MINUTES OF THE meeting
of the
ASSEMBLY Committee on Commerce and Labor
Seventy-Second Session
February 24, 2003
The Committee on Commerce and Laborwas called to order at 2:06 p.m., on Monday, February 24, 2003. Chairman David Goldwater presided in Room 4100 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4406 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. David Goldwater, Chairman
Ms. Barbara Buckley, Vice Chairwoman
Mr. Morse Arberry Jr.
Mr. Bob Beers
Mr. David Brown
Mrs. Dawn Gibbons
Ms. Chris Giunchigliani
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. Ron Knecht
Ms. Sheila Leslie
Mr. John Oceguera
Mr. David Parks
Mr. Richard Perkins
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Vance Hughey, Committee Policy Analyst
Diane Thornton, Senior Research Analyst
Wil Keane, Committee Counsel
Patricia Blackburn, Committee Secretary
OTHERS PRESENT:
Fred Schmidt, Hale Lane, Attorney for Wynn Resorts Ltd./Desert Inn Improvement Co.
David S. Noble, Assistant General Counsel, State of Nevada Public Utilities Commission
Sharon Greenbaum, homeowner
Stephanie Swain, homeowner
Gilbert Barbieri, homeowner
Timothy Hay, Consumer Advocate, Nevada Attorney General's Bureau of Consumer Protection
Renny Ashleman, Legislative Advocate, representing Mirant Corporation
Timothy Crowley, Legislative Advocate, representing Nevada Resort Association
Judy Stokey, Director, Public Policy, Nevada Power/Sierra Pacific
Susan L. Fisher, Legislative Advocate, representing Barrick Goldstrike Mines
Marilyn Skibinski, Regulatory Manager, Nevada Attorney General's Bureau of Consumer Protection
Alice Molasky-Arman, State of Nevada, Commissioner of Insurance
James R. (Bob) Burch, State of Nevada, Department of Business and Industry, Division of Insurance, Chief Insurance Examiner
Chairman Goldwater called the meeting to order at 2:06 p.m. A quorum was present. Chairman Goldwater stated the need to introduce BDR 57-1114 before the agendized items were discussed.
BDR 57-1114: Prohibits insurer from using information included in consumer report of applicant or policyholder for certain policies of insurance. (A.B. 194)
ASSEMBLYWOMAN BUCKLEY MOVED FOR COMMITTEE INTRODUCTION OF BDR 57-1114.
ASSEMBLYWOMAN LESLIE SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
Chairman Goldwater stated that the bill would be introduced on the Floor on February 25, 2003.
Chairman Goldwater opened the hearing on A.B. 139.
Assembly Bill 139: Makes various changes concerning certain providers of utility service. (BDR 58-494)
Chairman Goldwater recognized Fred Schmidt, representing Wynn Resorts Ltd./Desert Inn Improvement Company. Chairman Goldwater also acknowledged the presence of speakers in Las Vegas and noted that they would be given the opportunity to testify.
Mr. Schmidt introduced David Noble, Assistant General Counsel, State of Nevada Public Utilities Commission (PUC). Mr. Schmidt explained that this bill had initially started as a Public Utilities Commission bill and still had provisions that were jurisdictional or housekeeping changes to the PUC legislation. He stated that Mr. Noble would speak first.
Mr. Noble apologized that Chairman Don Soderberg of the Public Utilities Commission was not present. He explained that Chairman Soderberg was currently in Washington, D.C. advising the Nevada congressional delegation on other regulatory matters. Mr. Noble stated that A.B. 139's Sections 3 through 5 dealt with exit cases, which was when an eligible customer requested to exit the electric system in Nevada. During the 71st Session, the Legislature enacted the policy that the Public Utilities Commission had 90 days to review those applications and make a decision. If the Commission did not make a decision, the application was deemed approved. Mr. Noble explained that what had happened in the two years since then was that the Commission had been extremely rushed in trying to review, analyze, and come up with a decision that was well-informed and the correct decision for those cases. Mr. Noble continued by stating that it became more difficult when more than one application was pending at the same time. He explained that currently there were twelve applications pending to exit the system. Mr. Noble asked that the time be expanded from 90 days to 150 days. He said this was the primary provision in A.B. 139.
Mr. Noble told the Committee that Mr. Schmidt had contacted the Commission and asked if Sections 1 and 2 could be included. The Commission did not oppose that. He explained that the bill would exempt water utilities with 15 or fewer customers; the current statute stated 25 or fewer customers and $5,000 or less in gross operating revenues. The Commission did not have a problem with the exemption and, Mr. Noble explained, the Commission expended more resources dealing with Mr. Schmidt's client than the assessment that the Commission collected from them. The assessment last year had been $250. That amount did not represent the costs to the Commission for reviewing the applications that had come to the Commission for approval over the last two and a half years. He stated that other utility customers in the state of Nevada were subsidizing those reviews.
