Samuel P. McMullen, Lobbyist, AT&T

Steve Tackes, Lobbyist, MCI Worldcom, and Nextlink

Clark C. Peterson, General Manager, Nextlink

John Boersma, Vice President, Operations, MGC Communications Incorporated

Michael A. Pitlock, Commissioner, Public Utilities Commission of Nevada

Margaret A. McMillan, Lobbyist, Sprint

Ann Pongracz, General Counsel, Sprint

Brian G. Herr, Lobbyist, Nevada Bell

Gwen Johnson, Director, Network Services, Pacific Bell

John Bogy, General Attorney, Nevada Bell

Frederick Schmidt, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company

Steven Rigazio, Lobbyist, Vice President, Finance and Planning, Nevada Power Company

Steven Oldham, Vice President, Strategic Development, Sierra Pacific Power Company

Charlie A. Silvestri, Lobbyist, Southwest Gas Corporation

Debra Jacobsen, Lobbyist, Southwest Gas Corporation

Terry K. Graves, Lobbyist, Saguaro Power Company

Michael R. Reed, Lobbyist, Public Affairs Strategies

Danny L. Thompson, Lobbyist, Nevada State AFL-CIO

Norman Ty Hilbrecht, Lobbyist, Las Vegas Cogeneration LP

Benjamin J. Campbell, President, Las Vegas Cogeneration LP

Ivan R. Ashleman, II, Lobbyist, Southern Nevada Air-Conditioning Refrigeration Service Contractors Association

Scott D. Meier, Chairman, Southern Nevada Air-Conditioning Refrigeration Service Contractors Association

Jeff Stewart, President, Southern Nevada Air-Conditioning Refrigeration Service Contractors Association

Judy M. Sheldrew, Chairman, Public Utilities Commission of Nevada

Chairman Townsend opened the meeting with Senate Bill (S.B.) 207.

SENATE BILL 207: Requires public utilities commission of Nevada to establish standards of conduct and reporting relating to provision of local telecommunication services. (BDR 58-1034)

SENATE BILL 222: Revises provisions governing recovery of certain costs by electric utilities. (BDR 58-467)

For the record, I am the senator representing District [No.] 5 in Clark County. Mr. Chairman, this morning we heard an awful lot about contracts; that in essence is what S.B. 222 is all about. Yesterday I received a call from the media accusing me of proposing a bill which would cause electrical rates to skyrocket. It is needless to say this was very upsetting to me, and I do not know where that misleading information came from, but I would like to set the record straight. I am requesting of the committee that the minutes on S.B. 222 be taken verbatim; if that is not possible, then I request the tapes so that I may have them transcribed.

I want to be sure there is no misunderstanding of what S.B. 222 is intended to do. I would ask the representatives of the two electric companies, if I may, to come down and if they would, explain the purpose of the bill by giving a brief historical background on the contracts which are involved. And it seems as though for people who are not specifically involved with the two companies, that there has been a lot of concern about the lines in the bill which are stated "compensated fully," which is used on line 10 of section 1; and then on line 27, section 3 [subsection 3], the words "fully recovered," and then again on line 5 of section 4 [subsection 4, paragraph (b)]. These four words have caused quite a stir and so I am going to ask the gentlemen at the table if they will begin by explaining what those words mean to them as they were intended. I can tell you for the record, that my understanding of the use of these words is simply the reinstatement of the language, which was passed last session in A.B. 366 [Assembly Bill (A.B.) 366 of the Sixty-ninth Session], which deals with contractual agreements.

ASSEMBLY BILL 366 OF THE SIXTY-NINTH SESSION: Reorganizes public service commission of Nevada and makes various changes concerning regulation of utilities and governmental administrator. (BDR 58-1390)

Senator O’Connell stated:

I think it is important for the committee also to look at this as to how contractual agreements are going to be considered and viewed in this state. I think this applies to the employees of the two utilities, and I think it is critical that I too believe from the last testimony that we heard that there are constitutional questions. If we do not honor the contracts that we as a state, or we are forced into by a state agency, I think that there is some consideration that needs to be given as to whether or not there could be legal challenges. I have taken the opportunity to, as everybody can see through this notebook, to go through many of the hearings of which are now consumer advocate chaired. At the time, it was the presiding officer, and also Mr. Wellinghoff [Jon Wellinghoff, Staff Counsel, Public Utilities Commission of Nevada], who is still associated with the PUC [PUCN], was involved as the consumer advocate. I think it is a very important thing that we take a look at these, and that we decide whether or not these have any meaning. I can tell you that from reading these, I can see no exception to that. So now I would ask the gentlemen again to begin their testimony, first by telling us the intent of the language and then if you would give us historical background on the contracts that we have listed here.

Good morning, Mr. Chairman, members of the committee. I have with me this morning Steve Rigazio from Nevada Power Company, currently the CFO [Chief Financial Officer]; and Steve Oldham from Sierra Pacific Power Company, currently our vice president of strategic development. Each of us has been involved in the regulatory arena for the last two decades, as evidenced by the gray and missing hairs. It has been harder on us than on Mr. Tackes, but I think we all have some familiarity with these contracts. The two Steves are here this morning to explain the history background and position of the two companies with regard to these two contracts.

Before I make specific comments on S.B. 222, I would say in general that the two companies see this bill as clarifying the provisions of A.B. 366 [A.B. 366 of the Sixty-ninth Session]. And as one small piece of background, the utilities, whenever A.B. 366 [A.B. 366 of the Sixty-ninth Session] was enacted, assumed that we would honor all of our contracts, not only our Quality Facility [QF] [Qualifying Facility] and purchase power contracts, but any contract. We only became concerned, and I think the senator became concerned, whenever a theory started to emerge that said that utilities somehow could aggregate or get out or ignore those contracts. If that theory is about, and you look at the language in A.B. 366 [A.B. 366 of the Sixty-ninth Session] that says that utilities will do everything possible to mitigate their stranded costs, and you couple those two things together, it puts the shareholders of the utility at some risk. I think that what this bill does is clarify what the intent of the Legislature was in A.B. 366 [A.B. 366 of the Sixty-ninth Session].

Excuse me for interrupting, but I think it is important also because the gentlemen from the press did not seem to have the understanding that since 1978, when we began these contracts, that they have been part of the rate base. Therefore, if there were a continuation of those contracts, there would be no increase in the rate base. And I think that was something that was totally misunderstood by whoever it was who gave him the information they gave him.

The payments associated with these contracts are currently in rates and therefore rates would not rise as a result of not aggregating these contracts; and you are right, in 1978 the public utility regulatory policy act was passed. That was the genesis for these contracts. Most of them were enacted in the mid to late 80s, and if you would like, Mr. Rigazio and Mr. Oldham can go through each company’s history with these.

I believe I provided the committee, and if you did not get it, a five- page summary [Exhibit D] of our contracts and the history. It is a 20-year history beginning in 1978, with the Public Utility Regulatory Policy Act of 1978 (PURPA); and it shows from PURPA all the way to 1998 in the last docket, which was an amended docket, with one of the contracts.

Without going through the details of everything, I would like to say I have a few comments. Several weeks ago a Fred Schmidt [Frederick Schmidt, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General] testified as to the histories of the contracts. I testified that I thought he did a very good job of thoroughly and adequately going through the history of the contracts and the obligations of the parties to the contracts at that time. I still stand by that; he did a very thorough job.

In the five-page document I provided to you, in some of the highlights, the purpose of this is to show these major QF dockets and how the commission, starting with federal law down to where the company, [and] the commission, was strongly encouraged and ordered Nevada Power Company to negotiate some of these contracts. Specifically, if you want to look at some language, in 1987 a docket called [Public Service Commission of Nevada] A86-201, the company was pretty much ordered to enter into contracts. I can tell you at the time, the company was dragging its feet. We were not thrilled about entering into these things and the commission had to kick us, and rightfully so. I think it was the right thing at the time to do.

This document shows the extent of the involvement with the commission and all the parties in determining rights in contractual terms. The four contracts Nevada Power has, they have contracts; the terms, conditions, prices of those contracts were negotiated between all the parties of record, the QF, the company, the consumer advocate, that staff and approved by the commission. Those contracts were brought forth and approved by the commission.

