MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
March 19, 2001
The Senate Committee on Commerce and Laborwas called to order by Vice Chairman Ann O’Connell, at 9:29 a.m., on Monday, March 19, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Senator Randolph J. Townsend, Chairman
Senator Ann O’Connell, Vice Chairman
Senator Dean A. Rhoads
Senator Mark Amodei
Senator Raymond C. Shaffer
Senator Michael A. (Mike) Schneider
Senator Maggie Carlton
STAFF MEMBERS PRESENT:
Kevin C. Powers, Committee Counsel
Scott Young, Committee Policy Analyst
Gayle Nadeau, Committee Secretary
OTHERS PRESENT:
Kirby Lampley, Policy Analyst, Public Utilities Commission of Nevada
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General
Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company
Harvey Whittemore, Lobbyist, Nevada Resort Association
Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority
George Caan, Director, Colorado River Commission
Pete G. Ernaut, Lobbyist, Reliant Energy
Marybel Batjer, Chief of Staff, Office of the Governor
Madelyn Shipman, Lobbyist, Assistant District Attorney, Civil Division, Washoe County District Attorney
Vice Chairman O'Connell opened the hearing on Bill Draft Request (BDR) 58‑966.
BILL DRAFT REQUEST 58-966: Revises certain provisions relating to provision of electric service. (Later introduced as Senate Bill 390.)
Senator Amodei MOVED TO INTRODUCE BDR 58-966.
Senator Shaffer SECONDED THE MOTION.
THE MOTION CARRIED. (Senators Townsend, Schneider, and Carlton were absent for the vote.)
*****
Vice Chairman O'Connell recessed the meeting at 9:30 a.m.
Chairman Townsend reconvened the meeting at 10:12 a.m.
Chairman Townsend opened the hearing on Bill Draft Request 58-1243.
BILL DRAFT REQUEST 58-1243: Makes various changes concerning regulation of certain public utilities operated by certain governmental entities. (Later introduced as Senate Bill 425.)
Senator O’CONNELL MOVED TO INTRODUCE BDR 58-1243.
Senator Shaffer SECONDED THE MOTION.
THE MOTION CARRIED. (Senators Schneider and AMODEI were absent for the vote.)
*****
Chairman Townsend said:
We have in front of us a proposed amendment [Exhibit C) to the moratorium on divestiture [Senate Bill (S.B.) 253]. It is a working document that we have handed out so people have something to mark up and take back to their various parties. I would advise any members of the public and the committee to read through this. After the floor session, we will go through the proposed amendment.
SENATE BILL 253: Prevents certain electric utilities from disposing of certain generation assets for a limited period and places restrictions on disposal of such assets after that period. (BDR 58-1122)
Chairman Townsend recessed the meeting at 10:15 a.m.
Chairman Townsend reconvened the meeting at 12:30 p.m.
Chairman Townsend reconvened the hearing on the proposed amendment to S.B. 253.
Chairman Townsend said:
Mr. Lampley, it is my understanding the first week of April, I believe April 6, is when the Public Utilities Commission [of Nevada (PUCN)] is scheduled to hear Mr. Hay’s motion to do one of two things. Let’s start with delay the sale of the plants. Is that your understanding?
Kirby Lampley, Policy Analyst, Public Utilities Commission of Nevada, responded, “Yes, sir, April 6 [2001].”
Chairman Townsend asked:
Is there a particular reason [for] April 6, since the magnitude and importance of this decision is rather substantial [and] is agreed to by almost everybody in the state, why we’re doing it April 6 and not on an emergency basis sooner?
Mr. Lampley answered, “There are certain noticing requirements we have to go through.”
Chairman Townsend said:
There are certain noticing requirements. We have a billion-dollar problem in the state and we don’t have a provision to allow emergency meetings to be held in public or noticed in a short time frame in your regulations.
Mr. Lampley answered, “One of the problems we have, in this case, is we need to have positions of the parties. And, I believe, the briefs were due today, and we have to give the commission time to look at the briefs.”
Chairman Townsend replied:
OK. I respect your position. I respect the legalities of it, but it would probably be my contention, since the Governor has announced his policy, since the Assembly has a bill, and we have all taken public testimony on it, it’s probably as much of a record as I think you would need in an emergency situation. But, that’s only my position. So, I’ll leave it to you as to how you want to manage it back to the commission. Time is ticking, and before we get into the amendment, let me revisit Mr. Hay’s situation of filing a motion to reconsider the Mohave sale to, is it AES [AES Mohave LLC], is that right? [Senator O'Connell said, “Yes.” and Mr. Lampley acknowledged, “Yes.”] We’re still open-minded about that, aren’t we?
Mr. Lampley answered, “Yes, sir.”
Chairman Townsend continued:
Thank you, that’s all I needed to know. We are here today to go over the tremendous amount of work [on S.B. 253 proposed amendments] our legal division, particularly Mr. Powers, did during the last 48 hours. Mr. Powers, it’s my understanding the directions given to you were the following: . . . “If we were to delay the sale of the plants that were agreed to by Sierra [Pacific Power Company] per a ruling of the PUCN [Public Utilities Commission of Nevada], as well as FERC [Federal Energy Regulatory Commission], and entered into in good faith, we have to do it in a manner to meet certain constitutional requirements,” and therefore, the amendment was drafted to meet those requirements. Is that fair?
Kevin C. Powers, Committee Counsel, Legal Division, Legislative Counsel, answered, “That is correct, Mr. Chairman.”
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection, Office of the Attorney General, testified:
I don’t know if you want to go through it sequentially; we have several concerns with section 38, page 33. This section appears to create a new type of cost-recovery mechanism for the purpose of allowing the utility to recover certain costs incurred for transactional expenses that they have occasioned, over the last year, or so, during the process of auctioning off, or soliciting bids for the generation assets. It’s our belief there probably are reasonable costs that should be recovered. I’m not sure we want to create a new statutory mechanism to recover those costs when we, in fact, have existing mechanisms I believe are adequate.
I also believe the way the section is drafted, it would act as a disincentive for the company to mitigate any damages or expenses they may have incurred in trying to pursue those transactions. That’s our major concern. I believe, in general, the rest of the bill has been redrafted by your staff along the lines we discussed last Friday. I don’t believe we have any other major concerns. I haven’t consulted with other parties; there certainly may be other folks out there.
Chairman Townsend stated:
Let me address this with Mr. Ponn [Douglas R. Ponn]. There are a number of issues that have come to this committee and will be done on whatever the next utility date is this week. The issues of the global settlement, the issues of the CEP [Comprehensive Energy Plan], the issues of deferred energy, the issue of cost recovery relative to what you are required to do under the sale of these assets, as is stated, I believe this committee feels strongly those issues need to be dealt with. This language does set up a separate mechanism. Would you be comfortable enough to take the committee’s word we will deal with this in a trailer bill to make sure you do have an opportunity, or what is your feeling there?
Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company, responded:
I was candidly, pleasantly surprised when section 38 showed up in this proposed amendment. I think your direction to myself and Mr. Hay on Friday was to go try to reach an agreement on this. If we could, it would show up here. Otherwise, it would follow the process you just outlined. We did not reach an agreement.
Chairman Townsend clarified, “So, there was a misunderstanding about why it was in here. I thought if there was an agreement, we’d put something in.”
Mr. Ponn responded, “That was the direction you gave, I think, Mr. Chairman. And, having said that, I think it is only right of us to describe how it got here and to take your word there will be another day to talk about this issue.”
Chairman Townsend stated:
That day will be in 2 days. First of all, I respect your honesty and candor, and you will receive all the respect you’re due when we go to those hearings. My only concern, so you understand, and I went through this language very closely, Mr. Hay, and I’m not an attorney, but I do believe if we set something in motion and they reasonably followed it, there should be an opportunity to recover. This committee is still a policy committee, and we know whenever you go in front of a regulatory agency, there’s much more detail than we will ever see. There are things that either you, as a company, have that you account for differently than, perhaps, the way Mr. Hay would account for them, or even Mr. Schmidt’s [Fred J. Schmidt] clients, or Mr. Whittemore’s [Harvey Whittemore] clients, or even the City of Reno.
But, there needs to be an opportunity, without question, on this issue alone, to recover [costs]. Otherwise, much like the debate we had with our friend here who went out and spent $600,000 on tenant improvements for the state and then they walked away from the guy, there’s got to be a way, otherwise, nobody’s going to ever enter into any of these things again. Unless in the hearing where they told you to sell the plants, you say, “OK, well, I want to be held harmless in case something goes wrong here.” Then you open up a whole other debate.
Let me tell you going in now, so there won’t be any misunderstanding, it is my intention to try to understand the global settlement, the CEP, and deferred energy on Thursday, because it is a very complex area. In no way should anyone misunderstand the committee is here to take anything away from any of the parties or put any of the parties in jeopardy. We just must understand all of those things, and they are complex.
Senator Amodei said:
Realizing I wasn’t here Friday, I’m looking at the language in subsection (c), specifically on line 18 of page 33, which talks about contract damages for which the electric utility is held liable. And, I know that’s kind of a crystal ball thing, but was anything put on the record Friday? Has there been any information on what the range of those damages could potentially be?
Chairman Townsend replied, “The answer to your question is, due to the integrity of Mr. Ponn, we will put this issue on Thursday and not make it as part of this. So, if we could ask the question then.”
Senator Amodei stated:
That would be great. Before voting for it, it would be nice to know the range one is authorizing them to incur, as far as potential goes. And, another thing that would be nice to hear is if anybody thinks the possibility of specific performance would be available as a remedy in that context, which is something we probably also have a discussion of on the record before we vote to play with both of those potential contract issues.
Chairman Townsend agreed and continued:
I think the point is well taken. There’s an awful lot of good will involved in all of this, and we respect that. OK, if we remove 38 [section 38 of the proposed amendment to S.B. 253] as we ask Kevin [Mr. Powers] to go forward, then the question’s now become one of, since this was your main concern, Mr. Hay, now the issue comes up of what is the total impact of doing it in this manner. I want to make sure we go down the list and, Mr. Ponn, since this directly affects your company as well as all of our consumers, I’m going to start with you. If you could go through this and tell us your concerns, as drafted.
There are concerns in giving the instructions to Mr. Powers on whether, in fact, this does a number of things. One concern is, does this undo all of the regulation efforts made by all of the parties in setting distribution rates, unbundling rates? Do all of those things become moot? I would hate for this committee to do anything unwillingly, or unwittingly, which would undo the efforts of the past commissions to get us to a position of understanding those rate situations.
The other one is, does this preclude us, does this create any language? I looked at it at least once or twice and there seems to be some potential of capping flexibility, so if we have such a demand on the system, particularly in the summer in southern Nevada where our large users create a problem for our residential customers, [there is the flexibility] of having these potential plants built in this state being able to absorb some of the large-user problems so the domestic generation the company will retain under this would be relieved of reliability pressures. I want to make sure we address this issue. Those are at least two of the things that have come to my attention.
Mr. Ponn remarked, “Based on our first review of this draft, we do have some areas of concern, or question. Probably the first major one is in section 9, page 3, line 15.”
Chairman Townsend read from Exhibit C, page 3, section 9, lines 15 through 21.
Mr. Ponn continued:
And, based on the discussion Friday, Mr. Chairman, Senator O'Connell’s concerns about who would be defined in this section, the committee may want to add the State of Nevada, or an agency or instrumentality of the state. I think Senator O'Connell’s concern was the owner of generation not being subject to the jurisdiction of the PUCN.
Harvey Whittemore, Lobbyist, Nevada Resort Association, stated:
The language that’s proposed, I think, does comport with what Senator O'Connell’s express concern was, but I would like to make sure the committee is aware there may be a circumstance under which the state, or an instrumentality of the state, must be required to act. And, that is if the company is insolvent or bankrupt and there is nobody available to run the system. We would agree it should not be an affirmative opportunity of the state to engage in the private activity, which was what, I think, Senator O'Connell wanted, Mr. Chairman. But, again, the concern would be if there is insolvency or bankruptcy, it would seem you might want to have the state or instrumentality of the state being able to operate the utility only in those circumstances.
Senator O'Connell commented:
My understanding is, and Doug [Mr. Ponn], I don’t know if you can answer this or not, but, if there were to be that kind of a financial crisis, if a company were to go into bankruptcy, the only thing that then happens is the judge rules you are currently in bankruptcy and gives you the opportunity to do a reformation of the company. But, you continue right on; it’s business as usual. Now, that’s under what, a Chapter 11? I don’t know if, in these circumstances, you would be going into a Chapter 7, as opposed to an 11 [Chapter 11], but I think we have enough companies out there that are willing to step right in, if that were the case, as opposed to having a state instrument, if you would, come in and take over. Maybe you can give me some answers.
Mr. Ponn replied:
I’m surrounded by lawyers, but I’m not one. It’s my assessment, if we reach the onerous condition, that the courts would step in, and, one way or the other, they would control how we go forward and how customers end up being served. I think there would be an opportunity, either in the courts or if we were in that condition, for the state to be involved in how we went forward in the state. So, I think, to your point, designating anyone as the second or the alternative may not be necessary.
Chairman Townsend commented:
I think I understood your point, Mr. Whittemore, as opposed to somebody actually getting involved in the utility business, as a government or government entity there [should] be an opportunity for the state to be there in case there was [a problem].
Mr. Whittemore stated:
The point is, if you put that provision in there, the court would not be authorized to put the State of Nevada, or any of its instrumentalities, as the trustee or anything else to run it. I think to keep the flexibility, and not to make the mistake California did, California operated this without any authority, and that’s what created the big problem. I think from a policy perspective, not arguing one way or the other, it’s obviously your decision, and if you say you don’t want the state in the utility business, that’s a policy decision.
But, if you don’t leave yourself the flexibility in case of the worst case, (I’m not suggesting it’s going to happen) and to give yourself that flexibility only if the judge were to say, “We want the state to be a trustee.” That provision would mean there would be no party except a private party. All of a sudden, you’d be in a position where you are awarding them some step-up. I just raised the issue [to] make sure the committee is aware of it.
Chairman Townsend said:
I think the question is, if you take out 3 [line 20, section 9, page 3] and you just leave a natural person or any form of business or social organization and any other nongovernmental legal entity . . . then that leaves the position you’ve stated, Mr. Whittemore, which would be only a private entity would be in position were something to happen?
Mr. Whittemore responded:
I think, out of fairness, Mr. Chairman, if I might, what Mr. Ponn was proposing as a new sub 4 [subsection 4 to section 9, page 3 of Exhibit C] would be satisfactory and would address Senator O'Connell’s concerns. What he proposed would take the state out of it all together. So, I think what Mr. Ponn proposed as 4 [subsection 4] would, under subsection 3 [section 9, page 3, Exhibit C], “A government, a political subdivision of a government agency. . .” would, in my reading, already preclude the state from acting. He [Mr. Ponn] is trying to use “belts and suspenders” by saying, “Put additional language in there that specifically identifies the state.”
