The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:05 a.m., on Friday, April 16, 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

OTHERS PRESENT:

Chairman Townsend referred the committee members to their packets and stated that the approved amendments enclosed would be taken in order. He began with the amendment to Senate Bill (S.B.) 439, dealing with accountants.

Chairman Townsend said that all affected parties had been contacted to let them know the amendment would be discussed today. He explained that the amendment (Exhibit C) was proposed by the industry. Chairman Townsend asked whether there were any questions. He elucidated that the committee had already voted to approve all the amendments in the packet and if there were no objections or questions raised on any of the amendments, they would be passed out of the committee.

Senator Townsend went on to the amendment to S.B. 133.

Senator Townsend asked the people present to comment and to respond to questions on the proposed amendment (Exhibit D) to S.B. 133, to come forward.

Scott M. Craigie, Lobbyist, Liberty Mutual Insurance Group, and the Alliance of American Insurers, testified that the only change had to do with contractor or subcontractor. He said an agreement was reached with the bill drafter yesterday in regard to section 9, subsection 1.

Senator Townsend continued with the amendment to S.B. 140 regarding a premium tax notice (Exhibit E).

Senator Townsend stated that this is probably a very underestimated bill, but an extremely important consumer-issue bill. He suggested the procedure included in the amendment should probably be required on every bill that comes in the mail.

Senator Townsend referred the committee to the amendment to S.B. 463, regarding the definition of a police officer (Exhibit F).

Senator Townsend stated the amendment was merely to move the effective date from July 1, 1999 to July 1, 2000 so that it does not interfere with the industrial insurance rate-setting process.

Senator Townsend went on to the amendment for S.B. 128, regarding telephone disconnects (Exhibit G).

Senator Townsend explained that this amendment was drafted after discussion with the proponents, the industry and the Public Utilities Commission of Nevada (PUCN) with regard to contractors. He explained that the committee felt it best that the State Contractors’ Board file this notice with the PUCN rather than the telephone industry with which it has no business or regulatory relationship. He opined that the amendment seemed to be crafted correctly.

Chairman Townsend referred the committee to the amendment to S.B. 103, dealing with terms used in describing engineers (Exhibit H).

Senator Townsend recalled this was a board bill. He said it contained wording concerning violations. There would be a violation if disclosure were not made regarding qualifications, licensure and registration.

Chairman Townsend moved to the amendment to S.B. 356, which he brought to the committee and which he intended to offer on the floor today, in regard to mental health parity (Exhibit I). He clarified that the amendment exempts all the government entities, whose inclusion necessitated a fiscal note on the bill.

Senator Townsend moved to the amendment to S.B. 225, dealing with insurance fraud (Exhibit J). He said it was truly an omnibus bill.

Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, reported he had spoken with Marty J. Howard, Senior Deputy Attorney General, Insurance Fraud Section, Office of the Attorney General; and Ronda Clifton, Deputy Attorney General, Insurance Fraud Section, Office of the Attorney General, who both agreed the amendment was fine.

Senator Townsend explained that the reason the amendments are brought back before the committee is so that there are no surprises. He said there is a policy change in this bill that is crucial to all Nevada legislators, the Governor and the attorney general. Senator Townsend opined that a wonderful case has been made on how to best utilize the human assets of state agencies. The matter will be discussed with the PUCN during the interim.

Senator Townsend referred the committee to the crucial part of the amendment on page 2, section 26. He maintained that this section establishes a very positive public policy in relation to any type of fraud. Senator Townsend elucidated this section would allow the attorney general’s office to temporarily reassign staff and resources to different fraud units within the office, whenever there is a case that needs immediate attention without appearing before the Interim Finance Committee for permission.

Senator Townsend moved to the amendment (Exhibit K) to Senate Bill 224, the funding issue for the attorney general’s office fraud units.

Senator Townsend announced this amendment solves the problem of doubling staff and resources for fraud cases.

Chairman Townsend proceeded to the amendment (Exhibit L) to Senate Bill 178, dealing with employment screeners and tenant screeners. He clarified that this amendment exempts from licensure as private investigators those persons who verify or attempt to verify, for an employer, landlord or property manager, the information included in an application. Senator Townsend said it also exempts certain security consultants from licensure. He stated these exemptions were necessary to make sure those persons were specifically listed as not being required to get a license, so that the question of licensure could not be in contention in court cases.

Senator Townsend commented that the amendment also changes the licensing board, which now has the attorney general or a deputy as the chairman of the board, and makes the board a 5-member board appointed by the Governor, eliminating the attorney general or a deputy from chairmanship.

Senator Townsend said that the amendment also changes the executive director from being an employee of the attorney general’s office to an employee of the board.

Senator Townsend moved on to the amendment (Exhibit M) to Senate Bill 25, which deals with fireworks.

Senator Townsend stated the amendment changes the licensing authority for the sale of fireworks. He explained that it was originally decided it would be best to have the county as the licensing authority, but after discussion with representatives of the Assembly Committee on Commerce and Labor, it was deemed the licensing authority should be kept in the hands of the most local entity; i.e., city, town, or county.

Senator Townsend announced that the compelling change in the amendment is on page 3, line 30, paragraph (a) where the word "assets" has been changed to "charitable assets."

Senator Townsend moved on to the amendment (Exhibit O) to Senate Bill 495.

Senator Townsend commented that the amendment was listed as miscellaneous industrial insurance, which is a catchall term for any controversial items remaining. He said the amendment contains cleanup language for the three-way insurance transformation.

Senator Townsend referred the committee to the middle of page 3 of the amendment, which deals with changing the payment method for mileage and fees regarding the issuance of subpoenas. He said at the bottom of the page it deals with money collections and disbursements, and the last page deals with the effective date of the act.

Harvey Whittemore, Lobbyist, Nevada Resort Association, appearing with Robert A. Ostrovsky, Lobbyist, Nevada Resort Association, spoke for them both. He said they had reviewed the language in the amendment regarding the changes in wording and both felt the language was better for both the administrators and the claimants. Mr. Whittemore elucidated that sometimes decisions are not determinations, and this process would allow someone who is impacted by an adverse determination to immediately file an appeal to the hearings division of the department. He added on the other hand it sets out that there must be a final determination.

Senator Townsend asked whether the language in the amendment broadens the issue because the decision inherent in that term would be a certain amount of finality with regard to the issues at hand as opposed to a determination which might state that the issues are not clear and need redefinition. Mr. Ostrovsky replied in the affirmative. He added that whenever a determination is made, a letter must be sent to the claimant advising him or her of the right of appeal.

Senator Townsend went on to the proposed amendment (Exhibit P) to Senate Bill 438.

Senator Townsend remarked that this was the best, good-faith effort by legislative bill drafters to include the concerns of all the parties regarding what was proposed. He then went over the changes to the bill listed in the amendment.

Mr. Whittemore remarked in section 5 the language does what the committee desired, but there is some concern that this, if read too broadly, would preclude the commission from processing the refund cases that are potentially pending with respect to Sierra Pacific Power Company.

Senator Townsend asked Michael A. Pitlock, Commissioner, Public Utilities Commission of Nevada (PUCN), whether the language under discussion withholds the necessary flexibility in issuing refunds. Mr. Pitlock responded that based on a stipulation entered into among the parties, there are still two sharing dockets that will come before the PUCN. He explained that one docket would share for calendar year 1998 and the other for calendar year 1999. He said with the section of the proposed amendment in question having an effective date upon passage and approval, it could be argued by some parties that it complicates the PUCN’s ability. Mr. Pitlock elucidated that a part of the sharing docket is a review of earnings. He said that he would agree with Mr. Whittemore that this section could potentially cause a problem unless it could be made clear that it does not apply to 1998 and 1999.

Without interfering with the proposed amendment, Senator Townsend queried whether the PUCN and Frederick J. Schmidt, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, were comfortable with it being put in the record on the floor or whether it would be preferable to more clearly define the proposed amendment.

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, reported that those cases had not been brought up during discussions concerning the proposed amendment. He stated that the company would certainly stipulate that it did not intend to affect those filings.

Mr. Schmidt stated that the purpose of subsection 5 in section 13 was to respond to a request by Sierra Pacific Power Company and Nevada Power Company. They were concerned that if rates were going to be set and frozen in order to avoid a rate case going in, where the rates might be modified before the freeze, an uncertainty would be created of what the rates would be for the next 3 ½ years. He explained that was the reason the language was drafted by the utilities. Mr. Schmidt opined when the language was drafted that it had the unintended effect of having an impact on the stipulation to which Mr. Pitlock referred. He clarified that it probably would not have an effect on the case Sierra Pacific Power Company is supposed to file that would provide the refunds for 1998 because this bill would probably not be processed that quickly. Mr. Schmidt surmised that the unintended effect is that there is no way to know whether the earnings for calendar year 1999 will exceed a stipulated return of 12 percent. He explained that if 12 percent were to be exceeded, the power company would have to share 50 percent of the excess with the consumers. Mr. Schmidt said it should be made clear that if the earnings do exceed that level for 1999 that there may be a case filed in April 2000, which would provide a final refund to customers. He said he wanted to make sure that the record was clear that the parties’ intent in this provision was not to affect the refund case expected to be filed at the end of this month or the one to be filed in April 2000.

Senator Townsend asked Mr. Pitlock whether the PUCN was the entity with which those cases must be filed. Senator Townsend added that given the time frame with regard to amendments, he queried whether the PUCN was comfortable with the wording of the proposed amendment. Senator Townsend noted that Mr. Schmidt offered an "on the record" position and Mr. Ponn has done the same. Senator Townsend questioned whether Mr. Pitlock was comfortable that the PUCN will not end up in litigation due to the language in the proposed amendment.

Mr. Pitlock responded that only one other party, the Utility Shareholders Association, typically involved in the PUCN’s cases that has not made any statement for the record regarding the impact this provision might have. He assumed that the shareholders association would give the same assurance that Mr. Ponn did. He stated if the Utility Shareholders Association put the same assurance on the record all the bases would be covered.

Larry W. Bennett, Lobbyist, Utility Shareholders Association, testified that the association is in accordance with the statement made by Mr. Ponn.

Senator Townsend continued reading the changes to the amendment. He referred the committee to Section 14 regarding bids to provide potentially competitive services. Senator Townsend pointed out that in subsection 2 there is a crucial change that allows the PUCN to conduct an auction if the PUCN determines it is in the best interest of the public to conduct such an auction. He says this provision does two things: the timing on the provision places such action after the next session, which gives this committee the opportunity to find out, if in fact, this market particularly for residential and small commercial has matured; and, secondly, it gives the PUCN jurisdiction and flexibility for performing technical analysis and the ability to seek other utilities that might want to compete in such an auction.

Senator Townsend asked whether the language in the proposed amendment would give the PUCN the necessary flexibility to do what he had outlined. Mr. Pitlock replied in the affirmative.

Senator Amodei questioned whether the PUCN, when gathering the necessary information for holding an auction, could attempt to find out how the ratepayers feel about the auction process. Mr. Pitlock responded that as part of the PUCN’s ongoing outreach program and the balloting discussed previously, it intends to get as much information from ratepayers as possible to make sure they understand the different alternatives that may be available. He remarked that the ratepayers’ opinions regarding auctions would be very important not only to the PUCN, but also to the Legislature since the issue will be scrutinized again next session.

Senator Amodei opined that it would be nice to have the PUCN return to the committee with a report that the ratepayers had been canvassed and 10 percent of the respondents were agreeable to contracting with an alternative provider if it would save them 5 percent.

Mr. Whittemore pointed out, for the committee’s edification, that in section 23, the rate cap on page 23 remains in effect and is not being removed in case the merger is terminated. He said in that case the 2-year rate cap stays in place.

Mr. Ponn stated that Sierra Pacific Power Company agrees with Mr. Whittemore’s presentation that if the merger is not consummated, S.B. 438 would not go into effect and the provisions in Assembly Bill 366 of the Sixty-ninth Session would remain in effect.

Robert Crowell, Lobbyist, Nevada Power Company, stated that Nevada Power

Company agreed with the analysis of Mr. Ponn.

Senator Townsend said the committee voted to bring the amendment back. He asked whether that meant another vote must be taken on the amendment. Mr. Young explained that the committee voted to accept the amendment subject to looking at the changes requested, but the vote has already been taken.

Senator Townsend stated that the bill and the amendment are extremely complex, sophisticated and expensive to process. He iterated that he very much appreciated the work of the committee and the understanding each member had of the issues.

Senator Townsend told the committee he had just received a notice from all the parties affected under S.B. 322, which is the construction defects bill, that they have reached agreement. He said a contingent was going to meet with the bill drafter to ensure the bill draft covered all the concerns that had been voiced.

Chairman Townsend commented that there were two articles printed in the papers recently that were related to him that were perhaps tongue in cheek. He opined that those articles did a huge disservice to this process. The articles did a massive amount of damage to the work that everyone has done. Senator Townsend reiterated that he is very proud of the hard work done by the committee. He declared that the members participate, ask wonderful questions and fight for the issues in which they believe. Senator Townsend noted that when someone who has not been involved in this process and participated in the hundreds of hours of meetings, like the members of the Senate Committee on Commerce and Labor have, writes articles derisive to the process, it gives the public a false impression. He stated that the work every person in the meeting room has done is deeply appreciated and the committee has the highest regard and respect for everyone’s efforts. He concluded that the articles did a disservice to the participating public and a tremendous amount of undeserved damage to the regulatory atmosphere and all the people involved. Senator Townsend voiced his distaste for those taking shots at the committee when they have not been a party to the daily meetings. He said that he wanted to thank the committee and the participating public and lobbyists for all the work done during the process.

Senator Townsend moved on to the amendment (Exhibit Q) to S.B. 440.

Senator Townsend called attention to the only contentious matter in the amendment, on page 4, section 14 (Exhibit Q).

Scott M. Craigie, Lobbyist, Sprint, suggested that before getting down to the policy issues involved, if you go to pages 12 and 13, section 28 (Exhibit Q), the section rolls in after a certain date. He said the language currently contained in section 14 terminates. Mr. Craigie referred the committee back to section 28. He said this section refers back to page 12, section 14, and eliminates the paragraph (b) language. Mr. Craigie pointed out that the committee might want to put a little note on the amendment not to go to section 30. He said section 28 becomes effective on January 1, 2001. He explained that the way the amendment works is exactly the opposite of the amendment the commissioner had offered. He stated that Mr. Pitlock had suggested suspending the language in paragraph (b) until it has been considered as an option. What happened was that the bill drafter put the language in for the 1½-year period and then suspended the language after January 1, 2001.

Dan Reaser, Lobbyist, Nevada Bell, remarked that the language in section 28 (Exhibit Q) should be moved to section 14; the language in section 14 should be moved to section 28. He said this would alleviate changing the effective date.

Senator Townsend remarked that changes sought by the committee were not always done the way the committee intended. He asked Mr. Pitlock and Mr. Schmidt for their opinions on the sections in question from the standpoint of interpretation of the law for the public.

Mr. Schmidt concurred with Mr. Craigie that the reverse effect occurred, but had a different idea on how it could be corrected. Mr. Schmidt suggested adding section 28 to subsection 2 of section 30, page 14 and then in subsection 3, section 30, page 14, delete the reference to section 28 and replace it with section 14.

Mr. Pitlock interjected that in section 30, subsection 2, the reference to section 14 would also have to be deleted.

Mr. Craigie stated that there is a policy issue that goes much deeper than how the proposal under discussion is written. He said, on behalf of Sprint, that he needed the policy issue to be placed on the table. He stressed that this is a key issue for Sprint. Mr. Craigie referred the committee to page 4 and said that the issue for Sprint is that if paragraph (b) is pulled out on any level, whether now or in 1 1/2 years it leaves the company with a very narrow band of activities the company can do. He stated that Sprint wants to go into this bill and have the rights of an electing carrier. It would be possible that Sprint might try to exercise the opportunity to get into this bill sooner than otherwise expected. Mr. Craigie warned that anytime paragraph (b) is deleted, if there is to be a true "up-rate" case, similar to the one just offered to Nevada Power Company, Sprint is aware it cannot go into this market with a $7.10 residential rate. He stated that the rate is heavily subsidized; it is only 10 cents different than the rate Sprint charged residential customers in 1965. He stressed that Sprint strongly believes that it cannot enter the competitive market, even with the freedoms contained in this bill, until the rate is more realistic. Mr. Craigie asserted that the rate Sprint gets when it enters into an elected-carrier status is not for just 2 or 3 years, it could potentially last forever. The only time the rate might be changed is when the 15-percent threshold, which indicates a fully competitive market exists, is reached. Mr. Craigie emphasized that if a subsidized rate is in effect, the 15-percent threshold will never be reached to allow a different rate. He said that if paragraph (b) is deleted, according to section 14, an electing carrier is not subject to any review of earnings or monitoring of the rate base, unless the electing carrier files one of the two options listed in paragraphs (a) and (b) of section 1 with the PUCN. Mr. Craigie stated that if paragraph (b) is deleted, Sprint’s only alternative to going into the electing carrier level of flexibility is to return to rate base regulation.

Mr. Craigie summarized that the bottom line is that Sprint must have the opportunity to do a true "up-rate" case. He said Sprint would like the opportunity to position the company well for a long-term responsibility in that competitive market. He added that if paragraph (b) is deleted and the bill passes Sprint would have been better off without the bill because it cuts the rights and flexibility Spring now has.

Mr. Schmidt commented there are obviously two sides to every issue. He stated that if section 14 is deleted, it does not impact the attempt being made by Sprint today to change rates and increase southern Nevada consumers’ rates by $4 per month. Mr. Schmidt stressed that just because someone tells you, and uses the words enough times that rates are being subsidized, does not necessarily mean the statement is correct. He stated that Mr. Craigie served a long and distinguished career as chairman of the Public Service Commission of Nevada for 7 years. During that time frame Mr. Craigie had the opportunity to do something with Sprint rates. He said there have also been several rate cases in the 1990s from Sprint, after Mr. Craigie left the commission. Mr. Schmidt emphasized that in all of those rate cases the same argument centering on the approximately $7 rate being a subsidy was made. He said that Sprint has made that same argument consistently over the last 15 years. He asserted that the fact is that neither when Mr. Craigie was chairman nor in all the time since, during which he has been consumer advocate, has the PUCN accepted that argument. Just because it is claimed to be a subsidy does not mean it can be proved it is a subsidized rate. Mr. Schmidt averred that in 15 years Sprint has not been able to prove that it is a subsidized rate. He said that in his opinion it is because the rate is not subsidized. The cost-allocation process of how you pay for the local loop in the system in southern Nevada is a very complicated matter and all of the allocation does not have to be borne on the basic line rate. Mr. Schmidt claimed there are substantial services that Sprint provides, which generate an average residential rate in excess of $15 per month. He cautioned the committee to remember that when someone claims $7.10 per month is a rate, no one pays that rate on the bill. There is a federal access charge added to the bill and people buy other services. Mr. Schmidt stressed that it is through all those other services that Sprint is compensated for all the investment it has made in providing service in southern Nevada. He maintained that Sprint has done a good job and that for 30 years there has been a stable telephone rate in southern Nevada.

Mr. Schmidt said there is an oddity in this that the committee should ponder. He asked whether the rates must be increased because the goal is to move into competition. He explained for that component of the rate, supposedly $4, the increase would be in excess of 50 percent. Mr. Schmidt opined that such a raise would be inconsistent with the concept of why and how competition is accomplished. He pointed out that if the rate is a subsidy and Sprint can prove it, he wanted to make clear that section 14 of this bill gives them two opportunities to make that argument again with the PUCN. Mr. Schmidt asserted that the first opportunity is the case now pending. He mentioned that Commissioner Pitlock had represented on the record that this does not resolve the argument before the PUCN now on whether the current case can be processed during the rate freeze. He commented that Sprint is making the attempt and if the PUCN agrees to process the case, Sprint would have the opportunity to make the argument to change the rate to what is deemed a more appropriate level. Mr. Schmidt said that, secondly, the company is given an opportunity at the end of the current freeze period to determine which way to go. He commented that if Sprint wants to go back to traditional regulation, or participate in a PAR (alternative plan of regulation) plan, the company would be given the opportunity to do a rate review at the end of the freeze period. Mr. Schmidt opined that at that time a rate change might be able to take effect at the end of the freeze period.

Mr. Schmidt summarized that Sprint is not being precluded or locked into this $7.10 component of the residential rate or the much higher business rate by the committee in adopting this bill. He mentioned that what might be unfortunate is that Sprint is asking the committee to open-end the opportunities. In that way, not only can they get all the benefits of this bill and the flexibility that has been designed into it, but they can also get all the benefits of the PAR plan adopted pursuant to prior statutes. Mr. Schmidt clarified that the PAR plan was intended to offer an opportunity to create flexibility, define services, which are competitive or discretionary, price them however wanted with no regulation. He added that for basic service, for which no effective competition has been determined, the established rate must be kept for a definite period of time. Mr. Schmidt insisted that was the concept of PAR and he voiced his opposition to amending that concept in this bill and warned it could also create a whole new vehicle alternative to the PAR, which his office refers to as PAR 2.

Mr. Schmidt concluded that the bill, as now amended, is something with which he could live. He also reminded the committee that this is a very aggressive deregulation bill. He stated there might be no other state that has done this much for the local exchange companies in terms of freedoms.

Senator Schneider said that he could not imagine any company that could be putting great amounts of money into infrastructure for 30 years and yet keep their rates the same.

Mr. Schmidt responded that costs in the telecommunications industry, over the last 30 years, have actually declined. He stated that costs have declined in operating the business and that has been proven.

Senator Schneider interjected that payroll has not gone down. Mr. Schmidt disagreed. He said that payroll costs have gone down because the telecommunications industry once was a very intensive operator-based industry. Much of the industry has been automated so that although payroll rates for individuals have increased with inflation, the overall labor force has not had the same direction. Mr. Schmidt encouraged Senator Schneider to look at the total picture. He said it was found in the most recent reviews of several of the companies’ cases and earnings that costs had actually declined. He commented that the beauty of the telecommunications industry, in terms of what has happened in the last decade, is it has dramatically changed in the way services are provided.

Mr. Craigie responded to some of the issues raised by Mr. Schmidt. He stated that he understood Mr. Schmidt’s legitimate policy position. Mr. Craigie reported that in terms of the cases heard while he was chairman of the Public Service Commission of Nevada (PSCN), Mr. Schmidt is correct in stating that the basic rate was never increased. He explained that there were two basic issues involved. He noted those cases were over earnings cases. The cases in those days were when the telecommunications companies were earning more than the allowable profit. Mr. Craigie moved to the other services to which Mr. Schmidt referred. He said that, as regulatory policy, costs for certain services were inflated in order to subsidize the residential rate. Three-way calling probably costs the company as little as 14 cents a month to provide, but the charge to the customer is $3 to $7. Mr. Craige stated that this policy was consciously set to help subsidize the lower rate and because the regulators made a social-policy decision to keep basic rates low and ancillary services higher to subsidize the basic rates. Mr. Craigie reiterated that Sprint does not wish to be kept to the $7.10 rate when prices for other services come down. He said that in terms of the rate-case filing currently pending with the PUCN qualifying as Sprint’s "true-up," the rate case was filed well before S.B. 440 was even in its early stages. He added there are issues Sprint could not have anticipated with which the company must deal. Mr. Craigie stated that if paragraph (b) is deleted, the ability Sprint would have had between today and January 1, 2001 to deal with these issues is eliminated.

Chairman Townsend summarized that this issue is absolutely crucial to the regulatory atmosphere and the ability for companies to participate. He iterated that this committee should never get involved in rate cases and it should never set rates. He emphasized that the committee has tried to refrain from doing either of those things.

Senator Townsend asked whether Sprint is inferring that unless Sprint knows the outcome of its case before the PUCN is favorable enough for Sprint to arrive at the place the company needs to be for this competitive world, Sprint cannot survive knowing the uncertainties this bill provides or the preclusions for Sprint. Mr. Craigie responded that the statement contained the essence of Sprint’s concern.

Mr. Reaser interjected that Nevada Bell does not necessarily want to weigh into this debate, but there is an important policy issue involved. He said the regulatory flexibility that is embodied in section 14, subsection 1, paragraph (b) is critical. Mr. Reaser clarified that the compromise before the committee regarding phasing that provision in is really up to the committee as to whether it wants to grant that regulatory flexibility immediately or to delay it. He insisted the flexibility contained in subsection 1, paragraph (b) is important. He explained that the regulatory flexibility allows a local carrier, which elects into the bill and caps its rates and is way underwater on its base residential rate, if subsection 1, paragraph (b) is not in the bill, the electing local carrier would have one of two choices. The local carriers may come out and be regulated as they were in 1950 or they may opt to live forever underwater. Mr. Reaser emphasized what the carrier would have to do if it opted for living underwater would be to go before the PUCN and ask for the basic service to be made fully competitive. He cautioned that in such an instance the PUCN would have a very difficult "all or nothing" decision to make. He reiterated that paragraph (b) of subsection 1 is a critical component of the bill and must be maintained. Mr. Reaser elucidated that nothing in the way subsection 1, paragraph (b) has been rewritten changes the fact that if a local carrier opts in under this bill and rates are permanently capped, the carrier is locked into this bill forever. He admitted that this portion of the bill creates a slight ambiguity.

Senator Townsend referred to the amendment (Exhibit Q) and stated that it could be forwarded to the Senate Floor "as is" or suggested changes could be made to the amendment; i.e., make the effective date of section 14 January 1, 2001 and the effective date of sections 2 through 13, sections 15 through 22 and sections 28 and 29 effective October 1, 1999. He repeated the options would be to make the changes suggested, leave the amendment as is or make any other changes with which the four southern Nevada members of the committee would be comfortable.

Mr. Pitlock opined that the committee would probably not want to process the amendment as is. He suggested the committee at least make the changes discussed to change effective dates. Mr. Pitlock stated that the options would be to change the effective date of section 14, subsection 1, paragraph (b), or eliminate paragraph (b) altogether.

Senator Townsend asked whether Mr. Pitlock would agree that the committee would not want to process this amendment without changes. Mr. Pitlock agreed.

Mr. Schmidt remarked that Mr. Craigie had slightly understated the issue. He maintained the committee had three choices. He stated that paragraph (b) may be eliminated altogether because it is unnecessary. Mr. Schmidt explained that the bill creates a whole new regulatory flexibility plan. Each time this committee, and not the commission, has given the freedom to these utilities to price and charge up to $7 for a service that only costs them 25 cents has been a legislative decision in direction leaving it to the PUCN to follow the legislative mandate. Mr. Schmidt cautioned that the committee is about to give the utilities a whole lot more flexibility of deregulation. He stated that he failed to see why an opportunity must be afforded under paragraph (b) to say there may be a rate review under an alternative plan, but only at the request of the utility. Mr. Schmidt opined that if the committee decides to deregulate and open up flexibility, the utility companies are given the chance to earn substantial profits, but they must also take the risks.

Mr. Schmidt commented that if Mr. Craigie’s client wished to make investments in the same environment as Mr. Reaser’s client makes them, Mr. Craigie’s client must take the responsibility for the earnings. He said they cannot come back to the PUCN and say they want the flexibility to charge variable rates for a variety of services, but on one rate they would like to go back because they could make a good case by singling out that rate to convince PUCN members that it is unreasonably low. Mr. Schmidt stated the utility companies would be asking for a government sanction for approval of the rate at a different level and also the freedom to do whatever else they choose concerning other rates. He maintained there would be a third choice, which would be to eliminate paragraph (b) of subsection, section 14 altogether; it is not necessary if the new plan is adopted. Mr. Schmidt urged the committee to take the compromise on the table rather than putting paragraph (b) into the bill altogether and giving Mr. Craigie more than the shot before the commission he has right now. Mr. Schmidt added that Mr. Craigie would also have a shot in a year and a half from now at the end of this PAR for a correction of the $7.10 rate.

Mr. Craigie stated, for the record, that Sprint disagrees for the reasons previously cited.

SENATOR SCHNEIDER SECONDED THE MOTION.

THE MOTION PASSED UNANIMOUSLY.

* * * * *

Mr. Reaser asked for a point of clarification. He asked whether staff would be in agreement that the motion simply requires that section 28 be eliminated.

Mr. Young countered by asking whether all the earlier changes discussed about swapping the position of section 14 and section 28 would be ignored and simply eliminate section 28. Mr. Reaser replied that was correct.

Senator Townsend clarified that section 28 is to be eliminated, as is paragraph 3 of section 30.

Mr. Young agreed to have the changes made by Monday, April 19, 1999.

Senator Townsend moved on to the proposed amendment (Exhibit R) to Senate Bill (S.B.) 32.

Senator Townsend questioned whether "complex matter" was a legal term. He was told that the definition of complex matter is contained in the NRS. Senator Townsend stated the proposal uses the term complex matter, NRS 40.613, which Senator Townsend read aloud. He clarified when the term complex matter is discussed, it is about multi-units and not complexity.

Senator Townsend referred to page 15, section 15, subsection 1 (Exhibit R). He explained that this provision came as a result of the debate between the two parties and is not a part of the legislative language. Senator Townsend asked for clarification of the language in the section.

Ron L. Lynn, Lobbyist, Assistant Director, Inspections Division, Clark County Building Department, said "substantial completion of an improvement" in subsection 1 might refer to an improvement such as a room addition.

Senator Townsend asked whether "an improvement to real property" also meant an entire building. Mr. Lynn responded it could include an entire building, too.

Senator Townsend opined that section 15 appears to be getting away from quality, accountability and everything else. He asked for clarification from one of the sponsors of the amendment.

Bill Bradley, Lobbyist, Nevada Trial Lawyers’ Association, stated the reason section 15 was included in the proposed amendment was there is typically substantial litigation dealing with the words, "when substantial completion occurred." He commented that both sides wanted a comprehensive definition to alleviate unnecessary litigation.

Senator Townsend stated the committee was more concerned with subsection 2. He asked why Nevada would allow anything to be built or improved upon without one of the three documents enumerated in paragraphs (a), (b) and (c).

Mr. Wadhams said maybe it should not allowed, but it can occur nevertheless. If it does occur, the rules of common law will determine when substantial completion occurred. He stressed the purpose of this section is to trigger the beginning of the accounting for the statute of repose and to have some certainty whenever possible.

Senator O’Connell asked where the consumer protection is in this section of the proposed amendment. Mr. Wadhams replied this particular section does not deal with consumer protection directly. He said there is a statutory period in which a claim may be instituted. Mr. Wadhams stated this section attempts to create a definition for all to understand. He stressed 99.9 percent of the circumstances will fall into one of the three paragraphs of subsection 1. Mr. Wadhams clarified that subsection 2 was added for the rare case where one of the three items enumerated in paragraphs (a), (b) and (c) does not occur for any number of reasons that cannot be anticipated. He said the section provides some certainty to the process where time and money might have had to be spent on lawyers litigating as to when the clock started, rather than finding a mutual solution.

Senator O’Connell asked what the rules of common law encompassed. Mr. Wadhams said the intent of section 15, the final building inspection, a notice of completion, or a certificate of occupancy is what government is set up to do. He said that is how the process is defined and the contracts between parties who build and parties who buy are negotiated. Mr. Wadhams asserted that the only purpose for inserting subsection 2 was as a catchall. If for any reason none of the three events listed occurred, then there still is a state policy definition to use common law in determining the date of completion.

Senator Townsend asked what the penalty would be for not completing one of the provisions provided in the three paragraphs.

David T. Pursiano, Lobbyist, Nevada Trial Lawyers’ Association, said that typically a builder would file a notice of completion because that triggers the lien rights. He explained that if the notice of completion is not filed or filed late, it extends the lien-right period.

Mr. Lynn said that many times the lack of the proper notices, and even the lack of building permits is found when the owner wants to sell. He commented the informed buyer might note a permit was issued for a 2,000 square foot home, but the seller has advertised a 2,400 square foot home. The buyer wants to know where the extra 400 square feet came from and where the notice of completion is. Mr. Lynn claimed that is when the building department is called in to investigate. There are no punitive charges, but there are compensatory charges made by the building department for all the time spent investigating the matter.

Senator O’Connell asked whether this issue comes up very often in the rural areas. Mr. Lynn replied that there is a great deal of construction occurring in rural areas for which there is simply no accounting. He claimed that in rural areas of Clark County little settlements will appear and the building department cannot account for how, or when, they were erected.

Mr. Wadhams clarified that section 15 should not be taken out of the context of the discussion that is going on with S.B. 32. He said what is being dealt with is the "last straw." Mr. Wadhams remarked that part of what is being discussed here today is the front end of this process; when it comes to the last straw it is either fix it, or sue me. He stated this section is designed to give some finality to the determination of when the clock started to run.

Senator Townsend instructed the committee to turn to page 21, section 20 (Exhibit R). He asked if there was anyone who had a problem with the language. Senator Townsend asserted that this section is crucial to the problems faced by the senators from southern Nevada. He said buyers must have full disclosure regarding these issues. Senator Townsend commented that this language was intended to solve the problems occurring in southern Nevada. He added that this language will be contained in the "Sales Agreement" and it is important that everyone understands the language, as there will be penalties if there is any noncompliance with the terms of the agreement.

Mr. Lynn referred to subsection 1 where it refers to a licensed contractor. He asked whether the same rules of disclosure apply if the agreement is not negotiated with a licensed contractor.

Robert Barengo, Lobbyist, State Contractors’ Board, responded to Mr. Lynn’s question. He stated that neither the licensed nor unlicensed contractor is being asked for full disclosure; it is the salesperson.

Senator Townsend clarified that the Sales Agreement and the purchaser have nothing to do with who built the home.

Mr. Barengo suggested the salesperson could be required to disclose the builder’s identity.

Senator Schneider said that in 1995 he had seven bills on disclosure and the realtors are already on the line for a tremendous amount of disclosure on a variety of items.

Senator Townsend said the wording could be that the salesperson must disclose the builder, if known. He opined if the home is 30 years old, the builder may not be known.

Several people from the audience and committee members voiced that the Sales Agreement referred to in the section was for a sale involving the initial purchaser of residential property not occupied by the purchaser for more than 120 days after substantial completion. Mr. Lynn pointed out that if the building department completes a certificate of occupancy, department personnel lists the contractor and/or the owner builder, which obviates the need for such disclosure on the sales agreement.

Senator Townsend commented that the only thing up for consideration on page 21, section 20 is taking out the issue of removing "by a licensed contractor" in subsection 1. He also reminded the committee there would be some technical changes made by the coalition working with the bill drafter.

Mr. Barengo asked the committee to look at page 23, paragraph 6 (Exhibit R). He said this particular paragraph says that the contractors’ board cannot take action against a licensed contractor for defects if said contractor is attempting to resolve the matter. He stated that the board had requested that this section be taken out because some homeowners had been involved in lawsuits and were not getting the necessary repairs done. Mr. Barengo pointed out that the language in paragraph 6 retains the language and refers back to another section, which may have tightened up the language somewhat, but it still needs to be discussed. He referred the committee to page 5, section 3 that says the contractors’ board is not to take action during a 45-day period, for an initial purchase only.

Senator Townsend said that the language and the changes embodied in the language were, in essence, part of the coalition’s efforts to come to an agreement. He pointed out the committee had discussed the contractors’ board having the authority to go after an offending contractor at any time, under any circumstances, which the board personnel deems appropriate under board regulations and NRS. Senator Townsend insisted that the authority should not interfere with the right of buyers to litigate, negotiate or arbitrate.

Mr. Pursiano reported that the only reason the reference is made to section 3 is that it is the customers’ service aspect of the Nevada Trial Lawyers’ Association bill. He said the thinking was that during the 45-day period of the first year the contractor should be encouraged to fix the problem. If the contractor is fighting a disciplinary proceeding it might impair or impede the necessary corrective work.

Senator Townsend suggested that rather than interfere with this amendment, the committee also has the amendment to S.B. 423, which also deals with that section of the law that could be changed. He expressed a desire for Mr. Barengo and Margi A. Grein, Lobbyist, Executive Officer, State Contractors’ Board, and Mr. Pursiano to meet to agree on language beneficial to both of the individuals representing those people with construction defects, and the board in allowing it to go after an offending contractor at any time.

Margaret A. McMillan, Lobbyist, Sprint, asked to comment on the proposed amendment (Exhibit S) to Senate Bill (S.B.) 487.

Ms. McMillan referred the committee to page 2, section 4, line 3, which says that the eligible provider is entitled to reimbursement from the fund. She pointed out that in the original language it said "eligible" rather than "entitled." Ms. McMillan voiced concern that a provider could be entitled and still not receive it. She commented the suggested change was "shall be reimbursed from the fund," and that Mr. Schmidt had agreed with the wording.

Mr. Young recalled that during the last discussion on this proposed amendment that the committee requested that the language Ms. McMillan suggested be included. He said that he discussed this change with the bill drafter who indicated the proposed amendment could not be drafted in that manner. He elucidated the reason it could not be drafted that way was because the fund has been established, but no money has been allocated, as of yet. Mr. Young repeated that the language "shall" could not be used so the bill drafters were forced to use other wording.

Senator Townsend expounded because there was no money in the fund, the word "shall" could not be used. He suggested that Mr. Schmidt and Ms. McMillan draft a statement that says when there is money in the fund, the provider will get it. He declared that the statement would be read into the record on Monday, April 19, 1999. He also asked her to make sure the PUCN was involved in preparing the draft. Ms. McMillan agreed and added that "entitled" is much better than "eligible."

Senator Townsend adjourned the meeting at 10:30 a.m.

RESPECTFULLY SUBMITTED:

Sandy Arraiz / Laura Adler

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: