VI. Affiliate Issues

The PPA as presented by Edison raises three affiliate transaction issues: application of the ATRs; application of the holding from D.93-03-021, referenced as the KRCC settlement, or the QF Settlement; and effect of the moratorium adopted in D.02-10-062.

From Edison's perspective, there are no affiliate issues. Succinctly put, Edison claims that the ATRs issued in D.97-12-088 should not apply because MVL will be a direct subsidiary of Edison, not Edison International (EIX). Furthermore, Edison claims that the ATRs were designed to restrict and define the terms on which electric utilities are permitted to engage in transactions with those of its affiliates that operate in competitive electricity markets. The ATRs were aimed at preventing ratepayer subsidies of the affiliates, thwarting self-dealing between a utility and its affiliate, and promoting a level playing field for the competitive market.

Edison alleges that since the MVL PPA requires MVL to sell all of its power to Edison, and MVL is prohibited from selling to third parties, the ATR protections are not applicable. MVL will be selling power exclusively to Edison at cost-based rates for the benefit of Edison ratepayers making MVL more like a regulated subsidiary, and not like an affiliate. If, for arguments sake, the Commission does find that the ATRs are applicable in this situation, Edison requests limited exemptions to the provisions that could apply.

Turn asserts that MVL, as a subsidiary of a subsidiary, is clearly an affiliate as defined in the ATRs. Since MVL will be a subsidiary of Edison, and Edison is a subsidiary of EIX, MVL is a subsidiary of EIX for purposes of the ATRs. TURN is not assuaged by the fact that the Commission would be able to review the books and records of MVL. TURN argues that there is a difference between review and regulation: the Commission does not have the power to regulate MVL. However, in order for the transaction to go forward, TURN asks that the Commission determine that technically the ATRs do apply, and grant a one-time waiver with the TURN proposed conditions.

ORA is even more adamant than TURN that the ATRs apply to Edison's proposed transaction and the proposal violates the ATRs. ORA fails to see any good arguments in favor of finding that the ATRs either do not apply, or if they do, that a waiver is appropriate. ORA is concerned that there is self-dealing between MVL and Edison and there could be numerous and potentially costly contract administration or other important issues that develop over a 30-year buyer/seller relationship.

The Navajo Nation views Edison's classification of MVL as a utility subsidiary, rather than a subsidiary of EIX, a violation of the core spirit of the ATRs and exposes ratepayers to affiliate abuse. The Navajo Nation reminds the Commission that in contrast to Mountainview, Mohave does not raise any affiliate issues, so Mohave should be the preferred option for Edison's resource needs.

IEP believes that the transaction as proposed by Edison should only be approved if all ATRs are followed.

ORA also urges the Commission to take a long look at KRCC decision, D.93-03-021,⁷ a settlement involving Edison and KRCC and QF contracts that favored an Edison affiliate. Although the facts in Mountainview are different, ORA still argues that the KRCC decision is applicable. The decision holds that Edison will not purchase power from "any generating project in which SCE Corp (now EIX) or an subsidiary of SCE Corp, has an ownership interest. . . ." (48 CPUC2d at 382, cited at Ex. 42, p. 3.)

IEP, CAC, and EPUC also interpret the KRCC settlement as precluding the PPA transaction because of the affiliation between Edison and MVL.

Edison responds that if the Commission decides that the KRCC settlement is applicable, that it is time that the Commission amended the decision to respond to "the dynamic and constantly evolving generation business"-a factor that was contemplated in the decision itself.

In October, 2002, in D.02-10-062, the Commission adopted a two-year ban on affiliate transactions, expiring January 1, 2005. Edison claims the moratorium does not apply to MVL since no purchase or physical flow of power will occur prior to the expiration of the moratorium. IEP does not agree with Edison's interpretation of the moratorium.

We find the affiliate transaction topic troubling. Again, if Edison pursues the Mountainview opportunity as a straight utility owned facility, the controversial affiliate issues disappear, including application of the ATRs, the KRCC settlement, and the moratorium established in D.02-10-062. However, if Edison pursues Mountainview as proposed, we find that MVL is not a regulated subsidiary exempt from the ATRs. Since money will flow directly from MVL to EIX, albeit through Edison, the relationship technically is an affiliate one.

ATR Rule I.A provides that an affiliate includes:

Any company in which the utility, its controlling corporation, or any of the utility's affiliates exert substantial control over the operation of the company and/or indirectly have substantial financial interests in the company exercised through means other than ownership. For purposes of these Rules, "substantial control" includes, but is not limited to, the possession, directly or indirectly and whether adding alone or in conjunction with others, of the authority to direct or cause the direction of the management or policies of a company.

Edison will have substantial control and complete control over the operation of MVL, and likewise, EIX will have substantial control over MVL. Edison witness agreed that both Edison and EIX would have substantial financial interests in MVL. The conundrum facing us now is; how do we grant an exemption to Edison, without setting up a "slippery slope" for other utilities, or even Edison, to use again to circumvent the rules. As TURN suggested, we can grant a "one-time waiver." A one-time waiver of the ATRs will not substantially alter the substance of the application and will preserve the integrity and intent of the ATRs. In the interest of approving the Mountainview PPA, a decision that is supported by the record, we find that the ATRs do apply. However, we also find that it is in the public interest to grant a one-time waiver of the rules set forth below because the record supports the need for and the cost-effectiveness of Mountainview.

Rule III.B Affiliate Transactions

Rule III.E Business Development and Customer Relations

Rule IV.B Non-Customer Specific Non-Public Information

Rule V.D Joint Purchases

Rule V.E Corporate Support

Rule V.F Corporate Identification and Advertising

Rule V.G.1 Sharing of Employees

Rule V.G.2 Movement of Employees

Rule V.H.5 Transfer of Goods and Services

Any transactions between MVL and unregulated affiliates will be treated as utility and affiliate transactions and covered by the ATRs. Since MVL's costs are mixed with the utility and MVL is under a cost-of-service system with a guaranteed rate of return, having MVL's transactions with affiliates subject to the ATRs is in concert with the spirit and intent of the rules. Any MVL and unregulated affiliate transactions should be reported in the annual affiliate rules report required in compliance with R.92-08-008, and should be covered by the annual affiliate rules audit required by D.97-12-088, modified by D.98-08-035.

With regards to the KRCC settlement, we wish to distinguish the Mountainview project from those contemplated by D.93-03-021. One focus of KRCC was to prevent "sweetheart" deals between EIX and its unregulated affiliates, to the detriment of Edison ratepayers. Since MVL will be a wholly-owned subsidiary of Edison, although regulated by FERC rather than this Commission, MVL is not an unregulated affiliate similar to the QFs in KRCC. In addition, since MVL's output is subject to cost-of-service regulation there is not the same opportunity for abuse that existed in KRCC. We therefore find that the KRCC settlement and the prohibition set forth in D.93-03-021 is not applicable to the Edison/MVL transaction.

We also find the two-year moratorium against affiliate transactions adopted in D.02-10-062 applicable to Edison and MVL but grant a one-time waiver of the ban for purposes of the Mountainview transaction. We find that because the project is a cost-effective option for ratepayers to fill a resource need, and the project could not go forward under the dictates of the moratorium, it is in the public interest to grant this waiver. The limited waiver we grant here is not precedential.