XI. Notice of Utility Assets Taken Out of Service - Pub. Util. Code § 455.5

The OIR proposed to implement Pub. Util. Code § 455.5(f), which requires that utilities report periodically to this Commission whenever any portion of an "electric, gas, heat, or water generation or production facility" is out of service, and immediately when a portion of such facility has been out of service for nine consecutive months. Section § 455.5(f) notes that an "electric, gas, heat, or water generation or production facility includes only such a facility that the commission determines to be a major facility." (Emphasis added.) The OIR suggested a definition of a "major facility" as any asset with an initial acquisition price of $500,000 or more. The OIR also suggested that the Commission should require reporting regarding any facility whose entirety met this dollar threshold, even if the portion out of service cost less.

A. Comments - Pub. Util. Code § 455.5

With regard to the proposed $500,000 threshold for a reportable "major facility," the utilities generally support a higher threshold, while ORA/TURN support a definition based on the size of the utility.

ORA/TURN "are sensitive to the large utilities' concern regarding the large amount of assets to be reported if the reporting threshold is built too small. . . ."⁷² They ask that the Commission allow the parties to collaborate on establishing the proper threshold for the reporting requirements, or carry out a process for determining the threshold separately from our decision on gain on sale rules.

SDG&E/SoCalGas ask for a threshold of $50 million. SCE recommends that we define § 455.5's language relating to a "portion of any electric . . . generation or production facility" as any component of the major generating facility which, when out of service, reduces the output of the facility by 50 megawatts (MW) or 20% of nameplate capacity,⁷³ whichever is lower. PG&E suggests a higher dollar value threshold or a threshold based on the size of the plant: "a major facility would be defined as a facility (1) generating in excess of 50 megawatts; or (2) costing in excess of $50 million." It cites several provisions elsewhere in the Public Utilities Code that use a $50 million, $100 million or 50 MW benchmark.

SDG&E and SoCalGas question whether the OIR recognizes the fact that § 455.5 applies only to "generation" or "production" facilities. It explains that "generation" and "production" are terms of art used in the USOA applicable to electric and gas utilities, and urges us to limit our interpretation of the terms to the definition in the USOA.

SDG&E/SoCalGas also challenge the OIR's tentative conclusion to prohibit a utility from selling an asset for which the utility provides no § 455.5 notice, and to void ab initio a sale for which the utility fails to provide notice. SDG&E/SoCalGas state that an asset out of service for nine months probably should be sold, and that it would burden the utility to require it to retain such property.

B. Discussion - Pub. Util. Code § 455.5

None of the comments support our initial determination to define a "major facility" as any asset with an initial acquisition price of $500,000 or more, or any facility whose entirety meets this dollar threshold, even if the portion out of service cost less. We agree with the comments that urge us to define a "major facility" threshold based on the size of the utility, rather than setting a flat dollar value. A facility that is major to a medium sized water company may be minor to a large investor owned utility such as PG&E.

By the same token, we believe the $50 million threshold some propose is probably too high, even for the largest electric utilities. Assuming a rate of return in the 10% range, such an asset, if left in rate base without being used for utility service, could lead to significant ratepayer overpayments. The statute's purpose to avoid such overpayment is clear on its face. If nothing else, the statute is designed to ensure that ratepayers do not pay a rate of return on assets in rate base that the utility is not using for utility service. Setting the "major facility" definition too high could cause significant ratepayer harm.

We require a better record on this issue, and ask the parties for further comment. The parties should assume we will define a "major facility" based on the size of the utility. Thus, the large electric, gas and water utilities will have thresholds that are higher than those of small energy providers and small water companies. The parties shall file comments in this regard within 90 days of the effective date of this decision, and may file reply comments within 30 days of receipt of the opening comments. Before filing such comments, all non-telecommunications parties who filed comments shall meet and confer in an attempt to reach agreement on standard definitions of major facilities based on utility size. These parties shall report the results of their meet and confer session to the assigned administrative law judge (ALJ) before filing comments.

At a minimum, parties shall assume that the following rules will govern their negotiations and/or written proposals:

· The statute applies only to electrical, gas, heat or water corporations' generation or production facilities. The parties should try to agree upon a common definition of "generation" and "production" that is based on either the USOA or another rational interpretation of the terms, and

· The statute applies to facilities as well as portions of facilities.

We agree with SDG&E that the statute does not require that sales of major facilities be barred or voided if the utility fails to meet its reporting requirements under § 455.5. Section 851 is the appropriate provision for determining whether a utility may sell its assets, and we hold in this decision that interpretation of § 851 is beyond the scope of this proceeding.⁷⁴ The Commission has recently adopted a pilot program (Resolution ALJ-186) designed to streamline its review of certain § 851 transactions, and has indicated that it will take additional steps to review how it handles § 851 generally. We need not duplicate those efforts here.

⁷² ORA/TURN Reply Comments at 6.

⁷³ The nameplate capacity of a power plant is the capacity it was designed to handle.

⁷⁴ We do deal, however, with a special situation confronting water companies later in this decision.