STATE OF NEVADA
OFFICE OF THE ATTORNEY GENERAL
BUREAU OF CONSUMER PROTECTION

1000 East William Street, Suite 200
Carson City, Nevada 89701

FRANKIE SUE DEL PAPA, Attorney General

THOMAS M. PATTON, First Assistant Attorney General

Telephone (775) 687-6300, Fax (775) 687-6304
WEBSITE: http://www.ag.state.nv.us
E-Mail: bcpinfo@ag.state.nv.us

TIMOTHY D. HAY, Chief Deputy Attorney General

NANCY WENZEL, Senior Deputy Attorney General

May 30, 2001

To the Honorable, The Nevada State Senate:

I am writing to urge you to oppose Assembly Bill 661 ("AB 661"), the so-called "Repower Nevada" legislation. The purpose of this legislation is to ostensibly bring new electric generation to Nevada by allowing an exclusive group of large utility customers to leave their current utility provider and purchase power from new and/or unregulated power providers. This bill would also allow Nevada’s regulated utilities to partner with unregulated firms to build new power plants or retool existing power plants, effectively removing a portion of these existing generating assets (which have been paid for by ratepayers through the years) from regulatory oversight by the state.

Throughout this legislative session, our office has struggled for ways to accommodate the requests of the large industries that have sought this legislation. Notwithstanding a number of serious policy considerations, we concluded as early as the final deliberations of the Governor's Energy Policy Task Force that as long as the opportunities to leave the current system were extended to all customers of the existing utility providers, we could support the concept if it brought new generation supplies to Nevada. However, as amended, AB 661 excludes all average Nevada consumers from the opportunity to leave the system, even if aggregated as a large group. Unfortunately, as the bill stands now, our office sees little in the legislation that will clearly benefit residential consumers, and many risks that could affect them adversely, as is often the case with special interest legislation.

There are several reasons this bill, as presently drafted, is not good for Nevadans. First, AB 661 is patently unfair because it excludes residential and small business customers from having the same opportunities as the large gaming, mining and industrial customers. By aggregating their loads, small customers and/or small businesses could be just as attractive to unregulated power providers as the large users. There is absolutely no reason to preclude aggregated groups of small customers from enjoying the same potential opportunities as the large customers, if the concepts underlying Repower Nevada are truly sound public policy. In fact, the legislation as presently drafted permits the large (and low cost) industrial users to leave the utility, and forces the remaining, captive customers to pick up what easily could be increased system costs occasioned by the departure of the large, high volume, base load customers.

In enacting AB 369 just two months ago, Nevada's lawmakers wisely -- and virtually unanimously -- decided that now was not the time for Nevada to deregulate its electric markets, though Nevada had been poised to do just that as a result of legislation in 1997 and 1999. With the ongoing energy crisis in California brought on by its own deregulation scheme, with unprecedented inflation in wholesale power costs and energy supply shortages occurring throughout the West, passage of AB 369 certainly made sense. In fact, it accomplished our office’s top priority to prevent the sale of Nevada's power plants to out of state, unregulated energy companies. Despite this very recent and deliberate legislative retreat from deregulation, AB 661 effectively re-institutes deregulation -- at least partially -- by allowing favored classes of customers to choose their electric provider and be freed from the Nevada regulatory scheme that presently sets rates for all classes of customers.

Proponents of AB 661 suggest that the utilities and its captive ratepayers will be better off with the Repower Nevada legislation, since it will "free up"generation that is presently devoted to the large industrial customers and allow this additional generation capacity to offset the ever growing demands on the utility for new generation resources. While perhaps appealing and innocuous on its face, this notion may well present serious economic ramifications to the remaining customers of the system when analyzed more closely. Loss of customers, especially large customers, reduces the number of customers that must share the ongoing fixed costs of the utility, and reduces the efficiency of the utility overall, since the large departing customers tend to be high load factor customers. Such customers typically receive lower per unit rates, which reflects their predictable load on the system. However, such large customers bring a number of synergies and efficiencies to the system -- some of them unquantifiable -- that would tend to keep rates lower for all consumers, and improve the quality of service to all customers.

Nevada's residential electric consumers have seen a 25% increase in rates from just a year ago, with Nevada Power Company and Sierra Pacific receiving a record $311 million increase as part of AB 369 and earlier action by the PUCN. By the companies' own indications, the deferred energy balances accruing as a result of AB 369, may reach as high as $650 to $900 million by the time the companies file their deferred energy cases early next year, as the western power wholesale markets continue to spin out of control. By even the most conservative estimates, there will likely be significant increases in electric rates next year, which could easily eclipse the increases customers have seen this year.

In light of the volatility of energy prices and western markets at this time, and the negative experience several states have had with deregulation schemes thus far, this office is very concerned that Repower Nevada may well make an already bad situation for consumers even worse. If the California experience has taught us anything, it is that Nevada should proceed very cautiously into new, uncharted waters, especially in a time of such price instability. California's experience may also suggest that deregulation should not be implemented, in any fashion, until market and supply conditions are reasonably sufficient to insure that all consumers will be benefited by such a move. In any event a legislative plan devised in the last days of this session, that excludes all ordinary Nevada citizens and businesses, is patently unfair and those changes should not be endorsed. Other factors, such as the loss of valuable procedural and consumer protections, and promotion of renewable resources that are in the interests of all Nevada consumers, were deleted from the bill as it is presented to the Senate for consideration.

Lastly, we feel we have to point out our view that the title of the bill "Repower Nevada" is quite misleading. Proponents of AB 661 say that this legislation is necessary to insure that new generating supply will be developed in Nevada. As widely reported in several state and national publications, there are many proposals underway to add power generation facilities in Nevada. The Las Vegas Review-Journal reported yesterday that power companies have as much as 10,000 megawatts of capacity proposed for construction in Nevada by 2004. This office sees no indication that passage of Repower Nevada would either increase or decrease the amount of generation presently proposed for construction. In fact, the proposed language allows for the loss of Nevada control of new generation owned or partially owned by Nevada utilities - a clear departure from the principles that led to the provisions halting the sale of utility power plants in AB369. Repower Nevada is merely an appealing appellation that glosses over what the bill really is -- special interest legislation for a few large consumers and the utility.

For these reasons, I respectfully ask you to oppose AB 661.

Sincerely,

FRANKIE SUE DEL PAPA, Attorney General

TIMOTHY HAY, Consumer Advocate

TDH:cd

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