The Select Committee on Senate Bill 438 was called to order at 3:15 p.m., on Thursday, May 20, 1999. Chairman Douglas Bache presided in Room 4100 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Douglas Bache, Chairman

Mr. Greg Brower

Mrs. Barbara E. Buckley

Mr. Lynn C. Hettrick

Mr. Sheila Leslie

Mr. P.M. "Roy" Neighbors

COMMITTEE MEMBERS EXCUSED:

Mr. Joseph E. Dini, Vice Chairman

Mr. David Parks

Ms. Sandra J. Tiffany

STAFF MEMBERS PRESENT:

Chairman Bache called the meeting to order at 3:05 p.m. and continued the hearings on Senate Bill 438.

Chairman Bache: Please mark Mr. Brower present. Because we don’t have the proposed amendments ready yet, we’re going to recess until tomorrow upon either adjournment of or recess of Assembly Committee on Commerce and Labor. We’re looking at approximately 4 o’clock. We may be in the Judiciary room, room 3138, down on the third floor.

One last thing for committee members. Mr. Ziegler, did you pass out this comparison to everybody (see Exhibit C)? It has a comparison of the different sections in S.B. 438 in a couple of different manners so that those of you on the committee can peruse them.

Is there anything else to come before the committee?

Seeing none, we are recessed until tomorrow.

Chairman Bache recessed the meeting at 3:08 p.m.

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The Select Committee on Senate Bill 438 was reconvened at 8:15 p.m., on Friday, May 21, 1999. Chairman Douglas Bache presided in Room 3138 of the Legislative Building, Carson City, Nevada. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Douglas Bache, Chairman

Mr. Joseph E. Dini, Vice Chairman

Mr. Greg Brower

Mrs. Barbara E. Buckley

Mr. Lynn C. Hettrick

Ms. Sheila Leslie

Mr. P.M. "Roy" Neighbors

Mr. David Parks

Ms. Sandra J. Tiffany

STAFF MEMBERS PRESENT:

Chairman Bache reconvened the meeting at 8:15 p.m. and continued the hearing on Senate Bill 438.

Chairman Bache: What we’re going to do tonight, since the bill has received an additional waiver until Monday, is have the presentation of the amendment and that will be it for this time. Monday we will work session it and do everything we need to do at that time. Mr. Whittemore, Mr. Ponn, Mr. Schmidt, and Mr. McMullen? If you’re here, come up and present the amendment. Oh. Fred’s the only one in the room. Doug. Okay. Two out of four. We’re batting 50 percent. Hurry up, Harvey. We’ve amended the pier out of the bill.

Are there members of the committee that don’t have it? (He was referring to Exhibit D, which had been previously distributed.)

Harvey, I announced the pier was amended out of this bill. Whichever one of you wish to start.

Vice Chairman Dini: Any questions from the committee?

Assemblyman Hettrick: I’m looking at the first page in the last paragraph and I understand where we’re trying to go with this, but I’m wondering if it does what we’re trying to do. The reason I say this is, it says "a seller may combine two or more customers or  . . . the commission may not limit the ability of a seller to combine customers . . ." It appears to me that we’re allowing aggregation by the seller but we’re not allowing the customers to form a buying consortium. What I was hoping we were going to do was allow the customers to aggregate personally if they wanted to rather than to allow the seller to try to aggregate, because I’m not sure the seller will try. This language may not be bad, but I want to make sure nothing prohibits the small buyers from being able to form consortiums without having to go to an alternative seller and work through him to aggregate.

Mr. Schmidt: Let me assure you, first of all, Assemblyman, nothing in the current law that I’m aware of, limits the ability of customer groups themselves to aggregate. The purpose of addressing in this section, the focus from the seller concept is the concern that through the licensing process, the commission might limit the type of sellers who might creatively market or deal with customer groups who do aggregate. And make clear that the sellers themselves can also do it. It’s also important to note that in order to actually provide the electric service, you have to get licensed as a seller. So even if a group of customers does aggregate or get together, they would have to get licensed in order to actually buy the service.

Assemblyman Hettrick: Yes, and I understand – my hope was that what we would see – and I think we’re going in the same direction, so don’t misunderstand me – my hope was what we would see is the ability of a group of customers – whatever they might be – to decide to form a consortium. I want to stay away from the word "aggregate" so we don’t mix the terms. [They would] form a buying consortium and be able to actually issue an RFP (request for proposal) to alternative sellers. And say, "Would you like to provide service to us?" They wouldn’t have to go out and form a buying group and become alternate sellers. I don’t see any small group of buyers going out and becoming a licensed alternate seller. In fact, I don’t think that’s going to happen. But I do think you could see a small group of buyers form together and then say, "We want to issue an RFP to existing alternate sellers to see if someone wants to provide." That’s what I’m trying to get to.

Mr. Schmidt: Assemblyman, once again, I would agree with your intent and I think the law currently allows for that. I know of no restriction against doing that and I’m hopeful – my hope is, with the rate protection until March, 2003, that we will begin to see that type of activity. And I will pledge to you that if that type of activity does not commence within the next 2 years before 2001, I’d be happy to draft additional language to try and encourage it to happen. I truly believe that small customers, whether small businesses or residential customers, are only going to participate aggressively in this marketplace once they are combined.

Assemblyman Hettrick: Thank you very much, Mr. Chairman. I appreciate that and again I think we’re all going in the same direction. I had asked Mr. Ziegler, our staff analyst, to confirm that earlier, whether or not he felt we indeed could have a consortium of small buyers, and he said he doesn’t believe anything in A.B. 366 prohibits that either. I’m just wondering if we can’t throw a sentence in here someplace that says we can have a consortium that could issue an RFP. We’re in the middle of amending anyway, and I don’t want to throw a monkey-wrench into this, but if we’re extended until Monday I’d like to think about that.

One other thing I would like to do, Mr. Schmidt, you were very helpful to me today and the 2- to 3-minute presentation you gave me as we were walking down the hall on the overall impact of rates around us. I have had the question – and just let me lay this scene if I may – and I’d like to repeat the conversation we had earlier today. I’ve had questions about the fact that California has higher power rates than we do. In fact most of the states around us have higher rates than southern Nevada does. I've been hit with the concern that what’s going to happen here is we’re going to put in S.B. 438 or allow A.B. 366, either one, it doesn’t matter which. What we’re going to see is the rates in southern Nevada go up without any significant impact on northern Nevada for awhile. The reason for that would be that California’s rates are higher, so the generators in California would immediately come to Nevada and try to sell power. I'm sorry. Our generators would try to sell power in California because the rate there is higher. So they would see a higher profit and our rates would be forced up automatically because the supply would go out and we’d have to buy from elsewhere and essentially import power. There was some comment about the effect. I talked to you about how far can you practically import power. What do we see as being the actual effect over, say, the next 3 or 4 years of rates in states surrounding Nevada?

Chairman Bache: Mr. Hettrick, I’d like to make a comment on that question first. I think even if we had never passed A.B. 366, if we were under a regulated environment with California being now in competition, that you would still see that same thing occur as far as rates being forced up. People are going to California, since it’s such a large market, to buy. I’m sure Mr. Schmidt has additional comments, but I think regardless what the law is, that could possibly happen.

Assemblyman Hettrick: I totally agree with you, Mr. Chairman. That’s exactly what I wanted on the record. I want Mr. Schmidt -- and your comment hits it the same as Mr. Schmidt’s did – I want it on the record that if we see rates go up in southern Nevada, it’s not because we do this, it was going to happen anyway. The likelihood is we’re going to see this occurrence. And that was the very point of the question.

