MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-First Session

March 21, 2001

 

 

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:00 a.m., on Wednesday, March 21, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada.  The meeting was video conferenced to the Grant Sawyer Office Building, Room 4401, Las Vegas, Nevada.  Exhibit A is the Agenda.  Exhibit B is the Attendance Roster.  All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Dean A. Rhoads

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

 

GUEST LEGISLATORS PRESENT:

 

Senator Maurice E. Washington, Washoe County Senatorial District No. 2

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Kevin C. Powers, Committee Counsel

Lydia Lee, Committee Secretary

 

OTHERS PRESENT:

 

Sharon N. Shaffer, Chairman, State Board of Funeral Directors, Embalmers and Operators of Cemeteries and Crematories

Reese Perkins, Commission of Appraisers of Real Estate, Real Estate Division,             Department of Business and Industry

Tony Wren, Concerned Citizen

 

Joan Buchanan, Administrator, Real Estate Division, Department of Business             and Industry

Michael S. Lynch, Lobbyist, Builders Association of Northern Nevada

Daniel Hansen, Concerned Citizen

Roger Bremner, Administrator, Division of Industrial Relations, Department of             Business and Industry

L. Tom Czehowski, Chief Administrative Officer, Occupational Safety and Health Enforcement Section, Division of Industrial Relations, Department of Business and Industry

Jonathan J. Hansen, Attorney

Danny L. Thompson, Lobbyist, Nevada State American Federation of Labor-            Congress of Industrial Organizations

Gene Munnings, Concerned Citizen

Janine Hansen, Lobbyist, Nevada Eagle Forum

Richard C. Daly, Lobbyist, Laborers International Union of North America,                           Local 169

Rob Smith, Concerned Citizen

John E. Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades             Council

John F. Wiles, Division Counsel, Division of Industrial Relations, Department of             Business and Industry

Douglas R. Ponn, Lobbyist, Vice President, Sierra Pacific Resources

Keith Munro, General Counsel, Office of the Governor

Harvey Whittemore, Lobbyist, Nevada Resort Association

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection             (Consumer’s Advocate), Office of the Attorney General

Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority

Joyce A. Newman, Lobbyist, Utility Shareholders Association of Nevada

Russ Fields, Lobbyist, Nevada Mining Association

Samuel P. McMullen, Lobbyist, Barrick Goldstrike Mines Incorporated

 

Chairman Townsend opened the meeting with Senate Bill (S.B.) 281.

 

SENATE BILL 281:  Revises provisions governing embalmers and funeral directors. (BDR 54-1238)

 

Sharon N. Shaffer, Chairman, State Board of Funeral Directors, Embalmers and Operators of Cemeteries and Crematories, stated S.B. 281 addresses the fact that the board has adopted a state’s laws test, which all applicants must pass to gain licensure in Nevada.  She referenced section 1, subsection 2,    paragraph (g), which reads, in part, “relating to embalming.”  She is requesting amending the language to read, “relating to embalming and funeral directing,” as read in Nevada Revised Statutes (NRS) 642.360 in the proposed new paragraph (f) of subsection 3.  Ms. Shaffer explained passage of S.B. 281 is meant to clarify the vagueness in the existing statute.  Senator Carlton inquired whether embalmers and funeral directors, who are presently licensed, would be required to retest.  Ms. Shaffer responded, all embalmers and funeral directors must pass the state’s laws test, in order to obtain licensure. She said the license fee is $250.  She added, embalmers and funeral directors must also pass the international test.

 

SENATOR O’CONNELL MOVED TO AMEND AND DO PASS S.B. 281.

 

SENATOR SCHNEIDER SECONDED THE MOTION.

 

THE MOTION CARRIED.  (SENATOR RHOADS AND SENATOR AMODEI WERE ABSENT FOR THE VOTE.)

 

*****

 

Chairman Townsend opened the hearing on S.B. 307.

 

 SENATE BILL 307:  Provides for employment of special investigator to assist Commission of Appraisers of Real Estate. (BDR 54-1062)

 

Senator Schneider stated S.B. 307 was drafted to bring Nevada into compliance with federal law.  He disclosed he is related by marriage to a member of the Commission of Appraisers of Real Estate.

 

Reese Perkins, Member, Commission of Appraisers of Real Estate, Real Estate Division, Department of Business and Industry, testified in support of S.B. 307.   He read excerpts from an audit by the Appraisal Subcommittee (Exhibit C), which is a subcommittee of the Federal Financial Institutions and Examination Council.  The audit was issued June 26, 2000.  Mr. Perkins quoted from the audit:

 

While your program generally is effective, the following issues need to be addressed to bring your program into compliance with Title 11 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended . . . .  With respect to complaint investigation and resolution, the commission received 154 complaints from October 1996 through April 2000.  More than one-third remain unresolved.  Of the 57 cases open at the time of our review most had been in process for more than a year and several had been outstanding more than 2 years.  It appears that a lack of investigative resources significantly contributes to the excessive time needed to investigate and resolve complaints. . . .  At a minimum, it appears the commission needs additional investigation resources to accomplish this goal.  As discussed with you during your review, your complaints are increasing in number and complexity every year.  Failure to address this need promptly will cause this situation to worsen.

 

Mr. Perkins continued, stating as a result of the audit, appraisal review committees were formed.  The committees, implemented this year, consist of former commissioners and experienced appraisers in Nevada.  He explained the committee’s counsel, review and make recommendations regarding disciplinary actions to be imposed on real estate appraisers.  Mr. Perkins added the Real Estate Division has funded $14,000 annually to retain private real estate appraisers to assist in the investigation process.  He stated the creation of a special investigator position at the Real Estate Division, with an appraisal background, is necessary to assure the protection of the public.  Mr. Perkins noted S.B. 307 says the commission would employ the special investigator.  He suggested changing the language to say the Real Estate Division would employ the special investigator.  He recommended also altering language, should the special investigator position be approved.  The wording now reads, “the investigator shall have experience in the investigation of complaints against appraisers.”  He suggests changing the language to, “the investigator shall have experience in the review of real estate appraisals.”

 

Senator Rhoads asked why money supporting the proposed position should be coming out of the general fund.  Mr. Perkins responded it is the appropriate means of funding the position because the position would be performing duties in the Real Estate Division as well as in the Commission of Appraisers of Real Estate.

 

Senator O'Connell asked why it took so long to discover the Real Estate Division was not in compliance with Title 11.  Mr. Perkins responded the audits are only performed biannually and deferred the question to Mr. Wren.

 

Tony Wren, Concerned Citizen, responded laws went into effect in 1991.  He stated there was awareness changes were needed, but the noncompliance issue was brought to the foreground last year with the audit findings.

 

Joan Buchanan, Administrator, Real Estate Division, Department of Business and Industry, stated the noncompliance issue was recognized following the results of the audit.  She outlined measures the agency is taking in order to rectify the noncompliance.  She repeated statements made previously by       Mr. Perkins.  Ms. Buchanan stated the $14,320 for contract funds are per the Governor’s recommendation.

 

Senator O'Connell asked for clarification regarding those funds.  She stated those funds are to be used to hire complex review appraisers.                Senator O'Connell inquired whether the amount funded was identified when the Real Estate Division budget was originally submitted. 

 

Ms. Buchanan replied no, when the budget was submitted, the amount had yet to be determined.  She explained the process of how the amount was finally determined was by collaboration with her supervisor.  She said her supervisor then presented the proposed budget to the Budget Division for approval. 

 

Senator O'Connell inquired why the cost was not included in the budget submittal, since the Real Estate Division was aware of the need to comply and the cost to hire a special investigator at that time.  Mr. Perkins responded last fall, the Commission of Appraisers of Real Estate supported a resolution to request funding be included in the budget.  He stated it was all the commission could do. 

 

Ms. Buchanan stated there are currently 891 appraisers.  The appraisers bring in $132,775 for license fees.  Ms. Buchanan stated the Commission of Appraisers of Real Estate pays $17,000 to the federal subcommittee for registration.  She stated the current staffing costs $77,000, which does not leave much in their operating fund. 

 

Senator Rhoads inquired whether the Federal Financial Institutions Examination Council is a federal entity or if it is an appraiser industry.  Mr. Perkins responded that it is a federal agency.  He added they implement and ensure that Title 11 is followed. 

 

Senator Schneider asked the appraisers to advise the committee regarding federally financed real estate loans.  He informed the committee about unscrupulous real estate loans being issued in southern Nevada, primarily to the Hispanic community.  Senator Schneider stated financing is being secured for up to 108 percent of market value of the property.  He stated his concern for what could happen when the next recession is experienced, regarding the foreclosure issue. 

 

Mr. Perkins detailed a case which occurred in Las Vegas.  He stated an appraiser conducted a “drive-by” appraisal of an apartment complex and estimated the value to be $800,000.  He indicated the buyers invested their retirement funds into a second or third deed of trust on the property.  He added the loan was successfully made and the buyers made payments on schedule for 4 months before going delinquent.  Mr. Perkins stated a subsequent appraisal made on behalf of the holder of the first deed of trust was for $200,000.  He concluded, the property was sold at auction for $100,000.

 

Chairman Townsend explained the Senate Committee on Commerce and Labor does not have the authority to pass any general fund bills.  He added this bill would need to be re-referred to the Senate Committee on Finance.        Chairman Townsend stated this committee does have the authority to raise the ceiling on the licensing fees charged in order to collect additional money from the licensees.  He stated the Commission of Appraisers of Real Estate should consider taking their case to the Senate Committee on Finance to request money from the general fund.  If the answer is yes, then proceed; if the answer is no, then they will need to return to the Senate Committee on Commerce and Labor to decide how to finance their needs through their licensing fees.  He added if their price cap were not set high enough, they would need to make a request to the committee to raise the cap.  Chairman Townsend queried what the ramification is if this bill fails and the Commission of Appraisers of Real Estate remains out of compliance with the federal mandate.

 

Mr. Wren testified if they were not in compliance, their appraisers would not be permitted to appraise loans for federally related transactions.               Chairman Townsend suggested explaining the situation to their deputy attorney general.  He added, the deputy attorney general could collaborate with          Mr. Comeaux (John P. Comeaux, Director, Department of Administration),     Mr. Arberry (Assemblyman Morse Arberry, Jr.), and Senator Raggio (Senator William J. Raggio).  He said the commission, based on the outcome of that collaboration, should make a determination as to how to best proceed.  Chairman Townsend stated the committee would assist in the process to assure Nevada appraisers continue to provide those services.

 

Mr. Wren stated out-of-state appraisers would need to perform those services, if the Real Estate Division fails to meet the compliance requirements.        Chairman Townsend inquired, “If the Real Estate Division fails to comply, would the appraisal for an expansion loan at the Reno Veterans Hospital (Veterans Affairs Medical Center), for example, have to be performed by an out-of-state appraiser?”  Mr. Wren responded, “Yes, because the loan would be from federally issued funds.” 

 

Chairman Townsend requested Scott (Scott Young, Committee Policy Analyst) assist in drafting correspondence to the deputy attorney general stating the federal compliance issues regarding appraisers in Nevada.

 

Mr. Perkins stated appreciation for the interim steps being taken.  He voiced concern, these steps are short-term corrections for the noncompliance issue.  He said approval for the addition of a full-time investigator will be needed for the division to provide compliance in the long term. 

 

Chairman Townsend continued, stating if Nevada agencies attempt to comply, the federal government would probably view that in a positive way.        Senator Schneider mentioned the Real Estate Division contributes generously to the general fund.  Ms. Buchanan stated about $1.7 million was deposited into the general fund in 1999.  Senator Schneider suggested notifying         Chairman Raggio on the Senate Committee on Finance of that fact. 

 

Chairman Townsend closed the hearing on S.B. 307 and opened the hearing on S.B. 314.

 

 SENATE BILL 314:  Makes various changes to provisions governing occupational safety and health. (BDR 53-765)

 

Senator Maurice E. Washington, Washoe County Senatorial District No. 2, presented testimony, stating safety issues of roofers in the construction industry and their employers are at the heart of this bill.  Several recommendations, which he believes will conform to the state plan, are the result of a meeting of interested parties last summer.  Senator Washington stated the recommendations: (1) To adopt a resolution encouraging OSHA (Occupational Safety and Health Administration) to take a look at the cost impact it has on the housing industry.  That resolution, he said, is currently in the Senate Committee on Legislative Affairs and Appropriations;  (2) To enact legislation to provide the Nevada Operations Manual of OSHA to be adopted into regulations;  (3) To enact legislation that requires OSHA to seek guidance from the panel of industry experts regarding fall protection standards and inspection of residential construction sites;  (4) To enact legislation that would prohibit DIR (Division of Industrial Relations) from imposing penalties for safety violations, if employers can prove the employee in question was properly trained in safety matters and was provided the required safety equipment, but refused to use the equipment at their disposal;  (5) To enact legislation which provides a schedule-based fine for various safety and health violations dependent on categories of violations similar to the schedules provided for determining penalties for hazardous material violations under NRS 459.3874; (6) To enact legislation which requires DIR to provide annual occupational safety and health statistics, by industry, to the Governor and Nevada legislators.               Senator Washington summarized sections contained in S.B. 314.

 

Senator Rhoads inquired whether funding for the bill is currently in the budget.  Senator Washington replied no, it is not.  He said the Nevada Plan is in the budget but this measure is not in the budget.  Senator Rhoads asked what the fiscal note is.  Senator Washington stated no fiscal note on the measure has been received yet.

 

Michael S. Lynch, Lobbyist, Builders Association of Northern Nevada, voiced fundamental opposition to the bill.  He stated the bill singles out the residential construction industry in one very subjective standard.  Mr. Lynch suggested creation of a commission to draft enforcement guidelines for all the standards, for all construction employers to refer to for redress of enforcement policies and guidelines. 

 

Mr. Lynch provided a brief history of the residential “fall protection standard.”  He said the “fall protection standard” was one of the last items to go through Congress before Congress implemented using the fiscal analysis impact statement.  He added there are efforts pending to modify or repeal the         “fall protection standard” at the federal level.  He said he believes codification of the standard will become moot when the federal-level efforts are enacted.          Mr. Lynch added he is in favor of protection for the employers and for holding inspectors accountable.  He quoted from a past meeting he attended with the Division of Industrial Relations inspectors where one of the inspectors said to a Builders Association of Northern Nevada member, “You are only in business as long as I say you are in business.”  Mr. Lynch said he is in favor of the bill, if amendments can be made to include all areas of the construction field.  

 

Senator Washington agreed to amend the bill to include all the areas of the construction field, and not to be limited to the roofing industry.  He restated the bill originally was crafted to address the needs of the roofing industry.

 

Chairman Townsend stated, “S.B. 316 has been withdrawn by the division due to some federal action which occurred.”

 

SENATE BILL 316:  Revises provisions relating to safety program for certain employers. (BDR 53-556)

 

Daniel Hansen, Concerned Citizen, indicated he is in favor of S.B. 314 and believes the bill is a step in the right direction.

 

Mr. Lynch stated when an employer has a citation and wishes to contest it, the Division of Industrial Relations inspector is not held accountable to their own division guidelines.  He agrees passage of the bill would improve the accountability of DIR.

 

Chairman Townsend recapitulated by stating:

 

Mr. Hansen’s point cuts to the heart of the issue, so if we can put the bill aside for a second and get to his point.  I think I heard his point [was] there is no way an industry, in this case roofing, and its employees can move forward without a standard they all know and understand, whatever that standard is.  If they know what it is and it’s the same for everyone, then they can deal with it and move forward.  That way the employee knows these are the standards: this is what you have to do; this is what you have to use; this is how it’s done; and this is how you’ll be judged.  The same goes for the employer.  That’s what I’m hearing.  This bill is an attempt to deal with that.  Is that fair?  So I know what we’re dealing with . . . .  I believe the testimony reflects, when someone comes out, whether there is a serious or not a serious injury, there is an arbitrary decision because standards seem to move based upon the job or the location or the amount of work done or whatever.  Is that correct?  Is that what you heard during all the work you put in [during the bill preparation]?

 

Senator Washington stated there are three areas to be addressed: (1) the formation of a panel of industry experts, which will present recommendations to DIR concerning inspectors and inspections; (2) to codify the operating manual, making the manual easily accessible and available; (3) to establish a matrix regarding the fines allowing for equitable and fair issuance of fines for violations. 

 

Senator O'Connell referred to Senator Washington’s recommendation (1) asking if DIR needs advice on how to do what they should be doing.                  Senator Washington responded the statute currently states, “the inspector may inspect” but no guidelines are in place for the inspectors to be involved with a specific construction field.  He said an inspection of a roofing project, could be conducted by a refrigeration inspector, for example. 

 

Senator O'Connell inquired whether Senator Washington has been in contact with Mr. Bremner (Roger Bremner, Administrator, Division of Industrial Relations, Department of Business and Industry) regarding this issue.      Senator Washington said he has been in contact with John (John F. Wiles, Division Counsel, Division of Industrial Relations, Department of Business and Industry). 

 

Roger Bremner, Administrator, Division of Industrial Relations, Department of Business and Industry, asked if there are specific questions he might address.  Senator O'Connell stated her concern that during routine inspections of roofing construction for example, the same standards are not always applied. 

 

L. Tom Czehowski, Chief Administrative Officer, Occupational Safety and Health Enforcement Section, Division of Industrial Relations, Department of Business and Industry, responded, stating the inspectors use the federal safety codes, which the state of Nevada adopts.  He explained, those safety regulations have gone through extensive scrutiny by experts in the safety field and by the public hearing process, prior to their adoption into state regulations.  Mr. Czehowski added Region IX monitors the effectiveness of the state plan. 

 

Senator O'Connell stated her understanding was DIR inspectors have always used the standard federal safety codes during inspections.  She asked if that is the case, why would they need to create a panel of experts?  Mr. Lynch stated, for instance, the issue of “fall protection standard.”  He said the state tries to make the best of a situation given to them by the federal government.           Mr. Lynch stated the federal government would issue guideline standards which were unfeasible.  He reiterated, inspector behavior and accountability are at issue, as is employer compliance with the standards.  

 

Senator Washington agreed with Mr. Lynch’s comments.  Senator O'Connell inquired whether Mr. Bremner has the authority to make sure all inspections in the state are based on the same OSHA standards.  Mr. Bremner responded affirmatively, adding, Mr. Czehowski is reviewing the training standards and operating procedures to assure statewide compliance with the standards. 

 

Jonathan J. Hansen, Attorney, stated:

 

I do agree with Senator Washington’s S.B. 314.  I think it’s very important to have these procedures codified, specifically, the Nevada Operations Manual.  We found out about this manual during a case, actually with Mr. D. Hansen, seated in front of you.  We found out the OSHA inspectors were supposed to go by the Nevada Operations Manual, but they could pick and choose what they wanted to do.  That’s why, as Mr. Lynch has stated so clearly, these regulations and rules need to be adopted.  They never have been.  I agree with the adoption of the fine schedule because we raised that contention in our claim, that the fines were arbitrary and capricious.  There was no standard regulating how the OSHA inspectors would actually formulate and come to the conclusion of what the fine should be.  That should be codified as well, pursuant to Senator Washington’s bill.  I do have exception, as Mr. Lynch did as well, to the imposition of a panel.  I’m not sure that would be the best course of action.  The main point I take exception to is on section 3, subsection 2, it states, the five members who are appointed shall have experience in the field of construction generally, and if practicable have expertise in the particular field.  That was one of our complaints, as has already been brought up, that these inspectors had perhaps worked on their own roof in their own backyard for 2 weeks, and were deemed experts in the field. 

 

Chairman Townsend requested clarification regarding the Nevada Operations Manual.  Mr. Daniel Hansen said his experience with the OSHA inspectors showed there was no standardized use of the manual as it relates to inspections.  He added, the OSHA inspectors claimed the manual was only an internal guide, not a binding document.  Chairman Townsend asked if he could obtain a copy of the Nevada Operations Manual.  Mr. D. Hansen provided a copy to Chairman Townsend.  He testified the manual was a secret document nobody knew about.  He said he discovered it through a deposition by his attorney.  Mr. D. Hansen added, he went through great difficulties just to obtain and make a copy of this manual.  He stated there was no public input during the formation of the manual.

 

Chairman Townsend queried:

 

First of all, I believe the issue is a simple one, and obviously              Mr. Bremner or Mr. Wiles and anyone else in the division can respond.  If we look in the NRS and find there is authority for the division to go to hearing on specific occupational safety issues, that point Mr. Daniel Hansen, you and the various members of all the industries involved in construction would come forward and give your input.  Regulation would be adopted.  Would that satisfy at least that part of your contention, Mr. J. Hansen, that there was actual notice, hearing, appropriate authority, regulation drafted, a draft regulation issued, response?  Would that satisfy your legal argument on that point? 

 

Mr. J. Hansen, stated it would, if it followed the actual requirements of the Nevada Administrative Procedure Act, under chapter 233B of NRS. 

 

Chairman Townsend continued to inquire:

 

            The second thing is, although this could be a very thorough document, for the average businessperson and the average employee, this isn’t something you’re going to sit down at night and go through real quickly.  This is pretty substantial.  I would hope, as we go through this, Senator [Washington], if there’s need for specific new effort for regulation, we’d have something that’s a little more basic and fundamental that the average person, whether in business or an employee in the industry, could understand.  This is rather substantial and we don’t want to have the Mr. J. Hansen’s of the world as an employer, having to call the Mr. Czehowski’s of the world every day or on every job they get, to find out what part of this huge document am I close to or not close to.  That’s not the way the world should work.  It’s not the way regulators are supposed to be.  It’s not the way competitive industry is supposed to be.  I think the goal here is to get something the public has had input on as a regulation; and something that is understandable by the average person who works in this industry, whether an employer or employee.  It‘s something that is in the best interest of the health and safety of those people employed in the industry.  Am I missing something?  There is nobody at fault here; I’m not saying there is.  I’m just trying to get this much cleaner, so we can all benefit from it.

 

Mr. Czehowski interjected, explaining the formulation of the Nevada Operations Manual, how the Occupational Safety and Health Enforcement Section (OSHES) uses it, and the future intent of the Nevada Operations Manual.  He stated the manual is modeled after the federal manual.  He added it is an internal OSHES guideline to ensure uniformity and consistency of penalties levied during inspections.  Mr. Czehowski said updates and changes in the Federal Operations Manual, are then adopted by the state.  He voiced concern, if the Nevada Operations Manual is put into regulation, changes or updates from the federal level for the manual could no longer be quickly adopted.  Mr. Czehowski added, Region IX (the federal body overseeing Nevada Occupational Safety and Health Enforcement Section) has related the same concerns he maintains in this regard.  He concluded, stating the updates or changes to the operations manual, as they come from the federal level, will be easily accessed on OSHES’ website. 

 

Chairman Townsend referred to chapter 233B of NRS stating:

 

They are exempt from the normal regulatory requirements of hearings, so they can draft this internal manual.  Whether that is right or wrong is subject for part of this debate.  I don’t think there’s any nefarious activity going on here at all.  I respect      Mr. Czehowski’s experience and what he has done, and                Mr. Bremner’s ability to follow the law is not in question here.  The fact is, is the law correct?  I think if, in fact, the public is going to be judged, employee/employer by something they    don’t have access to, we need to think that through.  Whether     Region IX accepts that position is another debate, but regulations can be done in two ways: (1) is a 30-day notice hearing on a draft regulation, et cetera, so they can be adjusted . . . (2) is the credibility of these standards based on the ability of the public to see them and have access to them. 

 

Chairman Townsend continued:

 

We cannot take an isolated case; we have to look at the entire industry and the entire state law and its impact.  The question Senator (Senator Washington), since it’s your bill, is it your goal to adopt this tome (Nevada Operations Manual) to codify it in statute; or is it your goal to ask the Division of Industrial Relations to open up a hearing on this, have public testimony on it, and then adopt a regulation based on public testimony?  Which is your preference here?

 

Senator Washington responded:

 

            The latter is what we are after, to take the Nevada Operations Manual and adopt it into regulations, have the statute force DIR to take this manual and adopt it into regulation, and have a public hearing and public input on this manual.  The one thing that’s interesting about this manual is the disclaimer in the front.  About half way through it reads, “No duties, rights, or benefits, substantive or procedurals, are created or implied by this manual.  The contents of this manual are not enforceable by any person or entity against the Department of Business and Industry, Division of Industrial Relations, or Occupational Safety and Health Enforcement Section of the State of Nevada.”  So in other words, if they go out to inspect, do whatever they’re going to do, and an employer is fined, the employer cannot go to a hearing or to court and say, “You didn’t follow your manual or your guidelines.” There is no recourse.

 

Mr. Bremner reiterated, DIR intends to make the manual accessible to the public at OSHES’ Website.  He added the division would be willing to listen to public input, but does not feel the best interests of the construction industries or DIR would be best served by regulating the Nevada Operations Manual.  He said he estimates the manual will be updated and available on the Internet within a few months. 

 

Chairman Townsend questioned if Mr. J. Hansen believes, in his legal opinion, public input leading to a working draft, would be possible.                           Mr. J. Hansen asked for clarification of NRS 233B.039 subsection 1, paragraph (k).  Chairman Townsend explained the exemption of the DIR clause in the statute.  Mr. J. Hansen said he believes the exemption does not preclude DIR from complying. 

 

Chairman Townsend repeated his recommendations for public input and federal changes to the manual, leading to the issuance of a draft regulation.             Mr. J. Hansen agreed the recommendation meets the intent of chapter 233B of NRS.  He added, his greatest concerns are the parts of the Nevada Operations Manual applying to inspection procedures.  He said he agreed with               Mr. Czehowski that parts of the manual regarding internal procedures should not be codified. 

 

Senator Washington interjected, explaining he hopes to initiate a mechanism of due process for employees and employers.  Mr. Czehowski added, the Nevada Operations Manual has nothing to do with the safety standards.  He said he disagreed with Senator Washington that no due process exists.  Mr. Czehowski stated the employer might comment or provide information during the walk-around site inspection or during a closing conference.   He continued, stating the employer has the right to issue a notice of contest and the employer may request an informal conference with the district manager.  He concluded, stating other avenues of due process are also available to employers.              Chairman Townsend stated the contention of the parties is the due process procedures are not equally applied to all employers, at this time. 

 

Mr. Czehowski responded he believes misunderstanding occurs among employers regarding the grading of violation citations.  He said he believes the updating of the manual, and employer accessibility to it on the website will alleviate the misunderstanding of those issues.   Chairman Townsend asked if the manual can be accessible immediately on the website.  Mr. Czehowski stated he believes the manual should be completely up to date before releasing it onto the website. 

 

Senator Washington reiterated material included on the disclaimer page of the manual, indicates there is no due process for the employer when he is going to hearing or receives a violation.  He said it reads, “The contents of this manual are not enforceable by any person or entity against the Department of Business and Industry, Division of Industrial Relations, Occupational Safety and Health Enforcement Section or the State of Nevada.”  Senator Washington repeated there is no due process.  Mr. Czehowski interjected the manual spells out the due process of contesting a citation, informal conference request, the post contest hearing, and subsequent review to the OSHA Review Board.        Senator Washington added the material in the manual is internal, and, he stated, that is the problem. 

 

Mr. Daniel Hansen commented OSHA started as an educational program, but it has developed into a police power, combining legislative, executive and judicial powers.  He stated local input is what is needed with the establishment of a local panel to balance the power of the federal police force. 

 

Danny L. Thompson, Nevada State American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), stated he is opposed to the bill.  He said he differed with a statement made by Mr. D. Hansen who said OSHA began as an educational procedure.  Mr. Thompson testified he worked at a chemical plant in 1969, in Henderson, and multiple unsafe environments within that plant existed.  He said no safety devices were used as they worked with asbestos and other hazardous materials.  He declared, people lost their lives due to silicosis and asbestosis.  OSHA was initiated, he stated, as an enforcement tool to force employers to comply with acceptable safety regulations.  He stressed there are many due process methods available to employers now.  Mr. Thompson warned the committee the Division of Industrial Relations OSHES is in extreme danger of being regulated by the federal government.   

 

Gene Munnings, Concerned Citizen, representing Odyssey Business Services, testified in favor of the bill.  He said he agrees with the establishment of another committee to review guidelines and regulations, making them user-friendly for employers and employees. 

Janine Hansen, Lobbyist, Nevada Eagle Forum, testified she does not believe S.B. 314 will resolve the basic, existing problem.  She stated the difficulty is holding OSHA accountable to the individuals being reviewed by OSHA investigators.  Ms. Hansen quoted from the Nevada Constitution Article 3, “The powers of government of the State of Nevada shall be divided into three separate departments, the Legislative, the Executive, and the Judicial; . . . .”  She continued, stating section 2 reads, “If the legislature authorizes the adoption of regulations by an executive agency . . . the legislature may provide for . . . review of these regulations . . . for . . . suspension by a legislative agency of any such regulation which appears to exceed that authority . . . and the nullification of any such regulation by a majority vote . . . whether or not the regulation was suspended.”  She emphasized the need for accountability and to enact a procedure for due process.  Ms. Hansen stated the committee has the authority to create a new avenue to solve the due process issue.  She quoted an excerpt from the Declaration of Independence regarding the abuses which led to the crafting of the Bill of Rights, “He has erected a multitude of new Offices, and sent hither swarms of Officers to harass our people, and eat out their substance.”  Ms. Hansen concluded stating there is a need to go beyond S.B. 314 to restore the right to trial by jury during the appeal process. 

 

Richard C. Daly, Lobbyist, Laborers International Union of North America, Local 169, stated he opposes S.B. 314 and testified:

 

We oppose S.B. 314 on a variety of levels.  I’d like to put it into another perspective and go through a few of the things.  I also have questions on why it would just be applied to inspections and then just in the roofing industry.  As Mr. Thompson said, I do have some information on fatalities in 1997, which is the latest data I have.  There has been an issue raised of how we’re going to pay for this, when there’s not a penny extra.  The inspections I would testify to are for the protection of employees from falling in residential construction sites.  I don’t see how this legislation is going to improve that.  OSHA was passed by Congress in 1970, and implemented in 1971.  The purpose . . . was to assure every workingman and woman in the nation, safe and healthful working conditions, and to preserve our human resources.  I don’t think there’s a legislator or person in this state that would disagree with that purpose.  That’s where we’re missing the point that’s being brought forward with a lot of this talk.  The Nevada Operations Manual is not a secret document.  My local union has owned the document for more than 3 years.  I have read it myself, although it is dry reading.  I understand there are provisions they are complaining are secret and arbitrary . . . .       I didn’t know that ignorance was an excuse to say they can scapegoat someone else. . . . The number of inspections the division conducted during the previous 2 years, when I look at that . . . unfairly singled out.  I view that as an attempt, on the part of the roofing industry, to weaken the rules to a point, and lower the standards to a point where it’s cheaper for them to kill or injure someone and have that be an acceptable cost of the risk, rather than comply with the rules.  We can’t support those types of things; we have to get back to the issues . . . .

 

Mr. D. Hansen interrupted Mr. Daly’s testimony stating, “That is slander!”

 

Chairman Townsend admonished Mr. Daly to exert more care in the substance of his testimony.

 

Mr. Daly continued to testify:

 

         In section 12, where it says, “A serious violation has not occurred if the employer did not know and could not have known, even with the exercise of reasonable diligence, of the presence of the violation.”  The way I read that is the company has a policy and they have a duty to enforce that policy.  Also, the general duties clause requires that each employer shall furnish employment free from recognized hazards.  That’s the duty of the employer to provide a safe workplace.  That’s what the laws and regulations and standards do.  We wouldn’t even get to the issue of the Nevada Operations Manual and how that’s applied if there weren’t violations in the first place.  To try to stifle inspections is not the manner in which anyone would go forward to provide the general duty clause . . . this law tries to do.

 

Rob Smith, Concerned Citizen, representing the Roofing Contractors Association of Nevada, testified it is absurd that employers, in roofing, would flagrantly disregard the value of employees.  He stated the roofing employers must provide a harness and lanyard to their employees.  Mr. Smith added that extensive training for roofing employees is provided.  He provided information that many times, in an OSHA hearing regarding violations, the employee is the one who is at fault for not utilizing the safety equipment issued, thus causing an industrial accident. 

 

John E. Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades Council, stated he disagrees with the previous testifier, in one area.  He said the laborers must take responsibility for their part of the safety issues at work sites.  Mr. Jeffrey said he would rather tell someone he lost his job, than to have to tell the spouse she lost her husband.  He said he feels very strongly about the safety issue.  He said he opposes the bill and does not favor the roofing industry being singled out. 

 

Mr. Smith provided additional testimony, stating roofing contractors cannot find enough qualified labor to meet the demand nationally.  He stated the Roofing Contractors Association of Nevada is currently offering recruitment and training.

 

Mr. Jeffrey stated increased bureaucracy would occur if Nevada fails to comply with the federal OSHA plan requirements, because Nevada will fall into the hands of federal regulation, if compliance is not met.  He urged the committee to keep that point in mind.

 

Senator Washington reiterated safety is the main reason behind this bill.  He stated the bill offers equitable and fair safety practices for labor employees and employers and the Division of Industrial Relations. 

 

Chairman Townsend closed the hearing on S.B. 314 and opened the hearing on S.B. 315.

 

 SENATE BILL 315:  Makes various changes to provisions concerning administration of Nevada occupational safety and health act.         BDR 53-577)

 

John F. Wiles, Division Counsel, Division of Industrial Relations, Department of Business and Industry,  testified:

 

Senate Bill 315 does three things, which I will summarize briefly for you.  I will then go through them section by section.  The first thing it does is to correct language in existing law that had been interpreted to require a carpenter to be on the job site working for us before they can enforce certain standards.  Essentially the language we’re asking you to remove would remove the requirement that has been interpreted in that fashion.  The second thing the bill does is to make it clear any person can make a complaint to us, and we can accept and act on information from any person.  There’s been a suggestion there are only certain individuals who could bring safety and health complaints to us, and that is simply incorrect.  We don’t believe that’s a correct statement of the law.  I think we should be encouraged to act on and discover safety and health violations.  We need to act on information from whatever source it comes to us, assuming that it’s reliable information.  The third thing the bill does is to clarify that the statements, reports, and information we gain during the course of the investigation are not admitted and used in a civil proceeding.  At present, when there is a subpoena issued for our personnel, I file a motion to quash.  Those [motions] have generally been granted, but I’ve been doing that on a regular basis because the statute does not clarify that our inspectors do not have to testify.  My argument has been simply, “If you can’t use the reports, then you can’t use his testimony.”  So far, that has been successful, for the most part.  This would clarify that provision, and it would reduce the efforts of our legal division in fighting these subpoenas. 

 

Mr. Wiles continued:

 

Section 1 is the section regarding the removal of the provision that would require our employees to have practical experience in the field of construction trade, craft, et cetera, in which their services are required.  At present, as this committee knows, we operate through the state personnel system.  We have qualifications for our inspectors. They have to meet those [qualifications].  We also engage in a very extensive and expensive training program for our inspectors.  They are generally associated with a journeyman-level inspector during the first year.  They are trained through the services of the Occupational Training Institute in Chicago.  We are also working on developing more in-house training to make sure these individuals are qualified in applying the standards.  They are not out there to do the job of the individual.  They don’t have to be a carpenter, a roofer, or an electrician.  What they have to do is understand the safety standards and apply them.  That’s what this provision in section 1 would do. 

 

In section 2 language that refers to the administrator that alleges the existence of a violation and strikes out language that says, “by an employee or a representative of an employee, alleging.”  Again, we want to act on information that can come from a citizen driving by an excavation, and that happens quite frequently.  They call us and say, “We saw something and it doesn’t look right.  We believe somebody may be operating in an unsafe work environment and we’d like you to check it out.”  We’d like to act on that information.  We currently do.  This provision in section 2 [and] in some other areas in the later sections do exactly that.  You’ll notice the same kind of changes appear in sections 4, 5, and onward. 

 

The third thing I’ll address with you again is in section 3 is regarding the information we gain during the course of an inspection and to preclude our inspectors from being subpoenaed in civil proceedings.  Our inspectors come on the site after the fact.  The information that is available to the parties in the litigation is available from other sources.  We would like to have our inspectors spend their time out in the field, discovering safety and health violations, not testifying in court for a civil proceeding. 

 

Chairman Townsend inquired regarding section 1, subsection 2.  He referred to some previous testimony concerning professionals with experience.       Chairman Townsend asked Mr. Wiles if there is a reason why inspectors should not have practical experience in various construction fields.

 

Mr. Wiles responded:

 

No, we encourage applicants, to the extent we can, who have practical experience.  Certainly there are individuals on our staff with practical experience.  I was a journeyman carpenter,     Danny Evans, the previous administrator of the section is a certified welder, and Mr. Czehowski has gone through some plumbing [training].  We have other individuals, who have been in the trades, who have been involved in safety related activities for a number of years, as Mr. Czehowski has been.  The issue is whether or not they need to know how to pound a nail to enforce a safety standard.  We believe they don’t have to know how to pound a nail or at least have to have experience pounding a nail to enforce say, guard rail protection.  I believe that may be responsive to your question.

 

Chairman Townsend questioned whether the division is experiencing difficulties in hiring inspectors meeting the experience requirement.  Mr. Wiles responded in the affirmative.  Mr. Czehowski concurred.

 

Chairman Townsend asked for clarification of section 2, line 22, on page 2, where the words, “any person” are used.

 

Mr. Wiles responded stating:

 

We have received referrals from individuals, who are not employees.  They may be public citizens or a person driving down the street or competitors of another contractor.  They report those things to us, we like to think, because they care about the safety and welfare of individuals who are exposed to hazards.  It may be appropriate for us, depending on the nature of the statement that’s given to us, to send someone down there.  If it’s say, in a trench, without any protection at all and it’s 12 or      14 feet deep, with vertical walls, I believe we’re going to send someone out there as soon as possible.  Other circumstances may differ. 

 

Chairman Townsend asked if it is on a case-by-case basis, depending on who has generated those “drive-by” referral calls.

 

Mr. Wiles added, “Yes, it is.  Generally speaking, those calls are directed to our district managers, who have a number of years of experience in the field and in supervising the inspectors in the office.”

 

 

Chairman Townsend asked:

 

Does that lead one to the question of that internal manual and therefore, it becomes arbitrary because you like the sound of the voice of the person who called, or because they made it more hazardous sounding than the next person who called?  How do we apply those guidelines?  If you get 100 phone calls about 100 different sites for safety, you don’t have 100 people, so what standard do you use to go to the site and inspect that?

 

Mr. Wiles responded: 

 

Those evaluations are made primarily on the basis of whether or not we think the alleged violation that has been described is a serious one.  We make that evaluation, based upon the training and experience of the individual receiving the phone call and how the violation is described.  If it is described with a great deal of particularity, then we have a reasonable suspicion to believe something is actually wrong there.  If they just say, “I was driving down the street.  I saw a hole in the street.  I don’t know if anybody was in there.”  That’s a different set of circumstances.

 

Chairman Townsend asked for clarification of the criteria used to evaluate the seriousness of the alleged violation.

 

Mr. Wiles said, “We feel we have a duty to respond to any violation that may result in serious bodily injury or death.  That’s a serious violation, under the standards.  Those would come up front, compared to one that may not describe the same set of circumstances.”

 

Chairman Townsend commented unsafe situations occur quickly sometimes, with no time to address the safety issue, before an accident happens.            He stated employee safety is of utmost importance to the committee.

 

Mr. Smith stated:

 

There’s a trend going on with state agencies and boards.  I went to a State Contractors Board hearing a few months ago.  It was regarding employees and their background.  They made a determination, and it’s unfortunate they didn’t have to come before this committee to do it.  They made a determination their investigators didn’t have to have any trade experience.  They didn’t have to be in construction in order to investigate a construction project. . . [that’s an] absurd situation.  If you’re going to be investigating something, you need to know what the real world is, how it works, what’s important, [and] how the job can be done safely and unsafely.  If you just learn it from textbooks, I’m sorry to say, worst case, you learn it from a biased group of people [who are] training you about what safety is versus what reality is, and how to bring together the two of them so you can actually be productive and be safe.  I don’t think that’s a good thing.  I think the reality of training in a real world situation [is], some experience is  . . . important.

 

Mr. D. Hansen stated:

 

I’m a native Nevadan, from Sparks, Nevada.  I’ve been involved in political processes for over 50 years.  I’ve seen a lot of changes from freedom to socialism in that period.  Back to the point of freedom and self-government, I’d like to tell you a little bit about how it worked.  My father worked on the railroad all his life.  He was a boilermaker on the Southern Pacific Railroad.  They had meetings and parades and rallies for safety all the time.  My dad was in charge of the safety [issues].  This is an award that Scott Roofing and Hansen Enterprises just received from the Builders Association of Northern Nevada for outstanding safety and loss prevention in 1999 and 2000.  We are concerned about safety. I’m concerned about safety.  This is a very important point.  How do we attain safety and how do we attain freedom.  There’s great resistance to these OSHA regulations on behalf of the employees.  You put all these regulations on the employees and as soon as the boss leaves, they take them [safety devices] off, because they are ridiculous and absurd.  We’re talking about skilled workmen, some of them in the steel industry who find that the regulations actually make it more dangerous for them to operate.  We’re talking about employers and about government officials. 

Mr. D. Hansen read excerpts from a document titled, “OSHA Background and Commentary” (Exhibit D).  He referred to the subpoena issue, stating he believes the subpoena of inspectors should be allowable.  Chairman Townsend invited a response from Mr. J. Hansen regarding the results of litigation in      Mr. D. Hansen’s case.  Mr. J. Hansen stated the case was regarding the accountability of OSHA.  He testified the only way to uphold OSHA accountability is through the use of subpoenas.  He stated opposition to the proposed changes in S.B. 315, fearing the loss of any accountability and due process the law now provides. 

 

Mr. D. Hansen concluded his testimony regarding the disposition of his case against OSHA.  He stated the case was a draw that cost him over $50,000.  He said he wanted to go to the U.S. Supreme Court but financially was unable to do so.  Mr. Wiles withdrew the complaints against Mr. D. Hansen.  In exchange, Mr. D. Hansen withdrew his charges.  He concluded stating, “OSHA is an assault on the basic principles of American liberty.”

 

Mr. Munnings explained anyone should be allowed to report a safety violation.  He added inspectors hired without previous construction-trade experience can learn the skills necessary to perform safety inspections.

 

Chairman Townsend closed the hearing on S.B. 316 and opened the hearing on the second proposed amendment to S.B. 253.

 

SENATE BILL 253:Prevents certain electric utilities from disposing of certain generation assets for a limited period and places restrictions on disposal of such assets after that period. (BDR 58-1122)

 

Regarding the “Second Proposed Amendment to S.B. 253” (Exhibit E) Chairman Townsend stated:

 

. . .  Let’s go to page 2, section 3 of Exhibit E, the definition of: affiliate, disposal of a generation asset, what an electric utility is, what a generation asset is.  Then we go to the next page: owned, controlled, et cetera.  Then we get to the first issue, which is, “The term does not include: (a) any hydroelectric plant facility, equipment or system, if an electric utility executed a contract or agreement to dispose of the hydroelectric plant, facility, equipment or system before February 1, 2001; and      (b) Any net metering system, as defined in NRS 704.771.”  This was to accommodate Sierra Pacific Resources sale of their water utility to a group of entities in northern Nevada.  Is it my understanding Ms. Shipman [Madelyn Shipman, Lobbyist, Washoe County, who is not here, accommodates in everyone’s opinion, the ability of that sale to go forward?

 

Douglas R. Ponn, Lobbyist, Vice President, Governmental and Regulatory Affairs, Sierra Pacific Resources, testified:

 

            We have reviewed this language.  I think the intent is consistent with what we were trying to accomplish.  We do have some concerns if we use this language instead of the previous version, which said, “any individual hydroelectric plant.”

 

Kevin C. Powers, Committee Counsel stated:

 

The concern with the previous language, which didn’t say, “any individual,” it was just, “any hydroelectric plant, facility, or system that had a generating capacity of not more than             3 megawatts.”  The concern was each of the individual plants was not more than 3 megawatts in generating capacity, but the system as a whole, which was being sold to the Truckee Meadows Water Authority, had a greater capacity than              3 megawatts.  I think the intent of the amendment here is to limit the exemptions specifically to the transaction involving these hydroelectric plants regardless of the number of megawatts involved.  It’s the timing of the transaction that’s defining the exemption and the type of plants, the hydroelectric [plants]. 

 

Mr. Ponn continued:

 

Our concern is because we’ve now added the February 1, 2001, date, if for some reason the sale of our water company to the government entities in Washoe County, known as TMWA [Truckee Meadows Water Authority], does not consummate, this prohibition may apply to the hydroelectric plants, for some unknown period of time.  We recommend going back to the previous version.

Chairman Townsend interjected:

 

Committee, since this deals with that sale, if there’s any objection to making sure the language does not interfere with that sale, then Mr. Powers, you and Mr. Ponn can work out agreeable language.  Is that all right committee, to not interfere with that sale, because that was a water sale and nothing else?  And whether it’s the old language or some combination therein, the goal here is to accommodate that sale.  We want to make sure because things do change.

 

Section 8 [Exhibit E], Interest in a generation asset means any interest in whole or in part, in the physical plant, facility, equipment, or system that makes up the generation asset, whether such interest is legal or equitable, present or future, or contingent or vested.  The term does not include any interest in the electricity or other energy produced by the generation asset. . . .

 

Section 9, ‘Person’ means: 1. A natural person;  2. Any form of business or social organization and any other governmental legal entity, including, without limitation, a corporation, partnership, association, trust, or unincorporated organization;  3. The State of Nevada, any other government or agency or instrumentality of the State of Nevada or any other government; and  4. A political subdivision of the State of Nevada, a political subdivision of any other government or agency or instrumentality of a political subdivision of the State of Nevada or political subdivision of any other government . . . .

 

Senator O'Connell asked:

 

I have a question on section 9 and section 10.  You did mention the governor’s office was represented here?  He might be the one who could answer this, because we had a great deal of discussion.  I guess section 12 is involved also. . . .  Perhaps you could share with us why we need this language to give the state this authority.  If we were to suffer some severe economic problem that would throw the company into a bankrupt situation, why couldn’t the court take care of that?  Isn’t there a federal law that would immediately come into place? 

 

Keith Munro, General Counsel, Office of the Governor, stated:

 

With respect to section 10, in the last session, we set up the restructuring act.  This bill will essentially suspend the restructuring act, and put a moratorium on divestiture.  One of the things that’s a concern is, if a plant gets in trouble and one of our utilities needs to sell an asset for transmission lines, and as you know transmission is very important, it has to have the ability to generate some money to do so.  Section 10 would need to be present as some form of ability for the utilities to obtain some means to develop new transmission lines and things of that nature.  Last session the legislature did away with deferred accounting.  That was something that was beneficial to the utility so they could have a regulatory asset, which they could borrow against and help keep the rates somewhat steady.  I think   section 10 is quite broad.  I think section 10, as it exists, or in some modified standard, or if this committee would look back to last session when it repealed the deferred accounting, that might be something you could consider to help the utilities to have the opportunity to come forward and purchase new transmission lines so we can get new generation and have new power for the state.

 

Senator O'Connell stated:

 

In the conversations of the committee, that has definitely been addressed.  The issue is going to come up in a “trailer” bill, but my concern was we are again opening the door to allow some government instrument in the state, again, to take over the companies, which has been a major concern of mine and I think of some of the people sitting on the panel.  I also got this    [Exhibit E] before the hearing today.  I haven’t had time to go through any more than the first 5 pages.  

 

Mr. Munro added:

 

This section 10 is language we came up with.  I pulled out the statute book and started looking for substantial financial emergency.  I found it in NRS 704.110 subsection 5, dealing with a rate case, but nothing in regard to selling off generation plants.  I need to take a closer look at this and come up with some language.  This, as it appears now, seems to be quite broad. 

 

Senator Amodei stated:

 

Keith [Mr. Munro], are you saying your understanding generally of this language is while the bill itself would prohibit the sale of generation assets, if money was needed in the context of a substantial financial emergency, they could petition to sell one or more of those to raise money to build transmission lines?

 

Mr. Munro replied, “Senator Amodei, you have to understand last session, you enacted the restructuring act and as part of that . . .”

 

Senator Amodei interrupted stating, “We enacted the restructuring act in 1997.  There was some ‘tune-up’ in 1999.” 

 

Mr. Munro continued, “When you did away with deferred energy accounting, and you prevented the utilities from utilizing that as a regulatory asset, as a means to . . .”

 

Chairman Townsend interrupted stating, “We are getting a little far afield, here.  I know where you’re trying to go.  The question is, do we stop the plants with no out whatsoever or do we find a reason for financial emergency?”

 

Mr. Munro replied, “I don’t think you want to have an exception that swallows the rule, because then everyone is going to try to meet the exception.”

 

Chairman Townsend continued, “So the condition would be, you would remove section 10 for the 2-year period of from this day forward to July 1, 2003.”

 

Mr. Munro responded, “Provided you put in some language with respect to deferred energy accounting.  You have to make the utilities whole.” 

 

Chairman Townsend said:

 

Wait a minute.  We don’t have to do anything.  Okay, that’s a regulatory mechanism.  We don’t set rates.  We don’t establish their rate of return or any of that.  That’s for another time.  You are saying you stop the sale of the plants, for the time period we’ve established which is 2 years, because that’s defensible.  If we have no out for financial emergencies, simply stop.  There’s nothing that’s going to require that.  You are saying there must be some other mechanism outside the CEP [Comprehensive Energy Plan] and global settlement [“Agreement and Stipulation,” dated, Final 07/27/00.  Original submitted as Exhibit D in Senate Committee on Commerce and Labor minutes, dated Februauy 6, 2001].  Mr. Ponn, this is a question for you.  This language that is currently there, in my opinion, which may or may not be agreed to by you or any of the other parties, puts you at risk in the fact that the people with whom you are currently contracting [and] are required to go forward with, have an opportunity under that provision to come in, petition the PUC [Public Utilities Commission of Nevada], state there is a financial emergency, and you would be required to sell under the conditions of your contract.

 

Mr. Ponn stated:

 

We have a concern, which may be similar to that, but not exactly that.  I was not thinking in terms of those agreements.  I have a general concern however.  First, I would agree with the governor’s office the reinstatement of deferred energy is probably the highest and best way to avoid substantial financial emergency, so we don’t have to worry about what it means.  We might be able to avoid the problem of the other with that move.  Given section 10 [Exhibit E], my concern is . . . someone could claim specifically under section 10, subsection 2, paragraph (b), we have some difficulties securing credit for fuel and purchased power.  In section 12, subsection 1, paragraph (b), they could try to essentially get the commission (PUCN) to claim there’s a clear emergency in existence.  Then in section 14, they could force us to dispose of assets and they might in fact end up being the receiver of the company, under the worst-case scenario.  You could paint a doomsday picture, that is very paranoid, I admit, wherein someone would be incented [sic] to put us into dire financial straights, so they could walk their way through those provisions and end up being in control of the company, as the receivers.  My suggestion would be we delete section 10 and do cleanup in section 12, consistent with that.

 

Chairman Townsend stated:

 

That came to my attention only because I leave the economic channel on at night, and it was the last thing I thought about, the “classic corporate raider,” who was very smart with a great deal of assets and a great deal of research and capabilities coming in and using our language against the state and the company.  If they did meet this standard, the PUCN would have no option but to give them the company.  That is never the intent of anybody in this building. 

 

Mr. Ponn continued:

 

Perhaps, we’re being overly cautious with that, but I don’t think we want that possibility.  I think you could change section 14 to say, “the provisions of sections 3 to 14 inclusive of this act do not,” and this would be new language, “exempt or intended to exempt any party from the applicable provisions of federal law,” if you’re concerned about what happens during bankruptcy. 

 

Chairman Townsend said, “Mr. Powers, do you understand what Mr. Ponn just said with regard to section 14?”

 

Mr. Powers responded:

 

If I understand him correctly, it would be just a general statement that these provisions aren’t intended to restrict the application of federal law under the bankruptcy code.  For a point of clarification, the substantial financial emergency language in section 10 goes to stage 1 of the moratorium before July 1, 2003, and stage 2.  Are we removing substantial financial emergency from both stages, or just stage 1? 

 

Chairman Townsend responded, “I would certainly remove it from stage 1,        I hadn’t given much thought to removing it from stage 2.”

 

Harvey Whittemore, Lobbyist, Nevada Resort Association stated:

 

The comments that have been made in regard to section 10 presuppose activity which is not directed by the utility itself, and I think to solve any question about what the intent of section 10 was, is to create language which would say, “It is subject to any proceeding in bankruptcy which is voluntarily pursued by the company.” Again, [it is] a voluntary action to protect the assets versus insolvency brought by an adverse filing or anything else.  What you are trying to do is to give flexibility only in the circumstance to protect the company’s business when they affirmatively say, “We need protection and we need to look at all of the potential resources available.”  Section 10 when read consistent with this bill, doesn’t allow the state to come in.  You have taken care of that in section 9 by virtue of the language in subsections 3 and 4. . . .  What I’m saying is to get it down to a specific set of circumstances when the company voluntarily seeks bankruptcy protection.  If they do it, and it’s totally up to them, then by their own volitional act, they determine there is a substantial emergency.  It would not allow third parties to come in and assert they’re in a problem; it would not allow someone to lay claim they have not pursued or acquired necessary power.  It would totally be within the company’s control affirmatively to say, “We need this flexibility at this time,” and therefore, you would not need to worry about whether it was pre-moratorium or post-moratorium per section 1 and section 2, if you left it totally up to the company.

 

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection (Consumer’s Advocate), Office of the Attorney General, stated:

 

My first inclination was to delete section 10 [Exhibit E], at least as it applied to the first phase of the moratorium.  If I’m understanding Mr. Whittemore’s suggestion, he’s indicating if the company chose a voluntary proceeding in bankruptcy court or otherwise it would preserve some flexibility on their part.  I’d like to reserve judgment on that, and give it some thought.  Our issue at this point is the company has claimed, in the last year, a couple of circumstances where they were in substantial financial emergency.  Last summer, the global settlement was designed to resolve that.  Recently, the Public Utilities Commission [of Nevada] issued an order as well, to resolve that, although the company did not actually state in their application they were in a substantial financial emergency.  We need to be pretty careful about that language.  I think, at least in concept, I agree with           Mr. Whittemore’s approach, although I think it would take a substantial revision of the language to accomplish that. 

 

Chairman Townsend stated:

 

I think his [Mr. Whittemore’s] position, and I need Mr. Ponn’s reaction, is we not use those terms in sections 10 and 11 and use the voluntary action concept.  Rather than put you, Mr. Ponn, at risk against government, which we’ve taken care of in    section 9 [Exhibit E], now we’re talking about other entities.   We would remove those sections and allow you the flexibility in the federal bankruptcy law, if you voluntarily chose to do that, because you have gone to the bankruptcy court and said we need this protection for these reasons.  That would give you the flexibility. 

 

Mr. Ponn replied:

 

Like Mr. Hay, I would need to think about this for a while.  My immediate reaction is it may still leave the incentive there for folks to push us into a bad place, so other things could happen. 

 

Chairman Townsend said:

 

Not that I don’t trust the markets.  The problem I see [is], if somebody out there owns a great deal of stock, [which] they don’t have to declare because they’re under 5 percent, they may be somebody who’s trying to acquire your company.  All they have to do is dump it, and they’d force you into court.  I’d like to think I just came up with that, but I see it almost monthly.  That’s a tough one to defend against.  We don’t want you being put in a position of expending a great deal of money to defend your company.  That’s not the point here.  Your point is to keep the lights on and you need capital to do that as well as cash flow. 

 

Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority, stated:

 

I’d like to get back to Senator O'Connell’s question because        I think the record is a little confusing about where things stand with regard to government entities.  As the bill was originally drafted, the “certain government entities” were exempted from the definition of “person”, which allowed for the concern expressed by Senator O'Connell.  Now that has been modified so “governments” are defined the same as other entities as “persons.” The way the bill is currently drafted, governments are restricted from acquiring the assets in the same way everyone else is.  I think the record should be clear about that.  The bill is not now drafted to allow governments to do anything as you have expressed it.  To the extent government or any other corporation can do anything, the only ability to do anything particularly in the next 2 years is contained in what Mr. Munro,     I think, aptly described as exceptions that may swallow the whole rule.  If the rule here is you’re trying to adopt a moratorium to prevent the sale, then I would have a concern about any of the exceptions laid out here, including, for example, the 2 exceptions laid out for the next 2 years are in section 12, . . . one that’s just been discussed is in section 12b [subsection 1, paragraph (b)].  There’s also an exception in 12a [section 12, subsection 1, paragraph (a)].  I think the more we look at this bill the more concern we have about that exception, as it is highlighted again in section 13 [Exhibit E].  If you recall, in the last two sessions, when you passed laws, the one thing we didn’t plan for or really understand what was going to happen, is what happens if the utility restructures itself or it merges or it requires another entity and that exception is now still being provided for, where the utility, if it sold all its generation assets, could get out of the business of operating the power plants without any showing of emergency but just as a financial decision or a business transaction.  I’m not sure that type of exception should be allowed for either if we’re trying to create or craft a bill where the entity who has historically operated the plants will continue to operate them.  I’m not saying you shouldn’t allow for that exception in some way, but I don’t know that anyone has made a case or an argument that should be provided for at this point either.  Our concern is about both [paragraphs] (a) and (b) in section 12 [subsection 1], if the simple goal of this bill is to try and create a strong moratorium until we get adequate supply on line.

 

Mr. Whittemore responded:

 

While I share some of the concerns of putting in an exception that swallows the rule, I think the drafters have done a good job by indicating the surviving entity is still going to be subject to section 13 [Exhibit E] restrictions, which is the bulk of the bill.     I think Mr. Powers would agree with that analysis. 

 

Mr. Powers stated:

 

Dealing specifically with the exemption in section 12    [subsection 1, paragraph (a)], page 4, line 17, and the exemption is further elaborated on in section 13 [Exhibit E], it allows the electric utility to be acquired, to merge with, or some other transaction involving a change in control, as long as the other party to the transaction was a nonaffiliate to the utility, and the other party to the transaction acquires substantially all the generation and all the other assets.  At that stage, the acquiring entity would remain subject to the other portions of the bill, so the acquiring entity would still be subject to the moratorium portions of the bill.  What it allows is for the existing utilities to completely remove themselves from the utility business if they don’t want to continue operating under this type of regulation. 

 

Mr. Whittemore continued:

 

I think section 13, subsection 3 [Exhibit E], makes it clear the surviving entity, whoever it may be, whether it is in state, nonaffiliate, a foreign national, or whatever comes in, it would still be subject to the requirements of the moratorium.  If your counsel says that’s not the case, then we really do have a problem with section 12 subsection 1, paragraph (a) of the bill [S.B.253].  My reading of it [is], it does impose those requirements and as long as the legislative record is clear, I think it’s appropriate.  With respect to the financial exigencies of substantial financial emergency, I also want to make the record very clear, we are not supporting anything that would force the utility to do anything they do not voluntarily do by themselves.  The only language we’re attempting to seek is to give them flexibility, if they choose to do so.  It would be only under those circumstances that someone would say the PUC or the state or anybody else would say, “Gee whiz, we have a very serious problem.”  I wanted to make our position very clear with respect to those 2 sections.

 

Joyce A. Newman, Lobbyist, Utility Shareholders Association of Nevada, testified:

 

I don’t know if anyone has directed attention to section 14 [Exhibit E].  That allows any person, which is now defined as a state agency or local government agency to act as trustee.  That gives us concerns along with and in conjunction with the previous sections.

 

Chairman Townsend asked, “Mr. Ponn, in a normal transaction where a court of competent jurisdiction would serve as a receiver or trustee for insolvency, who would that ‘person’ normally be?”

 

Mr. Ponn replied, “Fortunately, I don’t know the answer to that, because we’ve never done anything near that before.” 

 

Chairman Townsend asked, “What happened in Tucson or New Hampshire?  Do you have sense of who that was?  Was it the state or the public service commission or was it a bank or was it something else?  Do you have any idea?”

 

 

Mr. Schmidt replied:

 

In a prior job I had with a different law firm, we were involved in representing entities who were affected by the bankruptcy of Public Service of New Hampshire, which occurred in the late 1980s.  The court there essentially ran the utility and a receiver came in who made recommendations as to daily and monthly expenses.  The receiver was someone appointed by the court.  The utility personnel essentially kept running the company, but they had to, at a certain level, get continuing and regular approvals from the bankruptcy court for certain expenditures. 

 

Chairman Townsend said, “It wasn’t the state or any government?              This language allows for that?”

 

Mr. Schmidt added:

 

My recollection of the New Hampshire cases, regardless of what language you put into state law, [is] it would not supersede federal law.  The federal bankruptcy court will have the ability to define who the receiver is, based on recommendations of the interested parties in the case.  They would make that decision regardless of what state law said. 

 

Mr. Whittemore added:

 

Section 14 [Exhibit E], it seems to me, it’s simply “belt and suspenders” to make sure again you have the wide range and flexibility to include corporations, persons, any group of collections that individuals want, because I don’t think it expands what the federal court could do.

 

Mr. Powers stated:

 

Certainly section 14 [Exhibit E] does not expand what the federal court could do.  What the federal court could do, obviously, would be controlled by federal law.  If you took out section 14 [Exhibit E] the federal bankruptcy courts could still exercise its supreme federal powers to appoint someone to serve as a bankruptcy trustee in federal court. 

 

Mr. Ponn clarified, “That was our suggestion, that section 14 either be deleted or amended so that federal law prevailed here.  We are more comfortable with that than adding a more definitive list of who might be a receiver someday.” 

 

Mr. Whittemore added:

 

If you make this language specific, Mr. Ponn, to the federal bankruptcy system, you take out the possibility that the utility could ever seek state receivership under our state receivership laws. I don’t see any possibility that this utility would seek a state receivership so you could just simply say, “consistent with federal bankruptcy law,” if the company is prepared to do that. 

 

Mr. Ponn continued, “I’m sorry, I just don’t get it.  I don’t understand why we need to put this in there, unless there’s a purpose I don’t understand.” 

 

Chairman Townsend responded, “Doesn’t federal bankruptcy law supersede everything anyway?”

 

Mr. Whittemore stated:

 

The PUCN has the authority to put them into receivership.  They [the companies] have the authority to voluntarily seek receivership under state law.  We have a state receivership statute; we do not have a bankruptcy code.  The question is how you relate this to that.  You can either take it out altogether or simply make it clear it applies to the federal action, one or the other. 

 

Chairman Townsend asked, ”You would be amenable to removing it, Mr. Ponn?  Would that solve everybody’s problem?”

 

Mr. Ponn responded, “I think so.”

 

Chairman Townsend stated:

 

Let’s go back to section 13 [subsection 1, paragraph] (a), which has a tendency to reflect [section] 12, subsection 2, [paragraph] (a), and section 12, subsection 1, [paragraph] (a).  If the law were to read that we’re going to prohibit this for the next 2-year period, is there reason, Mr. Munro, to leave in the merger acquisition transaction or a transfer that complies with the one that would allow someone to acquire this company over the next 2 years, if the company chose to do so? 

 

Mr. Munro replied, “I think if you have a company or a public utility that has an interest in selling substantially all its assets to another utility that is not an affiliate, I think you need to leave that door open for the utility to exercise that right.” 

 

Chairman Townsend added:

 

There’s a basic shareholder issue, here that if somebody comes in and offers 2½ times book or whatever the number is, and your shareholders decide to sell, they can sell the entire company to another entity.  That sale would be subject to PUCN approval, as    I understand it.  What is your thought on this, Mr. Hay?  If we just take all this nonsense about financial emergency out, is there supporting public position from your office that we should leave in the right for the company to sell itself, as long as it sold the entire entity? 

 

Mr. Hay responded:

 

As long as we don’t repeal the existing statutory authority for those sort of transactions to occur, that would still be within the purview of the public service commission to approve, assuming an acquisition of that type occurred during this 2-year period.  I’m not sure this language does any damage, but I think the existing statute authority probably would cover that exigency, if it occurred. 

 

Chairman Townsend inquired, “Could we put some intellectual time on that to make sure that potential is left open?”

 

 

Mr. Schmidt replied:

 

To review, not to contradict Mr. Hay, but to ask him to rethink his last answer, the commission today has authority over mergers and has authority over transfers of assets.  It does not have authority over acquisitions, which is why the PUCN did not exercise any jurisdiction over the Portland General Electric acquisition, and acquisitions are encompassed within this definition.  I’m not sure that the breadth of the PUCN regulatory oversight protection is there.

 

Mr. Powers added:

 

The statute as it currently stands, referred to in section 13,            NRS 704.329, talks of a merger, an acquisition of a utility in the state, a merger with a utility in this state, or a change of control in the ownership of utility in this state.  Section 13 mirrors the language in NRS 704.329, which controls such merger acquisitions and transfers now.  If we do not include section 13 in here, then the authority in NRS 704.329 would be precluded, because they would be prohibited from disposing of the generation assets.  You couldn’t have someone come in and acquire them, because that would be the disposal of the generation assets. 

 

Mr. Ponn stated:

 

Under section 13, we have concerns that subsection 2 (a), (b), and (c), might allow the commission to order us to put the generation in an affiliate.  I think it has been stated policy of this committee and the legislature we would not have to create an affiliate in order to house the generation assets of the company, and we are trying to avoid that because of the cost expense and the inefficiency of doing it.

 

Chairman Townsend stated, “I think the committee understands we can’t, unless there’s a competitive market.  There is no benefit to the public to put these things into an affiliate.” 

 

Mr. Ponn continued, “Yes, we are just proposing to delete section 13, subsection 2, paragraphs (a), (b), and (c).”

 

Mr. Powers interjected:

 

I would have to recommend against that.  Section 13,   subsection 2, is triggered by the competitive market and by determination by the commission that the utility can’t provide a potentially competitive service except through an affiliate.  Until those two conditions occur, subsection 2 has no application.  During stage 1 of the moratorium, the utility will not be forced to put their generation assets into an affiliate.  In fact, they are completely prohibited by all of section 13 from doing that.  If competition begins, and the commission determines a vertically integrated electric utility could only provide competitive services through an affiliate, then the utility has the option of seeking to put their generation assets in an affiliate.  Otherwise, they can sell their generation assets pursuant to section 12, subsection 2, after stage 1 of the moratorium. 

 

Chairman Townsend stated:

 

The trigger is the competitive issue, and then there are conditions and choices by the utility.  So committee, the decision here is whether we, using language on those subsections that have to do with mergers and acquisitions, find a way to allow the utility, were it to choose to do so, to sell itself.  Under the preclusion, for 2 years if generation assets are part of the company and you can’t sell generation assets, therefore you can’t sell the company.

 

Mr. Whittemore responded:

 

In the sections that we’ve discussed so far, there appears to be general consensus that the substantial financial emergency language has to be reworked or taken out altogether.  One way, it’s either voluntary on the company’s behalf or taken together, but that’s a policy decision for the committee.  If you get to the merger language, the only thing that needs to be changed in the subsequent sections would be the deletion of the sections that deal with substantial financial emergency, or to redefine substantial financial emergency and leave them alone.  One way or another, the answer with respect to section 10 will decide what you must do with respect to the subsequent drafting in sections 12 and 13.  The answer with respect to what this forces or allows the company to do is very straightforward.  It simply says for 2 years you can’t do anything except acquire, merge, transact, or transfer, subject to all the rules and regulations, and the successor entity would be subject to the nondisposal rules.  Therefore, the generation assets would remain in the state and you would not have a problem.  The only question is how you define that, because then you will redraft those sections subsequently depending upon what definition you come up with. 

 

Chairman Townsend stated:

 

If we take all of those out, relative to the financial emergency situation, and just deal with the merger/acquisition, holding company, other person that holds controlling interest, then we have to decide if . . . they can sell the whole company, which obviously flies in the face of selling the generation assets.

 

Mr. Powers added, “I would recommend that provision stays in to preclude the company from selling its entire business to another company, [which] would be such a severe restriction on property rights that I think the statute would become facially unconstitutional.”

 

Chairman Townsend added:

 

That’s my concern.  We know the public purpose behind the prevention or the moratorium on selling the generation assets, but I’m real concerned you bump into a lot of other problems if you don’t let them sell the company if somebody comes in and offers them that opportunity.

 

Mr. Whittemore testified:

 

I don’t think you can create the moratorium without having this fail-safe in, because to do so would mean you would not allow them to sell the assets under any circumstances.  Therefore the moratorium would be subject to challenge by those who want to get rid of the moratorium.  There are those looking at this language, not for purposes of protecting the moratorium, but are looking at this as creating the very trap to constitutionally create the system to go to court and get rid of the moratorium all together.  I think again, from my perspective, the only policy issue, which you must address, which does not impact the saving nature of the rest of the bill, is what substantial financial emergency is or isn’t.  Again, it is not my client’s position the company should not be forced to do anything except what they want to do voluntarily, if it improves the bill.  Other than that, then you can modify those other subsections [and] take out the language with respect to “substantial financial emergency.”  There are other issues to address, but at least with respect to the context of the moratorium, I think from my perspective, you have something that’s constitutional and can be protected. 

 

Chairman Townsend asked, “Mr. Hay and Mr. Munro, have you had a chance to think through those emergency issues?”

 

Mr. Hay responded, “I concur with Mr. Whittemore’s analysis on that issue.  We are comfortable with that.” 

 

Mr. Munro also responded:

 

I would agree with Kevin (Mr. Powers), with respect to facial invalidity. If you took away the complete opportunity for merger, like you pointed out, if someone came along and said, “We’re going to offer you 2½ times your current cost,” and your rate holders wanted to sell, you should be able to sell. 

 

Senator Carlton asked:

 

We’re going to stop them from selling these plants, but we need to be able to let them actually sell everything, if they need to sell it, correct?  Then we move into the next section, someone comes in and buys it at 2½ times book (price), they have to agree to the rules we’re setting out here.  What type of challenge could that company give this legislation, after they have come in?  Do we set ourselves up for another problem with another company, coming in and doing this?

 

Mr. Powers responded:

 

I believe there would not be a constitutional problem because they would be accepting the terms of the regulation when they bought the Nevada Power Company/Sierra Pacific Resources.  They would be aware of the heavily regulated environment.  They would anticipate the aspects of the regulation, and therefore, could not challenge being subject to regulations of which they were already aware.

 

Chairman Townsend added, “I would think that is the goal here.  If they chose to sell they could.  The acquiring entity must live up to the state law that is currently in place.”

 

Mr. Munro stated, “I would agree to let the buyer beware.  They know what the law is.”

 

Chairman Townsend said, “The goal here is not to let somebody else buy them and spin off the generation, because then you’re back to square one.  Let’s move on to section 15.”

 

Mr. Powers addressed section 15, stating:

 

The purpose of section 15 [Exhibit E] is to reconcile the moratorium with the existing restructuring act.  Essentially section 15 simply says during the first stage of the moratorium there cannot be a declaration of competition in the retail electric utility market.  Competition cannot begin until after the end of the first stage of the moratorium.  During the second stage of the moratorium competition can begin, if the commission determines the economy and environment are ready for competition and the Governor concurs in that determination.  The provisions in section 15, subsection 2 make it clear that during the period of the moratorium alternative sellers can’t be conducting business in the state with regard to selling electric service and certain provisions of the restructuring act do not apply to the entities who will become subject to the restructuring act, once the competition begins. 

 

Senator O'Connell commented, “What you are saying, Kevin            (Mr. Powers), is the folks listed on lines 13, 14, 15, and 16 cannot be involved in any competitive sale prior to the end of July 2003?” 

 

Mr. Powers responded, “Yes that is absolutely correct.”

 

Russ Fields, Lobbyist, Nevada Mining Association testified:

 

We do have some concerns with section 15.  The mining industry has been very interested in the deliberations on this bill.  We initially viewed it as a purely divestiture bill.  This is a little different from pure divestiture.  As most members on the committee are aware, we have some very large gold mines in the northeast and north-central part of the state, which are potentially large consumers from retail providers of electric generation.  We agree with all that’s been said that Nevada’s electric energy concerns are really founded in the basic need for capacity to include wheeling (transmission) and generation.  We need more of that, folks.  Unfortunately, what section 15 does, is it puts an absolute chilling effect on any potential alternative seller, an independent power producer coming into the state may well be in a position to enter into a contractual arrangement with a large consumer, like a mine for example, and move forward.  Certainly within the 2 years of the moratorium, nothing would happen. 

 

In line 6 under section 15, there’s a further bit of uncertainty added there, that leaves the determination to the Governor, whether it’s necessary to delay any further construction to protect the public interest.  This just, I think, assures there will be no new generating capacity brought in from any other party other than perhaps Sierra Pacific [Resources], and we’ve heard for many months that Sierra Pacific [Resources] is in no position to build anything.  It would be the Nevada Mining Associations’ desire to set section 15 out of this amendment, and leave it for further deliberation when you talk about electric restructuring in a broader context.  The recommendation is to remove section 15, because it precludes any new generation.

 

Mr. Munro queried, “Can I ask Mr. Powers, because I don’t know if I quite read it that way, if it precludes any new generation?” 

 

Mr. Powers responded:

The statute, by no means precludes the construction of generation plants by anyone in the state.  They are viewing the statute as a policy decision that acts as a disincentive for companies to come in and construct their new generation plants.  There’s nothing in the statute that would prohibit them by statutory terms from constructing such generation plants.  They would be able to sell it then, on the wholesale market.  What they couldn’t do is engage in retail competition, which the restructuring act envisioned. 

 

Senator Amodei asked:

 

I don’t know whether we’re referring to a different part of statute, but the language in section 15, subsection 1 says, “must not be sooner than July 1, 2003, unless the governor, after consultation with the commission, determines . . .”  if the Governor and the commission do nothing in consultation, is     July 1, 2003, the new date?

 

Mr. Powers responded:

 

It’s the date on which the commission can then determine under subsection 1 of NRS 704.976, when and who gets to participate in the competitive market.  All that said is the commission cannot begin the process of allowing competition in a retail electric industry sooner than July 1, 2003, unless the Governor comes in and sets that date later.  If the Governor sets a date later, the commission can’t open up the market for competition, which is the current system we’re operating under right now.  Under the current restructuring act, March 1, 2000, was the date on which competition was to begin by, unless the Governor determined a later date.  The Governor has in fact determined a later date.  This would continue that process, except it ensures competition will not begin during the first stage of the moratorium, because the moratorium where you’re not allowed to sell your generation assets is inconsistent with a situation where you have a competitive environment, where you don’t want your vertically integrated electric utilities retaining their generation assets. 

 

Senator Amodei added:

 

My understanding of the present law is it’s the Governor’s decision to make at his discretion.  I don’t know what consultation with the commission is defined as, and I’ve been around just long enough to know sometimes the Governor and the commission don’t agree on things, so it’s curious language if we’re trying to provide more certainty.  [It seems] we are setting a date and requiring this to be a collaborative effort between the Governor and the commission, which I don’t think we required heretofore. 

 

Mr. Powers added:

 

This is actually recall verification of the existing language.  This is the exact language in NRS 704.976.  What it says is the Governor has the decision to make.  He has the statutory authority to make the decision.  The commission acts as an advisory body.  The Governor can accept or reject the consultation of the commission.

 

Senator Amodei added:

 

I understand all that.  I guess . . . I would share some of         Mr. Fields’ concerns if we are setting a date here again, in something that started out as “do we divest or do we not divest?” I don’t think the overall competition date issue is relevant to what we do with the plants. 

 

 

 

Mr. Whittemore stated:

 

We agree, in substance, with the comments Russ (Mr. Fields) has made with respect to section 15, and while I share the drafting concerns Kevin [Mr. Powers] suggested to you, it was my hope and desire that section 15 be left for the “trailer bill” to determine the interplay between the actual date selection, who makes the decision, whether as a policy the Governor . . . does not have to do it in consultation with commission as we provided in     Senate Bill 438 [of the Seventieth Session] in section 12, as it is in NRS 704.976.  

 

SENATE BILL 438 OF THE SEVENTIETH SESSION:  Makes various changes             related to electric restructuring. (BDR 58-861)

 

Mr. Whittemore continued:

 

The language is identical, but it seems to me this should be left to the trailer bill, to determine whether or not you have this specific date or some other mechanism to determine when competition should exist.  As the committee will recall, my suggestion was you may want to add objective standards that would compel the Governor to recognize the market exists for competition, by virtue of the fact, for example; let’s say 15,000 megawatts of power is built and it’s three times the actual load, you’d then be in a position where clearly competition would work, because people could choose the providers of generation.  So, I think while we need a section 15, I was hopeful we could do it in the “trailer.”

 

Mr. Powers stated:

 

This bill would become effective upon passage and approval and would be law immediately.  You would have a terribly inconsistent regulatory structure between the existing restructuring act and the provisions prohibiting disposal of the generation assets, so inconsistent a court might find the scheme is wholly irrational and might strike it down in its entirety.  There’s no guarantee that would be the case, maybe a court would be able to reconcile this, but I believe, because this bill becomes effective upon passage and approval, the law suit then can be filed on that very day and the court is going to look at the statute as it exists on the day this bill becomes effective.  If those statutes are internally inconsistent with the restructuring act, you are leaving open the possibility for a statutory argument.  Courts generally try to avoid constitutional arguments if they can rely on a statutory argument in order to strike down a law.  If they strike down this or make it ineffective to the extent the legislature is seeking to achieve, then you’ve undermined the purpose.  I don’t disagree, in a “trailer bill” you could resolve these issues, but this establishes on the effective date of the bill, what the laws look at, at that point, and then in the “trailer bill” you could make any adjustments necessary. 

 

Chairman Townsend stated, “This is just statutory construction issues for the counsel bureau.”

 

Mr. Munro stated, “Mr. Powers is correct.  You have to take care of this competition issue in this bill.  It’s got to be in here.  It can’t be in a ‘trailer bill’ because, if this bill passed and the trailer bill didn’t, then you’d have conflicting statutes.”

 

Samuel P. McMullen, Lobbyist, Barrick Goldstrike Mines, Incorporated, stated:

 

I actually disagree that it’s inconsistent.  I think the issue of divestiture does not mean the process by which the rules and the structure for competition continues.  I don’t see the inconsistency, nor do I see the basis for a lawsuit.  The point is the current law is consistent with the issues we’re talking about in terms of divestiture.  We’re saying, from March 2000 on, the Governor and the commission, in consultation with each other, but basically the Governor, can decide if there’s competition or if there should be competition.  It’s already there.  Frankly, I don’t see that the date for competition has anything to do with whether or not generation is retained by the current vertically integrated utility or not. 

 

 

 

Mr. McMullen continued:

 

I do not expect, frankly, that competition will be declared tomorrow, but I want to say there are two other policy conundrums involved in section 15 and any other section that refers to it in this bill.  The first one is, that yes, you could build generation, but generation in this state is going to basically be to serve Nevada citizens through the existing utility structure or it will serve it through an existing customer.  Frankly, what you need to do is make sure you do not [discourage], not only the construction of generation, but more importantly, the utilization of that generation inside our existing system.  That is the only way we’ll gain additional capacity.  We need to make sure . . . you’re not sending a message . . . “Hey don’t worry about Nevada, it’s off the radar screen until somewhere into 2003, and then the commission has to act, so we’ll check in again with it in 2003.”  The second policy decision is you do not want to, in our opinion, leave the state in a limbo where you’ve got no competition, but you’re in kind of a modified regulatory or monopoly situation.  But, you haven’t really kept yourself on the road moving toward really robust competition, so at some point we actually can, when some of the factors that are sort of out of control at this moment, make it possible that we can actually benefit the citizens of Nevada.  Russ [Mr. Fields] is right.  Besides Sierra Pacific [Resources] and Nevada Power Company, the way we’ll get resources to Nevada is if those people who have the revenue stream to allow a generating asset to be built with some recognition it’s going to be paid for over the next coming years.  If you do not have that, and that’s frankly large users that really provide us the quickest opportunity to make them comfortable, otherwise the power will be generated here and it could be . . . sold outside the state.  The trick is to get it sold and used inside the state.  Large users can be a very effective way of doing that.  We have all centered on the fact that supply is the issue; now we need to solve that problem.

 

Chairman Townsend stated:

 

Building here doesn’t guarantee anything.  Somebody has to have a contract.  You now talked about the big users.  You guys are the problem.  I hate to break it to you, but you are.  Maybe it’s time we said, “Nice to see you, thanks a lot, have a nice day, you wanted this, you got it.  You’re out of here, and you go play with the big guys who build the plants and you cut your deal with them.  You figure out the transmission problems.”  That’s what you’re asking here.  You’ve asked it in the hallway and you’ve asked it in the last two sessions, to get out of here.  Maybe you are the problem for our residential customers. 

 

I don’t really know the point you’re making about disincentives.  If you think this committee will buy the concept if we don’t open up competition tomorrow, they’re not coming. You really misinterpret this group.  They’re coming.  They want here so bad their eyes bleed, because we can permit them quicker, because we do have a central location to sell to a number of points, because we are a growing community, and because we are willing to work with them.  They’re going to build here.  That has nothing to do with who’s going to contract for it.  We’re trying to provide an opportunity for the company to go out and sign those blended-portfolio contracts to protect our citizens, while you guys try to figure out what you’re going to do.  I’m not going to sit here and say you can have it both ways, get to hang around, or you get to go, depending on where the better deal is.  I don’t buy that. That’s wrong.  You are either going to be out of here, or you’re going to play with the rest of us.  That’s the problem we’re in. 

 

Chairman Townsend continued:

 

I don’t know where you’re going with it, but you had me confused.  You’re talking about competition, and we’re talking about stopping the sale of the plants.  Can we stay focused on that?  All we want to do is stop the sale . . . .  We’ll deal with competition and all the other stuff later.  If mining wants out, just put it on the table that you want out and you really don’t care about the rest of this.  We’re talking about the sale of the plants. Let’s stay focused, and get this done.  We’ll deal with everybody else’s concerns after the fact.  That’s what this bill is about.    We have a sale pending.  We have all kinds of problems facing us.  Let’s deal with this issue and get it done.  Let’s don’t get off on these other things.  We all understand it, we all know where everybody wants to be, but we can’t do that today.

 

Mr. Whittemore stated:

 

I believe you need section 15 in this bill, if you take the modified changes in section 21.  But if you leave section 21, the existing       NRS 704.796, in place, that simply says you’re not going to have competition until that date is determined by the Governor, that it’s in the public interest . . . pursuant to subsection 1.  You’ve got the very mechanism that meshes that decision with the moratorium.  You do need a section 15, or something like it, if you modify NRS 704.796.  If you leave NRS 704.796 alone, we know the Governor has announced there isn’t going to be any competition until after October.  If you’re going to make changes, and the committee decides what that date could be, it could do so in any other bill without needing a trailer bill, because this legislation, as it exists today, says it’s no sooner than         March 2000, or until the Governor says it’s in the public interest.  The language is the same.  All you have done is pick a date.  Why pick a date?  So far, this is the only time I have disagreed with Kevin (Mr. Powers).  Under existing NRS 704.796, you’ve got a mechanism that works for everybody until the committee says there’s another date that needs to be picked.  It’s under the control of the Governor. 

 

Mr. Powers responded:

 

I agree with Harvey [Mr. Whittemore], it’s under the control of the Governor.  Harvey [Mr. Whittemore] is willing to assume the Governor won’t declare competition during the 2-year period.  The problem is, if the Governor declares competition during the  2-year period, then the conflict ensues. 

 

Mr. Whittemore added, “Unless you provide that the moratorium goes when the Governor declares it open . . . .”

 

Mr. Powers interrupted:

 

That’s how the bill was drafted as introduced.  That is where we started.  Mr. Hay came in and wanted to remove all those provisions.  This was an attempt to adjust the restructuring act as minimally as possible to accommodate the moratorium.  You could make many other adjustments to the restructuring act in the bill.  This is as little as possible to make the moratorium and restructuring act consistent, as was S.B. 253 as introduced.  That’s why it includes provisions that if the Governor declares competition starts, the moratorium changes in its nature. 

 

Mr. McMullen replied:

 

We were just clarifying the issues relating to section 15 and the date should be taken out.  Let me explain again what the issue is.  The language of section 15 says, no alternative seller can provide power to any customer inside the state of Nevada.  If that language stays, if for instance, there was a determination that maybe someone could build a generating plant and serve a large customer in the state of Nevada, section 15 would not allow that alternative seller transaction to occur.  That may, in fact, be something we want to encourage.  We want those kinds of contracts to happen so additional capacity, either by construction or by contracting, produces new supply for the state of Nevada and takes the pressure off the capacity issues and the supply issues we currently have.  That is the focal point of our discussion on section 15. 

 

Mr. Hay stated:

 

I think from our perspective we’re comfortable with leaving section 15 in, with the understanding, as we proposed for the Governor’s Energy Policy Committee, there is some legislative language I don’t think has appeared in the bill yet.  We do not want to have a situation where we preclude either a large customer or an aggregated group of small customers from contracting directly with a generator.  I think that may require a revision to the definition of what constitutes an alternative seller.  I agree with Mr. Fields that we don’t want to have a situation where we put in incentives to build plants and then have no mechanism for that energy to be delivered to Nevada consumers, whether they are large consumers or small consumers.  I think that issue is going to be required to be resolved in the follow-on legislation.  I think it’s appropriate to process this as drafted to address the issues Mr. Powers raised with the understanding we will have a mechanism in place to address that issue down the road.

 

Mr. Munro added:

 

With respect to the July 1, 2003, date, that deals with the onset of competition.  To be honest, it’s been awhile since I talked with the Governor about setting off competition in the state.  We’ve spent a lot of time talking about divestiture and those issues.  I will talk to him about that.  I don’t believe he has any interest in setting competition before July 1, 2003.  With all due respect to Mr. McMullen, I think I read section 15 differently.  We certainly don’t have a problem with allowing large-load users to develop generation assets to get off the grid and handle their energy needs that way.  I’m not sure how you do that, whether it’s best to do it through statute or maybe some enabling legislation the PUCN could craft pursuant to regulation, and develop it that way.  I think it’s a tough issue to develop through legislation. 

 

Mr. Schmidt stated:

 

I believe the section 15 call is the Governor’s office.  If they agree with that language in subsection 1 that’s affecting the Governor’s powers more than anyone else in order to create consistency.  Whatever the Governor says, we would defer to that.  Regarding subsection 2, if the Governors’ position is as just stated, I think the breadth of the prohibition in subsection b, which is also repeated in a repealer in section 37, was probably unintended and is too far.  If you repeal NRS 704.9823, which is a provision of the earlier competition bills, which was required to be completed before competition started, not after the date was set. That’s the section that sets unbundling rates for wire service.  If that’s repealed or not retained then what Mr. Munro said, or what the other speakers speak about, can’t happen.  Nobody can buy from anyone else, because you don’t have an unbundled wires rate to pay to the utility to provide that service for you to buy power from a new generation source, whoever you are.        I would suggest that section of the bill does not need to be repealed or included in the breadth of what was listed here.

 

Mr. Powers stated:

 

I would disagree.  NRS 704.986 establishes the component rates, and what the component rates will be, and how they’re established.  What NRS 704.9823 did was to establish the hard rate cap.  That’s what’s being removed from the restructuring act . . .  Again, if the goal is simply to get the moratorium enacted, with as little disruption to the restructuring act as possible, the bill as introduced with minor modifications could achieve that result.  If everyone’s comfortable the Governor won’t declare competition before trailer bills are enacted or the Governor won’t declare competition if a trailer bill is not enacted. 

 

Mr. McMullen stated:

 

What we are trying to say, as a solution, is the Governor has the ability to create not a full blanket declaration of competition but could possibly create it for certain classes and geography of customer.  I believe that.  We want to keep that open.  What might be a solution is to say to the extent that is an increase in supply.  In other words it’s not using existing supply inside the state currently and it either brings in new supply by contract or by the construction of the generation asset.  In all frankness a contract could be faster.  That could be a standard.  I think [it] would mean we’re not asking for a wide open loophole here, we’re asking for something that actually benefits all of the customers including, probably more importantly, the small customers in Nevada.  To the extent we take more capacity needs off of our current grid, then we are actually making the possibilities of brownouts and blackouts and those types of things less possible.  I’d like to suggest that. 

Mr. Munro stated:

 

In section 10, we need some clarification on that.  I don’t think we can have a broad caveat or exception that’s going to swallow the rule.  I think there’s a need to protect the utilities in case of a crisis, or something of that nature.  I think deferred energy accounting may be the best way to go about that.  I would suggest the committee consider that as a possible amendment.  With respect to the date on the onset of competition, I will talk to the Governor.  I‘ll be happy to get back with staff.  I don’t believe he has an interest in setting off competition before that.

 

Mr. Hay concluded testimony stating:

 

I concur with Mr. McMullen’s statement.  That essentially was the position we promoted in front of the Governor’s Energy Policy Committee.  I think we need to take the focus off some of these other issues, and get back to the main core and get a relatively clean divestiture bill passed in a timely fashion.  We’ll certainly work with the other parties on the issues that have been raised today.  In light of the circumstances that could face us in the next week or two if transactions start going forward, we need to be mindful of that. 

 

Chairman Townsend stated further discussion on the divestiture issue would continue at 7:00 a.m. on March 22, 2001.

 

 

 

 

 

 

 

 

 

 

 

 

 

The meeting was adjourned at 11:26 a.m.

 

 

RESPECTFULLY SUBMITTED:

 

 

 

Lydia Lee,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                       

Senator Randolph J. Townsend, Chairman

 

 

DATE: