5. Standard of Review
As discussed in the scoping memo, we apply Pub. Util. Code §§ 851 and 854(a) as the appropriate standards of review for this application. Section 851 applies generally to the sale of assets, while § 854 addresses transfers of control, among other things. To approve the proposed sale of assets and transfer of control, the Commission must find the proposal meets the public interest standard that prior Commission decisions define for § 854 and § 854(a). Typically, the Commission has required an applicant to show that a proposed transfer is "not adverse to the public interest."26 The Commission has developed criteria by which to make this determination. For example, in D.00-06-079, the Commission observed: "...our decisions over the years have laid out a number of factors that should be considered in making the determination of whether a transaction will be adverse to the public interest."27 D.00-06-079 mentions several factors - purchase price, value of consideration exchanged, efficiencies, operating costs savings - among others. Not every factor found in our case history is relevant to every review under § 851 and § 854(a), and we consider only the applicable factors in this review.
While the legal standard of review for § 851 and § 854(a) is that the proposed transfer is not "adverse to the public interest," the Commission has occasionally articulated the standard of review as requiring a showing that the transfer is "in the public interest."28 Given several factors that are central to this application, including the potential impact on rates of the construction of the new powerhouse, the broad community support for the transaction, and the fact that the transfer and sale represents a transfer out of our jurisdiction, we evaluate this application both under the legal standard and this heightened standard of review.
Section 851 applies generally to the sale of assets by a public utility:
A public utility...shall not sell, lease, assign, mortgage or otherwise dispose of, or encumber the whole or any part of its railroad, street railroad line, plant, system, or other property necessary or useful in the performance of its duties to the pubic, or any franchise or permit or any right thereunder, or by any means whatsoever, directly or indirectly, merge or consolidate its railroad, street railroad, line, plant, system, or other property, or franchises or permits or any part thereof, with any other public utility, without first having either secured an order from the commission authorizing it to do so for qualified transactions valued above five million dollars ($5,000,000)...
Section 851 continues:
For a qualified transaction valued at five million dollars ($5,000,000) or less, the commission may designate a procedure different than the advice letter procedure if it determines that the transaction warrants a more comprehensive review.
Similar to the matter in this application, D.88-04-027 evaluated a proposed property and asset sale by CP National Corporation, an electric utility regulated by the Commission, to the Lassen Municipal Utility District under § 851. The acquisition included all of the property and assets associated with CP National Corporation's electric distribution and transmission systems in Lassen and contiguous counties. While the above example involved a transaction valued at greater than $5,000,000, and the one before us does not, we find that given the similarities between these two cases, and the heightened standard of review we wish to apply to this transaction, it is appropriate to examine this case under § 851 through an application.
Consistent with the scoping memo, our review of the transfer under § 854 focuses on § 854(a). Section 854(a) pertains generally to utility transfers of control:
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. The commission may establish by order or rule the definitions of what constitutes merger, acquisition, or control activities which are subject to this section. Any merger, acquisition, or control without that prior authorization shall be void and of no effect. No public utility organized and doing business under the laws of this state, and no subsidiary or affiliate of, or corporation holding a controlling interest in a public utility, shall aid or abet any violation of this section.
Historically, the Commission has determined the applicability of § 854 on a case-by-case basis. Review under § 854 is consistent with this Commission's procedural approach in D.05-03-010, which approved the sale of Avista Corporation's South Lake Tahoe gas facilities to Southwest Gas Corporation. In that proceeding, we applied § 854 because Southwest Gas Corporation was acquiring control over all of Avista Corporation's public utility operations in California. D.05-03-010 explains:
Since the purpose of § 854 is to enable [this Commission] to review and set conditions on the transfer of a public utility authority in California, the transaction here falls within the meaning of § 854(a).29
In this application, we find a similar situation, where MU is requesting permission from this Commission to transfer all of its public utility operations in California to KMPUD, thus relieving MU of its obligation to provide public utility electric service to customers within its service territory. We find it prudent to apply § 854 to this application.
Subsections (b) and (c) of § 854 require additional scrutiny when any party
to the transaction has gross annual California revenues of more than $500 million. The Application shows that both MU and KMPUD have annual revenues far below $500 million.30 Therefore, subsections (b) and (c) of § 854 are not applicable in this case.
Similar to § 854(a), subsection (d) applies to any transfer of control without limitation to annual revenues. Section 854 (d) provides:
When reviewing a merger, acquisition, or control proposal, the commission shall consider reasonable options to the proposal recommended by other parties, including no new merger, acquisition, or control, to determine whether comparable short-term and long-term economic savings can be achieved through other means while avoiding the possible adverse consequences of the proposal.
No other party provided alternative options for consideration; therefore, subsection (d) of § 854 does not apply in this case. However, in considering whether this application is adverse to the public interest, we considered no acquisition and transfer of control as an alternative under § 854(a).
26 See, for example, D.07-05-031, which approved the transfer of control over California-American Water Company (CalAm) at the holding company level:
The primary standard used by the commission to determine if a transaction should be authorized under § 854(a) is whether the transaction will adversely affect the public interest. (D.07-05-031 at 3, citing D.00-06-079 at 13.)
27 D.00-06-079 at 14.
28 D.07-05-031 at 3 and D.10-10-017 at 11.
29 D.05-03-010 at 11.
30 Application at Exhibits 11, 20.
