On May 9, 2024, the California Public Utilities Commission (Commission) denied an application for transfer of assets filed by Pacific Gas and Electric Company (PG&E) and its subsidiary, Pacific Generation.
This decision is a win for the California Hydropower Reform Coalition (CHRC), of which California Sportfishing Protection Alliance (CSPA) is an active member. CHRC challenged PG&E’s application throughout regulatory hearings conducted by the Commission, on the grounds that the transfer of assets was not in the public interest.
In its decision, the Commission agreed, stating that PG&E was required to “demonstrate, among other things, that their requests are adequately justified, reasonable, and in the public interest.” The Commission found that PG&E’s proposed transaction failed to meet “even the minimal public interest standard.”
Background
On September 28, 2022, PG&E filed an application to transfer all of PG&E’s non-nuclear generation assets to a newly formed subsidiary, Pacific Generation.
Among the assets PG&E proposed to transfer were all of its hydropower projects. These included projects that PG&E has proposed to fully or partly decommission: the DeSabla-Centerville Hydroelectric Project located on Butte Creek and the West Branch of the Feather River, the Battle Creek Hydroelectric Project on Battle Creek, and the Potter Valley Hydroelectric Project on the Eel River and East Branch of the Russian River. PG&E applied to transfer the hydroelectric facilities as well as the land associated with those facilities to Pacific Generation.
The assets PG&E applied to transfer are worth approximately $3.5 billion. PG&E intended to transfer these assets to Pacific Generation without receiving any cash payment for those assets. Further, PG&E proposed to provide all the personnel to operate and maintain the facilities it wanted to transfer.
Section 854(a) of the Public Utilities Code requires any transaction related to public utilities to be approved by the Commission. The transaction must meet a range of requirements for the Commission to approve the transaction including the stipulation that the transaction must be in the public interest.
Why CSPA and CHRC Challenged PG&E’s Application
In testimony delivered to the Commission on June 16, 2023, CSPA’s Chris Shutes stated that PG&E has a “corporate practice of deferral and delay” when it comes to maintaining its hydroelectric facilities. In addition to safety concerns, this practice has led to PG&E’s failure to fulfill its obligations to keep waterways and fish below its hydroelectric facilities in good condition.
In 2006, CSPA became involved in Federal Energy Regulatory Committee (FERC) relicensing procedures for the DeSabla-Centerville Project in an effort to secure better conditions for spring-run Chinook salmon in Butte Creek. PG&E stalled the relicensing process and the DeSabla-Centerville Project remains without a renewed license today.
In the early 1980s PG&E began investigating how to make the 125-year-old Centerville Powerhouse more reliable and efficient. The Centerville Powerhouse has now been completely offline since 2011, and PG&E has determined it to be irreparable.
The assets that PG&E applied to transfer are operated for a range of beneficial uses including water supply, environmental mitigation, recreation, and flood control. CHRC stated that PG&E showed no evidence that Pacific Generation had the financial capacity to repair and maintain the facilities. Further, PG&E did not address how the new arrangement would impact its own ability to maintain the reliability and safety of the hydroelectric projects involved.
The Commission’s Decision
PG&E applied to transfer these assets to Pacific Generation to use them to raise money without subjecting investors to liability for PG&E’s overall operations. This would shield investors from fires caused by PG&E’s transmission lines. However, a result of transfer would also be that PG&E would avoid liability and responsibility for the transferred assets. Thus, if a dam failed at one of the hydropower projects, the subsidiary would become the legally responsible entity.
In its decision, the Commission stated that if the application was successful, Pacific Generation would own $3.5 billion worth of public utility assets despite having only one employee. Pacific Generation would be legally accountable and responsible for the operation and safety of the assets, yet the assets would be operated solely by employees of PG&E.
The Commission also found that the transfer could increase costs for ratepayers and further reduce the safety of the affected projects.
PG&E stated that its application to transfer assets was not adverse to the public interest and as such it did not have to prove that the transfer would be of benefit to consumers. The Commission disagreed and stated in its decision that the “proposed transaction is novel and unprecedented” and as such a “heightened standard of review should apply.” PG&E’s application did not survive the Commission’s scrutiny.
Conclusion
CSPA has worked for many decades to hold PG&E and other hydroelectric project operators accountable both for public safety and for the danger their projects pose to fisheries and riparian habitats. The Commission’s decision is a welcome outcome for CSPA and its colleagues in the CHRC, who represent a wide range of interests that are impacted by hydroelectric facilities.
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The steering committee of the California Hydropower Reform Coalition (CHRC) includes California Sportfishing Protection Alliance, American Rivers, American Whitewater, California Outdoors, California Trout, Inc., Foothill Conservancy, Friends of the River, South Yuba River Citizens League, and Trout Unlimited. Julie Gantenbein of Water Power Law Group represented CHRC in this matter.