their concerns should be heard. Obviously if they are of concern to you, I know you will address them.

Let’s start with the major components of this bill. The first is a simple one and that’s the ability of the [Public Utilities] Commission to use administrative law judges in their proceedings. That came as a result of some of the larger jurisdictions, particularly California, and how best to manage their workload. The three commissioners we are fortunate enough to have at the PUC today are extremely knowledgeable, able, hardworking individuals that do an incredible service for the State of Nevada. However, the workload, whether it’s in a deregulated environment or not, is overwhelming. The provisions that are in the first couple of sections of this bill allow them to use an administrative law judge to deal with the basic necessities of hearings and some of the regulations they may, in fact, want to promulgate. We would like the commission to have that opportunity, because many of the things that would come in contested matters can be easily dealt with in an administrative law manner. It’s proved to be successful in California and other jurisdictions, and we would hope – and we tried this last session – and your committee was extremely able in listening to us – we would hope that we would elevate this commission to a new level of policy intellect and not just get hung up in the constant level of minutia that not only bogs them down but, just as importantly, costs money to our current utilities and the intervenors. We can never forget – and I repeat – never forget that any cost to the utility for an administrative proceeding is borne penny for penny, dollar for dollar, by our ratepayers.

Those [administrative law provisions] run through sections 2 through 10, and with that, section 12, Senator Carlton will give you our thinking and our background on what this section deals with.

Section 13 is that section that deals specifically with the needs of all of our residential constituents. On line 42 of page 5 you will see that it requires " . . . the commission shall, for each class of customers of electric service . . . establish a total rate for electric services that are necessary to provide basic electric service to customers in this state." This section provides for something that is not unique but we think is important in a transition period. That is, residential customers have two things they can count on. One is reliable electric service. Two, is a rate that has been established. That is absolutely crucial to everyone understanding the basis of this bill.

If you will notice with regard to one of the sections of this bill, page 6, that deals specifically with the rates and how they’re pegged, it speaks specifically to clearing the deferred energy account in southern Nevada for Nevada Power. Currently in the north, we have a stipulated rate, deferred energy has been removed, and there is a shared savings above 12 percent authorized rate of return. That has benefited our residential customers in the north and certainly given the utility an opportunity to earn where they have not earned before. This provision, using that concept, allows Nevada Power to clear the deferred energy account and have the rates pegged after that account is cleared October 1, 1999. The effect of the freeze would be until March 1, 2003, and we felt it was important the residential customers be allowed to have certainty during the period of transition and the evolution of a market where we just don’t see it at this time, certainly in the west, and I can speak specifically for California where 1 percent of the market over there has decided to leave and they have not left for price reasons. They have left to buy what is commonly known as "green power." Under this freeze it does not prohibit any residential customer or anyone leaving and getting other types of competitive services, such as generation. They must choose to leave during that period. They will not be auctioned, and they will not be assigned if they choose not to. If they choose to leave they can choose for any reason they want, whether it’s green power, whether it’s a cheaper rate or whatever. We wanted to leave our residential customers in charge of their own destiny, and that’s what this [section] specifically does.

Moving on to the next section of the bill, the repealer that is in section 15 eliminates deferred energy accounting which is a dollar-for-dollar pass-through, regarding purchased power agreements, or additional increases in costs of energy. Section 15.5 does not repeal deferred energy for natural gas.

If you move over to [section] 19, you will find that there is the term "Had an operating revenue of $250 million or more in Nevada." That is designed so we don’t sweep Idaho Power into this competitive environment because they are not based here and former Senator [Ernie] Adler, who represents that group, asked us to make sure that we did not start creeping across state lines with some of the things that we’ve put in this bill.

If you look at section 20, it talks about " . . . upon the date . . ." which we’ll talk about in a minute, that obtaining generation aggregation, metering, billing and other potentially competitive services from an alternative seller, must be no later than March 1, 2000. That date was chosen. The chairman of this committee had a bill that dealt with the potential problems of putting the date off because of the Y2K issue. That, we thought, was an extremely important thing to honor, and we appreciate you bringing it forward, and that put it off until February 1. In discussions with the regulatory entities, they felt they needed another 30 days past that to honor their commitments, at the same time letting the public know that we were going to do the best we could to honor the commitment we made to them with regard to regulation. March 1, 2000, was, in fact, the date chosen.

If you move over to page 12, section 21, this was something that is an important aspect of competitive opportunities for many people. This says, specifically on line 37, "A licensed alternative seller or a vertically integrated utility may negotiate with a customer for the provision of electric service before the date certain [March 1, 2000], but no such contract may become effective [before] March 1." We felt that our incumbent utilities should have an opportunity – and the operative phrase here is the "or" – because there are affiliate rules that are currently being challenged in court. We felt it was an opportunity for our incumbents to go out and speak to their customer base and let them know they were about ready to enter a competitive world and that they would like to provide new incentives for some of their customers to stay. We did not want to preclude that from happening, whether it be a large customer group, an aggregated group, or an individual. We wanted the currently vertically integrated utility to have the opportunity to negotiate contracts with those customers, but they would not become effective until the date certain.

If you’ll move over to section 22, which is page 14 –

In section 23 we attempt to deal with the issue that has been discussed before, and that, in fact, is the auction. We talked specifically about, as you will see on line 32, "The commission shall designate a vertically integrated electric utility, or its successor electric distribution utility," to, in fact, to use a term that is one I find most amusing, the PLR [Provider of Last Resort]. In other words, our residential customers are going to stay exactly where they are. They’re going to get a bill from the same group they currently get a bill from, and it will be a seamless process, unless they choose otherwise. On page 15, line 4, the added language, "Any alternative methods prescribed by the commission [pursuant] to this subsection may not go into effect before July 1, 2001." That is a reference to the auction process. It is crucial to understand that the auction process is one – the chairman of the commission has articulated a very, very solid position with regard to how do we help, as a legislative body, and how does the regulatory environment help create and nurture a competitive market for electrics at the residential level. We think it’s important that the bid process be one that is monitored exclusively by the Public Utilities Commission. In order for anyone to come in here and want to have our customers in 3 years, they are going to have to provide a couple of things. They’re going to have to be able to demonstrate a drop in cost that would motivate someone to be interested in leaving their current utility. But if you’ll notice in the bill, there is one provision that we can never forget. That is the fact that the people that sit behind me, and I only saw the chairman, as well as one other commission member, and I’m not sure if the third commission member is here. These are the people that the governor has appointed and entrusted with the technicalities because of their expertise on a full-time basis. The portions of this bill that deal with this auction lay out those provisions, but more importantly, leave in the hands of the commission, where it belongs, the term "What’s in the best public interest." So no matter what happens in the bid process, the ultimate decision will be made by the commission, because we believe they are the experts who can find out if a bid is legitimate, even though that is an individual who would be licensed under their rules, and if, in fact, at the current time that bid was submitted, was it ultimately in the public interest. I think that’s a crucial portion of this bill.

On page 16 comes something in subsection 3 that occurs nowhere else in this country. It’s something that’s going to be important as we invite people into this state and we ask our local utilities as they evolve into a competitive world, to focus on one thing. Our concern in our committee was one thing. And that was are our residential customers going to get a fair and reliable and equitable rate and service? And in exchange for that, having frozen those rates until – for the next 3 years – what can we do to encourage utilities to evolve into a competitive market? That’s what this language does. For those of you folks that unfortunately would be back here tomorrow morning at 8 o’clock when I’ll be back in front of you on S.B. 440, which is the telecommunications bill, you will see the exact language. This deals with a couple of things. Here in subsection 3, we deal with something that’s absolutely crucial. That is, dealing with the offset of taxes. You’ve heard about the sale of generation. Our two utilities are merging. In their merger document, they talk specifically about the sale of the generation. We wanted to make sure in dealing with the stranded cost issue that Senator Carlton has articulated here today, that the public has an opportunity to see the best offset possible. We talked specifically about, and I quote, "Failure by a utility to minimize, in a reasonable and prudent manner, federal taxes resulting from the offsetting of gains and losses of assets and obligations properly allocable to a potentially competitive service must be considered by the commission in determining the recoverable costs for the utility." It’s crucial that we don’t have a sale of all of the generation accumulating a huge tax burden that cannot be compensated by offsetting it against other losses. This language, I think, does that. I think that’s crucial. The utilities have been interested in working with us. There’s no sense, if you have a tax burden, sending dollars to Washington that we would like to see stay in Nevada and benefit the customers of our vertically integrated utilities.

Again, on page 17, subsection 4, there’s a repeat of the name and logo issue. And you’ll see in sections 27 and 28, there is transitory language and specifically referring to one of the dockets. I believe that’s a reference to the deferred energy docket. As many of you know, that committee, as well as myself, have spent a lot of years on this and I don’t want to go on because I could really put you to sleep talking about some of the things that might be considered.

That, in essence, is the bill. Mr. Chairman, I appreciate your time. We’d be glad to attempt to answer questions with regard to our thinking or some of the specifics.

The question asked is a thoughtful one and one that deserves, hopefully, an adequate and equally thoughtful answer. The question became a very simple one for our committee. That was our focus on residential customer needs. If they were currently paying a rate that had been deemed, at the time, and either negotiated, such as the one in the north was, then we would accept that rate. The rate in the south is a different situation because Nevada Power had an extremely large amount of money left in its deferred energy account. I believe, and I will not hold this to the actual dollar specifics, but approximately half of it had been dealt with over the last 6 months. But there remained in that account, I believe, between $42 and $43 million, which is currently still in there. I don’t know if it’s climbing. They’ll attest to that when they testify here in a moment. Since that was, under current law, recoverable by the utility as a direct pass-through, we felt again there was a contract relationship that we couldn’t abrogate. We found it to be beneficial to our residential customers in the north to get rid of deferred energy and to allow the utility, once they did that, to freeze their rate and ultimately have an opportunity to earn more than they had in the past. There has been a new philosophy with regard to utilities in the competitive market. Hopefully I won’t repeat myself 10 or 12 hours from now. The opportunity to provide, in a transitory world, a fair and equitable rate is done in exchange for an opportunity to earn whatever kind of return the utility can. They can give you the specifics right now on their current earnings. It’s always debatable as the utilities, who will sit here with Mr. Schmidt here in a moment, argue what they currently return. In the north, I believe the last accounting was about 13.2 percent, which is above the allowable rate of 12 percent, for which they are sharing those over-earnings with the consumer. In southern Nevada, I believe the last accounting was about 9.5 percent, so they have not gotten to their maximum. Part of that is due, in all fairness, to the tremendous growth you see every day in southern Nevada and their yeoman effort to stay up with that growth. The issue of what they can earn has become relatively moot as we move into a competitive market. The fact is that we can give our customers a couple of things: a fair rate for them, and more importantly, continued reliability and the kind of stability they hope to have in their lives by not going into a competitive atmosphere with a new billing service, a new name, and having to find out what exactly the cost of the commodity is. We felt this was appropriate using both this language as well as the other language.

Now, having said that, your question specifically is how would you compare it to the current law? It’s very simple. We have extended it out to the year 2003, which we thought was extremely important because we will, of course, be back here long before then. In fact, the senate will be back here at 12:30 a.m. if you’d care to join us. We felt that giving them the protection in an evolving market over the next few years was absolutely crucial to finding out what kind of market has evolved. When we got back here this time it hadn’t evolved a tenth as fast as we thought it would. So we thought this protection, and extending it out a number of years, was crucial to those residential customers for reliability purposes. Just as importantly, it allowed the utility an opportunity, particularly in the area – you have to remember, what we’re talking about being competitive now is the commodity – the fact that in southern Nevada your growth, whether it’s in telcos [telecommunication companies], and we’ll discuss this tomorrow – or in the need to provide basic service in electric in southern Nevada, costs a huge amount of money every day. This gives them an opportunity to earn what they need to earn and put the necessary infrastructure in place to continue with normal growth let alone the explosion that has faced you in southern Nevada, so there aren’t people out in a panic over whether we’re borrowing at 12 percent or 8 percent, or at whatever rate. We think this gives them an opportunity to borrow at a better rate. Let’s face it, ratepayers pay whatever interests costs there are. That’s why we thought the language of allowing them to earn what they need to earn and giving a cap over an extended period of time works best for all parties.

H. Ward Camp, General Manager, Phaser Advanced Metering Services: Currently we are a small business line of Public Service Company of New Mexico. Soon we hope to be incorporated in the State of Nevada and provide metering services. We are licensed as a meter service provider in the State of California and I come to speak in opposition to S.B. 438.

Senator Townsend was right. A.B. 366 [of the 69^th Legislative Session] is a beacon across the United States. I have sat in electrical deregulation work groups from New York to California. Currently I’m chairing a subgroup for writing meter services here in Nevada. I also chaired metering services in Arizona and worked on the permanent standards workgroup for metering and other facets of electricity deregulation in California. A.B. 366 is held up as a model in its clarity and its ability to create a level playing field and to encourage competition. When I initially spoke to my board of directors and said I wanted to focus on Nevada, that Nevada was our number one market, even though we have an office in Livermore and in San Bernardino, and have been participating in the California market for over a year, the question was why? Nevada is small. It doesn’t even compare with California. California has 10.4 million customers. Why Nevada? And really, the reason was the structure of A.B. 366. It said, from the (unintelligible) that, for potentially competitive services, everybody had a chance to compete.

It may not seem this way, but a few tweaks by S.B. 438 has created a change and has completely turned around A.B. 366 and destroys all the good that was written in A.B. 366. Primarily, it is the fact that the vertically integrated electric utility can continue to offer potentially competitive services after the start of what is called in other places direct access. To speak to Senator Carlton’s point, I find that, at least in the California market, it is not necessarily the huge energy companies. Yes, we install meters for Enron and Energy Services. They’re good customers. But we also install meters for Commonwealth Energy Corporation, which is a startup company that serves residential and small industrial and commercial companies, and also companies like Utility.com, that are innovative companies that are offering electric services over the internet to residential customers.

In order for us to compete in a real sense we will need to capture some of the residential and small commercial and industrial markets. Will I be installing meters for the casinos? You bet. They’re going to be great customers. They will be able to pay for the innovative metering solutions that exist out there. But innovative metering solutions really have two triggers that have to fall. That is the meter application itself, and the installation costs. For residential and small industrial and commercial customers to see the benefits, you’re going to have to have densities that allow the installation costs to come down. If I install, as we do in California, 2 percent of the market, and it’s spread all over a huge state, I can never make any money. The installation costs are huge. You have a lot of driving time, you have to pay a meter tech [nician] to go out there and install. If I have a third of the city of Las Vegas or half of Reno, I have densities. I can do this cheaply and competitively. If you insure that the utility or the utility’s affiliate gets all of that market through the provider of last resort or because they can just provide these potentially competitive services until 2003, you’ve destroyed the market. Now Senator Townsend said everyone’s free to choose March 1, 2000. But if you look at S.B. 438, it says that they’re going to specify in sections 12 and 13, total rates for electric service. They don’t have to unbundle those services. How am I going to provide the unbundled metering services? Does it talk about that if you’re with a provider of last resort, nonetheless metering service can be provided competitively? It doesn’t say. It’s unclear. And I would argue that when faced with that, the utilities will say, "No. You do not have to do that. This is under PLR (provider of last resort) services. It’s a total rate for electric rate. You can’t just provide metering service."

Metering service may be a little bit different from some of these other services that are going to be provided. But I don’t really think so. Ultimately I don’t think so. One of the differences that jumps out is the fact we do send meter techs to do installations.

I don’t know why S.B. 438 came into existence, but if it’s afraid of creating competition, I have to say competition is good. We have a project office here. We have three ex-Nevada Power meter techs in our company. Those three folks thought they had a better opportunity and a brighter future with my company. There’s a couple other Nevada Power guys that I tried to get but couldn’t, because they were promoted and they got better opportunities within their own company. Competition is going to create more jobs. It’s going to create greater opportunities for either the employees of the utility or the utility’s affiliate.

One of the points I really think has to be made here is everyone keeps on acting like – and it’s really Senator Carlton’s point – the good name of a company. She said, "I think of it in terms of my own name. And if I work hard, would I be able to continue to use her name?" I would submit to you if she incorporated, then she wouldn’t always be making a distinction whether it was Senator Carlton, Inc. signing a contract, or whether it was Senator Carlton the person. Again, the rules are silent. In California they went through a comprehensive set of regulations to make the distinction between the unregulated affiliates and the vertically integrated utility. It’s not here. They are separate companies. On one hand, we don’t want to "slam" people and force them to go with a provider of last resort they’ve never seen before. I submit to you that when the utility forms its affiliate, that is a brand new legal entity that did not exist before, and after potentially competitive services’ transition is over, they are going to be just that. An unregulated company. Just like I hope to be an unregulated affiliate of Public Service Company of New Mexico. I am not going to be the same company as P&M. I’m going to be Phaser. And just like this Nevada Power affiliate is going to be its own company. It’s not going to be Nevada Power Utility. I am not anti-utility. I spent 17 years representing utilities. If you want to give them fair, stranded cost treatment, if you want to give them a fair rate of return on transmission and distribution, I say "Go for it." But if you want to create a level playing field, leave A.B. 366 as it is. In this way I – my company – will be able to compete for residential and small commercial. Otherwise it will only be the big guys that benefit.

I’ll be happy to put in those metering solutions for the MGM Grand, but it’s not going to reach Mom and Pop Nevadan. That’s what I really think we want to accomplish. I think section 13 is just a killer for us. It moves Nevada from first on our priority list to way down in the mix. I’ve already sunk a lot of costs to come and help write the rules and sit on the meter worker qualification committees and to make sure that public safety and reliability is ensured here in Nevada, but in terms of a level playing field, look at that. First of all, if you auction off, it has to be 5 percent less. If it doesn’t, then it goes through the affiliate of the utility who didn’t necessarily have to provide any 5 percent less, it just goes to them. They get the densities that I need to compete.

You know, one of the things that has been held up is, well look, how slow the evolution has been in other places. I can tell you. It’s the regulatory, the legislative framework that either slows or supports the rate of change. In California it is terrible. Why? Because all of the provider of last resort is in essence done by the utilities. They have the densities. If they have 10.4 million customers, they can provide services at a fraction of the cost than I can, who has 1,000 customers to start out with.

Further, there’s nothing in here to support the accounting necessary to prevent cost subsidization. Buried in [sections] 12 and 13 is, instead of affiliate of the utility, the utility itself is going to be able to provide these potentially competitive services. I’ll point out that it specifically says later that potentially competitive services will not be provided after March 1, 2000 by the utility. But here it says they’re going to provide these services until 2003. Setting that conflict apart, now, A.B. 366 didn’t have these problems of cross-subsidization. The utility just couldn’t provide the services at all. In S.B. 438, you do have cross-subsidization issues.

Let me check my notes. That, in essence, is it. If you need to pass this, the timeline we don’t have a problem with. If you want to move it out to March, great. That’s fine. If you want to say they can even use their name and logo, that’s fine, but you’re going to need a lot of rules to make the distinction between two legal persons, and they are two different persons. In California they have huge rules that PG&E [Pacific Gas and Electric] Energy Services has a big disclaimer that it’s not the same company. Otherwise you’re going to mislead folks into believing it is still the utility, and something that’s going to be in the very near future 18 to 20 months, some time period in the future, unregulated. You have to make that distinction. So you’re going to need that legislation. If you want to slow it down 3 or 4 months, fine. If you want to use the name, you need more legislation. But if you want to [sections] 12 and 13 in it, know that you’ve just gutted A.B. 366. The irony of that is that I sit on a consortium of market participants across the United States and we hold up Nevada’s A.B. 366 as the model to be followed. We are going to use the metering rules from Nevada as our template to show states that are contemplating deregulation. This is what will make the market work. What is ironic is, from the metering side and from the meter data side, we’ve been ordered under PUC and Order 9 to come up with the rules and the frameworks, and we’re just about finished. We’ve done our work. It can be put in place. Notwithstanding – I’ve heard it from the utility technoids that really put the stuff in – yes, they may need a few extra months, but they’ll get it done too. They have some extremely competent people. They sit in these committees and we’ve worked it out. And we’re just about good to go on [A.B.] 366. Unfortunately, we’re going to turn it all on its head with S.B. 438. I’d be happy to answer any questions.

For the record, I’m Fred Schmidt, Consumer Advocate, on behalf of the Attorney General’s Office Bureau of Consumer Protection. I’m here today with my colleagues on my right and my left, because, despite our many differences, this bill is a bill we’ve reached a common agreement on in terms of being in the best interests to both consumers and the best interests of the incumbent utilities, and, in our view, along with Mr. Whittemore, here, the best interests of developing a sensible competitive market in the State of Nevada for transition from where we are today in the electric industry.

I’d like to address the sections of this bill which are important to consumers and explain why.

First of all, in the last legislative session, this body in its wisdom at the 11^th hour determined that the deferred energy process that we had in place should remain in law even though, after many hearings and much discussion, it was agreed that the concept of deferred energy, which is an automatic tracking of dollar costs with no markup or markdown, was inconsistent with the notion of competition. At that time, I informed people that if we left deferred energy in place, the rates in southern Nevada for electric service were going to increase. It was clear they were going to increase and we felt they might increase unnecessarily. Now my colleague, Mr. Ragazio, might argue that those were all just and reasonable increases, and frankly after numerous hearings I could not argue with him that those increases were not appropriate in the context of the law that we had in place. However, it is a fact that your rates in southern Nevada have gone up approximately 10 percent since the last legislative session. The reason they’ve gone up, besides other market factors, is because we have this law in place. This law needs [to be] repealed if we’re going to go into competition. If it is not repealed, I can assure you today that your residential rates for consumers in southern Nevada will continue to go up and likely another 10 percent. That’s one major benefit of this bill.

The second major benefit of this bill to consumers is the rate freeze that’s put in into section 13. In the legislation that was adopted last session, there was a rate cap put in place. The rate cap that was put in had an exception to it. The exception was an exception that allowed for changes in the law for just and reasonable rate increases. The very standard that applies to and allows for the deferred energy increases. So even though there was a date placed in the law of July 1, 1997, the rate increases that have been implemented since then have been based on that standard that provides an exception for the rates that would be in place going forward once competition is opened up. Therefore, in my view, the rate would not be 5.8 cents for residential customers in southern Nevada. It would be whatever the rate is that the commission determines is just and reasonable at that time. Now we may have to go through another proceeding to determine that, but I would have to argue and successfully convince the commission that a rollback of the rates to 1997 was more appropriate of what a just a reasonable rate would be today. I could not possibly do that, I don’t believe, based on the cases that have taken place in the interim.

Secondly [thirdly], the rate cap that was placed in effect in the last bill had a provision that essentially put it in place for a period of 2 years. My understanding of that 2-year period is that it commences with the commencement of the start date of competition and expires 2 years after that. My belief is, in this bill in section 13, we’ve extended that freeze for additional full year plus whatever additional delay timeframe is built into the legislation by virtue of moving the state date from January 1, 2000. In that regard, I think, this bill provides protections for your constituents, especially those in southern Nevada, that are not currently in A.B. 366. I believe those protections are significant enough that I believe other provisions of this bill are not onerous to your consumers.

Frankly, on the name and logo issue, I can argue either side of it in terms of whether it’s an unfair advantage to the utility or whether it is an imposition on customers not knowing whom they are dealing with. I’ve talked to many constituents and many believe they’d like to know who their utility is, and they’d like to know for two reasons. Some would like to know because they want to stay with them. They want to know readily who that is so they can make sure they stay with their incumbent utility. Some want to know because they want to get away from them. I think consumers having the right to know that is not necessarily anything that’s bad for the people I represent under the law.

The other part of this bill I think has some provisions that impact consumers is this concept of an auction. It’s been referred to, and I think somewhat unfairly, if the commission does an auction, it’s sort of legislated slamming, inconsistent with the notion that customers ought to be the ones making the decision to choose. I don’t necessarily see it that way. I support the notion or the concept that we have the potential for an auction, particularly if it’s going to result in a reduction in rates for a group of customers. And that’s what’s been preserved in this bill in section 14. I don’t think we have to have an auction to start the process. I have no reason to believe after the numerous hearings that we’ve gone through at the PUC, that any major supplier, including Enron or anyone else, has any intention to pursue the residential market in the next year or two in Nevada. That’s been made clear to me through testimony that’s been presented in hearings at the PUC. It’s also been made clear to me through my colleagues and contacts with colleagues in other states.

Therefore, I think you need protections for residential customers stronger than are in the current A.B. 366; protections that will ensure that, as big customers begin to compete, it’s not at the expense of residential customers.

The other changes in this bill to me are rather minor, or "tweaks", as I consider them in terms of A.B. 366. I don’t believe, contrary to what the prior speaker said, that this bill is a major departure from the foundation of A.B. 366. A.B. 366 was a very good start in terms of what’s going forward, but in order for us to continue to go forward, we need to resolve some of these things. For example, the name and logo issue. It’s currently in court. It’s in court and it’s likely to be in court for the next couple of years. That alone will stall the start date we’re able to implement, because the utilities have both challenged in Nevada court the ability to implement the affiliate rules in the manner in which the commission’s done it.

That’s one of the reasons I’ve decided to support a concept that allows them to keep their name, and I think we ought to resolve that and resolve it so it doesn’t tie us up so we can’t start for the next 2 years.

I’d be happy to answer any questions about my perspective or allow my colleagues to also address why they support the bill.

The provisions in paragraph 4, I will acknowledge, may affect the amount of stranded costs recovery that ratepayers would have to pay for. The reason for that provision is essentially the concern that, particularly in southern Nevada, not so much in northern Nevada, but the concern that Mr. Whittemore’s clients and other large customers, maybe not represented by Mr. Whittemore, but who take service at similar rates under the LGS tariff, believe that their rates are currently subsidizing residential rates. Part of that concern relates to this deferred energy process, because all of the rate hikes in southern Nevada which have occurred since 1992, have all occurred in the deferred energy rates. The deferred energy rates are only energy increases and because large customers take service, primarily through energy, they’re higher load customers – in other words, they consume energy more regularly throughout the day as opposed to residential customers that tend to have more a peak and valley in their use over a day and over a season of the year. Because of that, most of the increases have been borne by the large commercial customers, even though the cost of actually providing the service, had we done a full rate case in that time frame, would have shown that some of those costs should have otherwise been borne by residential consumers. As a result, both the utilities and large customers believe there needs to be a correction in the allocation of costs between the customer groups.

In performing that function – it has to be done anyway. If we’re going to have noncompetitive services, the distribution, transmission, or the wires that distribute the power to customers – if that’s going to be segregated as a cost component when we unbundle rates, which will still occur, regardless of what the prior speaker said, there needs to be an unbundling and a determination of what those rates are. If that occurs in the case that the commission is expected to conduct before the end of this year, the concern that I had was there was going to be a significant shift in cost to residential customers. Now, Mr. Ponn on my right, and Mr. Rigazio on my left, would tell you that even if we didn’t have a rate increase, or have a rate change of any kind, they believe they should have, in all fairness to set those rates properly, a large residential rate increase, at least in southern Nevada, and a large commercial rate decrease. I said, "Well, consumers are not going to understand how competition benefited them going through that process if that’s the result. We have a revenue neutral case, maybe, but residential rates go up another increment?" I will tell you the estimates that have been thrown out by Mr. Rigazio’s company, although I don’t necessarily agree with him, are in the range of $50 million or more, which on the residential rates would be more than a double-digit increase. So I told them, "You’re not going to convince the people I represent that’s good for them and good to go to competition, if that’s the result of doing the unbundling of the rates." Mr. Rigazio said, "How am I supposed to absorb those costs?" I said, "Well, you’re going to sell all your powerplants. You’re going to make a lot of money selling your powerplants. If, during this time you have to freeze those rates, you make those profits. Then if you offset that shift in cost that otherwise would raise the residential rates against that sale, residential customers will clearly get their fair share of the results of those sales of the powerplants that were built for them and that they supported you developing for them in years past. You will still be able to maintain the rates at current levels."

Mr. Rigazio agreed with that, but that’s why section 4 is in the bill. During this timeframe that they have to absorb a rate freeze, and there may be an impact in terms of the unbundled rate determination, they have a mechanism to not eat all of that cost, assuming they complete the sale of their plants.

Subsection 5 of section 13, which indicates that the rates that are in effect shall not be subject to an earnings review during that timeframe, is based on the concept that we are not going to continue to do rate-based rate of return regulation during the freeze. Frankly, during a freeze, from the residential customer standpoint, I don’t know I’d like to see necessarily the results of that because I think there might be pressure on us for rate increases. From the perspective of the overall company earnings, however, there might be the opportunity to earn in excess of what a profit margin is that we would set if we went through a case. But the bottom line is, "That’s the way it is today." We haven’t had a case with Nevada Power Company for over 6 years. We don’t even have a mechanism or process in place procedurally to do a case. One case was tried against Nevada Power Company a number of years ago, and frankly it wasn’t very successful because we didn’t have good procedures for doing it. The way the mechanism and the rates are set up today, is they’re set up for the companies to come in and ask for rate hikes. They’re not really set up for us to go in and say, "You’re earning too much; lower [your] rates."

Finally, I would say, philosophically, if we’re going to deregulate these markets and these companies make substantial profits, I don’t know the extent to which that concerns me. If they’re making too much profit and someone can provide the service at a cheaper rate because they can cut that profit or they’re willing to do it at a lower profit, then that’s when competition will flourish. That’s when we will have alternatives and we’ll go and buy from another company instead of Nevada Power Company or Sierra. I think that pressure on them will actually drive them not to earn outrageous profits at a certain level.

I am a partner with the law firm of Lionel, Sawyer & Collins, appearing today on behalf of the Nevada Resort Association. The bill before you, S.B. 438, is the culmination of a series of significant negotiations and directions from the senate committee, as has previously been testified to by Chairman Townsend and Senator Carlton.

The balance, which is reflected in this legislation, are some of the most difficult negotiations in which I have been involved in over 20 years. I would like to refer and walk the bill backwards from the perspective of my clients, and then respond to questions, if it’s okay, Mr. Chairman, to issues relating to other interest groups that may or may not have questions regarding the subject of the bill.

One of the most important things at the outset to understand, from our clients and our members position, we felt it was very appropriate that significant controls still be left with the Public Utilities Commission and Chairman Sheldrew, with respect to the implementation of the merger. Section 28 of the bill makes it very clear that this legislation – and it’s interesting, as in all sort of negotiated presentations – there are reasons why different parties view different sections as favorable to their interests and that’s, I think, important to show how section 28 is, in fact, one of those. From our perspective, section 28 says that this entire legislation is dependent upon the continued affectuation of the merger that is under the control of Chairman Sheldrew and the PUC. This legislation, if it’s adopted and goes into effect, goes away the minute the merger goes away. From our perspective that was important because what we wanted to do was have the balance associated with having the commission having control over that merger docket. From the utilities’ perspective, it was important because they give up so much, from their perspective, in this bill with respect to rate caps and other things like that, that they were afraid if, in fact, the merger went away, they would have a situation where one of the remaining utilities, of the unmerged utility, would be dramatically impacted. I use section 28 as an example to show that while viewing this perspective, we have a situation where these different parties can look at that and say that that’s still good public policy.

From our clients’ perspective, we’re very concerned about the implementation of competition at the earliest date possible. Through negotiations -- and again I want to make it very clear – and through direction from the senate committee, and with the commission input, the best we could do from our perspective was keeping the date very close to the date Chairman Bache used in earlier hearings with respect to the assembly bills, which is March 1, 2000. I want to make it very clear that’s a component part of the negotiations because there are interests that would like to see that competitive date be moved out. We see it as a very important part of this bill that it remains at March 1, 2000.

With respect to other sections of the bill, which are very important -- again to our perspective, and I’ll touch upon section 13 at the last – section 21 of the bill. Section 21 allows a licensed alternative seller or a vertically integrated utility to negotiate with any customer regardless of size. This allows both the utility and the alternative sellers who are in the process of getting licenses, to engage in negotiations before March 1, 2000. Now those contracts aren’t effective until the competition is effective, but it’s clear that the negotiations leading up to that are a very important component part of us being able to hit the market at the right time.

With respect to section 24. Section 24 is the provision which concerns us most with respect to the taxes. Again, that’s on page 16, subsection 3, lines 30 through 34. Significant time was involved in negotiating how we would implement the matching of any losses associated with stranded costs with the gains associated with the sale of the generation facilities. We attempted to come up with language which properly encouraged the utilities to minimize the tax loss, while at the same time trying to maximize the return associated with the sale of the generation. To show how this process works, we felt it appropriate that we simply said, "You must minimize taxes." Utilities come back and, through this negotiation and hearing process on the senate side, it became clear that you can minimize taxes by simply avoiding all consequences associated with gain by selling the generation at a loss. That’s an absurd result and one which was avoided by virtue of the language which is reflected in subsection 3, lines 30 through 34.

Turning to section 13: This bill does two very important things from our perspective. It clearly mandates the commission will unbundle the rates and, at the conclusion of the unbundling of the rates, that the subsidy, which we believe is in existence, between the large customers and the residential customers, will be removed. And as Fred has indicated to this committee, Mr. Chairman, the thought that the removal of the subsidy was going to fall completely on the residential customers by forcing them to raise their rates, negotiations took place and said, "Well, how can we insure that the residential rate component will remain capped or frozen while at the same time allowing the T and D rate to drop for the large industrial customers, at the same time not impacting the utilities. The mechanism that was developed was a mechanism which allows a portion of the generation gain to be used to offset the effects of any of that subsidy.

What is the incentive not to, under section 13, simply create a rate mechanism which allows the utilities to continue to raise their rates? Even though they’re capped, what is the mechanism that forces them to keep delivering the service at the lowest competitive price? The auction mechanism. The minute that the customer sees the potential or the utility sees the potential of losing all the customers could occur because they keep their rates at a very high rate, even though it’s below the rate that’s authorized. Effective competition will allow individuals to come in and create that auction process, thereby driving the price down. It is clearly a policy decision on the part of this legislature as to who should get the benefit of encouraging that competition. There are those who will say, "If we’re coming in and saying we can reduce the price, we should be given the benefit of being able to serve those customers." This bill says, "Yes, you should get the benefit of those customers if, in fact, you are the successful bidder of forcing that price to go down." If the incumbent utility matches that price, and again is offered the opportunity to meet or beat it, it will simply result in what? Lower rates. From a customer perspective, that’s a positive. That’s not a negative. The simple fact of the matter is that if they respond even to the threat of competition with lower rates, then the pricing mechanism reflected in S.B. 438 is working. It’s working. And so those that are concerned that somehow the incumbent utilities are being given an unfair advantage, need to look at the balance which is reflected in this bill. Our concern was to make sure, from our clients’ perspective, that we maintained sufficient control with the PUC while at the same time recognized the reality that the start date was going to have to be moved, but not by much, while at the same time trying to draft a mechanism which allowed some sort of rate stability for residential customers, at the same time keeping in place the stranded cost mechanisms, which are already in place at the PUC – that’s not impacted in this – and come up with a plan that says, "How do we insure that everybody, as we move toward competition, is moving incrementally on the same wavelength?" We could – and this legislature could – have changed those rules dramatically. In some of the earlier drafts of this legislation, we attempted to impose caps on stranded costs. We know we could have done that. That would have been beneficial to Fred's entire client list. Fred’s entire client list, thank heaven, includes us. But the bottom line is that if we attempted to impose caps on stranded costs, we would probably be in litigation like they are in New Hampshire. The point is that mechanism that we attempted to utilize to come up with some of this language, we think resulted in a pretty good balanced bill.

Could we have achieved more? There are those who are going to second guess and suggest that, yes, any particular group could have gotten a better deal one way or the other. On the whole, what we’re recommending in S.B. 438 is a balanced approach to a very, very sensitive and tricky area of the law. A.B. 366 – I want to make this very clear – and the implementation of the regulatory mechanism which the commission has done – is well on its way to a reality and it’s a good result. If the merger doesn’t go through, that’s what we’re going to be left with. That’s good and bad. If A.B. 366 goes [stays] into place, there’s a potential for placement of the residential customers almost immediately. This bill address that issue and says we’re not going to address this until after the next session to see where we’re coming out of this whole next 2-year period.

So all of these issues were addressed in ways which attempted to bring the parties to the middle. I can assure you that, yes I would rather have achieved some other things we didn’t get, just like the utilities will tell you that there are things they wanted that they didn’t get – and Fred and I will sit there and say, "Removal of deferred energy and a rate cap and the opportunity for competition, maintaining the competitive balance with respect to metering and billing, on the whole was a very good deal." And that’s where we’re left, from our perspective. I’d be happy to answer any questions about the substance of any of these other sections. I can give you my particular take on how the negotiations went, why the particular language was selected, what was happening, and some alternatives and some policy decisions which this legislative body needs to make. Thank you.

Doug Ponn for Sierra Pacific Power Company. I’m in a somewhat unique position today of agreeing with almost everything of what Fred [Schmidt] said, which is unusual in our long history together. It’s approaching 18 years. I don’t have a lot to add to the summaries that have been presented by both Mr. Schmidt and Mr. Whittemore.

If I could, I’d like to try to address Assemblywoman Buckley’s two concerns. First, the question of the utilities having a rate freeze without some downward or show cause potential in the rates. The impression seems to be that that is some big advantage that perhaps the utilities bargained for. Actually, the assumption of the PLR (Provider of last Resort) obligation, and going forward with a 3-year rate freeze period during a time whenever there was no deferred energy mechanism left on the table, during a time when energy prices are expected to rise and we’ve divested our powerplants, lost control to a great extent over our energy portfolios as a way of hedging the fuel risk or energy component of our bills, and during a time whenever we were going to expend significant funds on both transmission and distribution infrastructure in the north and in the south, and during a time whenever customers could choose to leave whenever they wanted – we actually struggle with whether or not that was an acceptable level of risk for us to take. To the extent there’s no downward adjustment in rates, that gives us the opportunity, if we do well, and if we can still manage the energy part of the PLR function, if we can control costs going forward, then we think we will be alright. It certainly was not a situation where we saw this as a great opportunity to make additional fortunes. I might point out that people look to my company as an example of what happens whenever you give a utility incentives and you quit regulating through the traditional rate case mechanism. Because of the agreement we reached with the PUC staff and the consumer advocates, wherein our rates were frozen for the period 1997 through 2000. During that time we have, because of efficiencies achieved and – I’ll be the first to admit – some luck on the fuel and purchase power side of our business, been able to earn our authorized rate of return plus additional returns which we’ve shared with our customers. Last year, we shared for the year 1997 approximately $11 million in returns to our customers. That was their share. This year we expect to do a similar amount for the 1998 sharing year. We still have one year left on that process. But there’s a distinct difference between the period 1997 to 2000, and the period 2000 to 2003. The utilities entered this with some degree of trepidation, not with a lot of saliva in their mouth for the earnings they might achieve during that period.

The second issue I might address is Speaker Dini’s concern about rural customers. I think this freeze, for the period 2000 to 2003, gives those rural customers, and all customers in fact, some level of protection, comfort, transition, easing into the competitive change. It allows them to have either frozen rates or the opportunity to choose. And in regard to those rural customers, I think those customers are going to be challenged to find providers who want to serve them at either our current rates or somewhat higher rates. I think this does help get, at least, through the first 3 years of competition for those customers.

With that, I’ll turn the microphone over to Mr. Rigazio. If you want both utilities at once, Mr. Chairman?

Steve Rigazio, Nevada Power Company. I won’t go over a lot of what’s already been said, because it’s been pretty well described and summarized by the other folks here. It was a delicate package and balance in trying to put this together. It was balancing risk and reward, the Nevada incumbent utilities versus competitors from out of state, and the interests of the shareholders versus customers. The shareholders expect a fair return, and the customers expect choice but they also expect smooth transition in the competitive world. They also expect the same quality of service as they have received. That’s a difficult balance, but I think this bill goes a long way in doing that.

We talked about the rate cap and rate freeze in section 13. That is, quite candidly, was the most difficult for us to work with and go along with, particularly in Nevada Power’s case. We are under-earning. We have under-earned – Fred described the commodity or fuel risk, and I agree him and Mr. Ponn. We’re in a rising price market here. Limiting the deferred fuel mechanism is going to be very difficult. Fuel purchase power costs are about half our costs.

What has not been talked about too much here, and Mr. Ponn briefly touched on it, the second largest cost in our business are financing costs. The utility industry does more financing than any industry on Wall Street. It’s a significant part of our costs. In Nevada Power’s case we have the fastest growing infrastructure in the country. We have had since 1989. We do more public financing than any utility in the country. I’ve been the CFO [Chief Financial Officer] since 1992. I will no longer be this summer. When the merger goes through, it will be the 26^th public financing infrastructure in Las Vegas, Nevada. Con Edison [Consolidated Edison], New York City, did one public financing in 10 years. I did 26 in 8 years. That just gives you a perspective of what it takes to finance growth in southern Nevada. You get into the arguments this will pay for itself. In the long run I believe it does. In the short run, it’s very difficult. Therein lies the reason we have not earned or authorized return. A price freeze for us is tough. It’s tougher than in northern Nevada. Fred described the potential rate subsidy issue. He’s right. I think the subsidy may even be larger than he described when he sees the filing tomorrow. But nevertheless, that in it is a tough issue and this is all balance. But number one thing at the end of the day is to keep the infrastructure financed so we can keep the lights on and the quality of service high.

There has been a lot of pressure on the financing and infrastructure. Just briefly, our construction budget was $300 million this year in southern Nevada. The substantial part of that is in wire, distribution, transmission. We had a big transmission project this year. When that goes away, the construction budget is still $250 million a year. It’s all in wire. It’s not new powerplants or things such as that. So therein lies a very tough issue, but we’re willing to go along with the freeze as part of an entire package of a complex number of issues that have been previously described.

One other issue, and I wouldn’t have gotten into this – I don’t want to get into the rebuttal of a previous witness – and hadn’t intended to talk about this – but a comment was made. I just have to say one thing about it. The gentleman who talked about meters or the metering thing. He did mention they have sunk a lot of time and costs into this process in Nevada. We have too. We’ve sunk a lot of time, a lot of cost, a lot of employees, a lot of Nevada people, a lot of Nevada jobs into this infrastructure over the years. So I think we’ve got it on a going-forward basis. Remember we’re out there too doing the same things, trying to put a lot of money into these new businesses and trying to improve our business. We have 1,900 employees. About 900 are labor union employees who work very hard putting those meters in, and the lines, and things like that. Our people also work hard and put a lot of time into this process. Both the process here and coming up with rurals, working with the commission, and every day out in the field. That is a summary of my comments.

If I might address your question. I don’t think the problem is severe though, because one thing we have to bear in mind is that we don’t know what these contracts are going to be related to market price 3 or 4 years from now. At the time these contracts were initially entered into, there was a general agreement that those contracts were good deals and would be good deals over the term of those contracts, based on what the alternatives and the utilities building alternative powerplants. At the time I think it was Thousand Springs in the north, and in the south it was the Harry Allen plant initially or later on, other alternative hypothetical plant options. Nevada Power really didn’t even have the money to finance building new powerplants. These QF contracts, as much as they may appear to be unattractive today, looking forward, or out of sync with today’s market price, you could make the same comment about a few of the other plants that are in the utility’s system at the time they were entered into or even a couple of them today. Because we’ve paid them down through rate base and so forth, no one makes that continuing observation. These contracts, because they’re sold at a price today though, any estimate – and estimates have been thrown around in the media about what their so-called stranded costing – is merely just a guess. It’s a projection over the remainder of these contracts of how out of market they’ll be.

I will tell you that all those guesses, much like my criticism of how a lot economics is done, projects a fuel price that just goes like this. It doesn’t project what we think will really happen in the market once competition takes hold, not only in Nevada but in the country where a lot of new innovation and creation of markets occurs, new entrants get into the market. Those contracts may be very attractively priced in the future or they may be even more out of sync with the market. Since we don’t know that, those entities that have those contracts have the same scenario as the people sitting beside me. It may be in their best interest to sell out. In fact, in the one hearing, we had one of the major QFs in southern Nevada. The owner or one of the principals of that firm got up on the witness stand and said he’s interested in selling out. But the utility doesn’t have the money until they go through the divestiture to do that.

What this section does is say, not only is negotiating with that person not discouraged but it’s encouraged. If you can do it to what you believe is a benefit to yourself and the consumers, and that entity, then go for it. I think having that proper incentive there is not a bad idea. At the same time, the first sentence, probably more so than any language we had in A.B. 366, should give some comfort to those contract holders that we’re not trying to develop law here that wipes out their contract. I frankly don’t think you can. The legislature has many powers, but I don’t think you can overcome the obligation of contracts. That’s protected in the constitution, both state and federally.

Thank you, Mr. Chairman. That’s not a bad idea. We have 145,000 members in the state, so maybe I ought to look into it. Danny Thompson, representing the Nevada State AFL/CIO. I have a couple of proposed amendments to this bill (Exhibits D and E). When I first heard of electric restructuring was at a conference in Washington on national issues for the AFL/CIO, and it was talked about deregulating generation so that large industrial users could save money on their power costs. When I came back to Nevada the issue went from that to A.B. 366, but went a little further than that. During that time, in the lobbyist room, there was a cartoon that showed a woman, standing in her housecoat with curlers in her hair and a plug to a toaster, looking at the wall. On the wall there were about 40 different plug receptacles. One says, "Wizzbo Power." The other one says,"Joe’s Power." Another said, "Bill’s Power." It was funny. It is funny. But the legislature is obliged to protect their constituents in the State of Nevada, and one of my concerns is that we’ve gone a little further than we probably should have gone. There’s an amendment that was passed out to NRS 704.973. We’re asking you include in the list of noncompetitive services, customer service, billing, meter ownership and all other meter related services or any other components of electric service determined by statute or by the commission to be unsuitable for alternative sellers.

Honestly, if you consider southern Nevada or northern Nevada, and I know that rural Nevada poses a whole different set of problems for this issue. Southern Nevada, with that same cartoon, where metering and billing and all of those kind of services, are going to be led to who knows what. Our concern is for the reliability and the protection of your constituents. If you go back to the true intent of deregulation, and that is to allow people the ability to buy power cheaper, I guess that makes sense. But our concern is that by opening up all these other things to that environment, I think that’s probably not going to be too far off base. Representing those people like meter readers and – let me tell you. I represent phone operators. Do you know that phone operators are an extinct job classification in that they in fact have been swallowed up by technology? When was the last time you actually talked to one? We used to have thousands of them and now they’re gone by the way of technology. You’ve heard talk of the "smart meters" where – this is probably an extinct job classification too. We believe these companies, like Nevada Power and Sierra Pacific, and specifically, in the case of Nevada Power where they’ve had these huge capital outlays to put the infrastructure in place. If there’s a benefit that is to be gleaned from that technology, they should be the ones who have that benefit. So we’re proposing this amendment to NRS 704.973.

The second amendment (Exhibit E) is proposed by Mike Reed, who represents IBEW (International Brotherhood of Electrical Workers). He was unable to be here tonight. He’s in the National Guard and they are making preparations to go on a trip. His amendment is pretty straightforward. It basically says that contracts with a labor organization must be honored by the vertically integrated utility and affiliates and their successors, and it goes on in section 6, which basically says that those costs associated with those contracts could be recovered from the customers. I told him I would present this information to you tonight. He will be back here at the next hearing to talk specifically about the issue. Those are the proposed amendments to this bill. Be happy to answer any questions.

Charles Hauser, General Counsel, Southern Nevada Water Authority. We have some real questions with the way the bill has come out now, particularly dealing with section 13. It seems to us, with the exact wording that’s in there, although we heard what Mr. Whittemore said, that it is supposed to be based on each class and stuff. It seems with the exact wording that what this is going to allow us to do is go out and buy power in the open market and have the privilege of paying about 20 percent more for it. So the way it’s worded right now, we would actually prefer to stay with A.B. 366, which we think offers greater protection to the residential class and offers us greater ability to purchase power.

Specifically, I proposed four amendments to the existing language (Exhibit F) of S.B. 438. In section 13.1, we don’t think the section as written out makes much sense. It says the commission’s going to do a class of service study. But then it goes on to say the rates may not vary from the rates for each class of customer for electric service in this state which are in effect on the effective date of this section. As you’ve heard, the power companies say, "We’re a very, very large power user, the largest in the state, and a significant part of our rate is simply subsidy." The exact language of this section would lock in that subsidy until 2003.

In the second amendment we propose doing a cost of service study and then lock in those rates based on the current cost of service study. The production for the residential costs should come under the existing provisions of A.B. 366. As the second proposed amendment, we’re very concerned with 13.4 as to if all the gains are used. If we do a cost of service study, and it says the residents should pay "X", but we set the rate at "Y", the differences can be paid in 2003 to the power company from the sale of their generating assets. Well, if that uses up all of the profits they get from the sale of the generating assets, all of the consumers will then be left with other stranded costs including the QFs. A much better use for the profits over book value of the sale of the generating assets would be to take care of the stranded costs and the QFs. We want to make sure those are taken care of and not simply used to subsidize whatever the difference is between the rate that’s set and what the true cost of service is. It also appears to us that with section 3.1 the way it’s written, the true cost of service for a large power user like myself will be set at something significantly less than the rate that has to be locked in, which will simply be a windfall to the power company. Which brings you to section 13.5 which says the power companies can keep whatever they get without anybody looking at the overall rate of return during this period. This would seem like a fair system if we’re going to have true rates set on the rates and if the customers are not stuck with the stranded costs and the QFs and have to pay those off over the long term.

The final two amendments I propose are to 12.3 and to 21.4. They would eliminate the words "when compared to other utilities with similar obligations to serve the public." That just opens the door to looking at what they’ve done in other states, and we’re doing a unique form of deregulation here. We don’t believe we need to compare those.

Finally, I would propose we amend NRS 704.987. Presently the Southern Nevada Water Authority is allowed to buy power directly from the Colorado River Commission. We believe the CRC could sell us power at a better rate if they could broaden their base and could also sell to other political subdivisions of the state. We believe the State Department of Transportation or the prison system or the counties or local governments wanted to buy directly from the CRC, that would only save the government money and would allow the CRC to better function in providing the power to us.

Those are the amendments I would propose.

Representing SNARSCA, Southern Nevada Air Conditioning Refrigeration Service and Contractors’ Association. And with me are Scott Meier on my left and Jeff Stewart on my right. I know the hour is late. We’re circulating a proposed amendment (Exhibit G). Let me say there’s no particular pride of authorship on that amendment. I’ve tried five or six times to make one that wasn’t as lengthy and ugly, in my opinion. I haven’t come up with a better one yet, but I’m more than happy to meet with members of the committee, Legislative Counsel Bureau, or the opposition, or anybody that will help me draft this thing a little better.

I will try to be very quick here. While I have the floor I’m going to indulge in my clients for one moment and, just as a practitioner who appears in front of the Public Utilities Commission, suggest that I heard Senator Townsend say that the use of administrative law judges was discretionary as the language was drafted. I’m not reading it that way. I hope he intended it that way. I think it would be very helpful. There are times when there’s really nothing like arguing and trying your case and presenting your witnesses directly to the commission on important policy matters. I would hope you would take a second look at that.

Coming to our issue, I’m going to address page 14, lines 28 through 30. It’s sub[section] 3 of section 22. It is, of course, as all of you know having spoken to us in one form or another, the logo issue.

There are two components to this. The logo issue, in general, has to do with competition between the utilities and the businesses they’re currently in, and then those that might become potentially competitive. The matter of metering, just to pick a simple example. Or the matter of selling power, aggregating power, to retail customers, and so on. In that regard, I think you do have to weigh the traditional use of that logo and the rights the utility has in that logo against whether or not depriving them of it is necessary and useful to achieve competition. The PUC has reached one conclusion. Reasonable minds might or might not reach a different conclusion. But that is really the issue.

Since we somewhat seem to be moving away from competition in a lot of areas in the drift of this bill, that might be one more reason to take another look at it. However, I have clients I believe are somewhat the victims of unintended consequences here. They are in businesses that, by and large, the utilities have not been indulged in the past. That logo has not been associated with those activities. We believe it is both unfair and misleading to have the logo used on activities that they're not associated with. Everybody wants to use that logo because the public rightfully has a great deal of confidence in these utilities. They have been regulated. They have been protected from market forces in many regards in the past, and they have provided their end of the bargain for that regulation and support by the state. That is, they have given very reliable service. They are thought of as experts who do very well. The public simply won’t know – and I don’t think even a disclaimer would help the public not know – that with very little exception, they haven’t been in our business. They don’t have any more expertise than I would if I went out and bought a truck and a couple of service guys. But the public is going to think differently. Throughout the country where this has been done, the impact has been devastating. These are not just my opinions. We have national evidence on it. We have things from the FCC. There are studies that have been done. We have had testimony of economists. We have twice fought this case in front of the PUC where we had to prove what we had to say and we did well there.

We hope you’ll give us every consideration. The hour is late. You’ve met with us personally and kindly given us your time. I don’t want to burden you further with my thoughts. I do, however, want to give both these gentlemen a chance to add anything they might wish to do so.

I am the Vice President of Quality Air Conditioning in Las Vegas, and current president of the Southern Nevada Air Conditioning, Refrigeration Service Contractor’s Association. I am also current chapter president of the Air Conditioning Contractor’s Association of America based out of Washington, DC. Scott and I are here representing three other organizations of many members, (these three organizations were totally unintelligible), which represents a large base of air conditioning, refrigeration, plumbers, and installation companies in southern Nevada. Over 1,000 employers are represented by these groups.

Just to give you a little background. Our industry is mainly a "mom and pop" type of business, and some statistics here might help you understand our concern. The term "highly fragmented" is used defining our industry. We have 58 percent of our members, nationally, who have less than $1 million in revenue, and 40 percent have less than 15 employees. Yet we are representing a $64 billion industry.

As I was attending a conference in Orlando [Florida], the state of Nevada is recognized as a leader in this deregulation effort. We’re here on behalf of many contractors who are concerned about some of the issues currently before you.

We’ve come here basically to address three specific areas of concern. (1) To protect the consumers from misleading or deceptive advertising that could occur by name and logo usage. (2) To protect our industry from that same process and the results of deregulation could have on our industry. (3) We recognize that we are here to give you information that will help you make a decision in a wise fashion. In the effort to deregulate, we do not want to have a monopoly so existent one entity switch to another. That’s potentially what could happen here. This shifting could occur in our industry, mainly because currently 42 percent of utilities are actively involved in some form of air conditioning and refrigeration service across the country. We understand we will be the first potentially competitive industry they will go after. We are a threat (unintelligible) . . . intrusion is a threat to our industry, and we are in the crosshairs currently, and I think they’re just ready for the "go" signal to push the trigger. Our industry would be the first to be hit.

We’re not afraid of competition or are we afraid of fair competition, but we do believe that name and logo usage in an industry that is not, in the past been regulated, or that has been regulated, could certainly move into our industry and harm us. I’m going to turn the time over to Scott Meier. I appreciate your time and concern. We do have to get back tonight.

[I am] President of a local or a southern Nevada air conditioning company called Custom Cooling and Refrigeration. I’d like to start off with a theme that I think Senator Carlton mentioned when she spoke earlier. She said that as voted officials, you have an obligation and a responsibility to protect the consumers in the future in the advent of utility deregulation. I’d like to keep that in mind as we go through what I have to say.

I think to paint the picture for you, you need to have a history of what started the Nevada contractors to start protecting the business and the reason we’re here today. In September 1996 Nevada Power put an article in the newspaper that was asking us contractors to give them estimates for installing air conditioning systems. They would be the provider of the air conditioner. They would be the seller of the air conditioner to the end user, and they simply wanted us to provide the labor and the incidental materials to perform the services. In essence, we would be labor brokers. Utilizing the name and logo recognition they have built so well in southern Nevada, we felt that could have a detrimental impact to out industry and we were very concerned by that. They were using that name and logo and the credibility of it to actively acquire customers. That was met with strong opposition on behalf of our organization. I was the president at that time, so I happened to be the one that shared this and led it at that time.

The program was stopped because they [Nevada Power] were operating illegally. They did not have a state contractor’s license so the program was stopped. Quickly after that, they then came up with a certified dealer referral program. The certified dealer referral program basically what it said was if contractors wanted to be part of their [Nevada Power] program, we could pay the utility $10,000 minimum a year – that’s minimum – to be a part of their program. They would use their name and credibility to derive leads, they would market the program through their different forms of advertising, and as a result of this $10,000 fee, we could sell air conditioning to our existing customers who were also their customers. Needless to say, that forced outrage in our industry.

I would like to quickly read to you a flyer that gives you an idea of deceptive advertising, in our opinion, that was sent in the bill inserts to over 200,000 of their clients in southern Nevada. I will quote this:

Now keep in mind these are the experts of Nevada Power who, quite frankly, did not possess a Nevada state contractor’s license. It seems to us, on a national level there’s plenty of documentation that supports what we’re saying. There could be irreparable harm to our industry if we were to allow the utilities to use that name and that logo in our competitive nature. The National Regulatory Institute has a study, which we have given you (Exhibit I). I will not bore you with all the details, except I’d like to read you one sentence on page 20, that simply says, and this is from the National Regulatory Research Institute, "We conclude that allowing unrestricted brand name extension from an incumbent utility to an affiliate in the emerging competitive retail market could seriously cripple viable market entry and therefore early phases of retail competition." And again, this wasn’t dreamed up by us. This was by some credible organizations who understood the concern.

In a different light, United States Supreme Court has determined that there is a significant possibility that trade names will be used to mislead the public. It didn’t say may be used, it says will be used. You see, you must remember, the name and logo that have been used by these utilities has been given to them as a regulated, governmental regulated monopoly utility. It’s been given to them in a fashion to provide safe power. Those revenues they have derived as a utility, a government regulated monopoly, those revenues have been used to build that name and credibility in their industry. Certainly not to build credibility in our industry. As a result, ladies and gentlemen, we just feel that’s not right. We feel that’s very unfair. It seems irresponsible to allow them to take that type of advertising to deceive the consumers.

I will share comments with the gentleman who spoke earlier on the meters. We also receive – we have 9,000 members nationwide in the Air Conditioning Contractors of America Association – those 9,000 members, on a weekly basis, receive an update saying, "How is the utility deregulation issue going on around the country?" Three months ago I received on my desk a fax from this organization saying that Nevada is the role model legislation for fair competition in the state and all the states should follow this role model. S.B. 438 in my opinion, does not do that. S.B. 438 is not allowing for fair competition.

Thirteen years ago I started a business. I’m a small business owner. At 24 years old I started a company. My wife and I did it out of a 900 square foot home. We operated out of the bedroom. I had the fears of competing against Sears and Homebase and all those large corporations. Yet those were acceptable risks. The risk that a new business owner would have to face by going into an area where a monopoly utility could use that enormous power and recognition they’ve been given by having every single one of us in this room, as a ratepayer, that has provided them the money to advertise their name and recognition for the last 50 to 100 years, it makes my blood boil. It’s not fair, it’s not right.

I thank you for your time.

Thank you. Chuck Miessner, Director of Operations & Regulatory Affairs, New Energy Ventures. (He distributed Exhibit J.) I’ll be very brief. We are the largest alternative seller in the nation, with over 2,400 megawatts under contract, and we’re involved in every state that’s competitive for electricity. We’re very eager to be involved in Nevada. We are applying for a business license to be an alternative seller in Nevada as we speak.

I guess in brevity, when we look at this legislation, we really don’t see a need for it. We certainly support the date change to March 1 of 2000, but we see that A.B. 366 already gives that discretion. We certainly support the provider of last resort provisions and safety measures, but again, we feel that NRS 704 already provides for that when we read it. I guess it kind of comes down to the residential rate, and I’m not going to testify to that. Others have, and I really don’t have the expertise to tell you which law is going to protect residential customers better. In terms of some of the other arguments, I just think this bill is unnecessary.

What I will comment on is this. We’ve offered an amendment that tries to ensure that if you adopt this legislation, that it really holds to the vision that the utilities go into the monopoly wires business, the transmission and distribution business, and that the competitive part of the electricity business -- the generation, metering, billing – all become competitive services. The utilities can participate through an affiliate, but they should not compete as the utility. I think we would agree that they shouldn’t use their logo for these affiliates. Some states allow it, some do not. The states that do allow it right now, including California and Arizona, your neighbors, have very strict disclosure requirements on utilities to make sure that customers aren’t confused; that it’s the utility that’s offering that competitive service, or that customers are obligated to take that service from a utility in order to get transmission service from them. We prefer the logo [issue] go away, but we also – if you do adopt that, we’d very much prefer measures similar to those other states have adopted on disclosure. We’re talking of marketing materials, advertisements, even business cards.

Again, we feel these affiliates should be very arms-length entities, very arms-length from the utilities.

We certainly would be very much against the utilities running out and marketing to all their customers prior to March 2000 and cutting deals with rate reductions to secure long-term contracts, and maybe in funding those through the profits they make on selling their generating plants. That’s a really quick way to discourage a large entity like ourselves from coming into the state if you allow them to shore up all the prized customers, if you will. We strongly discourage that.

I think we’ve offered some language in our amendment to help prevent that (Exhibit J).

I would say also that we would offer some comments against what the AFL/CIO has offered as an amendment in terms of making metering and billing and customer service and those entities non-competitive services. They really need to be competitive. In California, for example, when CTC was still in place here, the reductions in price aren’t large. They aren’t large benefits for customers. Many of the benefits that are there are actually the metering and billing benefits. We offer customers day-after metering, information on the internet, you don’t have to wait until the following month to get the billing information in the mail. This is a huge advantage and benefit for commercial chain accounts and governmental accounts and other people that are trying to manage the energy efficiency of their buildings. We would certainly say stay the course that you’re doing in terms of making all those services competitive.

In closing, a couple of our suggested changes to the bill, if you do adopt the bill, are kind of technical, especially in section 14, which refers to the provider of last resort service. Some of the wording is not very clear. It talks about generation services or potentially competitive services. I think when you unpeel the onion and dig into the other layers -- you know it’s referring back to parts of the NRS that refer to provider of last resort – we’ve offered some technical language that doesn’t change the intent of this act, but does clear up any ambiguities in that section 14.

That’s what before you. I’m here to entertain any questions.

Representing the Nevada Independent Electric Coalition. Maybe for the benefit of those committee members that are new to the process on A.B. 366 and S.B. 438, I’ll do a little background.

The Nevada Independent Electric Coalition represents three co-generation facilities down in southern Nevada. Those are the Nevada Cogen Association Projects One and Two, and Saguaro Power Company. All three of these facilities have purchase power contracts with Nevada Power Company. Collectively, these three facilities provide about 300 megawatts of output, which represents somewhere in the neighborhood of 15 percent of Nevada Power’s requirements.

I would like to make a couple of general points. The QF contracts, or as referred to in this bill, the purchase power contracts, that is only one contract that these projects have. There are several contracts; in fact, it must be managed by the projects. They have steam contracts. In Saguaro Power’s case, with their host, Pioneer Chlor Alkali Company, they also provide steam to Ocean Spray and to Federated Food Industry. They also have contracts for operation and maintenance of the generating facilities. That’s not to mention the financial contracts that were established to finance these projects.

The QF contracts have come under scrutiny throughout the country because, in some cases we have been above market, and that is the case with the three facilities in southern Nevada. But they are above market because, when these contracts were formed, one of the concerns of the PUC was reliability. One of the ways to secure reliability was to enter into long-term fuel contracts. It's these long-term fuel contracts that have caused us to be above market at this point in time.

Will they continue to be above market? Nobody can predict that. I think testimony given previously by several parties indicated that these contracts could look real smart in 5 or 10 years.

Our main issue has been, throughout this process of Nevada establishing electrical restructuring, has been contract sanctity. I would like to make some points to the committee about contract sanctity. Contract sanctity does not prevent the buydown of these contracts. It does not prevent the buyout of these contracts. I submit that these contracts, whether they are bought down or bought out, are business decisions between the parties to the contracts, that is the cogenerators and the utilities. If the consumer advocate and the PUC and the utilities agree that proceeds from the sale of generation should be used to buy down those contracts, I can assure you that these projects will attempt to negotiate in good faith. If a good deal can be struck, we would be happy to be signatories to such a deal.

The second perception I would like to attack is that these contracts are very expensive. They are above market. Are they very expensive? It was represented in hearings on the senate side that the utility, as I mentioned earlier, these contracts provide about 15 percent of their load and about 17 percent of their cost. So they are not that far above contract, and if you could wipe these contracts out today, I’m not sure folks could go out and find cheaper power, particularly given unbundled rates covering capacity requirements and transmission requirements. It may in fact be hard to replace these contracts at the cost they’re at today.

The basic need for contract sanctity is not to protect the financial aspects of these contracts. It is basically to protect these contracts from intrusion by the regulators. It is to keep you from having to go to court. And in other jurisdictions and in federal hearings, it has been said that these contracts and the owners of these contracts should not be put in a position where they have to litigate.

That brings us to points made about constitutional protection. Well, constitutional protection is great, but you have to go to court to get that constitutional protection. We should not be put in a position to have to do that.

Section 12 specifically is the section that addresses these concerns. First of all, Mr. Hettrick raised the question about the language and he made a very good catch. Even if you bought into the concepts and the verbiage within section 12, there does seem to be a conflict in the language between the opening sentence and other parts and other subsections of that section. As Mr. Hettrick pointed out, and our own attorneys have looked at this and came to the same conclusion, there is a problem. The first section talks about how you must honor the provisions of the existing contracts, and then the rest of section 12 talks about how you must renegotiate those provisions. So we think that is a contradiction and needs to be corrected.

Beyond that, I wanted to address Mr. Speaker’s question earlier to Senator Townsend. This language does provide notice to the utilities that the contracts must be honored. Our own concerns about this language is that it does not go far enough in doing that. It is true that, as Senator Townsend explained, there was an attempt or desire to abrogate these contracts via the PUC staff. The PUC drafted this language to protect us. I guess I’m being somewhat facetious but not entirely our view of that is that the fox has had the opportunity to draft the security plan for the chicken coop here. We think it still provides entirely too much intrusion, entirely too much of an arbitrary opportunity to deny recovery to the utility. Now you might ask why would I be concerned about recovery for the utility. But contract sanctity is nice, but it doesn’t mean much if the entity you have your contract with becomes financially unhealthy. That’s the problem with the regulatory authority having too much discretion on what can be recovered via this language under section 12.

Just to make a philosophical point, deregulation or electrical restructuring is a process that should bring us to a better world, providing lower cost power, and all the increase in efficiencies that have been spoken about here before. We should not have to get there on the backs of any entity involved in this process. These contracts should not have to carry any economic deficiencies to get to deregulation, the utilities should not have to carry any economic deficiencies to get to deregulation, and the residential customers should not have to take hits to get there. If competition is truly to be the good thing that everybody thinks it’s going to be, then it ought to be given the chance to evolve. These contracts ought to be honored. The utilities ought to have full recovery for their stranded costs. To that end, I think, Mr. Chairman, with this committee’s indulgence, we will be offering an amendment specifically to section 12, and we’re more than happy to work with any of the other interested parties on that language, or we will submit language that we draft ourselves. Thank you.

[I am an] attorney and independent energy consultant, working in Nevada today and testifying on behalf of Utility.com. To give you a little background on who Utility.com is, they’re an energy service provider. They’re registered in the State of California with the California Public Utilities Commission. The company is one of only three competitive providers actively marketing to small businesses and residential customers throughout California. It also is the first company to apply for licensing in Nevada’s competitive electric market. Utility.com has been an active participant in the regulatory proceedings throughout the United States, and has contributed expertise on technical and economic issues associated with providing meaningful electricity choices to small customers.

With that background, I’ll indicate that I’d like to provide the members of the committee some testimony that the CEO (Chief Executive Officer) of Utility.com intends to present tomorrow before the Committee on Commerce, Subcommittee on Energy and Power, of the United States Congress at a hearing on electrical utility industry restructuring. I do not have extra copies here but I’d be happy to e-mail those to you, or provide them later. The testimony is going to be presented tomorrow, April 30.

But to summarize the position of utility.com and not to take the committee’s time given the late hour, Utility.com would generally agree with the statements made here this evening by the representative from Phaser, and the representative from New Energy Ventures. We believe, in general, that A.B. 366 is a good piece of legislation that this body passed, that it is adequate. If there are any changes that need to be made, we would agree with the gentleman from Phaser that the change moving the date to March 1, 2000, may be appropriate. It will get us off the Y2K problem. You’ll also see in Mr. King’s testimony, when I provide it to you, that Utility.com is taking a compromise position on the logo issue, in that we would indicate, with respect to the name and the logo, for purposes of its use in Nevada, that it would be the position of Utility.com acceptable to allow the existing utility to use that, but under the provisions of the strict disclosures and disclaimers they do use in California. Just as an aside, I don’t know if any of you are familiar with those disclosures and disclaimers, but if you go and sit down with a representative of PG&E Energy Services, which is the affiliate of PG&E, the utility that does the competitive activities in California, he hands you his or her card and you look at the back of the card and the entire back of the card is filled with the disclosure disclaimer language. So it is very extensive. Again, in the spirit of compromise, Utility.com would agree that provision changed to the law may be appropriate. With that, I would be glad to answer any questions.

Ernie Nielsen. I’m with Washoe County Senior Law Project, which provides legal assistance to seniors in Washoe County. Today I wish to raise two issues, both of which I raised on the senate side. I think they’re niche issues and neither of them affect the delicate balance that has been described to you earlier.

The first one is I believe there needs to be a simple mechanism which allows the customer to be able to compare between alternative sellers with respect to their prices, with respect to the fuel mix used for the generation of those services, and other conditions of services. It’s possible the commission might address this. I don’t think they have to date. I know this is a fairly significant issue for AARP (American Association of Retired Persons) nationwide and locally, and it’s something I think the committee would be well served by at least considering. Enabling people to compare apples to apples.

The second issue has to do with the fact that other than the resource planning process that’s now within the regulated electric industry, there really isn’t any policy in this state that talks about whether we encourage energy efficiency or reduction of use of energy and so forth. We’ve been talking through A.B. 366 and this bill and through some regulatory processes about how we provide electric service to customers, but we really haven’t done anything to address how we can assist customers to reduce their usage of electricity. Normally, in the resource planning process, there is such a thing called demand side management, which allows some energy-reducing programs to be paid for out of utility-generated funds.

Some might talk about the fact that this is something that can be taken care of by the marketplace. I think there are plenty of energy service companies that will provide these kinds of services for large customers, industries, school districts, and so on. But I really don’t think there’s anybody out there that’s going to be marketing these types of services to seniors on fixed incomes, or perhaps even rural citizens. I think there’s plenty of market barriers why some of those people won’t be able to access those services.

With respect to demand side services, I’m not talking about giveaways, I’m talking about ways to enable people to access the marketplace.

In other states that have done restructuring statutes they’ve looked at this type of a benefit that’s been part of the regulated system. They’ve included [this benefit] in their process by funding these types of programs by what’s called, in various ways, a systems benefit charge. I understand the governor has taken a dim view on things which might be viewed as a tax or a fee, but this is a traditional mechanism, at least to date, that’s been used by other states to generate funding to provide some continuation of these programs that have been in place under the regulated system. A systems benefit charge would be a charge on all customers, collected through the distribution system tariff. I don’t think such a thing would disrupt the balance that has been described to you. It may be problematic from a tax or increased fee approach, but I think the fundamental issue here is that this legislature has not addressed what the policy of the state is on encouraging reduction of use.

I don’t have any language today. I would hope to develop some language before this committee concludes its deliberations. Thank you for your time.

[I am] testifying on behalf of the Las Vegas Chamber of Commerce. I represent 5,800 businesses who are currently customers of the electric system, Nevada Power in Las Vegas and Clark County, and 5,800 potential customers of competitive electricity supplies in the future. In that regard, we have had a number of sort of basic tenets and goals what we’ve held to over the last sessions as this issue has been debated.

First and foremost, we are clearly interested in competition, not just for competition’s sake but for the benefits of competition. In a great part, I think that is the reduction of price, in some sense, of the cost of electricity, but it’s also the creativity and innovation. Particularly for small customers, it’s the types of issues I think that will provide an ability to adjust rates and lifestyles to make sure that people get the quality of service and the cost-effective price they’re looking for.

Secondly, we’ve looked for trying to make sure that this occurred in Nevada as expeditiously as possible, but as sanely and as correctly as possible. In that regard, we’ve watched with great interest not only this legislation but also the legislation last session and the session before. Most importantly, [we’ve watched] the docket that has been open in front of the Public Utilities Commission and its related proceedings. We’ve been very comfortable and very understanding of the progress that’s been made there and the positive developments and achievements in that process, far beyond what we thought would actually be accomplished. We’re very comfortable with that.

This bill, S.B. 438, has a couple of things I think speak to two of our major concerns. Those are, smaller customers, as this bill allows, will be able to exit by choice, come whatever date the commission determines competition or potentially competitive services can be offered in Nevada. It’s either March 2000 or at some date thereafter the commission decides. For us, and for a lot of the small customers, there is a continuing question, I think, of exactly how soon that market will develop, not just because of the intricacies of marketing and developing that market, but also because of the needs of education and understanding on the part of customers to make the kind of choices that are cost effective and appropriate for them.

In that regard, the issue of a rate cap as set forth in A.B. 366 last time was important to us, because until the effective benefits of competition occur, then a rate cape is an important thing in terms of a lot of the issues that have already been discussed.

Section 13, subsection 1, which was basically something that we saw in the last moments as it came out of the senate, is not a rate cap, it’s a rate freeze. In a sense, that causes some concern because that floors rates as well as well as caps them, although there is one opportunity for additional deferred energy accounting to be asked for and received in that section. So, we continue to look at that. Again, we are interested in making sure an effective rate cap is in place. I have not had a chance to compare the benefits of the rate cap in A.B. 366 with this. There are issues of timing presented by the rate cap. The rate cap in A.B. 366 was 2 years after the commission determines there is effective competition. That may not necessarily be 2 years after the date that competition starts. It may be at some later date when, in fact, the commission determines that. It’s not correct for us to – we’re not sure at this point exactly what the duration of that cap was. It’s pretty clear what the duration of the cap in this one [S.B. 438] is.

So those are the things we’re trying to grapple with in terms of the adequacy or the correctness of those provisions, especially when coupled with section 13, subsection 5.

Secondly, and again most importantly, because this is very hard for us to understand and I guess, in a sense, "crystal ball", is the impact on, or at least I guess I would say, our interest in making sure that we maximize the reduction of stranded costs as much as possible so that, as little as possible, that comes on rate. The way I would shorthand that for you is – and I think this actually is an interesting benefit of the merger filing – I think it should be regarded as such. I’ve talked with Nevada Power about this as late as yesterday. Basically it created two new pools of resources that weren’t necessarily available to us when we discussed this as A.B. 366. One is the proceeds from the sale of generation assets. The second is merger savings. Savings by the natural, I guess I would say, efficiencies of their ability as to A.B. 366. One is the proceeds from the sale of generation assets. The second is merger savings. Savings by the natural, I guess I would say, efficiencies of their ability to merge and do that efficiently. I think the trick for us – for everybody, not just for the chamber – was to make sure that those proceeds and funds are used as smartly as possible.

We have three targets that we think are the appropriate use for those – and I don’t think these are anything magical – I think they’ve already been identified – we’re just sort of adding on. Issue number one is stranded costs. I think issue number two is if they aren’t considered specifically stranded costs, the uneconomic portion of the qualifying facility contract to the extent that it’s an additional cost, maybe over and above market – the price of power at market – should be accommodated. And thirdly, the potential tax effects of the sale of the generation assets. There is, theoretically, some taxes that will be due there and I think that’s why the provision is in bill to try and do that. I’m not sure that it artfully does that. It seems to speak to a potentially competitive service as opposed to services in general, but we'll deal with that as we go through. I’ll be happy to help on that in terms of my thoughts at a later date when you’re discussing that specifically.

Those should be, in our opinion, the smartest targets for that. There are some things in this bill that seem to affect the use of those funds and affect how they actually are turned around and potentially could end up being a feature of rate as opposed to the logic of using those directly for the paydown of stranded costs. We’re looking at that. You find those in section 13. It’s something we’re still analyzing. We don’t have any particular amendments to propose, but I thought I would at least share with you our fundamental concerns, not necessarily as businesses but frankly as consumers of power, and trying to look out for the interests across the board of our membership.

I would say again though that A.B. 366 and the work that’s been done at this point, having had I guess the personal opportunity to observe that, I think we are in a much different and much better shape than I think anyone presumed, given the hard work and the extreme diligence by which that process has sort of furthered itself. I think that’s an important thing for us to sort of support and reaffirm.

Thank you very much. Be happy to answer any questions.