Fred Schmidt testified on behalf of Desert Inn Improvement Company. He explained that Desert Inn Improvement Company was affiliated with Wynn Resorts Ltd. He noted it was a water company that served 10 homes, but had been a golf course that would be restored shortly as the property continued to be developed. The water company itself had 11 customers. The water company had been in existence since the 1950s and had served customers since that time. The only reason that the company fell under the PUC jurisdiction was because the annual revenue of its bills from the 11 customers exceeded the $5,000 threshold that was in the statute.
Mr. Schmidt continued that similar-sized utilities in the state of Nevada that had fewer than 25 customers were exempt from PUC regulation. He explained that the purpose of A.B. 139 was to get Desert Inn Improvement Company exempted from that continued regulation because it had become very burdensome in the development of the new hotel and facilities on the grounds where the old Desert Inn was located. Mr. Schmidt spoke about the initial contract, which provided water service starting in 1952. He explained that the contract would remain in full force and effect even if A.B. 139 were to be passed. The contract guaranteed that the company could only charge reasonable rates for the service provided for the ten homes. Mr. Schmidt noted that even though the water company was a private company, they made no money on the services provided. In fact, Mr. Schmidt stated, the company had lost substantial amounts of money over the years because it had not frequently filed rate proceedings because it would not be worth the cost of filing to track the cost of water which was just a "pass through" from the Las Vegas Valley Water District, which actually supplied the water. There was no profit because there was no rate base, no investment, or no requirements. The lines that were put in for those ten homes were put in at the expense and cost of Desert Inn Improvement Company and the development related to that initially. He stated that there was nothing to amortize or earn a return on. Mr. Schmidt informed the Committee that Desert Inn Improvement Company bought the water from the Las Vegas Valley Water District and passed the cost along, dollar for dollar, to the customers.
Mr. Schmidt noted that every once in a while they would file a rate case because as those rates went up over time, the rates changed and the company should not lose money on providing that service. He spoke of a rate case in 1989 and another in 2001 or 2002. The problem, Mr. Schmidt stated, was not the rate process, but the fact that the PUC regulated the water rights that were associated with the facility, which were tied into the golf course and the new proposed golf course, and the PUC also regulated financing of companies who had rights associated with them. When Desert Inn Improvement Company needed financing, they had to go to the PUC to get approval. This became a hassle when a $2 billion offer to build the new development, which involved New York attorneys, held up the filing for months until the PUC process was done and approval was obtained. Mr. Schmidt explained that several thousand pages of documents concerning financing had been needed to get through the process with the PUC. He went on to state that an 11-customer utility was the "tail that wags the dog." It made a significant burden and difference on whether multi-billion dollar filings could continue with this hotel property. Mr. Schmidt felt that Desert Inn Improvement Company would be going back for additional financings of the facility before it could be completed. He felt that the legislation was important to the company because they wanted to get out from under the PUC jurisdiction.
Mr. Schmidt explained that the standard for PUC jurisdiction of small water companies in Nevada had not been changed for a long time. The $5,000 threshold was no longer an appropriate amount under current water rates in the state for water companies. The company had asked the PUC if the dollar amount could be eliminated and only have the regulation apply to 25 customers or less. The PUC found that there were other utilities over which they would lose jurisdiction if that were done. The company agreed to have the bill shift to 15 customers, which would mean that after the PUC's research and review, Desert Inn Improvement Company would be the only currently regulated water utility that would be affected by this legislation in terms of becoming exempt.
Mr. Schmidt explained that Section 1 of A.B. 139 changed the definition of what was a water utility for utilities in Clark County to change the standard to 15 customers from 25 and to eliminate the dollar threshold which was an additional Section in the current jurisdictional standard. The bill also would take effect immediately and require Desert Inn Improvement Company to notify the Commission and the customers of the company being exempt. That provision could be found in Section 5 of the bill. Mr. Schmidt went on to state that he felt the customers would not be happy about the exemption. He explained that the company had gone through a fairly lengthy process about a year and a half ago with a rate review and a rate proceeding, and the Commission had found that the rates did not generate any profit. In fact, the Commission felt the company should have asked for more. The company did not want to spend money and be in the process and would prefer to just pass along the cost that the company paid for water to the customers and continue to provide that service as efficiently as possible.
Chairman Goldwater asked Mr. Schmidt about the rates. Chairman Goldwater asked if the rates were contracted now and would the company abide by the rates that were contracted. Mr. Schmidt agreed. Chairman Goldwater asked how long the contract was for. Mr. Schmidt stated the contract ran with the land, so the contract was good indefinitely. Mr. Schmidt stated that earlier at another hearing one of the homeowners had agreed with that interpretation and that the company was bound by that contract to continue to charge the reasonable rates.
Chairman Goldwater noted that the Desert Inn was the area that he represented. He asked Mr. Schmidt if exemption from the PUC would affect service at all. Mr. Schmidt stated it should not. Chairman Goldwater asked if he had stated "should" or "won't." Mr. Schmidt stated it would not affect service as far as the company's attitude. The company would continue to provide the same service. Chairman Goldwater explained that his question was whether the company was required to continue providing service or would it become optional. Mr. Schmidt stated the contract required the company to continue to provide service. The company could not stop providing the water service in addition to providing that service at a reasonable rate. Chairman Goldwater asked for clarification as to whether it was a matter of contract rather than regulation. Mr. Schmidt agreed that the bill would make that shift. Chairman Goldwater asked David Noble if that was his understanding. Mr. Noble affirmed that it was.
Chairman Goldwater asked if there were further questions from the Committee and there were none.
Chairman Goldwater recognized speakers from Las Vegas. Sharon Greenbaum, a homeowner in the Desert Inn development, spoke in opposition of A.B. 139. She spoke of her concerns and wanted to point out that litigation was ongoing. She stated the litigation concerned easements, water, sewer, roads, etc. She felt that until those matters were litigated in October, this matter should not be considered. She suggested a postponement or denial of this bill. Ms. Greenbaum explained that the homeowners had real problems with water interruptions with the current jurisdiction of the PUC, and changing the status of the utility, she felt, would cause more interruptions because the homes were more than 50 years old. Ms. Greenbaum felt that the safety issues should be enough to deny or postpone this change and if not, that the cost should be taken into account. She further informed the Committee that the Sheraton had used this same method ten years ago. They had changed the water and the pipes, and the homeowners were forced to obtain city water. The costs had been in excess of $1 million. She explained it would be a terrible burden on ten homeowners. In closing, she stated her belief that A.B. 139 was premature for hearing. She again asked for a postponement until the litigation was completed and a court and a jury decided what should be done.
Chairman Goldwater thanked Ms. Greenbaum and stated he felt the legislative session would, hopefully, have ended by October, so postponement was not a viable option. Chairman Goldwater then recognized another speaker from Las Vegas.
Stephanie Swain, another homeowner in the Desert Inn development, spoke in opposition to A.B. 139. She stated she had the same objections as Ms. Greenbaum but would like to add that under the heading of "Health, Safety and Welfare" for the ten homeowners, fire hydrants, sewer lines, and easements underneath the golf course were all issues that the homeowners would like to take notice of and have the Committee take notice of. She stated that promises were made verbally, but what the homeowners had experienced to date had been broken promises. The homeowners were very concerned, and Ms. Swain felt it was unfair that partiality would be shown or special favors made for one utility to be singled out just for the purpose of benefiting this company without the realization that there were ten homeowners who would be adversely affected by this bill. She felt this would be the first step in many more visits to courtrooms in order for the homeowners to find some forum in which to exercise their rights. She stated that releasing the Desert Inn Improvement Company from PUC jurisdiction would leave the homeowners with nowhere to go except the court system if problems with their water system occurred. Ms. Swain felt the company was using this legislation as a smoke screen and that the company had ulterior motives.
Chairman Goldwater told Ms. Swain her concerns had been noted.
Mr. Gilbert Barbieri, a homeowner in the Desert Inn development, spoke in opposition to A.B. 139. He supported Ms. Swain's and Ms. Greenbaum's testimony. He also wanted to point out that when the new development started there were 53 homes in the neighborhood. The development had bought out 43 homes and destroyed them. He felt the company had put themselves in the position of having only ten homes. If they had kept the homes instead of buying them out, they would have enough customers. Mr. Barbieri went on to speak about the rate increases. He felt that because the cost of water was on a "step rate" system, and because the golf course was the biggest user of water, the homeowners were charged the highest rate. The homeowners were unable to take advantage of lower rates.
Assemblywoman Buckley asked Mr. Schmidt how many other persons might be engaging in the business of providing services if they resided in Clark County and served 15 persons or fewer. Mr. Schmidt stated there might be a dozen or more. Assemblywoman Buckley asked who those dozen might be. Mr. Schmidt stated they were entities served off a common well that was connected into several homes and for convenience were served off in that manner. Those entities were not regulated by the PUC because of the number of customers, and there was a perception that there was a certain threshold in which the PUC process of regulation would kick in. Mr. Schmidt stated it was a bigger issue in the rest of the state. There were several hundred places in the remainder of the state that had small development communities of the size of 10 homes or more, even up to 15 or 20. There were several in Clark County that were between 15 and 25 and those situations were unfortunate in Clark County, because in that county there was a water district and municipal water utility that comprehensively served most of the area.
Assemblywoman Buckley interrupted to state that it was not the Committee's duty to get involved in litigation, nor was it the Committee's job to go back and change any rules. She explained that it appeared burdensome to put the same burden on a small server of 15 people as on a large entity. On the other hand, it seemed that the residents were concerned about interruptions and making sure the rates were not unduly raised.
Ms. Buckley asked Mr. Schmidt whether there was some sort of "hybrid" solution to avoid having to do a lengthy ratemaking case, while still providing an avenue for the homeowners' complaints and redresses. Mr. Schmidt stated he would like to address the comments of Mr. Barbieri, because Mr. Schmidt believed the best solution was city water service from Las Vegas Valley Water District. That entity now supplied the water. Chairman Goldwater asked Mr. Schmidt if there were wells in this development. Mr. Schmidt stated no wells were used for services to those ten homes; the homeowners were served off a transmission line from the Las Vegas Valley Water District. The wells that were put in place had been adjusted during the construction process as Mr. Wynn was developing the property. He stated that Las Vegas Valley Water District would not take over service for the company of those ten homes. He explained that the water lines were over 50 years old; they were in bad condition and some of the service problems the homeowners had experienced were related to the poor condition of the lines because of their age. He explained that the water lines were never meant to last indefinitely. The current owner of the development had initially offered to install new water lines at no cost to the homeowners. The problem had been the pipes were not currently up to code because of the placement in the backyards of the properties. The pipes were not in the street where everybody else's lines in Clark County were placed. Desert Inn Improvement Company could not move the lines out to the street, so the company was unable to transfer operation of the utility in those ten homes to the Las Vegas Valley Water District.
Mr. Schmidt also wanted to make one other correction of the prior testimony of the homeowners. He stated that the rates that were being applied were the rates that the water district charged the company. The rates the homeowners would receive would be as high or higher than what they currently were being charged. He explained that there were rates that were lower on some tiers, but not for the two-inch service lines that went into those ten homes. The standard lines for most of the Las Vegas area were generally three-quarter inch pipes, which had much lower rates. The PUC, Mr. Schmidt stated, had reviewed those matters last year when they did the company's rate case, and the PUC had noted that in the 50-year history of this small water operation, the company had never made money on it. The company only passed through the costs. The company did not intend to do anything differently, considering that there was a contract obligation. The company was not in the process of forcing out the remaining ten homes. The property from the sold homes had now been designed and was under construction and was being built around those ten homes. Mr. Schmidt stated that substantial adjustments had been made so that those ten homes could continue in place. The company would continue to provide the service under the contract obligations. There was still redress for the customers, other than the PUC, should the company fail to provide service. Mr. Schmidt went on to explain that Desert Inn Improvement Company, which was the only entity affected by this legislation, was not subject to any litigation now. He noted there was substantial litigation involving the development of the resort and the local homeowners. There was no litigation specifically related to suing Desert Inn Improvement Company and the water company. The company had been providing a net cost or subsidized service for decades in order to continue water service to those homes. Finally, Mr. Schmidt made note that water interruption and safety issues, such as fire hydrants, were important, and the company continued to make sure that interruptions were minimal. He noted that some interruptions had occurred during the construction of the development. A contractor could hit a pipe or something. He reiterated that the pipes were 50 years old.
Chairman Goldwater told Mr. Schmidt the residents were aware of the service interruptions. In one instance, a resident was told there was a broken pipe and he asked the company to show him. The company was unable to show him where the pipe was broken or where the leak had occurred. The residents then felt harassed. Mr. Goldwater explained that once the distrust started, the residents became concerned about what other key safety issues they might have been misinformed about.
Chairman Goldwater asked if there were any other questions by the Committee members. Assemblyman Brown asked Mr. Schmidt if there were about 12 entities that perhaps fell in between the 15 and 25 customers that would "fall out" of the definition. Mr. Schmidt stated no. He explained the question he had answered for Assemblywoman Buckley was not that those entities would "fall out," but that there were other entities that were not regulated that had a similar number of customers in Clark County. The way the legislation was drafted, only Desert Inn Improvement Company would change from its current status of being regulated by the PUC to not being regulated in the future. No other entities would discontinue regulation. Assemblyman Brown asked if those others were not water companies. Mr. Schmidt acknowledged that they were water companies but were not regulated because of the way the statute had been worded. Not all water companies were regulated, Mr. Schmidt explained; there were literally hundreds in the state that had fewer than 25 customers and were not regulated by the PUC. A.B. 139 would put Desert Inn Improvement Company in the same category. Assemblyman Brown then asked if this bill would only affect water companies that strictly or only provided water, no other utility. Mr. Schmidt stated that this bill would not affect electric, natural gas, or telephone utilities.
Assemblyman Beers asked Mr. Schmidt for clarification about page 5, line 27, which referred to a change in a statutory deadline. Mr. Noble answered for Mr. Schmidt. He explained that the change from 90 days to 150 days only concerned Commission review of exit cases; that is, when a customer wanted to exit the system.
