MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
March 8, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:04 a.m., on Thursday, March 8, 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:
Kevin C. Powers, Senior Deputy Legislative Counsel
Scott Young, Committee Policy Analyst
Gayle Nadeau, Committee Secretary
OTHERS PRESENT:
Paula Berkley, Lobbyist, Chiropractic Physicians’ Board of Nevada
Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry
Scott M. Craigie, Lobbyist, Pinnacle West, and Farmers Insurance Group
Samuel Sorich, Lobbyist, National Association of Independent Insurers
Robert A. Ostrovsky, Lobbyist, Nevada Resort Association
Roger Bremner, Administrator, Division of Industrial Relations, Department of Business and Industry
Raymond Badger, Jr., Concerned Citizen
Douglas R. Ponn, Lobbyist, Nevada Power Company, and Sierra Pacific Power Company
Ajoy K. Banerjee, Ph.D., P.E., Vice President, Pinnacle West Energy
Martin L. Schultz, Vice President, Government Affairs, Pinnacle West Capital Corporation
Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority
Pete G. Ernaut, Lobbyist, Reliant Energy, and WPS Power Development Incorporated
Renny Ashleman, Lobbyist, Mirant Americas Incorporated
David J. Slawson, Chairman, Chief Executive Officer, Stirling Energy Systems, Incorporated
Senator Townsend stated:
For those of you who have not had the opportunity, Mr. Young [Scott Young, Committee Policy Analyst], per my request, put together a new [work session] document (Exhibit C). I would hope you would have a chance to take a look at it relative to Senate Bill (S.B.) 253. In the meantime, committee, if you will go to your work document, let us deal with Assembly Bill (A.B.) 32.
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)
ASSEMBLY BILL 32: Revises provisions regarding practice of chiropractic. (BDR 54-167)
Senator O’Connell asked, “Mr. Chairman, would you like to give Paula [Paula Berkley] the opportunity of saying who she is on the record before I make a motion?”
Senator Townsend responded, “Sure.”
Paula Berkley, Lobbyist, Chiropractic Physicians’ Board of Nevada, introduced herself.
SENATOR O’CONNELL MOVED TO DO PASS A.B. 32.
SENATOR SCHNEIDER SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Townsend introduced Senate Bill 4.
SENATE BILL 4: Makes various changes regarding insurance. (BDR 57-734)
Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, testified:
You have before you in the work session document (Exhibit C) a proposed amendment to S.B. 4. The Division of Insurance staff and members of the industry met last week to work out the proposed amendment. We believe it offers the ability to the insurers to get to the marketplace quickly and, at the same time, preserve the ability of the commissioner to protect the interest of the consumers. The amendment establishes what is a flexible method of submitting rates.
I believe there is an error in section 2, subsection 2, paragraph (a) of the proposed amendment, which should read “ . . . or . . . “ at the end. The goal is to allow insurers to file rate changes where the amount does not change on the statewide average by more than 7 percent in any one year without having to obtain prior approval to those rates. If the rate average exceeds 7 percent, the prior approval method would remain.
The amendment also allows the commissioner to review even those [rate changes] that have been submitted that may be used immediately by the insurers. That way we can still test the rates to make certain they are fair and reasonable for the public.
Senator Carlton asked, “Is section (b) [paragraph (b)] under 2, basically zero rate increase, as I learned last session? Is that the basis of this?”
Ms. Molasky-Arman replied, “I am not certain I understand the question.”
Senator Carlton responded, “It means the rates do not go up, but in one particular geographical area the rates could go up 7 percent, and someplace else they would go down 7 percent; therefore, there would be a zero average.”
Ms. Molasky-Arman answered, “Yes, that would fall into this category.”
Scott M. Craigie, Lobbyist, Pinnacle West and Farmers Insurance Group, testified:
The rate design could be that some people would have higher rates, some people would have less of an increase, and some people might actually experience a reduction, depending on what the actual costs are for that category. On average the rates can go up as much as 7 percent total, or on average they could go down as much as 7 percent. However, you could not go more than a 7 percent increase or decrease on the total premium or you would have to use the preapproved system. There will be differences among some customer groups, but this does not require that it be at zero to go into effect. It allows up to a 7 percent average increase overall.
Senator Carlton said:
So, Mr. Craigie, someone’s rates could go up 7 percent, and someone else’s rates could be readjusted. Basically, across the state, this will be the average. Insurance rates, in some cases, insofar as automobile and homeowner’s insurance, are based on zip codes and geographical zones. Correct?
Ms. Molaski-Arman responded, “Yes, that is correct.”
Mr. Craigie testified:
One of the reasons this change is being made is in the original bill the commissioner was not receiving any of the backup documentation so that she could review what happens on a case-by-case basis. One of the key issues raised in the workshop was effective redlining, by setting rates in a certain area above cost in order to prevent people from writing in that region. It was a persuasive argument and the reason we brought this here. In this case, all of that documentation has to be filed, with the application that is submitted, to the insurance commissioner. She has the full ability, without having to ask for more data or anything, to review and see if there are those patterns. She has the ability she always had to rule on those issues and require and/or order changes and protect consumers. Unlike the earlier version of this bill, she now has all the materials and tools needed to do a full analysis, and the full ability to make any ruling that is required.
Senator Carlton stated:
Thank you, Mr. Craigie, but this bill also means the review happens after the rates are put into effect. I believe the commissioner has those options right now before the rates are put into effect to make sure our constituents are not taken advantage of, and if this is done after the fact then our constituents could possibly be taken advantage of and then find out later. I believe the way it is done now protecting the citizens is a better way to do it. She has all those abilities right now.
Mr. Craigie:
Mr. Chairman, if I may, and I am not trying to be argumentative . . . you are correct, but at the same time, you heard previous testimony that there are times when in certain areas costs for certain large customer groups actually go down because of the onerous nature of the process we go through on a preapproval basis, not necessarily long term, but the uncertainty. People are afraid to reduce the rates because they are afraid they will not have the ability to come back and bring them back up when costs go up. So, for many customer groups, having some easier system of filing and making rate changes so it works a little quicker and responds to the market more quickly, we truly believe it is beneficial to all customer groups. The insurance commissioner does and it is used in many other states. Actually, it is the belief, and Mr. Sorich can speak for himself, of many insurance companies that this kind of a system will encourage more companies to come to Nevada. We do not have as many companies here and we could, and should, given the vibrant marketplace here. That is not all related just to the regulatory insurance system here, there are other factors and this is one of them. We do believe this will bring more people into the state selling insurance and will have insurers moving more immediately with the changes in the cost patterns. So, that is why it is here.
Samuel Sorich, Lobbyist, National Association of Independent Insurers, stated:
This bill does not take away any of the substantive power of the insurance commissioner to declare a rate to be too high, to be unfair, or to be irresponsible on the part of the insurance company. We are not taking any of that power away; it is a case of timing on the moderate band of 7 percent rate change. Within that band it is a case of timing where we are encouraging companies to make a filing that reflects their current view of what the real losses are, but the insurance commissioner retains her authority to step in at any time and say those rates are too high, or those rates are unfair. As Mr. Craigie said, I think this should be a shot in the arm for the insurance marketplace, the personal line’s marketplace, and I think that is good for everyone.
Senator Townsend asked, “Madame Commissioner, did we understand there is a change on the blue sheet, subsection 2, third line, where is says “and” and it needs to be “or?” Is that correct?
Ms. Molaski-Arman responded, “Between [paragraphs] (a) and (b), yes, it should be ‘or’ instead of ‘and.’”
Senator Townsend clarified, “Unless the commissioner is determined that the market is not competitive or if the proposed increase is, etcetera. So one or the other, you still retain the current structure of regulatory authority.”
Ms. Molaski-Arman responded, “That is correct.”
Senator Townsend said, “They must file and then you review before you allow the rates to be implemented.”
Ms. Molaski-Arman requested, “May I add something, Mr. Chairman?”
Senator Townsend responded, “Absolutely.”
Ms. Molaski-Arman added:
I am going to speak about this when you see the division’s bill, alluded to in earlier testimony on S.B. 4. Across the nation there is a great effort to encourage the states to establish what is called “speed to market.” In fact, Mr. Jeppson [James Jeppson, Chief Insurance Assistant, Division of Insurance, Department of Business and Industry] and I were present at a commissioner’s conference a year ago when one association of insurers actually told the commissioners if they did not resolve this problem they were going to seek national licensing of insurers, and national federal regulation of insurers. As a result, the National Association of Insurance Commissioners established what is called a “speed-to-market task force.”
It is my belief the national filing, believed to be possible under this task force, should apply only to certain products, such as life products, where the standards are nationwide, rather than domestic. It is my belief you cannot do this with worker’s compensation or personal lines, such as auto or homeowners. Yet, at the same time, almost every state is looking at how to address this problem to enable insurers to get their products to the market more quickly. I believe this proposed amendment will accomplish that.
I have great fear about the threat of a national insurance federal regulator. In fact, the American Banker’s Associations Insurance Association has already proposed to Congress a national insurance act of 2001, which proposes to establish a federal commissioner whose authority would supercede and preempt that of state commissioners. Therefore, the threat heard a year ago January, is a reality. All the states are working hard to prevent it from happening.
SENATOR SHAFFER MOVED TO AMEND AND DO PASS S.B. 4.
SENATOR O’CONNELL SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR CARLTON VOTED NO.)
*****
Senator Townsend said, “We will now take up Senate Bill (S.B.) 126.”
SENATE BILL 126: Prohibits certain discrimination against employee and prospective employee for filing claim for workers’ compensation. (BDR 53-856)
Senator Carlton stated:
Mr. Ostrovsky proposed this amendment to me, and I have definite concerns with it. The intention of the bill was to codify Hansen v. Harrah’s, 100 Nev. 60, 675 P.2d 394 (1984). I gave the amendment to Legal [Division] [the Legislative Counsel Bureau] and received this opinion. Based on this decision, it can be argued the proposed amendment to S.B. 126 does not carry out the decision rendered in Hansen v. Harrah’s. The proposed amendment requires an employee, who has been discharged for filing a claim for worker’s compensation, to file a complaint with the Division of Industrial Relations of the Department of Business and Industry, setting forth the facts constituting the violation. If the administrator of the division determines a violation has occurred, he is then required to bring an action against the person who committed the violation. In essence, the amendment eliminates the employee’s right to bring an action of tort for retaliatory discharge and requires the employee to comply with administrative procedures, which the Nevada Supreme Court and Hansen v. Harrah’s held were not required. This is the reason I cannot support Mr. Ostrovsky’s amendment.
Robert A. Ostrovsky, Lobbyist, Nevada Resort Association, testified:
The first thing I would like to do is offer Senator Carlton an apology. There apparently was a clear misunderstanding over statements I made in the original hearing. I stated in the original hearing that we supported this right and the concept of Hansen v. Harrah’s. The interpretation problem comes over what the appropriate remedy should be. We still continue to support legislation that would clearly identify that employees should not be terminated for filing a claim. We have a clear difference of opinion of what the remedy should be relative to that.
My remedy is a mirror of the remedy that is available in chapter 618 of NRS, a section of the law dealing with safety and complaints that an employee makes to the Occupational Safety and Health Review Board. If an employee makes a complaint to occupational safety and health of the state, that employee has rights if the employee is terminated for filing the complaint. This procedure mirrors that remedy. Sections 2 through 5 are, in fact, identical to the remedy available to employees under that safety provision. It provides for notice from the employee, both to the employer and the division, that there is a complaint. Assuming the administrator cannot settle the matter, it requires the administrator to investigate and seek a remedy in district court. That remedy is reinstatement and loss of benefits. The advantage of this system is, it is quick, inexpensive, and gets to the remedy very quickly. Clearly it is vastly different than the remedy available under Hansen v. Harrah’s, which leads to punitive damages, back-pay awards, and other kinds of damages that might be related to torts, such as emotional distress.
Mr. Ostrovsky continued:
We think this is the appropriate way to handle matters related to worker’s compensation complaints. We have an administrative system entirely for the settlement of worker’s compensation issues. Clearly this is not a claim issue . . . am I entitled to a benefit, or was I not given some benefit that I otherwise should have received. We recommend this method of addressing the issue. We think it addresses employee terminations that are clearly wrong, and it is a quick and simple way of resolving those. We urge you to accept this amendment. This amendment, by the way, amends the bill as a whole. You will find that it replaces the entire language in S.B. 126. I would be happy to answer any questions.
Senator Schneider asked, “Mr. Ostrovsky, can you tell me how this would work in real life? If an employee feels wronged, how would your amendment help the employee and employer?”
Mr. Ostrovsky responded:
First, a termination action has to be taken. If an employee believes he was terminated and the reason for the termination was that he filed a claim, he would have to do two things. He would come to the Division of Industrial Relations and file a complaint, and it would also require notification to the employer at the same time. The purpose is to encourage employers to review their action immediately and say, look, we have a problem here, and this employee believes they were terminated for this reason. This gives the employer a chance to right that wrong at step one.
I am assuming if the employer does not reinstate the employee and wants to continue, then the complaints have to be within 30 days of the termination, which is vastly different than I think their rights would be under Hansen v. Harrah’s in which they would have much longer to file. Once the administrator got that, the administrator would cause an investigation to be made. If the investigation, to the satisfaction of the division, indicated there was some reason to believe the employee was terminated for that reason, the administrator could take appropriate district court action against the person (that being the employer) and seek lost wages and work benefits. It also only provides 90 days in which to do the review. The division has to respond to the employee’s request within 90 days.
This system is already in place and, from my understanding, it works for these occupational and safety complaints. Although I have not spoken to the administrator of the division, perhaps he can tell us more about how it works internally.
Roger Bremner, Administrator, Division of Industrial Relations, Department of Business and Industry, stated:
Actually, in the Occupational Safety and Health Administration (OSHA) section, it works pretty well when they investigate these complaints. However, this would be a new function insofar as the industrial insurance regulations section goes. It would have an impact. The impact of which I am unable to tell you this morning. It would depend on the volume of complaints and the number of investigations that would have to be done. In addition,if we were finding a lot of district court actions were necessary, it would also entail us to further impose upon our legal section to file those actions. So, I am not quite sure what impact this would have on the industrial insurance regulation section of the division.
Senator Schneider clarified, “Mr. Bremner, the ones you do right now under the other section, those go pretty swiftly. In other words, you work real swiftly and the employees are taken care of better than seeking outside counsel.”
Mr. Bremner responded:
When talking about the OSHA violations, yes, they do move quickly. There is a time limitation and they must make the determination within 30 days and then come up with an answer. So, they move rather quickly when we get a discrimination complaint on the OSHA side of our operation. However, this would be on the worker’s compensation side and would be different. It would be the same type of action, but would be done in a different section, which would be worker’s compensation.
Senator Carlton noted:
It was my understanding this was more of a discrimination case. It was founded in worker’s compensation, but is actually a discrimination case. I believe that was why the Nevada Supreme Court went the way it did saying the employee was being discriminated against; therefore, he did not have to go through the administrative remedy. He could pass “go,” and go straight to the lawyer and talk to them, and then they would decide where to go from there.
Mr. Bremner responded, “Senator Carlton, if you are addressing that to me, I am not here to speak in favor or against the amendment. I am here to try to answer any questions as what impact it would have upon us.”
Senator Schneider asked, “Mr. Bremner, I guess my question is, how responsive is business to you then, the employer, when you come at them with any actions. Have they been cooperative, on the most part?”
Mr. Bremner answered, “Senator, when we go on an OSHA complaint, I have heard no cases where employers have not been cooperative when it comes to an investigation in those areas.”
Mr. Ostrovsky added:
Just a reflection on one of the questions that Senator Schneider asked. Although I do not have the documents in front of me, there was no administrative remedy available under the law when this case was heard, and there is still no administrative remedy under the law, I do not believe. If it was a discrimination case it could have been filed as an equal rights case. Someone would have had to claim they were in some kind of a protected class in addition. I think the court recognized there was no place for employees to go for this remedy. What did not exist in statute, it did not exist in prior case law, and the court, therefore, made the decision we would create a structure to allow these employees to sue. That is exactly what they did in Hansen v. Harrah’s. We are asking you, obviously, to now establish an administrative procedure. I know the senator, in her amendment, will ask you to do such as just the opposite, which will adopt the same theory, you should not terminate employees, but that the remedy should reflect that found in Hansen v. Harrah’s. That really is the essence of the decision that needs to be made.
Senator Carlton clarified:
Mr. Chairman, may I remind you that when I gave the presentation of the bill I stated that was exactly what I was trying to do was to codify Hansen v. Harrah’s. Mr. Ostrovsky agreed with me insofar as codifying Hansen v. Harrah’s, but now it seems that he would like to agree with me but still change part of it. I cannot agree with Mr. Ostrovsky. The purpose of me sitting at that table and presenting this to you was to codify Hansen v. Harrah’s in its whole, not just in its part. If we start dissecting this case we will hurt working people more than we will be helping them.
Senator Townsend said:
Mr. Ostrovsky, if I may, since we are dealing with your amendment first, rather than assume we all know what we are talking about, let us go to the case. I will quote Hansen v. Harrah’s, 100 Nev. 60, 675 P.2d 394 (1984) (Exhibit D).
In view of the foregoing our course is clear. We elect to support the established public policy of this state concerning injured workmen (obviously an old case) and adopt the narrow exception to the at-will employment rule recognizing that retaliatory discharge by an employer stemming from the filing of a workmen’s compensation claim by an injured employee is actionable in tort. Since both the cause of action and the remedy are governed by the laws of torts, there is no basis for administrative relief within the framework of the state industrial insurance system and, hence no need to exhaust purported administrative remedies as suggested by employers.
We are also asked to rule upon the availability of punitive damages in an action for unlawful discharge in retaliation for filing a worker’s compensation claim. We hold that, as with any intentional tort, punitive damages are appropriate in cases where employees can demonstrate malicious, oppressive, or fraudulent conduct on the part of the employers in accordance with NRS 42.010. Indeed, the threat of punitive damages may be the most effective means of deterring conduct, which would frustrate the purpose of our workmen’s compensation laws.
Imposition of punitive damages in the instant cases, however, would be unfair. (There are two cases here; I believe you testified you were part of one.) We have stated that the justification for punitive damages is “to punish the offender and deter others.” Summa Corporation v. Greenspun, 96 Nev. 247, 607 P.2d 569 (1980). It would be unfair to punish employers for conduct that they could not have known beforehand was actionable in this jurisdiction. Using this same reasoning, other courts have likewise held that punitive damages should not be awarded in the case which initially adopts this new cause of action. . . . Therefore, assuming appellants are able to prove their allegations of retaliatory discharge against employers, the latters’ conduct in the instant cases does not justify the imposition of punitive damages. Punitive damages may be, however, appropriately awarded to any such cause of action that arises subsequent to this opinion.
Now, having said that, back to the bill. The bill addresses a laundry list of actions. Those actions talk about a fail or refusal to hire a prospective employee, which has nothing to do with the aforementioned cases.
Senator Carlton stated:
Moving on to the second amendment, that has my name on it, and on which I worked with Crystal McGee [Committee Policy Analyst]. Those are things that have been removed from the legislation to bring it down to Hansen v. Harrah’s. So, those are my proposals.
Senator Townsend:
So you have both agreed to remove the proposals other than the issue at hand in Hansen v. Harrah’s. Now, having said that, explain to me the actual workings because I am a little confused. Mr. Bremner, we know you are the innocent party here, for now, so you may not be able to answer some of these questions. I believe Mr. Ostrovsky, and I do not want to put words in your mouth, you are looking for relief that would provide to the worker an immediate return to work, and if they are injured, go through the normal course of action, back pay. Let me quote from your amendment: “The employee is entitled to reinstatement and reimbursement for lost wages and work benefits.”
Now, the reason I ask this question is I am confused because, on one hand, there is a proposal to have an action in tort which requires the contractual relationship between an employee and a counsel, and you would then go to district court. I am reading here, and this is why I am confused.
After first notifying his employer and the division of his intent to file a complaint, any complaint must be filed with the division 30 days after the violation has occurred, and must set forth in writing the facts constituting the violation.
Number 3: Upon receipt of the complaint by the division, the administrator (Are they referring to you, Mr. Bremner? Thank you, the answer to that was yes.) shall cause such investigation to be made, as he deems appropriate. If upon the investigation the administrator determines the provisions of sub 1 [subsection 1] have been violated, he (meaning, I believe you the administrator) shall bring an action in the name of the administrator in any appropriate district court against the person who has committed a violation.
So, we are still going to court under this provision. Is that correct, Mr. Ostrovsky?
Mr. Ostrovsky responded:
Yes, if the employer does not respond to the administrator’s request to settle the matter, and I am assuming that is how they handle OSHA violations, then the administrator has the right to take it to court. Let me add, and understand, what has become very clear to the committee . . . if you adopt my amendment, it is an administrative remedy. If you adopt the senator’s amendment you codify Hansen v. Harrah’s. If you do nothing, employees still have a right to access the rights granted them by the court in Hansen v. Harrah’s, but it would not be in the statute. They would not give up that right. Inaction here would leave it on the books.
Senator Townsend said:
An administrative remedy is one that, in my interpretation, should be quick, efficient, and if it is ruled in favor of the employee, return their benefits and all their rights to them immediately. The employer would still have the right to appeal that to a court of competent jurisdiction. This seems to put an affirmative position for the employer who has to go to court anyway. That is troublesome to me. If they are going to go to court anyway, then why would we take away the opportunity that was afforded to them in Hansen v. Harrah’s. This committee worked for 10 years on benefit penalties trying to get money immediately in the hands of an employee without having to go to court. This would be a departure for this committee if we chose not to go with the court case and its remedy, which was in tort. This new proposal appears to be a departure from what we did over the last 10 years on administrative remedies. Could you help me with that, please?
Mr. Ostrovsky responded:
There is an alternative amendment that I did not propose today, which is one that would amend NRS 616D.120, which is the penalty section of the statute related to benefit penalties, and led to the withdrawal, for example, of a certificate of insurance or a self-insurance certificate. I looked at NRS 616D.120 and had a little trouble fitting this in. You could add retaliatory discharge but, unfortunately, NRS 616D.120 does not ever get back to the employer. It talks about insurers, it talks about providers of health care, and it talks about TPAs [third-party administrators]. It does not reach out and you would have to modify it substantially, which is possible to do. I am not saying it is impossible to do. To bring in employers for the purpose . . . for retaliatory discharge . . . and then lead on to what would be a benefit penalty in your right center, if once the division determined such penalty is due the employer . . . is obligated to pay it and/or take their action in district court to set aside the decision of the division. It is an opposite view of things and, I grant you, I ran to this statute because I knew it worked. Because it was working and administered by the same division, I thought it would be easy for them because they have a familiar system and structure to deal with. There is that alternative which was not proposed here today, but certainly could be drafted.
Senator Carlton commented, “Mr. Chairman, thank you, you spoke that very eloquently.”
Senator Townsend stated:
I appreciate that. I want to get back to that because you now brought up the issue of benefit penalty. There might be more sympathy to an administrative relief were the burden on the employer to show why they did this as non-retaliatory, as opposed to the employee who must now go to the administrator, the administrator has to find cause that this was retaliatory, and then the administrator has to go to court. I am not disagreeing with you on how it is done relative to OSHA activity, but this seems awfully cumbersome for the average employee to deal with.
Mr. Bremner has now stated that he is not sure what impact it would have on his agency to perform this activity. All of us have been around here long enough to know what that means. We respect that because we cannot ask people to do what is not physically responsible. There are only so many hours in the day for them to do their job. I am having a hard time seeing that there is a fairness to this when the only thing they get back if they win is their lost wages and work benefits. That is all they get after going through an investigation, and Mr. Bremner’s division has to then go to court. If they have to go court, they may as well sue you in tort. I am trying to get my arms around how to make this functionally beneficial to the person who was terminated as a retaliatory action for filing a worker’s compensation claim.
I am not arguing with you, because all of us here respect you and your knowledge of the working area. I just do not know how this makes it functionally appropriate for the benefits they are going to receive if they win.
Mr. Ostrovsky said:
Mr. Chairman, if it was the committee’s wish to be able to review an amendment like that, I would be happy to prepare it in consultation with staff. Understand, of course, that the DIR (the Division of Industrial Relations) never escapes, whether they do it here or under the provisions of chapter 120 of NRS, they are, in fact, going to have to do the investigation. We can look at NRS 616D.120 if you like, and the committee can decide, I suppose, to set this aside until they have an opportunity to see that as an alternative; or at the request of Senator Carlton, I suppose you could ask to move this bill as a whole with one of these options already in it. If it is the committee’s desire, I would do that.
I would also like to comment that when you read this statement from the case, it is clear the court had to set aside two items in doing it. They had to set aside the exclusive remedy provision of worker’s compensation and say, this is beyond exclusive remedy, because there was nothing in the statute that they could point to and it was beyond the at-will doctrine. Because that doctrine existed in court, they said we have to set aside that doctrine in this case. So, clearly the court set aside two well-known doctrines to get to this decision. I am asking you to go back to a situation where the remedy is set. I encourage you to do that and if the committee desires to look at that alternative, I would be happy to prepare it. I do not believe, however, and I think the senator can speak for herself, that it would satisfy the needs of Senator Carlton at this point.
Senator Townsend stated:
It is important for the committee to understand all of the ramifications. If we believe the two cases before us establish the right public policy relative to retaliatory dismissal, and so far I have not heard anybody disagree with that, as a public policy that is so well stated in this case, then it is a debate among the committee members on how best to not just get someone employed and get back their benefits, it is to send a message that is what the law is and we do not do that. You better have a legitimate, documentable, defensible reason for termination after someone filed a worker’s compensation claim. I do not know what that would be, but the burden would be on the employer. We are just trying to get our arms around that. If we may, let us go to Senator Carlton’s amendment so that . . . and I am not going to put her in a tough position, because, like myself, she is also not an attorney . . . so the people here might be able to give us some insight.
On your pink sheet, the last sentence says, “May recover punitive damages for emotional distress.” Now, in the case it said specifically that punitive damages would not be awarded because there was not a policy in place for them to have been punitive about and, therefore, they would not allow it in this case. To quote again, “Punitive damages may be, however, appropriately awarded for any such cause of action that arises subsequent to this opinion.” They are saying in the future, obviously, you will be able to do that.
The emotional distress portion of this, Senator, is the one I want to get to. This committee has already, at least twice in the 18-19 plus years I have been here, made a determination that stress is not compensable. I know this is outside the single-remedy theory, and outside the right-to-work, hire-at-will, fire-at-will doctrines of the state; but do you believe this would open up worker’s compensation to stress claims in any way, shape, or form?
Senator Carlton responded:
Mr. Chairman, no, I do not believe so. It is my intention that this would only apply to the retaliatory discharge and what an employee has to go through insofar as filing a case against retaliatory discharge. I am not looking at this as changing all the hard work and effort this committee has put forth over many years before I was honored to sit in this seat, insofar as worker’s compensation goes. That is not my intention. I cannot speak for everyone in the room, or everyone who files a worker’s compensation case. I am simply focused on Hansen v. Harrah’s and the other appropriate cases at this moment. I know there are other people in this room who probably have a different opinion of that, and I would welcome their views.
Raymond Badger, Jr., Concerned Citizen, testified:
The last sentence is confusing. In a normal wrongful termination court case, not worker’s compensation, a worker with a jury is told they can award damages for lost wages, as well as emotional distress to the plaintiff if they think that person has suffered emotional distress as a result of the termination. In addition to that, the court can tell the jury they can award punitive damages. So, these are two separate items that, in this sentence, got combined. They are apples and oranges. They are in tort cases and do not apply to worker’s compensation. This would apply if you maintained the civil action for wrongful termination, and then it should be, I believe, both damages recoverable. They are separate items. Therefore, that sentence should say, “May recover emotional distress damages and punitive damages when the judge deems it appropriate.”
Senator Townsend said:
I will read again from the case on page 65: Indeed the threat of punitive damages may be the most effective means of deterring conduct which would frustrate the purpose of our workman’s compensation laws. Imposition of punitive damages in the instant case, however, would be unfair. We have stated that the justification for punitive damages is to “punish the offender and deter others.”
What they are saying is that punitive damages, in this case, is to punish the offender and deter others, it does not speak about emotional distress.
Mr. Badger responded:
Agreed, it is not in the case. We just suggested in our testimony the other day that is a traditional damage in a wrongful termination civil action.
If I may address the administrative remedy. I represented Mr. Hansen and have not taken a case since then because I think it is that hard to prove. However, to an employer, the actual threat if someone takes a case, and they are doing it and it can be shown, is punitive damage, and an administrative remedy is not a threat. Since we have benefit penalties we have a lot of new insurance companies in the state. As a worker’s-compensation lawyer, what I am told on the phone is we cannot be sued for bad faith. Go to court all you want. There is no threat of punishment to that bad actor in administrative remedy, no matter how good Mr. Bremner’s agency does their job. I do not think this should be administrative. There is no message to the few employers who are going to continue to do this conduct even though it is against Nevada law.
Senator Townsend said, “Okay, then let me do this, let us go over the basics. If we do not pass any bill, Hansen v. Harrah’s is the rule of the land. Is that correct?”
Mr. Badger answered, “Correct.”
Senator Townsend stated:
Okay. Mr. Ostrovsky’s proposal codifies the case but changes the remedy to an administrative one with benefits and compensation being restored. Senator Carlton’s narrows it to the case of Hansen v. Harrah’s, but retains the original punitive damage remedy. Those are our options.
Mr. Badger commented, “Forgetting what Roger’s [Mr. Bremner’s] agency feels, I do not think an administrative remedy sends out the message.”
Senator Townsend responded, “I understand. I am just getting a clarification on what all the options are for the committee.”
Mr. Badger responded:
In a civil case, a person has 2 years to file a lawsuit. This is 30 days. How is the average person going to know in 30 days that this right exists? I do not think, when they get fired, they will get a notice that if you think we did it for a wrong reason you ought to file this thing in 30 days.
Senator Townsend said, “Two years seems to be an awfully long time. If you are terminated you should find out what your rights are, shouldn’t you, somehow? Two years is forever.”
Mr. Badger responded, “I would hope people do that. In a wrongful termination it is the same as we have for a motor vehicle case in Nevada. If you hit me in a rear-end car accident, I have up to 2 years to file a court case.”
Senator Townsend said:
All right, committee, my suggestion would be, since neither one of these amendments seem to be as clear as they could be, perhaps the two parties could clean them up. Senator Carlton, the issue there with the last sentence, if you could just clean it up and maintain the purpose of your position.
Senator Carlton replied, “I would be more than happy to, Mr. Chairman.”
Senator Townsend stated:
Mr. Ostrovsky, however you want to phrase yours, or stay with your same position in terms of the remedy, or the type of remedy, is your business. I just worry you are still going to court. If there is some way that would be cleaner, quicker, and more effective for the employee, if it is an administrative remedy it might be more helpful to them. I will leave it in your hands.
Mr. Ostrovsky responded:
I will take heed to the chairman’s comments and give you a clear explanation also. I believe this is subject to judicial review so they would be reviewing the record created by the DIR [Division of Industrial Relations], not necessarily hearing the facts. I think we need to clear that up and I understand the chairman’s request. I will try to do that speedily so this matter can be resolved quickly. I promise you that I will maintain a continued relationship with Senator Carlton and make sure she sees my amendments. Perhaps we will never agree, but I will pass that along.
Senator Carlton commended, “You just blew the one time, Bob [Mr. Ostrovsky]. You blew it.”
Senator Townsend stated, “Let us go to Senator Care’s bill, S.B. 53.”
SENATE BILL 53: Repeals provisions establishing criminal penalties for certain acts in derogation of bank. (BDR 55-639)
Senator O’Connell declared, “Mr. Chairman, I need to declare that my husband is the chairman of a bank. After making that disclosure, I would like to move that we do pass S.B. 53.”
SENATOR O’CONNELL MOVED TO DO PASS S.B. 53.
SENATOR CARLTON SECONDED THE MOTION.
Senator Townsend stated, “Under discussion. I will also declare for the record that I sit on a bank board, and I am a shareholder in a bank. Senator Schneider makes the same disclosure.”
Senator Carlton disclosed:
Senator Carlton has to make the disclosure that I made earlier that the organization I am part of was party to the litigation that this legislation was based on.
THE MOTION CARRIED UNANIMOUSLY.
*****
Senator Townsend noted, “Senator Schneider has a handout (Exhibit E) on his bill, Senate Bill 153.”
SENATE BILL 153: Provides for examinations for licensure as cosmetologist to be offered in languages other than English. (BDR 54-855)
Senator Schneider stated:
Thank you, Mr. Chairman. Senate Bill 153 is in regard to the licensure of cosmetologists and that they offer the testing in English. I brought this bill forward, Mr. Chairman, because I went and talked to the cosmetology board after a constituent of mine approached me about the situation in Las Vegas. The cosmetology board told me it was unconstitutional for them to offer the test in any other language but English, and so that is why I brought this forward. I do not feel it is unconstitutional.
What I brought forward today, Mr. Chairman, and what I showed you yesterday evening, are some comments we are getting from people around the state. Also a letter that was sent out by the cosmetology board just recently, basically attacking this legislation. [The documents are encompassed in Exhibit E.] I find it almost appalling that a board that is supposedly put in place by this legislative body to protect the public is refusing to take action to protect the public in any way regarding this topic. I think the members of this committee can read some of these letters and what appears to be intimidation. They are using intimidation and threats to minority members of our community. In working with you, Mr. Chairman, also you have met with the university people who said they would help with interpreting to lower the cost to the board of putting forth these exams. I think the right thing to do here, for the 300,000-plus Hispanic residents of this state, is to move forward with this and make a real clear statement to the board of cosmetology that, hopefully, they will get their act together and help better our community, and protect our community.
With that I would like to move do pass on S.B. 153 and perhaps get a statement from you, Mr. Chairman, as to what the university has said they are willing to do to help defer some of the cost.
SENATOR SCHNEIDER MOVED TO DO PASS S.B. 153.
SENATOR O’CONNELL SECONDED THE MOTION
Senator Townsend said:
When the testimony came forward regarding the concerns by the board, it was painfully obvious to many of us that there was resolution here with just a few phone calls. I want to thank Assemblywoman Leslie who, by the way, is an interpreter and fluent in Spanish. When I approached her on ways to resolve this, a mutual friend of ours heads up the language department at the University of Nevada, Reno (UNR) and when contacted, Dr. Sepulveda said she teaches a class in which they do translations as a requirement. They would be more than glad to translate this for us at little or no cost.
I then contacted Senator Rawson, because of his relationship to the church, and found out that so many members of that church who come back from their missions are fluent in some of the more unique languages around the world. They would be more than willing, as a community service, to provide interpretive services for anyone who, under this bill, would need those services to take this test. I think it shows strength of character in our community that we are willing to reach out and provide those things. I was heartened by both those acts.
I have looked at the bill and it gives the board plenty of time to be notified in order to obtain an interpreter. We can get this translated, probably, before the end of the session, and in no way did the sponsor of the bill, or any member of this committee, allude to lowering the safety and health standards whatsoever and that, in fact, is not the case. All these folks were asking for was an opportunity to do so. Before I take any more discussion, I will read a letter, dated March 5, 2001, from the State Board of Cosmetology on behalf of S.B. 153 (Exhibit F). It is one of the reasons I continue to feel as strongly about this as I do.
Senator Townsend began reading:
On behalf of the board and its staff, we would like to thank all of you for allowing us the opportunity to testify on the above bill. As was mentioned during our testimony, we had not notified our industry . . .
Senator Townsend interjected during the reading of the letter:
That is interesting because most of the people with whom I discussed this see themselves as professionals, not industry members.
Senator Townsend continued reading from the letter, “. . . but after listening to the hearing, we felt compelled to do so.”
Senator Townsend stated:
Well, I am compelled to alert all boards that cooperation is what we are here for. This committee has been staunch in its support of protecting the interests of the public first, the licensees second. When a board chooses not to give all members of society the equal opportunity to become a licensee then it just stands the hair up on the back of my neck. I will continue to work with the sponsor of the bill to see that the volunteer efforts are brought forward and any member of the public who chooses to have services done in other than English can have that opportunity.
I thank you, Senator Schneider. Are there any more comments?
THE MOTION CARRIED UNANIMOUSLY.
*****
Senator Townsend proceeded, “Now, let’s move on to utilities.”
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)
Senator Townsend said, “Mr. Young has provided us a cleaner copy (Exhibit G) of what we had and we will discuss it at this time.”
Senator O’Connell stated, “Mr. Chairman, if I may, I would just like to ask Doug [Douglas R. Ponn] if he would like to make any comments on the question I asked yesterday.”
Douglas R. Ponn, Lobbyist, Nevada Power Company, and Sierra Pacific Power Company, responded:
Thank you, Senator. I think yesterday, Senator O’Connell, you had a basic question. . . . It went something like, what do you [the company] want, and you referred to the fact that a number of parties have come to committee members with proposals and requests. I think there is some ambiguity about what the company’s mission, goal, and desire are going forward. Maybe I can clear it up with first, a fairly long recitation about what we would like to do going forward, and then perhaps a short answer.
As you know, our company in the past engaged in full integrated, vertical monopoly electric utility business. We did, and still do, transmission distribution and energy services for our customers. Going forward, our company has a strategic goal for ourselves of being in the transmission and distribution business. That is unequivocal, and that part of our business is not, has not been, and is not expected to be, for sale. We think we are, and have been, a very good wires company and expect to stay in that business. We are concerned about any incursions that might take place in that area. I do not think that is the part of the business that has really caused much question in any of our debates in the last two sessions.
What has happened has been a lot of swirl around questions about our intent on the energy side of the business. As you recall, I do not think we have ever proposed to exit the energy side of the business, but what we have done is try to be in concert with, or forward state policy. Whenever we were talking the last two sessions about forwarding competition, it was thought by many folks, including us, that the way to encourage competition was to get more energy providers involved in the market. So, we were willing to, and did support the last two versions of electric restructuring legislation. When we went to the Public Utilities Commission of Nevada [PUCN] with our merger, we submitted a plan to divest our power plants and get out at least the generating side of the . . . energy side of the business.
Mr. Ponn continued:
As you know, things have been pretty chaotic lately, and I think we are back to what does the state want; therefore, what do our customers need; therefore, what should the company be doing going forward? If it is the state’s desire to stabilize the situation in the near term, then the company has been the provider of the energy piece of service for a long time. We are willing to, and ready to, continue with that obligation to serve those customers with energy. There are some conditions that we should all be aware of, regardless of how ready and willing we are we cannot go forward and do a good job on the energy side of the business unless we are compensated for what it costs to procure and supply that energy. We cannot afford to keep going forward selling energy for $1, when we are paying $1.69 in the south, and $1.60 in the north, for it.
The other thing we would need and request, and think is in everybody’s interest, going forward and beyond just a reasonable certainty of recovery of cost, is some certainty about our obligation to serve customers. I think we collectively, during this session, need to put some certainty about how we are going to go forward for how long. Yesterday we talked about proposed amendments to S.B. 253 that would extend a moratorium on divestiture out to 2006, instead of 2003. I think that is the kind of thing that needs to be discussed here so whenever this session is over there is some certainty about what the obligations of the parties are going forward, and for how long.
A sort of side bar . . . our company strategy, of late, has been geared toward the period between now and 2003. That was the result of some provisions in the legislation that gave us certain obligations until 2003. We were doing a lot of things with that as our planning horizon. Given exogenous events and things happening across the mountain, if it is the will of the Legislature that we extend that planning horizon, we are certainly here to cooperate with that will. We will do the sorts of things we need to do to keep customers served, beyond that period of time, in a way that is reasonable for them and creates a more stable environment than the one we are in right now. If the will of the Legislature is that we be the primary energy provider through this longer period of time then, as we requested from the PUCN, we need some long-term authority to enter into contracts so we can stabilize the supply side of our business.
Mr. Ponn continued:
I guess if I can summarize that very long answer, what do we want to happen?
One, I think we need stability. You need to decide and tell us, and all parties here, how you want to go forward. We need some certainty in the environment. Two, I think the Legislature needs to make a decision about what the state policy is on divestiture, so the company can be in concert with the state policy on that issue. Three, I think there needs to a definition of obligations.
Probably the system, given the situation we are in, that worked for a long time and may work best for the next period of time that we are about to enter, is something very similar to what we had before we went down the restructuring path. I am not advocating we try to put everything back together again, but a lot of those systems, like some sort of cost recovery, was deferred energy . . . could be something different. An obligation to serve customers . . . there could be exceptions to that. Perhaps large customers could go under contracts if they made a showing like the consumer advocate has proposed it would be no harm to other customers. Those kinds of accommodations, I think, could be made. Of course, the question on who owns generation going forward needs to be answered. In general, if we could re-create some of the stability and, perhaps, add some of the benefits of letting certain customers choose if they do no harm, I think, in my opinion, that might be the best solution of going forward and something the company could certainly support.
Mr. Ponn continued:
Also, I think there was some sort of sub question about the power plants. Do you want to own the power plants, I think, is the shorter question. My answer to that is, we do have orders from the Federal Energy Regulatory Commission (FERC) and the PUCN to divest those power plants. At this moment, those are legal orders. We do have contracts and obligations to potential buyers of those power plants, which we are bound to pursue. We have shown you that there are short-term benefits associated with the buy-back contracts that were associated with those sale agreements. Those benefits are certainly significant. We mentioned the numbers around $1 billion a number of times. There are long-term downsides some parties have proposed, and we cannot really dispute effectively. It just depends on how long the time period is whether or not the net effect is a plus or a minus from divesting those contracts. There is a long-term risk if those plants are divested.
Having said all that, once the state decides what its policy is . . . its preference is . . . we will certainly try to comply with state law and the will of this body and state government. I do not think there is much inconsistency between what was said yesterday and what I just said right now. Mr. Oldham [Steven C. Oldham, Senior Vice President, Corporate Development and Strategic Development, Sierra Pacific Resources] just talks longer than I do about certain things. If we know which the state wants, then we can go forward under either scenario. For example, if you look at the filing we made at the PUCN recently, called a comprehensive energy plan, there were options in there with, and without, divestiture. There is just a price to be paid in the short run if we do not divest those plants. I hope that adds clarity and the answer was not too long.
Senator Rhoads asked:
I am going to ask you a tough question. If you could spin the clock back, say, 8 years, what should we have done different . . . the power company, the consumer advocate, and the PUCN? What could have happened to not be in the place we are at today?
Mr. Ponn responded:
I have thought about that question a good bit. As you know, I have been involved here and at the PUCN with most of the proceedings around this issue. I think we may have gotten to a better place, and may have done it a lot easier if, 8 years ago, when large customers came to us and said, “We want options, we want alternatives, and we want choice.” If somehow we had designed a system within the PUCN, by tariff, or otherwise, to allow those large customers to go out and shop and accommodate those kinds of transactions. I think that would have made life a lot easier for all of us and we might already by reaping some of the benefits that were touted for competition if we had done that.
Senator Townsend said:
Doug [Mr. Ponn], thank you for coming back today . . . You have made some very clear points. There may come a time I end up going to that board, which is why I had it brought in here. I wanted to make sure all of us were literally understanding the same thing. The issue in front of us, in S.B. 253, which is the proposed moratorium, is an important issue, but really does not get to the underlying question of the fact that we use more energy in the state of Nevada than we produce. Prior to the 1997 session, you were obligated to serve, you were out buying contracts, and blending your portfolio as best you could. Then, under the deferred energy account mechanism, you were recovering your costs, either in general rates, through purchase power, or fuel adjustment clauses. That is kind of a thumbnail sketch of the way the old world was.
Whether you sell the plants or not, there is still a demand in the state of Nevada for substantially more energy than we actually produce. If you are granted the authority to continue to provide service in your already authorized territories, then there must, in your opinion, be an appropriate mechanism . . . whether it is the old mechanism, or some new accounting mechanism, to accommodate, number one, the most important would be those purchase power agreements. Is that fair? There has to be a way to do that, because by March 2003, or July 2003, under current law, you are no longer responsible to serve. So, we either have to deal with that date, or we have to provide you a mechanism for recovery.
Mr. Ponn responded:
Yes, Senator, I would agree with that. Going forward using some mechanism, whoever the provider is, is going to have to be able to cover their costs. As you stated, in the old days we used deferred‑energy accounting, and it was actually developed in a period of turmoil, not too dissimilar from the one we are in now, to try and solve some of the problems around that. What we have evolved into recently, because deferred-energy accounting went away last session, if you sum up the terms of the global settlement with its fuel and purchase power riders, and if you add to that the comprehensive energy plan rider that we have proposed, there is not a big dissimilarity between that and deferred-energy accounting. They are both trying to get to the same place with different mechanisms and different lags.
Senator Townsend pointed out:
There are some absolutely fundamental issues this committee must deal with and not get caught up in any other hysteria. First and foremost, has to be the ability to get new capacity on-line as quickly as possible. There will be a bill here a week from tomorrow to streamline the permitting process. Hopefully that will provide some additional smoothness in the road to those who want to come here and build. That has nothing to do with who is going to get the energy. That is a separate . . . just because you let somebody build a plant does not mean you automatically get the energy. Somebody has to go out and contract for it.
On a parallel track, we need to decide, as a state, whether Sierra Pacific Resources and their two operating companies are going to be the entity that is going to provide the energy. If so, we need to give them the authority, or let them maintain the authority, to go out and get a blended group of contracts for a long period of time. If you want to go and negotiate with our new providers, you can do that, or you can buy from someone else. You can go get a broker . . . all kinds of things, but you come up with a blended amount for that huge gap we find until some of this native generation comes on-line.
Mr. Ponn said:
I agree, Senator. Any part of the situation we are in is because all the parties were anticipating that competition was going to happen sooner than it did, that people were going to show up sooner than they have to build other resources, that there were going to be other resources than ultimately we now have, that supply side is certainly creating a lot of our problems. Whether or not we own or divest the plants is only a part of the total equation. It does not change the number of megawatts available, at least until 2003.
Senator Townsend related:
I was thinking about it driving home last night. I equated it to my business. I have two leased cars and have the authority to drive them. My wife drives them. The lease company holds the title, but I still drive it down the road. That is the issue . . . whoever holds the fee simple on these plants is important. Over all, it is about getting more generation up, getting longer-term contracts that will smooth out and provide reliability. Also, we can never forget the issue that we do not control, and that is transmission. Although, in this bill, to accelerate the permitting process, there is consideration for transmission, FERC is going to make the ultimate decision. It is my guess, based on my conversation with many of the players here, there is a chance some of these plants may actually come on-line before we get additional transmission. I do not know whether that is putting the cart before the horse, but the fact is, there is a disconnect. That is okay. I mean it will be a nice problem to have. We have to decide, if you are going to be the entity to provide service, how we are going to reimburse those contracts so you can go out and create a seamless nature for the average consumer that sees that the lights stay on, and you have managed to negotiate the best blended portfolio to see they have reliability and stability in price. Is that, in two sentences, a fair assumption of where we need to be?
Mr. Ponn responded:
I think so, Senator. In fact, that is one of the elements of what we have proposed at the PUCN. I think it is also an element that came out of the Governor’s select committee. There seems to be a good bit of consensus around the idea that we need to reestablish, or add certainty back into the question of who’s going to have the obligation to serve going forward, and the quid pro quo. Will they have the ability to go out and enter into contracts to satisfy that obligation without some risk of non-recovery or total future uncertainty?
Senator Townsend stated:
We feel very sorry for our friends in California because the more they spend on energy the less disposable income they have to visit us here in Nevada. We have a real deep feeling about what goes on there. We want to make sure there is a mechanism that is agreed to by this Legislature, in consultation with our experts at the PUCN, particularly our friends at the Office of the Consumer Advocate [OCA] that can work for everybody, so that you do not have bankrupt utilities, you do not have the lights going out. They just seem to . . . every time they turn around there is something worse. Governor Davis [California Governor Gray Davis] was on the radio this morning talking specifically about interrupting service during the summer. Of course, the media has gone around at night and taken all the photos of the office buildings, and all the lights are on, and all of the things people are going to have to do. They interviewed a car guy [dealership], which got my attention, who said he has an insurance problem because if he turns all the lights off on his inventory and somebody wrecks them, his insurance carrier may not cover him. This is a very complex issue.
By Friday, we need to have our arms around the components that the Legislature has jurisdiction over. Right now I am not exactly sure, and I will make sure the committee has the “Cliff Notes” versions of your filing the CEP [Comprehensive Energy Plan] to understand what portion we should have jurisdiction over, as opposed to the regulatory environment. We do not want to create a problem where we put something in statute, and if there are dramatic changes in the marketplace over 20 months, we have cemented ourselves into a negative position. We have to be very careful of that. We have to do policy and not get too detailed because that could hurt everybody.
I see you bringing more and more people down here everyday. Is there anybody left at the store?
Mr. Ponn commented:
They are all very interested in this. A lot of the people here, Senator, are folks who have been involved at the PUCN for a number of years now. This is an extension of the discussions. Besides that, I am inclined to get into trouble for not knowing the answer to something. It helps to have the experts here.
Senator Townsend:
For those of you who have never been to a rate hearing of any kind at the PUCN, please avail yourself of it and you will know what torturous work it is. Not just because of the location either, it is a tough business.
Scott M. Craigie, Lobbyist, Pinnacle West, testified:
I am a registered representative here for Pinnacle West and have two people with me. To my left is Ajoy [K.] Banerjee, who is vice president of Pinnacle West Energy, for generation expansion. He is the person in charge of bringing supply, supply, supply, to the west, which is precisely what we have to do here. To my right is Martin Schultz, who is vice president of government services and government affairs for Pinnacle West Capital Corporation, the holding company over the five subsidiaries, including Pinnacle West Energy.
We are here to talk about S.B. 253, and more specifically about a provision at the bottom of page 2 [of Exhibit G] that was discussed by a couple of witnesses yesterday. As a result of that discussion, we brought the two top dogs from Arizona. They flew up here late last night based on the conversations held yesterday. It was important for us to have them come in and walk through the issues in terms of the trade-offs on this one site. Harry Allen talked to most of you individually, or collectively, about . . .
Senator Townsend said:
Just one second . . . I want to make sure, particularly for those of us who do not hang out in those plants every day, that everyone knows exactly what we are talking about.
That is the larger version, which is the big picture, and the smaller picture is here. I do not know whether you can pick it up, but at least you have something to make reference to.
Mr. Craigie responded:
Let me set the stage, and then I will turn it over primarily to Mr. Banerjee at this point. Harry Allen Power Plant is one of the plants that is in the divestiture of generation assets program at Sierra Pacific. Pinnacle West was the entity that bid and won the right to purchase Harry Allen Power Plant. The Harry Allen Power Plant is basically a 72-megawatt peaker plant. Pinnacle West made the purchase primarily because they wanted that location so they could build a 500-megawatt base load power plant that would sell into this region, including into Nevada. The purchase was really more to do [with] the development program than it was to buy the 72 megawatts. They have undertaken that development program and are progressing it very well. They have already bought the turbines, nominated for the gas, are in the process of getting the gas capacity locked in on a long-term contract, and are well along on the environmental permits. That is the setting. I think all of you are aware, generally, of what I have just said. This was just to set the stage.
Yesterday there was a suggestion there would be a good public benefit to exempting this particular site so we could fully develop the 500-megawatt power plant. There was a suggestion that, maybe, instead of exempting the peaker units themselves, we could somehow split this site and take the development project area and allow Pinnacle West to make that purchase of that development site, continue the development process, and build the 500‑megawatt plant; but leave the peaker in the hands of Nevada Power Company. There are problems with that. That is what we came here today to explain, so you could see what the issues would be in doing that particular separation.
Mr. Craigie continued:
Ajoy [K.] Banerjee is going to walk through a couple of things with you. One, because we are actually in the development project right now, we are going pell-mell because we are trying to meet these early dates to get supply on-line. He will talk to you about where we are going to actually hit milestones where we can provide new generation into our marketplace, and it is as early as this summer.
Secondly, he is going to go through why bifurcating the site is not going to work.
Third, he is going to talk about the fact that the whole business plan for this site is based on selling a major share of this into Nevada. Therefore, Senator Schneider’s question that comes up often: Are you going to sell here? Yes, the whole reason for this company coming here is to sell here.
Ajoy K. Banerjee, Ph.D., P.E., Vice President, Pinnacle West Energy, testified:
I am pleased to have this opportunity to meet with you today. Let me start with our project plan. Our goal for the site, if it was accessible to us, is targeted sometime in May. Our target, when we purchased it, was June 1, 2001, if things went smoothly. There are three different issues: two of them are permits, and one is a transmission right.
The air permit is the first, most complex, one. That is well under way and we expect to get an air permit for the site. I will talk about bifurcation and the air permit later on. It is important to understand that Nevada Power [Company] is getting the air permit for the site and we expect that some time in April.
Second, is the water issue we have been working with. The water rights that come with the site are important for the 500-megawatt unit.
Lastly, the right to connect to the Harry Allen substation. The 500-megawatt plant has been planned by Nevada Power Company for several years now and, we believe, we have the right to connect to the Harry Allen bus at two bay positions. That one is important for the certainty, in the short term, of having transmission access into the valley, mostly in the Las Vegas area. We believe having that transmission access in the short term is very important for the certainty of this project.
Mr. Banerjee continued:
To walk through the time line . . . if we get these permits as we discussed shortly, some time in the June/July time frame, we are prepared to put another peaker, another 80-megawatt type, which is what is in there right now, by 2002. We know if we are to do that it would require a change to the air permit on a temporary basis because it will probably increase the rate of emission because those peakers usually emit a higher rate than a large combined‑cycle unit. We are doing it in Arizona right now, with the help of our companies and government support that we are getting for the years 2001 and 2002, short-term peakers, installed early, where we stay within the site cap. Again, the site cap is important for the year, so that on a long-term basis there is no harm done. There will be a temporary summer-time, higher‑emission rate of these peakers. We are prepared to do that for 2002. Connecting into the Harry Allen switchyard bus is important for that.
The second one can be put in by 2003. With the big turbines we have brought in a simple cycle mode, by summer of 2003 there will be an additional 300 megawatts or so. That will, again, require help with the air permit people.
Last, by the summer of 2004 our plant will be complete and you will have, on that site, about 700 megawatts, compared to 72 megawatts. That is our current plan.
Mr. Banerjee continued:
Now we can talk about the bifurcation. If you are to separate the site, it is not just the land, the land part is probably easier and will require working with the Bureau of Land Management (BLM). Of more importance is the air permit, some water rights, and transmission rights. First of all, we have to go back and negotiate with Nevada on all issues. These negotiations, where we have worked in other site acquisitions on bifurcating a site, are quite complex; because of not only what price we will pay now, but also cross-indemnification of a whole bunch of issues when the permits and rights belong to one party, then how will one party harm another party. So, although the negotiations sound simple, by the time the lawyers from both companies get involved, it is complex.
The most complicated and time-consuming one is the air permit. We are certain the federal Environmental Protection Agency (EPA) will consider this a major change with a bifurcated permit. Our view is it will take a minimum of 6 months from whenever the permit is done, which will be, say, April up to a year, to redo the whole permit to their satisfaction, if we were to bifurcate the permit. Within Arizona we have thought about it sometimes, we have talked with our own county, and the EPA, when such issues have come up. Every time, the EPA and the county advised us not to try to do that because it will take a minimum of 6 months to a year. The EPA in San Francisco is overwhelmed with applications throughout the west on all kinds of, what they consider, normal permits, and they will consider this nonproductive from their point of view. It will get a lower priority because they will say, “Why are you doing this? Why did you not work out something?” If we stay as one permit on that site and try to use the existing plant for offsets, as you change it into combined cycle, etcetera, all of those issues get much more complex.
Mr. Banerjee continued:
So, bifurcation is possible, but it is a question of time. Our whole development program will get on small steps will not be possible, I am certain of that. The large one we will probably get to in 2005. Our interest, and we understand the state’s interest, is to bring on-line as much generation as possible, as early as possible. The effect of the bifurcation is the loss of time and will significantly change our plan. Another one that is going to happen is that all the equipment we have bought already must be sent somewhere else. The way the deliveries are they would have paid them. Whether or not we use it, it is the cost of money, so we will go somewhere else and then we are to buy brand-new equipment when we do our plan. We will conserve that as a significant change in our plan. That is on the bifurcation issue.
About the question, Scott [Mr. Craigie] said about our plans for staying in Nevada or not, we are at this time negotiating with the Southern Nevada Water Authority, as a partner of the asset owner, and discussing whether it will be site-based, or just the development (500 megawatt) part of it. If we are fortunate . . . I do not want to suppose it because they have to go through board approval whether they will negotiate with us formally or not . . . but we understand and have indications they are interested in negotiating with us formally as the asset owner. If we are the asset owner, then that part of the power will stay in Nevada. . . . Nevada Power [Company] has indicated they are interested in getting output from us . . . and we are interested . . . our strategy . . . we are a conservative company and on the opposite end of Enron Corporation, as an example, which is primarily a trading company. We like long-term contracts, and we have told Nevada Power [Company] we are interested as soon as all the dust settles down, and they know their role, and we know where we are going, we are interested in a long-term part, which is agreement with Nevada Power [Company].
Our business plan is to sell significant amounts of the power on a long-term basis, either as a partner with southern Nevada or somebody else, or with a long-term part which is agreements for the power to stay in the state.
Martin L. Schultz, Vice President, Government Affairs, Pinnacle West Capital Corporation, testified:
I appreciate the opportunity to be here today and want to build a little bit on Ajoy’s [Mr. Banerjee’s] comments with regard to our commitment to Nevada. Before I do that. . . . I was intrigued by Senator Rhoads’ question . . . about [pertaining to] 6 years ago . . . and the question of electric competition and deregulation. I think one thing, no matter what you do in Nevada, and legislatures can beat themselves as they do elsewhere, and if you choose to go through that exercise which is very important. I respect that. However, one thing has been true 6 to 8 years ago, and is true today, which is that Nevada uses more power than it produces. Interesting enough, California uses more power than it produces. Interesting enough, Arizona uses more power than it produces. What we have here is a western problem, where it is reasonable for each state . . . and Nevada is doing the right thing in my opinion, to look at their own state.
Ultimately, as it relates to transmission and generation, it is going to be states coming together for solutions. But in the short term, it is very interesting; our Pinnacle West Energy objectives, from a business standpoint, and our willingness to invest over $400 million in Nevada . . . is consistent, in my opinion, with your stated policy goals as I inferred from them as you discussed them today, and as I have followed for many years what you have done in the way of electric competition. Because you recognize, not withstanding the complexities that Ajoy [Mr. Banerjee] talked about, and that you have heard in testimony from Doug [Mr. Ponn] and others over the years, you recognize one thing, that is you require for your tremendous growth in Nevada, southern and northern Nevada, additional power supplies for the gaming industry and all the other major industries.
Mr. Schultz continued:
Our business objective is, in fact, to put generation in Nevada, additional substantial generation. Five hundred megawatts is substantial generation for southern Nevada. Ajoy [Mr. Banerjee] spoke about the ongoing negotiations with Southern Nevada Water Authority. That is significant because their objective is to make sure the power stays in southern Nevada, and used for the benefit of Nevada. I believe that our business objectives are aligned with your state-policy objectives with regard to additional generation. We have actually anticipated moving forward because of all the items that Ajoy [Mr. Banerjee] talked about, and the fact that we have already invested in the turbines, invested the time and energy in the permitting process making final arrangements for gas contracts. Because, in our view, this is an ongoing issue for Nevada, an ongoing issue for our business, and the amendment that Scott [Mr. Craigie] will speak about to this bill is going to be very helpful to move that process along. We would be glad to answer any questions that, Mr. Chairman, you or members of the committee might have.
Senator Townsend asked, “Why don’t we move along to this specific . . .”
Scott Craigie continued:
In philosophy, this is perfect for us; we are very satisfied with it. We will work with a couple of the other parties, and Mr. Young, to figure out how we will exactly word the cap there, so that it hits the intent. If this would go out in this bill it would allow this particular development program for the 500‑megawatt plant to continue on schedule and that is our objective. You guys have to weigh all the other interests that are there, but that is why we came here, so you would at least have the full picture that this team could bring and put on the table.
Senator Townsend said, “Mr. Young, help us out, we now have a gorgeous document and let us see the group. The green is . . .”
Scott Young responded, “Mr. Chairman, the green is the language that Fred Schmidt [Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority] recommended yesterday, the leading . . . the reference to hydroelectric.”
Senator Townsend asked, “And that is the one you agreed to, Mr. Craigie?”
Mr. Craigie replied, “That is correct Senator, except again the 75-megawatt issue has to be adjusted somehow. And, again, we will work that out.”
Mr. Banerjee pointed out:
The 72 megawatt is the summer rating, and winter rating, I did not bring my pencil, my guess is it is 80 megawatts or 81 megawatts, something like that. So we agree with the intent. But I do not want any mischief later on because if the winter rating is 79 then . . . I was going to check with my engineers to say what a winter rating is, and suggest . . .
Senator Townsend said, “We’ll allow you to do that as long as you don’t have them come here and testify. Okay? We don’t want to know how they get there . . . just, if it’s 81, it’s 81.”
Mr. Craigie stressed:
Mr. Chairman, if I may, all we want to do is make sure the separation is clean between Harry Allen [Power Plant] and what would be the next site on the scale. We are working on that language. There might be a way to talk about it all on one site; we’re just looking for clean language. So, we will have that by the end of the morning.
Senator Townsend asked, “Mr. Schmidt, do you understand their concern about the 75 [megawatts], and that’s okay? Maybe 81, maybe 82? Of course, towards the end of the session we start to discount, so it could be, you know, 52.95.”
Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority, testified:
Before I respond to that question, I want to make something clear that I thought I made clear when I testified yesterday, but some of the later speakers, I thought, confused. The Southern Nevada Water Authority is not advocating any particular amendment in this regard. What I was authorized to do was to explain, because I had been asked a question by a number of senators, if there was a desire to address the situation that Mr. Craigie is dealing with . . . this is how you would do it. We are neutral as to . . . we do not have a formal position to say you exempt one of the divestiture bundles versus another.
Another thing, just so it is also clear . . .
Senator Townsend asked, “Now, do you get to bill for doing Mr. Craigie’s work for him? I would just like to keep this straight.”
Mr. Craigie remarked, “Actually, in this case, he actually should, I owe the guy a favor. Give credit where it is due.”
Mr. Schmidt continued:
A question raised yesterday that I thought relates to this, and, particularly for Senator O’Connell, I wanted to address this, if I could, before I answer the other question. In section 6, the question was raised as to whether the term that included state of Nevada, or agency, or instrumentality of the state of Nevada, I think the question that was sort of in some people’s minds but was never addressed was, what does that have to do with the Southern Nevada Water Authority, and what would our position be on that? I agree with Kevin’s [Kevin C. Powers, Senior Deputy Legislative Counsel] advice to you which is, as this is written, it does not include the Southern Nevada Water Authority. We are not advocating that it include the Southern Nevada Water Authority because we are not of the mind that it benefits the state of Nevada, in southern Nevada, in particular, at all, if the Southern Nevada Water Authority pursues a contract to acquire power from existing Nevada Power [Company] generation that currently serves all southern Nevada customers. All that would do would be to provide what is, in many instances, a cheap resource and give it to one customer class over others. That is inconsistent with our concern about all of southern Nevada and how the electrical issues are addressed.
The Southern Nevada Water Authority’s position is that new generation is desperately needed. We have the ability to go buy for our own power loads right now, and so, Southern Nevada Water Authority is aggressively trying to do that to help solve the short-term problem.
Senator Townsend said, “Give us the generality. Sorry, I don’t want to be here forever. I just want to know: how much do you use and how much do you generate?”
Mr. Schmidt replied:
Our current load that we are buying on system is a little in excess of 100 megawatts. We have contracts now we bought last summer that gives us the rights to buy up to 125 [megawatts]. We expect our load to be in the range of 250 megawatts within the next year and a half, and we issued an RFP [Request for Proposal] last year for 2002, and beyond that would have us buy 150 megawatts or invest in a new generation resource for 150 megawatts, with the intent being we wanted to help stimulate and get a new resource built. The Southern Nevada Water Authority board agenda, which will be issued later today or tomorrow morning, will announce that the results of that RFP resulted in 12 serious bidders, 3 of the finalists in the bid we are asking authority to go and negotiate an arrangement with, and Pinnacle West Energy is one of the 3 that was in the top 3 bidders.
Senator Townsend said:
You are way into the part where this is much more than I am interested in knowing. I just want to know how much you use and how much you go out and get so we have a general sense of the load on southern Nevada.
Mr. Schmidt said:
Southern Nevada Water Authority is currently looking to acquire 150 megawatts and may expand it by another 100 megawatts within 2 years. The language that is included in here that I said could fix the problem ignored the issue of whether there is a different rating for winter because of cooler temperatures. I acknowledge that may be the case. The reason the megawattage was chosen though is many of the individual Clark County units, which are also natural-gas generation, are just above this range of megawatts. Without encompassing or entailing exempting more divestiture bundles, we attempted to pick a number which reflected that. If the 75 was defined with the summer reference, it probably accomplishes the concern that was . . .
Senator Townsend said:
You two will have to work that out because you do not want to open that up if that is the desire . . . I want to make sure the language meets what you guys are trying to accomplish and then we can debate that.
Mr. Schmidt replied, “But we specifically leave to you and do not advocate one way or the other whether you think you should do that or not.”
Kevin C. Powers, Senior Deputy, Legislative Counsel, suggested:
On that issue, I would recommend that you contain the hydroelectric exemption in its current form and create a separate second paragraph specifically addressing Harry Allen [Power Plant], referring to it by its common name, and also providing a description of the site you are referring to, thereby reducing any possibility that the exemption could go broader than the Harry Allen site.
Senator Townsend asked, “I thought the purpose of section 5, subsection 2, was trying to deal with the sale of the water company. We don’t want to take that out, do we?”
Mr. Schmidt answered:
That’s correct. The hydroelectric plants reference is part of the divestiture of the water division of Sierra Pacific Power Company. They sold their water-retail company, as well as four small hydroelectric plants that are on the Truckee River.
Senator Townsend pointed out:
This bill’s purpose was not to stop that, to the best of my understanding, Mr. Schmidt, so we don’t want to change that, Kevin [Mr. Powers]. You want to make sure the company is allowed to go forward with the sale of the water company and not be precluded because that is not what we are trying to do here. And then address it separately on the Harry Allen specific . . .
Mr. Craigie said:
Mr. Chairman, for the record, citing the Harry Allen specifically is fine with us. Whatever you do with the hydroelectric side, we’ll leave that to others who are in that . . . but, if we wanted to do it that way, and do it more specifically that way, that probably would be the cleanest.
Senator Townsend said:
Okay. On your point about, if you have to send your equipment somewhere else if the moratorium is in place . . . there is going to be a lot of empty trucks leaving southern Nevada after they have dropped off their “nuke” waste. You might get a free ride out of here. So, you have to be careful, especially not when your hired gun has his hand on his leg telling him not to say anything.
Then the only recommendation you are making, Mr. Craigie, is a clear reference under section 5, subsection 2, where the term does not include . . . if we leave [paragraph] (a) alone which is to include the water company that Sierra [Pacific Power Company] currently is in the midst of selling, and then perhaps we would put, [Mr. Powers], a [paragraph] (c) in here that would address the plant specifically.
Mr. Craigie responded:
That would work very well for us. Again, we also came here because we wanted to make an affirmative case for the fact that this site does have a public benefit to southern Nevada, and that it should be taken into consideration as you do this bill. We recognize what is happening with this bill, and the panel’s considerations, are on a larger level, but there is a direct benefit on this site for this development program to go along because it is well under way. So, we have made that case and it is now for the committee to decide.
Senator Shaffer asked:
Thank you, Mr. Chairman. In the acquisition that you are planning on this site, is the additional area that you are going to need, are you going to acquire enough to look beyond the 500 [megawatts] into the future so you don’t have to go back again with the BLM [Bureau of Land Management] or whoever it is?
Mr. Banerjee stated:
Yes, we are in negotiations with Nevada Power [Company] and then file application with BLM so we get sufficient land for expansions beyond the 500 megawatts. At this time all our permits are focused on 500 megawatts, but as that transmission system improves . . . you have heard some testimony about that transmission system has to improve significantly . . . and if more water is found . . . the water issue is a second issue . . . then we believe this site can be expanded to 1000 or 1500 megawatts, and we are prepared to do that at this site. So, we are looking for several, let’s say more than 1000 acres, which will accommodate 2000 megawatts from a LAN [local area network] point of view.
Senator Shaffer said, “I think it is a very strategic location at this point in time, considering what we are looking to do in southern Nevada.” Mr. Banerjee affirmed, “Yes, we agree with you. Thank you.”
Senator Townsend asked, “Mr. Ponn, may I ask you a question that ties into what they talked about? That is, the total generation you have in southern Nevada under Nevada Power [Company] is how much?”
Mr. Ponn answered, “Approximately 2000 megawatts, Mr. Chairman.”
Senator Townsend said:
So, when they are talking about 300 [megawatts] initially, up to 500 [megawatts], and then possibly another 1000 [megawatts], you are talking about a significant amount if we were to contract for its output amount of needed generation given the current capacity you have at southern Nevada . . . meaning 1½ times or so.
Mr. Ponn replied, “Seventy-five megawatts is not that significant, but when you start talking 500 and beyond, that is a normal addition to capacity.”
Pete G. Ernaut, Lobbyist, Reliant Energy, and WPS Power Development Incorporated, testified:
Although I think it is more important today . . . what I wanted to testify to . . . to make the point that . . . I’m not sure I’m here representing my clients. In fact, to put their individual needs aside for a moment and have a discussion on divestiture and how it works in the whole scheme of this issue of deregulation and energy policy.
Over the course of the last 6 years, whether I was your colleague, certainly not in this austere body, but certainly a colleague of the Legislature, or I was in the Governor’s office, we have discussed this issue and certainly been integrally involved in some aspects of it having chaired the original interim committee on what we then called “retail wheeling.” We have seen this issue mature and we’ve seen it change quite rapidly. We have had ombudsman bills in two different sessions, and then we find ourselves where we are today, which is being . . . I guess the word from yesterday . . . I thought . . . like we’re being traumatized by California, which, I think, is somewhat accurate.
But, to digress for one second, Senator Rhoads asked a question earlier of the representative from Sierra [Pacific Resources] . . . what could we have done differently. I think it is important to note that we really haven’t done anything. We’re not deregulated. We haven’t divested ourselves of a single plant. So, the point is, we wouldn’t be in this position had we never discussed this. I think that the fact of the matter is we have not taken that great step. People seem to lose that issue because we see what is happening next door in California. There is one very basic difference; they are deregulated, we are not. We would have found ourselves in this position had the Legislature never even taken on this issue.
Mr. Ernaut continued:
When you get into complex issues like this, I think it is important at times to kind of take a step back and relax and say, what are our goals here, what are our priorities. It is a seemingly complex issue, but when you break it down, I mean, even I spent enough hours awake in my “econ 101” class to understand the basic premise of supply and demand. The issue before us is about supply. It’s about reliability. The single most important priority for all of us here, as legislators, as Nevadans, as private citizens, is keeping the lights on. To keep the lights on we have to address certain things. I think some of those we agree upon, which is we need to build power plants. I would suspect over the course of the next 90 or so days, we are going to spend a lot of time discussing how it is we streamline the building of power plants. I think we all agree on that. There may be some little differences of opinion here and there, but by and large, we believe that we should build power plants.
What we are dealing with today in divestiture, in essence, between now . . . and, I think the representative of Sierra [Pacific Resources] testified to this, what you do on divestiture virtually has nothing to do with our supply capacity between now and 2003, nothing. But, just as important as supply is access, insured access to that supply. If I could use a car metaphor for the chairman. We’re going to spend the next 120 days figuring out how to build this really nice race car. A whole bunch of them. But, if we don’t address building roads, the car has nowhere to go. And divestiture does very much to address transmission and infrastructure. I think there are those who would say that to stop divestiture in its entirety would cripple those efforts . . . and why. Well really, a utility is a simple animal when it comes to building transmission. And that is, especially in a growing state like Nevada, on precedent, growing state like Nevada, and that is their net borrower. So, they need to be able to earn, to be able to borrow, to be able to build, or they need to be able to generate capital through things like selling power plants.
Mr. Ernaut continued:
So, over the course of the next few years, if we don’t take a step back, if we don’t look at this on an individual basis, and we stop it all together, in essence what happens is handcuffing this company’s ability to address their transmission needs going further in part. Now certainly, we just had a big rate case that everybody certainly had their differences of opinion on. But, I don’t know, and maybe you can all predict, I don’t know what that environment looks like . . . 6 months from now, 8 months from now, and a year from now, of whether another rate case is even viable. But I do know one thing, as we sit today we have five projects in the queue, as everybody started to talk about, in southern Nevada, building five power plants. The infrastructure does not exist today. There is a 230 kv [kilovolt] line that goes through the Apex area, which already has capacity on it, which basically can take one of these projects. If we don’t address the immediate needs of building transmission lines, a 500 kv [kilovolt] line, and more and more and more, we’re again, going to have a lot of power plants sitting in a place that does absolutely no good for Nevada. In fact, we would be in a position to only export. That’s a problem. . . . I know there has been a term over this session, “pell-mell.” If we move pell-mell into this process of stopping divestiture, understand the consequences. Immediately you’re going to have rates rise. Now we’ve talked about that . . . with the buy-back provisions . . . if you stop divestiture, the buy-back provisions go away. Rates will rise. How much?
Mr. Ernaut continued:
You’ve heard a lot of crazy numbers. I mean it almost goes back to the national campaign when we talk about fuzzy math, but I think you could center on about $1 billion. To put that into perspective, the rate relief that would be needed to make that up is four times the rate case that was just filed that caused such an uproar, four times. That is the immediate and practical reality of this. The point is that divestiture, or stopping divestiture, does not affect supply between now and 2003; it does affect price, we have decided that. I think it is more important we begin to focus on what this world looks like, what this state looks like, post 3103 [after March 1, 2003]. And whether it’s divested or it’s not divested, becomes somewhat of an irrelevant point if you look at all the other things that you have available to you. Long-term contracts, in essence, do the same thing. The chairman’s analogy of it doesn’t matter who owns the car . . . stopping divestiture sounds like a really good idea. It sounds like a really good idea, because at the end of the day you say, well, we keep ours and we protect ourselves, but there is a price at the other end of that. And that is, you know, one of the things Chairman Townsend and I talked long and hard about this for a great number of years . . . that the single greatest detriment to competition in this marketplace is barriers to entry . . . meaning uncertainty or the fact . . . and one of the reasons, obviously, that we talked about divestiture in the first place, is the fact that how do these other power plants compete.
This type of thing, starting divestiture, stopping divestiture, uncertainly about divestiture, in essence does that. There are three reasons the power plants are not built. There are three reasons the transmission lines are not built. They are barriers either caused regulatorally, legislatively, or maybe even, environmentally. All I ask today, and really the essence of my testimony, is that this is not a time for us to draw lines in the sand, for us to make mandates and, in essence, handcuff ability to address a rapidly changing marketplace and rapidly changing needs in the areas of transmission, which stopping divestiture will do. My clients, me as an individual, would say, we are here to help, we’ll roll up our sleeves, sit down with you, figure out what is right for the state of Nevada. But at the end of the day there has to be, in my estimation, some ability to look at these plant sales, on a case-by-case basis and say, with some conditions, certainly, with some standards, is this in the best interest of the state of Nevada. At certain times it may make sense . . . and if we have that flexibility then it is available to us to address it.
Mr. Ernaut continued:
A couple of things just to talk about, Mr. Chairman, in talking about fuzzy math. We’ve heard a lot of numbers. A former colleague of mind told me, “I heard that one company said that if we divest we’ll save the consumer $1 billion.” And then I heard the consumer advocate say, “If we divest it will cost $2 billion.” . . . and I may be fuzzing up the math again, but the point is, we’re way off. And why is that? Well, as in any business, and a lot of you are businessmen. Certainly, Senator Rhoads, when you look at projections in the cattle market and such, you have to make certain assumptions. You have to get past the veil of numbers and look at a couple of things. What are the assumptions that are being made? Are assumptions being made that gas prices are the same as they are today? Well, that is probably not a good assumption. Even today, as we sit here, gas prices have begun to fall, at least a little. Is it assumption that no new capacity is going to be available? I mean that only what we have today is going to be there to serve the ratepayers? Well, that is probably a faulty assumption too, because, obviously, we’re talking about building a whole bunch of power plants and having a whole bunch of new capacity. Is there also an assumption there is no long-term rates, or a blended portfolio? That, obviously, would be a faulty assumption, too. So, I think you have to look into the numbers because these numbers fluctuate wildly and say, what are the assumptions, because the numbers are only as good as the assumptions you start out with.
Mr. Ernaut continued:
I would say to you, anybody who can look into a crystal ball . . . and I remember saying this exact same thing, at probably this exact same table, 5 years ago . . . anybody who can look into a crystal ball today and tell you what they think is going to happen in this marketplace 3, 4, and 5 years down the road, is a much smarter man than me, and a much smarter person than anybody here . . . and I would say, probably, very inaccurate. The end result here is, we don’t know what is going to happen and we need flexibility. We only meet every other year in this Legislature. We have got to leave options open for the commission, for the governor, for the incumbent utility, and these new independent power producers to react to, and help in a situation that is rapidly changing and extremely important. But at the end of the day, if it doesn’t have to do with supply, if it doesn’t have to do with access to supply, and it doesn’t have to do with keeping the lights on, I would contend, Mr. Chairman, it is of little detail and of little importance to us.
Senator Rhoads asked:
Pete [Mr. Ernaut], that sounded really interesting. I know you have a great knowledge of this issue. Did I hear you right? You said that if we do not [do] divesture that we could have a rate increase four times what the last one was?
Mr. Ernaut responded:
Well certainly, I mean, it would stand to reason in the buy-back provisions, one of the most important points of that is, they are predicated on 1998 prices. Now, if Sierra [Pacific Power Company] has to go back in the marketplace and tie up gas contracts to now, to deliver a load they didn’t expect to have to deliver, obviously, that is going to be at today’s prices, which are drastically different than they were in 1998. . . . The difference is great. I think, again, whether you believe $1 billion or $875 million, it’s a huge number, and is many times what was just filed for.
Renny Ashleman, Lobbyist, Mirant Americas Incorporated, testified:
I have three points I want to make very quickly. One is that most of the IPPs [independent power plants], my company as well as the others, are very interested in competition. I think 15 people bid to sell power on long-term contracts to the water district. Most of those entities are certainly the ones that are currently more advanced toward their construction. We have been dickering with them as to whether or not it would be desirable to have them invest in the plant and permanently acquire some rights. So, people are not just interested in the auction market. Most of these companies like to have a good portion of their power dedicated. I know that is one of the concerns of this committee, and I want to emphasize that. I think we’ll have ready availability of long-term contracts should we choose to buy them in the state.
Secondly, the chairman, and others this morning, have really been right on in the worry about the transmission problem. We, and several others, might very well be able to complete our plants substantially before the projected transmission capability is available. As much as 6 months might be lost based on everybody’s announced timetables. That is something we have got to really try to do something about. I don’t, if in fact, at the end of the day, the company can’t even build a transmission any faster than that, but everything we can do to make sure they got the opportunity would be very helpful. And that, in particular, is the supply of capital. I’m not going to enter into the debate because we don’t have a dog in that particular hunt as to which way we should supply the capital, but we need to be very thoughtful of this problem.
Finally, we have been examining what the result of all the proposed changes to the laws are and whether or not they will leave us with sufficient ability to go to the PUCN if we think costs are not being carefully allocated between generation and distribution so that there is no subsidy of a competitor if they retain the plants. I’ve talked to the consumer advocate, Mr. Schmidt, and others who are expert in this field. None of us are really clear on how we feel about that at this point and/or the ability to get equal access to the grid, at this point, when we’re done with the reforms that are currently on the table. So, as a courtesy to this committee, when we have those drafts available, we will share them with the committee, with our competitors, with advocates, PUCN, and so on. I don’t think that if you want to take action on this bill you should wait for that. We can usually catch up with it in the other house and keep you informed. We will let you know as soon as we have reached a conclusion on it. That concludes my testimony. I appreciate the opportunity. Are there any questions?
David J. Slawson, Chairman, Chief Executive Officer, Stirling Energy Systems, Incorporated, testified:
. . . We are a Nevada corporation and we have offices in Phoenix, Huntington Beach, Rome, Italy, and we are teamed with the Boeing Corporation, Vestus Wind Systems of Denmark, Cokems of Sweden, Nassau, and the United States Department of Energy. With the United States Department of Energy, we are involved in bringing our solar disc Stirling technology to Nevada. We will be installing our first unit in the state at the University of Nevada, Las Vegas, sometime this summer. We have a number of clients today; one of them is Arizona Public Service. We have a company called Eberdrolla from Spain, they are the second largest utility, a company called Cream Power SRL in Italy, and Escom Corporation, the largest utility in South Africa.
The reason I’m here today is because Nevada has a unique supply resource for energy that is pollution free, and that is not subject to the inflationary cost of fossil fuels. It doesn’t have the same issues relative to water and air quality. Nevada has 85 percent of its sky clear and there is enough solar radiation in a single day produced in America to supply the country’s needs for an entire year. Nevada, because of its location, has a predominantly high degree of the solar radiation. Essentially the sun’s energy will last 5 billion years compared to natural gas in a 60-year life cycle; coal, 250 years; oil, somewhere in the range of 50 to 80 years. If the concern is the supply issue, certainly Nevada has a disproportionate amount of it.
Historically, Nevada has already set up six solar-enterprise zones with land allotments provided to the state relationship with the federal government. These solar-enterprise zones are really the vehicles needed to deploy large-scale, reliable, available today, technology that will enable Nevada’s energy needs to be addressed, not only today, but into the future. In doing so, you would ensure the least cost of electricity by capitalizing on the solar energy since you do not have an associated fuel cost.
Mr. Slawson continued:
Stirling Energy Systems is here in Nevada. We wish to join the spectrum of other energy producers, and we want to augment the existing energy supply. We don’t intend to displace any other providers. We believe the time is now to act on the capitalization of the renewable energy. We believe Nevada is on the forefront of a convergence of this immense supply of solar radiation and is converging with technology today that can accommodate a reasonable roll out, as additional power is needed in Nevada. You have the technology that can address that supply need. I believe this convergence that is then created is really an alignment of the supply and demand. I believe it’s an energy situation that we have not seen since the industrial internal combustion engine. This technology would represent a significant number of jobs for Nevada. It has been estimated, when you employ renewable energy technology for every 50 megawatts, you generate about 1100 new jobs.
With that, I wanted to make a brief introduction to the nature of our technology, how it works, and how it can benefit the state of Nevada. We are a clean-energy technology company with viable energy solutions for America’s energy crisis. We can generate electricity in the 6-cent to 8-cent per kilowatt range. We produce daytime, peak-load, power. Our technology matches the daytime peak load required by business and industry today. We generate no pollution. The water requirements on the technology require about 20 gallons of water per washing, and we do that 6 times per year on each one of these dishes. It is a completely scalable technology, as you can see by the pictures you are holding in your hand. We can build one, or multiples, of that.
In the handout (Exhibit H.), I produced a white paper called “America’s Powerhouse,” and it really addresses . . .
Senator Townsend asked, “How many megawatts or kilowatts do you generate on that thing?”
Mr. Slawson replied:
That’s a 25-kilowatt system; it’s enough to power 7 to 10 homes. It’s a completely scalable technology with a 16-year track record, and it holds the world’s efficiency record in converting solar radiation into grid-quality electricity. The closest solar technology, by comparison, we’re twice as efficient as the most other efficient technology.
If you could look at the white paper I provided for you, you see the historical work done by CSTRR [Corporation for Solar Technology and Renewable Resources] with the solar-enterprise zones in southern Nevada and the land that is available. I do also understand there is a group who would like to add a sixth solar-enterprise zone here in northern Nevada. But if you use my example where we’re showing Lake Mead that covers 247 square miles, and if you were to deploy our solar technology on a land area roughly 10 square miles, we could produce the power equivalent to the Hoover Dam. The challenges ahead for us have partly to do with transmission issues here in the state, but also the fact that the current portfolio standard is not significant enough to support the renewable energy industry to move into the state of Nevada. The current 1 percent through the year 2009 is somewhat limiting the ability for industry to respond to a renewable program for Nevada.
Senator Townsend said, “We have a bill to fix that.”
Mr. Slawson said:
Okay. One of the recommendations our company is making is that you consider a 12 percent renewable portfolio standard by the year 2010. I’ve also included in the documents, some additional comparisons of what other states are doing in the United States, as well as some other foreign countries. You can see that if you take the extreme of Denmark that wants to have 50 percent of their power from renewables, to, say, the state of Texas, that has a 3 percent renewable program, Nevada has a unique situation in that you do have this endless supply of the sun. And if you have the right renewable energy program to support industry moving in, we could provide a significant number of jobs and eliminate this concern over the price volatility of fossil-fuel-based power generation.
Now, one of the drawbacks of the technology, of course, is that we only produce daytime power. Again, we want to augment the supply. We want to work in cooperation with other suppliers so we can provide base-load balanced power.
Senator Townsend interjected, “In your handout [Exhibit H], development opportunities, it says, “proposed solar-enterprise zone location.” Is that a statutory change you are looking for, for these areas?”
Mr. Slawson continued:
No, I don’t believe that is required. I think, if you look, let’s see, Eldorado Valley, for example, already contains the permission authorization to move forward on at least a minimum of 100‑megawatt solar power plant. Our company, in order to get the economy’s scale through this mass production of the Stirling Energy System, we have to build in the scale of, say, 500 megawatts. Then we can produce electricity in the 6-cents to 8-cents per kilowatt-hour range.
Senator Townsend asked, “Five-hundred megawatts? So that’s how many of these . . .” Mr. Slawson responded, “That would be 18,000. That’s about 2½ square miles.”
Senator Townsend asked, “Do all 18,000 of them have to be in the same place?”
Mr. Slawson answered:
No, they don’t. In fact, everybody has heard the expression, BANANA, “Build Absolutely Nothing Anywhere Near Anybody,” well, I think we fill that capability because where we locate these solar power plants is somewhat desolate, in the hottest part of the state, where people don’t want to live, and we’re not polluting any ground, or water, or air, and we think it is a very fitting technology for the state of Nevada. I would like to just show you how this technology works.
This is a city at sunrise, and you’ve got the sun that comes up, and the solar radiation is hitting the parabolic dish, reflecting off those mirror facets, and directing the solar radiation to the Stirling engine. This Stirling engine was developed by Mr. Stirling in the early 1800s just briefly, and all we’re doing is putting that solar radiation on the external surface of the Stirling engine. There is no fuel consumption and no pollution. Basically, that will operate and be available to produce electricity to the grid, and then it supplies power to homes, business, and industry.
Senator Townsend asked, “What do you think is currently keeping you from being in business in Nevada at the moment?”
Mr. Slawson answered:
The low portfolio standard for renewables and, I think the land support is there, but it is a transmission issue. In order for us . . . we’re looking to do some manufacturing component. I did speak with Mr. Bacon [Raymond Bacon, Lobbyist] from the Nevada Manufacturer’s Association and we have identified a number of components that can be built here in the state. What you are really looking at is a funny-shaped car. You’ve got mirror facets that come from stamped steel car hoods. You have a utility-type pole that supports the system. Once the pedestal is in the ground and you’ve got your wiring in, we can hang this equipment in a matter of 4 hours, and the following day we’re putting power on the grid. It’s a modular design and, as you can see, the pedestals and a lot of the steel fabrication can be done here in the state of Nevada.
Senator Townsend asked, “What would get you up and running to help with our peak this coming summer?”
Mr. Slawson responded, “We could not address your peak this coming summer. We’re just starting to roll out our product now. Roughly . . .”
Senator Townsend stated, “I thought this guy invented this thing in the 1800s.”
Mr. Slawson replied:
That’s right. We’ve had 16 years of field demonstration proving the technology. Now we’ve gone to the process of finding vendors to build components and, basically, we’re moving into a position to be able to produce 300 megawatts on a single shift, 50 of these a day.
Senator Townsend asked, “Okay. Then how about by the following summer . . . summer of 2002?” Mr. Slawson answered, “Yes, we could be deploying roughly every 4 months, 50 megawatts of power.”
Senator Townsend said, “So, you could be helpful for our peaking problem in 2002 in southern Nevada.” Mr. Slawson replied, “That’s correct. I just wanted to illustrate . . . I have a map [Exhibit I. Original is on file in the Research Library.] there of . . .”
Senator Townsend asked, “I notice you have a submarine . . . was that just a topical kind of thing?”
Mr. Slawson answered:
No, it was to illustrate a point. The Kockums [A19/Gotland class SSK] submarine uses the Stirling engine in it, so you have a Stirling engine, just like the one we use, in our solarized version that is extremely reliable. You have human beings under the water in a submarine and its electrical generator system is powered by a Stirling engine.
Senator Townsend, “What is the fuel source?” Mr. Slawson said, “It’s a non-solar version of the Stirling engine. It’s desulfured kerosene and oxygen.”
Senator Townsend stated, “You were really going to ask us to stretch.”
Mr. Slawson said:
Right. But the idea here is you multiply the one by many, and as your power demand increases and you have a greater demand, you can just deploy more of these dishes. I wanted to make another point in terms of the future potential of this, is that there is a lot of interest in Nevada to generate hydrogen fuel into the future. And, in order to make hydrogen fuel through the electrolysis process, two electrodes in water where you split the hydrogen and oxygen, you need an inexpensive source of renewable energy.
Were there some additional questions that I could answer relative to the technology?
Senator Townsend asked, “Any questions on the technology?” Senator Carlton replied, “I just have one. This is just a point of curiosity. These are all industrial-sized [units], or do you make one that is like the home version?”
Mr. Slawson responded:
We do not. . . . They stand about 40 feet tall. This is the hydrogen concept where you have an inexpensive source of energy because you have no fuel cost with solar electric. It goes to an electrolyzer, you cool the hydrogen, then you have a liquid product that could be transported and sold worldwide and, in fact, BMW [Bavarian Motor Works] now has their liquid hydrogen-fueled car, same internal combustion engine, just a liquid fuel. By the year 2003, according to the chairman, you will be able to fill up your liquid hydrogen car in any major city in Germany by the year 2003.
Here, if you look at this map [Exhibit I], this is the amount of land required to displace all the fossil fuel consumed with the solar production of hydrogen, 75 square miles. You could move that dot anywhere into the southwest. We all know the benefits of hydrogen; it’s clean and inexhaustible.
Senator Townsend said:
. . . we have taken a great deal of testimony on alternative fuels in our development, particularly with regard to the Commission on Economic Development and what they need, not only for our rural communities. We need to provide our rural communities all the opportunities, whether it’s through geo [geothermal], whether it’s through solar, whether it’s through wind. We do have a bill that should be out any day that changes that portfolio standard and makes some other adjustments that, in working with the utility, could be helpful to continuing our efforts to jump-start our renewables. I hope you will be able to come back and testify on that bill once we get it out of the drafting process.
Mr. Slawson replied, “I would be happy to do that.”
Senator Townsend said, “Committee, we have two bills [bill draft requests (BDRs)] here.”
BILL DRAFT REQUEST S-870: Amends charter of City of Reno by increasing term of office of municipal judges. (Later introduced as Senate Bill 304.)
BILL DRAFT REQUEST 43-109: Makes various changes relating to insurance for motor vehicles. (Later introduced as Senate Bill 303.)
Senator Townsend continued:
This is relating to the insurance and motor vehicles specifying that a motor vehicle manufactured after 1981, only the last eight digits of the vehicle identification number may be used to verify the motor vehicle is insured, prohibiting an operator policy of liability from being used to satisfy statutory insurance requirements under certain circumstances . . . allowing the release of information related to insurance policies under certain circumstances. This came from some people in the industry.
SENATOR RHOADS MOVED TO INTRODUCE BDR S-870 AND BDR 43‑109.
SENATOR SCHNEIDER SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR O’CONNELL WAS ABSENT FOR THE VOTE.)
*****
Senator Townsend added:
Last thing . . . this is hot off the press as of about 10 minutes ago. The Public Utilities Commission of Nevada . . . Carson City . . . in a unanimous vote, the PUCN moved to initiate further proceedings that could result in the reversal of regulatory conditions that mandated the sale of Nevada Power Company’s and Sierra Pacific [Power] company’s power plants. The moves come amidst growing concern that the sale of the plants would put Nevadans at risk to not have enough energy to meet the state’s increasing demand, et cetera. In response to today’s action, Chairman Don Soderberg stated, “We need to have a certain level of certainty in our power supply to California. Experience has shown us that we need to get back to what works. Sound resource planning whereby we strengthen our generation assets and transmission capabilities are essential to keeping the lights on in Nevada.”
We’ll get him over here a week from tomorrow to let us know what that will result in.
There being no further business, the meeting was adjourned at 10:52 a.m.
RESPECTFULLY SUBMITTED:
Barbara Moss,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: