The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:48 p.m., on Friday, May 28, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. There is no Agenda. There is no Attendance Roster. There are no exhibits.

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

Laura Adler, Committee Secretary

OTHERS PRESENT:

Chairman Townsend stated the bill requires the committee to concur or to not concur on the amendment, and the committee is meeting to make their decision.

Senator O’Connell said prior to the amendment on the floor, she understood everyone had signed off on the amendment done in the Assembly.

Harvey Whittemore, Lobbyist, Nevada Resort Association (NRA), said there were some items in the amendment that were cause for concern, and that is why the NRA did not sign off. He stated the issues specifically relate to language added without the concurrence of any party in committee, or by the Assembly. After the parties had drafted an agreed upon specific language, additional language was drafted, which everyone had an opportunity to review. The reality was if the parties expressed their concerns, the deadline would be missed with respect to the amendment that was adopted by the Assembly.

Mr. Whittemore drew attention to the language concerns centered around section 3 of the bill, and a number of other technical amendments that, from a legitimate policy prospective, the committee needs to give the parties some direction as to what was the intent. For example, section 3, subsection 4, lines 39-42; the intent of this section was designed to prohibit commission interference with certain contracts, and it does not say that. What it should say is, "the provisions of this section must not be construed to allow the commission to modify or terminate any obligation for the purchase of power in effect on July 1, 1999." He said statutes are not needed to clarify the terminating parties. What is needed is a prohibition about the commission being involved. Since the bill’s arrival in the Senate, he knows all parties are close to concluding the qualifying facilities (QF) contracts.

Mr. Whittemore moved on to section 3, subsection 1; saying the parties propose that a period be put after the, "obligations for the purchase of power." He explained, the contract requires that somebody receives a $1,000 payment. The parties determine that they will accept $500 pursuant to agreement. The contract is modified, executed and signed. On the other hand the provision in the bill, as written, would suggest that somebody who is assigned that contract, would be bound by interpretation to only accept $1,000; that, he believed, was not intended by the Assembly. What was intended was a very precise statement that the existing electric utility must comply with the terms of any existing obligation to purchase power. He said the original version of the bill contained that language. He stated the additional phrases add nothing but confusion.

Mr. Whittemore voiced with respect to section 1, subsection 3, which provides a mechanism for mandatory recovery of costs; that already exists in Nevada Revised Statutes (NRS) 704.983, which is in section 18, lines 17-20 of the bill. He emphasized the only issue has been, that is the commission mandated to honor those contracts and costs. He pointed out that in section 18, subsection 2, line 11, the parties proposed that the commission shall adopt a regulation to provide for the direct and unavoidable recovery for repairs. It does not suggest the QF contract individuals were not going to get paid by the utility. Apparently there was concern the commission would not do that; therefore, the place for it is set in NRS 704.983. What was suggested, and agreed upon at that time, was that the changes be made in NRS 704.493. He claimed doing it correctly, in the appropriate sections of the law, is what the agreement and disagreement is over.

Senator O’Connell iterated the committee was concerned about leaving total control in the commission’s hands. She asked to be shown where the language is in the bill. She said she had to ask legal counsel to ask for a layman’s terms of what was in the bill, because if section 3 of the amendment were kept, there would be a tremendous increase in cost.

Mr. Whittemore said the provision of subsection 3, and the language used, created two mandatory acts to take place in a manner which is inconsistent with (A.B.) 366 of the Sixty-ninth Session.

Mr. Whittemore explained that after the utility makes the showing required in subsection 2, the commission shall determine the recoverable costs; and the obligation is on the utility. He said identical language was used from NRS 704.983, "… The commission shall determine the recoverable costs associated with assets and obligations that are documented in the accounting records of a vertically integrated electric utility." He pointed out the QF contracts can be assets on the utilities’ books if prices continue to increase. He said without that language being in subsection 3, of section 3, there is no corresponding balance between assets and obligations to get in that recovery position. It says, "… shall determine the recoverable costs associated with such an obligation for the purchase of power." He stated this is not to determine assets and obligations; not to determine the method under which A.B. 366 of the Sixty-ninth Session was negotiated, but a special one. He remarked no one can tell the parties what is the priority and what is being established. Mr. Whittemore expounded the second part goes to the point he made with respect to subsection 2, which says, "… and shall allow the utility or assignee to recover those costs from all classes of customers through a charge imposed for noncompetitive services." And in subsection 3, section 18, he added that obligations where matched. He said there is no matching of those obligations in subsection 3. The parties were attempting to reach the key component of what subsection 3 was designed to do; which was to mandate commission activity. Therefore, in section 18, subsection 2, he proposed new language to say, "for the purposes of this section and section 3 of this act, the commission shall adopt a regulation to provide for direct and unavoidable recovery." He said, unfortunately, those type of changes in a bill this technical, must be done after review of the effects of the amendment on all the parties are determined and presented.

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company (SPPC), said subsection 3, of section 3, is beyond the scope of the agreement reached on the Senate side, and the utility has tried to stay with that exact agreement. He said it probably offers some advantage to SPPC; however, SPPC is not going to press for it, because SPPC did not bargain for it with the other parties.

Mr. Whittemore responded that the provisions have nothing to do with the obligations on the QFs. This has to do with what the utilities can recover from the commission. In further discussions, that is why all the parties were engaged to come up with a system under the existing A.B. 366 of the Sixty-ninth Session to not change the basics. What was derived from the Senate and the Assembly committees was to leave A.B. 366 of the Sixty-ninth Session alone. He reiterated for the thousandth time, on the record, by constitution, by statute, by any expressed method, that he knows of in 20 years of practicing law, that nobody is going to force the QF contract to modify or terminate their agreement, unless they want to do so. He emphasized that is what the state constitution says, and that is what case law says. But out of deference to the committee’s desired expression to restate that, that is what subsection 1 of section 3, says.

Senator O’Connell wanted to know why the chamber and the water department were vocal regarding subsection 3.

Samuel P. McMullen, Lobbyist, Las Vegas Chamber of Commerce, explained the parties were all in general agreement, and decided the discrepancies in the language could be cleared up later; the important thing was to get the bill passed. The issue in subsection 3 is specific about "shall" allowing a wireless charge, as the way the QF costs are recovered. He iterated it was everyone’s understanding that the proceeds from generation and merger savings, costs and obligations, whether stranded or otherwise, and mitigating tax and everything, would allow the maximum flexibility to utilize those in the best way; so that only the minimum effect went on to rate. What this implied is, instead of saying that we will automatically put these on rate, we would use the NRS 704.983 process and make sure that only that amount would go on rate. He noted the utility companies created a couple of very interesting policies out of this merger. For example, there are now going to be divestitute proceeds that could be utilized to pay off some of the stranded cost war merger savings. He said whether it is a large customer or a small customer confusion has been created, and that was the concern.

Senator O’Connell asked Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, if he agreed with the interpretation and the wire charge, as presented by Mr. McMullen, is in keeping with the language of the bill.

Mr. Young answered although he has not thoroughly looked at the language, he generally agrees with Mr. McMullen. He said as he understands the language in subsection 3, it says that if there are stranded costs associated with the purchase power contracts. The only way the commission could recover those or allow them to be recovered, would be by a charge on transmission and distribution. However, it could also choose to do other things. And as Mr. McMullen indicated, some of those things might allow the commission to net some of the other generation asset proceeds against cost that might arise under these power contracts; so that if the commission was locked into the provisions of subsection 3, it may be to able to minimize the stranded cost that might arise from the purchase power contracts. He concluded he is not comfortable that he understands this aspect of the bill, as he does some others, but he thinks that what Mr. McMullen indicated to the committee is correct.

Mr. Whittemore said there continues to be discussions regarding language tweaking that would be presented to the committee before final adoption of any conference report. He said, hopefully, the language would say this is what the parties believe was the price intent. For example, it was discussed to modify or terminate, on the bottom of page 2 of the bill, the concept of either direct or indirect commission action. He articulated proposed language was suggested, adding an additional modifier to make sure the commission was not going to do anything to create absurd results. Another thing discussed, but not yet finalized to make recommendations, was the commission’s position with respect to force majeure clauses in the existing QF contracts. He said as he understands, the commission or its staff may have suggested that simply by virtue of the passage of this legislation, it might have triggered the ability under the force majeure clause to terminate those contracts. He said the parties do not agree that is an appropriate reading of what is intended. However, the parties think that with the appropriate addition of language in subsection 2, section 3, that the parties may be able to reach consensus on the force majeure clause problem. But it could not be done in the context of presenting anything to the committee this evening. It can only be done in the context of having a vote to not concur, and then go into conference and engage in further discussions with the chairman and members of the Assembly on these issues. He knows that the parties have had discussions with Assembly Speaker Joseph (Joe) E. Dini, Jr, Lyon, Storey and Carson City counties Assembly District No. 38, and Chairman Douglas (Doug) A. Bache, Clark County Assembly District No. 11, on these very matters. These are issues that have been discussed with each of the members involved. The parties believe that given a couple of hours, they can come back tomorrow with a proposed amendment to the bill, which, hopefully, the Senate and Assembly would concur. He emphasized the bottom line is the parties are 98 percent there. He asked the committee to give the parties a chance to finalize the negotiations and get the bill in a form that is exactly where everybody can sign off. He said the bill is unacceptable to the NRA at this juncture, in light of the discussions on these matters.

Senator Amodei stated he appreciated what Mr. Whittemore had to say, but he is bothered that he does not see anyone present from the commission. He said one of the reasons he does not want to go to conference, is because he sat as a member of Assemblyman Bache’s commission during the last session. He said the commission was not on the record as to what they thought of A.B. 366 of the Sixty-ninth Session. He said he went through 2 years of what they did think A.B. 366 of the Sixty-ninth Session meant; which is why we were here for a long time this session. He said confusion had nothing to do with the Assembly, it had to do with the commission. He iterated the only one who was not at the table then was the commission. He pointed out that again the one who is not present is the commission. He said in order to send the bill into conference, which does not require the participation of this committee, is the presence of the commission. He noted the commission is not saying anything on the record, and interpretation may not be the same. He concluded that is the heartburn he has with this whole process.

Mr. Whittemore said all of the changes have been approved by Frederick Schmidt, Chief Deputy Attorney General, Consumer’s Advocate, Bureau of Consumer Protection, Office of the Attorney General, on behalf of the consumer advocate’s office. He said everyone of the changes was directed by Mr. Schmidt. It is only as a result of all of the negotiations that took place between the utility and Mr. Schmidt and all the other interested parties, that the parties were able to present the committee with a modest amount of understanding of what would be proposed. He acknowledged Senator Amodei’s concerns that he does not want a wild card going into conference. He clarified that the parties were going to provide a very clear understanding of what the proposed amendments would be, let the committee look at them and see if they were appropriate, and decide whether to concur or to not concur. He stated the NRA is not asking this body to say they would not concur, and go into a round robin of another 120 days of negotiations. What NRA proposes to do is have all the parties sign off and be in a position to recommend unanimously to the committee.

Pete Ernaut, Chief of Staff, Governor’s Office, remarked, in response to Senator Amodei’s comments, it is important to know there is a marked changed from the last administration to this administration. He said it is an important point when it comes to a regulatory body, such as the Public Utilities Commission of Nevada (PUCN), that the Governor sets the policy, and the regulators regulate. He said the Governor has a firm belief that in order to set public policy, you put your name on the ballot, and you run for office. That is a marked change. He said the PUCN has not been a part of these discussions, other than in an informative measure, from the standpoint that the public policy statements, the public policy direction from this committee, approved by the Governor, will guide that commission. That is definitely a different mindset than in previous administrations. This is not to say that it is right or wrong; it is just the opinion of this Governor. He said he understands the concerns. But he assured the committee that if they have concerns about the public policy direction or intent of this bill, and it is carried forward, the committee need only talk to the Governor, and he will provide the committee and the commission with his direction. To this point, despite some technical differences, the public policy statement this Senate committee and the Assembly committee have made, the Governor concurs with. Mr. Ernaut said the Governor has every intention of signing a bill that comes through this process. He said it is important to put on the record why the commission has not been involved; why the commission would not be involved. He said these are the same discussions he would have in the judiciary committee in respect to matters involving the State Gaming Control Board; the same discussion he will have before this committee on matters dealing with the insurance commissioner. He hoped what he said may have cleared up some miscommunications, and merely a change in adapting to an administration and their prerogative to set the public policy as they see fit.

Senator O’Connell emphasized she wanted to be sure everybody had the same understanding of what is going to take place now. She said that to her this is the major issue of the session. She said it is critical that every person there have an understanding of what is going on, and how it is going to unfold. That is why the committee wants to be sure there is no misunderstanding about what is wanted from the various parties. The senator said the committee wants to know when, time, place, and how the parties are expecting it; because on the new amendments she sees different dates not talked about before. She expressed concern with the way some amendments are written, and with federal regulation; costs have to be paid fully, they cannot be mitigated, some of them can. Senator O’Connell stated there seems to be some misunderstanding about her concern about a specific holder of a QF contract. Her concern is the state has placed this burden on the utilities; and the state makes sure those are honored, because they did not go in willingly to those contracts. She said it has nothing to do with who the holder of the contracts is; it is that the Legislature forced them into it. She surmised that perhaps we are forcing the utilities to "take it in the shorts" as to what they are going to get out of it; that is not fair. The wire line charge is another thing that begs a clear understanding. The senator said she understands the wire line charges can be assets. She maintained those are the major concerns at this time.

Mr. Whittemore wanted to know if the committee could identify the concerns in the existing bill, in addition to the ones he has raised; because the motion would be to concur or to not concur. If the motion is to concur, then the rest of the bill would be okay. If to not concur, then there are additional things to be fixed. He said he would ask, on behalf of the parties, if there are additional items that are causing any of the individual senators concerns, and to specifically look at just those concerns.

Chairman Townsend answered that is not the goal of tonight’s hearing. He said the goal of this hearing was based on all the parties not having the luxury this committee did. The parties had a special committee that could only meet a few times, and they did yeomen’s work in terms of pulling together the things they felt were important based on the testimony. Unfortunately, the special committee was not given additional time to look at the language that came back. As a result of that language, there were concerns by multiple parties. The parties then came to the committee with those concerns, and the committee is going to try to work on them. The utility is working with Mr. Schmidt, the large users, the chamber, the water, and of those people, the queue-up contract people have come together with these concerns. He said he did not think it was appropriate to reopen the discussion on major policy issues. Senator Townsend thinks the issues Senator O’Connell brought up are ones that have been consistent throughout the debate. He said it is just a function of clarifying those issues as a result of the need to process the bill quickly, because of previous discussions as a result of the way the Assembly is structured; that is all this is. He concluded the goal would be to have everyone in a normal formal committee hearing where we can have all the parties, including lawyers and staff, to walk through this bill.

Mr. Whittemore said the arrangement is fine. He just needs everyone to commit to work into the night. Chairman Townsend responded that all the parties with the concerns should work on the language, since there are a number of concerns that need to be addressed.

Mr. Whittemore asked, with the chair’s approval, if the parties can reach agreement, can the information be provided to bill drafting first thing in the morning in order to bring back a clean copy. Chairman Townsend agreed, and said to give the information to Mr. Young.

Mr. McMullen added that there is no intent to do anything relating to the sanctity of the contracts; that has always been the position, and his personal position. He said there is no intention to make anyone compromise their ability to recover the costs. He said it has not been an issue.

Chairman Townsend called for a motion to not concur, and then there would be a conference committee at the call of the chair immediately upon adjournment of both the Senate and Assembly.

*****

There being no further business, the meeting was adjourned at 9:37 p.m.

RESPECTFULLY SUBMITTED:

Laura Adler,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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