MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

 

February 26, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 9:33 a.m., on Monday, February 26, 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

 

GUEST LEGISLATORS PRESENT:

 

Senator Terry John Care, Clark County Senatorial District No. 7

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Kevin C. Powers, Committee Counsel

Laura Adler, Committee Secretary

 

OTHERS PRESENT:

 

Richard McCracken, Attorney, Culinary Workers Union of Southern Nevada

Douglas R. Ponn, Lobbyist, Nevada Power Company, and Sierra Pacific Power Company

Steve C. Oldham, Senior Vice President, Corporate Development and Strategic Planning, Sierra Pacific Power Company

Gary Porter, P.E., Executive Director, Transmission Services, Sierra Pacific Power Company, and Nevada Power Company

Don Soderberg, Chairman, Public Utilities Commission of Nevada

C. Kirby Lampley, Manager, Policy Analysis, Public Utilities Commission of Nevada

Jeff Parker, Commission General Counsel, Public Utilities Commission of Nevada

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General

Harvey Whittemore, Lobbyist, Nevada Resort Association

 

Senator Townsend opened the hearing on Senate Bill (S.B.) 53.

 

SENATE BILL 53:  Repeals provisions establishing criminal penalties for certain acts in derogation of bank. (BDR 55-639)

 

Senator Terry John Care, Clark County Senatorial District No. 7, testified:

 

. . . One of our colleagues suggested a few months ago that perhaps there ought to be a law that says, “In every session every legislator ought to seek repeal of an existing statute.”  I don’t know if that would ever fly.  But if that were the law today, then unquestionably [Nevada Revised Statutes] NRS 668.105 would be a candidate.

 

You have copies of it before you.  It is basically the text to be repealed from the existing statute.  It’s interesting on several grounds.  It basically says that it’s a gross misdemeanor, which means that you can be sentenced for up to a year and fined up to $2000 for making a derogatory statement about a bank.  Notice that it does not say “a financial institution.”  Presumably the law does not apply to, for example, a savings and loan or a credit union, it only applies to a bank.  You cannot circulate such a statement, you cannot transmit it, you cannot induce somebody else to make a derogatory statement about a bank.

 

Notice also, the way we read it at any rate, that you can be charged under the statute if your statement is, in fact, true.  There is nothing in the law that says the statement must be false.

 

I’m unaware of any other such statute in Nevada.  There are no criminal penalties, for example, for saying anything bad about, true or false, about a casino or a power company, much as some people might want there to be such a law.  You might ask where did such a statute come from?  I don’t know.  I thought originally it had come from the Depression Era when there was a real threat to runs on banks, in fact there were tens-of-thousands of runs on banks before there was an FDIC, [Federal Deposit Insurance Corporation] . . . and perhaps the banking lobby in the 1930s got this enacted.  But I’m not so sure about that because if you look under the case annotations or underneath the history of the statute, it makes reference to 1971.

 

At any rate, you might be asking yourself, “Well that was then and this is now, why are we bothering with this today, nobody, surely, would seriously ever invoke the statute?”  In fact, that’s not true.

 

Senator Care continued:

 

The gentleman to my left is Rich [Richard] McCracken.  He’s an attorney practicing in both San Francisco and Las Vegas.  I have known Rich [Mr. McCracken] for about 6 or 7 years.  We met on opposite sides of a case in Las Vegas, and he beat me, and I gained a tremendous amount of respect for him out of that.  His client, a few years ago in fact, was threatened with criminal proceedings for violating this statute, and he [Mr. McCracken] will tell you that story briefly. . . .

 

There’s one other principle involved here today.  He’s not testifying, he wouldn’t testify, but I happen to know he has an interest in the case, and that is Judge Lloyd George.  The Honorable Lloyd George who is on senior status in the United States District Court for Nevada [Senior Judge Lloyd D. George, U.S. District Court, District of Nevada, Las Vegas].  It was Judge George who heard the matter that was brought him stemming from the events that brought Mr. McCracken’s client to him.

 

Senator Carlton:

 

Mr. Chairman, for the committee and for the record, I am one of the parties involved in this.  You’ll notice that is says, Culinary Workers Union-Local 226.  I’m a very proud member of that union, so therefore, I do need to disclose that Mr. McCracken does represent us very well.

 

Senator Townsend:

 

That puts the same position on Senator O'Connell and I [sic] because I sit on a bank board, and shareholder in a bank board.  So we may have to go find someone in the audience to vote on this bill, if it narrows down any more.

 

Senator O'Connell:

 

I just want to disclose also that my husband is a chairman of a bank and we do have stock in the bank.

 

Richard McCracken, Attorney, Culinary Workers Union of Southern Nevada, averred:

 

This statute came to our attention because the attorney general, several years ago, threatened in a letter to the Culinary Workers Union to prosecute them for making true statements about a bank.  The union’s response was to file a federal action under Section 1983 [42 U.S. Code, section 1983], which protects the federal civil rights of everyone, including First Amendment rights.  The case is now totally closed, there’s no active litigation going on.

 

[U.S. District] Judge George enjoined the enforcement of this section finding that it had “obvious and irreparable First Amendment problems.”  Not the least of which, of course, is the fact that it penalizes criminally, speech that is true.  That is, if someone says something derogatory about a bank’s financial condition, even though it is true, that gives rise to a gross misdemeanor.  It is unique, there is no other statute, as Senator Care has said, in Nevada that protects anybody or any institution against derogatory speech that is true. 

 

Now we’ll all have protection against untrue speech, that is banks as well as any citizen has the right to be protected against libel or slander, but that’s civil, and it applies to everyone.  What is unique about this statute is that it goes beyond libel and slander to criminalize true speech that is constitutionally protected.  It also, as I say, gives criminal penalties for speech true or false.  No other institution or person has that kind of protection against speech. 

 

Mr. McCracken continued:

 

As far as we’ve been able to tell, both in the litigation of the case I mentioned and currently, there has never been a prosecution under this statute.  It’s very likely that there never will be or could be a prosecution because of its constitutional infirmities. 

 

As I mentioned [U.S. District] Judge George enjoined the enforcement of the statute.  We ceased the litigation after the attorney general assured us that there would be no enforcement of the statute by her office. . . .  So in effect, the law has already been repealed in the sense that it has never been given any effect and right now is not being enforced, and we have assurances that it won’t be enforced.

 

The repeal on this case, I think, is really putting a final period on the sentence that I’ve been describing.  The fact that this is a statute that never should have been enacted, has never been constitutionally valid, has been enjoined, is not being enforced, and should now be just erased.

 

Senator Care stated:

 

The members of the committee should have three documents.  Two are partial transcripts to hearings before [U.S. District] Judge George on the Motion for Temporary Restraining Order [Exhibit C] and a Motion for Preliminary Injunction [Exhibit D]. . . .  The most important document is a copy of the Court Order [Exhibit E] where the judge makes it quite clear the court finds the issuance of a restraining order is warranted based on the irreparable injury to the First Amendment rights of plaintiff if NRS 668.105 is enforced.  So, those are the sentiments of the senior judge in our federal district. . . .

 

Senator Townsend stated:

 

Senator Care, you’re always welcome here, and any time you have insight, particularly with regard to repeal, I’m sure most of us are glad to see that, because we have a hard time catching up to that since we usually process 150-page bills. . . .  We’ll close the hearing on S.B. 53.

 

There are some issues that are hanging with regard to [electric] transmission testimony, and there’s [sic] three or four people somewhere in our vast building, and it’s important that the presentations be heard by everyone, because these are really important issues although they’re not as, I think, well understood or fleshed out as some of the others because everyone assumes that, I guess, when you build a plant it comes with a transmission line.  But, we cannot in any way, shape, or form do one without the other.

 

Committee, let’s go ahead and do this before we get into the other.  First of all, Scott [Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau] do we not have a pool-construction defect bill of some kind?  There is a serious problem in southern Nevada that, I guess, has gone to litigation regarding the following issue.  And that’s a pool contractor who also becomes the lender, and is not licensed by the state.

 

. . . And then they don’t perform, so they stop payment and then liens are placed, foreclosure occurs, and all kinds of sad repercussions are the residue of something that is probably illegal, but more importantly, these people lose their money, and that becomes a serious issue.  So, we’ll be holding hearings on that right away.

 

Second of all, committee, we have a couple of bills that we should get out of the way. . . .  I have no idea what this is doing here, but this is one more time with the Nevada Life and Health Insurance Guaranty Association.

 

Senator Townsend pointed out:  “Let’s go ahead and get this one introduced and downstairs.  This is  Bill Draft Request (BDR) 57-683.

 

BILL DRAFT REQUEST 57-683:  Makes changes concerning Nevada Life and Health Insurance Guaranty Association Act. (Later introduced as Senate Bill 252.)

 

SENATOR O'CONNELL MOVED TO INTRODUCE BDR 57-683.

SENATOR SHAFFER SECONDED THE MOTION.

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

*****

Senator Townsend emphasized:

 

We have today in front of us a number of issues regarding the very, very, very crucial part of the complex energy issue of reliability, demand, and supply and that is the issue of [power] transmission.  As everyone is well aware, the two companies are not interconnected and therefore there are other pressures on the overall viability of how you move energy in the state of Nevada. 

 

There are a number of requests and filings regarding new generation that are already in the pipeline of permitting, etc.  In southern Nevada at the very least . . . generally spoken about, there’s $2 billion to $4 billion worth of new capacity that is being discussed.  Many of those things are issues that have additional debate that go along with it.  In the north, you have a load pocket problem and other issues, particularly in Senator Rhoads’ district out in Elko, that are substantial.  As a result, we thought today we would spend a little time on the actual nature of those plants and the potential for new transmission [lines] that might be beneficial to everybody in the state of Nevada.

 

 

I don’t know who wants to go first.  Mr. Ponn and Mr. Oldham agreed to come back to help us with understanding the basic issues of transmission, the need for growth, the need with regard to the fuel source of natural gas in the [Las] Vegas Valley as well as in the north.  I appreciate your coming back.  I think you have a veteran committee that will attempt to understand these issues, so if we could keep this as basic [sic] focused as we can . . . .  How many others want to testify with regard to transmission issues?

 

Douglas R. Ponn, Lobbyist, Nevada Power Company, and Sierra Pacific Power Company testified:

 

I have with me this morning Steve Oldham, our senior vice president of Sierra Pacific Resources, who has under his responsibility transmission projects.  Also Gary Porter, our executive director of transmission, who is familiar with the details of the projects we’re pursuing at the moment.  Per your request we’re here to have Steve [Mr. Oldham] and Gary [Mr. Porter] brief you on what we have underway.

 

Steve C. Oldham, Senior Vice President, Corporate Development and Strategic Planning, Sierra Pacific Power Company, stated:

 

. . . Gary and I will provide a brief overview of the transmission system in northern and southern Nevada.  Just a couple of preliminary comments, just to level set so we understand the framework with which we build these facilities.

 

It is important to know that interstate transmission systems are regulated by the Federal Energy Regulatory Commission [FERC].  That regulation is a traditional cost-of-service regulation where the sum of all your costs plus the return of interest and return to the shareholders is the basis for setting prices of those systems.  The FERC strictly regulates the rules of access for transmission systems, and they require complete and open nondiscriminatory access to all eligible customers.  When there’s a conflict created by one or more requests for transmission service, if there is more requests for service than the company can provide, the FERC developed a set of rules to help resolve those conflicts, and they did that in [FERC] Order[s] 888 [and] 889 in what is called Order 2000, the very famous FERC orders for transmission access.

 

[Federal Energy Regulatory Commission, Order No. 2000, Regional Transmission Organizations (RTO) – Final Rule, issued December 20, 1999.]

 

[Federal Energy Regulatory Commission, Order No. 888, et al.  Transmission Open Access. Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, issued starting April 24, 1996.]

 

[Federal Energy Regulatory Commission, Order No. 889, et al.  OASIS. Open Access Same-Time Information System (formerly Real-Time Information Networks) and Standards of Conduct, issued starting April 24, 1996.]

 

Mr. Oldham continued:

 

It is anticipated that all new transmission construction by the companies will interconnect to our existing interstate system, so all that new construction will become part of that interstate system and we will be regulated for pricing purposes by the Federal Energy Regulatory Commission.  In addition to the traditional regulation provided by FERC, the FERC is also pressing for the formation of what is called the Regional Transmission Organization or RTO.  The policy position by the FERC is aimed at creating large wide-area organizations that can provide a single point of contact for an energy supplier to move energy into a region or through a region or out of a region.  [This is] to more effectively utilize generation both for seasonal fluctuations in the western United States and for vagaries of population growth and those sorts of things where we may have excess capacity in one region versus another for some period of time.  It’s been FERC’s long-stated policy since [FERC] Order 888 was written to try and encourage those organizations to be formed and to act as if they were one.

 

Sierra Pacific [Power Company] has really been a leader in the west in support of the policy of forming RTOs.  We think it will provide the maximum flexibility to our customers.  The flexibility provides for shortfalls in regional generation due to rapid growth, unforeseen outages and generation units it could take some period of time to fix or extreme weather contingencies including droughts and those sorts of things that may influence regional generation.

 

The new construction plant for Sierra Pacific [Power Company] and Nevada Power [Company] will be integrated, as I said before, into our existing transmission systems to provide the maximum benefit in terms of reliability and safety to our customers, and the most flexibility for additional resources into northern and southern Nevada.

 

With that, if we could have Gary Porter our executive director for transmission . . . describe some of the projects before us in the near future.

 

Gary Porter, P.E., Executive Director, Transmission Services, Sierra Pacific Power Company, Nevada Power Company testified:

 

. . . I’ve reviewed the discussions that you had last week and I am prepared to answer questions that were brought up then, or whatever other questions you may have, as well as describe the transmission plan that is an essential component of the energy puzzle.  It is the component that is necessary to allow the new supply to be transported to where the public demands the electricity be.

 

In a general overview, I would like to start with southern Nevada.  We do have a map that I will walk up to and speak from in a minute.  But first as a general overview . . . in southern Nevada there are eleven different independent power producers, or IPP for short, that have requested transmission service.  Generally these groups are in four different locations.  One location is an area we describe as Harry Allen or the APEX area.  Another location is down by Jean.  The third location is inside of the Las Vegas Valley, and the fourth is in the El Dorado Valley.  I’ll point these out in one second.

 

 

 

The total amount of potential new supply that has been requested is somewhere between 7300 megawatts and 10,300 megawatts.  Now a brief overview in northern Nevada.  We have two independent power producers that have requested transmission service for their new projects, as well, we have a project that has been announced for a number of years in Elko County.  The two projects, the Duke Power and Morgan-Stanley of which the first will be on-line by this summer.  The second is planned to be on-line by summer of 2003 would bring an additional 1000 megawatts to northern Nevada.

 

I’ll go to the map, and if you prefer to ask questions as I go through this, that might be helpful. . . .

 

Mr. Oldham asked me for a large map and we spent a few days creating this map.  I do want to point out that the most readily available base map of photography is based on 1994, so there will be some differences between what we have here and what we have today.

 

To start off with the geography, this is southern Nevada with north being towards the top.  Up here is approximately where the Moapa area is [northeast].  Down at this particular end, this would be, I guess Las Vegas Boulevard down towards Jean and Sandy Valley [southwest].  Here’s Boulder Dam and a place called Mead Substation, which is in the El Dorado Valley [southeast].  A place where there are actually three substations named El Dorado, Market Place and McCullough, which is another key point [south southwest].  We have McCarran International Airport [center of map].  We’ve got I-15 in black [west to east].  It’s kind of hard to tell the black from the blue, I apologize.  This way we have 95 [Interstate-95] running up this way [north northwest].  That’s the general geography.

 

Mr. Porter continued:

 

Four different locations where these IPPs are interested or grouping of locations.  The first location is what we describe as the Harry Allen, Crystal, Harold Canyon, Moapa; all of those are grouped into this particular area.  We have two existing substations, Crystal and Harry Allen, as well as Moapa up in this area where there are two projects proposed, and the Arrow Canyon or the Apex development center.

 

I’ve listed each of the potential IPPs that are looking to site in this vicinity that have requested transmission service.  They are Reliant [Energy, Inc.], Calpine [Corporation], Duke [Energy Corporation], Mirant (formerly Southern Company), FPL [Group, Inc.], Williams [The Williams Companies, Inc.] (Williams is over by the Nevada-Utah border, however, since it would use the same transmission facilities it’s grouped into this), and PG&E [Pacific Gas and Electric], Moapa, Pinnacle West and Harry Allen Substation.  The requested service that this group of power producers has requested is a combination of service, transmission service to serve both the Las Vegas Valley and to reach wholesale markets, which are down in the El Dorado Valley by Mead Substation. . . .

 

Our plan of service for these independent power producers involves three new 500 kV (kilovolt) transmission lines.  Those three lines are broken into three different segments we’re going to manage as three separate projects, all of which are necessary to have the new power produced, [and] be delivered where it needs to be delivered.

 

Senator Townsend queried, “If I could interrupt you?  Those three areas you’re talking about encompass approximately how much capital?”

 

Mr. Porter answered:

 

About $250 million for all three.

 

If I could back up one moment?  I forgot to describe where existing transmission lines are.  In this particular area, we show two red transmission lines, which are two existing 500 kV transmission lines.  They go from the Crystal Substation on the other side of Sunrise Mountain and go down into the El Dorado Valley with interconnections back to Mead [Substation].  I’ve also indicated, and I understand it’s difficult to see some existing 345 kV that comes in from Utah, there’s some that leaves Mead [Substation] and goes to Arizona. 

 

We’ve also listed the existing 230 kV, which if I could just trace it out is essentially a line that runs around the north part of Las Vegas, down the west side of Las Vegas and ultimately goes back to Mead Substation.  I’ve put some selected lower voltage lines on the map because they will come into play as we do our routing studies.  We have not picked routes for any of these new projects.  We have just released our RFP [request for proposal] to perform the routing studies.  One of the alternatives that will be studied are alternatives that would site new facilities adjacent to existing facilities.  That would not be the only alternative, but I do want to point that out.

 

We would study this particular segment that needs to go from Harry Allen [Substation] to Mead [Substation].  We would study a route that follows the two existing 500 kV lines as well as we would study routes that follow some of the existing in-valley transmission lines.  We will also study any other route that might be appropriate.

 

The segment from Harry Allen [Substation] to Northwest Substation is described by this yellow here.  We will study routes that involve following existing transmission also.  What should be a very easy section of transmission is from Harry Allen [Substation] back to Crystal Substation, that’s about ten miles.  We can follow existing transmission lines.

 

I also want to point out a project Reliant [Energy, Inc.] has in the Jean area.  That particular project is asking for new transmission to get to the Arden Substation so that it can move its power throughout the existing grid.  That project will involve about 35 miles of 230 kV line.  The only 500 [kV] we’re talking about would be these three segments: Harry Allen [Substation] to Crystal [Substation], Harry Allen [Substation] to North West [Substation], and Harry Allen [Substation] to Mead [Substation].

 

 

 

That’s the general overview, and I hope this map is helpful for relating where this stuff is.

 

Senator Carlton asked, “Could you make it clear where it says Sunrise Study Area.  The yellow dotted line, is that east or west of Frenchman’s Mountain?”  Mr. Porter answered, “The yellow dotted line is not meant to depict the route.  It is only meant to depict that we will start at Harry Allen [Substation] and finish at Mead [Substation].”  Senator Carlton again asked, “But the dotted line as far as doing the study goes . . . you’re going to study both sides of the mountain?”  Mr. Porter answered affirmatively.  Senator Carlton queried, “And what kind of problems are you going to have with the Sunrise Study Area?”

 

Mr. Porter stated:

 

We will need permission, should this be the preferred route where the existing two 500s [kV lines] are.  They [the lines] go through a portion of the Sunrise Study Area.  We would need permission to add a third line adjacent to the existing two lines.

 

Senator Carlton asked, “And geographically, the Sunrise Study Area starts on the east side of Sunrise Mountain, goes over the mountain and continues.  The major portion of it is on the west side of the mountain or on the east side?”

 

Mr. Porter answered, “My understanding [is that] it includes the Sunrise Mountain and generally runs east.

 

Senator Rhoads then asked, “Of all the plants that are coming on-line, where is that power going?  Is it all going to southern Nevada or is it going to be up in the air, and the highest bidder gets it, and it goes to California?”

 

Mr. Porter directed:

 

Again, as Steve [Mr. Oldham] described, the access and use of the transmission system must follow rules established by the FERC.  These potential new transmission customers have requested to serve both the Las Vegas Valley as well as to reach a wholesale market.  Just because they’re reaching a wholesale market, does not imply that the power is intended to go out of state.  In order to be attractive to an independent power producer to site in a particular area, they are interested in having choice in where they can sell their power.  They are interested in that and want to have the ability to deliver at Mead [Substation], in particular, so that the price. . . .   Mead [Substation] is only one of six active trading hubs, or liquid trading hubs, in the western United States.  It’s a very key place in the western United States grid.  It trades in futures.  You can look into the Wall Street Journal, see futures prices at trades in real time.  So they are quite interested in buyers at Mead [Substation], of which Nevada Power [Company] is a significant buyer at Mead [Substation] as well.

 

Senator Rhoads questioned, “Does it cost a lot more to transport power 300 miles, compared to 100 miles?  Is that a big added expense or just a little bit?”

 

Mr. Porter answered:

 

The reality of it is, the way the tariffs are designed, transporting 1 mile or 300 miles, it’s the same service at the same price.  There would not be a price difference other than there would be more power losses created.

 

Senator Rhoads queried, “Does it take more water for a natural gas power plant than a coal power plant?”  Mr. Porter responded, “I don’t know the answer to that question.  I suspect natural gas is less.  I don’t know the answer, though.”  Senator Rhoads asked, “And where are they getting their water with all these plants?”  Mr. Porter answered, “I also don’t know the answer to that question.”

 

Mr. Ponn interjected:

 

I think whenever the Governor announced his energy plan last week, a part of that plan was that at least four potential developers would enter into negotiations with the Southern Nevada Water Authority.  That entity has some water rights which they applied for in 1989.  It was my impression from his announcement that there would be the potential for an agreement between the Southern Nevada Water Authority and four of the developers to use some of those water resources in exchange for committing to provide up to 50 percent of their output to the Nevada market versus the out-of-state market.  Again, that’s my recollection based on attendance at the press conference.

 

Senator Amodei questioned:

 

Doug [Mr. Ponn], do you know if the water that is being discussed in the context of the Southern Nevada Water Authority in this area . . . ?  Is the Southern Nevada Water Authority the only entity that has water rights available for such an agreement in that area?

 

Mr. Ponn stated:

 

What I believe, Senator, is that they are first in line with regard to the water rights that might be involved in this transaction.  I don’t know if there are other potential sources of water.  I would assume that there are.

 

Senator Amodei stated:

 

In listening to the Governor’s layout, and in talking, since we have the transmission folks here, one of the things that hasn’t been discussed. . . .  Since clearly the majority of the proposed generation that may be capable of being fast-tracked in the state is within this map.  At some point in time, the thought process to evaluate an intertie from north to south in the transmission sense, it would be nice to have some information on that.  . . . Because, to be honest with you, and I understand the majority of the population is in this area, but when I look at what’s going on in the northern part of the state, and I see the transmission folks in front of us, one of the things that’s been discussed is we’re one of the few states that’s not interconnected in a north/south sense.  Maybe there are good reasons why we’re still not, but it would be nice to have some information on that as a potential or not potential depending on where the information comes out for some of the needs north of the [Nevada] Test Site.

 

 

 

 

Mr. Ponn stated:

 

I think we can probably give you a general discussion of the history of the studies that have been done on a north/south tie right now, if that’s the pleasure of the chair and the committee or we can come back another day, whichever you would like.

 

Mr. Oldham continued:

 

We‘ve studied over the years, many years, a tie between the northern and southern Nevada, which has been referred to as SWIP (the Southwest Intertie Project), which essentially ran from Idaho down into Las Vegas.  The reason the line wasn’t built, in my mind, has always been the economics.  We don’t have a real surplus of generation capacity in northern Nevada.  If large generators and projects have been proposed from time to time over the last 20 years had been built, there would have been a surplus of capacity that wanted to move to a market place, in which case it would have been economic, perhaps, to build those lines from the north to the south.  What we’re really trying to do is get generation to the marketplace.  And once you get to a general location, for example, Las Vegas, you want to move it around Las Vegas to various points where the customers are and provide reliability in that area.  The Southwest Intertie Project never really had penciled.  That could change with today’s economics.  If the project as proposed for northern Nevada right now near Elko County were to move forward, that may change things.  We may have a surplus of generation there that wants to move to a market like the southwest.  We would have to study that again.

 

From time to time we look at this and typically generators are built closer to the load centers.  It just has not penciled to be economic to build the interconnection.

 

Senator Amodei stated:

 

I understand that.  I guess what I’m saying, though, is I’m not looking at power flowing from north to south.  Clearly the interest in generation construction in this state, the majority of it is there.  If the stuff in the north doesn’t pencil or doesn’t get built, and if the tariff is the same transmitted 100 miles as it is 300 miles, although I’m not sure FERC would have jurisdiction since it’s all within the state,  [but,] assuming they do, what I’m looking at is if the generation stuff doesn’t get going in the north, I think I’ve heard a sufficient number of megawatts down there that would exceed what is needed for the Clark County area.  So, if all those things come into play, and it’s something where people are not going to site plants in the north, then maybe that’s just something that needs to be looked at.

 

Mr. Oldham answered:

 

Almost for sure, FERC would have jurisdiction in the sense that high-voltage transmission lines would be connected to existing high-voltage lines, which would make it a total interstate system.  What we look at when we plan these facilities, we look at the cost of a generator locating near their load.  If we were to oversize that generator and have a surplus, how would you get it to a market, another load somewhere else?  When you’re rolling the cost of a transmission line, whether the generator is located in the south or located in the north, it has not historically penciled to oversize the generation and go the line to another load center.  It’s been cheaper to build a generator nearer that load center itself.  That’s traditionally what’s gone on, because we’re talking great distances, several hundred miles between the north and south, at least the currently proposed generation north to south.  Fuel supply is also a key issue.  You would have to move, obviously, coal if it were a coal-fired plant, into the region.  If it were to be a natural gas-fired plant, there is not much gas transportation capacity in the north right now, although that large project proposed in Elko County will go along a large gas pipeline.  Again, that could change economics.  So, you’re moving fuel to a remote site, and you’re moving electricity out of that remote site to a load center.  The sum of those costs just made it more advantageous to build a generation nearer to load centers over . . . 20 years or so.

 

 

 

Senator Carlton puzzled:

 

I would like some more information from you gentlemen when you were talking about studies.  I’d like to know what types of things you take into consideration when you do the study.  Your two arrows there pretty much cut a path right through Senator Shaffer’s and my district on both arrows, so I’m very interested in how you perform those studies.  I would like a picture dictionary of what each one of these lines looks like and what type of towers are associated with those lines.  If it would be possible when you’re walking the dog on the weekends and looking at transmission lines you know you’re hooked.  I would like to know what I’m looking at, and if you could do that for me I would appreciate it.

 

Mr. Porter answered:

 

I can address some of this right away, relative to the types of studies that are done.  Number one, there would be a public process.  There would be public meetings for public input.  They would review all public concerns, visual concerns, siting concerns, [and] environmental concerns.  In particular where we’re crossing federal lands, we will be complying with the level of environmental review that the Bureau of Land Management feels is necessary, as well as an alternative analysis as to these are the alternatives that we believe will work.

 

As far as a picture, and I will follow up with that.  I can assure you that the design that is being studied for the 500 kV is a low-profile 500 kV design.  By low profile, I mean it is a single pole.  It is not these big lattice towers that you may be familiar with.  It is no taller than the standard 230 kV design that is being used in Las Vegas today.  The low-profile design would be used wherever there was visual concern.  In other areas where that may not be so dominating, we may look for more economical designs.

 

 

 

 

Senator Carlton averred:

 

I have mentioned this before, but I did want to put it on the record that it would be a very good idea when you’re doing your public input that you not only reach out to homeowners, but you reach out to all residents in the area.  There’s a number of people who would not get the mailing of a homeowner, but you would be building it in their backyards.  I think they deserve the same amount of input.  So if you would take that under consideration when you are doing your mailings, I would appreciate it.

 

Mr. Porter said, “Thank you, Senator.  If I might move on to northern Nevada?”

 

Senator Townsend queried, “Is the biggest problem in the north, for Senator Rhoads, the gas?  The availability of gas to fuel a gas-fired plant as opposed to a transmission issue?”

 

Mr. Oldham answered:

 

To justify the cost of a large natural gas pipeline from Utah into northeast Nevada, you’re going to have to have a significant amount of generation on the other end of it.  That generation would overwhelm the demand for the generation in that part of the state.  So, I would think, and the economics we have run historically say, we need to be able to move the generation located there elsewhere, to other larger markets, Reno, perhaps southern Nevada, perhaps even north to other major trading hubs.  So you are going to need both, the gas pipeline, significant generation facility built, and an electrical infrastructure put in place to justify that level of investment, day one.

 

Senator Townsend asked, “Is that level of investment geared toward a 500 megawatts plant or larger?  It is my understanding ultimately it would be larger than 500 megawatts.  So ballpark it, 2000, 1000, what?”

 

 

 

 

Mr. Oldham responded:

 

In our discussions over the years, and we haven’t had a lot of recent discussions with the folks proposing their projects, we’d be looking at two 500 megawatts units.  They may want to go larger than that, they may want to extend the pipeline past Elko, Nevada, and perhaps into Reno or even over the hill in California, move their gas to market.  In which case, the generation would be not as dominating of an economic factor on that project being built altogether.  We’ve heard various plans that way.  I don’t know that it would pay to build a 500-mile gas pipeline and not put a fairly significant size generation facility on the other end.  I would be looking at somewhere in the neighborhood of 1000 megawatts, I would suppose.  But then again, you’ve got an electrical transmission in place to move that energy to market.

 

Senator Townsend queried:

 

Is it true that you don’t have the transmission in the Elko area where they want to build this plant?  Obviously, you don’t have the gas either, but if you got the gas and built the plant, even at a 1000-plus megawatts, is there not transmission capable of moving that into northern, into the urban center of northern Nevada, Reno area, and off into northern California?”

 

Mr. Porter answered, “I don’t anticipate transmission being an issue with the proposed plant in the Elko area, with one exception; we have limited capacity to move power from Nevada to northern California.”

 

Senator Townsend asked, “So a limit, good for us, is when you get to the border, and I guess California/Nevada border, that would be the limitation on moving generation into that area?”   Mr. Porter responded, “That is correct, Senator.”

 

Senator Rhoads questioned, “Would the two anchors that’s [sic] being discussed, I guess, Newmont [Mining Company] and perhaps you people, be the two big buyers of power?  Would that be adequate anchors to build the plant?”

 

 

Mr. Oldham answered:

 

The economics we’re familiar with, and again, the project sponsors would know probably more about the current situation than we do, but the economics that [we] looked at a few years ago, Senator, had the two largest mines out there using about 40,000 dekatherms a day of gas capacity.  The company . . . if we were to buy all the output from a 500 megawatt plant, you would be somewhere in the neighborhood of 100,000 more dekatherms a day.  So as a result, that would probably justify the facility if all that were on-line. 

 

Clearly our needs vary, however, the generator wants to run as much as is available and try to market its product whenever it can.  The mines themselves would probably have a different mine life, a different mining plan, so, their needs may vary relative to generation.  They’re entirely different processes and markets.  You would probably want to attract even additional loads out there if you could. 

 

You may be aware we worked with the Simplot Company [J. R. Simplot Company] for quite some time in an attempt to get them into northern Nevada.  They had a very high gas need for their product, fertilizers primarily, and that would have been a very good project for us as a base load on this same facility.  Perhaps we could bring them back in, I don’t know, it’s hard to say with the economics of natural gas.

 

Mr. Ponn directed attention:

 

Senator Titus has proposed a bill that I think will wind up in this committee to expedite generation development.  We’ve worked with her to try to roll in expediting transmission projects as well, and I think that’s relevant to this discussion that this committee will probably see a bill that has both items included.

 

 

 

 

Senator Townsend urged:

 

Mr. Fuller, the question I’m going to have for you before we close the hearing, if the $250 million of capital was available to you today (you just released, according to your testimony, an RFP for studying locations), if all of the plants were available to produce energy, approximately what is the timeline to finish these projects?

 

Mr. Porter defined:

 

Thanks for asking that.  I was going to close with a question that was raised last week, “What’s it going to take to make this happen?”  Essentially, what it’s going to take is very timely permitting.  We’re going to need all of our permits for construction to build in a very, very timely fashion.  And again, I want to emphasize that any bills of Senator Titus’ that support accelerated permitting are good things for the success of this project.  I want to point out that in order to meet the dates that would allow this new supply to be on-line by summer of 2003, we will need our federal permits and our UEPA [the Nevada Utility Environmental Protection Act of 1971 (NRS 704.820 to 704.900)] permit by February, 2002, and we will need our local permits by June, 2002.  That’s what will be required before we can begin our construction and solve this problem in a timely fashion.

 

Senator Townsend asked, “So, a lot of this is not in our control, it’s a negotiation between the federal regulators and yourselves for this permit in 12 months?”

 

Mr. Porter answered, “The portions where we cross federal land clearly are federal jurisdiction, but I think working together cooperatively can be quite helpful.”

 

Senator Townsend noted:

 

Gentlemen, thank you.  That’s a pretty concise overview on what we need to do. We’ll close the hearing on the transmission issue.

 

 

. . . I would say we’re going to recess this hearing and reconvene . . . at 5 o’clock [p.m.] based on the ruling by the PUCN [Public Utilities Commission of Nevada] on Friday [February 23, 2001].  We will take up our hearing at that point so that we can understand exactly what went on . . . .

 

This is the last day for us to introduce BDRs [bill draft requests].  This is a bill I’m not asking you to commit to in any way, shape or form.  It is a bill we need to hear, because it is something that came as a result of a number of discussions in the Assembly and the Executive Branch.  This is BDR 58-1122; it prevents certain electric utilities from disposing of certain generation assets for a limited period. Places restriction on disposal of such assets after that period.

 

BILL DRAFT REQUEST (BDR) 58-1122:  Prevents certain electric utilities from disposing of certain generation assets for a limited period and places restrictions on disposal of such assets after that period. (Later introduced as S.B. 253.)

 

In essence this is the bill that would restrict divestiture at this time.  I would like to get this into the mix so that we have something to discuss when it’s timely.

 

SENATOR SCHNEIDER MOVED TO INTRODUCE BDR 58-1122.

SENATOR SHAFFER SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

*****

Chairman Townsend recessed the hearing at 10:50 a.m.

 

Chairman Townsend reconvened the hearing at 5:07 p.m., stating:

 

With us is the chairman of the Public Utilities Commission [of Nevada].  Probably the best way to get him started, Commissioner, is for you to just tell us what the heck did go on Friday, because all we’re doing is getting phone calls.  Maybe you could articulate exactly what happened, as opposed to what was reported.

 

Don Soderberg, Chairman, Public Utilities Commission of Nevada began his testimony:

 

. . . I brought with me Kirby Lampley, our director of policy analysis, to walk you through the analysis he gave the commission on the financial situation of our two electric utilities.  I brought Jeff Parker, the commission’s general counsel, to answer any questions about process.

 

You have handed out before you a procedural order that was issued by Commissioner McIntire [Richard McIntire, Commissioner, PUCN] with regard to this case.  Commissioner McIntire is the presiding officer on this filing and has set up and expedited procedural schedule to analyze the nuts and bolts.

 

As you are aware on January 29 [2001] Sierra Pacific Power Company and Nevada Power Company filed before the commission what they have termed . . . it’s actually hard to put a thumb on it.  They have asked for a number of things to deal with the situation which has spread throughout the western region and that is fuel prices and wholesale power prices have skyrocketed and continue to stay high a lot longer than any of us had anticipated.  When this filing was made before the commission . . . .  Traditionally, our regulatory operations staff begins to dissect it immediately, starts engaging into a certain level of discussion with the company to understand the numbers asked for, quite frankly, a great deal of information to support the filing.

 

Because of the fear of what has happened in California with its two major investor-owned utilities not being creditworthy and not being able to buy power, I did two things: First of all I assigned it to a commissioner to be a presiding officer early, so we could get moving on it.  I assigned that to Commissioner McIntire, he is a Ph.D. economist, and has been the chief numbers cruncher for the commission, chief numbers cruncher for the Bureau of Consumer Protection, and has actually at one time in his life worked for a utility.  So, I am very confident in his ability to cut through the clutter in this case.  Secondly, we asked Mr. Lampley’s office to conduct an independent investigation to give us some level of comfort or discomfort so to speak, as to what the financial situation was of the company. 

 

I had been concerned about the company’s financial situation for some time when the consumer advocate and our regulatory operations staff and other parties had negotiated what is known as global settlement.  I quite frankly thought they were out of the woods.  Then events started occurring in California where we saw that the California utilities could not buy power.

 

I was very happy and I was patting everybody on the back in December when the numbers looked good.  Neill Dimmick, our director of regulatory operations at that time, pulled me aside once in the hallway and said, “You know, it’s going bad on us.”  And he started showing me things like gas-futures prices that we thought would be down, and were not down.  And basically led me to believe that although numbers might look good in December, they could quickly cavalcade into something that was negative.  We are finding that that is the case.

 

Under the law the commission had two roads it could take on Friday.  It could suspend the docket, and by suspending the docket the rates would go into effect and the commission would have 6 months to conduct an analysis.  We typically call that the traditional method, because most rate cases that come before us are not filed under an emergency situation and we were able to do that.

 

Mr. Soderberg continued:

 

Our other option was to let the rates go into effect as dictated by statute and then conduct an investigation after the fact.  If any changes in the numbers were warranted, then we would adjust the rates accordingly.

 

 

Based on the report that was given to us by Mr. Lampley, I felt we had no option but to let those rates go into effect.  That does not mean that these rates are permanent.  It does not mean that these rates are completely justified.  What it does mean if the commission did not act on Friday, we would have a serious problem with keeping the lights on in the coming months.

 

There had been a series of events that had occurred last week that probably were exasperated by the fear of lenders and the fear of power generators to get involved with utilities whose finances are shaky.  That, quite frankly, gave us a fright.  We had a tough decision.  I cannot speak for my other two commissioners.  I can’t speak for Commissioner McIntire, but I know on Friday I could have done two things.  I could have taken the route that said it’s unpopular to vote for a rate increase, especially a large one.  Some people say it’s kind of dumb to do that during a Legislative Session.  So, I could have not let those rates go into effect, and then I could have seen 2 months into your session and maybe a blackout in this room.  I followed the example of what we’ve gotten over the hill and I could have started pointing fingers.  I could have pointed fingers at statutes that maybe should have been passed or were passed under different circumstances.  I could have pointed fingers at the company.  I could have pointed fingers at the consumer’s advocate.  I could have pointed fingers at my other commissioners.  But that’s not how I want to do things at that commission, and I’m glad my other two commissioners saw it the same way.

 

So, what we have before you now is a case that is ongoing.  We have a procedure that will get to the bottom of what the numbers should be.  We have a rate increase that needs to be verified.  The rate increase will be effective at consumers’ lowest kilowatt usage of the year, spring and fall, and both the north and south are at lowest usage, and will have a lesser impact.  When we fine tune these numbers and bring them into where they actually belong after an exhaustive process of looking at them, we will be able to either have refunds or at least verify them before we get into the high usage.  And I would sooner do that than have the example of what we had over the hill.

 

I do have some personal friends who have lived through some of the rolling blackouts in California.  They’ve expressed to me how terrifying it is.  They’ve expressed to me the fear for their family when they are not with their family, when this comes as a surprise.  They’ve expressed to me in some areas of California, quick frankly, they just fear for their safety when your alarm system isn’t working.  Because of the inability to tell people when these are coming, people can’t prepare for it, and you wish you could. 

 

Mr. Soderberg continued his testimony:

 

But, we’ve seen how bad these things can be.  We’ve seen how they weren’t necessary.  . . . Unfortunately, we always have an example of how not to do things.  The example of how not to do things and not to face up to reality that nobody wants to lend money or sell something on credit to somebody when they don’t have any confidence that they can pay.  Our job over the next few months is to get down to the bottom of these numbers and see exactly where they lead us.  In the meantime, we’re going to do it in a responsible fashion.

 

I’d like to give the floor over to Mr. Lampley.  I’ve asked him to give you essentially the same presentation that the commission received on Friday based on his investigation of the financial situation of the two utilities.  The representatives of the utilities are here in the audience.  They may not like this, this is actually going to be fairly frank and not be complimentary.  I don’t know if, quite frankly, they want to air their dirty laundry in this respect.  But, I think lately the company has been very candid about their financial situation, and we appreciate that.  I give the floor to Mr. Lampley for that purpose.  If there are questions on the procedure, I apologize that Commissioner McIntire could not be here, he is in Washington, D.C., at the moment.  However, Mr. Parker is here to explain to you the operation of the statutes that this was filed under, and the statutes that Commissioner McIntire is using to move forward in this process.

 

 

C. Kirby Lampley, Manager, Policy Analysis, Public Utilities Commission of Nevada, began his testimony:

 

Prior to the agenda meeting last week, Commissioner McIntire asked me to do an analysis of what I thought was the financial situation of the company.

 

I’m a former intelligence officer in the United States Navy, and I was trained to gather bits of information and put them together to try to get an idea of what the actual situation is.  I applied that methodology to this current situation.

 

I looked at the income of the two companies.  Both incomes of Nevada Power Company and Sierra Pacific [Power Company] had taken a drastic turn to the south.  That is, they had come down considerably.  In fact, Nevada Power [Company] reported a loss, I believe, of nine cents a share, according to preliminary estimates, and Sierra Pacific Power Company only had about two cents per share of actual earnings.

 

I also looked at the cash flow.  I did a cash flow [study] to see how operations affected the cash flow of the company.  As you know, as an individual, the cash flow is very important.  For example, if you don’t have the cash to meet your monthly budget, you’re in a lot of trouble.  I looked at the projected cash balances for both Sierra Pacific [Power Company] and Nevada Power Company for the next 5 years, which they provided to me.  Both of the balances are extremely low.  For example, they’re both in the neighborhood of about $1.5 million on a monthly basis.  What this means, it’s like saying, I have a $10 balance in my checking account, and I might be able to make it through each month if everything goes exactly right.  But, if I don’t get the money coming in that I expect or if I have unexpected expenses, I could really be in a lot of trouble.

 

Mr. Lampley defined:

The next thing I looked at was analysts’ readings.  I looked at Standard and Poor’s, Value Line, and [The] Goldman Sachs [Group, Inc.], primarily.  I tracked that over a period of about 6 months.  The statements from all three of those seemed to show a downward trend.  In fact, Goldman Sachs [Group, Inc.] was probably the most negative and the most recent.  I’ll just quote a couple of highlights from their report (Exhibit F).

 

“An inability to recover high purchased power expenses has led to a considerable deterioration of the credit profile of the consolidated Sierra Pacific Resources [SPR] System.  We are downgrading our ratings of the SPR system, and are taking action before the company’s pending acquisition of Portland General [Electric Company].  We have not been advocates of adding SPR paper.” That’s referring to short-term commercial paper.  “We will continue to maintain a negative outlook on the system.”  A “higher-than-anticipated . . . purchased power cost is the primary culprit for the decline in the company’s recent financial performance.”  And speaking of the PUCN approvals, it says, “However, the approvals to-date (1) have not been enough to cover the purchased power expenses and (2) have not been enough to prevent SPR from reporting a net income loss of $40 million in 2000.”  And that’s on a consolidated-company basis.  They state, “Our negative credit outlook (along with today’s rating actions) on the SPR system is independent of the company’s pending acquisition of [PGN] Portland General [Electric Company].”  They also say, “We do not believe the debt-capital markets would be receptive to SPR at this point at an attractive cost of capital, because of the uncertainty surrounding the company (and the taint associated with having a purchased power problem that could be compared with that of the California utilities).”

 

The next thing I looked at were some financial ratios, which are very important to financial institutions.  They use these ratios as a guide to see how well the company is doing, and whether there might be any problem in recovering the money that they loan to them.  The same ratio I looked at for both companies is called the “fixed-coverage ratio.”  Basically, it shows a potential lending institution how much income can cover their projected debt.  In both cases in the last 6 months, the companies have shown a drastic decline in the ratios.  In fact, currently the ratios are just about . . . .  Well, I thought I had them.  I think Nevada Power’s [Nevada Power Company’s] about 4.8 to 1, which means it does not cover its current debt.  The income is not sufficient to cover the current debt.  Whereas Sierra Pacific is slightly greater than 1.1 or one-to-one.  Since the lending institutions are very concerned about these coverage ratios, the ability of the institutions’ actual blend, is called a covenant, and periodically, the lending institutions will review what the income status, the financial status of the company, is.  Depending on what those ratios tell them, they may or may not be willing to lend additional funds.  Given the considerable deterioration in the ratios, it certainly brought into question whether the lending institutions would be willing to go forward with any additional funds.

 

I also looked at certain external environmental factors.  I’ve already alluded to the situation in California, and the chairman has also.  They’ve had a situation of rolling blackouts over there, and two of the largest utility companies in the country are virtually on the doorstep of bankruptcy.  It’s because they were forced to purchase power at a high cost and resell it at a low cost.  The latest figures I saw show them about $13 billion in debt between Southern California Edison and Pacific Gas and Electric.

 

Mr. Lampley continued:

 

I also looked at the potential for continued high gas prices.  And one of the best indicators of gas prices we have is looking at the futures market.  I looked at what is called the Henry Hub futures prices going out 1 year from this month, to February of 2002.  The futures prices for gas are approximately $5.30 a dekatherm.  That’s approximately the same range of what the company is paying now.  So going out 1 year, we don’t see much relief in the way of gas prices.  The reason the gas price is so important is that both companies use a substantial amount of natural gas to fire their turbines.  They have gas turbines both in the north and the south that rely on natural gas as a fuel.

 

Well, I’m not certain that the futures prices are always that accurate.  One of the things that California is talking about is bringing on a lot more combustion turbines to meet the crisis, which we see is coming in the next summer.  All of the new generation that they’re planning is going to be using natural gas.  To my mind, even though they have a lot more wildcatters or people out there looking for sources of a supply of gas, whether that’s going to be sufficient to meet the projected use of the gas, . . . a gas turbine uses a tremendous amount of gas.  I think I heard the figure that a 500-megawatt gas-fired combustion turbine uses as much gas in one day as Elko does in a year, or maybe it’s 2 days.  But, still, the amount of gas used is incredible.  So, if they are planning all these combustion turbines, I think it’s going to put a lot of upward pressure on the futures price of gas.

 

Finally, I was asked a direct question of what I recommended. I approached the commission this way, I said, “We can make two choices, there’s a possibility for two types of error.  If we actually place the rates as requested, the downside is at some point if we have a hearing as the chairman already indicated, we’d have to turn around and adjust those rates downward to make it correct based on whatever we have at the hearing.  The other possibility is that if we didn’t put the raise in place and some of the worst-case scenarios came to pass, for example, they ran out of cash or were declared in default by the banks, that to me would be the worst-case scenario.”  So I said, “In order to make the correct decision, you would need to make the decision that has the worst downside.  Therefore, I’d recommend that the commission go forward and put the rates in place.”  That was my decision, my recommendation, [and] the commission’s decision.

 

Senator Carlton stated, “You had mentioned in your testimony Portland General, the acquisition of Portland General [Electric Company].  Is that acquisition still going forward?  Is that in your matrix?”

 

Mr. Lampley commented, “As far as I know at this time, it is still going forward.”

 

Senator Carlton asked, “So, that is still going forward?  You’re still going to purchase?”

 

Mr. Lampley continued:

 

They have a contractual commitment and it’s pretty ironclad, unless one of the triggers that lets them out of it occurs, they will have to go forward with the purchase or face some kind of contractual penalty.

 

Senator Townsend asserted:

 

To either of the three gentlemen that are here, I believe this was filed on January 29, and I believe under the global settlement, and I don’t have all the details here, their last filing under the global settlement agreement to file every 30 days was on January 15.  How did you view that since they were asking for additions to the fuel and purchase power provisions in the global settlement?  How did this overlay legally since you have a 2-week time frame as opposed to a 30-day time frame?

 

Jeff Parker, Commission General Counsel, Public Utilities Commission of Nevada replied:

 

That issue, as I understand it, is one of the issues addressed in Mr. Hay’s pending motion to dismiss.  However, I can tell you that I was asked at the commission . . . meeting on Friday whether this filing was valid on its face.  That’s one of the things we looked at.  It’s the prohibition against filing more than one of these filings in 30 days is not actually in the global settlement.  It’s in [Nevada Revised Statutes] NRS 704.110, sub[section] 6, “A public utility may not file an application to recover the increased cost of purchased fuel, purchased power, or natural gas [purchased] for resale more often than once every 30 days.”

 

However, this filing, we’ve been calling [it] the CEP [Comprehensive Energy Plan] filing, is in the nature of a general rate case.  Mr. Lampley can explain what the difference is between a fuel filing and a general rate case.  This filing contains various tariffs, long-term contracts for approval and so forth.  The same statute, NRS 704.110, sub[section] 5 contains another provision allowing the commission to act where there is a substantial financial emergency.  In essence, I’ll try [to] paraphrase here, this statute allows for a general rate filing so long as they are not pancaked.  So long as no general rate filing was pending at the time this was submitted.  And this was allowable under that statute, NRS 704.110 sub[section] 5.

 

And just for the record I’ll quote it because I think it’s helpful,  “ . . . whenever a general rate application for an increased rate or charge for, or classification, regulation, discontinuance, modification, restriction or practice involving service or equipment has been filed with the commission, a public utility shall not submit another general rate application until all pending general rate applications for increases in rates submitted by that public utility have been decided unless, after application and hearing, the commission determines that a substantial financial emergency would exist if the other application is not permitted to be submitted sooner.”

 

So, based on that I advised the commission the filing was valid legally on its face, does address the merits of the pending motion to dismiss.  I think the commission determined from what Mr. Lampley said that there was a substantial financial emergency.

 

Senator Townsend commented, “That takes us in two directions.  If this is a general rate case filing, then you will go to hearing on this and look at every aspect of the company including their rate of return.  Is that correct?”

 

Mr. Parker answered affirmatively.

 

Senator Townsend asked, “I don’t know, Mr. Lampley, if you want to answer this, but what is their current rate of return?”

 

Mr. Lampley answered, “Senator, I’m sorry I don’t have any information to give you on that.”

 

Senator Townsend averred:

 

Well, then I’m confused.  If you made recommendation to accept this, and it was a general rate filing, you didn’t give them any guidance as to what their return was currently and what it would be under this case.

 

Mr. Lampley clarified:

 

We didn’t specifically address rate of return.  But certainly given the fact that they proposed adjusting the rates, they proposed an inverted block rate.  It would be logical to assume that is one of the things that we will explore at the hearing.

 

Senator Townsend continued:

 

We’ll get to that inverted block rate hearing in a second.  If this was deemed to be an emergency, then what thought process went into the issue of granting this conditional with your hearings coming later, as opposed to holding emergency hearings to get a better sense of what the actual meeting was?

 

Mr. Lampley responded, “In conversations with Commissioner McIntire, we decided that we would have an expedited hearing, and he already has the procedural order before you.”

 

Mr. Soderberg expressed:

 

Senator, if I may add?  The statutes that overlay this and any filing clearly were not adopted at the same time.  Sometimes the commission has to juggle more than one statute.  We don’t really have much of a provision and much wiggle room to have quote, “emergency hearings.”  At the same time, the tariff statute always says a tariff goes into effect 30 days as filed unless suspended.  It would have been nice to be able to take the action we took on Friday, 5 days after it was filed, but the law doesn’t allow it.

 

We were pretty much in the position that the only way we could have backed off on this is to, quite frankly, have it this week, and I had my presiding officer out of town, so we moved it up a couple of days.  Quite frankly, that put us in the box that we were in.  We had to do something one way or the other in 30 days or it would go into effect and never be looked at as a whole, or we could have suspended it and then nothing goes into effect and not be able to give them just enough to come along. 

 

Clearly, in a perfect world, we would have had a little more time before the suspension period.  We would have had the opportunity to maybe give them half of it now, and then do some type of analysis.  Unfortunately, when you bring all the statutes together, we did not have that option.  It was all or nothing, or temporarily all or nothing, or nothing at all.  Those are the three options that we had and we chose the [most] prudent between them.

 

Senator Townsend pointed out, “On page 2 of the procedural order, it states that the commission, on number 8, the commission has scheduled a prehearing conference in this matter on Friday the 23.  Why is that so far out?”

 

Mr. Soderberg answered, “I’m taking a moment to think because I’m speaking for another commissioner that is not here.”

 

Mr. Soderberg continued:

 

Commissioner McIntire urged me to bring this before the commission a few days earlier than we could have because he would be out of town.  And, quite frankly, the earlier we moved forward, the earlier we could begin conducting our work.  We have certain notice requirements.  Commissioner McIntire . . . in looking at this procedural order, is dealing with a number of issues that we more than likely would never deal with at the prehearing conference.  I would say his logic were to be [sic] to comply with noticing statutes.  This needs to be a statewide notice, which takes us longer because we have to notice it in a number of papers that don’t publish weekly, we’ve had problems with that in the past, and the number of issues that are to be dealt with.  I think March 23 is actually a very prudent date.

 

His option would be then to have possibly shaved a week off the prehearing conference schedule, but then have to push some of these important issues off to a later date.  I think his logic was:  The sooner we get down to business, the sooner we can decide what that business is going to be, and how we go about it.

 

Senator Townsend elucidated:

 

You mentioned the appropriate notices.  On the first page of the procedural order, under number 3, I guess, there is the standard disclaimer:  “Commission issued a public notice that this application is in accordance with state law and the commission’s rules of practice and procedure.”  Are you comfortable that that was met?  Because there are parties that are saying that we didn’t meet that.

 

Mr. Soderberg commented, “Rather than dispute the math of some people that I have a lot of respect for, I’m just going to defer this to Mr. Parker.”

 

Mr. Parker directed attention:

 

I think there may be two notice provisions that might apply.  The first is the commission is . . . I don’t know the statute off the top of my head, but the commission is required to give public notice of all matters pending before it.  It has nothing to do with the time frame.  It’s just advising the public that something has been filed.  The other notice is the 30-day provision that Chairman Soderberg referred to, and I believe that is [NRS] 704.110 . . . .  The gist of that is a new rate cannot go into effect with less than 30-days’ notice.  This was filed . . . file stamped January 29.  If you count that out on your calendar, there’s 2 days in January, 28 in February, that’s 30 days, March 1 would be the thirty-first day.  That appears to have been complied with.  The only other notice would have to do with the pre-hearing conference itself, and that is a 10-day notice requirement.  But, by the time you arrange for papers to publish and so forth, and including a recap publication, 15 days is pretty quick to make sure you get all your notices out and don’t miss one.

 

Senator Townsend stressed:

 

The attorney general has found herself in a position regarding the open meeting law and the board of the university, the Board of Regents [University and Community College System], in a constant argument over open meeting law violations.  I think perhaps you should spend a little time making sure you don’t become the second group in there.  You’re better off being substantially farther ahead than sitting on the cutting edge.  These issues are extremely important to every member of the state, and it’s, in many cases, the only opportunity the public has to understand this, is to be notified.  In most cases, those notifications and the explanation of what occurred comes through the media.  So, unless the media is apprised of it, the public can’t be informed.  You might want to make sure that everything is meeting those standards.

 

Let’s go back to the inverted rate issue for a second, since you brought it up.  There was a substantial attempt, and I thought a remarkably positive one, albeit it didn’t get to the larger issue in the northern Nevada paper, on what the filing was relative to specific, not rate classes, but how it was broken down by usage.  There is public understanding that there is a general 17 percent rate request in this.  However, when you look at how it’s broken down, that is not exactly the way it is.  The one that sticks in my mind was the one where there was no rate increase for those who use, I believe, 300 kilowatts or less.  Is that what was in there?

 

Mr. Lampley clarified, “I believe that is correct.  I got the filing here . . . “

 

Senator Townsend commented, “Yes, I have it, too.  You know it’s quarter to six; I’m just getting lazy.  I’ll be honest with you, I’m tired.  Who uses 300 kilowatts or less?  Do we know of anybody who does that?”

 

Mr. Lampley answered, “We know the average usage.  In Las Vegas it’s 1100-kilowatt hours, and in Reno it’s about 550-600 kilowatt-hours per month.”

 

Senator Townsend insisted, “So I guess my question is, does 300 capture anybody?”

 

Mr. Soderberg emphasized:

 

Senator, I guess, before Mr. Lampley answers that question . . . that design of rates is still in question.  That is something that we brought at hearing and we may come to that conclusion that this helps nobody.  We may come to the conclusion that it’s perfect or we should adjust it.  I’m sure the parties will be advising us through their testimony as to what would be appropriate.

 

Senator Townsend questioned, “What was in . . . if you can remember, . . . what is the request at the largest end?  What does that increase percentage?  Do you remember?”

 

Mr. Lampley answered, “Sorry, Senator, I don’t.”

 

Senator Townsend commented, “Well, if 300 or less gets zero and you have a 17 percent average, somebody’s got to be getting 20 or 25.  Is that fair to say?”

 

Mr. Lampley acknowledged, “It may be, but as the chairman said, we’ll have to look at the specifics in the hearing.”

 

Senator Townsend clarified, “Now does that come under the term, ‘rate design?’”  Mr. Lampley answered, “Yes.”  Senator Townsend asked, “So you’d have to, under general rate case, you’d have to review that rate-design request?”  Mr. Lampley voiced, “That’s correct.”

 

Senator Townsend commented, “We have peak rates in southern Nevada.  Is that correct, currently?  We have a certain peak rate or not?”  Mr. Lampley averred, “I think the large users have on-peak and off-peak rates.”

 

Senator Townsend asked, “Do we have anything like that in northern Nevada?”  Mr. Lampley stated, “I believe we do.  Yes, sir.”  Senator Townsend asserted, “I know it’s not coming from my house.”  Mr. Lampley remarked, “Nor mine.”

 

Senator Townsend claimed, “That’s probably why my eyes are so weak.  The mechanism you are now going to use to analyze this request that has been authorized, I presume, under conditions of review, I don’t know the legal term, is that the way that you would do [it]?”

 

Mr. Soderberg claimed, “Yes.  I think that would . . . that accurately depicts it.  I don’t know that there is actually a legal term of art for it, but yes.  It has been conditionally let to go into effect upon further review.”

 

Senator Townsend commented:

 

When you say expedited hearing, I notice it starts on a Friday.  It doesn’t sound like it’s being expedited.  It sounds like you get to work one day and then you’re going to take the weekend off.  Is that what happens, or do you go ahead and go through the weekend?

 

Mr. Soderberg asserted:

 

I guess, Senator, expedited is a matter of perception.  Typically . . .  well, let me step back.  When rate cases were filed by utilities in the old days, before we had the 30-day/180-day rule, commissions would take 2-3 years to do these things.  There was an outcry of that and people came before this Legislature, and probably many of you weren’t with the Legislature at the time, and said you’ve got to act on these things at some point, and that’s why we had the 30-day [rule] go into effect and suspend the full 180.  Typically, it has been my experience with the former Public Service Commission [of Nevada] and now the Public Utilities Commission [of Nevada], that these things take all of the time.  We have actually asked utilities to waive these dates for about a month or two and we’ll have a special agenda meeting just to vote on these cases the day before the very last day.

 

What you have here is pre-hearing conference.  Those typically do not take more than one day.  I think Friday would be appropriate if Commissioner McIntire feels that the issues that he needs to get down and into are going to take more than Friday, I would assume he would continue it to a day that next week.  Typically, what happens at a pre-hearing conference is a full evidentiary hearing schedule is set at that date, and any other procedural matters you need to get through.  I couldn’t imagine that he couldn’t get through that in a day.

 

Senator Townsend stated:

 

You’re the lawyer on the commission and not Commissioner McIntire, so you might want to encourage him that our cursory analysis of the law does not require him to suspend this at 5 o’clock, because that’s my interpretation of an expedited hearing.  This is not about time orientation, it’s about task orientation.  There is not one of the 63 people that are sitting in this building who knows whether one penny of this is justified or all $311 million, none of us know that.  That’s only going to come as a result of your hearings.

 

Mr. Soderberg concluded, “There are three people where I work at that don’t know that yet, either.”

 

Senator Townsend commented, “Well, I just want to make sure we don’t dilly-dally around, that we don’t go into this pell-mell.”

 

Mr. Soderberg asserted:

 

Senator, all I can say, Commissioner McIntire is not here, but I’ve expressed to him a certain sense of urgency on this and that’s why I assigned it to him the day it came, and before I could get it out of my mouth, he let me know how urgent this was.  So, I don’t think we have any worries about that.

 

Senator Townsend expressed:

 

Then, would you analyze if this is a general rate case, is it broken into two portions?  That portion which is F&PP [fuel and purchased power] additions to the global settlement, and then a separate rate case.  How will you break that down?  I’m just real curious.

 

Mr. Soderberg replied:

 

Senator, this is a hybrid case.  Not only is it unusual because of the emergency nature of the filing, but the things that are in it.  Frankly when it first landed on my desk, I asked Mr. Lampley to look at it to see if we could carve it up into separate cases and spread it around the commission.  After that analysis, Mr. Lampley had advised me that probably wasn’t the best way to do it, and if Commissioner McIntire was going to break things up, that would probably be a better course of action.  If you wanted to take a rate portion of it first, to take a rate design portion of it, get into this portfolio that has been filed with it, you could clearly do that down the road.  That is why (one of the reasons) I assigned it to Commissioner McIntire.  He has been through this route before, longer than I have, in his various roles in the regulatory process.

 

Senator Townsend queried, “That brings up the question of your third commissioner.  That person has been on board, how long now?”

 

Mr. Soderberg answered, “I think this is [PUCN] Commissioner [Adriana] Escobar Chanos’ fifth day on the job.”

 

Senator Townsend explained:

 

Please alert her that she is welcome here, because I don’t believe any of us have had an opportunity to meet her, and from that point forward, the honeymoon is over.

 

There’s been a lot of financial changes in the company in the last 4-5 years.  We’ve had a merger.  We’ve had the potential acquisition of another company.  We’ve had divestiture contracts let.  We’ve had the sale of a water company.  Will all of these things be part of the general rate filing and its analysis?

 

Mr. Lampley stated, “I don’t think they all will because maybe some of them won’t be completed by the time we get into this hearing process.”

 

Senator Townsend asserted:

 

Well, here’s my question then to you Mr. Lampley.  If your advice to the commission or your analysis, which you gave to the commission which resulted in their ruling, was [based on] projections on the cost of fuel, then how could they not take your analysis on the projections of the revenues that might come out of some of those transactions?

 

 

 

 

Mr. Lampley explained:

 

I think that to the extent that things are completed, we will look at that, but it’s like a future testier problem, if things aren’t used and useful, or if sales haven’t been completed, I don’t think we can treat them as though they were completed.

 

Senator Townsend asked, “How can you treat a gas purchase, if you don’t know what the price is going to be?”

 

Mr. Lampley defined:

 

Well, we have experienced prices for the gas.  One of the things we’re requesting in this case is approval of the long-term, short-term, mid-term portfolio of energy.  It’s like a resource planning.  It’s kind of like a hybrid resource planning and rate case.  So, this is kind of new territory for all of us.

 

Mr. Soderberg commented:

 

Senator, to put it in context, Mr. Lampley is charged to advise us before the 30-day statutory effective date went into effect, was not how the case is going to come out.  Because, it is going to be what will happen if the company doesn’t get some level of additional money.  The cases you mentioned may or may not resolve themselves by the time we come to a final decision on this case, but we had 30 days to act on what we had before us, so we could not factor those in.  But you are quite right, the ability or the lack of ability to sell generation assets clearly impacts the financial picture of the company, clearly impacts what they will be paying in the next year for fuel and purchase power.  At this point we don’t have a crystal ball for that.  The vote on just the commission side  whether or not to honor the consumer advocate’s petition on that will come next week.  So, we didn’t have the luxury of making a prediction on those events before a preliminary vote, we will have that luxury before our final vote.

 

 

 

Senator Townsend asked:

 

That brings up the question, in the procedural order it discusses, number 9, at the prehearing conference, the commission will consider the BCP’s [Bureau of Consumer Protection’s] motion to dismiss.  Which means that’s on the [March] 23, and everyone shall file with the commission, serve all parties of record, legal briefs addressing the following, and you list those.  Will you rule on the advocate’s motion before you go into any of this other analysis?  Or is that a separate question?

 

Mr. Soderberg averred:

 

The scenario is we would move on parallel tracks.  The commission’s rule of practice and procedure have allowed presiding officers great latitude on a number of decisions, except for the final determination of the case.  We will let one commissioner decide to throw out a case or decide not to throw out a case.  So Commissioner McIntire and those assisting him, will consider these pleadings, will allow people to discuss it more than likely at the prehearing conference, then he will come to a full commission, hopefully, very close after that, with a recommendation.  But because of time being short, our regulatory operations’ staff, and I’m sure Mr. Hay’s staff and the analysts working for the various parties, would continue their investigation as if they would be proceeding.  Either some people would be very happy if we dismiss the case, and some people would be very disappointed, but in the meantime, nobody has the opportunity to wait for that determination, there’s just not enough time.

 

Senator Townsend asserted:

 

There’s, perhaps because of the nature of the sensitivities of the situation in which Nevada finds itself, the potential role for the Legislature with regard to an independent audit.  There are multiple parties involved in this, the vast majority of which are the million-plus citizens in the state of Nevada, all of which we represent.  As a result, there have been multiple bills introduced in this body, in both houses, that substantially impact on the citizens, the company, and large/small users alike.  There may be a need for us, since you’re an Executive Branch agency, but for us to find some kind of independent analysis.  It is pretty hard to rule on these things because what we put into law, obviously, is supposed to carry a certain permanence, at least for 20 months.  It’s important that all the committee members in both houses have an opportunity to make informed decisions about what will occur.  So perhaps there’s a need for that, for us to take that kind of action.  Now, is it fair to say Commissioner McIntire is returning at some point that we can count on?  I mean, the last time I looked, we had only one Governor, and that’s the conference that’s going on in Washington, so I presume he’s there on other matters.

 

Mr. Soderberg:

 

Yes.  Concurrently in Washington, D.C., are the winter meetings of National Association of Regulatory Utility Commissioners, which is our association, and that is a trip that Commissioner McIntire was prescheduled to go on and to meeting with our congressional delegation.  Because of the activity here at the Legislature and other day-to-day business matters of the agency, I chose not to go.  Lucky me.

 

Mr. Parker informs me he [Commissioner McIntire] should be back sometime Thursday, according to his travel plans.

 

Senator Townsend commented:

 

Committee, are there any other questions of the three gentlemen who were nice enough to come forward tonight?

 

Gentlemen, thank you.  We appreciate your being here tonight, we know the hour is late, and everybody has a lot to do.

 

Mr. Hay, I don’t know if you would like to come forward at this time, and give us your version of your filing, that would be very helpful, I think.

 

 

 

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, stated:

 

I want to address a couple of issues that were raised by the panel from the PUCN, and indicate what my office has done, so far. 

 

After the CEP [Comprehensive Energy Plan] filing was made in January, our office filed a motion to dismiss, which was briefly discussed in terms of the procedural schedule the commissioners adopted.  I’m rather confused by the analysis now that we’re into a general rate case, because the company’s initial filing, which I don’t have in front of me, I believe the chairman has a copy there (Exhibit G), but on the first page it indicates that this is filing for fuel and purchase power recovery under NRS 704.110, subsection 6, if we make the assumption that this is, in fact, a general rate-case filing, there are a number of statutory criteria that have not been met, such as a statement showing the recorded results of revenues, expenses, investments, and cost of capital for the most recent 12 months.  The filing did not contain that information.

 

On a related issue, the global stipulation was entered into over the summer, and noted, specifically, that general rates will remain capped until March 1, 2003, as required by NRS 704.982 and 704.982.3.  The premise of both our motion to dismiss and also a motion that we filed earlier this afternoon to set aside the commission’s order that was entered on Friday, is that the company and the commission can’t really have it both ways.  We’re either dealing with a fuel and purchased power adjustment in the rates, which, as the chairman noted under [NRS] 704.110, subsection 6, can be filed no more often than once every 30 days.  In this case, we have two pending in a period of just slightly over 2 weeks.  We did offer, when this filing was being discussed, I personally met with Mr. Higgins and offered to work with him on a different procedural mechanism to find relief for the company, basically going back and adjusting the rates that are capped under the existing global settlement which is only slightly more than 6 months old, and now the company, once again, is indicating that they’re on the verge of bankruptcy as they told us last summer.  It’s our belief that if we are going to do something like this, we need to do it legally and appropriately. 

 

Mr. Hay continued:

 

The commission’s own staff noted that there was a lack of documentation in the filing, and that the deficiencies in the filing must be remedied before the commission could enter a reasonable judgment on it.  We certainly think, on behalf of the many hundreds of thousands of Nevadans that will be paying higher bills as of this Thursday, to be fair to them, we really need to have all of the information out on the table before those rates, which we believe will be illegal if they go into effect on March 1 because of the problem with the duplicated filings in a shorter period of time than 30 days, that that’s doing an injustice to all of our constituents. 

 

A number of the other issues that were raised, I think we can talk about, and I would be happy to provide copies of our pleadings to the committee, they’re fairly brief and pretty understandable, but just to reiterate the company and its filings said it was filing under [NRS] 704.110, sub[section] 6; the commission, in its notice, noticed it was filed under that; even the procedural order that was issued today indicates that it’s filing under [NRS] 704.110, subsection 6.  So, our basic premise is that everyone understands that it’s tough times out here in the West and the power market.  We don’t want the lights to go out nor do we want the company to experience more extreme financial difficulties, but we did make the argument and the offer to do it in the appropriate way.  We just believe that the CEP [Comprehensive Energy Plan] filing, as it’s been called, is illegal under Nevada statutes.  We will probably be seeking a temporary restraining order later this week to prohibit the rates from going into effect.  The burden of proof to prevail on that is a steep one.  I’m not totally confident that we’ll prevail, but I think that we’re doing a disservice to our citizens to essentially base a very cursory analysis that was done primarily on the financial information provided by the company in their earnings press release, is inappropriate and not to let the some dozen interveners, including my office and many other Nevada interests, to have a crack at looking at the numbers and what the actual need for revenue relief is before these rates go into effect.  I understand that the commission felt there was urgency there, but I was unaware that they had made a formal declaration that this amounted to an emergency, and under the [NRS] 704.110, subsection 6, that’s not a criteria [sic] to be considered in any event. 

 

That’s the short version of procedurally where we are.

 

Senator Townsend stated, “Are there any questions of Mr. Hay?  Mr. Whittemore, do you want to address this issue?”

 

Harvey Whittemore, Lobbyist, Nevada Resort Association declared:

 

. . . Quite frankly, during my prior testimony regarding some of the issues, which the committee has discussed with respect to deregulation, divestiture, and electric restructuring, we offer to continue the spirit of negotiation that took place in July, and to continue to try to work with the company to address their financial concerns that they’ve faced over the past year.

 

Quite frankly, we agree with the analysis, though, that suggests that the filing which was made on January 29 was, in effect, two filings which were made under [NRS] 704.110, sub[section] 6, it’s clear that what the company was requesting, in large part, was an increase in the cost association with fuel and purchased power, and under [NRS] 704.110, sub[section] 6, the company can only file once every 30 days.  It simply says, "A public utility may not file an application to recover the increased cost of purchased fuel, purchased power, or natural gas purchased for resale more often than once every 30 days."

 

Our position is, unfortunately, that we have an agreement between the parties under the global settlement which makes it clear that the amount which you can recover under the fuel and purchased power rider is not only capped, but there is a carry-forward mechanism, and it suggests there is a time limit under which that mechanism will take place.  Obviously, the concern that we have is that we were not afforded an opportunity to discuss the increase that was being requested, and whether or not a modification of the global settlement was appropriate or not.

 

Again, we pledge our cooperation, both to this committee and to the company, to address the financial concerns, which have been expressed by the company, and, quite frankly, have been noted by all of the members of this body as well as the Assembly.  But . . . we are concerned that the commission, in its order basically converting this filing from a [NRS] 704.110, sub[section] 6 into somehow, magically, a [NRS] 704.110, sub[section] 5 general rate increase, one simply needs to look at the documents, which the chairman has, to ask where the test period is, where the financial information was.  If you take a look at a general rate increase filing, the stack of documentation, quite frankly, is 12 to 24 inches with test periods and sorts of different things being articulated, as well as depreciation schedules, cost of capital, the types of information which was not included in this filing.  So while we recognize that there is an emergency, I don’t think you can read [NRS] 704.110, sub[section] 5 or ignore the remainder of [NRS] 704.110 and convert this into a general rate increase.

 

Mr. Whittemore continued:

 

With that I would be happy to answer any questions.  But again, our position is that the global settlement is still in effect.  There are terms and conditions under which . . . there are things the parties must do under that global settlement.  We’re very interested in ensuring that that takes place.  Under that global settlement, the parties were to come before this committee and seek legislation modifying two or three things.  If we need to modify more, we need to modify that agreement so that we can present those in the spirit of the compromise, which was done back in July.  At this point, we’re prepared to continue to talk and present our position as is appropriate in front of this committee when we have hearings with respect to pending bills.

 

 

 

 

Senator Townsend stated:

 

Is there anyone else who would like to address the issue we have before us today?

 

Ladies and gentlemen, this is an extremely complex issue in which the pocketbooks of all the people in the state of Nevada are affected.  That’s why we take this as seriously as we do and we’re sorry to drag you here at night, but it’s the only opportunity we’ve had, because this occurred, obviously, after the Legislature had adjourned on Friday.  It would be our intention to take these issues up on a regular basis.  I believe the next time we have that opportunity will be Wednesday, and the discussion will be based on the following issues.

 

The specific issue we faced today, which was transmission.  I believe, it was testified to that approximately $250 million is required to make sure that if all of the plants that are proposed are successful.  How much do we need in the south and that was, I believe, $250 million.  We did not get a number in the north for additional cost there, and what is that going to take financially from the company to get done.  We’ve heard today that the financial markets are concerned, so we want to make sure that we understand that implication for a long-term viability here in the state, that’s why we’re trying to better understand this.

 

I don’t have the schedule in front of me, but we’re going to make some adjustments to accommodate that, and to get into the deeper issues.  Those issues are something we’ve never seen here and I would ask the appropriate people to provide this.  I would certainly like to hear, and I know the committee and members of the House would like to know, from the financial markets what they are looking for in terms of the investment community and the lending community.  What are they looking for?  We’ve never heard that, ever, and I’ve been here along with Senator Rhoads, Senator Shaffer, and Senator O'Connell, we’ve never really heard that.  What are they looking for?  What are they basing their decisions on in terms of lending money to a utility, and what are they looking for when they make an investment in a utility?  That would be one thing I think it would be extremely helpful to us to understand.

 

The other things that we need to better understand in this filing, is how it’s broken out regarding the F&PP rider/global settlement relationship.  I don’t understand that, yet, and perhaps we need to focus on that.

 

There is an opportunity for any of you, any time, to testify on any of these issues, it’s important that we have your input.  It’s a delicate issue, it’s a large complex issue and we’ll do the best we can to get our arms around it.

 

Senator O'Connell commented:

 

. . . Tim [Mr. Hay], would you have considered this appropriate had the commission been called or made this decision on February 1, and that the petition would have been filed under [NRS] 704.110, [sub]section 5?

 

Mr. Hay answered:

 

Senator, I would have to give that some thought.  As I indicated, we offered to Mr. Higgins to work on a modification of the global settlement’s rate adjustment mechanism, which I think would have been a more appropriate vehicle to address the concerns that the company has raised.  According to the company’s own statements, there are only two ways to adjust rates.  One is under 110 [NRS 704.110] sub[section] 3, which is a general rate case; the other is 110 [NRS 704.110] sub[section] 6, which is limited to fuel and purchased power cost.  They, obviously, did not file it with the statutory requirements for general case, and we believe they were barred from filing it due to the untimeliness of the filing under 110 [NRS 704.110], sub[section] 6, but I’ll give your question some consideration and try to give you a more comprehensive reply.

 

Senator O'Connell commented, “Okay.  Well, I guess the major point of my question is, whether or not we are in a substantial financial emergency.”

 

Mr. Hay stated:

 

I’m not aware that the commission specifically has entered an order with that finding, nor that the company requested that that be done, although you can imply from the rhetoric in the filing that they believe that they are in financial distress.  I think that in order to perfect that argument, they would have actually needed an order from the commission indicating that they made the finding that a substantial financial emergency existed.  Our internal analysis does not indicate, to us at least, that the situation is at that magnitude now, but as both the commission staff and our office has indicated, there is not enough financial data that’s been provided with this filing for anybody to make a reasonable judgment on that, I believe.  I think we need at least the information that would be required under a general rate case, if that’s the track we’re on, or some sort of comprehensive audit of the company, including its purchasing practices and where these funds are actually going to be flowing to, assuming that they receive them.  I don’t think we’ve got adequate data, at least from my standpoint, to conclude that certainly, if the commission had requested the company to provide that data, that that specific climbing could be made, it would be a different circumstance.

 

Senator Amodei stated:

 

Tim [Mr. Hay], . . . the stuff you just described in terms of being available to allow your office and other people who participate and review the process in a more perfectly informed factual basis, what amount of time do you . . . foresee that being developed within, to allow you, in your role, which by the way, I don’t envy you these days at all, to go before the commission and argue as you feel appropriate or come before this committee and say, “We’ve had a chance to look at these facts and here’s what we think the bottom line is.”  What time frame are we talking about to develop that?

 

Mr. Hay answered:

 

Senator, assuming that we get cooperation from the company and other parties to respond to our data request and other mechanisms for reviewing financial data, I think if everybody coordinated in the effort and was cooperative, we’d probably be looking at a period of maybe a month to 6 weeks to have the data analyzed and then have a hearing at that point.  It could probably be expedited, if the pre-hearing conference does not occur till March 23.  . . . My anticipation is that if there are some discovery issues, they may be resolved at that point and we’d be looking at a hearing, maybe a month down the road would probably be a logical timeframe, because, obviously, these are huge numbers for Nevada citizens to bear, and I think we need to be very comprehensive in our analysis.  I think, as the chairman may have indicated, the company did receive last week financing authority for about $1.4 billion in financing, about half of that is new.  There are about $350 million of proceeds from the sale of the water division in the wings, and $312 [million] under the rates that may go into effect on March 1.  So, there is a fair amount of money out there, and we need to . . . look at all that, comprehensively, to determine what the actual need is, and that process is, obviously, just beginning.

 

Senator Amodei commented:

 

My only concern is, and I’ve only been involved in this stuff in this capacity for a very few years, not like many of the people I see sitting out there, but when the Governor is calling people over to his office at 6 o’clock at night within the last 5 days, and [when] what happened at the commission on Friday is happening, and what you’ve witnessed happening in the markets is happening, and this committee is meeting at 5 o’clock to talk about that, . . . the one thing I get a sense of is time urgency.  While I respect what Mr. Whittemore had to say, and like I said, you’ve got a job to do, and the commission’s got a job to do, and all that other sort of stuff, time is not something that I have the impression, from where I sit, that we have a lot of.  Not that this is a permanent thing, but that it is something that I think we all need to be sensitive to.  I’m not saying that you’re not being sensitive to it, however I would hate to see us spend so much time that what we decide should have been done is moot later on.  Because my understanding is also that this state is not in a position to open up the “Gray Davis Bank” [referencing California Governor Gray Davis, and the California Technology, Trade and Commerce Agency’s California Infrastructure and Economic Development Bank] and start making up for shortfalls if any of the decisions made by any of the players turned out to be wrong in the next very short-term periods, that’s why I’m just kind of wondering what . . . .  Obviously, in a perfect world, rates would be where they were 2 years ago.  Those people sitting out there who wanted generation sold in 1997 and 1999 would have been correct, instead of where we are today.  Deregulation would be in effect and everybody would be enjoying the benefits of that, but unfortunately, none of those things are the reality right now.  I think we’re playing for keeps this time around, just in terms of how people get their energy in the next 6 to 8 months.

 

Mr. Hay commented:

 

I agree with you totally, Senator.  I just point out that we did start engaging in discussions with the company over 2 months ago about how to address this.  Now, I think we’re in the worst possible situation where we think the filing before the commission is legally defective, we’re obligated to go to court to attempt to do what we can to see that the commission’s procedures, as well as the company’s filing, comports with the Nevada statutes.  We’ve lost, essentially, 2 months already, and obviously we’re all concerned with bringing this to resolution as quickly as possible.

 

Senator Townsend queried, “Anyone else?  Would you come back up, Don [Mr. Soderberg]?”

 

Mr. Soderberg commented:

 

With reluctance.  I just have to make one correction.  I don’t want to debate Mr. Hay’s presentation . . . motion to dismiss, quite frankly, I’ll have to rule on that, but I don’t want this committee to walk away with the impression that the commission has approved the utility’s financing application; that has not been approved by the commission.  A stipulation was signed by the parties that is being brought before us; that vote has not taken place, and I don’t think we could presume how that is going to turn out.

There being no further testimony, the hearing was adjourned at 6:20 p.m.

 

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Laura Adler,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Randolph J. Townsend, Chairman

 

 

DATE: