5. Discussion

A.00-08-022 requests authority for the Crockett lease pursuant to Section 851. Section 851 states, in relevant part, as follows:

No [utility]...shall...lease...any part its plant, system, or other property necessary or useful in the performance of its duties to the public...without first having secured from the commission an order authorizing it to do so. Every such...lease...made other than in accordance with the order authorizing it is void...[Any lease] of property by a public utility shall be conclusively presumed to be of property that is not useful or necessary in the performance of its duties to the public, as to any...lessee...dealing with such property in good faith and for value....

The Commission has broad discretion to determine if it is in the public interest to authorize a transaction pursuant to Section 851.10 The primary standard used by the Commission is whether the transaction will serve the public interest.11 Where necessary and appropriate, the Commission may attach conditions to a transaction in order to protect and promote the public interest.12

The record of this proceeding demonstrates that the Crockett lease provides substantial benefits to the public. In particular, the lease enables the delivery of 240 MW of power to PG&E's transmission grid. This power was vital to California during the recent electricity crisis when power shortages caused rolling blackouts. The power remains vitally important today. Moreover, the Commission has long recognized that the public interest is served when utility property is used for other productive purposes without interfering with the utility's operations or the provision of utility service to the public.13 The Crockett lease allows PG&E's property to be used for other productive uses, and PG&E has demonstrated that the lease will not interfere with the performance of its duties to the public.

We conclude for the preceding reasons that the Crockett lease is in the public interest and should be approved pursuant to Section 851. The authority granted by today's decision shall apply prospectively. We deny PG&E's request for retroactive authority. The purpose of Section 851 is to enable the Commission to review a proposed encumbrance of utility property before it occurs in order to take such action as the public interest may require. Granting Section 851 approval retroactively would frustrate the intent of Section 851. PG&E is at risk for any adverse consequences that may result from its having entered into the agreement without prior Commission authority.

Section 851 dictates a different result with respect to Crockett. Section 851 provides that when a lessee deals "in good faith for value," there is a conclusive presumption that the leased property is not necessary or useful to the performance of the utility's duties to the public. The Commission has interpreted this provision as protecting innocent lessees from having their transactions invalidated solely because a utility has leased its property without Commission authority under Section 851.14 There is no evidence in this proceeding that Crockett did not deal in good faith and for value for the lease. Accordingly, we conclude that Crockett's rights and obligations under the lease agreement remain in full force and effect for the period of time prior to today's decision.

We decline to grant PG&E's request to exempt the Crockett lease from Section 851 pursuant to Section 853(b). Section 853(b) provides, in part, that "[t]he Commission may...exempt any public utility...from...[Section 851]...if it finds that the application thereof with respect to the public utility...is not necessary in the public interest." PG&E states that it is necessary to exempt the Crockett lease from Section 851 in order to avoid the potential harm to PG&E that could result if the lease is deemed void for any period of time. PG&E is especially concerned that it might not be able to enforce any of its rights under the lease, including indemnification rights.

It is the Commission's policy to grant exemptions from Section 851 pursuant to Section 853(b) only in extraordinary circumstances.15 The reasons for this policy are set forth in D.02-06-015:

The public interest test in Section 853 is not met by ordinary transactions that were completed without Commission review as a result of oversight or a business decision to ignore the requirements of the Public Utilities Code. This Commission has a clear practice of invoking Section 853 only to address certain practical difficulties created when transactions have been voided in "extraordinary circumstances." (D.99-02-062) The Commission has made clear the application of Section 853 must be a "seldom used procedure." (Ibid.) Frequent reliance on Section 853 would create an exception that swallowed the rule. If the Commission relied regularly on Section 853, it would effectively amend the clear requirements of the other 850 series sections out of the Public Utilities Code. This Commission is not empowered to take such legislative action. (D.02-06-015, mimeo., p. 4. Detailed citation omitted.)

The record of this proceeding shows that the Crockett lease stemmed from an ordinary transaction that was completed without Commission review under Section 851 as a result of PG&E's oversight. There are no extraordinary circumstances that warrant the invoking of Section 853(b).16

PG&E requests authority to make minor modifications to the Crockett lease without having to obtain approval for the modifications under Section 851. Given the 30-year term of the lease, we conclude that it is reasonable to provide PG&E with prospective authority under Section 851 to make minor modifications to the agreement that meet all of the following conditions:


(1) The modification does not involve any change in use of (i) the leased property or (ii) the facilities installed on the property pursuant to the lease.


(2) The modification does not involve new construction. This condition does not apply to minor repairs and maintenance (e.g., constructing a new fence to replace a dilapidated fence).


(3) The modification does not adversely affect PG&E, its ratepayers, or the public at large.


(4) The modification is carried out in accordance with all applicable laws, rules, regulations, and standards.

Today's decision does not address the ratemaking treatment of the costs and revenues associated with the Crockett lease. The ratemaking treatment for these costs and revenues will be decided by the Commission in future GRC proceedings or other appropriate venues.

PG&E violated Section 851 when it consummated the Crockett lease without prior approval from the Commission. Although we may fine PG&E for the violation pursuant to Section 2107, we decline to do so. PG&E's violation of Section 851 does not appear to have caused any physical or economic harm to others. It also appears that PG&E did not benefit materially from its unlawful conduct. We emphasize that our decision to not penalize PG&E is based on the unique facts and circumstances before us in this proceeding. We will impose fines for violations of Section 851 in other proceedings if the facts so warrant.

GO 69-C authorizes utilities to grant licenses for the use of their property without having to obtain prior approval from the Commission under Section 851 if certain conditions are met. GO 69-C states, in relevant part, as follows:


[P]ublic utilities covered by...Section 851...are hereby authorized to grant easements, licenses or permits for use or occupancy on, over or under any portion of the operative property of said utilities for...limited uses...whenever it shall appear that the exercise of such easement, license or permit will not interfere with the operations, practices and services of such public utilities to and for their several patrons or consumers.


PROVIDED, HOWEVER, that each such grant...shall be made conditional upon the right of the grantor, either upon order of this Commission or upon its own motion to commence or resume the use of the property in question whenever, in the interest of its service to its patrons or consumers, it shall appear necessary or desirable to do so[.]

GO 69-C establishes three key criteria for permitting a utility to grant minor interests in the utility's property without Section 851 approval. These are:


1. The interest granted must be for a "limited use" of the utility's property.


2. The interest granted must not interfere with the utility's operations, practices, and service to its customers.


3. The interest granted must be revocable either upon the order of the Commission or upon the utility's own determination that revocation is desirable or necessary to serve its consumers.

PG&E argues that the Crockett lease satisfies all the GO 69-C criteria and, consequently, does not have to be approved by the Commission pursuant to Section 851.17 If the Commission deems the Crockett lease void for any period of time under Section 851, PG&E asks the Commission to declare that the lease is still valid under GO 69-C.

We begin our analysis by determining whether the Crockett lease satisfies the first criterion, i.e., whether the lease allows only "limited uses" of PG&E's property. If it does not, then GO 69-C does not apply and there is no need to determine if the lease satisfies the other criteria.

Although GO 69-C does not define the term "limited use," two recent Commission decisions provide useful guidance. In D.02-10-057, the Commission held that "any proposed physical changes to utility property (e.g., construction) that would require CEQA review if authority were sought under [Section] 851, should be reviewed under [Section] 851. GO 69-C is inapplicable under such circumstances and its use is inappropriate."18 As described elsewhere in today's decision, the facilities constructed pursuant to the Crockett lease required (and underwent) an environmental review by the CEC that was equivalent to a CEQA review. Therefore, based on the guidance provided by D.02-10-057, we conclude that GO 69-C does not apply to the Crockett lease.

In D.03-04-010, the Commission held that the construction of facilities that are not easily removable is not a "limited use" within the meaning of GO 69-C.19 The Crockett lease allows Crockett to use PG&E's property "for the installation and maintenance of a 230 kV high pressure pipe filled underground electric transmission line, termination point, transition and metering station and interconnection with the PG&E 230 kV...transmission line, together with auxiliary equipment, buildings, pumping stations, utilities interconnection, and other equipment necessary or desirable appurtenant thereto...including, but not limited to, the right to erect...a sign, or signs suitable for advertising purposes, the right to fence the leased premises, and to place any personal property or trade fixtures necessary to such purposes in or on the leased premises."20 We interpret this provision in the Crockett lease as allowing the construction of facilities on the leased premises that are not easily removable. Photographs of the facilities constructed pursuant to the Crockett lease demonstrate that the facilities are substantial and permanent installations.21 We conclude that the facilities allowed by the lease agreement and actually constructed by Crockett are not easily removable and, consequently, are not a "limited use." Therefore, consistent with the guidance provide by D.03-04-010, we conclude that GO 69-C does not apply to the Crockett lease.

As an aside, we are skeptical of PG&E's claim that when it signed the Crockett lease in 1994, it believed in good faith that the lease was a GO 69-C license agreement based on guidance provided by D.94-06-017 and D.93-04-019.22 Both of these decisions grant authority pursuant to Section 851, and not GO 69-C, for a third party to install fiber optic cables in underground conduit owned by Southern California Edison.23 Therefore, if PG&E were relying on these two decisions for guidance, PG&E should have known in December 1994 when it signed the Crockett lease that the lease was subject to Section 851.

CEQA requires the Commission to consider the environmental consequences of its discretionary decisions.24 CEQA also requires an environmental review to occur before an activity takes place. Here, all of the activities contemplated by the Crockett lease have already occurred. Consequently, conducting a CEQA review of the Crockett lease at this time would serve no practical purpose, and we decline to undertake a CEQA review.

We note that the CEC previously conducted an environmental review of the facilities constructed on PG&E's property pursuant to the Crockett lease. The CEC conducted its review in accordance with Public Resources Code Sections 25500 et seq. The CEC found that its adopted conditions ensured that the Crockett lease facilities would have no significant adverse environmental impacts.25 Consistent with CEQA Guideline 15091(a), we adopt the conditions of certification adopted by the CEC that are applicable to the Crockett lease facilities.26

10 D.01-06-007, mimeo., p. 16. 11 D.00-06-005, 2000 Cal. PUC LEXIS 281, *4; D.99-04-066, p. 5; D.99-02-036, p. 9; D.97-06-066, 72 CPUC 2d 851, 861; D.95-10-045, 62 CPUC 2d 160, 167; D.94-01-041, 53 CPUC 2d 116, 119; D.93-04-019, 48 CPUC 2d 601, 603; D.86-03-090, 1986 Cal. PUC LEXIS 198 *28 and COL 3; and D.8491, 19 CRC 199, 200. 12 D.01-06-007, mimeo, p. 17. 13 See, for example, D.02-01-058, D.94-06-017, D.93-04-019, and D.92-07-007. 14 D.92-07-007, 45 CPUC 2d 24, 30. Importantly, D.92-07-007 clearly indicates that the protection of innocent lessees does not vitiate the primary requirement of Section 851 that the utility obtain Commission approval for a lease prior to consummating the lease. (Ibid.) This central principle of Section 851 makes prior review and approval of Section 851 transactions by the Commission especially important if the public is to be protected from harmful transactions that cannot be voided, for practical purposes, after the fact. 15 D.02-01-055, 2002 Cal. PUC LEXIS 2, at *7. 16 Unlike PG&E, we believe there is little possibility that PG&E might not be able to enforce its rights under the Crockett lease. First, we conclude, supra, that the lessee's rights and obligations remain in full force and effect prior to today's decision. Because the lessee's obligations remain in effect, PG&E should be able to enforce its rights. Otherwise, the lessee would unfairly enjoy all the benefits of the agreement with none of the corresponding obligations. Second, our conclusion that the Crockett lease remains in full force and effect prior to today's decision was predicated on our finding, supra, that the lessee was dealing in good faith. Any lessee dealing in good faith intends to be bound by the lease. If the lessee is not dealing in good faith, then the lease is automatically void with respect to the lessee pursuant to Section 851. Finally, it would be inconsistent with the intent of Section 851 and poor public policy to relieve Crockett of its obligations under the lease. To do so would prevent PG&E from using its rights and powers under the lease to stop the lessee from using PG&E's property in a manner that is harmful to the performance of PG&E's duties to the public. 17 PG&E explains that even though the Crockett lease satisfies the GO 69-C criteria, PG&E nonetheless filed A.00-06-010 for approval of the lease agreement in order to avoid any questions about Section 851 compliance. 18 D.02-10-057, mimeo., p. 5. 19 D.03-04-010, mimeo, pp. 4 - 5. 20 A.00-08-022, Attachment A, paragraph 3. 21 The photographs are contained in Attachment 5 of the second amendment to A.00-08-022. 22 PG&E amendment to A.00-08-022 filed on April 30, 2004, pp. 5 - 6. 23 D.94-06-017, 55 CPUC 2d 126, 128, and 130; D.93-04-019, 48 CPUC 2d 602, 604, and 605. 24 Pub. Res. Code § 21000, et seq. 25 CEC Adoption Order No. P800-93-04, Docket No. 92-AFC-1, p. 1. No environmental concerns were raised in this proceeding and we have not discovered any. 26 Under CEQA Guideline 15091(a)(1), the Commission may find that the appropriate mitigation measures are either required or incorporated into the project.

Previous PageTop Of PageNext PageGo To First Page