MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session April 25, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Tuesday, April 25, 1995, in Room 227 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 Vance Hughey, Senior Research Analyst OTHERS PRESENT: Pat Coward, Lobbyist, Nevada Association of Realtors Scott Craigie, Lobbyist, Sprint Central Telephone Fred Schmidt, Consumer Advocate, Office of Advocate for Customers of Public Utilities, Office of the Attorney General Ande Engleman, Open Government Advocate Al Snyder, Energy Manager Harrah's, Nevada Electric Power Consumers (NEPC) Alvin Alexanderson, Vice President Regulatory Affairs, Marketing, Portland General Corporation Richard Davis, Director, Wholesale Marketing & Supply, Portland General Electric Robert Barengo, Lobbyist, Nevada Electric Power Consumers Bob Reeder, Advisor to Member Company, Nevada Electric Power Consumers Barbara Barkovich, Principal, Barkovich & Yap, Inc., Nevada Electric Power Consumers Dennis Peseau, President, Utility Resources, Inc., Nevada Electric Power Consumers Senator Townsend opened the meeting with the introduction of Bill Draft Request (BDR) 54-396. BILL DRAFT REQUEST 54-396: Revises duties of certain persons who are acting in the capacity of agent parties of real estate transaction. Pat Coward, Lobbyist, Nevada Association of Realtors, came forward to give an explanation noting BDR 54-396 should help with full disclosure in any real estate transaction. Senator O'Connell noted her husband has a broker's license; however she did not feel this would affect her situation monetarily. SENATOR O'CONNELL MOVED TO INTRODUCE BDR 54-396. SENATOR REGAN SECONDED THE MOTION. THE MOTION PASSED. (SENATOR AUGUSTINE WAS ABSENT FOR THE VOTE.) * * * * * At this time, the hearing was opened on Senate Bill (S.B.) 343. SENATE BILL 343: Revises provisions governing examination of employment records and personnel files of employees of public utilities, motor carriers or brokers. Scott Craigie, Lobbyist, Sprint Central Telephone, was first to testify on S.B. 343, introducing Exhibit C. Mr. Craigie stated he has concurrence on the language from Fred Schmidt, Consumer Advocate, Office of Advocate for Customers of Public Utilities, Office of the Attorney General. Next to testify, Ande Engleman, Open Government Advocate, presented a proposed amendent for S.B. 343 (Exhibit D) noting this language will be in addition to any other language. Ms. Engleman gave a detailed explanation of Exhibit D. Ms. Engleman, answering questions posed by Senator O'Connell, explained her proposed language (Exhibit D) is an exemption to the open meeting law for the Public Service Commission of Nevada (PSC). Ms. Engleman stated she is trying to introduce checks and balances in the law to guard against abuse. At this time, Mr. Schmidt expressed concerns regarding Exhibit D. Senator Townsend, Mr. Schmidt and Mr. Craigie continued with their discussion, referring to Exhibit C and Exhibit D, regarding proposed language for an amendment to S.B. 343. Senator Lowden stated she feels language presented by Mr. Craigie in Exhibit C and portions of Ms. Engleman's presentation (Exhibit D), should be used to amend S.B. 343. SENATOR LOWDEN MOVED TO AMEND AND DO PASS S.B. 343 USING PROPOSED NEW LANGUAGE BY MR. CRAIGIE AND LANGUAGE PRESENTED BY MS. ENGLEMAN MAKING IT CLEAR THE CONSUMER ADVOCATE MAY BE IN ATTENDANCE AT ALL IN CAMERA PROCEEDINGS SINCE CLOSED HEARINGS COULD INCLUDE PERSONNEL HEARINGS AT THE PUBLIC SERVICE COMMISSION OF NEVADA UNDER NEVADA'S OPEN MEETING LAW. SENATOR NEAL SECONDED THE MOTION. THE MOTION PASSED UNANIMOUSLY. * * * * * Al Snyder, Energy Manager Harrah's, Nevada Electric Power Consumers (NEPC), presented an introduction to Retail Wheeling (Exhibit E); noting an overview of how electric utilities function to the retail wheeling environment, what open access means and how it can fit in with Nevada's existing electric power facilities, as well as some major issues involved. Mr. Snyder introduced Alvin Alexanderson, Vice President Regulatory Affairs, Marketing, Portland General Corporation and Richard Davis, Director, Wholesale Marketing & Supply, Portland General Electric. Mr. Alexanderson presented Exhibit F (The original is on file in the Research Library.), Exhibit G, H, and Exhibit I. Mr. Alexanderson gave a history on his company and presented various slides. Mr. Alexanderson noted his company "is making sales to end users where another utility is making the final delivery of our power. So we are retail wheeling today, we are a supplier to firms who have this option available to them." Mr. Alexanderson continued, noting his company would like to become a valued supplier to Nevada electric customers. He stated his company is not supporting any particular direct access proposal, stating this is a state by state issue, noting his company feels some form of direct access is inevitable and will bring benefits for consumers. Mr. Alexanderson gave a definition of retail wheeling, or direct access: Electric service includes generation, transmission, delivery and customer or account billing services. Direct access, as I use the term, simply means that customers can choose their generation or bulk power supplier. Customers would continue to receive the other services from the currently serving utility. The issue boils down to, do customers shop for generation services, or does their local utility do all the shopping for them. At this time, Mr. Alexanderson referring to Exhibit G, gave an explanation of a future electric bill. He continued with an explanation of Exhibit G. Mr. Alexanderson stated direct access and choices customers make might make change which generators are operating at a given time, which could have effects on transmission loadings. Mr. Alexanderson outlined situations in Oregon which leads him to believe direct access will be available in that state in the near future. At this time, Mr. Davis testified asserting he planned to continue with education on retail wheeling. Mr. Davis reiterated he feels the real issues are public policy issues, not questions on engineering or reliability. Mr. Davis stated he feels there are three main issues. What is reliability under retail wheeling, what is the availability of power and how pricing occurs in a retail wheeling environment. Referring to Exhibit G, Mr. Davis went on with an explanation of planning to deal with contingencies that may be caused by problems within the system. Answering a question from Senator Augustine regarding the status of retail wheeling in Oregon, Mr. Davis stated, "there is no allowed retail wheeling in Oregon." Mr. Davis went on to note there have been some sales to direct service in Washington state, however, the California market is not open at the direct access level. Mr. Davis, again referring to Exhibit G, continued with his explanation, specifically outlining the workings of Portland General Corporation. Senator Shaffer inquired if there is power purchased that is generated through nuclear power plants. Mr. Davis replied there is a small amount. He went on to note his company's location between northern and southern markets puts them in a good position to purchase power off of a secondary market. Mr. Davis stated a great deal of reliance is placed on the secondary market. Citing the last chart of Exhibit G, Mr. Davis continued his discussion. Senator Regan queried Mr. Davis for an explanation of how retail wheeling might protect the smaller counties, as opposed to major power users, i.e., larger counties. Robert Barengo, Lobbyist, Nevada Electric Power Consumers, came forward to note this subject is to be covered during the remainder of the meeting. However, Mr. Davis gave a short explanation, noting service to smaller customers might well be a little higher. Senator Neal, Mr. Alexanderson and Mr. Davis held a discussion regarding various facets of pricing as it relates to buying and selling power, with further reference to Exhibit G. The discussion continued with comments concerning the responsibility of the power company when they make a contract to sell to an end user and it is delivered by another customer. Mr. Snyder then introduced Bob Reeder, Advisor to Member Company, Nevada Electric Power Consumers who presented Exhibit J. Mr. Reeder gave a definition of the Federal Energy Regulatory Commission (FERC) an agency created by Congress which has jurisdiction over transmission of electricity in interstate commerce and the wholesale sale of power. Mr. Reeder explained wheeling is the transportation of electricity over wires. Referring to Exhibit J, Mr. Reeder gave a detailed explanation. Mr. Reeder continued with Exhibit J explaining "bundled" and "unbundled" product. He then explained "PURPA" - Public Utilities Regulatory Act of 1978 and "EPACT" - Energy Policy Act of 1992. Again citing Exhibit J, Mr. Reeder stated cost based rates and market pricing are two ways for generation pricing. He went on to explain most people think electric power generation is a commodity and as such, commodity rules ought to apply; thus, if commodity rules apply the lowest price will be obtained. Mr. Reeder noted, however, there are other factors involved and went on to explain. He went on to comment on the patchwork pricing system, also jurisdiction over rates from Exhibit J as well. Mr. Reeder continued with a detailed explanation of pricing and jurisdiction, buy-sell transactions, functional unbundling, assignment of stranded costs, jurisdictional declaration for stranded costs and open access transmission availability. Mr. Reeder stated individual states will need to determine whether or not to mandate retail wheeling. He went on to note the state (Nevada) will have to make the decision with respect to mandatory retail wheeling or voluntary retail wheeling. Alluding to section 20 of Exhibit J, Mr. Reeder gave the forecast of what may take place in the future concerning retail wheeling. Mr. Reeder continued: When consumer advocates recognize the difference between the costs of power in the competitive market and the costs of power in the regulatory market they (consumer advocates) will become the driving force for retail wheeling. Answering Senator Shaffer's question concerning who maintains the system if municipalities opt for retail wheeling, Mr. Reeder stated, "the transmission system from the generator to the municipal will remain owned by whoever built it. Within the municipality it becomes the obligation of the municipal." Senator Lowden and Mr. Reeder discussed various ways counties are able to start retail wheeling. Senator O'Connell, Senator Neal and Mr. Reeder continued the discussion on availability and pricing. Mr. Snyder then introduced Barbara Barkovich, Principal, Barkovich & Yap, Inc., Nevada Electric Power Consumers. Ms. Barkovich started her comments with reasons many of her clients believe retail wheeling is important and wholesale competition is inadequate. Ms. Barkovich noted a similar type of operation works well in California with the natural gas industry and states she feels it should work with electric power, as well. She gave many examples of a number of groups located in California who support direct access. Ms. Barkovich stated she feels the introduction of more competition does not mean there will be shortages. She went on, noting she feels when markets open up, very often more than ample means of transportation are built and available. Ms. Barkovich went on to state California has public policy programs implemented through utilities; i.e., programs for low-income customers, energy efficiency programs, discounted bills, noting if necessary these bills will be able to be implemented through a retail wheeling context. At this time, Mr. Snyder introduced Dennis Peseau, President, Utility Resources, Inc., Nevada Electric Power Consumers, who stated his firm has been hired for an in-depth financial technical study of Sierra Pacific Power and Nevada Power. Mr. Peseau stated retail wheeling nationally will bring on some very big winners and some very big losers. Mr. Peseau stated, "I want to address specifically whether shareholders in Nevada are going to be winners or losers." Mr. Peseau went on to state: In 3 years all the questions, technical aspects, financial considerations we are concerned with today will have been answered as they have with the natural gas and telecommunications industries. [The] open access competitive system will be a reality, consumer choice will be across the country and electricity in Nevada will be cheaper and will be more reliable. He continued, noting a concern of many is how quickly Nevada should act. Mr. Peseau proceeded: The principal reason why you (Nevada) should consider acting sooner rather than later is because of your proximity to the largest power market in the country, California. Not only is it the largest, it is one of the most expensive and it is a very lucrative market for those with below average cost power. When California opens up big-time, it may be more difficult for persons in Nevada to get the Portland Generals [Portland General Company] and some of the other utilities here to speak with you. Mr. Peseau stated he feels California may have problems in transition to the new market system; however, he feels this is not the case for Nevada utilities. Mr. Peseau presented Exhibit K, continuing with his explanation. He went on to note the two investor owned utilities in Nevada have below average rates, stating this is important for determining who is going to win and who is going to lose. Mr. Peseau proceeded to explain various facets of Exhibit K. Senator Augustine, Senator Neal and Mr. Peseau discussed several financial aspects, including amortization, pertaining to the advantages and disadvantages of retail wheeling. Mr. Peseau continued, giving a short explanation on stranded subsidy, alluding to Exhibit K. He asserted utilities, naming Nevada Power specifically, noting Nevada Power has a large stranded subsidy, are concerned if they (utilities) lose their higher- profit-margin customers, typically larger customers who pay a subsidy to the benefit of residential and smaller commercial customers; who is left to pick up the subsidy of these residential customers. Mr. Peseau noted this is an important point that must be considered. Again, referring to Exhibit K, Mr. Peseau offered explanations and possible solutions. Mr. Peseau summarized, stating he feels retail wheeling will be good for all. He went on to note if action is taken early, before California, there is the possibility of extraordinary rate reductions. Senator O'Connell, Senator Shaffer and Mr. Peseau discussed benefits and pitfalls that might be obtained from early entry of Nevada into the retail wheeling market. Senator Neal and Mr. Peseau discussed further hazards that might be connected with retail wheeling. Answering a question posed by Senator Neal who asked if antitrust laws might pertain to companies involved in retail wheeling, Mr. Reeder's answer was "yes." Mr. Reeder continued his explanation. Senator O'Connell questioned Mr. Reeder why companies might be willing to have a state act quickly when jurisdiction and regulations are not yet known. Mr. Reeder noted money to be saved and the advantage of being first. There was further discussion between Senator Regan and Mr. Reeder. In answer to several questions posed by Senator Townsend, Mr. Reeder and Mr. Alexanderson held further discussions concerning rate structure and ways of selling power if Nevada were to opt for an alternative power source at this time. Senator O'Connell, noting southern Nevada has a low electric rate, inquired how rates for that area might be affected if power were to be obtained at this time from companies utilizing retail wheeling. Continuing with further opinions and explanations, Mr. Reeder noted with competition lower costs may result. At this time, Mr. Peseau entered the conversation with his opinion. Senator Neal and Mr. Reeder carried on with a discussion regarding the contents of any proposals that might be generated from the committee. Referring to chart 19 of Exhibit J, Senator Neal expressed concerns regarding any proposals that might be made and whose jurisdiction will be primary. Mr. Reeder continued, "you can craft a solution that gives to the residents of the state of Nevada the best opportunity to enjoy the advantage competition brings in the competitive market. You may have to pare back.......but, at this point, there is nothing that keeps you from designing the Nevada solution." There being no further business, the meeting was adjourned at 12:25 p.m. RESPECTFULLY SUBMITTED: Beverly Willis, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor April 25, 1995 Page