Chairman Goldwater asked Mr. Schmidt to clarify his answer to Assemblywoman Buckley's question about whether or not a hybrid of regulation and rate-making for these smaller cases might not be appropriate. Chairman Goldwater envisioned something less than the regulatory rate-making process of the PUC but something more than a contractual obligation to the homeowner. Mr. Schmidt stated that hybrids already existed. Utilities that had from 25 customers up to about 1,000 were very troublesome for the PUC. Chairman Goldwater interjected that he believed his answer was no. Mr. Schmidt said he did not have the authority to speak about hybrids at that time, but that he would take that idea back to his client. Mr. Schmidt spoke about how burdensome the financing was. If the company had to process financing for a $2 billion facility because of a ten-customer water utility, the cost was phenomenal and the time delay also was a burden. Mr. Schmidt felt his client needed flexibility in the financing so as not to have to go to the PUC every time it wanted a change. It was the financing part of the legislation that was problematic. Mr. Schmidt offered to talk with his client about getting that part of the statute exempted from some water utilities. He felt that might be a possible solution.
Chairman Goldwater then asked Timothy Hay, Consumer Advocate, Nevada Attorney General's Bureau of Consumer Protection, to speak to the Committee to help shed some light with regard to the consumers.
Mr. Hay stated his Department felt the change to 15 persons or fewer in Clark County was an appropriate one. He stated they would be amenable to working with the parties and the Committee on a hybrid solution. Mr. Hay noted that the 150-day change that Mr. Noble spoke about was also reasonable since the more constrictive time frame had not proven to be useful in the exit proceedings. Mr. Hay then offered to answer any questions.
Chairman Goldwater asked Mr. Hay if, as a representative of the consumers of this district, they should be satisfied with the contractual relationship as opposed to a regulatory one. Mr. Hay answered that he had not had a chance to review the original land contract in which those arrangements had been set up in the early 1950s. It was his understanding that the interests of the consumers were fairly well-represented in those contracts. He offered to review them for the Committee and get back to them in more detail if that was what the Committee wished. Chairman Goldwater asked if there were recourse as good as, or the same as, regardless of the terms of the contract. Mr. Hay again stated he needed to review the contract language in order to answer with any comfort. His instinct was that the recourse was probably as adequate as the current structure with the PUC regulations. He felt there were unusual circumstances involved with Desert Inn Improvement Company. The company originally had about 50 customers and now they had only ten. He stated that the other remedies could offset the regulatory burden, which might be more available through either arbitration or litigation under the contract. He stated it was very difficult to judge. He reiterated that he would like to have the opportunity to look at the contract in order to give a more informed answer.
Chairman Goldwater noted he would appreciate that. He asked for any more questions from the Committee and there were none.
Renny Ashleman, Legislative Advocate, representing the Mirant Corporation, and Timothy Crowley, Legislative Advocate, representing Nevada Resorts Association, came forward to testify. Chairman Goldwater explained to the Las Vegas audience that they would have another opportunity to speak.
Mr. Ashleman stated his clients favored the bill but had concerns with Section 3 of A.B. 139, on page 3, line 41. He explained that some amendments had been sent to him, and he believed they did not get the job done. His purpose in testifying today was to state his willingness to work with others on some friendly amendments without delaying the process. He offered to either bring them to this body or to the Senate.
Chairman Goldwater asked if there were any questions of the Committee. He then told Mr. Ashleman that it was the Committee's desire to get as much work done in the Assembly as possible.
Timothy Crowley, representing the Nevada Resorts Association, offered the Committee an amendment that would streamline the application process and help the ratepayers realize the benefit from big users leaving the system. He stated that currently the law required a 180-day waiting period from the point a user applied to leave the system, to the point one could actually buy power on one's own. He stated the amendment he offered would streamline that process by saying that if the PUC were to approve the application prior to that 180-day period, one could leave and start purchasing power 60 days after the approval or 180 days after the application, whichever came first. Chairman Goldwater asked if the amendment were in writing, and Mr. Crowley stated he wished to submit that to the Committee today. Chairman Goldwater then asked if that would be all right with Mr. Ashleman and Mr. Ashleman agreed. Chairman Goldwater stated he would accept it and put the material into a work session document when the Committee got to this bill.
Chairman Goldwater asked Stephanie Swain to reply. Ms. Swain thanked the Chairman for contacting the homeowners and giving them an opportunity to participate in the process. She stated they were unaware of the forum for even receiving notification of changes in the legislation.
Ms. Swain wished to comment on a few items that Mr. Schmidt had addressed. She stated that as far as the wells were concerned, she knew of as many as eight wells at this time under the golf course. She did not know the status of those wells or even if they were pumping. She noted the wells might not be supplying water to the homeowners. The homeowners still had an interest, not necessarily an ownership interest, but some implied easement rights to all of the water systems that ran in their community. That, she believed, was the intent of the original contract, which had been set up in the 1950s. Persons buying homes in that area needed to get FHA loans and needed guarantees that they would always have access to sewer lines and water. She stated the water company was not there for the purpose of profit. It was there for the purpose of supplying water at the expense of the water company. The water company, the hotel owner, and the golf course owner were all one entity. She believed this one company was not overly burdened by supplying water to these homeowners. The water came through the same type of entity that the hotel received their water from. She noted that the homeowners only got a bill every three months, so it was not onerous for the company to do their billing. The company did not read the meters on a regular basis, so there was some estimating and there were currently no complaints about that procedure. Ms. Swain stated the homeowners wanted to protect what they had. She explained there had been several rulings, decisions, and injunctions that she believed were not abided by completely. The homeowners had no reason to feel they would get a positive response from their appearance today. Negotiations, she felt, would not materialize.
Ms. Swain stated that homeowners would not like to see this applicant receive favoritism and then coming back wanting sympathy. The company purchased the hotel and the water company; they bought into this situation fully aware. She said the homeowners should not have had to bear the burden of policing this entity and this applicant in order to assure they abided by the laws and the rules and regulations that the company had agreed to when they purchased this property. Ms. Swain stated she agreed to pay for her utilities and other fees when she purchased her home. She was concerned that her water rights would be compromised. She wondered what protections the homeowners would have to prevent the company from assessing them for broken pipes that were broken by their contractors. The homeowners felt they needed to have the regulatory provisions of the PUC to help them. Their wish was to maintain the status quo with the company. She further told the Committee they were happy to have them in their court. Chairman Goldwater thanked Ms. Swain. He recommended that the homeowners take the Consumer Advocate's offer to review the contract. They should send a copy to Mr. Timothy Hay at the Bureau of Consumer Protection.
Assemblyman Knecht asked Mr. Schmidt or Mr. Noble or both about various alternatives. He understood the problem was the fact that there was a company that owns the water utility as well as those other much larger operations. The company had to go through financing for the other operations and that brought them to the Public Utilities Commission for approval of their financing plans. He asked if it would be possible to spin off the water utility as a subunit of the parent company and thereby obviate the need for approval of the parent company's financing plans for the development. Mr. Knecht asked if that might be one way to handle the problem.
Mr. Schmidt agreed that it was a good suggestion; however, the water utility through the wells on the golf course also provided water service for the golf course. The golf course, he noted, would be rebuilt, and there were substantial water rights that went with those wells and the golf course. The water was nonpotable so it was not utilized and did not relate to service of the homeowners at all. The homeowners' water was provided directly from transmission lines or pipes that came from the Water District. Because the water rights and the water company were all tied into the same entity through the water rights, it would be a substantial step to change the corporate structure to segregate out this water company. Mr. Schmidt suspected that due to the fear the homeowners had, any action by the company would generate further animosity. Mr. Schmidt told the Committee he would research whether that proposal would be a viable alternative. He assured the Committee that it was not the company's intent to stop providing the service. Neither the homeowners nor the company had to utilize the PUC in regards to service. The PUC had not had to step in to assure the company was supplying safe or reliable service in the past. The issue, from the company's point of view, was tied to the financing. Mr. Schmidt again spoke of the costs and time delays associated with the process of obtaining approval of their high-level financing.
Mr. Schmidt addressed the litigation that had been mentioned by some of the homeowners. The litigation related to concerns about the golf course and hotel; it was not litigation that related to the small ten-home water utility. There were no injunctions or court documents pending that the Committee needed to be concerned about.
Assemblywoman Buckley asked again about the possibility of forming a separate company, leaving the water rights and the nonpotable water and separate out the operations that affected those homeowners. Mr. Schmidt expressed the view that there were a number of other methods, which would be explored. All alternatives would be costly and affect the timeline of the development of the property. If Desert Inn Improvement Company should try to do the segregation, they would probably need to go through the whole hearing process and procedure before the state engineer because of the water rights. Anything that affected the contract timeline on this property would delay the development and opening of the hotel. This could be avoided by passage of this bill. Mr. Schmidt also noted that the PUC filing requirements for just this ten-customer utility had already caused problems with delays. If this legislation should fail to succeed, the company will try other things because his client was very determined to open a major new property in Las Vegas.
Assemblywoman Buckley asked about using this vehicle to speed up the process and make it efficient and eliminate all the costly filings, but at the same time make the homeowners feel like "the rug had not been pulled out from under them." Mr. Schmidt stated he would take that suggestion back to his clients.
Chairman Goldwater stated the crux of the homeowners' concerns were 50 years of reliable service. The homeowners, he explained, might feel the service was because of the oversight of the PUC. They worried that if the PUC oversight went away, that service would no longer be a priority of the company.
Chairman Goldwater asked if there were further questions by the Committee. There were none. He then asked if anyone else wished to testify.
Judy Stokey, Director, Public Policy, Nevada Power/Sierra Pacific, stated she would like to address the Committee. She stated that she had received the amendments that Mr. Crowley had submitted and they would like the opportunity to work with him. They were not in total agreement with the entire wording, but felt some resolution was possible for the work session. Chairman Goldwater stated that Mr. Crowley had been out of the room when Ms. Stokey spoke and he informed Mr. Crowley that Ms. Stokey was not in favor of his amendment but was willing to work with him. Mr. Crowley agreed.
Susan Fisher, representing Barrick Goldstrike Mines, stated they were opposed to page 3, Section 3, paragraph 8, regarding time-limit expansion from 90 to 150 days. Her client found that expansion of time to be a disincentive to leaving the system. The holding costs of the option on energy was significant, and alternative providers tended to go cold when they realized how long it would take to get the approval. They were not in favor of expanding the time.
Chairman Goldwater asked for questions of Ms. Fisher and, seeing none, asked if there were any other persons wishing to testify either in favor of or in opposition to A.B. 139. There being none, he closed the hearing on A.B. 139. The Chairman said he would await communication from the parties to set up a work session.
Chairman Goldwater opened the hearing on A.B. 145.
Assembly Bill 145: Revises procedure for distribution of assessments collected on behalf of Consumer’s Advocate of Bureau of Consumer Protection in Office of Attorney General. (BDR 58-486)
David S. Noble, Assistant General Counsel, State of Nevada Public Utilities Commission, addressed the Committee concerning this bill. The provision of this bill would revise NRS 704.035. The provision that the Public Utilities Commission asked to be amended dealt with remitting assessments they collected on behalf of the Bureau of Consumer Protection (BCP) to the BCP. At the present time, this was done on a quarterly basis and the process was somewhat antiquated, because the PUC collected mill assessments once a year. The assessments were due July 1 and were late on August 1. As a result, the BCP did not get all their money until October 10. The PUC remitted to them July 10, October 10, January 10, and April 10. He stated there were some companies with large assessments that choose to pay on a quarterly basis, but the vast majority of the assessment came into the PUC between July 1 and August 1 to August 15. Due to new state accounting software, Mr. Noble explained, they were now able to remit monies to the BCP as they were received. There were other fees collected that were already being remitted as received. The PUC wanted consistency in their procedures.
Chairman Goldwater asked if there were any questions from the Committee. Assemblyman Beers asked for clarification. He asked if the PUC paid the funds quarterly but actually had collected them at the beginning of the four-quarter period. Mr. Noble affirmed that was the procedure. Mr. Noble stated that the majority of the funds were collected by August 1 and then were disbursed by July 10. He explained there were funds that were received between July 10 and August 1 that would sit in the PUC's account until October 10 before they were sent to the BCP. There were also, he noted, the quarterly payments by the large utility providers that came in on a quarterly basis and were remitted to BCP on a quarterly basis.
Chairman Goldwater asked if the BCP representative was present, and Marilyn Skibinski, Regulatory Manager, Nevada Attorney General's Bureau of Consumer Protection, came forward to testify. She stated that the Bureau of Consumer Protection was aware of A.B. 145. She explained that the BCP viewed this bill as an administrative matter for the PUC. It would give the PUC better efficiency in the way they handled the payments that came to them. She reiterated the process whereby the bills were billed at the beginning of the fiscal year and money came in throughout the year. What had been the practice in the past was that the PUC, on a quarterly basis, would transfer to the BCP all monies they had received up until that time. The BCP had no position and would not be affected by either leaving the procedure the same or changing it. She stated that at the present time there was a slight delay before they got their first payment, so they were operating on their balance forward from the previous fiscal year until that first quarterly payment was received. Sometimes, she explained, at the end of the fiscal year, additional monies came in and those were transferred after what should have been the PUC's last quarterly payment. A.B. 145 would enable a more efficient system.
Chairman Goldwater asked if there were further questions for the witnesses from the Committee members. Chairman Goldwater asked Mr. Noble about the silence in this bill regarding when it should be effective. If passed, it would become effective October 1, and he asked if that was Mr. Noble's wish. Mr. Noble stated it would be more appropriate to go into effect on July 1 or immediately upon passage and approval.
Chairman Goldwater asked if there were more questions or anyone else wishing to testify. There were no questions and no other witnesses. Chairman Goldwater closed the hearing on A.B. 145.
Chairman Goldwater opened the hearing on S.B. 11.
Senate Bill 11: Revises provisions governing extraordinary dividends or distributions of certain insurers. (BDR 57-95)
Alice Molasky-Arman, Commissioner of Insurance, State of Nevada, stated she appreciated the opportunity to present this bill. S.B. 11, she explained, was an effort to cure what was a drafting error that occurred in 1995, when the Division of Insurance had presented its enormous Omnibus bill, which was designed to assist Nevada in achieving accreditation by the National Association of Insurance Commissioners (NAIC). They remained unaware of the drafting error until February 2002. At that time they felt the Division was ready to be reviewed by the NAIC to determine if they were finally ready to be accredited. The NAIC team discovered NRS 692C.380 not only conflicted with the NAIC model laws, but also conflicted with sound accounting principles. That was enough to prevent Nevada from becoming accredited. However, the accreditation team suggested that Ms. Molasky-Arman write to the Chairmen of the Assembly and Senate Commerce Committees to determine whether support could be obtained to change the statute. The NAIC was not positive about Ms. Molasky-Arman's ability to obtain that support. Ms. Molasky-Arman thought the accreditation team did not understand the good relationship that existed between the Legislature and the Division of Insurance in Nevada, and they were relying on experiences by other commissioners in other states.
Ms. Molasky-Arman distributed a letter she had written to Speaker Emeritus Joseph E. Dini and to Senator Townsend and their responses to that letter (Exhibit C). She explained she had taken those responses to the accreditation committee of the NAIC and, based on those letters and the impression of support in those letters, Nevada had been granted provisional accreditation in March 2002. The accreditation team would be returning to Nevada to review the Division's operation again in May 2003. Ms. Molasky-Arman had hoped that S.B. 11 could be enacted prior to that time to show the NAIC team. Ms. Molasky-Arman stated she would be happy to answer any questions.
Assemblyman Beers asked Ms. Molasky-Arman to clarify if the way the statute was currently drafted allowed the measurement of net gain from operations for purposes of allowing dividends by including unrealized capital gains. Ms. Molasky-Arman stated that was the way it was written. Assemblyman Beers stated his understanding that the statute should be changed to state, "not including realized capital gains." Ms. Molasky-Arman agreed. She introduced her Chief Financial Examiner, Bob Burch, to the Committee, stating that he would be able to answer any detailed questions the Committee might have.
Assemblywoman Buckley asked James R. (Bob) Burch, Chief Insurance Examiner, Department of Business and Industry, Division of Insurance, State of Nevada, to walk her through the simplified version of "why, when and how." Mr. Burch explained that this statute did speak about extraordinary dividends. Basically, the statute set out a definition for extraordinary dividends based on the amount of distribution or dividends that an insurance company would pay during any 12-month period. It compared those amounts with two things, the 10 percent of that insurer's surplus as of the previous year's financial statement and the net gain from the operations of an insurer. The portion that they sought to change with S.B. 11 was the previous definition for a property and casualty insurer or an insurer that was not a life insurer. In order to make the calculation correctly, the net income would be subtracted from the realized gains of the insurer to arrive at a number that would be used to calculate whether the dividends and distributions during that preceding 12 months would make the distribution extraordinary. Assemblywoman Buckley stated she would wait for Assemblyman Beers' communication to explain this process. She went on to ask about the word "unrealized," meaning it had not become "ripe," and wondered how it could be included. Mr. Burch explained that the wording was the mistake in the past. He noted that the Division of Insurance was allowing insurers, by that definition, to pay a dividend out on gains that had not been realized. Assemblywoman Buckley asked if they had been enforcing this for the past seven years and did not notice the error. Ms. Molasky-Arman stated the Division of Insurance had not had an opportunity to look at that because there had been no request by an insurer to seek approval to pay extraordinary dividends. She explained that now, pending resolution of this matter, the Division was reporting to the NAIC on a quarterly basis and ensuring them that they were not allowing domestic insurance companies to pay dividends based on monies they did not have.
Chairman Goldwater asked if there were further questions from the Committee and if there was anyone wishing to testify either for or against S.B. 11. There was no one. Chairman Goldwater asked Ms. Molasky-Arman whether, if this bill were passed quickly, it would move them closer to accreditation. Ms. Molasky-Arman felt it would impress the accreditation committee.
Chairman Goldwater closed the hearing on S.B. 11.
ASSEMBLYMAN BEERS MADE A MOTION TO SEND S.B. 11 TO THE FLOOR WITH A DO PASS RECOMMENDATION.
ASSEMBLYMAN HETTRICK SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
Chairman Goldwater stated that concluded the agenda. He asked the Committee members to note that there would be no hearing scheduled for Friday, February 28, 2003, and that Monday's agenda would be longer. Because of the large number of bills coming in, the Committee would be looking at Fridays in the future to schedule bills.
There being no further business, the meeting was adjourned at 3:15 p.m.
RESPECTFULLY SUBMITTED:
Patricia Blackburn
Committee Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: