MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session February 16, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Thursday, February 16, 1995, in Room 2609 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Beverly Willis, Committee Secretary Scott Young, Senior Research Analyst OTHERS PRESENT: John F. Mendoza, Chairman, Public Service Commission (PSC) Judy Sheldrew, Commissioner, Public Service Commission (PSC) Galen Denio, Commissioner, Public Service Commission (PSC) Terry Page, Director, Regulatory Operations, Public Service Commission (PSC) Charles Lenzie, Chairman of the Board, Chief Executive Officer, Nevada Power Company Charles Silvestri, Director, Consumer & Community Relations, Southwest Gas Corporation Edward Zub, Vice President, Rates and Regulation, Southwest Gas Corporation Walter Higgins, Chairman, President & Chief Executive Officer, Sierra Pacific Resources and Sierra Pacific Power Company Frederick Schmidt, Consumer's Advocate, Office of Advocate for Customers of Public Utilities, Office of the Attorney General John Wellinghoff, Former Consumer's Advocate Ande Engleman, Executive Director, Nevada Press Association Thomas Gallagher, President & Chief Executive Officer, Summit Engineering Daryl Capurro, Managing Director, Nevada Motor Transport Association Chairman Townsend opened today's meeting by stating testimony from the Public Service Commission (PSC) would be giving a general outline of current statutes under which the commission operates. First to testify was John F. Mendoza, Chairman, Public Service Commission (PSC), who presented Exhibits C, D, and E. Mr. Mendoza gave a short overview on duties of the PSC. He stated the PSC is required by law to wear different hats. In rate cases or contested hearings they would wear the hat of judge. They will wear the hat of legislator when proposing rules under statutes. Through regulatory operations staff, the PSC operates as an administrative body in the executive field. Mr. Mendoza went on to say the PSC regulates all gas, electric, telephone and trucking companies, as well as being involved in railroad safety. The PSC also regulates small non-municipal water companies. Regulations cover geographical areas and quality of service. Complaints generally go through the consumer division. The commission is divided in the policy side. Mr. Mendoza noted when the commissioners sit in a judicial role they cannot communicate with any staff, thus, the need for the policy side. By way of explanation, Mr. Mendoza, referred to Exhibit C, the ex parte provisions. Nevada Revised Statutes NRS 233B.126 provides that, with limited exceptions, in a contested case, neither commissioners nor their immediate staff may "communicate, directly or indirectly, in connection with any issue of fact, with any person or party, nor, in connection with any issue of law, with any party or his representative, except upon notice and opportunity to all parties to participate." At this time, Mr. Mendoza continued his explanation. Mr. Mendoza stated when a request is made, i.e., a rate increase, the commission is mandated to have an answer within 180 days. If the case is not decided within the 180 days, the requesting utility gets everything for which they have asked. Mr. Mendoza continued with his explanation regarding the regulatory process. Senator O'Connell asked how the public is notified of hearings. Mr. Mendoza replied by notice in the newspaper, noting as much information as possible is given. Mr. Mendoza, referring to Exhibit E, gave further explanation. Senator Townsend asked for explanation regarding the regulatory operations staff and the relationship with the consumer advocate. Senator Townsend went on to note there are those who philosophically have questions about the regulatory staff's role in the process, simply because of its independent nature and its intervention. Mr. Mendoza stated when there is a judicial requirement a staff is needed in order to present information since chairman/judge cannot. Otherwise the chairman/judge would become judge and jury. That situation would be unacceptable because of due process requirements. Mr. Mendoza noted with the rule in mind, the administrative procedure act was devised, setting up the procedure in force at this time, the ex parte rule. He noted staff has to handle every case submitted for consideration. Further discussion between Senator Townsend and Mr. Mendoza took place. Senator Townsend voiced further concerns regarding the regulatory operations staff. At this time Senator Neal asked for further clarification regarding regulatory operations. Judy Sheldrew, Commissioner, Public Service Commission (PSC), was next to testify. Ms. Sheldrew presented Exhibit F and gave an explanation. Referring to Exhibits F, G and H, Senator Townsend, Senator Neal and Ms. Sheldrew carried on an in-depth discussion. Mr. Mendoza stated the next topic of testimony would be on retail wheeling. Galen Denio, Commissioner, Public Service Commission (PSC), came forward to testify. Senator Townsend asked Mr. Denio for testimony on efforts made internally in preparation for retail wheeling. Senator Townsend stated there would be another opportunity for this topic. Mr. Denio noted his intention was to give an overview. He went on to note there have been major discussions in other countries, as well as the United States, on the restructuring of the electric industry. Mr. Denio stated the subject of retail wheeling involved the gas industry as well as the electric industry. He went on to state there had been several work shops on retail wheeling. Senator Neal noted retail wheeling had been allowed and was curious to find what position this placed others who might wish to take advantage of retail wheeling. Mr. Denio gave information regarding the company already empowered to use retail wheeling. Senator Townsend joined in to give clarification of this subject. Senator Townsend made reference to Exhibit I, presented by Mr. Mansel Phillips (Mr. Phillips did not testify.). Senator Shaffer asked if retail wheeling is similar to deregulation of gas companies. Mr. Denio stated there are similarities. Senator Neal asked for an inquiry into the issue of the company where retail wheeling has been allowed to check for the legality of this situation. Mr. Denio noted there are some states who are experimenting with this issue. Mr. Mendoza, Senator Shaffer, Senator O'Connell and Mr. Denio entered into further discussion. Senator O'Connell asked for information on states who had rejected retail wheeling and the reasons why, along with information on states who have accepted it, with their reasons. Mr. Mendoza then addressed resource planning for Nevada. He stated this is a procedure for establishing a business client. Resource planning tries to combine schedules for lease cost resources from projected demands from electric and natural gas services and project the plan for a period of 20 years. This is to try and have the utilities think about their needs for the future. It is required the plan be accepted or rejected within 135 days. Every resource plan uses a 10-year historical base of information. It is then projected for the next 20 years and modified every 3 years. There are five parts to this plan. The first is a load forecast, projecting the demand for all classes. Next is a conservation program. The supply-side plan, including new generation, is next. Companies use models to forecast supply and demand. After the plan is written, the commission monitors the plan. Mr. Mendoza then gave further explanation. Senator Neal questioned Mr. Mendoza as to benefits for the public. Mr. Mendoza replied essentially the commission is looking for the least cost to the consumer. Senator Neal and Mr. Mendoza had further discussion on the issue. Senator Neal reiterated his question regarding benefit to the public. At this time, Terry Page, Director Regulatory Operations, Public Service Commission (PSC), entered into the discussion. Mr. Page stated he feels the plan and the subsequent hearings gives the public and the companies protection, as well. Mr. Page gave examples. Next to testify, Charles Lenzie, Chairman of the Board, Chief Executive Officer, Nevada Power Company, gave history and needs of Nevada Power Company. Mr. Lenzie stated Nevada Power Company is one of the fastest growing power companies in the nation. Mr. Lenzie went on to note financial demands on his company. Mr. Lenzie touched briefly on retail wheeling. He went on to note many large users of electricity subsidize smaller customers. Although Mr. Lenzie had praise for the resource planning act, he also had some reservations, as he stated he felt a look should be taken at the confidentiality of the resource planning act. Mr. Lenzie had further concerns regarding financing of future projects. Mr. Lenzie answered Senator Shaffer's question regarding a new turbine being built, noting the turbine is a Nevada Power Company project as opposed to a private project. Answering to several questions posed by Senator O'Connell, Mr. Lenzie gave a detailed explanation regarding finances. Charles Silvestri, Director, Consumer & Community Relations, Southwest Gas Corporation, gave a short history and overview of Southwest Gas Corporation. Mr. Silvestri introduced Edward Zub, Vice President, Rates and Regulation, Southwest Gas Corporation, who gave comments on deregulation as it pertains to Southwest Gas. Mr. Zub went on with statements regarding several bills Southwest Gas hopes to introduce. Among his concerns are confidentiality and competition. Specifically, Mr. Zub is concerned about confidentiality of employee records and personnel files, when dealing with the Public Service Commission. Senator Neal questioned Mr. Zub regarding confidentiality of employee records that are already covered by law. Mr. Zub replied by law there is protection of personnel files, however, under regulations of the Public Service Commission all records are open for review, which includes records of the employees. Mr. Zub went on to state Southwest Gas Corporation does support the five member Public Service Commission. In summary, Mr. Zub stated: We as the gas utility could go into the future on our own, or we can work in a partnership with the Public Service Commission with you the senators, the policy makers of this state and hopefully, the benefit of all of that, the end result, is the consumer, or the customer will benefit. Also, something that is critical to us and it was talked about briefly this morning, was the 180 day time period, or the time that is devoted to the processing of a rate case. That is one of the best rules in the State of Nevada and across the nation, to have that 180-day rule. To extend that period of time also throws us against the ability to compete with the third party that is coming here. I would ask in your consideration of solutions not to extend that 180- day time period. Next to testify, Walter Higgins, Chairman, President & Chief Executive Officer, Sierra Pacific Resources and Sierra Pacific Power Company. Mr. Higgins stated the committee is dealing with a number of issues that are complex and long lasting in their effect on the economy and citizens of Nevada. Mr. Higgins explained his company is a utility company that is in three different businesses. The electric company serves the northern part of Nevada and the Lake Tahoe area of California. Sierra Pacific is a gas distribution company as well as a water distribution company, located in the Reno/Sparks area of Nevada. Sierra Pacific has received, after environmental reports are approved, permission from the Public Service Commission, to begin construction of a natural gas pipeline coming from Oregon through Northern California, terminating outside Reno. Mr. Higgins noted the electric industry is going through a transformation. Mr. Higgins noted the electric industry is faced with competitive challenges. Mr. Higgins gave several examples of what other states are going through. Mr. Higgins stated he feels the committee should give the PSC the flexibility, after being sure public interest is protected, to allow a utility to negotiate directly with an occasional company for rate adjustments. Mr. Higgins noted the rates on all three utilities, of Sierra Pacific are frozen untill 1997. He stated this puts the burden on his company to hold rates in line, and makes a statement about the kind of company they want to be. Mr. Higgins went on to state other policies Sierra Pacific is working on to benefit the customers. Mr. Higgins noted it is his feeling that Sierra Pacific, since it is a combined natural gas and electric utility company, are more able to meet customer's needs. He stated Nevada has a well planned, well thought out resource planning rule. Mr. Higgins then gave his views on retail wheeling. Mr. Higgins stated, "Anything we do relative to changing the competitive nature of the industry, ought to be done with the mind to making a level playing field." He went on to state, "any thinking about retail wheeling needs to be in the context of continuing system reliability." Mr. Higgins noted there are important federal issues to be taken into consideration in any discussion of retail wheeling. Mr. Higgins stated he would urge an interim study be made that Sierra Pacific would support and participate such a study. Frederick Schmidt, Consumer's Advocate, Office of Advocate for Customers of Public Utilities, Office of the Attorney General, started his testimony with an overview of the consumer advocate and the consumer advocate's office. Mr. Schmidt gave some changes and savings initiated by the consumer advocate. Senator O'Connell queried Mr. Schmidt regarding the budget for his office. Mr. Schmidt replied the budget for this year is about $1.2 million; the proposed budget by 1997 would be just under $1.4 million. Senator O'Connell then asked for the amount of money he felt rate payers had been saved for the year 1994. Mr. Schmidt stated approximately $6.8 million. Senator O'Connell and Mr. Schmidt had further discussion regarding savings to consumers. Mr. Schmidt stated he feels there have been many successful negotiated settlements recently which does generate savings. Mr. Schmidt went on to describe an important function of his office called rate design. Rate design is the process of allocating costs among different groups of customers who are similar. Mr. Schmidt stated he represents all customers old and new who come into Nevada. These he calls the residential class. He went on to state he often speaks for small commercial class customers. Mr. Schmidt stated these two categories are those he most commonly represents. Next, Mr. Schmidt addressed the topic of retail competition. He stated the issue of competition needs to be handled very carefully in order to avoid severe winners or losers. Mr. Schmidt then gave an explanation of deferred energy and who might benefit. Senator O'Connell asked for further explanation on how deferred energy could affect both customers and utility companies. Mr. Schmidt answered with a detailed explanation. Senator Townsend inquired about the possibility of a bill on deferred energy. Mr. Schmidt stated he thought one might be offered and if none was forthcoming, he would have one of his own. John Wellinghoff, Former Consumer's Advocate, was next to speak. Mr. Wellinghoff noted retail wheeling is not in effect any place in the country at this time. Mr. Wellinghoff's next point regarded energy efficiency. He then gave his views on this subject. He encouraged the committee to evaluate a bill to implement an energy efficiency program. Ande Engleman, Executive Director, Nevada Press Association, started her testimony by reading the first two paragraphs of Exhibit J. A primary concern of Ms. Engleman's is the proposed cut of PSC members from five to three. Ms. Engleman went on to expand with further explanation of Exhibit J. Other concerns voiced by Ms. Engleman are presented in Exhibit K. Thomas Gallagher, President & Chief Executive Office, Summit Engineering, stated he came to testify because of experiences he had encountered with the PSC. He made it clear, however, he was not directing his comments at the commissioners, or the immediate staff. Mr. Gallagher stated he is the managing general partner of Pacific Exploration and Research Center (PERC), a partnership between Sierra Pacific Resources and Eco- Vision, formed to perform water exploration and production in Nevada, a non-regulated entity currently involved with the PSC. Mr. Gallagher went on to note other concerns; i.e., duplication of efforts by the staff and specifically lack of direction. Mr. Gallagher presented Exhibit L and expanded on his concerns. Senator O'Connell asked for the cost, so far, for dealing with the PSC. Mr. Gallagher replied an estimate would be in the tens of thousands of dollars. Senator Townsend asked for a copy of Mr. Gallagher's testimony to be given to the PSC. Daryl Capurro, Managing Director, Nevada Motor Transport Association, a trade association representing the trucking industry operating in and through the State of Nevada, spoke next. Mr. Capurro indicated his concern is state preemption of intra-state regulation charged by the federal Congress. Mr. Capurro stated his organization have been champions of the issue of regulation of the industry for years. He went on to note there is no regulation on a very large portion on the intra- state transportation of property. Mr. Capurro asserted there is a need to examine the possibility of lessening regulatory requirement on those companies that have, in essence, been deregulated. Mr. Capurro stated for the record: We are in full support of continued regulation by the Public Service Commission of household goods' movers and of the passenger carriers that have traditionally been regulated by the state. Additionally, we support their [PSC] decision to continue regulation on tow cars, even though it was not specifically exempted under the preemption language. Mr. Capurro commented his organization recommended to the PSC to continue regulation until such time as a court or the legislature told them they were no longer involved in that regulatory process with tow cars. According to Mr. Capurro, he feels a decision by this legislature has to be whether or not regulation is to be continued. Mr. Capurro asserted a change is needed in regulatory structure. Mr. Capurro stated he feels: "There should be as little interference with respect to the operation of intra-state transportation of property as is possible to achieve." Mr. Capurro attested any legislation should include some transfer of authority to the Department of Motor Vehicles and Public Safety. Mr. Capurro went on to state: "We believe those industries that were deregulated by the federal preemption should answer only to one master, the Department of Motor Vehicles and Public Safety, the Highway Patrol, Commercial Division." He went on to state the committee might want to address the possibility of moving the Taxicab Authority out of the Department of Business & Industry into the PSC. Next, Mr. Capurro addressed the issue of reduction of propane tax, giving an explanation. There being no further business, the meeting was adjourned at 1:10 p.m. RESPECTFULLY SUBMITTED: Beverly Willis, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor February 16, 1995 Page