The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:02 a.m., on Monday, April 5, 1999, in Room 2135 of the Legislative Building, Carson City, 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

Crystal Suess, Committee Secretary

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Crystal Suess, Committee Secretary

OTHERS PRESENT:

Chairman Townsend opened the hearing on Senate Bill (S.B.) 37.

Douglas Dirks, Chief Executive Officer, Employers Insurance Company of Nevada (EICON), said he was presenting the Governor’s proposal to mutualize EICON. He gave a history of the workers’ compensation insurance. He said in 1993 a comprehensive overhaul of the state’s workers’ compensation program was performed, because the system had a $2.2 billion unfunded liability. That was the beginning of bringing the system to opening the market to competition on July 1, 1995. The system was given a 4-year window to prepare for competition by taking what had been a very traditional monopolistic state fund, and turning it into a competitive insurance company. EICON is now 90 days away, and is still working feverishly to prepare to be a successful competitor in the open marketplace.

Mr. Dirks explained a mutual insurance company is owned by its policyholders, who hold an interest in the company; a mutual interest. The Governor’s proposal turns over the ownership of the company to its policyholders. He stressed the Governor is extremely concerned that the state’s financial statement still reflects the financial condition of the state fund, which on an accounting basis causes in excess of a $600 million deficit in the state’s financial statement related to EICON. He stated this proposal would completely remove from the state’s financial statements the deficit reported from EICON and the state insurance fund. Additionally, Mr. Dirks said, the Governor wants to create an entity that has a substantial financial condition so that it can compete in a very competitive marketplace, and sustain its operations on a going forward basis.

Mr. Dirks stated the Governor wants very much a company that can succeed, a domestic insurance company located in Nevada, employing Nevadans, and providing services to Nevada businesses. This is an excellent opportunity to create a mutual company out of an 86-year-old state fund that can accomplish that, keep jobs in Nevada, and be located close to the business locations of its policyholders. Finally, the Governor requested providing a proposal that can provide an appropriate transition for EICON employees. Mr. Dirks elucidated that initially no provisions were made for the employees who would be transitioning into a competitive marketplace. He submitted an EICON letter to its employees (Exhibit C) informing the employees of the Governor’s proposal addressing the structure of the plan, retirement plan, and layoff protection.

Mr. Dirks addressed the structure of the proposal, saying it is driven by a number of different considerations. The two primary considerations are the state constitution and the Internal Revenue Service (IRS). He said the state constitution is a concern because state insurance was created as a constitutional trust, and EICON is a statutory trustee of that constitutional trust. The drafters of this bill have honored the constitutional trust concept that as these funds are moved from EICON to the mutual company, which will be Employers Mutual Insurance Company of Nevada (EMICON), they would be held in trust. Those funds would be set aside only to provide benefits and the administrative cost of the workers’ compensation program. He said the important thing is these funds now and forever will be constitutional trust assets held to pay benefits to injured workers, and the administrative costs associated with providing those benefits.

Mr. Dirks explained the IRS has played a role in the changeover. He expounded that EICON has been working closely with the IRS to develop a proposal. In turn the IRS would provide EICON with a "private-letter ruling" that would give EICON the necessary comfort that, if structured the way it is proposed, there will be no or minimal tax consequences on the mutualization of EICON.

Mr. Dirks continued that because of those IRS concerns, EICON is proposing the passage and approval of S.B. 37. He said after passage and approval, EICON would enter into a reinsurance transaction. The reinsurance transaction would transfer from the state’s financial statement and from EICON’s financial statement, approximately $1.6 billion in liabilities in exchange for a reinsurance premium. EICON would transfer a substantial amount of assets of approximately $800 million in exchange for the assumption of $1.6 billion in liabilities. He conveyed the reinsurance would completely remove that liability from the state’s financial statement, and also provide reinsurance coverage to EICON in the amount of $2 billion. He explained that EICON is actually buying $400 million more reinsurance coverage than the liability being transferred. He said that additional reinsurance coverage is intended to take into account some adverse development that could occur 40, 50, 60, or 80 years down the road. It would also entirely remove the $600 million deficit currently reported on the state’s financial statements. He said it is anticipated that the reinsurance transaction would occur prior to July1, 1999. He stated on July 1, 1999, as a result of this legislation, a new public, as opposed to a private, mutual insurance company will be created.

Mr. Dirks explained EICON expects to receive the IRS "private-letter ruling" after July 1, 1999. He said upon receipt of the "private-letter ruling" and the reinsurance transaction, the Governor has the discretion and authority under this bill to proclaim, by executive order, that the public mutual company will become a private mutual company on January 1, 2000. He said after January 1, 2000, the board of directors would be elected by the policyholders. With the proclamation the Governor will transfer the state’s mutual share in the company created on July 1, 1999, to the policyholders. At that time the policyholders would receive their mutual shares in the company. He said from that point on there would no longer be a state-run workers’ compensation insurance company. Employers Mutual Insurance Company of Nevada (EMICON) would be a private insurance subject to all the provisions of the insurance code that govern private mutual insurance companies (Exhibit D).

Mr. Dirks stated a brief summary of the transition proposal, and of the proposals dealing specifically with the rights that EICON employees would be afforded, if the bill were passed, has been placed on the internal Intranet site and through the electronic bulletin board. EICON also anticipates briefing the employees soon as to the provisions of the bill. He added EICON has initiated dialogue with pension, compensation, and health and welfare consultants who will be conducting focus groups with EICON’s employees on what will become future benefit programs being developed for the private company. The consultants will ask for input from the employees as to what they consider are the most important factors in developing such a program. The program includes setting aside up to $2 million for training. He said if employees wish to go somewhere else and want to develop additional skills to make them more marketable, EICON is providing $2 million in retraining funds to the Department of Employment, Training and Rehabilitation so that EICON employees can avail themselves of additional retraining.

Mr. Dirks concluded this proposal would accomplish all of the goals and requirements set forward by the Governor. It would remove the deficit from the state’s financial statements. It would provide an entity that would be competitive in the competitive workers’ compensation marketplace. Also it would provide a transition plan for EICON employees, who for the last 6 years have been key participants in working EICON’s way out of a $2.2 billion unfunded liability.

Senator Shaffer wanted to know where the deficit goes once it is removed. Mr. Dirks answered the deficit on the books today is an accounting deficit. The $600 million represents the time value of money. The reinsurers would take $800 million of investments and invest it over the next 30 years; and again for another 30 years after that, and pay out the liabilities. It is believed that the $800 million being transferred would fully fund that liability. In fact, if EICON set aside the $800 million it would do the same thing. What is being purchased through the reinsurance agreement is that if there is any adverse development; for example, if $1.6 billion is not the true liability, but in fact $1.8 billion is, the reinsurers would pick up the additional $200 million. He said the deficit would be taken care of immediately through the accounting for the transaction.

Lenard Ormsby, General Counsel, Employers Insurance Company of Nevada, said by the end of the day a section-by-section outline would be delivered to the senators’ offices. He said the outline would show the creation of the new entities, which is a two-step process of the creation of the public and then private insurance company. He said the bulk of the amendment (Exhibit E. Original is on file in the Research Library.) changes deals with the alignment of the new companies to private carriers; so replete throughout the amendment is the removal of the word "system." He said the third area deals with the personnel issues. Another area deals with the new companies. He said one thing he likes is that EICON employees will have more than 6 months to compare the benefits of state government versus the benefits offered by the new private company starting in January 1, 2000. He said, in addition to the vacation and sick leave rolling into the new public mutual on July 1, 1999, the proposal includes that if an employee goes with EMICON after January 1, 2000, their sick leave and vacation time would be rolled into the new company. Additionally, there would be a medical plan with no waiting period.

Mr. Ormsby said the repealers deal with those sections primarily addressing those times and opportunities that dealt with the system that would be removed as part of the process that would align EICON with other private carriers. He said that statutorily the system has been responsible for certifying employee-leasing companies. On July 1, 1999, the amendment would require certification of employee-leasing companies to transfer from the system to Division of Industrial Relations (DIR). Additionally, statutorily, EICON is the administrator of the uninsured fund. The amendment would transfer that responsibility to DIR, who would have to find an administrator to take over the fund. He added that EICON would have the opportunity to bid on certification of employee-leasing companies just the same as a competitive and proper bidder. He said there is a section in the amendment that would grandfather EICON’s existing contracts. He said some of those contracts are the owner-controlled insurance program (OCIP) agreements and contractor-controlled insurance programs (CCIPs), and also the retrospective agreements. He said the retrospective agreements were entered into the first part of 1999 and would run for 2 years. He said the purpose for those contracts, which are about one-fourth to one-third of EICON’s annual premium, and represent about 100 to 200 employees, is to preserve those jobs. As a public policy statement, it makes sense for those contracts to survive without any effect, so they can carry out through the term of their agreement; and EICON can, again, attempt to lose as few people as physically possible.

Chairman Townsend remarked the committee will have questions at the next meeting on Friday, April 9, 1999. He said, one question is the full understanding of the employee issues. This will be crucial because not only are they EICON employees, but they are people to whom the Legislature has a responsibility, as well. He brought attention to the solvency issue, regarding if there is anything that may have been forgotten or missed that would not provide a seamless transition to protect those assets as EICON moves into the competitive world. He said he also wants to make sure the Legislature has not unbalanced the concept of the level playing field for all the parties.

Danny L. Thompson, Lobbyist, Nevada State American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), said the issue of three-way insurance has a long history with everyone. He said the AFL-CIO has been opposed to it for a number of sessions, has had it killed at least three times, and has had the Governor veto it; but last session the AFL-CIO did not oppose three-way insurance. He added currently the EICON employees have layoff rights, a pension in place, sick leave, and other things in place. He emphasized the AFL-CIO views this action in the strongest terms as union busting, and is adamantly opposed to that portion of the proposal. He said, of course, the proposal has just been presented this morning, and the AFL-CIO will thoroughly go over the proposal and digest it. Mr. Thompson told the committee to make no mistake where the AFL-CIO separates in their support of three-way insurance. The AFL-CIO does not support the privatizing of EICON employees, and once the employee privatizing takes place the state will lose all control of the fund. He said once three-way insurance comes, there would be a lot of small employers who will not be happy with the new rates.

Robert J. Gagnier, Lobbyist, State of Nevada Employees Association (SNEA), stated SNEA is definitely in opposition to the bill and the proposal. He commended EICON for the their efforts in trying to ease the transition for the employees. He said SNEA believes this is a transition that does not need to be made. He continued that the only reason this amendment is needed for clarification is because those employee benefits are being taken away. He pointed out that tenure has not been addressed. He said all of the employees would become at-will employees with no reason as to how they would be discharged. He noted there is no system in place that says an employee will be paid equal pay for equal work. Mr. Gagnier stated SNEA has concerns for older employees who cannot exercise that option because they do not have enough time in employment or they are not quite old enough. SNEA foresees that without a proper layoff procedure, these are the people that would be hurt the most. He concluded that he would reserve further comments until SNEA has had a chance to digest the proposals, and will return with a written statement discussing each of the sections and SNEA’s position regarding them.

Chairman Townsend observed that the EICON employees have rights; but the question is where do they go should the workload at EICON become drastically reduced because customers have chosen to go elsewhere for their coverage. He thought the proposal was certainly better than having a large group of people just standing on street corners. He concluded on that basis, what was the objection.

Mr. Gagnier stated the bill does not give the EICON employees anything they do not already have. He noted the bill does set aside a sum for retraining, which is different from what is now in place. He pointed out it is not difficult to reemploy clerical employees; but when discussing positions peculiar to workers’ compensation, those people would have more of a difficult time whether it is under this bill or under current law. He stated under current law the employees have layoff rights, but that does not guarantee those employees a job in state government nor does the bill. He opined it is just a matter of whether EICON employees are affected under this bill or under current statutes and regulations.

