9. Assignment of Proceeding
Dian M. Grueneich is the assigned Commissioner and Jean Vieth is the assigned ALJ in this proceeding.
1. The proposed transfer from Sierra to CalPeco has been structured as a sale of all California-jurisdictional assets, rather than a merger or sale of stock, because the California Utility is not organized, legally, as a separate entity from Sierra. Sierra's California Utility consists of its California-jurisdictional service territory and all distribution assets, as well as the King's Beach Generating Station, a 12-MW diesel-fired generator located in King's Beach near Lake Tahoe.
2. Sierra wishes to sell the California Utility to enable its owner, NV Energy, to focus on Nevada operations, which now serve nearly 1.2 million customers located throughout most of that state, given recent load growth. The California Utility's operations represent less than 4% of NV Energy's customer base. The sale would permit NV Energy to consolidate all of its operations under a single, state regulatory agency and respond to a single set of regulatory directives
3. CalPeco is a newly created, California limited liability company. Appendix 2 reflects the organizational ownership chain. CalPeco's ultimate, indirect owners are two publicly traded Canadian companies, Algonquin, which will hold 50.001% stake in CalPeco, and Emera, which will hold 49.999%.
4. The proposed transfer fits the mutual business objectives of CalPeco's owners, Algonquin and Emera, to expand ownership and operation of regulated utility assets, with a view to long-term acquisition and, in some instances, the potential for investment in renewable energy.
5. As qualified in Finding 33, CalPeco's owners do not contest the Commission's jurisdiction. 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 at hearing, have offered Regulatory Commitments that include promises by 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.
6. Sierra's 2008 annual California revenues were approximately $72 million and CalPeco had no California revenues.
7. The record contains no evidence that the transfer will result in operational change and no new facilities are proposed.
8. Appendix 3 lists all Regulatory Commitments by CalPeco and its owners; subject to clarification of Regulatory Commitment 1(g) as described in Finding 25, the Regulatory Commitments are reasonable, will not result in harm to ratepayers, and may yield some ratepayer benefits.
9. The sales price which is estimated to range between approximately $132 and $137 million, will be calculated more precisely based upon various factors including outstanding accounts payables and accounts receivables at closing; however, the Regulatory Commitments prohibit CalPeco from seeking to recover in rates either the premium paid for the assets of the California Utility or any transactions costs.
10. The proposed transfer will continue safe and reliable service and generally, will maintain the quality of service customers experience today. Service for customers in the remote Loyalton/Portola area should improve given CalPeco's promises to undertake the reliability measures discussed in the body of this decision. Some customers may experience other service improvements, also discussed in the body of this decision.
11. Post-closing CalPeco will collect from customers the same total revenues that Sierra is authorized to charge and collect, at the same rate levels now applicable to individual customers.
12. O&M and administrative costs, which arguably might benefit the most from any economies of scale, comprise in the aggregate about 10% of the California Utility's total revenue requirement. Over half of these costs should be quite stable (given similar compensation packages for the same work force and continued use of the same trucks and other vehicles), which leaves only about $3 to $4 million potentially subject to cost escalation in a 2012 general rate case. For the purposes of illustration, only, a 15% escalation of that $3 to $4 million would result in a revenue requirement increase of $450,000 to $600,000, which is less than 1% of total revenue requirement.
13. CalPeco expects to be able to economically install electronic capabilities for billing and for scheduling service, based upon Algonquin's past success in this area.
14. CalPeco expects the reopening of the customer service counter in South Lake Tahoe to be cost-effective.
15. Under the Transition Service Agreement, which is one of the Operating Agreements, CalPeco has the reasonable option to ask Sierra to perform at cost for 24 months, with a 12-month extension, any of the services Sierra now provides to the California Utility.
16. The settlement with PSREC is not before the Commission in this docket and will have no impact on the rates of California customers, if at all, unless and until CalPeco seeks recovery for any expenditures associated with the PSREC settlement in the CalPeco 2012 general rate case and the Commission authorizes the recovery.
17. Sierra's coal-fired Valmy Power Plant commenced operations in the early 1980's and Sierra has no plans, at present, to make new ownership investments in Valmy.
18. Given the facts, prohibiting inclusion of Valmy power in the Power Purchase Agreement's supply mix for a term of five years will not further SB 1368's policy goals. The exclusion will affect costs for California customers (since power from Valmy is produced below Sierra's system average cost) but nothing else will change, as Sierra will continue to operate the highly-depreciated Valmy at the same capacity for the benefit of Nevada customers and any emissions that migrate into California now will continue to do so.
19. The rate consequences of prohibiting inclusion of Valmy power in the Power Purchase Agreement's supply mix will increase power costs by $7.6 million starting in 2011, or put another way, increase the average residential rate in 2012 by 9.95% from $0.12405 per kWh to $.13639 per kWh.
20. Rejecting the transfer will obligate Sierra to continue to serve the California Utility, which also ensures the continued operation of Valmy.
21. Continued import of Valmy power under the Power Purchase Agreement simply preserves the status quo, operationally and economically, and therefore is not a covered procurement, within the context of SB 1368 and D.07-01-039 and is not subject to the Commission's EPS rules.
22. Beyond the Power Purchase Agreement's five-year term, Valmy should be viewed under the same rules that would apply were Sierra to continue to serve the California Utility. Thus, as long a Sierra makes no new ownership investment in Valmy, power from that plant may be included in the supply mix provided under any additional power purchase agreement, which Sierra and CalPeco may enter upon the expiration of the initial, five-year Power Purchase Agreement.
23. While the cost consequences of the transfer in 2012 and beyond are uncertain, the evidence does not suggest cost consequences of a magnitude large enough to support a finding that proposed transfer will harm ratepayers and therefore, is adverse to the public interest.
24. Algonquin and Emera own regulated utilities in Canada and in four other states in the United States.
25. CalPeco's amended Regulatory Commitment 1(g), which promises infusions of necessary equity from CalPeco's indirect owners, is reasonably read to encompass working capital as well as capital expenditure.
26. A parental guarantee of debt serves to undermine the separateness which ring-fencing establishes.
27. The ring-fencing measures that Joint Applicants' propose offer value as discussed in the body of this decision.
28. The record does not establish that unless we impose a minimum hold condition upon Emera, the proposed transfer is unreasonable.
29. Joint Applicants have not established their Internal Transfer Authority is free of risk for ratepayers.
30. Joint Applicants have made a sufficient showing that CalPeco will have competent, professional management, including a competent initial board of directors.
31. Local 1245 supports the transfer and in other respects, Joint Applicants have made a sufficient showing that CalPeco will treat employees fairly.
32. Service improvements (even if minor), local hiring as needed, and an increased local presence for the utility can only yield some benefit to the state and local community; the record does not establish ratepayer harm.
33. With one exception, the record generally confirms that CalPeco and its owners accept the Commission's jurisdiction and commit to comply with the Commission's orders and with state law. To avoid the possibility of future confusion, any approval of the proposed transaction must be conditioned upon access to such officers and employees of CalPeco's jurisdictionally foreign, upstream owners as the Commission, itself, may determine to be necessary, consistent with established principles of due process and fundamental fairness.
34. The transfer application incorporates seven Operating Agreements, which comprise, in addition to the Power Purchase Agreement and Transition Services Agreement, these five: Emergency Backup Service Agreement, Interconnection Agreement, System Coordination Agreement, Borderline Customer Agreement, and Distribution Capacity Agreement. Each of these agreements has been drafted to permit CalPeco and Sierra to continue to provide electric power, post-closing, to their respective customers in the same way and at the same price as occurs at present.
35. Joint Applicants' settlement with TDPUD requires Commission approval of the two ancillary agreements filed as exhibits to A.10-04-032, the Fringe Agreement and the Reliability Support Agreement.
36. The Fringe Agreement memorializes certain informal, cooperative arrangements between TDPUD and Sierra that have permitted them to serve customers located on or near the border of their contiguous service territories without building uneconomic and duplicative electric distribution facilities. The agreement obligates Sierra to assign its rights and responsibilities to CalPeco upon closing and will not change revenue requirement.
37. The Reliability Support Agreement obligates CalPeco, upon closing, to continue to participate in the arrangement that Sierra and TDPUD have negotiated to provide their customers, at no additional charge, with an alternative path for delivery of electric power, should backup be needed because of an outage on either utility's primary delivery paths.
38. The Fringe Agreement and the Reliability Support Agreement essentially memorialize the status quo and permit CalPeco to stand in the shoes of Sierra vis a vis TDPUD, to the mutual benefit of both CalPeco and TDPUD. Joint Applicants have established good reason for the authority sought by A.10-04-032.
39. With respect to the Distribution Capacity Agreement (in A.09-10-028) and the Reliability Support Agreement (in A.10-04-032), the Commission should determine that local distribution facilities are involved and assert jurisdiction over them.
40. The proposed transfer of control will have no significant effect upon the environment, because after the transfer CalPeco will continue to operate the California Utility in the manner the Commission has approved for Sierra, except as modified by today's decision.
1. The proposed transfer from Sierra to CalPeco should be reviewed under § 854, which generally governs mergers and similar transfers of control, rather than § 851, which typically governs sales of assets. More particularly, the transfer should be reviewed under § 854(a).
2. Neither D.01-09-057 nor D.06-02-033 established a positive benefits test for transactions such as the proposed Sierra/CalPeco transfer.
3. The following principles apply to a transfer proposed under § 854(a):
(a) to ensure that a transfer is not adverse to the public interest, the Commission must be able to evaluate evidence on the important impacts of that transfer - whatever they might be - and find no harm to ratepayers;
(b) some of the criteria enumerated in §§ 854(b) and (c) mirror criteria identified by past Commission decisions as relevant to a public interest assessment under § 854(a), and depending upon the nature of the transfer at issue, may well be relevant and even necessary to the specific public interest assessment required; and
(c) only where §§ 854(b) and (c) expressly apply, must the Commission make all of the findings those subsections require.
4. No party has introduced facts to describe any alternative for the Commission to consider under § 854(d).
5. The requested financing authority is governed by is § 816 and § 818, which concern issuance of stocks, bonds, etc., and § 851, which as relevant here, concerns the encumbrance of utility assets.
6. Pursuant to § 15061(b)(3) of the CEQA guidelines, inasmuch as it can be seen with certainty that the project will have no significant impact upon the environment, the transfer application qualifies for an exemption from CEQA and the Commission need not perform any further environmental review.
7. The reach of today's decision necessarily extends to the direct and indirect owners of CalPeco; specifically, any approval of the proposed transaction must be conditioned upon access to such officers and employees of CalPeco's jurisdictionally foreign, upstream owners as the Commission, itself, may determine to be necessary, consistent with established principles of due process and fundamental fairness.
8. A general rate case is the forum for review of the reasonableness of actual costs incurred and actual benefits associated with those costs.
9. No finding or conclusions of law in this decision supports a reasonableness finding or authorizes rate recovery in a future general rate case.
10. D.07-01-039 provides no direct guidance regarding whether the supply mix under the Power Purchase Agreement may or may not include electric power from Valmy.
11. The Commission has not imposed a first priority condition on the owners of a California-jurisdictional utility that also own utilities in other regulatory jurisdictions.
12. The Commission retains regulatory jurisdiction to proactively require revisions to the ring-fencing measures included in the Regulatory Commitments, given appropriate notice and opportunity to be heard.
13. Section 851 and § 854 provide legal means for approval of reasonable requests for changes in ownership and control of public utilities regulated by this Commission.
14. Should any of CalPeco's direct or indirect owners wish to change arrangements governing their ownership and control of CalPeco, they must file a new application under § 854 that explains why the change proposed would not be adverse to the public interest.
15. Subject to the condition on the Power Purchase Agreement's inclusion of power from Valmy, CalPeco should be authorized to enter into the Power Purchase Agreement, the Interconnection Agreement and the Borderline Customer Agreement under the terms and conditions therein, which we deem to be reasonable. Accordingly, the costs incurred under each agreement will be deemed to be prudently incurred and CalPeco is authorized to recover those costs, subject to review for reasonableness of CalPeco's administration of each agreement.
16. The Distribution Capacity Agreement (in A.09-10-028) and the Reliability Support Agreement (in A.10-04-032) involve local distribution facilities subject to the jurisdiction of this Commission.
17. The proposed transfer qualifies for an exemption from CEQA pursuant to the CEQA guidelines § 1506(b)(3) and so additional environmental review is not required.
18. This decision should be effective immediately to minimize business uncertainty for the parties and all affected by the transfer of Sierra's California Utility to CalPeco.
IT IS ORDERED that:
1. As conditioned by this Ordering Paragraph, the transfer from Sierra Pacific Power Company (Sierra) to California Pacific Electric Company, LLC (CalPeco) is not adverse to the public interest. Accordingly, subject to the Regulatory Commitments attached to this Order as Appendix 3 and subject to the following conditions, Application 09-10-028 is granted, the seven Operating Agreements are approved, and Sierra may transfer to CalPeco, Sierra's California-jurisdictional electric distribution facilities and the Kings Beach Generating Station, together with those Certificates of Public Convenience and Necessity held by Sierra that are required for CalPeco to serve California customers:
(a) Power from Sierra's Valmy Power Plant (Valmy) may be included in the supply provided under the five-year term of the Power Purchase Agreement (one of the Operating Agreements) and any extension of that term as long a Sierra makes no new ownership investment in Valmy, within the context of the Emissions Performance Standard rules adopted by Decision 07-01-039, and any subsequent modifications of that decision.
(b) The Internal Transfer Authority is not approved and any change of ownership affecting CalPeco's upstream owners must be sought by application filed pursuant to Public Utilities Code Section 854.
(c) Liberty Electric Co., Algonquin Power & Utilities Corp., Emera US Holdings, Inc., and Emera Incorporated must each notify the Director of the Commission's Energy Division in writing within 30 days of the effective date of this decision of its agreement to provide its officers and employees to testify in California regarding matters pertinent to CalPeco, as the Commission, itself, may determine to be necessary, consistent with established principles of due process and fundamental fairness.
2. The California Public Utilities Commission affirmatively asserts jurisdiction over the Distribution Capacity Agreement (one of the Operating Agreements) and the local distribution facilities described therein.
3. The financing authority requested by California Pacific Electric Company, LLC pursuant to Public Utilities Code Sections 816, 818, and 851 is granted.
4. The ratemaking adjustments requested by California Pacific Electric Company, LLC to recognize the provision of power under the Purchase Power Agreement and accordingly, reallocate certain components of general rates to Energy Cost Adjustment Clause rates without increasing total revenues, are approved.
5. Application 09-10-028 qualifies for an exemption from the California Environmental Quality Act and the Commission need not perform any further environmental review.
6. California Pacific Electric Company, LLC (CalPeco) shall file tariffs consistent with this Order no less than 15 days prior to the anticipated closing of the transfer from Sierra Pacific Power Company to CalPeco. The tariffs shall be effective upon the closing, subject to confirmation of compliance by the Director of the Commission's Energy Division or her designee.
7. Effective upon the closing of the transfer, the responsibilities of Sierra Pacific Power Company as a pubic utility in California shall terminate.
8. Sierra Pacific Power Company (Sierra) and California Pacific Electric Company, LLC (CalPeco) shall notify the Director of the Commission's Energy Division in writing of the transfer from Sierra to CalPeco within 30 days of the date of the transfer. A true copy of the instruments of transfer shall be attached to the notification.
9. The authority for the transfer from Sierra Pacific Power Company to California Pacific Electric Company, LLC shall expire if not exercised within one year from the effective date of this Order.
10. Application 10-04-032 is granted and Sierra Pacific Power Company (Sierra) may enter into the Fringe Agreement and the Reliability Support Agreement as requested in that application. During the period prior to the closing of the transfer from Sierra to California Pacific Electric Company, LLC (CalPeco), Sierra is authorized to account for the expenses it incurs and the revenues it receives to serve customers under the Fringe Agreement, pursuant to the terms therein. Upon closing, CalPeco is authorized to accept assignment of the Fringe Agreement from Sierra and to account for the expenses it incurs and the revenues it receives to serve customers under the Fringe Agreement, pursuant to the terms therein. CalPeco also may enter into the Reliability Support Agreement. The California Public Utilities Commission affirmatively asserts jurisdiction over the Reliability Support Agreement and the local distribution facilities described therein.
11. Application (A.) 09-10-028 and A.10-04-032 are closed.
This order is effective today.
Dated October 14, 2010, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
TIMOTHY ALAN SIMON
NANCY E. RYAN
Commissioners
APPENDIX 1
LIST OF ABBREVIATIONS AND ACRONYMS
A. |
Application |
Algonquin |
Algonquin Power Income Fund |
CalAm |
California American Water Company |
CalPeco |
California Pacific Electric Company, LLC |
CEQA |
California Environmental Quality Act |
D. |
Decision |
DRA |
Division of Ratepayer Advocates |
ECAC |
Energy Cost Adjustment Clause |
Emera |
Emera Incorporated |
EPS |
Emissions Performance Standard |
Ex. |
Exhibit |
FERC |
Federal Energy Regulatory Commission |
GHG |
greenhouse gas |
kWh |
kilowatt hour |
King's Beach facility |
King's Beach Generating Station |
Local 1245 |
International Brotherhood of Electrical Workers Local Union 1245 |
MidAmerican |
MidAmerican Energy Holdings Company |
MW |
megawatt |
NV Energy |
NV Energy Inc. |
O&M |
Operations and Maintenance |
PSREC |
Plumas-Sierra Rural Electric Cooperative |
RPS |
Renewable Portfolio Standard |
Sierra |
Sierra Pacific Power Company |
TDPUD |
Truckee-Donner Public Utilities District |
Valmy |
Valmy Power Plant |
(END OF APPENDIX 1)