The resources in those contracts, 305 megawatts, are critical resources and have been included in resource plans. The specific contracts are approved separately, but the contracts and the resources were included in resource plans that the company has filed and had approved by the commission. Another thing I would like to say about the contracts, and Doug [Mr. Ponn] mentioned the fact that there was some reference to a billion dollar rate increase or something, that is not the case, the rates are already in current rates. In Nevada Power’s case, the QFs provided about 15 percent of the energy towards a system. A typical residential bill, about 17 percent of the cost of that bill can be attributed to the QF rate. So we are talking about not one-half of anybody’s bill, and if that was not there, we would have to replace that with something else. Can you replace that today with lower costs? You probably can today. Can I tomorrow? I am not sure. We do not know what the market is going to be.

At the time that you have contracts, the prices in those contexts were based on a number of factors. The primary amounts of those are what were projected costs, what fuel and purchase power costs are going to be, over a 20- to 25-year period. And at the time, we were strongly encouraged to enter into the contracts. At that time, the thought was the contracts or prices were probably based on an escalating rate that would go up. The QFs other than the Hoover [Hoover Dam] contract are our only term obligations; everything else we have is on the short term right now. That in amongst itself can be a risky game.

As far as efforts in these contracts, we are not in the business of trying to go out and aggregate these contracts; but we have in the past gone through mediation, arbitration, negotiation, litigation, on all of the contracts, and various portions of the contracts, particularly operating procedures and the NC [NC Utility Service] 1 and 2, and the Saguaro [Saguaro Power Company] contract. There is PURPA, and the contracts that have history and precedence and previous approvals. But in the sum of those contracts, we attempted to work with the QFs and I did not like the litigation and those routes. Those are difficult long routes and can slow any process you are trying to do down.

We have the ability over the last year or so to work with the QFs, we negotiate parts of those contracts to make them more flexible for the customers. Give you one example, and I do not know if somebody from Saguaro [Saguaro Power Company] or NC [NC Utility Service] 1 and 2 are here, but I think the original contract for example, 90 megawatts, routinely some of those plans can crank out. I do not know if that is an engineering term but, another 20 megawatts, there are disputes about what we should pay for that 20 megawatts. We have been able to go back with the QFs, renegotiate for that market rate, so that the extra powers the QFs have flexibility with the power. We do not need it to sell on the open market, or sell back to us at lower rates; that all benefits the customers. We have gone through various efforts on these contracts, and that is where they stand today. This document shows about a 20-year history for those contracts. And again, that is a summary of our situation with QF contracts.

Good morning, I would like to explain briefly, I won’t [will not] go over what has already been said, but in Sierra Pacific Power Company we have about 18 contracts with qualified facilities [Qualifying Facilities] [QFs]. We entered our first one in 1983, and the last one we entered into in 1993; it totals about 100 megawatts of capacity, with the QFs of about 1500 megawatts system. We also have contracts with other utilities totaling about 260 megawatts. One of the things that has not been touched on, I think it is very important here, are they have adequate incentives today, or even after S.B. 222, to aggressively mitigate costs that are imposed on the systems.

I would argue that we have a lot of practical evidence and indeed empirical evidence, to support that there is. From an empirical point of view, we have long-term coal contracts that are not unlike these purchase power contracts and qualified facilities. Sierra Pacific [Power Company], in fact, over the years has been accused of being too litigious in aggressively going after to try and get those contracts reprised. At the time that we entered into the contracts in the late 70s, much like these contracts, the fuel markets were predicted to be much higher than they are today. The wonderful thing about free markets is those high prices caused a lot more entrance into the energy market and we got a lot more supply. That drove prices down. It was not predicted in the late 70s.

We entered into long-term coal contracts that by the mid-80s were out of market above the market price. We extensively litigated those contracts with many millions of dollars, and got some but very modest relief, very equivalent to what we spent to get that relief. In addition to that we have litigated with some of our QFs. When the QFs themselves have not met performance goals, or in fact have tried to reprise or whatever based on contingencies that have affected down outside of the contract, we have aggressively fought with doing that sort of thing. Every other supplier that we have, we do take seriously our responsibility to aggressively enforce every provision of those contracts to get the lowest possible price we can.

We do not view flow-through contracts as a reason to ignore them. Typically energy contracts are flow through; they do not provide earnings for the company, but the simple fact of the matter is, the practical impetus for me personally, and for most of our employees, is that our compensation is tied in large part to a variety of factors including customer satisfaction surveys. High prices do not satisfy customers. Prices above market do not satisfy customers.

Last year approximately 40 percent of my compensations were variable and tied to things such as customer satisfaction surveys. There is scientific outside audio-verifiable sorts of surveys and we try to determine what the customer thinks about things including energy pricing. We have great incentive to try and mitigate these costs. The flip side of the coin is we could not have, and would not have, in the near future, been able to meet the loads of our customer requirements without these contracts. If the QFs were to say "great, let’s [let us] break the contract today, we are no longer obligated to serve you, you are no longer obligated to pay," we could not meet load. We could not meet the loads in the north and I doubt in the south. So the simple fact of the matter is we need to negotiate with these parties. We need to do, and I think there is room enough to negotiate with them, by the way.

We do need to be aggressive about it. And anything or any gain we can make would result in rates that lower or would otherwise occur. But even if we cannot get gains, and I hope we can, the rates would not be higher. These contracts are already rolled into the costs that are incurred by us and charged to our customers. The sanctity of the contracts is very important going forward. I think we all need to be able to trust that when we enter into long- term contracts, we do financing and fuel supply contracts behind that to serve load. We are all obligated to preserve that sanctity of the contract and private property. Again, the flip side of the coin is the companies absolutely and unequivocally take very seriously our duty to mitigate the costs and aggressively enforce the provisions of the contract.

To repeat my introductory comment, Senator, we see S.B. 222 as a clarification of what we thought existed in A.B. 366 [A.B. 366 of the Sixty-ninth Session] the last session; that we would honor these contracts, that they would be included rates, that they would go for their term, subject to the times that we negotiate, that you have heard here.

I have the rates for purchase of power. One of the rules of the commission, it is my understanding, is to be just and reasonable to the customers of the utility and in the public interest. Were those contracts entered into with the endorsement, or promoting in most cases, those contracts with that understanding?

Yes, Senator, in a most general sense, those contracts were entered into as a matter of public policy; the intent at that point and time was to encourage the development of these sorts of power producers and that public policy was embodied in the PURPA. It was endorsed by the State of Nevada, it became head of it in these contracts as Mr. Rigazio testified; encouraged by the state and approved by the state.

I think it is important that we have on the record also in looking at the other states that have gone through a transition period; that really we are just entering into, we have shown, or the graph lines have shown, that the more interference there is with that transitional period, that the market for utility stocks are going up and down, up and down, until the transition becomes smoother and levels out to where the market can reach its potential or at least start producing again. As long as there is a lot of activity and there is a lot of confusion with court suits, etc., you have a very uneven line. My concern is that, I think, and the reason the bill is here, is because of the concern that those contracts will not be honored. If indeed they are not honored, my assumption is that we are going to be in court because of the documentation that we have in place requiring you to get into those contracts. I would like you to make a statement on that. Is that true or not true?

With regard to your assessment of the market performance of the stocks and reacting to uncertainty, Mr. Rigazio is the Chief Executive Officer (CEO) of Nevada Power [Company] and Mr. Oldham has had the financial officer position at Sierra Pacific [Power Company], and I think they would both agree that the market does not like uncertainty, does not like the kind of risks associated with litigating these contracts, so I think you will see more stable stock prices.

I had heard from many different sides where the testimony was that A.B. 366 [A.B. 366 of the Sixty-ninth Session] was very good legislation. It was good for all parties. It is very important that we stick to the hours that we spent on that bill from last session, and again, Mr. Chairman, this bill would not be before you unless there was a very, very legitimate concern about whether or not those contracts are going to be entered into and cast on good faith and promise, if they were entered into. So, that is the reason the bill is before you today. I know that at both ends of the state, the utility companies are going to be going before the commission again in April, and I would like you gentlemen to make some comment as to the reason you will be going before the commission in April.

Yes, Senator. In April we will file cases before the Public Utility Commission of Nevada to do essentially two things, one to establish rates before the costs and savings of the merger begin to incur, and secondly, as a part of the restructuring process to unbundle rates to get them to their components so we can implement restructuring.

Are there any more questions of these gentlemen? Perhaps you can clarify something that my colleague made reference to. The current language in A.B. 366 [A.B. 366 of the Sixty-ninth Session] regarding the recovery provisions, some of which is being removed under this bill, some of which is being added to, in essence says "shareholders", and I am quoting from not the bill, but from the statute; this in line 9 of the bill on page 1, "Shareholders of the vertically integrated electric utility must be compensated fully for all such costs determined by the commission. In determining the recoverable costs, the commission shall take into account: (a) The extent to which the utility was legally required to incur the costs of the assets and obligations; (b) The extent to which the market value of the assets and obligations of the utility, relating to the provisions of potentially competitive services, exceeds the costs of the assets and obligations;" then it goes on c, d, e and f. I won’t [will not] read those because you have them in front of you. That was language that was negotiated by all the parties in the prior session to which perhaps not you, but your predecessors agreed to. There is something in the interim that has occurred that you believe would substantially dissipate the effectiveness of those words with regard to your ability to recover your costs fully if you can’t [cannot] within those contracts mitigate any of their costs, and if so, what has occurred in the last 24 months that gives you such concern that you require a change in the statute?"

One of the provisions that are you reading is, you go on down a provision or two, says that we will mitigate all of our stranded costs, as the crux of the prevention will do everything we can to mitigate stranded costs. Our concern is that if there is a legal theory which says we could somehow get out of these contracts and not perform under the terms of the contract, and you couple that with that provision that says we will do everything to mitigate it, we do not want to risk for stranding costs because we did not aggregate the contracts.

Okay, I refer to page 2, line 11, and if this is the one that you are referring to, let us see if perhaps I do not understand it the way you do. Since it is what you do for a living, that may be the case. Unlike Mr. Tackes, I do not take this home at night when I am not here. Line 11, which is referring to in determining the recoverable costs, the commission shall take into account "(f) if the utility had the discretion to determine whether to incur or mitigate the costs, the conduct of the utility with respect to the costs of assets and obligations when compared to other utilities with similar obligations to serve the public." I am trying to get to your concern; I am trying to see if I understand your concern as you do. If you have the discretion, if you do not have the discretion, you cannot mitigate anything.

The effectiveness of the efforts of the utilities to increase the market value and realize the market value of any assets, and to decrease the costs of any obligations associated with the provision that potentially competitive services. Is it the second part of that statement?

Okay, then let me ask you this. My limited knowledge of the law says that if one party to an action unilaterally makes an effort to aggregate the contract, they are responsible for treble damages. Is that your understanding of the law? In other words you are at risk, if you went in and unilaterally tried to change the contract, you would be liable for treble damages. Is that the way you understand the law?

We understand that one of the problems that you face is the issue of line 2, page 2 "and to decrease the costs of any obligations," the effectiveness of your efforts, now I understand that is a real legitimate question. You can put all the rest of these words aside for a minute, is that where the crux of your concern is. And now I get to what I perceive to be your second crux . . . . "

Okay, after this language was agreed to 2 years ago, there has come forward a legal theory that has never been acted upon, but that changes in the law both federally and at the state level might allow you to walk away from your obligations without your intervening to do that. That is my understanding of what one of the legal theories is, that is currently in the "I guess" intellectual property arena. I hate to say on the table cause it starts to make me hungry. Is that one of the things that you have heard, or am I the only one hearing that?

Okay, now I know exactly where we are. Let me see if I can help you because I know the commission is here and will testify on this bill, the advocate [Consumer’s Advocate] is here and will testify on this bill, and I am not going to speak for the commission, I am only going to speak for myself. If you had a legally defensible opportunity to attempt to mitigate these costs, it would be perceived that the commission and the advocate would expect you to do that. In other words, if you made a good-faith effort, if you had the legal opportunity to do so, your concern is this language does not say that to your comfort level. Is that correct?

The language on lines 2 and 3 seem to your perception, seem to say that the commission will judge the effectiveness of your efforts to mitigate any or all of these contracts whether in fact you have a legal authority to do that. Is that your concern?

I think the commission will judge our efforts at litigating stranded costs in general and complying with this provision in particular. We are not saying that the commission encourage or hold us to some act for which we had no legal foundation.

Okay, there are many reasons you would change a contract. The party to the contract would call you and say we would like to discuss something. And I guess you have that obligation to your shareholders as well as anyone else. If you find the costs are too high, you can call them and say, "if we did this, would you do that?" That does not place you in any legal jeopardy if your contract says that one party can come in and ask to negotiate, is that correct?

That is correct, Senator, and maybe we need to remake the point that we are not trying to get out of any obligation or encouragement to renegotiate contracts when it is appropriate. I think Mr. Oldham tried to make that very clear.

I just want to make sure that the bill that Senator O’Connell has brought forward, we will actually talk about. I know I am kind of a stickler on that kind of stuff around here, but you know, Senator Amodei and Senator Schneider and Senator Shaffer have attempted to craft something; and when they work hard on something, I want to make sure that we talk about it and not something that is "out there." We have enough committees around here that talk about "out there," so we try to actually talk about wordsmithing, since you have to live with it once we are done with it. I am concerned on line 27, no 25, at the end of the sentence it says, "3." The cost of a contract between a vertically integrated electric utility and a qualified facility for the purchase of power, and of any other contract of the utility for the purchase of power;" do you read that to be a statement in perpetuity of your ability to purchase power and get 100-percent cost recovery on any purchase power contract, or do you see that limited somewhat here? I am certainly not talking about Senator O’Connell’s intent or the bill drafters; these things happen. You go down there and you tell them exactly what you want, and it comes back an orange instead of an apple. That happens around here all the time. This is a very tough business. But I want to see if you read that the same way I do.

The way I read that Senator, is we are still under the same level of risks that we are today with regard to the prudence of our purchase power contracts, assuming we stay under the same regulatory structure that we are under today; things like the deferred energy and resource planning. It is not intended to . . . .

But what concerns me is the way I interpret this, and that is fine the way you interpret it. I understand that is a retroactive issue with regard to your current contract. This talks about any other contract to the utility for the purchase of power. I may be reading this incorrectly. I am worried that it says from now on everything you go out and purchase you are guaranteed a 100-percent recovery, which gets away from the whole concept of encouraging you to be market driven. Is that the way you read this?

I think we are actually talking about two things at once. There is a full recovery standard under A.B. 366 [A.B. 366 of the Sixty-ninth Session] which I think it was your intent, the Legislature’s intent, to have the utilities experienced "stranded costs" as a result of restructuring, get full recovery for some of those items that they entered into under the old system before restructuring. Then, there is the other restructuring where we will enter into QF contracts and purchase power contracts as a part of our ongoing business. I do not think this was intended to change the regulatory system that applies to that.

Do you, and I will end with this because I do not want to get hung up, and we also have a second bill. I want Senator O’Connell to make sure she has a full opportunity to explore this concept, this wordsmithing, under the current language that was crafted in A.B. 366 [A.B. 366 of the Sixty-ninth Session], the one that we keep referring to here. This is only my interpretation. I mean just ‘cause [because] we all sat through 200 hours of hearings, does not mean I heard it the same way everybody else did. Any contract whether it is with the QF or for purchase power, or whatever, that is bilateral, it is solid, and it has no mitigating-clause opportunities in it. It would be set aside for 100-percent cost recovery, the commissioner agreed to it, it was part of the action. You entered into it with good faith, and there is nothing in the contract that says either party can come forward to mitigate it. It is a solid, dollar for dollar, nothing to talk about, those get moved aside and get recovered 100 percent. But any contract to which there is a clause that says that either party may come forward at any time and discuss opportunities to change this, those are things to which the commission under this law would look and say did you make a good faith effort to look into to any way to mitigate that. Do you see A.B. 366 [A.B. 366 of the Sixty-ninth Session] differently that that?

I want to thank the chairman because those are the specific phrases that were causing the stir, and I think you got them clarified very well. I would just like to also read from a [Public Service Commission of Nevada] Docket 85-1004, and fully realizing that as a legislative body a commission could not say something that was going to obligate a commission down the line, but I am going to read the comments that were taken from the hearing. "When those purchases are made from QFs at rates previously approved by the commission, the company can have confidence that the commission will permit recovery of these purchase power expenses." So I just want to get that on the record and I thank you gentlemen for your testimony.

Any other questions for these gentlemen. . . . Thank you though, and we understand for those of you who are not following the issues in regard to 366 [A.B. 366 of the Sixty-ninth Session], the commission has a tremendous workload. The changes that the [Consumer’s] Advocate, Bureau of Consumer Protection division [must follow], a merger is going on, Mr. Rigazio’s responsibilities, Mr. Oldham’s responsibilities, and Mr. Ponn’s responsibilities are, shall we say, extremely fluent. Therefore, they appear here at our request, tomorrow that might not be their responsibilities. But I have worked in a company like that before, too, so I kind of appreciate the position you find yourself.

The reason again that the bill is before you, is because of the delay of competition. We all focused on the area that competition is good, but we want it as soon as possible. And you know, this major concern can delay that competition coming about. I think it is very good for us to have on the record what the concerns are now since things obviously changed from our last session.

Anyone else you would like in regard to this? Mr. Graves, or anyone else who is supporting this bill who might have a contract issue, or certainly Southwest Gas/Oneok/Southern Union. You know if our extremely able senior staff person Scott Young [Committee Policy Analyst, Research Division, Legislative Counsel Bureau] did not give me an Internet update every morning, I would have no clue for whom you would be testifying.

Good morning. With me this morning is Debra Jacobson, who is our manager of regulatory affairs, who is also representing our company at the Legislature, and of course, Joe Guild, at the other end of the table also representing our company. Debbie [Ms. Jacobsen] is going to make a few brief remarks in support of S.B. 222 and make a suggestion.

Thank you Chairman, Senator O’Connell, Southwest Gas [Corporation] supports the concepts expressed in this bill concerning the coverage of costs of the electric utilities’ QF and other power contracts. I also agree with Mr. Ponn’s statement that it really clarifies things heard of A.B. 366 [A.B. 366 of the Sixty-ninth Session]. Kind of following in that vein, although Southwest Gas [Corporation] of course does not have QF contracts, but we have similar contracts, such as pipeline-capacity contracts that are long-term agreements that we are subject to right now. We believe it would be appropriate to apply this same methodology for cost recovery advanced in this bill to recoverable costs for our contracts incurred by the natural gas utilities. That may be in the future allocable to any competitive services. Short and sweet. Does anyone have any questions?

I would just like to agree with the comments made by the utility folks and highlight some of their comments. The initial negotiations for these contracts were in fact very pretentious. Utilities did not want to enter into them. I am glad to hear them say today that they are of value and we absolutely agree with that. They are a critical resource in the southern Nevada area. We are also concerned about talk about aggregating these contracts. When there are theories being bantered about that simply by changing the name of the utility company, as will happen in the merger, that somehow the contracts go away. We, in that regard, support the language that is being offered in this bill. One other comment I want to make to the committee, Mr. Chairman, is that while we talk about these contracts today being over costs, or over market price, there is absolutely no guarantee that these contracts will continue to be over market price in future years. In fact, several scenarios could be developed that these be one of the low- cost resources for the utility in future years. So, these contracts should be honored as they have been in the past, and continue to be so in the future so we do support the bill. Thank you.

Yes, Senator Schneider, that is true. That is typical of the utilities’ response to the QF contracts. In the early 80s, since PURPA was enacted, utilities typically liked control of their system and viewed the QF providers outside of their system, not only Nevada but I think across country there was that attitude during the 80s.

Well I think as was pointed out by Senator O’Connell, any attempt to do that is going to end up in litigation which will eventually result in delay of the move to deregulation in Nevada. I think these issues will be tied up in court for some time ‘cause [because] we would certainly go to that length to defend our contracts.

I represent International Brotherhood of Electrical Workers (IBEW) Local 1245, as well as Mt. Wheeler Power [Inc.]. We are here today to testify in favor of the concepts included in S.B. 222; however, we believe that the bill should go even further, that it should require adherence to all contracts that are already existing. Whether they are for purchase power, for transmission services, [or] for fuel contracts. We also believe labor contracts should be considered just as sacrosanct as any other contract. In that regard, we would like to see, this as IBEW, S.B. 222 amended by adding the following sections. Section 4, contracts between a vertically integrated utility and a labor organization representing a bargaining group or unit recognized by the National Labor Relations Board must be honored by the vertically integrated utility and any affiliates. Section 5, the cost of the contracts between a vertically integrated utility as well as the costs of contracts between a vertically integrated affiliate providing noncompetitive service and a labor organization representing a bargaining group for a unit recognized by the National Labor Relations Board must be fully recovered from the customers of the vertically integrated utility for the utilities affiliates. We believe that those provisions are necessary to protect Nevada jobs. In addition, it is our understanding that the CEO’s of both Nevada Power [Company] and Sierra Pacific Power Company has [have] agreed that they will honor the labor contracts that are currently in existence. Mr. Thompson will address these issues further.

SENATE BILL 226: Revises various provisions relating to competitive provision of electric service. (BDR 58-721)