Chairman Bache: Are there any other questions from members of the committee for Mr. Schmidt? Mr. Whittemore?

Chairman Bache: I have already made that request of Ms. O’Grady.

Mr. Whittemore: Thank you. I’d be happy to answer any questions.

Chairman Bache: Questions for Mr. Whittemore? I don’t see any.

Douglas L. Ponn: I think I’m less verbose than either of the previous speakers. I don’t want to be the one to put you to sleep. I would only say we still support this redrafted language –

Chairman Bache: Mr. Ponn, I need you to state your name for the record.

Mr. Ponn: Doug Ponn, Sierra Pacific Power Company. We think it does clarify the previous S.B. 438 that you’ve been reviewing. I think it still maintains some balance between the interests of all the parties sitting at this table and others that have been involved indirectly. Unless you have questions of me. I shall express my support for what’s previously been said.

Chairman Bache: Questions for Mr. Ponn? I don’t see any, Mr. Ponn. Mr. McMullen?

Samuel P. McMullen: I’ll be brief. Sam McMullen, representing the Las Vegas Chamber of Commerce. In a sense, I think, my part here is to confirm, for the record, the attention of this draft to issues relating to small customers in general. Mr. Schmidt ably negotiated, frankly, under difficult circumstances, I might say, and I think he is owed the thanks of all of us for putting together a number of provisions that were protective of residential customers, but from our point of view, also small businesses -–frankly all business customers – that are separate and better in this than actually under A.B. 366. I just wanted to put our support on the record for this amendment in total, and also to indicate that our review of it, from the small customer’s point of view, has been that it’s better and it makes sense. Thank you.

Chairman Bache: Questions for Mr. McMullen? I don’t see any. I thank you.

With that presentation, I thought we would recess after this and give the committee time to read through it. Since we do have the waiver, we can go through Monday. We shall recess until Monday at 2 p.m., at which time we will start work sessioning the bill.

Assemblywoman Tiffany: The only question I have is does this document still apply for any of the types of amendments we’ll be looking at? Also, are you considering this the only work document?

Chairman Bache: Well, this amendment is primarily dealing with sections 13 and 14. We have the other amendments that have been proposed and will be disposed of by the committee as the members of the committee see fit.

Assemblywoman Tiffany: Okay, so the sections in – what Dave prepared for us that addressed 13 and 14, then, we’re not to consider off this document (Exhibit C), but off this document (Exhibit D)? Because there are 13 and 14 in here (she indicates Exhibit C).

Chairman Bache: I know there are other amendments proposed for 13 and 14. I would think we would consider this one first, and how that is handled would determine whether we did anything for any other proposed amendments.

Assemblywoman Tiffany: Okay. And there’s other sections in here, too, so we probably will work off this.

Chairman Bache: That was an information document that Mr. Ziegler prepared for us.

Chairman Bache: Is there anything further to come before the committee? Okay, we will be recessed until 2 p.m. on Monday. I’m not sure what room at this time, either this room or possibly 4100. It will depend on which one we can get. Thank you.

Chairman Bache recessed the meeting at 8:50 p.m.

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The Select Committee on Senate Bill 438 was reconvened at 2:15 p.m., on Monday, May 24, 1999. Chairman Douglas Bache presided in Room 4100 of the Legislative Building, Carson City, Nevada. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Douglas Bache, Chairman

Mr. Joseph E. Dini, Vice Chairman

Mr. Greg Brower

Mrs. Barbara E. Buckley

Mr. Lynn C. Hettrick

Ms. Sheila Leslie

Mr. P.M. "Roy" Neighbors

Mr. David Parks

Ms. Sandra J. Tiffany

STAFF MEMBERS PRESENT:

Chairman Bache reconvened the meeting at 2:30 p.m. and continued hearings on Senate Bill 438.

Chairman Bache: We’re going to work session S.B. 438 today. I thought – you have before you a proposed second reprint of the bill with the amendments we adopted (see Exhibit E), because the proposed bill before us – section 1 of this bill is what used to be sections 1 through 11. At the back in the proposed 19 is the amendment we adopted with regards to providing retraining and job placement, early retirement, and severance pay. Those are the two amendments we adopted in the committee that are in here in the proposed amendments.

I thought we’d start with the post significant amendment, the one dealing with sections 13 and 14, that was presented Friday, and after disposing with that particular amendment, we can then go to section 12 and then any other sections that members of the committee wish to proposed amendments to. Mr. Whittemore, Mr. Ponn, Mr. Schmidt, and whoever else, would you come up and go through again the proposed amendments in this proposed draft?

For the committee’s information, in the proposed draft here, section 3 is what is currently section 12 in the bill. So that is for cross-references.

Assemblywoman Buckley: Thank you, Mr. Chairman. Please forgive me if this asked Friday night? Whenever it was that I had to leave. After 14 hours, none of this was making any sense. Walk me through the rate cap. Starting with section 4 – and maybe I’ll try to put this in my own words to see if I can make sense of it in my own mind. Okay. So the commission shall establish a total rate that's necessary to provide services. And then the rate cap says that total rate for each class cannot exceed the rate that’s in effect on July 1, 1999, except if there’s a rate case that’s decided by October 1, 1999. Then, how do you square that then with section 22, which seems to say that the commission shall establish a rate on or before March 2000, and the total rate must be the same that’s in effect on July 1, 1999. Do you unbundle the rates first?

Mr. Whittemore: That’s right.

Assemblywoman Buckley: So you unbundle the rates for the residential first?

Mr. Whittemore: All classes.

Assemblywoman Buckley: Just look at residential for a minute? So you’re unbundling that –

Mr. Whittemore: Um hum.

Assemblywoman Buckley: And then that amount can’t exceed the rate in effect for July 1, 1999, with the exception of any cases filed. Is that what you’re saying?

Mr. Whittemore: Let me see if I can give you an example in real life but not necessarily using cost terms which are reflective of the actual costs that are presently in place. But let’s say that a residential customer was paying a total of 8 cents. Let’s say for the T&D (transmission and distribution) rate, it was 4 cents, and all other components were 4 cents. The total rate would be 8 cents. That would not be changed. That is the rate cap which would be in place. But during the unbundling process which takes place before March 1, 2000, the utilities and the commission determine that the true T&D rate should be 3 cents. On a going forward basis beginning March 1, 2000, the 3-cent rate would be used for purposes of providing the noncompetitive – for the customers again who choose to leave – they would use that 3-cent component and combine that with generation and other charges. So again, the idea is that what we’re doing through the unbundling process is establishing a component rate – which again is very important you take a look again at section 15.3 – which is on page 10 – I guess, Mr. Chairman, through you and to Assemblywoman Buckley – you must read in concert sections 15.3, 22, and section 4. In doing so, what you will find is that the total rate does not change. In the example I just gave, Mr. Schmidt was very concerned that the residential customer would continue to only have to pay under the PLR function that 8-cent rate.

Assemblywoman Buckley: Let me ask you this. On section 22. Why wouldn’t the last sentence say, "The total rate established . . ." Let’s talk about the customers who are left with the PLR. Why wouldn’t it say, "The total rate established for each class of customers pursuant to this section must not exceed the rate cap." Because what is unbundle? Or what if, through the examination of the merger and savings – what if residential goes lower? I mean, hope springs eternal. Wouldn’t you want that to say, "Does not exceed?"

Frederick L. Schmidt: Fred Schmidt from the Attorney General’s Office. The purpose, I believe, of section 22 is to ensure that the rates that are used to establish the unbundled rates result in the same revenue requirement that the company has at the time the case is done. So in other words, there are two ways in which customers could be impacted in the establishment of the rate for its customer class. One is that the unbundling could result in a shift of rates between classes. The other is the total rate for all classes of customers could exceed the total rate that the company is charging all of its customers today. Which would, in effect, allow the company to achieve a rate increase in establishing the unbundled rates, and it could also have them do a rate decrease, but a rate increase or decrease for the purpose of establishing those rates. The goal of section 22 is to ensure that does not occur; that the rates that are currently authorized be the basis for the unbundling case that goes forward in terms of total revenue requirements, both in whole and by each customer class. That results in no shifting between classes, even though different component rates are established. The reason that artificial constraint can work is that the only rate that is really, truly important for customers to have established in the unbundling case, is the noncompetitive components of the rates. It is only that component of the rates that each customer class are paying that are needed in order for a customer to go and take service from an alternative supplier and leave the utility but still receive the transmission and distribution of the service that only the utility they currently receive service from can continue to provide.

Assemblywoman Buckley: So is this not a cap but in fact back to a freeze? I thought we were moving from a freeze to a cap –

Mr. Schmidt: (Interrupting) The – I’m sorry.

Assemblywoman Buckley: You can’t get any savings – assuming they exist. They may not exist. But if the way you word it – if for merger costs or unbundling rate, if that rate’s lower you still can’t use that rate, for residential.

Mr. Schmidt: If the revenue requirement case that the utilities would have as the basis for the unbundling case, would overall reduce rates, then customers will be foregoing that. If it would overall increase rates, customers will not be exposed to that. However, it is only – as you used the word – a freeze – for the purpose of the unbundling case. The cap comes into play beginning after that case is done and applies once competition starts. Actually, it applies before then since the company can’t come in and ask for any revenue increases, but the discounting of rates to customers can begin once competition starts on March 1. That’s why, when the bill drafters – when Eileen did this – I think, effectively she took it out of where it was and put it in this section where it works as a constraint on the case before March 1, 2000. But the rate cap provision takes up at that point and from that point on gives you a ceiling on rates, but allows rates to be discounted at rates lower than that, whether you’re a large customer or a small customer or an aggregation of small customers.

Assemblywoman Buckley: Subject too, if there’s still a shortfall, they can still recover that which ---

Mr. Schmidt: No. The only shortfall they can recover is a shortfall that’s reflected by any shift that’s identified in the unbundling case that would otherwise occur between the classes.

Mr. Whittemore: Mr. Chairman, a shorthand way of responding to the question is, through you to Assemblywoman Buckley, it’s a freeze until March 1, and it’s a cap after March 1, because what the utilities agreed to do was to forego any increase. Mr. Schmidt forewent any potential decrease. So the point is they’re fixed up until – for purposes of establishing the rate beginning March 1 – then they’re capped – and it can go down for that 3-year period.

Assemblywoman Buckley: Okay, I guess I just misunderstood. I thought we were going for a cap and not a freeze and a cap. But maybe that was my misunderstanding. Under this bill, how can you differentiate between costs attributable to distribution versus the PLR?

Douglas Ponn: Mr. Chairman, through you to Assemblywoman Buckley. It’s the – excuse me. Douglas Ponn, Sierra Pacific Company. It’s the unbundling process which is currently in progress at the PUC, based on filings that both utilities made April 1 and 30, that will identify the various components of the rates. One of the outgrowths of that process and those filings is that eventually the commission will be able to determine what the PLR components and reconstituted rates should be. So it wouldn’t be specified here how that process would work, but it’s already in progress under A.B. 366 and a proceeding at the PUC.

Assemblywoman Buckley: In A.B. 366 though, didn’t you have to form an affiliate? And now with this version you could do it in the EDU?

Mr. Ponn: Under S.B. 438 and in the second reprint it’s really a compromise between that. It was originally that the utilities were going to be the PLR for the 3-year period of the rate freeze. In this second reprint after July 1, 2001, we would have to form an affiliate. So it’s somewhere in between and the purpose of not creating the affiliate for PLR provisions was to try to stabilize the environment and create as few dislocations and expenses as possible during the startup of competition. Where we ended up was doing some of that but making the date sooner than it was before.

Mr. Whittemore: Mr. Chairman, on the top of page 12, subsection 5, it provides that again the vertically integrated electric utility must on or after July 1, 2001, provide those services through an affiliate. If I might, through you and to you, Assemblywoman Buckley, the reason why we had such tough negotiations on this provision was that under the existing section 13 of S.B. 438, the utility was provided the opportunity to provide that service entirely through the PLR throughout the period until March 1, 2003. Therefore, in an effort to "jump start" additional competition, we were able to negotiate with the utilities a move-back from that March 1, 2003, date back to July 1, 2001. That is the reason why page 12 was changed.

Assemblywoman Buckley: My last question, Mr. Chairman. On page 12, paragraph [subsection] 6. Is that again freeze language, that unless the utility asks for it, the commission can’t lower residential rates? So isn’t that the same thing we talked about before?

Mr. Schmidt: I’d like to answer that. Paragraph 6 reflects that the rate cap would remain on the rates and would only be discounted or reduced if the customer asked for the reduction and the utility agreed, or the utility offered the reduction to a customer. It does not allow rate-making in the form of regulation to go in and, if the utility is doing well and making profit, that the commission thinks needs looked at, and allow the commission through regulation mandate rate reductions. It will only be the market, I believe, that would drive rate reductions under the rate cap.

Mr. Ponn: If I could add to that answer. That section 6 was intended to be the quid pro quo for what is perceived to be additional and significant risk of providing PLR service after divesting generation and giving up some of the protections associated with rate-making as well, including the elimination of deferred energy in S.B. 438.

Assemblywoman Buckley: Thank you, Mr. Chairman.

Chairman Bache: Other questions at this time?

Assemblywoman Tiffany: Thank you, Mr. Chair. It’s along the same line where we’re talking about rates. Could you give me an example what would you think could happen for a rate reduction? What would be an example that would happen?

Mr. Ponn: Assemblywoman, I’m assuming in your question that you’re talking about under the cap, under what conditions we might apply for a rate reduction?

Assemblywoman Tiffany: Or a customer might.

Mr. Ponn: I think – it’s been Sierra Pacific’s history in the past that because rates are set in a somewhat esoteric rate design proceeding that some customers perceive that their rates are higher than they should be relative to the market or the true cost of providing those services. Over the years we’ve worked with customers to develop tariffs and contracts and just make filings at the PUC to try to fix those rate design problems, if you want to call them that. I think those discussions would continue during this period and if there was a mutual agreement reached between customers and the utility, and the utility decided to make an application to the commission, those are the kinds of things we would do to fix rates relative to the market or true cost –

Assemblywoman Tiffany: Okay. Do you ever see this happening by class or by geography?

Mr. Ponn: Since there is a cap on the rates and because there will be some under-recoveries during this 3-year period from some classes of customers that are still receiving rates below what are determined to be the true cost, that’s going to be an inhibiting pressure on going to other classes of customers and reducing those rates.

Assemblywoman Tiffany: But you don’t see it happening across other classes? You don’t see it happening according to geography? Say north or south, or rurals or urban?

Mr. Schmidt: If I could address your question, Assemblywoman. Okay?

Assemblywoman Tiffany: Sure, if it’s okay with the Chairman.

Mr. Schmidt: I’d like to give you two examples that I would hope would be examples that would happen stimulated by this, or may happen. One for large customers and one for residential customers. Let’s say that the large customer rate is 6 cents, and once the unbundling case is completed, the transmission and distribution component of that is 3 cents. For the residential customers the rate are 7 cents and the transmission and distribution component is 3.5 cents. During the period of the cap, a marketer comes into the service territory, has access to an asset in Utah, and says, "I want to sell power to you, Mr. Large Customer, and I can sell you that power for 5.5 cents. Because I can transmit it and serve you at a lower rate when you pay your distribution rate of 3 cents and transmission rate of 3 cents, I can sell you a bundled price of 5.5 cents." At that point, I assume the utility, Nevada Power or Sierra Pacific, will say – or the customer will go to the utility and say, "We’re thinking of leaving you and we’d like our rate lowered to 5.5 cents." The utility’s going to make a decision on whether it can do that or not, whether it can sacrifice whatever margin it has with that customer to do it. In that circumstance, they may lower the rate to 5.5 cents or they may lower some portion of that, or the customer may leave.

On the residential side, geographically, I’m hopeful that you would have some sort of aggregation occur in the next 3 years. For example, that same large customer, if it was a hotel casino, might say, for its employees, or on a geographical basis, a city comes forward and says, for all of its residents, "Our customers are paying 8 cents or 7 cents. And we’ve gone out and contracted in modeled load and we think we can buy that power for 6.5 cents, even paying the 3.5 cent distribution charge." And so they go to the same utility and they say, "We’d like you to lower the rates for this class of customer that we’ve aggregated or we will, with an alternative license, go buy power for them from someone else." In that instance the utility has the right under the statute not to just keep the rate for that group of customers at 7 cents, but it can lower it to 6.8 or 6.5 [cents].

Now I don’t know if that’s going to happen. Those numbers are purely hypothetical. They’re not meant to be ---

Assemblywoman Tiffany: I appreciate the examples –

Mr. Schmidt: Those are examples of the type of things that this provision in the statutes as well as in conjunction with A.B. 366, were intended to have occur over time as a competitive market evolves.

Assemblywoman Tiffany: Let me ask you another question, Fred. Okay, Mr. Chairman? Let’s take a look at the rurals, for a second, and then a north-south issue. That is, say an alternative seller comes in. Would you suspect that more people will be pulled out from the north and from the south, and what would be remaining would be more of a rural situation that takes advantage of the cap but not lower?

Mr. Schmidt: My expectation is that the cap is going to significantly benefit the most concentrated urban area of our state first, which is all the residential customers and small business customers in the GS class served by Nevada Power. Their rates arguably, are –

Assemblywoman Tiffany: Subsidized.

Mr. Schmidt: Arguably subsidized and the level or amount of that is in question. My hope is that in 3 years with market price pressure, those rates won’t be unattractive in a market sense. So, the rural areas in northern Nevada that are served by Sierra, I don’t expect to be the last into the mix for competition if creative aggregation occurs. I don’t expect there to be de-averaged or different transmission and distribution rates. I will fight against that at the commission so that the person in Elko pays the same T&D rate as the residential customer in Reno. As long as they remain in that service territory. I think at least for some time those rural customers, since they’re paying about 1.5 cents more in northern Nevada for residential service today, and there are much lower cost utilities to the north of us, that if any residential competition occurs, it’s likely to occur as quickly in the northern part of the state as the south.

Assemblywoman Tiffany: Thank you, Mr. Chairman.

Mr. Whittemore: If I may make two points with respect to the line of questioning by Assemblywoman Tiffany? First, I believe that the competitive pressures associated with deregulation in Nevada will create an environment where the utilities will themselves respond to try to keep the customers under the rate cap. Everybody seems to suggest that the utilities won’t know how to compete and retain their customers, and I believe the opposite to be the case. I believe what they’re going to do to try to continue to make a profit, they have to have a book of business. To keep that book of business, they’re going to have to be competitive with respect to those rates. Therefore, if they perceive it is in their economic interest to continue to make a certain level of profit by serving a certain class of customer, they will engage in the same activity that any competitor does, and that is to drop their prices. One presumes that effective competition means that the incumbent competitor is going to lose the business. Effective competition just simply is the threat of a competitor coming in to drop the price. The mere existence of a competitor will have the effect of making the price consistent with market forces unless the incumbent utility wants to lose the customers.

There’s another thing that will take place. As this utility becomes an effective competitor in the marketplace, they will decide to balance the interests of the shareholders long-term, with their ability to generate profit on the short-term. If, under this scenario, they were able to earn an 18 percent return, the shareholders would be happy in the short-term. They’d say, "Gee whiz, I’m earning 18 percent." In the long-term, --

From the Witness Table but off microphone: Use a lower number.

Mr. Whittemore: Use a lower number. 14 percent. Whatever number you’d want to earn. My point simply is as they determine what an effective and appropriate rate of return is for their shareholders, they’re going to balance those interests in terms of being able to keep their book of business by dropping their prices and therefore their profits. That balancing mechanism will take place in the marketplace and I believe under a rate cap scenario, will hopefully sort out itself in a way that the customer receives some benefit.

The final point I’d like to make is there’s no guarantee that oil and gas prices are going to continue to go higher. They could, in fact, go lower. If that is, in fact, the case, then rates could be dropped as a result of deferred – again one of the largest components of the utility’s cost is oil and gas prices – that could significantly drop over the next 5 years if certain things take place with respect to OPEC and a number of other things over which we don’t have a lot of control.

Steve Rigazio: For the record, Steve Rigazio, Nevada Power. I appreciate the endorsement from Harvey there. I think he accurately described what would happen. We [have incentives] to keep business. There are other scenarios in which – in southern Nevada the rates are already low. I think the customers, residential and small commercial, are going to get a great deal with the cap. But there are other reasons that things could change and come down. He mentioned that right now energy costs are going up. You never know. Half the cost of business – they could come down. The second largest cost, as I mentioned before, is financing. If the – and it’s driven more by the growth factor and the size of your infrastructure than it really is by the immediate interest rates. Interest rates haven’t varied much in the last couple of years.

Those could come down. If growth slows down somewhat, you never know. You never know how the trend’s going to go. Energy costs could turn around and come down and merger savings could be better than we project they’ll be with this merger when we go through best practices because – there are scenarios in which those things can actually happen. It seems in everything, when interest rates are high, everybody says, "You’ll never see them come down again." Well, lo and behold, they do. So you never know. I think those things do happen in the marketplace.

Chairman Bache: One point, Mr. Schmidt, I think I disagree with you on about the subsidization. I’ve taken a little bit of a look at the document that was provided to the commission, and I may be incorrect in my reading of it, but as far as the cost of providing service to the residentials at the current rate covers that cost. Now you may be saying it subsidizes the profit, but I don’t think it’s subsidizing the rate. I may be misinterpreting the document, so ---

Mr. Schmidt: Mr. Chairman, I don’t think we’re in disagreement. When we in the business talk about the cost of service, it is intended to encompass the actual out-of-pocket cost plus a margin reflective of an authorized rate of return for the utility. So if the utility’s authorized return is 10 percent, some classes may be contributing 15 percent, some may be contributing 5 percent. But when they say subsidy, they mean that differential. They don’t mean that some are contributing negative too. I would agree with you. I don’t think that customer classes are in that scenario. I’m not sure Mr. Rigazio would necessarily, I would agree with you that (unintelligible) analysis of the cost study showed that residential customers are making a contribution to margin. However, it’s not a contribution equivalent to what large customer classes are contributing from the most recent cost studies.

Chairman Bache: Mr. Rigazio, I’m sure you want to address this –

Mr. Rigazio: No, I’m not going to debate Fred. We argue about these things all the time. I think the key point of this bill is it makes it clear that the unbundling cases filed April 30 with the Nevada commission are the basis for going through this rate process. It may have been unclear in another draft or other proceedings, but that does make it clear, so that debate will happen and those rates are out there for all experts to come in and go through. I think that’s the key issue.

Chairman Bache: Do you disagree with my assessment?

Mr. Rigazio: I don’t disagree with the assessment. There’s a return afforded to us by the commission at a certain level, as Fred described. Various classes contribute to that return, some higher, some lower. In our case we believe the contribution for the residential to the overall return is lower, but there is a contribution from all classes of customers. Yes.

Chairman Bache: Other questions from members of the committee?

Assemblyman Hettrick: Thank you, Mr. Chairman. The only – just a comment. I think this language on page 10 in regard to allowing customers to form groups is fine. In fact I like the way it’s worded. But I just want one of you to say on the record that aggregation doesn't require them to license themselves. Other than that, I think it says that, but I just want it on the record that it says that.

Mr. Schmidt: For the record. In responding to your questions late Friday night, and suggesting this language, it was not my intent to indicate that customers would have to become licensed in trying to aggregate with each other. Only the seller who sells to the customers should be required to become licensed, in our view.

Mr. Whittemore: Mr. Chairman, to make that clear. We also agree with that interpretation and I know that in our discussions with all the other individuals we share that interpretation.

Chairman Bache: Anyone else? On this end, anything else on this particular – on these various sections? I want to make sure about all the members, because we’ll be voting today on this. This is the last day that we can deal with it, so I want all the members of the committee to be clear on what we’re doing.

Of the people signed in, any one of you wish to discuss these particular sections of the bill that were in the proposed amendment?

James L. Wadhams: Thank you, Mr. Chairman. I can be very brief. I’ve asked the committee secretary to pass out basically a two-line [amendment] that I have discussed with all the parties previously at the table (Exhibit F). I’m here today on behalf of Newmont Mining Company. As many of you know, that is a very major consumer. In fact, when I started representing them, the price of gold was over $400 an ounce. Now it’s down to $273. So we are very sensitive to the price of electricity. We’ve asked – and we are under a contract – so some of these changes do not directly affect us. We have asked that this language be included to make it clear that the contracts we are under are not to be construed to be modified by changes in the statutes as a result of this legislation. I’d be happy to answer any questions.

Chairman Bache: Does that fit in with any of these particular sections or as a separate section, Mr. Wadhams?

Mr. Wadhams: Mr. Chairman, I think it’s important that it probably needs – and I would defer to bill drafters – it needs to fit into a section that deals with customer contracts. There are other contracts that have been discussed in this process, and we don’t intend to have any confusion or interference with that. This is a long-term contract for customers. Several major customers are under these contracts. We just would like it to be clear that we’re not intending to change those.

Chairman Bache: Any questions for Mr. Wadhams? Because I have about six people signed in indicating their wish to testify. Is there anybody who wants to testify on these particular sections of this proposed amendment? Mr. Hillerby?

Chairman Bache: Thank you, Mr. Hillerby. Do we have questions from members of the committee? I think, as you pointed out, the documents on the proposed unbundling have been presented to the commission, and I think the commission will be looking very seriously at this section. They may modify what has been proposed. They have that authority to do that, based on what they think is the actual cost of providing that service. I think that ability’s there already. I don’t see this as restricting it. Questions? Thank you, Mr. Hillerby.

Chairman Bache: Questions from members of the committee? Ms. Leslie?

Assemblywoman Leslie: Thank you, Mr. Chairman. On your first point, I guess – I’ve worked with a lot of low-income people and their utility bills over the years – and most of the assistance we’ve been able to find over the years has been through the federal program, the LIHEA program (the Low Income Home Energy Assistance Program). I don’t see that changing with this bill and I wonder if you do. And the other way we’ve been able to help people with their utility bills under the ways that you described is by working with the utilities themselves through their foundations and their payment plans. I also don’t see that changing through this bill. So if you could comment on those two items.

Mr. Fend: Mr. Chairman, Ms. Leslie, yes, I’m aware of the federal program providing a lot of the money to help these people. On the other hand there are some state funds used to funnel this money in. Take Idaho for example, where they have a program called "Circuit-Breaker". When the senior citizens come in and file their taxes, we use the tax form up there to translate that information to the Circuit-Breaker program to see if they qualify and for how much money they would get to assist them with their utilities. It’s very similar to the way we now use our assessment rebate for real estate taxes for seniors. So that’s the type of program I think is going to be available to us.

Now you say the federal money may still be there. I hope it is. Is it adequate? Probably not. It’s just like the bill we passed this time when somebody said, "Well, if people are short of money for rent, or people are more short of money for utilities, there isn’t a bill come up for $200." For God’s sake, that wouldn’t even pay half of what they need. Now we made it to $700. Is that adequate? Probably not. Is there going to be money out there? Maybe. Are competing companies who come into this state to compete going to be able to offer programs until they get themselves off the ground? I don’t think so. Competition is competition.

Assemblywoman Leslie: If I could follow up just briefly. So is your suggestion that we add a requirement somehow or ask the commission to look into that? I guess I’m agreeing with you. I’m just struggling with how do we do that in this particular bill?

Mr. Fend: My first choice would be to establish an official program similar to the Circuit-Breaker program in Idaho, and I’m sure – as a matter of fact I will be in Idaho next week for my granddaughter’s graduation, and I could go down to the state house and pick up the Circuit-Breaker legislation and bring it back with me if you’re interested.

Chairman Bache: Other questions? Thank you, Mr. Fend. Mr. Schmidt, could you address some of those comments that Mr. Fend made? I would have asked the commission if they were here, but it seems like they’re prohibited from attending any more of our meetings, so I figured you could address these consumer issues.

Chairman Bache: Do I have any other questions for Mr. Schmidt? I think you fully covered those concerns. I don’t see any. Thank you, Mr. Schmidt. Is there anybody else who’s testifying on these particular sections of the bill that these amendments address?

Ernest K. Nielsen: Just briefly, I’ll follow up on what Mr. Fend and Mr. Schmidt just reported to you with respect to affordability programs. Though there is no legislation requiring there be programs to address and pay bills for persons with financial hardships, the commission, about 10 years ago, did pass a regulation that requires the utilities to pay bills for those customers who have financial hardship. That’s a regulation. The utilities have chosen to implement that through a voluntary program, but I just want to make sure that the committee is aware there is regulatory language which requires them to have affordability programs. Thank you.

Chairman Bache: Is there anyone else wishing to testify on the proposed amendments to these particular sections?

Michael R. Reed: Mike Reed, on behalf of the International Brotherhood of Electrical Workers, Locals 1245 and 396. We appreciate the committee’s efforts on section 19. However, we believe some language may have inadvertently left out through a misunderstanding. We believe that an additional sentence is needed that reads, "Vertically integrated utilities and their affiliates must honor the provisions of any labor agreements in effect at the time of passage of this act."

(Secretary’s note: The witness prepared Exhibit G very hurriedly (by hand), and it is so entered into the record of these proceedings.)

In discussions with the two utilities, IBEW has repeatedly been assured that the companies will honor these contracts. However, we’d like to the language inserted into the law. Thank you.

Chairman Bache: Okay, that was the amendment on section 19 that’s adopted here. That was one that I presented. It was not the one that you presented. That would be an additional amendment to the bill?

Mr. Reed: Yes sir, it would be an additional sentence in section 19. Thank you.

Chairman Bache: Anybody else on the sections that – and the proposed amendments from Mr. Whittemore and Mr. Ponn? Okay. I guess at this time – because this is sort of a work session too – I’d take a motion on that particular section. I’ll first ask Ms. O’Grady what – to list all the sections that proposed amendment affects so that we have it clear. In the original bill, those were sections 13 and 14, and in the proposed second reprint, could you enumerate all the sections which those amendments affect before I take a motion?

I believe, as I was taking notes, it’s 4, 5, 6, 13, 15, 16, 17. But I want to double-check with you since you were involved in drafting these. I believe this amendment affects sections 4, 5, 6, 13, 15, and 16. There may be a few others in here that the proposed amendment from Mr. Whittemore affects.

Mr. Whittemore?

Mr. Whittemore: (During this time Ms. O’Grady was figuring things out.) The other additional sections would be the transitory sections at the end of the bill, including sections 18, subsections 1(c), and 3, and then the sections 21, 22, 23, and 24 – the transitory sections.

Chairman Bache: Did you also say section 9?

Chairman Bache: And was 17 included?

From the audience, off microphone: Section 13 was included.

Chairman Bache: I’ll run them down again. 4, 5, 6, 9, 13, 15, 16, 18, 21, 22, 23, 24, and I was wondering about 17.

Off Microphone: Section 15 needs to be –

Chairman Bache: Okay. I have 16 down here. You said 15?

Off microphone: 15 and 16, yes.

Chairman Bache: Is 17?

Off microphone: Yes.

Mr. Whittemore: (back on microphone). Yes. 17 is because again that’s a transitory replacement section after section 16 expires by limitation.

Chairman Bache: Okay, I would accept a motion on the sections that are proposed to be amended by Mr. Whittemore. That would be sections 4, 5, 6, 9, 13, 15, 16, 17, 18, 21, 22, 23, and 24 in the proposed second reprint (see Exhibit E).

Mr. Hettrick? Okay, let me take these sections first now. 4, 5, 6, 9, 13, 15, 16, 17, 18, 21, 22, 23, 24.

Chairman Bache: Okay. Let’s go and look at section 3 next, which was section 12 in the original bill. I know Mr. Graves is the one having an amendment for that. Then when we get to section 19 – is it a full amendment, Mr. Whittemore, or a technical change? One word?

(The replies were off microphone and were unintelligible.)

Chairman Bache: Okay, the one from Mr. Wadhams. That seems to be a simple enough amendment to handle (Exhibit F).

Chairman Bache: Mr. Graves? You should have Mr. Graves’ amendment in your packet. It was one previously passed out (Exhibit H). It was to old section 12. Mr. Ziegler, if you an extra copy of it, maybe you can have a few more run off for the committee? This is the amendment proposed May 4 from NIEC. Mr. Graves?

Terry K. Graves: Thank you, Mr. Chairman. Terry Graves for NIEC (Nevada Independent Energy Coalition). We did go through the amendment at that time. I would just point out to the committee that this amendment is outside the packet of amendments that you just discussed. The amendment also now applies to section 3 as opposed to section 12 in the old [original bill] amendment.

The purpose of the amendment was to clarify the contract sanctity language of that section. I believe Assemblyman Hettrick pointed out that he felt the language was contradictory. We think we’ve taken care of that with the rewording. The purpose of clarifying and eliminating some of the ambiguity we felt was in this section was to avoid litigation. I think litigation is the one thing that could bring this whole process to a halt.

We also addressed recovery of costs on the contracts. The point of that is while contract sanctity is an appropriate aspect of this legislation, sanctity is not worth much if the utility cannot recover the costs of those contracts and thereby put themselves in financial jeopardy.

I’d also like to point out to the committee that the contracts are noncompetitive. They are fixed price. They have fixed quantities of energy delivery, and these contracts were approved originally by the PUC.

Beyond that, Mr. Chairman, it’s your pleasure how much detail you want to go into. Or I can just entertain questions.

Chairman Bache: Questions from members of the committee?

Chairman Bache: Anyone else?

Mr. Graves: If I might, Mr. Chairman, through you and to Assemblywoman Tiffany, with regard as to how those costs are recovered. We do not have a particular position. I think, as I recall, the merger agreements the utilities are following propose that those costs be recovered in a T&D or wires charge. We have no issue with that.

Chairman Bache: Yes, that’s been one of my major concerns with this section is that as the costs of these contracts either be part of the stranded costs or charged to everyone through a transmission and distribution company. I see some loopholes in the language where it could possibly be totally assigned to the customers of the providers of last resort. I don’t want that to happen to them. Those contracts were entered into on behalf of all customers, so in paying them off through either stranded costs or another possible way needs to be paid off by all customers, not just limited to those in the provider of last resort.

Other discussion or questions on this section? Thank you, Mr. Graves. If the committee is ready to take a motion on this section? Ms. Tiffany?

Assemblywoman Tiffany: Amend and do pass.

Chairman Bache: No, I just want to have an amend.

Assemblywoman Tiffany: I think we should also – if Ms. O’Grady believes that this is the section to put it in, I think we should define the cost recovery either through stranded costs or T&D.

Chairman Bache: Ms. O’Grady, I guess the concerns that both Ms. Tiffany and I have issued on this are cost recovery, as far as payment of these contracts – are you clear as to what we’re looking at, that everybody has to pay off the costs of these contracts, not just the – because I was worried the way it was worded that only those customers in the PLR would be paying them off. (Ms. O’Grady nodded at this point.) So it’s either part of the stranded costs, which goes to everybody, or is a charge through transmission and distribution that goes to all customers. Is that your motion? Discussion on the motion?

Chairman Bache: Okay, we’ve already, in the proposed draft, taken care of sections 4, 5, 6. Section 7 is dealing with deferred energy – the removal of it – and section 8 of the proposed draft is dealing with defining where you have deferred energy for natural gas, which is part of – deferred energy is for all fuels currently – and what the bill proposes to do in the current form is deleted for the electrical industry. This is to clarify that deferred energy is still there for natural gas. There were no proposed amendments on these sections. If there’s no objection, I assume they’re satisfactory?

If there’s no – We have no change on sections 7 and 8? Those are satisfactory? I’ll mark those off.

Okay, section 9 was adopted in the first amendment. Section 10 is metering and billing. I don’t – no, section 10 is definition. I don’t believe there are any proposed amendments there. So without objection? Okay?

Section 11. The only thing in section 11 was the – in the original bill – "had an annual operating revenue of $250 million or more in Nevada." I think that was to take care of the Idaho Power issue in northern Elko County. I had a number of questions on it, but I don’t believe there’s any problem with this particular language. I was concerned there could be a possible loophole here, but I believe that’s not the case. So if – Ms. Tiffany?

Assemblywoman Tiffany: If you look at section 11, subsection 1(b) [of Exhibit E] and it says "the annual operating revenue of . . ." and then it says, "  . .in Nevada." Do you have any problems with that?

Chairman Bache: I originally had some concerns. I raised them with Sierra because I thought at the time there was something that this could have been a loophole for them, because they currently do business in California, but they still, even if it’s only Nevada, they have in excess of that $250 million or more, and this amendment was to deal with an issue of Idaho Power, which services a small area of northern Elko County, I believe? Mr. Ponn, why don’t you just briefly clarify this. There isn’t a problem. I was concerned then on the opposite end that it would allow Idaho Power to expand their territory without –

Mr. Ponn: Your original question to me, Mr. Chairman, was whether or not the $250 million would trigger Sierra Pacific. Our revenues into that are approximately $500 million. And about 10 percent of that in California. So, this is certainly not my amendment, but Idaho Power serves the area around Jackpot in northern Elko County, and to my knowledge, a very minimal amount of their total revenues. I think the reason for this original amendment was that Idaho Power Company – and Idaho, and in Elko County – would have had more than $250 million. I think you had some concern about up to $250 million. I didn’t have any.

Chairman Bache: Yes, I had some concern that Idaho Power could expand their service territory without commission approval up to that $250 million limit, but I don’t believe the various comments that that’s a problem. So section 11 is okay.

Section 12 is metering and billing. Is there any problem with that? Any proposed amendments? Hearing no objection, I’ll go on.

Section 13 was taken care of in the first amendment. Mr. McMullen?

Samuel P. McMullen: Mr. Chairman, when Mr. Whittemore discussed this section he indicated there may be some other clarifying language. We had – there was always in this section a concern about what I would call parity –

Chairman Bache: Oh, yes, my concern in section 13.

Mr. McMullen: Well, there is a concern about parity in terms of what an alternative seller can do, and compared to a vertically integrated utility. We’ve had some negotiations here this afternoon that have, I think, clarified it so we’d like to, at least, propose – for purposes of this section – I’m representing Enron today – that the language on line 26 in section 13 [of Exhibit E] that has "A licensed alternative seller or . . ." be deleted, so the language of that second sentence that’s italicized would start with, "A vertically integrated utility may negotiate with a customer." It’s our understanding that under current commission interpretations, I guess the opportunities for both would be the same under that. There would be an opportunity to negotiate and to contract. Those contracts cannot, of course, be effective before March 1, 2000, or the advent of potentially competitive service. And so, at least from that point of view, that clarifies the issue with respect to the alternative sellers and the VIU (vertically integrated utility) being on some sort of equal footing. It makes that clear.

Chairman Bache: Yes, this is the section – not the rest of section 13, but that first amendment in section 13 – of the proposed – I had some concern on it. And you and Mr. Whittemore worked together and had some language to take care of it. Ms. O’Grady – does she have it?

Mr. McMullen: Well –

Chairman Bache: Because the language you provided me, I e-mailed it to her, so –

Mr. McMullen: The only thing we’ve been able to get agreement on this afternoon, among all parties, is what I just presented to you. The deletion of "a licensed alternative seller or," on lines 26 through the first couple of words on line 27.

Chairman Bache: Okay.

Mr. McMullen: Then that’s the only language we’ve been able to get agreement on from all parties. So that’s the only amendment I’m proposing at this point.

Chairman Bache: Delete "a licensed alternative seller or," so it would read, " . . . without having first obtained a license from the commission to do so. A vertically integrated . . ."

Mr. McMullen: No, "to do so." Period. Then the second sentence, Mr. Chairman, would start with "A vertically integrated utility may negotiate with a customer for the provision of electric service before March 1, 2000, but no such contract is effective before March 1, 2000." The deletion of those words. Thank you.

Chairman Bache: Ms. O’Grady, do you have that? Thank you. Okay. Section 14 is the name and logo section. I don’t see Mr. Ashleman here. I know he had – Oh, there he is. You had two proposed amendments for this section. I’d say choose one and ask us to take a vote on it.

Chairman Bache: Questions from members of the committee? Ms. Tiffany?

Assemblywoman Tiffany: Thank you, Mr. Chairman. Mr. Chairman, I can’t support this amendment. Renny, are you saying that, out of this little special carve-out, which is services involving HVAC (Heating, Ventilation and Air Conditioning) and some installation and repair, that the utility company can’t use their name and logo in this situation? Is that what you’re saying in this amendment?

Mr. Ashleman: That is correct.

Assemblywoman Tiffany: Oh, my gosh. Okay. I’ll give you an example. I watched TV on Sunday -- and I’ve used this before when I was testifying – American Express had an ad and they were offering health care insurance on the TV. And every single company that I know is expanding services now as their industry changes. And to carve out a little special interest like this I don’t think it serves one’s business sector. I just don’t go along with this. I think during the times of change and deregulation that any company should have the opportunity to compete in any of the services, not one special one and not a carve-out for it – so, Mr. Chairman, I just won’t be supporting this amendment by what I understand it to be.

Chairman Bache: Other discussion? Other questions?

Mr. Ashleman: Mr. Chairman, if I may. Understanding that to be an implied question, let me simply say that American Express did not spend 100 years in the State of Nevada being a regulated utility working in that field and not in others, and there has not been a case that I‘m aware of where American Express has been found expressly by an entity with the jurisdiction to make such a finding that the use of that was in fact inherently misleading. That’s the distinction we draw. We’re not here saying that Sears can’t call itself Sears and compete against us. We’re simply saying that the possibility of the consumer understanding that the utility has previously, under the regulation of the utility commission, been engaged in this activity is too great for us to take a chance and gives them too great a competitive advantage. I do express your indulgence for allowing me to make that one remark. Thank you.

Assemblywoman Tiffany: Thank you. I’ve heard this argument before and regulated industry and monopoly. Well, they do have shareholders. They have a board of directors, they have shareholders, and they have people that have invested in this company, just like a publicly-traded company like American Express. As much as I’ve heard that argument, I’m going to say on the other side they have to be responsible to shareholders too. So it’s not that, it’s just a monopoly in a regulated industry. Thank you.

Chairman Bache: Any other questions for Mr. Ashleman? Thank you. Mr. Crowell, I assume you want to address this particular issue, as you did before?

John Pappageorge: My name is John Pappageorge. I represent Nevada Power. With me is Robert Crowell, to also present the argument on name and logo.

Robert Crowell: This is Bob Crowell, appearing on behalf of Sierra Pacific and Nevada Power company. I’m having handed out to you a short bullet form (Exhibit J) that explains the nature of the argument I made to you last week. I don’t mean to repeat that. I want to add one additional comment to the committee today in light of its prior ruling, an adoption of an amendment to S.B. 438. By your prior action on S.B. 438, you have wisely, in my judgement, approved a compromise agreement between the utilities and (unintelligible) and a number of its stakeholders. You have created – you have created, in Fred Schmidt’s words – a safe haven for customers – at least through the year 2003.

This morning, in Mr. John Ralston’s report, there was a statement by him that in this restructuring environment, at least in this amendment, there are no winners and losers. Members of the committee, Mr. Chairman, I’m here to tell you that if you adopt the amendments supported by Mr. Ashleman, I don’t know who the winners would be. But I can tell you who the losers will be. And that will be the utilities who are creating this safe haven for your customers. And make no mistake about it, they are creating the safe haven in two very important ways. (1) They’re giving up the right to recover their energy costs – their hard energy costs through deferred energy. (2) They are the ones who are allowing this committee and the State of Nevada to implement a rate cap to protect your citizens. I would suggest to you, in all due respect, that, given the amount of impetus that these companies and their shareholders have brought to the table, that it would be unfair, and additionally, probably unlawful, to adopt the type of amendment that Mr. Ashleman is proposing. Thank you very much.

Chairman Bache: Questions for members of the committee? I don’t see any. Ms. Newman?

Chairman Bache: Are there any questions? Any members of the committee want to roast Mr. Sandoval, having been a former member of our body? We’re nice to you, Mr. Sandoval. I don’t think any of them are going after you. Mr. Silvestri and Mr. Guild?

Charlie A. Silvestri: Charlie Silvestri, representing Southwest Gas. I just want to go on record in concurring with and supporting the statements you just heard from Nevada Power and the Nevada Shareholders Association.

C. Joseph Guild: Joe Guild, representing Southwest Gas. Just echoing Mr. Silvestri’s remarks. Thank you.

Chairman Bache: Okay. Any questions? Thank you. Anybody else? Okay. Mr. McMullen?

Mr. McMullen: For the record, Sam McMullen. If you could redirect your attention to section 13. The utilities have asked me for some additional language and I don’t have any problem with it. To clarify on line 27 –

Chairman Bache: Page 8, where we amended before? (See Exhibit E.)

Mr. McMullen: I guess our interpretation always was that they had the ability to enter into contracts but the contracts weren’t effective until March 1, 2000. But they want that clarified and I have no problem with that. I think it would be an additional clarification that would be helpful. So if you could, after the word "negotiate," on line 27, add the words, "and enter into a contract," and then it would continue, "with a customer."

Off Microphone: Bob. Bob, is that okay?

Chairman Bache: Ms. O’Grady, does that clarification fall within the motion that we adopted or do you believe we would need a separate motion to incorporate that language?

Ms. O’Grady: Probably a separate motion.

Chairman Bache: Okay, I’d accept a motion.

Chairman Bache: Last bite at the apple here, Mr. Ashleman?

Mr. Ashleman: Renny Ashleman, for the record. Let me simply make two real easy points. It appears to be the opinion of Ms. Newman that I’m in the wrong forum for this argument. But indeed I went to the right forum. I won in the proper forum. This legislature gave me a place to make this argument and I made it and I won it. So I think I’ve got every right to try to preserve my victory that I took in the forum that was afforded to me by the State of Nevada. So I don’t think I resent any idea that it’s inappropriate for me to ask for the legislature to continue what I won in a different forum. And I’m perfectly willing to oppose them on their brief, in the place where you hear constitutional arguments, and that is in the court system. I have – I would point out to you that every party but the utilities that did file a brief below agreed with us as the ability to uphold what the PUC did in the case below.

The second thing is as to the economics involved, I would point out that the gross of our industry is less than the net of either utility, so the fact that we are a threat to their shareholders I think might be slightly overblown. Thank you, Mr. Chairman.

Chairman Bache: Do I have a motion on section 14? Okay, so I assume section 14, since I see no motion, it’s okay as is? Okay. We took care of section 15 on page 10. Section 16 on pages 11 and 12. Ms. Tiffany?

Assemblywoman Tiffany: Thank you, Mr. Chairman. Can I ask you a question on section 15? I know we’ve talked about it before. I just want to make sure it still reads this way. On [subsection] 3 – section 15, page 10, where it talks about the Colorado River Commission. Can – I’d just like to know, when you’re referring to the NRS, does that mean they can provide service to whom they provide service to now, so is this an expansion of their scope? And if not, then what do they need to do if they want to go to someone else to provide this service?

Chairman Bache: I can clarify that for you because this was a concern of mine 2 years ago. It says, "The component rate for noncompetitive service established by the commission pursuant to [NRS] 704.986 must be used by the customers who elect to receive competitive or potentially competitive service from alternative sellers or from the Colorado River Commission pursuant to NRS 704.987." There are a certain list of customers who currently receive power according to NRS 704.987. When that was established last session, Overton Power and Electric, and a number of cooperatives received power at that time from the Colorado River Commission. Also amended into it was the Southern Nevada Water Authority because they were in the middle of negotiating a contract with them as legislation occurred. So, since they were in the process, we let them do that, but the rest of [NRS 704.]987 states that if they wish to sell to anyone else, that they must become an alternative seller like anyone else. So that’s just saying that – referring to the component of service – and it does not affect what the Colorado River Commission can do or not do. I think Ms. O’Grady could correct me if I’m wrong – Okay.

Section 15 is taken care of. 16 is also on [page] 12. Section 17 was taken care of with the amendment. Section 18 was taken care of with the amendment. We’re up to section 19. We had the one small amendment. Mr. Whittemore, I – "reasonable" on – in front of "cost" – any "reasonable cost?"

Off Microphone: Yes.

Chairman Bache: If there’s no objection, I don’t think we need a motion on that. If there’s no objection from members of the committee, we’ll accept "reasonable cost" there? Then we also have Mr. Reed’s proposed amendment (Exhibit G). This is the appropriate place for it. Do you want to present your amendment again? That’s the pleasure of the committee.

Mr. Reed: Mike Reed. The amendment would read, "Vertically integrated utilities and their affiliates must honor the provisions of any labor agreements in effect at the time of passage of this act."

Assemblyman Hettrick: Thank you, Mr. Chairman. I understand the part on the vertically integrated. What about the affiliates? Is that binding the affiliates to the utility’s labor contract if they form a new company?

Mr. Reed: Yes, sir, it does. And in discussions with the CEOs (Chief Executive Officers) of both companies, they did not have a problem with it. They said they intend to honor all labor agreements.

Assemblyman Hettrick: Okay.

Chairman Bache: Mr. Rigazio, Mr. Ponn, would you like to comment?

Mr. Rigazio: For the record, Steve Rigazio, Nevada Power. I agree with what Mr. Reed said, and those union contracts will be honored. I think Ms. Tiffany also made a good point when she mentioned that you honor these contracts, you honor all contracts. Even if those contracts go to an affiliate. For the existing contracts. The contracts that exist today.

Assemblywoman Tiffany: Maybe you guys can answer those questions. Are there different labor contracts between the two companies and is that going to be renegotiated, or are there problems with that. Will this bind you in any way that’s kind of arbitrary to those renegotiations?

Mr. Ponn: Doug Ponn, Sierra Pacific. We have different locals of IBEW between the two companies is my understanding. We have negotiated separately the current contracts that are in place. We’ll continue to honor those.

Assemblywoman Tiffany: Mr. Chair, if I could? So it’s not going to be a problem or a conflict with this language? I know when you merge companies sometimes, you might have to let people go, or change your organization structures, so that’s all I was thinking of. This won’t affect that?

Mr. Ponn: We’re preserving, in the merger process, though there will be synergies, economies, combinations of certain functions. We’ll still have an identity for each of the two utilities merged under Sierra Pacific Resources, so I think your concern may not be as great as might be if we were losing the identity of the companies, and the operating integrity of the two companies.

Chairman Bache: Section 20 is also a name and logo section. I don’t believe we have any proposed amendments on it. Basically the only change there from current laws, "In providing a potentially competitive service, an affiliate of a provider of a noncompetitive service may use the name or logo, or both, of the provider of noncompetitive service." No, we’re not changing it from what the bill is. We don’t need a motion. That’s okay. The remaining sections are the transitory language. Are there any other motions that the committee wishes to make with regard to other amendments?

Seeing none, I’d accept a motion to amend and do pass.

Chairman Bache: I want to thank everyone in the audience who participated in this process. I thank the members of the Select Committee for all your hard work that you have done in dealing with this particular piece of legislation, and I thank you, Mr. Speaker, for giving us the additional time through the waiver process to do this, hopefully, right.

With that, this meeting is adjourned.

Chairman Bache adjourned the meeting at 4:20 p.m.

RESPECTFULLY SUBMITTED:

Charlotte Tucker,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

Assembly Select Committee on S.B. 438

DATE: