MINUTES OF THE
SENATE Committee on Commerce and Labor
Seventy-First Session
April 6, 2001
The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 7:09 a.m., on Friday, April 6, 2001, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced 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
STAFF MEMBERS PRESENT:
Scott Young, Committee Policy Analyst
Kevin C. Powers, Senior Deputy Legislative Counsel
Lydia Lee, Committee Secretary
OTHERS PRESENT:
Marybel Batjer, Chief of Staff, Office of the Governor
Harvey Whittemore, Lobbyist, Nevada Resort Association
Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company
Timothy Hay, Chief Deputy Attorney General, (Consumer’s Advocate), Bureau of Consumer Protection Office of the Attorney General
Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority
Pete G. Ernaut, Lobbyist, Nevada Mining Association, Reliant Energy Incorporated, WPS Energy Development Incorporated, and El Paso Corporation
Michael A. Pitlock, Lobbyist, Shell Energy Services Company
Carole Vilardo, Lobbyist, Nevada Taxpayers Association
William E. Isaeff, Lobbyist, City of Sparks
Julie A. Wilcox, Lobbyist, Southern Nevada Water Authority, and Las Vegas Valley Water District
George Caan, Director, Colorado River Commission
Terry K. Graves, Lobbyist, Pioneer Companies Incorporated
James L. Wadhams, Lobbyist, Silver State Power Association
Robert L. Crowell, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company
Joyce A. Newman, Lobbyist, Utility Shareholders Association of Nevada
Kirby Lampley, Policy Analyst, Public Utilities Commission of Nevada
Susan L. Reeder, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company
Laura Lipparelli, Manager of Regulatory Pricing, Sierra Pacific Power Company, and Nevada Power Company
Ernest K. Nielson, Lobbyist, Washoe County Senior Law Project
Debra S. Jacobson, Lobbyist, Southwest Gas Corporation
Chairman Townsend opened the meeting with Assembly Bill (A.B.) 369.
ASSEMBLY BILL 369: Revises and repeals various provisions governing the regulation of public utilities. (BDR 58-1156)
Marybel Batjer, Chief of Staff, Office of the Governor, began testimony:
The Governor, this week, for primarily two reasons: (1) looking at the calendar and realizing we are inching very, very close to the heat of the summer, and (2) in discussions he has had with the company [Sierra Pacific Resources] and financial institutions, he has become much more seriously concerned about the financial viability and health of our single utility in this state. Because of those two reasons he, as you all know and as the committee knows, has been very concerned about two measures. Stopping divestiture, in doing so, implementing deferred energy accounting, and knowing you had all been working very hard, as the Assembly has too, on a divestiture bill, he decided this week it was imperative to act now and to get some of the people who are very very knowledgeable in the state and who had been working with the committees together to help him create some deferred accounting language. He brought together, in his office, some of the people he felt had been instrumental in the state over the past few years in working on deregulation and who had the history at their fingertips, as well as the understanding of the law, as well as the history and understanding of the global agreement [“Agreement and Stipulation,” dated, Final 07/27/00 (Original submitted as Exhibit D in the Senate Committee on Commerce and Labor minutes, dated February 6, 2001)]. He felt they were the best people to advise him on how best to deal with the complexities of deferred (energy) accounting.
Ms. Batjer requested members of the “Governor’s Deregulation Team” to join her at the testifying table. She stated the Governor is in total agreement with the language the team has developed on this issue. Ms. Batjer stated the group would like to describe to the committee the language they have chosen and agreed to, in the deferred energy accounting issue. Harvey Whittemore, Lobbyist, Nevada Resort Association; Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection (Consumer’s Advocate), Office of the Attorney General; Douglas R. Ponn, Lobbyist, Sierra Pacific Resources; and Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority, approached the testifying table as requested. Ms. Batjer stated the panel had briefed the Governor regarding the deferred energy accounting matter.
Harvey Whittemore, Lobbyist, Nevada Resort Association, stated:
On behalf of those who were requested by the Governor to participate, we thought it would be most helpful if Doug Ponn, from the company, explained by way of a very short background exactly what we’re proposing on the Governor’s behalf to this committee. We will be doing so before the Assembly select energy committee next week, as early as possible, as well. There are two provisions in the total context of A.B. 369, which the company cannot take a position on, so what we’re going to do is cover those items which we can all collectively talk about, and those, because of the company’s position, with respect to contractual obligations, Mr. Ponn will simply advise the committee as to the company’s position but not take a leading role with respect to explaining those provisions.
Douglas R. Ponn, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company, began testimony:
With your permission, Mr. Chairman, the parties agreed that perhaps I could give the committee a quick run-through of the provisions related to deferred energy and the proposal we have before you today. The first provision is the rates in effect for the customers of both Sierra Pacific Power Company and Nevada Power Company going forward will be those rates, which are in effect, effective April 1, 2001. We will not have an immediate change in rates as a result of this language in total. The second provision is the company [Sierra Pacific Power Company and Nevada Power Company] has agreed to withdraw its comprehensive energy plan [CEP], filed with the commission [Public Utilities Commission of Nevada] and the rates that were put into place subject to further proceeding on March 1, 2001. Additionally, with regard to those rates, the company has agreed to place as a credit into the deferred energy accounts, an amount equal to the revenues we’ve collected under that comprehensive energy plan for the month of March, which I think is a concern the consumer’s advocate [Timothy Hay, Chief Deputy Attorney General, (Consumer’s Advocate), Bureau of Consumer Protection Office of the Attorney General] had going into these discussions.
Related to that, as I said, the rates going forward will be the April 1, 2001, rates and all parties will have an opportunity upon the litigation and ultimate decision of the first deferred energy case to argue about any of the costs that are in rates from April 1, 2001, forward. Beyond that the company has agreed it will not go back and try to recover any of those losses which we’ve incurred as a result of increased fuel and purchased power costs. Instead, anything incurred prior to March 1, 2001, will not be a part of the rate-making process going forward. We will cease filing the fuel and purchased-power riders, which we have been filing on a monthly basis with the commission. We will withdraw any of those filings pending before the commission as of April 1, 2001.
Additionally, we will file general rate cases and deferred energy cases in both the north and south on the following schedule: in October of this year, we’ll file a Nevada Power Company general rate case; in December of this year we’ll file a deferred energy case for Nevada Power Company; on December 1, 2001, we’ll file a general rate case for Sierra Pacific Power Company; on February 1, 2002, we’ll file a deferred energy case for Sierra Pacific Power Company. We’ve agreed that the processing time on those cases will change slightly from history. There will be the same 180 days’ total time to process the general rate cases, but 120 days to process the deferred energy cases. The effect of that is we synchronize rates at one point in time, whenever the commission decides what general rates should be as a result of those filings.
Mr. Ponn continued:
They’ll also decide the deferred energy rates, which should be effective, and our deferred energy revenues and costs will be examined during that deferred energy proceeding. You create a synchronization of all the rates, all the costs, and all the revenues at one point in time. Additionally, we’ve agreed the company will go to deferred energy accounting March 1, 2001. There will be protections in that mechanism that if the company is over-earning, we will not be able to collect balances in that situation. I think that is the thumbnail sketch of the agreement, save and except one provision, and the company supports this agreement and thanks the Governor for his leadership, this committee for its leadership and interest in this issue, and the whole body for recognizing this is a very critical and important issue at this time, and for dealing with it expeditiously, as you have.
Senator Schneider inquired, “Mr. Ponn, on all this non-recoverable fuel expense, from July 1, 1999, to March 1, 2001, that’s 2 years. I think what I and my constituents are concerned about is, are you strong enough to absorb all that, because we sure need a power company in July?”
Mr. Ponn responded:
What we’ve agreed to do is to not go back and seek those costs, which we’ve not recovered and are not in rates for that period of time. In other words, we are not going to reach back and try to recover those losses that we have incurred. Related to that, I think these provisions are critical to making the company strong enough to go forward, and that is the intent. We’re hoping, when deferred energy is reinstituted, the financial markets will look at us and see we have the ability to collect the costs of fuel and purchased power going forward, and because of that we can pay our bills because there will be an ability to finance either through debt or equity what we need to be a viable company. It does not fix last year or the time period up until now. We are hoping the provisions in this settlement will add a degree of stability and confidence in the company and the state that will allow us to proceed, not only to buy fuel and purchase power, but to honor our obligations under contracts for supply this summer and going forward, and to meet our commitments to do things like invest in transmission lines in southern Nevada. That is the global view of what this settlement would do for the company, going forward, not going backward.
Senator O'Connell asked, “Doug [Mr. Ponn], would you walk the committee through what you perceive happening to the rates?”
Mr. Ponn responded:
As you know, under the current mechanism, the company has in place three components to its energy rate. That component was in effect before either the global settlement or the comprehensive energy plan were put into place. Those rates are what they are today as a result of those three components. Those rates that are in effect April 1, 2001, will not change going forward until we file and process both general rate cases and deferred energy rate cases for each company. You’ll have this period of stable rates, until those cases are processed. Had we not entered into this agreement, what we would have had going forward are our fuel and purchased-power rider filings, that we make monthly, which currently increase rates at 1.15 mills per kilowatt-hour, a total of both companies of about $30 million per month. As an alternative to that, the company will go on to deferred energy accounting, effective March 1, 2001. We start accumulating in those accounts, both the costs of fuel and purchased power and the revenues received for those components; and whenever we ultimately process these cases, the effect of what has happened in that period of time will become known and go into rates then.
Senator O'Connell asked, “What you’re telling us is that there should be some stability in the rates in the time it takes you to file that case, which is approximately a year?”
Mr. Ponn responded, “We’ll file them in the fall and they’ll be processed around April of the following year, or whenever a decision is reached in those cases.”
Senator O'Connell continued, “And, at that time, then we’ll probably see a rate increase?”
Mr. Ponn answered:
That’s my expectation, and I think it is the duty of everybody at this table to tell the committee this is not a silver bullet to stop the costs of fuel and purchased power from rising. It’s a more stable and more accepted and more financially, favorably viewed mechanism for dealing with that situation.
Senator Amodei inquired:
Senator Schneider had a question, since you’re going to be filing a rate case pursuant to this, if this comes about, I want to make sure since you said you expect that to be over in April, is that the outside time frame? I’m looking at language talking about “any party may litigate . . . ” Before we got into this 5 years ago, people were slugging each other over rate cases in front of the commission. What’s the potential outside for the next rate case contest that will occur as a result of this? I ask the question in the context of, if we’re fighting about rates waiting to set those rates while things are happening financially that affect the viability of the incumbent providers, that would be of concern to me in terms of having potentially negative stuff happen before we’ve decided what the rates will be.
Mr. Ponn replied:
The language contained therein about the parties litigating, in my mind, was intended to make it very clear that whenever we spend money on fuel and purchased power, we will book those amounts into the deferred energy accounts but ultimately there will be a hearing at the PUCN [Public Utilities Commission of Nevada], where the reasonableness, the justness and the “prudency” of those expenditures are examined. I think that was the answer to your first language reference. What I perceive happening is what used to happen. We will simultaneously file a general rate case, [we] won’t simultaneously file, we’ll process on a calendar that will render simultaneous decisions to both a general rate case and deferred case for each utility. In those cases and the general rate cases, they’ll examine all our non-fuel and purchased power expenses, costs, and investments. There will be a thorough examination of all our fuel and purchased-power costs in the deferred energy case. I don’t see that as being much different than the way we used to process those cases. I think the upside of this agreement is the financial markets will see that we have the opportunity to recover, in total, our fuel and purchased-power costs that are prudently incurred. I don’t think they will be concerned about rate cases and deferred cases.
Senator Amodei queried:
Is it accurate to say that you
think, with the addition of deferred energy in a financial posture, the company
will be healthy as a result of that, despite what may be going on in any
filings or cases pending before the commission in the interim? I’m asking, because I know the commission
has done things or not done things over the last few years that people have
come into this committee and said the commission’s killing us, or because of
this or that decision our stock dropped . . . if the rate filings are total warfare.
Mr. Ponn stated:
I think we’re used to skirmishes if not total warfare. I go back to the fact that all the people sitting at this table are used to litigating and processing rate and deferred energy cases. That doesn’t particularly scare me, especially in light of my perception of how the company has operated and the prudency of its expenditures. I’m willing to withstand any skirmishes, attacks, or warfare on those fronts.
Senator Amodei added:
There was a statute, and I don’t remember the number. After we processed 438 [Senate Bill (S.B.) 438 of the Seventieth Session] last time, and the market started to do what it did, I remember . . . a statute that was of early 1970s vintage that allowed, despite what was in 438 [S.B. 438 of the Seventieth Session], . . . the argument to be made . . . when fuel costs went up.
Senate Bill 438 of the Seventieth Session:Makes various changes related to electric restructuring. (BDR 58-861)
Senator Amodei asked, “How does that blend in to all this? Is that repealed or is that still out there in some way, shape, or form? What’s the status of that particular authority as a result of this?”
Mr. Ponn responded:
I may be the only non-lawyer at the table, so I may be able to give the best answer. My recollection of that statute is that it was argued to allow that the company still had the ability to file monthly cases for fuel and purchased-power costs. I think there’s some question. If you look at what’s gone on lately around our global settlement and our comprehensive energy plan filing, I think you know those filings and the legality of those filings has been under a certain amount of attack, scrutiny, and the subject of a lot of litigation. That’s one of the advantages of this agreement. We agree to switch from those fairly tenuous proceedings and filings to something that is sanctioned, known, and that we’re used to and that worked well in history for a long time.
Senator Rhoads asked, “Is the future acquisition of the Portland General Electric Company a possibility?”
Mr. Ponn responded:
The one provision in the document before you, which the company does not agree with and the one provision in A.B. 369, which the company has testified previously on, is divestiture in general. I would ask that the chairman incorporate my previous comments by reference on the subject of divestiture. You know the company has opposed the stopping of divestiture for legal contractual and regulatory reasons, and we continue to maintain our same position. Regarding the Portland General Electric Company transaction, that is the one subject we do not agree on in the current document before you, for a couple of reasons. One reason is, we don’t think the commission’s jurisdiction over that transaction should be extended via this legislation that results from here. We have an ongoing obligation to complete that transaction and make our best efforts and that’s what we’ll do. Parties would have to draw their own conclusions about our financial condition at this point related to that transaction. The company’s position is we oppose that provision here.
Ms. Batjer interjected:
Senator Rhoads, we should probably describe that portion of this language so the committee has a better understanding of what is proposed prior to the company describing they’re in disagreement with that section of it. So, when the questioning is finished, we’ll walk through this part of the proposal.
Senator Carlton asked:
In the education I’ve received over the last couple of years about how our electric companies work, and being educated on deferred energy, one of the things that was always brought up was the questions about the prudent policies in the state as far as the deferred energy accounts, and the discussions and arguments you’ve had . . . [and] what Senator Amodei said earlier. Is there any way we can make sure when we reinstitute deferred energy that those problems don’t arise again?
Mr. Ponn responded:
I think if you look at the history of deferred energy cases, they started back during a time not too dissimilar from where we are today, for different reasons, like the Arab oil embargo. The utilities were filing fuel cases one right after another; and deferred energy accounting was instituted as a way to smooth out the way rates were changed and allow the company to make filings on a 6-month or 12-month basis, depending upon conditions. If there were over or under collections those would be returned or collected from customers going forward on another 1-year basis. I think, early on, they were probably not too contentious, because everybody saw what was going on and the need to change rates quickly. Over time, it’s my perspective that those cases have evolved into something more sophisticated, complicated, litigious, and they have involved a lot of issues. Having said that, I do not object to that process. I think as long as the company is doing the right and reasonable thing, being prudent, we deserve to collect those costs and we have the burden of defending what we do. I can’t tell you that people won’t argue about costs in those cases; I think they will going forward. What I can tell you is we are willing to do that.
Senator Carlton asked for assurance stating, “You said the magic word, prudent. That’s been the argument. Are there some safeguards we can put into this language to make sure when that discussion happens again, we don’t go down the same road we’ve been down before?”
Mr. Ponn replied, “I think prudency is one of the words in the language here, that the company is subject to, in statutory language now, versus a regulatory convention before a prudency standard.”
Senator Carlton added, “That’s the problem, the word prudent.”
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection (Consumer’s Advocate), Office of the Attorney General, stated:
I think the senator’s question is a very relevant one. To give a tiny bit of history on this, as the committee will recall, although I was not involved in 1999 when the prior deferred energy statute was repealed, the intent was to give the company an incentive to engage in prudent practices for economic reasons. At the time the global settlement was negotiated last summer, as well, because the recovery under that mechanism was not a total recovery of the company’s fuel and purchased-power costs, that was also intended as a mechanism to encourage prudency, even though it was not a statutory provision. In the deferred proposal before you today, we have included an explicit standard for prudency. Unfortunately, like many other things, prudency is probably somewhat in the eye of the beholder. In this case, that will be resolved in front the public utilities commission. I think it’s important to have that as a statutorily defined term. Mr. Schmidt may be able to give a little bit longer historical perspective on that. I would add that I think this is important also, in the context of S.B. 508, which is before the committee today, calling for an audit of the company, which I believe, for the level of comfort of our constituents as well as policy makers, is an important issue, although not explicitly linked to the proposal that we’re discussing right now.
SENATE BILL 508: Requires audit of certain electric utilities, their affiliates, parent company and subsidiaries. (BDR S-1453)
Mr. Hay continued:
I do think the general review of prudent behavior of the utility, historically, on a going-forward basis, is a very important component to make sure the ratepayers in the state are not exposed to any further degree than necessary to actions of the company which may not be, in fact, prudent; although, ultimately, the PUCN will make that decision. Obviously, if parties to regulatory proceedings disagree, we’ll take that issue into the judicial system as well. I think having an explicit recognition of “prudency” in the statute is a step forward. It certainly does not cure all problems; but it is important to have, if we are going back to a deferred accounting system, which was pretty much abandoned by consensus in 1999.
Senator Carlton stated:
I don’t want to leave the impression I don’t believe this is important. I just don’t believe it goes far enough to protect the public. I believe there are some more safeguards we could put in place in this legislation to make sure the next time my constituents gets one of these bills, there aren’t five or six different classifications listed on it or extra rates imposed upon it. I just want to make sure when they get this bill, it’s not an outlandish bill. I think we need to go a little further.
Senator Amodei asked:
I just heard you talk about rate cases and bills for audits and litigation if we don’t like what happens there. I had the impression this is a major step in the right direction of getting us down the road to repealing competition, even though it never did start, putting the incumbents on some sort of fiscal basis that allows them to go forward, protecting ratepayers to the maximum extent possible, and that everybody was onboard on this. When I hear the consumer’s advocate say, “We need a bill to audit them,” I guess my first question is what the difference is between the rate case proceeding that’s going to transpire as a result of this, and adding an audit on top of it. One of my big concerns is do those things go forward simultaneously. Does it take a longer amount of time. I’m wondering if we’re putting anything to bed here that’s going to be a repeat of A.B. 366 of the Sixty-ninth Session and S.B. 438 of the Seventieth Session, where, as soon as the Legislature adjourns, there’s contention on a new scale beyond even what happened during the 120 days.
ASSEMBLY BILL 366 OF THE SIXTY-NINTH SESSION:Reorganizes public service commission of Nevada and makes various changes concerning regulation of utilities and governmental administration. (BDR 58-1390)
Chairman Townsend responded, stating:
We will debate the audit provision sometime in the next 2 hours. . . .
Mr. Hay continued:
I think the audit that’s contemplated in the bill before you has an effective date of being completed by April 15, 2001, which I think we can all agree is not reasonable. I believe a truly independent audit of the company, looking retrospectively as audits do, will be important to assure, on a going-forward basis to our collective constituencies, everything possible has been done to ensure the management practices of the company have not contributed to the situation they find themselves in. That will probably not be explicitly raised in the rate cases until much later on in the year. My expectation is, if the Legislature chooses to act on the audit provision, it would be completed in a couple of months. It may, if nothing more, establish a baseline of understanding, for both the people involved in the process as well as people that are only influenced by the higher bills they are experiencing, why this is all going on in Nevada. To the other portion of your question, although I’d like to represent that this reinstitution of deferred accounting would, in perpetuity, resolve any of the issues we’ve dealt with as Nevadan’s since 1995, I don’t think that would be a wise assurance to make. I do think it’s a step forward ensuring stability in the marketplace during a very turbulent time. Our approach, from my office, has been to assure reliable and affordable electric service. I think this is a component of that.
Mr. Hay continued his testimony by stating:
None of us are going to be able to claim we have managed to put the genie back in the bottle and that we’re going to be experiencing the stable rates of the 1990s during the next biennium, certainly, but it is a component I think we all agree is necessary, for a variety of reasons, to allow the company to move forward with some assurances of stability while mitigating the impact of the volatility that is largely caused by the California marketplace.
Mr. Whittemore testified again:
I would like to focus, if possible, on some very specific language that addresses some of the concerns the members of the committee have addressed with respect to the proposal. I would like to point out that while this process was completed, quite frankly, at this committee’s direction and the Governor’s request and in conversations with the Assembly, the work contained in this document with respect to deferred [energy accounting], will, in the collective judgment of all the participants in those discussions, resolve a lot of very difficult issues: the legality of the fuel and purchased-power rider is taken care of with respect to this, because it’s going away; the CEP filing, which was attacked, in my judgment quite correctly by the consumer’s advocate, is being withdrawn; the benefit associated with the fuel and purchased-power rider is reflected in the agreement, which is being presented in the fact that all of the proceeds, which were received in March as a result of the CEP filing, are credited to the benefit of the consumers in the deferred account at the first instance; and the fuel and purchased-power rider, which we were going to get the benefit over the next 24 months is reflected at the outset in this agreement.
Most importantly, from the Governor’s perspective and from this committee’s perspective and I think from the state’s perspective, this utility will be saved as a result of the imposition or allowance of deferred accounting being adopted by this committee. That’s why collectively we’re here to support it. There are two other components of this bill, which the company cannot legitimately respond to. Those were the divestiture issues, the divestiture plan, which was proposed by the Assembly in A.B. 369 versus the one, which was discussed in Senate Bill 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)
Mr. Whittemore continued:
Our member institutions support stopping divestiture and they are supporting the imposition of deferred accounting at this time. The two pieces the company can’t talk to are very, very relevant to our member institutions. Those are in your attachment [Exhibit C], item 3, the pending acquisition of Portland General Electric Company, we are asking that this committee and this legislative body immediately adopt, because we’re the only state that does not have this type of review, the ability to review the pending acquisition of Portland General Electric Company. We have one utility now in this state and we’re talking about the acquisition of utilities out of state, we’re asking the commission to review that merger, determine independently whether it’s in the public interest and then if it’s approved, allow them to go forward. Most importantly, with respect to this item, we’re suggesting that if the company has the financial capacity to go forward with the acquisition of Portland General, then they certainly don’t need a deferred mechanism that the consumers and ratepayers of this state would, in effect, be funding that acquisition.
This particular bill proceeds with the notion that it should be reviewed and then if in fact they complete that acquisition before July 1, 2003, then deferred [accounting] expires by limitation with respect to what the Governor is proposing, obviously, collectively, other than that the company strongly supports. In addition, the mechanism associated with prohibiting the company to recover for past costs, I would like to put into perspective, and I know that Mr. Hay and Mr. Schmidt would agree with this, the amount that is going to be saved is in excess of $200 million. The exposure is in excess of $200 million to the ratepayers of this state. The company has agreed not to pursue those.
Mr. Whittemore continued his statements:
Under the fuel and purchased-power rider mechanism, there was a carry forward provision to the extent that the rates, which were being charged, did not allow full recovery. The constrained portion of that rate was carried forward and could potentially have been the subject of recovery in the future. The company, as Mr. Ponn has explained, is walking away from that, so there is a bright line of demarcation as to what the company may or may not recover. What we have agreed is that deferred accounting, and what we’re proposing to this committee is, that this bright line should begin March 1, 2001. That will create stability until the next rate filing, the general rate case and deferred accounting mechanism is clear. We do not want this committee though to be misled with the notion that somehow rates aren’t going to go up. Rates are going up, because fuel and purchased-power costs are going to go up. This mechanism provides stability and allows, as your usage goes down, for your rates to be blended, in the sense that while your rates are higher your usage is down, the effective total cost is somewhat blended and the spikes are removed. I can strongly suggest to you the work that was done to remove the contentiousness from this debate to the best that we can with respect to deferred [accounting], is in fact contained in each and every one of these proposals.
Senator Amodei stated:
Finally, since everyone agrees that rates are going to go up . . . I think it would be helpful to the extent possible to try to quantify that even in a general sense. Everybody in this room and [those] who have been part of this process know what the aspects are, in terms of financial markets, Portland [Portland General Electric Company], and all that other sort of stuff. Ultimately, how this legislation is going to be judged when it starts taking effect, is when those things [power bills], as they already are, start hitting mailboxes. . . . I think a good question was asked the other day when somebody said, “Hey, if my power bill is $100 now, when we get through with all this, what can I look at for a ballpark figure for what used to be a $100 bill?” That’s how I’m going to be judged when I talk to people about what we did in 2001, with respect to energy. If there could be anything on the record that says, “Listen, this is what your constituents can expect, if they started with $100 in this process on February 5, 2001, and when the Governor and the Assembly and the Senate and everybody got done doing what they were doing, that’s where it’s going.” Not that anybody here has the ability to control the energy market, but I think we ought to be to the largest extent possible, fully disclosing where we expect that $100 bill to be in 12 months or 24 months.
Mr. Ponn responded:
I don’t think anyone at this table, as you said, can give you a lot of certainty about where rates are going to be a year or two from now. The simplest, simplest explanation or prediction I have made is, since the start of the run-up in the costs of fuel and purchased power through the operation of the fuel and purchased-power rider and the CEP [comprehensive energy plan], we have basically added about 2 cents per kilowatt-hour to our customers’ bills. It’s my expectation that there is probably another 2 cents missing, in order to get in sync with the market place. That’s the very simplest way I can say it. In California that number is about 3 or 4 cents today. In some sense we are in a similar marketplace. Another way to say it is, had the fuel and purchased-power rider mechanism proceeded, it would’ve added about $30 million per month in rate filings. You can run the numbers out to March of 2002 or 2003, as you want. That’s what would’ve happened under the other mechanism. Unless there’s some turn down in cost, that’s the minimum expectation.
Senator Amodei stated, “When you say we’ve added 2 cents, and maybe another couple of cents would kind of get us to where your best guess is, what did we start at, per kilowatt-hour?”
Mr. Ponn replied, “It depends, north and south residential customers, the 7- to 9-cent range: 7 cents in the south and 9 cents in the north.”
Senator Amodei added, “So, somewhere in the neighborhood of a 50 percent increase?”
Mr. Ponn responded, “Yes, and maybe more.”
Senator Amodei asked, “Mr. Hay, is that in the ballpark of what you expect to see?”
Mr. Hay responded stating:
We did some analysis earlier, based on the CEP rates and the F&PP [fuel and purchased-power] rates going forward. This proposal before you today will abrogate future filings of the monthly increases. We have a proposal on the agenda [at the PUCN] today that the committee has brought forward addressing residential rates in a slightly different context. I think the figures Mr. Ponn has indicated are representative. Under our analysis the average bill in Clark County for electricity in August would rise from about $171 to about $232 under this rate structure. I think those numbers are still in the ballpark. Obviously the big future adjustment will be when the general rate case and the deferred case as contemplated here, are decided by the public utilities commission late this year and early next year. I think the state needs to explore ways to ameliorate the impact of that on our lower income and average residential consumers as well. As you know there is legislation pending to do that. We’ll do some more refined analysis of the numbers and attempt to bring that to the committee if that would be helpful to you.
Fred J. Schmidt, Lobbyist, Southern Nevada Water Authority, testified:
I was asked to participate in this effort for a couple of reasons. I was glad to do so, not that I like deferred accounting, or I think it’s the best solution, but I think at this point in time, it’s probably the only solution, if we’re going to use that as a solution. The way to implement it efficiently is what we set out to do. There are a couple of things that haven’t been described, that I’d like you to be aware of, that I think might mitigate some of the fear that has been expressed and some of the questions or the requests for reality check here, in terms of what the impact is. There is a prudence standard, which was not in the law on deferred energy before, that’s added in, by virtue of this language. It’s not great, it’s not the solution necessarily to make the utility operate more efficiently, but it gives at least a standard. If that creates litigation, it creates litigation, we cannot protect the utility from every good or bad decision they make. What we can do at this point though is make sure they, financially, at least get through the next couple of years. I think going back to this mechanism ensures that, because it will give the financial institutions, who have to lend them the money to make it just through this summer, the money, because there’s some level of certainty money will be recovered through rates. That should cause you to question, “Well, what’s going to happen to my rates?” Essentially, your rates have already gone up on average 25 percent. You can calculate that on your bill, it’s more or less depending on whether you’re a big user or a small user.
Essentially, what Mr. Ponn is telling you, it looks like there’s another 25 percent that may have to be absorbed. One of the other things we did here was, and I know people are tired of the monthly rate hits and the announcements there’s another rate increase, we got rid of all that. Essentially, what this bill does, is it says there’ll be no more rate increases or rate cases this year. The bill says there will be one filed by the end of the year. The rate increase or impact from that will hit early next year. For Nevada Power Company that will be approximately March or April and for Sierra Pacific Power Company it will be later in the spring but before the summer. The bill ensures there will be no additional rate hit beyond that unless prices get way out of control in 2002.
This bill, if you adopt it, takes all of the impacts that were proposed or planned from the F&PP and all the shortfalls the company is still envisioning because they have contracted for power to keep the electricity flowing this summer at prices higher than is currently billed in the rates. I’ve looked at those contracts; the prices are significantly higher. How much higher will that mean your rates can go up? We don’t know until we see how much electricity is consumed this summer.
Mr. Schmidt continued to testify:
If conservation is promoted and implemented, they won’t necessarily have to take that most expensive power. If we generate that power from our own units and keep those units running and functioning this summer, the increase may not be as large as Mr. Ponn said. Alternatively, if the weather gets hot and the power consumption gets high, the increases could be even larger. How have we mitigated that in this bill? The old deferred statute required deferred energy changes to be spread over the subsequent year. Essentially, the company filed every year or 6 months, and then spread those increases over the next year. Because that impact at this point in time appears to be so great, we changed the statute in another way from the old deferred [accounting].
We are authorizing the PUCN to have more flexibility so they could spread those increases over a 2- or 3-year period, no more than 3 years, because we have to pay what it costs to deliver the power at least within a reasonable time frame of which it’s incurred. We can mitigate some of the rate shock by spreading that impact. The language in this bill authorizes or gives flexibility to do that. If there is a potential for up to another 25 percent, that could be spread so it’s a much smaller percentage next year, over a period of time at the discretion of the PUCN.
As far as the need for this legislation, I look at it this way: you have no easy out here and the company, I think, needs to keep its power plants and keep them functioning to preserve a base load of power. Fortunately though, there’s no increase from that, by the way, and I think there’s been a lot of misinformation or confusion around the halls of this building about that, with numbers. The company is paying the cost of fuel running those plants today. There is going to be no increase of any significance unless there’s another big run up in fuel cost.
Mr. Schmidt commented further:
The safety net the company needs right now to make it through this summer is recovery of the cost for all the power they have to buy, not generate. They have to buy, particularly in southern Nevada, on peak, up to 50 percent of their power. They didn’t buy that power that they knew they were going to have to buy until basically last fall. When Mr. Higgins [Walter M. Higgins III, President and Chief Executive Office, Sierra Pacific Resources] came on board, he started buying power and they appear to have enough power for this summer, at this point in time. That’s good. Unfortunately, the bad news is that power was bought after the market spiked last summer in California, so the cost of buying that power for this coming summer is substantially higher than is built into the rates today. It’s substantially higher than we’ve ever seen before. The price for 2002 doesn’t look much better. Unfortunately, despite all our best efforts, and whatever efforts you can make, and the Governor, we’re not going to have any major new power plants on line this year. It takes a few years to get these things built. Everybody’s bending over backwards, including my client, to do that, but until that supply situation gets increased for our state and stabilized, we either have to help the company get through this, through some mechanism of additional rate impact, or the company doesn’t go forward in operating the business in our state. I can tell you, since I have gone through that in another state, it’s not pleasant and it can be worse and the rate impact can be worse. If you lose control of your power plants, you lose control over making sure the cost is kept at a reasonable price. If you lose control of your utility, you also lose control of the activities that affect the price. This effort, from my perspective, is an effort to ensure that we have some local control during this crisis, and we try to attract and build solutions over the next couple of years. I hope that’s helpful.
Senator O'Connell stated:
I think something that we really haven’t touched on enough that is extremely important, is the fact this gives Sierra Pacific Power Company and Nevada Power Company stability in the market and will be key to us being able to build the transmission lines needed. Without that stability, they aren’t going to be able to borrow the money they need to do that. Unless that transmission is purchased, the companies we are bringing on-line are not going to have any way to facilitate the power they are building. I am looking at the global picture . . . . I think that’s key to what we’re doing with that proposal.
Mr. Whittemore stated:
As the chairman and this committee know, this is the second piece of A.B. 369 and the provisions regarding divestiture, whether this committee accepts the draft that came over on A.B. 369 or makes modifications. From our perspective, I wanted to make it very clear we believe the deferred portion is tied inextricably to two things: (1) an acceptable mechanism just to the body with respect to stopping divestiture, and (2) making sure that the Portland General [Electric Company] language is maintained because it was a key component to bring some of the various parties together as well as the removal of the CEP. We do recommend the entire text of the items that are reflected in the document we presented to you.
Senator Carlton asked, “I see nowhere . . . ‘amend as a whole,’ so these provisions will fit into different portions of A.B. 369?”
Mr. Whittemore responded:
What we’re proposing is that the committee adopt the language in respect to divestiture whether it’s under the S.B. 253 language, [or] the modification under the first amendment to A.B. 369 that talked about a different divestiture plan. This would then become the context of the deferred piece, and the remainder of the bill under, I think Kevin’s [Kevin C. Powers, Senior Deputy Legislative Counsel, Legal Division, Legislative Counsel Bureau] term, and I don’t know what he used. It was just to make sure there were no other changes that were made necessary as a result of these two pieces being adopted. Just to make sure there were no other changes. It’s just this and the divestiture piece.
Chairman Townsend explained, “We will discuss the bill in its entirety. I just wanted to have them prepare their remarks on this and then we’ll walk through each component of the bill this morning.”
Pete G. Ernaut, Lobbyist, Nevada Mining Association, Reliant Energy Incorporated, WPS Energy Development Incorporated, and El Paso Corporation, stated:
On behalf of some of my clients, including the Nevada Mining Association, Reliant Energy, Wisconsin Power [WPS Energy Development Incorporated], and El Paso Energy Corporation, I was tasked with refereeing some of these negotiations. Certainly, part of that job was making sure everybody had the ability to speak their mind, clearly and comprehensively and also talk about any opposition they had to these concepts, and to, in essence, summarize them and summarize the agreements at the end. With your indulgence, I want to take a moment, since we’ve been at this for a little more than an hour now, and summarize in nine bullet points exactly what this agreement does and some of the things you would see: [1] It mandates that Sierra Pacific [Resources] walk away from over $200 million in losses and will not pass those along to the ratepayer. [2] Provides rate stability for 1 year and allows that any increases in a deferred rate case may be spread out over a period of 3 years. [3] Abolishes $312 million emergency rate filing before the PUCN. [4] Ends fuel and purchased-power rider filings that have created monthly rate increases. [5] Establishes a prudent buying standard that has never existed as a powerful tool for both the PUCN and the consumer advocate to check and balance Sierra Pacific Resources and its filings. [5] Mandates that all rates collected through the CEP from March 1, 2001, to present be established as a credit balance to the ratepayers in the deferred cases going forward. [6] Establishes a much more frequent rate review structure that mandates a biennial rate case. [7] It synchronizes the first general rate case and the first deferred filing in order to mitigate any rate shock to the ratepayers. [8] It provides greater scrutiny for the Sierra Pacific Resources and Portland General Electric Company merger. [9] Protects ratepayers against any factors that would be detrimental to them. This provides a tremendous amount of ratepayer protection in a very volatile environment. It also helps keep the power company solvent, which you have all agreed is very important and certainly goes a long way and is a very big step in keeping the lights on for this summer.
Senator Schneider stated:
Pete [Mr. Ernaut], you said you represented Reliant [Energy]. I have their press release from yesterday. They’re building a couple of power plants in Las Vegas. Joe Bob Perkins, the president, announced that. Of those, we get 25 percent of the power guaranteed to come to southern Nevada?
Mr. Ernaut responded:
Senator, the Reliant Energy power projects are a little unique from the others such as . . . and Duke, insomuch as they purchase their water privately and not under some of the same contractual obligations. However, they have absolutely every intent of honoring that, in the spirit of good corporate cooperation, and certainly want to be a good corporate partner in the state of Nevada.
Senator Schneider asked, “There’s no guarantee that they’ll sell 25 percent of the power to southern Nevada?”
Mr. Ernaut replied:
At this time there’s no guarantee, but, certainly on a going forward basis, I would tell you they have every intention of making sure that does happen. Reliant [Energy], at the end of 2003, will have well over a thousand megawatts in constructed power plants and certainly wants to be a major player in the state of Nevada, but also wants to be a very good neighbor.
Senator Schneider continued:
Joe Bob [Mr. Perkins] says he is an unregulated generator of power. I guess my question is he says, ”We’ll sell you 25 percent and we’re going to use all your water and all your clean air, and maybe we’ll sell you 25 percent of the power back. We can sell 75 percent of whatever we deem we want to sell into southern California. I point out, he’s unregulated so he can do whatever he wants. We can’t look at him, but here we have Nevada Power Company at the table and we’re still regulating these guys. We’re saying they can’t have rate increases, they can’t do all this, but your client can do whatever he wants. It doesn’t seem right. Especially when I sit here with newspaper articles from all over the West and a couple of weeks ago I brought this up. . . . Your client, along with a lot of other clients of people here in the room, are under investigation for manipulating the market, and they are unregulated.
Chairman Townsend interjected, “We’re a little off the deferred part here. There’s a role for these excellent questions, but I’m not sure this is the time.”
Senator Schneider responded, “Can I ask those questions later this morning?”
Chairman Townsend replied:
Yes. Committee, that is one component that obviously is to be considered to be part of A.B. 369. I would like to go to A.B. 369 and its particular recommendations concerning the actual delay of divestiture or its moratorium on divestiture. Let’s go over this language in A.B. 369 and then we can look at the other language. Section 18, [1] “. . . an electric utility shall not dispose of a generation asset unless, before the disposal, the commission approves the disposal by a written order issued in accordance with the provisions of this section.” [2] “Before July 1, 2003,” that’s over the next 2 years, “an electric utility may not file an application to dispose of a generation asset, and the commission may not authorize an electric utility to dispose of a generation asset.” That’s an absolute blanket moratorium. [3] “On or after July 1, 2003, and before July 1, 2007, an electric utility may file an application to dispose of a generation asset only if the application is based upon a substantial financial emergency,” which is defined. That basically says a blanket moratorium for 2 years, and during the following 4 years, there must be a substantial financial emergency that is applied for, through the public utilities commission, and it must use the standard of clear and convincing evidence. It says, “The commission may base its approval upon such terms, conditions or modification as the commission deems appropriate.” Then it may file. Kevin [Mr. Powers], could you reiterate your confidence, is that kind of language defensible or not defensible? Where are we? We have other language in the proposal that came to us as an amendment, which committee, you might take out of your file, the April 1, 2001, first proposed amendment [Original proposed amendment provided as Exhibit E of Senate Committee on Commerce and Labor minutes, dated April 2, 2001].
Kevin C. Powers, Senior Deputy Legislative Counsel, Legal Division, Legislative Counsel Bureau, stated:
To contrast the two provisions at issue, those in A.B. 369, first reprint, and those in the proposed amendment dated April 1, 2001, the key is to focus on the second period of the moratorium you referred to that begins on July 1, 2003. Assembly Bill 369, first reprint, limits, as you said, to substantial financial emergency proved by clear and convincing evidence. This is a very restrictive standard. Taking the first and second stage of the moratorium together up through July 1, 2007, this bill, although constitutionally defensible, pushes the outer constitutional boundaries more than the proposed amendment of April 1, 2001.
Chairman Townsend said, “Let me ask this. Since both proposals have the blanket moratorium in the first 2 years, can this be challenged before the end of
that 2-year moratorium or do they have to wait until July 1, 2003, to challenge this?”
Mr. Powers responded:
They can challenge it on the effective date of the bill, which is passage and approval. What the court will look at, though, is the bill in its entirety. It will consider the first stage of the moratorium and will also consider the second stage of the moratorium. If it looks at the second stage as being too restrictive, that may lead to the conclusion that the bill as a whole is too restrictive, and therefore unconstitutional.
Chairman Townsend asked:
Whoever files litigation; can we get their name right away? Committee, the options in front of you contain the language in A.B. 369, which is a 2-year [July 1, 2003], plus a 4-year July 1, 2007]. The 4-year [July 1, 2007] is using substantial financial emergency as its means of a potential sale and in the proposed amendment to the first reprint, it is a moratorium for 2 years and then it goes directly into the application of the utility to sell to the PUCN, in section 17. The Governor has a second layer, so if the PUCN turns it down after the first 2 years, then it stops there. If the PUCN accepts it, then the Governor must review it to find out if in that office’s opinion it meets the public standard of benefiting the residents of the state of Nevada. Those are the two proposals in front of us, committee. What’s your pleasure?
Senator Amodei inquired, “Kevin [Mr. Powers], do you have an opinion on what court system this would be in, state or federal, if this goes to litigation?”
Mr. Powers responded, “I cannot say with any certainty where a court case would be filed.”
Senator Amodei continued, “In the opinions you’ve given, have you spoken with litigation counsel on any of it?”
Mr. Powers replied, “Litigation counsel as being the attorney general, who defends the state statutes against constitutional challenges? I have not.”
Senator Amodei asked, “Do you have an opinion as to the availability in any potential litigation as to whether or not specific performance would be available to a plaintiff in this matter?”
Mr. Powers responded:
I do have an opinion on that. I can say with certainty what my opinion is. Specific performance is an equitable remedy in a contract action. Typically, in contract actions, money damages are awarded when there’s a breach of the contract. Under specific performance, instead of money damages, the court orders the parties to carry out the terms of the contract because there’s a unique aspect of the contract. That uniqueness usually goes to specific property, such as real estate, where money damages wouldn’t fully compensate the party who was supposed to acquire the real estate. However, specific performance is an equitable remedy subject to the restrictions of equity, and equity will not enforce an unlawful contract. This bill, A.B. 369, makes the divestiture contracts unlawful; therefore, equity will not enforce an unlawful contract. The second reason that specific performance wouldn’t be available is that it’s only available for a breach of contract. Most of these contracts contain a provision that the obligations of the party end under the contract if there’s a change in law, and A.B. 369 would be a change in law. There would be no breach under the contract, therefore, without a breach, there could be no specific performance.
Senator Amodei continued to inquire, “Have you spoken with litigation counsel about that opinion?”
Mr. Powers responded, “I have not.”
Senator Amodei asked, “If this goes to court and whatever court it is, and there
are money damages awarded, do you have an opinion whether or not those money damages would be transmittable to ratepayers as a result of the enactment of this law?”
Mr. Powers replied:
If the court finds a breach of contract, which I find highly unlikely here, because, again, the court would have to find that an unlawful contract was breached and there cannot be a breach of an unlawful contract. Assembly Bill 369 makes the contracts unlawful. A court would not use its powers to force a party to pay damages for not performing an obligation that they can’t perform based on the law. I don’t believe there would be a situation where money damages would be awarded, however, if for some reason a court were to award money damages based on breach of contract, I believe it would be up to the public utilities commission to determine whether those damages are a cost of doing business; i.e., an operating expense that should be paid by the ratepayers. I believe the public utilities commission would have to make that determination.
Senator Amodei concluded by asking, “For those opinions, have you discussed any of those with litigation counsel?”
Mr. Powers replied, “I have not.”
SENATOR O’CONNELL MOVED TO ACCEPT THE LANGUAGE OF THE FIRST REPRINT OF THE PROPOSED AMENDMENT TO A.B. 369 PROVIDING A FIRM MORATORIUM ON THE SALE OF THE GENERATION ASSETS UNTIL JULY 1, 2003.
SENATOR SHAFFER SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Townsend stated:
On the proposed language, with regard to deferred, which would reconstitute deferred energy and resolve the problems associated with the global settlement as well as the comprehensive energy plan, and puts in place specific times for the balances to be resolved in deferred energy accounts. It also sets firm dates with regard to general rate cases and provides the language that says were the acquisition of Portland General Electric Company to be found in the public interest, it could only be approved after a hearing provided within this section; and if it is allowed after July 2003, it expires by limitation on that date, the ability to collect under deferred [deferred energy accounting].
SENATOR O’CONNELL MOVED TO ADOPT ITEMS 1 THROUGH 10 OF THE AMENDMENT (EXHIBIT C) OF A.B. 369 AS PROPOSED BY MS. BATJER, MR. HAY, MR. PONN, MR. SCHMIDT, AND MR. WHITTEMORE.
SENATOR RHOADS SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Townsend continued:
With regard to the remaining portions of A.B. 369, there is language provided by Mr. Powers in the first reprint of A.B. 369, a proposed amendment of April 1, 2001. It reconciles the issues involving the restructuring and how it is affected regarding moratorium. There is language throughout the proposal that deals with all of those areas necessary to reconcile with the moratorium on the sale of the plants. We either have to do that or the portion that remains in the bill A.B. 369 is a repeal of A.B. 366 [Assembly Bill 366 of the Sixty-ninth Session] and S.B. 438 [Senate Bill 438 of the Seventieth Session] and any of its progeny through the regulatory process. I’m not exactly sure, if that is left in there, what that does to this proposal. Does anyone have any indication for us, if we leave just the general repeal in here, what that does to your negotiations?
Mr. Whittemore responded:
It was our intent to try to craft the language in the presentation we made consistent with the first reprint, with the understanding that Kevin [Mr. Powers] would be given instructions to again coalesce those provisions together. We are talking about rates and there are provisions in the repealers, which would be impacted. I think you need to go with the first reprint and put the amendment into that.
Chairman Townsend continued by stating, “Did I phrase that correctly? I tried to find out exactly what we need here, and your belief relative to the impact of leaving the total repeal in and its effect on this language plus what you perceive to be the agreements by the parties.”
Mr. Ponn stated:
I think it was the intent of our negotiations to resolve the deferred energy issue and I think the committee has already voted on the divestiture and the deferred energy issue. It was not a focus of our negotiations to resolve the customer choice or restructuring issues. I think perhaps there should be another day to argue some of those. There’s a difference of opinion among the parties about how they should ultimately turn out. As you know, A.B. 369 effectively repeals a lot of the restructuring statutes. The first reprint of the proposed amendment of April 1, 2001, I think perpetuates what would have been the status quo going forward, or something similar to it. As you know the company has proposed, as far as customer choice is concerned, another alternative to allow certain larger customers to leave when they can show no harm in leaving or coming back.
Chairman Townsend interjected:
I don’t have a problem with what the Assembly has put in here. My concern is if we leave it in, does it undo all the work the parties have done, that we think is ultimately in the best interest? That was my question a week ago to the Assembly members and the very fine work they did, and they had commented to us that they did not take testimony on the effect of the repeal on rates. We just let the question die at that point. I just want to make sure. If we don’t address it, then it stays in here and if it turns around and affects this and ultimately harms our customers before we can get back here . . . I just want your insight as to what would happen were we to leave that in and what happens if we take it out.
Mr. Ponn responded:
I don’t think it directly affects it, however, I think the parties to the agreement which instituted the deferred energy provisions you just voted on, expected at least another opportunity to discuss the options of customers. I don’t want to put my proposal anywhere in front of those at this moment.
Mr. Schmidt stated:
We have advocated
those actions you need to take that are eminent, affecting both the financial
health of this utility and our ability to control our own destiny, [the
actions] should be taken as quickly and swiftly as possible, even though they
don’t comprehensively address all the energy-crisis issues. The first [action] we laid on the table was
divestiture. We did not get a
divestiture bill out because there was concern we had not addressed deferred
energy. What we attempted to do, at the
Governor’s direction, is deal with divestiture and deferred energy. We did not try and resolve any remaining
disputes about whether we need full repeal of restructuring or whether we need some
new version or otherwise. The
understanding of the people at this table was, if we could get the two crises
things out and get out a bill, the other things could be addressed later. The only reason to address any of the
restructuring part at this time, we felt, was the extent to which Mr. Powers
needed to incorporate
that in language
to ensure the constitutionality or the strongest
constitutional argument on the provisions that we’ve addressed on
divestiture.
Chairman Townsend stated:
If we use Mr. Powers’ language, which would when we put the divestiture language in, that resolves any conflicts. Then we can come back to this issue about a full repeal or about proposed opportunities to get . . . if I can find a way to without harming them, get rid of them, so we have that native load, however I can do that I want to try to do it. We want to pick that up for another day because southern Nevada has the same conceptual needs, but they have different ways to do it. Is it fair to say that’s going to be left for next week?
Mr. Whittemore responded, “Yes, sir.”
Chairman Townsend added, “Mr. Pitlock, we want to afford you the opportunity, because it’s not everyday you can get four former commissioners (PUCN) up here.”
Michael A. Pitlock, Lobbyist, Shell Energy Services Company, stated:
If it’s the pleasure of the committee to discuss customer choice at a day in the future, that would be fine with us. I do want to put on the record that Shell Energy [Services Company] does have two proposed amendments, either to A.B. 369 or some other bill dealing with customer choice. Whatever day you pick to have those presentations, we will make them.
Chairman Townsend continued:
We have a slightly full schedule next week. The staff has worked remarkably hard. I can tell any of you who have either served in an appointed position or an elected position in the state of Nevada, without really good staff, your life is impossible. I wouldn’t trade anybody in this building, who has worked for this Legislature over the last 20 years that I’ve been here for, anybody in the country. The amount of work they do is remarkable because without it we can’t serve the people we’re supposed to serve. That’s the good news. The bad news is they give you documents that look like this, which means you have to speak real fast because you have to get through the session. Next week is our last week before we have to have stuff out of the committee. . . . Friday is a work session in which we are going to hear S.B. 309, which is Senator Coffin’s bill to deal with the two pipelines, and how we get fuel from the Bay Area and southern California to our two communities, and from that debate we will go immediately into the issue of the current structure, with customer choice, and finding out whether we should stick with the full repeal or find people that are larger than a megawatt or whatever and get rid of them. We want to have a serious debate on this, because this committee is very knowledgeable and very interested and finds that debate very helpful.
SENATE BILL 309: Makes appropriation to Division of Emergency Management of Department of Motor Vehicles and Public Safety to purchase equipment that will provide emergency power supply for pumps that push fuel into Clark County. (BDR S-1158)
Mr. Whittemore interjected, “I might offer two additional thoughts. We are under the understanding that an Assembly Bill 661 will be processed next week.”
Assembly Bill 661: Revises and repeals various provisions concerning utilities and energy. (BDR 58-1128)
Mr. Whittemore continued:
It could clearly be a vehicle to either resolve the issues with regard to customer choice in that one, or with the consent of most of the parties here, I’ve just had a chance to talk to Tim [Mr. Hay] and Doug [Mr. Ponn], is to request an exemption on S.B. 253 and allow that to be the vehicle to resolve those issues.
Chairman Townsend interrupted by stating, “I will check with the leadership. We would prefer to use one of their bills, because every time you have an exemption, and somebody else has something . . . “
Mr. Whittemore stated, “I just wanted to make sure the committee was aware. I know the chairman was, but the other members of the committee, that A.B. 661, dealing with this, was going to come over [from the Assembly]. If we need to wait to have that discussion . . . “
Chairman Townsend added:
We probably won’t pick it up then until after April 13, 2001, but we will set aside at least one day, if not back-to-back days to debate that. I think Mr. Ponn and all his staff have looked at the fact they are now going to own these plants, still. They’re going to be the statewide utility. We do have transmission constraints. We do have other things. The things you have brought forward are creative and I think that debate needs to occur so the committee can deal with that issue in kind of a clean environment, as it were. We’ll spend the time on it we need. I think your point is well taken. I discovered after discussion of A.B. 661 with leadership, they only wanted to have one or two bills. The importance and immediacy of the first one, which is the one we’re dealing with this morning, was dealt with. Rather than have 22 bills, they talked to their members and said . . . is that fair? Committee, with regard to the issue of using the language in the proposed amendment of April 1, 2001, prepared by Mr. Powers to reconcile any differences with the current structure as we provided the moratorium, what is your pleasure? We’ll use this language or leave the language that’s in the bill.
Senator O'Connell stated, “I have some real concerns if we jump right into that, because the language in this proposed amendment is very broad. It takes in a lot of area that I think we’ve had prior discussions on that we don’t feel needs to necessarily be in the law. I would propose we use the language that’s in A.B. 369 right now.
SENATOR O’CONNELL MOVED TO ADOPT THE BALANCE OF THE LANGUAGE IN A.B. 369 FIRST REPRINT TO THE EXTENT THE LANGUAGE DOES NOT CONFLICT WITH THE TWO PREVIOUS MOTIONS.
SENATOR CARLTON SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Townsend stated:
The bill now has two things that have been placed in it. [1] Is what was voted on relative to the moratorium, which is a flat out 2-year moratorium. [2] Is it also possesses the language on deferred energy and placing restriction on the purchase of PGE [Portland General Electric Company], and setting deferred dockets as well as general rate case time frames, and remains with the repeal of restructuring. That’s what is left in the bill. On the bill as restructured by this committee, what is your pleasure?
Senator O'Connell stated, “Are you planning on amending it on the floor or will we have it Monday morning?”
Chairman Townsend responded, “I believe, Mr. Powers, the goal would be to have this for review by Sunday afternoon, so we could have it for the floor on Monday.”
Mr. Powers replied, “I can e-mail copies of the proposed amendment to members of the committee by 7 p.m. on Sunday. How about 5 p.m. on Sunday?”
Senator O'Connell stated, “If you would just send it to my office, because I’ll be winging my way back to Carson City by that time.”
SENATOR O’CONNELL MOVED TO AMEND AND DO PASS A.B. 369 AS NOTED IN THE THREE PREVIOUS MOTIONS.
SENATOR RHOADS SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
*****
Chairman Townsend opened the hearing on S.B. 425.
SENATE BILL 425: Makes various changes concerning certain utilities operated by certain governmental entities. (BDR 20-1243)
Senator O'Connell stated:
First of all, I need to clarify for some people who are in the audience the bill is as large as it is because it really covers the world, but it was never intended to do this. You all have probably heard this in every other committee. The bill came out on the final day we had to have the bills in on the floor [Senate Floor], so the bill was delivered to me on my way to the floor. It was never reviewed prior to that. It was really only intended to do three things to give us a chance to address the potential tax impact created by dereg [deregulation]. During the interim, as you all know, there was a committee appointed by the Governor to look at the different effects or impacts of deregulation and what was going on with our power situation. That committee had contacted me, as the chairman of a committee we fondly call the “253 Committee” [Legislative Committee to Study the Distribution among Local Governments of Revenue from State and Local Taxes], which looks at the distribution of taxes in the state. Because they did not have enough time to really go through everything they wanted to, they wanted to leave the part of the package of the taxes outside of their review. They suggested perhaps the “253 Committee” would be interested in doing that. That’s the second reason the bill was requested. The bill was requested to have a 2-year moratorium on the possible expansion and we had done that, again, because we did not know the tax impact. We felt, because it’s going to be dramatic, especially on some of the rural counties, this was a very important piece of the package. It also was only intended to have two pieces in it, the electrical market and the telephone/telecommunications component.
As you see, I don’t know if it was an error on my part in requesting the bill, or in the communication with the bill drafter. They used public utility, and of course that covers a much broader spectrum than we had ever intended. That gives you a little background of why the bill is here and why we think it’s important. This came out of the request of the commission [PUCN] and the “253 Committee,” when we started being very well aware of the fact that this was going to have a dramatic impact on the smaller counties, especially if the utilities had decided to go into the market. They would have really been cutting off their noses to spite their faces in many cases because of the number of taxes that are funded through the utilities. I believe the power company pays in excess of $56 million a year in taxes. You can see, if the counties were to decide to get involved in that business, those taxes have to be deleted from somewhere. I had asked Carole [Carole Vilardo, Lobbyist, Nevada Taxpayers Association] to come in and give us an amendment that would help out this situation in the bill. I hope you all can take a deep breath and if you are affected by the other portions of the bill, then I apologize for getting your blood pressure up over this. In actuality, I didn’t have time to really go over the bill thoroughly until yesterday. I had a request I think will give you a really dramatic picture of the difference between a regulated and a deregulated market. While Carole [Ms. Vilardo] is going over her amendment, I’m going to bring in a surprise package for you.
Carole Vilardo, Lobbyist, Nevada Taxpayers Association, stated:
I’m speaking in support, at this point, of the concept of what S.B. 425 was designed to do. As Senator O’Connell has explained, there was never an intent to change every city’s charter, et cetera, et cetera. It was to specifically give the “253 Committee” time to take a look at what the impact of deregulation would have, and it’s kind of a bifurcated process, between utilities and telecommunications on the revenue structure that the local governments receive. I don’t know what Senator O’Connell is bringing in, but I’d like to give you an example. I don’t know dereg [deregulation] and I don’t want to know about dereg, I just want to be able to turn on my lights.
One of the issues that may still or may not come up, if you had a sale of a generating facility independent of the transmission lines, whatever you’re doing, I think that’s your divestiture point. If we could look at what I now know as the northern grid, and [if] that plant were in one of the northern counties, the way we calculate the taxes to go to the rural counties is by line mile. You would have severed that relationship. Lincoln County has approximately 51 percent of its assessed value in line miles. The value is in the plant, not the transmission lines. You would totally impact that county; a county which cannot be impacted. We have the same thing with Mineral County.
The idea was, when we see what’s going to happen with deregulation, we need to be able to look at what the potential tax consequences are and how you mitigate them. That was what we were hoping to get to. There was an initial amendment discussed, which until about 5 minutes ago, was still being amended. I think it would be appropriate for John Swenseid [Bond Counsel to the State of Nevada] to come up.
Ms. Vilardo continued:
I would like to make one comment. I think we generally agree, for the most part, on the amendments. The way the amendment currently works and I have this original . . . if we could tell the committee generally what we’re looking at, and if the committee agreed with it, we could then try to continue to formalize the exact procedure that would be used. That might be the best one for us; we’ll try not to take too long. There is one point of contention, that will not involve mechanics, per se, because we need to do that, and that is, I prefer sections 1 through 3 being left in the bill which impact the Southern Nevada Water Authority and the Colorado River Commission as I’m being told. That southern grid goes through Lincoln County. I have the same concern on anything that would happen. I believe they would like to speak to that.
What we have talked about is distinguishing between electric and telephone telecommunication. In the instance of the electric, we would create a mechanism, if it became necessary, for a local government to do something with power. There would be meetings held with all the affected jurisdictions to work out how they would be held revenue neutral and how they would be held harmless. If that agreement was reached, there would be an interlocal agreement that would be temporary in nature, because we’re still waiting to see what S.B. 253 would recommend. We would then have an appeal procedure to the tax commission on the electric side. That would be if there were some condition where a company couldn’t provide service and a government had to step in to make sure that economically we were taking care of the citizens of the state.
Ms. Vilardo continued:
On the telecommunications side of it, that would be a different issue. We still need to look, and we’re in the second year of looking at what the impacts have been from taking the intangibles out of the calculation on the centrally assessed for the utilities, across the board. With the telecommunications, that technology is such that we need to look at some of the districts that allow the creation of “TV districts.” We have a TV district, which at the time it was created, was to get television to an area that could not otherwise do it. They are generating enough money out of their property tax, that everybody’s getting cable for nothing. We could probably use that property tax revenue. One good point is that you don’t need cable because you have satellite. You have companies now that are able to provide service to rural areas that could not before. We would like to see that 2-year look. We don’t want to see those groups displacing existing competition until we know what the potential tax consequences are. We would treat both of them differently. In that instance, the displacement, you would look to the committee on local government finance to make the monetary determination.
That generally is what we have been discussing in the hallway and I think if I’ve missed any points, Mr. Chairman, Mr. Swenseid can cover them. If the committee would tell us how comfortable they are with what we’re looking at, we can go back out and . . . get something ready for you for your next workshop that might be acceptable and needs Senator O'Connell’s input, because she had direct communications with the Governor’s committee, to make sure we’re on the right track. We do need to reference the “253 Committee” in here, and we need to reference the fact that it comes back to the Legislature next year, with the recommendations to handle any of the tax issues, which have arisen from these two deregulated industries. That’s the purpose of the bill. That’s what we’re looking at to try to amend it. We would not go into every city charter. We would go into chapter 244 of Nevada Revised Statutes (NRS), which is county law; chapter 268 of NRS, which is city law; and chapter 318 of NRS, which is general improvement district law.
Senator O'Connell introduced two sets of documents and described the differences between the sets, stating:
I want you to look; this is one of three boxes [of documentation] required for a regulated utility, [compared] to 8 pages of a nonregulated company. This company [submitting the 8 page request] asked for an $11.6 million [increase]. The other company [submitting three boxes of request documentation] also asked for the same increase. You can see the big difference . . . this [8 page request] went before the legislative interim study on finances; and this [three boxes of documentation for the request] went before the PUCN. You can imagine the additional cost for the regulated company.
Chairman Townsend stated:
The questions I would have, if the goal is to hold harmless a community of local government, county, city, et cetera, if by chance the requirement of that committee was to somehow participate in providing electric energy service, what impact does that have on the counties’, cities’, or municipalities’ financial structures? Is that what I heard through all of this? I tried to read the bill and I really had a hard time picking up the purpose [of the bill] until I asked Senator O'Connell so she could tell me that. If the local entity has to make a decision, that power must be provided and it requires their intervention, then does the county, since they can’t pay property tax to themselves, do they then have to figure out at what level rates would be that would provide for the revenue that would be lost through the property tax? Is that what we’re trying to establish here?
Ms. Vilardo responded:
It’s more than that. Let’s say we’re Storey County, who decided it needed to provide electricity going out. I know there’s a plant in Storey County. For whatever reason, and whatever you’re doing with deregulation, there was a problem and it did not look like Sierra Pacific Resources could provide or utilize that plant, there was something wrong with it. Storey County decides that it will take over the plant or maybe negotiate with somebody else to build another generating plant, but it’s a county operation. What has happened at that point, if Storey County wants to impact itself like that, I hope I’m still around so I can say when they come to the Legislature that they need some additional money. They’re not going to get it, because they won’t have the property taxes. That is not my concern with that individual entity, but when they do that, unless they continue to be assessed as a centrally assessed property, so that we get that line-mile revenue out to the other counties, the other counties have lost and they have no say in it. You have cities that could have lost. You have governmental units . . . .
Chairman Townsend stated:
Let me carry back the question. Then rates must reflect the offset to the other counties, so that you hold the counties harmless if a government entity gets involved in this, a business where you have a centrally assessed issue with regard to line miles. Is that what you’re saying?
Ms. Vilardo responded:
In effect, it might be rates, but the problem is right now we don’t have an official mechanism to look at how you replace revenue in any circumstance.
Chairman Townsend interjected, “You’re just looking for a mechanism as opposed to predetermining what the mechanism ought to be?”
Ms. Vilardo stated:
We can’t determine it until we run numbers. That’s why the “253 Committee” needs to take each of the potential scenarios, who receives what from line miles. It’s very much like when the tax shift occurred in 1981, and you had to figure out what rate your sales tax had to go to, to get the reduction in property tax. We don’t know that without the numbers. They’re not numbers that you can easily run from multiple scenarios in 10 days.
Chairman Townsend added, “You need a mechanism to get to those numbers so that the municipalities affected could be held harmless if there was a substantial financial emergency where someone would take either a transmission line, a distribution system, or a plant off the tax rolls with this.”
Ms. Vilardo continued:
That’s right. We need something that’s logical,
systematic, and would work in most of the communities. What we’ve discussed on an amendment as a
stopgap measure to address this issue, is a series of . . . an interlocal
agreement to hold harmless whoever was impacted. That does not mean . . . whatever can be achieved to hold
somebody harmless. What we’re looking
for is kind of a permanent solution, so you don’t have to go through all these
machinations with these hearings, and there’s a structure in place: if “X”
happens, this is what you do, and it’s consistent throughout the state. That’s the reason for the 2 years and
the reason for S.B. 253. That’s
the reason for trying to create this
intermediate mechanism of an interlocal agreement to address it until we can get something that we know works across the board.
William E. Isaeff, Lobbyist, City of Sparks, stated:
I’m the team leader for the transition management team for the acquisition of the Sierra Pacific Resources’ water business by the newly created Truckee Meadows Water Authority (TMWA). I came down here this morning on behalf of those entities to speak against this particular bill, as drafted, because it appeared to us it had no real reason, with respect to regulation of sewage municipal facilities such as are jointly owned by Reno and Sparks. We saw no reason for it with respect to the newly formed Truckee Meadows Water Authority and, in fact, felt it was quite critically dangerous to our successful completion of the $350 million acquisition, which just yesterday received an interim order of approval from the Public Utilities Commission of Nevada for the divestment of the business by Sierra Pacific Resources.
I have joined in some of the conversations with Ms. Vilardo this morning and was delighted to hear that neither she nor Senator O'Connell really intended this to apply to water and sewer facilities owned by municipal governments in Nevada. I would look forward to seeing provisions related to that taken from this bill by an appropriate amendment. I would be more than happy to join with Ms. Vilardo to talk about some of these other issues as they may apply, possibly, to our facilities or other facilities owned by municipal governments here in our state. We have kind of scratched out a little bit of some of the talk we had out in the hallway that Ms. Vilardo has referred to. I do think we need some additional time, more than half an hour, to try to refine this and return to the committee with a proposal. I’m very pleased to hear that this bill was not really directed towards water and sewer municipality utilities. We look forward to seeing all those provisions removed from the bill as soon as possible.
Chairman Townsend stated:
We appreciate your cooperation on this. One week from Monday is the last day we can vote a bill out of this committee. We don’t have to have the amendment, but it’s the last time we can take action . . . . I think the mechanism would be that over the next few days you spend some time continuing to work with these folks. We will provide whatever assistance the committee and staff can provide on this very serious issue. Senator O'Connell has spent a great deal of time on that “253 Committee” and the work that has been done, as the result of the issues that have come up has been huge. This is a very serious issue. We would like to think this is not going to be used, that would be a very nice situation. But with the world changing in this arena so quickly, you and I remember the debates that there wasn’t a chance in heck that local government was ever going to be in the water business in the Truckee Meadows . . . . Here we have a cooperative agreement; here we have a group that has come forward that you have participated in, that was in the best interests of our consumers as well as our incumbent utility. We have to be a little more flexible and be ready for these changes. . . . It’s a crucially important area. . . . If you do want to run some numbers, however you want to do this, as long as we have a basic framework by Friday, we’ll be in pretty good shape. You don’t have to have the exact language, because we can work that as we get to the amendment, but we’d like to be close.
Ms. Vilardo stated, “I appreciate that, Mr. Chairman. We’ll try to get back to you before Friday.”
Julie A. Wilcox, Lobbyist, Southern Nevada Water Authority, and Las Vegas Valley Water District, testified:
I just wanted to make sure the committee understood that the bill, even the amendments we’ve discussed down the hall. Ms. Vilardo is correct. There are several areas we think we can agree on and a lot of impacts that we would not have expected. Sections 1 through 3 would still limit our ability and partnership with the CRC [Colorado River Commission] for them to serve our future loads. That is an area we still have concerns with.
George Caan, Director, Colorado River Commission, testified:
I wanted to thank you and Senator O'Connell for explaining the intent of the bill. That helped quite a bit. We were unsure what the bill was intended to do. I think how it was explained was very well done, and I think we can work on developing mechanisms to support that goal. That’s a good goal to have. However, the sections that still remain in the bill cause concern for the Colorado River Commission, especially sections 2 and 3. I want to briefly focus on one of the core responsibilities the Colorado River Commission has with respect to the bill. One of the core functions of the Colorado River Commission, since it was started, is to ensure the delivery of federal hydropower. Southern Nevada gets about 450 megawatts of federal hydropower. Most of it is under $10 per megawatt. It’s the cheapest resource we have available to southern Nevada and it’s distributed to southern Nevada to a variety of entities: Overton Power District, Valley Electric Association, Lincoln County, Boulder City, the BMI [Basic Management Incorporated] industries, Henderson, and Nevada Power Company, which receives 50 percent of Nevada’s allocation of Hoover [Dam] Power. In addition to that, we also serve retail loads to the BMI industries.
The dams that are constructed in the Colorado River all have contracts among the states for delivery of federal hydropower. They run for various terms, with Hoover [Dam] being allocated until the year 2017. One of responsibilities of the Colorado River Commission, with respect to receiving federal hydropower, is to have the ability to develop facilities to receive the power. If we do not have the facilities developed to receive the power, we cannot get the power allocated.
Mr. Caan continued:
An example of that are facilities currently under construction at the Basic Management Incorporated industry complex. It’s what’s called the basic step-down yard. It is developed to replace a 60-year-old substation that can help support the delivery of federal hydropower. The bill, as currently drafted, would prohibit the Colorado River Commission from ensuring that the facilities we built, under structures supported by our board and our customers, we can continue to build them. Obviously, those are future facilities. We don’t know whether or not we’ll have future allocations of hydropower. We want to make sure we continue to retain that ability for this low-cost resource. In addition, if I could say, one other project we’re currently completing is called the River Mountains Transmission Project. It’s a project that’s being built jointly by the Colorado River Commission and Nevada Power Company and it’s adding additional import capacity, approximately 500 megawatts to southern Nevada for import and also the 500 megawatts to support the additional loads of the Southern Nevada Water Authority.
Mr. Caan continued:
The benefit of this project is that the local governments, the state agency, and Nevada Power Company were able to join together to use existing rights-of-way to jointly use rights-of-way, because you don’t want to build two corridors for transmission lines, and to be able to reduce costs by efficiently constructing a project along similar rights-of-way using one tower. Basically, each side has their own conductor in each tower. It’s been a very successful project. It’s going to be energized this month and it is currently in the testing stage. It is a partnership that uses state funding for half of it and Nevada Power Company funding for half of it. It’s a major import of ability for the company and the Colorado River Commission and it’s a major indicator of the ability for the governmental agencies and the private sector to be able to construct facilities. We would like to see that flexibility continue. We’d like to see that flexibility work cooperatively with private power companies, on behalf of the state agency, the Colorado River Commission for both the needs of southern Nevada and also for the needs of the federal hydropower. For that reason, we would hope we could eliminate, also, the sections in the bill related to the Colorado River Commission and instead ensure that the bill comports to the intent the senator [Senator O'Connell] made with regard to the tax issue. I would be happy to answer any questions the committee has.
Senator Shaffer asked, “How much power you generate and sell does the residential ratepayer benefit from?”
Mr. Caan responded:
I’m assuming you’re referring to the hydropower that we procure. . . . The hydropower that Nevada Power Company receives, the 235 megawatts, 50 percent of Hoover [Dam] 135 megawatts of that goes to the company, on behalf of residential ratepayers. They receive a benefit through the rate structure for those particular megawatts. With regard to the other megawatts, the sales we make to Boulder City go to the residents of Boulder City; the sales to Overton Power District and Valley primarily go to the residents and commercial and industrial users. I don’t have specific figures within those industries.
Mr. Schmidt testified:
In answer to your question, Senator Shaffer, the power that is distributed to Nevada Power Company from Hoover Dam is entirely for the benefit of its residential customers. The low-cost Hoover power helps substantially in keeping residential electric rates down that the Colorado River Commission delivers from Hoover Dam in the name of the state, indirectly through Nevada Power Company. As far as other residential customers in southern Nevada, the percentage of residential customers . . . of their load, benefit in those percentages of the allocation. Those benefits are even much greater because, although there’s a significant and measurable amount of hydropower that goes to residential customers for Nevada Power Company, it’s still a fairly small fraction of their total load. For these rural electric cooperatives in southern Nevada and Boulder City, it is the heart of their load. Without that type of hydropower the state gets, those utilities could not afford power at the rates . . . in the market today.
Mr. Schmidt continued:
The only reason the state gets hydroelectric power is not because we have a private power company, Nevada Power Company. If we just had a private power company, and we did not have an entity such as the Colorado River Commission, we would not get the power from Hoover Dam. The way the law was drafted, when the Boulder Canyon Project Act was drafted, it gave preference rights to the state, but only through either directly to, or through, public power agencies. The Colorado River Commission, which has received that power, and it’s been delivered in the state’s name, has actually existed long before Nevada Power Company was ever created . . . . The whole of southern Nevada really was developed primarily because of the construction of Hoover Dam and the development of the industries initially in the war effort in the 1940s, which were converted and sold cheaply to industries which were willing to sustain and build industry in southern Nevada to allow southern Nevada to develop.
Mr. Schmidt continued:
Those industries would have never come if we didn’t have the federal hydropower allocated to the state. Anything you do in this bill that jeopardizes that, will have a severe impact on certain entities. The impact on the residential customers of Nevada Power Company may not be severe, but the impacts on all the other entities or types of entities, who through government activity are trying to provide power cheaply and efficiently to their customers, could be harmed, depending on how this bill is done. You need to be very careful with how this bill is done.
Senator O'Connell inquired:
It might be kind of interesting to know, however, if the
cost reduction for those three piles that we saw up here, and all that the
public utility had to do was come to the Legislature and ask
for the money and get it, how much reduction there could be in the rates of Nevada Power Company. Are there any questions from the committee?
Terry K. Graves, Lobbyist, Pioneer Companies Incorporated (a BMI company), testified:
There are six BMI entities, which have contracts with the Colorado River Commission. I’m not sure if I’m concerned or just interested today, but we did have some concerns that there are some implications the Colorado River Commission could come under the purview of the Public Utilities Commission of Nevada. The industries and the other customers of the Colorado River Commission, including the rural electrics, have had a relationship dating back to the 1940s, as Mr. Schmidt pointed out. That has been by and large a very successful relationship. We would certainly be concerned about having to go under the purview of the public utilities commission. I don’t think any of the entities would invite that, nor do we think it would be needed. All these entities have resources sophisticated enough to deal with contractual issues we have with the Colorado River Commission. All these entities are joined by the fact we are dealing with federal hydro contracts and not just residential rate making. That is our concern. We hope this bill does not require the intrusion of the public utilities commission. If that is a real concern, we would be happy to work with the Colorado River Commission staff to fashion whatever words we need to keep us in our existing mode of operation that we’ve enjoyed for the last 50 years. I would describe that mode of operation more like the small stack than the three large stacks. We’ve appreciated being able to operate that way with a state agency.
Chairman Townsend inquired:
I have a couple of questions. I’m not as familiar with all these relationships because the Colorado River Commission and the water authority and Boulder City and the other entities that Mr. Graves represents generally go in front of Senator O'Connell’s Senate Committee on Government Affairs. I do know her concerns, and if we were to just take a snapshot today on all these relationships, the concern this committee has, and you can fault us for a lot of things, but inconsistency is not one of them, we’ve tried to apply that to all these utilities and try to be consistent. Our concern is, if you have that relationship and it’s the small piece of paper and it works very quickly, do you expand that and start to become a utility at the detriment of our statewide utility. That’s our concern. If something happens to them as a result of your success, then all of us who use their services pay a price.
I’m not saying you shouldn’t be protected in your current and old relationships, but if you’re going to become some kind of odd, new utility group, where you can come to IFC (Interim Finance Committee) and get money, and you’re doing things . . . it’s a little hard for us to tell our consumers, “By the way, one of the ways we kept your rates down was charging you more tax money.” I don’t think that’s good public policy. If you’re talking about $10 per megawatt-hour, then why does our research show that the water rates went up so much? Are you selling them higher-cost power? Where are you? Are most of the rate increases coming from the side of the equation that you get from Nevada Power Company?
Ms. Wilcox responded, “I’m not sure what rate increases you’re talking about, but, since our relationship began with the Colorado River Commission in the power side, we’ve saved between $20 million and $30 million. We have not seen . . .“
Chairman Townsend interjected:
I apologize. Their rates to you went up 45 percent from 2000-2001. What am I missing? He’s talking about $10 per megawatt‑hour and now, all of a sudden, you’ve got a 45 percent bump. In the car business we call that margin and I want to know what you guys are doing with it, if that’s in fact what you did.
Mr. Caan replied:
I apologize for this because I should have explained it in better detail. The hydropower resources, what I refer to as very inexpensive resources, are provided to all the customers that I mentioned except the Southern Nevada Water Authority. They don’t receive any hydropower. That power had been fully allocated before we established this relationship. There is no additional hydropower. All the resources provided through the Colorado River Commission to the Southern Nevada Water Authority are resources that are bought from private marketers, private energy companies. They receive no hydropower resources. The industries Mr. Graves refers to receive both hydropower and non-hydropower. They receive as much hydropower as is available through the river, and then, whatever needs they have in excess of that, we provide to them as full-requirements customers. The other utilities, the rural utilities we referred to, they receive a fixed allocation of hydropower and then whatever deficit they have, they make up on their own.
Chairman Townsend stated:
I don’t think there’s a problem with the old relationships. Now you’re saying that what you sell to them, you go out and buy on the open market. So you’re a marketer, you’re the Enron of southern Nevada.
Mr. Caan responded:
No. That would put
us way beyond what we currently do.
What we do right now is serve the new facilities. The facilities built by Lake Mead and the
City of Henderson that provide for the new treatment and transmission facilities
that are independently connected to the western grid through the Mead
substation. We do not serve the
in-valley facilities, those are currently served by Nevada Power Company. The only facilities we currently serve are
facilities that have been constructed since 1997 that are brand new facilities
that have not been served by others.
We serve approximately 125 megawatts to the Southern Nevada Water Authority on a contract that we have established with them.
Chairman Townsend asked, “Where do you get that?”
Mr. Caan replied:
We have over a dozen enabling agreements with power providers, [the] Enrons, Dukes, Reliants, the firms you’re familiar with, and we enter into agreements with them for short-and long-term procurement, based on the peak-capacity needs of the Southern
Nevada Water Authority to run all their pumps during the summer.
Chairman Townsend inquired, “Why do you use a marketer and not just market yourself, Ms. Wilcox or Mr. Schmidt? Why don’t you just go to the open market? What do you need a middle person for?”
Mr. Schmidt responded:
The Southern Nevada Water Authority buys through the CRC because the CRC has the established mechanism for doing that. The Colorado River Commission does not make any profit on those transactions. The Southern Nevada Water Authority, much like other customers who have been looking at the laws we’ve passed since 1997 and then amended in 1999, have considered, . . . if you opened the market and entities are allowed to go forward and compete, can you go and acquire and do something more efficiently by doing it yourself. The Southern Nevada Water Authority, in the 1997 statute, was provided the opportunity and the vehicle to do that, and we established a relationship with the Colorado River Commission. There are two reasons to do that: [1] the Colorado River Commission was already doing it, [2] transmission infrastructure, as we’ve talked about in a number of the hearings, is necessary in southern Nevada.
The only major
transmission infrastructure built in the last 2 years, was due to the
Colorado River Commission’s efforts and in private/public partnership as was
talked about the by Governor at his press conference yesterday. The public/private partnership was between
the Colorado River Commission and Nevada Power Company and I don’t think the
Nevada Power Company, had any plans, because we worked through their resource
plans, could have or would have built that transmission themselves. Maybe in the future they can, or they would,
once we get them back on sound financial footing. The crisis we’re in right now, frankly, would have been worse had
the Colorado River Commission not been stepping forward doing these types of
things in the last couple of years. The
situation for Southern Nevada Water Authority would have been worse because the
Southern Nevada Water Authority, when it had new facilities that had to be
served for electricity, went out and acquired power through the Colorado River
Commission well in advance. We did not
get caught by the power crisis. If we
were prohibited from doing that as is proposed in the first couple of sections
. . . if we would have been prohibited in 1999 from doing that, our water rates
that we would have had to pass on, on the wholesale level, would have to absorb
another $20 million in costs today.
That’s a simple fact, a simple rate fact. That would impact the water rates, too. Everybody’s experiencing harm from this electricity crisis; those
that are making efforts to try to prevent that from being a harm to them, I
would hope, aren’t limited in their flexibility to do that.
Mr. Schmidt continued:
In addition, the power company, I don’t believe, could credibly argue that they have been harmed, because the power that was avoided for their purchase was at rates last summer that would have caused them even more losses than they experienced. We’ve made an attempt to quantify that, but rather than throw more numbers out, the bottom line is it’s a philosophical issue, I think, on whether you allow government to do the type of things they’ve been doing. It’s been done historically. It’s been done in Nevada. It’s been done throughout the country, in a manner that’s tax neutral, in many instances. If it’s a tax impact, then I would suggest that’s what you address, the tax issue. If it’s a philosophical thing though, and you restrict government in the electric area or in the telecommunications area, essentially all you’ll do is restrict flexibility of your local governments to deal with the issues they confront every day. I don’t think that’s good policy when we’re dealing with the type of crises we’re in right
now. We need to take care of our power company, but we also need to give our local governments tools they need to solve their problems as well.
Senator O'Connell commented:
That’s an interesting statement because I would not, in my relationship with governments, ever think of governments as being flexible. The private sector can usually be extremely flexible in a situation, but I don’t think of government as [being] that way. You are right that it’s a philosophical difference. It was brought up and brought to my attention as well as the attention of some of the other members of the “253 Committee.”
Senator Carlton inquired:
I’d like to get a
couple of things clear in my mind. When
you brought in those documents earlier, and made the point of one filing versus
another filing, I heard something I’m not sure
I understood correctly. The Colorado River Commission comes to the legislature for their financing, at the Interim Finance Committee [IFC] and to Senate finance?
Senator O'Connell responded, “They do not come to get money. They come to get permission to increase their rates.”
Senator Carlton asked further, “They do not get revenue through interim finance?”
Senator O'Connell continued, “Not in the situation I was sharing with you. They had eight pages and they came to interim finance to ask permission to be able to increase their rates.”
Mr. Caan added:
We receive no state funds. We receive all our funds from the companies that we serve, like the companies represented by Mr. Graves and from the Southern Nevada Water Authority. What we come to the legislature for is authority to spend. Authority to spend would include authority to charge the cost of our procurement of power to our customers. We are essentially buying power, and then passing those costs through to the customers directly, with enough revenues sufficient to be able to support our operations.
Senator O'Connell continued:
The one stack you saw [is] that exercise, if you will, the regulated company has to go through in order to get a rate increase. So, you’re thinking of the time and the attorneys and everything that is needed to meet the requirements of the Public Utilities Commission of Nevada in order to obtain that permission to do, whereas the eight pages show you they just come to interim finance, and within the same day they have the permission they need to increase their rates.
Mr. Caan added:
Our process is much more a traditional budget process, not a regulatory review process. That means we put our budget together, which includes our costs for operating and our costs for power. Those are reviewed by our customers. They look at that, they see it, they identify concerns they have, and then they report back. We have an agreement with our customers on what we’re going to do before we bring it to the legislature for authority. It’s much more of a traditional budget process. If our customers, and we only have 12, have a concern about our power procurement or our operations, they raise that with us way before it would come before the legislature. Typically, we work with them to come to conclusion on power costs, because they are the ones who have to pay the bills.
Senator O'Connell asked, “Are you not asking during this session to be taken out of the purview of the Legislature as well in your budget act?”
Mr. Caan responded:
No, we’re not. We have Senate Bill (S.B.) 138, which was heard yesterday. Senate Bill 138 does not take us out of the review by the legislature or interim finance. What it does is, it takes us out of the executive budget; they get it for information only. It goes directly from our board, which approves it based upon our customers input, directly to the legislature. You will still have to review and approve our budgets in regular session and still have to review and approve any changes we have with interim finance.
SENATE BILL 138: Exempts Colorado River Commission from State Budget Act. (BDR 31-344)
Senator Carlton restated, “You do not get any General Fund dollars but you do come to the legislature to approve the rates you were going to raise to the people that you serve.”
Mr. Caan replied, “That’s correct. It’s really authority to spend, but the end result is that what you approve are what rates they pay.”
Senator Carlton asked, “Who approves . . . the legislature approves the authority to spend. Who approves your authority to charge?”
Mr. Caan responded:
The way our process works, I will be very brief, is as I said. It’s a typical traditional budget. That budget includes energy procurement, operations, and the whole package. That goes to our customers first for their review, meaning the 12 customers we serve. When they have finished review, it then goes to our board. We have a 7-member board, 4 members are appointed by the state; 3 are elected officials. In an open public meeting they approve the entire budget, while allowing for public comment. It actually takes 2 months, because the first month we have it for information only in case there are concerns. The board will finally approve the budget, usually in July or August. When the budget is approved, it goes to the Executive Branch, and then it goes to the legislature. The first level of review and approval is by our board.
Senator Carlton stated:
One of the other questions I thought I heard earlier, with the chairman’s concerns, involved the costs to the Southern Nevada Water Authority. The Colorado River Commission sends the proposed rate increases to the Southern Nevada Water Authority. You say, “Okay, I think we can do that.” Then the rest of this process evolves and you pass this cost on to the ratepayers. Then your rates go up, if my figures are correct, between the net-cost year of 2000 and the net-cost year of 2001, from $29 per megawatt-hour to $42 per megawatt-hour. That’s a 44 percent increase. Am I pulling these numbers from the wrong place or do I misunderstand this to where I haven’t put them in the right place?
Mr. Caan clarified:
That is correct. The numbers you have before you are what we refer to as the delivered cost of product. The rates have gone up like for everyone else. Our working with the Southern Nevada Water Authority and doing effective budgeting, and being efficient, those rates were absorbed, the ones you have before you, were absorbed in the existing wholesale water rate. The existing wholesale water rate did not have to be raised, because of that. That did not directly force a raise in the rates, it was absorbed through other mechanisms that the water authority has that don’t deal with power. That doesn’t say that in the future, future rate increases won’t have an effect, but for the 2 years you’re referring to, which I believe was information we submitted to IFC, those increases were planned, we knew well ahead of time they were going to happen, because we buy well ahead in advance. They were able to adjust their budget that way as well.
Mr. Graves stated:
As Mr. Caan pointed out, they generate a budget. In that budget there is a cost to run the agency. That cost is turned into a mill assessment for the customers. We pay that monthly. That allows for the cost of the operation of the commission. The power costs are passed through directly, at cost. The chairman asked earlier, about what happens to this money they collect. It actually goes in and goes out; they are a nonprofit operation in that regard. There is not a rate per se; the Colorado River Commission does not charge us a rate, and they simply pass through the cost of the power they purchase for us. One increment of that power, in the case of the industrials, is the federal power contracts. Those contracts have rates, which are established by the federal agency, and those costs are passed directly through to us. Any other power supplemental resources, which they purchase for us, they pass those costs to us at the price they paid for the power at the time they purchased them.
You can go back and look at the history of every year, and come up with an average rate that was charged, but on a day-to-day basis, we are not getting a fixed rate for the cost of power. The other point I wanted to make is the industrial entities are customers of the Colorado River Commission. We do not have a position on whether the Colorado River Commission ought to expand their purview in serving other customers. Our only concern would be that we continue to get the same good service we’ve had in the past and that service wouldn’t be diluted if they intended to expand their service to other entities. We’re not a party in that issue.
James L. Wadhams, Lobbyist, Silver State Power Association, stated:
Our interest in this bill is that we have members of which include 318 power districts [general improvement districts], Lincoln County being one. They are totally and completely dependent upon hydropower in Lincoln County, as an example. In the context of some of these other questions, we are in no way similar to virtually anybody else at this table. These are small utilities. They probably serve 80 percent of the landmass of this state, but have less than 10 percent of the human population. They are either co-ops or power districts. They are popularly elected. Their rates are set by popular election and the consumers control them. Historically the PUCN or the PSCN [Public Services Commission of Nevada], in its day, did not regulate [them], because they have direct relationships with their customers and no stockholders. We have an interest in this bill in that I think a distinction needs to be made between the application that may be appropriate for some 318 power districts, versus those that fall into the category that I represent. I would be happy to participate in that discussion.
Chairman Townsend stated, ”It would be the committee’s intention to bring this up again on Friday, when we discuss utilities. Is another bill affecting this coming from the other house? Do you know?
Senator O'Connell replied, “I don’t think there is. We’re getting some . . .“
Chairman Townsend asked, “Whoever is saying, ‘Yes,’ please come up and identify yourselves and tell us what bill it is that would affect this.”
Robert L. Crowell, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company, stated, “There’s another bill this afternoon that touches on the subject you’re dealing with this morning. That’s Senate Bill 211.”
SENATE BILL 211: Revises provisions governing sale of electricity and provision of transmission and distribution services by Colorado River commission and requires certain public utilities to make their electric distribution facilities and services available to Colorado River commission under certain circumstances. (BDR 58-633)
Chairman Townsend added:
The reason I asked that is this is such an important topic and we want to give it due consideration. We are out of time. When Mr. Swenseid and Mr. Isaeff come forward with their proposed amendment, we want to have the debate on that amendment at that time. We will then pursue this whole larger-scope picture, probably in 2 weeks or so, if that’s all right. I’m not asking any of you to agree with the language they bring. That’s your business, but we’ll discuss the huge thing.
Joyce A. Newman, Lobbyist, Utility Shareholders Association of Nevada, stated, “I was just here to support the legislation this morning, but with all the discussions ongoing, I’ll reserve my comments. With your permission, I will work with the parties in the interim.”
Chairman Townsend communicated:
The issue that is
going to be dealt with in this amendment is very important. For the committee to understand all these
relationships has become even more important.
We’d like to process a bill. On
the other hand, we don’t want to walk away from the general discussion I think
we should have on this relationship among the Southern Nevada Water Authority,
the Nevada Power Company, and the Colorado River Commission. We’ve never just
done that, and I know it’s redundant for the members of government affairs
committee, but it’s important for us to understand that. It doesn’t mean we’ll act on anything, it
just means we need to understand it better, especially those of us in the
north, who don’t interact with those parties all the time.
Mr. Crowell concluded, “That’s fair, and my companies are in support of S.B. 425, and we will work with the parties during the interim, too.”
Chairman Townsend conveyed information to the committee members:
Here is the intention. We will work on Senate Bill 425. It has come to my attention that on Senate Bill 514, which deals with mergers, acquisitions and jurisdiction, there has been some language [changes]. Because the term “public utility” encompasses our telecommunications industry, there has been some language that has been brought forward to clarify the issues and the constitutionality that is being heard Tuesday, in the special committee on the other side. That is language apparently all the parties are much more comfortable with. What we will do is not take this one up, and we will use that vehicle with that language, if the Assembly agrees to it. We’ll just process that, if that’s all right. We’ll put this one aside.
SENATE BILL 514: Revises authority of public utilities commission of Nevada to regulate certain public utilities, holding companies and other entities. (BDR 58-188)
Chairman Townsend continued:
There are a number of bills on the schedule today that seem to be resolved as a result of either our actions this morning or the bill the Assembly is processing known as A.B. 661. The first one is S.B. 390, which dealt with the global settlement, and a number of other issues. It has now been resolved as a result of the actions of this committee. Senate Bill 390 we can withdraw.
SENATE BILL 390: Revises certain provisions relating to provision of electric service. (BDR 58-966)
Chairman Townsend stated, “Senate Bill 507 is a bill dealing with net metering, a very important part of this debate. That is also in A.B. 661, so we can dispense with S.B. 507.”
SENATE BILL 507: Revises and repeals various provisions concerning utilities and energy. (BDR 58-1450)
Chairman Townsend stated, “Senate Bill 508 is the audit bill. We will deal with that this morning.”
SENATE BILL 508: Requires audit of certain electric utilities, their affiliates, parent company and subsidiaries. (BDR S-1453)
Chairman Townsend conveyed, “Senate Bill 509 is something we can place in A.B. 661 when we process it. So we can dispense with that.”
SENATE BILL 509: Revises provisions governing certain education and informational services provided by public utilities commission of Nevada. (BDR 58-1444)
Chairman Townsend advised, “Senate Bill 514 is the one we discussed regarding the mergers and acquisitions and the control of those with the PUCN. That is also in A.B. 661, so we can dispense with that.”
SENATE BILL 514: Revises authority of public utilities commission of Nevada to regulate certain public utilities, holding companies and other entities. (BDR 58-188)
SENATOR RHOADS MOVED TO RECONSIDER THE PREVIOUS MOTION TO AMEND AND DO PASS A.B. 369.
SENATOR SHAFFER SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR CARLTON WAS ABSENT FOR THE VOTE.)
*****
Mr. Ponn stated:
I think whenever the previous motion was made, we may have created a situation that none of the parties that negotiated the agreement, which caused the committee to consider deferred energy in this bill, may have put one party at a disadvantage. You may recall my testimony, where I said we were trying to preserve for another day, the arguments on restructuring and customer choice. I think the repeal of many of those sections that A.B. 369 repeals, may inadvertently cause that to not happen, or to make it less likely to happen. I would support, that has been consistent with our discussions, is that if the committee could direct Mr. Powers to make those changes to the restructuring statute, which are caused by, and only those changes which are caused by the committee’s dealing with divestiture and deferred energy, and that would leave the status quo with regard to the argument, the positions, and the future opportunities to debate the other restructuring questions.
Chairman Townsend asked for clarification:
Is it my understanding that the language that was originally proposed in A.B. 369, first reprint, proposed amendment of April 1, 2001, plus language that would accommodate what has been voted on, relative to deferred energy? Or do you need an entirely new reconciliation?
Mr. Ponn elucidated:
I think it’s a little different than what you described, Mr. Chairman. I think the April 1, 2001, amendment had some other changes in it. If Mr. Powers were to simply take the current statutes vis-à-vis restructuring and make those changes necessary to accommodate the committee’s vote on divestiture and deferred energy the end result, I’m confident Mr. Powers would make the right changes.
Chairman Townsend continued:
Is it fair to say, if you are speaking for the group that came before us, that if the committee does this, it does not bind them in any way, shape, or form as the debate continues on their feelings on exactly how to deal with the issues, particularly . . . we want to preserve that opportunity to have them find additional capacity. We also want to provide the opportunity for our four colleagues from southern Nevada to find their larger load people who might put a strain on that system. Is that the debate we’re going to have if we use this language?
Mr. Whittemore stated:
I want to give a very concrete example. The first amendment in section 29, subsection b [section 29, subsection 1, paragraph (b) of the A.B. 369 First Reprint Proposed Amendment of April 1, 2001], proposed to amend [NRS] 704.9823, which said that any rate approved by the commission on or after, would be approved. That statutorily dealt with the fuel and purchased power rider mechanism, which was withdrawn as a result of the deferred amendment. It’s that type of reconciliation, which must take place, and while this has some language, those types of provisions would be taken out as a result of the adoption of the deferred and divestiture language. Therefore, the direction and the request that both Mr. Ponn and I have made is that you reconcile the existing language without expanding one deadline, without changing one user class, without moving one date, or changing anything else. Just to reconcile those first two pieces with the restructuring act would then be consistent with what we thought we were presenting earlier this morning.
Chairman Townsend explained:
Back to the original point, when my colleagues were here, I asked them what the impact of the repeal was, and they very honestly said, “We did not take testimony on that.” We have now changed that through the vote on the deferred structure, that has been put before us. Now we have to reconcile that.
SENATOR
RHOADS MOVED TO AMEND AND DO PASS AS
AMENDED A.B. 369,
FIRST REPRINT, TO INCLUDE THE FIRST MOTION REGARDING
DIVESTITURE AND THE SECOND MOTION TO ACCEPT ITEMS
1 THROUGH 10, AS PROPOSED BY THE GOVERNOR’S DEREGULATION
TEAM, AND TO DIRECT LEGISLATIVE COUNSEL
BUREAU TO RECONCILE THOSE TWO AMENDMENTS WITH EXISTING STATUTORY LANGUAGE IN CHAPTERS 703 AND 704 OF NEVADA REVISED STATUTES.
SENATOR SHAFFER SECONDED THE MOTION.
Senator Schneider inquired, “I was just wondering if there are enough incentives to keep the costs down on deferred?”
Mr. Ponn responded:
This is an issue that is starting to be talked about. If you will look historically, I think we had testimony this morning that when we go into a deferred energy case, those have pretty much morphed into something akin to a rate case. People are free to raise issues about whether or not we did the right thing and did it at the right time. I think with the additional protections that are in A.B. 369 about prudency, the intensity of those challenges on our costs will increase. Conversely, if you were to institute some change which, for instance, said you only get 95 percent of your cost, that will force you to drive your cost down. Next year we’re looking at about $2 billion in fuel and purchased-power costs for the combined company. Five percent of that is about $100 million, which is two-thirds of our earnings for the year. A provision like that would probably negate the positive benefits of instituting deferred energy, but the company has not objected and has agreed to the prudency reviews that are mentioned in the bill.
Chairman Townsend commented:
Take a half a day and go to one of these hearings [at the PUCN], because I think it’s very instructive, albeit tedious, to sit through a hearing and actually see what goes on relative to the questions and the numbers that are crunched, whether it’s by the staff (PUCN), by the “OCA” [Office of the Consumer Advocate], by the company [Sierra Pacific Power Company or Nevada Power Company], or any of the interveners. It used to be the staff and the company when I first got involved 25 years ago. Now, the place is filled, and there aren’t many questions that aren’t asked. It’s pretty thorough. At that point, however, the commission rules. Whether it’s Mr. Whittemore’s clients or whether it’s Mr. Schmidt, who is a former advocate and a former commissioner, they don’t miss many things. I think the “prudency” issue is important. Given today’s world, where the amount of interveners can be numerous, it’s a pretty tough standard. Maybe it’s not as high as some of us would like, but you have to have a fair and equitable opportunity to make your case. That’s for sure.
THE MOTION CARRIED. (SENATOR CARLTON ABSTAINED FROM THE VOTE.)
*****
Chairman Townsend opened the hearing on S.B. 526.
SENATE BILL 526: Requires public utilities commission of Nevada to adopt regulations pertaining to affordability of rates for certain utility services. (BDR 58-1121)
Mr. Hay testified:
I would like to commend the committee for bringing S.B. 526 forward. It is enabling legislation that would allow the Public Utilities Commission of Nevada, through regulation, to adopt a rate structure that would both encourage conservation as well as provide some assurance for average residential customers in the state. If they are cognizant of their energy usage, they are somewhat insulated from the rate increases we all have experienced and we believe we will be experiencing going forward. There have been several natural gas increases as well as the electric increases. The thrust of the bill is to adopt a rate structure, which would allow an average-sized user to have their basic threshold of energy usage billed at a lower rate than upper‑tier usages.
In the CEP filing, which the commission took action on earlier today, Sierra Pacific Power Company adopted a similar rate structure, which was based in terms of flat megawatt levels for the north and the south that were exempt from the rate increases. This would enable the PUCN, by regulation, to do that for both gas and electric, and to take into consideration other matters such as differences between the north and the south and the nature of the loads the customers in those geographic areas experience. It’s designed to be neutral, in that larger users as well as smaller users do benefit from such a rate structure. The very smallest users are more insulated from rate impacts than others. I would note, there is a bill pending in the other body, which provides direct assistance, or would enable more robust direct assistance to be provided to low-income consumers. This is designed to benefit all residential consumers, with the thresholds determined by average usage according to the parameters, which are laid out in the bill.
Chairman Townsend requested more information, “Do you believe this enabling legislation creates any problem relative to any of the things that have been put forth here?”
Mr. Hay responded:
No, I believe this is consistent with what I think is the emerging state policy to assure there is affordable and reliable electric service for all of our customers. The bill pending in the other body that is targeted towards low-income consumers, this is a non-revenue intensive bill to allow some protection for average residential consumers as well as all residential consumers, as a class. I don’t think there is any conflict.
Senator O'Connell asked for clarification:
It indicates there is an effect on the state. Could you address the fiscal note on it, and the use of public utilities and the way that is defined? Do we necessarily, like my last bill, take in the sewer and water and everybody with this? I know it’s not intended to, but would that be the effect of it, using that term?
Mr. Hay replied:
The way the bill is drafted, it’s specific to only electricity and natural gas services. It would not be read as covering other utility services or interpreted that way. We did not prepare the fiscal note. I believe the PUCN may have. I believe the only impact on the state may be the expense of the regulatory proceeding required to actually draft and implement the regulations.
Kirby Lampley, Policy Analyst, Public Utilities Commission of Nevada, testified, “We’ve only briefly looked at this. I haven’t come up with any numbers but, basically, it is going to require a rulemaking proceeding and probably some kind of a rate proceeding, because this will involve rate design.”
Chairman Townsend added, “It is my understanding if you do this once, and establish this, that should carry you for awhile. It’s not an ongoing rate design issue, or is it?”
Mr. Lampley replied, “No, that is correct.”
Chairman Townsend continued:
If we need to dip into your budget and get some consultants so you can have a one-time experience over this, whether it’s in one of the two rate cases that are going to be coming to you over the next 2 years or a separate case. You could do this with just your staff plus some consultants and get it all done in an effective manner. We aren’t going to start adding bodies at the PUCN to accommodate this bill, are we?
Mr. Lampley responded:
I think you are correct in saying
that it will probably take a consultant.
Some of these terms have quite a bit of wiggle room in them, when you
talk about average sizes and so on. We
really don’t have the expertise at the commission to look into this.
Assuming everything worked out, timing wise, we could probably with the rate cases that are proposed, we’d be able to handle that.
Chairman Townsend stated:
I don’t know the committee’s feeling, because we really haven’t debated this issue. As we work through this, this may be very important for our customers, like whenever it gets hot in southern Nevada. How long does something like this take? Is this a 6-month or 3-month process? We are talking fast track here. Please don’t give me what the PUCN normally does. We respect you; don’t get me wrong. I respect the kind of time it takes and how intense it is. There isn’t anyone in this building that could keep up with Mr. Dimmick [Neill Dimmick, Director of Regulatory Operations, Public Utilities Commission of Nevada]. . . . Because of the impact of this, how long would this take?
Mr. Lampley stated:
I think the timeline will be determined by how quickly we could get consultants on board and define the issues. As I see it, when you talk about averages, like average-size house, we’ve got basically three different areas, as I see, in the state. We’ve got southern Nevada, Reno, and rural areas.
Chairman Townsend suggested:
Let’s do this. I would hope we could process something like this, if not something exactly like this, then something like this. If this bill gets processed, can you have for the Assembly some answers to that, because they’re going to ask the same thing? Could you put something together with Mr. Dimmick and the chairman [Don Soderberg, Chairman, Public Utilities Commission of Nevada] and have an answer. So, if it does get processed and signed, they know how long it’s going to take to get done?
Susan L. Reeder, Lobbyist, Sierra Pacific Power Company, and Nevada Power Company, testified, ”We do support a rate design that encourages conservation, but we don’t feel this bill, in its current format, would do that.”
Laura Lipparelli, Manager of Regulatory Pricing, Sierra Pacific Power Company, and Nevada Power Company, testified:
We do support a rate design that promotes conservation. If the goals of this bill are to promote conservation that reduces overall cost and maintains equity and helps not only low users but low-income [users], we’re not certain that the method prescribed and mandated here is best at achieving those goals. Targeted conservation, such as time of use that provides a better price signal, which is more representative of the cost, might be a better approach to attain these goals. In the case where low-income individuals are trying to be protected, a discount may work better to achieve that goal. In line with the previous bill that was passed this morning, those types of rate-design proposals can be presented in one of those rate proceedings from various parties, so the options could be looked at once, to present before the commission and have them determine with evidence presented, what might be the best means of obtaining those goals.
Chairman Townsend asked, “What is your background? I’ve never met anybody who is in rate design before.”
Ms. Lipparelli replied, “My degree is in electrical engineering, and I’ve worked in engineering and in the rates department doing cost of service and rate design for Sierra Pacific [Power Company], mainly marginal costs and embedded.”
Ernest K. Nielson, Lobbyist, Washoe County Senior Law Project, testified:
We’re in support of this bill. As you already know, fixed-income seniors sometimes pay up to 5 times the percentage of their income more for energy costs than a median-income family pays. This does help. I agree with some of the comments that there are a variety of ways of achieving cost reduction for low-income persons and conservation. Certainly, this is consistent with all those methods, so this is certainly a good method by which to begin the overall process. We also want to make sure the committee knows this is no substitute for energy-assistance programs, especially no substitute for robust conservation efforts that should take place.
Chairman Townsend added, “I can support that wholeheartedly. This is one arrow to a quiver. How we use it and how we develop it will be up to the parties. There aren’t any silver bullets, but if we put enough things in our gun, we can be helpful to people, I think.”
Debra S. Jacobson, Lobbyist, Southwest Gas Corporation, stated:
I would like to echo most of the things Sierra Pacific Power Company has already said, except to tell you one thing. We experienced this already in California. California did a similar thing with baseline rates. It took a long time to get it implemented through the commission. We have various altitude zones and that type of thing. We think it can be done, and can already be done through the commission without the enabling legislation, because it’s a rate-design issue. It can already be done. We have some real concerns with our low-income customers, particularly because we have a discount rate in Arizona that allows us to track the usage. Our low-income customers use more gas than our residential-class customers. We are concerned that an unintended consequence of this would be that the more gas they use, if they have inefficient homes, their bills would actually go up, especially if it were a colder than normal winter. We do support the concept of trying to do something, and we’re available to work on this.
Chairman Townsend concluded:
Let’s do this. I respect all of your positions. I don’t think you’re too far apart here. It’s just a function of keeping the lines of communication open on this issue. You are probably correct, Mr. Hay and Ms. Reeder, that they perhaps can already do this. That doesn’t necessarily mean they will. Once in awhile we have to make policy statement of what is important in the state of Nevada. How we tell them to do it is probably the real debate here. Perhaps if we can keep the lines of communication open over the next couple of days, now that the other small issue is out of the way, we can work on this. I think that’s crucial. How we do it is going to be a function of detail. I think your input with regard to what low-income folks are using, I think your position is extremely important. This doesn’t replace low-income assistance, nor does it replace good conservation programs. I think your issue is well taken, that rate design can occur in many forms, and how we do it to make sure that it does accomplish what we want to do, is very important. If we can keep that dialogue open so we can pick this up again next week along with our bill on the audit, that’s what we’ll do.
Chairman Townsend adjourned the meeting at 10:30 a.m.
RESPECTFULLY SUBMITTED:
Lydia Lee,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE: