CONTACT: Dianne Dienstein September 3, 1997 CPUC - 74
415-703-2423

CPUC Allows PG&E's Auction Of Three Generation Plants

The California Public Utilities Commission (CPUC) today authorized Pacific Gas & Electric (PG&E) to begin an auction of three fossil-fuel electric generation plants.

PG&E may not accept final bids, however, until the Commission has approved a 'Mitigated Negative Declaration,' and the Federal Energy Regulatory Commission has approved the form of agreement with the Independent System Operator. The sale will be subject to final CPUC approval upon review of the auction/sale agreements.

PG&E proposes to auction and sell its Morro Bay Power Plant, Moss Landing Power Plant, and Oakland Power Plant. The proposal has been made pursuant to the Commission's requirement for PG&E to divest itself of at least 50 percent of its fossil generating assets so that it does not continue to dominate the electric services market which is scheduled to become competitive January 1, 1998. Combined generating capacity of the plants is 3,632 megawatts - 45 percent of PG&E's fossil generation capacity.

PG&E proposes to continue to own, and reserve easements for, the transmission facilities and lines from the plants, but transfer the real and personal property now used for operation of the plants.

The utility plans to sell the plants in a competitive open auction bid process in two stages: first by advertising the proposed sale widely, providing an information package and soliciting statements of interest and qualification from potential bidders. Based on its assessment of each bidder's financial and operational qualifications and bid offer, PG&E will then select 5 - 10 bidders for each plant for a final bidding process. Bidders could bid on any combination of the plants. PG&E could reject all

bids, if none is acceptable, and keep the plants if any agency reviewing the transaction imposes unacceptable conditions to the transfer, or sell each plant to the highest bidder, subject to Commission approval. If, after the auction, PG&E chooses

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PG&E CAN BEGIN AUCTION OF POWER PLANTS 2

to keep one or more of the plants, it will have to show that doing so is in the public interest.

In a July 31, 1997 ruling issued by Commission President P. Gregory Conlon

and Commissioner Richard A. Bilas, who are jointly assigned to the case, they conclude that analysis of draft initial environmental review studies shows no substantial evidence that the proposed plant sales will generate significant environmental impacts that cannot be mitigated. PG&E and any entity purchasing a plant(s) would have to agree to revisions in the project plans that would avoid or mitigate significant environmental effects to a less than significant level. Their ruling directed the CPUC Energy Division to prepare a Mitigated Negative Declaration and that was issued to the public and affected agencies for comment on August 25 with comments due September 25. The Energy Division will then prepare a Final Mitigated Negative Declaration for consideration and adoption by the five Commissioners.

PG&E will require buyers to agree to limit future use of a plant to low-occupancy commercial and industrial uses to limit PG&E's future environmental liabilities at a site, and the associated costs to its ratepayers, and to avoid unnecessary risk of human exposure.

Of important concern to the Commission is that facilities needed to maintain electric supply reliability remain available and operational. Such facilities are known as "must run" facilities. The standards used to determine whether facilities are must run are comparable to those of the Western Systems Coordinating Council and North American Electric Reliability Counsel. The Moss Landing and Oakland plants are "must run," Morro Bay is not.

The Commission is intent that the sale of the plants facilitate competition in the electric market and reduce or eliminate the potential for ownership of the plants to lead to dominance in the market.

The Commission will continue to regulate non-nuclear generation assets public utilities owned prior to January 1, 1997 until those assets have been subject to market valuation, such as the PG&E plants will be, for instance, when sold through the auction.