2. Background

San Diego Gas & Electric Company (SDG&E) seeks Commission authorization pursuant to Section 8511 to grant Citizens Energy Corporation (Citizens) an option to lease 50% of the transfer capability rights along the Imperial Valley section (the Border-East Line) of SDG&E's Sunrise Powerlink Transmission Project (Sunrise). The lease would be executed under the terms and conditions of a Development and Coordination Agreement (DCA) entered into by SDG&E and Citizens on May 11, 2009. The term of the lease would be 30 years.

On December 18, 2008, in Decision (D.) 08-12-058, the Commission granted SDG&E's application for a Certificate of Public Convenience and Necessity (CPCN) to construct Sunrise. As approved by the Commission, Sunrise consists of a new electric transmission line of approximately 120 miles between the existing Imperial Valley and Sycamore Canyon Substations, a proposed new Suncrest Substation, and other system modifications needed in order to reliably operate the new line. Sunrise comprises three separate links, including the Imperial County 500 kilovolt (kV) link, or the Border-East Line, that traverses approximately 30 miles. SDG&E estimates that the in-service date for Sunrise is June 2012. It is this 30-mile Border-East line that is the subject of this application.

To facilitate cooperative development and shared ownership of Sunrise in the Imperial Valley, SDG&E began negotiations with other developers before the CPCN was granted. In March 2006, SDG&E signed a memorandum of agreement with the Imperial Irrigation District (IID) and Citizens. Although IID terminated its interest in the co-development of Sunrise in November 2007, SDG&E continued to negotiate with Citizens. SDG&E and Citizens executed the DCA on May 11, 2009.2

Pursuant to the terms of the DCA, if Citizens exercises its lease option before the in-service date for Sunrise, Citizens will pay SDG&E an estimated
$83 million as prepaid rent to lease the entitlement to transfer capability rights over the Border-East Line. The rent payment is the proportionate share of SDG&E's actual cost to develop, design, permit, engineer, and construct the Border-East Line. Citizens and SDG&E will treat this payment as a loan for tax purposes to the extent that it exceeds accrued rent. SDG&E will use the prepaid rent to finance the development, design, and construction of the Border-East Line. Citizens will recover its costs through Federal Energy Regulatory Commission (FERC)-approved transmission rates.

Citizens is a non-profit Massachusetts corporation that is exempt from federal taxes under Section 501(c)(4) of the Internal Revenue Code. It is a
FERC-jurisdictional public utility whose commercial subsidiaries support social and charitable programs in the United States and abroad. Citizens owns 100% of a for-profit holding company that in turn wholly owns several for-profit subsidiaries, including Citizens Business Enterprises.

In 1985, Citizens began its electricity industry operations by buying power from utilities with surplus generating capacity, reselling the excess power to other utilities, and using the profits to help low-income families pay their electricity bills. If the DCA is approved, Citizens will utilize a limited liability company, which will be a subsidiary of Citizens Business Enterprises, to carry out the ultimate lease transaction with SDG&E. Then Citizens will donate 50% of its after tax profits relating to its participation in Sunrise to assist low-income and elderly electric consumers in the Imperial Valley─where the Border-East Line is located.

Only two responses were filed to SDG&E's application: One by Utility Consumers' Action Network (UCAN) and the other by the Division of Ratepayer Advocates (DRA). Although both UCAN and DRA represent ratepayers, their positions differed in the way they viewed the potential benefits from the Citizens lease. UCAN protested the application on the grounds that ratepayers may not benefit from this transaction, and in fact may be worse off; and DRA supported the transaction, noting that the benefits to low-income persons in Imperial County resulting from Citizens' agreement to donate 50% of its profits from Imperial County operations to social programs could amount to millions of dollars. DRA also supports the transaction because it provides ratepayers with rate stability and protection against possible capital cost increases. DRA, however, asks that the Commission expressly hold that its approval is based on the unique public benefits presented by Citizens participation in Sunrise and that the decision not be precedential.

DRA, however, did raise a concern that if SDG&E involves other participating interests in Sunrise, SDG&E could directly or indirectly evade or circumvent a 2007 settlement before FERC (FERC TO3 Settlement) where SDG&E agreed not to file for any FERC transmission incentives related to Sunrise.3 DRA supports a one-time exception to this settlement in support of the Citizens lease. Finally, DRA believes that SDG&E should be required to file an advice letter for approval of the executed lease if and when Citizens exercises its lease option.

SDG&E filed a reply to UCAN's protest and DRA's response. SDG&E disputes the allegations made in UCAN's protest and contends that none of the issues raised by UCAN constitute grounds upon which to reject the application. With respect to DRA's response, SDG&E denies that the DCA is intended to circumvent its commitment in the FERC TO3 Settlement not to apply for transmission incentives. However, SDG&E agrees that each transmission development project that SDG&E brings to the Commission for approval, including those related to Sunrise, should be considered separately on its own merits. Thus, SDG&E agrees that, as appropriate, it would file a separate application pursuant to Section 851 for each additional participant. SDG&E also agrees with DRA's request to file the final lease with the Commission pursuant to an advice letter, but wishes to work with DRA to come up with a procedure that is consistent with the terms of the DCA.

UCAN initially took the position that evidentiary hearings were required. After reviewing data request responses, UCAN informed the then-assigned Administrative Law Judge (ALJ) that it no longer believed hearings were necessary. The Joint Scoping Memo and Ruling of Assigned Commissioner and Assigned Administrative Law Judge (Scoping Memo) confirmed that evidentiary hearings were not required and received into evidence prepared testimony and exhibits sponsored by SDG&E, Citizens, and UCAN. SDG&E, Citizens, DRA, and UCAN filed opening briefs. SDG&E, Citizens, and UCAN filed reply briefs.

1 Unless otherwise stated, all code citations are to the Public Utilities Code.

2 D.08-12-058 and D.09-07-024.

3 As explained by DRA, on December 12, 2006, in FERC Docket No. ER07-284-000, SDG&E applied under Section 205 of the Federal Power Act to implement a new Transmission Owner formula rate mechanism (FERC TO3 Settlement Agreement). After several parties including DRA intervened, SDG&E made an offer of settlement on March 28, 2007. FERC approved this offer in unpublished letter orders dated May 18 and July 11, 2007. Under that settlement, SDG&E agreed not to file for any transmission incentives related to Sunrise.

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