Chairman Townsend queried what would happen, under current statute, to 450 people who are out of work and there is a hiring freeze. Mr. Gagnier responded that the employees would have to be laid off.

Chairman Townsend wanted to know if there were opportunities for the EICON employees under the proposal of lifting the hiring freeze. Mr. Gagnier asked why the Governor could not lift the hiring freeze in any event. He wanted to know why the lifting of the hiring freeze had to be tied to EICON employees.

Chairman Townsend restated that what he was asking was if this is the only option, then are not the employees being offered something that is more positive to stay in state government, if they choose to leave. Mr. Gagnier responded he would have to study the proposal further; but at this point, the only thing that is in addition is the $2 million for retraining. He stated there is a regulation on how people get laid off. This bill would allow EICON to pick and choose who gets laid off.

Chairman Townsend pointed out that EICON employees would be competing in the real world, so these employees are afforded different opportunities. They are going to compete against private carriers who are not affected by these regulations.

Mr. Thompson interjected that he has spent time in the Senate finance committee listening to the woes of the state budget. He said it appears that removing the hiring freeze does not mean a whole lot. It appears the state is not going to be doing a lot of hiring, considering the fact that he listened to the Assembly Ways and Means committee say they were taking the soda machine money from the prison guards to shore up the state General Fund. He noted if the Senate finance committee needs to take soda machine money from prison guards, then absorption of up to 600 EICON employees into other state jobs just does not add up.

Senator O’Connell pointed out that EICON people are not being paid through the state budget; they are being paid from funds received from employers. Mr. Thompson responded that he is talking about moving those employees into other state jobs, and that is where there would not be enough money to absorb everyone. He added that unless someone is way off the mark, and he did not think that was the case, those jobs are not going to be available within the state system.

Senator O’Connell commented there would be a lot of people going into the insurance business, and will be looking for the expertise these employees have.

Chairman Townsend closed the hearing on Amendment No. 190 to S.B. 37, and opened the hearing on Senate Bill (S.B.) 12.

Paula Berkley, Lobbyist, Truckee Meadows Human Services Association (TMHSA), offered written information to the committee (Exhibit F). Chairman Townsend inquired where they obtained the figure of $30 million. Ms. Berkley replied that costs keep going up. It has been estimated at $400 a member, and when multiplied out it is actually over $30 million.

Jon L. Sasser, Lobbyist, Washoe Legal Services, offered several amendment versions to the bill (Exhibit G). He explained option one is the present bill with the amendment previously discussed allowing for the attorney general’s discretion. Option two would expand the bill to all nonprofits. Option three would broaden the bill to cover only health care nonprofits. He added he also prepared reasons to give the committee some comfort as to why not broadening the scope would be all right in terms of public policy and in terms of law. It would not violate any constitutional prohibitions against any special legislation.

Chairman Townsend asked Mr. Sasser to clarify where he obtained the basis for option three. Mr. Sasser answered the definition of nonprofit health care entities was taken word for word from the National Attorneys General Association model legislation.

Thomas M. Patton, First Assistant Attorney General, Office of the Attorney General, said he concurs with Mr. Sasser that the language in option three is directly out of the National Attorneys General Association model act for nonprofit health care conversion transactions.

Chairman Townsend asked if Attorney General Frankie Sue Del Pappa has had a chance to review the proposed options and take a position with regard to S.B. 12 in its current or a broader model legislation from the attorneys general group.

Mr. Patton replied the attorney general (AG) has looked at the bill, but has not seen the proposed amendment language. He and the AG have been involved in discussions with both parties to the proceedings. He stated as far as taking a position, he would have to reiterate that it is not the AG’s bill, but would work with the policy decisions made by this committee. He noted the subject is a complicated historical set of facts as to what occurred, and it appears there will be a dispute if legislation is passed that would encompass the operations of the now merged Blue Cross Blue Shield (BCBS) of Colorado. He stated one concern is whether Colorado would recognize the legitimacy of any legal action taken under Nevada law to recover a portion of the assets of BCBS of Colorado. This is the main concern that Colorado would not recognize the action and would subject that company to a double recoupment of what Nevada would determine to be their portion of the assets. He said it was because of that potentiality, there is a concern of BCBS simply turning in their license to practice as a foreign corporation in Nevada. He expounded that he is not convinced that would happen. He would argue to ask Colorado to give full faith and credit to a decision made under Nevada law.

Greg W. Ferraro, Lobbyist, Blue Cross and Blue Shield of Nevada, stated that James Whadams, Blue Cross and Blue Shield of Nevada representative, would be arriving within a few minutes to testify.

Ms. Berkley offered the main concern at TMHSA is that if the bill is broadened to include all insurance companies; that it will be attacked by other nonprofits, because they have not seen the bill, and have not had the opportunity to go through the bill. She said TMHSA has been living with the bill for a year and a half trying to eliminate as much complication as possible. She reiterated the focus was narrowed just for the reason of trying to get the money back for Nevada citizens, while not interfering with others. She said after the bill is passed, then if the committee would want to look at the whole policy issue, TMHSA would support reviewing and broadening policy coverage for other nonprofits.

James L. Wadhams, Lobbyist, Blue Cross and Blue Shield of Nevada, commented that after glancing at the proposal, he thinks the chairman’s request that the bill be broadened so that, at least on its face, it would apply to more than to one single entity, is accomplished by option three (Exhibit G). He stated additional research has been done and, again to state for the record, there is no state that attempts to pass a law that would change the law of another state. He continued in that regard he thinks, to the extent BCBS wants to deal with nonprofit corporations created in Nevada, that is a policy decision that could be made. He stressed he would strongly discourage the Legislature from trying to pass laws that affect the laws of other states. He said it should be limited to Nevada domestic corporations.

Mr. Sasser stated if the bill is expanded at this late date, he believes that others representing the affected agencies would like to speak to the committee.

Chairman Townsend inquired if the AG has ever gone outside the jurisdiction in terms of the people who work there, and asked a private law firm to do any kind of unique litigation on a contingency basis.

Mr. Patton answered the tobacco litigation comes to mind. He said that litigation required a number of formulas for paying the outside counsels’ fees. One contingency fee was a sliding scale fee depending on how long the litigation would continue. He concluded that the precedent has been set.

Chairman Townsend explained the committee is finding less and less reception in these money committees with the Governor than on almost anything. He said there are new rules, that have made it difficult for this committee, which operates almost in a totally self-contained manner because there are user fees or assessments on users as opposed to General Fund money. He noted there are bills going out that would be vetoed, even though the parties that wanted additional funding and provided it, fought for it.

Senator Rhoads asked for clarification as to exactly what the amendment changed in the bill. Mr. Sasser communicated the new language is on the bottom of option one. He articulated a concern was expressed at the previous meeting as to whether it was clear the attorney general had discretion to determine whether there were, in fact, charitable assets in Nevada worth going after, as opposed to the statute saying that there are. He said option one to the amendment is the attempt to give the AG that discretion. He conveyed one change in the current amendment (No. 267) says the AG could hire outside counsel at the rate other state agencies are charged for there services, which is only $75 an hour. The AG does not believe that office can obtain the counsel they would need at $75 an hour. He noted some concern was expressed that the preamble to the bill was broader than the bill itself. Mr. Sasser stated language was offered to narrow the preamble back to the scope of the bill.

Mr. Patton commented that he just reviewed the proposed amendments today, and he understood from last Friday’s discussion that there was concern raised by Senator Amodei about giving the AG’s office some discretion over making an initial determination whether a potential conversion entity would be subject to the provisions of this bill. He said he liked the proposed language were the insurer possesses charitable assets. He suggested it go a little further and state whether the foreign insurer possesses charitable assets attributable to business it has conducted in the State of Nevada at the time of the conversion, and which is lawfully subject to the provisions in the bill. He surmised what is wanted is to give the AG preliminary authority to make the determination whether this can be lawfully applied, whether it meets the legal definition, or there are prohibitions that would preclude application of this law. He said this process should be a requirement along with everything else before commencing litigation. He stated there is precedent for handling matters through contingency fee arrangements. He did not know if that would work in this case; it may be a little problematic.

Mr. Patton voiced the reason why he asked for the change in the proposed language, about attorney fees, was that the initial proposed language would give the AG the authority to charge attorneys’ fees at the rate the AG’s office charges agencies for representation. He stated the AG’s office gives pretty good rates to state agencies. He said if the AG’s office were to engage outside, expert counsel, the AG would need, under chapter 41 of NRS, the authority to pay a market rate for that expert service. He said the language in option one frees up the rate the AG could pay for outside services. He added that whether or not the AG would be able to engage an attorney on a contingency fee arrangement is problematic; because if there was a challenge to application, if it was their determination that the law was applicable, and the AG was to commence proceedings, there is a possibility of an initial dispute over the lawful application of this, and whether or not we would be able to engage in any outside expert counsel on a contingency basis to handle that preliminary matter he was not certain. He added that it may be putting the cart before the horse in talking about contingency fees, because it assumes there are sufficient assets that are subject to recovery; that it would make the contingency fee arrangement worthwhile to outside counsel.

Senator Townsend stated there are two reasons for asking the question. He said one reason is, if you ask someone what law firm does this for a living, and does it on a contingency basis, the law firm would determine quickly whether there is value to a lawsuit. He said the law firm would not invest their own resources if they did not think there is a legal chance. He continued he had no concept of what the potential litigation would be in terms of cost, or whether the AG could afford that, and could be reimbursed on that basis either from the Interim Finance Committee (IFC) or from the defendant. Those were the reasons he raised the question.

Mr. Patton responded he concurs with the senator. He stated he does not have any kind of assurance as to whether or not the AG would be able to recover the cost of a preliminary challenge to application. He said, as mentioned before, the bill does not provide for the recovery of costs and now attorneys’ fees in the evaluation process, the application evaluation, all the public notices, and hearings that take place relating to doing a conversion evaluation. It does not provide for the recovery of any initial challenged application of the law. He stated whether or not the AG’s office would be able to handle in-house, and absorb that workload, as indicated, would depend on the scope and complexity of that litigation. He surmised it could be necessary to engage outside counsel to assist, in which case, the AG would need to request from IFC additional funding. He stated it would be difficult to pinpoint a number.

Senator Amodei asked, as far as the initial determination on this goes, if this bill were to pass, then the AG’s office would be required to make an initial determination in terms of whether or not they ought to proceed more under this legislation or not. He asked if there was any control over how many AG Opinions (AGOs) were received each year from a state agency. He said he was having some trouble in terms of the AG having to make an evaluation, and this is one of things that would be on the radar scope, much like a lot of state government is run. Now if AGs decide there is something that goes on after that, those are value judgments the AGs are paid to make on a daily basis depending on resources. He said if something like this becomes an issue, the AG does not necessarily go back to interim finance and ask them for some extra money to do that.

Mr. Patton agreed with the premise. He said on a daily basis the AG’s office is confronted with brand new challenges; and if there is an initial challenge to application, that is exactly what would happen. He said they do their very best to find the resources to pull them together within the AG’s office. He was not content to just say he is positive they would be able to handle that challenge without some access to outside assistance. He said in most instances, yes, the AG’s office is the largest law firm in the state, and handles most matters without resort to outside assistance.

Senator Rhoads stated that where he is confused is if a violation actually occurred in BCBS’ intake money from Nevada to Colorado, why we need a bill. He wanted to know if the AG could just get involved. He asked why the bill is needed if actually somebody stole some money from the State of Nevada.

Mr. Sasser explained he may have gotten a little carried away with his metaphors on stealing gold, and tried to correct that impression in this document. He noted as Mr. Wadhams said at the time in 1996, when the gold left our state, it left lawfully because of a merger between two nonprofit corporations. He said his new analogy is that if BCBS proposes to give our gold to somebody else, it has no claim, and it has no right to claim that gold. He said it is good public policy to try to get the gold back. He said it is not a matter of having stolen it in the past, but it is a matter of proposing to give it to somebody else, as if there is no claim to it.

Mr. Wadhams pointed out that Senator Rhoads’ question focuses precisely on the issue. He said the AG could initiate a suit in Colorado today to recover that property if the AG, in the exercise of her discretion, determines that there is an attribution of that asset. He added that having now had a chance to review the proposed amendment, he finds it fascinating, that the corporation for public benefit statutes in Nevada already give the AG discretion to make these determinations as to whether they are charitable assets. He said in that regard, this bill would be redundant. He said the bill would generate one opinion, and one request for an opinion, and that would be from BCBS of Colorado. He observed the intent of this statute appears to be, even under the amendment, to amend Nevada law to try to amend Colorado law. He pointed out the ultimate result is the AG would have to go to Colorado and file a lawsuit, which is what the committee has been urged to recognize from the beginning. Mr. Wadhams emphasized the bill applies to a single entity, it does not apply to all nonprofits, and it does not apply to all insurance companies who do business on a nonprofit basis. It only applies to one entity that happens to be a foreign insurer. He argued the bill was totally inappropriate.

Senator Amodei stated he is not too sure who is right and who is wrong in the issue. He said at this time he is not prepared to say you cannot have a tool that would give you a shot at these assets. He said he does not know whether these folks are entitled to the assets or not, but he would feel more comfortable with that determination being made by Mr. Patton and the AG’s office. He said if this bill is a tool to allow the decision to be made at that level, then he would be much more comfortable, and that is the rationale behind the motion.

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Chairman Townsend noted the proposed amendment to S.B. 438 was in draft version only. He asked Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, if the committee would have this amendment. Mr. Young responded it is only a working draft he prepared for the chair.

Chairman Townsend continued that what was added to the draft, under section 2, is a proposal to remove the staff as a party to the action. In other words, not to let the staff intervene, but let them be the support group for the commission itself. He said this is an attempt to define contested cases, rate making, general rate cases, and performance-based rate making. He continued that it is also an attempt to talk about ex parte, and what can be done and must be done under the ex parte rules. He said the ex parte communication rules that were placed in this for working purposes, he believed came out of California. Mr. Wadhams said in essence the ex parte rules say, if a person talks to a commissioner, they must file a document within 3 days of that communication saying who initiated it, the commissioner or the party. It also says what has to be laid out, what was discussed, what were the parameters of the discussion, etc. He said that way any other party can be informed about what was done, whether it is the press or a competing entity, so everyone has the same access to that commissioner.

Mr. Young interjected that he believes it may be in section 15 of the draft, that there are two small changes. One suggested by Frederick Schmidt to add the word "nondiscriminatory." Chairman Townsend acknowledged the information. He added that under proposed section 17, "the commission shall require an alternative seller to include with its application for the issuance or renewal of the license, an annual fee prescribed by the commission. The commission shall, by regulation, establish the annual fee based on the actual and reasonable cost incurred by the commission." Chairman Townsend clarified the use of "reasonable." He said the original concept was that when someone left, they were not collecting mill tax. He said what they wanted in order to keep their budget whole, was to establish a fee that would equal what the mill tax was when they left. He continued that what we are saying is, we do not want to do that. He said what we are giving them is a reasonable fee that reflects actual cost. He said the reason the term "reasonable" is in the bill is to prevent their determination of actual cost to be equal to the mill tax.

Senator O’Connell asked if the committee has the amendment to S.B. 140.

Mr. Young responded that the committee does, but it was previously voted to amend and do pass, and would be given out before it is taken to the floor to be sure it is accurate.

There being no further business, the workshop was adjourned at 9:30 a.m.

RESPECTFULLY SUBMITTED:

Laura Adler,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: