5. Public Utilities Code Section 377

In considering this application, we need to address § 377, which reads:

The commission shall continue to regulate the facilities for the generation of electricity owned by any public utility prior to January 1, 1997, that are subject to commission regulation until the owner of those facilities has applied to the commission to dispose of those facilities and has been authorized by the commission under Section 851 to undertake that disposal. Notwithstanding any other provision of law, no facility for the generation of electricity owned by a public utility may be disposed of prior to January 1, 2006. The commission shall ensure that public utility generation assets remain dedicated to service for the benefit of California ratepayers. (Section 377, as amended by AB 6X, emphasis added.)

Thus, before we may consider the merits of this application, we must address the threshold question-whether § 377 bars the proposed transaction?

The assets in question here were owned by PG&E prior to January 1, 1997. We must determine whether the assets that PG&E wants to dispose of are a facility for the generation of electricity. If so, such assets may not be disposed of

prior to January 1, 2006. The obvious example of a facility used for the generation of electricity would be a power plant, which literally is a facility that generates electricity. Section 377 clearly bars disposal of power plants owned by public utilities.²

But we are left with the question of whether § 377 only bars disposal of a power plant, itself, or whether it has a broader scope. We must determine whether a facility for the generation of electricity includes more than just the power plant. For example, does § 377 bar the sale of a generation-related property no longer used directly or indirectly for electric generation purposes?

Section 377 states that "public utility generation assets" are to remain dedicated to service for the benefit of California ratepayers. Section 377 does not specifically define the phrases "facilities for the generation of electricity" or "generation assets", both used in the statute. To the extent there is any potential conflict between the phrases "facilities for the generation of electricity" and "generation asset," that conflict must be harmonized. (See, e.g. Wells v. Marina City Properties, Inc. (1981) 29 Cal. 3d, 781, 788; Louisiana-Pacific Corp. v. Humbolt Bay Municipal Water District (1982) 137 Cal.App. 3d 152, 156.)

Here, we find looking to the available legislative committee analyses prepared for AB 6X discussion offers only limited guidance in harmonizing the phrases and understanding the legislative purpose and intent. In particular, we have looked to the analyses prepared for the Assembly Committee on

Appropriations (January 12, 2000), the Assembly Committee on Energy Costs and Availability (January 11, 2001), and the Senate Energy, Utilities and Communications Committee (January 17, 2001).

In general, the committee analyses demonstrate a focus on megawatts (MW) of generation capacity. The Senate Energy, Utilities and Communications Committee specifically framed its inquiry as: (1) should utilities be required to secure explicit authorization from the CPUC prior to disposing of generation assets; and (2) should there be an outright ban on the sale of utility power plants for five years? The analysis identified the key assets in question as PG&E's hydroelectric system³ and Diablo Canyon nuclear plant; SCE's hydroelectric system, its interest in the San Onofre nuclear plant and its interest in the Mohave coal-fired plant in Arizona; and SDG&E's interest in the San Onofre nuclear plant.

Unfortunately, we have no record upon which to determine whether or to what extent the legislative committees may have considered sales not involving the hydroelectric systems or nuclear plants. It is clear, however, that the legislature primarily and unquestionably intended to prohibit the disposal of public utility power generation plants to ensure that generation assets remain dedicated to the service of California ratepayers.

Although the legislature did not define "generation assets," the term is used in utility regulation as a term of art. This Commission has defined

generation assets as including "nonplant physical assets." (D.95-12-063, as modified by D.96-01-009, pp. 50-51.) The Uniform System of Accounts (USOA) of the Federal Energy Regulatory Commission (FERC) provides guidance that generation assets may include more than just the power plant itself.⁴ Electric Plant Account 310 includes the cost of land and land rights associated with steam generation, and Account 330 includes land and land rights for hydroelectric generation. Accounts 311 and 331 include the respective cost of structures and improvements for steam and hydroelectric generation, while Account 332 includes the cost of reservoirs, dams, and waterways used for hydroelectric generation. Yet we recognize that accounting conventions are not always coextensive with the functional and practical requirements of generating electricity.

Given the above stated framework, we believe we must exercise discretion and make a factual determination of whether the denial of the disposition, in our view, is necessary to ensure dedication of generation assets to service for California ratepayers. This requires consideration of the nature, history, past or future intended use of the asset, including the nexus between it and future generation. In making these determinations, we will evaluate each § 851 application according to its unique facts, on a case by case basis, to determine whether the requested disposition is barred by § 377.

Accordingly, today we approve the proposed sale of the New Bridge Marina property located at Bridgehead Road in Antioch. We note that the land

was not used, and will not potentially be used, directly or indirectly for electric generation purposes. It is a small piece of property with a standpipe and associated pump house previously used for irrigation purposes. The buyer, who owns the surrounding land, will demolish those facilities.

Denying the proposed sale would not help ensure that generation assets remain dedicated to service for the benefit of California ratepayers as intended by the legislature. We do not believe the legislature intended to prohibit a sale of this nature when it contemplated or passed AB 6X to amend § 377.

Furthermore, the Commission has provided its interpretation of § 377 in the context of PG&E's application to market value and sell its Kern Facility. (Decision (D.) 01-04-004, 2001 Cal PUC LEXIS 414.) The Kern Facility was the site of a PG&E (non-operating) power plant. While the Commission rejected PG&E's proposed sale of the Kern Facility as being barred by statute, the discussion in D.01-04-004 supports the position that § 377 applies only to facilities that actually generate electricity. Specifically, the Commission states:

Given the unreasonable nature of the current wholesale market, and the Federal Energy Regulatory Commission's failure to act to correct the market problems, it is not in the public interest to divest regulated utility generation assets, where the owners of those divested assets could then sell power to ratepayers at unreasonable market prices, or manage power production and sales in ways that do not benefit California consumers. This concern has led the Legislature to preclude divestiture of utility generation assets until 2006, and led the Commission to defer approval of application to sell the Mohave, Palo Verde and Four Corners generation facilities. (D.01-04-004, 2001, Cal. PUC LEXIS 414, *4-5.)

The Commission's reasoning in rejecting the Kern Facility sale, with the emphasis on the ability to "sell power to ratepayers at unreasonable market prices," supports the argument that § 377 was not intended to preclude the sale of land that was not used directly or indirectly to generate electricity, such as the New Bridge Marina property. In the instant proceeding, the new owners of the New Bridge Marina property would not be able to use the assets to "then sell power to ratepayers at unreasonable market prices." Unlike the Mohave, Palo Verde and Four Corners facilities, the New Bridge Marina property does not directly or indirectly generate electricity. Whereas the Kern Facility was an actual power plant, (albeit a non-operating plant), the New Bridge Marina property is but a parcel of real property purchased to settle a claim of particulate fallout from the Contra Costa power plant. Therefore, we find that § 377 does not bar the proposed sale of the New Bridge Marina property.