2. Identification of Parties
2.1. Overview
For ease of discussion, today's decision generally refers to Application (A.) 09-10-028, which asks the Commission to approve a change in public utility ownership and control, as the transfer application.
The three active parties include the proposed seller, Sierra Pacific Power Company (Sierra) and the proposed buyer, California Pacific Electric Company, LLC (CalPeco).1 We refer to these project proponents, collectively, as Joint Applicants. The third active party, the Commission's Division of Ratepayer Advocates (DRA), opposes the transfer from Sierra to CalPeco.
Several other parties initially protested the proposed transfer, but all of them reached settlements with Joint Applicants and withdrew their protests prior to evidentiary hearing. These parties include Truckee-Donner Public Utilities District (TDPUD), which withdrew its protest on February 22, 2010, and the following entities, referred to as Aligned Protestants, which collectively withdrew their individual protests on March 29, 2010: the City of Loyalton, the City of Portola, Plumas County, Sierra County, and Plumas-Sierra Rural Electric Cooperative (PSREC).
We are aware that two other entities, which are not parties, have submitted letters of support for the proposed transfer and urge us to approve it -- the International Brotherhood of Electrical Workers Local Union 1245 (Local 1245), whose members work for Sierra and have been offered continued employment by CalPeco, and Sierra Pacific Industries, which owns a 14 megawatt (MW) biomass cogeneration facility in the City of Loyalton. Sierra Pacific Industries previously wrote to oppose the transfer but subsequently has resolved its dispute with Sierra and now supports the transfer.2
2.2. Sierra
Sierra is a public utility that generates, transmits and distributes electricity to some 366,000 customers in northern Nevada and California; Sierra also serves about 150,000 natural gas customers in Reno and Sparks, Nevada. Organized as a Nevada corporation, Sierra is wholly-owned by NV Energy Inc. (NV Energy), an investor-owned holding company incorporated under Nevada law. NV Energy has five other, wholly-owned subsidiaries, including Nevada Power, the regulated public utility which serves Las Vegas and southern Nevada. In total, NV Energy serves about 1.2 million customers in Nevada.
Sierra's California retail electric customer base encompasses about 46,000 customers in seven counties (Nevada, Placer, Sierra, Plumas, Mono, Alpine and El Dorado), with approximately 80% of those customers located in the Lake Tahoe Basin. Sierra's California service territory is a winter-peaking load; the mountainous terrain rises from nearly 5,000 feet to 9,000 feet and most customers are located at elevations above 6,000 feet. In addition, the California service territory is outside the control area of the California Independent System Operator. Electricity generated in Nevada and delivered into California through Sierra's transmission facilities is the source of most of the electric power supplied to the California service territory.
2.3. CalPeco
CalPeco is a newly created, California limited liability company directly owned by California Pacific Utility Ventures, LLC, a California limited liability company. CalPeco's ultimate, indirect owners are two publicly traded Canadian companies -- Algonquin Power & Utilities Corp. (Algonquin) and Emera Incorporated (Emera). These entities' will hold their indirect ownership stakes -- 50.001% by Algonquin and 49.999% by Emera -- through their respective, wholly owned subsidiaries, Liberty Electric Co. and Emera US Holdings, Inc., both Delaware corporations.3 Appendix 2 to today's decision illustrates this ownership chain.
Initially formed in 1987, Algonquin is a diversified electrical power generation and utility infrastructure company with a principal place of business in Toronto, Ontario. According to the transfer application: "Algonquin owns and operates an approximately $1 billion (Cdn) portfolio of renewable power generation and utility operations across North America. Over 50% of Algonquin's revenues are generated through its US-based operations."4 Algonquin has two business units, a Power Generation unit that includes 45 renewable power generating facilities and 16 high-efficiency thermal generating facilities in four states and four Canadian provinces, and a Utility Services unit that owns and operates regulated water and sewer utility systems in four states.5 At hearing, Joint Applicants' witness testified that the recent acquisition of a water and wastewater system in Texas has increased Algonquin's regulated utility business to 19 systems with 75,000 total customers.
Following its conversion on October 27, 2009, to a conventional, publicly traded corporation, Algonquin now trades under the symbol "AQN" on the Toronto Stock Exchange. Previously, Algonquin was known as Algonquin Power Income Fund, a mutual fund trust established under the laws of the Province of Ontario, Canada.
Emera, incorporated under the laws of the Province of Nova Scotia, Canada, is an energy holding company with a principal place of business in Halifax, Nova Scotia. According to the transfer application, Emera holds "approximately $5.3 billion of assets (Cdn)" and "owns and operates utilities participating in the generation, transmission and distribution of electricity; utilities participating in the transmission of natural gas; and unregulated businesses participating in the energy marketing and electric generation."6 Emera has over 130 years of experience in owning and operating utility assets, a safety record nationally recognized in Canada, and extensive experience in partnership and joint ownership arrangements, including a 600 MW pumped storage facility in northern Massachusetts.
Regarding the relationship with Algonquin, Joint Applicants state:
Emera is engaged in a strategic partnership with Algonquin through which the companies may collaborate in select utility infrastructure and renewable generation investment, such as the proposed co-ownership of CalPeco. Emera has also agreed to acquire a 9.9% interest in Algonquin upon Closing.7
The transfer application does not name CalPeco's direct owner, California Pacific Utility Ventures, LLC, or its indirect owners, Emera, Algonquin and their subsidiaries, as applicants. DRA's opening brief raises this, for the first time, as a fatal flaw that must be corrected by amendment of the transfer application to name each of these entities. According to DRA, Public Utilities Code Section 854(a) requires such amendment.8
Section 854(a) provides, in relevant part:
No person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control either directly or indirectly any public utility organized and doing business in this state without first securing authorization to do so from the commission ... Any merger, acquisition, or control without that prior authorization shall be void and of no effect ...
Joint Applicants' reply brief argues that DRA's contention is not only untimely but also incorrect. According to Joint Applicants, only when an upstream owner is being sold, resulting in a change of indirect ownership, must the application name indirect owners. Neither brief cites authority.
Joint Applicants also state that there is no substantive need to amend the application. They point out that Algonquin and Emera have been active participants in this proceeding from the beginning, have voluntary presented senior executives as witnesses at hearing, and have conceded the Commission's jurisdiction to enforce the various promises and representations, termed Regulatory Commitments (see Appendix 3 to today's decision), that CalPeco and its direct and indirect owners have made to customers and to the Commission.
We need not undertake an exhaustive statutory analysis here, where CalPeco's owners are not contesting the Commission's jurisdiction. However, when a utility tier transfer results in new indirect owners for that utility, we think naming all such entities as applicants is the better practice, and we urge the Docket Office and our administrative law judges to be more vigilant in ensuring that this better practice is broadly and consistently followed.9 Because Joint Applicants have fully disclosed the existence of California Pacific Utility Ventures, LLC, as well as Emera and Algonquin and their immediate subsidiaries in the chain of control of CalPeco, have presented witnesses from Algonquin and Emera, and have placed issues concerning these entities directly before the Commission for decision, our ability to fully consider this transfer has not been circumscribed. We intend that the reach of today's decision extend to the direct and indirect owners of CalPeco and will require their assent as a condition of any authority granted in the Ordering Paragraphs.
1 Appendix 1 contains a list of the abbreviations and acronyms used in today's decision.
2 These letters have been placed in the correspondence file for this docket.
3 The Algonquin and Emera 50%/50% ownership arrangement initially described in the transfer application has changed. Joint Applicants explain:
This change results from Canada transitioning to the International Financial Reporting Standards in 2011. Algonquin and Emera have determined that enabling Algonquin to "control" CalPeco within the meaning of these accounting standards facilitates Algonquin being authorized to account for its investment in CalPeco on a fully-consolidated basis and enables Emera to use equity consolidation treatment." (Exhibit (Ex.) 3 at 6.)
In addition, the chain of ownership of CalPeco on the Algonquin side has changed. According to the transfer application, initially Algonquin planned for its subsidiary, Algonquin Power Fund (America) Inc., to directly hold CalPeco. However, Algonquin subsequently had that subsidiary transfer 100% of its ownership interest in CalPeco to another Algonquin subsidiary, Liberty Electric Co.
4 Transfer Application at 4.
5 In California, Algonquin owns the Sanger Cogeneration project, a 56 MW natural gas-fired facility near Fresno. Sanger sells power to Pacific Gas and Electric Company under a Commission-approved standard offer contract that will expire in 2012.
6 Transfer Application at 5.
7 Transfer Application at 7.
8 Unless otherwise noted, all subsequent references to a statutory section or sections are to the California Public Utilities Code.
9 See for example, Joint Application of California-American Water Company, RWE Aktiengesellschaft, Thames Water Aqua Holdings GmbH, Thames Water Plc, and Apollo Acquisition Company to merge with and into American Water Works Company, resulting in a change of control of California-American Water Company, D.02-12-068 (2002). The merger between the parent of CalAm and the subsidiary of RWE, resulted in RWE and each intervening subsidiary obtaining indirect control of CalAm and all were named as applicants.
