Senate Bill No. 48

Introduced by Senator Hill

December 19, 2012

An act to amend Section 854 of, and to add Sections 740.5 and 854.5 to, the Public Utilities Code, relating to energy.

LEGISLATIVE COUNSEL’S DIGEST

SB 48, as introduced, Hill. Energy-related research: mergers: entities formed to receive benefits on behalf of ratepayers.

Under existing law, the Public Utilities Commission (PUC) has regulatory authority over public utilities, including electrical corporations and gas corporations, as defined. Existing law authorizes the PUC to fix the rates and charges for every public utility, and requires that those rates and charges be just and reasonable. Existing law authorizes certain public utilities, including electrical corporations and gas corporations, to voluntarily adopt certain research and development programs and authorizes the PUC to allow inclusion of expenses for research and development in rates. Existing law requires the PUC to consider specified guidelines in evaluating the research, development, and demonstration programs proposed by electrical corporations and gas corporations.

This bill would require that any research and development or research, development, and demonstration project that is performed by a 3rd party, as defined, and is funded in whole or in part by the ratepayers of an electrical or gas corporation be subject to a merit review, as defined. The bill would require the State Energy Resources Conservation and Development Commission to select the persons to perform the merit review. The bill would require the PUC to prepare and submit to the policy and fiscal committees of the Legislature, by February 1 of each year, a written report listing all research and development, or research, development, and demonstration projects, including specified information, that were funded in whole or in part by the ratepayers of an electrical or gas corporation during the previous 5 years.

The Public Utilities Act, prohibits any person or corporation from acquiring or controlling, directly or indirectly, any public utility organized and doing business in this state, without first securing authorization to do so from the PUC. The act requires the PUC, before authorizing the merger, acquisition, or change in control of an electric, gas, or telephone utility having revenues in excess of a specified amount, to consider, among other things, that the proposal provides short-term and long-term economic benefits to ratepayers, and equitably allocates the short-term and long-term forecasted economic benefits of the proposed merger, acquisition, or control, as determined by the PUC, between shareholders and ratepayers, where the PUC has ratemaking authority. Existing law requires that the ratepayers receive not less than 50% of the benefits.

This bill would prohibit the PUC, when authorizing a merger, acquisition, or change in control, from establishing an entity to receive benefits on behalf of ratepayers without first obtaining statutory authorization from the Legislature. The bill would prohibit a commissioner of the PUC from being an officer or director of an entity formed to receive benefits of behalf of ratepayers resulting from approval of a merger, acquisition, or change in control of an electrical, gas, or telephone corporation.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 740.5 is added to the Public Utilities
Code, to read:

740.5.  

(a) For purposes of this section, the following terms
have the following meanings:

(1) “Merit review” means a thorough, consistent, and objective
examination based on preestablished criteria by persons who are
independent of persons submitting an application, or conducting
the research and development, and who are knowledgeable in the
field of endeavor to which the application or research and
development pertains.

(2) “State agency” includes every state office, officer,
department, division, bureau, board, and commission. “State
agency” does not include the University of California or California
State University.

(3) “Third party” means a person, corporation, or other entity
that is not a state agency or an electrical corporation or gas
corporation regulated by the commission.

(b) Any research and development or research, development,
and demonstration project that is performed by a third party and
is funded in whole or in part by the ratepayers of an electrical or
gas corporation shall be subject to a merit review. The Energy
Commission shall select the persons to perform the merit review.
The Energy Commission shall use the most recent Merit Review
Guide for Financial Assistance, or successor guide, issued by the
federal Department of Energy pursuant to Section 600.13 of
Subpart A of Part 600 of Chapter II of Title 10 of the Code of
Federal Regulations (10 CFR 600.13) as a guide for conducting
merit reviews.

(c) (1) Notwithstanding Section 10231.5 of the Government
Code, by February 1 of each year, the commission shall prepare
and submit to the policy and fiscal committees of the Legislature
a written report listing all research and development, or research,
development, and demonstration projects that were funded in whole
or in part by the ratepayers of an electrical or gas corporation
during the previous five years, including for each project the
citations of all published papers and all oral and poster
presentations given at public meetings. For an electrical
corporation, the report may be included in the report made to the
Legislature pursuant to Section 910.

(2) A report to be submitted pursuant paragraph (1) shall be
submitted in compliance with Section 9795 of the Government
Code.

SEC. 2.  

Section 854 of the Public Utilities Code is amended
to read:

854.  

(a) No person or corporation, whether or not organized
under the laws of this state, shall merge, acquire, or begin insert obtain end insert control begin insert , end insert
either directly or indirectly begin insert , of end insert any public utility organized and
doing business in this state without first securing authorization to
do so from the commission. The commission may establish by
order or rule the definitions of what constitute merger, acquisition,
or control activities which are subject to this section. Any merger,
acquisition, or begin insert change in end insert control without that prior authorization
shall be void and of no effect. No public utility organized and
doing business under the laws of this state, and no subsidiary or
affiliate of, or corporation holding a controlling interest in a public
utility, shall aid or abet any violation of this section.

(b) Before authorizing the merger, acquisition, or begin insert a change in end insert
control of any begin delete electric end delete begin insert electrical end insert , gas, or telephone begin delete utility end delete
begin insert corporation end insert organized and doing business in this state, where any
of the utilities that are parties to the proposed transaction has gross
annual California revenues exceeding five hundred million dollars
($500,000,000), the commission shall find that the proposal does
all of the following:

(1) Provides short-term and long-term economic benefits to
ratepayers.

(2) Equitably allocates, where the commission has ratemaking
authority, the total short-term and long-term forecasted economic
benefits, as determined by the commission, of the proposed merger,
acquisition, or control, between shareholders and ratepayers.
Ratepayers shall receive not less than 50 percent of those benefits.

(3) Not adversely affect competition. In making this finding,
the commission shall request an advisory opinion from the Attorney
General regarding whether competition will be adversely affected
and what mitigation measures could be adopted to avoid this result.

(c) Before authorizing the merger, acquisition, or begin insert a change in end insert
control of any begin delete electric end delete begin insert electrical end insert , gas, or telephone begin delete utility end delete
begin insert corporation end insert organized and doing business in this state, where any
of the entities that are parties to the proposed transaction has gross
annual California revenues exceeding five hundred million dollars
($500,000,000), the commission shall consider each of the criteria
listed in paragraphs (1) to (8), inclusive, and find, on balance, that
the merger, acquisition, or control proposal is in the public interest.

(1) Maintain or improve the financial condition of the resulting
public utility doing business in the state.

(2) Maintain or improve the quality of service to public utility
ratepayers in the state.

(3) Maintain or improve the quality of management of the
resulting public utility doing business in the state.

(4) Be fair and reasonable to affected public utility employees,
including both union and nonunion employees.

(5) Be fair and reasonable to the majority of all affected public
utility shareholders.

(6) Be beneficial on an overall basis to state and local
economies, and to the communities in the area served by the
resulting public utility.

(7) Preserve the jurisdiction of the commission and the capacity
of the commission to effectively regulate and audit public utility
operations in the state.

(8) Provide mitigation measures to prevent significant adverse
consequences which may result.

(d) When reviewing a merger, acquisition, or begin insert change in end insert control
proposal, the commission shall consider reasonable options to the
proposal recommended by other parties, including no new merger,
acquisition, or control, to determine whether comparable short-term
and long-term economic savings can be achieved through other
means while avoiding the possible adverse consequences of the
proposal.

(e) The person or corporation seeking acquisition or control of
a public utility organized and doing business in this state shall
have, before the commission, the burden of proving by a
preponderance of the evidence that the requirements of subdivisions
(b) and (c) are met.

(f) In determining whether an acquiring utility has gross annual
revenues exceeding the amount specified in subdivisions (b) and
(c), the revenues of that utility’s affiliates shall not be considered
unless the affiliate was utilized for the purpose of effecting the
merger, acquisition, or control.

(g) Paragraphs (1) and (2) of subdivision (b) shall not apply to
the formation of a holding company.

(h) For purposes of paragraphs (1) and (2) of subdivision (b),
the legislature does not intend to include acquisitions or changes
in control that are mandated by either the commission or the
Legislature as a result of, or in response to any electric industry
restructuring. However, the value of an acquisition or change in
control may be used by the commission in determining the costs
or benefits attributable to any begin delete electric end delete begin insert electrical end insert industry
restructuring and for allocating those costs or benefits for collection
in rates.

SEC. 3.  

Section 854.5 is added to the Public Utilities Code, to
read:

854.5.  

(a) When authorizing a merger, acquisition, or change
in control pursuant to this chapter, the commission shall not
establish an entity to receive benefits on behalf of ratepayers
without first obtaining statutory authorization from the Legislature.

(b) No commissioner shall be a director or officer of an entity
formed to receive benefits on behalf of ratepayers. The holding of
simultaneous positions as a commissioner and as a director or
officer of an entity formed to receive benefits of behalf of
ratepayers resulting from approval of a merger, acquisition, or
change in control pursuant to this chapter is the holding of public
offices that are incompatible pursuant to Section 1099 of the
Government Code.