5. Section 377 Applicability

At issue here is whether SCE's FOP Facilities, are classified as "generation-related assets," under Section 377, as amended by AB 6X, and therefore barred from sale.

5.1. Position of the Applicants

SCE and Pacific Terminals' (Applicants') position is that the Commission does have the authority to consider and approve the sale of the FOP Facilities. The Applicants state that the FOP Facilities do not generate electricity, and the plain language of the statute as well as the legislative history indicate that the intent of the legislature was to restrict sales only of facilities that are actually used to generate electricity. Applicants believe that the statute does not address, and never was intended to apply to all ancillary support and other assets related to the generation of power.

Applicants note that even if the statute were to be read so broadly, the FOP Facilities do not provide any fuel for any generating stations, nor do they play any other role whatsoever in the generation of electricity. Applicants state that the FOP Facilities formerly played a role in providing fuel to several generating stations. However, in 1999 the CALISO, with the express concurrence of the Commission's Energy Division and the Electricity Oversight Board found, that the FOP Facilities were no longer needed to provide even an emergency back-up fuel supply to any generating stations. With this official determination, Applicants contend that the FOP Facilities ceased to have any role in the generation of electricity. Applicants note that this happened well prior to January 2001, when the legislature amended Section 377 to bar the sale of facilities for the generation of electricity for the ensuing five years.

5.2. CUE's Position

CUE, on the other hand, believes that Section 377 applies to the proposed sale and takes the position that there are two possible answers to the question: either SCE's fuel oil pipeline facilities are facilities for the generation of electricity under Section 377, and therefore must remain dedicated to service for the benefit of California ratepayers, or the fuel oil pipeline facilities are not facilities for the generation of electricity and SCE has over-collected tens of millions of dollars from ratepayers for the support of these facilities. CUE states that if the first answer is correct, the Commission cannot approve the proposed sale of the facilities. If the second answer is correct, SCE must repay ratepayers the full over-collection before the sale may go forward.

CUE goes on to state that because SCE continues to this day to collect funds from ratepayers to support the fuel oil pipeline facilities as generation assets, SCE should be estopped from now arguing that the facilities are not generation assets because it is suddenly in SCE's interest to do so.

CUE notes that based on the use of the facilities as a primary and back-up fuel oil storage and transmission system for SCE's generating plants, both the Commission and SCE previously recognized that the fuel oil pipeline facilities were generation-related assets that required market valuation under AB 1890.⁸

Applicants counter in their reply brief, along with other arguments, that CUE overlooks the fact that the Commission already determined in D.01-02-059 that the FOP Facilities are not "generation-related assets" for purposes of market valuation by year-end 2001 under Pub. Util. Code § 367(b). Applicants also contend that if the Commission has determined that the FOP Facilities are not even "related" to generation, one cannot now logically conclude that the FOP Facilities meet the more stringent criteria set forth in Pub. Util. Code § 377 of actually being "facilities for the generation of electricity." Applicants also state that CUE's position represents an unlawful collateral attack on D.01-02-059.

5.3. Discussion of Section 377

In considering this application, we 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.

Thus, before we may consider the merits of these applications, we must address the threshold question - does § 377 bar the proposed transaction?

The assets in question here were owned by SCE prior to January 1, 1997. We must determine whether the assets that SCE wants to dispose of are a facility or facilities 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.⁹

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, the land on which a power plant sits does not actually generate electricity, nor would it appear to be a facility. Does this mean that a utility could sell the land under a power plant, while keeping the power plant, itself? Or could a utility sell pipeline or storage facilities that provide fuel to power these generating plants.

Fortunately, the statute itself provides further guidance on this issue. The statute says that "public utility generation assets" are to remain dedicated to service for the benefit of California ratepayers. "Generation assets" is a term of art.

The Uniform System of Accounts (USOA) of the FERC provides confirmation that generation assets include more than just the power plant itself.¹⁰ For example, Electric Plant Account 310 includes the cost of land and land rights associated with steam generation, Account 330 includes land and land rights for hydroelectric generation, Accounts 311 and 331 include the respective costs of structures and improvements for steam and hydroelectric generation, while Account 342 Fuel holders, Producers and Accessories, includes the cost of fuel handling and storage equipment used between the point of fuel delivery to the station and intake pipe through which fuel is directly drawn to the engine.

To the extent there is any potential conflict between the phrases "facility for the generation of electricity" and "generation asset," that conflict can, and accordingly must, be harmonized. (See, e.g., Wells v. Marina City Properties, Inc. (1981) 29 Cal. 3d 781, 788; Louisiana-Pacific Corp. v. Humboldt Bay Municipal Water District (1982) 137 Cal. App. 3d 152, 156.) Rather than disregarding the words "generation assets" and their well-established meaning, we construe the words "facility for the generation of electricity" to have the same breadth.

While we agree that Section 377 bars not just the disposal of power plants, but also the generation assets generally, there are other circumstances to consider here.

SCE states in its reply brief that the Commission in D.01-02-059, (A.00-01-037), determined that the FOP Facilities are not "generation-related" § 367(b). While the Commission did not make an explicit finding in D.01-02-059 with regard the whether or not the facilities were or were not "generation-related assets," it did address the issue and did not disagree with SCE's characterization of these assets.

We conclude that the assets are not generation-related assets based on the following facts:

· In August 1999 the CAISO concluded that there was no further need to retain the back-up fuel oil capability for the power plants that had been served by the FOP Facilities. Accordingly, SCE then proceeded to sell off the fuel inventory, and dismantle the connections between the FOP system and the power plants.

· In D.01-02-059, the Commission stated that the remaining FOP (fuel oil pipeline) Facilities would be subject to the Commission's jurisdiction under Pub. Util. Code §§ 216, 227 and 228 as an oil "pipeline." While the FOP Facilities would be owned and controlled by a regulated electric utility, they would not be "electric plant" under Pub. Util. § 217 and, consequently, would not be "generation related assets" under the provision of Pub. Util. Code § 367(b) and AB 1890.

Clearly, these assets, the Fuel Oil Pipeline Facilities, now a regulated oil pipeline company owned and operated by SCE, are no longer used directly or indirectly for electric generation purposes. Section 377 is not applicable.