MINUTES OF THE ASSEMBLY COMMITTEE ON GOVERNMENT AFFAIRS Sixty-eighth Session April 7, 1995 The Committee on Government Affairs was called to order at 8:00 a.m., on Friday, April 7, 1995, Chairman Lambert presiding in Room 330 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. Douglas A. Bache, Chairman Mrs. Joan A. Lambert, Chairman Mrs. Deanna Braunlin, Vice Chairman Mr. P.M. Roy Neighbors, Vice Chairman Mr. Max Bennett Mrs. Marcia de Braga Mr. Pete Ernaut Mrs. Vivian L. Freeman Mr. William Z. (Bill) Harrington Ms. Saundra (Sandi) Krenzer Mr. Dennis Nolan Mrs. Gene Wines Segerblom Mrs. Patricia A. Tripple Mr. Wendell P. Williams COMMITTEE MEMBERS ABSENT: None GUEST LEGISLATORS PRESENT: Senator Dina Titus STAFF MEMBERS PRESENT: Denice Miller; Research Analyst OTHERS PRESENT: Bob Gagnier; SNEA, Linda Johnson; SNEA, Bob Campbell; Nevada Geothermal Council, Dan Schochet; Nevada Geothermal Council; Michele Schochet; Nevada Geothermal Council, Fred Schmidt; Office of the Consumer Advocate, Dale Stransky; Office of the Consumer Advocate, Richard Colon; Utility Shareholders Association, Joyce Newman; Utility Shareholders Association; Mike Miezel; Building Administration, Dean Borges; Public Works Board; Frank McRae; Nevada Power Company. Chairman Lambert called meeting to order. ASSEMBLY BILL NO. 380 Requires that portion of electrical generating capacity of certain utilities be provided by use of renewable energy resources. (BDR 58-413) Chairman Lambert having a conflict with this bill turned the gavel over to Vice Chairman Braunlin. Vice Chairman Braunlin recognized Senator Dina Titus. Senator Dina Titus of District 7, Clark County, introduced the bill. She said she was chairman of the interim study committee on energy last session. She had with her Don Williams, staff person of the interim study committee, and Nancy Brown her intern who has been working on the energy bills that came out of that committee. She said the two bills came as recommendations from the interim committee that was created by S.C. R. 35. This committee examined Nevada's energy needs and resources in an attempt to more clearly define energy policy in the state. She said the committee consisted of Senator Townsend, McGinness, and Assemblyman Freeman, Gibbons, de Braga and Bonaventura. She said during the course of the interim meetings there was extensive expert and public testimony. They reviewed various energy models from around the country that had been enacted in other states and they studied information that was provided by regulators, the utility industry, inventors, scholars, politicians, and concerned citizens. She said they adopted forty-seven recommendations including fifteen bill drafts, two of which are the bills being heard. She recommended the committee look at the Conservation and Development of Energy Resources Book. (Exhibit C). She said the bills illustrate the wide range of things which were covered in the committee. She said A.B. 380 mandates public utilities set aside ten percent of all new energy sources to come from renewables. This was to continue until ten percent of the total capacity of that utility is made up of renewable energy sources. She asked the committee to look at page eighteen of the report. She said this was a description of some of the other states which have provided similar ideas. She said it was the hope of the committee to move utilities in Nevada more in the direction of uses of renewable sources of energy. She said this is especially important in Nevada where we have two indigenous sources which could potentially provide a tremendous amount of energy. She said in the north there is geothermal and in the south solar. The interim committee voted unanimously to move the utility companies in that direction. She said the second bill A.B. 381 provides for use by state agencies of any money they are able to save through energy conservation, rather than have it go back to the general fund, have it returned to the agency itself to be used for additional energy saving programs. Vice Chairman Braunlin recognized Mr. Donald O. Williams. Mr. Williams referred to a handout which is a summary of the report. (Exhibit D). Mr. Bennett asked Mr. Williams what is the reasoning in calling geothermal a renewable energy source. Mr. Williams stated it is in all the reports. He said the issue being brought up is whether it is totally renewable, whether there is any loss at all. He said the people from the geothermal industry could better address that. He said it has been considered a renewable resource in all the studies that have been done across the United States. He said the U.S. Department of Energy includes it as a renewable resource. Ms. Tripple asked if hydro generated power is renewable, and if so, why does it not appear on the list. Mr. Williams replied the definition in the report did include hydro generated power. He said there was a question about the bill drafting and the inclusion of hydro versus only pumped storage hydro. He said during the work session on the bill there were questions raised by legal counsel about whether the committee intended to include only the pump storage hydro or not. He said these issues were not resolved. He said the definition is included in the summary which he handed out. Vice Chairman Braunlin recognized Mr. Bob Campbell representing the Nevada Geothermal Counsel. He was accompanied by Mr. Dan Schochet also of the Geothermal Counsel. He referred to a red booklet with testimony. (Exhibit E). He said members of the geothermal industry were involved throughout the interim study. Mr. Campbell commended the Legislature for the serious review of the significant potential of renewable resources which are domestic to Nevada. He stated there is a tremendous potential of geothermal energy to serve as a cornerstone of renewable energy development in Nevada and recommended some proposed amendment language to A.B. 380. He said the amendments proposed will result in significant development opportunities for this clean, domestic renewable energy resource. He asked the committee to review the report from the University of Nevada. He said presently Nevada produces in excess of two hundred mega watts of power from geothermal resources and there is potential for this to be expanded by at least a factor of ten. He went on to say Nevada is second only to California in geothermal potential. When properly developed, he believes Nevada could become an exporter of clean renewable energy. He said members of the geothermal counsel are committed to spending the capital to build the facilities and creating the jobs in Nevada necessary for this industry to further develop. He said developing industries like geothermal and solar find themselves attempting to compete with facilities such as coal, which produces greater revenue for the utilities they serve. He added, the clean renewable sources of energy find themselves up against an out of state coal industry that is a recipient of subsidized tax benefits and over two million dollars in federal research grants in this year alone. He said Nevada deserves an opportunity to benefit our state and citizens. He said they are not seeking a guaranteed set aside or even assurance that their power will be purchased. He went on to say they are seeking a level playing field based upon values already established by the Nevada Public Service Commission through general order no. 65. With that in place an existing Nevada industry can begin to realize its full potential. Daniel Schochet, Vice President of Ormat Corporation, stated they are manufacturers of geothermal power plants. He said they have been involved in the development of geothermal plants in the state of Nevada. They have been in Nevada for approximately ten years. He said they are responsible for a significant portion of the power plants built in this state as well as California. He said the amendments being offered on the bill are because they feel the existing language in A.B. 380 precludes future geothermal development for years to come. They are not sure if the Assembly or Senate had that in mind in enacting this bill. To be specific, in its present form section one of A.B. 380 indicates the "set aside" for renewable energy would be not less then ten percent of the increase in electrical generating capacity. He said the average increase in electrical generating capacity of this state in the invested owned utilities is in the order of twenty five or fifty mega watts per year. The "setaside" of ten percent of that amount would be in the order of two and one half mega watts. He emphasized this is a relatively small amount for a new energy project. He pointed out with the exception of some very small projects the nature of renewable energy projects are such that probably ten mega watts is the smallest project that is financeable in today's world. He said there would be no geothermal, wind or solar that could be proposed at that level which would be economically feasible. He said they propose that in each calendar year it would be not less than fifty percent of the new energy, but only to the extent that the utility had a total of fifteen percent of its total capacity. He gave an example of Sierra Pacific having ten percent of its total capacity in geothermal. He said the industry is very proud of the relationship they have with Sierra Pacific. They feel Sierra Pacific has been very supportive of this industry. He said with ten percent of its total capacity in geothermal, the way the bill is written there would be no additional geothermal that Sierra Pacific would be required to purchase. He said they feel if the legislation is to be effective, the fifteen percent would be more realistic. It would give them the ability to provide additional geothermal power. This would allow the geothermal industry in the state to grow by fifty percent over the next five years or so. He said unlike "set asides" in other states, their approach is not to simply say the utility has to purchase renewable energy regardless of the price or purchase it against some unrealistic provisions. In 1989 a bill was enacted, S.B. 497, which as a result of that legislation General Order 65 was issued several years later. General Order 65 was based on a solid year of workshops by experts in and out of the state. There is certain criteria established for the societal worth of renewable energy. He said in less technical terms, it is the cost society avoids by not burning fuel, regardless of what type. He said the amendment they are proposing is that the utility need not purchase any renewable energy unless the offered price of the renewable energy meets the guidelines of General Order 65. There is a differential in internalized price between renewable energy and energy produced by other combustion resources. He said that differential price may be a penny a kilowatt hour or a penny and a half. It depends on the resource. He said as long the renewable energy offered to the utility meets the requirements of General Order 65 and does not exceed that value, it should be considered as a viable alternative to combustion base resource. He said the purpose of the proposal is to keep the industry alive and the ability of the utilities to purchase renewable resources within reasonable guidelines and pricing. Mr. Schochet answered Mr. Bennett's previous question of whether or not geothermal is renewable. He said "yes" it is because geothermal energy is energy from the core of the earth which is brought to the surface by groundwater that is heated then extracted. There are two ways to make geothermal non-renewable. One is to extract more groundwater in any given time then the natural resources can recharge. He said the geothermal energy they usually produce has been heated over for a very long period of time. The question occurs when you withdraw the water, will additional water fill into the space and be reheated. He said the answer is "yes", and it will be reheated over a period of time. If too much water is withdrawn in too short of a time, you will not be able to reheat on a recharge. He stated one of the technologies that has been developed over the years, which draws heavily on petroleum engineering, is how much energy can be withdrawn from a resource at any given time. He gave an example of what not to do, is the geysers north of San Francisco which were developed over twenty years ago. He said the steam was essentially used in steam turbines by eliminating the boiler and the coal used to heat the water. The problem was it was developed without any serious control by the state. He said there were many competing developers who basically used it all at the same time. He said in addition the re-injection system, which is after the geothermal energy is withdrawn from the fluid, the cool fluid is re-injected to be reheated again. This allows a recharge mechanism that allows reheating. Over the past ten years the geysers have declined from approximately two thousand three hundred mega watts to one thousand four hundred mega watts which is still a significant field. The utilities presently working in the geysers are looking at methods to arrest this and turn it around. He said the second way to make geothermal non-renewable is to take the cold water after the heat has been extracted and inject it too close to the hot water wells. This immediately cools off the hot water wells. He said this is a plumbing problem, not a resource problem. He said those problems have been corrected. In the Imperial Valley there are some of the best geothermal plants in the country. He said they are all running well. He said to his knowledge there are no geothermal wells in the Imperial Valley that are cooling. He said in principle, geothermal is a renewable resource if properly managed. Vice Chairman Braunlin recognized Mr. Bennett. Mr. Bennett stated he wanted to explain some things about geothermal to be discussed before the committee before they decide. He said he was all for clean energy. He said we will be in a bind soon on conventional petroleum, because we are only meeting thirty eight percent of the demand domestically on petroleum products according to the last issue of World Gas Journal. There are two types of geothermal energy. One is hot dry rock and hot wet rock. Los Alamos is an example of dry rock. Energy is extracted by drilling two twin holes side by side and fracture between them, use one as a cold water injection and use the other to recover steam to drive the turbines. One of the most valuable resources in the state of Nevada is water. He said this is something that needs to be considered when they use it for the dry rock process. He asked that Mr. Schochet provide data in that area. He said he would like to see what the cost is to the consumer and to everyone involved. Mr. Schochet replied the hot dry rock technology has not been commercialized yet. It only exists in an experimental form. There is currently a request for proposal by the Department of Energy for a pilot commercialization. He said at this point it would be a small two mega watt pilot project that would be built in New Mexico to test this technology commercially. The loss of water in the hot dry rock, which is renewable, is approximately six to ten percent of the flow rate. If that were used you would have to have makeup water. He said currently there are two types of geothermal energy used. Steam dominated and water dominated. Nevada is primarily water as is most of California. The technology used in Nevada is using geothermal power plants that are air cooled with one hundred percent re-injection. He said air cooled plants use absolutely no consumptive use of water. He said they neither use any of the groundwater or surface water for cooling and the geothermal fluid is re-injected one hundred percent. He said by spacing the wells and maintaining the level of production of the hot fluid within proper guidelines this energy could be almost limitless. Mr. Bennett asked if the wet rock process has no loss of fluid in the flow rate. Mr. Schochet replied there is no loss of fluid in both of the Nevada projects. Mr. Bennett asked what was the typical flow rate per mega watt. Mr. Schochet answered for four thousand gallons per minute it would generate approximately 12 to 16 mega watts. Vice Chairman Braunlin recognized Mrs. Freeman. Mrs. Freeman stated she was on the study committee, and asked Mr. Campbell to explain briefly his comments regarding the Public Service Commission. Mr. Campbell said in the 1989 session of the legislature there was legislation introduced which required Nevada utilities to utilize certain portions of renewable energy resources. He said that was amended before passage to say that it is recommended they use percentages of renewable resources. The Public Service Commission had hearings and assigned societal values for different aspects of renewable energy. He said they dealt with measurable direct benefit values of using renewable energy resources. This was adopted by the PSC and General Order 65. Since the adoption there has not been much weight given to those in the resource plans that have been submitted by the utilities and subsequently approved by the PSC. In essence what they are trying to do is to more formerly indicate those values should be factored in the resource plans and proposals for gaining additional power that the utilities need in the future. Mrs. Freeman asked if essentially that would be what the amendment would do. Mr. Campbell said it would basically "lock in" and require utilization of those values in General Order 65 that already have been approved by the PSC but have not been utilized. Vice Chairman Braunlin recognized Ms. Tripple. Ms. Tripple said she personally believed in the increased use of renewable resources. She said she wanted to encourage the use and make renewable energy more competitive. She said this is the issue that should be addressed. She said there is an alternative way in values to make the renewable resource less expensive than the others and in turn will be utilized by the power companies, etc., because of its competitive edge. The Federal government has put a great deal of money into renewable energy. She said she would not mind if the Federal government put more in it so it could become more competitive. She said they are going about it the wrong way. If it is dictated that a certain percentage be used, they should let the competitive market be the motivating source. Dan Schochot said that if renewable energy were truly valued, including all its externalities, geothermal would be competitive. He said any combustion source of energy whether it is coal or the cleanest of the clean gas, produces air emission products. He said the products of the air emission have a negative value. He said in today's market place if General Order 65 were totally implemented, that would provide a value for the environmental benefits of renewable resources. He said the actual cost of generation of this power plus the external benefits come close to providing a competitive price for the alternative. He said this would provide a competitive playing field. He said their amendment essentially says the mandate is only to encourage the utilities to build a portfolio of renewables, but they need not buy it if it is not competitive. He described "competitive" as taking the value for the environmental externalities established by General Order 65 and use that realistically as an added or subtracted, depending on the mechanism, to compare the true cost of a combustion resource versus a non combustion resource. Ms. Tripple asked if he believed the renewable sources of power cannot become competitive unless you add this factor of clean air, etc. Mr. Schochet replied in terms of the direct dollar for dollar cost, without looking at the true value, the answer is probably not. He said you can burn fuel a lot cheaper than a system that uses natural fuels. Vice Chairman Braunlin recognized Mr. Harrington. Mr. Harrington asked if this legislation were passed, what would the average increased cost of a power bill be for a family of four. Mr. Schochet replied that in the northern part of the state the average family pays approximately eight cents per kilowatt hour for electricity. He said at eight cents per kilowatt hour the cost to purchase electricity is averaging about four cents which means half the amount they pay has nothing to do with the cost of electricity generation. He said the impact on half the cost is if the total amount of purchased power for renewable resource, or fifteen percent, that percentage was thirty percent above the cost of combustion power the impact on the average family would be two and one half percent of that bill. He said this would work out to be one dollar and twenty five cents more based on the recommendations made. Vice Chairman Braunlin recognized Mr. Neighbors. Mr. Neighbors asked if the properties are evaluated for tax purposes the same way as the utilities using the capitalization approach. Mr. Schochet replied they are evaluated the same as the utilities except in geothermal there is a net proceeds of mine stacks. He said geothermal is considered an extractive industry and is in a higher tax bracket. Mr. Neighbors asked when did they anticipate the geothermal plant in Nye County to come on line. He said Fish Lake Valley is probably dead. The power purchase agreement has been moved to the Salt and Sea by the developer. They do not anticipate any definite time unless there is another market found. Vice Chairman Braunlin recognized Mrs. de Braga. Mrs. de Braga stated she will not be voting on this due to personal interest. Vice Chairman Braunlin recognized Mrs. Segerblom. Mrs. Segerblom asked if there was a power plant in Beowawe. Mr. Schochet said there is a power plant there that has been in operation for close to ten years and it generates twelve to fifteen megawatts. He said the power is sold to California Edison. The power plants selling power under some of the earlier contracts they were granted contracts at fairly high front loaded rates. They were bidding at that time against coal plants. When you compare geothermal to coal fire or nuclear it is lower on a direct cost price. If it were compared to natural gas it would have difficulty competing. Vice Chairman Braunlin recognized Mr. Harrington. Mr. Harrington spoke that on the proposed amendment it is specifically stated that these need to be indigenous renewable energy sources. He asked by putting "indigenous" you do not want to compete with geothermal in California, Wyoming, Utah and elsewhere. Mr. Schochet replied it was not that they do not want it, part of the benefit these geothermal plants and solar plants have brought into the area is diversity in Nevada in jobs and economic benefits. He said they hope as long as they had the caveat that this power stayed within the guidelines of General Order 65, which established limits on what could be charged, they would also bring with it the benefits of being an indigenous source. They would like to keep it within the state if possible, but not if it is not economical. Vice Chairman Braunlin recognized Ms. Tripple. Ms. Tripple stated she thought there was going to be wheeling of power and deregulation and maybe doing some work with the state of Washington. She said if we have deregulation and that can come in, is there going to be too much concern as to what is indigenous and what is not indigenous. Mr. Schochet said from his company's point of view, Nevada has fairly indigenous resources. They have looked at this bill as one to be revisited in two to six years. Ultimately it should be across state borders. Vice Chairman Braunlin recognized Mr. Bennett. Mr. Bennett asked if a sunset provision would be a good idea. Mr. Schochet indicated he was not sure. If there is a revisiting of the bill, there need not be one placed on it. If it were placed it should be placed in such a manner that it does not affect any of the actions taken prior to the sunset date and it should be far out enough to allow the utilities, retailing wheeling advocates, and the developers sufficient time to prove the merit. He said a sunset date ten years from now is something the legislature could consider. He said he personally does not like sunset dates. Vice Chairman Braunlin recognized Mr. Harrington. Mr. Harrington asked if there were currently any solar, wind, or hydropower plants in operation in the state. Mr. Schochet said there were no serious plants in operation that he knows of. Vice Chairman Braunlin recognized Mr. Rich Ferguson, Research Director for the Center for Energy Efficiency and Renewable Technologies. Their headquarters are located in Sacramento, California. He said CEERT is a coalition group which includes the nation's largest environmental organizations like the Sierra Club and the Natural Resources Defense Counsel. He said it also includes four profit renewable developers, and it also includes several non-profit public interest groups. He said for the last year their organization has been involved with the discussions in California over the exact issues Ms. Tripple has raised. He said they are now involved in drafting legislation together with the consumer groups in California to try and shape the competitive markets that are emerging in California. He said they firmly believe that the developing competition and the generation business will provide lower cost to consumers and if done properly will also improve the environmental performance of the electricity sector. He said the environmentalists and the renewable energy advocates strongly endorse the development of competitive markets. He said all the polling data, and market research data they have seen indicate that a clean power is a product consumer's want. He said it is available at a price they are willing to pay. He stated they look forward to a day when the generators of clean power can approach customers like a city and industry and offer their power to sell for these customers. He said there are lots of factors to decide. The renewable developers have to have access to the customers. He said without that they are blocked. He said that is the situation today, because the existing generation business is a utility monopoly and it is regulated by the state of Nevada. He said the goal is, in the absence of competition, to get the utility monopoly to act in the public interest and give the customers what they want. He said prices are too high, there is not enough clean power being developed and customers would rather have lower costs and better performance. That is the goal of what the changes would be. He said A.B. 380 is a step in that direction. The issue of competition is not happening yet. He said during the interim you have to make the public customers' decisions for them through the regulation of the utility monopoly. In response to the sunset question, you can sunset this type of legislation when in fact you have real competition in the electric generation business. He said from the customers' point of view they want to know if they are getting their money's worth. This is eminently priced for what the people of Nevada want for the cost of electricity. He said the utilities are afraid of what their position would be in the competitive market. He said when there are entrepreneurs in the market the existing monopoly utilities are not going to be able to compete effectively. He said their whole corporate culture is not designed toward competition and it is a problem. He emphasized the fear of these markets is they are going to get stuck with merchandise they cannot sell. He feels they are wrong, it is an eminently marketable product. He suggested they might include in this legislation a statement that it is the legislatures' intent when in fact they have competitive markets, if the utilities find these purchases they have made above market, that they will receive equitable treatment for these purchases that they made. He commented this is the agreement they have made in California with the Industrial Consumer Groups, etc. He pointed out there will be a deal in California with the utilities for some sort of equitable treatment on stranded investments. This is money for merchandise they cannot sell once you have real competition. He suggested it would be sufficient for the legislature to include some intent language, if the investment becomes stranded as a result of competition these investments will be reimbursed equitably. He said competition presently is a secondary issue. (Exhibit F). Vice Chairman Braunlin recognized Mr. Fred Schmidt and Dale Stransky of the Office of the Consumer Advocate. Mr. Schmidt, State Consumer Advocate, operates as representative of constituents. He stressed he is the voice for customers of public utilities. He has been involved in the development of renewable resources through the 1980's and watched it come to a halt. He participated in the development of A.B. 380 by attending all the sessions of the interim study committee. He introduced Dale Stransky, Chief Engineer for the Consumer Advocates who has been involved in utility engineering issues for quite some time. He expressed support of A.B. 380 and suggested in this bill there is opportunity to make a significant policy statement for the state of Nevada. He said it is not an easy policy statement, because in order to do it you are going to have to "buck" the opposition of both major electric utilities in this state. He pointed out the major source of the opposition is twofold, one is the threats of competition and the other is the general argument that the cost of this resource will raise consumers' bills, so you should not mandate or require this be done. He expressed consumers have a broader perspective and interest of what is in their best interest, than both the Public Service Commission and the utilities in many instances. He said with several surveys done over the last six years, nationally, and locally in Nevada in order to determine whether consumers were willing to pay more for renewable resources, the answer was overwhelmingly yes in those polls. He said in a national poll just recently conducted, it was presented to congress to maintain or increase the budgets for renewable research out of the Department of Energy. He stressed, unfortunately those budgets are being cut back. He said they are being cut back at the same time nuclear fission research is being maintained or increased. He feels this is unfortunate, because it is not what the public wants. He provided a handout to the committee providing specific numbers and information which is taken from the utilities' filings which are required by the PSC. See (Exhibit G). He said it also provides a prospective of the impact, if the bill is adopted, what will occur. His conclusion from the exhibit is that he supports this bill because it is a rather modest step in terms of impact on utilities and the cost to consumer. He emphasized the bill has a limitation that it only applies to the two large utilities. He asked the committee to look at the chart and the power supplied to southern Nevada. He pointed out that hydroelectric power clearly is a renewable resource. He noted there is no dispute in that area. He said hydroelectricity is currently the only renewable resource a part of the generation supplied to southern Nevada customers. He said the year 2001 was chosen as a date where impact is anticipated in terms in the amount of additional renewable capacity that will be required to be developed by utilities. He said Nevada Power plans no renewable resources and has nothing in its resource plans that its required to file before the PSC. He said Nevada Power had a press release last year and made a mention of it in its recently filed February 1995 resource plan that it is intending to invest in research related to solar energy and hopes to develop as much as twenty mega watts of solar energy by the year 2002. He stated under the category uncommitted resources, the company's current plan is buy all its power from outside sources for the short term. He remarked there are no plans for specific renewable energy projects to serve southern Nevada in the foreseeable future. He said if this bill is passed the two requirements, the first being at least ten percent of the increase in generating capacity must come from renewables. The incremental requirement from that ten percent is the number of mega watts supplied. He said this is a very modest amount. He clarified by the year 2000 you would have 69 mega watts as a result of this bill. He said you would have to have a significant jump in renewables in the year 2001 of 75 mega watts. He said there has been talk of a solar plant at the Nevada Test Site within that time frame. He said a significant amount of that would be contracted for and received if renewable resources from other sources were not supplied to Nevada Power by that time frame. Mr. Schmidt pointed out Sierra Pacific Power currently has over 100 mega watts of renewable resources in its mix. He said there is a small amount of hydroelectricity, eight mega watts, that Sierra Pacific owns, and another four mega watts which is produced by an independent producer at the Lahonton Dam. He mentioned there are geothermal plants which are the bulk of the resources and one bio-mast plant, which is a wood chip burning plant at a lumber plant in Loyalton. He said he did not think the chip plant was renewable. He said these were summarized in the chart. He said in 1996, Desert Peak, a geothermal plant, will no longer be a part of Sierra Pacific Power's system mix. He said from that point on Sierra Pacific just as Nevada Power, has no significant plans for additional renewable resources for the future. He pointed out the bill requirements on Sierra Pacific Power would be modest due to the incremental amounts required. He felt this bill would not make the utilities less competitive. He mentoned there is nothing today that is occurring specifically that has changed the competitiveness of the industry. He said the industry is less competitive in Nevada for generation resources. He said this was due to bidding processes that led to and developed the geothermal that Nevada has. They no longer have that because they suspended those processes in the last two years and when they were canceled, no contracts were signed with any of those entities. He said northern Nevada still has active participants in the geothermal area. He said he is not sure if this will continue if there is not a market for it. He said without a market it cannot be expected that these industries become more competitive price wise. He concluded his final reason for support of this legislation is by identifying and creating a market, and still allowing for competition among those who wish to participate in that market, you will in affect drive the price down for the renewable resources. If this bill is not passed, it is likely the renewable industry in Nevada will not continue through the rest of the decade. He mentioned many other states through legislation have developed good renewable resources. He feels very strongly about this issue, and many of the constituents he has spoken with really support it. Vice Chairman Braunlin recognized Mrs. Freeman. Mrs. Freeman stated she served on a study committee in 1987, where plans were discussed that utilities were required to submit, and that she did have some knowledge of this. She said she was disturbed and asked Mr. Schmidt to explain the PSC's position. Mr. Schmidt stated it was his recollection that the PSC did not support the concept of mandatory "set aside" in the interim study committee. He said in addition through the commission's policies and not aggressively applying the environmentally external values that were developed under hearings originally held, the utilities have been able to go against the intent of this legislature in requiring these environmental considerations be made in the decisions. He stressed it is their job to keep utility rates low. He emphasized they have to decide when and if a utility increase will be allowed. He noted they are very concerned any requirement to mandate an additional power plant be signed under a contract for renewable resource at a higher cost than what another plant could be signed for, would cause them to pass along an additional rate increase. He stressed that is a legitimate concern. Mrs. Freeman asked Mr. Schmidt to explain Sierra Pacific's no plan to increase, and the closing of the geothermal plant. Mr. Schmidt said the fact there are no new plans is obvious by the filings and of the numbers summarized. He said they have to file a new resource plan by May of this year. He said as far as the Desert Peak plant closing, it is due to a contract expiring. He said there has been no investigation as to why. Mrs. Freeman asked by whose authority did the RFP become suspended. Mr. Schmidt replied Sierra Pacific did it unilaterally after the completion of the last resource plan hearings when the PSC approved the Pinon Pine Project, which was the coal gasification project. He pointed out the company sent a letter to all of the developers who had bid in their RFP and submitted competitive bids and told them based upon the PSC's decision and the resource plan that they were going to suspend the RFP. He said later a subsequent letter was sent which indicated they had canceled the RFP altogether. Mrs. Freeman asked if what they are doing does not fit their plan. Mr. Schmidt replied what they are saying is that renewable resources are not something they want to be involved in through the rest of this decade. They want to be involved in pursuing and developing the coal gasification project and then natural gas units and more purchase power agreements. He maintained it will take this legislature to change this. Vice Chairman Braunlin recognized Mr. Bennett. Mr. Bennett asked for clarification on federal spending on nuclear fission research. Mr. Schmidt said they were maintaining approximately one billion dollars a year for fission research and one billion for fusion research. He said it is about two billion dollars combined for nuclear research and the renewable research out of the Department of Energy is projected to be under five hundred million. Vice Chairman Braunlin recognized Mr. Harrington. Mr. Harrington asked which bill Mr. Schmidt supports or did he support them both. Mr. Schmidt said he supports A.B. 380 because it is modest and the ten percent mentioned is a floor figure. It is not a specific mandate. If the legislature sends policy direction to the PSC, encouraging that market to be guaranteed to exist for at least that amount, there will be renewed interest in this state from renewable industries and competition will occur. He maintained he does not want to expose the consumers he represents to significant rate increases. He said he has not seen the amendments proposed. He remarked there is enough renewable indigenous resources to create a good competitive market for the ten percent. Vice Chairman Braunlin recognized Mrs. Segerblom. Mrs. Segerblom asked about the solar in southern Nevada. Mr. Schmidt said for the solar industry to develop in this state, it is going to take a significant project. There are some kilowatt sample projects that Nevada Power is using for monitoring test data. He expressed that southern Nevada is one of the best half dozen sites in the United States and in North America for development of solar generated electricity. In order to get solar power going, there has to be an industry manufacturing the equipment to build one of these plants. He stressed until there is an industry committed to doing this, the price is not going to come down. He said they got the commission to agree that Nevada Power should be pursuing the study of solar. The results of the studies so far have indicated that solar is still very expensive compared to other alternatives. Vice Chairman Braunlin recognized Joyce Newman. Joyce Newman, Executive Director of the Utility Shareholders Association, introduced Mr. Richard Colon. Mr. Colon, President of the Utility Shareholders Association of Nevada stated that the USAN represents those people who have invested in Nevada energy utilities. He said on average they are over sixty years of age, retired, and more than twenty five thousand of these families are Nevada Power and Sierra Pacific shareholders and customers. He pointed out they generally support the concept of developing Nevada's indigenous energy resources for the environmental and economic benefits they provide. He stated the electrical industry is in a state of rapid change nationwide. In the not to distant future the north and south will be competing for the business of each other's customers. He mentioned price becomes very important in a competitive environment. He delcared unfortunately at the present time, renewables are not cost competitive, and to require the utilities to purchase renewables regardless of cost, means customers will pay higher bills, and the shareholders will be in danger of the value of their investments being eroded. He pointed out the concept of stranded investment will be heard of more in the future in discussions of retail wheeling. He said purchase power contracts for renewables at inflated prices could become stranded investments under competition and put shareholders and residential customers at risk. He said the utility analysts have begun to issue analysis based on utilities' competitive positions. He respectfully suggested, because this idea comes along at a time of rapid change and uncertainty in the utility industry, it could do more harm than it would benefit. (Exhibit H). Vice Chairman Braunlin recognized Mr. Harrington. Mr. Harrington asked what he thought the average cost or increase for a family electric bill would be if this bill were to pass. Mrs. Newman stated they have not done an analysis on that. She asserted the fact is that there will be a higher price, the magnitude of that price is open for debate. She said in testimony so far, no one has suggested there would not be an increased cost. She remarked even if the polls show the consumer wants a cleaner environment, there are still many industries who are objecting to what they are paying now and also there are the low income families who also are having a tough time paying what they are now. Mr. Harrington stated the industry has been accused of not following the PSC's General Order No. 65, which deals with default value externalities, and asked what her position was in that regard. Mrs. Newman stated the utilities could probably answer the specific questions in regard to those filings. She mentioned they did participate in the hearings in 1987 and she said they disagree with the economics used then. She said the effects that are out there in the environment of burning fossil fuels, and attaching them to the costs of those resources is a matter of quantifying subsidies for other resources, that otherwise cannot compete. Vice Chairman Braunlin recognized Mr. Frank McRae. Frank McRae, Manager of Governmental and Regulatory Affairs of the Nevada Power Company spoke to say they support the planning for an acquisition of economic, renewable and indigenous resources, but cannot support the passage of A.B. 380. He said this would mandate Nevada Power Company to acquire a significant amount of renewable resources without regard to the cost or economics of such resources. He testified Nevada Power Company believes the acquisition and use of renewable resources is an issue that should be addressed in lease cost planning process that Nevada Power Company has implemented. He pointed out the suggestion by CEERT that utilities are not geared for competition, is not true for southern Nevada. He maintained Nevada Power Company has taken great steps to prepare itself for competition. He testified to the statement about the development of renewable resources coming to a halt was not true and a signed stipulation in 1994 by the PSC and Land and Water Fund of the Rockies, which were proponents of environmental initiatives, was proof of that. He pointed out they have consumer sessions on proposals before the commission when an increase or rate change is proposed. He said there was actually a consumer session on the commission's consideration of General Order 65, when the commission was considering several proposals to implement rules. He remarked there was one session in Reno where it was attended by several people who indicated their advocacy of going forward with the consideration of environmental externalities and a preference for renewable resources. He said most of the entities that did support that approach were environmental advocates for environmental protection and environmental improvement. He stressed the concern and uncertainty by utilities about cost in a competitive environment cannot be overlooked and it cannot overestimated. He suggested there is a potential for the utility shareholders and the remaining customers in the scenario of retail wheeling where they might have to pick up the cost that would normally be shouldered by customers. He mentioned if a customer leaves the system, and they have built a system that has renewable resources, and is no longer responsible for the higher cost resources, the shareholders or the remaining customers will end up bearing the cost. He emphasized it is the remaining customers who have the least opportunity to access competitive alternatives to their incumbent utility. Mr. McRae stated that Mr. Schmidt's statement that Nevada Power had suspended its competitive solicitation or request for proposal was not true. He said they carried that solicitation until its conclusion. He testified there was never any commitment made when the solicitation was issued to contract any proposals in the solicitation. He mentioned they made a decision that given the status of the market no proposals received within that solicitation should be contracted for. He said this was in addition to their own proposals which was set as the "bench mark" for which proponents in the RFP would bid against. Mr. McRae stated rather than funding research into renewable resources what they would be doing is subsidizing renewable resources with a hidden tax. Mr. McRae stated the solar project in Boulder City would rely upon the combustion of fossil fuels, such as natural gas and oil, in order for it to meet its contractual requirements that it was willing to commit to Nevada Power Company. He emphasized it was not a pure solar technology. Mr. McRae discussed the lease cost planning process. He pointed out the PSC has adopted rules for lease cost planning that have assured all resource options are evaluated on a level playing field. He said this field was tilted in favor of renewable resources when the PSC adopted regulations that allowed a preference to be given for environmentally benign resources. He said it could be demonstrated that those resources provided environmental benefits that would exceed the increases in cost that it would impose on the utility and its customers. He said this rule is the General Order 65. He pointed out the rule places the consideration of environmental benefits of renewable resources exactly where it should and that is the lease cost planning process. It requires utilities to systematically assess whether the additional cost that Nevada Electric Utility customers will pay for renewable resources can be shown to be offset by a forecast of the theoretical environmental benefits globally achieved relative to the conventional resources with lower cost. He recited to date the consideration of environmental externalities in Nevada Power's lease cost planning process has not altered the resources that have been required. He pointed out the estimate of these theoretical environmental benefits from renewable resources have not been sufficient to offset the higher real cost that customers would be asked to pay. He stated the cost of power in the wholesale market is so low even the utilities are not building their own lease cost resources and instead are opting to rely upon a portfolio of wholesale purchasing options that have the potential for keeping costs and rates low and in some instances actually lowering the rates. He stressed it is important to understand that incorporating the consideration of environmental externalities into the lease cost planning process introduces an entirely different level of uncertainty into the process. Mr. McRae stated Nevada Power Company faces many challenges that are related soley to meeting the increased electrical needs of southern Nevada that have resulted from the growth and economic expansion of recent years. He pointed out Nevada Power Company will be needing to add resources amounting to eight hundred mega watts in the next six years. He said that averages out to be one hundred thirty mega watts a year, not the twenty five to fifty mega watts Mr. Schochet represented. He remarked there are new challenges on the horizon as well. He emphasized the future will bring competition and a need for restructuring and significant regulatory changes. He testified the uncertainty of the magnitude of these changes causes risks to increase. He said A.B. 380 has the impact of creating unnecessary additional risk when mandating the utility to purchase renewable resources without regard to the cost and economic impact. He concluded the lease cost planning process is the appropriate way to consider the amount and type of renewable resources for utilities to acquire and oppose the passage of A.B. 380. He surmised Nevada Power feels as an alternative this issue be addressed as part of a study to consider retail wheeling and other structural changes that may be passed by the legislative session. Vice Chairman Braunlin recognized Mr. Bennett. Mr. Bennett questioned Mr. McRae on Section one, subsection three, paragraph D, on pump storage hydropower. He maintained they cannot use fossil fuel to pump it up the hill. He asked what can be used in place of fossil fuels and what is the cost comparison. Mr. McRae stated in the last RFP they received a proposal from a pump storage project and carried that proposal all the way to the end of the RFP process. He said that project relying upon the system was not competitive with the other proposals they had received or with their own resources. He expressed if you were to try and separate the pump storage project when attempting to recharge the reservoir, you would have to rely upon some other type of renewable resource such as wind or something like that. Mr. Bennett asked Mr. McRae to supply the committee with various efficiencies such as geothermal, hydropower, coal fired, and natural gas, so comparisons could be made. Vice Chairman Braunlin recognized Ms. Krenzer. Ms. Krenzer asked if the supply plan was for using uncommitted resources or are alternate sources of renewable fuel indicated on the plan. Mr. McRae defined their use of alternative or renewable resources as the Hoover line item which is about two hundred and thirty five mega watts and part of the plan is for the company to incorporate twenty mega watts of solar power into its electric generating mix by the year 2002. He testified this would cause them to have two hundred fifty five mega watts by the year 2002. He stated this would result in ten percent of committed resources being comprised of renewable resources. That would leave seventeen hundred mega watts uncommitted. He said within that level, as the technology for renewable resources develops, the cost declines, there would be an increase of utilization of renewable resources. Ms. Krenzer asked if ten percent would be alternate renewable. Mr. McRae said it would be comprised of committed renewable resources. Ms. Krenzer stated there would be seventeen hundred uncommitted. She asked what percent of those would be renewable. Mr. McRae replied without knowing the cost of those renewables at that point in time he could not give an estimate. Ms. Krenzer asked if they were in compliance with the bill already due to the ten percent committed resources. Mr. McRae said the bill does not specify committed resources or uncommitted resources. He commented if you were looking at it from a total resource perspective they would not be in compliance with it unless they saw a decline in cost in renewable resources and fulfilled and transferred from uncommitted resource designation to committed resource designation to renewable resources. Vice Chairman Braunlin recognized Mrs. Freeman. Mrs. Freeman asked if there was history in this state regarding wheeling. Mr. McRae stated the utilities currently provide wholesale wheeling services. As part of the evolution of competition in the utility industry that emanated from the energy policy act of 1992 by federal congress, there has been an introduction into the wholesale industry. He pointed out when they talk about efficiencies, that is where there has been significant gains in efficiency, the more efficient providers and producers of electricity are the ones winning the contracts in the competitive solicitations. He concluded there is competition on the wholesale market and they can gage the increase in efficiency and production of electricity by what is happening on the wholesale market and who is winning the solicitations. Vice Chairman Braunlin recognized Mr. Harrington. Mr. Harrington reiterated he was trying to get a figure as to what the increase would be to the average family home. Mr. McRae stated it would depends upon what the cost of the resources are. He said he has not done any calculations. (Exhibit I) Doug Pond, Director of Governmental and Regulatory Strategy for Sierra Pacific Power and Robert Balazar, Director of Electric Planning testified. Mr. Pond stated Sierra Pacific has a history of using renewable resources in a balanced and reasonable way. He maintained they have a long history of participating fully in an integrative resource planning process, which the legislature initiated and the commission has managed over the years. He concluded the end result is they have over one hundred mega watts of renewable resources in their resource mix. Additionally they worked during the interim on the SCR 35 process, and participated fully in that. He expressed they will continue to do those kinds of things in the future and they do have a commitment to these alternatives. He pointed out the world is not what it was years ago. He said the fact we are faced with a lot more competition and anything which limits full competition on the expense side of process is likely to drive the price of their product up. He stressed their major concern is that this particular bill would increase expenses, therefore increasing prices, which will make them less competitive. He agreed with Nevada Power in that a renewable power issue could be included in a study of changes in the utility industry retail wheeling and others. He said in the Senate Bills dealing with indigenous resources and the resource planning process, the sponsors of the bills have introduced the concept of competition and language which would introduce competition into the legislation. He testified the legislature as a body is recognizing what is happening in the industry, and the passage of this legislation would be inconsistent with that recognition and where they have been heading. John Mendoza, Chairman of the Nevada Public Service Commission, said he was intrigued with the concept of making greater use of renewables. He stated they join with the utilities in considering retail wheeling in this area and make certain they do not do what they did in California. He emphasized they have to remember the PSC is required to balance the interest of all the parties that appear before them. He said the PSC has not had a chance to review the documents and amendments. He testified the PSC does not support these bills which mandate a ten percent of the growth in electric demand be served by renewable sources. He mentioned the reasons are both legal and substantive. He referred to the Federal Energy Regulatory Commission ruling against the California public utility decisions on resource planning. This was where the Federal Energy Regulatory Commission claimed a violation of the public utility regulatory policy act and ordered renewable resources and other qualifying facilities must compete in a competitive bidding process including all types of resources, not just renewables. He said they were one of the first to adopt the integrated resource planning act in 1984. He testified it is a schedule of lease cost resources. He pointed out they require any electric or natural gas service project their demands out twenty years. He maintained this encourages them to come up with a mix of reliable long lived resources at the lowest cost to all the consumers. He remarked that is where they are torn between something that adds cost and something that mandates them to lower cost. He said they are required by this particular statute to keep and accept the least cost alternatives or resources. He testified the legislature has mandated them to set fair and reasonable rates. When it is mandated that one particular energy resource be afforded a percentage increase, there must be someone to give guidance in that area. He said as it stands now they are charged with the least cost concept and the fair and reasonable concept. He said once the commission approves the plan, these resources have to be deemed prudent and prudently chosen. He said the plan must be filed by all the utilities every three years. The resource plan uses a ten year historical information base and takes its projections out for twenty years. He said the plan is cut into five portions. One is low forecast, companies project a need for energy production for a certain period of time. They then give a demand size program which are conservation management programs. They then give the supply, and what type will be used, the source and what transmission and distribution lines, etc. He pointed out there is an integrated analysis that prioritizes the various choices between the various energies considered. He said all these factors are put into a computer and then an analyzation is done. He explaineed after the plan has been accepted by the commission, they operate under that plan for a period of three years. He said they may come in and modify at any time if they find the factors did not hold up during that period of time. He maintained under the IRP regulations it is required all utilities consider renewables. He said there are two types of cases that are linked together. The resource plan cases and the general rate cases. He stated after the resource plan is approved the utility can calculate its long term avoided cost. He said that is the theoretical cost of the next resource needed by the company. He mentioned they can go out and ask for bids but it must be under their projected avoided cost. Mr. McRae then discussed competition. He pointed out the companies are geared for it. He emphasized it is seriously being considered by the federal government. He testified the California utilities indicated in their complaint before the Federal Regulatory Commission that this policy had increased the cost of service and the rates to be higher than their neighboring states. He maintained they believe Nevada cannot repeat the mistakes of California, and a mandate to include a higher cost renewable will set them on that path. He declared with such a mandate they would violate the Federal Energy Regulatory Commission ruling that was just made in California, it would further violate the federal statutes established in 1970, and amended in 1972. He pointed out as technology changes, renewables will take their place along with other resource options when these costs compare favorably with these alternatives. He said their testimony before SCR 35 committee between the last legislature and this legislature indicated the renewable used in Sierra Pacific's last resource plan cost fifty seven percent more than conventional sources. He said for this reason retaining their current approach and flexibility in considering environmental factors as well as lease cost is the best public policy. They do apply the environmental effects and externalities to all of their hearings. He said Nevada should not be burdened with mandated requirements that will increase rates and therefore reduce the ability to compete. He said the bill does not contain a definition of renewable energy which does not comport with federal regulations. He testified renewables under federal regulations include hydropower. He said the bill permits pump storage projects to be considered as a renewable energy source, but only if the energy for pumping is not produced by oil, coal or natural gas. He said this requirement would forbid the pumping project operators from purchasing electricity from Nevada Power or Sierra Pacific because they use fossil fuel. He testified the avoided cost rates calculated by Sierra Pacific based on their resource plan, tested the effects of externalities on the choice of resource options and found that the externalities did not affect the choice of resources in Sierra's preferred plan and therefore its avoided cost. He mentioned this was a geothermal case. He noted they rejected that particular contract because they found it was asked of them to approve a contract that was forty five million dollars more than the avoided cost. He emphasized this is a violation of federal and state laws. He testified for them to authorize and to allow cost above avoided costs is clearly a violation of the law and that is the reason for their decision. Vice Chairman Braunlin recognized Mr. Bennett. Mr. Bennett stated the intent of this legislation is to get clean. He asked if natural gas would be a good alternative. Mr. McRae replied "yes." Mr. Bennett said they have a one point seven five in renewables and would it eat up the profit margin. He then asked what is the profit margin utilities are operating at. Mr. McRae said he should refer that question to the power companies. Vice Chairman Braunlin then closed the hearing on A.B. 380. Chairman Lambert stated they were going to re-schedule A.B. 381. Several Bill Drafts were introduced. B.D.R. No. 48-759 - Authorizes creation of groundwater replenishment district. ASSEMBLYMAN BACHE MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. NO. 48-759. MR. NEIGHBORS SECONDED THE MOTION. THE MOTION CARRIED. B.D.R. No. 31-825 - Revises provisions governing investment of state money. ASSEMBLYMAN NOLAN MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. NO. 31-825. ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION. THE MOTION CARRIED BY TWO-THIRDS OF THE COMMITTEE. B.D.R. No. 27-842 - Revises provisions governing procedure for appeal by person making unsuccessful bid for purchase by state. ASSEMBLYMAN BRAUNLIN MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. NO 27-842. ASSEMBLYMAN BACHE SECONDED THE MOTION. THE MOTION CARRIED BY TWO-THIRDS OF THE COMMITTEE. B.D.R. No. 23-800 - Revises provisions governing sick leave for state employees. ASSEMBLYMAN BACHE MOVED FOR COMMITTEE INTRODUCTION OF B.D.R. NO. 23-800. ASSEMBLYMAN NEIGHBORS SECONDED THE MOTION. THE MOTION CARRIED BY TWO-THIRDS OF THE COMMITTEE. Chairman Lambert asked for a brief synopsis on the White Pine County issue. Carole Vilardo, Nevada Taxpayers Association, discussed the meeting of the White Pine County School Board, wherein they adopted the resolution discussed by the legislature. She testified the removal of Mr. Cahill never came up. She stated he is still operating the school district. She pointed out a meeting of eleven people got together and discussed the statutes that were not adhered to, but for which there is no remedy to force them to do certain things. She asked they be able to come forth with bill introductions. She insisted they need to get Mr. Cahill removed, and an emergency measure may be needed. She emphasized they will be making weekly presentations on White Pine County and what the status is, both short term and long term. She concluded they are expecting the numbers from taxation next Monday. Chairman Lambert stated they would do a standing agenda item to discuss the bill draft requests, and a standing agenda item for updates on White Pine County as the situation develops. There being no further business, the meeting adjourned at 11:00 a.m. RESPECTFULLY SUBMITTED: Kelly Liston, Committee Secretary APPROVED BY: Assemblyman Douglas A. Bache, Chairman Assemblyman Joan A. Lambert, Chairman Assembly Committee on Government Affairs April 7, 1995 Page