USA – CALIFORNIA Law and Practice Contributed by: Nora Sheriff, Gwenneth O’Hara, Samir Hafez, Antonio Carrejo and Elisa Rivas, Buchalter
1.4 Sale of Power Industry Assets There are restrictions regarding the sale of pow- er industry assets or businesses, or for other transactions, including mergers in California. In California, any proposed sale, lease, transfer or merger involving IOU-owned electricity assets – including generation, transmission, storage or distribution infrastructure – is subject to Califor- nia Public Utilities Commission (CPUC) review and approval. The two principal laws governing the sale or transfer of these IOU-owned assets are Public Under Section 851, IOUs are required to obtain CPUC approval before selling, leasing, assign- ing or otherwise disposing of any property necessary or useful in the performance of their duties to the public. Transactions valued above USD5 million are subject to review and approval through the CPUC’s formal application process. Certain transactions valued under USD5 mil- lion may be reviewed and approved through the CPUC’s advice letter process. To approve a Section 851 request, the CPUC must make a formal determination that the proposed transaction “is not adverse to the public interest”. The CPUC has broad discre- tion to make this determination, and may apply a heightened standard, including whether the transaction will serve the public interest or result in a “tangible ratepayer benefit”. Such height- ened standards are typically applied to novel, unprecedented transactions, as well as to trans- actions that could potentially impact rates or the CPUC’s jurisdiction. Utilities Code Sections 851 and 854. Section 851 (Transfer of Property)
Section 854 (Utility Acquisitions) Section 854 (a) prohibits any person or corpora- tion from directly or indirectly merging, acquir- ing or controlling a California IOU without prior CPUC approval. This is intended to ensure that the CPUC can evaluate whether the change in control would be consistent with and promote the public interest. Section 854 sets forth several public interest factors to be considered, including potential impacts on the IOUs’ financial condition, qual- ity of service, quality of management, and the CPUC’s capacity to effectively regulate and audit public utility operations. To approve a Section 854 application, the CPUC must find that the transaction: • provides short-term and long-term economic benefits to ratepayers; • equitably allocates 50% of forecasted eco- nomic benefits to ratepayers; • does not adversely affect competition; and • ensures that the resulting corporation will have an adequate workforce to maintain the safe and reliable operation of the utility assets. Interstate Transmission Facilities Section 203 of the FPA mandates that a “pub- lic utility” (which includes entities involved in interstate wholesale sales) must obtain FERC approval before selling, leasing or otherwise dis- posing of facilities used for interstate transmis- sion or wholesale sales, if the value of the assets exceeds USD10 million. 1.5 Central Planning Authorities California does not have a single, centralised agency that oversees every aspect of electricity supply and infrastructure development. Instead,
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