MINUTES OF THE meeting
of the
ASSEMBLY sELECT Committee on Energy
Seventy-First Session
May 15, 2001
The Select Committee on Energy was called to order at 1:55 p.m. on Tuesday, May 15, 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 Chairwoman
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:
David E. Goldwater, Assembly District 10, Clark County
STAFF MEMBERS PRESENT:
Kevin C. Powers, Committee Counsel
David S. Ziegler, Committee Policy Analyst
Cheryl Meyers, Committee Secretary
OTHERS PRESENT:
Donald Soderberg, Chairman, Public Utilities Commission (PUC), State of Nevada, Carson City, Nevada
Fred Hillerby, Representative, Verizon Wireless, Reno, Nevada
Margaret McMillan, Representative, Sprint Telecommunications, Reno, Nevada
Judy Stokey, Government Affairs Executive II, Nevada Power and Sierra Pacific Power, Las Vegas, Nevada
Debra Jacobson, Director/Government and State Regulatory Affairs, Southwest Gas Corporation, Las Vegas, Nevada
Joseph Johnson, President, Toiyabe Chapter Sierra Club, Reno, Nevada
Julie Wilcox, Director of Public Services, Southern Nevada Water Authority, Clark County, Nevada
Charles K. Hauser, General Counsel, Southern Nevada Water Authority, Las Vegas, Nevada
George Caan, Executive Director, Colorado River Commission, Las Vegas, Nevada
Fred Schmidt, Representative, Southern Nevada Water Authority
Robert Crowell, Representative, Nevada Power Company, Las Vegas, Nevada
Terry Graves, Graves Communications, Independent Electric Coalition, Las Vegas, Nevada
Lawrence J. Semenza, Representative, Dynergy, Inc. and NRG Energy, Inc., Houston, Texas
David Lloyd, Senior Attorney, NRG Energy, Inc., San Diego, California
Kathleen M. Drakulich, Associate General Counsel, Sierra Pacific Power and Nevada Power, Reno, Nevada
Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, Carson City, Nevada
Keith Lee, Representative, Dynergy, Inc., and NRG Energy, Inc., San Diego, California
Harvey Whittemore, Representative, Nevada Resort Association, Reno, Nevada
Tim Crowley, Community Relations/Issues Manager, Nevada Mining Association, Reno, Nevada
Rose McKinney-James, Representative, Clark County School District, Las Vegas, Nevada
Douglas R. Ponn, Vice President, Governmental and Regulatory Affairs, Nevada Power and Sierra Pacific Power, Las Vegas, Nevada
Sam McMullen, Representative, American Telephone and Telegraph (AT&T), The McMullen Strategic Group, Reno, Nevada
The meeting began as a subcommittee until more members were present. Chairman Bache opened the hearing on S.B. 210.
Senate Bill 210: Makes various changes concerning regulation of utilities. (BDR 58-540)
Donald Soderberg, Chairman, Public Utilities Commission (PUC), State of Nevada, stated S.B. 210 represented two BDRs submitted by the commission to accomplish technical cleanup on the mill assessment language, gas pipeline safety inspection, and regulations of small water companies. There was an amendment presented to S.B. 210 (Exhibit C) and Mr. Soderberg explained the amendment to the committee. The portions of the bill that dealt with the gas pipeline safety program were brought forward because of a mistake in the existing statute. Mr. Soderberg indicated the PUC safety inspectors were not allowed to share their reports with federal pipeline safety inspectors with whom they worked. His office had been asked by the Office of Pipeline Safety of the federal government to correct that mistake. When the bill was in the Senate Commerce Committee an amendment was offered by an individual that could not be there to testify but who felt those reports should be open to the public. Because the individual was not present the amendment was not clarified. The language currently in S.B. 210 did not allow the commission to share all of their reports with the Office of Pipeline Safety and did not allow for all of the reports to be open to the public. Mr. Soderberg had presented an amendment that included the language the PUC had initially proposed. It allowed the PUC pipeline safety inspectors to share information and reports with the federal Office of Pipeline Safety. He asked the committee to use the amendment for discussion instead of the language incorporated into S.B. 210 that satisfied neither concern.
Chairman Bache asked if the gentlemen were present to answer any technical questions on the bill. Mr. Soderberg stated that was correct. Chairman Bache asked if he knew who had presented the amendment to the Senate requesting all of the reports to be open to the public. Mr. Soderberg stated he did not know the individual; however, it was reported the person was Joe Johnson of the Toiyabe Chapter of the Sierra Club.
Fred Hillerby, Representative, Verizon Wireless, Reno, was present to support Section 1 of S.B. 210. His industry should not have been mentioned in the natural gas pipeline discussion. He was sure the committee was familiar with the Federal Telecommunications Act of 1996 that deregulated the wireless industry. There had been some confusion since that time with regard as to whether the unregulated wireless industry should be paying the mill tax in support of the PUC. Page 2, Section 1, subsection 6, lines 19-21 of S.B. 210, proposed to clarify that, since the wireless industry was not regulated, they would no longer be subject to the mill tax. However, in lieu of that, they would be required to pay a $200 yearly registration fee with the PUC.
Chairman Bache asked if the $200 fee was the same one that was in A.B. 91, which was indefinitely postponed in the Committee on Government Affairs. Mr. Hillerby stated he was not familiar with A.B. 91; his focus had been on S.B. 210.
Margaret McMillan, Representative, Sprint Telecommunications, Reno, responded to Mr. Bache’s question and stated the $200 fee in A.B. 91 dealt with a complaint filing fee. The fee in S.B. 210 was a registration fee. Because there was some confusion regarding whether wireless companies should be paying the mill tax, the bill clarified that since wireless companies were not regulated they would not be subject to the tax.
Judy Stokey, Government Affairs Executive II, Nevada Power and Sierra Pacific Power, Las Vegas, stated her companies had seen the amendment proposed by the PUC and could support the bill with the amendment.
Debra Jacobson, Director, Government and State Regulatory Affairs, Southwest Gas Corporation, Las Vegas, was present to support the commission’s amendment to S.B. 210. She said Mr. Soderberg was correct in his statement concerning the way the amendment had been phrased previously. It had been unclear and that was a very important issue to Southwest Gas Corporation. The reports on the pipeline safety at the federal and state levels were used for safety purposes. The reports were also used to bring about improvements in public safety including engineering practices, operations, and maintenance. Investigations in the reports were not supposed to be used to prepare for litigation. She believed that was what the Senate committee had intended.
Joseph Johnson, President, Toiyabe Chapter Sierra Club, Reno, stated he had not seen the amendment the PUC presented. His original amendment for the Senate dealt with existing statute as well as the proposal within the original bill. The Sierra Club had a policy against ”secret and privileged” information and the existing statute declared fatal accident reports were “secret and privileged.” Potential lawsuits would have access to those reports in the discovery process; however, people in the community that had a right to know were prohibited under the current statute to have access to the reports. The Senate Committee held that view, he indicated, and adopted the Sierra Club amendment. He requested the committee keep the bill that included the submitted amendment regarding the secrecy and privilege issues. In addition, there was a section within the first version of the bill that gave the utilities the ability to approve or disapprove the release of the information, such as, if it was favorable to them, they would release it and if unfavorable, they could retain the “secret and privileged” status. He believed there could be some justification for the investigation reports to be at least held in confidential status. However, the original report should be made public and open to perusal. The amendment involved fatal accident reports, not simply an accident report or operational procedures report. He had been informed that in the railroad industry there were comments in regard to secrecy reports, and under some federal laws there was a preemption in keeping fatal accident reports secret.
Chairman Bache closed the hearing on S.B. 210 and opened the hearing on S.B. 211. The subcommittee became a full committee with a quorum present.
Senate Bill 211: Revises provisions governing sale of electricity and provision of transmission and distribution services by Colorado River commission and requires certain public utilities to make their electric distribution facilities and services available to Colorado River commission under certain circumstances. (BDR 58-633)
Julie Wilcox, Director of Public Services, Southern Nevada Water Authority (SNWA), stated SNWA was a regional water agency in southern Nevada whose members were made up of local governments in southern Nevada and wastewater agencies that included the city of Henderson, city of North Las Vegas, Boulder City, Big Bend Water District in Laughlin, Las Vegas Valley Water District, and the Clark County Sanitation District. S.B. 211 involved the SNWA as a regional entity as well as those mentioned earlier. The mission of the water authority in southern Nevada was to provide a reliable source of water, a long-term water supply, and to protect that resource diligently. Over the last ten years the Water Authority had worked hard to secure additional supplies of water and a month previously had completed the negotiations on an Arizona “banking” agreement to solidify their availability of water.
Among the Colorado River states, Nevada was the only state that was given a dedicated source of power after the SNWA was created. Power, therefore, was a big concern for the SNWA. In Las Vegas, when the water was moved from the Colorado River it had to be lifted over 2,000 feet and moved approximately 30 to 40 miles to serve the SNWA customers. They were very concerned about a reliable source of power so they could take the water and actually move it where it needed to be; in that way water and power were linked, Ms. Wilcox commented. The SNWA had worked with Nevada Power on S.B. 211 and she believed they would testify in support of the bill.
Charles K. Hauser, General Counsel, Southern Nevada Water Authority, Las Vegas, provided an explanation of the bill for the committee. He stated Section 1 contained a provision for the Colorado River Commission (CRC) to sell electricity, provide transmission and distribution services, only to meet the needs of the customers the CRC had as of July 16, 1997, and the SNWA. The previous language was in the existing statute that A.B. 369 repealed. All that was added was “the SNWA and its member agencies for their water and wastewater operations.” The power could only be used for pumping water and sewage.
Section 2 of S.B. 211 stated the PUC should establish a joint and reasonable tariff for electric distribution service. That service was to be provided by the electric utility that primarily served densely populated counties. Mr. Hauser stated there was no reason for the tariff to be established in northern Nevada as it affected only densely populated areas. The only public utility that needed to establish the tariff was Nevada Power Company. The bill contained a definition of the SNWA and that really was the essence of the bill.
George Caan, Executive Director, Colorado River Commission (CRC), Las Vegas, had provided the committee a summary containing some of the information he would present (Exhibit D). The CRC was a state agency governed by a seven-member board. Four of the members, including the chairman, were appointed by the Governor and three were appointed from the board of directors of the SNWA. The CRC had the benefit of having the perspective of the state and local governments as part of their authorizing environment. The operations were governed by a budget approved by the board, the customers, the Governor, and by the Legislature. That gave the Legislature an opportunity to review expenditures of the CRC, including its power operations.
The CRC served both wholesale and retail customers in southern Nevada. Their wholesale customers included Nevada Power Company, Boulder City, Valley Electric Association, Pahrump, Overton Power District, and Lincoln County Power District. In addition to their wholesale customers the CRC also served retail industries such as the basic management customers and the SNWA.
The CRC had been in business for over 50 years and they were involved in protecting the natural resources provided by the Colorado River, which included the federal hydropower produced by Hoover, Parker, Davis, and Glen Canyon Dams. The service provided to all of the organizations listed in Exhibit D, except to SNWA, included the acquisition and delivery of federal hydropower, the lowest cost resource for the state of Nevada. A picture was included in Exhibit D of substations the CRC had constructed for the SNWA through bond monies issued by the state to help deliver the hydropower to the SNWA. Exhibit D also indicated the current resources and what they had committed to customers including 457 megawatts of federal hydropower delivered to the companies listed. Nevada Power Company received 50 percent of the allocation that the state of Nevada received in hydropower from Hoover Dam. In addition to their delivery of federal hydropower, the CRC also provided supplemental power to the basic industrial complex in Henderson. The supplemental power of approximately 75 megawatts was power they required in addition to the hydropower.
The CRC was currently providing the SNWA 125 megawatts of power for their wholesale delivery of water. Of their total resources, 70 percent was federal hydropower and the rest was non-hydropower. The CRC provided the power for the SNWA to pump the required water from Lake Mead to the wholesale delivery, 125 megawatts. The SNWA then delivered to its customers mentioned earlier. S.B. 211 was designed to supplement the integration of the water delivery system with an integration of the power delivery system. In the same way, the CRC organized the water delivery according to the demands in the Las Vegas Valley; they were trying to organize a power system that dealt with the provision of water to the retail entities through the wholesale entities. The bill was before the committee because of the method the CRC used to actually operate the power procurement, which involved the CRC meeting with the SNWA and its member agencies each month to plan power and water delivery. Currently the CRC could only provide the power for the water authority and this bill would allow them to identify the procurement needs of the member agencies in the planning function to integrate the power function similar to the integration of the water function.
Mr. Caan stated the CRC approximated the loads of the member agencies to be between 100 to 150 megawatts. The CRC would need to have a more refined assessment if the bill passed, allowing the exact needs to be identified.
Assemblywoman Buckley stated she was sure Mr. Caan had been following some of the other hearings in which there had been discussions on allowing large power users to break away from the utility to secure their own power. She believed in the earlier version of S.B. 211 the CRC had tried to acquire that same flexibility in terms of the ability to service more than just water customers. She asked if some of the other legislative proposals were enacted would the CRC benefit from them based on statutory authority.
Mr. Caan replied S.B. 211 limited the authority of the CRC. This bill would limit the CRC to serving its current customers identified in Exhibit D, plus the member agencies of the SNWA. The CRC could not serve anyone but those entities if S.B. 211 was enacted. Ms. Buckley stated if the Legislature wanted to change that authority, a further amendment would be required. Mr. Caan concurred, stating the bill would have to be changed from the word “only” that referred to the customers he had spoken about. Ms. Buckley requested confirmation that if the agency could benefit from their experience and obtain cheaper power, then the savings would be passed on to the citizens and government agencies. Mr. Caan replied the CRC negotiated in the Senate on where they could make the best difference with respect to the community the CRC served. Because they had provided benefits to the water pumps belonging to the Southern Nevada Water Authority, they felt that was where they were best suited as a state agency. The CRC had reviewed the alternatives and felt they had reached a fair compromise wherein they could provide the best service in the interest of the state of Nevada while conforming to the statutes. Ms. Buckley stated fortunately the Assembly had a say in all matters of public policy as well.
Fred Schmidt, Representative, Southern Nevada Water Authority, stated the main reason S.B. 211 was limited was because of concerns that were raised about what the rate impact would be to electrical customers. The rate impact, as reflected in S.B. 211, went directly to those same customers through their water bill. Regardless of an impact or not this bill made sure the citizens got the benefit of low cost utilities. The other important reason for isolating this bill in terms of its application to the integrated water system was for the reliability of the system. The water was obtained from Lake Mead in the far edge of the valley and they could not complete the cycle without acquiring all of the resource. Every other water agency in the southwest had their own power resource. In fact, the California Department of Water Resources was the majority owner of the Reid Gardner Power Plant. That was the CRC’s attempt, to accomplish the same goal.
Assemblywoman Von Tobel asked if there was any excess power from the power delivery facilities. Mr. Caan asked Ms. Von Tobel to look at the pie chart in the exhibit to see the energy they had procured for their customers. With respect to federal hydropower there was never any excess. It was so low cost that anything they could procure they did. The CRC bought power for the peak demand of the SNWA so that when they needed to operate their pumps there was sufficient capacity to operate. There were times when they did not operate at full capacity and that was expected. At those times the CRC had access to the wholesale market and it provided revenue to reduce the cost for the SNWA. The CRC bought for peak demand because they needed to have that ability.
Ms. Von Tobel asked if they would then sell to other jurisdictions. Mr. Caan stated that was only the wholesale market and they sold to no other retail customers other than the ones listed. They would sell to a power market that could have retail customers in their portfolio. Ms. Von Tobel qualified they did sell to wholesalers and not just in Nevada. Mr. Caan stated they had no control over where the wholesale providers sold that power and some did return to Nevada Power Company. By those actions they were able to reduce the delivered cost of energy to their customers. In 2001 they expected to reduce the cost by $20 million and last year it was $13 million just by being able to manage the loads effectively. When they did not need the energy they sold it in a fashion that would reduce the net delivered cost to the customer.
Ms. Von Tobel stated the CRC had already been in the market of selling power and asked if that was correct. Mr. Caan stated not as a primary function but rather as an ancillary function to the delivery of power. The CRC had to do that because they had “take or pay” obligations. The CRC had to buy power and could not just tell someone they did not want the energy. The CRC took the energy and then sold the extra in order to avoid having customers pay for something they never received. It was not, however, their core responsibility but rather an ancillary responsibility in order to reduce the net delivered cost to all of their customers.
Robert Crowell, Representative, Nevada Power Company, Las Vegas, echoed the comments of Mr. Hauser that they had worked with the SNWA to craft the bill and he agreed with the comments that the bill allowed for an expansion of the authority of the CRC to serve the SNWA. The bill expanded the services to include water pumping and wastewater pumping as indicated by Mr. Hauser. Nevada Power Company also agreed with Mr. Caan’s statement that S.B. 211 limited the authority of the CRC to provide that service to the SNWA and their agencies. He also agreed with Ms. Buckley that it was the Legislature that made the policy decisions regardless of what agreement was brought to them.
Chairman Bache, seeing no further witnesses, closed the hearing on S.B. 211 and reopened the work session on A.B. 661.
Assembly Bill 661: Revises and repeals various provisions concerning utilities and energy. (BDR 58-1128)
The Chairman asked Kevin Powers, Committee Counsel, if there were two sections of the proposed committee amendment (Exhibit E) that included the sections on renewables and Ms. Leslie’s amendment yet to be discussed. Mr. Powers stated those amendments were tied together and there were sections of the bill that would stay in the bill under the proposed amendment.
Section 16 began on page 11 of Exhibit E and Sections 86-88 began on page 35. Section 16 created the one-time assessment on new electric generating units. The one-time assessment would be used to fund the activities of the newly created Task Force for Renewable Energy and Energy Conservation that was created in Sections 86-88. Mr. Powers stated the first part for consideration by the committee was Section 16.
Assemblywoman Leslie presented information in favor of adopting Section 16. She discussed an article that emphasized how energy developers were beginning to look at the state of Nevada in terms of building fossil fuel plants. The article stated if corporations could, they should build all their California plants in Nevada, as Nevada had a stable political climate, no state income tax, and cheaper labor. The state had an abundance of natural resources and it would be foolish for the state, with new generation builders who relocated to Nevada, not to take the opportunity to levy additional permitting fees that could be used to promote the renewable energy industry. She pointed out Nevada only charged 25 percent of what the state of Arizona charged fossil fuel plants. If the state was going to give up some environmental integrity to allow that, the state should receive something back and invest it in nonpolluting, renewable energy resources.
ASSEMBLYWOMAN LESLIE MOVED TO ACCEPT THE AMENDMENTS TO SECTIONS 16, 86, 87, AND 88.
ASSEMBLYWOMAN BUCKLEY SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
Chairman Bache asked Mr. Powers if there were any other sections in the amendment the committee had to discuss. Mr. Powers indicated everything else was covered. Mr. Bache stated they would discuss other amendments that had been proposed.
Mr. Bache mentioned an amendment proposed by Greg Millspaw, private citizen (Exhibit F), that the committee had received. The amendment added nuclear fission reaction and fusion of hydrogen into helium to the renewable section of the bill. He personally thought that would send a bad message to have the state involved in nuclear fission as part of the bill, but the amendment was presented and the committee needed to discuss it. Assemblywoman Buckley asked if the theory was that nuclear renewed and renewed.
ASSEMBLYWOMAN BUCKLEY MOVED TO REJECT THE AMENDMENT.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
Mr. Humke stated he had been informed Mr. Millspaw was a physicist and held some patents on some of the processes. What Mr. Humke had gathered from discussions with Mr. Millspaw was that his process did not generate any nuclear waste in the commonly known concept of waste. He would have offered a motion to pass his amendment and now would vote no on the rejection.
Ms. Buckley stated out of deference to Mr. Humke she was not familiar with the proposal and was not sure how there could be a fusion with no nuclear waste without inviting nuclear waste into the state. She was afraid if the amendment was not carefully drafted it would be out of the intent of the committee. Mr. Humke had seen Mr. Millspaw’s correspondence and apparently the words he had used were the limiting factor. He could not say if the amendment would invite the other type of nuclear energy or not.
Chairman Bache asked for a vote in favor of rejection of the amendment on nuclear fission.
MOTION CARRIED TO REJECT MR. MILLSPAW’S AMENDMENT.
ASSEMBLYMAN HUMKE VOTED NO.
Assemblywoman Von Tobel indicated Ms. Tiffany had an amendment last week and asked if the committee had copies. Chairman Bache stated when Ms. Tiffany could rejoin the committee he hoped she could discuss her proposal.
Chairman Bache stated there was a proposal from Mr. Graves and asked him to refresh the committee’s memory.
Terry Graves, Graves Communications, Independent Electric Coalition, Las Vegas, had proposed an amendment (Exhibit G) on contract sanctity language that had been part of S.B. 438 of the Seventieth Session and ended up in the statute. A.B. 369, already signed by the Governor in the Seventy-First Legislative Session, repealed those sections that contained contract sanctity. Contract sanctity was very necessary during the deregulation process but was, in fact, a stand-alone concept and not necessarily part of deregulation. He felt the statutes would benefit from the retention of the language.
Assemblywoman Buckley questioned the need for the contract sanctity. There had been debates on the substance of it last session. The reason it was necessary last session was to underscore the fact that if there was deregulation, the feeling was the existing contracts should be acknowledged and could not be dismissed by legislation. Since there was no longer deregulation she wondered why there was a need. Many private parties had contracts and the state did not pass legislation that stated they had contracts and the contracts should be honored. There was contract law and associated contract remedies available.
Mr. Graves stated Ms. Buckley was in part correct; the need was not as great in the current environment, which rejected deregulation. His clients had decided to move forward with the amendment because they were not sure where the state would end up with proposed amendments such as “Repower Nevada.” There were efforts being presented to allow large customers to leave the utility and it did not detract from the statute if the language was there. It was more of a precautionary statement and most legislators agreed that someday there would be deregulation.
Chairman Bache opined Mr. Graves should hold on to his amendment based on the action of the committee on the “Repower Nevada” amendment. If the committee processed that amendment it would be appropriate to process his. If the committee did not process that amendment he wondered if the need for Mr. Graves’ amendment would be reduced. Mr. Graves stated it was up to the pleasure of the committee. Mr. Bache suggested the committee hold Mr. Graves’ amendment pending further actions.
Lawrence J. Semenza, Representative, Dynergy, Inc., and NRG Energy, Inc., Houston, Texas, stated his companies were in the generating business and providers of fuel for power plants. They had called themselves the “jilted buyers” because they had three power plants under contract purchase prior to the enactment of A.B. 369. He presented David Lloyd to the committee as a representative of the group that was formed to purchase the two power plants in the south and the Valmy plant in the north.
David Lloyd, Senior Attorney, NRG Energy, Inc., San Diego, California, stated he was a member of the bar in Utah and Oregon and had been in the generation business for 20 years. He had been involved in the permitting, building, bidding, and operation of dozens of power plants. Most notably his companies burned two-thirds of the garbage in Maine into power and had installed 800 windmills and built a number of biomass plants in central California. They had also purchased a number of old, large utility plants that were the discards of SDG&E and SCE in southern California.
Mr. Lloyd stated they were known affectionately as “pirates” in southern California and they thought they had done a good job there. The first couple of years they were present in southern California they could barely give power away and then there was a confluence of three events that were extreme. There was no rain for a number of months in the northwest and the same pattern had developed in 2001. Natural gas prices went from $3 at the border to over $10 at the border on a monthly basis and there were a couple of summers that were very cool followed by very warm summers. He believed the summer of 2001 would be a very warm summer without any hydropower and very high gas prices.
Mr. Lloyd said in the summer of 2000 they had examined buying all of the units that were offered by Sierra Pacific Power and Nevada Power (“the company”). They did the due diligence and spent millions of dollars and were the successful bidders for the Valmy plant for NRG Energy in the north of the state and their partner, Dynergy, was a successful bidder for Reid Gardner in the south. For approximately 1500 megawatts they were prepared to pay, and were under contract to pay, over a billion dollars for those assets. They were also committed as companies to immediately proceed with repowering efforts as well as building new generation at those sites because they offered the best location for generation. The sites were chosen for that purpose by the power company years ago because the locations were important for the power grid and important for service and reliability for customers. Unfortunately the Legislature, in its wisdom, had seen to postpone the sales and he was not exactly sure what their status was with “the company.”
Mr. Lloyd stated they had handed the committee an amendment they were proposing (Exhibit H) for an opportunity to be included in possible future negotiations because they had performed in “good faith” and were the high bidders. Whether or not they were actively in the bidding in the future they would like to be able to match the highest bid for a number of opportunities. They would like the procurement of fuel opportunity if an outsider was allowed to procure fuel for the power companies; to operate and manage the plants, as their primary source of business around the world was in the operation and management of plants; and the opportunity to help them re-engineer or add new capacity at those sites. From a grid standpoint, having electric generation within the load was very important because it allowed the opportunity to pull generation in. Currently, Nevada Power imported at least half of their power during the peak hours from somewhere else. There was a need to pull in the power and the way it was accomplished was to have generation in the load.
Mr. Lloyd stated they had proposed a right of first refusal for those kinds of activities. They believed it was fair and if there was no opportunity, then the amendment would not be valid. If the state decided in the future to deregulate, the amendment would be appropriate. They would like the commission to know that it was the will of the Legislature and if there were other parties brought in to assist with the power company and the capitalization of their plants, the Legislature believed it was appropriate to talk to the “jilted buyers” who had come to Nevada in good faith and spent a lot of money. They had also offered many suggestions to the power company both in the north and the south on things they needed to do. They would be happy to be involved in going forward. The commission would have the final say on any contracts the utility made with anyone, of course. If there was stand-alone generation it would be a separate issue. They had made commitments that they expected most of the power to be used in Nevada. It was up to “the company” to decide if they wanted to buy the power but they would be prepared to make power available. The western system was one large grid and all of the power sold wholesale went into an energy pool. When power went into the wholesale market it went wherever it wanted to go. Mr. Lloyd stated they were committed to being in Nevada for a long time.
Assemblywoman Buckley thought it was unfortunate the Legislature was faced with a crisis in the market and they had to stop the actions and his company faced financial harm. It was also important to keep in mind the state wanted to maximize resources to keep prices as low as possible and ensure reliability. She stated Mr. Lloyd had indicated he would match the price of any new buyer and therefore ratepayers would not be short-changed, but she wondered if there were there any downsides to his proposal. Could the state suppress offers by accepting their proposal that might be better for “the company” or the ratepayers? She indicated it was always a challenge to present the downside to an argument; however, she wanted to see what they would answer.
Mr. Lloyd responded there was currently one downside. There were three contracts their companies had signed that were in limbo and that would cause some confusion to the market. Everyone that entered into contracts knew that first right of refusal might or might not be valid in the course of the contract. However, in this case, because their numbers were available for everyone to see, the other bidders would know the number necessary to bid.
Ms. Buckley stated there was no assurance that any of the “jilted buyers” would not sue the state. There was no condition. Mr. Lloyd stated the question was who would be suing for what and what would be the remedy. There were those that believed the contracts clause of the Constitution had been violated by A.B. 369; however, he had no wish to pursue endless litigation on that subject. They did not want a warlike situation with Sierra Pacific Resources. They wanted to be in Nevada for a long time and the last thing they wanted to do was start out with litigation. Their proposed amendment was the easiest way they felt for everyone to “save face” and end whatever strife there might be. They were concerned about recovering “good faith” costs spent and that was the only issue that would remain. They could work it out between “the company” and themselves and present it to the commission.
Mr. Semenza wanted to clarify a comment he made two weeks previously when Ms. Buckley had asked him whether or not under A.B. 369 it would be possible to do the repowering utilizing that legislation rather than what was later presented, which was the amendment to A.B. 661. In examining the issue more carefully and in discussing the issue with Chairman Soderberg of the PUC and Mr. Dimmick, the Vice President of Operations for the PUC, he became less confident that the enactment of A.B. 369 would give them the legal right to go ahead with repowering and/or expansion of perhaps a power plant at Valmy, if there was a piece of real estate that was accessible. With the proposed “Repowering Amendment,” clarification was needed as to what could be accomplished by contract between the incumbent vertically integrated public utility and those individuals that might be interested in the repowering or the expansion. This amendment gave him the comfort that the ability was there legally to accomplish those tasks the Legislature was contemplating enacting to repower, empower, or increase the power in Nevada.
Judy Stokey, Government Affairs Executive II, Nevada Power and Sierra Pacific Power, Las Vegas, presented Kathleen Drakulich, Associate General Counsel for Sierra Pacific Power and Nevada Power, Reno, who had comments on the language of the “jilted buyers” amendment (Exhibit H). Ms. Drakulich was present to oppose the “jilted buyers” proposal.
Ms. Drakulich stated the contracts that were executed for the sale of the generation plants had risks for both parties. One of the risks was that regulatory approval was required in order for those executed contracts to become effective. Whether or not it could be predicted that a legislative change would occur that would prevent regulatory approval through A.B. 369 was not an issue. The fact was they could not have regulatory approval now and both parties took risks and both parties were out certain amounts of money and effort. However, the terms and conditions of those contracts died with the contracts and the ability to reserve rights beyond them did not survive. For that reason “the company” opposed the proposed amendment.
As a preliminary matter, Ms. Drakulich wanted to expand on what Assemblywoman Buckley stated. This type of proposal would have a chilling effect on potential purchasers or potential parties that would come to Nevada for the purpose of building or expanding these plants, buying the plants, or procuring the fuel for the existing plants. If a company came to Nevada to deal with Nevada Power Company or Sierra Pacific Power Company and the company wanted to conduct one of the transactions as defined in the “jilted buyers” proposal, the company could spend a great deal of time, effort and money to negotiate the best deal available for their company, only to know or be told at the end of that process that their best deal would now be offered to a past potential buyer with a “right” that was before their deal. Would the state actually get those potential parties to the state of Nevada knowing that whatever deal they negotiated could be stolen away by another party that did not have to dedicate the time and effort to that process? In addition, she believed there was a potential legal argument that this was an unlawful restraint on the utility’s business efforts and right to contract for the transactions described in the “jilted buyers” proposal. It also presented a potential conflict with the present provisions of A.B. 369 because there were no such restrictions in that bill.
Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, Carson City, stated as far as the issue of the “first right of refusal” on the potential later sale of the plants to other buyers, he did not have a strong objection to that component of the proposal. He stated he believed the first right of refusal could make the actions the Legislature took in delaying divestiture slightly more defensible. Since the state was dealing with a regulated entity, and if the policymakers chose to provide the benefit to the “jilted buyers,” he did not believe it amounted to an impairment of an existing ability of a monopoly to do something else. He indicated, from their legal analysis and perspective, the state did not necessarily owe anything to this group of “jilted buyers.” Even though he did not have any objection to the proposal he did feel some of the arguments “the company” presented in regard to potential buyers could be relevant. There was obviously no estimate of what the relative value of the generation assets would be five years from now.
Assemblyman Humke stated he had not followed closely the negotiations in the contracts formed during deregulation but it was his understanding the plants had been under outright sale agreements of generating assets. Mr. Hay commented he believed all the transactions were simple sales. Mr. Humke indicated this proposed amendment appeared to provide pieces of a sale that could come under the heading of management agreements for purchasing fuel and building additional generating capacity. He asked Mr. Hay if those terms were important distinctions from a typical sale agreement. Mr. Hay stated that was correct, it was an important distinction. There could be very good reasons for the utility to want to contract for some of the services mentioned and, obviously, if there was an expansion it would be handled by the resource planning process of the PUC. Mr. Hay stated this proposal was not simply a question of issuing a contract for sale. The analysis he had initially conducted was directed toward whether a “right of first refusal” was an equitable offer from the state to the “jilted buyers.” The other aspects mentioned by Mr. Humke created some operational and functional questions that deserved a closer look.
Assemblywoman Tiffany asked Mr. Hay if the state approved the proposal would he suggest there be a “sunset” on the proposal. Part of the problem she found with the proposal was if nothing was sold for two or three years why should someone with a contract that old have the first opportunity to purchase. Mr. Hay stated he believed a “sunset” would be appropriate; however, whether it should be five years as suggested would be a policy question for the Legislature. There was potential that some asset disposition could occur after July 1, 2003, under the existing legislation. Perhaps the “sunset” could be given after the date he indicated.
Chairman Bache asked for any further comments on the amendments and seeing none he asked for the pleasure of the committee.
ASSEMBLYWOMAN VON TOBEL MOVED TO THE ACCEPT THE “JILTED BUYERS” AMENDMENT.
ASSEMBLYMAN HUMKE SECONDED THE MOTION.
ASSEMBLYWOMAN TIFFANY MOVED TO AMEND THE AMENDMENT TO SHORTEN THE TIME FRAME FROM FIVE YEARS TO THREE YEARS.
ASSEMBLYWOMAN VON TOBEL SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY TO AMEND THE AMENDMENT TO THREE YEARS. ASSEMBLYMAN DINI VOTED NO.
Chairman Bache asked for discussion on the main amendment accepting the three years’ first right of refusal.
Assemblywoman Buckley was torn between the two sides. She felt the companies did make substantial investments in buying the power plants only to have the market conditions change and the regulatory agency make different decisions based on the law of the Legislature. On the other hand there had to be a balance to make the right decisions for the constituents and ratepayers to make sure prices were low and bids were not suppressed. She had some comfort in supporting the motion with Mr. Hay’s testimony that indicated he did not feel it would adversely affect consumers. She believed it to be a close issue.
Mr. Powers stated one point of the discussion seemed to focus on the fact that the list on the first page of Exhibit H, (i) through (vi), were the only types of transactions this document applied to; however, that was not the case in the language written in paragraph (b). The list was “including but not limited to” so in effect this applied to any sale, lease, or disposition of a generation asset. Mr. Powers stated the ultimate effect was to repeal A.B. 369. If the committee focused strictly on the types of transactions listed, he pointed out, that was not the effect of the text in paragraph (b). Mr. Bache asked him to repeat that statement again for the committee.
Mr. Powers stated the moratorium on divestiture in A.B. 369 prevented the sale of or other disposition of a generation asset. Paragraph (b) of the “jilted buyers” proposed amendment specifically stated it dealt with transfers that included any sale, lease, or other disposition of a generation asset. The whole point of the procedure was that there would be buyers other than the “jilted buyers” that were making bids for the generation assets. Essentially what paragraph (b) did was repeal the moratorium on divestiture in A.B. 369 and create a new procedure whereby the utilities could sell their generation assets through this new bidding process that gave the “jilted buyers” the first right of refusal. He indicated there would be no moratorium on divestiture of generation assets during the two-year period that A.B. 369 created if the committee adopted the amendment.
Keith Lee, Representative, Dynergy and NRG Energy, Inc., San Diego, California, responded that there was no such intent when the proposal was drafted. The intent was to take the period in A.B. 369 that prevented divesture up until July 1, 2003, and from that point forward the proposal would be in effect. There was no intent to repeal the non-divestiture act or provisions of A.B. 369; it was simply “if and when” the Legislature decided those assets could be sold or otherwise disposed of, they would like the first right of refusal. Mr. Lee wanted to make it clear that this was not a sub rosa effort to repeal the prohibitions of sale in A.B. 369. If Mr. Powers’ interpretation was correct they would certainly yield to an amendment to make that particular intent clear.
Ms. Tiffany assumed Mr. Powers was recommending the committee clarify paragraph (b) if the amendment passed. The language would state “only after the July 1, 2003, date” and would have to be amended into the amendment. Mr. Bache stated Mr. Powers was not recommending any particular course of action but merely pointing out what the effect of the language was if adopted. He said Mr. Powers did not wish to advocate for or against any part of the bill but rather provided specific information to the committee.
Mr. Powers stated, with the clarification Ms. Tiffany suggested, the provisions in the amendment could be harmonized with the existing provisions of A.B. 369. However, he disagreed with Mr. Hay’s comments that this amendment would make A.B. 369 more constitutionally defensible. Under A.B. 369 there was a two-year moratorium up until July 1, 2003, and after that “the company” was free to sell its generation assets if the commission approved the sale after finding the sale was in the public interest. This amendment placed further restrictions on the sale of the generation assets so that on July 1, 2003, when there was a public interest standard, this amendment supplanted the public interest standard with a more restrictive standard thereby making it less constitutionally defensible. The same issue of “substantial financial emergency” for “the company” the legislative body had to deal with when it had the restriction after July 1, 2003, would be law again. In fact, this proposal would make A.B. 369 less constitutionally defensible.
Ms. Buckley stated if this amendment made the bill that they had already passed less constitutionally defensible she was not sure it would be the right course of action. She was also concerned because she felt the first standard should always be public interest. If the public interest test could be met and the “jilted buyers” accommodated she would support that. Public interest, however, had to always come first. She indicated currently there was a moratorium on the sale of the power plants until July 2003 and one of the reasons for passing A.B. 369 was it would allow another legislative session the opportunity to assess the power crisis and whether or not it had subsided and whether the public interest would be served by continuing to preserve the state of Nevada’s energy. It could give the Legislature at that time the opportunity to examine also, if they did feel it was in the public interest to allow the sale of the plants to go forward, whether any special accommodations should be made for any “jilted buyers.” Ms. Buckley stated if the Legislature would be discussing the energy issues with regard to the crisis she would rather have the committee act cautiously and not undermine the public interest.
Ms. Tiffany stated she did not hear Mr. Powers state the public interest would be undermined by passing the amendment. She thought his concern was whether the amendment would be constitutional or not and she did not feel they were the same. She asked for clarification. Mr. Powers stated that was correct. His reference to the public interest applied to the second stage of A.B. 369. As passed and enacted by the Legislature and the Governor, A.B. 369 created a period from now to July 1, 2003, in which there was a flat prohibition on the sale of a generation asset with two limited exceptions. After July 1, 2003, an electric utility could sell its generation assets if the commission approved the sale after finding the sale was in the public interest. Essentially they could sell a generation asset if the sale was in the public interest. The reason the bill was structured that way was on the recommendation of the LCB that, as a constitutional matter, a two-year moratorium was much more constitutionally defensible than a moratorium that went beyond 2003, even if the moratorium beyond that date was not a flat moratorium. What the bill stated was a flat moratorium until 2003 and after that a traditional regulatory environment existed. The testimony so far from the “jilted buyers” stated that until July 1, 2003, the provisions of the amendment did not apply and there was a continuation of the flat prohibition. Beginning on July 1, 2003, for a period of five years the utility could not sell its generation assets unless it offered the “jilted buyers” the right of first refusal. The amendment was more restrictive than even A.B. 369.
Ms. Tiffany stated she now felt that 12-24 months after the moratorium, if the committee were to give the “jilted buyers” a consideration, that issue needed to be examined. She stated if the decision was to give them a consideration the PUC would make the decision if selling generation assets was in the best public interest. Mr. Lee again spoke for Dynergy and NRG Energy to state it was not their intent in any way to abnegate the revisions of A.B. 369, either with respect to the absolute prohibition for the first two years, or to change any public interest test, or any other requirement that must be met under A.B. 369 for the approval of the sale of those generating assets by the PUC. Mr. Lee commented to Ms. Tiffany that the five-year period they had proposed and her suggested three-year period was acceptable to them and the date would start from the passage of A.B. 661.
Mr. Powers stated if the period of three years was to begin July 1 of this year then essentially the restriction was for only one year after July 1, 2003, because the moratorium prohibited any of the activities before then. Mr. Powers also commented he did not believe the proponents of the amendment had effectively read A.B. 369. If the commission found the sale to be in the public interest and there was no right of first refusal, the utility was free to sell the generation asset to any party they desired. The proposed amendment had to change that period of time from July 1, 2003, in A.B. 369 because otherwise this proposed amendment did not serve any purpose.
Mr. Lee stated he respectfully disagreed. Under their proposal, for example, if the power company decided they wanted to sell Clark Station after the 2003 period and they started the RFP process and the process showed his companies were not the successful bidder, they would have the opportunity to match that bid. The bid that would be approved, whether they were the successful bidder or just had the right under the amendment to step into the place of the successful bidder, in no way changed the public interest test that must be met and approved by the PUC. He did not follow how the proposal changed A.B. 369 in terms of the public interest test that must be met by whomever the purchaser was.
Ms. Buckley stated part of the problem could be the Legislature was considering not only sales but also maintenance agreements. There was a mix of things in the proposal. If the public was to receive the same price for the sale of the power plant it would be in the public interest with no harm. What if the PUC did not know if the maintenance proposal was in the public interest and because everything was mixed into one it could be difficult to ascertain if it was in the public interest? She asked if the intent of the amendment was they would be subject to the public interest by the PUC. If the commission found a joint venture or a maintenance agreement in the year 2004 was not in the public interest they would have the right to reject the agreement. Mr. Lee stated that was correct, the PUC was the ultimate authority on approving any repowering or reengineering agreements whether they were the successful bidder or someone else was the purchaser. The PUC had the responsibility.
Kathleen Drakulich, Sierra Pacific Resources, Reno, stated currently the law had an absolute moratorium until 2003 and she asked if the amendment in reality extended that moratorium. That was not what it said; however, that seemed to be the result. Would “the company” have genuinely interested buyers for the plants, during whatever time frame the amendment implied, that would be willing to come to Nevada, make an earnest effort, invest the time and money associated with the deal, only to know at the end of the deal, when the best opportunity for the client had been secured, the “jilted buyer” would be able to step in and take that company’s deal? The amendment was, in effect, an extension of a total moratorium and she wondered if that was in the public’s interest. Would the best deals get away or not even come to Nevada with respect to the transactions described in the amendment knowing that the best deal could be negotiated and then it might not belong to them in the end?
Assemblyman Hettrick appreciated the comment and said it was commonly made when anyone discussed first right of refusal agreements because it was an obvious argument that those agreements negated or put a chilling effect on the would-be purchase. In this case, however, the purchase still had to meet the test of being in the public interest before it could be made. Secondly, if they had to match the bid, even if the bid was for selling the plant at the highest possible price, the “jilted buyers” would have to match the price or leave. The same situation would be involved in the maintenance of a plant; they would have to come up with the lowest bid. If they wanted the purchase they would have to match any price. He contended if the transactions were in the public interest then this issue was nothing more than commonplace business in all types of areas.
Ms. Drakulich stated the process Mr. Hettrick spoke about was, in fact, the way it would happen, but she believed the public interest determination by the PUC would only be delivered at a point when the utility had executed an agreement or had the final buyer in hand. All of the rights of first refusal, the proposals, the negotiating, and the ability of the “jilted buyer” to step in would all occur before the PUC looked at the deal. She wondered if they would ever get to that point with the best deal for the consumer in Nevada if those perspective buyers knew if after all negotiations the best deal might not be theirs. Would they get the largest amount of new bidders, largest amount of prospective purchasers if they knew the deal might not be theirs? She agreed with Mr. Hettrick’s description of the process; however, she was asking whether this amendment developed, addressed, and brought the best opportunity to the public if the “jilted buyers” could step through the door at the last minute and take the best opportunity off the table.
Mr. Hettrick stated if “the company” issued an RFP then the deal that was cut was not a deal but a bid, and if they chose to meet it and the PUC determined it qualified as serving in the public interest, then all that was done was the change in the responsible party and nothing else. They would have qualified for all the bid requirements, the price, and public interest. He did not see where there would be a negative impact. He asked what was the possibility of this provision reducing the opportunity for lawsuits because the state made some accommodation to the “jilted buyers” in this situation. He thought it might totally eliminate the possibility of a lawsuit because it would give them the opportunity to compete fairly and still have an opportunity. The provision did not bother him and made sense.
Ms. Drakulich stated she did not believe there could be legislation that could protect against pursuing an action in court. She agreed with the interpretation by Mr. Powers that it would be less constitutionally defensible because in theory and in de facto it extended the moratorium for as long as this proposal would apply to the sale of the plants.
Ms. Buckley asked if Ms. Drakulich could see any way specifically that the amendment could impede their ability to deal with the energy crisis. Ms. Drakulich stated if “the company” was not getting the best deal or maximizing the opportunity on the plant and they were able to sell it, the price they might get could reduce or diminish their financial position. She could not quantify that; however, she did not want to rule out the fact that it could impede their ability to deal with the crisis. She would like to provide that information to the committee in a more concise manner in a day or two.
David Lloyd, NRG Energy, Inc., San Diego, California, stated the Valmy plant was subject to a first right of refusal to Idaho Power Corporation and had been and would be for the life of the plant. That did not stop a number of bidders from having the opportunity to bid. He did not think their proposal would have a chilling effect. Under contracts they now had with the power companies for all the plants they were involved in they had the right to coordinate the right for fuel purchases and the future engineering decisions, and maintenance changes. In order to keep the plants owned by “the company” sellable it would be important for the buyer to be able to have some say in the transition. If a long-term contract were entered into with a third party to manage all of the fuel for the next 25 years that would be of great importance to someone that was intending to come to Nevada and stay long-term. That part of the proposal mirrored some of the obligations and responsibilities under their existing contracts with “the company.” The items were not meant to be a deterrent to get the best deal or the best opportunity for the state’s consumers.
Mr. Powers thanked the Chairman for emphasizing earlier that the position of the LCB was not to advocate or oppose any piece of legislation. The position was to advise the committee with objective constitutional advice when constitutional issues arose with legislation. His office advised both the Assembly and the Senate that A.B. 369 was at its most constitutionally defensible when the moratorium did not extend beyond July 1, 2003. Judging that first stage of the moratorium a court would look at the face of this legislation and any other legislation, including A.B. 369, to determine the overall statutory scheme with regard to divestiture of generation assets. Mr. Powers stated if the amendment was adopted and the court viewed it as restricting the ability of the utilities to sell their generation assets after July 1, 2003, that could undermine the first two years of the moratorium. The court would look at all legislation collectively and determine how far the moratorium extended in the future. If they found that this amendment extended it beyond that July date it would be more likely the court would look on the moratorium with constitutional suspicion.
Mr. Powers stated the LCB would reserve the right, if the committee adopted the amendment, to look into the issues as to whether this type of legislation would be considered “special” legislation that violated the Nevada Constitution or whether it violated the equal protection clause of the state or federal constitution.
Assemblywoman Smith questioned the period of three years as it looked like the committee was talking about transferring and permitting and she believed that meant the process had to be completed at that time. Mr. Lee stated he believed that was correct.
Chairman Bache stated it had been a while, but there was still a motion on the floor made by Ms. Von Tobel, seconded by Mr. Humke, and amended from five years to three years by Ms. Tiffany. He asked if there was any additional discussion on the motion.
Ms. Tiffany stated she was unclear as to when the three years would start. She was not comfortable with three years after 2003. If it was three years from the time A.B. 661 passed that three years might not be long enough because if the utility company did decide to sell the plants and they had to create an RFP and go out for bids, etc., one year after that period might not be long enough either. Chairman Bache asked Mr. Powers about the three-year period with the proposed amendment as amended from five to three years. Chairman Bache stated that, as he understood it, July 1, 2001, would be the starting date for the three years. Mr. Powers stated the proponents of the amendment needed to clarify when they anticipated the three- or five-year period to start. Mr. Lee stated, if he understood Ms. Tiffany’s amendment, she was not comfortable with the five years as provided in paragraph (c) on page 2 of the amendment and she suggested it should be a three-year period and that was what the committee adopted. His understanding was that the date would be three years from the date A.B. 661 was enacted. Assuming the act became effective upon passage or approval approximately July 1, 2001, the right of first refusal would be effective for three years from that date, or June 30, 2004.
Mr. Powers commented the LCB would be more comfortable if the amendment dealt only with (i) through (vi) on page 1. The troubling part of the amendment was paragraph (b). Paragraph (b) applied to any sale, lease, transfer, or disposition of a generation asset that touched on the provisions of A.B. 369. Subparagraphs (i) through (vi), did not deal with the type of wholesale transfer of interest that A.B. 369 was concerned with, but rather was more involved in different aspects of operation and control of a generation asset. It did not mean that the items did not raise the same issues concerning preferential treatment in creating “special” legislation or violating the equal protection clause or some other property right the utility might be able to ascertain under the takings clause or the contracts clause. However, the main trouble was paragraph (b)’s breadth and it touched on every transaction that A.B. 369 dealt with. The question was if they kept in paragraph (b) and the period began to run from the effective date of the bill, then there was the situation of repealing A.B. 369 or stating the provisions did not begin until after July 1, 2003.
MOTION CARRIED TO ADOPT THE AMENDMENT FROM THE “JILTED BUYERS.”
ASSEMBLYWOMAN BUCKLEY, ASSEMBLYWOMAN LESLIE, ASSEMBLYMAN NEIGHBORS, AND CHAIRMAN BACHE VOTED NO.
Chairman Bache indicated to the committee Assemblyman David Goldwater had asked if he could amend A.B. 349 into A.B. 661.
ASSEMBLYWOMAN BUCKLEY MOVED TO AMEND A.B. 349 INTO A.B. 661.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
MOTION CARRIED.
ASSEMBLYWOMAN VON TOBEL, ASSEMBLYWOMAN TIFFANY, ASSEMBLYMAN HETTRICK, AND ASSEMBLYMAN HUMKE VOTED NO.
Assemblywoman Tiffany presented an amendment (Exhibit I) that would be contained in the renewable energy section of the bill. She wanted to include conservation of energy as well as regeneration naturally. She also wanted to add cogeneration facilities onto the list of renewables. She believed conservation fit into the regeneration. The primary reason for a cogeneration plant to exist was because the industrial facility next to the cogeneration used the heat produced and the by-product was the electric energy produced. Cogeneration was the cleanest, most efficient, cost-effective method of energy and met the standards for conservation of any of the plants currently in use. The Federal Powers Act included in the exhibit showed how cogeneration qualified for renewable energy. If the renewable portfolio of a company was to have 15 percent of its power come from renewable energy, the cogeneration plants could be another benefit in order to meet the qualifications.
ASSEMBLYWOMAN TIFFANY MOVED TO ADOPT THE COGENERATION AMENDMENT.
ASSEMBLYMAN HUMKE SECONDED THE MOTION.
Chairman Bache stated he was not clear what the purpose of the amendment was and also what was the source of energy for the cogeneration facilities. Ms. Tiffany stated the reason for the amendment was the reason the cogeneration plant existed and that was to produce the heat for a facility such as a manufacturing plant. There were two or three plants in southern Nevada currently and she felt the expansion of cogeneration should be encouraged because of the conservation and effectiveness related to industry. It was a fossil fuel to begin with; however, the reason for the expansion would be to use the heat primarily. Once the electricity was the by-product there would be more fuel to sell on the grid. The benefit of the amendment would be an incentive for expansion of that type of a fuel. The benefits of cogeneration would be conservation, adding more energy to the grid, and helping meet the 15 percent portfolio requirement in ten years.
Assemblyman Dini stated he was a strong supporter of cogeneration and he believed every state building and prison built should have cogeneration facilities. He did not believe that this bill was the right place to put the amendment. He could not substantiate that cogeneration was a renewable energy. Chairman Bache concurred with Mr. Dini that, while the concept of encouraging cogeneration was a good one, he did not believe it belonged in the renewable section of the bill.
Ms. Tiffany stated it was true if only the fossil fuel part of it was examined; however, that was the major reason for even building the plants, it was for the heat, and that was why she felt it should fit under the renewable energy portion of the bill.
MOTION FAILED FOR LACK OF A MAJORITY.
ASSEMBLYWOMAN BUCKLEY, ASSEMBLYWOMAN SMITH, ASSEMBLYWOMAN LESLIE, CHAIRMAN BACHE, AND ASSEMBLYMAN DINI VOTED NO.
Chairman Bache called Mr. Neighbors to the witness table. Mr. Neighbors’ opening statement was in regard to the bill he sponsored, A.B. 373.
ASSEMBLYMAN NEIGHBORS MOVED TO AMEND A.B. 373, REFERRED TO AS “COMMUNITY CHOICE,” INTO A.B. 661.
Mr. Neighbors stated the “community choice,” A.B. 373, and the “repower Nevada” proposals were compatible. Together the amendments addressed the Chairman’s goals: first, provide a reliable supply of electricity; second, help all Nevadans with their electric bills, especially the low-income citizens; third, provide new generation for Nevada. The critical aspect of this amendment (Exhibit J) was it would provide all Nevadans and businesses the opportunity to benefit from the purchase of new electric resources. Since this amendment applied to all Nevadans and businesses, it would not violate the Nevada Constitution provision against “special” legislation or “special” acts. He stated it was very important to place this amendment into state law. A recent report by a national publication stated energy bills often consumed at least 10 percent of an average family’s income and up to 50 percent of a lower income household’s take-home pay. He was aware the members of the committee were concerned about the financial well-being of Nevada’s principal industries as well as the average Nevadan, the low-income citizens, and Nevada’s small businesses. Mr. Neighbors stated this amendment made sure Nevada’s large and small electric customers had an opportunity to save money on their electric bills. He referred to an article (Exhibit K) submitted to the committee that illustrated how well the “community choice” program was working in a county in Ohio.
ASSEMBLYWOMAN BUCKLEY SECONDED THE MOTION.
Assemblyman Hettrick appreciated the intent of aggregation because he had been one of the major proponents during the last two legislative sessions when deregulation was discussed. He believed in aggregation; however, he felt it required a deregulated structure and that was not the current status. He commented to move into aggregation in the fashion suggested was not going to work very well. While a strong supporter of aggregation, ultimately he did not feel it fit into the current environment.
Assemblyman Neighbors commented he did not know how there could be a more democratic process where each county would ask for a vote of the people to “opt in” or “opt out.” He asked that this not be compared in any way to the disaster in California. The amendment before the committee was almost identical to the one that had been so successful in Ohio. A majority vote of the people would rule; however, even the minority that opposed the choice could still “opt out.” He felt this was an important amendment for the citizens of Nevada.
Assemblywoman Buckley stated it would probably make more sense to vote on the “Repower Nevada” amendment first and then this amendment second. The amendment was being presented in a vacuum because there was no deregulation language in the statutes currently. Because of that fact it did not make sense to allow municipal aggregation if there was not any deregulation. Assuming the committee was going to consider an experiment in the next amendment she believed Assemblyman Neighbors properly raised the issue of “if it’s good for one, shouldn’t it be good for all?” The conclusions she had developed with regard to deregulation was that it should not be rushed and if the state was going to consider deregulation they should not do it wrong. That was what California taught Nevada. She indicated the committee had heard a proposal to consider an experiment to let a certain amount of load off of the system thereby reducing everyone’s prices and increasing reliability in the system. She stated those were two worthy goals. If the state was going to try and achieve those goals, she believed the state should try to achieve them for everyone—special large users, municipalities, and residential customers—through carefully defined pilot projects to ascertain if the program worked. For those reasons she had seconded Assemblyman Neighbors’ proposals. If the state went forward she felt it should consider a pilot program for aggregation so that everyone could benefit.
Mr. Hettrick apologized to the committee because he had been in other committee meetings and had missed some of the amendments addressed. He was aware of the proposal to have a pilot aggregation project and the only problem he could foresee was the amount of load they were willing to take off the system was so low that he did not believe anyone would come to serve that load. How could anyone build a transmission line, power plant, or gas line to Nevada to serve that load? He did not see how there could be a pilot aggregation study to analyze the performance on such a short-term basis. He still had a problem with the amendment moving toward that type of aggregation. There was nothing in the law that specified who would be the provider of last resort in case people decided to aggregate and moved off the system. There was no load and no metering rules, and nothing in the law that regulated aggregation. He emphasized he was a proponent of aggregation; however, it was not in the law anymore. He did not know how the state could move forward. Assemblyman Neighbors responded the effective date of aggregation would be 2003.
MOTION FAILED TO OBTAIN A MAJORITY.
Harvey Whittemore, Representative, Nevada Resort Association, Reno, Nevada, had provided documents to the committee: “Repower Nevada” amendment (Exhibit L), “A.B. 661 Conceptual Changes to ‘Repower Nevada’ Proposal” (Exhibit M), and the “Small Customer Alternatives: Share the Benefits” proposal (Exhibit N). With the committee’s indulgence he wanted to provide a little historical perspective with respect to why they were proposing the modifications to their original proposed amendment that was provided on May 8, 2001. As the Chairman requested they had met with various members of the committee and tried to instill their comments into a conceptual proposal that he would like to outline. Mr. Whittemore stated it was clear in discussing the matter, both at the committee level and individually, that it made sense the rules that were applicable to Sierra Pacific Power would be different than the rules for Nevada Power Company. The mining industry’s issues were much different than the gaming industry’s perspectives and as a result of the discussions he had with a number of participants that the leadership and the Chairman had asked they talk to, it was clear they needed to modify their proposal to provide two separate sets of circumstances.
Mr. Whittemore indicated the first was to provide a set of rules that would be applicable to the large users in Sierra Pacific Power’s energy market. Those rules that would apply to the mining industry were contained in the “Repower Nevada” proposal and would not need further modification. However, with respect to the rules that would apply to the large users in southern Nevada within Nevada Power Company’s energy market, it was felt there needed to be further modification. The “Small Customer Alternatives” (Exhibit N) was a program whereupon the large customers leaving would donate to the small customers a direct benefit. It was an innovative program that would require the large users to contract for 10 percent more of the power than they would use. The large users would give that power to the utility for the benefit of the remaining small customers. In addition, that power would not be available to other eligible customers, i.e., those large customers that used one-megawatt or higher. What the program would do would be to deliver not only the promise they would “do no harm” by leaving the system but would, in fact, deliver a tangible benefit to those customers that remained on the grid. The “share the benefit” program was outlined in the exhibit and offered a 10 percent contract to Nevada Power Company for delivery to the remaining customers if the PUC felt it was in the public interest with respect to the delivery, the pricing components, and prudency. The benefit would be specifically assigned to the smallest residential customers that needed the lowest cost power the most. He believed the proposal would produce tangible results.
In addition, to ensure that no one large user was able to acquire all of their power needs to the exclusion of other eligible customers, the proposal suggested a limitation on the amount of power those large customers in Nevada Power Company’s market area could acquire for their own behalf to 80 percent of what their power requirements would be. Item 4 in Exhibit M indicated there needed to be a change in the definition of new resource and he asked that the committee delete that from its deliberation. He had been advised by the SNWA they did not need Item 4. The total amount of power that could be used under this program and concept would be 50 percent of the difference between the existing native supply and existing native demand. For large customers in the Nevada Power service area the effective date for leaving the utility would be after June 1, 2002.
Assemblyman Dini commented in the second paragraph of the “Share the Benefits” proposal (Exhibit N) there was mention of Nevada Power Company and he wondered why there was no mention of the parent company, Sierra Pacific Resources. Mr. Whittemore replied the rules on the “Share the Benefits” amendments would apply only to Nevada Power Company’s service area and not to Sierra Pacific Power’s territory.
Assemblywoman Leslie asked Mr. Whittemore about the “Small Customer Alternatives” (Exhibit N) and wondered how many people would be affected by the 10 percent giveback. Mr. Whittemore stated in calculating the difference between the existing native supply and the existing native demand and using the 4800 megawatts demand with the 2700 megawatts supply there would be approximately 2100 megawatts that would not be met. Then the calculation would be 50 percent of the difference, or 1100 megawatts. If the 10 percent were fully allocated at that point there would be 110 megawatts made available and that equaled a 33,000- to 35,000-person benefit in southern Nevada that would receive the lower cost power. Ms. Leslie asked if the benefit would last as long as the contract lasted and then the customers would return to the higher priced power. Mr. Whittemore stated that was correct and the term and timing of the contract would be that which the departing customer would acquire. The benefit would be coextensive with the benefits the large users negotiated, so if they negotiated a five-year contract and the PUC felt it was appropriate, then the benefits would accrue to the small residential customers for at least five years. Mr. Whittemore stated with the program being established, whether a pilot program or a phase-in program, the program would clearly help to articulate the difference in power supply over a period of time and as more demand was created for this type of power, the average cost would go down and the small residential customers would receive the benefits for a longer period of time regardless of the contracts.
Tim Crowley, Community Relations/Issues Manager, Nevada Mining Association, Reno, stated their proposal “Repower Nevada” was not only in the mining industries’ best interest but also in the interest of all Nevadans. Mr. Crowley read from Exhibit O to state, “arguably the energy problems the state was facing stemmed from a lack of supply.” The mining association had joined with the Clark County School District, the University System, the utilities, and the gaming industry to develop a sound proposal that would allow their capital to be utilized to bring new energy supplies to Nevada and help solve its energy problems. The Legislature had recognized the instability of today’s energy prices and passed A.B. 369 that halted deregulation. The Legislature knew, he stated, that Nevada was not in the position for full-scale deregulation to work yet. Their proposal helped to stabilize energy prices by encouraging the development of new energy resources. The mining industry hoped to benefit from the ability to leave the system and they wanted to be able to build new power plants. The practical benefit to mining was that with this proposal they would be able to lock in long-term energy contracts. He stressed that the PUC would give significant scrutiny before a large customer could leave the system. He summarized “Repower Nevada” was good, sound policy that included an essential step toward stabilizing Nevada’s energy prices and was a benefit to all Nevadans and he urged the committee’s support.
Rose McKinney-James, Representative, Clark County School District, Las Vegas, stated she had an opportunity to review in concept the provisions that were now set forth in the amendment “Repower Nevada.” She promised to return to the committee once she had read the amendment to offer her observations. Now that she had seen the amendment and had the opportunity to share it with their building and facilities’ employees at the school district, she still strongly supported the concept and now supported the amendment. It was important to note the school district was facing the challenge of funding that included extremely high utility bills and part of what they needed to do was to be able to plan. They could not be assured of the fact their rates would decrease after the amendment became law; however, they would have a known quantity. She was comfortable with the PUC having oversight and intervention mandates as set forth in the amendment. She was also pleased that there would be an opportunity for others to share in the arrangement through the “Share the Benefits” program.
Assemblywoman Smith wanted to clarify that the Clark County School District would be qualified as a large user and not an aggregated user. Ms. McKinney-James stated that was correct, they would be considered a large user.
Ms. Buckley asked if there would be any benefit to limiting the amount of power that could be purchased by large users to a certain level in the portfolio as Mr. Higgins, the CEO of Sierra Pacific Resources, had described in his testimony. He had stated at some point there was no longer any benefit to allowing more load off the system. Mr. Whittemore stated the answer was affirmative and that was why they had proposed the limit at the beginning, at least for the initial two-year program, to 50 percent of the difference between the existing native supply and the existing native demand. Within that first two years the utility would never get over that point where Mr. Higgins had suggested there might be a problem for the remaining customers. The clarification was in Item 5 in their proposal (Exhibit L).
Ms. Buckley stated her biggest question in regard to the proposal was if, in fact, the premise was used that allowing a certain amount of load off the system made sense and “the company” would not have to pay large sums to purchase power and could pass those savings on to the customers and it could lower prices for everyone on the system, why did it not make sense to allow, as a pilot program, a small aggregation of residential customers so they could receive the same benefits that he sought for his clients.
Mr. Whittemore stated he did not think she would find an argument as to the economic effect of allowing an aggregation program. He believed an aggregation program would have the same economic effect. The only problem that had been raised, with respect to whether the aggregation program would be appropriate, would be the size of the program or the timing so the rules could be formulated and adopted. When A.B. 366 of the Sixty-Ninth Session and S.B. 438 of the Seventieth Session were passed, it took approximately five years to develop the rules that applied to different components of providing a variety of services to an aggregated customer. The components included the energy, the billing, and the metering systems. There was no distinction in many of the pilot programs talked about with aggregation as to limiting it to energy only. If it was just an energy component he believed the concerns would be lessened. Mr. Hettrick had discussed the other concerns with respect to billing, metering and other ancillary services. Mr. Whittemore stated there could be a very small program for a pilot program. On a macro-economic level, the committee could not differentiate between the one-megawatt customers being reduced from the load versus a one-megawatt demand reduced from the small aggregated customers of the utility. Those loads were different in respect to the time and use meters that the large customers presently had versus those that would need to be made available for the smaller customers. The characteristics of the two types of load were much different as well. The issue of whether the state should move toward aggregation or adoption of a pilot program would be best handled by the Consumer Advocate adopting rules or suggesting rules or being in charge of a very small pilot program and providing some incentives to allow energy providers to come in and supply the pilot program knowing they would receive additional benefits in future years. He indicated there needed to be concerns in terms of the size of the pilot program and how the state would implement the program with appropriate regulatory control.
Ms. Buckley asked about the section of the amendment that defined new electric resource and wondered if it would include any resource that was not under contract with the utility. It did not have to be a new power plant that was built. Mr. Whittemore clarified the definition was contained in Section 8 of the “Repower Nevada” amendment. It would be energy capacity or ancillary service in any increased or additional energy capacity or ancillary service made available from a generation asset that was not owned or was not subject to contractual commitments and could be delivered. It would not necessarily have to be out of state, as long as the energy was not subject to a contract.
Ms. Buckley complimented Mr. Whittemore on the “Share the Benefits” amendment because she believed it to be creative and really showed a benefit to the residential customers. To clarify how the program would work she asked how the PUC would calculate whether the 10 percent was in the public interest. Mr. Whittemore responded there would be factors that would be fairly obvious, including pricing. If, in fact, a large user could show that the pricing for the first three years of a contact was below the average cost the utility was presently paying, it would be an obvious determination. In addition, it might be shown, if the pricing was the same but the commitment was for a longer period that extended out beyond the portfolio mix of the utility, the PUC could determine an average and possibly state that the average cost would be lower over the long-term. Anything that approached the average cost or was below the spot price would seem to be something that would suggest a net benefit to the system. There would potentially be conditions that might differentiate the contract and the PUC could state it would not be good for a particular group of customers. For instance, the power might only be able to be delivered between midnight and 6:00 a.m. That would not necessarily help residential customers. Gaming clients had load 24 hours a day, 365 days a year, and if the load was particular to the mentioned time, the delivery of that particular energy probably would not help the small customers. Ms. Buckley asked if the sophisticated customer would make that determination before the purchase to know if the additional 10 percent would be in the public interest. Or, she asked, would the large customers just purchase power and then make the calculations to see if it helped the smaller customers or not. She asked if it did not would the additional 10 percent then be available to the large users. Mr. Whittemore stated that was correct and it would be released back to the large users. If the users contracted for a particular load, for example 100 megawatts and 10 percent was made available, the PUC approved its delivery for the benefit of the small residential customers, and then the large user would end up with 90 megawatts. It was not a risk to the seller or the ultimate user, it was simply a give or take to the small consumers. If the PUC considered it to be in their best interest they would allocate that 10 percent to the utility.
ASSEMBLYMAN DINI MOVED TO ADOPT THE “REPOWER NEVADA” AMENDMENT WITH THE CONCEPTUAL CHANGES MINUS PARAGRAPH 4 AND WITH THE “SHARE THE BENEFITS” PROGRAM.
ASSEMBLYMAN HUMKE SECONDED THE MOTION.
Ms. Buckley stated she could not support the amendment. There was no greater issue, she felt, than the energy crisis and as stated earlier, she thought that if they had learned anything from the experience of California it was to move slowly. She stated either deregulation worked and it would lower prices, in which case the Legislature should approve it, not just for large users but also for the everyday residential consumer and small business in Nevada that would be facing huge price increases. If deregulation worked it should work for them and should not just work for a few people.
Assemblyman Dini respected Ms. Buckley’s position; however, by the time this amendment was put into effect the next legislative session would be in and the Legislature could monitor it and also see what happened in California during that time. He believed this was just the beginning of a new era in the power issues and the state needed to move carefully. This was the first step and it would ensure the state could continue their economic development efforts. Without this amendment the state would have many problems trying to bring new industry into Nevada. He believed the amendment would help the consumer by stabilizing the price during the next two years and at the end the state could solve its own problems with the help of this amendment.
Chairman Bache stated the one section in the amendment he felt was important was the fact that governmental entities could leave the system and provide a benefit to the taxpayers and ultimately the entire state of Nevada. Ms. Buckley asked whether, if the state was going to experiment with deregulation, they could allow the CRC to purchase power at lower prices for governments. If the state would allow large users to go off the system, perhaps the Legislature should consider making it equal for government and private enterprises.
Assemblyman Hettrick disagreed this proposal was experimentation with deregulation because what the committee was considering was reducing load without changing billing methods to users other than a small number, increasing supply, and possibly reducing cost to all the people on the balance of the load. He stated he did not believe that program fell into the deregulation category, as did some of the other proposals they had examined.
ASSEMBLYWOMAN BUCKLEY MOVED TO AMEND THE PROPOSAL TO ALLOW THE EXPERIMENT OF REDUCING LOAD FOR THE COLORADO RIVER COMMISSION (CRC).
ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.
Chairman Bache asked for discussion on the amendment to the amendment and there was none.
MOTION FAILED TO OBTAIN A MAJORITY.
Chairman Bache stated the committee was now discussing the main motion once again and asked for a vote on the “Repower Nevada” amendment and the “Share the Benefits” amendment.
MOTION CARRIED.
ASSEMBLYWOMAN LESLIE, ASSEMBLYWOMAN BUCKLEY, AND ASSEMBLYMAN PARKS VOTED NO.
Chairman Bache stated the committee would now look at Mr. Graves' amendment (Exhibit G) for consideration.
ASSEMBLYMAN DINI MOVED TO ACCEPT MR. GRAVES’ AMENDMENT.
ASSEMBLYMAN HETTRICK SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
Chairman Bache asked David Ziegler, Committee Research Analyst, if there were any other amendments the committee had to consider. Assemblyman Dini asked if the committee could discuss Section 100 of A.B. 661. Chairman Bache asked Mr. Powers if that section was still in the bill. Mr. Powers stated the section was deleted in the amendment draft from the LCB. Mr. Ziegler stated there were some amendments proposed by Mr. Hay. The Chairman stated the first proposal (Exhibit P) suggested a 10 percent general rate reduction to be transferred to the deferred account. The proposal did not reduce the cash flow of the utilities and would reduce the rate shock occasioned by the first deferred rate case under the new statute.
Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, Carson City, commented the amendment included the accounting backup and he wanted to run through the analysis for the committee. His office was proposing 10 percent of the utilities’ revenues currently collected in general rates were to be transferred into the deferred energy accounting mechanism created by earlier legislative action. He was suggesting the appropriate amount to transfer was approximately $81 million.
The PUC found in docket number 99-4001 that for Sierra Pacific Power Company there were excess earnings in the general rates of approximately $34 million occurring. In companion docket 99-4005 they found excess revenues for Nevada Power Company of approximately $14 million were occurring. Those rates were not adjusted because of the rate capping mechanism that was in place at the time. Between those two decisions there was approximately a $48 million balance. His office had added to that number depreciation expenses that were not incurred in those dockets of about $17 million. There were additional merger savings “the company” indicated had occurred of approximately $32 million. That provided a total excess amount of revenue in general rates of about $97 million. To be conservative they were proposing only $81 million be shifted from general rates to the deferred accounting mechanism. If this were enacted it would allow the balance in the deferred account, which needed to be cleared under the provisions of earlier legislative enactments next year, to be reduced and to prohibit or prevent the utility from over-earning in general rates during that period of time. As he had indicated in the proposed amendment this money was cash flow neutral to the utility. They would receive every dollar under their proposal that they would receive under the rate structure the Legislature had ratified under the global settlement as well as the Comprehensive Energy Plan (CEP) filing. Mr. Hay stated what his office was merely doing was shifting excess earning in the general rate category to the deferred account so the rate adjustment that would occur next year, when the deferred case was decided, would be a lower amount than it would be normally. He wanted to prevent the inequitable situation where there was a utility that raised rates at one point but actually earned above its allowed rate of return in the general rates.
Assemblyman Dini asked Mr. Hay if this proposal in any way weakened the position of the utility on Wall Street or with the lending institutions. He was worried because the utility had gone through a rough period and had lost $80 million in a short period of time. He would not want to support this amendment if it indicated they were in a weakened position. He wanted them to look strong and be able to finance properly and be able to go forward.
Mr. Hay responded that his office believed the proposal would not have such an impact. As he had indicated, they were moving revenue from one category to another. “The company” in various financial forms had indicated they were doing well in all categories other than their fuel and purchase power expenditures. He stated this proposal would actually strengthen or reduce the amount that potentially would have to be financed over a long period of time to accommodate those increased fuel and power costs. That point was emphasized in the previous week when “the company” had a conference call on the first quarter reports.
Douglas R. Ponn, Vice President, Governmental and Regulatory Affairs, Nevada Power and Sierra Pacific Power, Las Vegas, responded to Speaker Dini’s previous question and added his question was exactly the right one to ask in this case. Earlier in the week the securities of the holding company had been downgraded and that day Standard and Poor’s (S&P) had downgraded the utility companies’ debt to one “click” above or at the very bottom investment grade debt. He believed it signaled to Wall Street there would be some type of renegotiation of how the rates went forward, were set, and were reviewed. The reset that was in A.B. 369 was not the type of signal that should be sent right now. Additionally, whenever “the company” reached an agreement with the parties, including Mr. Hay, in regard to the ratemaking provisions they could support in A.B. 369, the issues should have been discussed at that time. It was not the agreement that specified the April 1 rates going forward and he was concerned about the effect on “the company.” He believed Speaker Dini was correct and it would be the wrong signal to send.
Assemblyman Humke posed a question to Mr. Soderberg, Chairman of the Public Utilities Commission in Nevada, and asked if the amendment substituted the judgment of the PUC and allowed the Legislature to enter the ratemaking ability of “the company” into law. He stated the action would not seem appropriate to him. Mr. Soderberg stated in a sense that was his thought. This whole topic was one that had been quite controversial for a great deal of time. There was the big picture where the fuel and purchase power costs to “the company” had spiraled. There was the other category on the rate of return where he thought the regulatory community believed, since there had not been a rate case in a long time, “the company” could be over-earning. That number was a small number in comparison to the very ugly issue of, if capacity was somehow hidden in a fuel and purchase power agreement and was also being recouped, was there double recovery. Every deferred energy case they had since the mid to early 90s had to deal with that issue. He believed Mr. Hay was correct in that they needed to make sure when they processed the cases there was an exact number so that “the company” did not over-earn. He had not looked at Mr. Hay’s estimates and his feelings were that any provisions the Legislature could put in the bill to ensure that “the company” did not over-earn would help them to fine-tune the cases they would be handling in the next year. He was worried that 10 percent might be too much or too little at this point. If the number was locked-in Mr. Hay could be limited in asking for a greater amount because there would be better data when the cases were heard and “the company” would be locked-in as well. He would have a greater comfort level with a statutory amendment that gave them the guidance to do what was necessary without locking in 10 percent because there was not enough information or data to assess at this time.
Chairman Bache asked if as part of the rate hearing the PUC would receive the information as to whether or not “the company” was over-earning. Mr. Soderberg stated that was correct and to what degree they were over- or under-earning. Mr. Bache stated then, based on whether or not they were over-earning or under-earning, the PUC would adjust the rates appropriately. Mr. Soderberg stated that was correct, there would be the adjustment for the rate of return case going forward to estimate so “the company” would not over-earn. Any amount they found that had been over-earned in the past would need a mechanism to put that into deferred energy and it was not completely clear they could do that today. It was a very complicated topic, Mr. Soderberg explained.
Ms. Buckley asked, since everyone was very concerned about the rate shock that their constituents were experiencing, whether Mr. Soderberg could state if there was any way to be sure that they were not doing harm by stating it should be 5 percent now and then true it up later during the rate case. If the regulatory body was agreeing with the Consumer Advocate there were over-earnings she hated to wait for a year.
Mr. Soderberg stated what Mr. Hay had proposed was essentially a true up; however, he had chosen the number that the true up would be. That would not take effect until the four cases were done that were mandated in A.B. 369: the two rate of return cases and the two deferred energy cases. At that point there needed to be a true up and he believed that was part of the logic of running the cases in parallel. He believed Mr. Hay was correct in that it was not clear that they could go back in time and make up for some of the over-earning that might have occurred in the past. It could be advantageous to give Mr. Hay the ability to argue the number, whether it was $81 million or $100 million. The misunderstanding was what the provision suggested would create a true up today or some factor today that would be trued up later and what was evident was that it would happen later in any event.
Mr. Hay stated their concept was the $81 million estimate was founded on appropriate prior commission decisions, financial data from ”the company,” and was a reasonable estimate. Their actual number was closer to $100 million and they had scaled it back to the 10 percent. It would be trued up when the general rate cases were decided next year. His point was to not allow either the deferred balance to get larger than necessary to be recovered over an extensive period after those cases were decided next year, and to prevent what he believed was inherently inequitable that “the company” was likely over-earning in general rates. Mr. Hay stated they needed legislative direction to charge the deferred account through the amendment so the ratepayers would at least be offered the prospect they had corrected a situation that should be remedied. His position was this issue should be remedied sooner rather than later. Obviously, as he had indicated, the rates that were negotiated and approved by the Legislature remained in effect and that was essentially an accounting mechanism to ensure the collections were dealt with appropriately. He felt that the fact the Legislature had endorsed the rates from the global settlement as well as the rates in the CEP filing made this an appropriate concession for “the company” to make to protect the ratepayers on a going forward basis.
Assemblyman Dini asked how “the company” could be over-earning when they were losing money. Mr. Hay stated they were speaking about over-earning in the general rates. The utility bills were comprised of an energy component and a general rate component. The general rate was used to cover the administrative functions of the utility. He had noted in the first quarter earnings report there was a $24 million loss at the operating utilities. The remainder of the loss was at the holding company level. Mr. Hay stated if “the company” was not over-earning in general rates, which they were not allowed to do by law, perhaps those losses would have been greater. The action the Legislature had taken to approve the higher rates currently in effect and the rates that would go into effect when the deferred case was decided next spring, had done what “the company” came to the Legislature to ask for—to restore “the company” to financial stability. It was conceivable if they continued to under recover in the fuel and purchase power practices he believed the deferred balance could approach $900 million. Those amounts would be the ones recovered under the deferred mechanism. “The company” could treat that amount as a regulatory asset and borrow against it. That in itself, however, should not justify over-earning in the general rates for another full year.
Mr. Ponn wished to respond to Mr. Dini’s question. He stated Mr. Dini had asked the right question and he emphatically stated “the company” was not over-earning. What was being used was regulatory parlance that his company set general rates as opposed to rates for their fuel and purchase power costs. It was true that because of the cost cutting measures of “the company” and the efficiencies that had been instituted and the reductions in expenses, they expected when they attended rate making proceedings in the future those efficiencies would be reflected. Perhaps, depending upon the commission’s full review of those costs, there could be a reduction in those rates. He emphasized in no sense of the word was “the company” over-earning. As they had told the Legislature, “the company” had experienced severe losses last year. He believed the basic unfairness of the proposal was it was not the agreement that was made among the parties and it would put some portion of those costs they were incurring into a different recovery mechanism and risk profile than where they were when A.B. 369 was passed. “The company” had supported what rates would be and how they would be adjusted in the future and now there was a change in that agreement.
Assemblywoman Buckley asked for clarification from the commissioner and Mr. Hay. She thought they were discussing if “the company” was over-earning just in the general rate category and if the amendment was not passed the state could not go back and pass on to the ratepayer any of that over-earning. Mr. Soderberg stated he would not go that far, but he thought the issue was cloudy and he would like direction from the Legislature. Ms. Buckley stated the Legislature did not want the utility not to recover its fuel and purchase power costs because that was what had happened in California and it was a recipe for disaster. She asked if they could still recover those costs because those were not affected. She stated the amendment could clarify if there was any over- earning when the true up was done and the ratepayer received the benefit. Mr. Hay stated that was their intent.
Assemblyman Dini stated the whole account would true up anyway when deferred accounting was implemented. Mr. Hay stated it was their intention that it was trued up in the general rate case and the deferred case was to be decided next spring. What the proposed amendment did was get the accounting mechanism right on the front end so the revenues they believed were being over-earned in general rates would go toward fuel and purchase power costs for the utilities actually experiencing financial difficulties. Mr. Dini asked where it would go otherwise. Mr. Hay stated it remained in general rates and, as the Chairman indicated, the issue was cloudy. Mr. Ponn stated anything that ultimately, regardless of the mechanism, put cost recovery at risk or ended up lowering the amount of costs that were recovered, would have financial impacts. If the ultimate intent of this amendment was to somehow decrease the probability of cost recovery then it had those financial implications.
Assemblywoman Buckley commented the amendment was not retroactively changing the rate of return. All the amendment stated was if “the company” was over-earning there should be a right of the ratepayer to recover and “the company” should have the right to recover all of their fuel and purchase power costs in the deferred energy. She stated they wanted to make it clear that if “the company” was over-earning and they were not entitled to be over-earning the consumer would get a credit. Mr. Ponn stated he believed there was a difference in this amendment. It was asking “the company” to transfer approximately $80 million into the deferred account now and going forward, which in his mind could create an additional risk for recovery of what would have been the balance in the deferred account. If “the company” was losing money and under-earning that problem could be exacerbated.
Assemblywoman Smith stated she thought there could be some middle ground. She felt the amendment could accomplish what was wanted without defining the 10 percent. Mr. Hay stated their analysis was premised on a fairly conservative estimate that the 10 percent was the right number. They had not engaged in any discussions with “the company” on the matter but in any event, if it was trued up during the rate cases that were to be decided in the spring, “the company” was held harmless. He believed in such matters the state should err on the side of equity to the ratepayers since “the company” now had received two exceptionally large rate hikes without regulatory review that had been blessed by unprecedented legislative action. He stated they could certainly engage in discussions with “the company” if they were willing to participate; however, he believed the number they had estimated was very close to the appropriate number. It was up to the Legislature to give his office and the commission direction on the issue or not.
Mr. Ponn stated he had not seen the papers Mr. Hay had provided to the committee. Mr. Bache stated they were provided to the committee last week and Mr. Ponn stated they were new and he had not viewed them.
Assemblyman Hettrick stated in the end if “the company” was over-earning and the deferred energy true up was done and the PUC found in the rate filing they had been over-earning, the over-earning would be credited back to the deferred energy account and the ratepayer would receive the money. Mr. Hay stated the intent of his amendment was to have assurance the accounting for the over-earning was appropriate in the sense that those monies he believed were being over-earned be currently credited to the deferred energy account. The deferred energy account was where “the company” had stated repeatedly they were experiencing financial difficulties. He did not want to get into the details of what the commission or what his office could do without legislative direction because it put the Chairman in an inappropriate spot in case the Legislature did not act and his office chose to file something with the commission. Mr. Soderberg would be involved in deciding that matter.
Mr. Hettrick stated the commission was bound by the very tenets of deferred energy to true it up and take everything into account to do so. They would have to account for any over-earning if it existed and all that was being discussed was when it would be done. The only difference was if the Legislature would put it in law first and state there was a good chance they were over-earning, but might not be, or state it does not matter whether they were over-earning or not, the commission would true it up later. Either way the accounts would be trued up later. Mr. Hettrick stated he did not see why they had to look at this amendment now and he did not believe it helped “the company” to print something that the Legislature stated we think “the company” may be over-earning at a time when they were losing $89 million and being devalued in the marketplace. He did not think that would help “the company” or the ratepayer. He reiterated why should they do it now when ultimately it would be trued up. He did not support the amendment.
Mr. Hay wanted to reiterate that this amendment did not reduce any dollars “the company” would receive over the next year. They would be held harmless and the rates that had been legislatively imposed would remain in place. That was an accounting mechanism to ensure that ratepayers were not paying the bill for over-earnings in the amount of $81 million while their rates for fuel and purchase power were skyrocketing and would go up substantially next year. It did not reduce any revenue to “the company” and he did not believe it impaired “the company’s” ability to assure the financial community they, through legislative action and a return to deferred energy accounting, had been placed on a sound financial footing.
Mr. Ponn commented when “the company” supported the ratemaking provisions in A.B. 369 what they presumed the law said and what he believed the law said was “the company” would set the rates at the April 1 level, go forward, file general rate cases and deferred energy cases on a calendar that made the changes in rates synchronize between all the components of rates at one time. That was “the company’s” expectation and to insert what would have been the normal regulatory processing of those cases with legislative intervention was not something that looked or felt good.
Chairman Bache spoke to Mr. Soderberg and stated he had a problem with the proposed amendment in regard to declaring that amount of money be moved to the deferred account. The Chairman stated Mr. Soderberg had indicated that he needed some language to clarify his authority to do whatever was necessary in the area when he heard the rate case. Mr. Soderberg stated that was correct. Chairman Bache asked what exactly did Mr. Soderberg need in language for the clarification. There was a problem with the statement of 10 percent and he felt the committee should give Mr. Soderberg the authority that he needed so he could proceed in the hearings. Mr. Soderberg stated in A.B. 369 the Legislature had mandated that before the rate cases were started a rule making procedure would be implemented to refine the rules by which they processed the cases. He stated statutory language that directed the commission in that process to develop an accounting mechanism to true up any over-earning by the utility during the period of deferred accounting and credit it to the deferred accounting balance would make it clear that “the company” was not supposed to over-earn backwards or forward and the commission would instigate rules to capture it. He understood that Mr. Hay’s office had already done some work on an accounting mechanism and he believed they were close to having it completed.
Chairman Bache asked Mr. Powers if he understood what Mr. Soderberg had stated as far as possible language on this issue. Mr. Powers stated essentially he did get the idea of what he wanted.
Mr. Powers wanted to comment further in regard to what Mr. Soderberg had requested. Mr. Soderberg wanted statutory authorization for retroactive ratemaking. That was a concept that was not generally in the law because rates were generally done on a perspective basis. Mr. Powers stated the rule against retroactive ratemaking prohibited a public utility commission from setting future rates to allow a utility to recoup past losses or to refund the consumers’ excess utility profits. Restated, the rule against retroactive ratemaking prohibits a utility commission from making a retrospective inquiry to determine whether a prior rate was reasonable and imposing a surcharge when rates were too low or a refund when rates were too high. Mr. Powers stated that was the general rule against retroactive ratemaking. There was a split of authority on whether that rule was a constitutional rule or simply a rule of statutory construction. If it was a constitutional rule then the legislative body would be without power to legislatively change the rule against retroactive ratemaking. If it was a rule of statutory construction then the legislative body could authorize the PUC to engage in retroactive ratemaking. Because there was a split of authority on the issue it was the opinion of the LCB that they must defer to the power of the Legislature and conclude that it would be constitutional for the Legislature to give the power of retroactive ratemaking to the PUC. Mr. Powers stated that the next thing was, if the committee proceeded with retroactive ratemaking, to determine whether the period of the retroactive ratemaking was only for the specific rate cases that were set forth in A.B. 369 or whether that was a general grant of authority that the PUC would hold indefinitely in the future.
Mr. Ponn stated Section 19, subsection 2, of A.B. 369 read, “An electric utility using deferred accounting shall include in its annual report to the commission a statement showing, for the period of recovery, the allocated rate of return for each of its operating departments in this state using deferred accounting. If, during the period of recovery, the rate of return for an operating department using deferred accounting is greater than the rate of return authorized by the commission in the most recently completed rate proceeding for the electric utility, the commission shall order the electric utility that recovery costs for purchased fuel or purchased power through its rates during the reported period to transfer to the next energy adjustment period that portion of the amount recovered by the electric utility that exceeds the authorized rate of return.” He believed that A.B. 369 already contemplated, dealt with, and legislated how to deal with any over-earnings, and with regard to the advice that Mr. Powers gave the committee, it would not be legal to engage in retroactive ratemaking. If the Legislature wanted to send a real signal to Wall Street, Mr. Ponn stated, just tell them Nevada was doing retroactive ratemaking.
Ms. Buckley asked Mr. Soderberg if the reason he stated if “the company” was over-earning and whether or not that over-earning could be credited to the deferred accounting and the issue was not clear was because of some of the issues that were just identified. Mr. Soderberg stated in an era where there were regular rate cases and they regularly looked at “the company’s” investment, their appropriate rate of return, and their actual revenue, the issue would be handled on an ongoing basis. The state was in a situation now where that exercise had not been done in quite some time. They were looking at essentially going back in time on some level to correct things. Mr. Soderberg said not only with the issues stated by Mr. Powers but generally they did not go back in time because it had just been done. That was where the concern was. What did the commission do about a certain period of time where the rates could have been adjusted if they had been on a normal cycle? Mr. Hay’s concept of determining what that was and wanting to credit it to a place where they knew it would be a problem for consumers was one that was good in concept. If they could iron out the details where it was fair for the consumers and the shareholders he believed there was an opportunity to do some good.
ASSEMBLYWOMAN BUCKLEY MOVED TO ADOPT AN AMENDMENT THAT DID NOT USE 10 PERCENT AS SUGGESTED BUT STATED JUST FOR THE PERIOD OF TIME FROM A.B. 369 UNTIL THE RATE CASES WERE ESTABLISHED, THE STATE ALLOW AN OPPORTUNITY FOR AN OVER-EARNING FROM ONE ACCOUNT BE CREDITED TO ANOTHER ACCOUNT.
She suggested that Mr. Powers draft the language before it went to the Assembly floor session to make sure that it met the concerns of “the company,” the commissioner, and the consumer advocate.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
Chairman Bache asked if Ms. Buckley had contemplated a March 1, 2000, date because she had referenced A.B. 369 in the motion. Ms. Buckley stated she believed the date in A.B. 369 was April 1, 2001. That would be her motion. Chairman Bache asked if Mr. Powers was clear on that motion. He stated he was clear.
Assemblywoman Von Tobel stated there was a point that Mr. Soderberg had made to verify it was fair for both ratepayers and shareholders. The committee was aware that shareholders had not received their dividend in May and their stock had been cut in half and if the committee wanted to make sure they were just as protected as ratepayers she could support the amendment. However, it seemed the pendulum had swung so far to one side that shareholders deserved to be protected as well. If there was a loss on the part of the shareholders, would the committee try to compensate shareholders as well?
MOTION CARRIED.
ASSEMBLYWOMEN TIFFANY AND VON TOBEL AND ASSEMBLYMEN HUMKE, HETTRICK, AND DINI VOTED NO.
The committee recessed until adjournment of the Elections, Procedures and Ethics Committee hearing.
The committee reassembled the Select Committee on Energy at 6:20 p.m.
Sam McMullen, Representative, American Telephone and Telegraph (AT&T), the McMullen Strategic Group, Reno, presented an amendment to NRS 703.025 (Exhibit Q). The amendment was the product of a number of discussions that happened in the context of A.B. 369 that, of course, was now law. There had been a suggestion that some of the issues related to goals and directions in terms of an orderly transition to competition could have value and should be added into statutory law. He was not directly involved in all of the action with respect to the amendment; however, it had been determined by various people that it was in appropriate form. Theoretically this amendment fit in the section that discussed the duties of the PUC and added active words such as “encourage and enhance” the actions taken by the PUC to a competitive market for the provision of utility services to consumers in the state and encouraged the reliability and safety of the provision of those services within that competitive market. Mr. McMullen added there was new language proposed in Sections 3, 4, and 5 of the amendment that encouraged an orderly transition to competition. Section 3 language stated that sufficient competitive utility services existed to ensure consumers could benefit from the competitive market prior to making the determination to deregulate a service or a market. Section 4 language stated the orderly and efficient transition from a monopoly utility market to a competitive market, and language for Section 5 stated the transition when completed would not unreasonably prejudice or disadvantage any consumer class or provider of competitive services. The issue was the amendment did not require anyone to do specific things; the amendment mainly outlined the actions that should be taken to encourage and enhance the competitive market. Their thought process was that there needed to be some orderly transition to a competitive market first with respect to telephone services; however, it might not fit as well with electric services based on the changes being made this legislative year. He had discussed the issue with the consumer advocate and he would speak to the issue at the committee’s request.
Mr. Hay indicated his support of the amendment presented by Mr. McMullen. He believed it would be a useful tool for his office and the affected parties in the commission to use. Mr. Soderberg stated he had a quick opportunity to look at the language. It appeared to him that the pro-competitive language that was previously in the statute that the Legislature deleted pursuant to A.B. 369 was now being brought back in. Apparently there was thought that if the Legislature took it out of the entire statute then somehow the telecommunications industry, which was in transition to the competitive market, would somehow be left out. His office did not really have any thoughts on the matter one way or the other. A great deal of the commission’s work in the telecommunications area was guided by the Federal Telecommunications Act (FTA) and the regulations set forth by the Federal Communications Commission (FCC). The language did not really affect how the commission would process cases in the telecommunication arena.
ASSEMBLYWOMAN BUCKLEY MOVED TO ADOPT THE AMENDMENT PRESENTED BY THE MCMULLEN STRATEGIC GROUP.
ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
Mr. Bache stated the committee would look at the amendment Mr. Hay presented with regard to legislative audits of the utilities (Exhibit R) that were mentioned in S.B. 508. Mr. Hay stated he had conversations with the legislator who had requested the drafting of the amendment and they were in further discussions. He wanted to defer on the amendment at this time. Mr. Bache asked Mr. Hay what he meant by deferring. Was he going to address it in the Senate? Mr. Hay stated that was a possibility.
Chairman Bache stated they would defer on S.B. 508 then and discuss the amendment proposed to add S.B. 526 into A.B. 661. Mr. Hay stated he had handed out a draft of basic affordability rate legislation (Exhibit S) that was simpler than what was in S.B. 526. The enabling legislation would allow the PUC to adopt lower rates for the bottom levels of electricity consumption for residential consumers for both customers of gas and electric service. There had been graphs presented throughout the committee meetings that showed the power acquired during the peak period was the most expensive power. This concept would allow rates to be set at the lower level and then increase slowly. Mr. Hay stated it would encourage conservation and some level of protection for low usage or low-income consumers that did not qualify for direct assistance under measures previously presented. He wanted to commend Sierra Pacific Power for adopting the rate structure when they filed their CEP rider earlier in the year so the rates now in place provided a very basic threshold, 300 kilowatts in the north and 400 kilowatts in the south that were not subject to the rate increase. He believed having specific statutory authority would give the commission the authority to perform in a more thoughtful way on a prospective basis in future cases. He indicated that served a dual purpose of providing some basic stability for residential rates as well as encouraging conservation for those who used above the basic rates of energy.
Chairman Bache asked what part of the amendment draft was new language. Mr. Hay stated all of the proposed amendment was new language. Chairman Bache stated it showed specifically NRS 704.226, .227, and .228. He asked if those were current citations and had he added language. Mr. Powers stated those did not exist as sections of the NRS. The Consumer Advocate had taken the liberty of pre-codifying the sections.
Mr. Powers asked Mr. Hay, since the committee had adopted the “Repower Nevada” and there would be providers of new electric resources, what was his view on whether this language would apply to a provider of new electric resources. In the language there was reference to alternative sellers that did not exist any more for electricity and he wondered what the approach was from the Consumer Advocate on that issue.
Mr. Hay stated their intent was to deal with residential consumers now that it appeared residential consumers would not have the opportunity to have a choice during the next two years. He did not think that made a difference because their service would come from the incumbent utility. His intent, had other options been available for equity purposes, would have been that this would apply as well to customers that took service from an aggregator. This amendment was an intra-class rate design issue within the residential classes, all of whom under the status quo would be getting their power from the gas and electric utilities. Mr. Powers stated if it applied only to electric utilities as defined in A.B. 369 it would be accomplishing the purpose that he sought. Mr. Powers asked if Mr. Hay wanted the language to go beyond the utility to general improvement districts, co-ops, and the other providers of electric service. Mr. Hay stated their intent was to limit it to those utilities that were subject to the PUC regulation.
Chairman Bache did not receive a motion on the proposed amendment and proceeded to the next amendment proposed by Mr. Hay.
Mr. Hay reiterated the proposed amendment (Exhibit T) had been mentioned to the committee on May 8, 2001. It provided the PUC should not allow recovery for costs that were incurred by the utility related to their attempt to acquire Portland General Electric, which was terminated mutually between the parties several weeks previous. In his opinion, the transaction was purely a business decision made by the Sierra Pacific Resource management and the Nevada ratepayers should not suffer the consequences of recovering the transactional costs or the payment that was made to Enron Corporation to terminate the proposed acquisition. The other issue was the proposal to limit the recovery for costs associated with the generation divestiture transactions that were terminated by both the action of the PUC and the action of the Legislature in adopting A.B. 369 to stop divestiture. His rational for this amendment was the divestiture of those assets was proposed in the original merger agreement that was ultimately approved by the PUC. Since “the company” had voluntarily offered the units for disposition, although that offer was ratified in both the commission and the Federal Energy Regulatory Commission (FERC) orders, he believed in other concessions the Legislature had given “the company” rate relief to preclude recovery of those amounts that were quantifiable and relatively limited was in the best interest of the ratepayers.
Chairman Bache stated legislative action was responsible for ending divestiture and also the termination of the purchase of Portland General Electric. Had the Legislature not passed A.B. 369 and since the Securities Exchange Commission (SEC) had approved the transaction they still would have been obligated to purchase Portland General Electric.
Assemblyman Hettrick agreed with the Chairman. The problem was a tendency to forget “the company” was not a bad giant, but was made up of shareholders. If the state did not allow them to recover costs it would not be some magical company that suffered, it would be the shareholders. The shareholders were already suffering with the stock down in half and no dividends. He wondered how much did the Legislature want them to suffer. He did not know why “the company” should not be allowed to recover costs. They had attempted to provide reliable power for the citizens of the state of Nevada. He did not see why that should be denied as a cost. He did not support the amendment.
Mr. Hay responded in regard to the Portland General Electric acquisition. As the committee was aware the PUC did not assert jurisdiction over that transaction and his office was not involved. Because of that he did not believe there was any benefit that could be demonstrated for Nevada ratepayers from that transaction in any way. As he understood it, there would have been difficulties for “the company” to complete the acquisition due to their financial condition whether or not divestiture occurred or was stopped by the Legislature. He did not believe the costs should be considered a ratepayer expense. It would ultimately be determined by the PUC if, in fact, the Legislature did not make a clear statement on this issue. In response to the stock price decline, since the Legislature had acted the stock price had rebounded substantially and was down less than 30 percent from a 52-week high. The state had increased rates on the ratepayers by an average of at least 25 percent on residential homes and more than that on commercial businesses in the last nine months due to actions of the commission and the Legislature. There was going to be a very substantial increase next year. Although he had some sympathy for the shareholders of “the company” they obviously had options that ratepayers did not have. He believed limiting any expenses that did not go to benefit the ratepayers in a demonstrable way was appropriate. He also understood there was a termination fee that was paid on the Enron Corporation transaction that was fairly substantial and that potentially could have been avoided had “the company” waited a little longer to terminate the transaction.
Assemblywoman Von Tobel stated she had reviewed a three-year chart of Sierra Pacific Power and the stock was at $16.09 currently. Previously the stock had been at $37 per share. She was not sure how Mr. Hay could equate the loss to only 30 percent. Mr. Hay stated he was referring to the last 52 weeks. Ms. Von Tobel stated perhaps they should not just look at the last 52 weeks. Mr. Hay pointed out the stock was at its highest when Nevada Power Company and Sierra Pacific Power Company merged and had been on a downward trend since then. He was not sure what the conclusion would be from those facts but certainly the actions of the Legislature in the last couple of weeks had ratified over a half a billion dollar rate increase that had substantially improved “the company’s” financial condition. He believed the interest of the ratepayers had to now be the focus. The dollars that would be limited for recovery were quantifiable, if the amendment was adopted. Ms. Von Tobel stated any stockholder that paid $35 was not thrilled their stock was $16 and they were not receiving dividends. Mr. Hay understood that and had purchased some stock in “the company” before he took his job and then had to sell it. A shareholder elected to buy a stock and whether to hold it or sell it and ratepayers were stuck. Mr. Hay stated there was a large pool of residential ratepayers that because there would be no options such as aggregation would receive a large deferred increase next year that would be amortized over 36 months. The residential ratepayers would be held “hostage” until 2005 or 2006. If the action of the Legislature had repaired “the company’s” finances to the degree “the company” represented, he believed the upward trend in the stock would continue. Ms. Von Tobel stated the only way to make sure that Sierra Pacific Power and Nevada Power Company were strong was if their stock continued to climb. If they were not sufficiently strong on Wall Street every ratepayer would suffer because they could collapse as some of the companies in California had. Mr. Hay stated that returning to deferred accounting had guaranteed “the company” recovery of all of its fuel and purchase power costs that were prudently incurred. All the testimony he had heard stated “the company” operationally was doing very well achieving merger savings they had anticipated. Mr. Hay believed if the Legislature had adopted the premise that returning to deferred accounting was the answer, the very large rate increase that had been ratified retrospectively and the large one that would occur when the deferred case was decided, was everything “the company” had asked for.
Assemblywoman Buckley stated the committee needed to focus on the bill. She believed everyone wanted Sierra Pacific Resources to be financially strong and the stock prices to be high. The debate was whether the two items could be paid for by the ratepayer. She agreed with Mr. Hettrick on the sale of the plants and it did not seem to be “the company’s” fault. They did not want to sell the plants and they were told they had to sell the plants. She felt it would not be right to keep them from recovering the costs. She was prone to let the Portland General Electric issue go to the commission to examine the prudency behind it and whether all of the costs should be borne or just some of them. She asked if the commission had that authority. Mr. Hay responded they did and the commission would have the authority of looking at the divestiture transactions as well. Ms. Buckley stated she would let the issues go through the process and not push for the amendment in this bill.
The Chairman asked if anyone wished to make a motion on the amendment and there was none. He asked Mr. Ziegler if it was the last of the amendments to be considered.
Assemblywoman Smith asked for reconsideration of the “jilted buyers” amendment. Chairman Bache asked for her reasoning and stated it would take a two-thirds majority to reconsider the issue.
Assemblywoman Smith stated when she heard testimony concerning the amendment she had concerns about the individual items listed in (b) of Section 1. The discussion had not really reflected the items and she felt she had misunderstood the issue. She had serious concerns about the use of the amendment on individual items such as marketing, maintenance, and managing the fuel purchasing. The “jilted buyers” situation was created over the purchase of a plant and not individual items. Because of that she had concerns about her vote on that amendment.
ASSEMBLYWOMAN SMITH MOVED TO RESCIND THE VOTE ON THE “JILTED BUYERS” AMENDMENT.
ASSEMBLYWOMAN BUCKLEY SECONDED THE MOTION.
MOTION FAILED.
ASSEMBLYWOMAN SMITH, ASSEMBLYWOMAN BUCKLEY, ASSEMBLYWOMAN LESLIE, ASSEMBLYMAN PARKS, AND ASSEMBLYMAN NEIGHBORS VOTED YES.
Chairman Bache stated it was a tie and the majority was not reached. Chairman Bache asked for a motion on A.B. 661 as a whole.
ASSEMBLYMAN DINI MOVED TO DO PASS A.B. 661 AS AMENDED.
ASSEMBLYMAN PARKS SECONDED THE MOTION.
Assemblyman Hettrick had a real concern about amending A.B. 349 into the bill. He did not agree with putting it into A.B. 661 and had voted against it at the time. He also did not like the over-earning positions and preferred to amend those issues back out of the bill. Assemblywoman Von Tobel stated she agreed with Mr. Hettrick.
Assemblywoman Buckley said she was not going to support the motion for the reasons she had previously stated. She felt with the energy crisis the Legislature should be moving slowly before taking any actions that might make things worse for their constituents, small businesses, the utility, the shareholders, etc. She appreciated the hard work a number of people had put into the bill to make it better, including the “Share the Benefits” program.
Assemblyman Humke opposed the motion and adopted the words of many of the previous speakers.
MOTION FAILED.
ASSEMBLYWOMAN SMITH AND ASSEMBLYMAN DINI, ASSEMBLYMAN PARKS, AND CHAIRMAN BACHE VOTED YES.
ASSEMBLYMAN HETTRICK MOVED TO AMEND DO PASS A.B. 661 BY DELETION OF A.B. 349 AND THE OVER-EARNING PROVISIONS THAT WERE AMENDED INTO THE BILL PREVIOUSLY.
ASSEMBLYWOMAN VON TOBEL SECONDED THE MOTION.
MOTION FAILED.
ASSEMBLYWOMAN VON TOBEL, ASSEMBLYMAN HETTRICK, ASSEMBLYMAN HUMKE, AND ASSEMBLYMAN DINI VOTED YES.
Chairman Bache stated there was a problem because the bill had to be on the Assembly floor by Friday. He asked if the over-earning part was more of a heartburn than A.B. 349. Mr. Hettrick stated it was the other way around.
ASSEMBLYMAN HETTRICK MOVED TO AMEND AND DO PASS A.B. 661 BY REMOVING THE A.B. 349 PROVISIONS.
ASSEMBLYMAN HUMKE SECONDED THE MOTION.
MOTION FAILED.
ASSEMBLYWOMAN VON TOBEL, ASSEMBLYMAN HETTRICK, ASSEMBLYMAN HUMKE, AND ASSEMBLYMAN DINI VOTED YES.
Chairman Bache stated the committee seemed to be at an impasse at this moment and he decided to recess the meeting until 7:00 a.m. the next morning.
Chairman Bache called the meeting back to order at 7:33 a.m. on May 16, 2001.
Assemblyman David Goldwater, District 10, appreciated the committee’s work on behalf of low-income assistance problems. As the Legislature grappled with the macroeconomic problems which concerned the power industry it was very important to take care of the state’s most vulnerable populations. In between the recess last evening and reconvenment this morning he believed he had found a way to take care of all interested parties concerned with low-income citizens and he had every assurance that A.B. 349 would be perfected out of the Commerce and Labor Committee in the Senate and reported back to the Assembly for consideration. Therefore, he believed it would be in the best interest of A.B. 661 to remove the considerations of A.B. 349 so the very important issues contained in A.B. 661 could be considered.
Chairman Bache thanked Mr. Goldwater and asked for any discussion on the bill.
Ms. Buckley stated the two issues that had concerned the committee last night were Mr. Goldwater’s provisions that many on the committee felt had to be part of a comprehensive energy package. In light of the fact that Mr. Goldwater preferred his bill to stand alone and that he had reached consensus with all of the interested parties in how the program would operate and had their support she wanted to make a motion.
ASSEMBLYWOMAN BUCKLEY MOVED TO AMEND THE MOTION STILL ON THE FLOOR TO REMOVE THE PROVISIONS RELATED TO A.B. 349 FROM THE ORIGINAL MOTION.
ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
Assemblywoman Buckley stated one of the other topics of some concern was the issue first brought to the committee by the Consumer Advocate which concerned possible over-earning in general rates by “the company” and to ensure that would be credited to another category. She clarified on the record that her motion was not to accept the amendment by the Consumer Advocate because it was worded differently but rather it was a clarification only that on a going forward basis from April 1, 2001, not retroactively but going forward, proper accounting would be done to ensure a true up and good accounting mechanisms would be utilized. The amendment would not allow write-offs but would ensure that categories received true ups and it was an accounting mechanism clarification. The language also would be looked at very carefully by Mr. Ponn, the Consumer Advocate, and Mr. Soderberg. The committee did not want to send any wrong signals. The amendment was only to ensure good accounting and that the ratepayer was protected.
ASSEMBLYMAN NEIGHBORS MOVED TO AMEND AND DO PASS A.B. 661.
Chairman Bache asked if his motion was to do pass A.B. 661 as the committee had amended it. Assemblyman Neighbors stated that was correct.
ASSEMBLYMAN DINI SECONDED THE MOTION.
Assemblywoman Von Tobel had received ten e-mails from shareholders of “the company” that morning stating the stock was down and she felt it was a real slap in the face to shareholders who had suffered more than ratepayers at that point. With Mr. Hay’s provision still in A.B. 661 she could not support the bill.
Assemblywoman Buckley stated she had concerns as well because many of the shareholders were Nevada retirees and she felt very bad for the situation they faced. Perhaps the best thing for them and the stock was for the committee to pass nothing and that might help achieve some stability. She would not support the motion. She felt if the committee did anything they should support a pilot project to see if the state could achieve benefits for the public from an experiment. That experiment would have to include residential ratepayers as well as large users. The bill did not contain a controlled experiment for each class of customer, which meant that partial deregulation was only good for one class and she felt it should be good for all classes of customers. She could not support the bill because it did not contain that component.
MOTION FAILED.
ASSEMBLYWOMAN BUCKLEY, ASSEMBLYWOMAN TIFFANY, ASSEMBLYWOMAN VON TOBEL, ASSEMBLYWOMAN LESLIE, ASSEMBLYMAN PARKS, ASSEMBLYMAN HUMKE, AND ASSEMBLYMAN HETTRICK VOTED NO.
Assemblywoman Tiffany stated she would change her vote if the provision was removed in regard to the estimated over-earning proposed by the Consumer Advocate.
Assemblywoman Buckley clarified her motion of the previous day to explain the amendment. She suggested it might be necessary to have a representative from the utility, the Consumer Advocate, and the commissioner of the PUC to help clarify the issue. The intent of her motion was to ensure proper accounting was performed from April 1, 2001, as was attempted in A.B. 369 and the issue was found to be “murky.” It was not to allow write-offs but on a going forward basis to ensure there was accountability in categories. That was her motion and her intent.
Mr. Ponn stated “the company” had expressed severe concerns with the proposal of the Consumer Advocate the previous day with regard to the adjustment. The source of their concern was that, in their opinion, A.B. 369 was very clear. The bill stated on a going forward basis they would use the rates that were in effect on April 1, 2001, until such time those rates were changed through the normal ratemaking process by the PUC. A.B. 369 also contained provisions that stated “the company” would file general rate cases and deferred cases for both utilities in October and December of 2001. The concept embodied in A.B. 369 was to use the current rates and reset those rates and all components of rates at the same time in the spring of 2002. What “the company” objected to in the proposal from the Consumer Advocate was to take one component of rates and state “you are over-earning there” when at the same time the utility was grossly under-recovering in another category. If that amendment was accepted and placed into law “the company” was concerned they would never permanently recover $81 million that was currently in the deferred energy account for the fuel and purchase power side of the rates. “The company” was comfortable with the provisions in A.B. 369. They knew they could be clarified further; however, they were not comfortable with the idea of retroactively, before those rates went into effect, alleging or accounting for what was called over-recovery on one side while they were losing a significant amount of money on the other side. If the amendment was to clarify they did not have any write offs, did not forego the ability to recover all of their fuel and purchase power costs, and that rates would be reset April 1, 2002, without reaching back into 2001 or any previous period, that was what they believed Wall Street would be comfortable with and “the company” would be comfortable. They did feel there was severe danger associated with the original wording of the amendment in that it could trigger concerns by credit rating agencies and could undo some of the good work done with A.B. 369.
Assemblywoman Buckley asked if Mr. Ponn was speaking about the original amendment, not her amendment. Mr. Ponn stated that was correct. Ms. Buckley asked for a straight yes or no to the extent that he could answer in regard to her clarification of today on her amendment and her intent. Mr. Ponn stated the only concern was the language and it needed to be clear there was no retroactive ratemaking that took place for any periods before the April 1, 2002, date. In other words, he indicated, rates would be what they currently were until they were reset April 1, 2002. At that point in time the commission would synchronize general and deferred rates. If “the company” was found to be over-earning on the general rate side, and for regulatory purposes that would limit the amount of recovery, they could have those rates April 1, 2002, at a normal return level. However, they would not write off any over-recovery on the general side but rather that amount would be deferred until some subsequent period in the future. Mr. Ponn stated he believed that was the intent of A.B. 369.
Assemblyman Dini asked if the amendment could be further clarified. If the amendment would affect “the company” on Wall Street he did not want to put up a “red flag.” He asked if there was another way to word the amendment.
Ms. Buckley stated she believed the best people to word the amendment were the drafters at the LCB. The committee should allow them to work with “the company,” the Consumer Advocate, and the commissioner to formulate language that protected ratepayers and “the company.” If they felt that they could not, then the amendment could be returned to the committee or amended on the Assembly floor. It was very important that the state do everything it could to protect “the company,” but the commissioner indicated that the rate balancing sections of A.B. 369 were a little “murky” to him. It was not good when the law was “murky” because when the Legislature ended the session, the commission acted and sometimes the Legislature was not satisfied but they could only fault themselves if the commissioner stated the law was “murky” and they did nothing. If the language was not clear in the amendment and there were further concerns, the committee could have a floor amendment or bring it back to committee and not include it.
Mr. Soderberg asked to make a clarification. What had happened yesterday was crystal clear to him; however, it appeared to be very unclear to everyone else except Assemblywoman Buckley. With regard to his testimony as to the clarity of A.B. 369, his reference with regard to how over-earnings were treated and the ability to accurately capture those and make sure there was no double recovery, was in reference to how it had been done in the past and the existing regulations that applied to previous statutes. Mr. Soderberg’s office had an opportunity to re-read A.B. 369 and they felt clearly with the discussion of yesterday the wording in A.B. 369 gave clear enough direction to come up with a mechanism that actually captured the potential over-earning and hopefully avoided the problems of the past. His interpretation of the previous day’s proceedings clearly mirrored what Ms. Buckley had stated as her clarification. They did not feel what was done the previous day told them to write regulations to have a write off and did not feel there was even specific direction to know where to deposit any over-earnings. In any event, if the committee did some clarifying amendments today or the subject was not touched in the bill, his regulation-making process needed to come up with a way to calculate the numbers accurately. The process had not been done well in the past and now the Legislature had given them the direction to apply the numbers to the appropriate account. Traditionally any over-earning had been applied as a deferral to the rate of return side of the general rates. There was the concept that perhaps this should be applied to the deferred accounting and somehow that might be more advantageous. “The company” felt that would take the same amount of money and make it a write off as opposed to a deferral and that caused them accounting problems. In internal discussions of the previous evening his office felt that could be true. Mr. Soderberg stated, with the direction the Legislature had given them in the new statute and the discussion of today, it was clear they were charged with fixing the past regulatory mechanisms to make sure that ratepayers did not pay double and “the company” did not double recover. How it actually worked and happened was something his office would need to work out.
Ms. Buckley commented she would like to make a suggestion if the Chairman would be open to it. She suggested the committee recess and allow her the opportunity to speak with the commissioner, Mr. Hay, and Mr. Ponn to craft a statement that would send the right message outlined by Mr. Soderberg. The state wanted to ensure true ups and good accounting mechanisms and not deliver the wrong message. Perhaps if she could have the time to do that then other committee members might feel more comfortable.
Chairman Bache stated the committee would recess until after adjournment of the Assembly floor session.
Chairman Bache called the committee to order at 2:05 p.m. on May 16, 2001.
Mr. Bache called on Mr. Soderberg to present a proposed amendment to the committee.
Mr. Soderberg stated after discussing the issue with Mr. Hay and “the company” and various other individuals to get insight on the issues in A.B. 369, they felt the amendment proposed (Exhibit U) gave them the greatest ability and the charge to make sure their regulations accurately reflected the new level of deferred energy and rate of return cases that were contemplated in the statute. The language in the amendment was simple “on or before October 1, 2001, the commission shall amend, revise, or re-adopt deferred energy regulations to the extent required by the passage of A.B. 369.”
Mr. Hay stated he had engaged in the discussions the commissioner had described and his office was satisfied the language met the intent and gave both statutory directions to the commission as well as guidance to the parties that would participate in the proceedings.
Mr. Ponn stated “the company” also supported the inclusion of this language. Mr. Bache asked if this amendment clarified the previous amendment that was adopted. Mr. Ponn stated it was his understanding that this amendment (Exhibit U) would replace the amendment proposed by Mr. Hay.
Chairman Bache stated he would accept a motion from the committee. Assemblyman Dini asked if there needed to be a motion to rescind the previous amendment language adopted. Ms. Buckley stated she felt the Speaker was correct and she could combine it into one motion to rescind. Mr. Dini stated he believed there needed to be a separate motion.
ASSEMBLYWOMAN BUCKLEY MOVED TO RESCIND THE PREVIOUS AMENDMENT FROM THE CONSUMER ADVOCATE IN REGARD TO OVER-RECOVER OR OVER-EARNING.
ASSEMBLYMAN DINI SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
ASSEMBLYMAN HETTRICK MOVED TO ADOPT THE NEW AMENDMENT PRESENTED BY DONALD SODERBERG, CHAIRMAN OF THE PUC.
ASSEMBLYMAN DINI SECONDED THE MOTION.
Ms. Buckley stated that sometimes the legislative process was painful and involved a great number of revisions to clarify the intent and she thanked the parties involved for working to clarify the intent and the language. She also thanked the minority leader and others on the committee who forced good language to finally be adopted.
Assemblywoman Von Tobel stated she was very comfortable with the new language and pleased that everyone was able to work together for the good of both ratepayers and shareholders and “the company.”
MOTION CARRIED UNANIMOUSLY.
Chairman Bache recognized Assemblywoman Smith.
ASSEMBLYWOMAN SMITH MOVED TO RESCIND THE PREVIOUS ADOPTED AMENDMENT ON THE “JILTED BUYERS.”
ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION.
MOTION CARRIED UNANIMOUSLY.
Chairman Bache stated he would accept a motion on the bill itself.
ASSEMBLYMAN DINI MOVED TO AMEND AND DO PASS A.B. 661 WITH ALL AMENDMENTS PREVIOUSLY ACCEPTED AND PASSED.
ASSEMBLYMAN HETTRICK SECONDED THE MOTION TO DO PASS AS AMENDED.
MOTION CARRIED.
ASSEMBLYWOMAN BUCKLEY, ASSEMBLYWOMAN LESLIE, AND ASSEMBLYMAN PARKS VOTED NO.
Chairman Bache thanked everyone for their help in trying to resolve the issues involved in A.B. 661. He knew they would reexamine the bill in the future. The Chairman seeing no further discussion to come before the committee adjourned the meeting at 2:11 p.m. on May 16, 2001.
Cheryl Meyers
Committee Secretary
APPROVED BY:
Assemblyman Douglas Bache, Chairman
DATE: