MINUTES OF THE meeting
of the
ASSEMBLY sELECT Committee on Energy
Seventy-First Session
April 3, 2001
The Select Committee on Energy was called to order at 1:58 p.m., on Tuesday, April 3, 2001. Chairman Douglas Bache presided in Room 4100 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Douglas Bache, Chairman
Ms. Barbara Buckley, Vice Chairman
Mr. Joseph Dini, Jr.
Ms. Sheila Leslie
Mr. Roy Neighbors
Mr. David Parks
Ms. Debbie Smith
Ms. Kathy Von Tobel
Mr. Lynn Hettrick
Mr. David Humke
Ms. Sandra Tiffany
STAFF MEMBERS PRESENT:
Kevin C. Powers, Committee Counsel
David S. Ziegler, Committee Policy Analyst
Cheryl Meyers, Committee Secretary
OTHERS PRESENT:
Harvey Whittemore, Representative, Nevada Resort Association, Reno, Nevada
Donald Soderberg, Chairman, Public Utilities Commission (PUC), Carson City, Nevada
Crystal Jackson, Secretary, Public Utilities Commission (PUC, Carson City, Nevada
Neill Dimmick, Director of Regulatory Operations, Public Utilities Commission (PUC), Carson City, Nevada
Douglas R. Ponn, Vice President, Governmental and Regulatory Affairs, Nevada Power and Sierra Pacific Power, Las Vegas, Nevada
William K. Branch, Director, Rates and Regulatory Affairs, Nevada Power and Sierra Pacific Power, Reno, Nevada
William Peterson, Senior Vice President and General Counsel, Sierra Pacific Resources, Reno, Nevada
Joyce Newman, President, Utility Shareholders Association of Nevada, Inc., Carson City, Nevada
Fred Schmidt, Representative, Southern Nevada Water Authority, Las Vegas, Nevada
Stephanie Tyler, Area Manager, External Affairs, Nevada Bell, Las Vegas, Nevada
Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, Carson City, Nevada
Assembly Bill 661: Revises and repeals various provisions concerning utilities and energy. (BDR 58-1128)
Assemblyman David Parks, District 41, and David Ziegler, Committee Policy Analyst, were present to discuss sections of A.B. 661. Mr. Parks stated the bill addressed a number of important issues related to the legislators’ efforts to make sure Nevadans had affordable, reliable energy now and well into the future. Along with other such measures as A.B. 369, passed by the Assembly last week, A.B. 349, which created a fund for energy assistance, A.B. 418, which promoted the use of alternative energy, and S.B. 362, Senator Titus’ bill that would streamline the approval of new power plants, A.B. 661 was part of a package of potential solutions to the state’s energy problems.
Mr. Parks stated one of the key goals was to make sure all of the electrical rates were necessary, approved in a public forum, fair to everyone concerned, and, if possible, contained incentives to encourage the best deal for Nevada consumers. He stated he would explain how the provisions of A.B. 661 would achieve those goals by making adjustments to the rate setting statutes. Future presentations, April 5 and April 10, would cover other main topics addressed by A.B. 661: the need to increase the use of renewable energy and the need to modify the organization and the duties of the Public Utilities Commission (PUC) of Nevada. A.B. 661 would bring some much-needed clarity to the process of setting rates for electrical energy. He believed the step was necessary because of existing provisions in the law, specifically in NRS 704.100, which allowed new rates to take effect without a positive action by the PUC and because of events that had taken place during the interim after the 1999 Legislative Session that had dramatically affected rates Nevada businesses and residences must pay. The state needed to make sure every proposed rate increase followed a definite four-step process: the utility must file a complete application, the public must receive notice, the commission must hold hearings open to the public, and the PUC must issue a written order or decision. Specifically, he stated, Section 18 of A.B. 661 provided electric utilities could not change any rate unless the PUC approved the rate by a written order issued in accordance with Section 7 through 25 inclusive of the bill. Sections 7 through 25 provided the detailed definitions and requirements for applications, public notice and hearings. For example, he stated, the requirements for a complete application were on the bottom of page 5 and top of page 6, lines 11 through 21, and the hearing provisions were on page 6, lines 22 through 29, and similar provisions appeared in other parallel sections of the bill.
Mr. Parks spoke in regard to the provision that affected rate setting and stated A.B. 661 provided for three basic types of filing: general rate applications, applications for relief due to substantial financial emergency, and the re-establishment of deferred energy accounting. Section 19 addressed the general rate cases that were used to establish basic rates. The section provided the electric utility could not file general rate applications more than once every four months. Section 22 allowed the PUC to approve temporary rate increases in the case of a substantial financial emergency. An application for a temporary rate increase must be filed in conjunction with a general rate application. The rates, if approved, could not remain in effect for more than 120 days and the rates must be approved by every member of the commission. Section 21 reestablished deferred energy accounting and required electric utilities to use the accounting to accommodate fluctuations in the cost of purchase fuel and power (F&PP). The deferred energy accounting was, in principle, a straightforward, verifiable, administrative process for identifying cost increases and decreases for fuel and purchase power that could be passed through to consumers. Under S.B. 438 of the Seventieth Session, which contemplated the opening of Nevada’s market to retail electric competition, the use of deferred energy accounting had ceased on October 1, 1999. There appeared to be a growing consensus that Nevada should reinstitute deferred energy accounting instead of global settlements and other filings the Legislature believed violated the law. The deferred energy accounting had been inserted in A.B. 661 because of the controversy in regard to the other filings in order to debate and finalize the concept, not in the abstract, but during deliberations on a specific piece of legislation.
Mr. Parks stated an important issue in the debate would be how to make sure deferred energy accounting did not result in passing huge price increases along to the constituents and insuring the utilities were acting prudently in acquiring fuel and power. The committee could consider attaching incentives to the use of deferred energy accounting to encourage the utilities to negotiate the best rates for consumers.
One of the challenges A.B. 661 should address was the transition from the present system of rate setting to the three components mentioned: general rate cases, temporary rates for substantial financial emergencies and deferred energy accounting. Section 102 of the bill was the main transition section. It established the timelines for phasing out the present rate structure and phasing in the new provisions. In general, the transition process would work as follows: the electric utility could not file any more applications to increase the fuel and purchase power (F&PP) rider after the effective date of the act; the utility must initiate deferred energy accounting and must clear their deferred energy accounts for the first time not later than 60 days after the effective date; the utilities must file a new general rate application by September 1, 2001, for Nevada Power, and by March 1, 2002, for Sierra Pacific Power. When the commission approved one or more rates in the general rate application the rates established for the utility in the Comprehensive Energy Plan (CEP), filed in January, and all rates based on the F&PP rider would expire. By following the process Nevada would complete the transition to the new rate setting system by mid-2002. A very important question on the subject of deferred energy accounting would be when the practice should resume. Mr. Parks asked if the rate increases included in the global settlement and the CEP should continue. He wanted to know how to make sure the utilities were not “double-dipping.” The committee would need to discuss these questions in the future debates on the bill.
In conclusion, Mr. Parks stated he was pleased to present the bill for initial consideration to begin the debate on deferred energy accounting coupled with an end to the imposition of rate increases without full review and scrutiny. Part of what the committee was trying to accomplish with A.B. 661 was to make sure that rates for electrical energy were fair to everyone and approved in a full open public process and to possibly make sure the rate setting process included the proper mix of incentives. As mentioned earlier, presentations at the next two meetings of the select committee would address the other key concepts in A.B. 661 promoting the use of alternative energy and making adjustments within the PUC.
Assemblywoman Buckley asked about the issue of scrutinizing deferred energy and how to make sure the automatic imposition of deferred energy did not begin imprudent purchases of power. She wanted to be sure to have the committee look at incentives as a way to ensure the ratepayers were not paying for everything that was passed through, even if it might not be the best buy the power company could get. She believed the issues were critical to the debate and discussions the committee would be having. She looked forward to the next witnesses to have further discussions on the topics.
Chairman Bache stated he had a concern with the reinstitution of deferred energy accounting. The committee had to make sure the utilities did not “double dip” and also recovered under the F&PP provisions they currently enjoyed.
Harvey Whittemore, Representative, Nevada Resort Association, went on record to applaud the committee’s efforts with respect to its comprehensive plan in dealing with the energy crisis facing the state of Nevada. With respect to the deferred energy and rate sections of the bill, he stated he wanted to make some general comments and provide some background that he felt might be helpful for the committee in its deliberations concerning the issues. The impact of adopting a deferred mechanism was one in which the Nevada Resort Association, under certain conditions, would support. The conditions were:
1. The existing rate structure, which included the F&PP rider and the CEP portion of the rates that the utility had filed for, must be transitioned to ensure there was no recovery for past costs the utility had incurred and had not yet recovered by commission order or by agreement. The purpose of the conditions would be to ensure what was received under a deferred accounting mechanism allowed the utility to recover on an on-going basis for F&PP but did not allow the recovery of items that had previously been by agreement or by commission order authorizing the utility to recover.
2. The second condition was to ensure the deferred mechanism allowed for the benefits associated with the existing F&PP rider.
Mr. Whittemore reaffirmed the concerns the committee and others had expressed in regard to the global settlement. For the committee’s benefit and to state some background, Mr. Whittemore indicated the global settlement included a number of provisions the Consumer Advocate, large industrial users and many parties believed were very advantageous in terms of the existing rate structure. The F&PP rider was a long-term mechanism that allowed the utility to recover a portion of the cost associated with the fuel and purchase power incurred during prior periods. The F&PP rider looked at a “snap-shot” for a particular period and then rolled it forward and adjusted monthly. It did not give the utility 100 percent of their incurred cost. That system was a benefit that had accrued to the advantage of all ratepayers in the state and afforded them lower rates than would have been imposed if the utility had been able to recover 100 percent of their costs. Legitimately the question the committee must ask would be why, and under what mechanism, did Sierra Pacific Power and Nevada Power (“the company”) propose, and how did the parties agree, that the F&PP rider should be implemented. Mr. Whittemore stated under NRS 704.110, subsection 6 — in A.B. 661 on page 15, lines 20 to 22 — under existing law a utility, even though there were provisions that could be read as prohibiting rate increases during the interim, the utility could have filed applications on a monthly basis to recover the increased costs of purchased fuel. The F&PP rider required the utility file a monthly application to recover those costs. The mechanism under the F&PP rider was in fact the mechanism that had allowed for, from many parties’ perspective, even though there may be different legal opinions, the utility to file applications on a monthly basis to recover costs.
In addition, Mr. Whittemore stated, his association would support the committee’s review and had testified in the Senate committees examining these bills. The Nevada Resort Associations believed the CEP filing potentially violated NRS 704.110, subsection 6, by effectively filing two filings in a month, which they believed was inappropriate. The PUC would be deciding those issues, but the entire rate imposed under the existing basic tariff energy rate (BTER), the F&PP and the CEP, based upon “the company’s” presentation to many involved, still suggested “the company” was not recovering 100 percent of their cost associated with purchase power and fuel. Therefore, the state was still left with the proposition advanced by A.B. 661 of deciding on a deferred accounting mechanism. His office believed a deferred accounting mechanism that started later rather than earlier, but one that was done within the next couple of months would be appropriate. He advised the Chairman and members of the committee his organization was having discussions with various parties to work on language that could be presented to the committee with respect to language that articulated and advanced the positions outlined by Assemblyman Parks in the sections of the bill mentioned. Obviously he would try to resolve the differences between the parties. The deferred accounting issue was very intricate and needed to be finely tuned. If the language was not clear the consequences would be hundreds of millions of dollars given the utility, as in “double-dipping,” or to the detriment of the utility in not allowing them to recover costs and potentially move out of the financial crisis.
Mr. Whittemore remarked, in respect to the deferred accounting and the rate provisions in the bill, while he and his client applauded the committee’s efforts in addressing these issues, there were concerns about the existing language with respect to deferred accounting because they did not yet realize the full implications of how and where the deferred accounting would start in the transition from the F&PP rider mechanism and the CEP. He would be happy to discuss any of the issues at the Chair’s request at a further meeting and present the language he was in the process of drafting. He would be happy to answer any questions with respect to the issue especially on the background of the global settlement, the CEP issue or his organization’s particular position on either.
Assemblywoman Buckley stated in 1999 the state was guaranteed a rate freeze for the consumers if competition was to begin. At that time there was no question, no comments regarding deregulation and hard rate freezes, but “the company” could still file F&PP riders every 30 days. It was clear in 1999 a rate freeze was a rate freeze. Rates could go down but could not go up. Then the global settlement was signed and stated deregulation could begin but rates could still go up. Ms. Buckley asked how anyone could state the legislative intent and the language was not clear regarding the rate freeze. Mr. Whittemore stated the global settlement had an expressed provision the Governor had to approve, and consistent with the existing legislation, S.B. 438 of the Seventieth Session, the Governor was given ultimate authority to determine when the markets were open for competition. The rate freeze was to be implemented the minute competition began. That was the reading and interpretation he believed all parties had with respect to S.B. 438 of the Seventieth Session. While everyone, including his client, was promised a rate freeze, the freeze was not to begin until competition began and because the Governor did not open the state to competition, the consumer did not get the benefit of the rate freeze. Ms. Buckley stated the global settlement indicated deregulation could begin and the rates would continue to go up. Mr. Whittemore stated that was incorrect. It specifically said that competition could not begin until the Governor approved it. The parties to the global settlement articulated a particular time schedule, and the time schedule was not approved by the Governor, a condition of the global settlement. The consumer was left at that time with the existing law that under NRS 704.110, subsection 6, that allowed the utilities to recover 100 percent of their fuel and purchase power costs. Therefore, because “the company” was to begin the practice in July 2000, the parties to the global settlement felt it was best to encourage the utility to agree to an amount that was less than 100 percent. Ms. Buckley stated if the Governor had authorized deregulation to begin, under the terms of the global settlement, rates would have continued to go up, even though there was a statutory rate freeze. Mr. Whittemore stated if the Governor had allowed competition to begin, he believed the F&PP mechanism would have continued to go forward, subject to the approval of the PUC under NRS 704.110, subsection 6. Ms. Buckley stated that would violate the law the Legislature passed. Mr. Whittemore stated he did not believe the terms of the agreement did violate the law. The committee could look at the intent of the parties to the global settlement and discover it was not to violate the terms of the law but rather to implement the terms of the law in a way that was advantageous to all of the ratepayers. He believed that was the case and did not and could not have anticipated the events that took place in the spring and summer of 2000 with respect to increased fuel and purchase power costs. Ms. Buckley stated she believed he was correct. No one in the Legislature or the parties anticipated what the market would do. However, the statute stated if competition were to start, consumers would have protection. In the global settlement, Mr. Whittemore’s group had stipulated the law away. From her point of view as a legislator, the Legislature had implemented the protection for the consumer, and to have it stipulated away in violation of the law was not the right thing to do.
Ms. Buckley reiterated that Mr. Whittemore supported deferred energy under two conditions, the first was that the existing rate structure and CEP must be transitioned so there was no recovery for any past costs previously negotiated and not recovered and then the second point sounded similar to the first point. She asked for clarification. Mr. Whittemore summarized on a “going forward basis” the consumer got the benefit with respect to the F&PP rider mechanism. There were two separate issues; one was to recover past costs and one was to recover a portion of the benefit that was recovered under the F&PP. Ms. Buckley stated for clarification then if the F&PP rider was from October 1, 2001 until some period in 2003 “the company” could not recover all of their costs, they were “capped.” Mr. Whittemore stated that was correct. It was a mechanism that his clients believed complied with the terms of the global settlement. The spirit of the mechanism that was being advanced by the committee in terms of allowing the deferred accounting mechanisms proposed in the bill would give “the company” the financial mechanism necessary to go forward in this very dynamic and changing economic environment in terms of power costs. Ms. Buckley asked if the state did not allow “the company” to be able to recover all of their costs from a prospective basis on, not going back but going forward, would the Legislature be hurting “the company’s” financial condition, their ability to work on new plants. She asked why the Legislature did not just mandate them to make prudent decisions and perform correctly and allow them to recover more of their costs on a prospective basis only.
Mr. Whittemore stated he was not making his comments clear and apologized. There were three components mentioned; the deferred mechanism would be offering to “the company” the ability to recover 100 percent of the prudent costs associated with fuel and purchase power on a going forward basis; the CEP he believed was improperly filed, but there needed to be an accounting of the rate associated with the CEP. The mechanism and the basis under which “the company” could recover must be proven either in the hearing mechanism established under the bill, or some similar mechanism and for that “the company” would get 100 percent recovery for the portion that “the company” could prove their case. With respect to the bulk of the discussion, he indicated his client’s position was “the company” should be forced to make their case, as Assemblyman Parks had suggested, and as long as it was prudently done and there were appropriate controls and incentives, that mechanism would allow “the company” to recover 100 percent of costs. The only portion he had discussed that would be subject to adjustment would potentially be the issue of the F&PP rider. It would seem, since the utilities had agreed, there was a small percentage that was “capped” and not recovered, for example if “the company” did not recover $100,000 from January to February, under the agreement “the company” could carry forward $50,000 of the $100,000 they did not recover and it would go into the next adjustment. There was always a percentage, agreed upon under the settlement and approved by the PUC, that “the company” would not recover. Those provisions were the provisions he deemed would be very unwise to allow them to now go back, under a deferred accounting mechanism, and recover costs when the consumers had that piece of the rate that was guaranteed until at least March 2003 to be capped. This was a very important piece that needed to be worked through with the utilities and other parties. The Consumer Advocate and others involved in the negotiation would tell the committee that piece of the accounting would be very substantial for the benefit of the consumers of this state. The short answer was 2/3, or 7/8, whatever the percentage was, “the company” could get a 100 percent recovery of the 1/8 that was impacted by the F&PP rider or the 1/3 would be a small adjustment and the rate would be capped.
Chairman Bache asked Mr. Whittemore to submit any proposed amendments to the bill as soon as possible. Mr. Whittemore stated he knew everyone had an interest in the issue and he would try to draft something quickly that would meet with the committee’s approval and he submitted a temporary list of proposed language (Exhibit C).
Donald Soderberg, Chairman, Public Utilities Commission (PUC), introduced Crystal Jackson, Secretary, PUC, here to testify to the procedural aspects of the bill. The procedural processing of various filings at the commission and the noticing of those filings were her responsibility. Mr. Soderberg also introduced Neill Dimmick, Director of Regulatory Operations, PUC, whose duties included supervision of two-thirds of the agency that actually processed portions of the filings and made recommendations to the commission in regard to the verification of a filing and in what way the commission should rule with respect to a rate case — what was prudent, what was not prudent, verifying numbers, etc.
Mr. Soderberg stated he would like to discuss the sections of the bill the committee wanted to address in the hearing. He referred the committee to Section 10 and Section 22. He believed there could be some clarification necessary. When he had read these sections it appeared that the sections required a unanimous vote to raise rates and only in a financial emergency. The PUC had an informal discussion with Mr. Powers and Mr. Ziegler and they had expressed the opinion the bill only operated to require a unanimous vote in applications that were brought before the PUC during a financial emergency. If that clarification were added to the bill he felt the PUC could look at the legislative history if there was any debate over the issue once the bill was implemented.
The actual language of the bill required that commissions vote at a hearing. The PUC was a bit confused by the language. He indicated the commission process was like a civil judicial proceeding where each case that went to hearing had an evidentiary hearing, and sworn testimony and evidence was taken. Commissioners did not typically vote at the evidentiary proceeding and each commissioner acted as a presiding officer, such as an administrative law judge, administering the process, writing a proposed order based on the evidence, and submitting findings to the full commission at an agenda meeting, which was also a public hearing. The process allowed all commissioners to have the opportunity to review the transcripts, which took time to prepare, and then review the documentary evidence that had been submitted and compiled. In their discussions with Mr. Powers and Mr. Ziegler, they believed there was no intent to change that process. The hearings would still be an evidentiary hearing and at some later public hearing the PUC would vote with all commissioners present. With the clarification on the record, the PUC would have no problem with the section.
Mr. Soderberg stated Sections 17, 19, 21, and 22 attempted to create a new process for filing and processing the rate cases. While he understood, based on Mr. Parks’ presentation, there was a goal to be accomplished in the new process, he believed the actual language of the bill placed the PUC in a situation to be unable to reach the goals. Ms. Jackson would give the committee some suggestions regarding the mechanical problems in the bill that could prohibit the PUC from reaching the goals of the drafted bill.
Crystal Jackson, Secretary, PUC, referred the committee to Section 19, subsection 4, on page 6. She had presented the committee with a handout (Exhibit D) that explained the changes the PUC requested. The bill provided for the commission to publicly notice the application not later than three days after the date of the filing. She stated it would be an impossible task for the commission to accomplish. Filings of this nature generally were received by the commission at 4:50 p.m. The filing then went through extensive review by the legal case manager to ensure the filing was in compliance with state laws and commission regulations. The general counsel’s office then reviewed the draft notice. The newspapers required a two to three day minimum for publication of the notice. With the newspaper requirements alone, she indicated, the commission would not be able to adhere to the three-day timeframe.
Mr. Soderberg placed a large bundle of paperwork at this time on the witness table to indicate to the committee the size of the rate filing application typical of the type received at 4:50 p.m. He stated it would take the commission more than a day or two to check the paperwork for completeness. The application would have to be completely reviewed to make a determination if a statute had been met. The notice would then be drafted and would attempt to encompass everything in the file before submission for publication. Ms. Jackson stated she had failed to mention the filings were quite often made in the Las Vegas office of the PUC. The PUC did not have staff in the Las Vegas office to process the paperwork administratively. The application would have to be sent to the Carson City office, allowing two to three days in mailing time for receipt. The PUC suggested a revision indicating a submission to the newspapers no later than 15 days after the date of the filing. The commission had always noticed any application or tariff filing as soon as possible. They had always made the best effort to give the notice and recognized the importance of the notice.
Section 19, subsection 4(a)(1), required the commission to publish notices for three consecutive days in the two largest counties. She stated three consecutive days would create a problem because of the difficulties involved in getting the newspapers to publish for even one day. If the newspapers were required to publish for three consecutive days, and they only published the notice one or two days out of the three, the commission was not in compliance with the law. She indicated there were a number of newspapers, especially in the rural counties, that did not publish three consecutive days but had a weekly publication or a Tuesday/Thursday publication. The commission would recommend the section state the publication be for one day, the current practice.
Subsection 4(b) of Section 19, which covered protests and petitions for leave to intervene (PLTI), allowed for 14 days after the first notice was published. This could be an administrative nightmare to track when the first notice was published and in what newspaper. She stated also it would be very difficult to obtain the affidavit of publication from newspapers in a timely manner. The commission sometimes received the affidavit 15 days after publication. Until the commission received the affidavit there was no confirmation of publication. The commission recommended acceptance of protest and petitions for leave to intervene for 25 days after date of filing. The commission would track the date of the filing rather than the date of publication in the newspapers.
Subsection 4(d) of Section 19 required written orders in 120 days with a 30-day extension. The commission recommended 150 days with a 30-day extension. Mr. Soderberg asked to elaborate on the issue. Currently, he indicated, the system for any type of rate case or any type of tariff filing whatsoever, even to just correct typographical errors, fell under the 30-day, 150-day suspension rule in NRS 704.100. He believed the policy behind the statute, although a very old law, was to ensure commissions would act on rate cases expeditiously. When the statute was written it did not interface with the current policies of notices or the allowance of petition for leave to intervene. Every tariff filing before the commission was suspended after the first 30 days otherwise the tariff went into effect based on the old statute. The exceptions to the rule were the applications the bill was specifying. The commission would routinely suspend an application for 30 days, which caused administrative problems, and then resolve the case a week later. The process by which every tariff filing went into effect automatically within 30 days was not applicable for today’s environment. The commission suggested any bill that dealt with the subject of rate cases and deferred energy eliminate the 30-day automatic provision and allow the agency and the parties involved to process the cases on the 180-day maximum timetable.
Ms. Jackson stated Section 21, subsection 5, referred to the application to clear deferred accounts. The same noticing requirements were proposed as mentioned previously. Again the commission recommended the noticing timeframes she had suggested previously in Section 19. In Section 21, subsection 5(c), the commission was required to conduct a hearing no later than 15 days after protest and PLTI were filed. The bill effectively gave the commission 25 days from the date of filing to hold a hearing. There would be problems with rescheduling existing hearings and reassigning personnel if other hearings and other dockets had been calendared or committed. Additionally, the proposed section did not provide enough time for testimony by interested parties, depositions, expert witnesses or settlement conferences. The commission suggested eliminating this provision and conducting hearings on an ordinary course with 150-day deadline. Section 21, subsection 5(d) required the commission to issue a written order 30 days after the date of filing. She stated it was impossible for the commission to issue a written order 30 days after the date of the filing considering the open meeting requirements and noticing requirements. The proposed section would cause the PUC to schedule special agendas and dedication of commission resources to meet required deadlines. Again, she suggested meeting the transaction in 150 days.
Ms. Jackson referred to Section 22, subsection 4, on page 9, and mentioned that the same noticing requirements applied. This section referred to the application of substantial financial emergency. The commission asked that the noticing requirements be consistent with the previously requested changes to Section 19. As part of that section there was a request for the commission to hold hearings within 15 days and she requested the entire process be completed within 60 days. The bill provided the commission to issue an order within 30 days.
Ms. Buckley asked Mr. Soderberg about the contracts the utilities currently had in place for the power they would need to buy. She asked if the commission looked at a mixture of short-term versus long-term contracts. Someone had suggested the utility did not want to purchase power on a long-term contract because of the uncertainty in regard to deregulation. The price of power had increased in the short-term contracts and had affected the consumers. She asked Mr. Soderberg to comment on the contract issue and also on the deferred energy issue and how the state could make sure there were prudent decisions made.
Mr. Soderberg stated in the 1990s the state saw a dramatic drop in wholesale energy prices and an artificially low rate for natural gas. He believed everyone presumed the rates would stay the same. The resource planning process at the time focused on delivery of the least-cost power and pushed the utility toward more short-term contracts. At the time, those contracts were the least expensive. The spot market was a great place to purchase power. Then everything changed dramatically. Before the dramatic change there were a number of concepts circulating that explained how to achieve a competitive market. There were two different schools of thought at the time. There was a practical school of thought that examined competition and focused on the practice in the natural gas business. When a consumer group wanted to exercise competitive options there was a filing and then approval. There was a theoretical school of thought, which he believed Nevada was embarking on at a rapid pace and California embarked on “in an all-out sprint,” to dismantle the local electric company as currently known. The utility company was perceived to be the large conglomerate that the state needed to stop from exercising market power. One of the ideas circulated was to allow all customer groups to exercise competitive options with the realization most customers would not want to leave the utility company. The PUC would then take the customers in blocks and assign them other companies. Nevada Power Company and Sierra Pacific Power Company would not be the local incumbent electric company. This was a position adopted by the prior PUC and its staff, and a position that was slightly modified in S.B. 438 of the Seventieth Session. If the committee examined how the state was moving in regulatory decisions and the actual statutes of the last session, the utility did not have an assurance that five to ten years ahead they would be the retail electric provider for all customers. He believed that fact was a disincentive for long-term contracts, even when the long-term contracts started to look more prudent.
On the issue of deferred energy, Mr. Soderberg stated the complaints customer groups and policymakers had about deferred energy, when the state considered eliminating the policy, was there was no incentive for the utility to make prudent decisions. If the company made profits by acting wisely versus the other instance where everything the utility spent was just reimbursed, the focus would be on where the company could make profits. In an era of declining costs, with each deferred energy case brought before the PUC there appeared to be the notion from various consumer groups, large and small, that the utility was not getting the maximum benefit of the declining costs because they were not putting enough time into smart buying decisions. It was the PUC’s belief the return to deferred energy should include a component focused on prudence. The PUC needed to focus on prudence when reviewing cases. The commission needed a mechanism, either by statutory decree or by PUC regulations, to process deferred energy cases to create incentive mechanisms. The state must incent “the company” to make better decisions, so it would be in “the company’s” best interest to do so.
Mr. Whittemore had spoken about the global settlement and Mr. Soderberg stated the settlement was structured in such a way that when it was brought to the PUC for approval, the commission was told if “the company” could not recover every penny that they spent and was guaranteed to lose some money on the settlement they would have a very strong incentive to make the best purchases they could, thus protecting “the company’s” bottom line. “The company” made better, more prudent decisions because of the profit margin. In a deferred energy mechanism there needed to be incentive for “the company” to make the best decisions, and disincentive for not making good decisions. Whether the mechanism was 95 percent recovery or more complex he was not sure. The concept was new and there were no written specifics in case history to use as guidelines. He believed the concept needed to be put into a rule-making proceeding where the committee would have the benefit of the knowledge and research of the regulatory operations staff, the Consumer Advocate and consumer groups that could spend some time getting into the subject.
The question was asked, Mr. Soderberg stated, in the commission’s procedural presentation and that was important. The draft of the bill, if enacted as written, would have the PUC conducting a deferred energy bill in 30 days. He had seen other drafts of deferred energy provisions that required 50 days. That type of timeframe worked contrary to doing a thorough investigation and an analysis of the prudence of “the company’s” actions. A 30-day, 50-day or even a 100-day provision would mean a “rubberstamp” of whatever was filed. He urged the committee to give the PUC a full rate case time period to complete a deferred energy case. A deferred energy case was a rate case and was as complex as a general rate case. The PUC asked for some language in any deferred energy proposal to give the PUC the ability to create incentives and disincentives to be assured in times of rising rates and lowering rates “the company” made the best decisions.
Ms. Buckley stated the committee wanted to make sure the time period was correct. No one wanted to hurry a case or “rubber stamp” an application. She believed, on the issue of deferred energy and how it worked, the issue had to be put into the statute. However the deferred energy was structured, either by a list of factors, incentives, percentages, etc., she asked how the PUC determined if the utility could secure better prices by securing long-term contracts and in the state of uncertainty, the utility might feel it would be an imprudent business decision. She asked how the PUC would address that issue.
Mr. Soderberg stated Ms. Buckley’s question led into the next portion of the presentation, in Mr. Dimmick’s handout to the committee (Exhibit D) outlining suggested timeframes for implementation. The PUC had discussed various timeframes with Mr. Ziegler and Mr. Powers and realized they could not complete all of the cases at one time. The PUC had mapped out when items should be completed and when the parties could participate. They concluded the PUC needed to have the utilities update their resource plans. Long-term contracts were reviewed and approved through a resource plan. Once they were approved they were deemed prudent. It would be unfair to tell the utility to enter into a long-term contract with approvals and then negate the action four or five years later, state the contract was too high and tell the utility they were not going to recover. The state needed to have resource planning that would examine long-term and mid-term contracts. If the state were to tell the utility in the next deferred energy filing a complete reliance on the spot market and short-term contracting would not be prudent, the PUC needed a mechanism where the utility could get the deferred energy plan pre-approved. The PUC would be doing a better job of processing the initial deferred energy cases if there was the time to update the resource plans for the northern and southern division of the state before the deferred energy filing.
Assemblywoman Tiffany asked for clarification of prudence. There were many components to solving what was prudent including the base and how to measure it, what was recoverable, etc. She asked Mr. Soderberg if he believed it was best to put a formula in statute or was prudence such a variable that the PUC needed the discretion. Mr. Soderberg stated his preference was the PUC should create regulations that gave them the time to examine the subject. The statutory charge to create the regulations he believed should be specific within the parameters. He had been advocating specific statutes for the last three sessions because of disagreements in interpretations of statutes in the past. The actual mechanics of what actually was prudent would be hard to define in language today. He stated the PUC should be charged to examine prudence by regulation with specific types of characteristics and qualities that the committee wanted to see present in a deferred energy case and how the PUC should examine prudence. Ms. Tiffany asked if the formula could change, if the committee did decide a formula and put it into statute would it be too inflexible. Mr. Soderberg stated if the committee would implement a mathematical formula into statute he believed the PUC would have something that would work in the short-term; however, it would change. These types of formulas could be different if there was an era of declining costs, or in an era of stable costs. The formula could change as the state dealt with growth. He would not want to put into statute a percentage type of mechanism. He indicated the PUC had often looked at percentages as a proxy for prudence. The parties involved in the global settlement had assumed if there was a certain amount of cost “the company” could not recover, that would give the incentive to make the prudent decisions. Therefore the PUC did not have to look at each decision to examine the prudence. He would prefer to examine each transaction and take a laborious amount of time and effort in each deferred energy case to actually look at each transaction to ask the question if each transaction was the best one for that particular day. The questions could be asked at that time if everyone was buying gas at one particular price and “the company” bought the fuel at 10 percent higher that would mean they did not make the best decision. If, for instance, “the company” bought the gas on a particular day for the same price everyone else was paying then the transaction would seem to be reasonable. If “the company” paid higher then it could suggest they did not research prices that day. Mr. Soderberg realized the method would create a lot of work for people, but he felt it was the only true way to examine and test for prudence.
Assemblywoman Von Tobel asked what incentives were given “the company” to look for the best price. On page 8, subsection 6, there was a question of “the company” keeping any return if their equity exceeded the allotted rate of return. She asked if she understood the section stated “the company” would not be allowed to keep any profit and if so, where did the incentive take place. Mr. Soderberg stated the current language of the proposed statute as well as the language stated in deferred energy before it was repealed, there was no incentive to make the best decisions. There were probably actual times when making better decisions worked against the utility. Ms. Von Tobel asked if that was still the case in the new language. Mr. Soderberg believed that was correct the current language in the bill did not give “the company” the incentive to make the most prudent decisions.
Ms. Buckley commented it had been stated the language did not include incentives and that was something the committee wanted to work on. In examining Mr. Soderberg’s proposals for timelines she imagined “the company” would state the wait until October 15, 2001 would be too long. At this time the utility was not recovering costs and needed to move to an era where they were recovering more of their costs so they could make the investments the state was telling them to make. She believed the utility was facing financial instability. She asked if the proposed deadlines from the PUC would hurt the utilities’ goals. Mr. Soderberg stated the issue of whether the PUC did a general rate case or a deferred energy case first was irrelevant. He believed, and some of their opinions were instigated by the utility over the past few months, the utility received regulatory certainty to a certain extent on the date a deferred energy bill was signed into law and the date they could begin deferred accounting. The PUC designed their proposal for discussion, not because they believed a deferred case should be handled first or a general rate case first, but because the general rate cases could be done quicker. Last Friday, in the context of the CEP filing, Commissioner McIntyre ordered the utilities to file what amounted to the information that usually was disseminated under a general rate case. The information was being developed at the present time. Mr. Soderberg stated because both utilities were now one company the PUC could run those cases in parallel and create some administrative efficiencies. From the perspective of the PUC it would be better to take advantage of the work being done today and get through the general rate cases as soon as possible and then do a staggered deferred energy case. He advised the committee the issue was presented for discussion and did not necessarily have to be as he had demonstrated. In interpreting the statute, the CEP case and the F&PP cases “stop,” and according to Section 102 of A.B. 661 the other rates were in effect. The proceedings that were underlying the issue stop. The commission’s case and the CEP docket closed, the commission’s various dockets for each F&PP rider closed. The PUC was doing a lot of the work right now, however, with the utility putting the information together. He suggested the state take advantage of that efficiency.
Chairman Bache stated a concern about the timelines that he remembered in the 1997 session. Many of the utilities at that time were complaining about the PUC not acting in a timely manner and the committee amended the timelines for the various hearings at that point. It seemed as if Mr. Soderberg was asking the committee to expand the timelines out again. Mr. Soderberg did not have a good recollection of the last session and was not in charge of the administration at the agency. Mr. Bache stated he was referring to the 1997 session when Mr. Soderberg was handling the Southwest Gas bills and other commissioners were handling other bills. One of the major issues was timelines at that time. Mr. Soderberg stated there had been a frustration with how long things take. Clearly, he indicated, he brought a frustration with him from his days in private practice when he was appointed in 1995. He believed complex cases did take time. There was a significant amount of time involved in reviewing a filing to make sure it was noticed properly, to make sure that the PUC even accepted it. There was a great deal of time spent in the exchange of information passed between his staff, the Bureau of Consumer Protection, the utility and other parties. He had found that hearings involving complex matters such as these would take 10 to 15 days of actual hearing, which then created a long time for the commissioners to review the record. The PUC had attempted to move cases along quicker and found the practice to be unacceptable. His office felt the timeframes in the current draft of the bill did not give them enough time to adequately process these cases and the timeframes for noticing would be impossible to meet. He understood from the formal conversations of the previous day there was a desire on the part of the Legislature to move the process along in an expeditious manner. If there was concern about the 180 days being too long for a complex rate case, he suggested the days could be reduced to 150. He was not comfortable with the timeframe but if there was a shorter deadline it would be better than imposing too many quick timelines in the beginning.
Neill Dimmick, Director of Regulatory Operations, Public Utilities Commission (PUC), had stated their concerns with Section 102 of A.B. 661 in discussions with the Legislative Counsel Bureau (LCB). The section stated, “On the day immediately following the last day accountable for by its most recently filed fuel and purchased power rider, Nevada Power Company shall begin to use deferred accounting.” The PUC was concerned there were always filings pending and as they were processed they were filed 45 days before they went into effect. The issue was whether the section meant those that were in effect or the most recently filed. The answer affected the other provision they had concerns about. The filings were based on historical periods and the section implied the PUC would go back for a minimum of three months from the date selected and let “the company” retroactively use deferred accounting for three months. This was the issue Mr. Whittemore had mentioned to the committee. The section suggested moving back instead of moving forward with deferred accounting.
Chairman Bache asked for legal counsel to give the committee a definition of the language intent in the section. Mr. Powers stated at the time the provision was drafted there was discussion as to exactly what period in time was intended to be covered during the transition period. As Mr. Dimmick had testified the section did have the potential to capture past periods that may have not been intended when the bill was drafted. Because the F&PP riders were filed in the manner Mr. Dimmick described there was the potential the language could be interpreted to capture a past period.
Mr. Dimmick stated there were a few other points he wanted to present to the committee for their consideration in the deliberation of the bill. Section 21, subsection 3(a), suggested not later than 30 days after the last day of a 6‑month period of deferred accounting the electric utility had to file. The problem mechanically with 30 days was “the company” was on cycle billing and the last information would not be available related to the recovery of cost in the period until at least 30 to 33 days later than suggested in the bill. He suggested the proposed language could be changed to 45 days and the billing information would be available to “the company” in order to file a complete report and account for all of the period filed for. Section 21, subsection 6(a), established a one-year recovery period. In the past they had encountered situations where there had been a run up in costs or some other mitigating circumstance where the commission and the parties had agreed to extend the period beyond a year in order not to have increased bills. He suggested the committee consider in general mentioning one year but giving the commission the flexibility to alter that year if there were mitigating circumstances.
Douglas R. Ponn, Vice President, Governmental and Regulatory Affairs, Sierra Pacific Power and Nevada Power, introduced William K. Branch, Director of Rates and Regulatory Affairs for Nevada Power and Sierra Pacific Power, and William Peterson, Senior Vice President and General Counsel for Sierra Pacific Resources. Mr. Ponn complimented the sponsors of the bill for confronting straightforwardly the question of deferred energy. It had been helpful in solving some of the issues before the legislative session. Hopefully, he stated, there would be resolution out of the many discussions. Mr. Ponn would sponsor and explain proposed amendments to A.B. 661 (Exhibit E). The witnesses would recommend changes to specific sections of the bill and Mr. Peterson was present to talk about the merger and acquisitions provisions of the bill.
Mr. Ponn stated his team had proposed a similar amendment to A.B. 369 earlier in the day. The amendment would delete Sections 7 through 25, 34, 35 and 103 and add new sections to implement how “the company” suggested the deferred energy process be reinstituted and transitioned into Nevada rate-making going forward. The amendment was filed in the spirit of asking the committee to tell “the company” what they wanted and what the committee thought would work. There were items of controversy that other parties would have problems with. He did not want to tell the committee the amendment was noncontroversial. The first suggestion “the company” made in the amendment was the provision added to reinstitute deferred energy to recover their fuel and purchase power costs and would allow the commission, under Section 6 of NRS 704.110, by adding new language, a future test period for items when establishing deferred energy rates. In traditional or past deferred energy cases two things happened. The PUC determined how much the utility had over- or under-recovered by comparing the cost charged to customers for fuel and purchase power in comparison to what it was paying for fuel and purchase power and created deferred energy accounting adjustment or a balance in an account. The balance was then refunded or collected from customers going forward into the next period. The second thing that happened was the base rate was reset and what the commission thought was the most appropriate rate going forward to minimize those under- or over-recoveries. The suggested provision would allow the PUC to use data other than historical and utilize projections of the future and set rates based on those expected events. The setting of the rate would be more accurate.
Mr. Ponn stated the second proposal “the company” recommended was new language for Section 7 of NRS 704.110. The commission would be allowed to amortize balances in the deferred account over a period of time not to exceed three years. In the past the statute required the balance be amortized over the next one-year period. An argument could be made the statute created swings that could be smoothed out if the commission had the discretion to amortize the balance over a longer period of time. Mr. Ponn stated as an example if ”the company” were filing a case right now some might argue the level of prices for fuel and purchase power were at a high point and if there was evidence presented in the case that the prices were expected to drop, the commission could chose to amortize the current balance over a long period of time so that rates would not be increased as a result of the current case and then decrease rates in the next case. The effect would be the levelizing of rates and fuel costs. There was also a provision in the same section that said “the company” would not exceed their authorized rates of return as a result of using the recommended process. The suggested new language for Section 8 of NRS 704.185 was a proposal by “the company” to include a number of items in the deferred energy process, including capacity charges, which had been an issue at Nevada Power Company over the years and hedged another cost necessary to manage the fuel and purchase power portion of the utility business. He stated they had added another provision in subsection 2 that limited over-earning by comparing the average rate of return during the recovery period.
Mr. Ponn stated in the next proposal they recommended the amending of Section 102 by deleting lines 1 through 3, and on pages 35 and 36 deleting lines 1 through 35 and inserting a timetable for filing the deferred and general rate cases going forward. He stated in general he agreed with Mr. Soderberg’s testimony regarding the major advantage to be derived from reinstituting deferred energy would not be the cash flow advantage that came from the time of filing and processing cases but rather the financial advantage and the support and improvement of “the company’s” financial condition from starting to defer the charges so that the charges could be put in the books and not written off.
Mr. Ponn stated there had been some discussion in regard to incentive mechanisms wherein the state might establish a system that stated “the company” could collect 95 percent or 90 percent of their fuel and purchase power costs. He expected the fuel and purchase costs for the year 2001 to approach $2 billion. If 5 percent of the number was taken it would be $100 million, two-thirds of “the company’s” earnings for the year. “The company” generally supported the idea there should be some kind of incentive ratemaking surrounding deferred energy. He believed it should be symmetrical and if there was some opportunity for “the company” to under-recover its full costs because of inefficiency or over-recover because of some efficiency “the company” was able to secure it would be symmetrical and fair. He could not resist quoting a former employee regarding resource planning. Ralph Caldwell was previously the manager of resource planning and stated the “carrot” in Nevada was an orange painted stick. Mr. Ponn stated he did not believe the Legislature wanted to implement that type of legislation. He believed everyone was interested in producing a system that was as efficient as possible. Mr. Ponn stated the deferred cases of “the company” did receive a large amount of scrutiny in the past for prudence. He did not believe there was any item that was not subject to challenge.
Ms. Buckley stated Mr. Ponn had recommended January 1, 2001, for the beginning of deferred energy. Everyone she had spoken to on the consumer-protection side had stated the best way to begin was prospective. Mr. Ponn stated there was logic for a number of dates. The January 1 date corresponded with the date under the CEP where they had started tracking under- and over‑recoveries. The rates that were in effect today that had changed April 1 as a result of the last F&PP rider filing implementation derived from numbers and costs generated on February 15. That date could also be supported by some logic. The CEP rates went into effect March 1, 2001, and some would argue that was the appropriate date to start the deferred energy accounting because when the first deferred energy case was ultimately litigated the rates that had been collected from customers versus the costs created by the CEP would be captured. There were a number of dates, he stated, and each had a certain amount of logic attached. The financial community would view the earliest possible date as the most favorable. He did not believe the dates reflected any “double-dipping” or over-recovery. At some point in the future, “the company” would start deferring at a given date, run through some experience, present a filing at the commission, and that would be litigated. Anyone could argue “the company” should not have as much money collected in rates for that period of time; therefore, using the deferred energy accounting mechanism, there would be a refund at that point.
Assemblywoman Tiffany asked what over- and under-recovery meant. Mr. Ponn stated when the rates were set in a deferred energy process then the customers were charged the rate and as “the company” went forward it incurred costs to produce power by purchasing power or buying fuel under contracts. At the end of some test period “the company” would have collected X dollars and would have spent Y dollars. To the extent “the company” had collected more than they spent they would have over-recovery and a refund would be issued. Conversely, if they spent more than they collected it would be an under-recovery.
Mr. Ponn stated if in the alternative the committee did not adopt the proposed amendments or some form of the amendments, “the company” wanted to give comments on sections in the bill that were noticed for the hearing. Sections 10, 22 and 25 dealt with every member of the commission proving certain matters in certain subparagraphs. He had made the comment in previous testimony and reiterated he believed it would be very difficult to receive a unanimous decision on several of the key issues such as rate increases and transactions. In the view of “the company” the language would allow for a minority veto of some decisions by the commission.
William K. Branch, Director, Rates and Regulatory Affairs, Nevada Power and Sierra Pacific Power, provided comments on Sections 15 through 21 of A.B. 661 (Exhibit E). His company’s understanding of the rate mechanism as presented was there would be three types of rate filings or tariff filings before the PUC under A.B. 661: the general rate application, the application to clear deferred balance, and the substantial financial emergency application. It was “the company’s” understanding NRS 704.100 and 704.110 would no longer apply to electric utilities. In addition, the application to clear deferred balance would only deal with clearing the balance and would not reset F&PP rates as was previously done in deferred cases. In previous deferred cases there was a base tariff energy rate (BTER) for going forward costs and a deferred energy accounting adjustment rate (DEAA) for recovering or refunding past costs. He believed under A.B. 661 only the DEAA portion of what was a deferred case would be dealt with in the application to clear balance. The BTER or its new equivalent would only be reset with other rate components in a general rate case, he indicated. Mr. Branch stated “the company” believed both the BTER and the DEAA rates should be set in a deferred case as was done in the past. Their proposed amendments provided a mechanism to implement the changes proposed. In the current version of A.B. 661 they would propose a modification to allow for both types of rates to be set in a deferred case.
Mr. Branch stated specifically in Section 15 the term ”rate” was defined in a very broad sense and included not only what were traditionally rates and charges, but also tariffs. For example, under the existing laws and regulations the utility was able to make nonprice tariff changes without filing for a general rate case. The bill appeared to preclude such filings without a full general rate case. He suggested the committee delete subsection 2 of Section 15 to allow the utility to make tariff changes without a general rate case application.
He stated there were several proposals for Section 19 of the bill. In subsection 3 on page 6, lines 1 through 5, he suggested deleting the phrase at the end of the subsection stating “or by an order of the commission issued after the date of the filing.” He believed the language would allow the commission to basically change the rules of what was required to be filed after a filing had been made. If the filing requirements needed to be changed then there should be a rule-making process and know ahead of the filing exactly what needed to be included in a filing. Subsection 5 of Section 19 allowed for the certification of the test period up to six months past the end of the historic period as was done now. He believed there needed to be some time allowance added for the commission to hear and decide such a case if there was a certification. He suggested language similar to NRS 704.110, subsection 3, “within 90 days after the filing with the commission of the certification required in the subsection or before the expiration of any period of suspension, order pursuant to subsection 2, whichever time is longer the commission shall make such order in reference to those rates or charges as required by this Chapter.” He suggested the language allowed the commission, if the 150-day period were reached today, and they needed additional time to deal with the certification, an additional 90 days. He believed the suggestion would be prudent to include the language or something to that effect in the bill. Section 19, subsection 7(b), on page 7, lines 15 through 20, appeared to allow for no time limit as to when the commission would place the rates into effect after an order was issued. He suggested adding a phrase at the end of subsection 7(b) that would state “but in no case no later than 14 days after the Commission order.” In Section 20 the section allowed for some exemptions to the provisions of Section 19 if a filing decreased or discontinued a rate. Today the utility had the ability to file for a new rate schedule that did not increase revenues by more than $2500 without filing the full general rate case. He suggested a phrase be added to the section at the end after “rates, or for a new rate which would result in an increase in annual gross revenue as certified by the applicant of $2500 or less.” The language was currently in NRS 704.100, subsection 4. In Section 21, subsection 3(a), line 43 of page 7, he proposed changing 30 days to 60 days. This would allow “the company” time to close their books and retrieve all of the information needed for the test period and prepare the filing.
William Peterson, Senior Vice President and General Counsel for Sierra Pacific Resources, directed the committee’s attention to Section 25 on page 11. The section had a provision that basically allowed the commission at any time after they issued an order, construing also a final order, to amend, modify or change the order. Mr. Peterson stated the language made every decision or order of the PUC nonfinal and could inadvertently affect the utilities right to appeal because a court could state there was no final order since the commission could make any changes it wanted. Even after a court issued an order he could construe the provision as allowing the commission at any time to amend or modify its original decision. He had never seen a provision in any other NRS like the one proposed where the statute allowed an administrative body at any time to go back and amend its final order. He believed it to be unwise and imprudent for the provision to remain in the bill, as it did not provide any certainty to any of the parties in a litigated or contested case. He would recommend the committee delete the language and allow a final order to stand as a final order as it always had done.
Mr. Branch referred next to Section 102, subsection 3 and proposed identical language as the amendment (Exhibit E). It was “the company’s” understanding the CEP rates and the F&PP rates would remain in effect under A.B. 661 until the general rate case was completed. The utilities had proposed added language to the proposed amendment and to clarify Section 102.
Mr. Peterson commented on Section 103, which was also related to Section 35. Section 103 was also an unusual provision and he was operating under the assumption the provision was directed to close a loophole that perhaps the legislators perceived with respect to Sierra Pacific Resources acquisition of Portland General Electric. As the committee was aware, the existing statute did not confer jurisdiction over the PUC to review that particular transaction. The provision seemed to extend jurisdiction over that particular transaction. There were two issues with respect to the action. He questioned the wisdom of the Legislature enacting a statute that retrospectively changed a transaction that had already been reviewed and approved. This particular provision basically said that anything the holding company, Sierra Pacific Resources, had done since January 1, 1999, with respect to any other entity, no matter how inconsequential or small, provided it had not closed action yet, would render any transaction void. Perhaps, he stated, “the company” had a subsidiary that dealt with retrofitting energy conservation devices that may have required an office in some other location that was also a separate corporation, the provision would practically undo that transaction unless it were finally consummated. He stated if he was correct in his interpretation, and if the intent was to protect the state from unwise decisions of the holding company in making substantial investments in other entities, this particular provision should be amended in order to limit it to just those substantial types of transactions rather than any minor transaction that might have occurred since January 1999. In addition, he stated he believed it could affect, or cloud, the merger of Nevada Power and Sierra Pacific Resources that occurred after January 1999. The transition had been consummated in July 1999. As the committee was aware there were conditions attached to that transaction to divest the generating plants not only by FERC but also by the PUC. One of the provisions in the bill stated all terms and conditions of the transaction had been satisfied. One could argue, he indicated, terms and conditions were not all satisfied because the plants had not been sold; therefore, the transaction, already consummated with stocks exchanged and traded on Wall Street since July of 1999, could be considered void. Mr. Peterson suggested the statute should be amended to not return retrospectively and try to cover transactions that may have been consummated. This provision also related to Section 35, the merger and acquisition section, he added. He indicated this provision changed the existing law that formally was intended to prevent a Nevada utility from being acquired. There was an exception to the acquisition of a utility in the state if only 25 percent of the stock in that utility were transferred in connection with the transaction. If a utility sold a piece of their company that was less than 25 percent, the transaction would not fall under the anti-acquisition statute. The bill had made some changes that he believed confused the whole process.
Ms. Buckley asked if “the company” could submit their comments in writing because it was very difficult for the committee to follow all of the section changes. For example, she knew Section 35 was intended to address the concerns of many in regard to Nevada residents paying higher bills to finance the acquisition of Portland General Electric Company (PGE). PGE’s ratepayers had been guaranteed a rate freeze or a roll back for many years. She stated during the work session the committee could work through the intent to make sure the language was refined.
Ms. Leslie needed clarification in regard to the energy options. She stated if a large electrical user contracted with a new power plant would they receive a better rate or would they be able to leave the market. Mr. Ponn stated the document he believed she was referring to was the proposed amendment made to A.B. 369 in the Senate. One proposal was to have a mechanism whereby large customers, over 1 megawatt, who could show they were getting at least 50 percent of their service provided by a new resource would have the ability to stop procuring energy from the power companies. Ms. Leslie asked if the proposal applied to the Assembly’s bills or just the Senate bills. Mr. Ponn stated it was their opinion it was appropriately introduced in the Senate because of other amendments proposed to the bill in the Senate and then would return to the Assembly. Ms. Leslie asked if he could clarify the differences in rates question. Mr. Ponn stated there would be no difference in rates on the part of “the company,” but rather those large customers could try to secure additional resources for the state that everyone thought was a benefit. The proposal somewhat followed the Consumer Advocate’s model. If the large customers could increase the total supply available for Nevadans and if they ended up with a lower rate as a result of that action and if they could show that when they left they did no harm to remaining customers and if they want to come back they do no harm in coming back, then the large customers would be sanctioned. Ms. Leslie asked if the market was in Nevada, would not the suppliers build plants anyway. Mr. Ponn stated there were two arguments relating to the question. One argument said the state had to create an environment were alternative sellers were incented to come to Nevada’s market to compete because, in this case, the utility had divested its power plants and made the environment more fruitful for competitors. The more current argument stated there was a shortage of energy and sellers would build in order to meet that demand and receive the benefits from the high price and the shortage.
Assemblywoman Von Tobel believed there was a clarification of what Section 103 did but did not know if it was also a clarification of Section 25. She asked if legal staff could clarify why Section 25 was in the bill. Mr. Powers stated Section 25 was part of the new rate-making scheme devised by the bill and, as Mr. Ponn stated, it provided the commission with the ability to issue supplemental orders to amend, modify, supplement or carry out their prior orders. The language was a grant of authority and he believed the intent of the grant of authority was to provide the commission with the ability to review its prior decisions if necessary to carry out the rate-making provisions of the bill.
Ms. Buckley asked for clarification in regard to a large customer proving they were bringing energy to the state. She understood there were a number of power plants that were in the planning stages, possibly four, and it sounded as if they were going to build no matter what happened. If a large customer found a good deal with the new power plant did that mean ipso facto they had brought the new energy to the state? Mr. Ponn stated that was an interesting question and there could be an option for credit for bringing a new capacity to the state. He stated the burden would be on those customers that had an alternative to show the commission the proof. It would be his suggestion as a result of them leaving the system there would be an incremental capacity that would have not been there if they had stayed with the system. Ms. Buckley stated she thought Section 25 needed a lot of work. She would not consider that a “friendly” amendment to A.B. 369.
Assemblywoman Buckley was assigned to chair the meeting while Mr. Bache left the room.
Joyce Newman, President, Utility Shareholders Association of Nevada, stated she would be preparing comments in writing for the committee’s perusal. She stated Section 17 of A.B. 661, on page 5, contained “the provisions of NRS 704.100 and 704.110 did not apply to any rate that was subject to the provisions of Section 7 through 25 of this act.” NRS 704.110 spoke mostly about general rate-making and subsection 7 said “a utility facility contained in a resource plan for the purposes of rate-making deemed to be a prudent investment.” Her familiarity was due to her organizations presenting that legislation to the legislators several years ago. In most cases NRS 704.110 had only applied to general rate case applications. She believed in southern Nevada in some cases, Nevada Power actually did pre-file some purchase power contracts with the PUC for approval. At that time a determination of prudence was conducted. If that provision was to be repealed with A.B. 661 the state would lose an opportunity to review pre-filed applications. She also mentioned Section 102 and expressed her concern and was encouraged the committee would be reexamining that section. She thanked the committee for their leadership in bringing the issue of deferred energy to the legislative body.
Fred Schmidt, Representative, Southern Nevada Water Authority, was present to address any questions the committee could have on the rate portion of the bill in regard to testimony from last session. He did have some general comments on sections of the bill as to the impact on large and small customers, in particular the Southern Nevada Water Authority. He had a concern with the drafted language in Section 19 of the bill in regard to the ability to file a general rate case application if a case had not been filed within the immediately preceding four months. He stated a procedural order was issued regarding a general rate case to be filed by April 27 by both Nevada Power Company and Sierra Pacific Power. He was not sure, but was concerned about the relationship of the implementation of the section and the requirement later in the bill to have a general rate case when in fact there was a filing pending by the time the bill passed.
Mr. Schmidt stated Section 19 also needed to refine the language as related to the timeframes from an intervener’s perspective. If there was an intervener required to intervene within the timeframes shown in the bill, but the notice was not received by the intervener until after the first day it was published, many interveners would not be aware of or have time to contact the clients or participate. The intent was good in terms of expediting the process; however, the timeframes needed some refinement. Currently in the law the timeframe for general cases allowed for 150 days plus 30 days and had been in statute for a long time. He stated there was a considerable amount of history and many regulations taken into consideration in the determinations rendered in a general rate case. If the timeframe was shortened it could compress the rights primarily of the intervening parties as well as the commission and its staff to process the case. He stated it worked as a detriment to those that participated in the cases as opposed to those that filed the cases. There were studies done in the 1980s on the timeframes when there were a number of bills proposed relating to regulations. Nevada was found at that time to have one of the more expeditious statutes in terms of timeframes. Recognizing that point he felt there was not a need to shorten the timeframe. He echoed the comments of the prior speakers in regard to deferred energy. As long as the utility was entitled to defer the costs and had some assurance in any deferred mechanism of recovering them, the utility did not have as significant a reason to expedite the process because they would receive the costs anyway, particularly if they received carrying charges, as was the historic practice, they would not lose anything even for the time delay. He stated there needed to be a prudence standard if deferred energy was reinstituted. The prudence standard should be added in Section 21 of the bill where the mechanism allowing for the recovery was covered and could be added in subsection 3 and subsection 6. He noted A.B. 369 did have prudence written in and if the bill was running in conjunction with A.B. 661 it did not need to be added. With over 20 years of experience with deferred energy he stated there were numerous examples of imprudently incurred costs through the creation of unregulated affiliates, the actions of the officials of “the company” that were accused of taking bribes and other issues outside of “the company’s” control.
Mr. Schmidt wanted to offer praise for the portion of the bill that required a general rate case. One of the problems with deferred energy was “the company” recovered over the period of the 1990s all of its costs through deferred energy. As the state’s former Consumer Advocate, he related one of the problems created by that situation was the rate design for the allocation of costs to all of the customer classes skewed with the actual cost of serving those classes. The rate design problem led to substantial litigation. When the global settlement was resolved there were three different lawsuits pending related to deferred energy costs and how they were recovered by utilities. There was a perception that recovering costs that were purchase power costs, but not related to energy costs in the mechanism, actually under some arguments allowed “the company” to “double-dip” or double recover the cost of actual capacity for a generation plant. The commission found that to be the case, made adjustments and that was subject to those litigations. If the state went back to deferred energy no one, he believed, would want to return to litigating those types of issues. One way to ensure that would not happen would be to take a section in the bill referencing general rate cases and ensure the general rate case would have to be refiled every three years so there would not be a failure to redesign the rates within that timeframe. Mr. Schmidt said the state could at least allow a deferred energy case every third year to allow for a redesign of the rates in order to get rid of the problem. Otherwise the capacity energy issue that many of the litigants were very familiar with from the last decade would just resurface.
Ms. Buckley stated under the document submitted by the utility the proposal was for deferred energy to begin January 1, 2001, and also cost recovery for sale of generation plants, carrying charges and a portion of time when CEP and F&PP riders were still in effect. With this amendment and the proposal submitted she asked if Mr. Schmidt felt there was any possibility for double or overlapping recovery. Mr. Schmidt stated if the Legislature allowed “the company” to recover their deferred costs back to January 1, 2001, the state would allow “the company” to receive rate relief for costs already incurred for which the law stated they were not entitled. By the law, he meant not only the issue of what was in the law and up until the law was recently changed, but also the law in terms of the global settlement or even the CEP. “The company,” he stated, did not have any entitlement either through the law or through the global settlement to recover each dollar of actual incurred costs, if costs were rising, up until the Legislature changed the law again. The state would allow additional rate increases in order to essentially bolster “the company’s” financial position. There was case law history that showed if the Legislature proposed such action it would be retroactive rate-making. When done by a utility commission it was against the law, and he believed it would be the same when it was done by the Legislature.
Mr. Schmidt stated in regard to costs related and incurred from the power plants and their sale, he believed it was appropriate to allow “the company” recovery and normally those costs would be incurred or reviewed in a general rate case. If the bill provided for a general rate case, “the company” could make its case those costs should be recovered. The amendment he had read required the state to accept or require the commission to authorize liquidated damages. Even if “the company” acted imprudently or had no contract protection for items that had not occurred or were not supposed to occur, such as final commission approvals, if “the company” had not done so and was sued and lost the ratepayers would be exposed for all of the costs. He believed the amendment went too far. “The company” should be allowed to recover the prudently incurred costs in pursuing the sale of those plants. His office had estimates in the range of $15 million to $20 million from Mr. Ponn in previous hearings and he felt the range was reasonable knowing the efforts to pursue the sale of the plants. The recovery of those costs should be reviewed in a general rate proceeding as well.
Ms. Buckley stated there was one section of the bill that could be interpreted to apply to companies other than electric utilities and the area would be fixed in the drafting. Mr. Powers stated he would like to hear from Ms. Tyler in regard to the area of the bill specifically.
Stephanie Tyler, Area Manager, External Affairs, Nevada Bell, stated she could assist with legal drafting from an expert with mergers and acquisitions. Nevada Bell wanted to be clear about the intent of the committee and after conversing with Ms. Buckley and hearing testimony regarding Section 35 she had clarification of intent. Ms. Buckley stated Ms. Tyler’s concern was with Section 35 and that it might apply to other than electric utilities thereby affecting the telephone industry. Mr. Powers stated he was concerned with exactly what portion of Section 35 she was citing. He wanted to know if the direction was toward the existing language in subsection 1, or the new language in subsection 2. Ms. Tyler stated the concern was with the new language referring to the mergers and acquisition in subsections 2, 3, 4, 5 and 6 and also in subsection 1 on the line that dealt with holding companies. Mr. Powers stated the changes in subsection 1 were not a change in the existing law. Subsection 2 was a change in existing law and the changes in subsections 3, 4, 5, 6 and 7 were to carry out both the existing law and the new provisions in subsection 2. If there was concern about the provisions in subsection 2 and she wanted them limited only to an electric utility as defined in an earlier section of the act, it would be done. Ms. Tyler asked if the inclusion of holding companies in subsection 1 broadened the overall application. Mr. Powers stated if she would look at the language being struck it said “an entity that held a controlling interest in such a public utility,” which would be a holding company. The replacement of the term “an entity” with a holding company did not change the meaning. Ms. Tyler stated if that were indeed the case her comfort level would increase. She would also like to have the opportunity to use the resource at Nevada Bell to review.
Ms. Buckley stated Ms. Tyler could have her technical resource person work with Mr. Powers on the intent and then after that if she felt she needed more help to let the committee know.
Timothy Hay, Chief Deputy Attorney General and Consumer Advocate, Bureau of Consumer Protection, Attorney General’s Office, stated his office concurred in general with most of the suggestions chairman Soderberg and Ms. Jackson had made related to the technical and procedural issues on how the new types of applications needed to be processed in order to give all parties adequate notice of the filings as well as adequate time for the parties to engage in a comprehensive discovery process. The provisions covered the upcoming general rate case filings as well as the potential deferred filings that would be extremely important issues in regard to the dollar impact on Nevada consumers. Mr. Hay stated the Consumer Advocate’s office certainly wanted a full opportunity to litigate any of those issues. He wanted to supplement one item Mr. Whittemore referred to in the discussion of the legal basis of the global settlement. There was, the committee recalled, transitory language in S.B. 438 of the Seventieth Session that allowed one final decision in rate adjustment by the commission to account for any deferred cases that were filed after that law was passed. The legal framework for the global settlement and the adjustment mechanism incorporated therein was the result of resolving the deferred case filing for Nevada Power. He stated there were many opinions on whether the action amounted to circumventing the rate cap provision and since the exemption was built into that statute, his office believed the mechanism was legitimate in solving what was at that time a substantial financial problem for the utility that endangered Nevada consumers. Mr. Hay’s office had only briefly read the proposed amendment from Sierra Pacific Power on deferred energy. He believed his office would have a number of suggested changes to that proposed amendment. As Ms. Buckley had noted, the proposed amendment explicitly referred to capacity costs that Mr. Schmidt had indicated had been an ongoing issue in the deferred cases. As the committee would recall, the last deferred case, which was the vehicle through which the global settlement was finally implemented, the dollar amount was $120 million, much of which related to capacity costs. This was a very important issue to his office. He felt it was extremely important that a deferred energy mechanism, when adopted, had both provisions for incentives for “the company” to purchase prudently and on a long-term basis, when appropriate, as well as potential mechanisms for sharing benefits that prudent business strategies would produce for both consumers and “the company.” He reminded the committee before the Sierra Pacific Power and Nevada Pacific Power merger, Sierra had abandoned deferred accounting in the northern part of the state in 1995. There was a sharing mechanism adopted that allowed earnings over a certain amount to be split equally between ratepayers and “the company.” The practice proved to be an effective business tool to minimize the costs “the company” incurred. Mr. Hay’s office looked forward to working with the committee and its staff on a deferred energy plan that was both effective and suited “the company’s” needs as well as the Nevada consumer.
Ms. Buckley stated Chairman Bache had indicated there would be a vote on this bill on April 12. If anyone had any suggestions for amendments she asked they submit them to Chairman Bache and the committee’s staff, Kevin Powers and David Ziegler. The staff would prepare amendments based on the testimony the committee had heard at the hearing and redrafting in regard to deferred energy with appropriate prudency standards, incentives and would try to achieve the public policy goals that were identified.
Ms. Buckley asked if there was any other business to come before the committee and seeing none she adjourned the meeting at 4:21p.m.
RESPECTFULLY SUBMITTED:
Cheryl Meyers
Committee Secretary
APPROVED BY:
Assemblyman Douglas Bache, Chairman
DATE: