II. Background

Sierra owns four run-of-the-river hydroelectric generating plants¹ at Farad, California and Fleish, Verdi and Washoe, Nevada. Sierra is an investor-owned public utility that provides retail electric service to customers in northern Nevada and portions of eastern California. Sierra serves approximately 44,000 customers in California, most of whom are located in and around the Lake Tahoe Basin.

On January 15, 2001, Sierra Pacific agreed to sell its retail water business, including the plants, to the TMWA, conditioned upon Commission approval of the sale. The purchase price is $8 million. The Asset Purchase Agreement (APA) between the two entities is the product of a long series of negotiations involving Sierra, the TMWA and many other entities, and is designed to ensure adequate water supply and fish spawning grounds, among other things, in the Lake Tahoe and Truckee River areas.²

The approval Sierra seeks here is but one in a long list of approvals required to complete a full reorganization of water rights and obligations in foregoing areas. These rights and obligations appear in full in the TROA,³ a document applicable to, among others, the United States, California, Nevada, Sierra, the Pyramid Lake Paiute Tribe, the Washoe County Conservation District, and the Cities of Reno and Sparks, Nevada.

The TMWA is a publicly-owned municipal water utility that provides retail commercial and residential water services to customers in portions of the cities of Reno and Sparks, Nevada.⁴

Sierra proposes to transfer the water rights associated with its right to divert water from the Truckee River for hydroelectric generation to TMWA. Those water rights were established under the Orr Ditch Decree, Claims 4 through 9,⁵ allowing Sierra to divert water from the Truckee River to produce electricity in its run-of-the-river generating plants.

In Decision (D.) 03-04-043,⁶ this Commission found that an earlier application Sierra filed was not sufficient to allow the Commission to address the request and analyze its environmental impacts. We denied the application without prejudice, and granted Sierra the right to file a new application, with adequate justification, including a proponent's environmental assessment (PEA). Sierra filed this application, accompanied by the required PEA, on September 30, 2003.⁷

Utilities may not generally sell their electric generating plants.⁸ However, on September 24, 2002, Assembly Bill 1235 was signed into law, amending Pub. Util. Code § 377 to allow Sierra to sell these four plants. Section 377.1 states that § 377, barring generally the sale of generating plants, "does not apply to the four run-of-river hydroelectric project works located on the Truckee River. . . ." Section 377.1 became effective on September 24, 2002.

Each plant, when running at full capacity, produces roughly 2.5 megawatts (MW) of electricity. However, Sierra states that only 5.6 percent of its total electric generation serves California, and that these run-of-the-river plants operate at full capacity only a few months during the year when water levels in the Truckee River permit diversions for hydroelectric generation. Thus, according to Sierra, at maximum capacity, the 10 MW associated with these plants will reduce the power available to California customers only by 0.56 MW. At actual capacity - 4.7 MW for the 12 months ended September 2002 - only 0.26 MW was allocated to California. Sierra thus asserts that the electricity loss to California would be de minimis. Moreover, since Sierra believes that TMWA will continue to operate the hydroelectric generation portion of the plants' output, Sierra asserts that even this small reduction in electric capacity may not come to pass.

No party has protested the application.

² See, e.g., Truckee River Operating Agreement, Federal Register: April 15, 2004 (Volume 69, Number 73) (U.S. Department of the Interior notice of intent to prepare draft environmental impact statement/environmental impact report for the Draft Truckee River Operating Agreement (TROA) which would implement Section 205(a) of the Truckee-Carson-Pyramid Lake Water Rights Settlement Act of 1990, Title II of Pub. L. 101-618 (Settlement Act)), available on the Internet at http://www.epa.gov/fedrgstr/EPA-IMPACT/2004/April/Day-15/i8570.htm.

⁴ The TMWA was established pursuant to a Cooperative Agreement among the City of Reno, the City of Sparks, and Washoe County to establish a Joint Powers Authority (Authority) pursuant to the Nevada Interlocal Cooperation Act (NRS Chapter 277.080 through 277.180) for the purpose of acquiring Sierra's water business assets.
See Op. Nev. Att'y Gen. No. 2000-34 (Dec. 2000), cited in Public Utilities Commission of Nevada's May 4, 2001 Order in its Docket 01-1044, available on the Internet at http://www.puc.state.nv.us/water/dkt_01-1044/01-1044o2.pdf.

⁵ United States v. Orr Water Ditch Co., Equity No. A-3 (D. Nev. 1944), cited in United States v. Nevada, 415 U.S. 534 (1973). Sierra describes this litigation and the resulting decree at length in Chapter 4 of the testimony accompanying its application.