MINUTES OF THE meeting
of the
ASSEMBLY sELECT Committee on Energy
Seventy-First Session
May 1, 2001
The Select Committee on Energy was called to order at 1:38 p.m., on Tuesday, May 1, 2001. Chairman Douglas Bache presided in Room 1214 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Douglas Bache, Chairman
Ms. Barbara Buckley, Vice Chairman
Ms. Sheila Leslie
Mr. Roy Neighbors
Mr. David Parks
Mrs. Debbie Smith
Ms. Kathy Von Tobel
Mr. Lynn Hettrick
Mr. David Humke
Ms. Sandra Tiffany
COMMITTEE MEMBERS EXCUSED:
Mr. Joseph Dini, Jr.
STAFF MEMBERS PRESENT:
Kevin C. Powers, Committee Counsel
David S. Ziegler, Committee Policy Analyst
Cheryl Meyers, Committee Secretary
OTHERS PRESENT:
Doug Walther, Chief, Office of Business Finance and Planning, State of Nevada, Carson City, Nevada
Donald Soderberg, Chairman, Public Utilities Commission (PUC), State of Nevada, Carson City, Nevada
Terry Graves, Graves Communication, Independent Electric Coalition, Las Vegas, Nevada
Scott M. Craigie, President, Alrus Consulting, Reno, Nevada
Stephanie Tyler, Area Manager, External Affairs, Nevada Bell, Las Vegas, Nevada
John Sasser, Washoe County Senior Law Project, Washoe County Senior Services, Reno, Nevada
Michael Pitlock, President, Pitlock & Associates, Representative, Shell Energy, Carson City, Nevada
Chairman Bache advised members of the committee and guests it was the committee’s intention to hold hearings over the next two weeks or longer to have ample time to take testimony from all interested parties in A.B. 661. The committee wanted to hear from anyone that had a proposal to alleviate the state’s current energy problems. The committee wanted to hear those ideas in an open hearing with public input. Mr. Bache stated anyone submitting proposals should include how the proposal would help the citizens of Nevada, how the proposal would increase the state’s supply of energy to keep utility prices down, how the proposal would help ensure that the energy supply would not be interrupted, and how it would help those that were struggling to make ends meet to pay their utility bills. The committee was not interested in passing special interest legislation that did not benefit everyday Nevadans. They were interested in real solutions for the very real crisis facing their constituents. Chairman Bache opened the hearing on A.B. 661.
Assembly Bill 661: Revises and repeals various provisions concerning utilities and energy. (BDR 58-1128)
Assemblywoman Tiffany asked if Mr. Bache would reiterate the three issues he had wanted in any proposal submitted. He restated the three items he mentioned.
Doug Walther, Chief, Office of Business Finance and Planning, stated his primary responsibility was to issue taxable and tax-exempt bonds for small manufacturing and other types of public interest projects. He had noticed from reading the bill there were a number of sections that amended the NRS chapter that he administered to add additional authority to issue bonds for renewable energy projects. There were another number of provisions in that same area regarding state securities and bonds and securities that would be paid for by tax dollars. He was not present before the committee to recommend or oppose the bill. There were also provisions regarding approval of bonding by the task force that was created in A.B. 661. He was in favor of having the bonding authority clarified to allow the issuance of bonds for renewable energy projects because it would provide an incentive for those projects to be built and contribute to the energy solution in the state.
Mr. Walther had asked the bond counsel if his department already had the authority under the existing statutes. There was a general “catch-all” provision that stated they could issue bonds for projects that were in the public interest. There was no specific reference, however, to renewable energy. In his opinion it would be beneficial to make the issue clear in statute. Another issue that was unclear at this point, and he was awaiting an opinion from the bond counsel, was whether the bonds issued for renewable energy projects would be tax exempt. His office could issue bonds that were taxable; however, unless the bonds were tax exempt much of the incentive that made them more cost-effective compared to other means of financing would not be present.
Mr. Walther proposed an amendment (Exhibit C) to create a simple way of clarifying the authority to issue bonds for renewable energy projects by simply amending the statute that defined projects his office could finance with bonds to include a renewable energy generation project as defined in the bill. The amendment would add a subparagraph to NRS 349.510 and remove all of the sections of the bill that basically repeated language already in the chapter. The amendment also added the items mentioned concerning state securities and task force approval. His office did not believe it was necessary or a good idea to have tax dollars committed to paying securities on those types of projects. He did not wish to address those issues in his amendment.
Chairman Bache stated he was the originator of the bonding issue that was patterned after the natural resources bonding statutes. Those statutes enabled the agencies to use bonding for water resources. He stated renewable energy would be listed under the natural resources provision parallel to what the state had done with water projects over the last ten years.
Kevin Powers, Committee Counsel, believed Mr. Walther was focusing on using revenue bonds as a source of bonding for renewable energy projects in his amendment. The provisions in A.B. 661 provided for both revenue bonds and general obligation bonds. As the Chairman had mentioned, the general obligation bond set up in the bill would not be subject to the state debt limit in the Nevada State Constitution because they were dealing with natural resources of the state. He pointed out to Mr. Walther the state securities for the general obligation bonds set forth in the bill could only be issued if a governmental entity was operating a renewable energy project. If a nongovernmental entity was operating a renewable energy project then it would have to be issued revenue bonds.
Mr. Walther indicated he had received some inquiries about his office’s authority to issue bonds in the mentioned area. As recently as two or three weeks ago he had received an inquiry he could not explain in detail because it involved a situation where negotiations were ongoing. The inquiry was specific in asking whether his office could issue bonds to acquire a renewable energy project that existed. The party was interested in adding additional money to increase the capacity and effectiveness of the project. He could not give them a definitive answer because he was not sure he could act on the issue under the existing law. Mr. Powers was correct, he was only addressing the revenue bond portion of the bill where private entities would be seeking to build those types of projects.
Assemblywoman Tiffany asked Mr. Walther if he could answer the three questions proposed by Mr. Bache. How would these bonds help increase the energy supply to keep the prices down? Mr. Walther stated he was not an expert in the energy supply situation; however, if there was an incentive to build more renewable energy projects it would address the issue of increasing supplies. He imagined if there was increased supply the chances of interrupted energy would be decreased and he was not sure how it helped consumers to pay their utility bills except to the extent renewable projects might offer the same energy at a lower cost.
Donald Soderberg, Chairman, Public Utilities Commission (PUC), remembered a few meetings previous there had been discussions on the feasibility of various noticing times. Since that time A.B. 369 had been passed and signed into law. One of the features of that bill was an unintended consequence in the drafting that placed an artificial timeframe upon the processing of deferred energy cases. The provision was designed to have the first deferred energy case done in an expeditious manner to coincide with general rate cases. The language in A.B. 369 would have that practice proceed in perpetuity. In his discussions with various customer groups it would appear to hamper their ability to present their case before the PUC. The cases were very complex and the timeframe would not allow the Consumer Advocate and other customer groups to present the full case before the PUC or allow the staff of the PUC to complete a full analysis of the reasonableness and prudency of the rates proposed by the utility. His office had drafted an amendment (Exhibit D) to that provision, which was now law, and would like to submit it for the committee’s consideration. What the amendment would accomplish would be to move deferred energy back to the status of any other type of rate case and allow the typical 180-day timeframe. As an accommodation to the parties that drafted the deferred energy portions that were now law, the PUC would pledge to process the first two cases in the way intended or 120 days.
Mr. Soderberg added the second amendment (Exhibit D) submitted for the committee’s consideration dealt with the statutory suspension period. As discussed previously it was decided certain items were left hanging without action. Any type of tariff hearing, large or small, technical language cleanup, etc., would be effective with no action after 30 days. If the PUC chose to suspend an application the process would take the full 180 days. Over the last decade they had found in trying to mesh their noticing requirements with the 30-day suspension there were very few opportunities to let anything become effective within 30 days. If the noticing was expedited there could be a situation where it would take until the 29th day for an interested party to let the PUC know they had a protest. He proposed an elimination of the 30-day requirement. In the proposed amendment all tariff filings would have a 180-day timeframe and the commission would not suspend cases at the 30-day mark, which was currently the practice. The amendment was proposed to clarify the work of the tariff and compliance division. The division currently had to stop investigating and compiling their analysis for review to present to the PUC to make sure they reminded the PUC that within 30 days they had to suspend the application or it would automatically go into effect. There was a substantial amount of time spent in making sure the applications did not go into effect by accident. His office proposed the 30-day portion of that statute be eliminated and there would a 180-day timeframe to process any tariff filing. In his opinion many of the smaller matters would be processed quicker because the staff was not stopping to handle a 30-day timeframe when they were doing their analysis.
Assemblywoman Buckley asked if the statute and the mechanism for the 30-day suspension was the same one stating the rate increases went into effect if action was not taken. Mr. Soderberg stated it was the same statute. Ms. Buckley asked if what he proposed was similar to what had been discussed previously that outlined any application had to require a firm commission review and decision before rates could be increased. Mr. Soderberg stated that would be an ancillary feature of what his office was proposing.
Chairman Bache asked if Mr. Soderberg had any comments on the proposal relating to the election of the PUC. Mr. Soderberg stated that was a matter of policy and was in the hands of elected officials whether the commissioners were appointed or elected. Mr. Bache was curious if there had been any consumer hearings before the PUC and if there had not been any, when would there be one. Mr. Soderberg stated he believed the Chairman was referring to a consumer session. By law and by practice all of the hearings of the PUC were open to the public and there was an opportunity for the public to speak. In the 1980s the public had discovered those hearings were very technical and members of the public that attended the meetings traditionally felt very uncomfortable. The PUC, sometime around the evidentiary hearing portion of the case, posted a notice of the meeting for the consumer session to alleviate the frustration of attending very technical meetings. There had not been full rate cases lately, and therefore consumer sessions had not been held very regularly.
Chairman Bache had noted the turnover of employees at the PUC. He was concerned about the vast change of staff. Mr. Soderberg commented he did not have turnover figures with him; however, he had examined the numbers and the turnover percentages seemed to be consistent with the past. There had been a number of changes and some had attributed the change due to various chair people. When he first became a committee member employees had informed him they were leaving because they did not like a particular chairman. He did not know if there was an identifiable increase or decrease in turnover. He did identify there was the highest number recorded at the agency that had been promoted internally. He stated there had been 24 employees out of 80 that were in positions promoted internally. Mr. Bache was correct in the fact one of the employees left to work for the Secretary of State and two had left to work for Timothy Hay in the Consumer Advocate’s office. There had been some people in the last two years, he admitted, the committee had asked to leave. Mr. Soderberg added there had also been employees returning to the agency. As a matter of record there had been 12 people since 1995 that had left the agency and returned over the last year and half.
Ms. Buckley commented for someone that was a director of any agency, nothing was more complex than personnel issues. She did not attribute anything to losing people especially when they received better opportunities. However, she stated, the Chairman’s testimony, as well as the testimony of another witness had been very compelling in regard to the unique nature of the PUC. In the past there had been independent regulatory staff that did not work for any chairman so that there was another opinion and no appearance of influence that usually came with a prominent elected position. She wondered if Mr. Soderberg had an opinion of staff positions “at will” and if that position could hamper the integrity of that separateness.
Mr. Soderberg stated he did not believe the two categories interfered with each other. There was a time in the 1980s when a number of staff positions became unclassified. He thought it had enhanced the professional level of staff at the PUC. He believed from the outside there was always a perception the staff favored the views of the chairman.
Mr. Soderberg gave an example of the year before he was appointed by Governor Bob Miller to the chairman’s post he had a case in which regulatory operations staff favored a power plant contract with a client of his. At the agenda meeting when it became time to vote the then-chairman raised some concerns and stated the issue needed to go to a hearing. Then the regulatory office staff had a different point of view and he believed back in 1994 and 1995 the office staff did whatever Chairman Mendoza wanted. In 1995 when he was appointed he found the system was set up so that it would be very hard to do. He realized there was still the perception. He had asked Mr. Dimmick to make sure that the regulatory operations staff be thorough, balanced and not have an identifiable trait one way or the other. Their job was to be objective and make the hearings move forward so there could be a full evidentiary record. He knew the Consumer Advocate group would be doing a good job protecting the consumer, the large customer groups were sophisticated enough and had been willing to pay for the level of consultants that would provide their point of view and the utilities would have their view. The staff’s job was to be one step above everything and present the case for the PUC that would give them the full record. The staff did not have to be concerned about what the policy of the PUC might be but was represented fully so the individual commissioners could vote in the way they believed was right.
Mr. Soderberg had received a number of complaints over the last few years claiming the level of acrimony in proceedings before the commission had risen. He did not know why that was the case. Clearly a case before the commission currently had many more parties involved than just four or five years ago. He had directed Neil Dimmick that the staff needed to be the ones with the solutions. Solving problems and making sure that the record covered all sides of an issue before the PUC were his instructions to his staff. There were a number of incidences in the last few years where he and the commissioners had voted against the staff’s point of view.
Ms. Buckley asked if he believed classifying those positions so they could not be terminated “at will” would strengthen his philosophy. Mr. Soderberg stated he believed it would work in the opposite way. A classified position had a number of rigid rules that applied very well to certain jobs, but not very well, in his opinion, to people with special professional skills. It would be very tough to judge their performance. When the commission asked for a certain level of professionalism in how the staff approached a case and a certain level of thoroughness in their analysis, it would be very hard for them, under the classified system, to measure that and have the ability to hire, fire or replace staff within that framework. In his opinion there was a better, more professional caliber of employee because they were unclassified.
Terry Graves, Graves Communication, Independent Electric Coalition, reported during the last two sessions his group had worked hard to write contract sanctity language into the deregulation statutes. Most of those statutes had been repealed by A.B. 369 and because of the uncertainty in regard to A.B. 661 and the discussions pertaining to large customers leaving the utility, a form of deregulation, he could be proposing an amendment to reinsert the contract sanctity language. Ms. Buckley asked Mr. Graves to explain to the new members on the committee his version of what was a qualified facility contract. Mr. Graves stated all of the qualified facility contracts were with the utility company. The contract sanctity language was part of the statute that prevented any third party from intruding on those contracts or trying to abnegate them or change them in some way without the agreement of the two parties involved in the contract. The language was typical in all deregulation across the country. Ms. Buckley clarified it was when the power company entered into a contract, perhaps years ago, and the sanctity language made sure that if the market was deregulated those contracts were not left with total responsibility on the part of the qualifying facility.
Scott M. Craigie, President, Alrus Consulting, representing Sprint Telephone, stated he had circulated a set of proposed amendments to A.B. 661 (Exhibit E). The changes proposed dealt with mergers. He indicated the underlined or crossed out versions were amendments to the package that were in the bill currently. There was concern with subsection 1 in regard to language that was in the bill that dealt with other transactions. The concern with the words “other transactions” was that the language could include union contracts, wholesale contracts and large purchases of equipment or materials. He was sure that was not the intent of the bill and he wanted to make sure it was clear language. The proposed transactions would then be defined in Section 8, subsection (d) as meaning a merger, acquisition or change in control as described in subsection 1. It was now a “proposed transaction” and no longer an “other transaction.” Subsection 2 clearly spelled out the area of control and had language that defined the area the committee and the Legislature was seeking in A.B. 661. This specifically defined the jurisdiction of the state in dealing with public utilities and holding companies. They had removed the reference to “other transactions” in that paragraph as well. In subsection 3 the description defined public utilities and included other entities in addition to the power company. He stated they had added a section that included a definition of a public utility doing business in this state that would not be included in the bill. That business would be exempt from the reversal of deregulation if no more than 10 percent of the public utility or holding company’s gross revenues were derived from intrastate services provided to Nevada retail consumers.
Mr. Craigie stated a holding company within the state could be making purchases outside of the state and the state did not intend with A.B. 661 to mandate those purchases by having the PUC control the mergers or acquisitions. The new section would exempt those companies from the review process.
Stephanie Tyler, Area Manager, External Affairs, Nevada Bell, stated her company had particular interest in subsection 3. She cited Nevada Bell was owned by a very large telecommunication company, SouthWestern Bell Corporation (SBC) that had holdings all over the world. Without the clarifying amendment, the commission would have jurisdiction over international acquisitions, for instance in Chile, that included some nonutility holding computer companies. She felt these types of mergers and acquisitions were clearly out of the scope of what she believed the PUC would even feel comfortable in reviewing. Again, she stated, if 10 percent of SBC was within the state of Nevada, the PUC would have jurisdiction. She felt that was a fair threshold level.
Assemblywoman Tiffany asked if lawsuits were filed in other states in regard to deregulation. Ms. Tyler stated lawsuits had been filed in regard to jurisdiction to the mergers. Ms. Tiffany asked if she knew of another state that had gone through deregulation where a utility other than an energy utility had filed this type of amendment. Ms. Tyler stated she did not know the answer to the question but would be glad to do more research on the issue.
Mr. Craigie doubted there would be any other cases because the elimination of the vertically integrated electric utilities was very new. Most of the cases were likely to be in the telecommunication area and he doubted any would be in the energy area. Ms. Tiffany stated she understood their concern about how the state defined “public utility” in the bill. Mr. Craigie responded they wanted to protect what the state wanted to protect with the bill so they had the ability to have the PUC review any mergers similar to the Pacific Gas & Electric merger that dealt with any of the utilities. He also stated there was a need to restate the wording of the bill so that it would not overburden the PUC’s resources on mergers that really did not have a major impact on the state. They had wanted to make the language more specific especially in regard to “other transactions.”
Chairman Bache questioned Mr. Powers in regard to the conflict amendment on A.B. 661 because of A.B. 369’s passage. Language for mergers and acquisitions had been dealt with in A.B. 369 and he asked how that affected the language. Mr. Powers stated the same section of NRS 704.329 was amended in A.B. 369. The intent of the amendments in A.B. 369 was to deal with the type of transactions that would involve generation assets of an electric utility. Those changes would have to be incorporated into NRS 704.329 as amended; however, the changes proposed by Sprint and the changes included in A.B. 661 would not have an impact on A.B. 369 and would be reconciled.
John Sasser, Washoe County Senior Law Project, Washoe County Senior Services, presented a proposed amendment (Exhibit F) drafted by Ernie Nielsen of the Washoe County Senior Law Project. The amendment was a follow-up amendment to the one proposed at the last meeting. One of the concerns and fears of everyone was the situation involving the possibility of a major heat wave this summer in Las Vegas and seniors unable to pay their energy bills. In response to that situation the last amendment was proposed to give the PUC the authority to adopt regulations regarding shut-offs if there were five days in a row with temperatures over 100 degrees in cases of health and safety issues. There was one group of consumers it was currently unclear the PUC had the authority to offer protection. If a person was a consumer but not a customer of the public utility and not the person that directly purchased the power, for example a tenant in a master-metered apartment complex, there were no rights the PUC could assert. The amendment would allow the PUC to adopt regulation protecting the rights of consumers that were not customers. Mr. Sasser related an apartment complex’s lawsuit against SouthWest Gas because of a utility shut-off at a master-metered complex and it had been five days between the time of the shut-off and when the gas was turned back on. The case was ultimately dropped because it was settled. In the terms of the settlement, SouthWest Gas agreed prior to terminating gas service to multi-family dwellings it would door-hang each dwelling unit with a notification the gas service was being scheduled for termination. This issue would be very important in the light of the fear talked about this summer especially in Las Vegas. If there was a potential shut-off of a complex, the tenants needed to know about it as soon as possible so they could make other arrangements including exercising their tenant rights under NRS 118A to procure other services or stay at a motel and deduct the amount from their rent. Mr. Sasser stated the PUC did not currently have the authority to intervene and provide consumer protection for noncustomer consumers.
Mr. Powers asked Mr. Sasser if the regulations would be directed at the landlords that were failing to pay their bills. Mr. Sasser stated this amendment was directed at the utility to ensure they would do the door-hangings so tenants would be aware. He did notice Mr. Nielsen’s language was a little broader and if it would make the committee more comfortable he would have it changed. He did not want to try and regulate a new group of people with the amendment.
Michael Pitlock, President, Pitlock & Associates, Carson City, representing Shell Energy, stated in light of the Chairman’s opening comments he wanted to address how those comments related to the amendments that Shell Energy had proposed before the committee. It was his opinion the amendments proposed by Shell would add in a positive manner to the issues that were indicated as being of concern to the Chairman. The amendments would benefit all citizens in the state of Nevada and was not special interest legislation in that all citizens would be able to take advantage of the program suggested. The proposal added security of supply in requiring at least 50 percent of the load served would be from new sources of energy for the state of Nevada. The program would benefit low-income individuals indicated in the plan outlining any providers to the state of Nevada would have to comply with whatever low-income assistance, consumer-education and renewable resource standards the Legislature would enact. He believed the amendments as proposed would contribute in a positive manner to dealing with the energy problems the state was facing.
Mr. Pitlock wanted to comment on the additional language to Shell’s proposal the committee members had received by e-mail. The language was intended to clarify that under their proposal the utility and any remaining customers would be held harmless from any cost associated with a group of customers leaving the utility. Whether those costs were associated with the procurement of energy or administrative costs associated with billing, identification and metering of that group of customers, the utility and its customers would be held harmless. This proposal clearly would only go forward if it were a win-win on both sides. If the deal was not good enough to compensate the utilities for their costs and also provide a benefit to the customers remaining and the customers leaving, then that type of deal structure should not be approved.
Mr. Pitlock wanted to testify briefly as an individual speaking as a former commissioner for the PUC and a former director of regulatory operations for the staff. The committee had heard discussions in regard to the importance of an independent staff. He wanted to stress that independence was clearly one of the foundations of the process in front of the commission. It was vital to have the independent staff. Mr. Pitlock stated as the past director of regulatory operations, working for what he believed was one of the strongest chairman at the PUC, Scott Craigie, the director of regulatory operations played a key role in making sure that the staff was independent. He had viewed his responsibility as director to be a buffer between the commission and the staff and to provide the security to the staff to allow them to be truly independent. As the commission reviewed the issue he wanted them to be aware of the entire organization and not just the commission to make sure the process was working the way that it should.
Assemblywoman Leslie asked Mr. Pitlock his opinion in regard to an elected commission versus an appointed commission. Mr. Pitlock stated through his association in the National Organization of Commissioners he had seen both good elected commissions and poor elected commissions the same as he had seen in the appointed commissions. He believed the real focus should be on the process. If there was faith in the process, if the rules of the process were clear, it should not matter if there was an elected commission or an appointed commission.
Chairman Bache asked Mr. Pitlock if he believed an elected commission would be more responsive to the general public than an appointed commission. Mr. Pitlock stated he imagined an individual elected by the general public would feel a little more pressure to do an even better job of balancing the interests of the shareholders and the customers. He feared the pressure would be too great, however, and the scales might be tipped in one direction or the other. The system was predicated on balance and if there was a loss in balance in either direction, too far in favor of the shareholders or too far in favor of the customers, there was a risk of making a poor decision.
Assemblyman Hettrick commented his concern with an elected commission was the funding of a campaign. There would be a conflict involved in anyone that ran for an election. It was obvious the people that would fund a campaign would be the major users of energy and the power companies. If a unanimous decision were required of the commissioners in the PUC there would be a risk of commissioners voting no decision to avoid ethics problems.
Mr. Pitlock stated he would have the same concern. He had seen some elections for commissions where the candidate told the voters they would vote against every rate increase that came before them. There could be other elections that would be heavily financed by particular interest groups. Anything that had the potential of destroying the balance or putting pressure on the individual commissioner that rendered him unable to maintain the balance would be harmful to the process.
Mr. Hettrick stated unless there was some clear evidence that elections of commissioners would create a superior PUC compared to the current PUC he would not recommend changing the process. He believed it would create more issues revolving around conflict and ethics. He believed without clear evidence of a benefit the state should take Mr. Pitlock’s suggestions and focus on the process, balance and fairness in the regulatory operations of the PUC.
Chairman Bache stated he had requested this particular section of the bill because he believed the situation currently was out of balance. He believed the consumer had been ignored over the last few years and he had suggested the elected commissioners as a possible solution maintaining there could be other options or solutions. He felt it was important to raise this issue before the committee.
Chairman Bache reminded the committee there would other groups ready to present amendments at the Thursday meeting. Seeing no other testimony or questions before the committee Chairman Bache closed the hearing on A.B. 661 and adjourned the meeting at 2:39 p.m.
Cheryl Meyers
Committee Secretary
APPROVED BY:
Assemblyman Douglas Bache, Chairman
DATE: