Southern California Edison Co. v. Public Utilities Commission

18 Cal. Rptr. 3d 435, 121 Cal. App. 4th 1303
California Court of Appeal·Decided September 27, 2004·No. B171050·Published·Cited by 6 cases

Opinion

Opinion

MALLANO, J.

To accommodate the connection of newly created sources of electrical energy to a transmission facility that is part of the national grid, it is often necessary to upgrade the grid at the point of interconnection. Federal law, as set forth in a recent order of the Federal Energy Regulatory Commission (FERC), states that the generator of the energy is initially *1305 responsible for the costs of the upgrade but further provides that the owner of the transmission facility, typically a public utility such as petitioner Southern California Edison (SCE), may elect to pay those costs. (In either case, the costs are later reimbursed through energy sales.) California Public Utilities Code section 399.25, as interpreted by respondent California Public Utilities Commission (PUC), permits a requirement that the public utility pay the up-front costs. The issue in this case is whether PUC’s interpretation has been preempted by federal law. We conclude that it has. Accordingly, on a petition for a writ of review filed by SCE, we annul certain PUC decisions to the extent they purport to interpret Public Utilities Code section 399.25 to permit a requirement that transmission owners pay the up-front costs of network upgrades.

BACKGROUND

The California Energy Security and Reliability Act of 2000 (Assem. Bill No. 970 (1999-2000 Reg. Sess.)), contains a legislative declaration that “[i]n recent years there has been significant growth in the demand for electricity in the state due to factors such as growth in population and economic activities that rely on electrical generation,” and that “[a]s a result, California faces potentially serious electricity shortages over the next two years, which necessitates immediate action by the state.” (Stats. 2000, ch. 329, § 2(a), (c).) On November 2, 2000, PUC filed Investigation No. 00-11-001, instituting investigation into implementation of Assembly Bill No. 970.

In 2002, California Senate Bills Nos. 1038 and 1078 (2001-2002 Reg. Sess.), both addressing the state’s need for generation of renewable electrical energy (such as wind, solar, and geothermal energy), were signed into law. (Stats. 2002, chs. 515, 516.) This legislation, which included Public Utilities Code section 399.25, called upon the state to increase its electrical generation from renewable sources by at least 1 percent a year until those sources comprise 20 percent of the energy procured by public utilities such as SCE. In early 2003, as part of Investigation No. 00-11-001, PUC requested “Comments on Procedural Coordination of Renewables Procurement, Transmission Planning and Statutory Interpretation of Pub. Util. Code, § 399.25.” 1 ((Feb. 25, 2003) *1306 <http://www.cpuc.ca.gov/WORD_PDF/RULENGS/23849.doc> [as of Aug. 17, 2004].)

On July 10, 2003, PUC issued Decision No. 03-07-033, captioned Interim Opinion on Procedures to Implement Public Utilities Code Section 399.25 (hereafter Interim Opinion) [2000 Cal.PUCLEXIS 1128]. Among the many topics covered, the Interim Opinion discussed the financing of upgrades to the grid network. The Interim Opinion provides in part:

“By way of definition, we refer to transmission facilities needed to bring power from the plant to the first point of interconnection with the existing transmission grid as ‘gen-ties.’ We refer to facilities needed to upgrade the existing transmission grid to ensure reliable electric service and full delivery of a generator’s output with the added generation as ‘network’ or ‘system’ upgrades. Under current FERC policy, new generators absorb gen-tie costs as part of the cost of producing power. With respect to network upgrade costs, current FERC policy requires a new generator to fund network upgrades for which the new generator is the ‘but for’ causation. However, the transmission owner (e.g., the [public utilities]) must credit back those costs, with interest, in monthly payments amortized over a number of years beginning when the new generation is available to the grid. Thus, the renewable developer knows that it currently must finance the needed transmission network upgrades, but will receive that money back with interest once it comes on-line.
“The language of § 399.25 does not modify the developer’s cost responsibility for either gen-ties or network upgrades. The former continues to be funded by the new generator and the latter by ratepayers, under current FERC policies. The difference is that § 399.25 (b) provides the possibility of ‘rolled-in ratemaking’ for network upgrade costs, which we define to mean that the developer would not have to fund network upgrades upfront and await recovery of those costs over time. Instead, ratepayers would fund those costs—either in transmission rates (authorized by FERC) or in retail rates authorized by this Commission. More specifically, the utilities would finance *1307 these transmission projects as part of rate base, with the associated costs recovered in rates. Under this scenario, ratepayers assume the financial risk of the generation projects actually coming on line.” (Interim Opn., supra, pp. 10-11, fns. omitted [2000 Cal.PUCLEXIS 1128, pp. *15-*17].)

The Interim Opinion also addresses the responses of SCE and Pacific Gas & Electric (PG&E) to PUC’s previous request for comments. In these comments, SCE and PG&E argued that federal preemption precludes an interpretation of Public Utilities Code section 399.25 that requires the utilities to pay up front for the costs of network upgrades. The Interim Opinion states: “PG&E and SCE are simply incorrect .... In this regard, we note that nowhere in their comments do either PG&E or SCE cite to a specific federal law or FERC rule that articulates this FERC policy as a legally binding requirement. Nor could they do so if they tried, because the FERC policy in question, which requires the developers of new generation to front transmission system network upgrade costs and to recover these costs in credits after the new upgrade is available to the grid, is precisely that—a policy; it is neither a law nor a rule, [f] The various FERC decisions cited in PG&E’s comments reflect various instances in which that policy was implemented. 2 However, the implementation by a federal agency such as FERC of a particular policy preference in various individual cases does not amount to the establishment of federal ‘law’ that supports the application of the doctrine of federal preemption, and the states must be presumed to be able to implement their own alternative policy preferences in such matters unless federal law expressly or impliedly mandates otherwise.” (Interim Opn., supra, pp. 25-26 [2000 Cal.PUCLEXIS 1128, pp. *38-*39].)

SCE filed an application for rehearing. On October 2, 2003, the application was denied in Cal. P.U.C. Decision No. 03-10-020, captioned “Order Denying Rehearing of Decision 03-07-033” (hereafter Order Denying Rehearing) [2000 Cal.PUCLEXIS 1145]. The Order Denying Rehearing notes that 10 days after issuance of the Interim Opinion,

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Southern California Edison Co. v. Public Utilities Commission, 18 Cal. Rptr. 3d 435, 121 Cal. App. 4th 1303 (Cal. Ct. App. 2004).

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