GFB/TOM/hkr 4/17/2002

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Application of Pacific Gas and Electric Company for Authorization to Sell Electric Distribution and Certain Transmission Facilities Serving the City of Patterson, the Community of Crows Landing, and Certain Adjacent Rural Areas to the Turlock Irrigation District Pursuant to Public Utilities Code Section 851 and For Approval of Service Area Agreement Under Public Utilities Code Section 8101.

Application 02-01-012 (Filed January 4, 2002)

SCOPING MEMO AND RULING OF ASSIGNED COMMISSIONER

AND ADMINISTRATIVE LAW JUDGE

This ruling addresses the category, need for hearing, scope and schedule for this proceeding and designates a principal hearing officer in accordance with Article 2.5 of the Commission Rules of Practice and Procedure (Rules).

1. Summary

On January 4, 2002, Pacific Gas and Electric Company (PG&E) filed this application for authorization pursuant to Section 851¹ to sell electric distribution and certain related transmission facilities located in a portion of the west side of Stanislaus County, including the City of Patterson, the Community of Crows Landing, and certain adjacent rural areas (the Westside Zone)² to Turlock Irrigation District (TID); for approval of a new service area agreement pursuant to Section 8101; and for approval of certain related transactions.

TID owns and operates an electrical transmission and distribution system in portions of Merced, Stanislaus, and Tuolumne Counties. The Commission has previously approved two service area agreements that defined the areas in which PG&E and TID could provide electrical service.³

The facilities that PG&E proposes to sell to TID include all electric distribution circuits and associated distribution facilities, meters, streetlights and control and protective devices in the Westside Zone, associated easements and rights of way, the Patterson substation facilities, a portion of the Salado substation facilities, a portion of transmission poles with distribution underbuild, and a few associated transmission poles that would otherwise be stranded. TID will rent certain PG&E real property at the Patterson substation and the Salado substation facilities.

PG&E proposes to sell these facilities to TID at the price of $15,111,825.00. PG&E requests that the Commission allocate the gain on sale, which would amount to approximately $2.9 million net after taxes, to PG&E's shareholders pursuant to the Redding II decision, D.89-07-016 (Redding (II) and D.01-06-007.

PG&E, TID, the Patterson Irrigation District (PID), and the Westside Power Authority (WPA)⁴ have agreed to enter into a new 25-year service agreement (proposed agreement) to replace the 1953 agreement between PG&E and TID. PG&E alleges that this agreement will resolve a number of disputes concerning TID's, PID's, and WPA's efforts to serve PG&E customers. The proposed agreement provides that TID would exclusively serve the eastern portion of TID's existing territory, the Don Pedro Zone, in which PG&E has no customers or facilities. WPA will serve Westside Zone customers, but TID will operate the electric distribution system on behalf of WPA. The proposed agreement also makes certain adjustments to the northern boundary of TID's service area as defined in the 1953 agreement.

The Merced Irrigation District (MED), the Modesto Irrigation District (MOD), and the Commission's Office of Ratepayer Advocates (ORA) filed protests to the application. A summary of these protests follows:

· Merced Irrigation District - MED has signed a settlement agreement with TID, which appears to have resolved all disputed issues between MED, PG&E and TID.

· Modesto Irrigation District - MOD contends that the proposed agreement between PG&E, TID, PID, and WPA will extend TID's service area into territory designated as MOD's service area under Public Utilities Code Section 9610.⁵ MOD argues that while PG&E and TID may, with Commission approval, agree to allocate certain territory within their joint service area to each other for electric service, the Commission does not have jurisdiction to grant one irrigation district the right to provide retail electric service within the service area of another irrigation district.

MOD also claims that the expansion of TID's territory under the proposed new agreement between TID and PG&E violates a 1933 agreement between MOD and TID regarding service areas (the 1933 agreement). According to MOD, in the l933 agreement, TID agreed not to provide electric distribution service to areas north of the Tuolumne River.

· Commission's Office of Ratepayer Advocates - ORA's protest raises two issues:

(1) that PG&E's application has not provided sufficient information to support PG&E's conclusion that the sale of its facilities to TID and the proposed agreement are in the public interest and will benefit ratepayers, and

(2) if this application is approved, the gain on sale should be placed in PG&E's real property gain/loss on sale memorandum account, so that the allocation of the funds may be determined in a future rulemaking or broader proceeding.

The following parties have intervened in this proceeding:

_ Latino Issues Forum (LIF)/Planning and Conservation League (PCL) Both LIF and PCL contend that TID has not complied with the requirements for public benefits and low-income programs under Sections 385 and 386. LIF and PCL state that TID has improperly used public benefits funds to subsidize baseline rates and peak load reduction programs. LIF also contends that since TID's low-income programs, including community outreach, are inadequate, many low-income customers in TID's service area do not have access to affordable electricity. LIF states that the Commission should not permit TID to enlarge its service area until TID has complied with Sections 385 and 386.

_ Laguna Irrigation District (LID) - LID has previously received assistance from TID with the operation of electric distribution systems and an operations and maintenance plan and is concerned that the proposed agreement may prevent or interfere with collaborative projects or mutual aid between TID and other irrigation districts. LID also contends that the valuation of the PG&E facilities to be sold to TID could affect the valuation of similar PG&E facilities that LID is attempting to condemn in eminent domain litigation against PG&E.

¹ All code references are to the Public Utilities Code, unless otherwise specified.

² The Westside Zone covers roughly 225 miles.

³ The Commission approved the first agreement between PG&E and TID in 1941 in Decision (D.) 34796. The Commission approved a subsequent service area agreement (the 1953 agreement) in D.49937 (1954).

⁴ WPA is a joint powers agency consisting of TID and PID.

⁵ MOD's protest states that under Public Utilities Code Section 9610, each of the areas that Turlock seeks to add to its service area are within the electric service area of both MOD and PG&E.