MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session March 1, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Wednesday, March 1, 1995, in Room 119 of the Legislative Building, Carson City, 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 Mendoza, Chairman, Public Service Commission (PSC) Terry Page, Director of Regulatory Operations, Public Service Commission (PSC) Thomas Gallagher, President & Chief Executive Officer, Summit Engineering Corporation Dr. Walter Schwartz William Vance, Commission Secretary, Public Service Commission (PSC) Ande Engleman, Executive Director, Nevada Press Association Frederick Schmidt, Consumer Advocate, Office of Consumer Advocate, Office of the Attorney General Senator Townsend opened the meeting by announcing today's meeting would be video-conferenced to the Grant Sawyer State Office Building in Room 4401. Senator Townsend prefaced the first testimony by referring to the February 16 meeting in Las Vegas and a gave a short review for the committee. First to testify was Terry Page, Director of Regulatory Operations, Public Service Commission (PSC) who stated a resolution in concept has been established between Thomas Gallagher, President & Chief Executive Officer, Summit Engineering Corporation and the PSC. Mr. Page went on to state Mr. Gallagher's case will be heard at the scheduled meeting on March 6. Mr. Gallagher stated he is pleased, so far, with the negotiations. Mr. Page stated he feels Mr. Gallagher's concerns will be resolved no later than March 20. Next, testifying from Las Vegas, Dr. Walter Schwartz, 3249 South Torrey Pines Drive, Las Vegas, Nevada, gave his opinion regarding work by Frederick Schmidt, Consumer's Advocate and the consumer advocate's office. Dr. Schwartz gave several suggestions, stating he feels commissioners on the PSC should not be appointed by the Governor, suggesting the commissioners be elected for a term of 4 years. Dr. Schwartz gave a number of other opinions regarding public utilities. He noted the reliability of the power system is very important. Dr. Schwartz stated he thinks it is time to review the way public utilities and the PSC are handled. Senator Lowden and Dr. Schwartz had a discussion on the possibility of a surcharge to support Mr. Schmidt's activities. Testifying next, John Mendoza, Chairman, Public Service Commission (PSC), noted he had been asked to bring to the committee, PSC dockets that have been open 2 years or more and to indicate which commissioner had been assigned those dockets. Mr. Mendoza presented Exhibits C, D and E and proceeded to give an overview of these exhibits. Senator Townsend had questions regarding the length of time a particular docket is kept open. Mr. Mendoza explained it depends on the type of docket, giving an explanation. Senator Townsend questioned why some of these cases have been allowed to remain unresolved for such long periods of time and why the PSC did not take steps to bring the various situations to a speedier conclusion. Mr. Mendoza noted there are a number of reasons, stating sometimes the originator determined the problem could be resolved in-house. Senator Townsend went on to note a number of dockets still open after 9 or 10 years and again queried Mr. Mendoza for an explanation. Mr. Mendoza referred the question to William Vance, Commission Secretary, Public Service Commission (PSC). Mr. Vance explained, choosing the docket 85-1035, involved line extension of telephone lines, referred to as general rule no. 9. Senator Townsend expressed his surprise at the length of time it seems to take to resolve some of these dockets. Mr. Vance noted the rule has not been finalized and would appear to be ongoing. Mr. Vance and Mr. Mendoza gave further explanation. Mr. Mendoza stated rate cases have a time limit of 180-days, whereas ruling dockets are treated differently. Mr. Mendoza and Senator Townsend discussed various other dockets in Exhibits D and E. Senator Townsend questioned Mr. Mendoza whether there are any standards as to how long certain dockets should be open, or how to dispose of them in a timely manner. Senator Townsend asked if there are any complaints from utilities or applicants that dockets remain open too long. Mr. Mendoza stated if there are inquiries, the file is pulled to find out what problem might be. Senator Townsend questioned Mr. Mendoza: How did you deal with the rule regarding gas transmission in the utility resource plan, that I believe must be acted on in 105 days and there were 81 days of testimony. I believe the case ran close to a year. No. 1, that's outside your limits. No. 2, I think everyone involved in these proceedings will give anyone a certain amount of flexibility, but 105 days to a year is not flexible, it's outrageous. Mr. Mendoza gave an explanation about what caused the length of this particular case. Senator Townsend expressed his displeasure and confusion regarding the way in which the case had been handled. There was further discussion on the difficulties encountered on lengthy dockets, between Senator Townsend and Mr. Mendoza. Mr. Mendoza provided a lengthy explanation of reasons why some cases take so long to bring to a conclusion. Senator Neal, referring to Exhibit C, asked Mr. Mendoza if there had been any time and motion studies on case files as set up in Exhibit C. Mr. Vance stated there had not been a comprehensive time and motion study on the case management system (Exhibit C). Senator Neal continued questioning on how a case is filed. Mr. Vance gave him an explanation. Senator Neal then asked are there applications coming before the PSC that the staff can rule on as a matter of law; procedural types rather than being placed before the commission for disposition. Mr. Page stated there are no cases that can be unilaterally rejected once they make their way into the system, without getting the commission's approval. Senator Neal then asked the staff how they feel about their overall charge as a public service entity. Mr. Mendoza answered stating it is set forth by statute. The PSC is to regulate and supervise those utilities as set forth by the legislature for regulatory purposes. Referring to Exhibits D and E, Mr. Mendoza, Mr. Vance and Senator Neal had further discussion regarding the operation of the PSC. Senator Townsend inquired about Bill Draft Request (BDR) 54-894, dealing with the authorization of the PSC to limit the use of deferred energy accounting for purposes of electric capacity. Senator Townsend stated before a bill is introduced he feels any interested parties should meet with the subcommittee to come to a resolution and make changes. Senator Neal asked Mr. Mendoza for an organizational chart showing the staff within the PSC. Mr. Mendoza stated he would have one sent to Senator Neal. Mr. Mendoza stated the PSC will appreciate help with a critique of the PSC. Senator O'Connell, referring to Nevada Power, questioned Mr. Page regarding the triple B bond rating. Mr. Page gave a detailed explanation with possible causes. Senator Lowden asked if rating companies look at an earnings increase, is there also the possibility of a rate increase. Mr. Page again gave an in- depth explanation. Senator Lowden and Mr. Page continued with a discussion on a question of ethics and "inside information" that could be a concern. Mr. Page gave a detailed summary on the subject of bond ratings and the part Wall Street and financial analysts have in determining bond rates. Senator Townsend stated the committee needs to become familiar with procedures for bond rating and ask the question "What kind of role does a regulatory body have, if any, in management decisions." Senator O'Connell noted to Mr. Page, she feels a point of prime importance in the picture of raising the bond rating for utilities with a triple B rating, is how cooperative the PSC is going to be in helping with the financial picture. Senator O'Connell stated for the record: What you have stated is that you have encouraged the people on Wall Street, you are working with management and you feel positive about what is going on, so perhaps in the next rating..... Senator O'Connell asked Mr. Page when the next rating is determined, to which he replied at least twice a year, each one of the rating agencies issues an opinion whether they recommend to hold or sell or other positions. Senator O'Connell and Mr. Page had further conversation considering various aspects of bond rating. Senator O'Connell asked: Would it be a fair statement that the way the regulatory body responds to the business and the financial risk of the utility is going to be a very great part of their credit. Mr. Page replied: There is no question you are right, senator. That is going to affect both the rating of the commission and that is going to affect whether or not the commission provides favorable rate awards, as they are asked for in the earnings that will translate into the bond ratings. Senator O'Connell stated everyone needs to do everything that can to be done to be helpful and cooperative in working to help utilities with a triple B rating. Senator O'Connell noted eventually the rate payer will be the loser. Mr. Page agreed, noting eventually the fact that higher rates have to be paid on bonds of this nature, will affect rates to the consumer. Senator Townsend then asked Mr. Mendoza to testify, presenting Exhibit F. Mr. Mendoza continued with a detailed explanation, noting this involved the rulemaking on telecommunications. Senator Townsend and Mr. Mendoza went on with a detailed discussion on the hearing process, again referring to Exhibit F. Senator Townsend asked Frederick Schmidt, Consumer Advocate, Office of Consumer Advocate, Office of the Attorney General, if he has participated in the negotiation process. To which Mr. Schmidt answerd "yes." Senator Townsend noted he would rely on the fact that this particular item of business would be handled with dispatch. Mr. Mendoza stated he feels the business at hand will go forward expeditiously. Senator Townsend expressed concerns regarding the length of time that seems to be needed for the hearing process. Senator Townsend continued: We are going to be watching very closely and if a commissioner asks a question that is completely out of line based on the fact that you have all the parties at the table. That to me is dragging out the situation and that is the last thing any of us want to hear, because I believe the public is going to be well served in a competitive environment and the longer we drag this out, the longer they have to wait for decent competition to deal with telecommunications. Mr. Mendoza stated he is very aware of the concern of not only the industry, but of the committee and indicated everything would be done to move the rulemaking process for telecommunications along. Mr. Mendoza and Senator Townsend had further discussion on this particular hearing. Senator Townsend again expressed concerns regarding the hearing length. Mr. Mendoza gave further explanation and noted this particular rule has been passed as a proposed rule and the PSC is now asking for comments from the industry and the general public. Senator Townsend stated: What concerns me is there will be additional questions from the commission that would then drag this out. Mr. Mendoza replied, "If you change one word that has a substantial effect on that section, we are required by statute to re-notice it. Senator Townsend stated: Let me make this clear, if you change one word, which is your right, you have a right to do that because that is what you are hired to do, then most likely this committee will introduce the bill which you do not want, because it really belongs in your jurisdiction. I just want to be absolutely clear so you don't get blindsided. This belongs in your jurisdiction, not in statute, but you can only wait so long, you can only do so much, you can only have so many parties meeting for so long, then you have to make a decision and there is nothing more frustrating for the public, or investor, or utilities and Mr. Schmidt's office. The bottom line is we have to move this process along and I'm not going to leave here and this committee is not going to leave here until we have a resolution, either by you, or by statute. Mr. Mendoza noted the commission had opened the rulemaking on telecommunications docket then waited for 9 months to receive the proposal from the telecommunications industry. He stated he feels the commission has moved expeditiously. Senator Townsend stated he realizes this, however, he feels a decision needs to be made. Senator Neal asked what public purpose there is for the telecommunications rule. Mr. Mendoza replied the concept is to change the method of regulation to allow competitive markets to be involved in this industry. Senator Townsend and Mr. Page had further discussion with Mr. Page giving clarification. Senator Townsend requested information regarding the possible downsizing of the PSC staff and inquired what provisions are being made for those whose positions might be eliminated. Mr. Page stated it is his goal to see that no one is displaced. Mr. Mendoza reiterated that every effort is being made to have these people placed in other state service. Senator Townsend stated the committee has concerns regarding the language that created the office of consumer advocate, noting it is quite limited regarding his jurisdiction. Senator Townsend went on to note there are small businesses who do not have the time or facilities to represent themselves at a rate hearing. Ande Engleman, Executive Director, Nevada Press Association, testified referring to information previously distributed to the committee in the form of graphs, showing the amount of business each utility does with small business. Ms. Engleman stated she envisions a way for small business people to take their concerns to an attorney or economist in the office of the consumer advocate to relay their viewpoint. Ms. Engleman noted the PSC has recognized the lack of input from the small business person. She went on to note there is a good deal of support for this issue. Mr. Schmidt came forward to express his views, stating he did have substantial authority to represent different interest groups. Mr. Schmidt declared the frustration is, he is not able to represent each individual case. He stated he does not have the facilities or resources to represent either the individual small business or the individual residential customer separately. Senator Townsend requested budgets from Mr. Schmidt to cover extra personnel. Referring to Exhibit F, there was further discussion between Mr. Page, Mr. Schmidt and Senator Townsend. There being no further business, the meeting adjourned at 10:30 a.m. RESPECTFULLY SUBMITTED: Beverly Willis, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor March 1, 1995 Page