Now, I’m sure Kevin [Mr. Powers] would advise you that 3 [subsection 3, section 9, page 3, Exhibit C] already includes the state and, therefore, Mr. Ponn’s language is unnecessary. But, if you put subsection 4 in there, then the only policy question that’s left is, if you have insolvency or bankruptcy, are you really saying you do not want someone to be able to operate in case there is no private company? Because, if no private company comes in, regardless of what the judge says or anything else, the state should keep the lights on; if there’s nobody there, there’s nobody there.
Senator Amodei commented:
If you go back up to the definition of “electric utility” on page 2 in section 6 [line 19, subsection 4] “A successor in interest to any . . .” language at 4, there’s a potential huge loophole there since we’re talking about who may or may not be. So, there needs to be, if we’re going to do that, some sort of language to talk about who it is, because a “successor in interest” is, potentially, anybody who succeeds to that interest.
Mr. Whittemore stated:
But under Mr. Power’s language, I think it makes it clear all he’s trying to do is to say who is not capable of acquiring these entities in the first instance. And that’s what he is suggesting by this language. It doesn’t go to allowing the state to get into the business; we’re only talking about the acquisition of assets. And, I think, that’s exactly what he did. I don’t want to speak for him.
Mr. Powers explained:
Mr. Chairman, the definition of “person” is set forth in the preliminary chapter of [Nevada Revised Statutes] NRS, and that definition of “person” applies to all chapters of NRS, unless there’s another definition specifically provided by a different statute. The preliminary chapter definition of “person” does not include the state. So, the state, typically, is not a person. By defining “person” here to include a government, then we are defining it to include the state. And, therefore, the state, as a person, can’t have a generation asset sold to it under the provisions of the bill. So, this is a list of the persons who cannot acquire a generation asset under the provisions of the bill. If we took out subsection 3 [section 9, line 20, page 3, Exhibit C], then the state could acquire the generation asset because the term “person” would no longer include the state.
Chairman Townsend said:
There are two policy issues to argue over, here. Number one, should the state get into this business, even if things are fine? That’s the first question, and I think this committee has, probably, a pretty long-standing position on that one. Then the second question is, if there is some trouble, should the state be allowed to intervene at that point? California chose to buy the transmission for x number of billon dollars. Theoretically, the money was granted to the utilities to help them with their financial conditions. So, you are saying, Kevin [Mr. Powers], if you leave 3 [subsection 3 of section 9] in, then no way does the state acquire any assets of this utility under any circumstance?
Mr. Powers answered:
If you leave sub 3 [subsection 3] in, Mr. Chairman, then the state is precluded, along with other private parties, from acquiring generation assets under the provisions of the bill. The state can acquire the generation assets under exceptions in the bill. There’s an exception for transactions and transfers if, substantially, all the assets of the utility go to the person, the acquiring entity. And, the acquiring entity could be the state under those circumstances. If you go in the bill, specifically to section 11 on page 5, beginning with line 7 [Exhibit C], during the first period of the moratorium which ends on July 1, 2003, this is the only exception under which the generation assets can be transferred.
And, that’s “. . . pursuant to a merger, acquisition or transaction that is authorized pursuant to NRS 704.329 or pursuant to a transfer of its certificate of public convenience and necessity that is authorized pursuant to NRS 704.410. . . .” [page 5, section 11, Exhibit C] And, with the restriction being the transfer cannot be to an affiliate, and substantially all the generation assets and all the other assets would have to be transferred. Technically, the state could come in and have the certificate of public convenience, the necessity, transferred to them. And, if they acquired substantially all the generation assets, and substantially all the other assets, then they would be able to do it pursuant to this provision.
Mr. Whittemore said:
Mr. Chairman, and you would cover my concern if you just simply add “merger acquisition or transaction or pursuant to court order” in this provision. Because, again, the only issue is, in that circumstance whether there is insolvency or bankruptcy. You could do it [in] either of two spots and resolve the same concern.
Mr. Powers stated, “If we’re going to go down that route, Mr. Chairman, I’d like to identify what type of court order.”
Mr. Whittemore responded, “Bankruptcy court.”
Mr. Powers clarified, “OK. Federal bankruptcy court?”
Mr. Whittemore confirmed, “Federal bankruptcy court.”
Chairman Townsend said:
Do you see what he’s trying to say? In other words, the government can’t go in the business unless there’s a federal bankruptcy action. And, then it doesn’t mandate they do it. It just means they are there if nobody else will acquire them. Does this not also allow them to sell the generation assets, as long as they sell everything else? In other words, if somebody came in bigger than us, [for example a] “Dot Com” utility company comes in and makes an offer of $35 a share. They can sell everything?
Mr. Powers answered, “Correct, as long as the sale is approved by the PUCN first.”
Senator O'Connell asked:
Kevin [Mr. Powers], is the scenario I had stated before any different with the federal bankruptcy than it would be with the state bankruptcy, in that the company would not be given the opportunity to reorganize?
Mr. Powers answered:
Generally, the federal bankruptcy act preempts most state laws dealing with insolvency and bankruptcy. So, I don’t believe the company could go into state court seeking reorganization. They’d have to go into the federal court.
There’s at least one case where a New Hampshire federal bankruptcy court ordered a reorganization of a public utility. The court held any state laws prohibiting transfer or disposal of the assets were preempted by the Federal Bankruptcy Act, so the court order was superior to any state law. Under those circumstances, if the bankruptcy court was involved, it is unlikely a state statute could prevent the court from ordering the transfer or disposal of the assets to a certain individual. However, Mr. Whittemore’s concern is the state being named the trustee under federal bankruptcy law.
Now, this state law may prevent the state from being named trustee, because the state has to be authorized to act as a trustee. It’s different from the court ordering the assets to be sold to the state, versus the court ordering the state to just simply be the trustee who administers the assets. Under the current version, now, there is a possibility the state could not be named trustee in federal bankruptcy, but the state could have the assets sold, both under the statute and pursuant to a federal bankruptcy court order. So, the question is, if you are taking Mr. Whittemore’s concerns into account, do you specify that the state could be a trustee under federal bankruptcy order?
Mr. Whittemore interjected:
Or under section 11 [of Exhibit C], making it clear the merger acquisition or transaction could be contemplated under the bankruptcy code. Again, I don’t think there’s anybody suggesting the state should be involved in private business. We’re only talking about the absolute worst case, because again, this only covers the sale of generation assets. Specific ones. I presume, and I think Kevin [Mr. Powers] would agree with me, there is no attempt in this bill to change the authority.
For example, the CRC [Colorado River Commission] or the Southern Nevada Water Authority, or anybody else who’s already providing generation services from owning those assets that they presently own, or constructing new ones. This is only to acquire those owned by the utility, is that correct? I just want to put that on the record.
Mr. Powers answered:
Correct. The definition of electric utility is limited to the vertically integrated electric utilities in the state, [of] which I believe, there are only two: Nevada Power [Company] and Sierra Pacific Power [Company]. And, they’re precluded by the bill from disposing of their generation assets.
Senator O'Connell commented:
But under section 31 [beginning on line 8, page 26 of Exhibit C], it opens up the ability of the Colorado River Commission to certainly have additional customers [to those] they presently have, if my understanding is correct.
Mr. Powers:
Correct. Section 31, Senator, goes to a different issue with the sale of, not the generation assets, but the actual electricity. But, as drafted in this proposed amendment [Exhibit C], it changes the date after which the Colorado River Commission cannot go out and acquire new customers to sell electricity to. Under the current provision, it’s July 16, 1997. Those are the customers the Colorado River Commission can serve, [the ones] it was serving on that date. And under this draft, it advances that date to the date on which, potentially, competitive services may be obtained. So, if this bill were enacted as a proposed amendment in its current form, then the Colorado River Commission could go out, up until the date competition begins, and obtain new customers.
Senator Carlton asked, “So, they’ve got an edge?”
Mr. Powers responded:
It is a possibility, yes. Mr. Chairman, this provision is in the bill because, in restructuring the provisions of the restructuring act, this date was moved forward to as other dates were also removed from other provisions. However, this section is not necessary, in order to carry forth with the divestiture in reconciling the restructuring act, with the moratorium on divestiture. So, this section could be simply removed from this bill and no damage would be done to the bill as a whole.
Chairman Townsend asked, “Anybody have a problem with that?”
Mr. Ponn commented:
Mr. Chairman, one of our concerns, if you took section 11 in concert with section 31 [Exhibit C] Senator O'Connell referenced, what you might be creating is the ability for one entity to go out and acquire new customers before anyone else, and to have those customers ready to go July 1, 2003. Therefore, I think, [it creates] something contrary to what has been the expressed intent of the previous laws and this committee.
Chairman Townsend asked:
I’m very concerned about two issues. One is whether the Colorado River Commission should be in this debate. The other is if the pressure on your system, particularly in southern Nevada in the summer, is so great we have to get rid of some folks only in a manner creating new generation. In other words, if we asked the large people to go find other generation because they have more assets with which to do it, and more interest in doing it, that could help protect the smaller customer on a reliability standard. Does it affect [the pressure on the system], or does it only affect the Colorado River Commission?
Mr. Ponn responded:
I don’t see any requirement in here, if the Colorado River Commission, for instance, were going to go out and solicit customers or signup customers. I see no requirement here that they would have to bring with them additional generation, or anything else.
Chairman Townsend clarified, “So, if we take this out, we’re okay?”
Mr. Whittemore:
Mr. Chairman, my suggestion was to take out all references to the Colorado River Commission with respect to the bill, because there is pending legislation which talks about the Colorado River Commission’s authority, and have those discussions directly with respect to those policies, rather than have it impacted with respect to the divestiture bill.
Those were my general comments with respect to this. While Kevin [Mr. Powers] has attempted to integrate the changes he thought were necessary as a result of the divestiture changes, [some] things in the bill could be delayed for the trailer bill to allow the committee to have the discussion fully with respect to the policy issues being presented in other legislation.
Chairman Townsend stated:
I think the goal of the committee was to deal only with the suspension of the current sale and not affect anything else that would be brought up in a couple of days. Although, this does directly affect your client, Mr. Schmidt, why don’t you give us your insight here with regard to page 3, section 9 [Exhibit C].
Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority, said:
Well, I don’t think the bill affects my client, Southern Nevada Water Authority, at all. But, I do think it affects the Colorado River Commission, who aren’t the same entities. I’m not sure, but I haven’t heard Kevin’s [Mr. Power’s] explanation, because I think these sections weren’t asked for by anybody. I think he [Mr. Powers] put them in because he thought they were trying to comply with the effect the bill had on the existing competitive statutes. But, I don’t think, either section 12 or 17 or 31 is necessary, from my perspective, to do anything with regard to the divestiture.
Leaving aside the issue Mr. Whittemore raised, they’re not something we’ve advocated. The Southern Nevada Water Authority’s ability to buy power isn’t impacted unless you change the laws that affect Southern Nevada Water Authority directly, which this, as I read it, doesn’t do. So, this doesn’t affect us one way or the other. I guess I would agree with Mr. Whittemore, I don’t know if you should tinker with the Colorado River Commission situation in this bill.
Chairman Townsend responded, “No, that’s not the intention. Would you give us those sites again?”
Mr. Schmidt answered:
Section 12 [Exhibit C] brings in the Colorado River Commission. Section 17, which is on page 9, and if you turn to page 10 at the top [under section 17], there’s a reference to [the] Colorado River Commission there, and, page 26 in section 31. If you have questions about the Colorado River Commission, the director is here in the audience. Rather than ask the Southern Nevada Water Authority’s representative, you might want to ask him.
Mr. Powers stated:
Mr. Chairman, in those sections, excluding section 31, section 31 can be wholly removed from the bill. Well, that’s not actually true. section 31, subsection 2, has to be amended to indicate the provision only becomes effective on and after the date, potentially, competitive services may be obtained by customers in the state, because subsection 2 contemplates the Colorado River Commission acting as an alternative seller. And, they won’t be able to act as an alternative seller until on or after a date the customers may begin receiving potentially competitive services. No change needs to be made to subsection 1, or [NRS] 704.987. All the changes shown here can be removed, and that provision can be restored. Subsection 2, to be consistent with the rest of the bill, has to indicate, the Colorado River Commission can’t act as an alternative seller until competition begins in the state.
The reference to the Colorado River Commission in section 12 is just to indicate, again, when they’re acting as an alternative seller, they’re not going to be covered by the provisions of the restructuring act until competition actually begins. And, then the final reference in section 17 is the same. The Colorado River Commission is only referred to there because they will be an alternative seller if they enter the competitive market after competition begins. The whole point of section 12 is to delay the onset of competition during the first period of the moratorium. The other changes are just to indicate, that during the first period of the moratorium, provisions of the restructuring don’t apply to these entities.
Mr. Ponn stated:
I’m not arguing that analysis, but I think the situation that could be created is during the first phase of the moratorium until July 1, 2003, this particular entity could be out recruiting, signing up customers for the start of competition. So, that’s the concern we have, notwithstanding the drafting niceties of restructuring.
Chairman Townsend pointed out:
Mr. Ponn, you brought up a good point. This committee debated, at great length, competitive entities’ ability to go out and recruit during certain times. It’s a very serious public policy debate. We’ve had it at great length. The committee’s pretty consistent on its position, relative to government entities, particularly, when it comes to the issues of competitive commodities. And, I’m not sure we want them out there recruiting, because, number one, they’re not a private entity, they’re a public entity; and, number two, I think the issue is a very simple one, the goal is: supply, supply, supply. I don’t know if they bring anything to the table to help. I’m not sure we’re interested in creating a situation where they’re competing with you.
Mr. Ponn said:
I think it may, actually, in this instance be counterproductive because, if during this first phase of the divestiture prohibition there is the recruitment for customers, the other part of divestiture is. What is our obligation to serve customers per the current amendment, July 1, 2003? So, you’ve created still another level of uncertainty about who our customers will be; how much we need to have; should what we be out trying to secure for those customers. I think it may be counterproductive in that respect.
Mr. Schmidt commented:
The Southern Nevada Water Authority has taken a consistent position all along in this bill. This bill should be about divestiture and whether divestiture can go forward, and nothing else. And, nobody has advocated for it to go beyond that, successfully, that I’ve heard so far, except the fact if you don’t take action with regard to divestiture, and do it soon, some things are going to happen because you did not take action. We urge you to keep that focus with regard to this bill. The other, broader public debates, if there are any to be had this session, can certainly occur at a later date if someone wants to advocate those types of issues.
Mr. Whittemore stated:
In fairness to what Kevin [Mr. Powers] has suggested, and while I agree with Fred’s [Mr. Schmidt’s] general comments, and obviously, we’re aware of Doug’s [Mr. Ponn’s] concern, the issue as to what the policy objectives are going to be with respect to these issue, I thought, were going to be subsequently addressed in the trailer bill. And, therefore, if the bill drafter and the LCB [Legislative Counsel Bureau] believes we need to accommodate certain positions from a perspective of making them internally consistent, I would err on the side of including them to the extent they’re marginally needed.
Understanding the policy issue as to whether or not it’s going to give a leg up in terms of competition to the Colorado River Commission or anybody else, should be delayed until we have those discussions on a wide variety of things: deferred energy; and when and if and what’s going to happen with respect to creating incentives for additional generation. If we’re concerned about that in this bill, then it seems to me, one of the things we need to be concerned about is the section which talks about, [it is] section 10 on page 4 [Exhibit C], about creating incentives and what the conditions are under which these generation assets can be disposed.
Mr. Whittemore continued:
It would seem to me you need a benchmark. If you are going to look at this, you need a benchmark. If there’s 500 additional generation capacity that’s been produced, does that mean the utilities get to sell 500? Or, is it a two-for-one? Or is it a four-for-one? In other words, if you have a 1000, you get to sell 250. Because, clearly in section 10, what Kevin’s [Mr. Powers] attempted to do is to create the language which requires the PUCN to show there’s going to be no negative impact. And what better way to show there’s no negative impact, by then having a, not a subjective, but an objective standard, which shows additional generation has, in fact, come on line and is available for acquisition, either by the utility under long-term contracts, or purchased by other individuals within the state, pursuant to policies, which are decided by this committee.
So, again, it seems to me if you have some objective standards which say the company can sell 500, if there’s 1000 built, or sell 250 if 500’s built, would go a long ways towards getting the business proposition set out, rather than just relying on some sort of subjective standards, albeit ones, I think, we can understand and work with. Those are the types of things, though, Mr. Chairman, it would seem to me the committee’s interested in subsequent meetings, not necessarily saying they have to all be included in this bill, today, to get the issue of whether the moratorium is good or bad.
Senator O'Connell expressed:
Here’s my concern and why I’m bringing this up. We are directing, through the law, to have the company actually go back on a good-faith position as far as selling their plants. So, we’re making a statement of fact to the company on this issue. Therefore, the other plants interested in Nevada are going to be thinking, “Hey, guys, you know, what kind of a message is this, and should we start looking in other areas if the Legislature can do this to AES [AES Mohave LLC], then why not us?” Then we have in a bill, either this vehicle or a trailer bill, saying we’re going to allow an entity of the state to subsidize and to go out and to look for customers prior to the competition.
What kind of a bag of worms does this send out to the private industry? That’s my concern. So, I think we need to be consistent with our message. If we’re going to stop the sale, and we’re going to do it through the law, then I think we need to clearly identify we are not going to give any government [entity] a leg up to subsidize them to get additional customers. So, just for the record, that’s kind of my position in this.
Senator Amodei said:
I’m not going to expound upon that, because I think that’s pretty well stated, but, and I understand what you’re saying, Harvey [Mr. Whittemore], but my concern is it’s March 19, [2001], and we refer to trailer bills whose numbers are unknown at this point in time and whose drafts are unavailable, and as yet, undiscovered, especially, in this area. I don’t know, I just sort of feel like smaller bites are better, at this point in time.
Chairman Townsend noted:
There is a bill draft available to us. Knowing this issue was going to come up, I’ve provided it. So, whatever we need to put into the bill draft is the committee’s decision relative to the trailer bill. Mr. Powers, can you respond? I think Senator O'Connell’s kind of spoken, and the committee doesn’t seem to object to it, so, I don’t know how to put it any other way.
Mr. Power’s responded:
Mr. Chairman, I certainly agree with Senator O'Connell’s concerns. If we restore subsection 1 of [NRS] 704.987 to its existing state, then we won’t change the prohibition on the Colorado River Commission from obtaining new customers. They’ll be stuck with their customers who existed on July 16, 1997. And, then we specifically provide in subsection 2 of 987 [NRS 704.987] they can’t go out and be alternative sellers before the date on which competition begins. That’s, essentially, what the change would be to make it clear the provisions of subsection 2 of 987 [NRS 704.987] don’t allow them to go out and become alternative sellers until after competition begins, which should resolve Senator O'Connell’s concerns.
Chairman Townsend asked, “Who are their [the Colorado River Commission] current customers?”
Mr. Schmidt responded:
I really think you might want to have the director of the CRC come up. But, I did want to say in defense of me, one of the reasons I think this would be a concern is the CRC, with regard to its existing customers, is doing such a good job right now. I think there would be concern others, like Mr. Whittemore’s clients or others, might want to seek them out to do things for them. No one I know of is specifically advocating allowing them to broaden their authority as a result of this bill. That’s not the Water Authority’s [Southern Nevada Water Authority] position.
George Caan, Director, Colorado River Commission, testified:
In reading the legislation, I agree, it doesn’t offer us the ability to serve anyone else but our existing customers. You asked who our existing customers are. We have 11 customers we serve with hydropower [hydro-electric generation] and non-hydropower. The utility customers are Overton Power District, Valley Electric Association, Lincoln County Power District, the City of Boulder City, and Nevada Power Company. We have six industrial customers [in] the BMI [Basic Management Incorporated] complex in Henderson, which includes Pioneer [Pioneer Chlor Alkali Company], “Timet” [Titanium Metals Corporation], Kerr-McGee [Corporation], “Chemlime” [Chemical Lime Company], American Pacific Corporation [AMPAC], and Basic power company.
In addition to those customers, we serve with both hydro and non-hydro, we also serve the lake facilities, and the new treatment and transmission facilities constructed by the Southern Nevada Water Authority. We refer to those as the “out-valley” facilities. They are served completely from power we procure on long-term arrangements from a variety of companies. They do not receive any hydropower.
So in total, we have currently 12 customers, and existing law and, I believe, this law as well, prevents us from serving any further customers or going out and recruiting any further customers. The law says we can serve the customers I just mentioned, and then any others we could serve if we had an alternative seller’s license like everyone else. So, I don’t believe this provides us any additional opportunity for recruiting customers.
Chairman Townsend asked, “How many hydro megawatts do you have?”
Mr. Caan replied, “We have approximately 475 megawatts of hydropower that we obtain from the Hoover Dam, Parker [Dam], Davis [Dam], and Glen Canyon [Dam]. It’s about 25 percent of the output from those three lower-basin dams [Hoover, Davis, and Parker dams].”
Chairman Townsend asked, “And, what’s the remainder of what you sell? Is it gas, or what is it?”
Mr. Caan answered:
We serve the industrial customers, the BMI Complex in Henderson. They’re full-requirements customers of the Colorado River Commission, which means we provide them with supplemental energy they require in addition to their hydropower. And that’s approximately 125 megawatts they require over a year. The water authority, on its own, requires about 125 megawatts up to about 150 megawatts. But, that’s not hydropower. So, we have a responsibility to our industrial customers to ensure they have a full portfolio of reliable power supplies. And, for the water authority, we provide about 85 percent of their total needs, which is what their out-valley facilities require.
Pete G. Ernaut, Lobbyist, Reliant Energy, clarified:
If it’s the pleasure of the Chair [Chairman], I was going to take maybe a little different look at the policy statement in the bill. Rather than specifically on this kind of rabbit trail we’ve gotten off onto with the Colorado River Commission, if it’s in order, I’d like to just talk about the policy statement and, maybe, another way of looking at this.
Chairman Townsend responded:
We are trying to stay on point, stay focused on the suspension or moratorium of the sale of plants, but, we keep getting off into things we don’t want to get off into. So, you’re free to wander there, if you’d like. Anything that could be helpful.
Mr. Ernaut continued:
The first thing, I guess, I would say is on the question of divestiture. Obviously, we’ve spent a great deal of time and a lot of hours discussing over the last few weeks whether or not divestiture should, or should not, go through. I think it’s pretty plain to anybody who’s awake that, certainly, the political tide has moved in the discussion of stopping divestiture. I guess my point would be this: Instead of going through the whole drill here of creating a moratorium and all those things, you would be better‑served by just simply stating divestiture would end, except under the following conditions.
The conditions you’ve set forth, Mr. Chairman, in this bill draft are very restrictive, but also, I think, very appropriate. They deal with costs, they deal with expandability, and they deal in the best interest of the state of Nevada. All those things, I think, we collectively would agree upon in the first place. But, as we’ve discussed this, and Mr. Whittemore discussed on a different issue of having flexibility, I think we’ve all realized how quickly this moves. How quickly this marketplace changes. We need to have flexibility and some “fluidness” to this discussion. Instead of going to a moratorium . . . the policy decision is, divestiture ends.
However, if there comes a situation, whether it’s a Harry Allen Substation, whatever situation it may be, that we may not be able to contemplate here today in this committee, if this company, [and] there’s a willing buyer, [and] there’s a willing seller, and you take it to the commission under the following policy statement you have here, [meeting] the following conditions they could, in fact, divest themselves from the plant, if it made sense.
Mr. Ernaut commented further:
Now, what would make sense? We understand that, and we’ve talked, again, ad nauseam, before this committee, about the fact it’s about supply, supply, supply. But, it’s not just supply. It’s insured, guaranteed access to that supply, whether that’s long-term contracts or, more applicably, transmission, and the infrastructure needs of this state and this company to meet the growing supply of creating new, constructing new power plants. The point being, the brunt of that responsibility to build that transmission with these four or five new power plants coming on, especially in Southern Nevada, is going to be here and now, not after two years, not after July 1, 2003.
So, we may want to leave open, and I know there’s some exceptions for mergers and acquisitions, but I think we want to leave open the prospect that [if] this company saw the opportunity or even the necessity to sell the plant to meet or address a transmission need into the future, they ought to have the ability. Now, whether or not they choose to do it, certainly, again, would be a willing buyer, a willing seller and all the conditions are put here, but I would think the moratorium, in effect, kills divestiture anyway. From the standpoint that all these companies, one of which I represent, but I think I could represent all of them here today saying, if you put a 2-year moratorium, these deals are all going to go away.
So, the moratorium is really a more complicated way of getting at saying, “Look, if you want to stop divestiture, stop it.” But, then have some conditions in case there’s an emergency situation, or if something arises where we have to address a change in the marketplace. I just give you that to think about, Mr. Chairman, just being from Elko [Nevada], you know the expression, “When the cow leaves the barn, it’s a little harder to catch.” I just don’t want the cow to leave the barn, here, and have us not look at the fact that there may be a simpler way of getting at this in saying the exact same thing.
Chairman Townsend commented:
Well, having served in this body, you know, having said what you said, then you have forgotten about LCB. This seems to be the attempt to get out of a beanbag chair after two six-packs. You know what the goal is, but you just don’t have a clue how to do it.
So, we are asking Mr. Powers, again, we don’t want to get off the flexibility issue with the moratorium. If we are going to protect the constitutionality of this provision, and it’s only going to last for 2 years, but there may be reasons to allow a company to sell something, and that’s all we want to say, that’s the goal, because all of the other issues need to be dealt with in the bill downstairs waiting for us to send it all its innards. Without getting into government entities, without getting into the Colorado River Commission, but without being so final [we lack flexibility] were something to occur, such as, additional capacity coming online, the marketplace changes and we don’t know what happens, [which is] the goal here, without letting government go into the energy business, I think, has been just kind of the issue.
Mr. Powers said:
Mr. Chairman, I think it’s important to step back and discuss the major premise this amendment was drafted under. Imposing a moratorium on divestiture, obviously, prevents the utilities from selling their generation assets. The existing restructuring act, however, if the Governor were to declare competition to begin, the utilities, the vertically integrated electric utilities, would be, essentially, forced to sell their generation assets. So, [in] one statute you would be requiring them to retain their generation assets, and in another statute you’d, essentially, be telling them they have to sell their generation assets to an affiliate.
That’s a facially, irrational statute that probably violates fundamental rights under the due process clause. The intent of this amendment, excluding the Colorado River Commission provisions . . . the amendment is intended to reconcile those two goals: prohibiting sale of generation assets in one statute and requiring them in the other. What you just said is certainly possible. Instead of having the flat 2-year prohibition on divestiture with only one exception for sale of all assets, during that 2-year period you can establish any mechanisms the committee sees fit to allow the generation assets to be sold. The options are unlimited in that regard.
The question for the committee, though, and for the statutory drafter, is to identify who has the discretion to determine what those conditions are. Whether they’re going to be strict statutory conditions, or whether the PUCN’s going to administer them, or some other agency is going to administer them. So, we can achieve many of the things the people at the table have discussed, but there has to be a clear objective, and then the statutory language could be drafted.
Chairman Townsend said:
Well, under our scheme, the only way you could sell something would be going through the PUCN, going through a hearing and giving some standards without saying, “It’s only A, B, and C, because market conditions may change, the financial condition of the company may change, the price of the commodity may change, et cetera.” And, so you don’t want to preclude yourself from having a group of individuals come before the PUCN and say, “Because of these changes, this is why we think the sale of this is in the best interest of the state of Nevada.” And, allow them to hear that. If you put in statute, these are the only reasons you can do it, then you have a small problem because then they are precluded.
Mr. Powers stated:
That is correct, Mr. Chairman. And, following through with what you’re saying, then, it is possible to suspend the existing divestiture plan to the utilities, and, then require those contracts to be resubmitted under a different system to the PUCN, and to be judged under a different set of criteria set out in the statute.
Chairman Townsend commented:
OK, not a bad idea. OK, committee, I guess the thing before us today, is to give Mr. Powers substantially better guidance on what we want to do here. I think, Mr. Ernaut, your point about the flexibility [being] necessary, because market conditions are changing daily, I think, is an important one. It shouldn’t reside with the legislature, because we’re not going to be here if those conditions change. The PUCN, generally, is the forum that allows all the parties to go before the PUCN and say, “Yes. No. Maybe. Conditioned, et cetera.”
And, then carve out all of these other things. Governments aren’t going in the utility business. With all due respect to the Colorado River Commission, who appears to be doing a heck of a job for their current client base, I’m not sure this committee, in this bill, is willing to allow you to have more clients at this time. But, that’s a separate debate for another bill. And, there is a bill in Natural Resources, S.B. 211, that deals with your issues.
SENATE BILL 211: Expands authority of Colorado River commission to provide electric services to political subdivisions. (BDR 58-633)
Chairman Townsend continued:
And, try to get refocused on what the goal is, because we can start, and I understand your position, Mr. Powers, which is well-taken about you can’t say one thing in a bill and still have the statute say another thing.
The one thing I want to make sure [of], I’ve read this bill, but because I don’t read it in context of the NRS in total, if we require the company to keep these assets, they are not required to put them in an affiliate until 2003, and [then] only after which [time] the Governor has determined they’ll be a competitive environment, is that still the way it reads?
Mr. Powers answered:
Under the proposed amendment, the vertically integrated electric utilities must retain their current generation assets, and they can only dispose of them under the limited conditions in the bill. And, then, on the date the Governor declares competition may begin, then the provisions, as amended by this bill, and this is a significant change in this bill, at that moment when the competition begins, the utilities aren’t required to put their generation assets in an affiliate at that date. They’re only required to put their generation assets in an affiliate if the PUCN requires them to do so. So, this bill makes that significant change. Right now under the restructuring act, they’re required to go to an affiliate, but this bill says not until the PUCN says you have to.
Chairman Townsend said:
I just think it’s an important position that they not put them [their generation assets] in, if we require them [utilities] to keep them [their generation assets] until that other public policy decision has been made, because that’s just an additional expense.
Mr. Schmidt commented:
I think I would go one step further and say, not only do you not want them to put them in, but you should preclude them, you should require them to retain, and I believe this bill does that, the generation assets under regulation, so you don’t get a scenario like occurred in California, where you had your investor-owned, regulated utility transferring the assets it did not divest into an affiliate, and then the affiliate was free to charge whatever rates it wanted to if it had that freedom through the FERC [Federal Energy Regulatory Commission]. But, I interpret this bill to not allow them to put them into an affiliate until that date is triggered when competition would start. And, then it’s a PUCN determination as to whether they’re required to be an affiliate or not.
Mr. Ponn said:
. . . On section 11 [Exhibit C], we were concerned we might be ordered, under this language, to put our generation into an affiliate or, secondly, it might allow the commission [PUCN], under regulation, to not allow us to provide generation. So, we had those two concerns. I think we had the debate earlier about not creating this affiliate for generation, and we saw section 11 as, perhaps, raising that possibility.
Chairman Townsend stated:
OK. The point Mr. Ponn and Mr. Schmidt are making, Mr. Powers, is, not only from what the public sees and feels, but from what is actually in practice, at the suspension of these sales, nothing changes. Rate of return, normal regulated stuff that’s currently in the law, stays in place. Nobody goes to an affiliate; the generation remains regulated under its current regulatory configuration.
Mr. Powers responded:
That is the objective of this proposed amendment, and I believe it’s what this proposed amendment accomplishes. And, I’ll reemphasize that during, in this proposed amendment, the 2-year period ending on July 1, 2003, there is the exception for the electric utilities to dispose of all their generation assets through a merger. But, this bill specifically says they can’t dispose of all their generation assets to an affiliate. So, that option is not available to them during the period ending on July 1, 2003.
Mr. Whittemore said:
Mr. Chairman, through you, if I might ask Counsel a question. I think everybody on this side of the table would agree subsection 2 of section 11 [Exhibit C] could be taken out, for purposes of this bill, to be discussed as part of the policy discussions with respect to the trailer bill. Because, again, Fred’s [Mr. Schmidt’s] concern it has an impact one way, and Doug’s [Mr. Ponn’s] concern it has an impact in another way suggest there’s a disagreement on the policy question.
And, I think, it centers on subsection 2 of section 11, which was, from my perspective and my clients perspective, I was saying we can wait to have this discussion because, again, we don’t know where you’re going to end up on that. So, I think knowing that if we were going to have a trailer bill, Mr. Chairman, could section 2 be deleted so we can engage in a debate and try to come up with language that’s between all of us on what we felt would be appropriate? Again, it’s a suggestion.
Mr. Ernaut stated:
Mr. Chairman, if I might. Under that same logic, I would say section 12 probably falls under the same argument, which is: if we’re going to discuss whether or not competition should be stopped during divestiture, let’s have that debate, I would suggest, at another time. . . . Section 12 as written, and I’m sure Kevin [Mr. Powers] had a million ways than [just] one he could have written this, but the way it’s written now would, obviously, cause a tremendous chilling effect on anybody building power in southern Nevada, if you could only sell it to one of three entities.
Chairman Townsend said:
I think the goal here is very simple: Delay the sale of the plants; Do not let government go into the utility business; and, continue to encourage the building of supply, which may mean not doing anything that would harm that, in other words, not putting up any roadblocks. Is that fair to all the parties here?
Mr. Ernaut responded:
I would only say it expands on the discussion of having the conditions you set forth here be applicable immediately. I would say, in here, I am advocating for somebody else’s client; but I would say there are very unique situations. Whether it’s the plant that’s 72 megawatts today, which could be expanded, if the whole game is supply, supply, supply, we ought to leave that open [in order] to contemplate those types of situations that may arise again. And, [such situations] may arise in the next 2 years, and we certainly wouldn’t want to call a special session to come back and fix this, if we stopped it totally.
Chairman Townsend said:
The interesting thing this committee has sensed for years is the second we sine die, conditions change. And so, if we don’t leave flexibility, then we are precluding opportunity. It doesn’t mean anybody will take advantage of it. It just means it should be there. Mr. Schmidt, you didn’t like my overview of what we’re trying to accomplish here? Did I misspeak?
Mr. Schmidt commented:
I just think the purpose of this bill is not to determine whether government entities should be buying or developing power resources. The purpose of this bill is not to address that at all. And I think, your statement puts in it a defensive posture where we’re trying to explain where that’s been done, whether that makes sense or not. And, I think that debate should be had at another bill, if it’s had at all. I don’t think this bill should prohibit government from doing what it’s doing right now, which it’s doing pretty effectively for its citizens.
Chairman Townsend said:
I think it was Mr. Ernaut’s position, whether it was when he was formerly in this body, or whether it was with his former responsibilities with the Governor, the term was to “do no harm.” And I think the point of this bill is not only to delay the sale of these plants and to not put any roadblocks in the encouragement of development of new capacity, but it’s certainly not to open the door to additional government participation. Is that better-phrased?
Mr. Schmidt responded, “I like it better.”
Mr. Powers stated:
At this juncture, then, I’d like to make a recommendation from the bill drafting standpoint. Since most of the parties agree a trailer bill will deal with the big, substantive issues and they only want to deal with a moratorium for the moment on divestiture, this bill can be used as a vehicle to create a moratorium until July 1, 2001. And, if you only did that, then you wouldn’t have some of the issues with the restructuring act because the moratorium would only last until the end of this session, and then during the rest of the session you can work on the bigger, more substantial issues, secure that you’ve stopped the divestiture that’s going on right now.
Chairman Townsend said:
You are a thinker, except I will correct you on one issue. It is irrelevant what those parties think. Does everyone understand what Mr. Powers [Kevin C. Powers] said relative to moving the date so we could delay the sale during the session, and with the trailer bill, deal with the other issues, such as: government, deferred energy, the date for competition? Is that fair in what you’ve said?”
Mr. Powers answered, “It is, Mr. Chairman.”
Mr. Ponn said:
Mr. Chairman, though the July 1, 2001, date may be expedient, and if we end up dealing with the issue on a longer term later in the session, that may give some certainty. But, if the moratorium’s just until July 1, 2001, we’re out right now trying to figure out how to get fuel for those plants and develop a portfolio going forward. And so, it may create still another short-term layer of uncertainty. Just so the committee’s aware of that.
Chairman Townsend replied:
I think Mr. Powers is thinking, appropriately so, from a technical/legal point of view. But, we have to deal in its effects on all the parties here, particularly, your [Mr. Ponn’s] company. So, those may be in concert, yet.
Mr. Schmidt commented:
At one time, I think, as recent as last week, we thought maybe just to get this thing going on a narrow basis, it made sense to at least have a moratorium until the end of the session. So, as Mr. Ponn said, you can deal with how long the moratorium should be or what the language should be beyond that. But if the idea is to just go back to, “We’re going to leave more flexibility because we’re only going to have a moratorium last until July 1 of this year [2001],” all you’ve done is, essentially, delayed a couple of the closings 1 month . . . [and] allowed the current circumstances to continue, because if you set a time frame with broad flexibility that short, the power company would have an obligation, under their contracts, to continue to pursue closing them. And several of these plants weren’t intended to close until July 1 or August 1 this summer, anyway.
So, I think you can create flexibility to the point where you undo your purpose. If your purpose is to keep control of the plants to allow cost-based rates from the plants under the regulation of the PUCN with the utility running and operating the plants until circumstances have changed, as is now laid out in some detail in the whereas clauses, then you need to have a time frame that doesn’t go back much beyond the 2-year period. I think that was put in this draft. Mr. Ponn can’t go out and get fuel contracts to keep the cost of running the plants to a minimum if that’s the case. They have to go out and continue to buy them on [the] spot [market], which is how we’ve gotten ourselves in this pickle for the last year and a half. We’ve been buying everything on the spot, and we’re paying premium prices.
Chairman Townsend said, “So, what you’re saying is Mr. Power’s [Kevin C. Powers] legal argument, albeit in agreement with what the technical issues are, doesn’t work in the real world.”
Mr. Whittemore commented:
Mr. Chairman, what I heard, and I may be the only person who heard it, was this bill was going to go out this way, and then the trailer bill would extend the date and all the other policy issues at the point this committee decided was appropriate, whether it included flexibility or not. And, so, what I thought I heard was the way to get a simple bill, a simple moratorium bill, was to leave the date July 1, 2001, knowing the debate is to whether it should be July 1, 2003, and the other policy issues would be included in the subsequent bill, which would allow the flexibility arguments and everything else to take place. That’s what I had heard; it may or may not be right.
Senator O'Connell asked, “Mr. Chairman, do you need a motion for this?”
Chairman Townsend replied, “I do. Well, we have to draft it before we move it out of here.”
Senator O'Connell responded, “OK. But, do you want a motion on the drafting of it?”
Chairman Townsend answered, “Yes, if I could wait one second. Ms. Batjer [Marybel Batjer], do you want to address the issue of the 2001 versus the 2003 date? I think you’re getting a sense of the committee.”
Marybel Batjer, Chief of Staff, Office of the Governor, responded:
If I’m following the discussion between Mr. Powers [Kevin C. Powers] and yourself, Mr. Chairman, I have similar concerns as Mr. Schmidt’s. But I’m not sure, having heard what Mr. Whittemore just said, I was following it, directly. I’m concerned, if I heard you right, if you put the July 1, 2001, date in this bill, and then put something different in the trailer bill, it’ll be a great confusion. Is that what I heard you were going to do?
Chairman Townsend responded:
It’s not confusion. It’s a problem for Mr. Ponn and his company, because there’s never assurance the bill you send to the other house will get [back] to you in a manner [to] which we’ve all agreed, because they haven’t agreed, and they have a right to disagree. So, we have to honor that.
Ms. Batjer said, “And, I would be concerned about that.”
Chairman Townsend stated, “What Mr. Powers was saying, if you simply put the end of the session in, then you don’t have to worry about any of these other policy debates until you bring up another bill.”
Mr. Whittemore noted:
Again, for the record, it’s certainly not our position that you would not extend the moratorium past the 2001 provision. It would be my understanding that the committee would process a date including all of the other policy issues which the parties have expressed. It’s simply a way of getting something out quickly, because you would not have to have the integrated document that Mr. Powers [Kevin C. Powers] has suggested is necessary today. It gets rid of all the CRC issues. It gets rid of the state and governmental instrumentalities. It does everything that you need right away, with an assurance that we’re going to extend it past July 1, 2001. If we’re not, then I don’t know whether it works, and we ought to roll up our sleeves and spend 3 or 4 more days trying to figure out what the language is.
Chairman Townsend asked, “You’re shaking your head, ‘Yes.’ Do you mean you agree with Mr. Whittemore?
Ms. Batjer answered, “Yes, I do.”
Chairman Townsend asked:
Mr. Ponn, is it fair to say, since the tremendous burden on your company is as substantial as we believe it is, we spend some time getting it correct? Use the 2003 date. Does that give you a little more comfort?
Mr. Ponn responded:
If this draft of this amendment to go in 253 [S.B. 253], that’s 2003, I think we can live with that. If it says July 1, 2001, I’m concerned about creating another 90 days of uncertainty with all the costs accruing thereto.
Chairman Townsend said, “It bothers me, too.”
Senator O'Connell remarked:
I would like to either suggest or make a motion, because I don’t’ want to leave; I’m afraid I’ll miss something. I’m going to suggest we direct Kevin [Kevin C. Powers] to use the date of 2003, since I understand we cannot extend it any further out, or I would extend it further out, [and] we indicate in this draft we do not allow government into the business, we stop the divestiture, and [set] the basic conditions on which something could occur [maintaining] flexibility, and that’s what the bill covers.
Senator O’ConnelL MOVED TO AMEND s.b. 253 TO EXTEND THE MORATORIUM ON UTILITY ASSET DISPOSAL TO JULY 1, 2003, TO EXCLUDE government FROM the UTILITY business, TO stop divestiture, and TO PERMIT SOME FLEXIBILITY TO RESPOND IF conditions CHANGE.
Senator SCHNEIDER SECONDED THE MOTION.
Chairman Townsend acknowledged, “Ms. Shipman [Madelyn Shipman].”
Madelyn Shipman, Lobbyist, Assistant District Attorney, Civil Division, Washoe County District Attorney, stated:
I had been caught, sort of, by surprise last Friday because I was working off a different draft on Friday. I talked with bond counsel [John Swendseid] about the change, and he suggested the addition of one word [in] section 7, page 3, of the proposed amendment [Exhibit C], and in that is the discussion of “The term does not include” (paragraph 2) “any hydroelectric plant . . .,” and bond counsel had suggested, just to make clear that the ongoing asset distribution for the Truckee Meadows Water Authority, the hydroelectric plants, the four, each of which are less than 3 megawatts, to be really clear as bond counsel wanted, he had wanted the word “individual” put in there.
I don’t want to speak for your counsel, but I think he [Mr. Swendseid] was a little concerned about that language. I have distributed to you a proposed amendment [Exhibit D], which I believe each of you have in front of you, that would make it very clear the only exception that would be allowed under this subsection (a) [section 7, page 3, of Exhibit C] would be that transaction for those 4 hydroelectric plants of less than 3 megawatts apiece that were subject to an agreement entered into prior to February 1, 2001. This would only allow for that particular transaction to move forward.
Senator O'Connell stated, “OK. I don’t have any problem with including that in the motion.”
Chairman Townsend asked and stated, “Does the seconder [Senator Schneider, have a problem with the additional language]? No, the seconder [Senator Schneider] does not. Mr. Hay, have you seen this language?”
Mr. Hay responded, “Yes, and we concur with it, Mr. Chairman.”
THE MOTION CARRIED. (Senator RHOADS was absent for the vote.)
*****
There being no further business, the meeting was adjourned at 2:00 p.m.
RESPECTFULLY SUBMITTED:
Gayle Nadeau,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: