MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
February 19, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 9:36 a.m., on Monday, February 19, 2001, in Room 2135 of the Legislative Building, Carson City, 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
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Laura Adler, Committee Secretary
OTHERS PRESENT:
Donald Soderberg, Chairman, Public Utilities Commission of Nevada
Neill Dimmick, Director of Regulatory Operations, Public Utilities Commission of Nevada
Robert E. Shriver, Executive Director, Division of Economic Development, Commission on Economic Development
Senator Townsend opened the meeting and announced that representatives of the Public Utilities Commission of Nevada (PUCN) were in attendance to testify regarding Assembly Bill (A.B.) 366 of the Sixty-ninth Session and Senate Bill (S.B.) 438 of the Seventieth Session which were passed by the Nevada Legislature and signed into law, and the resulting requirements for regulatory oversight and where the PUCN now finds itself in that arena.
ASSEMBLY BILL 366 OF THE SIXTY-NINTH SESSION: Reorganizes public service commission of Nevada and makes various changes concerning regulation of utilities and governmental administration. (BDR 58-1390)
SENATE BILL 438 OF THE SEVENTIETH SESSION: Makes various changes related to electric restructuring. (BDR 58-861)
Donald Soderberg, Chairman, Public Utilities Commission of Nevada (PUCN), stated he would do a chronology of the PUCN’s movement resulting from previous legislation that put electric restructuring into place, and the commission’s activities leading up to those bills and spawning from them. He told the commission he would elaborate on an outline handed out (Exhibit C), and then be available for questions.
Mr. Soderberg testified:
Because there has been a consistency on this committee, I believe you all know that roughly in 1995 the commission embarked on an investigation into issues surrounding electric restructuring or retail competition in the electric market here in Nevada. This was a push or a trend that was going on across the country in one level or another spearheaded largely by California on the retail level, and had been in place for years prior to that on the federal level for wholesale [electric power] generation. That investigation was to address essentially two questions: Is retail competition efficient and feasible? and How is it to be implemented?
A report was spawned from that investigation, which was presented to you in 1997, and was the genesis for Assembly Bill 366 [of the Sixty-ninth Session] which was to be a comprehensive piece of legislation to set in place retail competition. A.B. 366 [of the Sixty-ninth Session], among some other structural changes that it made to our agency and an offshoot agency, the Transportation Services Authority, enacted a restructuring policy for the state and provided that consumers could begin obtaining electric generation, aggregation and other potentially competitive services from alternative sellers at a time determined by the public utilities commission. [It] prohibited vertical utilities, otherwise known as Sierra Pacific Power Company, Nevada Power Company [and] from providing potentially competitive services except through an affiliate. [It] established a requirement for [the] portfolio of energy resources, and also put into place, at least got the ball rolling on three areas that I now believe are in question.
First of all, it directed the PUC[N] to ensure the development of effective competition through, if necessary, limitations on the ownership of transmission and generation. That was clearly the first time there was a discussion of divesting generation assets from the incumbent utility and [it] raised the specter of possibly doing that in one form or another with the transmission assets.
The second item that came through A.B. 366 [of the Sixty-ninth Session] that is in question is establishing the concept of a provider of last resort. This, as you know, is the concept that some people will be unable to get competitive options or will not want to go competitive and there needs to be somebody there who is a default provider. Initially back in 1997, the economic thinking was that that necessarily wouldn’t be [an] incumbent utility. I believe as we get further down the road and talk about the legislation you passed in ’99, that thinking has evolved and clearly some of the testimony you’ve had since the beginning of this session is largely [referencing] a great discomfort with somehow wrestling people away from their power companies, if they don’t want to be wrestled away from them.
Mr. Soderberg continued:
The last item that was spawned from A.B. 366 [of the Sixty-ninth Session] that is now somewhat in question is the provision that the PUCN would develop electric energy forecasts and establish obligations to suppliers to ensure capacity is available. The thought at the time there, I guess the theory, was that once we open up competition there would be so many suppliers that the only way to accurately project what the state would need and how we got there is that some state agency . . . prepared these forecasts and mandated to various entities, “you will build this plant, you will build this transmission.” That is . . . a complete turnaround from the resource planning model that had served us so well, whereas the incumbent utilities would provide forecasts. Those forecasts would be analyzed by our agency, the Bureau of Consumer Protection [of the Office of the Attorney General], and other parties. From that process we would collectively decide what would be the best mechanism. To do that, the incumbent utility would then put those mechanisms in place, whether they were new generation assets or new transmission assets, and then that would give the incumbent utilities some level of assurance that they would be able to recover the cost of those, because they would already have had the first level approval on those expenditures.
Once A.B. 366 [of the Sixty-ninth Session] was adopted and signed by Governor Miller, the PUC[N] opened two dockets: One to enter into rule making with regard to how the distribution companies, the incumbents . . . relationships would go with their affiliates that might be involved in potentially competitive services. That docket is now closed. The other docket just referenced, on top of page 3 [Part I,] [Exhibit C] as 97-8001, was the comprehensive electric restructuring docket for which a number of rule makings and investigations were conducted within. There is a list of essentially seven major topic matters that were discussed in Docket 97-8001. Those subject matters, for the most part, have been completed under the direction of Commissioner McIntire [Richard McIntire, Commissioner, PUCN]. We have one item through that that . . . has not been finalized, [it] has been finalized by the commission, [and] has been brought forward to the Legislative Commission for approval. But it is a subject matter that may not be necessary in light of the global settlement. We’ll get into it later why we are sort of in limbo with that one.
Intervening activities have, I think, shaped and probably changed the direction of where the state was going in this topic, post-A.B. 366 [of the Sixty-ninth Session]. Two dockets were opened, one concerning Sierra Pacific Power Company, one concerning Nevada Power Company, on the methodologies for unbundling their systems. Second, and probably the most major intervening action, was that Sierra Pacific Power Company [and] Nevada Power Company brought forward a petition to allow those companies to merge. That was clearly something that was not contemplated during the 1997 Legislature. Not only the specter of these two companies becoming one [but also] as the concerns that were on the minds of the regulatory community at the time clearly changed the direction of where things were going.
Thirdly, Nevada Power Company had applied to consider meters and meter readings as a potentially competitive service. As an adjunct to that, our staff filed a docket with the commission to actually have the results of the Nevada Power [Company] petition applied to Sierra Pacific [Power Company]. Then as time went on, the commission took the next logical step and did rate cases having to do with distribution tariffs and the cost of their unbundled elements.
Mr. Soderberg continued to testify:
In the 1997 . . . well, I should step back. There was from at least what I could see, and largely during the appropriate times I was with another agency, there appeared to be a dissatisfaction with some of the approaches the commission was taking at the time with regard to implementing A.B. 366 [of the Sixty-ninth Session]. There also appeared to be a desire to make further changes or add further definition to the direction of where things were going. That effort culminated in S.B. 438 [of the Seventieth Session], which was adopted by this committee and the full Legislature in the last session.
I would just highlight that bill. I know you are all very aware of it, but for the record I’ll go through the short list.
First of all, it changed the date of opening competition from December 31, 1999, to March 1, 2000, unless the Governor, in consultation with the PUC[N] determined that a different date was necessary. This turned out to be a very significant change. As you know, Governor Guinn has analyzed the situation on two occasions, and has made the decision that we will not open the markets until certain market factors fall into place.
There was a growing concern that during the transition period from a totally monopolistic market to a competitive market there may be some rate uncertainty and a rate cap was set in effect on July 1, 1999. It allowed that a party other than the incumbent power company be now what is known as the designated provider in, essentially, a bidding system. That is something now that has come into question and [into] testimony that you’ve had before. It turns out that that type of mechanism may give the accompanying utility some uncertainty as to whether or not they could enter into long-term contracts. That was a modification of the direction of the then commission . . . which wanted to have a more accelerated auction which would actually take portions of the incumbent utility service territory and give them to other companies.
Finally, S.B. 438 [of the Seventieth Session] eliminated provisions in the statute that dealt with deferred energy accounting. Deferred energy accounting is where the incumbent utility would essentially book its fuel cost and its purchase power cost and there would be a true-up mechanism periodically, typically once a year. Then that component of the rates would either be adjusted upward for them to make up . . . where they’re behind or move downward where consumers would make up where they may have overpaid. I think in light of the very volatile market that nobody had anticipated at the time, there has been some concern that possibly we may need to go back to some version of deferred energy. The quick version that we have was an existing statute that was used in the global settlement, which creates monthly rate changes. It has been expressed to me that there is some dissatisfaction with doing that monthly and [instead] possibly doing that on an annual basis. Softening up the highs and lows may be a better approach.
Mr. Soderberg continued:
Subsequent to the enactment of S.B. 438 [of the Seventieth Session], the commission finalized rules on classification of services of potentially competitive services rules on how alternative sellers will operate in a competitive market [to include]: annual licensing fees for alternative sellers [and] consumer protection requirements for alternative sellers; rules encompassing the distribution utility once it is considered to be just a distribution utility; load profiling by which various electrical providers would provide information to the commission to provide the load forecast that I discussed earlier; [and] authorization of affiliates to provide non-competitive services. That gets back to the issue of whether or not the incumbent utility should be able to be a competitive player as well as a monopoly-regulated entity. Since the time those concerns were put into place, the power company has announced [it] does not intend to be an alternative seller and participate in the competitive market. So, largely, those efforts and those concerns have gone away.
The rule that we discussed prior, that is currently pending before the Legislative Commission, is the past cost recovery. . . . Every state that has done electric restructuring on one level or another has recognized that there are certain costs that have been incurred by a monopolistic utility, that when they [the costs] were incurred it was assumed that they would always have full recovery, whether that took 20 years amortizing a new plant, and that sort of thing.
The issue, though, of exactly what is needed to make the incumbent utility whole or whether the market is changed [to a point] where they will actually make money on selling some of these assets, is something that we could never put our thumb on. The PUC[N] was tasked with coming up with a regulation that allowed the incumbent utility to make this filing.
Mr. Soderberg continued:
Among the other items of the global settlement [“Agreement andStipulation,” dated, Final 07/27/00] that became a feature that was consumer-friendly is the utilities essentially agreed to not go through this exercise. That, with the divestiture of their power plants, they would only have a certain amount of money go to them and the rest [would] flow back in to ratepayers. The commission felt that the statutes gave it an obligation to implement this regulation, fully knowing that it might never be used. That regulation was adopted [and] was protested by the utilities before the Legislative Commission. The Legislative Commission sent us back to do some work. We assigned that effort to Commissioner McIntire, to comply with what appeared to be a more accurate intent of the statutes. By the time that whole process was complete, the global settlement was an intervening act. The proposed legislation was brought before the Legislative Commission, I believe . . . sometime in the fall. There was a desire of members of that commission that maybe we not deal with this until we get a better picture on whether or not it is absolutely necessary. I believe we were supposed to go before the commission in December, and we asked that it be tabled at that point because, quite frankly, we wanted to see if there was any legislation that would be changed which would make not only the exercise unnecessary, but also relieve our obligation for implementing it. We try not to be in the business of implementing regulations that we know will never be used, and so we throw ourselves at the mercy of the Legislature. Do you want us to move forward with this to have it on the books or not? I think we’re in a wait-and-see mode with that.
The one other piece of rule making that has not been completed spawned from A.B. 366 [of the Sixty-ninth Session] has been the renewable energy resource portfolio. That was always a vision that it would happen later in the process and that is another docket that Commissioner McIntire is spearheading and that we are in the process of adopting those rules so we are ready when those portfolio standards that were adopted in A.B. 366 [of the Sixty-ninth Session] before. I understand there is some consideration of modifying those standards and I think that we will be able to be flexible in our regulations so that if you change the course, you’d like to go on renewables, we’ll be able to adapt to that and implement your will on that.
Mr. Soderberg said his presentation was concluded. He said he and Mr. Dimmick were available to answer questions.
Senator Rhoads asked, “Does A.B. 366 [of the Sixty-ninth Session] or S.B. 438 [of the Seventieth Session], would it allow the way the law is written presently for just part of the state to be deregulated?”
Mr. Soderberg answered:
Yes. I believe it was in A.B. 366 [of the Sixty-ninth Session] the commission had the opportunity, or how would I say, the ability to phase in competition in a manner that it seemed fit. S.B. 438 [of the Seventieth Session] moved the discretion over to the Governor, so I think . . . we couldn’t do that in a vacuum. The global settlement actually proposed to the Governor a phasing in not by region, but a phasing in by customer class. I think that is clearly an ability to do that in any way that the Governor feels we should carve that up.
Senator Rhoads queried, “So you could just do it when the money comes in and the households wouldn’t be affected?”
Mr. Soderberg answered, “I think you could do it by customer class or you could do it by region. It’s a matter of getting in there and finding out what is the most advantageous way to do it, if the decision is made that maybe a phase in on some level or another is . . . “
Senator Rhoads asked, “Would the Governor be the one that would start the ball rolling?”
Mr. Soderberg answered:
I think the Governor would ask us to examine that and advise him. I don’t think I could advise the Governor to just do that with a sweep of a hand. I think there has been a lot of general discussion, Senator, about how we might do that, but I don’t think there has been the level of investigation, at this point, to make a recommendation to the Governor. Clearly, we have held no hearings on it.
Senator Townsend stated:
To follow up on that, perhaps, Scott [Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau], you and the commissioner could give Senator Rhoads a more definitive, and if we need a legal opinion out of the counsel bureau, a more definitive answer to the question of the geographic nature. Isn’t that what you are looking for, Dean [Senator Rhoads], to find out if there is a region that could fit within the context of the two bills? That the Governor, on advice, obviously, of the PUC[N] and the OCA [Office of Consumer’s Advocate, Bureau of Consumer Protection, Office of the Attorney General] meet the needs of people in different geographic areas, particularly rural communities who have different needs. We ought to find out what that is so that Senator Rhoads knows exactly where we are on that.
Senator Amodei stated, “Don [Mr. Soderberg], in looking through your thing [Part II,] [Exhibit D], . . . you touched on it briefly, but could you just . . . go back and spend a couple of minutes on where that came from and where it’s at now?”
Mr. Soderberg stated:
The idea that the incumbent utility should be forced to get out of the generation business really was an idea that was spawned in the mid-nineties. As again, I’m always talking about . . . theoretical economics or blackboard economics as Commissioner McIntire likes to say. Since he actually is an economist, maybe I should use his nomenclature. Because in any scenario, an incumbent utility in the traditional form of regulation is going to own half to two-thirds of all the generation in an area. It was felt that they would be able to exert so much market power, they would effectively control the market. There was some discussion that I vaguely remember in the ‘97 Session [1997 Legislative Session], where at one point there were some people on the commission, and I don’t think it was a unanimous feeling, but there were some members of the public service commission and some members of the staff who felt that A.B. 366 [of the Sixty-ninth Session] should mandate the divestiture of these plants. That did not get put in the legislation, although there is a section that refers to it.
In between the two sessions, there was a change of management at both Sierra Pacific Power Company and Nevada Power Company and that new management decided it was advantageous that those two companies merge. As part of the package that was brought forward to the now Public Utilities Commission [of Nevada] and the Federal Energy Regulatory Commission [FERC], those entities offered to sell their plants. And they offered that to make that a condition of their approval. I don’t know how that thought process came about, I was not with the PUC[N] at the time, but that was offered by the companies. That is something, that I believe, was accepted happily by the public utilities commission and the FERC at the time, since it avoided what may have been a touchy issue of whether that should be forced or not. The requirement that our incumbent utilities sell their power plants, Senator, is a requirement that was placed upon them that was offered by the utilities and accepted by the public utilities commission in their order approving the merger between Nevada Power [Company] and Sierra [Pacific Power Company] and the FERC order that approved that merger.
Senator Amodei commented:
I don’t mean to leave the impression, by asking the question in a historical context, that I think it is a good idea or a bad idea. Because I think now that we sit here in 2001, there’s an entirely different dynamic and forces going on when that decision is looked at, and it has to be considered in terms of today. But, I do think it was important to make it real clear that that is something that was generated as a result of merger things going on a few years ago as opposed to 63 part-time folks deciding that that [decision] should be part of deregulation. I think it’s important to know that we specifically declined to make that a part of deregulation.
Senator Townsend stated:
Commissioner, if I may, let’s follow up on Senator Amodei’s position. I think that unless you disagree, and you’re more than welcome to, that points up something that is of deep concern to all Nevadans, and particularly this committee, that is unlike other areas that are left to the states to regulate. [Neither] this Legislature nor the commission has control over a great many of the components that are part of the issue that has been brought to the forefront here: That the federal government controls a great deal of this and this is just but one issue, this issue of the sale of the plants, and we should never forget that. There’s probably an overriding question and I’ll start with this, and then we will get to more detail on the task of cost issues and some of the other things.
Number one: You’re familiar with the utilities resource planning act [Public Utility Regulatory Policy Act of 1978] (PURPA) and its role in providing customers the lowest-cost option and what it has provided over that last, I guess 15-16 years. Since demand now seems to outstrip supply, there is deep concern. What is our best avenue, in your opinion, for providing that technical resource, (which would be reflected in some kind of document on a quarterly, 6-months, [or] yearly basis) on how much energy the state is actually going to need, and how best we find a way to provide that information?
Mr. Soderberg stated:
My feeling is that the resource planning process is still the best way to address this. Because it essentially has the professionals bringing forth the information and then various groups of users come in and scrutinize that information to make sure that it is accurate and meets their needs. Resource planning is something that happens over longer periods of time with incremental steps. The Governor’s energy policy committee proposed an offshoot of resource planning, which would have more of a rapid turnaround time. Mr. Dimmick was an advisor to that committee, which you were on, Senator. I would ask Mr. Dimmick to walk us through that with a little more detail. But I would say [we need] a modification of resource planning that shifts its focus a little bit to consider the fact that a good percentage of all our power is going to come from merchant power producers, hopefully, as many as possible from within our state, as well as a more rapid review [process]. In my mind, I think we get the job done. Where before we were taking longer periods of time, we were looking for the least-cost alternative, and we were really only largely focusing on what the utility did, and we weren’t focused too much on what else was out there.
Senator Townsend stated:
In the utility resource planning act [Public Utility Regulatory Policy Act of 1978 (PURPA)], as I remember it, not only were there forecasts of 5, 10 and 20 years, but they were based on the various options available to the integrated utility to provide information that if [for example]: We built a plant, it would cost this much, and it would provide this much energy; If we bought within a certain portfolio on the open market, these are the chances we would be taking, et cetera. Then at that point, it [the information] is brought to the commission and the commission gave its input, [as well as] any party who wanted to intervene, including the [consumer’s] advocate. The staff could then provide their input. Ultimately, a decision was made which, I guess, was tantamount to approval once the decision was made. Albeit, if there was an instance 2 or 3 years down the line, if they came back and said, “These were issues that were not foreseen, we need a rate increase or we need an adjustment here, or the OCA [Office of Consumer’s Advocate, Bureau of Consumer Protection, Office of the Attorney General] came in and said it was too good a decision.” That’s the general mechanism as I remember it. So, is it fair to say that for 15 years or so, that the decisions that were asked to be approved by you, you being the commission, were ones where it was substantially better [for] all customer classes to buy a great deal of this power on the open market rather than build. Is that a general statement? Is that fair?
Mr. Soderberg continued:
Yes. That is accurate, if you are in a process that is looking for the least-cost alternative and there is a surplus on the market that drops wholesale prices dramatically. That is why we have strategy that was focused on short-term purchases and emphasized transmission infrastructure as opposed to new generation.
Senator Townsend stated:
Having said that, we’re now evolving, and not necessarily by choice, but as the country and as the FERC [Federal Energy Regulatory Commission]. I don’t know whether they were working particularly in concert with the Congress or whether Congress was just not interested in something that was so long-term. [The] FERC had encouraged utilities to divest and there weren’t necessarily large incentives for generation providers to get into the business, albeit, there were tax credits for certain renewables. Now [U.S.] Senator Reid has asked for that to be broadened, and we’ll be talking about that on another day. So, what we have is a tremendous growth in the West, tremendous demand in the West. The largest part of that being California where they really didn’t want any power plants to be built. Now we find ourselves short and so is our process in terms of providing capacity. Is that fair as a general statement?
Mr. Soderberg answered, “yes.”
Senator Townsend stated:
Okay. Now as we move into this, you’re saying that the Integrated Resource Planning Act should still provide that service. Is there something that can be done or better-utilized through the energy office, the state energy office, which I believe is funded by DOE [Department of Energy]. Is there something they can be doing that can be constructive to this process with regard to the demand side of this equation?
Mr. Soderberg commented:
I’m going to have to think about this for a minute because I have a meeting with those people this week…. Traditionally the PUC[N] and the energy office have not worked in a great deal of cooperation. I want to counsel this carefully because I don’t understand that has been antagonistic. But clearly they’ve done their thing and we’ve done their [sic] thing in a vacuum. I think there’s been a recognition that shouldn’t be the case and we’re going to be working with the energy office more to include our input into things that they’re doing and vice versa. I think they could be a very positive player. [They could] input into our existing processes to get their out-of-the-box thinking, and thinking more focused on the energy needs, whereas our people are still in the focus of least-cost alternatives. I think that they could be very, very constructive in sort of giving us the prospective of the entire regional supply market.
Senator Townsend commented:
Is there somebody here from the energy office? I know that this is probably an odd place for them to be, but if we could perhaps encourage them to get ahold of us, Scott, [Scott Young, Committee Research Analyst] we would appreciate it. The reason I ask that is if we have an Executive Branch agency such as the commission, we have an agency in [the] AG’s [attorney general] office which is the Bureau of Consumer Protection, which come in front of you to represent residential and small commercial individuals. Obviously, staff has a right to be an intervener, so does anybody else. I don’t know, I’m trying to figure out how to best utilize their resources, how to get them into the mix so that we get whatever money DOE deems to be appropriate to Nevada for these purposes and we get the benefit of that. I’m kind of out of the loop on that. I’ve asked them a couple of questions with regard to renewables and demand-side management and they’ve shown some interest, but I’m just not sure where they fit in. I would hope that in your discussion that we could find a role for them that is extremely more productive. Particularly with regard to not just renewables and demand-side, but future demand by Nevada and its needs.
We have Bob Shriver here today, and I’m really glad you’re here, Bob, because we’re going to ask you a couple of questions that are important, relative to some of these things. And if you have to leave, good luck! That is important relative to the commission’s decisions . . . you know we have a finance commission that is wrestling with the costs of doing business as a state, those costs keep going up. This is not an isolated thing, this is occurring in Senator O'Connell’s committee on government affairs, certainly in Senator Rhoads’s committee on natural resources. These are huge issues, so we want to make sure everyone’s in the loop on this.
Let’s go back to some key issues in your presentation, Commissioner. All of the things that you have drafted are as a result of these two bills. Now when you talk about annual licensing fees, alternative sellers, how many alternative sellers have come into this state and bought the license? Do you know?
Mr. Soderberg answered, “I don’t have that number off the top of my head.”
Senator Townsend queried, “Neill [Dimmick], off the top of your head?”
Neill Dimmick, Director of Rural Operations, Public Utilities Commission of Nevada, responded, “ . . . I believe we have licensed seven and we have two or three applications pending at the present time. All licensed resellers are listed on the Website.”
Senator Townsend continued:
Let’s go back to this, you have an unbundling document here, and I believe that was under A.B. 366 [of the Sixty-ninth Session], Dockets 99-4001 and 2 [PUCN Dockets 99-4001 and 99-4002], which was Sierra [Pacific Power Company], [and] 4005 and 6 [PUCN Dockets 99-4005 and 99-4006], which was Nevada Power [Company]. The first dockets in ’97 [were] where the unbundling methodologies were developed, [and the] transmission and distribution split was devised. You’ve resolved that? Is that a closed docket now? [Are] both those dockets closed under 97-11018 [PUCN Docket 97-11018]?
Mr. Soderberg answered affirmatively.
Senator Townsend continued:
Okay. So we now know what the methodology is. Is that fair? Now as we go over to 99-2008 and 2009 [PUCN Dockets 99-2008 and 99-2009], that’s the distribution service tariff, if the market is open. Do you have those? Now are those . . . ?
Mr. Soderberg answered yes.
Senator Townsend queried, “Then the 99-4001 and 2 and 5 and 6 [PUCN Dockets 99-4001, 99-4002, 99-4405, and 99-4006], are those closed, too? Are those dockets in place? That’s on the competitive services; one bundle?”
Mr. Soderberg answered, “Yes.” Senator Townsend asked, “ . . . are you satisfied that you know the components to provide electricity to consumers in the state of Nevada?” Mr. Soderberg answered yes. Senator Townsend asked, “No evident bundling, we just know what those components are, is that correct?” Mr. Soderberg answered, “Yes, the structure is in place should we decide to use it.”
Senator Townsend commented:
Now that you have that structure, and these numbers change, but could you give me a little bit of an insight? If we are producing approximately somewhere around 50 percent and buying 50 percent, and I know that’s different from north to south, but that is just for the sake of discussion. What is now the component that the commodity is in the actual wire that sends electricity to your home? What component in today’s prices, whatever they are? I presume the market’s open today for that. Do you have any idea what percentage the commodity is?
Mr. Soderberg questioned the total cost the customer pays. Senator Townsend said yes. Mr. Dimmick said, “Just off the top of my head without looking, but [the component is] 60 percent, and probably growing.”
Senator Townsend pointed out, “And total cost to the company? Pick a number; let’s say 5 years ago. Five years ago was approximately how much?”
Mr. Dimmick responded, “In the neighborhood of probably 45 to 50 [percent]. It continues to grow because that’s where the costs have risen the most dramatically.”
Senator Townsend answered:
As long as I have you here, Mr. Dimmick, and feel free, Commissioner, to answer this. If we maintain the same kind of regulatory atmosphere we currently have which is a regulated, vertical monopoly, and demand continues to rise [and] cost of natural gas continues to go up, [the] price will continue to go up. Is that fair to say?
Mr. Dimmick responded, “Yes, sir. That’s clearly the answer, because those are the driving components of the margin. The price of gas and the high cost you have to pay for capacity in the constrained market place.
Senator Townsend queried:
Then at what point do we know or is it simply market driven, that we allow, and I’ll use the Commissioner’s term, ‘merchant plants,’ to be built in the state of Nevada? At what point is there equilibrium, where there is either too much capacity available and they stop making those investments? Is that just a function of the market? The market will tell us that?
Mr. Dimmick stated:
Well, I believe that’s correct. The market will tell us, because as you know, there are a lot of power plant projects proposed and everybody tries to queue up. I believe in our energy policy committee, and a gentleman made quite a clear statement that you will get to a point and then that last unit won’t be built. And once you come into equilibrium, these things will happen and you will never have too much of a surplus. You might see [a surplus] in the very short run because things get built faster or one party made a decision to build it, maybe they shouldn’t, but it won’t be long.
Senator Townsend queried, “What are the things you both see that are hurdles to private-sector investment for generation in the state? Any generation, whether it’s renewables or coal, natural gas?
Mr. Soderberg replied:
I think we both might answer that question. We might have different views or separate things. For me, in this state I don’t see many hurdles. I think we have a relatively clean approval process in comparison to our neighbors in other states. I think the availability of fuel could be a problem.
Senator Townsend said, “What if you defined that a little better for us, to find out what you mean?”
Mr. Soderberg responded:
Essentially, we have a finite amount of natural gas that can be pumped into the state or through the state. So, if our gas transmission pipelines are at capacity, then they will not be able to serve X amount of additional power plants.
Secondly, the transmission to deliver that power is a limiting factor. A power plant doesn’t sit there alone. The power has to come out of it and go into the grid somehow. Transmission, at some point, will need to be expanded to accommodate these merchant developers. I think water, especially in southern Nevada, will be a limiting factor. Whether you have an air-cooled or water-cooled power plant, they still use water and that is a finite resource. At some point there will be no more water for that purpose. There may be a gray area where we as a state need to decide [what] is the best use of this water, an additional power plant or is it a new subdivision or is it some other endeavor. That’s a decision that will have to be made.
Mr. Soderberg continued:
I think, as Mr. Dimmick pointed out too, the market does give us some level of equilibrium. Because of the expanding economy and because of the types of uses an expanding economy has spawned, we’ve seen demand shoot up dramatically in ways we hadn’t anticipated. There will always be that level of: “Can we sell our product?”; [and] “Are we going to build a power plant if we can’t sell our product or maybe can?” So, I think that is a limiting factor.
Financing has been a limiting factor for smaller power plants, especially renewables. For the most part the merchant power plant developers have their own financing and they’re willing to build a 500- to 700-megawatt gas turbine plant without a contract in hand, because they believe they will be able to sell their product. Smaller developers, especially renewable developers, don’t have access to that type of capital; they need financing. In order for them to get financing, they need to have a long-term contract in their hand before somebody will actually give them the money to build. If incumbent utilities either, depending on your point of view, get back into the power plant-building business or [are] basically somehow asked to do that, they will need to be financially whole and able to do that. I don’t know that, at this moment, today, in February, that many investor-owned utilities would be able to build new plants in light of the fact that their costs have been rising more dramatically than rates have been. . . . If the decision is made that the incumbent utilities should get back into the power plant-building business, we need to keep them financially whole so they have [resources] to do that, because they have to finance those decisions like anybody else.
Mr. Soderberg continued:
A factor that has impacted the problem [of] the shortage we have today, and it’s something that’s really uncontrollable with the exception of a little bit of federal policy that we hadn’t touched on, [is that] a good chunk of that power surplus that we were dealing with in the ‘90s came to us during our peak times from hydropower [hydroelectric power] in the Pacific Northwest. We were very lucky we had a string of wet years up there, so that was moving very quickly. We have now had some dry years, so power that was counted on last summer, power that was going to be counted on this summer is not going to be there. That exacerbates that shortage problem. If we had robust hydro years last year and this year, maybe we wouldn’t be talking about a shortage; maybe we would not be talking about such wholesale rates. Because that stuff was there for the most part, with a few hiccups, it has always been there. We may be in a hiccup period, we don’t know, we can’t predict the rain or the snowfall. It has been exacerbated a little bit because of the problems California has experienced. The federal government has mandated sales to California. Sometimes energy providers have to do that, to their own detriment. I believe the Pacific Northwest is running hydro at times when they [normally] wouldn’t to feed into California, thus leaving less water in the reservoirs for not only their own use, but the surplus we all counted on this summer.
I know that there are merchant plant developers, merchant plant operators, that are running their plants at times now, when they normally wouldn’t be running them, to feed into California which is cutting down maintenance. I had a casual conversation last week with a merchant plant operator [who said] . . . they’re operating a plant in California that has a 14-foot crack in it, with steam coming out of it [the crack]. But they are told they can’t shut it down to fix it at the moment, because they are under the obligation to provide power. So they are doing the best they can. That will affect us this summer, because I can’t imagine a plant with a 14-foot crack in it is going to be able to produce power in the long term.
Senator Townsend stated, “This is the ‘Liberty Bell’ of power plants? Is that what it is?” Mr. Soderberg answered, “It’s what it is starting to look like. That is exactly, when I heard that, what popped into my head.”
Senator Rhoads asked:
Don [Mr. Soderberg], I know there are several generating plants on-line within the state, particularly down in southern Nevada where all the power is needed. But does California have a long list of power plants that are going to be built? Or are they going to look at us and that power is going to go west when they [the plants] get built?
Mr. Soderberg replied:
California does have a long list of plants that are in the queue, so to speak. Governor Davis [Joseph Graham (Gray) Davis, Governor of California] last week talked about expediting the approvals for some of these plants to allow them to come in quicker. But I think, yes, the needs. We can look at things as a California market, the Nevada market, the Arizona market, but it is essentially a regional market. I don’t believe the activity we’re seeing in southern Nevada for so many merchant power plant developers having proposed projects there, is based solely on the fact that Las Vegas is a good customer. It’s there because there’s transmission available or transmission readily expandable to sell into California, sell over to Arizona, sell to Las Vegas and sell back up into Utah; it’s a great place to put a power plant. And that’s why we’re seeing so much more activity in the southern part of the state than in the northern part of the state. I think, clearly, when somebody invests that type of money in southern Nevada, they’re looking for at least the option to sell to buyers in southern California as well as in southern Nevada, which puts us in competition for those kilowatts.
Senator Amodei asked, “Don, what brings me to this point is, assuming that this infrastructure gets built, what control do you have on [selecting] what the geographical area is that the product is marketed in?”
Mr. Soderberg responded:
Right now we have none. A merchant plant developer will get various approvals from the state. But to the extent they are regulated at, the wholesale generation and sale of power is regulated by the federal government, which currently has a very open market policy.
Senator Amodei inquired, “In assuming that this infrastructure gets built in Nevada, what control do you have over what the price is, what the wholesale price of the product is, wherever it may be sold?”
Mr. Soderberg replied, “Absent conditions on certain approvals, we would not regulate the price merchant power plant developers charge to anybody, whether it is internally or externally from the state.”
Senator O'Connell queried:
Don [Mr. Soderberg], I wonder, because a group of us are going to be going to Elko shortly and this is probably going to be the major issue that will be spoken about, will you please do for us . . . a pie chart that shows how much control the legislature has, how much control the PUC[N] has, and how much control the federal government has, as far as any action that can be taken on this issue. And if you would, include in that the duties of each division of that pie chart.
Mr. Soderberg stated, “Senator we’re looking at specifically power plants or licensing or . . . . I guess I’m trying to define the universal so we can be more forthcoming.
Senator O'Connell commented:
Well, obviously people are going to be asking us what we can do, or telling us what they would like us to do as a legislative body. What I’m interested in is being able to . . . show them what control we have, or the limited control that we have, and that the federal government is going to be the biggest player in whatever happens.
Mr. Soderberg said, “So, I would . . . “ Senator O'Connell stated, “All of the above is the answer.”
Mr. Soderberg commented:
“If I could paraphrase, we’re looking at the development of various items and the pricing of these items, and who has jurisdiction over them. Mr. Dimmick has informed me that that might include more than one pie chart, if that’s okay. It might be tough to put that all in one pie, but we’ll do our best.
Senator Townsend stated:
Mr. Shriver, we’re going to cut right to the chase here because some of this is fairly ethereal. But are you and the commission prepared to be a purchaser of Nevada generation for purposes of, let’s just say, state or school districts?
Robert E. Shriver, Executive Director, Division of Economic Development, Nevada Commission on Economic Development, responded:
Realizing our role in all of this, our commission started discussion on this at our last meeting, realizing that part of our role is to attract and help businesses locate here. One of the key issues is reliability of the energy. It’s not so much a pricing issue any longer. Some of our development authorities are very aggressive in trying to market the woes of California at this time. We’re much more cautious.
Senator Townsend asked, “Are you going somewhere with a ‘yes’ or ‘no’?” Mr. Shriver answered, “At this time, no.”
Senator Townsend stated:
Well, let’s have you get back to the commission because one of the things we would like you to consider [is that] because of the tremendous demands we’ve put on our two utilities, we would like you to consider being a purchaser of generation on the open market, particularly from our indigenous resources, which would be geothermal and wind. That could do two things: It could help our utility with the demands they have by removing some of the demand on the current system. It could jump-start our wind and geothermal potentials that could protect Nevada because we don’t have to depend on the federal government or OPEC [Organization of Petroleum Exporting Countries] or natural gas prices. It would be a resource that’s not only clean and abundant, but is something that can help us with reliability for not only businesses that are here or school districts or hospitals, but it would be, if nothing else, the lone repository for, I think the number is anywhere from 200 to 500 megawatts of power, but believe me, we need that in a heartbeat. Obviously, you’re going to have to get authority from the PUC[N] to do that. But I think under our rules, they could be an aggregator for . . . I don’t know what you want to term them, but they could go out and if you give them that contract, they could be in business fairly quickly with the positive commitment to clean energy that we have control over, which would be helpful. Now that could help Senator Rhoads’ district and almost everywhere, because that’s a serious issue and the liability is, obviously, something we all care about. Every one of us has been involved in the environmental concerns over time. I think that if you could look at that and talk to your chairman as well as the board members, and I believe one of your board members . . . sat on the Governor’s commission.
Mr. Shriver agreed, “Right. [That was] Commissioner Goodman.”
Senator Townsend commented:
. . . and he was a very active player and, I think, someone who really understands this situation. So there needs to be, and we’re going to Senator O'Connell’s committee this afternoon to talk about demand-side management issues, something that is really important. This involves a lot of things, so if you could check with your commission on that and tell them we need an answer sooner than later.
Mr. Shriver continued:
Right. For the record as well, I’ve had discussions. I noticed you asked Commissioner Soderberg this question about interfacing at the energy office. We’ve had discussions along that line, primarily relative to renewables, clean energy sources in relationship to transmission grids, and things like that. . . . As you mentioned earlier in your synopsis, which is very clear about how merchant generators come [in] with money and most renewables are looking for longer contracts because they don’t have the financing capabilities, if we could identify those sources close to grids, [and in] areas that we can have some kind of assist [value, it] goes along with what I think you’re asking [for].
Senator Townsend averred:
The other thing that’s fairly obvious, reading the tremendous amount of research, is that geothermal and wind are substantially more easy to put on the grid quickly than these larger plants. Although we are going to need those merchant plants long-term, we want to make sure we have reliable power today. I think those have a real opportunity that we’ve ignored until now. If everybody is making money, they’ll step over a penny and suddenly they lose their job now, that penny looks pretty good to them. I think what’s an important point here is nobody wanted to talk about these renewable sources that we control, and so much of it is available in the rurals.
Mr. Shriver asserted, “Absolutely. And that’s always been, and I can’t speak for the incumbent utilities, but what’s always been a major issue is the stretch between population centers creates an enormous cost.”
Senator Townsend stated:
That’s a transmission issue. We’ll get back to transmission real soon because that’s going to be one of the focuses of what they are going to talk about in Elko. Because, you know they’re really isolated up there, and when you don’t have a natural gas pipeline that is available to you, that also means that geothermal and wind become more valuable.
Mr. Shriver remarked:
One other thing in discussions, and I know [for] Senator O'Connell and [the rest of us] and Senator Rhoads on our S.C.R. 19 [Senate Concurrent Resolution of the Seventieth Session] interim study committee, one of the issues was: Is there something we can do to encourage, through some kind of tax incentive, developing more renewables than we currently have and how we can focus those better.
SENATE CONCURRENT RESOLUTION 19 OF THE SEVENTIETH SESSION: Directs Legislative Commission to conduct interim study of methods to encourage corporations and other business entities to organize and conduct business in this state. (BDR R‑534)
Senator Townsend averred:
I’m not sure we need a tax incentive, but you offer them a contract and you’d be surprised how enthused they’d be. Senator Rhoads and Senator O'Connell and I all sit on taxation and that’s a tough one relative to the state. Although that’s money we’re not currently getting if we give them a tax incentive, and I don’t think any of the three of us want to prejudge it, but we know if we offer a contract that would certainly be something that would help our rural communities. Senator O'Connell is seeing how tough a position our rural communities are in because she just had to dissolve a city, and that’s pretty tough.
Senator Rhoads commented:
Scott [Mr. Young] just handed me a news release on the Utah or Washington/Oregon line. They are building a 300-megawatt wind turbine field up there. And Utah Power, I guess, is one of the big partners of it. It will be the largest one in the United States.
Senator Townsend said, “All of this is available to us, but in all fairness there was just not a big reason to jump into it then and now there is . . . . Let’s take advantage of the positives. So, you’ll get back to us right away. Remember we’re here 120 days and your budget is in the balance.”
Mr. Shriver answered, “That’s right, sir.”
Senator Townsend asked if anyone else would like to address the committee with regard to the PUCN dockets or history. Hearing none, he closed the hearing on A.B. 366 [of the Sixty-ninth Session] and S.B. 438 [of the Seventieth Session].
Senator Townsend stated he wanted to quote from an article in the Las Vegas Sun by Terry Webster (Exhibit E) having to do with the Clark County School District regarding cost-saving measure:
“Last year the program saved the district $933,000 and 43 of the district’s 250 schools were commended for their efforts to conserve energy.
“Much of the conservation effort centers on using motion detectors to limit energy use and keeping doors closed or lights and computers off, when appropriate.
”The potential savings is significant . . . .”
Senator Townsend noted, according to the article, administrators utilized “a district study” to find the following information regarding areas in which the potential exists for significant savings:
“It costs approximately $70 a year to run a personal computer for eight hours a day. The district has about 65,000 personal computers, for an annual cost of $4,550,000.”
Senator Townsend commented, “[cost] . . . to the school district, That’s just Clark County alone.”
“When outside classroom doors are left open, it costs about $5 a day. For areas like gymnasiums or auditoriums, the price tag jumps to $80 a day.
“Portable classrooms cost approximately $1,000 a year to run for lighting, heating and air conditioning. If they are not properly shut down in the evening, the cost can jump as high as $3,000.”
Senator Townsend noted, “And my personal favorite: ‘Soft drink machines can cost $270 a year in electricity. The district has around 2,000 soft drink machines, for a yearly total cost of $540,000.’”
Senator Townsend continued:
So, as we move into tomorrow’s program on conservation and issues such as what it is going to cost to run the budgets of those things we need in our community, I think it is important to remember that we have control over a great deal of it.
There being no further business, Senator Townsend adjourned the meeting at 10:41 a.m.
Laura Adler,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: