MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

May 25, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:12 a.m., on Friday, May 25, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was video conferenced to the Grant Sawyer Office Building, Room 4406, Las Vegas, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Attendance Roster.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Dean A. Rhoads

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

 

GUEST LEGISLATORS PRESENT:

 

Assemblyman John Oceguera, Clark County Assembly District No.16

Assemblyman John C. Carpenter, part of Elko County Assembly District No. 33

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Crystal M. McGee, Committee Policy Analyst

Lydia Lee, Committee Secretary

 

OTHERS PRESENT:

 

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of             Business and Industry

Guy Perkins, Chief Insurance Examiner, Life and Health Section, Division of             Insurance, Department of Business and Industry

Harvey Whittemore, Lobbyist, Nevada Resort Association

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection             (Consumer’s Advocate), Office of the Attorney General

Don Soderberg, Chairman, Public Utilities Commission of Nevada

Andrew L. Barbano, Lobbyist

Michael A. Pitlock, Lobbyist, Shell Energy Services Company

Steven S. Boss, Lobbyist, Nevada Energy Buyers Network

Ernest K. Nielson, Lobbyist, Washoe County Senior Law Project

Kathleen Drakulich, Lobbyist, Nevada Power Company, and Sierra Pacific Power             Company

Bernard T. Santos, Lobbyist, American Association of Retired Persons

Joyce A. Newman, Lobbyist, Utility Shareholders Association of Nevada

Renny Ashleman, Lobbyist, Mirant Americas Incorporated

Thomas E. Wilson, Concerned Citizen

Stephanie Licht, Lobbyist, Elko County Board of Commissioners

David L. Howard, Lobbyist, Silver State Apartment Association

Jon L. Sasser, Lobbyist, Washoe Legal Services Incorporated

Thelma M. Clark, Lobbyist

Lawrence J. Semenza, Lobbyist, Dynegy Incorporated, and NRG Energy             Incorporated

David Lloyd, Attorney

Judy L. Stokey, Lobbyist, Nevada Power Company

 

Chairman Townsend opened the work session on Assembly Bill (A.B.) 618.

 

ASSEMBLY BILL 618:  Makes various changes relating to regulation of insurance. (BDR 57-564)

 

Chairman Townsend explained, this bill was brought by the insurance commissioner.  He said they have a proposed amendment (Exhibit C) resulting from an agreement between the insurance commissioner and Mr. Wadhams (James L. Wadhams, Lobbyist, Nevada Independent Insurance Agents) which explains the language issue stating, the term “producer” would be better defined by using the term “agent and/or broker” instead.  Senator Townsend noted this was the one concern permeating the bill.  He said the language change seems to be acceptable to the Division of Insurance.

 

 

 

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, confirmed, “Yes, it is acceptable to us.  We did work jointly with Mr. Wadhams to draft this amendment.”

 

Chairman Townsend stated, “There is some reference that is a more exacting definition.  Is that also acceptable to you, Mr. Wadhams?”  Ms. Molasky-Arman answered, “Yes, it is acceptable to Mr. Wadhams.”

 

Guy Perkins, Chief Insurance Examiner, Life and Health Section, Division of Insurance, Department of Business and Industry, stated a question arose yesterday about the signing of a form required of a viator (the owner of a policy or the holder of a certificate of insurance under a policy of group insurance) before acceptance of the actual transaction.  He queried whether the form was really necessary or was possibly an invasion of privacy.  He remarked he would like to clarify a couple of things.  He explained life insurance companies began offering viatical settlement opportunities to their own policyholders.  He said in the case of a policyholder who goes directly to his or her life insurance company, the same kind of information required in this statute would be required of the life insurance company.  He elucidated they would ask certain health questions to verify the transaction of advancing money on a death benefit before the “mortality period” on the insured person ran out.  He said well-versed consumers actively participated in the viatical settlement model.  He noted, to his knowledge, none of the professional consumer advocates thought this provision had a negative impact on those consumers.  Lastly, he stressed, in testimony yesterday, Mr. Head erroneously stated there were two sections in A.B. 618 not in the model act; it is an incorrect statement.  He said the section is indeed included in the model act, and in A.B. 618 as well.

 

Ms. Molasky-Arman concluded, stating, Senator Carlton had asked yesterday about the ability of a viator to negotiate the price of the sale of his or her life insurance contract.  Ms. Molasky-Arman declared when she had responded, she had probably used an incorrect term.  She said she should have used “an actuarially correct amount,” which is what insurance companies will pay.  She stated many of the insurance companies will reach an early settlement on these life insurance contracts.  She noted they have established actuarial amounts, based on the life span of the person.  She gave examples regarding these viatical contract payments, which were all viaticated (sold) within 6 months after the insurance went into effect: for a $250,000 policy, they paid $25,000; for a $48,000 policy, they paid $29,238.72; for a $45,000 policy ($3,000 less than the $48,000) they paid $4900.  She said they sell these for whatever they can negotiate with people who are very vulnerable, and some of these people do not check with their insurance companies to determine if they could sell them at a higher amount or return them to the company in exchange for an early settlement.  Ms. Molasky-Arman commented, “I believe you should know that.“

 

            Senator O'Connell MOVED TO AMEND AND DO PASS A.B. 618, INCLUDING THE CONSENSUS AMENDMENTS OF THE DIVISION OF INSURANCE, MR. WADHAMS, AND MR. FELDMAN.

 

            SENATOR RHOADS SECONDED THE MOTION.

 

            THE MOTION CARRIED. (SENATOR CARLTON ABSTAINED FROM THE VOTE.)

 

*****

 

Senator Townsend opened the hearing on A.B. 313.

 

ASSEMBLY BILL 313:  Creates statutory presumptions that hepatitis is occupational disease for certain employees. (BDR 53-843)

 

            SENATOR O’CONNELL MOVED TO DO PASS A.B. 313.

 

            SENATOR SHAFFER SECONDED THE MOTION.

 

Chairman Townsend commented briefly on A.B. 313 stating, the issue deals with his request for clarification, with regard to the primary duties of employment and other provisions of emergency medical services.  He stated it would not apply to someone who might be a security guard who does provide EMT (emergency medical technician) services, because it is not their primary job. He asked Assemblyman Oceguera (Assemblyman John Oceguera, Clark County Assembly District No. 16) if it was acceptable.

 

Assemblyman John Oceguera, Clark County Assembly District No. 16, responded, “Yes, sir.”

 

 

Chairman Townsend added, the question arising following testimony, had to do with the individuals who would be tested immediately under this bill, who had been employed for 5 years.  He said there was a conclusive presumption, if they tested positive for hepatitis, they contracted it on the job, which, he commented, was troublesome.  He said there is language in the work session information (Exhibit D) with proposed amendments to A.B. 313 which reads, “Before taking the blood test, the person had been continuously employed for 5 years or more as a full-time salaried fireman or emergency medical attendant in this state, the person is entitled to a rebuttable presumption that the hepatitis arose out of and in the course of his employment and is compensable if he, before January 1, 2002, files a claim . . .”  He explained there would be a new subsection (c), which reads, “This presumption will only be rebutted by clear and convincing evidence that the hepatitis was not contracted during the period of time when the employee was employed as a full-time salaried firefighter or emergency medical attendant.”  He said the point is, if someone did test positive, the insurer would have to prove the disease was not contracted on the job.  He noted the burden shifts to the insurer, instead of making it a presumption.  Senator Townsend stated he believed the change was acceptable to the parties.

 

SENATOR O’CONNELL MOVED TO RESCIND THE PREVIOUS ACTION TAKEN ON A.B. 313.

 

SENATOR SHAFFER SECONDED THE MOTION.

 

Senator O'Connell stated, Crystal M. McGee, Committee Policy Analyst, had answered her questions regarding the death issue.  Senator O’Connell said she was told all you have to do is call the coroner’s office, and if there is a concern, they will run a blood test. 

 

SENATOR O’CONNELL MOVED TO AMEND AND DO PASS A.B. 313, INCLUDING THE PROPOSED AMENDMENTS OF THE NEVADA RESORT ASSOCIATION AND THE PROFESSIONAL FIRE FIGHTERS OF NEVADA.

 

SENATOR SHAFFER SECONDED THE MOTION.

 

 

 

THE MOTION CARRIED. (SENATOR SCHNEIDER WAS ABSENT FOR THE VOTE.)

 

*****

 

Chairman Townsend closed the work session on A.B. 313, and opened the work session on Senate Bill S.B. 252.

 

SENATE BILL 252:  Makes changes concerning Nevada Life and Health Insurance Guaranty Association Act. (BDR 57-683)

 

Chairman Townsend stated S.B. 252 is the companion bill to A.B. 618, the Nevada Life and Health Insurance Guaranty Association Act.  He said they have chosen to simply remove the term, “riders,” in section 23, subsection 1, paragraph (h), subparagraph (2) of S.B. 252, so the bill would only include letters.

 

            SENATOR O’CONNELL MOVED TO CONCUR ON THE CHANGES TO             S.B. 252.

 

            SENATOR AMODEI SECONDED THE MOTION.

 

            THE MOTION CARRIED.  (SENATOR SCHNEIDER WAS ABSENT FOR THE             VOTE.)

 

*****

 

Chairman Townsend closed the work session on S.B. 252, and opened the work session on S.B. 274.

 

SENATE BILL 274:  Revises provisions governing rights and duties of contractors and subcontractors under contracts or subcontracts. (BDR 54-593)

 

Chairman Townsend began by stating, this is the “prompt pay for contractors” bill.  He asked Mr. Young to clarify the proposed changes.

  

Scott Young, Committee Policy Analyst, stated the amendments do not make any substantive changes to the bill.  He noted the proponents have reviewed the amendments and have concurred with them.  He said the changes are like using the definition of “work of improvement” which comes from chapter 108 of Nevada Revised Statutes (NRS) in the lien law section.   He said S.B. 274 replaces “constructed or remodeled building.”  He continued, they have added “for reasonable cause” in certain places, and there is the addition of “subcontractor or higher-tiered subcontractor” in several places where the parties deemed it was appropriate. 

 

Senator Carlton asked what “for reasonable cause” means.

 

Mr. Young responded, normally “reasonable cause” is a term the courts use.  He said it is something, under all the circumstances of the particular case, deemed to be appropriate and reasonable, or what a reasonably prudent person would do under the circumstances.  He noted it is usually not specifically defined.

 

SENATOR O’CONNELL MOVED TO CONCUR ON THE CHANGES TO S.B. 274.

 

SENATOR SCHNEIDER SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman Townsend closed the work session on S.B. 274, and opened the work session on S.B. 380.

 

SENATE BILL 380:  Revises provisions relating to contractors. (BDR 32-944)

 

            SENATOR SCHNEIDER MOVED TO CONCUR ON THE AMENDMENTS TO S.B. 380.

 

            SENATOR O’CONNELL SECONDED THE MOTION.

 

            THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

 

Chairman Townsend closed the work session on S.B. 380, and opened the work session on S.B. 418.

 

SENATE BILL 418:  Makes various changes to provisions governing sale of real property. (BDR 54-159)

 

Chairman Townsend stated there is an Amendment No. 883 to S.B. 418 (Exhibit E).

 

Mr. Young explained the various sections of the amendment to S.B. 418, line by line. 

 

            SENATOR SCHNEIDER MOVED TO NOT CONCUR WITH AMENDMENT NO. 883 TO S.B. 418.

 

            SENATOR O’CONNELL SECONDED THE MOTION.

 

            THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman Townsend closed the work session on S.B. 418, and opened the hearing on A.B. 661.

 

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

 

Chairman Townsend conveyed:

 

 . . . After analyzing this bill and the issues in front of this committee, . . . the best way to process this, since it includes a multitude of issues, is to consider A.B. 661 the vehicle we will use to address any issues the committee feels are appropriate for the public.  Rather than use this lengthy document as our working source, we will pick issues and take testimony on those issues.  The biggest issue in this bill is the ability to see some of the larger users who may be able to provide assistance to residential customers . . . how the commission [PUCN] would handle it and what the conditions are.  You have an overview, section-by-section summary [Exhibit F] of A.B. 661, to which you can refer during this hearing.  The sections with which we will be dealing are in sections 19, 20, 21, and 22.  Those issues are mainly large user-related.

 

Harvey Whittemore, Lobbyist, Nevada Resort Association, testified:

 

As we advised this committee, with respect to our position on “repower Nevada” provisions [Exhibit F] existing in A.B. 661, those provisions are contained in sections 1 through 26 and section 119 of the existing bill.  As we advised this committee during our prior testimony regarding A.B. 661, we commended the work of the select energy committee with respect to, particularly, these provisions of the bill dealing with providing certain options of choice to large customers.  I would like . . . to walk through [these provisions], and make sure if there are any questions with respect to the definitional sections, that we handle those questions in advance, if it is the committee’s desire to do so.  If it is not, the concept which is contained, very simply in these provisions, is as follows: If you are a customer that has a demand of one megawatt or larger, and fall within the definition of “eligible customer,” as contained in section 10 of the bill, on page 3, lines 31 through 40, “an eligible customer would be a nongovernmental, commercial or industrial end-use customer, or a governmental entity, including without limitation, a governmental entity providing educational or health care services.” 

 

Those categories of customers would be able, pursuant to a time schedule set forth in the bill . . . to exercise choice with respect to the acquisition of energy capacity or ancillary services from individuals who are providing a new electric resource to the state of Nevada.  The key component here, as developed by the select committee and the Assembly, is if in fact you can show your demand is of sufficient size that the removal of the demand from the system would have a positive impact on the remaining customers, and in fact you are bringing new resources to the state of Nevada, as in reducing obligations of the incumbent utility to provide those services to you, and if you meet the public interest standards set forth in the bill, it is the policy decision made by the committee and the Assembly, it was an appropriate exercise of choice for large customers to be able to acquire energy capacity or ancillary services from other than the incumbent utility.  There are two specific market energy regions, which are created pursuant to the bill.  One, in northern Nevada, which is coextensive with Sierra Pacific Power Company, and one in southern Nevada with Nevada Power Company. 

 

Senator O'Connell inquired, “When do these sections become effective?”

 

Mr. Whittemore responded:

 

The entire bill becomes effective, specifically in sections 130, and 1 through 27, 29; and 31 to 129 become effective upon passage and approval.  Sections 28 and 30 become effective on October 1, 2001.  Having the bill become effective upon passage and approval, sets forth certain times schedules in the bill, which are different.  I would like to go through those sections with you, in just a moment. 

 

Senator O'Connell asked, “Does this affect the long-term contracting with the company?”

 

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company, responded, “I see nothing in this proposal that would interfere with existing long-term purchase power contracts of either utility.” 

      

Mr. Whittemore added:

 

The definition of “new electric resource,” is contained on the bottom of page 3, in section 13.  The substantive sections, specifically that the chairman would like discussed, are beginning on page 4, in section 18.  Section 18 provides an electric utility may enter into agreements relating to generation assets and energy capacity or ancillary services to repower, in effect, install new generation assets on those real property restructure, reengineering, and repowering, or expansion of existing agreements.  Basically, section 18 provides a great degree of discretion to the incumbent utility to, in effect, expand and restructure their existing plants to provide new generation resources in the state.  Section 19 provides a time schedule.

 

Chairman Townsend asked, “Why do you need all that?”

 

Mr. Whittemore responded:

 

Under existing law, there could be some question whether or not the incumbent utility could engage in the types of activities, contemplated by section 18.  This makes it clear if, in fact, the State of Nevada is going to create a policy to try to create new generation resources, the incumbent utility needs as much flexibility to partner with those individuals who are bringing additional capital to the state.  Basically, what it does is allow the flexibility of the incumbent utility to expand their existing facilities and create new generation resources in the state. 

 

Chairman Townsend added, “The prices of which will remain in the state of Nevada, regulated.  Correct?”

 

Mr. Whittemore responded, “To the extent that it is subject to existing PUCN regulation, the answer is yes.”

 

Mr. Whittemore continued:

 

Section 19 provides the time schedule, which Senator O'Connell was asking about, that says the bill is effective upon passage and approval, but makes it clear that before April 1, 2002, you cannot purchase this power until after that date if you are in Sierra Pacific Resources service area, and after June 1, 2002, if you are in Nevada Power Company resource area.  The decision and consensus developed in the Assembly, was there should be a phasing in of the provisions regarding access to new markets.  The feeling was, from this committee’s perspective, . . . those mining institutions in the northern part of the state have the most serious issue with respect to lack of capacity, and felt they should be the ones that would be leaving the earliest.  Again, you will see on lines 32 through 37, on page 5, the distinctions between those two resource areas.

Chairman Townsend interjected, “Two months is the phase in?”  Mr. Whittemore responded, “Three months is.”  Chairman Townsend added, “April, May . . . ?  Does that help you, Mr. Ponn?”  Mr. Ponn said, “It probably helps the regulatory process and the utility’s planning process, to have some staggering in place.”

 

Mr. Whittemore continued:

 

Section 20 indicates you cannot purchase without providing 180 days’ notice to the utility customer.  The provision was based upon discussions in front of this committee by both the chairman of Sierra Pacific Resources, Walter M. Higgins III, and Mr. Ponn’s prior testimony with regard to these matters, that the utility needed at least 6 months’ notice to properly provide power to remaining customers.

 

Chairman Townsend interrupted:

 

I have some trouble with the language in section 19, on line 39, “a provider of new electric resources, that sells energy capacity or ancillary services to an eligible customer, pursuant to the provisions of this chapter, does not become and shall not be deemed to be a public utility solely because of that transaction and does not become and shall not be deemed to be subject to the jurisdiction of the commission otherwise provided in this chapter.”  In section 18, if the utility decides to joint venture with one of these new individuals and then turns around and sells the new capacity to an eligible customer, doesn’t it disadvantage, in some way, your current customer base, or is there a . . . wall that might be put up to make sure the low-cost power you currently have does not somehow get mixed up in an eligible customer who may want to come back and buy directly from you? 

 

Mr. Ponn responded:

 

What this section is trying to achieve is to incite new providers to sell new resources to eligible customers, and if the utility were to end up in partnership on some project which resulted in creating incremental resources, the part the utility might have claim to or an interest in would be used to serve our remaining customers.  It is not a scenario where we would create an unregulated affiliate to sell part of this output.

 

Chairman Townsend, “I need to make sure it is on the record so I fully understand . . . We don’t mind you asking for something, we just want to know what it is and how it impacts people.”

 

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection, (Consumer’s Advocate), Office of the Attorney General, stated:

 

We totally disagree with the interpretations of those sections, and we believe it opens an opportunity for the company to migrate existing resources into unregulated generation resources.  We would strongly object to this analysis, which has been described to you before the committee.

 

Senator O'Connell inquired, “Tim [Mr. Hay], would you mind explaining exactly what the language says to you?”

 

Mr. Hay replied:

 

If you look at the definition of “new electric resource,” the joint-venture provisions in section 18, and the related sections there, obviously the utility has existing authority without any statutory authorization to enter into joint ventures with partners of one kind or another.  If [a venture] results in new capacity, it is construed as a new electric resource, this provision would allow the utility to take some part of their existing assets [and] reconstruct, repower, or do whatever with the joint-venture partner, and then have the ability to sell that energy in an unregulated environment.  We don’t think it is appropriate or protective of existing consumers.

 

Mr. Whittemore continued:

 

In response to Mr. Hay’s comments, the intent of section 18, without belaboring the point, was to make it clear the utility’s ability to enter into agreements with individuals who are bringing in new capital to the state should not raise questions as to whether that joint venture created, or any facility built, would be subject to the jurisdiction of the commission [PUCN], if in fact, it was going to be used in ways which were not going to be providing resources to customers in the state.  The bottom line was we did want to create that . . . wall to make sure the regulated portion remained regulated and the unregulated portion remained unregulated, so you could expand generation resources in the state.  That flexibility is essential when we have a situation where we are so far underpowered.  With due respect to Mr. Hay’s position on this, I don’t think it’s consistent with the notion that this entire bill is designed to create additional generational resources to create supply, which will, in fact, be able to meet the demand that is growing throughout the state, at prices which are reasonable. 

 

Senator O'Connell interjected:

 

Should this language be approved as has been stated to us and [is] in the language of the bill, will the committee secretary state the intention of the committee voting on this, is reflected there by the explanation that’s been given, so there’s no question about the interpretation or our understanding?  Thank you.

 

Mr. Whittemore continued:

 

The provisions of section 19 with respect to the transition provisions and the notice provisions that are contained in section 19, subsection 2, on lines 21 through 41, provide the level of information which must be provided by customers in the applications requesting the ability to provide or acquire energy capacity or ancillary services.  Subsection 4 of section 19, on line 42, indicates the commission must provide public notice; and the operative area, section 5, indicates the commission shall approve the application of the eligible customer unless the commission finds the proposed transaction is contrary to the public interest or does not comply with section 21 of the act.  The standard the commission would apply is whether or not the electric utility, that has been providing electric service to the eligible customer, will be burdened by increased cost.  There can be no burden to the utility, as a result of the application.  Most importantly, that there will not be any increased cost added to the remaining cost to the remaining customers of the utility. 

 

In effect, there’s a hold harmless standard in the bill, which basically provides there can be no impairment of reliability or ability to provide electric service, and most importantly, that the remaining customers would not be hurt by those eligible customers leaving, and that the utility would not be burdened as a result of those customers leaving the utility.  The terms and conditions under which those eligible customers can leave, on page 7, lines 21 through 24, provide that the commission must impose such terms and conditions as they believe are appropriate to ensure the transaction is in fact fair and not contrary to the public interest.  Therefore, all the charges must be fair and nondiscriminatory, and most importantly, that those eligible customers leaving the system would in fact not be allowed to leave the utility with their unrecovered portion of their deferred accounts.  I’m reminded that would also include any other payments, which the commission felt appropriate to charge the eligible customer to charge for any items that . . . would burden the utility or burden the remaining customers.  There is a provision that gives the commission 90 days within which to act upon that application.  If it’s not acted upon within that time frame, it is deemed to be approved.  That is consistent with many provisions in the NRS, chapter 704. 

 

Mr. Whittemore continued:

 

Section 21 provides a capping mechanism for those customers in the Nevada Power Company service territory.  That concept is as follows: each eligible customer can only acquire 80 percent of their existing load; and the total amount of energy capacity or ancillary services, which may be acquired in that particular service territory, is capped at 50 percent of the difference between the existing supply and the demand, as determined by the commission.  There is a sense because of the testimony, which again, Chairman Walt Higgins [Walter M. Higgins, Chairman, President and Chief Executive Officer, Sierra Pacific Resources] gave this committee and the Assembly Committee on Commerce and Labor, that there was at some point, a time certain where a large customer leaving may have an impact.  Therefore, to err on the side of ensuring there would be no impact, the select committee in the Assembly said, “Let’s not take any chances.  Let’s make sure that during this phase in period, until the next 18 months and we’re back here again, the most that any eligible customer can buy is capped at 80 percent and the entire group of customers can only buy 50 percent of the difference to ensure that nobody leaving would have an impact.”  There are two caps: one is a group cap, and one is an individual company cap.

 

Chairman Townsend inquired:

 

How did you come up with the 80 percent?  What is the total logic, besides the protection?  I don’t get it.  It is like going to gas station X and filling up 80 percent of your tank and driving down the street and filling up the other 20 percent.  Does it help the company?  The guy can leave or he’s not going to leave.  You are saying he can only leave 80 percent of the way?  Fine, but why?  If you tell me it’s just negotiated that way, fine; but what is the mechanical logic?

 

Mr. Whittemore responded:

 

The logic was to ensure that because the order in which customers could leave to ensure if you had a cap of 50 percent you would allow more eligible customers being able to leave, if not all customers could take 100 percent of their load from other resources.  In other words, it is a sharing mechanism to ensure more and more eligible customers being able to have at least partial choice.

 

 

 

 

Mr. Ponn added:

 

There is another provision in this proposal, which essentially prohibits the splitting of meters.  In other words, if a customer leaves on one account, one meter, he goes for the whole load on that meter, not some portion thereof.  If he returns, he returns for the total load on that meter.  As far as the utility is concerned, the 80 percent is not the significant thing, it is whether the entire load on any one meter comes and goes. 

 

Mr. Whittemore continued, “In addition to those provisions, with the provision contained on lines 10 through 14 . . . “

 

Chairman Townsend interrupted:

 

If you are talking about the Sierra Pacific Resources’ territory, which is the less densely populated group under this, if the benefit to your service territory, for all your customers, is to allow two mines to leave, they still have to meet this 80 percent requirement as long as it doesn’t exceed 50 percent of the total load, correct?

 

Mr. Ponn responded, “Yes.  The 80 percent provision, operationally, is not a concern for us.  It was, as Mr. Whittemore described, a mechanism to try to share the opportunity to leave.”

 

Chairman Townsend said:

 

I’m offering this and speaking for Senator Rhoads’ constituents, but since those folks leaving would impact all of ours in this service territory, in the less densely populated areas, since no one is knocking the door down here, is there fundamentally a reason not to go ahead and let them take their whole load and go? 

 

Mr. Ponn replied, “I think this may clear it up.  Look at section 21.  It applies to the densely populated areas like southern Nevada, in Nevada Power Company’s territory.” 

 

 

Mr. Whittemore added:

 

The provisions we were talking about are those associated with the densely populated counties, not the less densely populated counties.  Again, it was felt there was a sharing benefit here, associated with the fact that you may have more eligible customers in Nevada Power Company’s territory, and therefore one individual couldn’t acquire 100 percent without allowing their neighbors to have the opportunity to at least acquire a portion of it.  More importantly, it was felt that because the situation in southern Nevada, with respect to the amount of power which is having to be purchased on the market right now, that anything we could do to increase the amount of generation by encouraging more and more resource development would ultimately create a situation that the average cost to the remaining customers would go down.  On the whole, we think what is being proposed is a balanced approach, both for northern Nevada and southern Nevada. 

 

Senator Rhoads asked, “What percentage of the users are 1 megawatt or bigger, in the Sierra Pacific Resources’ territory?”

 

Mr. Ponn answered:

 

I think it’s 125 customers in Sierra Pacific Resources’ territory and about 185 customers in Nevada Power Company’s territory.  The sum of all the loads of all the customers of 1 megawatt or above in Nevada is approximately 600 of the 1500-plus megawatts in Sierra Pacific Resources’ territory, and 1100-plus of the 4200-4400 megawatts in Nevada Power Company’s territory.  That is roughly the proportion.

 

Senator Rhoads continued:

 

The thing that is so difficult to talk to our constituents about this is: like if I owned a grocery store and I say to 20 percent of my customers, “I want you to go and buy from somebody else.” How

 

 

do you explain that logic to them, that you will be better off if you lose 20 percent of your customers?  That is difficult to explain to my constituents. 

 

Mr. Ponn replied:

 

Yes.  It is consistent with Chairman Higgins’ testimony earlier, and on the Assembly side.  The world has changed somewhat, recently.  Before the run up in energy prices, the utilities often argued we need to retain all our customers in order to get the contributions to the fixed costs of running the business from all of those customers.  With the run-up in the energy component of our business, fuel purchase power, and the energy component, we have now hit a situation, where at the margin for those last megawatts that we are buying, the price is very expensive at certain times.  If the “repower Nevada” proposal goes forward and is accepted, what we are talking about is for energy only, not the transmission, distribution, metering, billing, and customer service, not those components of service, just for the energy piece of it, you’re having those large predictable customers, relatively small in number, go out and hopefully procure or cause to happen, new energy supplies on the system. 

 

You are getting a benefit, it is hoped, because people will be wanting to serve those large customers with new resources.  We think that benefit may far outweigh any detriment.  We will still be providing service, all those other components of service, to all of our customers, and the total service to the remaining customers.  We are trying to shave one of the most expensive parts of providing that service.  We think, if it’s done this way, in these incremental steps limited to a small number of customers, limited to the customers that can take the risk and have the wherewithal and the abilities to analyze their alternatives and their risks, there is a net benefit to this system.  If it is expanded to essentially restart the restructuring process that we have talked about previously, then we are concerned that you get the sameuncertaintiesandconfusionsandthesamedownsidesthat

 

 

make some of those folks who are watching the state and the condition of the utility nervous again.  This is a limited step we are supporting. 

 

Mr. Whittemore stated:

 

            Continuing with the discussion of these provisions, section 22 covers the provisions requiring the specific single time of use meter, to ensure the issues, which Doug [Mr. Ponn] has discussed with the committee, are handled in such a way that those individuals providing energy have a clear understanding of what they are supposed to receive for providing that energy capacity or ancillary services as between the incumbent utility or the new energy provider.  Section 23 is a provision which mandates that the time of use meter be in place, otherwise you can’t be an eligible customer.  Section 24 simply provides that the electric utility, as Doug [Mr. Ponn] has explained, continues to provide all the transmission, distribution, metering, and other components of electric services.  Section 24, I think, is a key component to this, making it clear that what this committee and what this Legislature would be doing if it were to adopt this legislation, is not to engage in partial deregulation or engage in the restructuring debate again. 

 

This is an energy proposal only to allow choice with respect to that commodity because, as Doug [Mr. Ponn] has explained, buying on the margin at the spot price during that last period where you’re providing the last 500 megawatts of power, and all of a sudden it’s rising like in California to $1500 per megawatt hour, that is the most expensive power.  Anything we can do to remove the demand and increase the supply would have the effect on a macro-economic basis to reduce the average cost to the remaining customers.  There has been some concern that those customers that may be leaving, may attempt to gain the system by going out into the market and acquiring market energy at a lower-than-market price, use it for a specific period of time then come back in and take advantage of the average lower cost that the utility has. 

 

 

Mr. Whittemore continued:

 

The provision in the bill makes it very clear that those individuals who return to the system pay the incremental cost of providing power to them.  They don’t get the benefit of the average cost; they have to pay the incremental cost.  The bottom line is, the work that was done from the “repower Nevada” perspective, with the work of the select committee, and basically throughout this very long process, was to come up with responses and answers to those concerns, which were expressed early on by members of this committee as well as the Assembly select committee.  It would be appropriate to answer any questions the committee may have, with respect to these provisions.  There is a provision, section 119, which simply makes it clear that the issuance by the utility of instruments pledging assets for securitization or financing means, for the utility, would not violate the provisions of A.B. 369. 

 

ASSEMBLY BILL 369:  Revises and repeals various provisions governing the             regulation of public utilities.  (BDR 58-1156)

 

Senator Rhoads inquired, “Under this bill [A.B. 661] and amendment, can a power company based in Nevada get involved in, say, copartnership in building a generation plant in Nevada?”

 

Mr. Whittemore replied:

 

Yes, this would allow the very significant flexibility that was originally presented to this committee many, many months ago, talking about how those large customers in your particular region would have the potential of creating a joint venture utility project, either together or potentially with the utility, or other individuals providing services to those large customers.  The language is contained in this legislation, as it exists.

 

Mr. Ponn added:

 

I agree with Mr. Whittemore’s answer on the partnering to build power plants.  I would point out, outside the “repower Nevada” proposal, the company would have a proposal for a section 60 of this bill, which seems to limit our ability severely to engage in mergers and acquisitions.  We have some concerns about that and our counsel is present to address those concerns.

 

Mr. Whittemore added:

 

Just to clarify that the existing provisions internally, with respect to sections 1 through 26 and section 119, clearly provide that flexibility. There is a concern expressed by the utility with respect to section 60, which is independent of the “repower Nevada” pieces and may or may not need to be modified by the utility. 

 

Chairman Townsend stated:

 

There are members of the commission [PUCN] here; staff, as well as members.  The language presented on the large-user potential here, is it something you think is workable, relative to protecting Nevada’s remaining customers?  Mr. Hay has expressed a difference of opinion on what this does and whether we have control over certain elements of generation in a partnership, which may in fact, be the remaining portion of the generation that’s available to remaining Nevada customers.  Are you comfortable this language allows you to balance all those interests?

 

Don Soderberg, Chairman, Public Utilities Commission of Nevada, stated:

 

The concept of not going to a competitive market, but allowing certain customers to leave for the benefit of the entire system, is something that has been discussed in the agency since last summer, when we began to realize there may be some changes in the initial plan; and we discussed this informally, and in quite a bit of detail at the Western Governor’s Association energy meeting in February of this year.  We feel this proposal [Exhibit G] gives us the flexibility to make sure, before any customer leaves the system, there is actually no harm and actually is a benefit to existing customers. 

 

We have expressed to a number of representatives of large customers this is going to be a very detailed application we will need to see before granting them the ability to leave.  With the 90-day provision, it was actually testified by one of the representatives of one of the large mines, they understood there might be a couple of instances where this filing is so voluminous, we would have to deny without prejudice, just so we could have another 90 days to get that in. 

 

Mr. Soderberg continued:

 

I think everybody expects these will be very rigorous proceedings with a great deal of information.  With respect to the concern Mr. Hay brought forward, I think Vice Chairman O’Connell has given us the legislative history now, that would be consistent with our interpretation of the provision.  When it became obvious there was going to be some change in the plan to have the utility divest its plants, individuals in our agency came to me and began discussing, “What do we do with all these great plans these various generation companies had for the existing plants of Nevada Power Company and Sierra Pacific Resources?”  We know there’s potential there to expand or repower those plants, and we know the people with the capital and the blueprints in their back pockets are often not the incumbent utility. 

 

When A.B. 369 was passed, we felt the language was restrictive enough we would have to disallow any partnering or expansion of a plant, which is something not typical in the utility business.  Quite frankly, Sierra Pacific Resources and Nevada Power Company currently own plants in partnership with other companies in other states.  We wanted to allow it to continue if it was a good deal.  We feel, at minimum, the existing generation capacity of a plant owned in whole or in part by the incumbent utility belongs to the incumbent utility for the benefit of its captive ratepayers. 

 

Mr. Soderberg continued:

 

We believe any deal we would approve to partner would have to increase that amount.  For example, if there was a 100-megawatt facility, and we received a proposal to expand it through modifications, to bring it up to 130 megawatts, we would expect to see the incumbent utility have more than 130 megawatts in their pocket at the end of the deal.  We would be opposed to and would fight vigorously any attempt to somehow take what we view as ours, and by ours I mean the shareholders and consumers in Nevada, any of those megawatts that would somehow go away through the back door.  We would think, in this environment, it would be to the benefit of the ratepayers and shareholders if the native load, so to speak, the owned and operated capacity of this company, were to expand; and this may be the quickest way to do so. 

 

Andrew L. Barbano, Lobbyist, representing Nevada Utility Reform Alliance, stated:

 

I thought we fought and ended this battle 20 years ago, Senator, so it’s déjà vu all over again.  Some of our members have come out of retirement to fight the same battles we fought with Chairman Townsend 20 years ago.  If Chairman Townsend is the father of Mr. Hay’s office; the grandfather and godfather of Mr. Hay’s office is Dr. David F. Schwartz, whose credentials are on file from 1981, before this committee, but I will submit an updated set [Exhibit H].  I have kept Dr. Schwartz informed of what has been happening in the state he aptly referred to as “Mars,” on his first visit here in 1980. 

 

Let me share some words from Dr. Schwartz with you, very briefly, “The market structure of the electric utility industry is well suited to promulgate oligopolistic coordination.  Furthermore, there are strong forces working to perpetuate oligopolistic coordination, given the homogeneity of power supply and the fact that prices and earnings are easily monitored.  The solution is not deregulation, which would permit unregulated private monopolies in an unbridled manner to exploit the market.  This would permit the private monopolist to maintain a position of dominance through price discrimination, cross subsidization, entry foreclosure, and the use of political power, which would result in the type of abuses and distortions normally associated with the exercise of monopoly power.” 

 

Mr. Barbano continued:

 

That is not a new statement from Dr. Schwartz.  That comes from a publication of the National Regulatory Research Institute, based upon a seminar he participated in, in Las Vegas, in 1978.  The more things change; the more things remain the same.  The Nevada Utility Reform Alliance formally resolved, 10 days ago at our general meeting, to oppose the “repower Nevada” amendment.  Dr. Schwartz’ comments are especially on point, with respect to some of the passages referred to by Mr. Ponn and Mr. Whittemore.  One that has not been addressed in this debate so far is on page 6, section 20, subsection 3.  These secrecy provisions reinforce and drive monopolistic pricing; and the public’s building business must be done in public.  These secrecy provisions are about as anti-consumer as you could possibly get, and constitute a principal reason why the Alliance opposes the “repower Nevada” amendment.  More to the point, there is something that needs to be incorporated into your thinking.  I’m not an attorney.  I have not had adequate time to research this bill. 

 

I submit the Nevada Assembly voted on this bill, and voted 33 to 8 to 1, to send it over here a couple of days ago, with most of them never having read any part of it.  That is one of the problems with this legislative process; that is one of the problems with deregulation; that is one of the problems that brought us to this point; that is one of the problems with the 120-day session. 

 

Let me throw another consideration into the fray, on page 3, section 7, subsection 2, it seems innocent enough.  The term, “electric utility” does not include a cooperative association, nonprofit corporation, nonprofit association, or provider of electric service, which is declared to be a public utility, pursuant to Nevada Revised Statutes (NRS) 704.673, and which provides service only to its members.  Nevada has several small electrical co-ops in Elko and Winnemucca.  If Humboldt and Elko counties had listened to Dr. Schwartz 21 years ago, and proceeded to buy out the CP National Power system, when it was up for sale, as opposed to endorsing Sierra Pacific Resources’ acquisition of that system, Elko County today would have no power problems.  As a matter of fact, at a recent public hearing, put together in Elko County by Senator Rhoads and Assemblyman Carpenter, to which they invited Senator Neal, the Wells Rural Co-op was asked, “Are you having any problems these days, similar to what Elko is experiencing?”  The answer was no. 

 

Mr. Barbano continued:

 

The rural co-ops are just fine; the ratepayers control the co-ops; they have access to public power.  I see this provision as making much mischief with the efficiency of the rural nonprofit co-ops.  Combined with other sections of this bill, it would seem to allow the grand strategy espoused by Steve Wynn, which was the first warning of deregulation about 7 years ago, to come to pass.  I haven’t had time to consult with attorneys about this and I have not had time to fully review this bill, as you also have not.  I submit there is a potential flaw in this bill that will allow, for instance, a casino corporation, owning several casinos or a consortium of big users, such as several casinos, to build their own power plant to service only their needs and go totally around the existing power grid, and be totally outside of regulation.

 

When the big users start dropping out of the system, the huge, embedded costs, the stranded costs of the system, as you well know, somebody has to pay for those, and those costs fall on the other ratepayers.  If the big users can build their own power plants and power themselves as an in-house thing, not fitting the term “electric utility,” not fitting the term “new generation,” under this bill, the big users could drop out of the system, power themselves, and do serious damage to the other ratepayers because they would be an island unto themselves and take a lot of revenue out of the system.  I may be incorrect in this, but I see much mischief which can be made here. 

 

Chairman Townsend inquired:

 

I don’t disagree necessarily with what you think is potentially here.  I want to ask this important point.  We’ll take southern Nevada, for a moment; if there’s 350 megawatts of “strip” that includes four publicly traded companies, and there’s 2400 megawatts of base load in southern Nevada, and they go up to 4700 megawatts at peak, if they were to take that 350 megawatts and literally pick some corner down there and build a 350 megawatt plant for only that usage, and growth exceeded that 350 megawatts . . . therefore, you are not really using a transmission line, all you are using is a distribution system that perhaps they build for themselves.  You free-up transmission so we could bring in new capacity, whether it’s from out-of-state, or whether it’s renewable, or whether it’s another gas-fired power plant, that would be built somewhere in southern Nevada.  Is that potentially advantageous to the remaining customer base, mostly small commercial and residential, given the demand on that system? 

 

Mr. Barbano replied:

 

I will give you a true politician’s answer, yes, no, and I don’t know, for these reasons:  Yes, if you are talking today, because the circumstances of today and for the short term of 1 to 2 years seem to be we are going to have some serious electrical supply problems.  The answer very well could be no, further down the road.  There are a lot of new power plants being built in southern Nevada, right now.  I see the danger here, 3 or 4 years down the road. As near as I can tell, California’s problem will go by the boards because they will build a lot of new plants in California . . . .  When there is no short-term supply and demand problem, but this legislation is still sitting here, conceivably big users could see the opportunity to drop out of the system and negatively impact the system by driving up rates, due to embedded and stranded costs, to other users.  The answer to your question is also no. 

 

This is a situation that could be deleterious to consumers in the medium and long terms once the system has righted itself.  I see a significant danger here.  I also see a significant danger if, for instance, large users in southern Nevada decided to take the advice from Dr. Schwartz that Elko spurned 21 years ago.  What if the large users in southern Nevada made an offer of so much money the Pahrump Rural Co-op couldn’t refuse it, and buy out the Pahrump Rural Co-op, and make themselves part of the Pahrump Rural Co-op, since money talks, and at that point the large users will have bypassed the system, negatively impacting the rest of the ratepayers 3, 4, 5 years down the road?  When you allow large users to become islands unto themselves, I think you are creating significant dangers. 

 

Mr. Barban continued:

 

I don’t think this committee is giving itself enough time; the Legislature is not giving itself enough time.  That was the problem in California, giving yourself enough time to properly research the potential impacts.  If someone like me, with a “fair-to-middling” understanding of the generalities of the system, who is just an average consumer, can find these kinds of flaws, what may happen down the road?  I’m seriously worried about this.  This body put the genie back into the bottle about a month ago.  Now you are talking about letting the genie back out of the bottle, and guess what?  He’s not going to give you three more wishes.  He’s going to impose his will upon you. 

 

Where Elko is concerned, there seems to be plenty of power in the planning stage right now to take care of Elko, without this bill being necessary at all . . . .  The existing system can handle Elko’s demands right now for what private producers are planning, either with the Coastal Corporation plant and the new gas line or other plants that are in the planning stage in the area.  I think the genie needs to be kept in the bottle, because I see significant problems here you may not have seen.

 

Chairman Townsend added:

 

Your objections also remain, even given the language given to the commission on page 7?  I don’t disagree with you.  They [the Assembly] have had this bill for 110 days, and now the Senate gets it for 10 days . . . .  If you will look on page 7, where they give the commission authority to review it in the context of what’s in the best interests of the remaining ratepayers and make them pay the cost, is that language adequate?  That’s what I’m asking you.

 

Mr. Barbano responded:

 

[It is] just as vague as it could possibly be, Senator.  It is basically the words of Humpty Dumpty or the Cheshire Cat who said, “Words mean exactly what I want them to mean, no more, no less.”  I would opt for Humpty Dumpty because I think this could give you a great fall.  I am concerned about line 18, on page 5, subsection 5, section 18, states, “The commission shall encourage the development of new electric resources and should not exercise its regulatory authority in a manner that unnecessarily or unreasonably restricts conditions or discourages any agreement described in subsection 1, that is likely to result in increased energy capacity or ancillary services.” 

 

Does this weaken the existing authority of the public utilities commission [PUCN]?  I worry about that, just as I worry about page 7’s provisions weakening the authority of the public utilities commission [PUCN].  I have some serious questions here . . . .  [With] vague language like that, the public interest can be decided if you’ve got the votes.  All that matters is three votes out of a five-member commission or two votes out of a three-member commission.  We define what the public interest is; we are the gods on Olympus; we shall decide from on high.  This bill is letting the genie back out of the bottle.  I think you are taking great risks. 

 

Mr. Hay stated:

 

I do agree with some of Mr. Barbano’s comments.  I would like to note briefly that conceptually . . . we indicated we believed there was a benefit, if load is reduced on the existing system, through whatever mechanism during these times of very volatile energy prices and supply in the West Coast, it would be beneficial on certain terms and conditions.  Aggregated groups of residential consumers and small commercial consumers would be treated the same as large consumers.  Adequate safeguards were in place to ensure any of those transactions in fact would result in a tangible benefit to existing ratepayers. 

 

We’re very concerned with the “repower Nevada” provisions included in this act, such phrases as the one on page 7, “The commission needs to make determination that something is not contrary to the public interest.”  We think we need a more definite standard like, “it will be in the interest of the existing ratepayers,” and “if an application is not acted on in 90 days it is deemed to be approved,” should be changed to read, “. . . is deemed to be disapproved.” The tenor of this proposal, I think, is heavily tilted towards changing the playing field in the Nevada energy market, favoring large consumers and the utility; and we do not believe it to be in the interest of residential ratepayers and small commercial and other small industrial users, who are, frankly, due to the actions of the Legislature, going to be captives of this system until probably 2005, at the earliest. 

 

Mr. Hay continued:

 

Looking at the rate increases, that are likely to be very substantial, occurring next spring and summer, we don’t believe that’s equitable.  For that reason we oppose these provisions as they are currently drafted.  I do believe, if the committee is inclined to hear some arguments about the benefits of at least allowing a statutory authorization for aggregation of small users, that would be an important element to have in this mix, because fundamentally, we do not believe there is a distinction between one large user using a megawatt or more, or an appropriately aggregated group of small users.  That is a matter of equity, and I think we need to treat all Nevadans fairly, if we proceed down this road. 

 

Chairman Townsend stated:

 

I think the points are extremely important.  This committee has read this, but it doesn’t mean we have digested it.  We haven’t had a chance to follow up and ask questions.  We’ve been through this, so we’re asking things that may be rudimentary to some who have worked on it, but they are new to us.  The bill, in section 19 and in a couple of different sections, differentiates between Sierra Pacific Resources’ [Sierra Pacific Power Company’s] service territories and Nevada Power Company’s service territories.  These differentiations are important because, as every party in this room knows, they are entirely different companies, with entirely different mixes and needs, and different transmission constraints.  They happen to be in the same state, but that’s about their only relationship. 

 

If we concentrate on the north [Sierra Pacific Power Company service territory], first, since Assemblyman Carpenter happens to be at the testifying table, and we look at the massive load the two mines have, which is approximately 24 percent of the base load, there must be a way to find new generation to help, because of the current, low cost of what Sierra Pacific Resources provides to those customers.  There must be a way to find new capacity for those two folks, if it’s forcing them off to go get it somewhere, build it themselves, buy it out of state, without interfering with remaining customers ability to get that, and without creating any kind of fiscal impact.   . . . Senator Amodei, Senator McGinness, Senator Jacobsen, and I represent the vast majority of the rest of Sierra Pacific’s service territory.  

 

Chairman Townsend continued:

 

Are there ways to do that, which you are comfortable with, on behalf of the residential and small commercial customers; and I’m only talking about Sierra Pacific Resources service territory, which may, in fact, include an ability to capture the Elko community, because it’s about 50 megawatts or so, that could help the remaining people in that service territory?  This is a very sophisticated draft.  You are saying you don’t care for it.  You’re saying if you’re going to let somebody go, aggregate.  I’m saying, if there are ways to do that . . . .  Mr. Barbano’s point, which is well taken, is the potential for harm is so significant, you shouldn’t let the genie back out of the bottle.  My question to you is, if you allow that group to leave in the north, is there any measurable benefit to the remaining set of customers?

 

Mr. Hay responded:

 

I absolutely concur with the concept we need to treat northern and southern Nevada differently.  I believe you are going to be presented with some language to do a pilot project in northeastern Nevada allowing the mines some flexibility.  I believe it would also protect the consumers in the northern service territory of the state.  I think it’s probably almost a unique situation nationwide, to only have a couple of customers in a service territory, who are consuming 25 percent, give or take a few, of the entire load of the system.  The other factor there is in the north, we do not need to import nearly as much power during the peak periods as in southern Nevada during our warmer summer months.  We definitely concur, solutions can be crafted for northern Nevada distinctive and different from those needing to be crafted for southern Nevada, if we proceed down this road. 

 

Chairman Townsend said, “We are talking, specifically now, about two entirely different segments of the state and what might work in one and couldn’t work in the other, and you’d have to redefine the other.  That’s where we are.”

 

Assemblyman John C. Carpenter, part of Elko County Assembly District No. 33, stated:

 

. . . I have read this bill.  I don’t know if I understand it completely.  There are a couple of sections . . . I don’t understand it.  Basically, I want to set the record straight, when the utility serving Elko was for sale, I was on the county commission at that time, and we did approach Wells Rural Electric Company, because we felt more comfortable with Wells Rural Electric Company than we did with anyone else who wanted to come in.  At that time, the rules had changed and we were unable to become part of Wells Rural Electric Company because the Elko area was too large.  It wasn’t that we didn’t try to do what was best for our area at that time. 

 

That brings me to this table today, saying I have to be here and speak only for the customers I represent.  We are talking about northern Nevada, but then we have the area of northeastern Nevada with all the large users.  There are basically four mines up there, using the 25 percent of the electrical load we’ve heard about.  Those four mines control the economy of our area now.  It really concerns me when these people would be allowed to get another source and possibly leave the small customers to fend for themselves . . . .  I know Sierra Pacific Resources will have to serve us, but if we are sitting out there when the mines go, the load which is left is so small, we may become a burden to Sierra Pacific Resources, especially if we aren’t able to rely on those plants in our area.  As I see it, the only way the mines can get a new source at this time, I don’t think there’s any source available out of state, and we don’t have the transmission to take care of any sources that might be purchased out of state, [is] we are looking at either a construction of the third unit of Valmy, or the new power plant we hope will come, in conjunction with the gas pipeline we hope will be constructed across northern Nevada.  We have those two situations. 

 

Assemblyman Carpenter continued:

 

I want to draw your attention to section 18, on page 4 . . . as I understand, it will allow the present utility to enter into agreements to construct or install new generation.  I think that definitely speaks of Valmy.  If you go down to subsection 2, paragraph (b), “used or consumed by such parties for their own purpose,” to me that seems to mean, if another entity comes in and cooperates or enters into an agreement with Sierra Pacific Resources to build a new plant at Valmy or upgrade Valmy, they can take that power and go anywhere they want to with it.  I don’t think it’s right.  I think if there is any new generation built in northern Nevada, it should remain in northern Nevada.  That is my take on section 18. 

 

Since I’m not on the select energy committee, I’ll admit I was at a definite disadvantage. . . .  I think, if there is new generation in northern Nevada, it should stay at this time, until the users currently on the system are satisfied.  I believe we need some kind of flexibility.  If the mines go out and get a new source of power, the small customers need to be able to tag onto the mine, or enter into some kind of a joint venture, so we can be protected. 

 

This is such a complicated issue.  We’ve been discussing this during the last two sessions, and we weren’t on target.  What concerns me now, is what we’re doing now in A.B. 661, we may not be on target now.  I think we have to have some kind of flexibility built into it.  I’ve been talking to the mining people and to the utility.  They were going to assure me and Senator Rhoads, if the large mines get another load, another source of energy, we’re going to be protected.  They were here at the microphone a few minutes ago and I didn’t hear them say that.  We have this large plant, which is supposedly going to be built, and we are all for it.  They have been talking about it for years.  I understand the big problem is over the air shed, because if the generation facility goes in where they want it to go in now, they don’t have the capacity in the clean air we have in northern Nevada to build there and let the mines expand.  I have not heard publicly, on this microphone or in the newspaper that Sierra Pacific Resources wants to try to buy power from that new generation plant.  It really concerns me. 

 

Mr. Ponn responded:

 

We were discussing this in the hallway before this hearing began.  There are a couple of assurances I would like to make to him [Assemblyman Carpenter] and his constituents.  Sierra Pacific Power Company is a public utility with an obligation to serve, at regulated prices, all the customers within our service territory.  Elko customers are certainly no different from any other, regardless of what happens with this bill or otherwise, we will fulfill those obligations to his constituents and our customers.  Regarding the proposed power plant projects in northeastern Nevada, I think our chairman has said on the record in a number of places, if the project comes to fruition, we are certainly interested in procuring some of the output of that project. 

Perhaps to go beyond that, the company has engaged in discussions with other potential large buyers of the output of that plant, and have assured those folks we will do nothing to interfere with the construction of the plant and will do what we can to help it come to fruition.  I think any fear we are less interested in serving those customers, or not interested in procuring resources in northeastern Nevada, are unfounded.  I hope that satisfies the assemblyman, if it does not, I would be happy to expand. 

 

Assemblyman Carpenter expressed:

 

That is the first time I’ve heard it on public record and it is assuring.  Beyond that, I would think if we could have some kind of an amendment to this bill which would allow what I call the “four-county area,” Elko, Eureka, Lander, and Humboldt served by Sierra Pacific Power Company, if it looks to the advantage of the small customers of those counties, and it may very well be to the advantage of the utility, those customers to go to another source.  If we could have some kind of amendment that would be a benefit to the small customers and to the utility in this legislation, I think it would go a long ways to alleviate any fears anyone may have. 

 

Going back to Wells Rural Electric Company, [it] now has left on its contract for power purchase, about 6 or 8 years.  We don’t know what’s going to happen because of the situation in the Northwest.  Right now, their power comes from water generation.  If we get some rain up there and the fish don’t shut them down, they are probably going to be all right.  They could be in the situation where they need to purchase power from these two sources which, I think, are coming on line.  It might go a long ways to help them. 

 

What I am looking for is flexibility.  We don’t know what the future holds.  None of us knows that.  We don’t want to get tied into something that would have a negative impact on anyone here.  I think the way this is written, it could possibly do that.  I want to say something about the secrecy of what this power is costing people.  I don’t think it is right.  I think with this kind of a commodity, we need to know what it’s costing everyone.  That’s the way we’re able to get competition in the market.  I think the part about the secrecy, I don’t know why it needs to be in there, unless somebody has a better reason than I’ve been able to think of.  I don’t think it should be part of this bill. 

 

Senator Carlton stated:

 

I’m glad you brought this up.  It has been my impression there was not a big enough load pocket for just the mines, it would [have to] encompass the mines as well as the residential consumers in order to be able to justify a plant being built up there.  Was I correct?

 

Mr. Ponn responded:

 

It is not my understanding the load from residential customers is required.  If someone were going to build a plant in northeastern Nevada, either an aggregator or Sierra Pacific Power Company purchasing a portion of that plant to serve the same customers, I think would have the same economics for the plant developer.  To the extent a new plant is built and we were to end up finding the output attractively priced, and we procured it to serve all our customers including northeast Nevada customers, I don’t think the economics to the plant developer would be any different than if you aggregated two mines or a number of mines and the residential customers of Elko. 

 

Senator Carlton repeated:

 

The question actually was, if the mines decided they wanted a power plant, is there enough power there to justify someone coming in and building a plant just for them and not even thinking about anyone else, or to make it practical, would they look at the whole area?  I’m looking at the business-practice side, the front end of this.

 

 

 

Mr. Ponn clarified:

 

I shouldn’t speak for the developers.  I know this has been a long, ongoing set of negotiations among a number of parties.  I think it depends on the size of the plant and what the potential load is.  There are really two components going on out there.  One is someone is considering building a power plant, and the other one is [having] a gas pipeline to provide the fuel for that power plant.  Both are necessary elements in order to ultimately build a plant.  Depending upon the size, of course, the developer of either of those things, the plant or the pipeline, is going to want as much committed, firm contract, commitment to the output of that plant, as they can possibly get.  I just don’t know the answer of whether a mine, two mines, four mines in Elko is what is required.  My point was if the load of Elko County is critical to whether or not they develop the plant, a contract with us for the output may be just as good on an economic basis as with some aggregator who plans to resell it. 

 

Michael A. Pitlock, Lobbyist, Shell Energy Services Company, stated:

 

I believe our document, “Low-Income Assistance Aggregation Program And Pilot Aggregation Program Amendments to A.B. 661” [Exhibit I], has been distributed to the committee.  It contains language that would establish two pilot programs.  We’ve been talking quite a bit about northeast Nevada this morning, and one of the pilot programs would be adequate to serve the needs of the small rural counties in Nevada.  It’s a way, I believe, to bring some balance to the debate we’re having, and bring some balance to the concepts contained in A.B. 661.  I have a few general comments first.  All the economics, if you will, you’ve heard discussed about the potential benefits of large users leaving the system, all those same economics apply to aggregated groups as well.  All the safeguards, you’ve heard about, protecting remaining customers, and protecting the utility, apply equally as well to large users leaving, as they would to aggregated groups. 

 

 

With respect to the specifics of the pilot programs I’m proposing here today, let’s jump to the small rural county one first, since that’s been the issue we’ve been discussing.  On page 3 [Exhibit I], line 19, on the bottom of the page, would establish a rule-making proceeding to be conducted before the public utilities commission, at the request of the board of county commissioners from a county whose population is less than 100,000, to establish a pilot program whereby the citizens in those counties could seek to buy their energy capacity, ancillary services, and possibly even other related services from alternatives other than the incumbent utility. 

 

Mr. Pitlock continued:

 

I have outlined what I believe should be some of the significant issues to be discussed in that rule-making proceeding, but it is not an all encompassing list.  The board of county commissioners could propose additional issues for the PUCN to look into.  The PUCN themselves could add other relevant issues to the rule making.  I think some of the key components are, first of all, something we have talked about every time we’ve mentioned the word aggregation.  It should be fair, not only to the customers who get the option of leaving, but it should be equally fair to the remaining customers who stay with the incumbent utility; and very importantly, it should be fair to the incumbent utilities themselves.  We are not here to do any damage whatsoever to Sierra Pacific or Nevada Power.  It would not be in our interest to do that.  We want them to be as financially and technically strong as they can possibly be.  We simply want to design options for people to explore other possibilities of securing the energy portion of their service.  

 

Another one of the important factors of this particular rule making is one of the issues that should be looked at is coordinating the relationship between the timing when the large users, mainly the mines, would be able to leave, and when the citizens of the counties who have so elected would also be allowed to leave.  We think one of important things that could really help improve the situation in northeast Nevada, would be to at least allow the opportunity for the mines to be able to partner with the counties and the citizens of those counties in those geographic areas to secure the best deal for the geographic region, not just the best deal for the mine. 

 

I believe, by partnering with the counties and the citizens in those counties, the mines may actually be able to secure a better deal for themselves as well.  It is highly unlikely, in my mind, a power plant will be built to serve a single customer or a single set of customers in the same industry, particularly the mining industry.  As much as the state of Nevada relies on mining, we always must remember this can be a boom-or-bust industry.  It has a lot of ups and downs to it.  Someone who’s going to come in and make a significant investment in a power plant to serve that kind of industry is going to want to secure some other load along with it. 

 

Mr. Pitlock continued:

 

Like Mr. Ponn said, whether it’s signing a contract with Sierra Pacific or signing a contract through the counties in northeast Nevada to provide power to the citizens and businesses in the area, the developers of that generation are going to want something other than just mines that may turn down at any point in time when the economy goes down or the price of gold drops.  They [developers of new generation] are going to want to be able to diversify their load.  It also creates other economic development opportunities for northeast Nevada.  We’ve heard discussions in these hearings, not only about power plants being built, but natural gas pipelines.  The natural gas pipeline is probably just as important, if not more important to the economic development of northeast Nevada than the electricity is. 

 

Assemblyman Carpenter commented:

 

I believe this proposal lends the flexibility we need, this proposal or some other ones this committee might develop.  I just think we need to have the flexibility to take this kind of proposal or something the committee might further consider.  I have a real fear of getting tied in, and letting the mines leave without at least being able to discuss the advantage of the small users to be able to partner with them or joint venture with them. 

 

Senator O'Connell asked, “John [Assemblyman Carpenter], did you bring your concerns before the Assembly?”

 

Assemblyman Carpenter stated:

 

No, I did not, because I was not on the select committee.  I was serving on another committee.  I did go testify in favor of the proposal Assemblyman Neighbors had, regarding aggregation.  I gave the same testimony I am giving now: we need flexibility.  All these amendments were done, and they didn’t come out until about 2 p.m. the day before we were supposed to vote on them.  I didn’t have much time to study the issue.  I did make a statement on the floor stating this. 

 

Mr. Pitlock continued:

 

Unless there are specific questions regarding the small-county, pilot program, I would like to move forward to talk about the other proposal contained in the document [Exhibit I] in front of the committee.  It is the concept for a pilot program potentially incorporating the entire state, including the Sierra Pacific’s and Nevada Power Company’s service territories.  One of the other issues we’ve talked about significantly, regarding energy issues this session, is the desire to do something [for] the low-income citizens [who] deal with the fluctuations and potential increases in energy costs.  We have already seen language passed that would create a substantial fund, in order to provide assistance to low-income families and dealing with their energy needs. 

 

The pilot program I’m suggesting this morning would dovetail very nicely with that type of a proposal.  Basically, what it would allow for is based on regulations that would be jointly adopted between the PUCN and the Welfare Division.  [It would] attempt to design a program where low-income families, those eligible for low-income energy assistance, would be aggregated into a group and solicit proposals from other alternatives to provide their energy.  It’s simply a mechanism to see whether or not a better deal can be obtained for these low-income citizens we are going to provide assistance to.  I see it as a way of at least looking at the possibility of stretching those dollars a little bit further.  If we can reduce their energy bills first, before we provide assistance to

them, we’ll be able to take that fund of money and provide assistance to a larger group of households. 

 

Mr. Pitlock continued:

 

When Assemblyman Goldwater presented information on the low-income assistance program, he basically was telling you even the significant funds approved in the bill would only serve a portion of those in need.  There is still a tremendous unmet need.  We would like to do something to deal with that unmet need, to go through the process as it is outlined in the language.  Again, the process would begin with a rulemaking docket in front the PUCN to define the parameters of the program. 

 

That rule making would be done in conjunction with the Welfare Division.  The way the program would be structured, as I see it, is the Welfare Division would administer it.  Once the rules are defined, the Welfare Division would issue a request for proposals to have companies come in and provide their input as to what types of services and at what rates and at what terms they would be able to provide to the eligible households in the state.  The Welfare Division then, in conjunction with the Bureau of Consumer Protection’s office, would evaluate those proposals and select the ones they believe to be the best deal for their constituents.  Those proposals would go to the PUCN for review and approval.  Through that review and approval process, the PUCN would be required to assure the customers that are going to be participants in the program are getting a good deal, and the customers remaining with the incumbent utility are not being harmed, and the utility is not being harmed; all parties would be under the same criteria.  We believe by considering these two types of pilot programs you bring some balance to this legislation.  This is not deregulation; I wouldn’t even call this restructuring.
This is a very controlled experiment.  It’s regulated from beginning to end.  It’s not an open market.  It’s a regulated service. 

 

Mr. Pitlock continued:

 

I have one comment I’d like to make.  [On] the last page I distributed to the committee [Exhibit I] are some proposed amendments to A.B. 661, in its current form.  I would suggest you consider these amendments even if you choose not to develop pilot programs.  If you do choose to develop pilot programs, I think you should also consider these amendments dealing with the requirement for a time-of-use meter.  We don’t believe there is any technical reason to require time-of-use meters in order for a customer to receive service from an alternative supplier.  There are other ways of obtaining the data needed to make these programs work, other alternatives that are much less expensive and much less burdensome on the individuals, particularly if you have a pilot program where you have residential customers and small business customers.  Even without the pilot programs, A.B. 661, as it is currently established, would allow governments and school districts to seek service from alternative suppliers. 

 

[For] many of the smaller elementary schools, for instance, there is absolutely no reason to require the cost of a time-of-use meter . . . .  There are other ways to get the information needed.  I have discussed the low-income assistance aggregation program with Ernie Nielson [Ernest K. Nielson, Lobbyist] and Mike Willden [Michael J. Willden, Administrator, Welfare Division, Department of Human Resources]. 

 

Steven S. Boss, Lobbyist, Nevada Energy Buyers Network, stated:

 

I am representing two clients today.  The first one is the Sahara Hotel and Casino, a large user with a peak load of about 6 megawatts.  Accordingly, the Sahara would qualify under the existing language of A.B. 661.  My other client, Shetakis Wholesalers Incorporated, a refrigerated food warehouse and distribution company which as a 300 kilowatt peak load customer, would not qualify under the existing language of the bill.   On behalf of Sahara, we support the direction of A.B. 661.  On behalf of Shetakis, we would like to make suggestions, as an addendum to the Shell proposal [Exhibit I].  We encourage the committee to give strong consideration to a pilot program for commercial customers who would not otherwise qualify under the current provisions of A.B. 661.  There are several states taking this approach, as they have explored a transition to a restructured market, Texas, Illinois, and several other states. 

 

Chairman Townsend interjected:

 

The committee will make the ultimate decision here.  The goal here, as far as I am concerned, is if I can help residential and small commercial customers by forcing some large users off the system, I want to do that.  If I can’t help them, I don’t want to do that . . . .  This committee has already made a policy decision.  We are trying to respect our colleagues in the other house who have put something in front of us. 

 

Mr. Boss commented:

 

Section 18, page 5, on line 5, tends to indicate any repowering would need to be used for repower zone purposes or sold by such parties to one or more eligible customers.  We have heard testimony there were roughly 300 eligible customers under the current definition of A.B. 661.  The more buyers there could be in the market, in terms of some pilot programs of different classes of customers, the more incentive it might give generators to add to the generating capacity in the state.  One other aspect of A.B. 661 is the metering issue.  It looks like it intends there to be one supplier per meter, but if an eligible customer needs to buy 20 percent or 12 percent of its power from Nevada Power Company, in many instances that might require the addition of a second meter.  It might not absolutely be necessary.  I would urge the committee to look at that aspect of the bill, and perhaps to simplify the metering provision, and maybe eliminate that requirement. 

Ernest K. Nielson, Lobbyist, Washoe County Senior Law Project, commented:

 

I am here to support the proposals by Mr. Pitlock [Exhibit I].  My understanding regarding the Welfare Division issue is anything to benefit the low-income community we would endorse.  We would not want to go into it blindly. I cannot speak for Mr. Willden, but he might wish to have additional discretionary language with this option so he doesn’t appear mandated to go forward.  Around the country, it is fairly common for efforts on behalf of LEA [Local Educational Agency] recipients to pool purchase fuel oil, for example. 

 

In New York and Vermont an attempt is being made to aggregate for electric service purposes.  It [aggregation] is something worth looking at and pursuing.  It seems to address one of Mr. Higgins’ concerns about the aggregation issue.  He was concerned about the ability of the utility to plan [for the aggregation].  Once you narrowed down the aggregation to essentially pilots, you have increased substantially the ability to plan for the loads leaving the system.  Regarding northeast Nevada aggregation, it has always been beneficial to seniors and fixed-income people to have a governmental entity involved in the division of electric commodity.  Then you have an entity motivated for the same purposes as its customers and constituents.  The entity would be more likely to develop programs that assist those customers to better their load, thus reducing their own usage at peak, and increase the load factor of the total load.  I understand this to be a discretionary proposal, so I would definitely propose this as something for the committee to consider. 

 

Kathleen Drakulich, Lobbyist, Nevada Power Company, and Sierra Pacific Power Company, stated:

 

We are not in support of a proposal allowing customers to aggregate and leave the system.  We are not in support of that type of legislation being passed this session.  Assembly Bill 369 was a very powerful piece of legislation passed during this session.  In A.B. 369, all the sections addressing restructuring, as this Legislature proposed them [in] the two sessions previous to this one, were repealed, and with that went all the protections in the law for consumers.  While the low-income and pilot aggregation proposal contains provisions for the development of regulations, there would be no guarantees in the law that customers would be protected the way they were guaranteed that protection under the previous legislation, now repealed. 

 

Keep in mind, this is the first time we’ve seen Mr. Pitlock’s proposal [Exhibit I].  The way I understand it is, there is an interest in making sure the utility and the customers who remain are not harmed.  The inquiry here is really, is this a real opportunity for low-income or rural customers?  Is it a real opportunity?  The cost of leaving and the cost of coming back can be very expensive propositions.  Unlike the utility company, these providers would not have a legal obligation to serve.  As we have seen in numerous other states, when the benefit of serving these customers is no longer hitting the financial bottom line, these providers have left those jurisdictions.  Those customers come back to the utility, and as Mr. Whittemore spoke of the large customers being able to incur and pay for the incremental cost of that return, will our small customers and low-income customers afford the price of coming back, if the provider is no longer present to help them? 

 

Ms. Drakulich continued:

 

The other pervasive issues with a proposal like this are: How does the utility continue to plan supply?  How does the utility plan for a certain amount of customers, how will they know?  What we are doing here by proposing an aggregation proposal is raising again all these issues with respect to the uncertainty the utility faced with respect to deregulation.  We would not agree the economics of this is controlled.  In the proposal brought here this morning, we see an opportunity for ancillary services and all other services to potentially be provided by these providers.  Is it metering?  Is it customer service?  Are we raising again all of these issues that were of grave concern to the utility, the legislators, and to the constituents, with respect to a deregulation proposal? 

I have been in the hearing room for the last 2½ years regarding the regulations governing deregulation, without significant legal standards in the statutes, that this Legislature would provide to the Public Utilities Commission of Nevada, to the utilities, to the customers, and to the providers regarding the provision of these types of services.  I don’t believe it’s possible for the regulations to adequately provide for this type of service without underlying law. 

 

Mr. Pitlock responded:

 

One of the things she has indicated is she’s been in the hearing room for 2½ years working on regulations.  Those regulations weren’t taken and thrown in a big bonfire when A.B. 369 was passed.  They still exist.  They are sitting in everyone’s office at the public utilities commission.  There’s no need to reinvent the wheel here.  We’ve been working for many, many years on these types of issues, and all those issues are on the table.  They will all be considered in the rule making.  I would assume the commission would not forget all the hours of testimony they have already taken on these issues. 

 

All the uncertainty Ms. Drakulich talks about would all be resolved through the rulemaking process before a single customer would be given an option to choose.  There would be just as strong a legal obligation to provide service through the contracts that would be approved by the commission.  Every time I’ve appeared and discussed the aggregation issue, I have always made it clear we need sound licensing requirements for people who want to provide service in this state.  That issue is identified as something the commission needs to deal with. . . . We’ve got regulations sitting over there [at the PUCN] that were already adopted for alternative sellers that could easily be modified to meet this situation. 

 

There is no difference between the type of regulations that have to be put into place to deal with 300 large users leaving than there would be for two aggregation pilot programs.  We’re not talking about having to deal with individual residential customers shopping in an open market.  We’re talking about aggregated groups, where the aggregator and supplier are just as sophisticated as the 300 companies that A.B. 661, as it is now, would allow to shop in the market. 

 

Mr. Pitlock continued:

 

Consumer protections are critical, that’s why it was one of the first items listed when we go through the rule making, to make sure the consumer protections are there.  We are committed to consumer protection.  We are committed to providing appropriate security, so the citizens of Nevada don’t have to worry about Shell [Shell Energy Services Company] walking away from the state of Nevada.  Shell is not going to walk away from the state of Nevada.

 

Bernard T. Santos, Lobbyist, American Association of Retired Persons (AARP), stated:

 

We believe sincerely, if some customers are allowed to leave the system, we should be given the right to leave the system also, to enter into a negotiated contract with whatever company would give us the best deal.  Two hundred forty-five thousand members in this state is a substantial number of households.  We do believe aggregation would be beneficial to our members.  Most of our members are low-income people, some are very poor, and their social security checks and other pensions do not increase.  They have to survive.  Aggregation would give them the opportunity to enter into a contract with whatever company affords them the best deal . . . .  I think you should consider giving those members [of AARP] the opportunity to enter into contracts with companies offering them the best deal.   

 

Joyce A. Newman, Lobbyist, Utility Shareholders Association of Nevada, stated:

 

I’d like to respectfully remind folks at the time California began their grand deregulation experiment, Enron came in and contracted to serve the university system there.  I would guess no one thought Enron would walk away from the state of California either, but they have.  Size doesn’t guarantee that folks will stay and honor their commitments to customers.  On another note, we represent many, many families in the state of Nevada who are shareholders and customers. 

 

Assembly Bill 369, passed earlier this session by this body and signed by the Governor, did some very good things for our folks, both for the shareholders and customers.  The passage of A.B. 369 reassured the financial markets [of the financial stability of the utility].  The impacts on the shareholders are a little more obvious than the impacts on our folks as customers, but as you well know, one of the parts of the rate you pay for your electric utility service is the cost of capital.  To the extent the markets are given some reassurance, things have stabilized a bit in the state of Nevada that will be reflected in the cost of capital the utility pays. 

 

Ms. Newman continued:

 

In our view, right now, we object and oppose any efforts at all to aggregate, even under a pilot program.  I just read that Texas has had to delay its pilot programs because of the computer programs that had to be in place [to implement the program].  A pilot program would require the utility companies to undergo additional expenses.  We believe it would not be a prudent thing to do at this time.  We suggest if the plans, by the large customers to leave, work, and the markets stabilize, that new resources come on-line during the next 2 years, it might be a very appropriate thing for this body, at that point, to consider whether or not to expand the market for all Nevada customers.  At this point, with the instability in California and the rest of the nation, we believe it’s an ill-advised idea at this time. 

 

Renny Ashleman, Lobbyist, Mirant Americas Incorporated, stated:

 

I realize this is a process of a lot of political compromise to get a bill out at all that might address this important issue.  I don’t want to be in any way viewed as denigrating that effort.  I do think, if you are interested in having some large users buy and people sell to them so you can get some of the load off of the system, you should seriously consider removing the 80 percent requirement, because it’s obviously a lot more advantageous to be able to sell an entire load to someone rather than otherwise.  The power company says that doesn’t bother them as long as you control the metering and you are not splitting meters.  That is one element to consider.  The 10 percent that is to be offered to the utility seems to me to be very problematic.  It raises all the secrecy and non-secrecy commercial confidential interests and problems people have talked about here. 

 

No matter what you do to preserve the secrecy when you are letting the PUCN look at it, if in fact they are forced to buy it, will reveal the terms of the contract to the world at large.  Exactly what you’re offering in these contracts vis-à-vis your competitors is a matter of some great importance to the people who deal in this field, and it would greatly inhibit the desirability of entering into these contracts.  After all, they are going to be offering these contracts to the power companies anyway.  They would be anxious to have them [the power companies] as their customer, and the power companies will be out in the market shopping for them, themselves.  It’s not like they wouldn’t have access to these terms, if they wanted to.  I’ll ask you to consider those two small portions of it.

 

Mr. Hay added:

 

We would like to offer a one-sentence amendment [Exhibit J].  If the committee allows either large users or large users in aggregated groups of small users to leave the system, we believe it is important to have a statutory provision to mandate the utility manage its excess energy in a way maximizing benefits for the remaining customers.  I would like to read the sentence into the record.  The committee has received copies of the amendment.  “If a regulated utility has energy resources available in excess of its current energy requirements, the utility will take all necessary measurements to dispose of those resources in a manner that will minimize the net cost to their consumers, through economic dispatch of resources.”  This would simply be to assure, in statute, if the load declines below the resources the utility has committed for, because of large customers using or large customers leaving, or other customers leaving, the PUCN and the BCP [the Bureau of Consumer Protection, Office of the Attorney General] have statutory ability to look at the practices by which the utility manages the disposition of its excess resources. 

 

Thomas E. Wilson, Concerned Citizen, speaking for the Nevada Utility Reform Alliance, testified:

 

We are troubled by the language on page 5, section 19, subsection 3, dealing with allowing agreements to escape public hearings and regulatory controls.  You absolutely must have those controls in order for the public interest to be served . . . .  I think the word “pilot program” is such a good program that each state struggles into deregulation with . . . because Nevada buys half of its electricity on the open market. . . .

 

(Mr. Wilson read from prepared testimony (Exhibit K), which was distributed to the committee members.  Mr. Wilson concluded his testimony.)

 

Stephanie Licht, Lobbyist, Elko County Board of Commissioners, commented:

 

You each have before you a rather terse statement [Exhibit L] saying we support A.B. 661.  I would like to modify that a little by saying that our support is for the concept of the opportunity to bring new resources into the state.  I can’t tell you I understand all the nuances in the law.  I can’t tell you I understand a lot of the arguments or the very detailed things going on.  Our support is for the opportunity to bring those new resources to support infrastructure in the rural areas.  Most of the ranching has gone out of the rural areas.  We have a lot of people these days that can locate in our state.  One of the reasons we lost a large fertilizer plant from J.R. Simplot [Company] is we did not have the infrastructure.  That is our main concern.  We have all five of our commissioners and our one and one-half county managers behind this.  I think I speak for the city of Elko, the hospital, and other business interests in our community, when we

 

say we are interested in those new resources.  We would appreciate anything you can do to help it along. 

 

David L. Howard, Lobbyist, Silver State Apartment Association, commented, ”I have a small concern with page 17 of the bill.  I have talked to the author of section 44, on page 17, regarding regulating landlords via the PUCN. . . .“

 

Jon L. Sasser, Lobbyist, Washoe Legal Services Incorporated, stated:

 

Section 44 is a result of some amendments I was involved in.  The intent of this is not to authorize the PUCN to regulate the conduct of landlords, but merely to regulate the conduct of utilities, which they are already empowered to do. 

 

Mr. Barbano added:

 

I would like to make one more point, regarding this area, if you will allow me.  I am asking about the issue of going to five commissioners on the PUCN.  This was something that was supposedly fixed a few years ago, by going to five commissioners.  I’m concerned if there are disqualifications or vacancies, that one commissioner can make a decision; five commissioners is a better idea than three. . . .  That is why we went to five commissioners a number of years ago, because under open meeting laws, two commissioners of a three-member commission can’t even talk to each other to say hi over coffee in the morning.  The provision to go to five commissioners, I think has merit.  If this bill goes forward, with respect to the number of commissioners and the disqualifications, I think rather than allowing one commissioner to make a decision, you should allow for senior or special commissioners to be appointed by the Governor, much as judges are replaced at the [Nevada] Supreme Court on specific cases.  I see some real problems there, and there have been problems in the past, with a deadlock Mr. Ponn participated in, in 1981.  The whole controversy over commissioner Renee Haman-Guild, and there have been some other problems in the past.  If you go to five commissioners, fine, make sure the devolution process is remedied. 

 

Chairman Townsend recognized Thelma M. Clark, Lobbyist, then explained pertinent previous testimony to her.

 

Thelma M. Clark, Lobbyist, stated:

 

There are a few things I’d like to tell you about right now.  I have read this bill three times, [to see] how it will help me, the small user.  It seems very unfair to only allow large power users to leave the state’s electric utility.  It looks to me like only the large users can get off the grid.  I’ve been told many times by Nevada Power Company that if the big users go off the grid, the price would have to be raised so they wouldn’t lose money.  The price would be raised to the rest of the small users so the company would not lose money if the large users went off the grid.  The best thing in the bill, I think, is the five-member commission.  I would like an amendment to that five-member commission, however.  It would read, “The commissioner, to represent the public, (b) to become the commission chairman.”  We’ve got to take a little interest in the public, here. 

 

Another thing I feel very strongly about, and [as do] all the other senior citizens I’ve talked with about it, is we think there should not be anything in this bill the public service commission [PUCN] does not have the right to regulate.  There are several things in here which they can’t regulate.  Nothing should be deemed to not be subject to regulation. . . .  If the electric utilities in northern Nevada are approximately 150 large users to 180 in southern Nevada, then there should be lots of electricity left for the small users, if we can pay for it.  That is my problem. 

 

As I said before, if the big users go off the grid, Nevada Power Company has told me the small users would get a big rate raise.  I don’t like the language on page 12, line 5 . . . think about that.  I hope this Senate committee takes time to study every aspect of this, even if you have to do it after the session.  I don’t think there’s enough time to do an adequate job . . . .  Amend it, or pass it, or what are you going to do with this bill? 

 

 

Chairman Townsend stated:

 

Most of the time, when a bill of this magnitude gets to a second house, there has been consensus built, although it didn’t mean everybody agreed to every item.  This seems to have the opposite effect on people.  I’m trying to figure out how that happened.

 

Ms. Clark continued:

 

I didn’t know this was being worked on, or I would have said something before.  I’m not bashful and I would’ve been there to say something about what was going into the bill.  As far as one commissioner making a decision by himself, I think it is absolutely wrong. . . .  The commission should not ever be taken out of any decision.  This language in this bill does take them out of decisions. 

 

Lawrence J. Semenza, Lobbyist, Dynegy Incorporated, and NRG Energy Incorporated, stated:

 

The companies I represent have, for the past 2½ years, been looking at three or more power plants in Nevada to purchase pursuant to the agreement of Sierra Pacific Power Company and Nevada Power Company to divest themselves of their generating assets in Nevada pursuant to their merger.  After a period of time of researching and submitting bids for the purchase of the generating assets, Dynegy Incorporated and NRG Incorporated were the successful bidders and chosen by the power company to purchase two generating assets in the southern portion of the state; Reid-Gardner Power Generating facility, which is a coal plant; and Clark generating station, which is a natural gas plant and can be operated on oil.  NRG alone was the successful bidder on the Valmy coal-fired plant in northern Nevada. 

 

As you know, A.B. 369 was enacted and signed by the Governor, and the bill placed a moratorium on the sale of generatingassetsuntil July 1, 2003.  Ihave distributed copies of

 

 

our proposed amendment [Exhibit M] to A.B. 661 to the committee.  David Lloyd, an attorney representing NRG Energy, will make the presentation. 

 

David Lloyd, Attorney, speaking for Dynegy Incorporated, and NRG Energy Incorporated, stated:

 

We are the successful bidders for about 1500 megawatts of power.  We were prepared, and have contracts to spend over a billion dollars for those three large power plants.  We have to ask ourselves, “Why do we have a generation shortage in the West?  What’s gone wrong with the whole system?  How come the power utility companies have not been building and keeping up with our needs and demands?”  There are a lot of reasons, but the reality is we need to have some certainty in the future, as we go forward. 

 

We are prepared to spend a lot of money to come in and become a long-term partner with the citizens of Nevada.  We’ve studied these plants very carefully.  We submitted the highest bid, because we think there are values in these sites.  We think repowering needs to be commenced. . . .  They [the generation sites] were chosen for those locations for a very good reason.  Valmy is a good place to burn coal; Clark is a good place to burn natural gas; and there needs to be more generation in the load at that site. Reid-Gardner is an excellent [place] to continue burning coal.  Our companies combined to have thousands of megawatts of generation.  We understand coal.  We understand natural gas.  We are prepared to come and be part of the solution.  We were prepared to run at a loss for 2 years, under our existing contracts, to help the rate shock that’s going to hit.  There’s nothing that can prevent that. 

 

On a going-forward basis, we’ve been trying to work with Sierra, talking to them about repowering their sites.  As you know, A.B. 369 has put a cloud over the ability to do anything with those sites because they are utility properties.  Something needs to be done to enable anybody to come in and work on those properties and to repower them.  Valmy is subject to first right of refusal with Idaho Power.  We have talked to them [Idaho Power] about repowering into the future.  They are interested, but they don’t have the capital to do a full load.  I don’t think Sierra has the capital to put in the 1000 megawatts and all the transmission that’s necessary. 

 

Mr. Lloyd continued:

 

Infrastructures in Nevada and the West need a lot of work.  Natural gas seems like a panacea right now, but it is real expensive.  Coal is a real good option, which should be explored.  We’ve proposed if anybody “dances” with Sierra on the repowering or the powering of these plants, or doing rebuilding or generation at these sites, on which we presently have a contract, that we ought to at least have a “ticket to the dance.” This has been called the “jilted buyers amendment.”  We’ve got an issue with our friends at Sierra.  We would rather have a win-win solution.  They really can’t talk to us about what to do with that property because for 2 years you have now put a cloud over it, in the moratorium.  That needs to be fixed. 

 

The most important thing that happens in the West immediately is that new generation goes into place.  One thousand megawatts of new generation costs about a billion dollars.  That’s a lot of capital for somebody to raise in the capital markets of New York or around the world.  We are prepared to do that and help out with the problems the West is having.  We’ve suggested, in this amendment [Exhibit M], that if they talk to someone on these particular properties that we have contracts [for], if we give up our rights under those contracts, then we get a right of first refusal to match whatever price someone else gives them, for the activities we’ve talked about in this amendment. 

 

There’s a cloud right now, because nothing can be done for 2 years.  There’s a cloud because there are a bunch of contracts out there, about two inches thick each.  We are parties to three of them.  We would like to be able to talk seriously with Sierra about what to do about the energy issues in Nevada.  This is a solution for us, to make [it] a win-win [situation] if we release them from their obligations under the divestiture, then we get a right of first refusal.  They’ve suggested earlier in the session, in the Assembly, that it [a right of first refusal] will have a chilling effect. 

 

Valmy already has a right of first refusal, in perpetuity with Idaho Power.  It didn’t stop us from tripping over each other to bid as much as we did for the Valmy plant.  We were the successful bidders.  We don’t have an obligation in this amendment to be bidders ourselves.  We’ve already bid, everyone knows what our numbers are.  Our numbers are out and everybody is aware of what we’ve done.  I don’t think they are disadvantaged by the fact that we don’t necessarily have to bid and we get to then match whoever is the highest bidder.  I think this is a good solution to the uncertainty caused by A.B. 369, and may help to get us out of some the problems we’ve got.

 

Judy L. Stokey, Lobbyist, Nevada Power Company, stated:

 

We’d like to have the opportunity to respond to this amendment.  We did just receive it.  I don’t know what time constraints you are under, whether you want to hear that now or on Monday?  We will respond on Monday.”

   

Chairman Townsend asked:

 

I believe, in section 18 of the bill, it allows our incumbent to partner or joint venture in some way that has been in question here.  I believe the language would then free up from those contracts and allow you to talk to anybody.  Unless I’m mistaken, Mr. Lloyd, your contention, that your company has done a lot of work and both parties have entered into an agreement in good faith that through legislative [action] . . . we stopped.  You would like to continue with that, if it is possible? . . .

 

Mr. Semenza asked,  “Are you having a session tomorrow morning?”

 

Chairman Townsend responded:

 

No, I’m not.  There is likely to be an all-day session on the floor, between the amendments, the general file, the concurrences, the recedes, and the secretary’s desk . . . I thought it would be best, since this bill is so complex, and touches 14 or 15 different issues, that we have time over the weekend to review it.  We’ll begin on it again Monday at 8 a.m.

 

Chairman Townsend closed the hearing on A.B. 661.  There being no further business, the meeting was adjourned at 10:15 a.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Lydia Lee,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Randolph J. Townsend, Chairman

 

 

DATE: