MINUTES OF THE meeting

of the

ASSEMBLY sELECT Committee on Energy

 

Seventy-First Session

May 8, 2001

 

 

The Select Committee on Energy was called to order at 2:33 p.m., on Tuesday, May 8, 2001.  Chairman Douglas Bache presided in Room 4100 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

Mr.                     Joseph Dini, Jr.

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

 

GUEST LEGISLATORS PRESENT:

 

John C. Carpenter, Assembly District No. 33

Roy Neighbors, Assembly District No. 36

 

STAFF MEMBERS PRESENT:

 

Kevin C. Powers, Committee Counsel

David S. Ziegler, Committee Policy Analyst

Cheryl Meyers, Committee Secretary

 

OTHERS PRESENT:

 

Robert S. Hadfield, Executive Director, Nevada Association of Counties (NACO), Carson City, Nevada

Thomas J. Grady, Executive Director, Nevada League of Cities (NLOC), Carson City, Nevada

Cynthia Mitchell, Citizen, Reno, Nevada

Steve Bradhurst, Citizen, Reno, Nevada

Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, Carson City, Nevada

Thomas Wilson, Representative, Nevada Utility Reform Alliance, Carson City, Nevada

Ernest Adler, Representative, IBEW Electrical Workers, Reno, Nevada

Ernest Nielsen, Washoe County Senior Law Project, Washoe County Senior Services, Reno, Nevada

Michael A. Pitlock, Representative, Shell Energy, Carson City, Nevada

Bjorn P. Selinder, County Manager, Churchill County Administrative Complex, Fallon, Nevada

Russell A. Fields, President, Nevada Mining Association, Reno, Nevada

F. Robert Reeder, Attorney, Representative, Barrick Goldstrike Mines, Salt Lake City, Utah

Timothy K. Shuba, Attorney, Representative, Newmont Mining Corporation, Washington, D.C.

Terry Graves, Representative, Independent Energy Coalition, Las Vegas, Nevada

 

Assembly Bill 661:  Revises and repeals various provisions concerning utilities and energy. (BDR 58-1128)

 

Chairman Bache opened the hearing on A.B. 661 and stated a number of the committee members were members of the Elections and Procedures Committee that would need members to be present at 3:45 p.m. for discussions.  He would probably recess the committee and return upon adjournment of Elections and Procedures.

 

Assemblyman Neighbors presented amendments to the committee for their consideration (Exhibits C and D).  At the meeting of May 3, the testimony presented was on the concept of providing the large consumers of power the ability to secure that power on their own via a contract involving the large electric consumers and an entity selling electric power as long as the power came from new generation for the state of Nevada.  Mr. Neighbors stated the May 3 testimony suggested the large consumers of electricity with the required sophistication to secure power on their own, were gaming and mining companies.  He believed there was also some discussion in regard to the Clark County School District having the ability or being sophisticated enough to purchase their own power.  He realized that what the committee finalized with A.B. 661 could have a significant impact on Nevada’s electric customers and in particular Nevada’s seniors and low-income residents.

 

Nevada’s economy and quality of life would be directly impacted by the availability, affordability and reliability of electricity.  His amendment to A.B. 661 was A.B. 373, which dealt with aggregation of electric customers.  As the committee was aware, through aggregation of electric customers the aggregator could become a large consumer of electricity.  The electric customers that were aggregated could be small customers such as residential and small businesses.  Through the power of numbers the electric demand for the aggregation entity could be significant therefore the aggregation entity would have bargaining power.  Mr. Neighbors indicated A.B. 373 allowed cities and counties to aggregate electric customers in their jurisdiction subject to a democratic process.  First there would be a vote of the people to aggregate and secondly individual electric customers could opt out of the aggregation. 

 

Mr. Neighbors believed A.B. 373 was a vehicle that could address the Chairman’s goal of providing reliable and affordable electricity and new generation.  He mentioned to the committee that Exhibit D was a handout that was put together by the Nevada Association of Counties (NACO). 

 

Robert S. Hadfield, Executive Director, Nevada Association of Counties (NACO), thanked the committee for the opportunity to appear before them.  Previous discussions on energy policies since the beginning of the legislative session had changed and the basic approach had changed.  Exhibit D indicated there were advantages to allowing communities to aggregate for purposes of purchasing power.  He was present to ask the committee to review the report and to support the notion that community aggregation was an option that should be made available in any final legislation. 

 

Thomas J. Grady, Executive Director, Nevada League of Cities (NLOC), thanked Mr. Neighbors for bringing forward an amendment that was originally A.B. 373 because his organization felt aggregation was another tool that the cities might someday need.  His organization had not been present at all of the meetings currently taking place; however, for the last three years they had been represented at all energy meetings and had been advised of the changing policies.  His organization was willing to work with the committee in any aspect and looked forward to seeing what the future of the state of electricity would be for the state of Nevada.

 

Assemblyman Neighbors introduced Cynthia Mitchell and Steve Bradhurst, authors of the report that served as the basis for A.B. 373.  Mr. Steve Bradhurst, on behalf of himself as a residential electric customer, stated he had the pleasure of working with Ms. Mitchell in preparing the report “Making Nevada’s Competitive Electricity Market Work For Residential, Small Business, and Governmental Customers.”  (Exhibit D)  Their primary purpose for preparing the report was as a reference document to outline the legislation enacted from previous sessions as it related to electricity and regulations and how those changes related to the small customers.  They wanted to find out if there were some enhancements that could be made to the system to allow the small customers to compete in the competitive market of energy.  He asked the committee members to look at page ii of the report for the definition of community choice in municipal aggregation.  Community choice referred to counties and cities procuring electric power and related services on behalf of the electric customers of their community.  The community chose to form a public aggregator through a county commission or city council vote or a public referendum.  The local government assembled the buying group, solicited bids, negotiated the arrangement and approved the arrangement in a public meeting.  The chosen alternative power seller then contracted with each member of the aggregate, and each individual became responsible for his or her own bill. 

 

Mr. Bradhurst noted previous meetings had discussions of allowing major users to leave the system wherein the term “sophisticated” was used as a condition.  There was an inference that some industries had the sophistication to “opt out” and other did not.  He could assure the committee that local governments had that sophistication.  The local governments could certainly go and contract for services for their citizens now as it related to ambulance services, trash, etc.  In fact in Reno, Sparks and Washoe County, the local governments purchased water from the Sierra Pacific Power Company, which indicated a level of sophistication.  He believed if the committee was trying to discern between who had the sophistication and who did not to purchase power the local governments were qualified.

 

Cynthia Mitchell, Citizen, asked the committee to review Exhibit C that covered sections of A.B. 373.  The amendment defined the terms “opt-in,” requiring consumers to individually request to participate and “opt-out” allowing automatic program enrollment with option to decline participation.  Section 5 allowed municipalities to aggregate the electrical load of customers in the unincorporated areas of the county and within the boundaries of each city in the county.  What was envisioned in this section was at the smallest level there would be countywide aggregation and at its largest level there would be statewide aggregation.  Section 5, subsection 3(a), lines 10 through 13, required the governments to adopt a resolution declaring the intent of the local government to aggregate the electrical load of the customers.  Section 5, subsection 3(b), lines 14 through 15, required the governments to form, through resolution, what had been dubbed by the Legislative Counsel Bureau (LCB) a municipal aggregation coalition (MAC) by cooperative agreement and Section 6, subsection 1(a), lines 33 through 34, outlined how governments were authorized the flexibility to pursue an aggregation program on either an “opt-out” or “opt-in” basis.  If it was to be a program operated on an “opt-out” basis, information and research had to be developed.  The MAC had to specify how a customer could elect not to participate, how a customer could re-enroll in the program and the manner in which the MAC would inform the customers about conditions and procedures.  Ms. Mitchell stated Section 6, subsection 3, lines 1 through 3, required governments to conduct at least two public hearings before adopting an aggregation plan.  Section 7, subsection 1(a)-(c), lines 4 through 15, allowed MACs to solicit bids, broker and contract for electric power and energy services from alternative sellers and enter into agreements for energy services.  In the same section, lines 16 through 22, there was competitive language requiring MACs to demonstrate a 5 percent cost savings over utility company electric power and energy services.  Section 7, lines 26 through 31, stated an “opt-out” aggregation required a vote of approval by the majority of registered voters of the county at the next general election.  Section 7, lines 32 through 40, stated if the majority of the registered voters did not approve the “opt-out” proposal the MAC could revise their aggregation proposal to be an “opt-in” proposal where each customer would be solicited.

 

Assemblywoman Tiffany asked if this was for the rural counties only.  She had not noticed a population cap in any of the amendment.  Ms. Mitchell stated there was no population cap and it was not envisioned to be restrictive at all.  There was a working assumption that counties would generally be larger than cities.  Ms. Tiffany stated it appeared as if the only time the program went to a vote was when it was “opt-out” and if it went to “opt-out” and it failed then the county or city could promulgate regulations and do “opt-in.”  Ms. Mitchell stated that was correct.  Ms. Tiffany asked if anyone from Clark County had studied the amendment because she believed the way it worked was the county would start the program and the cities would roll into the program.  Ms. Mitchell clarified it had to be a cooperative agreement.  Ms. Tiffany stated, however, if the idea were put on a countywide ballot that meant everyone could vote on it.  Ms. Mitchell stated she did not believe it could get on the ballot unless it had gone through all of the procedures.  The first step would be to demonstrate that it passed as a resolution on a county and citywide basis both, and that would mean there was a cooperative agreement that had been developed on the MAC.  Ms. Tiffany stated it was difficult to get Clark County cities to agree on anything.  She understood there had to be an agreement, the county was the one that spearheaded the idea and if there was an agreement through the resolution, they would decide “in” or “out” and that decided whether it went to a vote or not.  Mr. Bradhurst clarified it could be any of the jurisdictions in the city or county that could spearhead the project; however, they all had to be together or it did not work.  If they did not come together, and he understood the difficulty at times to get local jurisdictions, cities and counties to work together, it could be the importance of energy in everyone’s life to be the catalyst for people to work together. 

 

Ms. Tiffany stated when they had examined aggregating customers in the past some of the discussion indicated that the supply had to come from outside of what was already available.  Mr. Bradhurst stated in this situation in aggregation there would have to be new generation that would reach the one megawatt level. 

 

Assemblywoman Leslie asked if a nonprofit aggregator was different than a for-profit aggregator and, if it was, would a community aggregator be more advantageous to people.  Ms. Mitchell replied there was a distinction between private and governmental entities conducting an aggregation function.  With a governmental entity acting as an aggregator there would be no rate of return or profit to be made; however, the dollars generated were only used to run the program of energy services and commodity services.  It was similar to a public utility or municipality, but in this instance there would not be the extra step of owning the transmission/distribution facilities, instead acting as a broker on behalf of the citizenry.  It would be similar to how cities and counties broker currently for their citizens on vital services and they did not tack on a profit for a rate of return to a stockholder based on those services. 

 

Ms. Leslie asked if the “opt-in” provision was a clearer indication of consumer intent than an “opt-out.”  Ms. Mitchell stated she believed it was actually the reverse.  Under the “opt-in” program everyone was for themselves and when that happened there was always a lot of struggling.  When there was an “opt-out” structure there were resolutions, public hearings, vote of the people, it was a super-democratic process as demonstrated in group health care plans.  In the “opt-out” plan someone in the county or city with some level of sophistication went out and found the best deal for a number of individuals brought together as a buying group.  This provision amassed a large number of people, whereas the “opt-in” was individual.

 

Assemblywoman Smith asked if there was an opportunity or provision for the group to return to the system.  Ms. Mitchell stated there was and she mentioned Section 6, subsection 2(a) and (b), lines 39 through 48, where the MAC had to specify how a customer could elect to not participate, re-enroll, and how the MAC would inform its customer of the terms and conditions.  For example, whether or not the period for re-enrollment if a customer left the system would be open with no constraint or a constraint period of time or exit and entry fees, etc.  Ms. Smith stated there could be some conditions she felt could be in statute rather than in the coalition language.  It seemed consumers other than those in the coalition were ultimately affected.  She felt there should be discussion on some of the issues outside of just those customers that were going to be “in” or “out.” 

 

John C. Carpenter, Assembly District 33, believed the state had to authorize aggregation.  If there was no opportunity he feared there could be a dangerous situation in the rural counties.  Mr. Carpenter knew the large users wanted to be able to get the power where they could and he supported that.  In his area, however, he feared if the large mines left the system the people left behind would have no bargaining power.  He indicated the rural areas must be allowed to aggregate and join the large users and thus be able to have a bargaining force.  The Valmy plant, owned by Sierra Pacific Power and Nevada Power (“the company”), was in his district and he hoped someone could propose some combination to purchase the plant to take care of the large users as well as the residential and small business owners.  If something was not done to aggregate the area together he was afraid the rural area would be “out in the cold” as far as the power situation was concerned.  He mentioned one entity had indicated they were going to build a plant in his area, but they had been discussing it for two or three years and had not started.  The Valmy plant, if expanded, could very well take care of all of the rural area.  He asked the committee when they were drafting the legislation to allow for flexibility in order to handle situations that were not visible today.  There could be situations where local governments wanted to start aggregation or perhaps a group of citizens that wanted to start a co-op.  Co-ops had been very successful in other areas and could work in this area as well.  He stressed to the committee the need to incorporate flexibility into the bill. 

 

Assemblyman Humke stated Mr. Carpenter had mentioned “co-op” and to him that implied a mutual shareholder or ratepayer-owned company.  He asked if Mr. Carpenter was suggesting that for A.B. 661.  He did not see that in the amendment but rather saw a collection of ratepayers who purchased and joined together but did not have ownership.  He wondered if Mr. Carpenter was suggesting an ownership situation.  Mr. Carpenter answered that condition should be mentioned in the bill.  The co-ops he was aware of were owned by the members that voted on the directors and were responsible for the policy that the directors put into place.  He believed all of the ideas should be a part of the legislation so they could have the opportunity and flexibility to do what they felt was best for their individual communities.

 

Mr. Humke asked Mr. Neighbors if he believed co-ops were a good policy for the suggested amendments.  Mr. Neighbors stated he had not examined the situation entirely.  He knew that some counties such as Lincoln County and Pahrump did have co-ops.  He stated he needed some more time to assess.

 

Chairman Bache stated, as a follow-up to Mr. Humke’s question, if Mr. Carpenter wanted it to be like a co-op, there was already statutory authority to form a co-op.  He wondered how aggregating customers would be different than forming a new co-op.  He was aware Mr. Neighbors had co-ops in his district.  Mr. Carpenter stated there may be no difference and there could be legislation that would allow the action already.  Mr. Carpenter was only asking that the committee give latitude and flexibility in the legislation because there would be many changes in the interim between the sessions. 

 

Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, was a strong proponent of the amendment proposed by Assemblyman Neighbors.  He was aware there were other aggregators and other mechanisms for achieving the goal, including an amendment that would be proposed by Michael Pitlock.  He endorsed what Mr. Carpenter had spoken of in regard to options.  If the Legislature made the decision to let some customer groups leave the system under appropriate terms and conditions, in his opinion there was no distinction between an aggregated group of small customers and a large commercial user. 

 

Mr. Hay had four amendments to present (Exhibit E) and asked the Chairman if because of the time constraints there would be time for the committee to hear them presented.  Chairman Bache stated he would need to be brief in his presentation.

 

Mr. Hay stated the first amendment prohibited the utility, by statute, from recovering costs that it had incurred for the Portland General acquisition and the failure of that business decision of “the company.”  He had learned “the company” had paid a substantial amount of money to Enron in order to negotiate an end to the Portland General contract.  He believed those costs would probably not be requested to be recovered by the utility; however, he thought they should be prohibited by statute from recovery since the PUC and the Legislature had been very generous with rate relief.  He felt it would be inappropriate for consumers to bear that burden.  There was also similar language for the divestiture transactions that were subject to a slightly different analysis. 

 

The second amendment Mr. Hay proposed was to amend A.B. 661 by adding S.B. 508, which provided for a legislative audit of the utilities.  He had discussed the issue with the Senate and the bill had not been considered due to time constraints.

 

The third amendment was his proposal to establish basic affordability rates for Nevada consumers.  The concept charged consumers a lower kilowatt or per therm charge for some basic amount of energy consumption.  Sierra Pacific had incorporated the concept in the way the rate design was made for the CEP filing so there was a regulatory precedent.  He believed statutory directive, particularly during the interim when everyone would be facing rising prices, would help the low-income and low-usage consumers, as well as encourage other consumers to conserve energy whenever possible. 

 

With the establishment of deferred accounting he believed the economic data was clear in showing the utilities were going to be over-earning in general rates.  The fourth amendment suggested a 10 percent general rate reduction, approximately $80 million in revenue, be transferred into the deferred accounting balance.  Mr. Hay stated this would minimize the magnitude of the ultimate deferred case that would be decided next summer and prevent what he believed to be an inequitable situation of the utility over-earning in general rates while all Nevada consumers were struggling to deal with rate increases.

 

Assemblywoman Buckley stated she had been listening to the testimony over the last few weeks and had been trying to decide what were the right moves to make for the state.  She stated there was an energy crisis, the state was suffering from mistakes that California had made, and she believed Mr. Higgins had presented a convincing case.  He had indicated that trying to reduce some of the costs of “the company” made sense in light of the rates they were paying for fuel and purchase power.  She had been examining the possible benefit of certain users leaving the system and how it might help especially the residential customer and the small business.  She did not feel the testimony was very clear in regard to how much of that load would get the state to the point where too many people leaving the system would injure “the company” and the customers left on the grid.  She wondered what Mr. Hay estimated of how much actual power could be allowed to leave the grid.  She asked also if it would make any sense to do a pilot project that allowed a few mines and large users and some municipal aggregators with small residential customers, etc., to band together.  If the state did allow this to happen so there could be an examination of the results with added consumer protections, she wondered if that type of concept could work.

 

Mr. Hay stated Ms. Buckley had raised a number of important issues that deserved careful consideration by the Legislature as well as other policy makers.  He believed there had been testimony by Sierra Pacific Power they had acquired power to be adequate for this summer and had started acquiring for next summer.  If there was an assumption that some portion of the load, perhaps 10 to 15 percent, left the system in, hypothetically, the next four months, the utility would obviously have excess power to sell.  The excess power might or might not be marketable depending on the conditions at the time; however, it was likely they could market that power at a profit.  He did not think it was likely there would be a migration of customers in that short amount of time frame, so realistically it would probably be in the spring of next year.  As “the company” acquired power for next summer he assumed they would attempt to estimate what amount of the load might be taken off the system and adjust their purchasing strategies accordingly.  Mr. Hay’s office had urged “the company” to negotiate a portion of the portfolio under long-term contracts so that over time, as customers migrated away from the utility, the portion of the load they had covered under long-term contracts would decline and they would still get the benefit of the long-term contracts.

 

Mr. Hay stated the concept of a pilot project as Ms. Buckley suggested deserved merit.  He stated the aggregation proposal Assemblyman Neighbors described as well as proposals that other witnesses might provide would give the language that could start a pilot project for aggregated groups of small customers.  He believed in any scenario the small customer should have the same ability to choose whether under a pilot program or under a straightforward aggregation program.  He believed the best option for the state was to have several options available based on the volatility of the energy market.  He did believe there was a fundamental question of equity and there needed to be some hope for the small consumers in order to help their utility problems.  A pilot program might be the answer to begin to assess that option.  He stated the issues in northeastern Nevada and in southern Nevada were entirely different and he suggested the mines in the northeast would be a good place to start a pilot project.  The mines took a large portion of the load and since they were few in number it would set up a very different dynamic than if the project looked at perhaps Las Vegas with multiple properties but with smaller load sizes. 

 

Assemblywoman Buckley stated if the committee was even to consider such an approach they might consider different approaches for different parts of the state.  She asked Mr. Hay if he believed the pilot program results might look different in the north and the south.  Mr. Hay stated that was correct.  The circumstances in the state where there were totally different utilities, although operated as a merged company, the load characteristics in the north as well as the indigenous generation percentage was much different than it was in the south.  Mr. Hay stated also the north did not have the very intense needle peak load as the southern part of the state in July and August.  Because of the state’s geographic differences, the system functionally required a different approach for the areas.  The issue for the committee was could they design a statute or a pilot program that was broad enough to allow some degree of experimentation or at least a different approach for the different parts of the state.

 

Ms. Buckley asked, if the committee considered the pilot program, what Mr. Hay’s opinion would be about the percentage of the load both north and south in order to achieve public policy in order to, for example, lower the costs of the customers left behind or reduce the load to increase reliability.  She asked what the numbers would be in the north and the south.  Mr. Hay stated he would rather return to the committee with a firm number instead of giving an estimate at this time.  Obviously in the north if any of the mining properties procured their own power the large percentage of the load they would remove would be different than if a few large casino/hotels in the south left the system.  The issue was to ensure the purchasing practices of the utility were appropriate for what the approximate load would be so that those customers that remained behind and paid the fixed expenses were not unduly burdened.

 

Bernard T. Santos, Capital City Task Force Coordinator, American Association of Retired Persons (AARP), wanted to specifically express the position of the 250 thousand members of AARP on the issue of aggregation and the timing as to when residential customers should be allowed to seek the opportunity to enter a semi-competitive environment in the electric energy market.  The question of which groups were allowed to exit the traditional regulated market and which were not could be a complicated issue.  Mr. Santos stated should the Legislature approve some customers to choose alternative suppliers, AARP supported the rights of residential customers to participate in aggregation and enter the competitive market as well.  It was their view that aggregation could represent the best opportunity for residential customers to benefit from electric utility restructuring.  The opportunity should be allowed at the same point in time, he indicated, as any other customer that was allowed to exit.  Residential ratepayers should receive equitable treatment and simultaneous benefits, including rate reductions, equal access and better service from retail competitors.  AARP believed the policymakers should also permit local entities that included but were not limited to municipalities, county governments, community organizations, and other civil groups to enter the electric power market.  Local entities that decided to exit the system, should it be allowed by law, must still permit customers to have the choice to remain with the system or “opt-out.”

 

Thomas Wilson, Representative, Nevada Utility Reform Alliance, was present to support Assemblyman Neighbors’ proposed amendment.  He stated for the first time he could see a real movement to empower small ratepayers.  He also supported Ms. Buckley’s idea of a pilot program.  He felt the idea to establish two pilot programs in the north and south would be helpful.  He also supported the right of every individual to “opt-in” and “opt-out” of the programs.  He still believed deregulation had not been proven to be a worthwhile concept. 

 

Ernest Adler, Representative, IBEW Electrical Workers, stated the electrical workers had not taken a position on aggregation.  He believed there was error in A.B. 373 that needed to be addressed.  Subsection 3, Section 7, stated, “’energy services’ includes, without limitation, generation, metering, billing and other potentially competitive services.”  If that section was left in the bill it would convert the bill from an aggregation bill to having municipalities actually being municipal utilities.  There would actually be a huge job loss at Sierra Pacific Resources because everyone that took care of metering and billing functions would lose their jobs and would be replaced by lower cost workers.  He did not believe it was intended; however, the union would be opposed to that portion of the bill.  As an example, he indicated, currently everyone could select their long distance service and the billing services had remained with the local telephone company.  If this section was allowed to remain in the bill it would be a radical change and would create a whole group of new problems.

 

Ernest Nielsen, Washoe County Senior Law Project, Washoe County Senior Services, wished to indicate the support of the senior community.  Mr. Nielsen felt it would be an advantage to seniors if aggregation for municipalities was adopted.  If there was a municipal government working on behalf of all of its ratepayers there was an alignment between the management of the appropriation of energy and the services that were provided to the individual residents and small businesses that could further benefit the general load of that particular aggregation.  Residential loads could bring a bigger benefit in leaving the system while the larger load companies stayed in the grid because residential customers generally had a worse load factor than perhaps the mines and the casinos.  Generally speaking, he felt municipal aggregation was an appropriate vehicle.  Mr. Nielsen suggested one change in the amendment, A.B. 373, and that was a change that would enable a municipality itself to go forward to pursue aggregation without the necessity of the county moving forward.  He agreed there was probably a limited amount of load that could be released and still benefit the stated public policy of reducing overall costs.  He would support a pilot program because that would also address Mr. Higgins’ other concern, the ability to plan purchase power for the remaining system.

 

Bjorn Selinder, County Manager, Churchill County, was present to indicate Churchill County supported Assemblyman Neighbors’ proposed amendment.  The key, in his opinion, was flexibility in a rapidly changing energy market.  He commented on Section 100 of A.B. 661, which stated a provision that invaded the tax levy that was set aside for the cooperative extension.  The section language sought to take 1 percent of each $100 of assessed valuation shown on the assessment roles after July 2001 and that would be paid by the counties to the Housing Division of the Department of Business and Industry for weatherization.  The counties were concerned the provision seemed to set an unusual and perhaps dangerous precedent where counties would be required to levy a rate in support of a state program with no local control and was not related to cooperative extension services. 

 

From Churchill County’s perspective, the concern was not against the weatherization program, but rather the manner in which the funding was being sought.  Churchill County was effectively at the maximum allowed statutory tax rate of $3.64, so any additional levies or cash equivalents to a levy that were included in their budget would entail reducing services somewhere else.  Mr. Selinder also noted there was no “sunset” for this particular levy.

 

Mr. Adler, also representing the Nevada Housing Coalition, stated the members had examined the section and supported the deletion of the section.  The committee had passed A.B. 349 and that covered conservation and weatherization sufficiently.

 

Michael A. Pitlock, Representative, Shell Energy, spoke on the issue of municipal aggregation and stated the language contained in Mr. Neighbors’ amendment was consistent with the aggregation proposals that Shell Energy had put forth.  Shell felt that, in dealing with the energy crisis in Nevada, the state needed a well-rounded solution that included contributions from all segments of the market.  The local government agencies were certainly a segment of the market they felt could provide assistance in dealing with this issue. 

 

Russell A. Fields, President, Nevada Mining Association, had testified last Thursday before the committee and read from testimony at this meeting on concepts that would help mobilize private capital and credit to attract new electric energy resources to Nevada (Exhibit F).  They had promised amendment language and the committee had received copies of the amendment (Exhibit G).  The concepts they called “Repower Nevada” (Exhibit H) would stimulate construction of new generating facilities, electrical transmission lines and natural gas pipelines.  The mines, hotel/casino industry, large school districts and the University and Community College System were the electric consumers that could help make “Repower Nevada” a reality.  Mr. Fields complimented the committee on the work done in seeking solutions that would put downward pressure on electric prices and ensure electric supply, a goal all Nevadans had.  A reliable supply and stable prices were critical for the future existence of the mines here in Nevada.  Without reliability and stability of price the economic viability of mining was threatened.  The mining industry had no ability to pass through increased costs by increasing their price because the price of gold was “set” and the mines had no control.

 

Mr. Fields introduced two gentlemen:  F. Robert Reeder, Attorney, Representative, Barrick Goldstrike Mines, and Timothy K. Shuba, Attorney, Representative, Newmont Mining Corporation, Washington, D.C., both of whom had played a major role in the crafting of the amendment that was requested by the committee,  

 

Mr. Shuba had worked with Newmont Mining Association on its Nevada electric energy matters for the past decade.  The amendment started with a preamble that recited the situation currently in the state in regard to the critical supply of energy.  The amendment recited a cure for the crisis over the long-term, not including price caps or imposing a regulatory scheme.  The cure was development of new supply and infrastructure that could put downward pressure on prices and establish a more stable and increased reliability in the electric systems. 

 

Mr. Shuba stated one way of harnessing some energy to improve the energy situation was by placing private capital and private credit in the marketplace and bringing new dollars to the supply that would be able to create new energy resources as long as in doing so they did not put other customers or the system at risk or otherwise contravene the public interest. 

 

Sections 1 and 2 were standard statutory language and Section 3 provided definitions through Section 11.  Mr. Shuba indicated Section 5 was a definition of an electric utility essentially copied from A.B. 661 and patterned after A.B. 369.  Section 6 defined an eligible customer and in the amendment an eligible customer was either an end-use customer or a government, education, or health care entity with an average load of one megawatt or greater.  This was essentially mining, hotel/casino, school districts, medical centers, universities and some city or county governments.  “Generation asset” was a standard definition of an asset that converts one form of energy into electricity and was patterned after Section 13 of A.B. 369.  “New electric resource” was a new definition for the bill and “new electric resource” was a resource that was not owned by or under contract to an electric utility and was able to be delivered to an eligible customer in this state.  Mr. Shuba stated any increase in existing generation capacity would be considered new generation whether a renewable resource, expansion to a qualifying facility or repowering of an existing electric utility generation asset.  Section 9 was the definition of “person” that included any form of business or social organization and any other nongovernmental legal entity and could be a seller of a new electric resource under this bill.  Mr. Shuba commented the committee had heard testimony referring to a time-of-use meter as an interval meter and this was the type of metering necessary to provide these types of services. 

 

Mr. Reeder began by presenting the changes to Section 12 of the bill.  Section 12 was an enabling section and the amendment made a real effort to try and introduce new supply into Nevada to increase the reliability in the state.  The amendment also tried to put downward pressure on the rates and provide private capital.  The concept was presented to take the infrastructure that existed at the power plants and make the infrastructure that existed available for expansion in a way that made it a new resource and eligible for treatment as the definitions described a new resource.  Contrary to earlier testimony this section was not limited to the “jilted buyers.”  His client, Barrick Goldstrike Mine for example, could be a participant at the Valmy plant by providing new capital for the expansion of that plant under the language that was drafted.  Section 12, subsection 1, was the enabling provision that provided the utility could at its discretion enter into contracts that would provide for the use of their resources.  The resources would continue to be the utility resources and subject to their ownership and title.  The amendment did not change the ownership of the Valmy plant but was just taking idle land and possibly putting in a new coal-fired facility if they could strike a deal with the utility.  The new facility would provide new resources that would help drive down the price.  Section 12, subsection 2, spoke about the conditions that would occur if they undertook and could reach that type of agreement.  It was important to realize, Mr. Reeder stated, they were not simply an investor.  They were not going to put money in and expect a return.  The mine would receive kilowatt-hours in return so they were different than an investor.  Those kilowatt-hours could be used at their facility or the mine could dispose of the extra capacity. 

 

Mr. Reeder stated Section 12, subsection 3, described some of the limitations on the agreement.  The limitations included public interest, public protection to ensure that there was no impaired capacity or reliability to provide service to other customers and to ensure the statutory and regulatory guidelines for plant expansion that existed in current law were complied with.  Mr. Reeder stressed this amendment was not an attempt to go around anything in current law, it was just an attempt to bring a “new checkbook to the table” for new power.  Section 12, subsection 4, provided guidance to the commission.  The assets remained the utility’s assets and remained in the utility rate base so the commission would continue to have some jurisdiction on them.  It was necessary to interface that authority with the authority of the commission in some fashion.

 

Timothy K. Shuba continued with Section 13, explaining it carried the fundamental enabling language that provided on or after April 1, 2002, and with the approval of the PUC, eligible customers could purchase from providers of new electric resources.  Section 13, subsection 2, provided some limitations on the previous section stating that even providers of new electric resources could not sell at retail to persons that were not eligible customers and could not sell if the terms of the transaction violated the provisions of the bill.  Subsection 3 established that by selling at retail to eligible customers in this state a provider of a new electric resource did not thereby become a public utility subject to the plethora of regulatory supervision by the PUC and was not subject to the jurisdiction of the commission except as provided in A.B. 661. 

 

Mr. Shuba stated Section 14 was the heart of the bill.  Section 14, subsection 1, provided the mechanics of submitting an application to purchase by an eligible customer from a new electric resource, provided the application gave at least six months notice of the customers intent.  The customer could not buy under the new contract until 180 days had passed from the application date submitted to the commission.  The transaction had to be approved by the PUC.  Subsection 2 provided the minimal content of an application and stated it must provide the information showing the customer was in fact an eligible customer and the seller was providing a new electric resource.  The subsection provided for some additional information, plus whatever additional information the PUC might need subject to the limitations in subsection 3.

 

Mr. Shuba added if the state was going to let the market work to produce new resources then the state did not want the price the eligible customer was paying or other commercially sensitive terms and conditions to be subject to public disclosure or there would be an inhibition on getting deals done.  Subsection 4 provided for public notice and an opportunity for a hearing on any application.  Subsection 5 established minimal public interest protections that were necessary for approval.  The commission would approve the transaction subject to finding it was not contrary to the public interest and was to consider, among other things, whether the electric utility would be burdened with any increased costs as a result of the transaction, or whether any remaining customer would be forced to pay for any increased costs.  The commission would also consider whether the proposed transaction would impair system reliability or if the ability of the electric utility to provide electric service to its remaining customers would be adversely affected and whether the proposed transaction would add energy, capacity or ancillary services to the supply of electricity available in this state.  Subsection 6 provided for terms and conditions the commission could apply to assure no transaction could be contrary to the public interest.  First, there could be no transaction permitted until after 180 days after the application was made and the commission was to impose such terms and conditions, including payments, as it deemed necessary to prevent the transaction from adversely impacting the public interest.  In doing so the commission was to provide the terms and conditions provided for nondiscriminatory and fair terms between eligible customers that were leaving the system and the customers remaining with the system.  There were specific provisions that, among other things, the commission was to make sure the departing customer was paying its share of any deferred energy balance remaining in the utility’s account. 

 

Mr. Shuba continued, stating subsection 7 was essentially a protection against regulatory gridlock.  If the transactions would in fact, according to the model Mr. Higgins proposed, reduce cost for other customers and would create new supply they should not be held up indefinitely.  As there was usually a timeline on mergers this subsection provided a clock and if the time was running out and the commission had not reached a decision, they could disallow the transaction without prejudice and come back and start the clock again. 

 

Robert Reeder stated Section 15 continued with the theme from the process of approval of an application that entailed a “do no harm” component.  This section was designed to ensure returning customers likewise did no harm to the system as they returned.  The section provided if a customer returned they had to return with an account intact and also the customer would pay for the incremental costs of returning.  The customer would have higher costs upon returning to the system and that was a protection to other customers from the leaving and returning of another entity.  Subsection 2 provided for minimum terms and notice on the return of a customer.  This covered the minimum term they would have to stay upon returning and the minimum notice provision in connection with the departure.  The subsection also contained language that stated “any other provision that the commission deemed appropriate in the tariffs to assure the protection for the public could be included in the tariffs.”  Mr. Reeder stated the most important point of the section was “do no harm.”  The commission designed tariffs to ensure there would be no harm and the key was the incremental price the customer leaving had to pay if they returned. 

 

Mr. Reeder indicated Section 16 was a mechanical provision that stated in order for a customer to be eligible to depart they must have a time-of-use meter.  A time-of-use meter measured the use that occurred at particular points in time and could store that use for a period time so that it could be used for various purposes, most notably for billing and sometimes forecasting.  Customers departing the system had to have an interval or time-of-use meter.  The metering had to be paid for by the customer and the requirement of one megawatt to leave the system made it economic to leave.  The provision also precluded splitting into one meter the use.  There would be difficulties if there was a split stream of electrons going through a meter and a determination had to be made as to which customer had green and which had red.  Mr. Reeder stated it just would not work.  The provision did not, however, preclude duplicate meters.  In other parts of the world where Barrick mines had operated and bought electricity in competitive markets, they found the person that sold the electricity wanted a meter on the end of the line.  If Barrick bought electricity from Duke or Enron, they wanted to measure the electrons.  The provision allowed them to have a meter to measure their flow, but at the same time allowed the utility to maintain its meters.

 

Mr. Reeder stated Section 17 dealt with the components necessary to provide service.  If the state was requiring energy from a third party there must still be services necessary to utilize that service.  The transmission, the distribution, the metering and the other components must be present.  The utility was to continue to be the provider of those services so that the utility simply needed to commence the filing of a tariff that would tariff those kinds of provisions so they were available for the departing customers.  Subsection 2 reported the guidelines for the establishment of the tariffs.  The guidelines were the usual and customary guidelines, just and reasonable.  Subsection 3 provided the departed customers did not receive any expansions or enlargement of rights under the tariff.  Subsection 4 was a standard consumer protection provision to control the behavior of the person that might be providing more than one commodity from tying the provision of those two commodities together to make the operation of the commodity become difficult.

 

Mr. Shuba briefed the committee on Section 18.  He had stated previously the section outlined the reporting provision that required reports on a quarterly basis from the PUC to the Legislative Commission so they could see how the program was working, what types of terms and conditions the commission had been imposing, what findings they had made and the monitoring of the program on a going forward basis.  When the Legislature returned in two years the system could be reviewed and changed as necessary using the reports for informational purposes.  Section 19 required the PUC to adopt regulations to enforce the provisions of the chapter and in subsection 2 provided a standard financing provision that might have been left out of A.B. 369 by mistake where assignments or dispositions of assets were generally prohibited.  It was common that the assets needed to be pledged as collateral for a financing and that was not the intent of the section.  The language made clear what they believed was the intent of the Legislature.

 

Mr. Reeder stated Section 20 began the mechanical sections.  Section 28 insured the existing distribution tariffs in place would be the vehicle for use for distribution service until they were changed by the commission.  There were distribution tariffs on file before the commission.  Subsection (b) attempted to mesh the timelines with A.B. 369 to assure that rates were in place at a particular time.  Subsection 2 dealt with the establishment of regulations and picked a November 1 timeline for the commission to establish regulations to carry out the provisions of the act.  There were several places in the bill that required regulations.  There was a requirement by March 1 to have the tariffs in place.  Section 21 provided for the act to be effective on passage. 

 

Mr. Shuba stated that the amendment review was completed; however, he would like to share Newmont’s perspective with the committee on how the amendment was drafted.  There had been references to the “mythical” project in northeastern Nevada over the last few years, and yet nothing had materialized.  Newmont had been particularly active in pursuing that project and one of the problems they had involved a less than totally linear progression towards restructuring the electric industry in the state.  As a general matter, in northern Nevada especially, a new generator would depend to a significant degree on the retail load that was available.  Mr. Shuba stated the transmission system would not support a merchant plant that just planned to sell to California.  The plant would have to sell to Sierra Pacific Power and other buyers.  Sellers liked multiple buyers, he indicated, just as buyers preferred multiple sellers.  In order to do that they wanted a customer that would sign up with a take and pay contract that read, “If you build it, I will pay for it.”  The customer wanted to be able to state, “If I have to pay for it, I will also be able to take it,” or ”If you build it, we will come.”  There needed to be something that allowed some certainty from the customer’s perspective that was being asked to underwrite at least part of a plant and a new gas pipeline for northern Nevada.  The customer had to have some confidence that when the plant was built they could actually take the output of energy and not simply have paid to help build it.

 

Assemblywoman Buckley asked for clarification in terms of the definition of new electric resources.  If the power plants came on-line in southern Nevada because they were not under contract with Sierra Pacific Resources because they were not yet built, would that automatically count as a new electric resource?  Mr. Reeder stated in the definition as drafted they would be included as a new electric resource.  Ms. Buckley asked if that was contrary to the idea that the state did not want to compete with Sierra Pacific Power and Nevada Power Company.  The expressed intent was not to compete with any power supply that Sierra Pacific Power might have under contract.  Mr. Reeder stated they were not under contract to Sierra Pacific Resources and at this point they could sell into California or Utah except for perhaps some oral commitments for 25 percent to Nevada.  This was not a competitive market because they were not going after a resource that Sierra Pacific Resource had any prior claim to but rather there was an expressed intention that practice not be done. 

 

Ms. Buckley stated “the company” would have a prior claim to that 25 or 50 percent that the Water Authority or the Governor was able to secure by virtue of commitment.  Mr. Reeder responded the plants were providing new resources and there would be a large market by the time the plants were on-line.  It was unlikely there would be any “head-to-head” competition for any of that resource.  The buying power of Sierra Pacific Resource would remain the largest single block of buying power in the state and he would not anticipate any harm.  The transaction, of course, would be examined.  Just because a resource was a new electric resource and the customer was an eligible customer did not mean the PUC automatically found no harm to the public interest. 

 

Ms. Buckley asked for clarification on Section 12 where it was stated the agreement could provide for expansion of the existing generation asset to generate electricity more efficiently.  She understood it to mean the ability to perhaps joint venture with a user, such as a mine, or was the provision speaking about wholesalers.  Mr. Reeder stated the effort was to be as creative as possible.  They were not sure what the most efficient or the best model would be for that to occur.  One model would be for a joint venture between the mines and the utility to develop a facility.  Another would be a facility that simply took the output of the facility and used that to repower in some way.  He believed Man’s imagination ought to be the limit of the kinds of opportunities sought to take the existing resources in place and try to convert them into something that would provide additional capacity. 

 

Ms. Buckley spoke about testimony that had expressed the plants had some deferred maintenance issues and if the maintenance was completed perhaps they would be operating more efficiently and would increase power production.  If someone invested $300,000 for deferred maintenance items would they then be able to get out of the regulated environment and sell the expanded power?  She inquired if there were any threshold requirements on the item.  Mr. Reeder stated there were no threshold requirements and they were hoping the investors were sufficiently sophisticated that when they invested they would see their objective was to produce identifiable electrons so there was a secured source for their invested funds.  It would generally provide a new stream of generation, not a prolonged life of existing generation.  He did not see that deferred maintenance would be the kind of undertaking that an investor would necessarily prefer to make because it did not provide an identifiable stream for an investor to separately finance to create new power. 

 

Mr. Shuba clarified to Ms. Buckley that a problem they were facing was a large user, such as Newmont, could at this time build its own generator behind the fence for its operations.  The generators were not necessarily the most efficient generators because they were only for a relatively small load.  If Newmont wanted to invest in such a generator and built an efficient one they could not do anything with the excess output without becoming a public utility.  In this case, A.B. 661, with the repowering amendment, was making available an opportunity for the public to use Newmont or Barrick’s credit to underwrite a much larger generator than either one of them or both of them would need.  Then they could provide a surplus of energy into the state using the grid.  The bill would free up the possibilities of generation beyond the “behind the fence” type of electric power.  Mr. Shuba stated generation came in lumps and it could be 100, 200, or 400 and if the lump size was put in under the laws existing today there was no way to get rid of the excess while the lights could be going out in the neighboring community.  The bill would provide a vehicle for the mines to dispose of the excess to the market so that they could assist the state and their neighbors.  Ms. Buckley stated she believed the explanation made sense; however, she was worried because it was drafted so broadly it allowed other things to happen besides the explanation. 

 

Ms. Buckley referred to Section 14, subsection 3, lines 10 through 14.  She created a scenario whereby the power company had purchased power and now customers were beginning to leave the system and they had overpaid for the power.  She wondered where that cost recovery was in the amendment.  Mr. Shuba stated that provision would be in subsection 6 for terms and conditions.  The commission would impose the terms and conditions, including payments if necessary, needed to make whole the utility and other customers.  The section Ms. Buckley referred to was protection of commercially sensitive information and had nothing to do with the utility purchasing energy and power.  It had to do with the customer not having to tell other people what they paid for power. 

 

Ms. Buckley then referred to Section 14, subsection 6, lines 11 through 13, and asked why the amendment did not provide in statute consumer protection for those left behind and why leave it to the discretion of the commission.  Mr. Reeder responded a preliminary answer that provided for the financial payment by the customer leaving while the amounts that remained were the load share portions of the unrecovered balances in the deferred accounts so that if there were dollars that had been incurred which were dollars unrecovered the customer remained obligated to pay and pay anything else the commission might designate them to pay.  He was a little concerned about the openness of the language; however, they had covered the financial cost of someone leaving in this section.  Ms. Buckley asked if the term “incremental” on that page was supposed to address that point as well.  Mr. Reeder stated “incremental costs” was intended to describe that cost a customer would pay when they returned.  When the customer left, he stated, they would pay a blended cost and if they came back they would pay the new cost imposed on the system by their return.  This was an attempt to specifically define what the consumer protection was so that the Legislature knew what the cost would be and if the customer came back there would be no additional cost imposed on the system from the return. 

 

Ms. Buckley asked in regard to mill assessments or low-income programs.  She asked what was included in deferred accounts and could there be any other costs that did not fall within the general terms.  Mr. Reeder responded the mill assessment and the other types of assessments that were made against providers were assessments that were made generically by a statute somewhere.  The amendment drafters had not attempted to address them because those statutes provided whatever items were attributed to providers subject to the terms of those relevant acts.  Mr. Reeder indicated they created the amendment as a “stand-alone.”  This amendment was relating to the portion of the energy cost that Sierra Pacific Power or Nevada Power would have incurred on behalf of the customers that would be unpaid if consumers left the system. 

 

Mr. Shuba stated part of the problem in drafting statutes was capturing the entire program without knowing what all of the items were.  They had tried to capture everything they could think would need to be covered in this section where they provided that terms and conditions and payments that the commission would impose must be fair and nondiscriminatory between remaining customers and customers leaving the system.  They knew there would be deferred energy; however, there were other things unknown and that was why they indicated the commission should receive a quarterly report of what was done.  If there was a charge that all other customers were paying the customers that left did not get to avoid the charge because they did not buy from the utility.  If there was a low-income mill assessment or a generally applicable portfolio standard or anything that was not dependent on whom the customer bought from, it would have to be paid.  Ms. Buckley stated she preferred putting consumer protections in statute rather than relying on the commission. 

 

Chairman Bache asked if Newmont and Barrick were on interruptible rates.  Mr. Reeder stated service to Barrick Goldstrike was pursuant to a firm tariff that provided service on a firm and non-interruptible basis; however, the service could be curtailed under two circumstances.  The service could be curtailed under voluntary circumstances if the utility asked them to reduce their load and the mines chose to do so, and under mandatory curtailment conditions being considered by the commission they would be the “first off.”  While their contract stated “firm” they had no doubt they would be the “first off” the system if a shortage occurred.  Mr. Shuba stated on behalf of Newmont that Mr. Reeder was correct.  Under the terms of their purchases they had, even without a mandatory curtailment program in effect, from time to time been asked to shed 30 megawatts.  They had generally complied.  The new program supplied a more structured program to allow for shortages.  They knew that hospitals, schools and residences had priority in the event of a real crisis. 

 

Assemblywoman Tiffany asked if the mines were asking to become a power provider, but did not want to be considered a provider under the PUC.  Mr. Reeder answered they were not asking to be a provider except in the case of becoming a joint venturer on some expansion or repowering program.  They were stating if a new generation asset or expansion generation was not selling to non-eligible retail customers then it should not be a regulated utility subject to having its books audited by the commission and rate regulation.  The program was introducing a competitive player incrementally in small steps. 

 

Ms. Tiffany asked when they were speaking about a partnership if that partnership meant an existing facility the utility owned and they would add to it or was it building a generation plant themselves under the mine’s ownership and selling the excess.  Mr. Reeder stated if, for instance, they repowered Valmy in participation with Sierra Pacific Power the load might not be sufficiently steady that they would use their entire share.  They needed a way to dispose of the power rather than shut down the power plant when they were not using that part of the capacity.  A.B. 661 provided for a way for them to dispose of that part of the capacity into the wholesale market and also gave the right for Barrick to sell to Newmont, something not allowed under current laws.  Ms. Tiffany stated the premise then would be a facility that the utility already owned and Mr. Reeder stated it would have to be a new facility that they had participated in the financing of.  The new resource would give them a right to take a part “in kind” and the part they did not use they would need to dispose of rather than shutting down the facility. 

 

Ms. Tiffany asked why it was not appropriate to be a regulated provider and what was the difference.  Mr. Reeder stated when someone became a regulated provider there were certain inherent responsibilities.  Among those responsibilities was to continue to provide even after a period of time in which the mining operations might change dramatically.  In many other places in the world, he indicated, where they undertook to build power plants or transmission lines they were very careful to make sure that when the time came to change the nature of their operation they did not have some residual obligation such as a public utility to continue beyond the time.  They were simply in the mining business.  They preferred the mining business and did not want to undertake the perpetual obligation of assuring the lights and air conditioners stayed on in the state of Nevada.  It created an additional financial burden for the mines.

 

Mr. Shuba indicated whether it was a new generator that was more than the existing capacity at an existing generator, or a whole new unit, it was never what the utility already had.  They were speaking of increased generation only relative to what the utility already had itself or under contract.  They were not going to sell the excess power to everyone.  There was limited language in the bill that defined eligible customers and those were the people that could be sold to at retail.  Otherwise it would be a wholesale transaction.  The excess of a generator could be sold to Sierra Pacific Power at wholesale and then Sierra Pacific could sell the power at regulated rates to retail ratepayers.  The wholesale transaction was not subject to PUC jurisdiction then or now except for the prudency standard the Legislature instituted into the statute recently.  Other than showing the prudency of the purchase to retail customers, the transaction was considered a federal transaction.  

 

Ms. Tiffany stated it appeared as if the mines wanted to be the banker, the user and yet they were stating there was no benefit to them if they sold the excess and therefore if they did not benefit they should not be a regulated utility or distributor.  Mr. Shuba stated they would benefit from the sale to the extent they had fixed costs that they were recovering by selling the energy rather than shutting down the plant.  He was not clear if he had grasped her question.  Ms. Tiffany stated it appeared as if the mines were getting all of the benefits, but did not want to absorb any rules or regulations.  She wondered why they felt they should be excluded. 

 

Ms. Tiffany stated there was a previous amendment presented that had used the word “obligate and exclusive.”  She wondered if they were looking at that type of relationship with the utility company as well.  Mr. Shuba stated they were not and there had been some discussions of exclusive rights for the “jilted buyers,” but their agreements would be by mutual consent of the utilities and any potential participant.

 

Ms. Buckley asked if Sierra Pacific Power entered into a contract with a mine to revamp an existing facility, not an expansion but a re-engineering or repowering, would that become a new electric resource.  Mr. Shuba stated to the extent it added electrons to the supply the answer would be yes.  Ms. Buckley asked if just the new added electrons were the new resource or was the whole plant transformed into a new resource.  Mr. Shuba stated it was their intention in the amendment that any increased energy capacity or ancillary services made available from a generation asset pursuant to an agreement was considered a new resource.  It was the increment of what was obtained by repowering the generating asset.  What was already there was not new.  Ms. Buckley asked if the existing resource before the improvements were regulated assets and the new electron related portions of the improvements were new unregulated assets.  Mr. Reeder stated that was the way it was expected it would work.  If there was a new turbine that ran on waste heat or gas or coal at Valmy the output of that new turbine would be an unregulated asset.  Part of the output would belong to Sierra Pacific Power and be sold into the regulated market because Sierra Pacific Power did not become unregulated by the amendment but the portion the mine took or sold would be an unregulated asset to the mine.  Ms. Buckley asked if Sierra Pacific Power was still under regulation.  Mr. Reeder stated it would depend on the way Sierra Pacific Power chose to bring in the power.  If it chose to bring it in as a regulated asset it would remain regulated.  There was also the possibility that Sierra Pacific Power could do something different.  The amendment was not designed to hinder nor empower Sierra Pacific Resources in any way.  The amendment was simply intended to clarify they had the ability to enter into those kind of arrangements they already had today.  It did not create new powers in Sierra Pacific Resources to free them from regulation.  This amendment allowed “the company” to share the infrastructure at existing facilities with customers or other third parties that would provide the capital for expansion if they could receive the output and have the opportunities to deal with the output in kind. 

 

Mr. Shuba rephrased Ms. Buckley’s question from last week that asked why the mines needed this program and asked if they could do this program anyway.  Mr. Shuba stated in part her statement was right and he believed maybe they could do what the amendment suggested.  This amendment was to send a signal to the marketplace that Nevada did not close when the state stopped deregulation.  There was still an opportunity for financing and capital to come to Nevada and make investments in this state and benefit.  In part this was a signal and in part it was to clarify any doubt as to whether Sierra Pacific Resources could enter into transactions such as these.  This was not to change the law, he reiterated, it was to make clear the desire for people to take advantage of opportunities and to give a signal to the PUC the state thought these types of projects could be a good thing. 

 

Assemblywoman Tiffany asked when Mr. Reeder and Mr. Shuba indicated they wanted to take the power they could not use and sell it, they also stated the mines did not want to be obligated to sell to a long-time purchaser because the mine might not even be in business.  Yet when she examined the list of people they could sell to, it included just about everyone.  She asked if they anticipated only selling on short-term contracts.  Mr. Reeder stated that was the intention, to dispose of the capacity if it became available.  It could be the capacity was only available for an hour or a day but if they became a public utility the mines would have to make it available forever.  Ms. Tiffany clarified they wanted the relationship to be by contract as opposed to being a utility with an obligation.  Mr. Reeder responded that was one way to look at it to gain a clearer understanding.  The mines wanted a finite obligation to perform, not a perpetual obligation to perform, because they were going to have excess capacity for a period of time and then it would change.

 

Ms. Buckley asked what ancillary services were.  Mr. Shuba responded ancillary services were generation-related services that a transmission provider sold, not always exclusively.  The provider made those services available to make transmission possible.  Mr. Shuba stated for example transactions had to be scheduled and dispatched across the transmission system and the transmission provider handled that administratively.  The schedules did not always match loads.  A provider could schedule 100 megawatts when the customers needed 101 megawatts.  The transmission provider, in order to provide stable service, would have to provide that extra one megawatt and then charge for it.  These were ancillary services that were ancillary to the provision of transmission service.  Ms. Buckley clarified the definition presented suggested new resources were increased energy or capacity but how did the definition of ancillary fit in the amendment.  Mr. Shuba stated ancillary services were provided out of generators whether owned by or under contract to the transmission provider.  They were electrons for the most part, except for the scheduling and dispatch service.  Otherwise they were generation-related products and they fit in the same category as capacity and energy.  Mr. Reeder gave an example of when the load went up a generator had to start to follow the load.  The load following was called an ancillary service.  When a generator failed to start, someone had to cover that generator that failed and it was covered from reserve and the reserve was called an ancillary service.  Starting a generator to follow a load or starting a generator because someone else’s generator did not start was an ancillary service.

 

Mr. Shuba stated there were things called “losses” on a transmission system when 100 megawatts was put in at one end of the system and some of it disappeared along the way and depending on the size of the line and the distance there might only be 90 megawatts at the other end.  The provider put in the 100 megawatts, the customer needed the 100 megawatts and there were only 90 available.  The supplier would have to supply them by putting in 111 megawatts to get the 100 or the transmission provider supplied the 10 extra megawatts.  The transmission provider would buy that extra 10 megawatts so it was there at the other end when the customer turned on the power.  Ms. Buckley asked why that was not increased energy.  Mr. Shuba stated it was just a label and Ms. Buckley stated with a label there could be a big consequence in the amendment.  Mr. Reeder stated another example.  A utility would typically buy capacity and energy from a generator, but ancillary services were purchased from a transmission provider and that entailed two different markets because they were different products.  They were seen in the marketplace as two different products because there were different buyers that purchased them for different purposes.  A company could theoretically buy capacity and energy from Idaho Power but their ancillary services from Sierra Pacific Power as a transmission provider.

 

Terry Graves, Representative, Independent Electric Coalition, submitted an amendment (Exhibit I) that basically served to reinstate contract sanctity language into the statute removed by the repeal of A.B. 369.  The amendment was short and was distributed to the committee.  The amendment stated any assignee of the utility or its successor electric distribution utility should comply with the terms of any existing obligation.  The language was similar to what was present in S.B. 438 of the Seventieth Session. 

 

Michael Pitlock, Representative, Shell Energy, asked the committee if it wished him to speak that day or wanted him to supply testimony at the next meeting.  Chairman Bache stated he believed the committee had received its final waiver on the bill and they would have to take action so Mr. Pitlock should probably testify at this point.

 

Mr. Pitlock responded to some of the comments made by Mr. Higgins in previous testimony with regard to aggregation.  He stressed to the committee aggregation was not deregulation.  Too often people believed aggregation and deregulation were the same and what Shell was proposing was not a deregulated service.  It was a regulated service.  Mr. Higgins had stated that if the state was going to allow aggregation they might as well put all of the laws back in statute that were repealed in A.B. 369.  Mr. Pitlock did not believe that was necessary. 

 

In order to try to demonstrate to the committee that was not necessary he started with the language presented to the committee by the mines and agreed to by the utility and many of the gaming facilities.  With minor amendments to the language there could be aggregation, he stressed.  The state could provide an opportunity to all Nevadans and not just a few.  The committee had heard testimony from casinos and the mines stating their belief that as large, sophisticated customers they should be allowed to go to the market and get better rates for their own electric service.  Mr. Pitlock stated it would be wonderful if the mines, for example, could provide that benefit to their employees.  If the mines could join together with the citizens of Elko County there would be benefits and opportunities for everyone.  Mr. Pitlock believed the Legislature could provide those opportunities with some minor changes to the language presented by the mining industry.  Mr. Pitlock stated they would walk the committee through the language to change it from “special interest” language to opportunities for all Nevadans.

 

Thomas W. Kinnane, Representative, Shell Energy, Annapolis, called attention to the “Empower Nevadans” amendment (Exhibit J) he presented to the committee.  He believed their amendment gave the power back to the people to find a better deal for energy.  They had used the same language that was presented in the mines’ amendment.  He directed the committee to Section 6, where they had added to the definition of eligible customer “aggregated groups of customers of any class who could achieve the one megawatt threshold within a particular service territory.”  This language would allow the small commercial and residential customers that were not included in the mining language to obtain better deals through aggregation.  In section 11 they had deleted from the definition of time-of-use meter the requirement it be suitable for a load of one megawatt. 

 

Mr. Kinnane stated there were time-of-use meters available for residential and commercial facilities and there were jurisdictions that had time-of-day rates for residential and small commercial customers.  Section 13 would accelerate the time schedule in accordance with their previous submitted amendment to January 2002.  This would be the earliest any aggregated customers could depart the system. 

 

A similar change was made to Section 14 that also accelerated the date.  In subsection 5 of Section 14 there was a statement concerning the “contrary to public interest” standard and he suggested “no negative impact” language be added.  In Section 14, subsection 6, they had included the opportunity for the PUC to assess, include or require additional customer protections for aggregated groups of residential customers.  These were not the types of protection the mines or the casinos would require; however, the protections would give more comfort to those concerned about small residential customers and could address billing rules, rules on late charges, bonding of the aggregation suppliers, etc. 

 

Mr. Kinnane stated in Section 16 they had stricken the requirement of the time-of-use meter as a necessity for participation in an aggregated group.  That would exclude all residential customers and it was unnecessary.  The customers did not need the meters.  There were aggregated groups in other states that did not have the meters and the company operated off of load profiles.  This was a proven system that was in operation all over the country. 

 

In Section 17 they had also stricken the requirement that the utility provide all services associated with the provision of electric service to a customer although they would still have the component rates in order to determine exactly what the aggregated supplier or its customers would have to pay the utility.  The aggregated groups would still have to pay for transmission and distribution service, there were some ancillary services that could be self-provided and there was the larger matter of efficiencies that could be provided by an aggregator with regard to billing and customer service.  That part in Section 17 they had stricken appeared to eliminate any possibility to develop efficiencies or pass along additional savings to customers. 

 

The final change, Mr. Kinnane stated, was to add a new Section 19 that was the request for proposal (RFP) language in other amendments previously submitted.  They still believed an issuance of an RFP by the PUC periodically was necessary for the legislators and the Governor to be able to determine the point at which the competitive market was able to provide consistent, reliable competitive rates to consumers on an individual basis rather than an aggregated large scale group basis.  Mr. Kinnane stated the RFP process, in addition to providing an opportunity to relieve further segments of the load served by the utility, would also provide the state with the necessary information to make an educated determination as to when the market should be opened for mass-market competition.

 

Mr. Pitlock indicated to the committee with just a few changes to the language that was presented they could give the citizens of Nevada another tool, an optional tool, one they could have available to them to deal with the energy crisis.  The state could provide this opportunity in a way that had minimal risk, no risk to the utility, no risk to the remaining customers that stayed with the utility and the appropriate consumer protections for those aggregated groups and large customers that chose to seek service from somewhere else.

 

Chairman Bache seeing no other witnesses closed the hearing on A.B. 661.  The Chairman asked Ms. Tiffany if she had something to say and she stated she had a very short amendment that she would like to present to the committee (Exhibit K).  Chairman Bache asked for clarification if she was adding in Section 83 of A.B. 661 “qualifying co-generation facilities.”  She stated that was correct.  Mr. Bache asked if those qualifying co-generation facilities could be powered by oil, coal or natural gas or some other fossil fuel.  Ms. Tiffany stated the reason she included the co-generation was because it was normally put beside a plant and the purpose was to be able to use the heat, the by-product of the co-generation, for the plant.  It was usually a chemical plant or a food processing plant so the primary purpose was heat and the secondary benefit was electrical energy.  She felt that it fit in the bill because it was mentioning only qualified co-generation and because of the conservation issue dealing with the heat.  She would like to include the co-generation facilities in this bill.

 

Chairman Bache adjourned the hearing at 5:00 p.m.       

 

                                                                                    RESPECTFULLY SUBMITTED:

 

 

 

Cheryl Meyers

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Assemblyman Douglas Bache, Chairman

 

 

DATE: