MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

March 7, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Wednesday, March 7, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Attendance Roster.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Dean A. Rhoads

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Kevin C. Powers, Committee Counsel

Sharon Spencer, Committee Secretary

 

OTHERS PRESENT:

 

Steven C. Oldham, Senior Vice President, Corporate Development and Strategic             Planning, Sierra Pacific Resources

Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company

Michael A. Pitlock, Lobbyist, AES Mohave Limited Liability Company

Harold Franson, Lobbyist, AES Mohave Limited Liability Company

Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority

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

Kirby Lampley, Policy Analyst, Public Utilities Commission of Nevada

Alfredo Alonso, Lobbyist, Nevada Resort Association

 

 

Chairman Townsend opened the hearing on Senate Bill (S.B.) 253. 

 

SENATE BILL 253:  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. (BDR 58-1122)

 

Chairman Townsend explained the proposed legislation was intended to place restrictions on the sale or transfer of certain electric utility assets for a specified period of time and to require the Public Utilities Commission of Nevada (PUCN) to carry out the provisions of the legislation.

 

Steven C. Oldham, Senior Vice President, Corporate Development and Strategic Planning, Sierra Pacific Resources, read from his prepared statement       (Exhibit C).  He explained the divestitures of Sierra Pacific Power Company and Nevada Power Company were required by federal and state merger orders.  The sale of the Mohave plant was already approved by the PUCN, the United States Department of Justice (DOJ), and the Federal Energy Regulatory Commission (FERC).  The Harry Allen plant recently filed with the PUCN for approval of its sale.  Mr. Oldham said 2 years ago Sierra Pacific Power Company was ready to exit the energy business, which would have been phased out over a period of time in order not to alarm their customers.  However, Sierra Pacific Power Company was not in a position at this time to sell its power plants.  Currently, due to the volatility and uncertainty of the energy market, continued ownership was in the best interest of the customer, noted Mr. Oldham.  He added, if state energy-policy changes were imminent it would be advantageous for the committee to act quickly and with great clarity to enact new state laws in order to avoid confusion or costly delays.  He noted recent legislation changing California energy policies had already adversely affected Nevada.

 

Mr. Oldham said he believed that over the next 10 years the marketplace is the best place to set energy prices and policies. Also, within the next decade, customers will respond well to corrections in energy prices.  Technology will move into Nevada much faster if energy prices are set in the marketplace rather than being set in the arbitrary manner of the past.  Arbitrary energy price-setting rules, continued Mr. Oldham, do not encourage innovation.  Competition is a desirable method of establishing energy prices because it stimulates technology, benefits the environment, and cuts prices.  Also, competition is healthy for the economy and customers appreciate having choices, he said. 

 

Douglas R. Ponn, Lobbyist, Sierra Pacific Resources, said Nevada Power Company, whom he represents, wanted to do what was right for its customers and shareholders.  He said the company he represented agreed with the statements of Mr. Oldham and was prepared to cooperate with the Legislature to facilitate energy policies for the state of Nevada.  He said Mr. Oldham was correct that now was the appropriate time to establish new energy policies throughout the state and the country.  Mr. Ponn concluded by noting the last page of Mr. Oldham’s prepared statement (Exhibit C) contained suggested changes for S.B. 253.

 

Senator Amodei asked Mr. Oldham if he was comfortable with the position of Sierra Pacific Power Company, particularly if state policy changed.  Mr. Oldham stated all state policy changes were legally binding, and therefore would be acceptable to his organization.  He said all efforts by Sierra Pacific Power Company to get contracts approved had been done in good faith and he was certain all efforts had been done in compliance with state law.  Senator Amodei asked Mr. Oldham if there was any language in the contracts that was contingent upon approval of the PUCN or any provisions that deferred to state policy.  Mr. Oldham responded in the affirmative and added all contracts were subject to the review and approval by the PUCN.  To date, only the Mohave contract had been approved by the PUCN and that had occurred last year.  He said Sierra Pacific Power Company should not sell only one power plant and not the rest.  Presently, he added, Sierra Pacific Power Company was precluded from selling all northern plants.  Senator Amodei asked that copies of all pertinent contract clauses be included in the record, to which Mr. Ponn agreed.

 

Chairman Townsend asked Mr. Oldham approximately how many megawatts of power are produced by Sierra Pacific Power Company for northern Nevada and for southern Nevada.  Mr. Oldham responded approximately 1000 megawatts with a 1500-megawatt peak are produced for northern Nevada and approximately 2000 megawatts with a 4700-megawatt peak are produced for southern Nevada.

 

Chairman Townsend noted that under the current structure, Sierra Pacific Power Company had entered into contracts to sell certain power plants with buy-back provisions at 1998 prices that would cover the company through              March 1, 2003.  Mr. Ponn agreed with the chairman and added the value was between $870 million and $1.1 billion.  The purchase of power plants could be made in a blended-contract portfolio with large corporations.  The chairman stated the fundamental questions were how much power is generated, who owns the power generated, and what is overall customer need.  Mr. Ponn explained Sierra Pacific Power Company’s decision to sell power plants was done, in part, because the company wanted to derive certainty regarding the specific issues.  He said the divestiture issue was only one question.  Other significant matters included restructuring the power industry in order to stabilize prices and who had the responsibility to secure long-term contracts. 

 

Chairman Townsend asked who would maintain responsibility for long-term contracts and how that would be structured.  Mr. Oldham said a formula had been developed to address the structuring of long-term contracts which could be applied after Sierra Pacific Power Company recovered the book value of the plants and paid its federal income taxes on the net gain, at which time any remaining funds could be used to help fund the write-off of common plan holdings.  Common plan holdings are general office buildings that are used to house specific support function operations.  A portion of the costs of a particular building would be taken out of the rate base so customers are not paying for that building on an ongoing basis, the result of which amounted to a considerable savings to customers.  Once the common plan expenses had been taken out of the proceeds of a sale, the remaining money would be used to offset other costs encountered by consumers.  In southern Nevada, the amount could be as much as $100 million and could be used to mitigate adverse effects on customers.  Mr. Oldham added the funds would not be available if power plants are not sold.

 

Mr. Oldham continued his testimony by explaining that fuel costs would increase over the next 2 years; if new owners were to take over the power plants, fuel prices would be 1998 rates.  If Sierra Pacific Power Company continued to own the plants, it would have to purchase fuel to operate them and the fuel differentials could amount to between $870 million and $1.1 billion in the first 2 years.  Over the next 5 years, when prices in southern Nevada were to revert to market levels at the end of February 2003, Mr. Oldham estimated market prices would have been significantly higher than the price Sierra Pacific Power Company would have had to pay for fuel plus the amount for fixed cost recovery if Sierra Pacific Power Company maintained ownership of the power plants.  Mr. Oldham said if that had happened, the consumer would be worse off over the next 5 years. 

 

 

Mr. Ponn said there were provisions in the global settlement which allowed for $15 million from the proceeds from the sale of the plant to be applied to the balance in the deferred energy accounts.  Also, another $25 million was taken from the proceeds and placed in a program called progress payments which is used to open markets to competition once certain milestones had been met.

 

Chairman Townsend reminded Mr. Oldham that he had said $16 million was an accurate estimation of expenses Sierra Pacific Power Company had incurred to pursue new contracts.  Chairman Townsend asked if the company kept the assets and was required to put those assets in an affiliate’s company, would there be further costs involved.  Mr. Oldham said there were various ways to form an affiliate.  Affiliates could have separate accounting arrangements but other functions, such as payroll and benefit plans, could be common to both.  Separating other Sierra Pacific Power Company functions from its affiliates could mean significant expenditures for the company, particularly if one company was moved to a separate facility or if separate payroll and benefit plans were required.  It was important that affiliates considered all arrangements which would give them a fair deal, he added. Mr. Ponn concluded by stating current law stated if the company kept the plants past July 1, 2001, they had to be placed within a separate affiliate.

 

Senator Schneider asked Mr. Oldham if Sierra Pacific Power Company was genuinely interested in giving affiliates a fair deal.  Mr. Oldham responded in the affirmative, adding it would be necessary for new affiliates to use Sierra Pacific Power Company transmission lines already in place.  It was beneficial to ensure that all generators of power had equal access to transmission lines in order to get to the market and remain competitive.  Mr. Ponn added the affiliate requirement was placed in the proposed legislation because a robust market was anticipated, and it was not desirable for either Nevada Power Company or Sierra Pacific Power Company to have any advantages over new entrants into the market. 

 

Chairman Townsend called for testimony from independent power producers (IPP). Michael Pitlock, Lobbyist, AES Mohave Limited Liability Company, explained there were several unique characteristics regarding the Mohave sales transaction.  In his prepared statement (Exhibit D), he explained the arrangement for the sale of the Mohave Generation Station was at a different stage than any other proposed divestiture in Nevada because Nevada Power Company executed an asset sale agreement with The AES Corporation (of Arlington, Virginia) on May 10, 2000, for the sale of Nevada Power Company’s 14 percent share of the station.  The agreement was approved by the PUCN on October 12, 2000, the Federal Energy Regulatory Commission (FERC) approved the sale on October 27, 2000, and on February 16, 2001, it was determined that the sale did not violate the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  Mr. Pitlock said The AES Corporation and Nevada Power Company have been diligently working to consummate the agreement and have made substantial progress toward that end during the last 10 months.

 

Mr. Pitlock then introduced Harold Franson, AES Mohave Limited Liability Company, who presented the committee with his written statement (Exhibit E) in which Mr. Franson explained why S.B. 253, if applied to The AES Corporation’s purchase of Nevada Power Company’s interest in the Mohave Generating Station, would be unconstitutional under the contracts clauses of the constitutions of both the United States and the state of Nevada.  He said if the proposed legislation were enacted prior to the closing of the sale, as per the terms of the present agreement, it would prevent that transaction from occurring and would substantially impair all rights and obligations under that agreement.  Mr. Franson said that occurrence would be both unnecessary and unreasonable.

 

Mr. Franson suggested a remedy to prevent the proposed legislation from causing a constitutional dilemma.  He said if subsection 1, paragraph (c), subparagraph (3) of section 3 of S.B. 253 were deleted, the problem of unconstitutionality would be solved.  Removal of that section of the bill, he suggested, would ensure that other proposed sales of power generation would not be adversely affected.  The specific language he proposed deleting was the section that stated “The electric utility fully performed the promise, covenant or obligation to sell, lease, assign, transfer or divest the interest before the effective date of this act.”  He said that language is in subsection 1, paragraph (c), subparagraph (3) of section 3 of S.B. 253.

 

Continuing his testimony, Mr. Franson suggested that another important consideration was the installation of emissions control equipment at the Mohave Generating Station.  Installation of pollution control equipment was mandated by the consent decree entered into by the participants at the station as a result of a lawsuit brought against the plant.  The total estimated cost of installing emission control devices was approximately $350 million, and is to be completed by 2005, with no other alternative available other than shutting the facility down if the conditions were not met.  Mr. Franson also mentioned the need to secure long-term fuel supplies for the Mohave Generating Station.  That process is ongoing; however, the process is on hold until the sale of the Mohave Generating Station is completed, he said. 

 

Another major concern, Mr. Franson noted, is the pipeline that supplies coal to Mohave Generating Station which has been patched but remains in disrepair.  He said it was possible that replacing the pipeline today was more cost-effective than continuing to patch the pipeline.  Also, there is a water dispute between The AES Corporation and the Hopi Indian Tribe.  Water is presently supplied to the site by pumping water from underground aquifers, a practice to which the Hopis object.  A possible solution, Mr. Franson suggested, would be to pipe water from Lake Powell to the reservation for shared use by both the tribe and the facility.

 

Mr. Franson continued his testimony on S.B. 253 by explaining how the sale of the Mohave Generating Station benefited AES Mohave Limited Liability Company.  For one thing, he said, the sale would generate approximately      $133 million in revenues for Nevada Power Company.  Another benefit was that AES Mohave Limited Liability Company held a 2-year transitional power purchase agreement in which they were contracted to supply energy to Nevada Power Company at 1998 market prices delivered at a minimum of $22.65 per megawatt hour and a maximum of $33.49 per megawatt hour.  Also, he said, there is an existing lawsuit between Mohave Generating Station and Peabody Western Coal Company concerning two issues.  One issue concerns employee benefits and the other concerns post mine-closing reclamation costs.  Lastly, concluded Mr. Franson, AES Mohave Limited Liability Company was committed to long-term operations at the Mohave Generating Station and intended to eventually purchase the shares held by Southern California Edison in the Mohave facility, the sale of which has been blocked by legislation.  AES Mohave Limited Liability Company hoped to be the sole operator of the facility, for the life of the facility, as soon as possible, he said.

 

Mr. Pitlock said there were unique characteristics pertaining to the Mohave facility due to both the cost of the station and the legal considerations surrounding the facility because of its position in the approval process relative to other transactions. 

 

 

Senator Amodei asked Mr. Franson what his profession was and what title he held with the company.  Mr. Franson said he was an engineer and currently had no specific title, but in time he anticipated becoming president of AES Mohave Limited Liability Company.  Senator Amodei asked if the California portion of the generating station had received the same governmental and regulatory agency approvals as the Nevada plant.  Mr. Franson said all the same approvals were received except for the approval of the California Public Utilities Commission.  Senator Schneider asked if the sale of the facility had been halted, to which   Mr. Franson answered legislation in California had blocked the sale until 2006.  The asset sale agreement with Southern California Edison, he added, was still in effect with both parties reserving the right to terminate the arrangement with a 30-day notice.  Mr. Franson noted that Southern California Edison would remain the operating agent of Mohave Generating Station regardless of whether the sale was finalized or not.

 

Chairman Townsend asked staff member Kevin C. Powers, Committee Counsel, if he would comment on the constitutional arguments relative to the issue.  Mr. Powers stated the thrust of the argument stated that a substantial impairment existed between the proposed legislation and the AES Mohave contract; however, the contract clauses stated substantial impairment was insufficient reason to render the law unconstitutional if the state is not part of the contract, which, in this case, it is not.  Mr. Powers said the current contract is between private parties.  Also, he added, as long the state of Nevada furthered a reasonable and substantial state interest in the sale, the substantial impairment of the contract did not violate the contract clause.  The rule is that usually courts defer to legislative judgment regarding what is considered a reasonable and substantial interest.  Protecting Nevada consumers, and given the situation in the western electric market, there was a reasonable and substantial interest in not having a generation asset sold, Mr. Powers said.  Therefore, even with a substantial impairment, there still exists a legitimate and reasonable legislative purpose that would make this a valid law under the contract clause. 

 

Senator Amodei asked Mr. Powers if, aside from the constitutional issue, he had any opinion regarding what, if any, potential damage exposure either entity may be subject to if the contract was to be thrown out.  Mr. Powers said, from the prospective of the State of Nevada, parties to the contract could make allegations that the law resulted in a taking under the Fifth Amendment to the United States Constitution, which requires compensation by the state.  However, he noted, case law indicates in those circumstances, a taking of property could not be found to exist.  Senator Amodei asked if this issue went to litigation if it would be heard in a federal court or a state court, to which   Mr. Powers said he suspected the matter would be heard in a federal court.

 

Senator O'Connell said considering that the Mohave Generating Station was   30 years old, what expectations for the future did Mr. Franson hope to see after the refurbishment of the facility had taken place.  Mr. Franson said he expected the life of the facility would end sometime around 2025 to 2027, depending on fuel supply factors, the lifespan of the equipment, changing technology, water supply issues, and other variables which would determine the longevity of the facility. 

 

Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority (SNWA), pointed out the relationship between power and water could not be overstated.  He said SNWA supported S.B. 253 because, given the shortage of power in the west, until there is an adequate supply of power, it is important to retain state versus federal control wherever and whenever possible over generation assets located in Nevada or owned and operated by utility companies.  The legislation as drafted effectuates that goal, Mr. Schmidt stated, and therefore is beneficial to Nevada.  He emphasized the importance of peak loads in the southern part of the state in the range of approximately 4600 megawatts, of which 2000 megawatts are owned in some capacity by Nevada Power Company.  Long-term contracts can also give Nevada certain rights from other resources located in southern Nevada which include cogeneration facilities that total 305 megawatts.  The total of all the long-term contracts is less than 600 megawatts.  Mr. Schmidt explained that when long-term contracts are totaled with Nevada Power Company’s 2000 megawatts, southern Nevada is still substantially short of the peak requirements needed for summer months, both for this summer and future summers.  He said in consideration of the facts presented, SNWA was concerned southern Nevada would experience grave power shortages.          

 

Mr. Schmidt said the additional issues of maintenance and operation of the plants had not yet been addressed.  He said when Nevada Power Company controls and operates power-generating plants, they also control when outages are scheduled and when maintenance is performed.  When the facilities are controlled by a variety of entities, these determinations would be made in a different manner.  It is important, he said, to remember these issues would affect the reliability of the power supply in California through next winter.  The present power situation in southern Nevada should be the critical judgment used in evaluating the proposed legislation versus price.  It is important that at this time, when the country is facing an energy crisis, Nevada needs to act as a whole with one voice.  He pointed out it is the role of the Legislature to set law, not the PUCN.  Mr. Schmidt reminded the committee that the PUCN had previously taken certain actions, and it was up to the Legislature to evaluate if those actions were appropriate then and if those actions are appropriate today.

 

Although Mr. Schmidt stated his group supported S.B. 253, he supported several minor changes to the measure.  The first change was to correct the time frames suggested for the delay of divesture which he suggested should be changed from 2003 to 2006.  Also, section 5, subsection 2, which exempted hydroelectric facilities of not more than 3 megawatts, was necessary language because those facilities did not interfere with the pending sale of the water division of Sierra Pacific Power Company to the newly formed Truckee Meadows Water Authority (TMWA). 

 

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, presented the committee with his prepared suggestions for proposed changes to S.B. 253 (Exhibit F).  Mr. Hay suggested deleting subsection 1, paragraph (b) of section 3 on page 1 of the proposed legislation.  He said the change was beneficial because there may be a circumstance in the future in which a contract would be executed to sell, lease-assign, or transfer generation assets.  Another reason for the language change, Mr. Hay expounded, is because in the future there may be a situation in which the company might want to enter into a contractual agreement with a potential purchaser who may want to execute an option to acquire a generating facility at a point when the public policy of the state would allow such an arrangement to occur.  Mr. Hay also recommended striking the phrase “is located within this state” from page 2, section 5, subsection 1, paragraph (b) of S.B. 253, because that language may interfere with future business transactions.  He explained the change was proposed because two of the major generating facilities in which Nevada Power Company owns an interest (Mohave and Navajo) are physically located outside Nevada but are subject to the regulatory authority of the PUCN.  The agency has clearly made it known that it prefers an all-or-nothing approach regarding generating assets because it wants to either retain control of all of them or dispose of all of them rather than piecemeal divestiture transactions.

 

 

Senator O'Connell asked Mr. Hay to comment on Mr. Schmidt’s testimony pertaining to solving the supply issue, particularly if another recommendation was available.  Mr. Hay stated it was better not to separate certain assets for different treatment, particularly because the Harry Allen site could be expanded to a 500-megawatt facility to enhance supplies.  He said a transaction could be bifurcated in which Nevada Power Company would retain ownership interest in the existing generating facility, yet sell the development rights of the remainder of the site to a purchaser who wanted to expand capacity on that site, in order to protect the intent of the proposed legislation by not allowing the divestiture of a fairly small unit to go forward.  It would be more beneficial, Mr. Hay continued, to leave the door open for a business transaction that would allow a new supplier to develop the site and enhance supplies. 

 

Mr. Hay pointed out section 6, subsection 1, paragraph (c), created an ambiguity with section 2 because it was advantageous for an entity with the legal ability to acquire power for sale, either by contract or through direct generation, to maintain that option.  He clarified his point by noting that an agency or instrumentality of the State of Nevada may or may not be considered a political subdivision of a governmental structure.  Mr. Hay said it was apparent to him that an entity such as the Colorado River Commission (CRC), which is an agency or instrumentality of the State of Nevada, would be exempted from the proposed legislation. 

 

Chairman Townsend called upon Mr. Powers to comment on Mr. Hay’s testimony.  Mr. Powers said typically a political subdivision is not an agency or instrumentality of the State of Nevada.  In S.B. 253, he said, the term “person” does not include the State of Nevada, an agency, or an instrumentality of the State of Nevada; therefore, a political subdivision of the State of Nevada would be included in the definition of “person.”  Mr. Powers concluded by stating the current language of the bill (subsection 2 of section 6) excluded a political subdivision.  In this context, a political subdivision was a person, and therefore an electric utility could not dispose of a generation asset to a political subdivision of the State of Nevada or any other state.  Chairman Townsend asked if the current language of subsection 2 of section 6 was not changed and the term did not include the State of Nevada or an instrumentality of the State of Nevada, could a state agency or instrumentality purchase generating assets.  Mr. Hay responded in the affirmative.  Chairman Townsend added the CRC was defined as an agency of the State of Nevada because it was a statutory entity.  Mr. Hay said he agreed with Chairman Townsend.

Mr. Hay stated he concurred with Mr. Schmidt’s suggestion that the appropriate time frame should be changed from January 1, 2003 to January 1, 2006.  He also proposed entirely deleting the language on page 3 from line 33 of subsection 4 through line 7 on page 4 because it was highly unlikely that in the interim 18 months between legislative sessions the Governor would establish a date for customers to begin obtaining competitive electric services.  If the language remained in the bill, he continued, it could trigger the beginning of divestiture which was not appropriate at this time nor was it the intent of     S.B. 253.  Mr. Hay said the penalty provision contained in subsection 6 of section 7 should be retained, but provisions dealing with the commencement of divestiture should not be included in the current legislation.

 

Senator Carlton asked for clarification from Mr. Hay as to the estimated amount of savings the people of the state should expect if divestiture was halted.      Mr. Hay responded the estimated range of savings would be approximately $900 million to $1.7 billion over a 5-year period if the state retained control and ownership of electric generating plants. 

 

Chairman Townsend asked if the estimated savings were predicated on the fluctuation of fuel prices, to which Mr. Hay responded in the affirmative, adding the figures he quoted were conservative estimations.  The Chairman then stated that the state of California recently signed 10-year contracts for 8900 megawatts of power at approximately $70 to $75 per megawatt.  Mr. Hay agreed and commented the peak load in California in summer is between 46,000 and 47,000 megawatts.  Chairman Townsend asked if it was Mr. Hay’s office that requested the PUCN review power purchasing sales and suspend them if necessary.   Mr. Hay stated that was correct and added his office filed a petition with PUCN on January 24, 2001, requesting a moratorium on the existing transactions be imposed and that the PUCN reconsider public policy which allowed the merger of Nevada Power Company and Sierra Pacific Power Company because public policy regarding divestiture transactions needed to be reconsidered in order to better serve the needs of the state.

 

Mr. Powers informed the committee it would be advantageous to consider the language recommended by Mr. Hay regarding the provision that would allow the Governor to make a declaration stating Nevada was ready to accept competition in the power industry.  Mr. Powers said his opinion was based on the premise the Governor would not make such a declaration during the moratorium on divestiture.  Mr. Powers further stated the proper method for drafting statutory language was to prepare language for every possible contingency.  Therefore, the provisions of S.B. 253, which dealt with divestiture after the Governor made such a declaration, were a way to reconcile the contingency.  Mr. Powers recommended addressing the contingency issue during the current restructuring act to ensure that during the period of divestiture, if competition did not begin, provisions would already be in place to handle the situation.  

 

Chairman Townsend said there were two important issues which needed to be addressed as soon as possible.  The first question, he said, was if there were any flexible conditions that should be considered regarding the sale of assets.  The Chairman said the second question was what entity would be responsible for securing the long-term contracts for the state of Nevada. 

 

Kirby Lampley, Policy Analyst, Public Utilities Commission of Nevada, said the language in section 3, subsection 1, subparagraph (1) of S.B. 253 needed to be clarified to state that power generating companies would be allowed to continue to sell surplus power.  Mr. Kirby asked if section 3, subsection 1, paragraph (2) of the proposed legislation would negate Nevada Revised Statutes (NRS) 704.976, which pertains to the transfer of generation assets.  Mr. Powers explained those sections of the proposed legislation referred to the ability of the PUCN to retain its authority to approve mergers or other changes regarding control of the generation assets.  Once those transactions were complete, Mr. Powers continued, the entity that assumes control of the generation assets remains subject to the specific restrictions relative to the disposal of those generation assets.  The bill would allow an overall change in ownership of the generation assets through a transfer certificate for the convenience of public necessity or through a merger with another entity which would continue to provide service to the public.

 

Senator O'Connell asked if the proposed legislation needed to include language specifying it only applied to plants owned by companies in the state of Nevada.  Mr. Powers stated the legislation was as constitutionally conservative as possible.  He said the measure could be amended to remove the provision specifying the conditions only applied to power plants located within the state.  Such an amendment would serve to expand the constitutional challenges of the bill because it was possible that it would not withstand constitutional scrutiny.

 

Senator Amodei asked what percentage of the power generated in Nevada is supplied by the Mohave Generating Station.  Mr. Lampley responded that figure was approximately 10 percent, which amounted to approximately 500 megawatts.  Vice Chairman O’Connell asked what percentage of the total power produced in Nevada came from the Navajo Generating Station.  Mr. Ponn of Sierra Pacific Power Company stated that was approximately 11 percent.

 

Mr. Lampley, continuing the discussion of S.B. 253, stated section 5, subsection (2), paragraph (a) pertained to hydroelectric plants.  He said the total capacity of the hydroelectric plants owned by Sierra Pacific Power Company produced approximately 4 megawatts of power.  Therefore, if a maximum standard of 3 megawatts was to be used to define the term “generation asset,” Mr. Lampley suggested changing that number to 4 megawatts.  Mr. Lampley also suggested changing the date in section 7, subsection 2, to July 1, 2005, for an electric utility to begin the application process of applying to the commission for approval to dispose of generation assets.  Mr. Powers explained it was not advantageous to restrict the property rights of the utilities by extending the moratorium past a reasonable amount of time.   

 

Alfredo Alonso, Lobbyist, Nevada Resort Association, commented that his group agreed the removal of section 7, subsection 4 was beneficial because including that provision could trigger divestiture prematurely.

 

Vice Chairman O'Connell asked if there was any further business before the committee and there was none.  The hearing was adjourned at 10:02 a.m.    

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Sharon T. Spencer,

Committee Secretary

APPROVED BY:

 

 

 

                       

Senator Randolph J. Townsend, Chairman

 

DATE: