7. Discussion
We will first review A.11-09-012 in the context of Section 854(a). We will then evaluate the Settlement Agreement using the criteria in Rule 12.1(d).
7.1. Section 854(a)
The Joint Applicants request authority under Section 854(a) to revise the upstream ownership structure for CalPeco whereby Emera will transfer its 49.999% indirect ownership interest in CalPeco to Algonquin, and Algonquin will increase its indirect ownership interest in CalPeco from 50.001% to 100%. Section 854(a) states, in relevant part, as follows:
No person or corporation . . . 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 prior authorization shall be void and of no effect.
The purpose of Section 854(a) is to enable the Commission to review a proposed transaction, before it takes place, so that the Commission can take such actions as the public interest may require.5 In general, the Commission will approve a proposed transaction pursuant to Section 854(a) if the transaction does not harm ratepayers and is not otherwise adverse to the public interest.6
The record of this proceeding establishes that Algonquin is qualified to assume 100% indirect ownership of CalPeco. Algonquin has sufficient managerial and technical expertise to operate CalPeco, as demonstrated by its ownership of electric, natural gas, water, and sewer utilities in North America. Algonquin also has adequate financial resources to fulfill its Regulatory Commitments, discussed below, should that become necessary. In particular, Algonquin's financial statements show that it had total revenues of $183 million (Canadian) in 2010, and total assets and shareholder equity of $981 million and $349 million (Canadian), respectively, on December 31, 2010.7 We are not aware of any issues since Algonquin acquired its current 50.001% indirect ownership in CalPeco pursuant to D.10-10-017 that indicate Algonquin should not be allowed to acquire 100% indirect ownership.
The record further establishes that the Proposed Transaction will have no adverse effects on CalPeco's regulated operations and customers. As set forth in A.11-09-012, there will be no changes to CalPeco's operations, personnel, revenue requirement, rates, or service from the Proposed Transaction. The Joint Applicants affirm that the Regulatory Commitments adopted by D.10-10-017 will remain in full force and effect. The Regulatory Commitments require, among other things, the following:
· The California utility CalPeco shall be held as a separate legal entity with no other operations. CalPeco shall hold all of its assets in its own name, and shall maintain adequate capital and number of employees in light of its business purposes.
· CalPeco shall not provide financing or guarantees for, extend credit to, or pledge utility assets in support of Algonquin, Emera, or their affiliates. Algonquin and Emera shall finance and fund their business activities independently of CalPeco, with no recourse to CalPeco's assets. The assets of CalPeco shall be used solely for the purpose of providing electric utility service to its customers and securing any debt obtained by CalPeco.
· CalPeco shall not transfer any physical assets used to provide utility services to Algonquin, Emera, or their affiliates without first obtaining the necessary approvals from the Commission and shall in no event transfer any physical assets if doing so would impair CalPeco's ability to fulfill its public utility obligations.
· Based on the understanding that the Commission will grant CalPeco timely recovery in rates for the reasonable costs it incurs to provide electric service, including a reasonable return on rate base, Emera and Algonquin shall ensure that CalPeco maintains sufficient funds for operations and necessary capital investments.
· CalPeco shall maintain separate books and records, systems of accounts, financial statements, and bank accounts. All financial books and records will be kept in California and, together with records of any Emera and/or Algonquin affiliate that are relevant to CalPeco (wherever held), will be made available for review by the Commission upon request.
The complete set of Regulatory Commitments is contained in Appendix 3 of today's decision.
The Joint Applicants also affirm that OP 1(c) of D.10-10-017 will remain in full force and effect. OP 1(c) requires each Joint Applicant to provide its officers and employees to testify in California about matters pertinent to CalPeco, as the Commission may determine to be necessary, consistent with established principles of due process and fairness.
For the preceding reasons, we find the Proposed Transaction will not harm ratepayers or the public interest. Therefore, the Proposed Transaction satisfies the Commission's standard for approval under Section 854(a).
7.2. Rule 12.1(d)
Rule 12.1(d) provides that the Commission may approve a settlement agreement that is reasonable in light of the whole record, consistent with the law, and in the public interest. We address these criteria below.
The Settlement Agreement ensures that the ratepayer protections adopted by D.10-10-017 will remain in full force and effect if the Commission approves the Proposed Transaction, including the Regulatory Commitments in Appendix 3 of D.10-10-017 and the requirement in OP 1(c) of D.10-10-017 that the Joint Applicants' officers and employees will testify in California, if necessary. The Settlement Agreement adds the new ratepayer protection that the Additional Algonquin Entities, who are not parties to A.11-09-012, will provide their officers and employees to testify in California about matters pertinent to CalPeco, as the Commission may determine to be necessary, consistent with established principles of due process and fairness.
Based on our review of the record of this proceeding, which includes A.11-09-012, DRA's protest and the Joint Applicants' reply, the written PHC statements and the PHC transcript, and the Joint Applicants' Compliance Filings, we find the Settlement Agreement is reasonable in light of the whole record.
We find the Settlement Agreement is consistent with the law, including the California Public Utilities Code and Commission decisions, rules, and general orders. Of particular relevance here, the Settlement Agreement ensures that the ratepayer protections adopted by D.10-10-017 will remain in full force and effect with respect to the upstream owners of CalPeco, including Emera, notwithstanding Emera's transfer of its 49.999% indirect ownership interest in CalPeco to Algonquin in accordance with A.11-09-012.
The Commission has long favored the settlement of disputes. This policy supports many worthwhile goals, including reducing the expense of litigation, conserving scarce Commission resources, and allowing parties to reduce the risk that litigation will produce unacceptable results. The Settlement Agreement achieves these goals in a way that allows the Proposed Transaction to proceed with no adverse effects on CalPeco's regulated operations and customers. We conclude, therefore, that the Settlement Agreement is in the public interest.
7.3. Conclusion
For the reasons stated previously, we find the Proposed Transaction and the associated Settlement Agreement are reasonable in light of the whole record, consistent with the law, and in the public interest, and should be approved pursuant to Section 854(a) and Rule 12.1(d). In accordance with Rule 12.5, the approved Settlement Agreement is binding on the settling parties, but the settlement does not establish a precedent for any principle or issue.
5 Sections 854(b) and 854(c) apply only when a transacting utility has annual California revenues exceeding $500 million. As shown in Exhibit C of A.11-09-012, CalPeco's annual revenues are less than $100 million.
6 D.10-10-017 at 60, Conclusion of Law 3, and D.09-08-017 at 7.
7 A.11-09-012, Appendix F.
