The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:00 a.m., on Friday, March 26, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer State Office Building, Room 4401, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Ardyss Johns, Committee Secretary

OTHERS PRESENT:

Senator Raymond C. Shaffer, Clark County Senatorial District No. 2, stated he introduced S.B. 384 on behalf of a constituent experiencing a problem getting compensated for a utility line which crossed over his property. Senator Shaffer said the bill addresses the high-tension line, which is usually a line going through to substations and not servicing individual homes. He said S.B. 384 requires within 90 days after the placement of a high-tension utility line, the property owner must be notified and must be offered a fair market value of the property over which the line crosses. Senator Shaffer said presently there is a limited amount of time in which a property owner is able to approach a utility company regarding compensation for a line crossing over his property.

Toby Lamuraglia, Lobbyist, Clark County, said he bought a 5-acre parcel of land in a remote area north of Las Vegas and did not see the property for many years until a road was cut through the area. He said when he saw his property, he saw there was a power line on his property of which he was not aware and it took him several years to get the matter settled with the utility company. Mr. Lamuraglia said the utility companies get permission from the Bureau of Land Management to put up the power lines, but do not bother to find out who owns the other parcels in the affected vicinity. He said he believed the power companies put up the power lines figuring the property owners will not find out until the statute of limitations for compensation has expired.

Senator Shaffer said he saw a problem with the statute of limitations and expressed concern about property he owns in Elko County which he has not seen in 10 years.

Senator O’Connell asked if the law provides for the power companies to keep a record of the property owners they have contacted or have tried to contact. Mr. Lamuraglia said he did not know if there was such a law, but he has lived at the same address for 45 years and the power company did not make any attempt to notify him of the power line on his property.

Judy Stokey, Lobbyist, Nevada Power Company, opposed S.B. 384.

Bill Roullier, Director, Land Services, Nevada Power Company, opposed S.B. 384 and explained Nevada Power Company’s process in routing transmission lines and acquiring easements. He said Nevada Power Company applies with the cities and counties to acquire use permits for the lines and this process entails numerous public hearings. He continued once all the necessary permits are acquired for the transmission line alignment, Nevada Power Company approaches each and every property owner, including the Bureau of Land Management and the Nevada Department of Transportation, to obtain the right to place the facility on their property. He said Nevada Power Company acquires title searches of each and every property along the affected route. He stated once the lawful owner of each affected parcel has been determined, Nevada Power Company hires an independent appraiser to assess the value of the transmission line easement and once the appraisal is complete a copy of the appraisal is given to each and every property owner.

Mr. Roullier said he is in opposition to S.B. 384 because it would require the utility companies to purchase property in fee. He said typically the pole lines are placed behind sidewalks along major streets requiring a 30-foot wide easement which corresponds to the county and city setbacks. He added Nevada Power Company generally accesses the transmission lines from the road and therefore does not need access to the actual property. Mr. Roullier stated if the utility company was to acquire fee title to the property, it would have to do parcel maps. He added in doing parcel maps the utility company would have to provide legal access to the remainder of the parcel, and it would be a very cumbersome process for the utility company and become very costly to its customers.

Senator O’Connell asked how this discussion related to Mr. Lamuraglia’s property. Mr. Roullier replied Nevada Power Company acquired a permit in 1968 from the Nevada Department of Transportation to install the transmission lines across that particular property. He continued in 1974, the Nevada Department of Transportation sold the property to Mr. Lamuraglia and Nevada Power Company was not notified of the property sale. The sale of the property ceased the Nevada Department of Transportation permit and the transmission lines had been on the property for probably 5 years before Mr. Lamuraglia purchased the property.

Mr. Lamuraglia stated Nevada Power Company did have one utility line across his property before he purchased the property. He said his contention was when Nevada Power Company upgraded, they put another set of utility poles on his property 90 feet from the line where they were permitted to install the poles. He stressed nobody will ever want to build anything on his property because of the danger posed by the high-tension lines.

Mr. Roullier clarified in 1969, Nevada Power Company built the first 230 kV (kilovolt) transmission lines on wood poles. In 1981, Nevada Power Company upgraded that same line, pole-for-pole, by taking out the wood poles and putting in steel poles to a double circuit 230 kV line. He explained where there were three wires, there are now six and those are the poles which are on Mr. Lamuraglia’s property. Mr. Roullier continued in 1989, Nevada Power Company built a second set of structures that are indeed 90 feet away, not on Mr. Lamuraglia’s property, but south of his property by approximately 45 feet.

Mr. Lamuraglia said he has the papers from the Bureau of Land Management to prove the 1989 high-tension power lines are on his property. Mr. Roullier countered he has a survey showing the lines are not on Mr. Lamuraglia’s property. Mr. Lamuraglia asked then why he was offered a $52,000 settlement. Mr. Roullier stated Nevada Power Company was not offering Mr. Lamuraglia a settlement for the 1989 lines, but for the 1981 upgrade.

Susan Miller, Lobbyist, Sierra Pacific Power Company, opposed S.B. 384 stating Sierra Pacific Power Company has over 5,000 miles of lines and if this bill is passed it could cost the ratepayers in Nevada millions of dollars, and potentially could cost the State of Nevada millions of dollars. She suggested better identification in mapping and the checking of deeds when people purchase their land.

Senator O’Connell asked if Sierra Pacific Power Company looks at the property title or verifies any information when doing upgrading to see if the rights to that property have changed. Ms. Miller responded yes, Sierra Pacific Power Company has a very competent right-of-way department which makes every effort to check the deeds, restrictions, permits, the right-of-way, and uses state and county recorder documents. Ms. Miller added Sierra Pacific Power Company contacts the property owners when crossing private property.

Senator O’Connell inquired if Sierra Pacific Power Company keeps documentation of all the contacts it makes in verifying the information. Ms. Miller replied yes.

Senator Shaffer asked if changing the word "purchase" to "compensation" for the right-of-way would make a difference. Ms. Miller said she would prefer to see the bill go away altogether rather than try to fix it. She said "compensation" was certainly preferable rather than "purchase," and also she was concerned with the definition of "reasonable proximity." She pointed out the term "high-tension electrical wires" in section 1, subsection 1, of S.B. 384 is an antiquated term. She said she believed the use of "230 kV and above" would be better terminology.

Senator O’Connell asked Ms. Stokey to provide the Senate Committee on Commerce and Labor with Nevada Power Company’s policy on its procedure for upgrading.

There being no further testimony, Chairman Townsend closed the hearing on S.B. 384 and opened the hearing on S.B. 438.

Senator Amodei disclosed the law firm he works with represents some people affiliated with the utility industry. He stated under Nevada Revised Statutes (NRS) 281.501 the benefit or detriment accruing to those people is not any greater than that accruing to any other member of the general business, profession, occupation, or group. He continued pursuant to NRS 281.501 he would participate in the discussion and would vote on S.B. 438 unless a member of his law firm lobbies any of those measures, in which case he said he

would make an additional disclosure and recuse himself. Senator Amodei furthered under NRS 281.501, subsection 6, he would file with the director of the Legislative Counsel Bureau a written disclosure stating what he had just related to the committee.

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, said he was at this hearing on S.B. 438 to answer any questions the committee might have on the "Proposed Amendment In Skeleton Form Draft Version Only" document distributed by Chairman Townsend (Exhibit C).

Chairman Townsend said he was not ready to discuss Exhibit C, but only what was in the bill before the committee at this time. He stated he would get back to Exhibit C at a later time.

Chairman Townsend closed the hearing on S.B. 438, to be taken up later in the meeting, and opened the hearing on S.B. 543.

Gary Stockoff, Engineering Services Manager, Public Works Department, City of Reno, stated S.B. 543 gives the power companies the ability to oversize lines, particularly lines, prior to new street construction. He indicated about 2 years ago the City of Reno rebuilt Center Street and at that time Sierra Pacific Power Company redid an existing water line that could only be done to the size the line was prior to the street being constructed. He said having to take out a street to oversize a water line is not only a cost to the water company, but also compromises the integrity of the street.

Senator O’Connell said in 1993 or 1995, the Senate Committee on Government Affairs passed a bill allowing the city or county to oversize water lines and asked why the City of Reno was not able to take advantage of that law.

Barbara A. McKenzie, Lobbyist, City of Reno, said the City of Reno can oversize for sewer utilities, but the Public Utilities Commission of Nevada (PUCN) does not allow the power company to oversize for future development.

Senator O’Connell asked then if this action is tied back to the Public Utilities Commission of Nevada. Ms. McKenzie replied yes. Ms. McKenzie explained Center Street is a commercially zoned street with a lot of old residential structures and a lot of vacant land, and when that area is developed commercially the capacity for the utility demands will increase.

Senator O’Connell said she understood the reason the City of Reno could not use the law that is in place is because the Public Utilities Commission of Nevada would not, without some kind of evidence, allow the power company to recuperate the cost of oversizing the lines. Ms. McKenzie stated that is exactly the problem in this situation.

Chairman Townsend asked, in the situation of Center Street, if the new businesses developed after the street is finished and the larger line has been put in would pay a hookup fee different from anybody else because the line is larger. Mr. Stockoff replied those businesses would pay a fee based on their usage to help pay back their fair share of the oversizing.

Chairman Townsend asked how long ago this problem was discovered. Mr. Stockoff replied in 1997 when Center Street was reconstructed. Chairman Townsend asked if the City of Reno went to the Public Utilities Commission of Nevada in the last 2 years to see if it had any statutory authority to make any change to accommodate the problem. Mr. Stockoff said he was not aware of anyone making such an inquiry with the PUCN.

Ms. McKenzie clarified S.B. 543 came from the City of Reno Public Works Department and said she did not have the background information to answer Chairman Townsend’s question as to whether or not anyone made an inquiry with the PUCN on this matter.

Chairman Townsend wondered aloud if this matter could have been resolved easier than drafting a bill and that maybe the problem could have been resolved 2 years ago through the regulatory process.

Ms. Miller said she was in support of S.B. 543.

Larry Holmes, P.E., Project Manager, New Business Activities, Sierra Pacific Power Company, said he believed the City of Reno mischaracterized the situation regarding oversizing and how that is handled in the regulatory environment. He explained Rule 9 allows Sierra Pacific Power Company to do oversizing on projects. He said he believed the problem here is the risk the oversizing puts on the power company. He continued if Sierra Pacific Power Company were to invest into a larger pipeline based on its best guess on what the usage would be in the future and the property utilization were to change, or the market were to change, the power company would be trapped in the investment. Mr. Holmes stated the existing ratepayers should not have to pay for future developments, but Sierra Pacific Power Company’s contention is that those ratepayers are also fellow citizens in the community who have a vested interest in the streets and other types of infrastructure. He suggested the investment risk be shared for the future infrastructure for the community. He said Sierra Pacific Power Company was not asking to be removed from liability for making poor decisions, but in the rate-base scenario the PUCN has the opportunity to look at the prudency of the power company’s decisions. Mr. Holmes said Sierra Pacific Power Company is asking to be allowed to have a forum for oversized facility decisions where it can show, based on the best interest of the community along with good engineering judgment and good economics, that the decisions made were prudent.

Michael S. Lynch, Lobbyist, Builders Association of Northern Nevada, said he supported S.B. 543. He indicated in a recent Sierra Pacific Power Company water rate case the PUCN put down an interpretation of Rule 9 allowing the power company to implement a fee on new developments. He stated this bill would allow the power company to recuperate its cost at the appropriate time, not bill a subdivision to pay for a later subdivision. He suggested it might be best to include in the bill more than just water lines, such as underground electricity and gas. Mr. Lynch pointed out the telephone company is already doing this type of implementation.

Frederick Schmidt, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, stated if S.B. 543 passes, water rates would skyrocket throughout Nevada. He said the principle of the bill overturns a century-old principle in the process of regulating monopolies throughout the United States. He continued there is nothing that prohibits the situation the City of Reno has brought forward. He contended if the City of Reno had gone through the PUCN process, this matter could probably have been resolved without coming before the Legislature. Mr. Schmidt said he believed the current water rates in Reno were the highest water rates in the state. He said he did not believe elected officials should be passing laws at this time which would increase Reno’s water rates. He added the language of S.B. 543 allows for double recovery of the cost of oversizing the lines. Mr. Schmidt stressed this bill is poorly written and pointed out since the bill was not even developed by the utility companies; that indicates there really is not a problem with this issue.

Senator Amodei asked Mr. Schmidt if he did not believe the PUCN could do an appropriate job of making sure there are not double recoveries and people that should not be charged are not charged. He pointed out section 1, subsection 2, of S.B. 543 looked like it addressed all of the issues Mr. Schmidt had just discussed.

Mr. Schmidt said if Senator Amodei believed section 1, subsection 2, of S.B. 543 could be utilized to defer the cost, then the law would not really be changed at all. He stated that is the way the cost is recorded now, in a separate account, not a rate-base account, and the cost is recovered at the time the property becomes utilized. Mr. Schmidt stated he reads section 1, subsection 2, of S.B. 543, as limiting the utility company’s ability to prevent the recovery in rate base in the next rate case after which the cost is incurred and added onto the books. He said he did not believe section 1, subsection 2 of the S.B. 543 is very clear.

Senator Amodei said he did not see much limitation on the PUCN’s discretion in section 1, subsection 2, of S.B. 543. He added it has been his experience when discretion is not limited, the PUCN does a good job of covering the bases on the conservative side.

Judy M. Sheldrew, Chairman, Public Utilities Commission of Nevada, stated she was offering her comments solely as her own as the commission had not yet taken a position on S.B. 543. She said there was an issue as to whether, and at what point, large lines constructed for the benefit of a developer whose development had not yet materialized should be placed into rate base. She indicated the commission made a determination which may have created more confusion and, as a result, the commission has a request from the developers at Wetpac Utilities for clarification of its determination. She stated the utility companies have the authority to oversize, but the issue is of who should pay for the oversizing and when does that particular utility investment become used and useful. Chairman Sheldrew said she believed the commission has the ability to resolve the questions which were brought forth by the City of Reno without this legislation.

To Senator Amodei’s question, Chairman Sheldrew said she believed S.B. 543 is contradictory, as to the commission’s abilities. She pointed out page 1, line 8, of S.B. 543 essentially directs the commission to allow recovery in rate base upon completion of construction of the larger lines. She said she believed the bill is conflicting in the provision that the fee can be recovered from developers later on and then goes on to provide the timing of the increase in rate base can be figured out later. Chairman Sheldrew expressed concern that if a line was oversized and then not utilized, unbenefitting existing customers would have to pay for the line oversizing. She furthered if the oversized line is eventually utilized the utility company again has the opportunity to recover the money in fees, thus providing an opportunity for double recovery.

Chairman Townsend suggested Ms. McKenzie communicate with the PUCN to attempt to work something out between the utility, the City of Reno and the commission; and then bring the matter back before the Senate Committee on Commerce and Labor, in 5 days. There being no further testimony, Chairman Townsend closed the hearing on S.B. 543 and reopened the hearing on S.B. 438.

Chairman Townsend indicated Exhibit C is a proposed amendment in skeleton form and is the document from which S.B. 438 is going to be debated. He declared he had spent 20 years on this issue. He stressed the members of this committee, as well as the members of the Assembly Committee on Commerce and Labor, have voiced their deep concern about their constituents regarding their ability to deal in a seamless manner during the competitive electric restructuring environment. He said in this proposed amendment there is no need for any individual residential customer to do anything about choosing a utility company over the next 2 years. Chairman Townsend stated this proposed amendment provides for a frozen utility rate for 5 years with the opportunity for an auction after the first 2 years. Chairman Townsend said, given the option, consumers would prefer to have an immediate reduction in their electric bill rather than an immediate choice of electric provider and, as a result, there is a requirement in S.B. 438 they not do anything and have a frozen rate. He explained that frozen rate would be left with the PUCN to determine.

Chairman Townsend touched upon some of the key concerns. One, that the PUCN have the ability to hire an administrative law judge. Currently, the commissioners are overwhelmed with the amount of work before them regarding contested cases. Chairman Townsend stressed the key issue of the 5-year frozen rate period and stated at the end of 2 years any licensed competitor may bid in 1 of 2 geographic areas on a specific load determined by the commission, and must bid a minimum of a 5 percent rate reduction.

Moving on to page 4 of Exhibit C, Chairman Townsend stated there has been a great deal of concern by a number of parties that there is duplication of effort between the commission staff and the office of consumer protection. As a result, the responsibilities regarding staff’s issues have been shifted from the commission to the office of consumer protection and refocused the commission staff to be in support of the administrative law judge as well as the commission itself.

Chairman Townsend explained the last sentence of section 15 on page 11 of Exhibit C means the commission will determine, by class, who needs the highest standard. He said he knows it is going to be the residential customer and he is not concerned about the large customers who have greater resources to protect their own interest. But the commission will be allowed to protect the interest in terms of those minimum rights for residential customers and other customer classes.

Chairman Townsend said deferred energy is not something that enhances the potential for competitive service. He stressed the Legislature needs to be supportive of anything that will increase the potential for competition, savings and innovative thinking. Chairman Townsend pointed out the language "beginning on the first day after the expiration of the 5-year period" which appears on the first line of page 16 (Exhibit C), should be removed as it is inappropriate. With regard to section 24, subsection 2 (Exhibit C), Chairman Townsend stated when the utility companies divest their interest, he is hoping the utility companies can use the potential tax liability for those assets against the cost of purchased power or any other obligation they have.

Chairman Townsend indicated section 24.5, subsection 2 (Exhibit C), eliminates deferred energy accounting and provides the utility may recover anything left in a deferred account as a stranded cost. He continued that same section provides if an amount of those proceeds is less than the amount of the balance in the deferred account, the utility is responsible for paying the difference. He furthered if the utility realizes a net recovery on the divestiture of generation, the utility shall use at least 70 percent of the net recovery for direct benefit to its customers, including without limitation a reduction in rates.

Chairman Townsend stressed with regard to page 35 (Exhibit C), the Senate Committee on Commerce and Labor had discussed at great length that any penalty imposed must be in such amount as the PUCN determines to be reasonable to further the goal of promoting competition in the provision of electric service. He explained this means any incumbent or anyone who is providing wire services, if based on inappropriate conduct that would interfere with competition, the PUCN has the right to determine what the penalty and/or fine shall be. He emphasized there is no cap on the commission’s determination.

Chairman Townsend cautioned that making changes relating to electric restructuring is very serious and very complex. He stated this is a transitory period and said he hoped everyone involved would take either their interest, as an individual or certainly the resources of all of the people involved, and bring them to bear on this issue. He encouraged everyone involved in this issue that if they did not like something which is being proposed, to defend their position professionally and offer something constructive.

Harvey Whittemore, Lobbyist, Nevada Resort Association, suggested changes to S.B. 438 on some matters which he said might clarify the intent of Exhibit C. On page 14, section 20, subsection 2 (Exhibit C), after the words "assignment, buy down or buy out of the agreement must be liberally construed," Mr. Whittemore said to reflect the intent expressed by Chairman Townsend it would be more appropriate to continue that sentence "to allow such assignment, buy down or buy out." On page 15, section 21, subsection 4, paragraph (a) (Exhibit C), Mr. Whittemore suggested replacing the word "the" with the word "any" before the word "auction" and add "the award of this successful bid" after the word "auction" and before the language "required by section 22 of the act." Mr. Whittemore explained the provision that the 5-year period would be extended when an auction takes place and a bid is awarded, and until the bid is effectuated there needs to be the extension of the 5-year period. He suggested on the first line of page 16 (Exhibit C), striking the words "beginning on the first day after the expiration of the 5-year period" to get to the intent of section 22 (Exhibit C). He further suggested in section 22, subsection 2 (Exhibit C), striking the language "which, to the extent practicable, must be held before the end of the 5-year period" and replacing the language with "as soon as practicable."

Mr. Whittemore stated section 26 of Exhibit C is not effective until after an act is required by Congressional action and should not be viewed as immediately effective. He pointed out the Nevada Resort Association is supportive of any efforts which begin the process of creating a debate with respect to these issues; hopefully for solutions which involve the present providers of the utility service.

Edward R. Little, Grid Star, said Grid Star is establishing the means to provide Internet information and transaction services in states which are approaching deregulation. He asked Chairman Townsend if frozen rates apply to all customers above or below any particular kilowatt level. Chairman Townsend replied the main concern is residential customers and small commercial customers. He said these are the customers who have the least protection in a competitive market.

Mr. Little asked if a utility provider could provide power at less than the frozen rate during the initial 5-year period. Chairman Townsend responded yes, at the end of 2 years the provider is going to be allowed to bid 5 percent for 10 percent of the load. Mr. Little said he assumed then prior to the 2-year period it would be impossible for a utility provider to provide an offer less than the frozen rate. Chairman Townsend explained there would have to be an affirmative action by an individual to leave.

Mr. Little asked what if a small business customer chooses prior to the 2-year period to contract with a provider willing to provide power at a rate lower than the frozen rate. Chairman Townsend stated that is one of the issues which will be debated during the next week.

Mr. Little observed one of the chief areas where California’s approach to deregulation may be at odds with the best approach possible, is in the fact there was some degree of over-preoccupation with the timing and the nature of what customers could do in the stranded-cost recovery period. He said he believed there was an opportunity for Nevada to observe the approach taken by other states and come out with a more workable approach that is every bit as mindful as what the Legislature intends regarding protection of small customers, and yet offers the free-market mechanisms to develop the mechanisms that are going to deliver long-term savings and service enhancements.

Lathia McDaniels, Concerned Citizen, testified from Las Vegas that he is a consultant in the information technology arena. He said he had not had an opportunity to look at Exhibit C, but felt the statement he was about to read would still be valid. Mr. McDaniels read aloud:

Roger Anderson, Concerned Citizen, said he looked forward to receiving Exhibit C.

There being no further testimony, Chairman Townsend closed the hearing on S.B. 438. There being no further business, Chairman Townsend adjourned the meeting at 9:05 a.m.

RESPECTFULLY SUBMITTED:

Janice McClure,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: